Plaintiffs v First Defendant

2 The parties have filed written submissions. The authority relies on the affidavit and exhibits of Kathryn Anne Howard, sworn 8 December 2020.

3 The authority contends that the claimants and the second defendant ('purchaser') should pay its costs of the proceeding on the standard basis up to 4pm on 9 September 2020 and thereafter on an indemnity basis.

4 The claimants contend that they should pay the authority's costs of the proceeding on the standard basis. The purchaser resists any order for costs against it.

5 Special condition 30 of the sale contract provides:

In this special condition 30, 'Compensation' means the full monetary amount of compensation which the Vendor receives from [the authority] as a result of its claim for compensation under section 106 of the [PE Act] in respect of Public Acquisition Overlay - Schedule 1.

(a) Subject to Settlement occurring and with effect from the Settlement Date, the Vendor assigns to the Purchaser the Vendor's right, title and interest in the Compensation.

(b) To give effect to Special Condition 30.2(a), the:

(i) parties will set up a new bank account in the joint names of the Vendor and the Purchaser with a bank mutually agreed by the parties where both parties are signatories of the account (New Account);

(ii) Vendor will authorise and direct VicRoads to pay the Compensation into the New Account;

(iii) parties acknowledge and agree that once the Compensation is paid into the New Account it is held on trust for the Purchaser and is the irrevocable property of the Purchaser; and

(iv) Vendor authorises the Purchaser to transfer the Compensation from the New Account to its own bank account and it will sign any necessary documents to facilitate this transfer.

(c) After the date on which Settlement occurs, the parties agree that:

(i) the Purchaser may act on the Vendor's behalf in respect of the Vendor's claim for Compensation (Compensation Claim) and, in this regard, the Purchaser will have the full carriage of the Compensation Claim including without limitation doing all things necessary and convenient to prepare, lodge, and pursue the Compensation Claim and appointing its own consultants to assist with the Compensation Claim;

(ii) the Vendor must:

(A) not, and must procure that its consultants and/or the Vendor's Legal Practitioner do not, take any action in respect of the Compensation Claim including without limitation settling or finalising the claim or accepting any amount of Compensation from [the authority] unless it obtains written instructions from the Purchaser to do so;

(B) at the Purchaser's cost:

(1) promptly provide to the Purchaser copies of all documents, notices or correspondence the Vendor received in respect of the Compensation Claim;

(2) do all things reasonably required by the Purchaser in respect of the Compensation Claim including executing any necessary documents within 7 days of written request from the Purchaser.

(d) The Vendor indemnifies the Purchaser against all actions, claims, proceedings, demands, liabilities, losses, damages, expenses and costs (including legal costs on a full indemnity basis) that may be brought against the Purchaser or which the Purchaser may pay, sustain or incur as a direct or indirect result of any breach or non-performance of this special condition 30.2 by the Vendor.

(e) If the Vendor breaches this special condition 30.2 prior to Settlement, the Purchaser may end this Contract by written notice to the Vendor with immediate effect. General Condition 27.1 does not apply to this special condition.

6 The claimants made a claim for compensation on 9 April 2018. On 11 July 2018, they referred the disputed claim to the Court for determination.

7 On 14 September 2018, the authority filed particulars of offer, and on 17 June 2019 amended particulars of offer. The authority did not offer any compensation to the claimants contending that they had not satisfied the requirements of s 106(1) of the PE Act for the award of compensation under pt 5.

8 By a summons filed 27 May 2019, the authority sought to join the purchaser as a party to the proceeding and applied for the determination of various questions relating to the assignment of the proceeds of the claim for compensation as preliminary questions under r 47.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).

9 On 6 June 2019, Clayton JR ordered that the purchaser be joined as a party to the proceeding.

10 On 22 July 2019, Richards J dismissed the authority's application for the determination of preliminary questions.[2]

11 On 26 August 2020, the authority made a Calderbank offer ('offer') to the claimants.

12 The offer made by the authority in full and final settlement was:

(b) $126,763 for professional expenses under s 101 of the PE Act;

(c) interest under s 60 of the Supreme Court Act 1986 (Vic); and

13 The offer was open for acceptance until 4pm on 9 September 2020, and stated that it was made in accordance with the principles in Calderbank v Calderbank.[3] It stated that if the claimants did not accept the offer and obtained a judgment equal to or less than the offer, the authority would seek an order for payment of its costs on an indemnity basis from the expiration of the offer.

14 On 3 September 2020, the authority sent a second letter referring to its outline of submissions and suggesting that the most the claimants could hope to receive by way of compensation was $4 million.

(a) the Court has a wide discretion as to costs under s 91(1) of the Land Acquisition and Compensation Act 1986 (Vic) ('LAC Act');

(b) the factors identified in s 91(1) favour the award of costs on an indemnity basis from the expiration of the offer;

(c) the claimants' failure to accept the offer necessitated a long and expensive trial;

(e) the claim was advanced on a wholly hypothetical basis without reference to the actual amount for which the subject land was sold;

(f) the purchaser controlled the litigation under cl 30.2(c) of the sale contract and had de facto conduct of the litigation; and

(g) the first plaintiff is in administration reinforcing the need for the purchaser to be held jointly and severally liable for the authority's costs.

(a) it was reasonable for them not to accept the offer;

(b) the amount of the offer was derisory as the expert evidence showed that the value of the subject land had been reduced by at least $19 million;

(c) the offer was based on a fundamental misconception that the claimants could not recover compensation at a rate exceeding the amount offered;

(d) the offer was made two weeks before the commencement of the trial in circumstances where the authority had offered nil in its previous particulars of offer; and

(e) the offer was designed to trigger an entitlement to indemnity costs.[4]

(b) it was an unwilling participant in the litigation and was joined without its consent;

(c) it made no claim, and did not receive an offer from the authority;

(d) its conduct of the trial was reasonable and did not extend the duration of the trial or increase any other party's costs; and

(e) it should not be liable for any costs incurred by any other party before it was joined to the proceeding.

(1) In any proceedings under this Part,...the Court...may award such costs as it thinks proper but in making an order for costs must, if...the Court considers it appropriate to do so, take into consideration -

(a) the amount of compensation awarded by the...Court as compared with the amount (if any) offered by the Authority; and

(b) the extent to which, in the opinion of the...Court, the proceedings have arisen from, or been affected by -

(i) unreasonable conduct on the part of the claimant or the Authority; or

(ii) the failure of the claimant to give adequate particulars of the claim or supply supporting material when required to do so; or

(iii) an excessive claim by the claimant; or

(iv) an unduly depressed offer by the Authority; and

(c) any other matters which under this Act are to be taken into account in determining the allocation of costs.

(2) The Court may make an order with respect to the assessment of costs in the same manner as it may in respect of any other matter before the Court.

...

(4) All costs payable to the Authority may be set off by it against any compensation awarded or costs payable to the claimant.

20 Section 91(1) gives the Court a wide discretion to award costs 'as it thinks proper'.[5] It identifies a number of matters for consideration when exercising that discretion.[6] The considerations are not exhaustive.[7]

21 The award of costs is considered by reference to the factors listed in s 91(1) as appropriate. As the offer is a Calderbank offer, I will also consider the additional factors considered in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[8]

The amount of compensation awarded by the Court as compared with the amount offered by the authority (s 91(1)(a))

22 The authority did not make an open offer of compensation to the claimants. I have determined that they were not entitled to compensation. The offer of over $6.8 million was substantial, and greatly in excess of the nil result obtained by the claimants.

The extent which, in the opinion of the Court, the proceedings have arisen from, or have been affected by, unreasonable conduct on the part of the claimants or authority (s 91(1)(b)(i))

23 Apart from the failure to accept the offer, all parties acted reasonably in the conduct of the proceeding.

The stage of the proceeding at which the offer was received

24 When the offer was received almost all of the affidavits and the documentary evidence were complete. The proceeding was at an advanced stage, and the parties' respective positions were well known. The claimants had instructed experienced senior and junior counsel, and had the benefit of expert witnesses. Joint reports of expert witnesses had been completed. The purchaser and the claimants were in an excellent position to evaluate the merits of the offer.

25 The offer allowed the claimants two weeks to accept the offer. There was time for the purchaser and the claimants to consider the authority's opening submissions filed on 31 August 2020. The purchaser and the claimants filed their opening submissions on 4 September 2020. The trial commenced on 9 September 2020. The time allowed to consider the offer was reasonable and sufficient to decide whether to accept the offer.

26 The authority's position was that the claimants were not entitled to any award of compensation. It nevertheless made an offer of over $6.8 million. I consider that the offer represented a real compromise by the authority.

The offeree's prospects of success assessed at the date of the offer

27 At the date of the offer, the parties were well advised and the prospects of success were capable of evaluation. It was apparent that there were significant legal obstacles which the claimants had to overcome if they were to be successful. They had existed from the outset. While the parties developed their submissions and arguments at the trial, there was nothing that occurred during the trial that altered the underlying issues.

28 I have determined that the claimants' claim for compensation did not meet the threshold requirements imposed by ss 98(1) and 106(1) of the PE Act. I have considered the outcome in the light of the substantial sum offered by the authority by way of compromise. I find that this factor favours the award of indemnity costs.

The clarity with which the terms of the offer were expressed

29 The offer was clearly expressed. Although the claimants challenge the explanation given in the offer, there was no uncertainty as to what they would receive if the offer was accepted.

Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it

30 The offer referred to the principles in Calderbank,[9] and made it clear that the authority would seek costs on an indemnity basis if the claimants were unsuccessful.

The extent to which, in the opinion of the Court, the proceedings have arisen from, or been affected by, an excessive claim by the claimants (s 91(1)(b)(iii))

31 In 15 Lorimer Street Pty Ltd v Secretary, Department of Infrastructure (No 2), Byrne J described the word 'excessive' in the context of s 91(1)(b)(iii) as plainly meaning something more than that the sum claimed is greater than the amount awarded.[10] The word 'excessive' in s 91(1)(b)(iii) had a 'pejorative connotation' in the sense that the sum claimed exceeded the sum awarded to a degree which was unreasonable or worthy of criticism. This was not only a function of the difference between the sums but also the reason for the difference.[11]

32 The claimants initially sought compensation of $25,110,000 and professional expenses of $126,763. They reduced the amount of compensation sought to $22,290,000 by the commencement of the trial, and pressed the claim for expenses.

33 The claimants' position presupposed that they could meet the threshold requirements of pt 5, and that the authority was wrong to contend otherwise. I have found that the claimants could not show that they had suffered a financial loss, or that the loss that they claimed was the natural, direct and reasonable consequence of the reservation under s 98(1) of the PE Act. They could not show that they sold the subject land at a lower price than they might reasonably have expected to get if part of the subject land had not been reserved as required by s 106(1) of the PE Act.

34 The claim disregarded the unusual and extraordinary circumstances of the case and was for that reason excessive. Those circumstances were the sale of the subject land at a price well below market value; the assignment of the compensation claim by the claimants to the purchaser, and the simultaneous extinguishment of the parties' rights under an existing commercial contract for the development of the subject land.

The extent to which, in the opinion of the Court, the proceedings have arisen from, or been affected by an unduly depressed offer by the authority (s 91(1)(b)(iv))

35 The authority did not make an open offer of compensation. Its position was upheld by the Court. The authority's offer was over $6.8 million, and was greatly in excess of the ultimate result. It was not unduly depressed.

36 Consideration of the factors set out in s 91(1) of the LAC Act and those listed in Hazeldene's Chicken Farm favours the award of indemnity costs as sought by the authority. While some factors are neutral, there is no factor that supports the costs order sought by the claimants. It was unreasonable for the claimants not to accept the offer when there was a significant risk that they would not satisfy the threshold requirements of pt 5 of the PE Act. There is no reason why indemnity costs should not be ordered against the claimants from the expiration of the offer as sought by the authority.

37 The offer of over $6.8 million was substantial and even generous given the authority's overall position. It was not derisory or insignificant. The valuation evidence left no doubt that the subject land had been sold at a gross undervalue. It was self-evident that the assignment by the claimants of the proceeds of compensation to the purchaser would pose a significant obstacle to the success of the claim. It was also plain that the sale of the land privately to the purchaser would be a problem particularly given the pre-existing commercial relationship between the claimants and the purchaser for the development of the subject land.

38 While the claimants criticise the explanation advanced by the authority in the offer, the purchaser and the claimants had the benefit of advice from their own counsel and experienced expert witnesses. They were well placed to make their own assessment of the prospects of success.

39 The offer involved a real and genuine element of compromise. It was a great deal higher than the authority's position at trial which was ultimately successful. The offer was not a nominal offer designed to trigger an entitlement to indemnity costs but a real attempt to settle the claim. When viewed in the circumstances of the case, it was unreasonable for it to be rejected.

40 While the offer was made two weeks before the commencement of the trial, it reflected a genuine attempt to resolve the proceeding without the need for a lengthy and expensive trial.

41 It is appropriate in my view to make a costs order against the claimants in the terms sought by the authority.

42 Under the sale contract, the claimants assigned their right, title and interest in the proceeds of compensation to the purchaser.[12] The claimants and the purchaser agreed that once the compensation was paid into a joint bank account, it was held on trust for the purchaser and became its irrevocable property.[13]

43 The claimants and the purchaser also agreed for the purchaser to act on the claimants' behalf in respect of the claim for compensation, and that the purchaser had the full carriage of the compensation claim including doing all things necessary to pursue the compensation claim.[14]

44 The claimants were excluded from any role in the conduct of the claim without written instructions from the purchaser. They undertook not to take any action, and to procure their consultants and solicitor not to take any action in respect of the compensation claim without written instructions from the purchaser. This included finalising or accepting any amount of compensation.[15] They were required to provide to the purchaser copies of all documents, notices or correspondence received in respect of the compensation claim; and to do all things reasonably required by the purchaser.[16]

45 The purchaser's exclusive control over the compensation claim was strengthened by two additional conditions:

(a) the claimants agreed to indemnify the purchaser on a full indemnity basis including legal costs in the event of any breach by the claimants of their obligations under cl 30.2;[17] and

(b) the purchaser could terminate the sale contract with immediate effect in the event of any breach of cl 30.2 by the claimants.[18]

46 It is clear that the purchaser was not only the assignee of the proceeds of the claim for compensation, but had full control over the commencement and conduct of the proceeding. Its control was exclusive. It was the effective decision maker and made the decision to reject the authority's offer.

47 Mr Carpenter said in his evidence that the purchaser had exercised its power under cl 30.2(c)(i) of the sale contract to pursue the compensation claim and the proceeding. He understood from cl 30.2(c)(ii) of the sale contract that the claimants were not to interfere in any action taken by the purchaser.[19]

48 The role of the claimants in the commencement and conduct of the proceeding was purely nominal and titular. This was not in question during the trial. The authority contended that a claim for compensation under pt 5 was not assignable and challenged the enforceability of some parts of cl 30.2. It was not ultimately necessary for me to decide these questions. For present purposes, it does not matter whether the purchaser's control over the proceeding was de facto or both de facto and de jure.

49 I make the following findings in relation to the role of the purchaser in the proceeding:

(a) the purchaser was the 'real party' in exclusive control of the proceeding in all respects;

(b) the purchaser was entitled to all of the proceeds of the claim for compensation;

(c) the purchaser was the controlling mind of the claimants;

(d) the purchaser actively conducted the proceeding in the name of the claimants;

(e) the purchaser's connection with the litigation was real, direct and material;

(f) apart from the fact that Mr Carpenter was a witness, and that the proceeding was conducted in their name, the claimants had no material role in the commencement or conduct of the proceeding;

(g) the claimants had no material interest in the success or failure of the proceeding because they had assigned the proceeds of claim to the purchaser;

(h) the purchaser paid the claimants' costs of the proceeding including legal and expert witness costs and expenses; and

(i) the purchaser made submissions at the trial that were supportive of the claimants' case. It did not question the witnesses.

50 The purchaser submitted that it was an unwilling participant in the proceeding. The authority submitted that at the hearing on 6 June 2019 the legal representative for the purchaser stated that while the purchaser was not entitled to any relief by the Court, it otherwise accepted that it was appropriate for it to be joined.[20]

51 It is not in doubt that the purchaser became a party in the litigation by court order at an early stage of the proceeding. The precise circumstances by which it became a party are of little ultimate significance.[21] It has remained a party to the proceeding ever since. It is not to the point that the purchaser's presence did not unduly add to the length of the trial, or that it behaved reasonably during the trial confining its role in its own name to making submissions supportive of the claimants. It had no reason to do more, as the claimants' counsel and legal advisers were acting at its direction.

52 It is true that the offer was directed to the claimants and not to the purchaser. Again this is of no consequence because the purchaser not the claimants controlled the disposition of the offer and had the power to decide whether to accept it. It made the decision that the offer was to be rejected, and the claim prosecuted at trial.

53 In my view, it is in the interests of justice for the purchaser to be held responsible for the costs incurred by the authority in defending the proceeding. The purchaser made the decision to bring the claim, and not to accept the offer. It would be unfair to the claimants if they were left solely responsible for the costs of the proceeding when their role was minimal and governed by their contractual obligations to the purchaser. The first plaintiff is in administration, leaving Mr and Mrs Carpenter to pay the costs. As I have said, the real party in exclusive control of the claim and the proceeding was the purchaser. It has principal responsibility for the authority's costs.

54 I will order that the authority's costs of the proceeding be taxed by the Costs Court on the standard basis up to 4pm on 9 September 2020 and thereafter on an indemnity basis and when taxed be paid by the purchaser and the claimants who shall be jointly and severally liable for the payment of the authority's costs. The order for costs made against the authority on 18 July 2019 shall be set off against the costs to be paid by the purchaser and the claimants.

BROMPTON LODGE PTY LTD (in administration) (ACN 004 458 833)

[1] Brompton Lodge Pty Ltd (in administration) & Ors v Head, Transport for Victoria [2020] VSC 797 ('Reasons').

[2] Brompton Lodge Pty Ltd v Roads Corporation [2019] VSC 490.

[3] [1975] 3 All ER 333 ('Calderbank').

[4] Citing Aljade and MKIC v OCBC [2004] VSC 351.

[5] Secretary to the Department of Transport v Provan's Timber Pty Ltd (No 2) [2020] VSCA 258, [37] (Tate, Kyrou, McLeish JJA) ('Provan's Timber); Kilpatrick v Head, Transport for Victoria (No 2) [2020] VSC 241, [41] (Garde J).

[6] Plunkett v Roads Corporation (No 2) [2019] VSC 230, [7] (Richards J).

[7] Provan's Timber (n 5); Mario Piraino Pty Ltd v Roads Corporation [1991] VicRp 90; [1991] 2 VR 534, 544 (Gobbo J).

[8] (2005) 13 VR 435 (Warren CJ, Maxwell P, Harper AJA) ('Hazeldene's Chicken Farm').

[10] (Supreme Court of Victoria, Byrne J, 24 April 1998) 2.

[11] Ibid. See also Secretary to the Department of Business and Innovation v Murdesk Investments Pty Ltd (No 2) [2012] VSC 586, [56] (Emerton J).

[12] Reasons [40]; Sale contract, cl 30.2.

[20] Transcript of hearing before Clayton JR on 6 June 2019, 3.8-3.13.

[21] An order for costs may be made against a non-party who has played an active part in the conduct of litigation and who has an interest in the subject of the litigation if the party to litigation is an insolvent or straw person. See Knight v FP Special Assets Ltd (1992) 174 CLR 178, 192-3 (Mason CJ, Deane J); 203 (Dawson J); Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75, 94-5 [31]-[32]; 1165 Stud Road v Power (No 2) [2015] VSC 735, [73]-[74] (Vickery J); Re Chambeyron Pty Ltd (No 2) [2017] VSC 410, [90]-[101] (Robson J); Carter v Caason Investments Pty Ltd [2016] VSCA 236, [11]-[12], [38] (Weinberg, Ferguson and Kaye JJA).