Primus Telecommunications Pty Ltd v CCP Australian Airships Limited

Supreme Court of Victoria|2003-05-09|Before: HABERSBERGER J.

PRACTICE AND PROCEDURE - Costs - Offer of compromise by plaintiff - Whether offer valid - Rule 26.08(2) of the Supreme Court Rules - Calderbank letter of offer by plaintiff during trial - Whether plaintiff could rely on that offer.

On 24 April 2003, I published my reasons for judgment in this proceeding. I found that the plaintiff was entitled to succeed in its claim against all four defendants in the sum of $400,000. On 6 May 2003, after hearing submissions from the parties on the question of the date from which interest on that sum should be calculated, I decided that the appropriate date was the commencement of this proceeding and not any of the earlier dates as sought by the plaintiff. Further, I decided that, as at 6 May 2003, the amount for interest which I was prepared to allow the plaintiff was the sum of $90,670. I then heard submissions from the parties concerning the question of costs.

On 16 January 2002, the plaintiff served an offer of compromise, which stated that:

"the Plaintiff offers to compromise the claim and counterclaim upon payment by the Defendants or any one of them to the Plaintiff of the sum of $375,000 plus interest."

By a facsimile sent the same day, the defendants' solicitors rejected the offer of compromise and, although it is not entirely clear it would appear that a counter offer was made to the effect that the defendants would settle if they received payment of their costs estimated at the sum of $75,000.

As the plaintiff has now obtained a judgment on the claim to which the offer related "no less favourable" to it than the terms of the offer, the plaintiff submits that it should be awarded the costs of the claim on a party and party basis up to and including 16 January 2002 and thereafter on an indemnity basis pursuant to r.26.08(2)(b) of the Supreme Court (General Civil Procedure) Rules 1996 ("the Supreme Court Rules").

Mr Nolan of counsel, who appeared for the plaintiff, submitted that r.26.08(8) of the Supreme Court Rules had no application because this was not a proceeding where "the amount of the debt or the damages was not in dispute but only the question of liability." In my opinion, this submission was correct because, apart from the fact that a counterclaim had been brought by the first defendant, CCP Australian Airships Limited, all of the defendants had pleaded in their amended defences in respect of the allegation of misleading and deceptive conduct that "in entering the agreement and/or paying the deposit, Primus did not take reasonable care in looking after its own interests ...". If the defendants had been successful on this issue, the amount of damages awarded to the plaintiff might have been reduced. This conclusion renders it unnecessary to embark on a consideration of the issue of whether "the plaintiff's offer was of a genuine compromise" within the meaning of r.26.08(8).

Mr Arthur of counsel, who appeared for the defendants, submitted that the form of the offer was defective and was not therefore an offer of compromise within the meaning of O.26 of the Supreme Court Rules. Mr Arthur submitted that the offer of compromise did not satisfy the requirement that the terms of the offer must be stated clearly and precisely because it was not clear what was meant by the words "plus interest" in the offer to settle for "the sum of $375,000 plus interest."

I accept that an offer of compromise must be in "unambiguously clear" terms leaving the offeree in no doubt as to what is being offered.[1] As Gillard J put it in MT Associates Pty Ltd v Aqua-Max Pty Ltd [No. 3][2]:

"However, one matter is clear. The offer has to be certain in its terms and capable of acceptance and enforcement. This means that the offer cannot be ambiguous or uncertain in its terms or involve further negotiation between the parties prior to the compromise being effected. The offer must be capable of being accepted thereby bringing into existence a binding contract."

On the other hand, this does not mean that the Court should view the wording of offers of compromise with excessive formality or technicality. The policy of O.26 is:

"to encourage a party to whom a fair and reasonable offer of compromise has been made, to accept the offer and bring the proceeding to an end."[3]

In my opinion, whilst it is no doubt preferable that an offer of compromise contain a figure for interest rather than the words "plus interest", I do not consider that this wording made this offer of compromise unclear or uncertain or incapable of enforcement. At the time the offer of compromise was made, the plaintiff's claim was for damages for breach of contract and/or damages for misleading and deceptive conduct. The claim based on the allegation of a total failure of consideration, which led to the argument concerning the date from which interest should be calculated, was not introduced into the pleading until well after the date of the offer of compromise. The prayer for relief included a claim for "interest pursuant to statute." In the circumstances, therefore, the reference to interest in the offer of compromise can only have been, and would have been understood by the defendants' legal representatives as, a reference to s.60(1) of the Supreme Court Act 1986. Thus, the defendants would have been in no doubt that the plaintiff was offering to settle the dispute if they agreed to pay $375,000 plus interest thereon at "the rate for the time being fixed under s.2 of the Penalty Interest Rates Act 1983 ... from the commencement of the proceeding." Ascertaining the amount of interest was, therefore, simply a matter of multiplying the appropriate rate for the time being by the appropriate number of days between the commencement of the proceeding and the agreed date of payment. Parties' legal representatives frequently reach agreement on the result of such a calculation. Failing that, the Court can perform the task for itself.[4]

The situation, therefore, is that, in accordance with my judgment, the defendants should have accepted this offer of compromise and thereby brought this litigation to an end. Not only would this have resulted in a significant saving in costs for both parties, it would also have saved valuable Court time, which is an increasingly scarce community resource.[5] Nothing that was said by Mr Arthur persuaded me that I should exercise the power in r.26.08(2) to "otherwise order." Mr Nolan pointed out that although Mr Arthur had submitted that it was not clear what was being proposed by the offer of compromise, there was no evidence from anyone on the defendants' side that they were confused by, or did not understand, the offer of compromise. Certainly, the exceedingly prompt reply rejecting the offer gives no indication of any uncertainty on the part of the defendants. The plaintiff is therefore entitled to an order that the defendants pay its costs to be taxed on a party and party basis up to and including 16 January 2002 and thereafter on an indemnity basis, and I will so order.

Even if I am wrong in concluding that the plaintiff's offer of compromise was valid, I am clearly of the view that pursuant to the broad discretion given to the Court under s.24(1) of the Supreme Court Act 1986 and r.63.02 of the Supreme Court Rules, I should make a similar order to that previously outlined. Rule 63.28(c) provides that costs in a proceeding may be taxed on an indemnity basis and whilst r.63.31 provides that the general rule is that costs should be taxed on a party and party basis, a "well established basis for making a special order for costs is where a party unreasonably refuses an offer to settle the case and ends up worse off by the judgment than if he accepted the offer."[6] I consider that the plaintiff, having made what in the circumstances was a fair and reasonable offer of settlement, should receive some benefit in terms of costs. As Mr Nolan submitted, the offer was made shortly after an unsuccessful mediation and approximately seven months prior to the trial. As a result of the defendants rejecting the offer, the plaintiff was forced to incur substantial costs in preparing for and running the trial, including bringing a witness from overseas. If these costs are taxed on a party and party basis, the plaintiff will be substantially out of pocket. In circumstances where, in accordance with my judgment, the defendants should have accepted the offer of settlement, it seems to me that it would be only just to order that the defendants pay the plaintiff's costs incurred since 16 January 2002 on a higher scale.

This was not the end of the argument because the plaintiff had an alternative less favourable submission. Shortly before 5.00 p.m. on 16 July 2002, after the conclusion of the second day of the trial, the plaintiff served a Calderbank[7] letter of offer in a further attempt to settle this matter. The letter, which was sent by facsimile, read as follows:

"We refer to the comments made by his Honour Justice Habersberger at the end of the hearing today. The Plaintiff is prepared to accept from one, some or all of the Defendants the total sum of $350,000 (inclusive of quantum and interest) plus party/party costs to date in full settlement of the claim and counterclaim. This offer remains open for acceptance until 4.00pm tomorrow (Wednesday 17 July 2002). Take notice that if the matter proceeds to judgment and the Defendants do not obtain judgment on terms more favourable than as set out in this offer, then the Plaintiff reserves the right to produce to the Court this and other related correspondence on the question of costs. This offer is a Calderbank offer."

The defendants' solicitors replied by a letter on the same day which included the notation "Time of transmission: 5.29 pm." It would appear, however, that the letter was faxed from counsel's chambers approximately one hour later than the stated time. That letter read as follows:

"We refer to above matter and advise that our clients are willing to settle the above proceeding on the following basis: 1. The Defendants will forthwith discontinue and withdraw their counterclaim with no order as to costs. 2. The Plaintiff will forthwith discontinue and withdraw its claim and pay the Defendants' costs of and incidental to this proceeding in the sum of $96,000. 3. The parties agree to negotiate an agreed statement to the media in relation to this matter. 4. The parties will consent to orders that the proceeding be struck out with a right of reinstatement. This offer will remain open for acceptance until 10.30 a.m. on Wednesday, 17 July, 2002. Please note that should your client fail to accept this offer and the judgment of the Court is more favourable to our clients than the offer, our clients will seek their costs of the proceeding from 10.30 a.m. tomorrow until the conclusion of the proceeding on a solicitor client or full indemnity basis."

The plaintiff, therefore, submitted that even if no order were made for the payment of its costs on an indemnity basis from 16 January 2002 there should be such an order from 17 or 18 July 2002. Mr Nolan submitted that this second offer of settlement represented a substantial saving for the defendants. The claim itself was reduced by $50,000, all interest was waived and there would have been many days of hearing saved. Given that the trial had started, Mr Nolan submitted that it was impractical to make an offer of compromise under O.26. He argued that the Court should take the offer made in accordance with the principles in Calderbank v Calderbank[8] into account when deciding whether to exercise the discretion to award costs on a higher scale from this later date, if it became necessary to consider the alternative submission.

Mr Arthur submitted that the Court should not allow the plaintiff to rely on the Calderbank letter of offer when an offer of compromise could have been made under the Rules. I do not consider this submission to be correct. In my opinion, the plaintiff was entitled to make a Calderbank offer at that stage of the trial. If an offer of compromise had been made, it would have been capable of acceptance by the defendants before the expiration of 14 days after service of the offer or judgment whichever was the sooner (r.26.03(4) of the Supreme Court Rules.) This would have meant that the defendants could still have accepted the offer of compromise at the end of the trial and such a consequence would not be fair to the plaintiff.

Alternatively, Mr Arthur submitted that the Calderbank letter of offer should not be taken into account on the question of costs because the period for acceptance of the proposal of just under 24 hours was not long enough. I reject that submission. In my opinion, notwithstanding that the trial was then running, the plaintiff gave the defendants more than sufficient time in which to consider the offer. I note that under the old payment into court provisions the practice seems to have been that the decision whether or not to accept the offer of settlement had to be made by the opening of court on the day after the payment in had occurred.[9] Certainly, costs were allowed up to that time and this practice appears to have been followed in the drafting of r.26.08(4). Moreover, as Mr Nolan pointed out, it ill behoved the defendants to complain about the time allowed by the plaintiff for acceptance of its offer of settlement when its counter-offer was said to only be open for acceptance for an even shorter time, namely approximately 16 or 17 hours. In my opinion, the plaintiff's time limit for acceptance was reasonable because the defendants had overnight, before Court the next day and the luncheon adjournment during which to consider the offer.

Therefore, if it had been relevant, I would have been prepared to make an order that the defendants pay the plaintiff's costs on a party and party basis up to and including 17 July 2002 and thereafter on an indemnity basis.

[1] Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154 at 160-1 per Tadgell JA

[3] Malliaros v Moralis [1991] VicRp 86; [1991] 2 VR 501 at 505 per McGarvie J. See also Henderson v Simon Engineering (Aust) Pty Ltd [1988] VicRp 77; [1988] VR 867 at 871-2 per Murphy J

[4] Whitehorse Properties Pty Ltd v Bond Brewing (NSW) Limited (1992) 28 NSWLR 17

[5] See Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 354-5 per Rogers CJ Comm D and Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154 at 164 per Hayne JA

[6] MT Associates Pty Ltd v Aqua-Max Pty Ltd [No. 3] [2000] VSC 163 at [49] per Gillard J

[7] See Calderbank v Calderbank [1976] Fam 93

[9] See, for example, Setka v John Holland (Constructions) Pty Ltd [1974] VicRp 57; [1974] VR 475 at 476 per Lush J

At a glance

Court

Decision date

Before

Source

Judgment (33 paragraphs)

Parties

Cases Cited (2)