Rivex Crane Hire Pty Ltd v Armquip Pty Ltd & Ors

2 The Rivex case against Armquip changed significantly since the proceedings were initially filed and the trial was confined to allegations of two breaches of the terms of the Sale Agreement[1] and as to an alleged misrepresentation.[2]

3 Rivex alleged loss and damage, but "reduced so as to only claim":[3]

(a) Loss of profits, both past and future, arising from the failure to sell the Peru borer business to the Plaintiff, which would have been derived from that business; and

(b) Loss of profits to the crane hire business from September 2016 onwards as a consequence of the failure to sell the Peru borer business to the Plaintiff, which arose as a consequence of the subsequent sale of the Peru borer business to a competitor which facilitated the competitor's entry into the region of the crane hire business which constituted the subject matter of the sale.

4 At trial, the Rivex case with respect to those claims failed comprehensively, in both its contract and misrepresentation claims, and in both claims in terms of liability and loss and damage.[4]

5 Except as otherwise indicated, the same terminology is used in these reasons as appears in the reasons for judgment on the substantive claims or the contents of the pleadings to which reference is made.

6 The Defendants now seek costs on an indemnity basis from the date of commencement of the proceeding or alternatively from 15 September 2017 or alternatively from 22 May 2018 on the following bases:

(1) The Defendant has obtained judgment more favourable than the terms of two settlement offers; and

(2) The Plaintiff's conduct in the proceeding unnecessarily prolonged the time and costs involved in the proceeding in contravention of sections 18, 19 and 22 of the Civil Procedure Act, in that:

(a) the Plaintiff made numerous allegations for which there was no basis and which should have been obvious to a party properly advised;

(b) the Plaintiff changed its case on numerous occasions which caused the defendants to incur unnecessary legal expenses. For example, according to the statement of claim dated 13 June 2017 the Plaintiff alleged that the Sale Agreement was partly written and partly oral. Further, it was an oral term of the Sale Agreement that the Defendants would not sell the Retained Assets to Southern Crane Hire. The Plaintiff alleged, amongst other things, that the Defendants breached the Sale Agreement in that they:

(i) were interested, engaged or involved in a wet crane hire business or undertaking within the Restraint Territory in the Restraint Period;

(ii) failed to give possession of the business assets to the purchaser in the same condition that those assets were in at the date of inspection;

(iii) failed to dispose of lifting machinery by no later than 30 September 2016 and specifically failed and refused to dispose of the Terex Franna 16 tonne crane registration NIMG681 and the Terex Franna 14 tonne crane registration SGS522;

(iv) during the Restraint Period purchased or otherwise acquired lifting equipment other than Peru vehicles within the Restraint Territory; and

(v) failed and refused to do what was reasonably necessary to introduce the purchaser to customers and provide reasonable assistance and advice about running the business for a period of three months from the completion date.

7 As a result of the allegations initially made by the Plaintiffs, the Defendants were required to respond to each of the allegations and had to subpoena nine people to attend Court to give evidence and to prepare witness outlines. However, three days prior to trial, on 31 January 2018, the Plaintiff abandoned the majority of its case by withdrawing the allegations to which reference has been made.[5] Moreover, on the first day of the trial, the Plaintiff amended its claim again by alleging, for the first time, that it was a term of the Sale Agreement that the Defendants failed to offer all of the Retained Assets to the Plaintiff. The Plaintiff also alleged, for the first time, that the Defendants represented that they would not do anything which would adversely impact upon the commercial interests of the Plaintiff once the Plaintiff took possession of the business. All of these claims failed.

8 Additionally, the Defendants rely on the following further matters going to the conduct of the proceedings by the Plaintiff more generally, namely:

(2) serving numerous subpoenas for production of documents of which none of the documents produced were relied upon by the Plaintiff;

(3) delaying filing its lay evidence and expert evidence;

(4) insisting on including numerous unnecessary documents in the Court Book;

(6) filing an amended statement of claim on the first day of the trial which caused the trial to be delayed for four days; and

(7) imprudently failing to accept numerous offers made in writing by the Defendants to settle the proceeding.

9 As to the final point, the Defendants rely explicitly on the Plaintiff's failure to accept and in rejecting the following offers:

(a) 15 September 2017 - the Defendants offered to resolve the proceeding on the basis that each party bear their own legal costs in full and final settlement of the plaintiff's claims ("the Calderbank Offer").

(b) 22 May 2018 - the Defendant offered to pay the sum of $40,000 inclusive of interest and costs in full and final settlement of the Plaintiff's claim ("the Offer of Compromise").

10 The Defendants outlined in detail in the Calderbank Offer why the Plaintiff's claims would fail. Notwithstanding the explanations, the Plaintiff chose to reject the offer and pursue the claims until a few days prior to the hearing when they were voluntarily abandoned. The Defendants submit that in light of the Plaintiff's rejection of the Calderbank Offer, the late abandonment of its claims and the fact that it has been wholly unsuccessful in this proceeding, the Plaintiff should pay the Defendants' costs of the proceeding on an indemnity basis. Plainly, it is contended, it was unreasonable to reject the offer in circumstances where all of the claims then pending were abandoned.[6]

11 In the alternative, the Defendants submit that the Offer of Compromise was made in accordance with Rule 26 of the Supreme Court (General Civil Procedure) Rules 2015 ('the Supreme Court Rules"). The Defendants have achieved a result that is more favourable than the terms of the Offer of Compromise. Accordingly, the Defendants contend that they are entitled to indemnity costs pursuant to r26.08(4).

12 Further, it is submitted that the Plaintiff's failure to accept the offers was not in conformity with the Civil Procedure Act on the basis of the matters to which reference has been made. Thus, the Defendants submit that in exercising the discretion to award costs, the Court should take into account the conduct of the Plaintiff outlined above.

13 The Plaintiff accepts that the Defendants are entitled to an order that their costs be paid on the standard basis, but not on an indemnity basis as contended by the Defendants. With respect to the Defendants' contentions with respect to the two offers the Plaintiff calls in aid the long accepted principle that in determining whether the rejection of an offer results in an order for costs to be taxed on an indemnity basis, the touchstone is one of reasonableness.[7]

14 As the Plaintiff observes, the first offer was made on or about the close of pleadings by letter dated 15 September 2017, which was some three months after the proceedings commenced on 13 June 2017. The first offer, the Calderbank Offer, allowed seven days within which to accept the offer. The offer proposed that the Plaintiff abandon its claims with each party bearing their own costs. There had, at that stage, been no interlocutory steps such as discovery or the issue of subpoenas. Expert opinion evidence had not been sought by either party at that stage.

15 The Plaintiff submits that its rejection of the Calderbank Offer was not unreasonable in all the circumstances of the case at that time. The offer was made, the Plaintiff says, in effect, at the commencement of the proceedings and at a point in time when it was too early for any meaningful consideration of an assessment of the merits of the offer. Further, the Plaintiff contends that the offer was not a genuine compromise but was derisory and called for a complete capitulation of its case. In Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) the court observed: [8]

There is authority to the effect that where the offer does not involve a genuine compromise, but is in fact either an invitation to capitulate or a derisory or nominal offer, it would not be unreasonable for the losing party to have rejected it.

Moreover, in Berrigan Shire Council v Ballerini & Anor (No 2), Callaway JA and Chernov JA described an offer for each side to bear their own costs and "walk away" as a not being an offer to compromise but rather a "demand to capitulate" or an "invitation to capitulate".[9] However, as this decision indicates, the position with respect to such an offer is dependent on the particular circumstances of each case.

16 The second offer, the offer of Compromise, was an offer pursuant to Rule 26 of the Supreme Court Rules. The offer was made on 22 May 2018 and provided for the Defendants to pay the sum of $40,000 inclusive of costs and disbursements. Rule 26.08(4) relevantly provides that:

Where an offer of compromise is made by a defendant and the plaintiff unreasonably fails to accept the offer and the claim to which the offer relates is dismissed or judgment on the claim is entered in favour of the defendant, then unless the Court otherwise orders... the defendant shall be entitled to an order against the plaintiff in respect of the defendant's costs...to be taxed on an indemnity basis.

17 In North West Melbourne Recycling Pty Ltd[10] I observed that the underlying policy in respect of offers of compromise is relevantly the same as that for Calderbank offers:

Discussing Calderbank offers (where the underlying public policy is considered to be relevantly the same for offers of compromise under Order 26), Mortimer J referred, in Shape Shopfitters, to the following statement by Goldberg in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2):

It is necessary to look at the genuineness of the offer, whether it was realistic, the point of time at which it was made and that whether, in all the circumstances, it was such a reasonable offer as required the offeree to give careful consideration to it. If, in all the circumstances, it was unreasonable for the offeree to reject the offer and not accept it then there are strong grounds for the Court ordering indemnity costs on the basis that the offeror has made a fair and reasonable attempt to resolve the proceeding and has given the offeree the opportunity at a relevant point of time in the proceeding to consider the reasonableness of the offer.

18 Moreover, the object of an order for costs is compensatory and not punitive.[11] An order for indemnity costs arising from allegations of litigation misconduct is made in circumstances which represent conduct on the part of a plaintiff or its practitioners which is genuinely deserving of condemnation by the Court. It is not simply that claims may have been abandoned, or that steps were not taken in a timely manner. Something more is required. As observed in Cadbury Schweppes Pty Ltd:[12]

There are often legitimate reasons why exact compliance with Court directions is not possible. The Court will not adopt a Rhadamanthine approach. But there is a line beyond which non-compliance becomes unacceptable.

19 Additionally, there must be "some special or unusual feature"[13] or "special circumstances".[14] The threshold for departing from the ordinary rule in relation to costs is high and a court must be cautious in reaching the required degree of satisfaction that an indemnity order should issue.[15] Indeed:

[g]reat care must be taken in reaching a conclusion at the urging of a victorious litigant that the losing litigant somehow conducted itself delinquently as litigant so as to attract an indemnity order, as if it were an express of the court's admonition.[16]

20 It follows that the process provided for in Rule 26.08(4) involves two steps, namely:

(a) an onus on a defendant to establish that the failure to accept the offer was unreasonable; and

(b) an onus on a plaintiff to persuade the Court to otherwise order that indemnity costs should not be paid.

21 Against this background, the Plaintiff submits that the arguments which it says lead to the conclusion that the rejection of the first offer, the Calderbank Offer, was not unreasonable, also support the conclusion that the rejection of the second offer was not unreasonable. According to the Plaintiff, the Offer of Compromise was made at a time when it had quantified its claim as being in excess of $1.7 million. Moreover, at the time the Offer of Compromise was made, the Plaintiff says that:

(a) neither party had sought or obtained any expert opinion as to loss and damage; and

(b) the Defendants did not seek to justify or explain how it was that an offer of $40,000 "all in" represented a genuine compromise which the plaintiff ought to accept.

22 The Plaintiff does not, however, explain how, in the absence of any expert opinion having been obtained, it quantified or could quantify its claim as being in excess of $1.7 million.

23 Thus, the plaintiff submits that the second offer was, similarly to the first offer, a reiteration of the demand to capitulate and not a genuine endeavour to compromise the proceeding. In this respect, the Plaintiff makes reference to Pepe v Platypus Asset Management Pty Ltd (No 2),[17] where Almond J held that offers of $65,000 and $90,000 (inclusive of costs) were properly rejected in circumstances where the claim was in excess of $1 million. Reference is also made to Ipex ITG Pty Ltd (in liq) v State of Victoria (No 2),[18] where Sifris J dismissed the plaintiff's claim, holding that the rejection by the plaintiff of an offer by the defendant to forego a costs order quantified at $94,201.28 and then "walk away" was not unreasonable.

24 In all the circumstances, and having regard to the provisions of the Civil Procedure Act relied upon by the Defendants, I am of the view that the Defendants have established the unreasonableness of the rejection of both offers; the Calderbank Offer and the Offer of Compromise. Quite apart from the treatment by the Plaintiff of the two offers, its erosion of and subsequent addition to its heads of claim showed no regard for its obligations under the Civil Procedure Act; particularly the obligation to use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the proceeding are reasonable and proportionate.[19] In my view, nothing in the affidavit of Mr James Sullivan[20] or the Plaintiff's reply submissions with reference to its contents[21] detracts from this position. Thus, the conduct of the litigation by the Plaintiff and lack of regard for its overarching obligations would in itself justify an indemnity costs order in favour of the Defendants. I now turn to the two offers.

25 The first offer, the Calderbank Offer, was an offer made early in the proceedings, but at a time when it must reasonably be expected that the Plaintiff would have a clear and detailed understanding of its case and its constituent claims and the evidence relied upon. Indeed, the Civil Procedure Act mandates this, both generally and in relation to its certification requirements. Moreover, the Calderbank Offer set out the position, as the Defendants then saw it, in considerable detail. It was a carefully reasoned offer and, as events showed as the proceeding progressed to trial and in the trial and its outcome, that it was indeed a perspicacious offer. In all the circumstances, the offer could not be regarded as an invitation merely to surrender and abandon the claims. Moreover, there was, in any event, a potential benefit to the Plaintiff in that offer with respect to other party costs. In my view, the Plaintiff was well able to consider its position properly at the time the first offer was made and within the time allowed for its acceptance. In rejecting the offer, the Plaintiff elected to take the costs risks accordingly.

26 The second offer, the Offer of Compromise, was made at a time when the Plaintiff would be expected to have a well-developed appreciation of the claims relied upon, their strengths and weaknesses, and the evidentiary position - at least sufficient to properly consider the offer. Rather, the future conduct of the trial would seem to indicate otherwise and provide no basis for supposing that its assessment of the value of its claims at $1.7 million was other than fanciful. Moreover, the Plaintiff's submissions with respect to this application appear to support this position. No basis is cited for its valuing the claim and in the next breath, so to speak, it says that at the point it was relying on the valuation of its claim at $1.7 million, "neither party had sought or obtained any expert opinion as to loss and damage". In all the circumstances, the second offer could not be regarded as an offer to capitulate and the Plaintiff was well able to properly consider its position and respond to the offer within the time allowed. Again, in rejecting this offer the Plaintiff elected to take the costs risk.

27 For the preceding reasons, the Defendants are successful in their application for indemnity costs from 15 September 2017. However, flawed as this proceeding ultimately proved to be, there is no basis for the view that it was of such nature as to attract an order for indemnity costs from its inception.

28 The parties are to bring orders to give effect to these reasons.

[1] See Amended Statement of Claim (4 February 2019), [8(c)] and [8(d)].

[2] See Amended Statement of Claim (4 February 2019), [11].

[3] Plaintiff's Outline of Opening (1 February 2019), [3]; and see Amended Statement of Claim (4 February 2019), [10].

[4] Rivex Crane Hire Pty Ltd v Armquip Pty Ltd & ors [2019] VSC 122.

[6] See Peet Limited v Elizabeth Amelia Richmond (No 2) [2009] VSC 585.

[7] Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298, [25].

[8] [2011] VSCA 398, [13].

[9] Berrigan Shire Council v Ballerini & Anor (No 2) [2006] VSCA 65, [17] and [20].

[10] North West Melbourne Recycling Pty Ltd v Commissioner of State Revenue (No 2) [2017] VSC 726, [27].

[11] Latoudis v Casey (1990) CLR 534 at 566-7; Gundry v Sainsbury [1910] 1 KB 645 at 649; Anstee v Jennings [1935] VicLawRp 27; [1935] VLR 144 at 148.

[12] Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 5) (2006) 69 IPR 273; [2006] FCA 850 at [38].

[13] Re Wilcox (No 2) (1996) 72 FCR 151 at 152.

[14] Ragata Developments Pty Ltd v Westpac Banking Corporation [1993] FCA 72; (1993) 217 ALR 175 at 177; Accommodation West Pty Ltd v Aikman [2017] WASC 157, [18].

[15] Almond Investors Ltd v Emanouel [2012] VSC 479, [14].

[16] Han v Australian Kung Fu (Wu Shu) Federation Inc [2011] VSC 498, [31].

[17] [2011] VSC 21.

[18] [2011] VSC 39.

[19] Civil Procedure Act 2010, s24.

[20] Affidavit of James Sullivan (sworn 29 March 2019).

[21] Plaintiff's Supplementary Submissions on Costs (29 March 2019), [4].