Silver v Dome Resources NL

CATCHWORDS : EQUITY [384] - Equitable remedies - Specific performance - Particular contracts - Guarantee and indemnity - INTEREST [5] - Recoverability of interest - Award of interest as damages - From commencement of proceedings to judgment - General principles - "Proceedings for the recovery of any money" - PROCEDURE [103] - Supreme Court procedure - Procedure under Rules of court - Offer of compromise - Refusal - Entitlement to costs on indemnity basis.

Civil Procedure Act 2005 ss 3, 100 LEGISLATION CITED : Supreme Court Rules 1970 Part 52A r 22(4) Uniform Civil Procedure Rules 2005 r 42.14

Bloch v Bloch (1981) 180 CLR 390 BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72 Ex parte Chinery; In re Chinery (1884) 12 QBD 342 Hillier v Sheather (1995) 36 NSWLR 414 In Shoppe Pty Ltd v Smith (1976) 6 ATR 242 McIntosh v Dalwood (No 3) (1930) 30 SR (NSW) 332 CASES CITED : McIntosh v Dalwood (No 4) (1930) 30 SR (NSW) 415 Morgan v Johnson (1998) 44 NSWLR 578 New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 Silver v Dome Resources NL [2006] NSWSC 189 Silver v Dome Resources NL [2007] NSWSC 455 Victorian WorkCover Authority v Esso Australia Limited (2001) 207 CLR 520 Meagher, Gummow & Lehane's Equity Doctrines and Remedies (4th ed, 2002) [20-050]

Michael Bernard Silver (P1 & XD1) PARTIES : Fair Choice Limited (P2 & XD2) Dome Resources NL (D1 & XC1) Durban Roodepoort Deep Limited (D2 & XC2)

COUNSEL : J E Thomson (Ps) T G R Parker SC (Ds)

SOLICITORS : Bull, Son & Schmidt (Ps) Allens Arthur Robinson (Ds)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2586/01 MICHAEL BERNARD SILVER & ANOR v DOME RESOURCES NL & ORS JUDGMENT 1 HIS HONOUR: This matter has been the subject of further argument and written submissions concerning the orders appropriate to be made pursuant to my substantive judgment delivered on 9 May 2007: Silver v Dome Resources NL [2007] NSWSC 455 ("my judgment"), other than as to costs. The argument and submissions have also extended to questions of costs. Orders to be made 2 The principal questions that have been argued as to the form of orders (other than as to costs) are as follows:

(1) Whether the order for payment of money to the second plaintiff should include an award of interest under s 100 of the Civil Procedure Act 2005 ("the CPA"); (2) Whether the second defendant as well as the first defendant ought be ordered to pay the relevant sum of money to the second plaintiff. (1) Interest 3 Section 100(1) is in the following form: " Interest up to judgment (cf Act No 52 1970, section 94; Act No 9 1973, section 83A; Act No 11 1970, section 39A)

(1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect." 4 The defendants' argument is that the plaintiffs are not entitled to an award of interest since the proceedings do not fall within the terms of s 100(1) of the CPA as they are not, in the requisite sense, proceedings for the recovery of money. The basis of this submission is that interest may be included only in an amount for which judgment is given and not in an order for payment of money, which cannot be characterised as a judgment. The order in this case is made as an order in the nature of or akin to specific performance, and, therefore, it is said, it cannot be characterised as a judgment. The defendants refer to Ex parte Chinery; In Re Chinery (1884) 12 QBD 342. That case is not to the point. It was decided in a quite different legislative framework and related to the question of whether a garnishee order could be regarded as a final judgment for the purpose of founding a bankruptcy notice. 5 Provisions of the CPA which are relevant to the present question include the following definitions in s 3: "judgmen t includes any order for the payment of money, including any order for the payment of costs. judgment creditor means the person to whom a judgment debt is payable. judgment debt includes: (a) any amount payable under a judgment…" 6 By these definitions alone, the concept of judgment within s 100(1) of the CPA clearly includes any order for the payment of money. The plaintiffs also rely on authority. In the decision of In Shoppe Pty Ltd v Smith (1976) 6 ATR 242, Hutley JA said at 248: "It was also argued that the Court had no jurisdiction under s 94 because the summons sought a declaration and was therefore not a proceeding for the recovery of money. The summons in fact sought for appropriate remedies and the Court, consistent with the summons, actually ordered the payment of money. In my opinion these proceedings are clearly proceedings for the recovery of money. Even if what the Court had done was declare the existence of a debt the proceedings would, in my opinion, be proceedings for the recovery of money. They arose out of preliminary steps taken to obtain the winding up of the appellant company for non payment of the claim, and a mere declaration which would convert the disputed claim into a liability which was res judicata between the parties is a proceeding for the recovery of money."

In Bloch v Bloch (1981) 180 CLR 390, Wilson J said at 398 - 399: "Counsel argues that the action is one for a declaration and hence does not fall within the description of proceedings for the recovery of money. I think this contention must fail. The claim is for a declaration that the plaintiffs are entitled to a one-third share of the 'proceeds of sale' of the property, and, inter alia, for 'further or other relief'. The writ was issued on 5 July 1976, the sale of the property was finalized on 9 July 1976, and on that day, by arrangement between the parties, the sum of $20,000 being part of the proceeds of sale was paid into court. In addition to making a declaration of the one-third entitlement of the respondents his Honour also ordered that the judgment be satisfied by payment out of the moneys in court. In my opinion, the proceedings clearly come within the description of proceedings in respect of a cause of action for the recovery of money: cf In Shoppe Pty Ltd v Smith (1976), 6 ATR 242, at pp 247-248." 7 The plaintiffs are entitled to have included in the order for payment the appropriate sum of interest. The plaintiffs calculate the interest at $305,318.65 to 29 June 2007 and the defendants have not objected to this calculation. (2) Whether the second defendant ought be ordered to make payment to the second plaintiff 8 The defendants contended that the order to pay under the guarantee should be against the first defendant only and not against the second defendant. They said that the second defendant did not promise the first plaintiff to make payment of the retirement benefit to the second plaintiff, even in the event that the first defendant did not pay. They said that the effect of the guarantee clause was that the second defendant guaranteed to the first plaintiff the performance of the first defendant's obligations and indemnified the first plaintiff from and against any liability which might be incurred or sustained by him in connection with any default or delay by the first defendant in performing its obligations. They said that this means that the only obligation of the second defendant under the guarantee was to pay the first plaintiff damages for any loss suffered by the first plaintiff by reason of the first defendant failing to perform its obligations, but they said this does not justify an order requiring the second defendant to make a payment equivalent to the retirement payment to the second plaintiff, because the second defendant never promised to make any such payment. 9 In this regard, I set out cl 8.1 of the retirement deed as varied by the retirement variation deed: " 8 Guarantee

8.1 In consideration of the Director entering into this Deed at the request of DRD, DRD: (a) unconditionally and irrevocably guarantees to the Director on demand the due and punctual performance by the Company of all its obligations under this Deed; and (b) indemnifies the Director from and against any liabilities which may be incurred or sustained by the Director in connection with any default or delay by the Company in the due and punctual performance of any of its obligations under this Deed. …."

The effect of the defendants' submission appears to coalesce paragraphs (a) and (b) of clause 8 into one obligation only, that being an obligation only to make payment to the first plaintiff in respect of damages caused by delay by the first defendant in meeting its obligations. 10 In my view, this is a quite false reading of the clause. The guarantee given in paragraph (a) and the indemnity in paragraph (b) are quite separate obligations. They are not to be coalesced. The obligation under the guarantee in paragraph (a) is of the due and punctual performance by the first defendant of all its obligations under this deed. In my view, upon failure of performance by the first defendant, the second defendant became liable to perform those obligations in its stead, in this case, by fulfilling its obligation to the first plaintiff by making payment of a sum equivalent to the retirement payment to the second plaintiff in accordance with the first defendant's obligations. 11 Contracts of suretyship may be enforced in equity by specific performance or an order akin to specific performance in appropriate circumstances: see McIntosh v Dalwood (No 3) (1930) 30 SR (NSW) 332 per Harvey CJ in Eq at 335; McIntosh v Dalwood (No 4) (1930) 30 SR (NSW) 415 per Street CJ at 419; Victorian WorkCover Authority v Esso Australia Limited (2001) 207 CLR 520 per Gleeson CJ, Gummow, Hayne and Callinan JJ at 529; BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72 per Handley JA at [3] and Giles JA at [112]; and see generally Meagher, Gummow & Lehane's Equity Doctrines and Remedies (4th ed, 2002) [20-050]. Here an appropriate remedy in damages is not available. The second defendant's obligation to pay the second plaintiff may be enforced at the suit of the first plaintiff, and I propose to make an order to that effect. The defendants did not argue that specific performance was not available if appropriate, but that the obligation did not exist. 12 In any event, I had already decided to this effect in my judgment: see [148]. The submissions that were invited were submissions as to the form of the orders which ought be made pursuant to my judgment, not submissions detracting from the effect of the judgment. Costs 13 The plaintiffs claim an order for costs in general terms on the ordinary basis, up to and including 20 February 2002 and on the indemnity basis on and from 21 February 2002. They also claim an order pursuant to s 101(4) of the CPA that the defendants should pay interest on the costs ordered as from the date on which the costs concerned were paid by the plaintiffs. 14 The defendants conceded that the first defendant must pay the first plaintiff's costs of the proceedings on the ordinary basis, but raised the following matters.

(1) They said that the second plaintiff, having failed to obtain relief, should be ordered to pay the defendants' costs in relation to the second plaintiff's claim. (2) They said that if no order is made against DRD in accordance with the defendant's submission in that regard, then the plaintiffs ought be ordered to pay DRD's costs of the proceedings. (3) They said that the plaintiffs ought be ordered to pay the defendants' costs of the plaintiffs' claims in estoppel and under the Trade Practices Act 1974 (Cth) ("the representational claims"). (4) They resisted any order for the payment of indemnity costs.

The defendants raised no objection to an order for interest on costs being made before the costs are assessed, provided that the order applies to costs ordered in the defendants' favour as well as the plaintiffs'. 15 I shall deal separately with each of the objections raised by the defendants. (1) Claim for costs order against second plaintiff 16 There is only one set of plaintiffs' costs in the proceedings. Both plaintiffs, as is required, were represented by the same solicitors and counsel. Furthermore, in reality, they conducted only the one principal case on the one subject matter, namely, whether the first defendant or the second defendant ought be ordered to pay the retirement payment in respect of the first plaintiff's service as a director said to be due under the retirement deed as varied by the retirement variation deed, although that claim was put on various alternative bases. The only relevant exceptions to this are the representational claims, which are further dealt with below. In the end, the basis on which relief was obtained was that, at the suit of the first plaintiff, the defendants ought be ordered to make payment to the second plaintiff by way of specific performance. That is, one of the various bases on which the first and second plaintiffs made the claim for payment of the retirement benefit succeeded. Although that relief was not at the suit of the second plaintiff, there is no basis on which the second plaintiff's case should be regarded as separate from the first plaintiff's case so that the second plaintiff ought be ordered to pay the defendants' costs on the basis that the second plaintiff was unsuccessful. (2) Whether DRD should have its costs of the proceedings 17 This submission falls to the ground in view of the fact that I propose to make an order against DRD. (3) Whether the first plaintiff should be ordered to pay the defendants' costs of the representational claims 18 Claims of the type of the representational claims were contained in the original statement of claim. On 5 May 2005 the plaintiffs in open court abandoned those claims. On 6 March 2006 they successfully applied to reinstate them, although the representations relied on were in different form. 19 Although these claims are somewhat different from the other claims made, in that they do not depend on the enforceability of the obligation to make the retirement payment, but rather assume its failure, they are still claims that relate to that payment, in that they seek relief for a misrepresentation that the obligation to make that payment was in fact valid. Up to their abandonment on 5 May 2005 the amount of costs expended in relation to these causes of action was relatively small and inextricably bound up with the costs of the principal causes of action. Because of that commonality of subject matter, and the small amount and practically inseparable nature of the costs involved, I do not propose to make a special order for the costs of those claims in their original form, up to their abandonment. 20 However, different considerations apply to the process of taking evidence on the reinstated claims, which proceeded on differently formulated representations. The plaintiffs insisted upon introducing these claims by their application heard and determined by me on 6 March 2006: see Silver v Dome Resources NL [2006] NSWSC 189. In [14] of that judgment I determined that the plaintiffs should pay the defendants' costs thrown away by the amendment. The question arises as to what adjustment I should make to the final costs order by reference to the success of that application. 21 As with the conduct of the originally formulated representational claims, I find it difficult to perceive that the costs generally of the reinstated claims were great, that proceedings on them took up any substantial time, bearing in mind the time taken by the proceedings generally, or that those costs could be easily disentangled from the costs of the proceedings generally. The costs of that exercise would not be justified by the result. However, there is one exception to that general proposition. There were three additional days substantially taken up in relation to the reinstated representational claims. The first was the additional day of evidence on 9 June 2006, when the first plaintiff was further cross examined by video link with London. The second and third of these days were the days of submissions on 13 and 22 June 2006, where examination of the transcript shows that the subject matter on all but four pages was the reinstated representational claims. While these claims were not positively determined against the plaintiffs, their agitation was a useless exercise occasioned by the plaintiffs having a second change of mind concerning this aspect of the case at a very late stage. In my view, it will be a fair result if the plaintiffs and not the defendants bear the costs of those days. This will be achieved if I except the costs of those days from the costs order in favour of the plaintiffs. At the same time, I should make it clear that the defendants' costs of those days should be recovered from the plaintiffs. Perhaps the most convenient way of achieving this is by making an addendum to the order for costs thrown away that I made in the defendants' favour on 6 March 2006. (4) The plaintiffs' claim for indemnity costs 22 Indemnity costs are claimed by the plaintiffs on two bases. The first is the service by the plaintiffs of a formal offer of compromise under the Rules. The second was misconduct of the defendants. 23 As to the offer of compromise, the relevant terms of that offer, served on 20 February 2002, were as follows: "The plaintiffs offer to compromise their action in the following manner:

1 The defendants to pay to the plaintiffs the sum of $400,000.00. 2 The defendants to pay to the plaintiffs interest upon the sum of $400,000.00 pursuant to Section 94 of the Supreme Court Act calculated as and from 1 September, 2000. 3 The defendants to pay the plaintiffs' costs as agreed or assessed. 4 This offer shall be open for acceptance for a period of 28 days only.

This offer is made in accordance with Part 22 of the Supreme Court Rules.

Dated: 20 February 2002" 24 At that time, Part 52A r 22(4) of the Supreme Court Rules 1970 ("the SCR") provided as follows: "Where an offer is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall, subject to rule 33, be entitled to an order against the defendant for the plaintiff's costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to his costs incurred before and on that day, assessed on a party and party basis." 25 That was replaced on the enactment of the Uniform Civil Procedure Rules 2005 ("the UCPR") by r 42.14, which is in terms not materially different from the former rule. It is the former rule that probably should be regarded as governing the situation, but it does not matter in this case. 26 The defendants contended that the offer of compromise was not more favourable to the plaintiffs than the result of the trial. They contended that, in any event, the ultimate result of the case depended upon matters of statutory interpretation, which were finely balanced and could have gone either way; the case was a complex one and it cannot be said it was unreasonable of the defendants to continue to contest liability after receipt of the offer. The defendants have not contended that 28 days was an unreasonably short time for the offer to have been open. 27 The first basis on which the defendants deny that the plaintiffs obtained a result more favourable to them than the offer of compromise is that under the offer there would have been judgment in favour of both plaintiffs against both defendants. In the result, the order for payment was in favour of one plaintiff only and the defendants submitted that it should be against one defendant only. 28 As to the latter submission, I propose to make the order against both defendants: see [11] above. As to the former proposition, I have already adverted in [16] above to the unity of the plaintiffs' case. Essentially, the plaintiffs were indifferent to which of them made the recovery. And it is not entirely true to say that the orders are made in favour of one plaintiff only. Both plaintiffs had to be joined to argue the various bases on which the claim was made. In the end, the order was made at the suit of one plaintiff for payment to the other. Nor does it make any substantial difference to the defendants, the first defendant being the wholly owned subsidiary of the second defendant. If the order is made in favour of both plaintiffs, the stipulated sum will have to be paid once only; there cannot be double recovery. 29 If one takes into account only the principal amounts to be recovered, it is clear that the order for the payment of $473,655 plus interest will be more favourable to the plaintiffs globally than the $400,000 plus interest which they offered to accept in the offer of compromise. If it is appropriate to take into account the respective orders for costs, the assessment of whether the result is no less favourable to the plaintiffs becomes more difficult. The best estimate I can make is that the amount by which the plaintiffs' costs are diminished by the exception I have made to their costs order (even taking into account their liability to pay the defendants' corresponding costs) would not reach or exceed the $73,000 odd by which the substantial recovery exceeds the amount offered to be taken under the offer of compromise. On this basis, the actual result is no less favourable to the plaintiffs than the offer of compromise. 30 I have considered deferring the determination of this question of indemnity costs till costs assessment throws up the actual figures. But I have rejected this course as further delaying, perhaps for a long time, the finalisation of this long drawn out matter. It seems to me better to take the risk of imprecise quantification in the interests of the acceleration of finality. 31 The second basis on which the defendants say that the Court should order that the usual consequence of the offer of compromise should not flow is that it was not unreasonable for the defendants to continue to defend the proceedings despite the offer of compromise. 32 What is the criterion by reference to which an order otherwise than for indemnity costs should be made? In the Court of Appeal in Hillier v Sheather (1995) 36 NSWLR 414, Kirby P said in relation to the similar rule in the District Court Rules 1973: "At least in the context of Pt 19A, r 9 of the District Court Rules, I would not import the requirement to establish 'compelling … circumstances' to obtain an order, otherwise than as provided by the rule, to relieve a party from the costs consequences of failure to accept an offer of compromise. Certainly, the notion of a 'compelling' reason is absent from the language of Pt 19A, r 9 of the District Court Rules. It is enough to say that the case needs in some way to be exceptional. It must be exceptional because the general rule is that provided for in the rule itself. To gain relief, an exceptional exempting order must be made." 33 In New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100, Gleeson CJ made it plain that the reasonable belief of the party on whom the notice of compromise was served that it might obtain a better result in the proceedings than that offered was not a sufficient reason to displace the usual consequence of the offer of compromise. Of course, that may be a material consideration in relation to whether indemnity costs may be awarded as a result of a Calderbank letter. But it is not in relation to a formal offer of compromise. In Morgan v Johnson (1998) 44 NSWLR 578 at 581 - 582, Mason P cited the above among other authorities and extracted the following principles: "(1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 (at 725-726); Hillier v Sheather (1995) 36 NSWLR 414 (at 421, 431).

(2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital (at 724).

(3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: NSW Insurance Ministerial Corporation v Reeve (at 102); Hillier (at 422). This is because, from the time of non-acceptance 'notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise': Maitland Hospital (at 724); see also Hillier (at 420).

(4) Lying behind the rule is the common knowledge that 'litigation is inescapably chancy': Maitland Hospital (at 725). For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 (at 102-103). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102). As Clarke JA expressed it in Houatchanthara v Bednarczyk (Court of Appeal, 14 October 1996, unreported) (at 2-3): 'The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case. It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk.'

(5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital (at 725-726). Reasons must be given for 'otherwise ordering': Hillier (at 419); Quach v Mustafa (Court of Appeal, 15 June 1995, unreported)." 34 In my view, none of the reasons given on behalf of the defendants, nor any other reason, should deflect the consequences of the rule. 35 The order contemplated under the rule will be made. 36 The second basis on which the plaintiffs contended for an order that at least some part of their costs should be assessed on the indemnity basis was misconduct of the defendants. In view of my conclusion in [35] above, I do not find it necessary to determine this basis. But I should add that I do not see that the defendants' misconduct, as alleged by the plaintiffs, would lead to this conclusion. Orders 37 I have been asked to grant a preliminary stay of proceedings on the basis that the defendants intend to institute an appeal from my judgment. In accordance with what I understand to be the usual practice in the trial Divisions, I shall grant a stay for six weeks to permit appellate proceedings to be instituted. Thereafter, the defendants should approach the Court of Appeal to regulate the situation during the pendency of the appeal. 38 The orders that I propose to make are as follows:

(1) Order that the defendants pay to the second plaintiff forthwith the sum of $473,655 together with interest under s 100 of the Civil Procedure Act 2005 in the sum of $305,318.65 being a total of $778,973.65. (2) Order that the proceedings be otherwise dismissed. (3) Order that the defendants' cross claim be dismissed. (4) Order that the defendants pay the plaintiffs' costs of the proceedings except the plaintiffs' costs of 9, 13 and 22 June 2006 and of preparation for the hearing on those days. (5) Order that the plaintiffs' costs be assessed on the ordinary basis up to and including 20 February 2002 and assessed on the indemnity basis on and from 21 February 2002. (6) Order that there be included in the defendants' costs thrown away ordered on 6 March 2006 to be paid by the plaintiffs the defendants' costs of 9, 13 and 22 June 2006 and of preparation for the hearing on those days. (7) Order that the defendants pay to the plaintiffs interest on the plaintiffs' costs ordered to be paid by the defendants and that the plaintiffs pay to the defendants interest on the defendants' costs ordered to be paid by the plaintiffs as and from the date on which those costs were paid by the plaintiffs and the defendants respectively. (8) Liberty to all parties to apply in relation to the interest payable on the costs. (9) Order that these orders be stayed up to and including 10 August 2007. **********

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