Stevens v Spotless Management Services Pty Ltd

COSTS - Trial - Appellant made offers of compromise during course of proceeding - Whether offers 'of a genuine compromise' - Gamboni v Bendigo and Adelaide Bank Ltd [2013] VSCA 282, applied - Whether court should 'otherwise order' and order payment of costs on ordinarily applicable basis after date of offer - Whether reasonableness of rejection of offer is critical question as to whether court should 'otherwise order' - Nakos v Serdaris [2016] VSC 179, approved - Supreme Court (General Civil Procedure) Rules 2005 r 26.08.

1 The Court delivered judgment allowing the appeal in this matter on 30 November 2016.[1] The parties were invited to file written submissions addressing the questions of interest and costs. The Court having now received those submissions, these reasons deal with those questions.

2 The appellant seeks an order for the payment of interest pursuant to s 58 of the Supreme Court Act 1986 from 25 October 2012, being the date that the appellant's employment with the defendant was terminated.[2] He contends that interest should run from 25 October because the debt was payable pursuant to a written instrument, being the Manual Salary Calculation, and at a date certain, being the date his employment was terminated. He also submits that the agreement struck by the parties on 17 September established an obligation on the respondent to make payment by 25 October, such that a further written demand was unnecessary.

3 In the alternative, the appellant submits that interest should run either from 8 November 2012 or 19 November 2012, being the dates on which letters were sent by the appellant's solicitors to Dixon on behalf of the respondent.

4 The respondent concedes that an order under s 58 ought to be made, but contends that interest should only accrue from 19 November 2012, or alternatively 8 November 2012. It submits that the principal sum was not due 'by virtue of some written instrument', so that interest only accrues 'from the time when demand of payment was made'.[3] It accepts that a demand was made on 19 November 2012 but challenges the characterisation of the letter of 8 November 2012 as a demand.

5 Section 58(1) of the Supreme Court Act 1986 relevantly provides:

If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 ... from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.

6 In our opinion, the debt or sum certain in the present case was payable by virtue of a written instrument, being the Manual Salary Calculation. It was that document which contained the essential contractual figures and payment was due by virtue of its delivery and acceptance. Moreover, the amount was payable at a date or time certain, namely upon termination of the appellant's employment. The Manual Salary Calculation described 19 October 2012 as the 'finishing date'; there is no basis for concluding that payment was due on any other date. In the ordinary course, an employee is entitled to expect payment of his or her entitlements upon cessation of employment. The parties subsequently agreed to change the finishing date to 25 October 2012, with the result that the contracted amount became due on that date.

7 Interest should therefore be ordered from 25 October 2012. It follows that it is not necessary to consider the question whether a demand for payment was made on 8 November 2012.

8 However, the respondent contends that there is 'good cause' not to allow interest under s 58 on the full judgment sum. The respondent submits that interest should be calculated instead on the sum of $291,897, being the amount that the appellant would actually have received from the respondent, after tax was deducted, had payment been made when due. The respondent relies on a Federal Court decision concerning an interest provision that it says is not materially distinguishable from s 58.[4] It distinguishes a decision of the Trial Division that it says involved 'complex and uncertain issues of taxation law'[5] on the basis that the present case involved no such complexity and uncertainty, as the taxation calculation had already been performed by the respondent and was contained in the Manual Salary Calculation. This constituted 'good cause', as required by s 58, to depart from the ordinary approach of calculating interest on the whole sum; taking the ordinary approach would award the appellant interest on money that he would not have received.[6]

9 The appellant submits that there is no 'good cause' to depart from the usual approach that interest be calculated on the full sum. The amount that the respondent had to remit to the Australian Taxation Office does not necessarily represent the appellant's tax liability on that sum, or the amount the use of which has been denied to the appellant. He submitted that courts do not order payment of posttax amounts, including because they are not in a position to calculate that amount.[7] By parity of reasoning, they should not attempt to calculate the post-tax amount for the purposes of determining the principal upon which interest under s 58 should accrue.[8]

10 In Hodgson v Amcor Ltd [No 9] ('Hodgson'),[9] Vickery J held that s 58 requires interest to be allowed on the sum recovered in a proceeding, rather than on some lesser sum after payment of amounts due by law by way of taxation. He referred to decisions in which judges have made observations about the limited capacity of courts to determine or even estimate liability for tax in advance of any assessment.[10]

11 As the respondent points out, tax was deducted before calculation of interest in Hockey v WIN Corporation Pty Ltd [No 2] ('Hockey').[11] Robertson J there distinguished Hodgson on two grounds. The first was that the case at hand did not involve any difficulty or uncertainty as to the amount of tax involved. The second was that there was a material difference in s 51A of the Federal Court of Australia Act 1976 (Cth) which expressly contemplated interest being paid on 'part of the money'.

12 The difference in statutory language suffices as a reason why this Court should adopt the reasoning of Vickery J in Hodgson in preference to that in Hockey. Even if, as the respondent contends, the amount of tax that would have been deducted had the amount been paid on 25 October 2012 is not in doubt, the 'sum ... recovered' is the contract amount, not the amount less tax.

13 It is therefore appropriate to allow interest on the sum recovered, namely $477,400 from 25 October 2012. The parties are agreed that the amount is $200,115.62 to 30 November 2016. Interest thereafter accrued at a rate of approximately $124.25 per day until the making of final orders.

14 The parties are in agreement that the respondent should pay the costs of the application for leave to appeal and the appeal on the standard basis. There will be an order made to that effect. However, the costs of the trial are in dispute by reason of three offers of compromise made by the appellant before trial:

(b) an offer of $350,000 plus costs on 3 October 2013; and

(c) an offer of $350,000 plus costs on 10 December 2013.

15 The appellant seeks the costs of the trial on a party and party basis to the date of the first offer of compromise, or alternatively on a party and party and then on a standard basis until the second or third offers, and on an indemnity basis thereafter. The costs consequences of a failure to accept an offer of compromise are dealt with in r 26.08 of the Supreme Court (General Civil Procedure) Rules. It is necessary to set out that rule in the form it relevantly took before 1 September 2013, which governs the first offer of compromise:

(1) This Rule applies to an offer of compromise which has not been accepted at the time of verdict or judgment.

(2) Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a 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 be entitled -

(a) if the claim of the plaintiff is for damages for or arising out of death or bodily injury, to an order against the defendant for the plaintiff's costs in respect of the claim taxed on an indemnity basis;

(b) in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff's costs in respect of the claim up to and including the day the offer was served, taxed on a party and party basis and thereafter taxed on an indemnity basis.

(8) Where the plaintiff obtains judgment for the recovery of a debt or damages, and the amount of the debt or the damages was not in dispute, but only the question of liability, paragraph (2) shall not apply unless the Court is satisfied that the plaintiff's offer was of a genuine compromise.[12]

16 The respondent contends that, despite the appellant's offers of compromise, it should only be liable to pay the costs of the trial on the standard basis,[13] rather than an indemnity basis. The present case involved a dispute over liability but not over quantum. Therefore, by reason of r 26.08(8), the appellant would only be entitled to indemnity costs if his offer was 'of a genuine compromise' (and the respondent could not persuade the Court that it should 'otherwise order' under r 26.08(2)). The onus of establishing that the offer was of a genuine compromise was said to lie on the appellant.[14]

17 The appellant's offers were said not to be offers 'of a genuine compromise' for several reasons:

(a) it was an all or nothing case, which made it difficult to select a discount based on an assessment of particular aspects of the case;

(b) the first offer was made before any discovery in the proceedings, and before outlines of evidence or outlines of argument were exchanged;

(c) whilst the second offer was made after discovery, it was still made before any outlines of evidence or outlines of argument were exchanged;

(d) the third offer was made before the outline of evidence of Agati was served or outlines of argument were exchanged;

(e) the outcome of the trial demonstrated that Spotless had a strong case, and that there were serious questions as to liability; and

(f) the first offer consisted of a discount of approximately 17 per cent, whilst the remaining two offers consisted of a discount of approximately 27 per cent, which on each occasion was only a marginal discount in the circumstances.

18 Even if the offers were of a genuine compromise, the respondent contended that the Court should 'otherwise order' under r 26.08(2) and award costs on a party and party basis instead. This was said to be so because:

(a) the first two offers were made before any outlines of evidence or outlines of argument were exchanged by the parties;

(b) the first offer was made before the appellant's further and better particulars of claim were filed and served. The further and better particulars were referred to by this Court as being consistent with the appellant's evidence at trial, and were relied upon by this Court in supporting its conclusion that limited weight could be attributed to certain matters not being put to Dixon and Pepe;[15]

(c) the first offer was made before any discovery in the proceedings. Discovery in this case included transcripts of conversations that the appellant had secretly tape-recorded;

(d) all three offers came well before the appellant served the outline of evidence of Agati, who ceased employment with Spotless in August 2012 after the takeover. The evidence of Agati at trial, when assessed as against the evidence of Dixon, was an important integer in this Court's reasons for allowing the appeal;[16] and

(e) with respect to all three offers, this Court held that the evidence as to what was said and done on 17 September 2012 was to be cast in a different light because there had not been strict compliance with the appellant's contractual entitlements, a point which 'emerged at the hearing of the present application and appeal'.[17] Further, it rendered less significant a key argument for Spotless, which was that it was a commercial nonsense for it to agree to pay the appellant the impugned sum.[18] But this was not an argument foreshadowed before trial, it was not an argument run at trial, and it did not feature in the grounds of appeal.

19 The appellant submits that O 26 creates a strong presumption in favour of indemnity costs. Whether the Court should 'otherwise order' will depend on whether so ordering advances the purpose of O 26;[19] the discretion is not enlivened by whether it was unreasonable to reject the offer.[20]

20 The appellant submits that each of the offers was of a genuine compromise. Contrary to the respondent's submissions, the offers did not constitute a 'marginal discount' on the claim. They constituted discounts of approximately 17 per cent (the first offer) and 27 per cent (the second and third offers) and more if interest is included. Regard must be had, it was submitted, to the fact that the appellant is a private individual.[21] Moreover, the fact that the first offer was made at an early stage, prior to full discovery and the exchange of outlines of evidence and argument, did not detract from the fact that it offered a genuine compromise. To take the contrary view would be to incentivise making offers at a late stage, which would in turn limit the effectiveness of O 26 and the public interest in the compromise of litigation. Nor should the Court pay very close regard to the strengths and weaknesses of the parties' cases at the time of an offer. This would treat the r 26.08 inquiry as if it were one concerning Calderbank offers, where the question is, in contrast, whether the offeree acted reasonably in rejecting the offer.

21 As to the respondent's ability to assess the offers of compromise, the appellant contends that the case was a fairly simple contract claim whose essential facts were articulated in the statement of claim and were, or ought to have been, known by the respondent's senior executives who were witnesses in the proceeding. Moreover, discovery lay substantially with the respondent. In these circumstances, it cannot be said that the respondent was not in a position to assess the strength of the appellant's case or the weaknesses of its own. The incapacity of its witnesses to recall crucial evidence did not militate against the award of indemnity costs. As for the evidence of Agati, it was crucial in relation to the evidence of Dixon, but only in serving to confirm the appellant's evidence. The respondent could not explain why Dixon's evidence did not conform with that of Agati.

22 In determining the proper application of r 26.08, the first question is whether, in terms of r 26.08(8), the appellant's offer was 'of a genuine compromise'. The onus lies on the plaintiff in that regard.[22] If that onus is discharged, the second question, which is not in issue in this matter, is whether the judgment obtained is no less favourable than the offer. The third issue is whether, notwithstanding an affirmative answer to the second question, the Court should order 'otherwise' than in the terms set out in r 26.08. In that regard, the onus lies on the defendant.

23 The approach to the first issue was set out in Gamboni v Bendigo and Adelaide Bank Ltd:[23]

The question of whether an offer is 'of a genuine compromise' does not depend simply on the magnitude of the discount embodied in the offer. While that is clearly a relevant consideration - in the sense that a trivial, contemptuous or derisory discount would not involve a genuine compromise[24] - other factors are also relevant. They include the apparent strength of the defendant's case at the time the offer was made,[25] whether the case is an 'all or nothing' case which makes it difficult to select a discount based on an assessment of particular aspects of the case,[26] and the stage at which the offer was made.[27]

24 The first offer was made in the present case after pleadings had closed. It involved a discount of about 17 per cent from the amount claimed, or $75,400. While the offer was no doubt made cognisant of the prospect of favourable costs consequences if it were to be rejected, the offer cannot be characterised as trivial or derisory, or as an 'invitation to surrender'.[28] In our opinion, the first offer, and each of the succeeding offers made by the appellant, was a genuine offer of compromise.

25 In relation to the third of the above questions, the respondent submitted that there are differences in the authorities as to whether it suffices to 'otherwise order' if it was not unreasonable for the defendant to reject the offer. It was submitted that support for the proposition that the critical question is whether the defendant acted unreasonably could be found in Whitehead v State Trustees Ltd [No 2][29] and Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd [No 2].[30] However, in the first of those cases, Bell J accepted that r 26.08(2) did not operate in the same way as the principles governing Calderbank offers, and held only that the critical question in that case concerned the reasonableness of refusal of the offers. In the second case, Croft J likewise accepted that the Court's discretion under O 26 is more confined than in the case of a Calderbank offer. Although he went on to state that an offer under O 26 would not have any costs consequences unless the rejection of the offer was unreasonable in all the circumstances, this was in the context of considering the costs consequences of failing to accept a Calderbank offer, O 26 being silent on the matter in the particular circumstances of the case.

26 Zammit J held in Nakos v Serdaris that the reasonableness of the rejection of an offer is one matter that may be taken into account in exercising the power under r 26.08(3) to otherwise order, but that it is not of itself determinative.[31] Rule 26.08(3) applies to offers made by defendants in terms similar to r 26.08(2). In our opinion, this approach reflects the language of r 26.08(2) and is consistent with the authorities to which Zammit J referred in that decision. That is the approach which should be applied to r 26.08(2).

27 It may be accepted that there was nothing unreasonable in the respondent rejecting the first offer, or either of the succeeding offers. In an all or nothing case, and especially one which turns to a large extent on oral testimony, each party will have its own view of the merits and they may well be different. There was nothing in the way the case was pleaded or in the materials subsequently discovered and served which should have made one party or the other especially confident or doubtful as to its prospects. It was therefore not unreasonable for the respondent to reject the offers. However, as explained above, that is not determinative. The presumption that indemnity costs are awarded still applies to such a case. The reasonableness of the respondent's rejection is only one consideration.

28 The respondent invites the Court to 'otherwise order' on the grounds set out at [18] above. The first three of those grounds concern the timing of the respective offers. In the case of the first offer, it was made before service of outlines of evidence, outlines of argument or further and better particulars, and before discovery. However, the pleadings were closed and the issues in dispute were identified. This is not a case where the offer was made pre-emptively so that the recipient was not in a position to make any meaningful assessment. Nor did the issues change when the documents referred to were served, even if the parties' respective assessments of their prospects no doubt varied over time. The offers therefore cannot be regarded as premature or as unable to be properly evaluated pending receipt of further materials.

29 The fourth matter relied on by the respondent is the later service of the outline of evidence of Agati. This was important evidence. It served to bolster the evidence of the appellant as against that of Dixon in relation to the meeting of 23 August 2012 and was a significant ingredient in the evidentiary matrix. However, the production of the outline (or the giving of the evidence) did not alter the fundamental complexion of the case. The underlying issue was still whether the appellant's evidence was accepted. In that regard, the events of 17 September 2012 were critical, before and after the receipt of the Agati outline of evidence.

30 The respondent finally contends that the consideration that there had not been strict compliance with the appellant's contractual entitlements was a point that emerged only at the hearing of the appeal and had not been raised at trial or in the grounds of appeal. However, the terms of the relevant contractual entitlements were never in doubt and at all times legitimately bore on the evaluation of the parties' respective cases.

31 In summary, the respondent has not shown that the present case is in any way different from the usual case in which competing accounts of conversations fall to be resolved at trial so as to determine liability one way or the other, even though the sum in issue is known throughout. If the parties are transposed, the observations of Zammit J in Nakos v Serdaris are apposite here also:[32]

The problem for the plaintiff is that this is an ordinary case. The plaintiff did not accept the offer, but instead took a chance in the inherently risky business of litigation. The fact that the plaintiff's litigation guardian believed the plaintiff's case had a reasonable prospect of success is insufficient. The plaintiff has not identified any fact, matter or event that provided a proper and [principled] basis for making an order displacing the ordinary consequences of the refusal to accept the defendant's offer. The rules governing offers of compromise are intended to encourage the compromise of litigation and to make parties give 'serious thought' to the risk involved in non-acceptance on the basis that 'litigation is inescapably chancy'.[33]

32 In our view, there is no basis for departing from the presumptive position under r 26.08 by ordering 'otherwise'. It follows that the respondent should pay the appellant's costs of the trial on a party and party basis up to and including 4 March 2013[34] and on an indemnity basis thereafter.

[1] Stevens v Spotless Management Services Pty Ltd [2016] VSCA 299.

[3] See David Leahey (Australia) Pty Ltd v McPherson's Ltd [1991] VicRp 77; [1991] 2 VR 367, 381 (Tadgell J; Fullagar and Vincent JJ agreeing); Chong & Neale v CC Containers Pty Ltd [2015] VSCA 137 [257] (Redlich, Santamaria and Kyrou JJA).

[4] Hockey v WIN Corporation Pty Ltd [No 2] [2013] FCA 921 [10] (Robertson J).

[5] Hodgson v Amcor Ltd [No 9] [2012] VSC 205 [53] (Vickery J).

[6] See Hosking v Ipex Software Service Pty Ltd [No 2] [2004] VSC 343 [6] (Habersberger J).

[7] Atlas Tiles Ltd v Briers [1978] HCA 37; (1978) 144 CLR 202, 218-19 (Barwick CJ), 244 (Jacobs J), 247 (Murphy J); Davinski Nominees Pty Ltd v I & A Bowler Holdings Pty Ltd [2011] VSC 220 [46], [61] (Kaye J); Daniels v Anderson (1995) 37 NSWLR 438, 586 (Clarke and Sheller JJA); 586 (Powell JA).

[8] See also Whitlam v Insurance Australia Group Ltd [2005] NSWSC 200; (2005) 214 ALR 703, 710 [34]-[42] (Einstein J); Hodgson v Amcor Ltd [No 9] [2012] VSC 205.

[9] [2012] VSC 205.

[10] Ibid [44]-[54], citing the cases in above n 7, Marsh v Ruby [1975] HCA 32; (1975) 132 CLR 642, 661 (Stephen J) and Whitlam v Insurance Australia Group Ltd [2005] NSWSC 200; (2005) 214 ALR 703, 711 [39]-[42] (Einstein J).

[11] [2013] FCA 921.

[12] The above rule is that contained in the Supreme Court (General Civil Procedure) Rules 2005 as at 4 March 2013, which applies to the first offer: see Supreme Court (General Civil Procedure) Rules 2015 r 26.11(2). The rule was amended with effect from 1 September 2013 in the 2005 Rules and the succeeding Supreme Court (General Civil Procedure) Rules 2015, relevantly so as to provide in r 26.08(2) for indemnity costs to run from 11:00 am on the second business day after the offer is served. The reference to party and party costs was replaced by a reference to 'the ordinarily applicable basis': see also the treatment of that aspect at trial, as explained in below n 13.

[13] The respondent pointed out that the parties agreed at trial that the plaintiff would pay the defendant's costs on a party and party basis to 31 March 2013 and on a standard basis from 1 April 2013. This was due to the change in the rules as to the usual basis of taxation, which took effect from 1 April 2013: Supreme Court (Chapter I New Scale of Costs and Other Costs Amendments) Rules 2012. Consent orders were made by the trial judge on that basis. The respondent contended that the same approach should obtain in this Court. The appellant did not address this matter in its submissions in reply.

[14] Enerka Apex Belting Pty Ltd v Vickers Systems Pty Ltd [No 2] [2002] VSC 409 [9] (Habersberger J) ('Enerka').

[15] Stevens v Spotless Management Services Pty Ltd [2016] VSCA 299 [160]-[162].

[19] Grgavac v Hart [1996] VSC 37; [1997] 1 VR 154, 164-5 (Hayne J).

[20] See, eg, Nakos v Serdaris [2016] VSC 179 [39], [42] (Zammit J).

[21] Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721, 725 (Kirby P, Mahoney JA and Samuels AJA).

[22] Enerka [2002] VSC 409 [9] (Habersberger J).

[23] [2013] VSCA 282 [41] (Tate JA and Kyrou AJA).

[24] Enerka [2002] VSC 409 [14]; Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368, [26], [30] (Spigelman CJ, Beazley and McColl JJA) ('Regency').

[25] Enerka [2002] VSC 409 [14]; Regency [2009] NSWCA 368 [34].

[26] Enerka [2002] VSC 409 [13]; Regency [2009] NSWCA 368 [29].

[27] Regency [2009] NSWCA 368 [30].

[28] Ibid. See also Enerka [2002] VSC 409 [14].

[29] [2011] VSC 516 [10] (Bell J).

[30] [2010] VSC 70 [17] (Croft J).

[31] [2016] VSC 179 [39], [42]. Zammit J relied on IFTC Broking Services Ltd v Federal Commissioner of Taxation [2010] FCAFC 31 [9] (Stone, Edmonds and Jagot JJ) for this proposition. See also Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 [11] (Tamberlin, Finn and Sundberg JJ) and the authorities there cited.

[32] [2016] VSC 179 [42].

[33] Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721, 724, 725 (Kirby P, Mahoney JA and Samuels AJA).

[34] See r 26.08(2)(b) as set out at [15], and above nn 12-13.