StockCo Agricapital Pty Ltd v Dairy Livestock Services Pty Ltd

Costs

1. As the successful party in the proceedings, StockCo sought an order for costs. On 28 August 2019 StockCo had made a formal offer of compromise under the Rules to accept judgment in the sum of $80,000. That offer was not accepted. On the strength of being entitled to a more favourable judgment than that contained in its notice of offer, StockCo sought indemnity costs from 29 August 2019 onwards under UCPR r 42.14.
2. In response to StockCo's claim for costs, DLS relied on UCPR r 42.34, which provides: (1) This rule applies if - (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied that - (a) for proceedings that could have been commenced in the District Court - the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted, or (b) for proceedings under Part 2 of Chapter 7 of the Industrial Relations Act 1996 - the commencement and continuation of the proceedings in the Supreme Court, rather than the Local Court, was warranted.
3. DLS submitted, based on the decision of the Court of Appeal in Averkin v Insurance Australia Ltd (No 2) [2016] NSWCA 150 at [9]-[10], that UCPR r 42.34 takes priority over r 42.14, so that if r 42.34 applies, no question of entitlement to indemnity costs can arise. This particular submission was not disputed. The initial questions were whether the proceedings could have been commenced in the District Court and whether their commencement and continuation in this Court was "warranted".
4. Initially, StockCo had claimed $590,000. As stated in [7] and [8] in my judgment, StockCo's second claim in these proceedings concerning the second and third stock sales, was originally for $468,085.09. StockCo received the sum of $380,000 at a later point by calling on a guarantor of the indebtedness of the principal debtor, Reid Agricultural. Eventually, it became clear that the guarantor, which was in liquidation at the time the proceedings were commenced, would not make any claim to recover that money from StockCo, and StockCo limited its claim from DLS to the sum of $88,085.09, which was ultimately successful.
5. DLS pointed out that, even including the initial $380,000, the claim on which StockCo succeeded (a claim for money had and received) fell within the District Court's usual jurisdiction. The amount ultimately recovered was well below the $500,000 specified in UCPR r 42.34(1). Accordingly, DLS contended, StockCo should be deprived of its costs of the proceedings under the rule.
6. In response, counsel for StockCo pointed out that these proceedings were commercial in nature. They were commenced in February 2018 and the Statement of Claim was amended in July 2018. At that time a series of cases, beginning with The NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194 (see at [38]-[46]), had decided that the District Court did not have jurisdiction to entertain commercial claims.
7. This surprising and unfortunate result was remedied by the Justice Legislation Amendment Act (No 3) 2018 (NSW), which took effect in November 2018. Counsel for StockCo submitted, however, that at the time the proceedings were commenced, the District Court lacked jurisdiction and, accordingly, the proceedings could not have been commenced in the District Court for the purposes of UCPR r 42.34(2)(a).
8. The purpose of UCPR r 42.34(2)(a) is to ensure that proceedings which fall within the District Court's jurisdiction are, except in special circumstances where commencement in this Court is warranted, brought in the District Court. It might be thought that where proceedings were properly commenced in this Court but, as they developed, became proceedings that were suitable to be completed in the District Court, there should be a similar incentive on the parties to have them transferred there. An example of such a case is where proceedings are brought in this Division seeking injunctive relief as well as damages for breach of contract, but where the injunction claim ultimately falls away, leaving a claim for damages or some other monetary amount.
9. The present is another example of a case which, once the remedial legislation had been passed, could, and probably should, have been transferred to the District Court. But while UCPR r 42.34(2)(a) speaks of the "commencement and continuation of the proceedings" in the Supreme Court being warranted, the paragraph is only engaged if the proceedings "could have been commenced" in the District Court. It is not, as a matter of language, engaged if the proceedings could not at the time of their commencement have been commenced in the District Court but subsequently became capable of being completed in that Court.
10. Counsel for StockCo argued that in any event the commencement and continuation of the proceedings in this Court was "warranted" for the purposes of UCPR r 42.34(2)(a). Counsel pointed out that when commenced, the amount claimed was more than $500,000.
11. As a matter of language, the rule is triggered by the obtaining of a judgment for less than $500,000 where the proceedings could have been commenced in the District Court. Clearly, the rule must have been drafted with the contemplation that it could apply where the plaintiff claims an amount exceeding $500,000 but still below the District Court's jurisdiction of $750,000, and then succeeds for a lesser amount. To say that in such circumstances the commencement of proceedings in the District Court is always warranted would, in my view, be to nullify the language of the rule.
12. There may be some circumstances a claim which initially exceeded the $500,000 would warrant commencement in this Court. But arguably there is nothing special about StockCo's claim in this regard.
13. The other point I would make is that even if the commencement of the proceedings in the District Court had been warranted, their continuation was probably not, after it became clear that no claim to claw back the $380,000 would be made against StockCo. The evidence before me shows that the liquidation of the guarantor company was completed in October 2018 and the company was deregistered in February 2019. It would seem that it would have been clear by October 2018, or at the very latest by February 2019 that no claw-back claim would be made. Yet it was not until shortly before the trial that the claim to $380,000 was abandoned.
14. As I have concluded that UCPR 42.34(2)(a) was not engaged because the proceedings could not, at the time of commencement, have been commenced in the District Court, I do not need to decide finally whether the commencement or continuation of the proceedings in this Court was otherwise warranted. StockCo is entitled to its costs of the proceedings.
15. The next matter to be determined in StockCo's claim is that it should receive costs on an indemnity basis.
16. DLS' written submissions argued that StockCo had not obtained a judgment more favourable than that in its offer. The argument was that the ultimate judgment amount should be compared not just with the amount of the offer but with the costs which StockCo would be entitled to. The submissions argued that once the costs were taken into account, StockCo's ultimate recovery would not exceed the judgment sum to which I have already referred.
17. I do not accept this argument, which seems to me to be based on a misunderstanding of the Rules. An offer under the Rules is exclusive of costs and the proper comparison is between the amount of the offer, in this case $80,000, and the amount of judgment.
18. The effect of UCPR r 42.14 is to create a presumption in favour of the award of indemnity costs where, as here, the plaintiff has achieved a more favourable result than that specified in an earlier offer. The question is whether there is anything in the circumstances of this case which requires the Court to depart from that presumption.
19. DLS' written submissions relied on various factors which, so it was argued, meant that the presumption in favour of indemnity costs should be displaced. One of those was the late abandonment of the claim so far as it concerned the $380,000. DLS' submissions went so far as to contend that DLS had, in fact, succeeded on this "claim".
20. The submissions also argued that in various other ways StockCo's conduct of the proceedings had involved disproportionate cost. The submissions pointed to changes in the way in which StockCo put its case, the fact that StockCo retained both senior and junior counsel, and an overall lack of proportionality of the costs (said by StockCo in correspondence to have reached around $140,000 by September 2019, even before the trial took place) to the amounts at stake.
21. On the face of it, StockCo could and should have confined its second claim by excluding the $380,000 at a much earlier point than it did. But there was no evidence of any prejudice to DLS in the form of specific additional costs incurred as a result. In fact, the amount of $380,000 was not a separate claim at all. It was simply a credit offered by StockCo to avoid double recovery. On my findings, StockCo was entitled as against DLS to recover the full $468,085.09 which DLS received from the second and third stock sales in mid-2017. I do not see how StockCo's failure to offer the credit at an earlier point would have made any substantial difference to meeting the claim.
22. Furthermore, the question I am considering is whether the offer should have its presumptive effect. The offer figure was so low that it clearly implied an abandonment of the $380,000 in any event.
23. It is also fair to say that the time and effort spent on the litigation was disproportionate to the amount at stake. As I pointed out in my principal judgment, the hearing itself occupied two days and was followed by a further round of written submissions, another hearing and yet further written submissions. It is also correct that the further submissions involved a significant expansion of the arguments and trespassed into areas which had not previously been agitated, or even pleaded, by the parties.
24. But this cannot fairly be blamed on StockCo alone. Counsel for DLS also raised new points and advanced a number of arguments which, as the case twisted and turned, later were not pressed or fell away.
25. I do not find it profitable to go back into the maze of arguments which I was presented with in this case for the purpose of trying to determine whether one party was more or less responsible for the way in which the case ultimately developed. The fact that proceedings may go off on unexpected tangents and may take longer and cost more to resolve than was initially expected is a commonplace of litigation. In my view, it does not provide a reason for failing to give effect to the policy behind the Rules concerning offers of compromise, which is to create deterrents and incentives designed to encourage the parties to compromise proceedings rather than bring them to trial. To the contrary, it is the very sort of thing that a party facing a formal offer of compromise should consider in deciding whether to accept it.
26. The effect of upholding StockCo's submissions is to give it an award of indemnity costs (which will no doubt be very substantial) of proceedings which could, and in my view should, have been transferred to the District Court rather than pursued to trial in this Court. This appears hard on DLS. But for the reasons I have given, I think it is what the Rules require.

Orders

1. I make the following orders:
2. Judgment for the plaintiff against the defendant in the sum of $207,009.87, together with interest of $31,769.19.
3. Order that the defendant pay the plaintiff's costs of the proceedings up to and including 28 August 2019 on the ordinary basis and from 29 August 2019 onwards on the indemnity basis.

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