Tremco Pty Ltd v Thomson [2018] QDC 109

Tremco Pty Ltd ACN 000 024 064 v Carolyn Mary Thomson

We confirm that our client's position is as follows:

1. you, by reason of your conduct, are and were a director of Kadoe Pty Ltd (in liquidation) (Kadoe) so far as the term is defined by subparagraph 9(b) of the Corporations Act 2001 (Cth);
2. Kadoe was insolvent throughout the period from:
   1. 1 July 2011 to the date of appointment of the liquidators of Kadoe, being 29 April 2015 (Appointment Date);
   2. further or alternatively, from 30 September 2009 to the Appointment Date;
3. Kadoe incurred debts to our client;
4. at the time the debts to our client were incurred by Kadoe:
   1. you were a director of Kadoe; and
   2. Kadoe:
      1. was insolvent; or
      2. became insolvent by incurring the debt;
5. you failed to prevent Kadoe from incurring the debts at a time when Kadoe was insolvent; and
6. by reason of Kadoe's insolvency, our client has suffered loss in the amount of $416, 730.78.

It is our view that our client will be successful at the trial, which is due to commence on 4 September 2017. If our client is successful, we would also seek our client's costs.

Notwithstanding the above, our client is willing to resolve this matter commercially and offers to settle the matter on the following basis:

1. you will pay our client the amount of $250,000.00 (two hundred and fifty thousand dollars) (Settlement Amount) in full and final settlement of the claims in the proceeding (including costs, interest and any GST);
2. upon acceptance of this offer, you will make payment of the Settlement Amount within 14 days of acceptance;
3. upon payment of the Settlement Amount:
   1. our client will release and discharge you from all or any claims they have or might have against you arising out of or relating to the subject matter of the proceedings;
   2. our client will take reasonable steps to discontinue the proceeding with your consent;
4. the parties execute an appropriately worded Settlement Deed reflecting these terms within 7 days of acceptance of this offer, to be prepared by our client at its expense;
5. each party will keep confidential (and not disclose) the matters raised in this letter, except as required by due process of law to enforce these terms (or the Deed) or as otherwise agreed inn writing by the parties beforehand; and
6. each party to bear their own costs in relation to the proceeding and this settlement.

The above offer is made pursuant to Chapter 9, Part 5 of the Uniform Civil Procedure Rule 1999 (Qld) ("UCPR") or, alternatively, as an offer made in accordance with the principles of Calderbank v Calderbank [1975] 3 All ER 333, and is open for acceptance in writing to this office within 14 days after the date of this letter, after which it will lapse.

For the avoidance of doubt, the above offer does not comprise or represent any admissions on the part of our client. It is put forward for commercial reasons alone.

Should your client not accept the above offer, our client will seek that your client pay its costs of and incidental to the Proceeding from the date of this offer on an indemnity basis, pursuant to Rule 361 of the UCPR, or alternatively pursuant to Calderbank v Calderbank [1975] 3 All ER 333.

Our client reserves its right to produce this letter to the Court on the question of costs.

[6] Mrs Thomson replied. Her letter is dated 8 June 2016, but that is plainly an error. Her response was marked without prejudice except as to costs. Mrs Thomson raised two matters as going to the appropriateness of the offer:

• (a) First, she contended that she was not a shadow director; and
• (b) Second, she contended that the plaintiff's claim against her had no basis because it had mistakenly sued Kadoe "in its own capacity" rather than as trustee of the For Three Trust and therefore the plaintiff's judgment against Kadoe was "hollow".

[7] She then continued as follows:

On 13 February 2017, your client was provided with the opportunity to amend its Claim and Statement of Claim to properly reflect the order of Andrews SC DCJ, where His Honour ordered costs on a standard basis. Your client elected not to amend its pleadings.

The costs that your client is claiming currently is indemnity costs and not on a standard basis. Your client's claim is inflated and not in accordance with the Court order of Andrews SC DCJ dated 27 February 2015.

The amount of $250,000.00 does not represent any discounted settlement amount. It simply reflects a more accurate statement of the amount your client's claim should be, if allowing for costs on a standard basis taking into consideration costs paid in the course of the litigation and costs your client is not entitled to because of adverse cost orders. Your client has simply made this offer because it knows that I have asked for disclosure for the invoices where the balance of those invoices has not been amended to reflect same. It is strategic because your client knows if it was to be successful at trial the full amount of its alleged claim cannot be proven because your client only received a cost order on a standard basis and it is not entitled to anymore than that. In any event your client will not be successful at trial.

Should your client try to use its settlement offer dated 25 May 2017 on the issue of costs, then this letter will be produced to support why your client is not entitled to costs on an indemnity basis.

The plaintiff's offer as an offer under Chapter 9 Part 5

[8] The plaintiff relies upon its 24 May 2017 offer as an offer under Chapter 9 Part 5 of the UCPR.

[9] That Part relevantly provides:

(1) A party to a proceeding may serve on another party to the proceeding an offer to settle 1 or more of the claims in the proceeding on the conditions specified in the offer.

(3) An offer must be in writing and must contain a statement that it is made under this part.

(a) for a jury trial of a proceeding started by claim - at any time before a verdict is returned; and

(b) otherwise - at any time before final relief is granted.

(1) A party must specify in an offer a period, ending not less than 14 days after the day of service of the offer, during which the offer is open for acceptance, and the offer may not be withdrawn during that period without the court's leave.

(2) An offer expressed to be open for acceptance for a specified period lapses at the end of the period.

[10] In my view, the plaintiff's letter meets the essential requirements for a valid offer under Chapter 9 Part 5.

[11] The offer contains terms which go beyond the orders which could be made in disposition of the proceedings. In particular, it contains a release from the plaintiff of all claims (but no release from the defendant), it contains provision for the terms to be recorded in a deed and it provides for confidentiality of the settlement terms. However, the inclusion of non-monetary terms in an offer to settle under Part 5 does not make the offer non-compliant with the Part, though such terms might make it difficult to determine whether the condition in, relevantly, Rule 360 are met.[4] Tremco's offer was a compliant offer for the purposes of Part 5.

[12] Where an offer is made in accordance with those provisions and the plaintiff is successful at trial, Rule 360 UCPR applies. It provides:

(a) the plaintiff makes an offer that is not accepted by the defendant and the plaintiff obtains an order no less favourable than the offer; and

(b) the court is satisfied that the plaintiff was at all material times willing and able to carry out what was proposed in the offer; the court must order the defendant to pay the plaintiff's costs calculated on the indemnity basis unless the defendant shows another order for costs is appropriate in the circumstances.

(2) If the plaintiff makes more than 1 offer satisfying subrule (1), the first of those offers is taken to be the only offer for this rule.

[13] The settlement offer by the plaintiff was for $250,000 to be paid in full settlement of the claims in the proceedings including costs, interest and any GST. Judgment was substantially more favorable than that offer. None of the non-monetary terms are capable of impacting on that conclusion. Further, there is no basis to believe that the plaintiff was not willing and able to carry out the terms of the proposed offer.

[14] Accordingly, the defendant must pay Tremco's costs on an indemnity basis unless Mrs Thomson shows another order is appropriate

[15] The considerations which inform the determination of whether another order for costs is appropriate in the circumstances for Rule 360 are less flexible that in the context of assessment of a Calderbank offer.[5] In Keeley v Horton [2016] QCA 253 the respondents submitted that the question of whether it was unreasonable in all the circumstances to reject the offer under the Rules should inform the assessment of whether another order is appropriate. That proposition was rejected. Burns J[6] held (footnotes omitted):

[19] The respondents did not accept the formal offer to settle and the appellants have now obtained a judgment no less favourable than the offer. The appellants were at all material times willing and able to carry out what was proposed in that offer. As such, by r 360(1) UCPR, the respondents must pay the appellants' costs calculated on the indemnity basis unless they show that another order for costs is appropriate in the circumstances. In an attempt to discharge that onus, the respondents submitted that indemnity costs should not be awarded unless it can be established that the rejection of the offer was imprudent or plainly unreasonable. However, although that may be the relevant test in the case of Calderbank offers, it is not in the case of offers that do, and the operation of the rule should not be circumscribed in that way.

[16] Mrs Thomson filed some 17 pages of detailed submissions on the question of costs. Perhaps not surprisingly, she did not identify the different legal issues which arise in assessing the effect of an offer made under Part 5 and an offer relied upon as a Calderbank offer.

[17] Many of her points go to whether it was unreasonable for her not to have accepted the offer when made. As I have identified, that is not the issue which arises under Rule 360. However, some of the matters she relies upon in that respect should be considered from the perspective of Rule 360.

[18] Mrs Thomson submits, in effect, that the plaintiff should not have its costs thrown away by the adjournment of the trial on 4 September 2017 because that adjournment was precipitated by the late delivery of the attachments to Mr Hudson's report. There is merit in the submission. On 4 September 2017, Martin J ordered that the trial be adjourned and that "with respect of the application of 4 September 2017, the defendant be awarded her costs in the cause". That order dealt with the costs of the adjournment application. Tremco will not be paid those costs because of the effect of that order.

[19] However, his Honour made no specific order about the costs thrown away by the adjournment. Mrs Thomson properly challenged parts of Mr Hudson's report based on her analysis of the attachments. Although those challenges ultimately proved ineffective to answer the case on insolvency, they did demonstrate that the adjournment was justified in the proper conduct of the trial. Accordingly, I order that there be no order as to costs thrown away by the adjournment of the trial on 4 September 2017. This order will preclude the plaintiff from recovering any of those particular costs.

[20] Mrs Thomson also relies on the late delivery of the attachments to Mr Hudson's report to answer Tremco's application for costs on an indemnity basis. Various submissions were made.

[21] First it was submitted that Tremco did not comply with Rule 429G in appointing Mr Hudson. I reject this submission. The difficult with that submission is threefold. First, Rule 429E makes plain that the relevant division of the UCPR which includes Rule 429G does not apply to the District Court. Second, it is far from clear that the effect of Rule 429G is that any other appointment irregular. Third to the extent the appointment was irregular, it did not give rise to any invalidity of the appointment and Mrs Thomson points to no reason why it had a substantive consequence in the proceedings.

[22] I should add that Mrs Thomson relies on this point to criticize Mr de Waard's conduct as counsel on the basis that he failed to draw the (erroneous) point to my attention. There is no foundation to that submission, not only because of the points made in the previous paragraph, but also because the question of whether and to what extent Mr de Waard would have been required properly to raise matters of this kind in the course of trial is often far from clear. Allegations of breach of ethical duty should only be made where it is plainly justified. I see no justification for it in this circumstance.

[23] Second, her submissions might be taken to contend that she was not in a position properly to consider the offer when made because although Mr Hudson's report had been provided, the attachments had not. I reject this submission. Mr Hudson's report went to solvency. As I have found in my primary judgment, Mrs Thomson was well aware of the grounds to suspect insolvency of Kadoe from at least March 2010. It is not a case of the kind where there is key evidence (such as medical evidence) which a defendant does not have and could not possibly know absent disclosure of medical reports or the obtaining of medical reports.[7]

[24] Further, she did not raise the question of attachments to Mr Hudson's report as a reason for rejecting the offer. Indeed if she had done so, they would have been provided at that time and the adjournment would have been avoided. It seems unlikely to me that the lacking attachments to Mr Hudson's affidavit made a material difference to Mrs Thomson's response.

The plaintiff is not claiming indemnity costs for the Tremco proceedings

[25] This point is dealt with at length in Mrs Thomson's submissions. The contention seemed to be that Tremco was seeking indemnity costs in respect of proceedings in which it was awarded standard costs by the Court. The proceedings which Mrs Thomson refers to, however, are the proceedings before Judge Andrews. Those are not the proceedings in respect of which Tremco is seeking indemnity costs. It seeks indemnity costs of the 588M proceedings.

[26] The contention is not relevant to the assessment of the consequences of Tremco's offer.

[27] It also seems that Mrs Thomson might be submitting that some of the costs incurred in obtaining the Tremco judgment before Judge Andrews had been paid. Even if that is correct, it is a matter which ought to have been dealt with by evidence and submissions at trial. Once again, Mrs Thomson critiques the ethical standards of Tremco's legal representatives. I see no basis for that criticism in her submissions or the evidence she filed in support of them. A fortiori in respect of her attack on Mr Rose in paragraph 36(iv) of her submissions on costs.

[28] Mrs Thomson's point in this regard is formulated in a slightly different way in her affidavit filed 20 June 2018. She seems to contend that it was reasonable to reject the May 2017 offer because she had complained about the amount of costs being claimed as loss or damage was a full indemnity when the costs order by Judge Andrews was for standard costs. The problem with this is threefold. First, as I found in my reasons, Tremco was entitled to that measure of loss. Second, it is not sufficient to justify refusing indemnity costs under Rule 360 merely to establish that it was reasonable for Mrs Thomson to cavil with that measure of loss. Third, even if it was, it was not reasonable to reject the offer on that basis, as I explain in paragraph [34] below.

[29] None of those matters justify a different order. In my view, the prima facie operation of the Rule is not displaced and the order sought by the plaintiff should be made.

[30] It is unnecessary to decide whether the plaintiff is entitled to indemnity costs on the basis that its offer is treated as a Calderbank offer. However, in my view, an indemnity costs order from the date of the offer would be justified on this basis as well.

[31] In Halzeldene's Chicken Farm Pty Ltd (ACN 004 381 346) v Victorian WorkCover Authority (No 2) [2005] VSCA 298, Warren CJ, Maxwell P and Harper AJA held at [25] that:

...a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree's rejecting it.

[32] The offer was made on 25 May 2017. The trial of the proceedings was previously listed to commence on 4 September 2017, however the trial was adjourned. Nonetheless, from 25 May 2017 to the trial of the proceedings, the Plaintiff's case did not change.

[33] In this case, it was unreasonable of Mrs Thomson to reject the offer:

• (a) It was made in May 2017, when the plaintiff's case was fully pleaded and the bulk of the plaintiff's evidence had been filed;
• (b) It was open for a reasonable period;
• (c) It contained a substantial element of compromise;
• (d) The letter foreshadowed a claim for indemnity costs if the offer was rejected.

[34] Also relevant is that Mrs Thomson rejected the offer largely on a misconceived basis. As explained in the primary judgment, Mrs Thomson has consistently harboured the mistaken view that the problems she alleged with the creation of the For Three Trust somehow relieved Kadoe of liability for debts it incurred. It was unreasonable to reject the offer on this basis.

[35] It might also be argued that the novel character of the claim of costs of the trial before Andrews DCJ made it reasonable to cavil with the prospect of recovering that amount. However, the offer made by Tremco contained a very substantial discount on that claim. This consideration did not make it reasonable to reject the offer.

[36] None of the other matters raised in her submissions (which are dealt with above) make it reasonable for her to have rejected the offer. Accordingly, if the offer had to be considered on Calderbank considerations, I find that it would justify an order for indemnity costs.

[37] On the afternoon of day three of the trial, I disclosed that I had acted on instructions of partners of Mr Rose in a contested insolvency matter while at the Bar. Mrs Thomson made no application for me to recuse myself. The matter appears to have been raised in her submissions on costs. It is irrelevant to the assessment of the issues arising on Tremco's offer.

[38] I order that:

1. Judgment for interest in the amount of $66,877.55;
2. There be no order as to costs in respect of costs thrown away by the adjournment of the trial on 4 September 2017; and
3. The defendant otherwise pay the plaintiff's costs of the proceedings on the standard basis up to and including 24 May 2017 and on an indemnity basis from 25 May 2017.

[1] Tremco Pty Ltd v Thomson [2018] QDC 101.

[2] Affidavit of S Barber sworn 12 June 2018 (LTRF 12 June 2018) at SVB-1.

[3] Affidavit of S Barber sworn 12 June 2018 (LTRF 12 June 2018) at SVB-2.

[4] Balnaves v Smith [2012] QSC 408 at [4] to [22]; referred to with approval in McBride v Ask Funding Ltd [2013] QCA 130 at [73].

[5] Calderbank v Calderbank [1975] 3 All ER 333.

[6] With whom Holmes CJ and Peter Lyons J agreed.

[7] In contrast to the position in cases such as GEJ & MA Geldard Pty Ltd v Mobbs (No 3) [2011] QSC 297 and Morrison v Hudson [2006] QCA 170.