I delivered judgment in these proceedings on 10 August 2017: see V8 Supercars Holdings Pty Ltd v Sanpoint Pty Ltd [2017] NSWSC 1043.
The first plaintiff, who I will call "V8 Holdings" succeeded on its claim and the defendant's cross claim was dismissed.
I made formal orders to deal with the substantive issues in the proceedings on 8 September 2017, and gave directions for the determination of the costs orders that should be made. The parties delivered written submissions and served affidavit evidence, and a hearing took place on the costs issue on 29 September 2017.
On 13 October 2014, Pembroke J delivered judgment on separate questions in these proceedings: V8 Supercars Holdings Pty Ltd v Lucas Dumbrell Investments Pty Ltd [2014] NSWSC 1391. His Honour relevantly decided a question of the proper construction of a term of the agreement between the parties, which has been called the "REC". The point of construction was determined unfavourably to Sanpoint. His Honour took the view that the REC had been drafted in an inadequate manner and that V8 Holdings was responsible for that drafting. Consequently, Pembroke J ordered that the parties to the separate question should bear their own costs. The parties to the present argument about costs accept that the costs order made by Pembroke J should not be disturbed.
Pembroke J also, at [12], observed that the nominal price at which the REC had been sold to the second plaintiff "invites suspicion and warrants investigation".
The plaintiffs served an offer of compromise on Sanpoint on 25 May 2015 and on the same date served on it a Calderbank offer. Sanpoint rejected the two offers.
The issue that arises on this costs application flows out of the rejection by Sanpoint of the two offers, as subject to the costs order made by Pembroke J continuing to have effect, the plaintiffs seek an order that Sanpoint pay their costs up to 25 May 2015 on the ordinary basis, and that it pay their costs on the indemnity basis from that date. Sanpoint's position is that, again subject to the continuation of Pembroke J's order, it should only be ordered to pay the plaintiffs' costs on the ordinary basis.
The formal offer of compromise served by the plaintiffs on Sanpoint on 25 May 2015 related only to the cross claim filed by Sanpoint, which claimed a breach of the REC by V8 Holdings, and certain other relief against both plaintiffs. Materially, the offer was that judgment on the cross claim would be entered in favour of the cross defendants, who would pay Sanpoint $50,000 in respect of its costs.
The Calderbank offer that the plaintiffs also served on Sanpoint on 25 May 2015 went further than the formal offer of compromise. It contained an explanation in some detail of the weaknesses in Sanpoint's case, which the plaintiffs suggested would lead to the cross claim being dismissed. It suggested that, in any event, Sanpoint would have great difficulty in establishing that it suffered any recoverable damages. It is not necessary to go into the matter in detail, but the reasons given by the plaintiffs in the Calderbank offer were substantially consistent with the reasons given in my judgment for dismissing the cross claim. The plaintiffs also reiterated the view, expressed in an earlier letter written on their behalf dated 12 March 2015, that all of the claims made in the cross claim by Sanpoint for relief other than damages for breach by V8 Holdings of the REC should be withdrawn because those claims were not available. Although Sanpoint declined to withdraw the additional claims, the Court was ultimately advised at the time of the hearing of the proceedings that the additional claims would not be proceeded with.
The offer made in the Calderbank offer related to the whole of the proceedings and provided that the plaintiffs' summons and Sanpoint's cross claim would be dismissed on the basis that the parties would pay their own costs, but that V8 Holdings would pay Sanpoint the sum of $50,000. V8 Holdings also agreed to release Sanpoint from all claims that it had against Sanpoint under the REC. These claims included an amount of $20,000 that was Sanpoint's share of the costs incurred by V8 Holdings in conducting the tender process by which it attempted to sell the REC owned by Sanpoint and two other parties. They also included an amount of $68,459.60 that Sanpoint was obliged to pay to V8 Holdings under the terms of the REC in respect of overpayments of Appearance Money (as defined) to Sanpoint.
Thus, while the formal offer of compromise only related to the cross claim, the Calderbank offer related to the whole of the proceedings and provided for their dismissal. The formal offer of compromise offered a contribution of $50,000 towards Sanpoint's costs. The Calderbank offer provided for all parties to pay their own costs, and by way of payment and release of debts offered Sanpoint value of $138,459.60.
In its written submissions, Sanpoint accepted that the formal offer of compromise complied with the requirements of Uniform Civil Procedure Rules 2005 (UCPR) r 20.26, when r 20.26(3)(a) is read with r 20.26(2). It also accepted that r 42.15 applies as Sanpoint obtained an order or judgment on its cross claim that was "no more favourable to [Sanpoint] than the terms of the offer". The only issue is therefore whether the Court should 'order otherwise' so that V8 Holdings will not be entitled to have its costs assessed on an indemnity basis from 26 May 2015.
Sanpoint submitted that the Court should 'order otherwise' as the formal offer of compromise did not have a real element of compromise or involve a genuine offer, and it was not unreasonable for Sanpoint to reject the offer at the time that it did so.
Strangely, in its written submissions Sanpoint then proceeded to explain why the Court should 'order otherwise' in relation to the formal offer of compromise, but it did not deal with the plaintiffs' Calderbank offer that related to the whole of the proceedings. However, senior counsel for Sanpoint made submissions concerning the effectiveness of the Calderbank offer during the costs hearing.
Sanpoint submitted, that for an offer of compromise under UCPR r 20.26 to be effective it must be "a real and genuine offer" before an order for indemnity costs will be made under r 42.15: see Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [25]. The question whether the offer represents a real element of compromise "is determined objectively according to the circumstances of the particular case at the time the Offer was made rather than with the benefit of hindsight": Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [42], and also Regency Media at [33]. Sanpoint submitted that what amounts to a sufficient level of compromise and what is a derisory offer "must to a large extent be a matter of impression": see Prospect Resources Ltd v Molyneux [2015] NSWCA 171 at [94].
In submitting that the offer of compromise had no real or sufficient element of compromise for it to be effective, Sanpoint relied upon the fact that, when the offer of compromise was made on 25 May 2014, no further evidence had been served in addition to the evidence that had been served before the hearing of the separate question by Pembroke J, and Sanpoint had not had the opportunity to obtain disclosure of documents from V8 Holdings, relevant to the detail of how the tender process was conducted and the sale of the Sanpoint REC occurred. They were matters wholly within the knowledge of V8 Holdings and those who advised it. Further, Sanpoint had not received documents from corporations upon whom it ultimately caused subpoenas to be served in relation to the quantum of the sale prices for RECs, under contracts between third parties that may have provided evidence to support Sanpoint's damages claim. Additionally, Sanpoint relied upon the fact that, by the time it received the offer of compromise, it had incurred $161,090.86 in legal costs in the proceedings. Sanpoint also relied upon the fact that it was seeking relief in respect of the sale process that yielded $20,000 gross (and a net return of nil) in respect of an asset for which it had paid $1,386,957.56 a few years earlier.
In these circumstances, Sanpoint submitted that the offer of compromise should be treated as "an invitation to surrender rather than any form of commercial compromise": see Regency Media at [30].
So far as the Calderbank offer is concerned, I understand that Sanpoint does not dispute the plaintiffs' submission that, if the Calderbank offer is a genuine offer of compromise and is unreasonably rejected, it may be appropriate to order indemnity costs against the offeree: see Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368, where Giles J (as his Honour then was) said "[c]ompromise connotes that a party give something away".
The plaintiffs further submitted that, in determining whether it was unreasonable to fail to accept the Calderbank offer, it is relevant to consider: (i) the stage of the proceeding at which the offer was received; (ii) the time allowed to the offeree to consider the offer; (iii) the extent of the compromise offered; (iv) the offeree's prospects of success, as assessed at the date of the offer; (v) the clarity with which the terms of the offer were expressed; and (vi) whether the offer foreshadowed an application for indemnity costs in the event of the offer not being accepted: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12] (Basten JA; McColl and Campbell JJA agreeing).
I have concluded that I should accept the plaintiffs' submissions concerning the costs order that the Court should make based upon the failure by Sanpoint to accept the plaintiffs' Calderbank offer. That makes it strictly unnecessary for me to determine the position concerning Sanpoint's failure to accept the offer of compromise. However, I should say that, had I been required to rule on the consequences of the non-acceptance of the offer of compromise alone, I would with some hesitation have found that the Court should 'otherwise order' because, taking all matters into consideration as the trial judge, I do not think that the offer involving judgment for the plaintiffs on the cross claim, with the plaintiffs contributing $50,000 to Sanpoint's costs, was a real or genuine compromise. Although Sanpoint's claim ultimately failed completely, I do not think that, as at the date the offer of compromise was made, Sanpoint's prospects of success were so insubstantial that it was a real compromise for the plaintiffs to offer Sanpoint no more than a relatively small amount for its costs.
I will now give my reasons for concluding that the Calderbank offer was effective.
A number of preliminary responses are called for in relation to Sanpoint's submissions.
First, while Sanpoint's legal expenses may have been $161,090.86 at the time it received the offer of compromise and the Calderbank letter, Sanpoint did not dissect that amount into the amount that was covered by Pembroke J's order that the parties to the separate questions should bear their own costs of those proceedings, and other costs. The effect of his Honour's order was that the legal costs that Sanpoint had incurred in respect of the separate question were effectively sunk costs. As Sanpoint was unsuccessful on the separate question, the special order for costs that Pembroke J made was particularly favourable to it. Subsequently, Sanpoint could not reasonably expect that V8 Holdings would make an offer to it that would reimburse it for the legal costs that Pembroke J's order required it to bear itself. In these circumstances the relationship between the legal costs that Sanpoint had incurred that it could hope to recover from V8 Holdings, and the $50,000 offered by V8 Holdings, is not known.
Secondly, the reliance by Sanpoint on the difference between the sale price of $20,000 and the amount of $1,386,957.56 that it had paid some years earlier should be treated with caution. While as a matter of bare fact the figures relied upon by Sanpoint are objectively correct, they ignore all of the evidence that was dealt with in the primary judgment that would have had a bearing upon the value of Sanpoint's REC, and its likely sale price at the time it was actually sold. There was detailed evidence at the hearing that showed that there had been substantial national publicity for the fact that many of the V8 Championship Teams were in dire financial straits, and that the viability of the Championship was in question. These matters are generally dealt with at [397] to [405] of the primary judgment. In particular, as I observed at [400], the right to receive Car of the Future payments had been exhausted. This is not the proper place to canvass in detail the significance of all of these changes in the relevant market to the value of Sanpoint's REC, but it is sufficient to dispel any assumption that, because of the large difference between the price at which Sanpoint had purchased its REC, and the price at which the REC had been sold, there was a high probability at the time the offer of compromise and the Calderbank offer were made that Sanpoint had suffered a very substantial loss, that may have been attributed to a breach of the REC by V8 Holdings.
Sanpoint placed great weight on the fact that it had to work hard to get documents out of the plaintiffs, and that it was almost 2 years after the offers were made, and only in the weeks prior to the final hearing, that Sanpoint would finally be provided with proper disclosure of documents by V8 Holdings. Sanpoint relied upon the observations by Beazley JA (as her Honour then was, and with whom McColl JA agreed) in Vale v Eggins (No 2) [2007] NSWCA 12 at [22]:
[22] However, the other matters raised by the appellant do warrant further consideration. In my opinion, there is merit in these points. As I have already indicated, the respondent, at the time that he made the offer of compromise, had not served all the medical reports which he already had in his possession. In those circumstances, when the respondent already had material in his possession which he did not serve, and which was relevant to an assessment of the offer made, he ought not to be entitled to the favourable costs provisions under the Rules. It is not an answer, as submitted by the respondent, that the appellant could have himself made an offer of compromise once all the evidence was in his possession.
Although it is true that discovery was not given by the plaintiffs until well after the date when the offers were served on Sanpoint, Sanpoint did not identify any particular discovered documents that were in the plaintiffs' possession when the offers were made, and which were in any real sense material to the assessment by Sanpoint of whether it should accept either of the offers. I do not wish to put a gloss on Beazley JA's words, but if it is thought that the failure by the party who makes an offer of compromise or a Calderbank offer to produce material to the offeree may be a proper ground for disentitling the offeror to an advantageous costs outcome, then the relevant material should reasonably obviously contain information that would be material to the offeree's decision, and fairness would suggest that the offeree should be given the benefit of that material before the decision has to be made. Sanpoint has not identified any material in the documents ultimately discovered that satisfied this criterion as at the date the offers were delivered. In my judgment, while the discovered material may have provided much of the background evidence that was considered in my reasons for judgment, none of it had any particular significance in leading to my decision to reject Sanpoint's case.
I have found that aspects of the judgment of Bryson JA in Vale v Eggins (No 2) have provided useful guidance. His Honour said:
[29] The circumstances of the present case are not exceptional. It is routine and unremarkable that when a case goes to trial parties have more information, more expert reports, more or different witnesses than those available months earlier, and a different view of each side's prospects. It would be exceptional if there had not been changes of those kinds between making an offer of compromise in February and going to trial the following September. Neither party is the custodian of the interests of the other, and the object of the Rule of Court is to put risk and burden on the party who receives and does not accept an offer of compromise: that party is, at its own risk, to assess what it should do. The pursuit by the offeror of its own interest in deciding what evidence to bring forward and when to do so is part of the environment in which litigation decisions have to be made. It is not a substantial injustice that the offeror should turn out to have had or later to obtain better evidence or better prospects than were known to the offeree at the time. If it were a condition of entitlement that the offeror had first made full disclosure of its expert evidence, the Rule would say so.
[30] South Eastern Sydney Area Health Service v King [2006] NSWCA 2 related to circumstances in which there should be an indemnity costs order: that is not under consideration. King's case related to a Rule of Court which applied "unless the Court otherwise orders". In King's case, and in Fowdh v Fowdh (CA 4 November 1993) unreported) and Connor v Hatgis (No 2) (CA 7 December 1995 unreported) no Rule of Court was under consideration which contained a test like the barrier in DCR Pt 39A r 25(6) - "unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders" - a formidable barrier to an exception. What would be a substantial injustice I am not called on to expound, but I would think that in this context it would probably involve some delinquency, deception, abuse of the offer-of-compromise procedure or departure from an obligation to make information available to the offeree. As well as this the case must also be an exceptional case. There is in my perception no substantial injustice and no injustice in any sense in putting a burden on a party to appraise an offer of compromise by making its own assessment of the strength of its own case.
The significance of material that is not disclosed before an offeree is required to respond to an offer of compromise or a Calderbank offer may fall within a wide range of materiality. In the present case Sanpoint has not identified any withheld material that could reasonably be taken as equivalent to the withholding of medical reports, and in my view this case falls within the "routine and unremarkable" circumstances described by Bryson JA.
In my primary judgment, I set out at [87] the way in which Sanpoint put its claim for breach by V8 Holdings of cl 10.1 of the REC. I then at [279] set out in more detail my understanding of the way in which Sanpoint formulated more elaborately in its final submissions its claim that Sanpoint breached cl 10.1 of the REC.
In my view, in a broad but real sense the primary factual circumstances relevant to the determination of these questions were, or ought to have been, reasonably obvious to Sanpoint at the date the Calderbank offer was received by it. No doubt further evidence would have become available through the process of discovery, and in the ordinary way perceptions of the strength of Sanpoint's claim may have changed in the period up to the commencement of the hearing. But in my view the likely process of reasoning by which the Court would resolve the questions was reasonably apparent as at the date the Calderbank offer was made, at least sufficiently to require Sanpoint to make its own judgment about the prudence of accepting the Calderbank offer.
This observation is supported by the fact that the reasons given in the Calderbank offer as to why Sanpoint ought to accept it agree substantially with the Court's final reasons for judgment.
Further, on the issue of damages, the Court ultimately found against Sanpoint on the basis that it had not proved on the balance of probabilities that it had actually suffered a loss, as the first step in the Court's determination of the value of the chance that it had lost by reason of V8 Holdings not having conducted the tender process in the manner that Sanpoint submitted was required by the REC. Although the outcome may not have been clearly predictable at the time the Calderbank offer was received by Sanpoint, most of the reasons that ultimately persuaded the Court that the evidence did not demonstrate that an actual tender would have been received for Sanpoint's REC on the balance of probabilities was available to Sanpoint, at least to a sufficient degree to justify Sanpoint being required to make its own judgment as to the prudence of rejecting the Calderbank offer.
At the end of the day, Sanpoint submitted that the Court should act upon evidence that a REC had been sold for $900,000 at a time that was reasonably contemporaneous with the tender process. That would be the starting point for the Court to make a judgment as to the value of the lost chance, which logically would have been less than $900,000. It may be that Sanpoint did not have evidence of the $900,000 transaction at the time it received the Calderbank offer (I am not sure, Sanpoint did not clearly deal with that issue in connection with the costs dispute). However, I do not think in any event that Sanpoint had any reasonable grounds for aspiring at the date of the receipt of the Calderbank offer to receiving any greater amount of damages than an amount that would broadly reflect the process to which I have just referred.
In this context, an offer by the plaintiffs that was worth approximately $140,000 represented a real offer of compromise by the plaintiffs.
As to this amount, the $50,000 component was in cash and the obligation on Sanpoint to pay the $20,000 that the plaintiffs offered to release was established by the REC. Sanpoint submitted that the Court should not act on the basis that the offer to release an obligation to pay $68,459.60 was a real one. That submission was put on the basis that it had not been established that Sanpoint owed that obligation. While it is true that in a strict sense the plaintiffs did not prove that Sanpoint had a standing debt of that amount, the claim was mentioned in the evidence and it was never challenged by Sanpoint, even in the course of the costs of hearing. The significance of the debt was unknown to the Court during the primary hearing, but as Sanpoint had received the Calderbank offer, must have known that, if it failed in the case, then the plaintiffs would probably seek a special costs order based upon the Calderbank offer. I do not think that in the context of a costs hearing Sanpoint could simply ignore the matter, without putting it in contest, and then say that the Court should not treat the offer to release the debt as being a component of a real compromise of the proceedings.
For these reasons I order Sanpoint to pay the plaintiff's costs in the proceedings, save for the costs of the separate questions determined by Pembroke J in V8 Supercars Holdings Pty Ltd v Lucas Dumbrell Investments Pty Ltd [2014] NSWSC 1391, assessed on the ordinary basis for costs incurred up to and including 25 May 2015 and on an indemnity basis for costs incurred from 26 May 2015.
[3]
Amendments
04 May 2018 - Cover sheet updated
Robb
to Robb J
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Decision last updated: 04 May 2018