Valmont Interiors Pty Limited v Giorgio Armani Australia Pty Limited

Costs

1. Armani's application for a variation of the costs order is based on two offers of settlement it made prior to the hearing. The first offer was made by letter dated 23 April 2020. The terms of this offer were: 1. the proceedings be dismissed with no order as to costs 2. any costs order made in the proceedings be set aside 3. parties pay their own costs 4. the parties release each other from the claims the subject of the Amended Statement of Claim and Cross Claim 5. within seven days from the date of acceptance of the offer, the parties execute a deed of release to formalise, but not alter the terms of the offer.
2. The offer was expressed to have been made in accordance with the principles in Calderbank v Calderbank [1976] Fam 93 and to be open for acceptance until 5:00pm on 1 May 2020.
3. The solicitors for the plaintiff rejected this offer by letter dated 28 April 2020. That letter contained a counter-offer that Armani pay Valmont $480,000, the proceedings to be dismissed without an order for costs, costs orders previously made be set aside and the parties enter into a deed of settlement and release within seven days of acceptance of the offer. That offer was also expressed to have been made in accordance with the principles in Calderbank and open for acceptance until 5:00pm on 1 May 2020. Needless to say, that counter-offer was not accepted.
4. The second offer by Armani was made by letter dated 10 July 2020. The terms of this offer were: 1. Armani pay Valmont $200,000 (being $120,000 for the claim and $80,000 for the costs); 2. the amount to be paid within 14 days of acceptance; 3. the parties cause the proceedings to be dismissed by 9:00am on 20 July 2020 with no order as to costs (the hearing was to commence on that day); 4. the parties enter into a deed of release which releases them from all claims the subject of the amended statement of claim and the cross-claim.
5. This offer was open for acceptance until 2:00pm on 17 July 2020 and was expressed to have been made in accordance with the principles in Calderbank.
6. That offer was rejected by letter dated 13 July 2020. That letter contained a counter-offer in terms that judgment be entered in favour of Valmont in the sum of $480,000 with interest calculated from 22 April 2017, costs as agreed or assessed and that the cross-claim be dismissed.
7. The relevant principles were summarised by counsel for Armani as follows: "… 4.2 The general function of a Calderbank Offer is to promote settlement of disputes, in addition to its more particular application in claims for indemnity costs. [2] 4.3 The making of a Calderbank Offer does not automatically result in a favourable costs order, even if the ultimate judgement of the Court is more favourable to the party making the offer than the terms of the offer. 4.4 Armani still carries the onus of satisfying the Court that it should exercise its discretion as to costs in Armani's favour. [3] 4.5 In determining whether to make an indemnity costs order pursuant to a Calderbank offer, the Court is to have regard to the relevant principles identified in SMEC Testing Services Pty Ltd v Campbelltown City Council [4] , Miwa Siantan Properties Pty Ltd (No 2) [5] , and Nu Line Construction Group Pty Ltd v Fowler [6] . Such principles are: (a) There must be a real and genuine element of compromise; (b) The refusal must be unreasonable; (c) The reasonableness in rejecting an offer must be considered at the time the offer is made, not with the benefit of hindsight; (d) Relevant factors in relation to whether the rejection was reasonable include the stage of the proceedings at which the offer was received, the time allowed to consider the offer, the extent of compromise offered, the offeree's prospects of success (assessed at the date of the offer), the clarity with which terms of the offer were expressed and whether the offer foreshadowed an application for indemnity costs in the event of rejection. …" (Emphasis added)
8. There is no doubt in my mind that the offers both contained real and genuine elements of compromise. The defendant had, on the face of the material known to both parties at the time (and especially the contract), a real claim for liquidated damages in addition to a strong argument in its defence that the quote for the work given by the plaintiff did not form part of the contract.
9. The only real issue is whether, at the time, the plaintiff's refusal of each of the offers was unreasonable.
10. The context in which the offers were made, and rejected, is important in this respect. On 25 July 2019 orders were made setting the matter down for hearing commencing on 18 May 2020. After one unsuccessful attempt in January 2020 to vacate the hearing, the plaintiff applied to vacate the hearing on 30 April 2020. Orders were made on 14 May 2020 granting that application. The basis of that application was the plaintiff's desire to adduce expert evidence in reply to the defendant's expert evidence.
11. This not only expanded the scope of the proceedings, and the costs likely to be incurred, but also increased the delay in the resolution of the issues between the parties.
12. The plaintiff argues that, at the time of the offers, the defendant had not yet served the evidence of Frederico Molteni (dated 16 July 2020). However, it does not specify what aspect of that affidavit changed the circumstances known to the parties at the time the offers were made and rejected. The issues in the proceedings were well known by that time and turned on an assessment of the scope of the contract between the parties, the plaintiff's performance of the contract, and whether any of the contractual provisions concerning an expansion of that scope and the time for practical completion. There was expert evidence and contemporaneous documents in the possession of the plaintiff dealing with all of those matters and Mr Molteni's affidavit did little to add to them.
13. The plaintiff also argues that the second offer allowed insufficient time for an assessment of it by it. If that were the case, that may have been stated at the time. It was not. Rather, the offer was rejected without explanation within three days. Indeed, that rejection was accompanied by a counter-offer that was more favourable to the plaintiff than the counter-offer made by it in response to the first of the defendant's offers. No reason was given for this. The counter-offer was expressed to be open for acceptance for seven days: the same period that is now said to have been unreasonable.
14. The plaintiff also says that the second offer was unclear because there were no terms of the proposed deed of release. However, no clarification was sought and the plaintiff's counter-offer contained a term that also required documented releases without any specific terms.
15. The fact is that the parties had long been in dispute. The defect period involved a well-documented set of defects supplied to Valmont to enable it to complete the work according to the contract and the parties were in close contact about the scope and performance of the agreement from the time it commenced until the time the plaintiff left the site. Proceedings were commenced in 2017 and involved extensive evidence, both lay and expert, and interlocutory applications. Counsel was briefed for both parties and, given the approaching hearing dates, must have had at least enough familiarity with the evidence to advise on the prospects of the proceedings. The plaintiff's response to the first offer was detailed and showed a clear understanding of the issues.
16. Part of that response addressed the issue of whether the plaintiff's quotation formed part of the contract. That issue clearly had the potential to have a large impact on the quantum of the plaintiff's claim. However, it was obvious that there was no merit in the plaintiff's position. Indeed, the plaintiff withdrew that allegation at the commencement of trial.
17. The costs of the proceedings, involving a number of experts and a large volume of material were, on any view, likely, even in April 2020, to be very large and quite possibly disproportionate to any judgment that may be obtained.
18. In all of those circumstances, I consider that the plaintiff's rejection of both offers was unreasonable.
19. For those reasons, I make the following orders:
20. The following judgments entered on 27 August 2020 be set off against each other with effect from the date of these orders:
21. The judgment in favour of the plaintiff in the sum of $130,973.00; and
22. The judgment in favour of the defendant on the cross-claim in the sum of $235,611.29.
23. Order 3 made on 27 August 2020 be vacated.
24. Save for the order referred to in order 2 above, all previous costs orders other than any adverse costs orders made against the defendant be vacated.
25. The plaintiff pay the defendant's costs of the proceedings on an ordinary basis up to and including 23 April 2020 and on an indemnity basis thereafter.
26. The plaintiff is to pay the defendant's costs of the motion.