Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd

DECISION : See paragraphs 30 and 31 of judgment.

CATCHWORDS : PROCEDURE - Costs - indemnity costs - plaintiffs successful - defendants engaged in misleading and deceptive conduct - plaintiff claims indemnity costs - claims defendants' case unmeritorious and conducted in wilful disregard of known facts - plaintiff claims outcome exceeded Calderbank offer - HELD - indemnity costs awarded but only on basis of Calderbank letter.

Civil Liabilty Act 2002 (NSW), Part 4 LEGISLATION CITED : Civil Procedure Act 2005 (NSW), s 98(1)(c) Fair Trading Act 1987 (NSW), ss 41, 42 Trade Practices Act 1974 (Cth), ss 51A, 52

Auswest Timbers Pty Ltd v Secretary to the Department of Sustainability and Environment [2010] VSC 513 Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Limited (1992) 30 NSWLR 359 Commonwealth of Australia v Gretton [2008] NSWCA 117 Degman Pty Limted (in liquidation) v Wright (No. 2) (1983) 2 NSWLR 354 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Harrison v Schipp; Cameron v Schipp [2001] NSWCA 13 CASES CITED : Hypec Electronics Pty Limited (in liquidation) v Mead; BL & GY International v Hypec Electronics Pty Ltd (in liq) (2004) 61 NSWLR 169 In Re Wilcox; Venture Industries Pty Limited (No 2) (1996) 72 FCR 151 Latoudis v Casey (1990) 170 CLR 534 Ohn v Walton (1995) 36 NSWLR 77 Oshlack v Richmond River Council (1998) 193 CLR 72 NMFM Property Pty Limited v Citibank (No 11) (2001) 109 FCR 77 Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd (No.2) [2010] NSWSC 1317

PARTIES : Ventouris Enterprises Pty Ltd Dib Group Pty Ltd

COUNSEL : Plaintiff- S. A. Benson Defendant- D. L. Cook

SOLICITORS : Plainitff-Steven Valtas, Butlers Law Group Defendant-Basil John Macree, B J Macree & Co

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2006/257602 VENTOURIS ENTERPRISES PTY LTD v DIB GROUP PTY LTD & ANOR (NO. 3) JUDGMENT - COSTS 1 HIS HONOUR: This is my third judgment in these proceedings. It concerns issues of indemnity costs. My first judgment found that the defendants, the Dib Group Pty Ltd ("the Dib Group") and Mr George Dib had engaged in misleading and deceptive conduct causing Ventouris Enterprises Pty Ltd ("Enterprises") to lend money to E-Style Marketing Pty Ltd ("E-Style") in October 2003: Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963. The defendants' representations were found to be misleading and deceptive through the operation of Trade Practices Act 1974 (Cth), s 51A and Fair Trading Act 1987 (NSW), s 41, because they were made about future matters but the defendants did not advance reasonable grounds for making them: Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [95], [96] and [97]. The first judgment made findings that the principal of Enterprises, Ms Betty Ventouris, relied on the defendant's representations causing Enterprises to make the loan to E-Style and made general findings about Enterprises' loss and damage. It was contemplated though that that loss and damage if not agreed would have to be dealt with in a further hearing. 2 That further hearing resulted in my second judgment, which dealt with questions of loss and damage and questions of apportionment under Trade Practices Act, Part VI and Civil Liability Act 2002 (NSW), Part 4 and costs issues: Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd (No.2) [2010] NSWSC 1317. The costs issue dealt with in the second judgment was whether Enterprises should recover all its costs of the proceedings given that it did not succeed on all issues: Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd (No.2) [2010] NSWSC 1317, at [25] to [34]. The second judgment left open for subsequent consideration the question of whether Enterprises should have the benefit of a lump sum costs order under Civil Procedure Act 2005 (NSW), s 98(1)(c) and the question of indemnity costs. The second judgment ordered the defendants to pay 75 per cent of the plaintiffs' costs of the proceedings incurred up to that date, namely 24 November 2010. The parties were directed to file and serve written submissions in relation to the desirability or otherwise of a lump sum costs order. But on 29 November the defendants consented to the making of a lump sum costs order. The filing of evidence and submissions as to the quantum of costs will still be necessary so that the Court can make a lump sum costs assessment. The costs question to be resolved in this judgment is whether or not an indemnity costs order for the whole or part of Enterprises' costs is justified in the circumstances. 3 The plaintiff seeks, and the defendants resist, an indemnity costs order. Enterprises contends for an indemnity costs order on the basis first that the defendants had no prospects of success and in the alternative on the basis of a Calderbank offer. The defendants say that neither basis justifies making an indemnity costs order. 4 In the result in these reasons I find that an indemnity costs order should be made. I conclude this not on the basis of the defendants lack of reasonable prospects of success but rather on the basis of the Calderbank offer which I find was a genuine compromise which has been bettered by the plaintiff in the result achieved at the hearing.

No Reasonable Prospects 5 Enterprises' claims that the defendants had no prospect of success and should have conceded in effect at the outset. This is based upon what amounts to three main contentions that grounded in the findings made in my prior judgments. Consideration of these three contentions on which the plaintiffs place reliance is separated in these reasons from the defendants' refusal of the Calderbank offer, which is considered later. These three contentions are the following.

(a) The defendants wilfully regarded known facts and they were clearly lacking in evidence or wilfully disregarded clearly established law, that they bore the onus of proof on establishing reasonable grounds for making the representations: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400-401 per Woodward J ("the Fountain Selected Meats case").

(b) The defendants properly advised should have known there was no prospect of success: the Fountain Selected Meats case at 400-401 per Woodward J.

(c) The defendants nevertheless persisted for whatever reason in a hopeless case where the defence was always without merit: Auswest Timbers Pty Ltd v Secretary to the Department of Sustainability and Environment [2010] VSC 513 ("the Auswest Timbers case") at [9]. 6 Enterprises' argument then turns to the facts and the findings of the Court. The plaintiff appears to argue that the defendants should neither have contested the making of the representations nor sought to assert they had reasonable grounds for the making of the representations. The plaintiff complained that both these matters were of concern. 7 The plaintiffs say that it was obvious that the defendant, Mr George Dib, was responsible for Enterprises making the advance to E-Style and that it was obvious that whatever he had said to Ms Ventouris caused her to have sufficient sustained confidence to cause Enterprises to make the $100,000 advance to E-Style: Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [102], [103], [112], [113] and [114]. Enterprises then argues that the defendants should never have contended that the representations were not made, referring to the following findings:

(a) George Dib was a "markedly less satisfactory witness than Ms Ventouris" and that the Court had "generally preferred her evidence to his where they are in conflict: Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [37].

(b) Mr George Dib's evidence was found to be "evasive and unbelievable" and he was described as "strange witness" whose denials were not accepted: Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [38], [40], [43], [49] and [54].

(c) The version given by Ms Ventouris about what Mr George Dib said was found to be "accurate": Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [52], [62], [63], [64], [69] and [116]. 8 The first judgment made consequential findings about reliance, causation and loss. 9 Enterprises' case is that the defendants should really have reassessed whether to defend a case that the representations were not made when relying upon a witness such as Mr George Dib. For the reasons explained below, in my view, whatever the deficiencies of Mr George Dib's evidence this is not a basis on its own for an award of indemnity costs. 10 Enterprises also contended that the defendants must have appreciated from the outset that if a finding were made that the representations had been made that they "ran a grave and very real risk of being without the necessary evidence to show that there were reasonable grounds for making the representations in circumstances where the statute casts a very clear onus on them". Enterprises is correct that there was ample opportunity for the defendants to put on such evidence. Rather, the defendants seem to have made a choice not to do so. Enterprises says that this is not a case of the Court not accepting evidence relied upon by the defendants. Rather, they say that the defendants "were simply without evidence" (to establish reasonable grounds for making the representations) throughout their conduct of the case. 11 Enterprises maintained and opened this case as one being about "credit". In that submission the plaintiffs were correct. But it does not follow that in every credit case the party who is disbelieved should have an indemnity costs order made against them on that basis. Applicable Principles of Law 12 The principles that apply to an award of indemnity costs, other than in respect of Calderbank letter are clear. The discretion to order indemnity costs must be exercised on grounds connected with the actual litigation and that conduct in the circumstances leading up to the litigation as opposed to conduct in the litigation itself is not a relevant type of connection unless it bears upon the conduct as a litigant: Hypec Electronics Pty Limited (in liquidation) v Mead; BL & GY International v Hypec Electronics Pty Ltd (in liq) (2004) 61 NSWLR 169 at 179 [42], 180 [45]-[47] per Campbell J. The exercise of a discretion to order costs on an indemnity basis does not exist for the purposes of punishing an unsuccessful party: Latoudis v Casey (1990) 170 CLR 534 at 542-3 per Mason CJ; Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ; and Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [1] per Brennan CJ, at [44] per Gummow and Gaudron JJ, at [67] per McHugh J. 13 The grounds for ordering indemnity costs must be connected with the actual litigation, rather than circumstances leading up to the litigation. Even unconscionable conduct, breaches of fiduciary duty, fraud and other deplorable conduct when established in litigation will ordinarily lead to an order for costs on the usual basis and something more must be established for a special order as to costs: Harrison v Schipp; Cameron v Schipp [2001] NSWCA 13 at [136] per Giles JA (with whom Handley and Fitzgerald JJA agreed); NMFM Property Pty Limited v Citibank (No 11) [2001] FCA 480; (2001) 109 FCR 77 at 92 [56] per Lindgren J; Hypec Electronics Pty Limited (in liquidation) v Mead; BL & GY International v Hypec Electronics Pty Ltd (in liq) at [43]-[46] per Campbell J. 14 The starting point to any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the Court will order the unsuccessful party to pay the costs of the successful party on a party party basis which will fall short of complete indemnity: In Re Wilcox; Venture Industries Pty Limited (No 2) (1996) 72 FCR 151 at 152-153. The conduct of a party that is relevant to the issue of indemnity costs is the party's conduct as litigant but the knowledge that a party has, including knowledge of his or her past conduct may be relevant to an assessment of his or her conduct as a litigant: NMFM Property Pty Limited v Citibank (No 11) at [56] per Lindgren J. 15 The conduct of an unsuccessful party as litigant may justify an indemnity costs order for example where the successful party's money and the Court's time would be wasted on totally frivolous and thoroughly unjustified defences or the maintenance of the proceedings was an abuse of process: Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Limited (1992) 30 NSWLR 359 at 362; and where an unsuccessful party prolongs a trial by deliberately false defences and allegations of fact, an indemnity costs order may be appropriate: Degman Pty Limted (in liquidation) v Wright (No. 2) (1983) 2 NSWLR 354. 16 Although I have not accepted Mr George Dib's evidence in the present case, it is difficult to see that it has the necessary quality of conduct as litigant that will attract an order for indemnity costs. The defendants' conduct contravened Trade Practices Act 1974 (Cth), s 52 and Fair Trading Act 1987 (NSW), s 42 and misled Ms Betty Ventouris. Nevertheless, it is difficult here to identify specific conduct that would justify the making of an indemnity costs order on this basis conformably with established principle. 17 Enterprises has not demonstrated that an indemnity costs order is warranted on this first basis for several reasons. First, the obvious weaknesses of the defendant's case that Enterprises has identified and the defendants' failure to adduce any evidence generally of reasonable grounds for making the representations to support its defence, do not themselves justify an order for indemnity costs against the defendants. The reasoning in Harrison v Schipp; Cameron v Schipp at [136] counsels against any contrary conclusion. 18 Second, the question to be asked is what have the defendants done as litigants to attract an indemnity costs order, by, for example, the propounding of frivolous, thoroughly unjustified or deliberately false defences. My first judgment does not go so far as to find that the defendant deliberately propounded false defences. Although there were many reasons that I did not accept Mr George Dib's evidence they did not include findings that he knew at the time of giving evidence that what he was saying was incorrect. 19 Third, parties are entitled to take their chances of success or failure in "credit" cases. The defendants are not exposed to an indemnity costs order merely because they staked most of their chances on Mr George Dib being believed and lost. The balance of their case on the issue reasonable grounds was deficient but their primary position, if accepted would have been a complete defence to Enterprises' claim. The defendants have not deployed particular false defences in this litigation that have lengthened the proceedings.

The Calderbank Offer Basis 20 Enterprises served a Calderbank offer on the defendants on 24 September 2009. The offer was made in the context of a listed four-day hearing commencing on 26 October 2009. The offer was expressed to remain open for acceptance until 5pm on Tuesday, 6 October 2009. If indemnity costs are to be awarded on the basis of this letter Enterprises submits that such costs should commence from the expiry of the offer, which for practical purposes is Wednesday, 7 October 2009: the Auswest Timbers case at [16]. The Calderbank letter explained on behalf of Enterprises that "it is our view that our client's claim is in the order of $240,000 plus legal costs "but that "in the interests of saving the parties further costs" the settlement offer was being made. The letter offered settlement on terms that the defendants pay Enterprises the sum $129,000 plus their legal costs. 21 Judgment for the plaintiff was entered in these proceedings on 26 November 2010 in the sum of $159,220.47 plus 75 per cent of the plaintiffs' costs. Enterprises has bettered the Calderbank offer in terms of damages by a margin of about $30,000. A question for consideration is whether Enterprises bettered its position with respect to costs. But about this question there are two competing views. 22 Enterprises submits that a simple mathematical analysis of its unassessed legal costs up to and including the date of acceptance of the offer shows they were $167,841.25 inclusive of GST. I accept the correctness of this amount as the accrued costs to that date. Thereafter Enterprises submits that its legal costs up to the date of judgment on 26 November 2010 were a further $171,933.34 including GST. Between the date of judgment and the time of submissions Enterprises' legal costs are said to be no less than a further $32,395 including GST. 23 Enterprises submits that with this background when costs are assessed it is clear that the date on which the offer is made, about a calendar month before the commencement of the hearing, was the approximate half way point in the plaintiff incurring litigation related costs. After the offer was made Enterprises incurred more than the costs it had incurred before the offer was made. Enterprises' submits that its offer is effective as a Calderbank offer and the Court's jurisdiction to depart from the usual order for costs is enlivened by the amount of the offer and the circumstances in which the offer was made. 24 The defendants have a different perspective on the operation of the Calderbank letter. The defendants' contention is that Enterprises did not better the offer. The defendants calculate this in two steps. First they say at the time the offer was made Enterprises was only entitled to $143,105. The defendants reach this figure by basing their calculation on a principal sum of $80,000, not $100,000, to allow for the apportionment I made of 20% on account of Ms Ventouris being a concurrent wrongdoer. The defendants' calculation then adds 80% of Enterprises' recovery costs (being $43,788) and deducts 80% of actual recoveries of $25,164 to leave a net recoveries figure of $18,624. Interest on the principal loss up to 24 September 2009, when the Calderbank offer was made, is $38,865. Interest on net recovery costs over the same period is $5,616. Thus the defendants' say the sum to be compared with the Calderbank offer is $143,105, being the sum of $80,000, $18,624, $38,865 and $5,616. The defendant's say that Enterprises only bettered its settlement offer by $14,105 or less than 10%. 25 The next point in the defendants' logic is to say that Enterprises has only recovered 75 per cent of its costs. The defendants submit that the plaintiffs' 25 per cent reduction in costs to that point of $167,841.25 (being $41,960.31) wholly eclipses the discount between the judgment and the Calderbank letter of only $14,105. The defendants' logic is that Enterprises' offer actually would have required the defendants to pay at least $27, 855 more than they were obliged to under the judgment. 26 The principles of law in relation to Calderbank offers was recently summarised by the Court of Appeal in Commonwealth of Australia v Gretton [2008] NSWCA 117 to which I make reference and it is not necessary to reproduce those principles here. 27 There are a number of difficulties in the defendants' argument. First the defendants are calculating a comparable for the Calderbank offer by assuming a 20% discount to Enterprises' claim based on the concurrent wrongdoer apportionment that occurred in the judgment. But their costs calculation overlooks the fact that at the time the Calderbank offer was made that the then existing defence did not plead a concurrent wrongdoer defence and did not seek a reduction by way of apportionment for Ms Betty Ventouris' conduct. This amendment only occurred quite late during the trial as my first judgment explained: Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [123]. It is only fair to assess the reasonableness of the offer in the light of the then existing pleadings. At the time of the Calderbank letter Enterprises was justified in calculating the offer on the basis that there would be no apportionment and no reduction of its losses on account of Ms Ventouris' conduct. Although this is not the judgment that Enterprises actually received a true like for like calculation at the time of the Calderbank offer is one that would adjust the actual outcome in Enterprises' favour by about $32,000. If the 20% apportionment discount is removed the principal amount recovered rises by $20,000 and the recoveries and interest figure by 20% or approximately $12,000. This exceeds the 25% costs discount that the plaintiff suffered. 28 Secondly I do not think that the 25% costs discount should be held against Enterprises in this calculation at all. The Calderbank offer fully discounted the causes of action on which Enterprises ultimately lost and for which the Court awarded the 25% costs discount. The defendants would have saved themselves all their subsequent expenditure on the costs of defending these causes of action if they had accepted the offer, which was little more than the principal sum claimed plus interest and a small amount for recoveries. 29 Thirdly the Calderbank letter of 24 September 2009 was otherwise reasonable and should have been accepted. It gave the defendant ample time to consider it, two weeks. The evidence for trial was virtually all available at the time of the offer. It represented a genuine compromise, indeed a deep discount on the amount claimed. It was clear and simple. It foreshadowed an application for indemnity costs if not accepted. It was given a clear month before the trial and issued at a time when only 50% of the plaintiff's costs had been incurred. It well fulfilled the requirements to base an effective claim for indemnity costs in my view. Conclusions and Orders 30 Enterprises is entitled to an award of indemnity costs against the defendants from 7 October 2009. This conclusion follows not from the conduct of the defendants in defending the claim. Rather the defendants failure to accept Enterprises' Calderbank offer served on 24 September 2009 was unreasonable and is the basis to award indemnity costs. 31 Accordingly, the Court orders and directs that

(1) Order the defendants pay the plaintiff's costs on an indemnity basis from 7 October 2009 until judgment on 24 November 2010; and

(2) Reserve the question of the plaintiffs' costs after 24 November 2010.

(3) Parties should file their evidence and submissions in chief in relation to gross lump sum costs order by 5pm on 25 February 2011.

(4) Any submission in reply are to be filed and served by 5pm on 4 March 2011. **********

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