Wang v Garland Lot 3 Pty Ltd

Supreme Court of NSW|2013-10-24|Before: Robb J

Ltd as trustee for the Garland Lot 3 Unit Trust (First Defendant) Phillip John Bartlett (Second Defendant) Janet Elizabeth Pennington (Third Defendant) Representation: Counsel: A Sullivan (Plaintiff) A Munro (Defendants) Solicitors: Edrison Lawyers (Plaintiff) McCullough Robertson Lawyers (Defendants) File Number(s): 12/143155

Judgment 1This case exemplifies the folly of plaintiffs and their legal advisers not giving the utmost attention to the procedural rules which regulate damages claims which are appropriate to be brought in the Supreme Court, and the costs and interest consequences to plaintiffs who spurn realistic offers of compromise by defendants. 2It is probable that the plaintiff, who was successful in obtaining an award of damages in these proceedings, will lose much, if not all, of the fruits of her success because she and her legal advisers have not realistically assessed the effect of these procedural rules.

Interest on damages 19It is appropriate to deal first with the quantification of the interest to which Ms Wang would be entitled, putting aside for the moment the issue of whether she is disentitled from receiving any of that interest. This approach is necessary in order to consider the significance of the various offers to settle the matter that the defendants made to Ms Wang. 20The first issue in dispute is the amount of the interest that Ms Wang is entitled to receive in respect of the $46,000 deposit that she paid. 21The defendants submit that clause 2.9 of the contract has the effect that, for the period between the date of the contract and the date of the breach of the contract by Garland, each of Ms Wang and Garland is entitled to share half of the interest which the deposit holder actually earned from investing the interest pending completion. The amount of Ms Wang's share of the interest actually earned, as calculated by the defendants, is $1643.91. Thereafter the defendants have calculated interest at the court rate from time to time. 22I reject the defendants' approach to the calculation of interest for the period between the date of the contract and the date of the breach. If Garland had completed the contract, then the deposit would have been paid by the deposit holder to Garland as part of the purchase price, and under clause 2.9 Ms Wang and Garland and would each have received half of the interest actually earned from the investment of the deposit. However, Garland breached the contract and consequently the deposit did not become part of the purchase price. Ms Wang was deprived of the deposit, or any benefit of it, from the date it was paid when the contract was entered into. Clause 2.9 only governs the situation when the contract is completed in accordance with its terms. If it were otherwise, Garland would also be entitled to a $1643.91 half share in the interest earned from the investment of the deposit, notwithstanding that it breached the contract. Ms Wang in fact lost the benefit of the deposit from the date it was paid, and interest should be calculated at the court rate from that date. 23I have calculated the interest on the $46,000 deposit between 25 May 2009 and 25 March 2012 as being $10,653.20 on the basis of the court rates during that period. According to the defendants' calculations, the interest on the deposit from 26 March 2012 to 19 August 2013, the date of principal judgment, is $4,759.43. I accept the interest calculation for that period. Therefore, the total amount of interest the plaintiff is prima facie entitled to in relation to the deposit is $15,412.63. 24I agree with the defendants' submission that interest on the $52,000 for the appreciation in value of Apartment 601, the $10,000 for the loss of the first home buyers' grant, and the $5000 rebate is to be calculated from 26 March 2012 inclusive. The effect of s 100(3)(a) of the Civil Procedure Act 2005 is that Ms Wang is not entitled to interest on interest. Therefore, on the defendants' calculations, presented in an exhibit to the affidavit of Jeremy Paul Munce dated 22 October 2013, which I accept, the plaintiff is prima facie entitled to interest totalling $6,932.21 in respect of these amounts until 19 August 2013, the date of principal judgment. 25If there were no procedural rules which prevented Ms Wang from being awarded all of the interest that I have calculated, she would be entitled to receive $22,345 in addition to the damages of $113,000.

Disentitlement to interest on damages 26The defendants, however, rely upon s 100(4) and (5) of the Civil Procedure Act 2005. The effect of those provisions is that the court may not order, in favour of a plaintiff in any proceedings for damages, interest in respect of the period after the plaintiff has been offered a settlement in an amount which is more than the amount that is10% less than the damages plus interest that the plaintiff is entitled to receive up to the time the offer is made, unless the special circumstances of the case warrant the making of such an order. 27The defendants on 19 November 2012 made an offer to settle Ms Wang's claim for $109,257, plus costs to the date of the offer as assessed or agreed. That amount is 10% less than $121,397. The defendants calculate the amount of Ms Wang's damages plus interest to 19 November 2012 as being $120,392.98. However, the defendants only allowed interest of $1,643.91 on the $46,000 deposit between 25 May 2009 and 25 March 2012. They should have allowed $10,653.20, which is an additional $9,009.29. If the additional amount is added to the $120,392.98, the total is $129,402.27. 28Accordingly, the defendants' first offer was for an amount that was less than Ms Wang was entitled at the time of the offer, but not within 10% of the amount of her entitlement on 19 November 2012. Section 100(4) was not triggered by the first offer. 29The defendants made a second offer of $126,000 on 3 May 2013. That amount is 10% less than $140,000. The defendants calculate that Ms Wang's entitlement to damages plus interest at that date was $124,033.75. It is necessary to add the additional amount of interest on the deposit, being $9,009.29, giving a total of $133,043. The interest component of this amount is $20,043. The defendant's second offer of $126,000 is therefore more than the amount that is 10% less than Ms Wang's entitlement of $133,043 on 3 May, 2013, so the effect of s 100(4) of the Civil Procedure Act, 2005, is that Ms Wang is not entitled to interest from 3 May 2013, unless the special circumstances of the case warrant the making of an order for interest after that date. Ms Wang did not suggest that there were any such special circumstances, and accordingly I find that the defendants should not be ordered to pay Ms Wang interest after 3 May 2013 up to the date of the principal judgment on 19 August 2013.

Plaintiff's entitlement to costs 30The defendants submit that they should not be ordered to pay Ms Wang's costs because UCPR r 42.34 applies. That rule has the effect that, as Ms Wang has been awarded damages in an amount less than $500,000, an order for costs will not ordinarily be made in her favour, unless the court is satisfied that the commencement and continuation of the proceedings in the Supreme Court was warranted. 31The defendants' solicitors in their 27 June 2013 letter to Ms Wang's solicitor warned Ms Wang of the effect of r 42.34. 32Ms Wang has submitted that s 68(b) of the Supreme Court Act 1970, which provides that, where the court has the power to order the specific performance of any contract, the court may award damages in addition to or in substitution for an order for specific performance, has the effect that the plaintiff's case was properly commenced in the Supreme Court. Ms Wang put the same submission in her outline written submissions before the commencement of the hearing. The submission appears to proceed upon the basis that Ms Wang's entitlement to damages depended on her being party to a contract that was susceptible to an order for specific performance. Ms Wang's submission is misconceived. The court is entitled to give to Ms Wang the common law remedy of damages for breach of contract. The District Court has at all times had the power to grant Ms Wang an order for damages for breach of the contract. 33Ms Wang was initially entitled to commence her proceedings in the Supreme Court, as she sought specific performance of the contract. At some point she became aware that Garland had completed its contract to sell Apartment 601 to a third party. From that point Ms Wang appears to have accepted that the only remedy she could obtain against Garland was in damages. As I have noted above, Ms Wang included a claim for breach of trust in her statement of claim, but did not plead a basis for such a claim, and did not pursue it. 34Rule 42.34 requires the court to consider whether "the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted". While the commencement of the proceedings in the Supreme Court was warranted, the continuation of the proceedings from the date of the filing of the statement of claim on 14 September 2012 was not warranted. The fact cannot be ignored that Ms Wang only claimed $188,840 plus interest in her statement of claim. The proceedings were not complex, and did not have any features that warranted the attention of the Supreme Court rather than the District Court. The present case is similar to that considered by Campbell J (as his Honour then was) in Ji v Firth t/as Firths the Compensation Lawyers [2013] NSWSC 186 at [28]-[30], where it "would entirely defeat the purpose of the rule" for the court to grant the plaintiff's application for costs. Garland should be ordered to pay Ms Wang's costs up to 14 September 2012, but no order for costs should be made after that date against Garland. Garland should be ordered to pay Ms Wang's costs for the relevant period up to 14 September 2012 on the ordinary basis.

Effect of defendants' offers 35The evidence satisfies me that the defendants conscientiously attempted to settle Ms Wang's claim, starting before their 19 November 2012 offer to pay $109,257, plus Ms Wang's costs, with offers that do not require separate consideration, and continuing with the 3 May 2013 offer to pay $126,000 plus costs, and the final offer made on 26 June 2013 to pay $134,000. They explained the basis of their $109,257 offer in a letter dated 12 October 2012. They gave Ms Wang 14 days to accept their 19 November 2012 and 3 May 2013 offers, and 8 days to accept their 26 June 2013 offer. It is likely that the last-mentioned offer allowed only 8 days because the hearing was fixed to commence on 15 July 2013, and one objective of the offer would have been to avoid the defendants incurring the final costs of preparation for the hearing, which may be the explanation for the shorter time for acceptance being allowed. It is appropriate in considering the reasonableness of the times allowed for acceptance of later offers that earlier offers were made and rejected. Ms Wang did not put any evidence before the court on the application that provided any sound explanation or justification for her rejecting all of the offers. 36I am also satisfied that the defendants went further than to make offers which amounted to reasonable compromises of Ms Wang's claims against them. Starting with the 12 October 2012 letter, the defendants appear to have genuinely attempted to assess the quantum of Ms Wang's damages, on the assumption that she succeeded, and they offered that amount to Ms Wang to settle the case. The defendants do not appear, so to speak, to have attempted to buy a settlement by offering Ms Wang more than they thought she would obtain if she proved her case. The defendants were entitled to take that approach, although it put them at risk that their offers to compromise the claim might not be effective in changing the outcome that usually the costs follow the event, if it turned out that they had slightly underestimated the amount of damages and interest to which Ms Wang might be found by the court to be entitled. 37At the time the defendants offered to pay Ms Wang $109,257, her entitlement to damages plus interest was $129,402.27, as calculated above, so that offer was not sufficient to justify any costs order in favour of the defendants, and they did not claim to the contrary. 38The defendants' 3 May 2013 offer of $126,000 plus costs to be assessed or agreed on a party/party basis was stated as having been made in accordance with the principles in Calderbank v Calderbank [1975] 3 WLR 586. The period for acceptance of the offer was 14 days from the date of the letter, but the defendants' solicitors asked to be told if Ms Wang required further time to consider the offer. The defendants submitted that this offer was an effective Calderbank offer. 39The total amount of damages plus interest up to 3 May 2013 to which Ms Wang is entitled is $133,043.04. This sum is more than the amount which the defendants offered to pay on that date, so the offer was not effective as a Calderbank offer. 40The offer of $134,000 which the defendants made on 26 June 2013 was stated as having been made in accordance with UCPR r 20.26(5)(b). Ms Wang was given 8 days to accept the offer. As this offer was made less than two months before the date set down for commencement of the trial, the rule requires that the closing date for acceptance of the offer must be reasonable in the circumstances. There is no evidence that Ms Wang responded to the offer at all, or claimed at the time that the period allowed for its acceptance was unreasonable. As the offer was made less than 3 weeks before the commencement of the trial, Ms Wang's legal advisers should have been in a position to give her advice within the time allowed concerning the reasonableness of the settlement offer. Ms Wang did not attempt to show why the period was unreasonable, and I find in all of the circumstances that it was in fact reasonable. 41Ms Wang submitted that none of the offers to settle the proceedings made by the defendants was an offer of compromise for the purposes of UCPR r 20.26, on the basis that offers that include a term as to costs of the form "costs as agreed or assessed" or "plus costs" do not comply with the rule. Ms Wang relied upon Old v McInnes [2011] NSWCA 410 at [105]. In fact the defendants only made one offer expressed to be made under r 20.26; being the 26 June 2013 offer. Unlike earlier offers, that offer did not make any provision for costs at all; by implication leaving costs to be dealt with under r 42.13A. The offer was not therefore invalid as an offer of compromise on the basis submitted by Ms Wang. 42At the date of the defendants' offer of compromise, 26 June 2013, the amount of the damages plus interest to which Ms Wang was entitled remained $133,043.04, as s 100(4) of the Civil Procedure Act 2005 has the effect that Ms Wang is not entitled to interest after 3 May 2013. This amount is calculated taking into account the requirement in UCPR r 42.16 (1) that any entitlement on Ms Wang's part to additional interest on her damages after the date the offer was made must be ignored for the purpose of determining whether UCPR r 42.15 has been engaged. However, for the reasons given above, in this case, Ms Wang is not entitled to any additional interest after 3 May 2013 in any event. Had that section not applied, Ms Wang would have been entitled to $134,234.95 as at 26 June 2013. Accordingly, in the events that have occurred, Ms Wang will obtain a judgment on her claim that is no more favourable to her than was the amount of the offer to pay $134,000. Consequently, UCPR r 42.15(2) has the effect that the defendants are entitled to an order that Ms Wang pay their costs, assessed on an indemnity basis, from the beginning of 27 June 2013. Ordinarily, the rule would also have the effect that Ms Wang would be entitled to an order against the defendants that they pay her costs on the ordinary basis up until the end of 26 June 2013, but for the reasons given above, UCPR r 42.34 disentitles her to such an order in this case. 43I observe that the failure of Ms Wang's legal representatives to tender any evidence to support her claim for wasted fees and disbursements for the conveyance appears to have had a disastrous consequence in relation to her position concerning the defendants' application that she pay their fees on an indemnity basis. Her legal representative accepted in submissions that there was no evidence to prove that aspect of her damages (T 16/07/13 p 73.9), and she was not in a position to remedy the defect, even though I invited her to do so in the course of submissions (T p 73.18). The explanation given was that any tax invoice issued by the solicitor to Ms Wang was in a file that was not in court, and that was the end of the matter. Ms Wang's entitlement to damages plus interest as at 26 June 2013 of $133,043.04 fell short of the $134,000 offered by the defendants by only $956.96. The effect of Ms Wang's entitlement to damages being increased by $3500, or even a significant portion of that amount, is obvious.

Set off and stay application 44The first defendant has sought an order that the proceedings on the judgment in favour of the plaintiff be stayed pending assessment of the costs of the defendants payable by the plaintiff, and that upon assessment such costs be set off against the judgment sum. 45The plaintiff opposes that application on the ground that there is no basis for the court to grant a stay of judgment. The plaintiff suggests that if the court is inclined to award the first defendant any costs of the proceedings "those costs be capped accordingly". However, the plaintiff has not sought any relief by notice of motion under s 98(4) of the Civil Procedure Act, 2005. The plaintiff has submitted that the defendants' suggestion that the assessment of costs may be a lengthy process is "worrying", but the plaintiff has not put forward any evidence or made any submissions to support any case that she will suffer any special prejudice or disadvantage if the court makes the orders sought by the defendants. 46I accept the submission by the defendants that the court has an inherent jurisdiction to permit the set-off of judgments for costs against judgments for debts or damages, and in doing so I respectfully accept and follow the reasoning on this issue of Ward J (as her Honour then was) in Lahoud v Lahoud [2012] NSWSC 284 at [72] - [80] (which includes a discussion of the relevant authorities, which I need not repeat). 47It is appropriate in this case to make an order to permit set-off as between the judgment in favour of Ms Wang and the costs orders in favour of each of the parties. To facilitate that set off it will be necessary to stay the entry of the judgment in favour of Ms Wang for damages and interest. 48Ms Wang's failure to accept the 26 June 2013 offer of compromise, which was a genuine offer by the defendants to estimate the amount of the damages to which she would be entitled if she succeeded in her case against them, was the cause of the court's making the costs order in favour of the defendants from 27 June 2013 on an indemnity basis. The court does not have evidence as to the probable amount of the costs that will be allowed, but it can be inferred that they are likely to be substantial. It is not appropriate in the circumstances that Garland be required to pay the amount of the judgment in favour of Ms Wang, and then be required to pursue her to obtain payment of the costs order in its favour after assessment has taken place. Ms Wang did not put forward, as I have said, any particular reasons why she will suffer any detriment if the course requested by the defendants is adopted. Ms Wang will be protected from the effect of any delay to some extent by the fact that she will be entitled to post-judgment interest on the amount of the judgment in her favour, and to make the matter clear I will include an order to that effect in the orders which I will make below. I will also give her liberty to apply, so that she has some protection if the process of assessing costs, in the absence of agreement, becomes unduly protracted.

Relief 49For the reasons set out above I will make the following orders - (1)Judgment for the plaintiff against the first defendant for damages of $113,000 plus interest to 3 May 2013 of $20,043, giving a total of $133,043. (2)Dismiss the plaintiff's claims against the second and third defendants. (3)Order the first defendant to pay the plaintiff's costs up to 14 September 2012 on the ordinary basis. (4)Order the plaintiff to pay the first defendant's costs from the beginning of 27 June 2013 to the date of this judgment on an indemnity basis. (5)Order the plaintiff to pay the costs of the second and third defendants up to 26 June 2013 on the ordinary basis, and from the beginning of 27 June 2013 to the date of this judgment on an indemnity basis, such costs being limited to costs incurred in the preparation and conduct of the defence of the second and third defendants which were not also required to be incurred in relation to the defence of the first defendant. (6)Order that entry of the judgment in par (1) be stayed pending the determination by agreement or assessment of the costs payable under the orders in pars (3), (4) and (5). (7)Order that the stay of entry of judgment in par (6) be on the condition that the plaintiff is entitled to post-judgment interest between the date of the principal judgment and the payment to her of the amount the subject of the judgment in par (1) or any portion of that amount which may be found to be payable to her following the set off ordered in par (8). (8)Order that the plaintiff and the defendants are entitled to set off all amounts which each of them may be ordered to pay to any other of them for costs against all amounts which those others are ordered to pay to them. (9)Order that following the determination of the costs payable under the orders in pars (3), (4), and (5), and the effect of the set offs permitted by the order in par (8) are determined, the net amount payable by each party to any other party shall be determined. (10)Order that each party who is liable to pay to any other party any sum determined in accordance with the order in par (9) pay that sum to that party. (11)Liberty to each of the parties to apply to the court on 7 days' notice in relation to the implementation of these orders, including without limitation in relation to the plaintiff if the plaintiff wishes to claim that she should be relieved of the stay of the entry of judgment by the order in par (6) by reason of any unreasonable delay in the determination of the costs payable and the effect of the set offs provided for in these orders. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 December 2013

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