Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 3)

1. [1]

   THE COURT: On 19 May 2021, the Court gave judgment in this matter, allowing the appeal brought by Valmont Interiors Pty Ltd (Valmont) and setting aside the orders of the primary judge and in lieu thereof, ordering judgment for Valmont in the sum of $255,493 and judgment for the respondent, Giorgio Armani Australia Pty Ltd (Armani) on the cross-claim in the sum of $219,083.29: see Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 2) [2021] NSWCA 93. These reasons assume familiarity with that judgment.

2. [2]

   At [125], Bell P noted that while Armani should be ordered to pay Valmont’s costs of the appeal, he was of the view that there should be no order as to costs at first instance on the basis that the parties ultimately had broadly equal success. However, the parties were given leave to file any submissions of no more than 3 pages each within 7 days if an order as to costs at first instance was sought by either party, with any reply to be filed within a further 7 days.

3. [3]

   What the Court was unaware of at both the time of the hearing of the appeal in this matter and at the time of delivery of judgment was that, after the notice of appeal had been filed which sought to set aside, inter alia, order 3 of the primary judge’s orders (which had ordered Valmont to pay 50% of Armani’s costs as agreed or assessed), that order was vacated by the primary judge, as were all previous costs orders other than adverse costs orders made against Armani, and Valmont was ordered to pay Armani’s costs of the proceedings on an ordinary basis up to and including 23 April 2020 and on an indemnity basis thereafter: see Valmont Interiors Pty Limited v Giorgio Armani Australia Pty Limited (No. 2) [2021] NSWDC 9 (the costs judgment) and orders 3 and 4.

4. [4]

   The background to the costs judgment was as follows. Armani made offers of compromise on 23 April 2020 (the First Offer) and 10 July 2020 (the Second Offer). The terms of the First Offer were:

5. [5]

   Valmont rejected the First Offer by letter dated 28 April 2020, which contained a counter-offer that Armani pay Valmont $480,000, the proceedings 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. The counter-offer was not accepted by Armani.

6. [6]

   Armani submitted the Second Offer on 10 July 2020, the terms of which were relevantly that:

7. [7]

   Valmont rejected the Second Offer by letter dated 13 July 2020. Its 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.

8. [8]

   The primary judge held in his costs judgment (at [24]) that Valmont’s rejection of both offers was unreasonable and, as has been noted, awarded Armani its costs of the proceedings on the ordinary basis up to and including 23 April 2020, and on an indemnity basis thereafter.

9. [9]

   At first instance, Armani had enjoyed “net success” with its judgment on the cross-claim exceeding Valmont’s judgment by approximately $105,000. It therefore bettered the First Offer. On appeal, the position changed and Valmont achieved net success to the tune of approximately $35,000. On this basis, Armani’s Second Offer but not its First Offer exceeded such success as Valmont ultimately enjoyed.

10. [10]

    It was not suggested that the Calderbank offers made in respect of the proceedings at first instance should affect the costs orders made in Valmont’s favour in relation to the appeal. This approach accorded with the standard approach taken where no separate Calderbank offer is made in relation to appeal proceedings, that being that although the Court may have regard to the earlier offer made in the context of proceedings at first instance, the costs of the appeal are usually determined by reference to the issues in, and the outcome of, the appeal: see Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [70]–[79] (Perisher Blue); Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [37]–[41]; Bathurst Regional Council as Trustee for the Bathurst City Council Crown Reserves Reserve Trust v Thompson (No 2) [2012] NSWCA 420 at [16]; McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v James (No 2) [2016] NSWCA 260 at [31]–[36], [44]–[46]; Gray v Hobson (No 2) [2018] NSWCA 131 at [9]–[12]; and Squire v Squire (No 2) [2019] NSWCA 120 at [3] (Squire).

Submissions

1. [11]

   In its submissions in these proceedings, Armani has submitted that the costs judgment was not the subject of appeal, that Valmont did not amend its notice of appeal to refer to the costs judgment, and that Valmont never disclosed to Armani or the Court any basis as to why the primary judge’s reasoning in the costs judgment was not sound. Whilst all of this is true, the issue of the costs at first instance was inevitably raised as a result of Valmont’s success on appeal and a formal failure to challenge the primary judge’s costs orders is to be explained by the fact that they had not been made at the time of the filing of the Notice of Appeal. Had an application to amend the Notice of Appeal to challenge those orders been made, it would have been granted and it could not be seriously maintained that Valmont’s failure to amend the Notice of Appeal should leave in place the costs ordered on 12 February 2021 which were predicated on Armani having succeeded at first instance.

2. [12]

   Armani submitted that the primary judge found, and Valmont did not challenge, the following:

3. [13]

   However, Armani submitted that if the Court was minded to vary the costs judgment, it should be entitled to its costs on an ordinary basis up to and including 9 July 2020, and on an indemnity basis thereafter. Armani submitted that this order was appropriate given Valmont’s failure to accept the Second Offer, and its otherwise “unreasonable” conduct, in that Valmont:

4. [14]

   Armani submitted that it “made genuine and active efforts to resolve the dispute by making two commercial offers to Valmont that involved a considerable element of compromise”, which was in “stark contrast” to Valmont’s conduct in expressly rejecting those offers and in failing to make any genuine commercial offers. It submitted that it was Valmont’s conduct in refusing to accept or even properly consider the two Offers made that compelled both parties to incur considerable costs that grossly exceeded the eventual net outcome of the dispute. Although acknowledging that as a result of the appeal heard before this Court, Valmont had now obtained a net outcome of $36,409.71 in its favour, Armani submitted that:

5. [15]

   Valmont submitted that Armani should pay Valmont’s costs for the whole of the proceedings at first instance on an ordinary basis or, in the alternative, that Armani pay Valmont’s costs up to and including 10 July 2020 on an ordinary basis.

6. [16]

   Valmont contended that Armani’s submission that it made “extensive” and “repeated” efforts to resolve the dispute lacked a factual basis, in circumstances where Valmont commenced proceedings in the Court below in June 2017, and the First Offer submitted by Armani occurred in April 2020.

7. [17]

   With respect to its rejection of the First Offer, Valmont submitted that this offer did not contain any real and genuine element of compromise by Armani and that, not only did it propose a “walk away”, but it also proposed the vacation of all existing orders. Valmont submitted that its rejection of the Second Offer was similarly not unreasonable, in circumstances where it achieved $130,973 for its claim at first instance, the amount of which was subsequently increased to $255,493 on appeal and that, at the time of the Second Offer, the state of the evidence was incomplete, the terms of the deed of release were unknown, and at no stage did Armani provide Valmont with a draft proposed deed for Valmont’s consideration.

Consideration

1. [18]

   Plainly enough, orders 3 and 4 of the costs judgment (see [3] above) should be set aside. The basis upon which those orders were made, namely Armani’s net success at first instance, has changed as a result of Valmont’s successful appeal.

2. [19]

   In our opinion, the Second Offer by Armani, although made shortly before the trial, was significant and, had it been accepted, would have resulted in Valmont securing a superior ultimate outcome than that which it ultimately achieved on appeal. By way of contrast, Valmont’s counter-offer of 13 July 2020 did not represent any genuine attempt at compromise.

3. [20]

   Costs are in the broad discretion of the Court with the general rule being that they should follow the event or result (Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1) and that, unless the Court orders “otherwise”, those costs are to be assessed on the “ordinary basis” (UCPR r 42.2). As explained in Leichhardt Municipal Council v Green [2004] NSWCA 341 at [14] (Leichhardt), the rationale underlying Calderbank offers is to:

4. [21]

   The Court (comprised of Meagher and Brereton JJA, and Simpson AJA) noted in Hunter v Roberts (No 2) [2019] NSWCA 235 at [6] (Hunter) that:

5. [22]

   In Byrmount Pty Limited t/a Watson Toyota (ACN 003 200 459) v Cummins [2005] NSWCA 69, Beazley JA (as her Honour then was, and with whom Ipp and McColl JJA agreed) outlined that there were two competing views as to how the Court exercised its discretion where there had been a Calderbank offer. Her Honour noted (at [12]) that one view was that taken in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425, namely that a Calderbank offer “gives rise to a prima facie presumption that the party who rejects the offer should pay the other party’s costs on an indemnity basis should the former receive a less favourable result than the offer of compromise”.

6. [23]

   However, the alternative view, and the one consistently endorsed by this Court, is that the rejection of (what ultimately transpires to be) a more favourable offer is not decisive as to the awarding of costs on an indemnity basis: see Jones v Bradley (No. 2) [2003] NSWCA 258 at [6]-[9]; Leichhardt at [19]; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] (SMEC); Ambulance Service of New South Wales v Worley (No 2) (2006) 67 NSWLR 719; [2006] NSWCA 236 at [18]; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] (Miwa); Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124; Perisher Blue at [14]; and Ku-ring-gai Council v Chan (No 2) [2018] NSWCA 73 at [6].

7. [24]

   A corollary of this is that, as Gleeson JA (with whom Meagher and McCallum JJA) noted in Ziegler as trustee for the Doris Gayst Testamentary Trust v Cenric Group Pty Ltd [2020] NSWCA 85 at [68]:

8. [25]

   In Miwa at [12], citing the Victorian Court of Appeal’s decision in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298, Basten JA (with whom McColl and Campbell JJA agreed) identified the following considerations as being relevant to the determination of whether the refusal to accept a Calderbank offer was unreasonable, including:

9. [26]

   Where an unaccepted Calderbank offer has been made by a party which, although ultimately unsuccessful, nevertheless made an offer which bettered the successful party’s final position, there is a wide range of possible orders that may be made in the Court’s discretion. These include that:

10. [27]

    In the circumstances of this case, an appropriate order in relation to the costs at first instance is that, save for adverse costs orders made against Armani prior to 13 July 2020, there be no order as to costs up to and including 13 July 2020 (reflecting the fact that, although Valmont ultimately succeeded, this was by a small (net) amount), but that Valmont pay Armani’s costs of the proceedings at first instance on the indemnity basis thereafter (reflecting that Armani’s offer wholly discounted its cross-claim and offered to pay Valmont considerably more than it ultimately obtained).

11. [28]

    It was, in our opinion, unreasonable for Valmont not to have accepted Armani’s Second Offer which was a genuine attempt to compromise the proceedings and which would have seen Valmont significantly compensated in respect of its claim and its costs, and freed from the risk of a set off of liability on Armani’s cross-claim. Had the offer been accepted, moreover, both parties would have been spared the expense of the subsequent proceedings before the primary judge. The offer was made at an advanced stage of preparation of the proceedings and was made in a context where weaknesses in Valmont’s claim had been pointed out in earlier correspondence.

12. [29]

    To the extent that Valmont claimed in its submissions that the terms of the deed of release were unknown, and that at no stage did Armani provide Valmont with a draft proposed deed for Valmont’s consideration, no details were sought, nor was any draft requested, following receipt of the Second Offer. Rather, the Second Offer was rejected more or less out of hand within three days of it having been made.

13. [30]

    Accordingly, the Court will make the following orders in addition to those made on 19 May 2021:

    1. (1)

       Set aside orders 3 and 4 made by the primary judge on 12 February 2021.

    2. (2)

       In lieu thereof, order that, save for adverse costs orders made against the defendant prior to 13 July 2020, there be no order for costs of the proceedings at first instance up to and including 13 July 2020, but that the plaintiff pay the defendant’s costs of the proceedings at first instance on the indemnity basis thereafter.