Automotive Holdings Group Ltd v Prime Constructions Australia Pty Ltd (No. 2)

This is the Court’s second judgment in these proceedings. The Court gave its first judgment on 20 December 2018: Automotive Holdings Group Ltd v Prime Constructions Australia Pty Ltd [2018] NSWSC 1960 (“the first judgment”).

This second judgment deals with the issue of the costs of the proceedings. It is not necessary to restate the background to these proceedings, which is fully explained in the first judgment. Events, matters and things are referred to in this judgment in the same way as they were in the first judgment.

The first judgment dismissed Automotive’s claim for relief against Ms Tsirekas in both restitution and fraud. Automotive’s claim arose from events where a fraudster, after opening a bank account using Ms Tsirekas’ identity, stole the funds of Automotive and directed her to distribute these funds to various third parties.

Ms Tsirekas defended Automotive’s claim for fraud by arguing that she was not part of any fraud upon Automotive with Mr Prindle, the fraudster. In response to Automotive’s claim for restitution, Ms Tsirekas pleaded a change of position defence. Ultimately, the Court accepted the change of position defence and Ms Tsirekas was otherwise not found to be liable to Automotive in fraud.

The Court ordered Automotive to pay Ms Tsirekas’ costs of the proceedings on the ordinary basis; unless a special costs order was to be sought. As noted in the first judgment, Ms Tsirekas’ counsel proposed, when the Court handed down the judgment, to seek a special costs order that may lead to a variation of the costs order awarded by the Court.

Ms Tsirekas’ application for a special costs order was heard in a short supplementary hearing on 19 March 2019. Ms Tsirekas seeks a special costs order that Automotive pays her costs on the ordinary basis up until 28 June 2017 and thereafter on the indemnity basis.

On this application, Mr B. Skinner of counsel, instructed by Christopher James Swanson of Swanson & Symonds Lawyers, continued to appear for Automotive. Mr J.A. Darvall of counsel, instructed by Geoffrey F. Cohen of Mylora Law, continued to appear for Ms Tsirekas.

Ms Tsirekas claims an entitlement to an order for indemnity costs on the basis of the service of an offer of compromise on Automotive, on 28 June 2017 (“the Offer”). In the Offer, Ms Tsirekas offered to compromise Automotive’s claim on terms that there be judgment in her favour, with no order as to costs. The Offer also stipulated that the Offer was made pursuant to Uniform Civil Procedure Rules 2005 (“UCPR”), r 20.26 and was open for acceptance until 4:00 pm on 28 July 2017.

Additionally, Ms Tsirekas also seeks to rely on the Offer as a Calderbank offer.

The covering letter to the Offer provided as follows:

Automotive did not accept the Offer.

The relevant applicable costs principles may be shortly stated. Costs will follow the event, unless it appears to the Court that some other order should be made: UCPR, r 42.1. This rule applies to dismissal of a claim, where, unless the Court orders otherwise, the plaintiff must pay the defendant’s costs of the proceedings: UCPR, r 42.20. Costs payable are to be assessed on the ordinary basis, unless the Court orders otherwise: UCPR, r 42.2. The Court otherwise has full discretion to award costs, and may order that costs be awarded on the ordinary or indemnity basis: Civil Procedure Act 2005, s 98.

Automotive submits that the Court, in having regard to the overall justice of the case, should not exercise its discretion to award indemnity costs either under the UCPR r 20.26, or on the Calderbank basis. It submits that: the Offer contained no element of compromise; Ms Tsirekas’ case contained inconsistencies and deficiencies; and the change of position defence was not clearly articulated in the pleadings extant at the date of service of the Offer.

In response, Ms Tsirekas contends that: the Offer is compliant with the UCPR and contains a genuine element of compromise; her amended defence, filed after the service of the Offer, does not raise any further defence but merely provided a more fulsome pleading of the change of position defence; and there is nothing to prevent the Court from exercising its discretion to make the special costs order she seeks.

This judgment dismisses Ms Tsirekas’ application for a special costs order and leaves in place the existing Order 2 of the Court’s 20 December 2018 orders, so that Automotive is ordered to pay Ms Tsirekas’ costs for the proceedings, on the ordinary basis. The Court further orders Ms Tsirekas to pay Automotive’s costs of this application.

These reasons now consider each of Automotive’s arguments in turn.

For Ms Tsirekas to be successful in her application to be awarded indemnity costs, the Offer, or alternative Calderbank offer, must contain a real element of compromise: Leichhardt Municipal Council v Green [2004] NSWCA 341, (at [23]).

The Court of Appeal’s decision in Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344 (“Miwa”), (at [9]), is authority for the proposition that an offer of compromise under the UCPR, and an informal offer, must contain “a real and genuine element of compromise”: see also The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] 67 NSWLR 706; [2006] NSWCA 120, (at [8]). But in Miwa, the Court noted that there is authority that the epithets “real” and “genuine” add little to the requirement of compromise: Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19, (at [23]); Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170, (at [17]-[18]).

Automotive contends that the Offer contained no element of compromise. But this submission is not persuasive.

The Offer included a term that the parties bear their own costs: the Offer is in effect a “walk away” offer. Ms Tsirekas has not served any evidence of her costs incurred to date. But by the time the Offer was made in June 2017, the proceedings had been on foot for over nine months.

In that time, Ms Tsirekas, additionally to defending the proceedings, prepared and served her first defence and evidence, comprising of her principal affidavit and the affidavit of Geoffrey Francis Cohen. Automotive had also served its evidence.

The Court is satisfied from the acknowledged course of the matter up to the date of service of the Offer, with the assistance of lawyers on both sides, that by that date Ms Tsirekas had incurred substantial costs. Her offer to forego her costs accordingly contained a significant compromise on her part: Taheri v Vitek (No 2) [2014] NSWCA 344, (at [13]); South Western Sydney Local Health District v Gould (No 2) [2018] NSWCA 160, (at [6]); cf Fabre v Lui (No 2) [2015] NSWCA 312, (at [7] – [8]); cf Curtis v Harden Shire Council (No 2) [2015] NSWCA 45, (at [17]).

Automotive further contends that Ms Tsirekas is not entitled to an award of indemnity costs, due to her case containing inconsistencies and deficiencies. This submission is made on the bases that the content of Ms Tsirekas’ written and oral evidence, with her written evidence being served eight days prior to the Offer being made, did not: (1) explain why she attended and presented “obviously false” documentation to the bank; (2) elucidate why she presented documentation addressed to her company TAG; (3) suggest that “the educational standard by [her] did not equip her to assess the clumsier features of [Mr Prindle’s] presentation as an international figure”; and, (4) explain the transaction, pursuant to which money was lost.

But this argument is not persuasive and, in my view, does not amount to justification for the Court not to exercise its discretion in awarding indemnity costs.

Ultimately, to assess the reasonableness of Automotive’s non-acceptance of the Offer, the Court must evaluate what was disclosed in the material in the proceedings at the time of service of the Offer: Castro v Hillery [2003] 1 Qd R 651 (“Castro”), (at [72]); [2002] QCA 359. This assessment of reasonableness must be made without the benefit of hindsight: Miwa, (at [11]).

At the time the Offer was made, Ms Tsirekas had served her written evidence and her initial defence in the proceedings. Her defence is discussed below. Her evidence well traces out a picture of Ms Tsirekas as a lonely figure who craved the affection and attention that had been absent from her first marriage. The evidence also shows that she was highly susceptible to manipulation through the attention that was showered on her by Mr Prindle.

Ms Tsirekas’ vulnerable persona was examined in detail in the first judgment and does not need to be repeated here. But what is of importance, for the purposes of this judgment, is that Ms Tsirekas’ general character and openness to manipulation well emerges from the voluminous correspondence between herself and Mr Prindle; showing his masterful grooming of her to his own fraudulent ends.

The Court made an objective assessment of the documentary evidence served by Ms Tsirekas all material served on Automotive prior to the service of the offer. As the Court noted, in the first judgment, (at [210]):

Automotive contends that it “justifiably assumed that a person of reasonable aptitude could have discerned from the language used by the fraudster that he was not a native speaker of the English language” and that the Court agreed that Ms Tsirekas’ approach made no sense. The point of this contention seems to be that the evidence pointed both ways and that its service could not really help Automotive make up its mind whether or not to accept the Offer.

This is not a correct characterisation of the Court’s conclusions. The Court relevantly held in the first judgment, (at [56]):

Ms Tsirekas’ own affidavit evidence details her education level, work experience and discussions with Mr Prindle as to financial matters; depicting her limited financial sophistication. The Court held in the first judgment, (at [238]):

In my view, Ms Tsirekas’ evidence served before the Offer is the basis for the Court’s conclusions in the first judgment about her and showed the essential weaknesses that allowed Mr Prindle to manipulate her.

Automotive also contends that the complexity of Ms Tsirekas’ conduct is sufficient for the Court to exercise its discretion not to award her indemnity costs. Her conduct did have to be interpreted as a whole, with a realistic assessment of ordinary human reactions and without any initial presumption either way that she had fraudulent intent. Approached with an open mind at the time the Offer was made, the interpretation of her conduct that the Court came to in the first judgment should then have been quite discernible to Automotive.

Overall, Automotive’s arguments about the deficiencies in Ms Tsirekas’ case, and her presentation as a witness, are not persuasive to defeat her claim for indemnity costs. The Offer required Automotive to take a realistic view of its case, including assessing the strengths of the pleaded causes of action and defences. The correspondence between Ms Tsirekas and Mr Prindle speaks for itself; it was well open for Automotive then to foresee the same conclusion that the Court ultimately reached.

The claimed deficiencies and inconsistencies in Ms Tsirekas’ case did not make it unreasonable for Automotive to not accept the Offer.

But there is merit in Automotive’s submission that Ms Tsirekas’ pleading of the change of position defence was not clearly articulated in her pleaded defence as at the date of the Offer.

The change of position defence was central to the outcome of the proceedings. Ms Tsirekas was ultimately successful in defending Automotive’s claim for restitution by reason of this defence. In my view, that defence was not properly and clearly pleaded in her defence as at the date of the Offer, 28 June 2017. Ms Tsirekas had certainly by then filed evidence to that might support such a defence, but it was not clearly pleaded. In the absence of a clear pleading of this defence, the evidence so filed could properly be regarded by Automotive as irrelevant.

Ms Tsirekas filed her first defence on 24 March 2017, served an unverified amended defence on 18 September 2017, and filed a further amended defence on 23 July 2018 (although this version of the defence was served on Automotive following the Court’s 6 October 2017 orders). All of the amended defences were served well after the expiry of the Offer. Ms Tsirekas says that this amended defence did not raise any new change of position defence and that such a defence was already clear from the defence on the record, as at 28 June 2017. Automotive contends that the amended defence did not plead the change of position defence.

The issue of whether a change of position defence had been clearly articulated in the pleadings was agitated before me on several occasions, all of which occurred following the service and expiry of the Offer.

At a pre-hearing directions hearing on 2 August 2017, counsel for Ms Tsirekas submitted to the Court that the change of position defence had already been pleaded. The transcript for this directions hearing reads as follows:

But this was not the case. The 24 March 2017 defence does not expressly plead a change of position defence. On 13 September 2017, the need for an explicit pleading of the change of position defence was again raised during the hearing of the proceedings, where the Court directed Ms Tsirekas to clearly articulate her case as to why this defence would succeed. The transcript reads as follows:

The deficiency in Ms Tsirekas’ claim to have pleaded a change of position defence was still not resolved by 6 October 2017, following the principal hearing in the proceedings. Prior to the mention of the proceedings on this day, counsel for Ms Tsirekas provided to the Court an unverified copy of the amended defence, and an amended pleading that the Court still considered did not properly articulate the change of position defence.

At the mention on 6 October 2017, the Court made further orders for the filing of Ms Tsirekas’ amended defence and indicated as follows:

Ms Tsirekas complied with these directions. And the first judgment noted the early insufficiency of the pleading of the change of position defence, but that the insufficiency was ultimately overcome. The Court explained in the first judgment, (at [247]):

Ultimately, to assess the reasonableness of Automotive’s non-acceptance of the Offer, the Court must evaluate what was disclosed in the pleadings at the time of the Offer: Castro, (at [72]). If there was a substantial change to Ms Tsirekas’ case after this time, indemnity costs should not be awarded: Castro, (at [75]).

On 24 March 2017, Ms Tsirekas filed her first defence in the proceedings; this was her operative pleading at the time of the Offer. The pleading did assert that Ms Tsirekas, at all times, believed the funds in the NAB Account belonged to Prime Constructions Australia or Mr Prindle, and that she was authorised by Prime Constructions Australia or Mr Prindle to make payment out of the account.

But Ms Tsirekas did not otherwise plead in her first defence the core requirement of the change of position defence: that she acted to her detriment on the faith of the receipt; see [248] of the first judgment. Her first defence otherwise did not overall plead the elements of that defence, so as to present it for consideration: the test was propounded by Gageler J in Australian Financial Services and Leasing v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14, discussed in detail in the first judgment (from [261]).

Despite the issue being cleared up later by the Court’s directions, I accept Automotive’s submission that Ms Tsirekas’ defence did not properly articulate the change of position defence at the time of the Offer.

The onus is not on Automotive to fill in the gaps of the deficient pleadings, and deduce that the assertions pleaded in the first defence amounted to the pleading of a change of position defence. Ms Tsirekas’ pleading of the change of position defence simply was not clear at the time of the Offer. On this basis, the Court concludes that it was reasonable for Automotive not to accept the Offer.

Finally, Automotive advances a related contention that Ms Tsirekas’ success on the change of position defence was dependent upon the Court’s acceptance of her oral evidence. But this does not really strengthen Automotive’s otherwise successful argument. Ms Tsirekas’ affidavit evidence that grounds her change of position defence was served by the time of the Offer and was well capable of being assessed then, even though only tested and accepted later.

Ms Tsirekas also seeks to rely on the Offer as a Calderbank offer. But in my view that does not lead to a different result on this application.

The principles of Calderbank offers are well settled. The considerations relevant to the determination of whether a refusal of a Calderbank offer is unreasonable were stated in Miwa, at [12], based on Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435; [2005] VSCA 298 (“Hazeldene's”), (at [25]). The Victorian Court of Appeal (Warren CJ, Maxwell P and Harper AJA) in Hazeldene’s held that the following elements were relevant to determining whether the rejection of a Calderbank offer was unreasonable:

The covering letter containing the Offer was not marked “without prejudice save as to costs”. But this will not of itself render the offer inadmissible as a Calderbank offer: Bruinsma v Menczer (1995) 40 NSWLR 716.

The covering letter did not contain any statement regarding Ms Tsirekas’ intention to seek indemnity costs, if the settlement offer was rejected (Hazeldene’s, (at [25]); Danidale Pty Ltd v Abigroup Contractors Pty Ltd (No 2) [2007] VSC 552, (at [17]) per Habersberger J; Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242, p 249 per Kirby P), nor did it detail any reasoning to persuade Automotive as to why the Offer should be accepted.

But the Court’s earlier reasoning also leads to the conclusion that the stage of the proceedings that had been reached when the Offer was made (before the successful change of position defence had been clearly pleaded) means that it was reasonable for Automotive to not accept the Calderbank offer made by Ms Tsirekas.

For these reasons the Court orders as follows: