Moneytech Finance Pty Ltd v Diamond Made Pty Ltd (in Liquidation) and ors (No 2)

1. [1]

   On 11 March 2019, a four day hearing commenced before me concerning a money claim. The active plaintiffs were Moneytech Finance Pty Ltd (“Moneytech”) and Diamond Made Trading Pty Ltd (“Diamond Made Trading”), and the active defendant was Andrew Osborne. At the end of the plaintiffs’ case on 12 March 2019, Mr Osborne sought judgment in his favour. I reserved my decision and on 14 March 2019 I entered judgment for Mr Osborne: Moneytech Finance Pty Ltd v Diamond Made Pty Ltd (in Liquidation) and ors [2019] NSWSC 259.

2. [2]

   The plaintiffs’ case at the hearing was very different to that pleaded in its statement of claim. The proceedings commenced on the basis that there was a valid contract between Mr Osborne and a company, Diamond Made Pty Ltd (in Liquidation) (“Diamond Made”). The basis upon which the hearing proceeded was that Mr Osborne was liable for the debt owed to Diamond Made because even though the contract was entered into by another person, that person was acting as Mr Osborne’s agent at the relevant time. Diamond Made later assigned its debt to the second plaintiff, Diamond Made Trading, which was a special purpose vehicle (“SPV”) for Moneytech. The amount claimed was $757,308.16. The contract was said to be for building work to fit out a pizza shop in Campbelltown.

3. [3]

   In determining this matter, I was required to consider a number of factual issues including whether there was ever a contract between Mr Osborne and Diamond Made in the amount of $757,308.16, whether, if the pizza business did not have authority to enter into the $757,308.16 contract, Mr Osborne ratified it after it was made. If not, was Mr Osborne otherwise estopped from denying any contract? If I was satisfied that there was a valid contract then the question arose as to whether there was a lawful assignment of the debt to the second plaintiff and, if not, whether there was an equitable assignment of the debt. There was also the question of how much of that debt remained unpaid, assuming that there was a contractual debt which was assigned.

4. [4]

   As my reasons disclose, I was not satisfied that there was any valid contract between the parties and I dismissed the plaintiffs’ claim at the close of their case.

5. [5]

   When I entered judgment for Mr Osborne on 14 March 2019, he immediately made application that the plaintiffs pay his costs of the proceedings on an indemnity basis. That application was opposed. An affidavit of Laura Peck affirmed on 13 March 2019 with annexures was filed in court that day on behalf of Mr Osborne. On 21 March 2019 I ordered that the plaintiffs provide any evidence on the question of costs by 18 March 2019; Mr Osborne was to file and serve written submissions on the question of costs by 25 March 2019 and the plaintiffs were to file and serve written submissions on the question of costs by 26 March 2019. The hearing on the question of costs was adjourned to a date to be fixed.

6. [6]

   Mr Osborne’s submissions were provided on 25 March 2019, the plaintiffs’ on 27 March 2019 and on 28 March 2019, Mr Osborne was given leave to file submissions in reply that were filed on 29 March 2019.

7. [7]

   On 8 May 2019 the parties consented to the matter being determined on the papers.

8. [8]

   Ms Peck’s affidavit evidence addressed the correspondence between the parties relevant to efforts to compromise the proceedings that I have set out below.

9. [9]

   The plaintiffs’ relied upon the affidavit of their solicitor John Malcolm Douglas Fairgray dated 19 March 2019 which exhibited two lever arch folders comprising nearly 1,000 pages of documents. This material was delivered to my chambers on behalf of the plaintiffs on 28 March 2019. The documents exhibited to this affidavit commence on or around 20 December 2017. None of the exhibited documents address the time period from the commencement of these proceedings until late December 2017. The documents were largely copies of all of the documents provided to the plaintiffs by way of subpoena and discovery from March 2018 onwards. Mr Fairgray’s explanation for the delay was that he did not receive a number of relevant documents from Mr Osborne until 13 November 2018 and verification of some of them did not take place until 7 December 2018. Reliance was placed on the date that the liquidators were subpoenaed and the length of time it took for the discovery process to be completed.

10. [10]

    A further affidavit of Laura Peck, dated 21 March 2019, was relied upon in reply. She clarified certain aspects of the evidence regarding discovery and noted that documents were produced on subpoena as early as 6 April 2018.

11. [11]

    Before turning to set out a brief chronology, I should note that it is most unsatisfactory for a party defending an application for costs to rely upon such a large quantity of material. Having perused the material, I am satisfied that most of it was provided not because the contents of the documentation were relevant but, rather, to show the amount of documentation involved and how late it was that the plaintiffs received it. I was familiar with some of this documentation from the hearing in this matter. On this basis, I have not considered it necessary to read every page of every document that was provided by the plaintiffs on this costs application. I have otherwise read and considered all of the material provided by the parties.

12. [12]

    These proceedings were commenced by Moneytech on 16 December 2015. There were initially seven defendants sued by Moneytech but by the time Mr Osborne’s matter came on for hearing on 12 March 2019 he was the only active defendant left in this matter. I have set out the details of the other parties in my previous judgment at [2]-[11].

13. [13]

    When the proceedings commenced in 2015, Moneytech was the only plaintiff. It had no standing to bring the proceedings as it had no contractual relationship with Diamond Made. It was not until nearly two years later that it made application to join its SPV Diamond Made Trading as a second plaintiff. That application was opposed but on 23 June 2017 Button J made an order joining the proper plaintiff to the proceedings: Moneytech Finance Pty Ltd v Diamond Made Pty Ltd [2017] NSWSC 836.

14. [14]

    Further, when the proceedings were first commenced Mr Osborne was incorrectly named as “Andrew Kent Osborne t/as Pizza Pasta Please Campbelltown”. There was no evidence that Andrew Kent is or ever was a director of that business. On 9 February 2016, soon after the proceedings were commenced against, Mr Osborne wrote to Moneytech and offered to meet with them to “explain the errors in the filing” asserting that he had been mistakenly joined as a party in these proceedings.

15. [15]

    On 11 February 2016, Mr Osborne prepared and filed his own defence. In it he pleaded that he did not have any contractual relationship with Diamond Made and that he did not own Pizza Pasta Please Campbelltown.

16. [16]

    On 17 February 2016, Mr Osborne again advised Moneytech’s solicitors that he had been mistakenly joined in the proceedings. It was suggested that the mistake had arisen from a misapprehension that Mr Osborne was an owner or director of PPP Campbelltown when he was not.

17. [17]

    On 22 February 2016, Mr Osborne repeated his complaint in further correspondence. He suggested that a “simple ASIC search will reveal that I have no association with PPP Campbelltown,” apart from being the landlord of premises leased to associated companies of its director.

18. [18]

    On 13 May 2016, Mr Osborne’s solicitors wrote to Moneytech explaining why it had no cause of action against him and why he should not have been joined in these proceedings. A copy of this letter was annexed to Ms Peck’s affidavit of 13 March 2019. It was made in accordance with the principles set out in Calderbank v Calderbank [1975] 3 WLR 586. The letter was headed “Without Prejudice” and stated the following:

19. [19]

    There was no response to this letter.

20. [20]

    A further letter was sent by Ms Peck to Moneytech’s lawyer that same day which included the following:

21. [21]

    On 22 June 2016, Ms Peck caused a letter to be sent to Moneytech’s lawyers stating, inter alia, “a number of aspects of the present draft ASOC are not satisfactory pleaded or particularised….”

22. [22]

    On 4 November 2016, Mr Peck caused a letter to be sent to Moneytech’s lawyers stating “….Your clients have not addressed those aspects of the draft pleading which are not satisfactory pleaded or particularised as identified in a letter dated 22 June 2016”.

23. [23]

    on 25 January 2017, Ms Peck caused another letter to be sent to Moneytech’s lawyers which stated the following:

24. [24]

    On 22 March 2017, the application to amend the statement of claim was heard by Button J and on 23 June 2017 Button J made the orders referred to above.

25. [25]

    On 5 September 2017, Ms Peck caused a further “Without Prejudice” letter to be sent to the plaintiffs’ lawyer including an offer in accordance with the principle set out in Calderbank v Calderbank. An explanation was sought as to why Mr Osborne was liable and it was noted that it must be “apparent” that had basic investigations been undertaken prior to commencing proceedings this would have revealed that the proceedings against Mr Osborne were destined to fail and should not have been commenced.

26. [26]

    On 14 September 2017, the plaintiffs’ lawyer wrote to Ms Peck requesting an extension of time to accept the offer.

27. [27]

    No response was received within the extended time to receive the offer but on 26 October 2017 the plaintiffs wrote a “Without Prejudice” letter to Mr Osborne formally rejecting the offer and counter offering to settle the proceedings for $374,395. This letter included an assertion that the offer made by Mr Osborne did not “reflect the strength of our clients’ claim against your client”.

28. [28]

    On 29 November 2017, Ms Peck caused a further letter to be sent to the plaintiffs’ lawyers stating, inter alia:

29. [29]

    On 4 December 2017, Ms Peck received a letter from the plaintiffs’ lawyers asserting that their client did not agree that it “cannot succeed on its pleaded case”. The letter also confirmed that subpoenas were to be issued and that any application by Mr Osborne to have the matter listed for an interim hearing would be opposed.

30. [30]

    On 5 December 2017, Ms Peck caused two letters to be written to the plaintiffs’ solicitors. The first of them was in a form contemplated by r 20.6 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) and was headed “Without Prejudice”. It included the following:

31. [31]

    The second letter sent by Ms Peck to the plaintiffs’ solicitors on 5 December 2017 included the following:

32. [32]

    There was no reply to this letter and on 31 January 2018 a further “Without Prejudice” letter was sent to the plaintiffs’ lawyers.

33. [33]

    On 7 February 2018, a further “Without Prejudice” letter was sent to the plaintiffs’ lawyers enclosing short minutes of order.

34. [34]

    On 26 April 2018, the Court made orders noting that Mr Osborne was ready to proceed to hearing. The matter was listed for hearing commencing on 20 November 2018.

35. [35]

    On 6 September 2018, Mr Osborne requested further and better particulars of the plaintiffs’ case against him.

36. [36]

    On 7 September 2018, Ms Peck received a “Without Prejudice” letter from the plaintiffs’ lawyers repeating the offer made in its letter of 26 October 2017.

37. [37]

    The parties attended a court appointed mediation on 10 September 2018.

38. [38]

    Particulars of how the plaintiffs brought their case were finally provided on 18 September 2018.

39. [39]

    The plaintiffs received Mr Osborne’s evidence on 13 November 2018.

40. [40]

    Ms Peck caused a further “Without Prejudice” letter to be sent to the plaintiffs’ lawyers on 13 November 2018.

41. [41]

    On 20 November 2018, the proceedings were listed before Campbell J for hearing. Mr Osborne was ordered to provide supplementary discovery in verified form and ordered to pay the plaintiffs’ costs thrown away by reason of the adjournment. The hearing was adjourned and relisted on 11 March 2019: Moneytech Finance Pty Ltd v Diamond Made Pty Ltd [2018] NSWSC 1785.

42. [42]

    On 29 November 2018, Ms Peck caused a further letter to be sent to the plaintiffs lawyers stating “our client again invites your client to abandon it [sic] proceedings against our client”.

Mr Osborne’s submissions

1. [43]

   It was submitted that the plaintiffs’ claim against Mr Osborne was always destined to fail. Reliance was placed on the fact that it was not until 18 September 2018 that any coherent thesis was advanced as to why Mr Osborne could have any liability to the plaintiffs or either of them.

2. [44]

   Correspondence was relied upon to show that on 12 May 2016 Moneytech refused to provide any particulars of its claim and continued to do so until March 2017. Even though the plaintiffs’ solicitors sent a detailed letter on 26 October 2017, it was submitted that it did not grapple with the substance of the case.

3. [45]

   It was submitted that Mr Osborne should be reimbursed for all of the costs he has incurred in successfully defending these proceedings (“other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount” and the costs order made by Campbell J on 20 November 2018). It was said to be unfair for Mr Osborne to be required to bear the difference between the ordinary basis and indemnity basis in circumstances with the proceeding should never have been commenced.

4. [46]

   Somewhat dramatically, it was submitted that “the chickens have ultimately come home to roost”. That is, Moneytech decided to advance money on the face of Invoice 238 and then commenced and pursued these proceedings without ensuring that the amount of Invoice 238 was actually payable. This has caused massive amounts of costs to be incurred in relation to a supposed debt that did not actually exist.

5. [47]

   It was accepted that the plaintiffs faced forensic difficulties in deciding whether to commence and pursue these proceedings against Mr Osborne as they were not in a position to know all of the relevant circumstances surrounding the issue of Invoice 238. Despite this, it was submitted that those forensic difficulties provided no excuse for commencing and pursuing proceedings which could not succeed on the available evidence.

6. [48]

   In addition to relying upon the manner in which the proceedings were conducted and the inevitable failure of them it was also submitted that the plaintiffs adopted an unreasonable approach in response to attempts to compromise the proceedings.

The plaintiff’s submissions

1. [49]

   The plaintiffs relied on the fact that they were strangers to the transaction. This was said to undermine Mr Osborne’s submission that they should have known that there was no contract. It was further submitted that they were not able to get the relevant documents until late in 2018 and that preliminary discovery was not the appropriate procedural step to take.

2. [50]

   It was submitted that the first subpoena was not issued until 20 December 2017 and documents were still being received as at 13 November 2018. It was noted that the plaintiffs had not received any of these documents at the time they received either of the Calderbank letters and thus it was reasonable to reject them.

3. [51]

   As for the letters of compromise, it was submitted that the letter of 13 May 2016 was to discontinue proceedings with no order for costs in that matter and the letter of 5 September 2017 was to discontinue proceedings and pay 80% of Mr Osborne’s costs.

4. [52]

   It was submitted that, unlike a formal offer of compromise under UCPR r 20.26, a Calderbank offer does not give rise to a presumption in favour of ordering of costs on an indemnity basis: Jones v Bradley (No.2) [2003] NSWCA 258. It was submitted that the presumption is still that costs follow the event and the question of indemnity costs is one for the Court’s discretion. Furthermore, in order to rely upon the Calderbank letter the terms of the offer should contain a real and genuine element of compromise: Leichardt Municipal Council v Green [2004] NSWCA 341 at [23].

5. [53]

   The plaintiffs contended that the offers of compromise were not genuine and it was not unreasonable to reject them. It was submitted that the Court ought to consider all of the circumstances of the case, including the relative strengths and weaknesses of each party’s case; these may not have been apparent to the parties at the time the offer was made. The danger of “juggling the reasonableness of the settlement offer through the prism of hindsight” was highlighted: Ananda Marga Pracaraka Samgha Ltd v Tamar (No 7) [2013] FCA 863.

6. [54]

   The plaintiffs relied upon the decision of Katzmann J in Veda Advantage Limited v Malouf Group Enterprises Pty Ltd (No 2) [2016] FCA 470 at [35], where her Honour accepted a submission that one of the parties was not in a position to know whether the terms of the offer were adequate to protect its interests at the relevant time.

7. [55]

   As for the offer of compromise dated 5 December 2017, it was conceded that it did comply with the requirement of UCPR r 20.26 and, thus, the onus is on the plaintiffs to demonstrate why the court should depart from the consequence of their rejection of the offer. It was submitted that it was not a genuine offer of compromise and was made merely to trigger the cost consequences under the UCPR. The plaintiffs accepted that whether an offer contains a genuine element of compromise depends on the circumstances of the case viewed objectively. It was also accepted that a “walkaway” offer is a valid compromise for the purposes of the UCPR.

8. [56]

   Reliance was also placed on the Court of Appeal decision of Leach v Nominal (QBE Insurance (Australia) Ltd) (No 2) (2014) NSWCA 391 where it was held that where proceedings cannot be described as of an “all or nothing nature” then it can be reasonable to reject an offer of compromise. Indemnity costs were not made in that matter. Similarly, it was submitted that the present proceedings were on an “all or nothing” basis and thus the primary question was whether the plaintiffs had been able to establish that Mr Osborne was liable in some way for the cost of the fit-out. The only element of compromise was the costs. Thus, it was submitted that this offer did not serve the public policy of encouraging settlement and was only written to trigger the cost consequences under the UCPR; it did not represent a genuine offer of compromise.

Consideration

1. [57]

   Section 98(1)(a) of the Civil Procedure Act 2005 (NSW) provides that costs are in the discretion of the court. Section 98(1)(b) provides that the court has “full power to determine by whom, to whom and to what extent costs are to be paid”. This discretion is subject to the qualification that it “must be exercised judicially in accordance with established principle and factors directly connected with the litigation”: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65], per McHugh J. Among the fetters on the discretion to award costs are the rules of the court contained in Part 42 of the UCPR. The usual rule is that costs follow the event, unless it appears to the court that some other order should be made: UCPR, r 42.1. Costs ordered to be paid are assessed on the ordinary basis unless the court otherwise orders: UCPR, r 42.2. The making of a Calderbank offer is one circumstance in which the court might exercise its discretion under r 42.2 to make an order other than on the ordinary basis. UCPR r 42.5 relevantly provides that if the court determines that costs are to be paid on an indemnity basis then “all costs are to be allowed”.

2. [58]

   Offers of compromise are provided for in UCPR r 20.26 which relevantly provides:

3. [59]

   The consequences of such an offer not being accepted and where the judgment is “no less favourable” are set out in UCPR r 42.14 as follows:

4. [60]

   In Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 Basten JA (Giles JA and Young CJ in Eq agreeing) surveyed, in considerable detail, the relevant authorities relating to indemnity costs as follows:

5. [61]

   More recently, in Luo v Carbone [2019] NSWSC 830 at [44] Darke J re stated the relevant principles in exercising the Court’s broad discretion to award costs as follows:

6. [62]

   There are two bases upon which Mr Osborne contends that the plaintiffs are liable to pay his costs on an indemnity basis: the unreasonable conduct of the proceedings and the failure to engage with offers to settle the matter. I shall deal with each of these in turn.

7. [63]

   I am satisfied that, despite numerous requests, the plaintiffs failed to ever identify with precision how it was said that Mr Osborne was liable to them until 18 September 2018; a date almost 3 years after the proceedings were commenced.

8. [64]

   I am satisfied that the three offers made by Mr Osborne ought be compared with the fact that only one offer was made by the plaintiffs. Despite its reliance on principles concerning this being an “all or nothing payment”, the plaintiffs’ offer of compromise was for an amount approximately half of that that was sought.

9. [65]

   I am not satisfied that the large amount of documentation produced by the plaintiffs to defend this application assists their case. It mainly concerned the late receipt by them of relevant documentation and the opposition Mr Osborne made to various aspects of the discovery. It was not explained why the proceedings were commenced without any of the necessary documentation. Nor does the bulk of that material adequately explain why so many of the earlier letters sent to Moneytech from 2016 were not responded to. There has been no explanation as to why the repeated requests on behalf of Mr Osborne to clarify their case and address why he had been wrongly named or joined in this matter were ignored.

10. [66]

    I have set out the correspondence in some detail above so that the approach by the plaintiffs to Mr Osborne’s position can be fully understood. They were repeatedly warned over the years of the difficulties with their case by Mr Osborne’s lawyers.

11. [67]

    As for the plaintiffs’ submission that the letters of compromise have to be viewed in the overall circumstances of the case, I am not satisfied that that submission assists the plaintiffs either. The relevant context is that it was over two and a half years after the initial requests of it to clarify their case that the plaintiffs finally did so on 18 September 2018. That case differed significantly from the way the statement of claim was initially. There was no clear case made against Mr Osborne until 18 September 2019.

12. [68]

    The plaintiffs’ primary arguments against the costs being ordered to be paid on an indemnity basis are that they got the relevant documentation late, that the offers of compromise were not genuine and that it was reasonable for them to reject them. I am not satisfied that any of these arguments have been made out. I have already concluded that the delay in responding to the correspondence from Mr Osborne and later his lawyers has not been adequately explained. That is, a solicitor of this court wrote to the plaintiffs’ lawyers repeatedly explaining the difficulties in their case against Mr Osborne and these letters were not appropriately addressed.

13. [69]

    As for whether the offers of compromise were “genuine”, I am satisfied that they were. I reject the plaintiffs’ submission that they were only made for the purposes of getting Mr Osborne favourable costs order at this stage of the proceedings. Having regard to the chronology of events, I am satisfied that Mr Osborne was anxious to settle this matter from the beginning as he could see his costs accruing steadily over the significant delay in bringing the matter on for hearing. In that context I am satisfied that the offers were all genuine.

14. [70]

    As for the plaintiffs’ argument that they were not in a position to know whether they should accept those offers until they had all the relevant documentation (nearly three years after commencing these proceedings), that argument completely ignores the fact that they were the plaintiffs in these proceedings. It was for the plaintiffs to understand their own case and in a more timely manner than occurred in this matter. I have had regard to the relevant principles about the benefit of hindsight, but I am satisfied that they are not applicable on the facts of this case.

15. [71]

    As for the fact that the first letter was a Calderbank letter and not an offer made under UCPR r 20.24, I am nonetheless satisfied that the discretionary factors I have indicated above militate in favour of costs being awarded on an indemnity basis. My discretion in this regard is wide but is subject to the principles to which I have averted. I am satisfied that they all militate in favour of costs being awarded on an indemnity basis in this matter.

ORDERS

1. [72]

   Accordingly, I make the following orders:

   1. (1)

      The first and second plaintiffs are to pay the sixth defendant’s costs on an indemnity basis other than:

   2. (2)

      The interest payable on the amount payable under the order for the payment of costs made today is to be calculated from 14 March 2019.