FEDERAL COURT OF AUSTRALIA

Neville’s Bus Service Pty Ltd v Pitcher Partners Consulting Pty Ltd (No 2) [2019] FCA 198

ORDERS

THE COURT ORDERS THAT:

1.    The respondents pay the applicant’s costs of the proceeding on an indemnity basis, such costs to be paid pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth) as a lump sum in the amount of $3,366,388.

2.    The respondents pay to the applicant interest pursuant to r 39.06 of the Federal Court Rules 2011 (Cth) on the judgment sum from the date of judgment (21 December 2018).

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

O’CALLAGHAN J:

1    I gave judgment in this matter on 21 December 2018 (see Neville’s Bus Service Pty Ltd v Pitcher Partners Consulting Pty Ltd [2018] FCA 2098).

2    I ordered that:

1. The applicant file and serve no later than midday today a note with a calculation as to the sum in respect of which judgment is to be entered against the respondents in relation to its claim for damages in deceit in the sum of $5,485,416, which, subject to any such adjustment, is allowed.

2. The parties file and serve submissions on the questions of costs and interest by 21 January 2019.

3. The matter be listed for further hearing on a date to be fixed.

3    The applicant’s solicitors said that the sum referred to in order 1 was $5,632,844. That sum, the calculation of which was not challenged, is made up as follows:

4    Judgment was accordingly entered in that amount on 21 December 2018.

5    Although order 3 contemplated a further hearing on the question of costs, I have received detailed written submissions from all parties and they are content for me to deal with the matter on the papers.

6    The applicant contends that the appropriate order in relation to costs is that the respondents pay the applicant’s costs of the proceeding on an indemnity basis, such costs to be paid as a lump sum in the amount of $3,366,388.

7    The lump sum amount is sought pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth) (the Federal Court Rules), and is calculated as 90 percent of the total legal costs and 100 percent of the total disbursements (exclusive of GST) incurred and paid by the applicant in the conduct of the proceeding to date. In that regard, the applicant relied on affidavits of Mr Powell sworn on 6 and 7 February 2019, which detail how the lump sum is made up.

8    The case for indemnity costs is put on two bases. First, the applicant points to the respondents’ deceitful conduct giving rise to and in the conducting of the proceedings. Secondly, it says that the judgment sum exceeded the amount contained in an offer of settlement made by the applicant in April 2016.

9    I found that the first and third respondents are vicariously liable to the applicant for the deceit of the second respondent in the sum of $5,632,844. This occurred in circumstances where the respondents did not even admit the fact of the amortisation error until April last year, a matter of only a few months before the trial started.

10    I also found the second respondent was an unsatisfactory witness, in part because I formed the view that a number of his answers to questions put in cross-examination about critical matters were not true. I also found that the second respondent knew of the amortisation from February/March 2014 and then concealed it, and his knowledge of it, from that point onwards.

11    Counsel for the applicant submits that the indemnity costs order it seeks is appropriate because “the applicant has been put, entirely unnecessarily, to the costly task of litigating this matter. If the respondents had been truthful and transparent in 2014, that would have negated the need to commence proceedings or otherwise could have permitted the resolution of the dispute at the very earliest stage”.

12    The respondents submit that the court should award costs assessed on a party and party basis.

13    They give the following reasons:

(1)    the respondents did not conduct the proceeding in a way that was inconsistent with the overarching purpose of the civil practice and procedure provisions to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible, and that an award of indemnity costs is not therefore justified under ss 37N(4)(5) or 37P(6)(d)(e) of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act);

(2)    the lateness of the admission of the amortisation error is not a sufficient basis for indemnity costs;

(3)    the respondents made a number of admissions in their closing submissions which assisted the court and the applicant by narrowing the issues in dispute;

(4)    this is not a case where the respondents had no prospects of success or ran an unmeritorious defence so as to justify an award of indemnity costs, pointing to the fact that I declined to award exemplary damages in respect of the action in deceit and the negligence claims.

14    Alternatively, the respondents submit that any award of indemnity costs should be limited to an award up to the date of trial and that the costs of the trial should be on a party and party basis because: “[c]onsequent upon the engagement of new legal practitioners, [they] made appropriate admissions, concessions and disclosures in the amended defence. Furthermore, the trial proceeded on the scheduled date and nothing after the engagement of new legal practitioners caused any delay to the trial. In the circumstances … the trial itself was not conducted in a manner that justifies any award of indemnity costs”.

15    In my view, for the reasons submitted by the applicant, this is a case where the award of indemnity costs is close to irresistible (see Oshlack v Richmond River Council (1998) 193 CLR 72, 89 [44] and Westpac Banking Corp v Victor Warren Ollis & Ors [2007] NSWSC 1008 at [6] - [14]). The applicant is a victim of fraud and, in my view, it is entitled to recompense of the actual costs (or most of them, in any event) incurred (see CRA & MD Gate v Sun Alliance Ltd (1995) 8 ANZ Insurance Cases 61-251 at 75,818).

16    None of the submissions by the respondents grapples with the fact that the second respondent dishonestly concealed the error from the applicant from February/March 2014, and that he knew from that point onwards that it would cause severe financial loss to the applicant, something that the respondents seem to have cared much less about than preserving their reputations. It must have been obvious to the first and third respondents that the second respondent knew about the amortisation error no later than when they read the second respondent’s late-discovered emails, for reasons which I dealt with in my reasons for judgment. The fact is that the respondents chose to “roll the dice” in the hope that their nominal damages case would succeed, and in doing so, in the view that I took of the matter, caused the applicant to incur unnecessarily significant legal expenses.

17    I also take into account the fact that during closing address, senior counsel had very little to say about the question of the second respondent’s dishonesty, which was, obviously, the central part of the applicant’s case in deceit.

18    Nor do I accept that the respondents conducted the proceeding in a way that was consistent with the overarching purpose of the civil practice and procedure provisions to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible, as they submit. As I noted in my reasons for judgment (Neville’s Bus Service Pty Ltd v Pitcher Partners Consulting Pty Ltd [2018] FCA 2098 at [137]-[138]):

As is apparent from these various exchanges and from the record of the meeting that was held in Sydney between Messrs Stewart, Joseph and Calabro, from the very first time that Mr Joseph raised the capital shortfall question, Mr Stewart, in particular, made attempts to persuade NBS that no real harm was done, or that fault lay with NBS, because:

(1) the region 15 contract was still operating at a profit;

(2) Pitcher Partners had spent 6 to 8 weeks working on the region to bid pricing but only 2 weeks on the region 15 bid pricing;

(3) Pitcher Partners had applied a “buffer” to other projected costs;

(4) NBS declined an offer that Pitcher Partners carry out a QA review; and

(5) NBS had insisted on aggressively pricing the tender bid.

Many of these lines of “defence” were echoed in the witness statements filed on behalf of the respondents and, to a lesser extent, in the respondents’ defences, although by the time of closing submissions they were not relied on, and I take them to have been abandoned. That is hardly surprising, because the first and second lines of defence were irrelevant. The third, fourth and fifth were simply untrue.

(Emphasis added).

19    As to the fact that I declined to award exemplary damages, I fail to see how the respondents’ “success” on a matter so incidental to the overall proceeding can be of any relevance.

20    Accordingly, I do not accept any of the reasons advanced by the respondents as to why the award of indemnity costs is not appropriate in this case.

21    In circumstances where there is no contest about the amount of legal costs claimed by way of a lump sum order, and where the respondents make no submission about whether to make a lump sum order, I will order that the respondents pay the applicant’s costs of the proceeding on an indemnity basis, such costs and interest to be paid as a lump sum in the amount of $3,366,388.

22    In those circumstances, it is not strictly speaking necessary to consider the settlement offer, but I will do so in case my view of it matters.

Offer of compromise

23    On 15 April 2016 the applicant made an offer to settle the dispute the subject of the proceeding in the amount of $4,649,036.

24    The offer was in these terms (omitting formal parts, and the attachment):

We act for Neville’s Bus Service Pty Ltd trading as Busabout (Busabout).

Busabout has provided us with the correspondence passing between your firm and its previous solicitors. We ask that you confirm that you still act for Pitcher Partners Consulting Pty Ltd.

As you are aware, Busabout alleges that as a result of your client’s negligence, breach of retainer and misleading and deceptive conduct in the preparation of the calculations for its tender for the Sydney Metropolitan Bus Service Contract Region 15, it has suffered and continues to suffer, loss and damage.

However, in the interests of resolving these issues, and to negate the need for Busabout to commence proceedings against your client, Busabout is prepared to reach a full compromise of this dispute with your client on the basis that your client pays to Busabout the sum of $4,649,036.00 (Amount) within 14 days from the date of this letter. Should Busabout not receive payment of the Amount within this time, Busabout intends to file the enclosed Statement of Claim and expressly reserves its right to reply upon this letter as to the question of costs.

The Amount represents a compromise and should your client not pay the Amount to Busabout, we put you on notice that it may seek damages substantially higher than the Amount (as our client is still in the process of assessing the total amount of damages it has suffered) and our client reserves all of its rights in this regard.

We look forward to your prompt reply.

25    The applicant was awarded $983,808 more than the offer made over two and a half years earlier. The applicant submits that this justifies the exercise of the court’s discretion to award the applicant its costs on an indemnity basis, as it was plainly unreasonable for the respondents not to accept the offer, particularly in circumstances where the respondents were well aware of the amortisation error and its concealment, at the time the offer was made. Further, it is submitted that the respondents were well aware that the offer was a true compromise because it sought an amount which was well below the calculations the respondents themselves had made as to the financial consequences of the amortisation error faced by the applicant.

26    The respondents submit that they are not liable to pay indemnity costs merely because the applicant achieved a better result at trial than the quantum of the offer, citing Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [8]. So much may be accepted.

27    The respondents submit that the offer was not a genuine compromise. They say the offer sought payment of the “Amount” (being the sum of $4,649,036) and stated that if the Amount was not paid then the applicant “may seek damages substantially higher than the Amount”. Their submission continues:

In this light, the Offer sought payment of the Applicant’s entire claim (as at the time of the Offer) and the Offer itself was akin to a letter of demand rather than an informal offer of compromise. Despite asserting that the Amount “represents a compromise”, the Offer was silent as to how or even if the Applicant discounted its claim so as to reach a real and genuine compromise with the First and Second Respondents. Accordingly, the Applicant cannot be said to have placed itself in a more favourable position in relation to costs

28    In support of that proposition, the respondents cite Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [9], as follows:

There is authority for the proposition that both an offer of compromise under the rules and an informal offer must involve “a real and genuine element of compromise”[…] To characterise an offer by reference to epithets such as “real” or “genuine” adds little to the requirement of compromise, and may imply (wrongly) that the appropriate inquiry is as to the subjective intentions of the offeror […] As explained by Giles J in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368:

Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so.

29    The respondents also submit that their rejection of the offer was not unreasonable because:

(1)    the offer was made prior to issuing proceedings and before the making of discovery;

(2)    the absence of discovery at the time of the offer meant that neither the applicant nor the first and second respondents were in a position to assess accurately their prospects of success.

(3)    it was unclear whether the offer was made inclusive or exclusive of costs;

(4)    because the offer was only made to the first and second respondents and not the third respondent it was not capable of acceptance by all respondents as the first and second respondents could not accept the offer on behalf of the third respondent, citing Vieira v O’Shea (No 2) [2012] NSWCA 121 at [10]-[13].

30    I do not accept the respondents’ submissions in this regard. The offer was clearly enough an all-in one, offering, as the letter said, a “full compromise”. Further, it was precisely because the offer was made early in the piece that the applicant was not in a position to identify a precise figure. As the letter noted: “The Amount represents a compromise and should your client not pay the Amount … we put you on notice that it may seek damages substantially higher that the Amount (our client is still in the process of assessing the total amount of damages it has suffered) …”

31    I also do not accept that by April 2016 the respondents were not in a position to assess their “prospects of success”.

32    As to the final point, even if it were to be accepted, it would mean that if the settlement offer were the only basis for the making of an award of indemnity costs, it would be limited to an award against the first and second respondents.

33    I mention one final matter for the sake of completeness. The respondents point to the fact that they made an offer to pay the applicant $1.2 million on 21 May 2018 and the applicant made an offer to accept payment of $9.5 million on 27 June 2018. They contend that because the applicant did not obtain judgment more favourable than the terms of their offer to accept payment of $9.5 million, indemnity costs are not available under r 25.14 of the Federal Court Rules. That submission was made without any reference to the offer of compromise made in April 2016 discussed above. In my view, in circumstances where the April 2016 offer of compromise was not accepted, the existence of two other offers is of no relevance.

Interest

34    The orders of the Court entered on 21 December 2018 require the respondents to pay the applicant $5,632,844 by way of damages. This amount, based upon the uncontested evidence, is inclusive of interest. The applicant therefore only seeks an order that interest be paid post judgment. An order will be made accordingly.

Associate:

Dated:    21 February 2019