Abbott v Klein

District Court of NSW|2015-05-13

Judgment

On 16 April 2015 I gave judgment in favour of the plaintiff, Adrian Abbott, for $115,610 and reserved the question of costs: see Abbott v Klein [2015] NSWDC 45. The claim was based upon a deed which provided for payment of $100,000 on or before 15 December 2012.
Mr Abbott applied for an order for indemnity costs from 3 August 2013. He relies on an offer of compromise dated 2 August 2013, some five months approximately after proceedings were commenced. By it Mr Abbott offered to settle the proceedings by the defendant, Peter Klein, paying Mr Abbott $100,000. That offer was not accepted.
The offer met the formal requirements of an offer of compromise under Part 20 of the Uniform Civil Procedure Rules 2005. Under Rule 42.14, unless the Court otherwise orders, Mr Abbott is entitled to the order he seeks because the judgment he obtained was no less favourable than the offer of compromise.
Mr Klein resists Mr Abbott's application on the basis that the offer of compromise does not represent a genuine compromise. Mr Klein seeks an order that each party pay his own costs, and in that regard relies upon a written offer he made. His offer to Mr Abbott, admitted without objection, was dated Friday, 9 November 2012 and was in the following terms: "Without Prejudice Dear Adrian, I am writing in regard to the outstanding debt of $100,000. As I explained at our meeting, whilst I accept that this debt is due, I am not in a position to make this payment in one go. I have carefully looked at my cash flow and would like to offer the following payment plan: • A payment of $20,000.00 on December 15th 2012 • A payment of $20,000.00 on June 15th 2013 • A payment of $20,000.00 on December 15th 2013 • A payment of $20,000.00 on June 15th 2014 • A payment of $20,000.00 on December 15th 2014 • Interest to accrue on the outstanding Balance starting from December 15th 2012 at the rate of 8% until final payment is made. Please send me your bank details so that these funds can be transferred electronically. I would also appreciate a copy of invoices that match these payments in the name of Peter Klein. I trust that you will appreciate my effort to clear this debt as quickly as I can".

THE OFFER OF COMPROMISE
The nature of the compromise provided in Mr Abbott's offer is twofold.
First, the amount of interest, totalling $4,429.86 for the period from 15 December 2012 until 2 August 2013, was foregone by the offer. In fact the interest foregone is probably a little higher, perhaps around $5,000, because the offer remained open for acceptance until 30 August 2013. By the offer Mr Abbot might also have forewent any costs incurred in the 28 days in August 2013 since, if the offer is accepted, costs are only payable up to the date of the offer (see r 42.13A).
By the offer Mr Abbot also forewent any claim to interest from 24 January 2003 at the Westpac Banking Corporation personal loan rate, as provided for in the deed. As this additional interest claim was not made in the statement of claim and might, as a penalty, be of doubtful force in any event, and was not raised in submissions, I do not propose to put any weight upon it.
The second element of compromise, perhaps less significant is that whilst judgment was sought in the claim, the offer contemplated resolution without a judgment.
The substantive question can perhaps be stated as whether a willingness to compromise a claim by an amount of $5,000, or 5% of a claim valued at about $105,000 at the due date for acceptance of the offer is an offer containing a genuine element of compromise.
Mr Abbott referred to four cases where the amount of compromise measured against the claim ranged from 2% to 4.5%, but that nevertheless the special costs orders applicable to an offer of compromise were held to apply: see Connor v Hatgis (No 2) [1995] NSWCA 92, Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724G to 725D, Prosperity Advisers Pty Ltd v Secure Enterprises Pty Ltd (t/as Strathearn Insurance Brokers) [2012] NSWCA 192 at [111], and Amaca Pty Ltd v Hicks (No 2) [2011] NSWCA 360 at [2]-[6].
Mr Klein submitted that the strength of the defence is also relevant to assessing whether the offer contained a genuine element of compromise. He referred in submissions to passages in my earlier judgment where I was "not satisfied" of certain matters, or used other like expressions, see Abbott at [32], [81]-[88], [98] and [100]. I accept that whether a genuine element of compromise might exist in the offer may be informed by whether the result in the proceedings was finely balanced, or whether Mr Klein, although he failed, propounded a defence that had real prospects, or not slight prospects of success, see Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 at [12] and [19].
However, I am not persuaded that the strength of the defence of Mr Klein rendered the 5% discount offered by Mr Abbott insufficient to amount to a genuine compromise. The claim was a straightforward claim for a debt based on a deed that was not in dispute. The matters raised in the defence by Mr Klein, although manifesting a certain level of legal ingenuity, did not have such substance, in my view, as to require a greater discount in an offer in order for the offer to amount to a genuine compromise. I particularly refer to those matters in the judgment concerning the alleged mistaken belief of Mr Klein.
It is also relevant, in my view, that in his own offer of settlement Mr Klein accepted that the debt was due. This is some evidence about the strength of the claim that supports the contention that a small discount in an offer was sufficient to amount to a genuine compromise.
Accordingly, in my view, the offer of compromise of Mr Abbott satisfies the requirements of the rules and, unless I otherwise order, Mr Abbott is entitled to the order sought.

MR KLEIN'S OFFER
It might be observed that in strict money terms, and taking into account the date of payment and judgment, Mr Klein's offer may be more favourable than that obtained by Mr Abbott. The interest rate is marginally higher and the debt would have been wholly repaid before the judgment was obtained. However, the offer was made before the proceedings commenced and is not in the form of an offer of compromise. Mr Klein submitted that it should be treated as a Calderbank offer and that it was unreasonable of Mr Abbott not to accept it.
The offer was also not in the form of a Calderbank offer. It made no reference to that decision, or to it being "without prejudice save as to costs", see Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No. 2) [1999] NSWCA 133. Nevertheless, the offer remains a matter for the Court to consider in determining the appropriate costs order, and whether to otherwise order under r 42.14, see Commonwealth of Australia v Gretton [2008] NSWCA 117, Old v McInnes and Hodgkinson [2011] NSWCA 410 at [28]-[34], and Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 at [41]-[44].
The value of the offer by Mr Klein is lessened because it specified no period for acceptance and it was withdrawn prior to the debt becoming payable, some months prior to the proceedings being commenced. It also offered no warning about being relevant to costs. In effect, it was a letter that sought an indulgence, whilst admitting (but not in a way admissible at trial) Mr Abbott's full entitlement. It provided for payment by instalments, a less favourable result than a judgment for the whole sum.
The circumstance that justice is not immediate because it results from litigation, and so payment is delayed, does not seem to me to be relevant in determining whether Mr Abbott was more successful in the proceedings than the offer made by Mr Klein. In my view, Mr Abbott was more successful than the offer because he was wholly successful: he obtained and was not confined by an instalment arrangement.
Other matters that are relevant in determining whether Mr Abbott acted unreasonably in not accepting Mr Klein's offer are: 1. The offer provided no greater assurance or security of payment than the deed Mr Abbott already possessed. In one respect it would reduce Mr Abbott's claim on a deed to a claim based on an agreement recorded in correspondence, had Mr Abbott chosen to accept it. 2. Mr Abbott had waited some 20 years in total for payment of the money owed and it was not unreasonable for him to refuse to wait a further period especially when the offer contained an acknowledgement of Mr Abbott's entitlement. 3. It was reasonable for Mr Abbott to wait to see if Mr Klein would honour his obligations in the deed, obligations that became due on 15 December 2012. By that date the offer of Mr Klein had been withdrawn. 4. As mentioned, Mr Klein conceded in the offer that the debt was due (or in fact almost due, since the letter was a month earlier than the due date).
For these reasons, I am of the view that Mr Abbott did not act unreasonably in failing to accept Mr Klein's offer.
The matters mentioned are also matters I should take into account in exercising the discretion I have under r 42.14 as to whether I should make an alternative order. Of particular importance is that Mr Klein, although admitting liability before the proceedings commenced, nevertheless maintained a defence denying liability throughout the proceedings and to an unsuccessful judgment. There is, in my opinion, no basis to order other than in accordance with the general order provided in r 42.14.
The order of the Court is the defendant to pay the plaintiff's costs of the proceedings assessed on an ordinary basis up to and including 2 August 2013 and thereafter assessed on an indemnity basis.

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