Abdi v Abdi

Supreme Court of NSW|2022-10-24|Before: Peden J, Rees J, Ward P

Judgment

On 30 September 2022, I published reasons for judgment in this matter ([2022] NSWSC 1334), which involved the Court fixing the price for the purchase by the Second Defendant of the Plaintiff's shares in the company, Natural Raw C Pty Ltd.
At the hearing, the Plaintiff agitated for a purchase price of $1,963,913 and the Second Defendant agitated for a purchase price of $178,253. I fixed the price as sought by the Second Defendant.
The Second Defendant now seeks a special costs order in relation to part of the proceedings relying on two offers in accordance with Calderbank v Calderbank (1975) 3 All ER 333 that were rejected by the Plaintiff.
The first Calderbank offer was made on 24 February 2022 in terms that the Second Defendant would pay a purchase price of $1,256,000 for the shares. That offer was specified to close one week later. That figure was based on Mr Mullins' initial valuation as an independent expert appointed by the parties. However, that initial valuation was never finalised and the orders for the appointment of an independent valuer were later set aside by Rees J: [2021] NSWSC 1659.
The first Calderbank offer also included a term that "all previous costs orders in the proceedings are to be vacated and the Supreme Court of NSW proceedings are to be dismissed with no order as to costs". That term was not repeated in the second Calderbank offer.
The second Calderbank offer was made on 15 September 2022 "on a purely commercial basis", in terms that the Second Defendant would pay a purchase price of $500,000. That offer was specified to close five days later, just before the hearing.

Determination

The Plaintiff opposed the Second Defendant's proposed special costs order and submitted that costs orders ought to be made by reference to the various stages of the proceedings being: Between 18 August 2021 when the proceedings were commenced and 17 September 2021 when consent orders were made by Black J with a buy-out procedure with a price to be fixed by an independent expert (First Stage). Between 18 September 2021 and 21 December 2021 in which the parties' initial resolution was rendered unworkable (Second Stage). Between 7 March 2022 and 30 September 2022 in which the parties agreed to resolve the proceedings through the procedure described in the consent orders made by Black J on 7 March 2022 (Third Stage).
The Plaintiff submitted that the appropriate order would be as follows: The Second Defendant pay the Plaintiff's costs of the proceedings for the period 10 November 2021 and 21 December 2021 on the ordinary basis, as agreed or assessed; and Otherwise, there be no order as to the costs of the proceedings.

First Stage

As to the First Stage, the parties ultimately agree that there ought to be no order as to costs because there was no hearing on the merits: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625 (McHugh J). I make no order as to costs for the First Stage.
However, the parties did not agree on the appropriate costs orders for the Second and Third Stages.

Second Stage

In relation to the Second Stage, the Plaintiff submitted the Second Defendant should pay its costs because of the Second Defendant's "unreasonable" conduct in relation to Black J's orders of 17 September 2021 appointing an independent valuer. The Plaintiff placed reliance on the comments of Rees J in [2021] NSWSC 1659 at [38] and [57]: [38] … not only had Mr Mendelsohn undermined the agreed process documented in the Orders, Mr Mendelsohn now sought to injunct [the Plaintiff's] efforts to retrieve the situation. … [57] … This has been a waste of time and money, and the second defendant has only got himself to blame.
Rees J did make a costs order in favour of the Plaintiff concerning the interlocutory motions that led to those comments and her Honour's judgment setting aside the previous consent orders. However, her Honour also stated: [58] … The parties remain obliged to share equally the fees charged by Mr Mullins for his work. Mr Mullins is entitled to be paid in a timely manner. [59] It may be that, in the circumstances, the parties can agree that the costs should be borne differently. An appropriate course may be for Mr Mendelsohn to pay Mr Mullins costs in the first instance, those costs to thereafter be Mr Mendelsohn's costs in his cause. However, I did not hear from the parties on this topic when their respective interlocutory processes were heard and it is appropriate that they be given an opportunity to resolve the matter or proffer orders to deal with this aspect.
The Second Defendant resisted the costs order sought by the Plaintiff on the bases that: 1. Rees J did not make an order as to that stage of the proceedings when she had evidence before her; and 2. The Second Defendant's conduct was not "so unreasonable" so as to warrant costs. 3. The Second Defendant submitted that no order as to costs was appropriate, as there was no hearing on the merits during the Second Stage also.
I do not accept that the Plaintiff is entitled to its costs of the Second Stage in circumstances where the work carried out by Mr Mullins was unlikely wasted in his preparation of the report latterly relied upon by the Second Defendant, which formed the basis of the price determined by the Court.
I consider it is appropriate to make no order as to costs in relation to the Second Stage.

Third Stage

In relation to the Third Stage, the Plaintiff submitted that no order as to costs should be made because the additional orders of Black J on 7 March 2022 reflected the parties' compromise that the Court fix a price for the shares and, therefore, there was neither a "claim, nor any counterclaim" nor any "event", but rather the completion of the parties' settlement agreement through the agreed mechanism.
I reject that submission and accept the Second Defendant's submission that the "event" is context-specific and refers to the practical result: Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [39] (Gleeson JA with whom Meagher and Barrett JJA agreed). While authorities speak of an "event" being the outcome of a "claim": see, eg, Windsurfing International Inc v Petit [1987] AIPC 90-441 at 37,861-37862 (Waddell J), there is also nothing to preclude a proper characterisation of "event" as the "event of the claim or counterclaim": Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 210 at [15].
I do not accept the plaintiff's submission that there was no "claim" or "counterclaim" adjudicated at the hearing on 26-27 September such that a practical result cannot be identified. On one view, if the Plaintiff's submissions were accepted, that would allow parties to effectively avoid any costs consequences where the Court's hearing followed on from any compromise to the parties' position. That may encourage compromises and perhaps be consistent with the overriding purpose of civil litigation expressed in s 56 of the Civil Procedure Act 2005 (NSW) (CPA). That was not argued before me.
The better view is that the requirement for a "claim" is not to be construed in a limited or technical way. There is no statutory definition of "claim" in the UCPR or the CPA. However, s 3(1) of the CPA does define a "claim for relief" broadly and inclusively as the following: Claim for relief includes - (a) a claim for possession of land, and (b) a claim for delivery of goods, and (c) a claim for the recovery of damages or other money, and (d) a claim for a declaration of right, and (e) a claim for the determination of any question or matter that may be determined by the court, and (f) any other claim (whether legal, equitable or otherwise) that is justiciable in the court).
The mere fact that the parties compromised part of the proceedings does not change the practical reality that the parties required the Court to determine a disputed issue, namely the price of the shares. At most, the parties' compromise was only a compromise at that point in time and a precursor to the contested hearing, in relation to which there was no compromise that costs would not be sought.
Therefore, I consider that it is appropriate for the Plaintiff to pay the Second Defendant's costs of the adversarial contest adjudicated by the Court where the Second Defendant was ultimately successful, in circumstances where the parties could not agree on the appropriate "price" and requested the Court to do so. Accordingly, the general rule as to costs applies: UCPR r 42.1.

Should costs be on an indemnity basis?

I accept the Plaintiff's submission that it was not unreasonable of the Plaintiff to reject the first Calderbank offer. The context of that offer was based on an unfinalized report of Mr Mullins. The Plaintiff was not in possession of Mr Groves' report, nor Mr Mullins' finalised report, and it was not sufficiently clear to the Plaintiff what his prospects of success of obtaining a better price than that offered were.
However, I consider that the Second Defendant is entitled to rely upon the second Calderbank offer. By that time, the Plaintiff had been in possession of both expert reports and the joint report for some months.
The fact that that the second offer was issued with only 5 days remaining until the commencement of the hearing is not a reason to refuse reliance upon it; by that time, the Plaintiff ought to have been fully aware of the risks of the litigation. The offer was a clear compromise of the Second Defendant's position and I consider it was unreasonable of the Plaintiff not to have accepted it.
Neither party has succeeded in relation to their original costs' applications made after the judgment was given, and therefore I will not make a costs order in either party's favour in that regard.

Orders

For those reasons I make the following orders: 1. No order as to costs of the proceedings up to and including 6 March 2022. 2. Plaintiff to pay the Second Defendant's costs on an ordinary basis from 7 March 2022 to 15 September 2022 and on an indemnity basis from 15 September to 30 September 2022. 3. No order as to costs of the parties' applications for special costs orders.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 October 2022

At a glance

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Judgment (9 paragraphs)

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Legislation Cited (2)

Cases Cited (26)