Alfarsi t/as YOF Global Investment v Time Spices Pty Ltd

The general rule for costs

1. Time Spices did not deny the general application of the general rule in r 42.1 of the UCPR.
2. However, it submitted that a qualification applied; namely, that any adverse costs order that it is subjected to should be recognised as being offset by the delineation of numerous favourable costs orders it received through the course of resolving interlocutory disputes.
3. That is an unusual submission for an unsuccessful party to make following the conclusion of the substantive hearing; particularly in circumstances where YOF has never sought (nor previously indicated any intention) to apply to set aside or vary those earlier costs orders. It is in my view, obvious to a prospective costs assessor (should the parties fail to agree on quantum) that the favourable costs orders Time Spices obtained in the lead up to the final hearing are preserved and such orders will have to be reckoned with in the ultimate quantification of Time Spices' liability for YOF's costs without it being necessary for the trial judge to expressly record adjustments or qualifications to the final order for costs. Nevertheless, the order I make, even if it has no new substantive effect (ie since when the earlier procedural costs orders were made), will generically recognise the existence of those earlier costs orders.

YOF's application that costs be partly paid on an indemnity basis

The facts

1. YOF relies upon a supportive affidavit of Mohamad Kammoun (affirmed on 18 July 2024 and filed on 24 July 2024). Mr Kammoun is a solicitor of the firm, LawBridge Lawyers and Consultants, which acted for YOF in the submission. The factual narrative that follows below is largely sourced from his affidavit.
2. I noted earlier that the supply of the dates occurred in April and May 2020.
3. On 26 August 2022, YOF commenced this proceeding.

The 18 September 2023 settlement offer

1. On 18 September 2023, a Calderbank offer was served on Time Spices' then solicitor, Mr Nicholas Hanna of the firm Hanna Legal.
2. As at that date, the total amount claimed by Time Spices, in accordance with the then applicable pleading was $646,586.50. In the letter, YOF's solicitor asserted that evidence had been served. However, in the letter of Time Spices' solicitor which rejected the offer, this particular contention was rejected. Time Spices' solicitor asserted that YOF's solicitor had 'not provided any affidavit or documentation that evidences the agreement he (Mr Alfarsi) entered'. Time Spices' solicitor also adverted to the decision of Watson v Foxman (1995) 49 NSWLR 315.
3. In that context, the material terms of the Calderbank offer were (a) for YOF to receive payment of $570,000 from Time Spices; and (b) the offer was open for 7 days (ie expiring on 25 September 2023).
4. Time Spices rejected the offer, citing the two matters referred to (at [13], above) in support of its contention that it would not be unreasonable for it to reject YOF's offer.

The 21 November 2023 settlement offer

1. This was another Calderbank offer. In the course of the letter, YOF's solicitor asserted that Time Spices had not complied with a procedural direction that it serve its evidence.
2. The terms for settlement that YOF offered Time Spices by this letter were: (a) for YOF to receive payment of $570,000; (b) each party was to bear its own costs; (c) the offer being open for acceptance until 29 November 2023.
3. Time Spices rejected this offer, without explanation.

The 7 June 2024 rules offer

1. As noted, the hearing of this matter commenced on 9 July 2024.
2. On 7 June 2024, YOF's solicitor emailed to Time Spices' solicitor a document purporting to be an offer of compromise, pursuant to "Division 4 Part 20 of the UCPR". Terms of this offer were: 1. the offer represented a compromise of YOF's claim (nothing being said about the cross-claim); 2. the offer being exclusive of costs. 3. the amount that YOF would accept was $450,000 (inclusive of interest). 4. the offer was open for acceptance for 14 days (21 June 2024).
3. The email that served this offer did not suggest that the offer might, alternatively, be relied upon as a Calderbank offer if for some reason, it did not conform to the requirements of the UCPR rules.
4. Time Spices rejected this offer, again without explanation.

Subsequent developments

1. On 28 June 2024, Hanna Legal filed a Notice of Intention to file Notice of Ceasing to Act for Time Spices.
2. A Notice of Change of Solicitor was filed on Time Spices behalf on 1 July 2024. The defendant's new solicitor was Fatimah El-Kordi of KOR Legal. The same day, YOF's solicitors arranged to send a copy of the offer of compromise of 7 June 2024 notwithstanding that the offer had expired. Ms El-Kordi indicated that she had no instructions with regard to that offer.
3. On 9 July 2024, the hearing of this matter commenced. On that day, YOF was granted leave to further amend its pleading. Relevantly, the quantum of its claim in debt was reduced (from the last quantified claim of $590,558) to $587,295.39. This reduction was sought (and granted) on the basis that YOF acknowledged receipt of certain repayments by Time Spices (being minor in value).
4. Time Spices did not serve any evidence in augmentation or contradiction to Mr Kammoun's evidence on the issues concerning costs.

The parties' submissions

1. Before I address specific submissions, I note that Time Spices did not dispute about principles expressed or implicit in YOF's written submissions; particularly those relating to the significance of Calderbank offers and rules offers when the Court exercises its discretion. An important difference, as acknowledged by YOF in its submissions, is that a party relying upon a Calderbank offer to support an application for costs bears a persuasive burden of proof that the discretion should be exercised in its favour. Something like a presumptive entitlement to indemnity costs based upon a rejection of a rules offer arises in the offeror; although that is still subject to the Court's power to 'otherwise order' (a matter upon which the offeree bears a burden of persuasion).
2. As to Calderbank offers, usually a Court will compare the result offered by a successful litigant, as offeror, against the monetary judgment the offeror ultimately received; whether what was offered represented a genuine attempt to compromise a dispute and the reasonableness of the offeree's rejection of the offer in the light of the circumstances in which the offer was made (including the time for acceptance and the information actually or constructively known by the parties).

YOF's submissions

1. YOF argued that this offer (which was inclusive of costs) represented a genuine compromise. The amount offered was $570,000, in comparison with the judgment sum of $587,295.39 plus interest (which YOF quantified as $134,039.46 to the date of judgment). At the date of this offer, interest was $93,553.66.
2. YOF further submitted that no point was taken by Time Spices that the period for acceptance was inadequate. Further, at the time that it was served, the pleadings had closed (although subsequent iterations were furnished) YOF had just served its evidence in chief (ie by 22 September 2023). The evidence was largely documentary. It was unreasonable for Time Spices to reject the offer.

Time Spices' submissions

1. Time Spices' written submissions grouped the Calderbank offers of 18 September 2023 and 21 November 2023 together.
2. It argued, first, that what YOF offered did not represent a genuine compromise. The sum offered (or at least its primary component) was $570,000 in both cases. The monetary judgment YOF eventually obtained was slightly less than $20,000 more.
3. Time Spices had made some sales (valued at least $40,000) and this had not been taken into account in the Calderbank offers (when made). It had made other payments and transfers, including for operating expenses. From Time Spices' perspective there was only a slight, or 'trivial' reduction in YOF's total claim.
4. Time Spices argued, secondly, that it was not unreasonable for it to reject the Calderbank offers in the circumstances.
5. As to the Calderbank offer of 18 September 2023, Time Spices specifically emphasised that the offer preceded the service of YOF's evidence in chief on 22 September 2023 (a Friday) and then there was a brief period - effectively one business day - before the offer was to expire, being on 25 September 2023 (a Monday). Further, it was not the case that the critical evidence was exclusively (or even conclusively) documentary: reference was made to some credibility findings I made concerning the main witnesses for the parties.
6. I will return later to Time Spices' specific submissions regarding the 21 November 2023 Calderbank offer.

Consideration

1. I am prepared to accept that YOF ultimately obtained a more favourable outcome than that which was offered by this particular Calderbank offer. I am also prepared to accept that the offer was a genuine attempt to compromise noting that the offer made was inclusive of costs incurred to that point.
2. However, although by the date of the offer, a significant passage of time had passed since the proceeding commenced, it was not unreasonable for Time Spices to reject it. The crux of the matter, in my view, is that effectively Time Spices had only one business day to consider the service of YOF's evidence in chief before the offer lapsed. Although no express complaint was made about it, viewing the matter objectively, this was an unreasonable amount of time for Time Spices to consider the offer. I am not persuaded by YOF that it was unreasonable for Time Spices to reject the offer in such circumstances.
3. This basis for the application is rejected.

YOF's submissions

1. YOF acknowledged the similar effect of this Calderbank offer to the earlier Calderbank offer: the offer of settlement ($570,000) was in the same amount as the earlier offer and also the express provision for the costs was to the same economic effect as the earlier offer. The difference between the earlier Calderbank offer and this one was that YOF had since had further interest accrue on the debt and its costs would have increased.
2. YOF submitted that the 8-day period for acceptance of this offer was adequate.

Time Spices' submissions

1. Time Spices submitted that the additional costs YOF had incurred, since the service of the earlier Calderbank offer, were necessary in any event.
2. It noted that by the time that this offer expired, YOF had only filed one affidavit of substance. Time Spices had not served its evidence. At the date of the offer, it was not a foregone conclusion which way the litigation would go. Time Spices also reprised an earlier argument made, with reference to the earlier Calderbank offer, that the outcome significantly turned upon the Court's assessment of the credibility of the main witnesses.

Consideration

1. I draw the same conclusions about the questions of whether YOF achieved a more favourable outcome and whether its offer represented a genuine compromise for this Calderbank offer as I did for the earlier Calderbank offer.
2. Unlike the position with respect to the earlier Calderbank offer, I do not regard the period for acceptance of this offer to be inadequate.
3. However, as at the date this offer was made, only one substantive affidavit had been served (by Mr Alfarsi, whose affidavit was filed on 22 September 2023). On the critical, or at least primary, question for the Court's adjudication, being the proper characterisation of the contract, much of that significantly was based upon oral conversations identified by Mr Alfarsi in that affidavit.
4. As is apparent from the Court's reasons for judgment, there was a significant range of factual matters that needed to be considered in the determination of that question and to a large degree, the evidence emerged subsequently to the date of this offer.
5. This is in a context where, through its pleadings to that point, Time Spices had signalled that it would rely upon a large range of factual matters which YOF would reasonably anticipate would be the subject of evidence.
6. The detailed findings that I made in the judgment indicated that on the critical question I had to decide, Time Spices' case was not devoid of merit.
7. I am not persuaded that it was unreasonable for Time Spices to reject this Calderbank offer.

YOF's submissions

1. YOF submitted that it achieved a more favourable outcome ($587,295.39 plus interest plus costs vs $450,000 plus costs) from the judgment than what it offered, thereby engaging the operation of r 42.14.
2. The offer was open for acceptance for 14 days. This, it was said, was 'reasonable in the circumstances': per r 20.26(5)(b).
3. There was no reason to 'otherwise order'. Further, the circumstance that the rules offer dealt only with YOF's claim was immaterial; given the significant overlap of factual issues (including Time Spices' attempt to offset any amounts received from its actions in restitution from any judgment for which it became liable to YOF).

Time Spices' submissions

1. Time Spices did not cavil with the notion that the rules offer complied with the requirements of the Court's rules. Nor did it dispute that r 42.14(1) was engaged.
2. Rather, Time Spices submitted that it was not unreasonable for it to reject the offer; and further, it acted reasonably in defending the claim.
3. As to the former contention, Time Spices pointed out that YOF had not finalised its pleading until 9 July 2024; and had relied upon affidavit evidence from Mr Alfarsi (on 19 June 2024 and 8 July 2024) post-dating service of the rules offer. These were indications that by the date of the offer, it was not a foregone conclusion that the plaintiff would succeed. Further, it reprised its earlier submission that much turned upon the Court's assessment of the credibility of the main witnesses - a matter which, at the date of the offer, appeared uncertain.
4. As to the latter contention, Time Spices had a bona fide belief in the merits of its defence; the plaintiff's conduct contributed to costs being incurred and its rejection of the plaintiff's offers was attributable to an insufficiency in evidence.

Consideration

1. I am satisfied that the requirements for a valid rules offer were satisfied and, further, that r 42.14(1) was engaged. In particular I find, for the purposes of r 20.25(5)(b) of the UCPR, that the 14-day period for acceptance of this offer was "reasonable in the circumstances".
2. Presumptively, YOF is entitled to have its costs incurred from 8 June 2024 (the day after the offer) paid on an indemnity basis.
3. The issue then becomes whether the Court should 'otherwise order', for the purposes of r 42.14(2). One recognised category of case where the Court might do so arises where the offeree establishes that it was not unreasonable for it to have rejected the offer in the circumstances. One demonstrable instance of this category for making the order is where a party's case changes after making the offer that it relies upon.
4. There were two affidavits that Mr Alfsari prepared (19 June 2024 and 8 July 2024) as well as amendments to YOF's pleadings that post-dated the rules offer. However, although, of course, the affidavit evidence was admissible, in my view, it dealt with rather discrete factual matters essentially raised by Time Spices case and its specific contention that the arrangement was one of consignment. The evidence post-dating the rules offer was not by itself of such materiality as to likely be conclusive of the outcome of the case. As to the amendments to pleadings, these post-dated YOF's rules offer (though contested) were essentially to 'tidy up' the statement of claim and defence to the cross-claim to align with that evidence. The amendments to the statement of claim, in particular, did not make any new claim for relief or seek increase the value of the monetary claims - to the contrary, it had reduced (although modestly) the quantum on the existing claims in debt (and damages).
5. For this reason, the service of evidence and notice of pleading amendments subsequent to the rules offer do not, in the circumstances, provide a basis for altering the operation of r 42.14(1).
6. It is unnecessary to engage with Time Spices' submission that at the time the offer was served, it was not obviously apparent that the defendant's defence would fail. Even if that was so, that is not to the point. Litigation, by the time it reaches the Court for a court hearing, is for the most part, inherently uncertain in outcome. The circumstance that a defendant might have an arguable defence (on the facts or the law or a mixture of both), or that credibility assessments of witnesses may foreseeably affect the eventual outcome, are predicate matters for why the rules relating to costs consequences of costs offers are as they are; they are not reasons for altering the usual costs consequences prescribed under court rules where offers of compromises are rejected. That would subvert the intention of the court rules, being essentially a public policy for encouraging settlements of disputes. Offerees in the position of Time Spices as at 7 June 2024, where those offers conform with the requirements of the rules, are exposed to the prospect of an order that they pay the offeror's costs on an indemnity basis following a rejection of the offer. That should naturally (and reasonably) concentrate the offeror's mind that, notwithstanding a reasonably arguable position that it takes in connection with litigation, they may still lose.
7. Similarly, the circumstances that a defendant offeree has acted reasonably in defence of a claim or had a genuine belief in the merits of that defence are not, at least in this case, bases for altering the usual costs consequences of the court rules.
8. I am not persuaded to 'otherwise order' for the purposes of r 42.14(2) of the UCPR.
9. A partial order for indemnity costs should be made.

Order

1. Subject to earlier costs orders made in the defendant's favour during the course of the proceeding, the defendant is to pay the plaintiff's costs of the proceeding: 1. on the ordinary basis up to 7 June 2024; and 2. thereafter on an indemnity basis as agreed or assessed.

Endnotes

1. Orders 1 and 2 respectively. The reasons are published on Caselaw as Alfarsi t/as YOF Global Investment v Time Spices Pty Ltd [2024] NSWDC 302
2. Order 3. 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: 05 August 2024