Amanda Duncan-Strelec & Ors v Thomas Richard Tate & Ors

CITATION : Amanda Duncan-Strelec & Ors v Thomas Richard Tate & Ors [2010] NSWSC 1256

CATCHWORDS : COSTS - application for indemnity costs - whether offer of settlement was an offer of compromise under the rules - whether offer operated as a Calderbank offer - whether intention shown - whether offer a genuine compromise or invitation to surrender - UCPR 20.26(3)(a)

LEGISLATION CITED : Uniform Civil Procedure Rules 2005

Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 Kain v Mobbs (No 2) [2008] NSWSC 599 CASES CITED : Leichhardt Municipal Council v Green [2004] NSWCA 341 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Uniting Church in Australia Property Trust (NSW) t/as Northaven Retirement Village v Takacs (No 2) [2008] NSWCA 172

Amanda Duncan-Strelec - first plaintiff David Strelec - second plaintiff PARTIES : Dunlec Pty Ltd - third plaintiff Thomas Richard Tate - first defendant Elizabeth Ruth Tate - second defendant Wamego Pty Ltd - third defendant

P Lange - plaintiffs COUNSEL : A Lo Surdo - first and second defendants Wamego Pty Ltd - no appearance

In person - first plaintiff In person - second plaintiff SOLICITORS : David Strelec - third plaintiff Hickey Lawyers - first and second defendants Wamego Pty Ltd - no appearance

SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

06/260312 Amanda Duncan-Strelec & Ors v Thomas Richard Tate & Ors JUDGMENT ex tempore 1 His Honour: Before me is the first and second defendants' (the defendants') application to determine the final orders in these proceedings including an order for costs. The terms of the orders sought are: "1. The proceedings be dismissed. 2. The plaintiffs and each of them are to pay the first and second defendants' costs of the proceedings: (a) up to 20 June 2010 to be assessed on a party/party basis; and (b) from 20 June 2010 to be assessed on an indemnity basis. 3. Order 2 of the orders of the Court made on 23 January 2007 be dissolved. 4. The sum of $247,000 and any interest on that sum held pursuant to Order 3(a) of the orders of the Court made on 23 January 2007 be released to the first and second defendants or otherwise in accordance with their written direction. 5. The 6 Forestry Bonds held pursuant to Order 3(b) of the orders of the Court made on 23 January 20 [sic] be released to the first and second defendants or otherwise in accordance with their written direction." 2 The plaintiffs oppose the making of these orders. I turn first to the question of costs. 3 The defendants successfully defended the plaintiffs' claim for damages and other relief arising from the failure of a joint venture arrangement for the development of real estate for the reasons stated in my judgment of 6 August 2010. Their costs claim is based on the plaintiffs' failure to accept an offer of settlement contained in an email dated 2 June 2010. The offer was in the following terms: "I refer to my open e-mail this evening. On a purely commercial basis my clients are prepared to settle this matter on the following terms: 1. The plaintiffs will discontinue the proceedings; 2. Each party will bear their own costs of the proceedings; 3. My clients will agree to not pursue the cots orders they have already obtained against you. This offer is open for acceptance until close of business 9 June 2010. You may accept this offer by notifying me in writing. This offer is made in accordance with the provisions of the Uniform Civil Procedure Rules 2005 (NSW) . Please do not mis-interpret this offer as anything other than a genuine effort to resolve this matter in an effort to avoid further costs. I await your reply." 4 The defendants' first ground is that the offer is an offer of compromise within the provisions of UCPR Pt 20. The submission is that the terms of the offer met the requirements of UCPR Pt 20, r 20.26 and, in particular, that it complies with the mandatory requirement of r 20.26(3)(a). This rule provides: "A notice of offer: (a) must bear a statement to the effect that the offer is made in accordance with these rules." 5 The submission is that, taken in the context of the offer as a whole, the statement "This offer is made in accordance with the provisions of the Uniform Civil Procedure Rules 2005 (NSW)" was intended to be, and would be understood to be, a statement to the effect that the offer is made in accordance with the relevant rules. 6 The application of r 20.26(3)(a) has been considered in some recent cases. In Kain v Mobbs (No 2) [2008] NSWSC 599 Harrison J said, par 7: "… Even so, the scheme of the rules is such that there ought to be no scope for doubt about the circumstances when a particular offer might provide the foundation for an argument that costs should be payable on an indemnity basis. Although there is a reference to the rules in general, the offer of compromise in this case does not bear a statement to the effect that the offer that it conveys is made in accordance with the rules. It is therefore not in my view an offer to which the rules apply." 7 In Uniting Church in Australia Property Trust (NSW) t/as Northaven Retirement Village v Takacs (No 2) [2008] NSWCA 172, Hodgson JA considered an offer of compromise, the terms of which included the following statement: "This offer is made in accordance with Part 20 of the Uniform Civil Procedure Rules 2005."

His Honour said (par 7): "In my opinion, the statement that the offer was made in accordance with Pt 20, together with the form of the document headed 'Offer of Compromise', was sufficiently a statement to the effect that the offer was made in accordance with 'these rules', these rules being Div 4 of Pt 20 (UCPR 20.25 - 20.32)." 8 In my opinion, and consistent with the statements both of Harrison J in Kain, and Hodgson JA in Takacs, the requirement under r 20.26(3)(a) that the notice of offer bear a statement to the effect that it "… is made in accordance with these rules" is mandatory. Furthermore, guided by Hodgson JA, the term "these rules" is to be understood to be the rules contained in Div 4 of Pt 20. Thus, upon the proper construction of the rule compliance requires specific reference to the rules under Div 4 of Pt 20. 9 In my opinion, the statement in the defendants' offer "This offer is made in accordance with the provisions of the Uniform Civil Procedure Rules 2005 (NSW)" is not a statement as required by r 20.26(3)(a). It is self-evident that the statement refers in general terms to the UCPR. It lacks the necessary specificity. 10 The defendants submitted that the offeree would be sufficiently alerted to the relevant rules, and that the offeree would understand that the rules were those provided for in Div 4 Pt 20. It followed, so it was put, that the offeree would be under no misapprehension that the offer was one of compromise under Div 4, and would thereby be alerted to the costs consequences of non-acceptance. I disagree. As I have indicated, in my view the statement does not comply. Further, I would hold that it would not be reasonably understood by the offeree as an offer of compromise under the rules with the relevant consequences for non-acceptance. 11 Accordingly, I reject the defendants' claim based on the failure to accept what is said to have been a sufficient offer of compromise under the rules. 12 Alternatively, the defendants rely upon the offer as a Calderbank letter. They submitted that the questions for consideration were whether the email was a genuine offer of compromise and whether in all the circumstances it was unreasonable for the plaintiffs not to accept it. 13 As to the offer being genuine, it was submitted that at the time it was made the Court had made costs orders in interlocutory proceedings in favour of the defendants, and that an assessment of the amounts recoverable from the plaintiffs under those orders was in the order of about $15,000. As to the plaintiffs' failure to accept, it was argued that it was unreasonable having regard to the fact that the offer was made about three weeks before the commencement of the hearing, and at a time when the plaintiffs were in a position to assess the strengths and weaknesses of their case. It was put that the plaintiffs had been well aware of the contentions of the defendants since the filing of the defence in January 2009 and since evidence had been served in March 2010. It may be noted that as a matter of fact the hearing before me commenced on 28 June 2010. 14 On the other hand, for the plaintiffs it is contended that the offer was ineffective to operate as a Calderbank offer. It was submitted that as it failed to disclose the intention that it was to operate as such an offer, failure to accept should not have the consequences which flow from the failure to accept a Calderbank offer. They contend the necessary intention was not made clear. I accept the submission. 15 The principles are stated in Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141: "31 An offer that does not comply with the rules relating to the making of offers of compromise can operate and be taken into account as a Calderbank offer (for example, Jones v Bradley (No 2) [2003] NSWCA 258 at [5]; Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) at [26]-[27] ). Whether it operates as a Calderbank offer depends on the intention of the offeror as revealed by the terms of the offer ( Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) at [27]). 32 The letter of 23 July 2009 said that the appellant "will rely upon this letter and the enclosed Offer of Compromise". The appellant submitted that this sufficiently showed that the offer was intended to operate as a Calderbank offer in the event it did not fall within the UCPR . 33 We do not agree. The offer was explicitly an offer of compromise under r 20.26. Unlike the offer considered in Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) , it was not said that it was intended to operate as a Calderbank offer if it was ineffective under the rules. The statement that the letter that the offer would be relied on in support of an application for indemnity costs did not go beyond affirming that costs would be claimed under the offer of compromise regime in the rules. 34 The intention must be made clear. It would be unfair for a party to be subject to the consequences of a Calderbank offer if it was not made clear that the offer should be treated as such. A party receiving an offer of compromise apparently made under the rules should be entitled to decide whether or not to accept it according to the offer of compromise regime in the rules, including deciding whether or not it is an effective offer of compromise." 16 I accept the plaintiffs' submissions included in their written submissions of 18 October 2010 as follows: "16. Moreover, the email did not explain the very real consequences that would follow from a refusal to accept the offer contained therein. A Calderbank letter "is conventionally headed 'without prejudice save as to costs' and the recipient is warned that at an appropriate stage the letter may be tendered to attract an indemnity costs order ". Dunstan v Rickwood (No. 2) [2007] NSWCA 266 at [46] per McColl JA, citing with approval Williamson v Mig Aero Pty Ltd (McLelland J, 15 March 1991, unreported). In a different context, it has been said that '[i]f an [indemnity costs] order is to be made, it would be preferable that it should follow due and timely warning by the successful party to the unsuccessful that indemnity costs will be sought". Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242, 249 per Kirby P. Without an awareness of the possible consequences of a failure to accept the offer, it was impossible for the plaintiffs to assess the offer properly. This, it is submitted, bears directly upon the reasonableness of the plaintiffs' refusal to accept the offer. Compare Spalla v St George Motor Finance Ltd (No. 8) [2006] FCA 1537 at [21] per Kenny J (notice that offeror would press ahead with application for indemnity costs if offer refused entitled to little weight where offeree unrepresented, because self-represented litigant may not appreciate the risk)." 17 The offer contains nothing to indicate that it was intended to operate as a Calderbank offer or even that non-acceptance would be relied upon in support of an application for indemnity costs. Whether the statement which referred to the provisions of the UCPR is taken alone, or with regard to the terms of the offer read as a whole, it lacks any specificity and provides no certain guidance as to the offerors' intention. On this ground alone, the application for an indemnity costs order should be refused. 18 Although unnecessary to do so, I will deal briefly with the discretionary considerations as to whether, if the offer was a Calderbank offer, non-acceptance should result in a costs order. The principles are well-known and are referred to in par 6 of the plaintiffs' submissions, which I accept, as follows: "6. It is agreed between the parties that, in circumstances where a party has made an offer by means of a Calderbank letter, it is incumbent upon the Court to assess whether there was a genuine offer and whether it was unreasonable of the offeree to refuse such offer. Expressed differently, the refusal of an offer made in Calderbank letter does not automatically lead to the imposition of an order for indemnity costs. Leichhardt Municipal Council v Green [2004] NSWCA 341 at [46] per Santow JA; Ng v Chong [2005] NSWSC 385 at [13] per Hamilton J. Nor, indeed, does such a refusal establish a prima facie entitlement to an order for indemnity costs. Jones v Bradley (No. 2) [2003] NSWCA 258 at [8] quoting with approval SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] per Giles JA; East West Airlines v Turner (No. 2) [2010] NSWCA 159 at [13]-[14]. On the contrary, "[s]uch costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs." Leichhardt Municipal Council v Green [2004] NSWCA 341 at [57] per Santow JA." 19 Particular reference may be made to the following passages from Santow JA Leichhardt Municipal Council v Green [2004] NSWCA 341: "22 The question here posed is whether an offer by a defendant for judgment to be entered in its favour with each party to pay its own costs could constitute a genuine offer of compromise. 23 It is clear that an offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise. Thus an offer by a plaintiff demanding the full amount claimed was held not to be an offer of compromise attracting costs penalties: Tickell v Trifleska Pty Ltd (1991) 25 NSWLR 353. Rogers CJ Comm D concluded that the test was: "… whether in the totality of the circumstances, the offer by the plaintiff represented any element of compromise or whether it was merely, yet another, formally stated demand for payment designed simply to trigger the entitlement to payment of costs on an indemnity basis." (at 355) 24 Similarly in Hobartville Stud v Union Insurance Co (1991) 25 NSWLR 358, Giles J commented (at 368): "The answer to the plaintiff's questions is, in my view, that the scheme for offers of compromise and their costs consequences was intended to promote compromise - what Gleeson CJ in Baltic Shipping Co v Dillon "The Mikhail Lermontov" (1991) 22 NSWLR 1 at 9 called the '… particular policy of the law to encourage resolution of litigation by settlement …'. 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. It follows that I respectfully agree with the approach of Rogers CJ Comm D in Tickell v Trifleska Pty Ltd . In particular cases it may be difficult to decide whether or not a purported offer of compromise is truly a compromise …" 25 However both Rogers CJ Comm D and Giles J (as he then was) were speaking in the context of an offer of compromise by a plaintiff. The position of a defendant without a cross-claim is analytically quite distinct. First, a defendant by definition is not the claiming party, and thus is not before the Court voluntarily. If it reasonably disputes liability and has a firm belief in the strength of its case, the best solution it can hope for - that the claim is dismissed - is not a monetary one. It will in economic terms be no better or worse off for its victory by way of successful defence, costs aside. Thus, unlike a plaintiff, it cannot discount its optimum return by way of compromise. It does not need the same sorts of incentive as a plaintiff does to compromise. It cannot, in the expectation of receiving $100,000, offer to compromise proceedings for $75,000 to reflect the vicissitudes and expenses of litigation. 26 Therefore the only option for a defendant is not an attractive one; to 'buy off' the claim by offering to pay unmeritorious claimants a sum of money to discontinue the litigation. This practice, though it no doubt occurs, is not one which the law should encourage. The policy of the law is certainly to encourage genuine compromise, but it is no genuine compromise for a defendant to pay off a plaintiff or series of plaintiffs. Second, a defendant will know that if it loses on liability, the general rule will result in costs being awarded in favour of the successful plaintiff on a party and party basis (as set out in Division 6 of Pt 11 of the Legal Practitioners Act 1987). This means that a defendant already has less of an incentive to offer a compromise by conceding liability or quantum or both. As far as costs are concerned, a defendant who disputes liability and has a firm belief in the strength of its case will generally expect to reap no more than party and party costs in its favour. It will still be out of pocket to the tune of the difference between party and party costs and solicitor/client costs. What can such a defendant offer by way of compromise, in furtherance of the policy of the law of early settlement of disputes? 27 It is trite law that, whether or not an offer is a genuine offer of compromise or merely a demand to capitulate depends upon an assessment of all the circumstances of the case at the time. In this case, as the Council points out, the Calderbank letter was sent at a time after the matter had been to arbitration (presumably unsuccessfully) and set down for trial. Thus significant costs had been incurred by both parties at the time the offer was made. The Council was a defendant which disputed liability and had a firm belief in the strength of its case. It could expect to obtain no more, if the matter proceeded to trial and its beliefs were vindicated, than a verdict in its favour and an award of party and party costs for the whole of proceedings. … 32 In Bishop v State of NSW (Dunford J, 17 December 2000, unreported), the defendant had made a 'walk-away offer' requiring the plaintiff to abandon proceedings and thus avoid the risk of an anticipated order for costs. The plaintiff was wholly unsuccessful and the defendant sought indemnity costs from the date of the offer: Dunford J stated: "There was not in any real sense an offer to compromise the proceedings, but merely an offer to induce the plaintiff to abandon his claim; and in my view orders for indemnity costs should not be used to deter persons from bringing proceedings which they feel they are entitled to bring, even if those proceedings are ultimately unsuccessful. It is different if there is a compromise involved, such as by offering part of what the plaintiff claims or can reasonably expect to receive if successful." 33 The precise terms of the offer in Bishop do not appear from the record. Dunford J reapplied this principle in McKerlie v NSW (No 2) [2000] NSWSC 1159 in a case in which it appears the offer included a release from an already existing costs order as well as an escape from the risk of anticipated future costs orders. Dunford J appears to endorse the view that only a cash settlement offer representing part of the plaintiff's claim can be a true offer of compromise. With respect, that does not seem to be entirely consistent with the policy of the law in encouraging early settlement of disputes." 20 The crucial question is whether the offer constituted a genuine compromise. This is a question to be judged with regard to when it was made. 21 The offer was made three weeks before the commencement of the hearing on 28 June 2010. At this time, the plaintiffs were subject to costs orders in favour of the defendants in interlocutory proceedings. Solicitor/client costs total $23,562.99, and according to the evidence, were likely to be assessed at about $15,000 for recovery from the plaintiffs. 22 In my opinion, the offer amounted to no more than a walk-away offer or an all-or-nothing offer, or an invitation to the plaintiffs to capitulate. The only element of compromise was with respect to the question of costs of these proceedings including a concession with respect to earlier orders, which in the context of the case I would treat as not significant. The plaintiffs' principal claims were not frivolous or vexatious. Ultimately they turned on whether or not the original agreement was mutually abandoned, and whether another binding agreement was made on or about 20 June 2006, and if so, whether in subsequent correspondence it was terminated. 23 The proceedings involved issues of interpretation of correspondence between the parties, and the evaluation of conflicting oral testimony of conversations between the parties. In my view, the case may be fairly described as an all-or-nothing case. 24 The approach to the exercise of discretion in such circumstances should be guided by the principles explained by the Court of Appeal in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368: "29 As is usually the case in proceedings turning on an issue of contractual interpretation, this was an all or nothing case. The claims did not involve a process of evaluation or assessment in which the end result could vary over a range. Either one party or the other party was correct. Whilst a marginal difference between the offer and the result may constitute a real and genuine offer of compromise in a personal injury context, that is not generally true in an all or nothing case. (See The Anderson Group supra at [9]; Robb Evans supra at [18].) … 31 An offer which is in substance an invitation to surrender can result in the successful triggering of the indemnity costs mechanisms under the rules. (See r 20.26(2); Leichhardt Municipal Council supra at [36]-[37], [40].) However, as Basten JA suggests in Robb Evans supra at [20], the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case. (See also Hancock v Arnold supra at [17].) If it were otherwise, the public policy to encourage settlement would rarely be served, in an all or nothing case. These proceedings were not of that character, as indicated by the success which the respondent had at first instance. 32 The normal order for costs, even in a clear case, is that each party bears its own costs without full indemnity. If a derisory offer, of the kind made in these proceedings, could result in an order for indemnity costs, then it is likely that many, perhaps most, contract interpretation disputes would result in an indemnity costs order, if the formality of an offer in accordance with the rules had been made at an early stage. If the appellant were to succeed in the present case, it is quite likely that such an offer would accompany most statements of claim as a matter of commercial practice. The purpose of the special order - to encourage settlement - would no longer be served. An order for indemnity costs could, in our opinion, become the normal order in many commercial disputes." 25 In my view, the only element in the compromise in the offer was as to costs, which in the circumstances of this litigation and the issues it raised was slight. Otherwise, as I have said, it was a call to the plaintiffs to surrender or to walk away. In my opinion, the failure of the plaintiffs to accept the offer does not justify the exercise of discretion to make an order for indemnity costs as sought by the defendants, and I reject that claim. 26 In relation to the other orders sought, in my opinion those orders should be made as consequential upon the order dismissing the amended statement of claim. Although it appears that when I delivered my reasons on 6 August 2010, I made orders that the further amended statement of claim be dismissed, and that the plaintiffs pay the defendants' costs, it is appropriate to make orders in accordance with the short minutes of order initialled by me and dated today. ARGUMENT RE COSTS OF TODAY'S PROCEEDINGS 27 His Honour: The plaintiffs seek an order that the defendants pay the costs of today's proceedings. In my opinion, they are entitled to that order. 28 The substance of the matter was devoted to the issue of costs. Although there was some opposition in the written submissions to the making of the consequential orders, it was quite apparent that it would, if it was maintained, occupy little time. The weight of the proceedings before me today was on the costs question on which the plaintiffs were successful. Accordingly, in my opinion, the just result is that the defendants be ordered to pay the plaintiffs' costs of today's application. 29 I will retain Ex A. 30 I direct that these orders be entered forthwith. **********

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