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[2014] NSWSC 599
Supreme Court of NSW
2014-05-16
Darke J
Original judgment source is linked above.
Introduction 1I gave judgment in this matter on 25 March 2014. I held that the plaintiff was entitled to succeed against both the second defendant (Mr Andrews) and the fifth defendant (Mrs Andrews), but not against the fourth defendant (Smart Retail Pty Ltd). I directed the parties to bring in Short Minutes to give effect to my reasons. 2The parties were unable to agree on the appropriate orders to be made, and directions were made for the parties to file Short Minutes of the orders for which they contend, and brief written submissions. The parties were further requested to indicate whether they were content for the matter to be dealt with in Chambers on the basis of the Short Minutes and the submissions. 3The plaintiff provided written submissions of counsel and an affidavit sworn on 1 May 2014 by its solicitor, Mr John Dalzell. Proposed Short Minutes and certain correspondence, which included a Calderbank letter dated 27 August 2012, was annexed to the affidavit. 4Mr and Mrs Andrews and Smart Retail Pty Ltd (for whom Mrs Andrews appeared with the leave of the Court) provided a written submission and proposed Short Minutes, together with some correspondence which passed between the parties in August 2012. 5Both parties indicated that they were content for the Court to deal with the matter in Chambers on the basis of the material which the parties provided. 6There was agreement as to the orders which the Court should make, save in respect of the orders for costs. The plaintiff seeks an order that Mr and Mrs Andrews be jointly and severally liable to pay the plaintiff's costs of the proceedings on the basis that Mr Andrews be liable for the costs up to 26 August 2012 on the ordinary basis and thereafter on the indemnity basis, and that Mrs Andrews be liable for the costs on the ordinary basis. The defendants seek orders that Mr Andrews pay 60% of the plaintiff's costs (on the ordinary basis), and Mrs Andrews pay 20% of the plaintiff's costs (on the ordinary basis). An order is also sought that the plaintiff pay the costs of Smart Retail Pty Ltd (on the ordinary basis). 7It can be seen that three issues arise. These are: first, whether an order for indemnity costs should me made against Mr Andrews; second, whether Mr and Mrs Andrews should only be liable to pay a portion of the plaintiff's costs; and third, whether the plaintiff should be ordered to pay the costs of Smart Retail Pty Ltd.
Indemnity Costs 8The Calderbank letter was sent on 27 August 2012. It was sent to the solicitors then acting for Mr and Mrs Andrews, Smart Retail Pty Ltd, and Andrews Media & Creative Pty Limited (the third defendant). The letter contained an offer that the second, third, fourth and fifth defendants pay $500,000 to the plaintiff, $250,000 of which was to be paid by 15 September 2012 and the balance in five monthly instalments of $50,000 each over the period 31 October 2012 to 28 February 2013. It was stated that, upon acceptance of the offer, the proceedings would be dismissed with no order as to costs. A Deed of Settlement was also to be entered into which would contain mutual releases. The offer was expressed to be open for fourteen days, and it contained a statement that the plaintiff reserved its right to rely upon the letter in accordance with the principles of Calderbank v Calderbank [1975] 3 All ER 333. 9Insofar as Mr Andrews is concerned, the plaintiff has succeeded in obtaining a result against Mr Andrews considerably more favourable than that which was offered to the defendants in August 2012. Mr Andrews has been found liable (before interest and costs) in a sum exceeding $557,000. 10On 11 April 2014, the defendants indicated that an indemnity costs order would be resisted. It was stated that the offer "contained very specific payment terms and Mr Andrews was not in a position to comply with those terms". In their written submissions, the defendants contended that the offer cannot be viewed in isolation and needs to be considered in the light of the circumstances which existed at the time. It was also submitted that the offer was not made in good faith, that the plaintiff was fully aware that the terms of the settlement were unreasonable, and the plaintiff's affidavit evidence had not been completely served until November 2012. 11It is correct that the affidavits in chief upon which the plaintiff principally relied at the hearing had not been served when the offer was made. They were not sworn until October 2012. It is also correct that the offer needs to be considered in the light of the circumstances which existed when it was made. 12The offer followed a mediation held in July 2012, and an offer made by the defendants to settle the matter by payment to the plaintiff of the sum of $45,000 (with the proceedings to be discontinued with no order as to costs). It appears that the defendants provided statutory declarations as to their assets and liabilities, but these were not considered by the plaintiff's solicitors to carry much weight on their own. The defendants' solicitors took issue with those views and offered to make some documents, which were pertinent to the financial position of Mr and Mrs Andrews, available for inspection. It is not clear whether any such inspection took place, although the Calderbank offer itself complains about certain documents not being supplied or produced. The Calderbank letter also contained views as to the strength of the plaintiff's case. The documentary case was said to be "overwhelming". It is apparent that the defendants' solicitor advised the defendants that the stance being taken by the plaintiff was misguided, and that some of their views were "obviously mistaken". 13It is provided in Uniform Civil Procedure Rules 2005 r 42.2 that unless the court orders otherwise, or the rules otherwise provide, costs ordered by the Court will be assessed on the ordinary basis. The Court undoubtedly has a discretion to order that costs be payable on an indemnity basis (see s 98(1)(c) of the Civil Procedure Act 2005 (NSW)). The question is whether the Court should, in respect of Mr Andrews, make an order for costs against him on an indemnity basis due to his failure to accept the Calderbank offer. 14Orders of that nature are commonly made. However, there is no presumption that such an order should be made when an offeree fails to accept a Calderbank offer, the terms of which are more favourable to the offeree than the outcome ultimately obtained or suffered by the offeree. The principles on which indemnity costs will be ordered as a consequence of non-acceptance of a Calderbank offer were considered by Basten JA in Miwa Pty Ltd v Siantan Properties Pte Ltd (No.2) [2011] NSWCA 344. His Honour stated, at [8], that the approach frequently adopted has been to ask two questions, namely, whether there was a genuine offer of compromise, and whether it was unreasonable for the offeree not to accept it. 15In my view, the Calderbank offer was a genuine offer of compromise. It is apparent from the letter itself that the plaintiff was contending that the defendants had obtained an unauthorised profit of in excess of $1 million. Moreover, the offer included the plaintiff giving up any entitlement to claim costs. 16I do not accept that the offer was not made in good faith or that the plaintiff knew that the terms of the proposed settlement were unreasonable. In any event, the question of whether a Calderbank offer is a genuine offer of compromise does not focus upon the subjective intentions of the offeror (see Miwa Pty Ltd v Siantan Properties Pte Ltd (No.2) (supra) at [9]). 17Numerous factors may be relevant in determining whether a failure to accept a Calderbank offer is unreasonable. Some of these factors were identified in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No.2) (2005) VSCA 298; [2005] 13 VR 435 at [25] as: "(a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; and (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it." 18It is true that the offer was made prior to the service of the plaintiff's affidavit evidence in chief. Nevertheless, it is apparent that a significant number of documents had been produced, including documents showing that a large amount of work had been done for one of the plaintiff's principal clients, Sleep City, by Andrews Media & Creative Pty Limited and Smart Retail Pty Ltd. In addition, the nature of the proceedings was such that Mr Andrews was in fact in a better position than the plaintiff to assess the essential strength of the case being brought. 19There is no suggestion that the fourteen day period in which the offer remained open was unreasonably short. There is no evidence of any request for further time to consider the offer. The extent of the compromise offered was significant when measured against a claim of potentially more than $1 million. There is no reason to think that, in August 2012, Mr Andrews' prospects of success could reasonably have been considered to be of such strength as to justify rejection of the offer. There is no suggestion that the offer itself lacked clarity or did not appropriately signal that an application for indemnity costs may ensue in the event of its rejection. 20It may be the case that the defendants were not then in a position to make the payments that would have been required if the offer had been accepted. However, I do not consider that in itself to be a justification for not accepting the offer which in my view was a genuine offer of compromise in relation to a potentially large claim. The fact remains that Mr Andrews, instead of accepting a liability of $500,000 chose to resist the claim in its entirety. He was unsuccessful in that endeavour. The liability he has been found to have exceeds the offer amount by more than $57,000. In the context of these proceedings that is not an insignificant amount. 21In all the circumstances, it seems to me that it was unreasonable of Mr Andrews to not accept the Calderbank offer. Accordingly, I consider it appropriate that Mr Andrews be ordered to pay the plaintiff's costs of the proceedings from 27 August 2012 on the indemnity basis.
Should Mr and Mrs Andrews pay only a portion of the plaintiff's costs? 22I cannot see any basis for such an order. It seems to be suggested that the plaintiff had, at some earlier time, agreed to such an apportionment of costs. Whether or not that be so, it seems to me appropriate that Mr and Mrs Andrews be ordered to pay the plaintiff's costs of the proceedings without the plaintiff being left to bear any portion of them.
The costs of Smart Retail Pty Ltd 23The plaintiff submitted that it ought not be ordered to pay the costs of Smart Retail Pty Ltd in circumstances where the claims brought against it were narrow in compass and there were no claims brought against that company that were not also brought against Mr Andrews and Mrs Andrews as primary contraveners. It was submitted that costs should follow the event rather than be determined on an issue by issue basis. Finally, it was pointed out that Smart Retail Pty Ltd did not have legal representation separate from Mr and Mrs Andrews. 24However, it seems to me that in circumstances where the plaintiff has entirely failed against the company, it is appropriate that it be ordered to pay its costs. I regard the relevant "event" here as the controversy as between the plaintiff and Smart Retail Pty Ltd, notwithstanding the connections which exist between the issues raised as between those parties, and the issues raised as between the plaintiff and the other defendants.
Conclusion 25The Court will make the following orders, (1) to (5) of which are based upon the uncontroversial paragraphs 1 to 5 of the Short Minutes propounded by the plaintiff: (1)That the second and fifth defendants pay the plaintiff the sum of $233,108.27. (2)That the second defendant pay the plaintiff the sum of $324,603.56. (3)That pursuant to s 100(1) of the Civil Procedure Act 2005 (NSW), the second and fifth defendants pay the plaintiff the sum of $44,213.02 (being interest on the sum in order (1) above up to and including 16 May 2014). (4)That pursuant to s 100(1) of the Civil Procedure Act 2005 (NSW), the second defendant pay the plaintiff the sum of $61,567.06 (being interest on the sum in order (2) above up to and including 16 May 2014). (5)That the cross-claim be dismissed. (6)That the second and fifth defendants are jointly and severally liable to pay the plaintiff's costs of the proceedings on the following basis: (a)that the second defendant pay the plaintiff's costs of the proceedings up to and including 26 August 2012 on the ordinary basis, and the plaintiff's costs of the proceedings from 27 August 2012 on an indemnity basis; and (b)that the fifth defendant pay the plaintiff's costs of the proceedings on the ordinary basis. (7)That the plaintiff pay the fourth defendant's costs of the proceedings on the ordinary basis.
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Andrews Advertising Pty Ltd
David Andrews