Ari v Decevic

Judgment 1This is the Court's second judgment in these proceedings. The Court's principal judgment was given on 24 December 2013: Ari v Decevic [2013] NSWSC 1967. In the principal judgment the Court found that Mr Ari, the plaintiff/vendor, validly termianted the contract for sale of land with Mrs Decevic, the defendant/purchaser: [2013] NSWSC 1967 at [237]. The Court found in the principal judgment that the defendant/purchaser was to pay the value of the deposit to Mr Ari. 2The Court also found in the principal judgment that Mr Decevic wholly failed on the Cross-Claim against the bank, Westpac Banking Corporation: [2013] NSWSC 1967 at [238]. The Court listed the proceedings on 12 February 2014 for argument about costs and as to the form of final orders. On that day orders were made by consent, that the judgment be entered in favour of the plaintiff against the defedant in the sum of $91,591.82, including interest up to 12 February 2014. The Court also ordered the defendant to pay the plaintiff's costs of the proceedings. After these orders were made between the plaintiff and the defendant on 12 February 2014, argument proceeded on the issue of costs between the defendant/cross-claimant, Mrs Decevic and the cross-defendant, the bank. 3Events, matters and things are referred to in this judgment in the same way as they are in my principal judgment. Both judgments should be read together. 4The bank seeks an order that Mrs Decevic pay its costs on an indemnity basis from February 2012. Mrs Decevic resists the bank's claim. The bank founds its claim for indemnity costs on three offers that it made: (1) the Calderbank letter on 27 February 2012; (2) an offer of compromise, which it is not disputed was made in accordance with the procedure mandated by Uniform Civil Procedure Rules, r 20.26; and (3) a third offer, a Calderbank letter made on 15 November 2012. 5The real contest between the parties is whether it was reasonable for Mrs Decevic not to accept the 27 February 2012 Calderbank letter. Mr Bolster, contended on behalf of Mrs Decevic, in argument that it was reasonable for Mrs Decevic to refuse to accept the 27 February 2012 offer. He conceded that the second offer of compromise would authorise an award of indemnity costs from the day after that offer was made, namely 6 September 2012. In light of that concession it was not necessary to consider the third offer of 3 November 2012. 6The two offers in question may be shortly described. On 27 February 2012 Gadens lawyers, on behalf of the bank, wrote to Mr Marando, on behalf of Mr Decevic, contending that her cross-claim was "misguided and bound to fail" and setting out some reasons for that view. After referring to the bank having already incurred litigation costs, the bank made an offer to Mrs Decevic that she accept dismissal of her cross-claim on the basis that each party bear its and her own costs. 7The offer was open for acceptance until 5pm on 5 March 2012. Mr Marando requested on 5 March that the offer be extended to Friday, 9 March, to which the bank agreed "as a gesture of goodwill". On 9 March the bank had not heard back from Mr Marando, so it sought his "prompt response". Mr Marando replied on 13 March with instructions to reject the bank's offer 27 February offer. 8About six months later the bank tried again. In late August 2012 discussions were taking place between the parties about a settlement conference. Mr Marando suggested to the bank that a written offer be put to him. But he made clear that Mrs Decevic would not accept any offer which involved no payment to her. The bank responded a few days later. On 5 September 2012 it served an offer of compromise, offering to pay Mrs Decevic $20,000 on the basis that the cross-claim be dismissed. The offer was expressed to be exclusive of costs . The bank's covering letter also intimated that if the offer was acceptable then, on the separate question of costs, the bank would be willing to bear its own costs. That offer of compromise expired unaccepted. 9Mrs Decevic's argument is that it was not unreasonable for her to reject the first offer may be shortly stated. She submits that the 27 February offer was made before any of the substantive evidence was filed in the proceedings and before, in particular, Mr Crow's principal affidavit had been served upon her. She says that during the short time afforded to her to accept or reject the offer it was not unreasonable for her to reject it. Moreover, she submits that the 27 February offer was not a realistic or reasonable compromise, given that it proposed a "walk away" position for both parties. 10Calderbank letters and offers of compromise are part of the Court's procedural armoury for "discouraging wasteful and unreasonable behaviour by litigants": Leichhardt Municipal Council v Green [2004] NSWCA 341 ("Green") per Santow JA at [14] and Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 ("Elite Protective Personnel"). The public policy in encouraging settlement also finds statutory confirmation in the Civil Procedure Act (2005), s 56: see Commonwealth of Australia v Gretton [2008] NSWCA 117 ("Gretton") at [42]. The Court's discretion under Civil Procedure Act, s 98 is unconfined, although the Courts have developed and applied principles to guide the exercise of the discretion: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [22], [35] per Gaudron and Gummow JJ. 11Where an offeree does not accept an offer of compromise in the form of a Calderbank letter but ends up worse off than if the offer had been accepted, that is a matter to which the Court may have regard when deciding whether to order the assessment of costs other than on the ordinary basis under UCPR, r 42.2. But it does not automatically bring a different order as to costs: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 ("SMEC Testing") at [37] per Giles JA. Although the policy informing the having of regard to a Calderbank letter its promotion of a settlement of disputes "an offeree can reasonably fail to accept an offer without suffering costs": SMEC Testing at [37]. 12In substance, Mr Bolster on behalf of Mrs Decevic advanced three contentions as to why her refusal to accept the February offer was reasonable: (1) the offer was not a realistic compromise; (2) insufficient time was allowed for acceptance; and (3) the offer was made before the substantive evidence was filed in the proceedings. For the reasons which follow, the last of these three contentions is the most persuasive. 13Mrs Decevic says that the February 2012 offer was not a realistic or reasonable compromise. It proposed in substance a "walk away" position for both parties. But merely because an offer is a "walk away" offer does not mean that it is not a genuine offer of compromise. It may be assessed as a genuine offer of compromise if it is "a genuine attempt to reach a negotiated settlement, rather than merely to trigger any cost sanctions": Green, per Santow JA at [39] and Gretton at [105]. In the present case the proceedings had been on foot since 2010 and the bank had been a cross-defendant since early November 2011. An Amended Cross Claim was filed in December 2011. The bank is likely to have incurred significant costs by the time it made its February 2012 offer. It was offering to give up recovery of all of those costs. That was a genuine offer, accompanied as it was by the 27 February 2012 letter's explanation of why the bank thought the cross-claim was without merit. 14Mrs Decevic's second contention is that insufficient time was allowed for acceptance of the February 2012 offer. The reasonableness of an offeror's conduct is assessed in part on the basis of whether the offeree had an "appropriate opportunity...to consider and deal with the offer": Donnelly v Edelsten (1994) 49 FCR 384 ("Edelsten") at 396. This second contention may have had more substance if Mrs Decevic had not sought, and then been granted the exact extension of time she had requested. If she had wanted more time to reasonably consider the offer, she would have asked for it. This contention is not persuasive. 15But Mrs Decevic's third point is persuasive. Mrs Decevic contends on the basis of cases such as Edlesten and Elite Protective Personnel that she did not have an appropriate opportunity to consider and deal with the offer because the defendant's evidence had not been served. 16The strength of Mrs Decevic's argument is that a great deal of the Court's understanding about how the bank organised its files was gleaned through Mr Crow's affidavit. The importance of Mr Crow's evidence in stitching together the bank's practices, and in understanding the gaps in its files is quite evident from the principal judgment: see for example [2013] NSWSC 1967 at [109] to [115]. Mr Crow's principal affidavit was a detailed and thoroughly drawn piece of evidence which, in my view, did fully illuminate a record system that until then had resembled a checkerboard of light and darkness. The Court understands how Mrs Decevic and her lawyers would have had trouble assessing the bank's internal record keeping practices and operating systems without that evidence, which was not served until after the expiry of the February 2012 letter. 17But Mr White, counsel on behalf of the bank, has several answers to Mrs Decevic's contentions. He points to the detailed pleading of the bank's answer to her case in the defence to the Cross-Claim. He points to material from the bank which was available to Mrs Decevic on subpoena in February 2012. And he makes the point that Mrs Decevic was the cross-claimant and she had to decide the strength of her own case, rather than rely upon what the bank was serving. 18But Mr White's rejoinder is ultimately not persuasive. Detailed though the Amended Defence to the Amended Cross-Claim was, and despite the fact that the bank's files were available on subpoena for inspection, neither of these factors was a substitute to Mr Crow's comprehensive explanation, which went to many pages. And Mr White's point that Mrs Decevic had to assess the strength of her own case does not deal with the fundamental question presented to a person facing an expiring Calderbank letter: is it better to accept the offer, or risk the further cost of a trial? But Mrs Decevic was not well equipped in February 2012 to understand the strengths of the bank's case against her, which was one of the judgments she needed to make in deciding to accept the offer. Her task was not just to consider her own case but to consider the strength of the case against her. The bank itself recognised this in its drafting of the letter of the 27 February when it explained why, from its point of view, her cross-claim was bound to fail against the bank. 19Of course the bank wanted to save itself the expense of Mr Crow's affidavit by seeing whether the proceedings might settle before that affidavit was prepares and served. Whilst that was legitimate economy from the bank's perspective, it came at the price of depriving Mrs Decevic of sufficient information to consider and deal with the offer. 20In the result therefore, I am not prepared to order indemnity costs in favour of the bank on the basis of the February 2012 Calderbank letter. But the bank will have indemnity costs from the operative date of the offer of compromise, 6 September 2012. In the result therefore the Court's additional orders will be: (1) The Amended Cross-Claim is dismissed; (2) Order the Cross-Claimant to pay the Cross-Defendants' costs on the ordinary basis up until 5 September 2012 and on the indemnity basis from 6 September 2012; (3) Exhibits and subpoenaed material may be returned forthwith; and any exhibits returned must be retained by the tendering party until the expiry of the time to file an appeal.