Baxter Global Investments Pty Ltd (ACN 159 246 670) v Marco

Calderbank offer - should indemnity costs be ordered from 16 April 2020?

1. The plaintiffs rely on a letter dated 15 April 2020 marked "without prejudice save as to costs" in support of their application for an indemnity cost order from 16 April 2020.
2. In the 15 April letter, the plaintiffs made an offer to the defendants to settle the proceedings on the following terms: 1. without admissions, the defendants agree to pay $2,200,000 in the sums of $1,850,000 and $350,000 to the first and second plaintiffs respectively within 21 days of the date of acceptance of the offer; 2. the parties to execute consent orders in the form attached to the letter to dispose of the directions hearing on 17 April 2020. The consent orders provided for judgment to be entered for the first and second plaintiffs for the sums set out at (a) above; the making of declarations that the first and second plaintiffs were, at all times, the beneficial owners of those sums; and for the tracing of those sums into the hands of the second and third defendants; 3. the plaintiffs undertake not to enforce judgment for 21 days after acceptance of the offer; and 4. the plaintiffs to pay the defendants' costs, as agreed or assessed.
3. It is common ground that the offer set out in the 15 April letter was expressed to be made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and was not accepted by the defendants.
4. There is no presumption in favour of ordering costs on an indemnity basis because a Calderbank offer has been made and rejected and the offeror achieved a better outcome than was offered: Jones v Bradley (No 2) [2003] NSWCA 258 at [5]-[9]; Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19].
5. The question on an application such as this is whether the defendants' failure to accept the plaintiffs' offer warrants departure from the ordinary rule that costs are payable on a party-party basis because, in all the circumstances, it was unreasonable for them to not accept the offer: Hunter v Roberts (No 2) [2019] NSWCA 235 at [6]. The onus lies upon the plaintiffs to demonstrate that the defendants acted unreasonably in not accepting their offer: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [16].
6. The factors relevant to determining whether the non-acceptance of the Calderbank offer by the defendants was unreasonable include the stage of the proceedings at which the offer was received, the time allowed to the defendants to consider the offer, the extent of the compromise offered, the defendants' prospects of success assessed at the date the offer was made, the clarity with which the terms of the offer were expressed and whether the offer foreshadowed an application for indemnity costs in the event the defendants rejected it: Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25].
7. The plaintiffs submit that it was unreasonable for the first defendant to have refused the offer because Tottle J's reasoning and decision delivered on 12 March 2020 in Markopoulus v Marco [2020] WASC 79 (Markopoulus) should have made it clear to the defendants that their prospects of successfully defending these proceedings were poor.
8. They also submit that the defendants were not in any way constrained in their ability to consent to judgment in the form of declarations of trust in favour of the plaintiffs as interim receivers had not yet been appointed to any of the defendants or their assets.
9. They also contend that the offer represented a genuine compromise as the sum of $2,200,000 was significantly less than the amount the Court awarded by way of declaration in the judgment and the terms allowed the defendants to consent to orders being made against them on a without admissions basis, and reasonable to accept as the terms of the offer were clear.
10. The defendants do not take issue with the plaintiffs' submission that the offer represented a genuine compromise and that its terms were clear.
11. The defendants' submit that it was not unreasonable for them not to have accepted the offer having regard to the period of time the offer was open for acceptance. They also say it was not unreasonable because the terms of the offer raised a question as to their capacity to accept the offer and, at the time the offer was made, Mr Marco had lodged an appeal against Tottle J's decision in the Markopoulus proceedings.
12. In my view, the defendants' submissions should be accepted. In the circumstances of this case, I do not consider that the failure of the defendants to accept the offer warrants an indemnity costs order being made from 16 April 2020.
13. At the time the offer was made, the defendants were subject to asset preservation orders that had been made on 1 November 2018 in proceedings brought against them by the Australian Securities & Investments Commission (ASIC) in the Federal Court of Australia. ASIC had also advised the defendants that it would not consent to a variation of the asset preservation orders to allow Mr Marco to settle the Markopoulus proceedings, as it was ASIC's view that a receiver should be appointed to act for the benefit of all of the Mr Marco's investors and creditors, but that Mr Marco could apply to the Federal Court for a variation of the orders if he wished to resolve those proceedings by way of a conditional agreement.
14. The asset preservation orders prohibited the defendants from "selling, charging, mortgaging or otherwise dealing with…" any of their property, subject to carve-outs that are not relevant to the issues raised on this application. The offer required the defendants to agree, on an unconditional basis, to pay the plaintiffs the amount of $2,200,000 and consent to declaratory relief that certain of their assets were beneficially owned by the plaintiffs. In my view, the prohibitions on the defendants from dealing with their assets meant there was a significant risk they would have been in breach of the asset preservation orders if they accepted the offer in those terms. I accept the defendants' submission that those orders and the position adopted by ASIC mean that it was not unreasonable, and that it may have been necessary, for the defendants to have refused the offer at the time it was made.
15. Even if the asset preservation orders did not legally constrain the defendants from accepting the offer, in my view, it is reasonable to expect that the defendants would need time to carefully consider the offer and obtain advice on the risks of them doing so, including to investigate what steps should be taken to seek a variation to the asset preservation orders. These matters raise the issue of the period the offer was open for acceptance. The 15 April offer letter and proposed consent orders were attached to an email that was sent by the plaintiffs' solicitor (who was located in Sydney) to the defendants' solicitor (who was located in Perth) at 1.10 am (Sydney time) on 16 April 2020. The offer was expressed to be open for acceptance until 1.00pm (Sydney time) the same day. In other words, the offer was open for acceptance for four or so business hours; and less than four hours if the location of the defendants' solicitor in Perth is taken into account.
16. The question of whether a period during which an offer is open for acceptance is reasonable must be judged objectively in the circumstances known, or which should reasonably have been anticipated, by both parties: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 at [22].
17. The offer was open for acceptance for a period that was radically shorter than the 28 days that would have applied if the plaintiffs had sent a formal offer of compromise: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 20.26(5)(a). As recognised by McColl JA in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [117], the period of 28 days prescribed by the UCPR was presumably set on the basis that it is considered to be a reasonable period of time for a party to consider and respond to an offer.
18. In most cases, allowing for a period of some hours is likely to raise a question about the reasonableness of the time provided for acceptance. In this case, such a short period of time seems to me to be objectively unreasonable given the question of whether acceptance would put the defendants in breach of court orders, the need to consider the merits of accepting the offer in the context of Mr Marco having appealed the Markopoulus decision and the status of the proceedings.
19. While the existence of Mr Marco's appeal does not, by itself, mean that it was unreasonable for the defendants to have refused the offer, in my view, it raises further doubts about the reasonableness of the period in which the offer was open for acceptance. This is because I consider it reasonable to expect that the defendants would need time to consider the impact of any settlement on that appeal. As the defendants submit, the existence of the appeal also suggests that it might not be said that Mr Marco's defence to the trust claims in these proceedings was completely foreclosed at the time the offer was made.
20. As to the status of the proceedings, the offer was made at a very early stage, when the evidence was not complete and there was no imminent trial date. A directions hearing was scheduled for the day after the offer was made. To my mind, an upcoming directions hearing does not justify making the offer open for acceptance for such a short period of time. Nor was any evidence led or submission made by the plaintiffs to suggest otherwise.
21. I accept that the trust claims made against Mr Marco in this case are very similar to those made against him in the Markopoulos proceedings. There is, therefore, merit in the plaintiffs' submissions that, at the time the offer was made, the defendants were likely familiar with some of the allegations raised in these proceedings having traversed them in the Markopoulus proceedings and knew what evidence they were likely to adduce in response. The evidence also suggests that the parties had been engaged in settlement discussions prior to the plaintiffs' 15 April offer such that it might be said that the defendants might have been able to assess the offer more speedily than usual. In my view, those matters might support the offer being made open for acceptance for a period of less than 28 days. They do not persuade me that it was unreasonable for the defendants not to have accepted the offer when it was only open for acceptance until midday on the same working day it was made.
22. It is for the plaintiffs to establish that the offer was left open for a period that was reasonable in all the circumstances. In my view, they have not done so.
23. It follows that I am not satisfied that the plaintiffs have established that the defendants' conduct in not accepting the 15 April offer was unreasonable or that justice requires that indemnity costs should be ordered from 16 April 2020.
24. The plaintiffs' evidence refers to Calderbank offers made on 3 July 2020 and 1 September 2020 that were also not accepted by the defendants. As the plaintiffs' written submissions made clear that they do not rely on those offers in their application for indemnity costs, I have not considered them on this application.

Alternative claims - should an indemnity costs order be made from a later date?

1. In the alternative, the plaintiffs' contend that an indemnity costs order should be made in their favour from one of two dates.
2. The plaintiffs' written submissions in chief contend that an indemnity costs order should be made from 18 September 2020, being the day on which the defendants notified the Court that they would not be attending the hearing on 21 and 22 September 2020.
3. In their submissions in reply, they advance a further alternative application for indemnity costs from 13 August 2020, being the date on which Mr Marco withdrew his appeal in the Markopoulus proceedings.
4. The plaintiffs submit that an indemnity costs order is warranted from 13 August 2020 because it was improper for the defendants to defend beyond that date when they were aware that Mr Marco's defence to the trust claims would fail on the same basis it did in the Markopoulus proceedings. The plaintiffs rely on the affidavit of Ms Sierakowski served in support of this application which they contend raised, for the first time, that she did not consider the asset preservation orders to prohibit the making of a settlement offer by the defendants on 17 September 2020 because "the appeal in respect of the Markopoulus proceedings had been discontinued, such that it stood as unchallenged authority to the effect that the documents relied on by the plaintiffs did give rise to an effective trust".
5. The plaintiffs contend that the defendants should have taken steps to resolve or truncate the proceedings from that time and that, by continuing to defend the proceedings after 13 August 2020, the defendants prolonged the case unnecessarily, caused the plaintiffs to incur costs, caused loss of time to the Court and the plaintiffs, and disregarded a clearly established precedent in Tottle J's judgment.
6. As to their application for indemnity costs from 18 September 2020, the plaintiffs submit that such an order is warranted because the defendants acted unreasonably by abandoning the proceedings late that day for the stated reason that they had been unable to secure funds for their defence when it should have been clear to them that they would be short of funds prior to that time. They contend that, by representing to the plaintiffs and the Court that they would defend the claims and not disclosing that a lack of funding would cause them to withdraw, the defendants knowingly allowed the plaintiffs to incur the costs of preparing for a contested hearing until late on the Friday before the hearing was due to start.
7. The plaintiffs argue that the late abandonment caused the plaintiffs to incur additional costs from re-working their case over the weekend preceding the hearing to accommodate for Mr Marco not being available for cross-examination and the hearing being unopposed.
8. The plaintiffs also submit that their application for indemnity costs should also be viewed through the prism of the defendants' conduct of the proceedings more generally, which they contend has been delinquent pointing to the defendants past failures to comply with timetabling directions.
9. The defendants did not advance submissions in response to the plaintiffs' further alternative claim for indemnity costs from 13 August 2020 as they were raised for the first time in the plaintiffs' reply submissions.
10. In response to the application for an indemnity costs order from 18 September 2020, the defendants raise three matters which can be summarised as follows: 1. there is no proper basis for awarding indemnity costs as a consequence of the defendants removing their contest to the claims at a late stage and thereby simplifying the hearing; 2. the plaintiffs suffered no relevant prejudice because the impact of the defendants' decision not to attend the hearing meant that the plaintiffs' claims for relief were able to be heard unopposed and faster than if contested. They also say that the alleged loss of opportunity to cross-examine Mr Marco is not relevant prejudice as there was no obligation on the defendants to call him to give evidence; and 3. the defendants have not acted unreasonably, relying on an offer they made on 17 September 2020 to settle the proceedings on terms that represented an effective capitulation substantially consistent with the ultimate outcome in this case, to which the plaintiffs did not respond.

Consideration and decision on alternative applications

1. The award of indemnity costs is a matter within the Court's discretion. That discretion is broad but must be exercised judicially having regard to the circumstances of the case: Civil Procedure Act 2005 (NSW) (CPA), s 98(1)(c); Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (Oshlack) at [22], [65], [134].
2. A range of circumstances have been recognised as capable of warranting an indemnity costs order. They include where a party has acted unreasonably or the conduct of the party has involved some delinquency: Oshlack at [44]; Harrison v Schipp [2001] NSWCA 13 (Harrison v Schipp) at [139]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6]. That conduct must be connected to the litigation itself, in the way the litigation is conducted, as opposed to conduct the subject matter of the litigation: Harrison v Schipp at [133]-[139].
3. In Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; [1993] FCA 801 at [24], Sheppard J set out some principles and guidelines as to the circumstances in which the Court might award indemnity costs. They include where there has been particular misconduct of a case which has caused loss of time to the Court and to other parties; where proceedings were commenced or continued in wilful disregard of known facts or clearly established law; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.
4. The authorities recognise that the Court may order indemnity costs where it appears that a party has continued their claim or defence in circumstances where, properly advised, they should have known that it had no chance of success: Bookarelli Pty Ltd v Katanga Developments Pty Ltd (No 2) [2017] NSWCA 94 at [9]; Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (No 2) [2009] NSWCA 12 at [4].
5. Abandonment of a claim or a defence is not, in itself, sufficient to warrant an order for indemnity costs. Abandoning unwinnable points or bad arguments is not to be discouraged, although indemnity costs may be awarded where abandonment amounts to an admission that the issue abandoned was hopeless: Lahoud v Lahoud [2006] NSWSC 126 at [38], [40]; Ghougassian v Fairfax Community Newspapers Pty Limited [2015] NSWCA 307 (Ghougassian)at [53]-[57].
6. It has also been recognised that the purpose of a costs order is to compensate or indemnify the person in whose favour the order is made and not to punish the person against whom it is made: Oshlack at [44]; Hamod v New South Wales [2002] FCA 424; [2002] FCAFC 97 (Hamod v NSW) at [20].
7. Applying those principles in this case, I have come to the conclusion that the plaintiffs have not established an entitlement to an indemnity costs order from 13 August or 18 September 2020.
8. The plaintiffs' submission in support of their alternative applications for indemnity costs assert, in essence, that the relevant delinquency or misconduct of the defendants was their continued defence and failure to truncate or resolve the trust claims from 13 August and late abandonment of the hearing on 18 September 2020. It seems to me that, underlying this submission is the premise that the defendants were obliged to and should have withdrawn their opposition to the trust claims earlier and, if they had, the plaintiffs would have avoided significant cost and time they incurred with preparing for a defended hearing.
9. A difficulty I have with the submission is that, irrespective of whether the defendants withdrew their defence or agreed to resolve the trust claims during the period 13 August to 18 September 2020, the substantive issue raised by that claim still had to be considered by the Court in order to be satisfied that declaratory relief of the nature that was ultimately sought should be granted.
10. The critical question for the plaintiffs' trust claim was whether the circumstances in which they had invested money with Mr Marco gave rise to a relationship of trust. As determined by the judgment, the Court held that it did. But that was not necessarily a foregone conclusion as the plaintiffs had the burden of establishing that the facts gave rise to a trust relationship and that declaratory relief should be granted. While the Markopoulus decision was very persuasive, the decision in this case depended, in part, on the particular interactions between the parties, as evidenced by their discussions and the terms of the material sent by Mr Marco to Mr Batchelar: see for example, judgment at [29] - [32] and [49].
11. Nor would declaratory relief have been granted by consent, even assuming the parties had reached some resolution between them on the trust aspect of the case: HOOSH Inc (Haberfield out of school hours) v State of New South Wales [2017] NSWSC 379 at [7].
12. In other words, the position of the defendants did not obviate the need for a hearing on the merits of the plaintiffs' trust claims and the cost and time associated with that hearing.
13. The case was set down for hearing and the court documents and evidence had been served prior to 13 August 2020. At the hearing, the plaintiffs relied on parts of the defendants' commercial list response and Mr Marco's evidence as they provided some evidentiary basis for their trust claim and entitlement to damages: see judgment at [35], [36] and [55]. The plaintiffs' also relied on the written submissions and chronology they had prepared in advance of being told that the defendants were not going to appear. In that context, it is difficult to understand how the defendants' continued defence of the trust claims and late abandonment of the hearing caused the plaintiffs to have incurred wasted legal costs to a significant degree in relation to that hearing.
14. I accept that the terms of Ms Sierakowski's affidavit and the correspondence from the defendants' solicitors in the week leading to the hearing, including its settlement offer dated 17 September 2020, are indicative of an acceptance by the defendants that Mr Marco's defence to the trust claims had little, if any, prospects of success on the basis of the Markopoulus decision. But the defendants' position after 13 August 2020 is to be assessed in the light of the circumstances of this case. Those circumstances include the existence of the asset preservation orders and the appointment of receivers to the property of the defendants. While those matters may not have prevented the defendants from seeking to resolve the trust claims entirely, the evidence indicates that, at least until 17 September 2020, the defendants considered they impacted when and on what terms the proceedings could be resolved. In my view, these were not illegitimate concerns and militate against a finding that the defendants engaged in disentitling conduct by failing to take steps on and from 13 August 2020 to resolve or truncate the proceedings, as the plaintiffs submit.
15. The evidence also indicates that the defendants had, through their solicitor, taken steps to seek to resolve the proceedings in the week prior to the scheduled hearing. Relevantly, the defendants did not seek to assert a defence to the trust claims but raised, amongst other matters, an issue about whether the plaintiffs could take steps to enforce any judgment made by way of consent.
16. The question of whether the plaintiffs can enforce the relief they have obtained continues to be the subject of debate. It also seems to me to be an issue that was unlikely to have been finally resolved even if Mr Marco's defence to the trust claims had not been pressed at an earlier time on the basis of the Markopoulus decision or he appeared at the hearing and was made available for cross-examination.
17. A relevant factor in this case is the late notice to the plaintiffs and the Court that the defendants would not be appearing at the hearing. While accepting that a party has no duty to defend a case, the defendants abandoned their opposition to the claims only two days after emailing the Court and the plaintiffs on 16 September 2020 to confirm who would be attending the hearing of behalf of the defendants.
18. Added to this is the question raised by the evidence as to precisely when the defendants were aware that they lacked the necessary funds to continue their defence and have legal representatives appear at the hearing. No evidence has been put forward by the defendants to explain when they became aware that funds were not available, why a lack of funds impacted their ability to conduct a defence when they had the option to seek further funds by variation to the asset preservation orders, and why that option was not explored. Nor does their evidence explain why it was that the defendants waited until 8.04pm on the Friday before the hearing to notify the Court and the plaintiffs of the position. In that regard, I note that the defendants' 8.04pm email to the Court was sent only four hours after the defendants' solicitor sent an email to the plaintiffs regarding the 17 September 2020 settlement offer indicating that they would rely on the email on the question of costs.
19. The defendants say that their decision not to oppose the claims for relief meant that the proceedings were able to be heard unopposed, faster and cheaper. That is right in some respects; the hearing of the trust and damages claims was unopposed and completed, in effect, within half a day. However, the defendants' submission ignores that, by the time the defendants notified my Associate of their position, the Court (and the plaintiffs) had set aside two full days for the hearing. If the defendants had withdrawn their defences to the trust claims and notified they would not be appearing earlier, the Court may have been able to provide other litigants with the opportunity of an earlier hearing.
20. The above events are, in my view, suggestive of a disregard by the defendants of their obligation to assist the Court in furthering the overriding purpose of the CPA and the rules of Court, namely to facilitate the just, quick and cheap resolution of the real issues in the proceedings: CPA, s 56. That said and while their conduct may be open to criticism, of itself, that conduct does not, in my view, justify an order for indemnity costs: Ghougassian at [55].
21. As to the plaintiffs' submission that their application for indemnity costs should also be viewed through the prism of the defendants' conduct of the proceedings more generally, which they contend has been delinquent pointing to the defendants past failures to comply with timetabling directions, those delinquencies have already been dealt with by previous costs orders.
22. An order for indemnity costs is not made to punish a party but to more fully or adequately compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part: Oshlack at [44].
23. For these reasons, and while somewhat finely balanced, I am not satisfied that the defendants' conduct during the period from 13 August through to 17 September 2020 was of a nature to be characterised as delinquent or misconduct of the type that warrants an indemnity costs order. Nor am I persuaded that the plaintiffs have shown that any such conduct has led to them incurring significantly increased costs or has prolonged the case such that they need to be compensated by way of an indemnity costs order from either of the alternative dates proposed. 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: 01 December 2020