Bell & Berg v Macquarie Bank Limited and Anor

MACQUARIE INTERNATIONAL CAPITAL MARKETS LIMITED Second Respondent PARTIES : Matter Number IRC 6974 of 1997 _________________________________

CHARLES JOSEPH BERG Applicant

MACQUARIE BANK LIMITED (ACN 008 583 542) First Respondent

MACQUARIE INTERNATIONAL CAPITAL MARKETS LIMITED Second Respondent FILE NUMBER: IRC 6973 and 6974 of 1997 CORAM: Schmidt J CATCHWORDS : Costs - Extension of time sought by respondents for their costs application not necessary - Calderbank offers - Application by respondents for indemnity costs from date of Calderbank offer - Application by respondents for party/party costs up until the date of the Calderbank offer - Applicants unreasonably refused offers - Nature of indemnity costs order - Orders sought by respondents granted - Stay of costs order granted LEGISLATION CITED : Evidence Act 1995 Alexander v Cambridge Credit Corporation Limited (1985) 2 NSWLR 685 Ballard v Incoll Management (No 2) [2001] NSWIRComm 217 Black v Lipovac [1998] FCA (4 June 1998) Cavacuitti & Anor v XTMCA Ltd (Toyota Motor Corporation Australia Pty Ltd) (No 2) [2002] NSWIRComm 224 Coshott v Learoyd [1999] FCA 276 CASES CITED : Elyard Corporation Pty Limited v DDB Needham Sydney Pty Ltd (1995) 133 ALR 206 FAI General Insurance Co Limited v Southern Cross Exploration NL & Ors (1988) 165 CLR 268 Hairman v FileNET Corporation Pty Limited [2002] NSWIRComm 76 McEwan & Ors v AIDC Limited & Ors [2000] NSWIRComm 68 Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 National Australia Bank v Cassino [2002] NSWIRComm 241 Oshlack v Richmond River Council (1998) 193 CLR 72 HEARING DATES: 02/03/2003 DATE OF JUDGMENT: 02/13/2003

APPLICANTS: Mr Dalgleish of counsel SOLICITORS: Verekers Lawyers LEGAL REPRESENTATIVES: RESPONDENTS: Mr Goot AM SC with Mr R Reitano of counsel SOLICITORS: Abbott Tout

JUDGMENT: - 15 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Schmidt J

DATE: 13 February 2003 Matter Number IRC 6973 of 1997 MICHAEL CHARLES BELL v MACQUARIE BANK LTD & ANOR Application under section 106 of the Industrial Relations Act 1996

Matter Number IRC 6974 of 1997 CHARLES JOSEPH BERG v MACQUARIE BANK LTD & ANOR Application under section 106 of the Industrial Relations Act 1996

1 Judgment in these matters was given on 12 September 2002. The applications were dismissed by order, and as to costs, it was said:

'The usual order as to costs would be that the applicants bear the respondents' costs, as agreed or assessed. If the parties cannot agree as to the appropriate costs orders, they have liberty to approach within 21 days of the date of judgment.'

2 The judgment was appealed on 3 October and came before Wright J, President on 14 October. At that time no agreement as to costs had been reached by the parties, nor had the respondents made any approach to have an order for costs made, as envisaged in the September judgment. 3 The view then expressed by the applicants was that no order for costs could be made against them, the Court being functus as to that matter. The respondents' position was to the contrary, namely that a costs order should be made in its favour, prior to the hearing of the appeal. Wright J noted that the respondents intended to approach my associate, so that the question of costs could be dealt with at first instance. The appeal was also stood over, pending a determination of an application for security for costs.

4 When the matter came on for hearing on the question of costs, a number of issues arose. The respondents submitted that they were not out of time to seek a costs order, none yet having been made by the Court and that accordingly, the Court was not functus as to that matter. Given the respondents' stated attitude, the applicants had, nevertheless, filed a notice of motion seeking an extension of time for the making of such a costs application. The applicants' primary position was that no extension of time should be granted and no costs order should now be made against them, the respondents having failed to seek such an order within the time fixed in the September judgment.

5 The respondents also relied upon Calderbank letters served upon the applicants on 3 July 2001, prior to the commencement of the hearing on 16 July. The offers then made were payment of $100,000 plus costs for Mr Bell and $185,000 plus costs for Mr Berg. Having regard to the rejection of those offers and the applicants' failure to make out any aspect of the case advanced, the respondents sought an order of indemnity costs in their favour, in respect of the period after the offer lapsed and party/party costs beforehand. The case for the applicants was that there should be no departure from the ordinary party/party costs order in this case, given the time of making the offers, the amount of the offers, the history of the settlement negotiations and the short period of time during which the offer was open for acceptance.

6 Reliance was placed on the respondents' failure to put on an offer of compromise as provided by the Rules. Submissions were also advanced that the Court would not make an indemnity costs order, as a matter of discretion in this case, given the way in which the respondents had conducted their defence of the claims brought.

7 In the event that any costs order was made against the applicants, they further sought a stay of the orders, subject to the condition that $40,000 held on trust in respect of costs ordered against Mr Berg be released to the respondents, on them giving an undertaking that if the applicants were successful in their appeal, this sum would be repaid to Mr Berg. The respondents made no submissions in relation to the stay sought, but gave the undertaking sought by the applicants in relation to the release of Mr Berg's $40,000.

8 I am satisfied that no extension of time is necessary to be granted to the respondents, in order for their application for a costs order to be entertained. While 21 days was the time provided in the judgment for the making of an application for such an order, no order imposing any time limitation was made. As was put by counsel for the respondents, the purpose of that time period being specified in the judgment was, as a matter of case management, to try to ensure that the case did not 'further drag on'. It was not, however, the subject of any order which has been breached by the respondents. Nor was the Court functus in relation to the question of costs, as reference to what was earlier quoted from the September judgment makes plain, particularly when consideration is given to the costs provisions of the Act and the Rules.

9 The evidence showed that shortly after the September judgment was given, the parties' solicitors discussed the release of the $40,000 held on trust pursuant to consent orders made in relation to Mr Berg earlier in the proceedings. Those orders relevantly provided: 'In the event of costs orders being made in the proceedings No.6974 of 1997 and those orders including an order against Mr Berg in favour of any one or more of the Respondents, the sum of A$40,000 (plus interest) is to be paid out without further order to such Respondent or Respondents by bank cheque payable to the Respondents within 7 days of the decision on costs by Schmidt J and all parties and their legal representatives shall do all things necessary to give effect to the orders (as to which Mr Berg hereby irrevocably appoints his solicitors, Maurice Blackburn Cashman to do all such things including executing any documents on his behalf).'

10 In that conversation, it was revealed that the applicants were considering appealing the judgment. An appeal was, in fact, lodged on 3 October. At the time the respondents' solicitor took the view that costs would be a matter to be dealt with after the appeal was decided. Wright J took a different view, namely that costs should be determined to finality at first instance before the appeal was heard, so that all issues which might arise on appeal be dealt with in the one proceedings. That, I observe, is a commonplace approach in appeal proceedings brought in this jurisdiction.

11 If, as was submitted for the applicants, the approach taken by the respondents' solicitors to the question of costs involved an error, namely as to whether or not a costs order had already been made, justice between the parties would not properly now permit the result that the applicants should thereby be sheltered from having any costs orders being made against them in the proceedings. (See the discussion in Elyard Corporation Pty Limited v DDB Needham Sydney Pty Ltd (1995) 133 ALR 206, applied in McEwan & Ors v AIDC Limited & Ors [2000] NSWIRComm 68.) That the respondents might have a cause of action against their legal representatives, if the argument that an error has been made was correct, is no reason for taking a different view in relation to the costs of the proceedings.

12 Were it necessary to do so, the evidence showed that time to make an application in respect of costs should be extended to the respondents, in this case. (See the approach of the High Court in FAI General Insurance Co Limited v Southern Cross Exploration NL & Ors (1988) 165 CLR 268 at 286 and 289 and the approach adopted by this Court in National Australia Bank v Cassino [2002] NSWIRComm 241 and the cases there discussed.) As I have noted however, in the present circumstances there is no need for such leave to be given.

13 The respondents sought an order for party/party costs until the making of the Calderbank offer and thereafter on an indemnity basis. There can be no doubt that the offer made in June 2001 turned out to be considerably more favourable to the applicants than the results they achieved in the litigation. The respondents successfully defended the claims brought in their entirety.

14 A question thus arises, as to whether a discretion should be exercised in favour of the respondents, in the manner sought. This Court has on a number of occasions followed the approach adopted by the Supreme Court to questions such as this. See for example the discussion in Ballard v Incoll Management (No 2) [2001] NSWIRComm 217; Hairman v FileNET Corporation Pty Limited [2002] NSWIRComm 76; Cavacuitti & Anor v XTMCA Ltd (Toyota Motor Corporation Australia Pty Ltd) (No 2) [2002] NSWIRComm 224.

15 I have not been persuaded that those judgments were in error. A Calderbank letter provides a basis upon which the maker of the offer may ask the Court to exercise a discretion in its favour as to costs. It is true that the respondents here did not make an offer of compromise under the Rules. On the authorities, the making of an offer on a Calderbank basis, nevertheless, entitles the respondents to seek consideration of the indemnity costs order sought. I note that this is also consistent with the provisions of s131 of the Evidence Act 1995 and the authorities which have considered that section.

16 Here, the respondents, having been successful in defending the claims made against them, are entitled in the ordinary way to a costs order on a party/party basis. The applicants did not dispute this. The question to be determined is whether an indemnity costs order should follow the rejection of the offers. The claims were respectively for $5,242,892 plus interest in Mr Bell's case and $2,830,950 plus interest in Mr Berg's. The applicants argued that the reasonableness of the respondents' offers also had to be considered in the context of offers of compromise which the applicants had themselves earlier made the respondents, shortly after the third conciliation conducted under s109 of the Act. In August 2000, an offer of settlement of $1million in the case of Mr Bell, plus costs, as agreed or assessed was made. The other correspondence suggested that the applicants had been seeking a total payment of $2million inclusive of costs, in the order of $700,000. This was reduced to $1.55million with costs of $666,70.40 assessed to represent $450,000 on a party/party basis. Further offers were $375,000 plus costs for Mr Berg and $1.85million plus costs for Mr Bell. This was later reduced to $1million. The respondents made no response to the final offers, which were open for 28 days.

17 Against those claims and offers, it was argued that the offers the respondents relied upon could not be accepted as having been reasonable. They were for the sums of $100,000 plus costs in Mr Bell's case and $185,000 plus costs in Mr Berg's. The offers were made on 3 July, shortly before the commencement of the hearing on 16 July and were open for a little less than two days. The offers were here described as being nothing more than 'some sort of costs "insurance" rather than a genuine attempt to reach agreement through compromise'. Complaint was also made that the offers were only open for two days, making it difficult, it was submitted, for advice to be obtained and instructions given.

18 The respondents' argument was that the offers and the time they had been made prior to the commencement of the hearing, on any view, were reasonable, given that the applicants had entirely failed in the claims they had made. The offers could not be characterised as unreasonable, given the amount of the offers and the time when they were made. While the offers were open for two days, there had never been any complaint about that time period and no suggestion that it posed any difficulties for the applicants, either in considering the offers, or in giving instructions. The first time the offers were suggested to have been unreasonable was when the respondents sought to rely upon them at this costs hearing and even then, no evidence was led from either applicant, to support the criticisms then directed, even though one of them, Mr Bell, was present in Court at the hearing.

19 The approach of Rolfe J in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 at 451, to offers of settlement, which has been followed in this Court on a number of occasions now was: 'In my opinion the proper approach to take to an Offer of Compromise, whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer, which unreasonableness is demonstrated, prima facie, by the ultimate result. This approach is consistent with the decisions to which I have referred, the policy evidenced by the Act and the Rules and the widely accepted philosophy that settlements should be encouraged. The relevant Rules provide that costs will be paid on the basis set out therein "unless the Court otherwise orders". My understanding is that the Court is required to proceed on the basis that it should make the order provided for by the Rules, unless the party rejecting the offer is able to establish good reason for having done so. It seems to me anomalous that there is no provision whereby a defendant, which is totally successful, is placed in the same position as a plaintiff, which is totally successful. In my view the Rules should be reviewed. The decision of this court have overcome the anomaly by an application of similar reasoning in the event of an offer of compromise by way of a Calderbank letter. Cole J observed that by taking that step the defendant, which is ultimately successful, has done everything it can to extricate itself from expensive and extensive litigation, and it seems to me that if a defendant has done that and its prognostication of the case proves to be correct, in the relevant sense, it is totally unfair that it should be required to pay costs as if it had not acted in that way. In the circumstances the relevant unreasonableness of the recipient of the offer is the failure to accept what is established to be an appropriate offer.'

20 As counsel for the applicants observed, despite the suggestion that this matter should be addressed in the Rules, neither the Rule makers in the Supreme Court, nor might I add in this Court, have taken up his Honour's suggestion. Nor, however, it must be observed, have they acted to ensure a departure from the approach adopted by Rolfe J. I am satisfied that it is the proper approach here to follow, given the earlier decisions of this Court to which I have referred.

21 In coming to that conclusion, I have had regard to the line of authority in the Federal Court to which reference was made for the applicants. Wilcox J in Coshott v Learoyd [1999] FCA 276, discussed the apparent differences in approach by reference to the views expressed by the Full Federal Court in Black v Lipovac [1998] FCA (4 June 1998). His Honour's conclusion was that: '[46] … the difference between the approach propounded by Rolfe J and that adopted in this Court may be more apparent than real. Everybody agrees there can be no fixed rule; a proposition established for this Court by the terms of s43 of the Federal Court of Australia Act conferring on the Court a discretionary jurisdiction in relation to costs. Everybody also agrees that, while the ordinary practice is to award costs on a party-party basis, it is sometimes appropriate to take a different course, including ordering indemnity costs against a party who has acted unreasonably. The difference between Rolfe J and the Federal Court decisions seems to turn on whether there should be "a prima facie presumption" of indemnity costs against a party who has not accepted an offer of compromise made pursuant to the Rules or a Calderbank letter and achieved no better result at trial, or whether this is only a factor to be taken into account in determining whether the offeree acted unreasonably. On either view, the Court has to look at the whole situation, including the circumstances that applied at the time of non-acceptance of the offer.'

22 As Wilcox J observed, the approach of Rolfe J does not mean that the circumstances in which a Calderbank offer was made and its terms should be ignored. They plainly should not be. The making of a Calderbank letter does not automatically lead to an indemnity costs order in favour of the maker of the offer. The question, rather, is whether the offer was such that the failure to accept it was unreasonable, so as to lead to an indemnity costs order.

23 In this case, had there been evidence that the making of the offers had led to any difficulty for the applicants in taking advice or giving instructions, I might have been persuaded that their failure to accept them was not unreasonable, in the relevant sense. After all, the offers were made relatively close to the trial commencing, with the applicants then residing in London and the United States, and they were only available for acceptance for two days. Any complaint about such matters at the time the offers were made, would have confirmed me in that conclusion. On any view, two days is a short period of time to consider compromise of complex litigation such as this.

24 There was, however, no such evidence. There was no complaint at the time about the short period the offers remained open. No extension of time was ever sought. Despite the submissions advanced, there was no evidence of any difficulty, of any kind, being encountered by the applicants from the time at which the offer emerged. The applicants were sophisticated and experienced senior executives, represented in the proceedings by solicitors and counsel at all times. The proper inference from the evidence must be that no difficulties arose for the applicants as a result of the time the offers were made and how long they were open for. Rather, it must be inferred from the evidence of the amounts which the applicants had earlier been prepared to accept by way of settlement of the claims, that the rejection of the offers flowed from the assessments which the applicants then made of their prospects in the cases they were advancing.

25 At that time, what the applicants had been prepared to accept in settlement of their claims was significantly more than what the respondents were prepared to offer. That, however, is not the only consideration relevant to an assessment of whether the offers relied upon were unreasonably rejected.

26 In Mr Berg's case, given the amounts of the offer - $185,000, plus assessed or agreed costs, the final amount Mr Berg had some months earlier been prepared to accept, $385,000 and the fact that the applicants ultimately failed entirely in the cases which they brought, it cannot be concluded that the respondents' offer did not represent a reasonable settlement of the claims. The evidence showed that almost a year earlier, the applicants had assessed their costs to be in the order of $666,000. The respondents' offer also included payment of the applicants' costs, as agreed or assessed. They would obviously have increased over that time.

27 While the same conclusion as to reasonableness of the offer is not as readily apparent in Mr Bell's case, given the offer of $100,000 plus costs and the fact that he apparently had wanted $1million in order to settle his claims, I have come to the view that a similar conclusion must be reached.

28 As Wilcox J observed in Coshott, the time and circumstances in which the offer was made needs to be considered. In this case, as is the practice in this jurisdiction, evidence in chief was put on in affidavit form and the parties had participated in a number of conciliation conferences pursuant to s109 of the Act. At the time of the respondents' offer the applicants had had the benefit of that material. It also cannot be ignored that in the September judgment, material deficiencies in the affidavits sworn by the applicants which were identified at the hearing were dealt with. At the time these offers were made, those difficulties were matters peculiarly within the knowledge of the applicants. Considerations such as this too, tend to support the conclusion that an indemnity costs order was warranted. (See the discussion in Oshlack v Richmond River Council (1998) 193 CLR 72 as to the relevance of parties' conduct of the proceedings.)

29 The question of costs in this case also arises for determination in the context of claims brought under s106 of the Act. In considering whether a settlement offer is reasonable in such a case, it seems to me that it cannot be overlooked that s106 claims are not concerned with parties' existing legal rights alone. The Court is charged with determining the fairness of the arrangements which parties have made with each other. That often requires the Court to first establish what the arrangement in fact was, before turning to consider whether or not it was unfair, as defined in s105 of the Act. Only if the requisite unfairness is established, does consideration of the exercise of any discretion in favour of an applicant arise. Here, the applicants failed to establish, on the evidence, the basic aspects of the claims which they had advanced, either as to the nature of the agreements they had made, nor the unfairness they had alleged. There were also doubts expressed in the judgment about the Court's jurisdiction to make the orders sought.

30 In my view, such factors too, must be regarded as a relevant consideration when the Court is asked to determine whether offers of compromise, or Calderbank offers, were unreasonably refused. As the authorities tend to show, the statutory regime which provides this Court with wide discretion to vary contracts which are found to be unfair and to make monetary orders just in the circumstances found, on occasions, attract claims brought in wide terms and for considerable money sums. It follows that reasonableness of an offer, or the unreasonableness of its refusal, cannot be determined by contrast between an offer and the claim made alone. To conclude otherwise could only encourage the making of lavish claims and discourage the acceptance of reasonable offers of compromise.

31 Thus it is that another important matter to which regard must be had is the ultimate outcome of the proceedings. Here the respondents were entirely successful in their defence of the applicants' complaints. Nor can I accept that the offers made could properly be described as merely 'some sort of costs insurance'. The sums offered to the applicants in order to settle claims which they failed to establish, after all bound the respondents to pay the applicants sums approaching $1million in total, depending on the final assessment of the applicants' costs.

32 For all of these reasons, while the circumstances in this case are quite different to those considered by Boland J in Ballard, like his Honour, I too have come to the view that the applicants' failure to accept the offers, and indeed to make any response to the offers on which the respondents here relied, provides a proper basis for the costs orders sought by the respondent, even though the offers were open for only two days.

33 I finally deal with the arguments advanced as to the exercise of the discretion sought by the respondents in circumstances where they had unfairly or improperly utilized their position of economic advantage over the applicants, in their defence of the claims brought. Reliance was placed, for example, on the respondents' requirement that witnesses called by the applicants who resided overseas be available for cross examination, but who were finally not required to be called.

34 Costs orders are never designed to be punitive, even indemnity costs orders. They are always concerned with the justice to be done between the parties, in the particular circumstances of the litigation. In this State, indemnity costs orders are subject to an assessment process, if agreement cannot be reached between the parties as to the costs claimed on an indemnity basis. Rule 52A.37(b) of the Supreme Court Rules apply to such orders when made by the Court. It provides:

Where, in any proceedings, costs are payable to a person by or under the rules or any order of the Court on an indemnity basis:

(a) if that person is a party to the proceedings in the capacity of trustee, legal representative of a deceased estate or other fiduciary and the costs are payable out of property held or controlled by that person in that capacity---all costs incurred by that person shall be allowed except to the extent that it appears that they were incurred in breach of that person's duty in that capacity, and (b) otherwise all costs incurred by that person shall be allowed except to the extent that it appears that they are of an unreasonable amount or have been unreasonably incurred.

35 In New South Wales, this Rule deals with the concerns expressed by Wilcox J in Coshott at para [52] and provides a proper answer to the concerns raised by the applicants, as to the respondents' conduct of its defence of the claims brought.

36 While I also accept that, as a matter of discretion, matters such as those raised by the applicants might, if established, affect the exercise of a discretion in favour of a party seeking costs an indemnity basis, I am not satisfied that this is such a case. The September judgment shows that this litigation was hard fought by all parties and not only in this Court. In the proceedings before me, a deal of time was taken with, for example, objections to affidavits and other evidence. They undoubtedly affected the course which the hearing then took. For the respondents it was submitted that this included a reconsideration of those of the applicants' witness then required for cross examination.

37 In the circumstances of this case, I cannot conclude that the respondents' approach to these proceedings was such that they should be deprived of the indemnity costs order to which I am otherwise satisfied they are entitled.

38 In coming to the conclusion that an indemnity costs order should be made in these proceedings, I finally note that I have been much troubled by the apparent amount of the costs of the litigation, which the evidence and submissions but partly revealed. While this is a matter of undoubted concern, I do not understand that it is a basis upon which a claim for an indemnity costs order might properly be rejected. Nor was such a submission advanced for the applicants. It follows that I have not taken this concern into account in the conclusions which I have reached.

39 On the case advanced, I am however satisfied that this is an appropriate case for a stay of the costs orders to be granted, that being a matter within the power of a single member of the Court to determine, pursuant to s190 of the Act. I have been particularly influenced in this conclusion by the concerns last mentioned.

40 The approach discussed in Alexander v Cambridge Credit Corporation Limited (1985) 2 NSWLR 685 at 693 and the conditions upon which the parties were agreed in relation to the release of the $40,000 in Mr Berg's case, in my view make this an appropriate situation for the execution of the orders as to costs otherwise to be stayed.

41 In coming to that view, I have also noted the undertaking as to the repayment of that sum to Mr Berg, in the event that his appeal is upheld, given by the respondents at the hearing.

42 For the reasons given, I make the following orders: 1. The applicants are to bear the respondents' costs on a party/party basis up to and including 5 July 2001 and thereafter, on an indemnity basis.

2. The execution of this order is stayed, pending further order of the Court, subject to the condition that the sum of $40,000, dealt with in the consent orders made in relation to the applicant Mr Berg on 1 August 2002, be paid out to the respondents, as there provided. ------------------------

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.