Blackman & Ors v Gant & Anor

(a) The second defendant pay the plaintiff's costs as from 5 March 2010 and the costs of the plaintiffs in meeting the denials of the defence that the alleged Blackman and Dickerson works were fakes as pleaded in the defence to the amended statement of claim, dated 25 March 2010 on an indemnity basis.

(b) Otherwise the second defendant pay the plaintiff's costs of the proceeding on a party and party basis, including reserved costs.

2 By an offer of compromise, served 5 March 2010 the plaintiffs offered to compromise the proceeding on the following basis:

(1) permanent injunctions restraining the second defendant by himself and his servants and agents, or otherwise, from selling or by way of trade offering or exposing for sale, or distributing or providing valuations for or otherwise parting with possession, save as otherwise provided in Condition 2, below, of the first and second fake Blackman works and the fake Dickerson work referred to in the amended statement of claim;

(2) delivery up to the plaintiffs, care of their solicitors, for destruction, the defendant's artistic works within 14 days of acceptance of this offer of compromise;

(3) the second defendant pay the plaintiffs' party/party costs of this proceeding in default of agreement to be taxed.

3 That offer was not accepted by the second defendant and the matter proceeded to trial.

4 The offer of compromise served by the plaintiffs complied with the requirements of rr. 26.02 and 26.03.

5 Rule 26.08(1) and (2) of the Supreme Court (General Civil Procedure) Rules 2005 provides:

(1) This Rule applies to an offer of compromise which has not been accepted at the time of verdict or judgment.

(2) Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled -

(a) if the claim of the plaintiff is for damages for or arising out of death or bodily injury, to an order against the defendant for the plaintiff's costs in respect of the claim taxed on an indemnity basis;

(b) in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff's costs in respect of the claim up to and including the day the offer was served taxed on a party and party basis and for the plaintiff's costs thereafter taxed on an indemnity basis.

6 In this case, the offer of compromise was not accepted at the time of verdict or judgment. Given that it was made by the plaintiffs in circumstances where r.26.08(2)(a) is not applicable, r.26.08(2)(b) applies. The second defendant is therefore exposed to a liability to pay the plaintiffs' costs in respect of their claim up to and including the day the offer was served, taxed on a party and party basis and for the plaintiffs' costs thereafter taxed on an indemnity basis.

7 Reference was made to the decision of Croft J in Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd (No.2) ("Tenth Vandy"),[1] where [at 17] his Honour observed that neither an offer of compromise under Order 26 nor a Calderbank offer "will have any costs consequences unless the rejection of the offer was unreasonable in all the circumstances". Reference was made by his Honour to the Court of Appeal decision in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No.2) ("Hazeldene's Chicken Farm"),[2] where the Court of Appeal[3] said:[4]

Calderbank letters and the consequences that flow from them have been considered by the Trial Division of this Court in a number of cases: see M T Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No.3); Clarke v ABC; Pearson v Williams, Nolan v Nolan, and Aljade & MKIC v OCBC.

One of the seminal contributions to the law on indemnity costs was the judgment of Sheppard J in Colgate Palmolive Company v Cussons Pty Ltd. Amongst the circumstances listed by his Honour as having been thought to warrant the exercise of the discretion to award indemnity costs was -

"an imprudent refusal of an offer to compromise".

So widely has this been accepted that the proposition has been advanced that a Calderbank offer gives rise to a presumption that the party rejecting the offer should pay the offeror's costs on an indemnity basis if the offeree receives a less favourable result.

In Aljade and MKIC v OCBC, however, Redlich J rejected the notion of any such presumption, holding that the weight of authority -

"strongly points to an approach that involves no preconceptions about when the rejection of a Calderbank offer should lead to the making of a special costs order. It will do so where it is concluded that the rejection of the offer was unreasonable".

We respectfully agree with his Honour's conclusion. We note, as did his Honour, that the notion of such a presumption has been decisively rejected by the New South Wales Court of Appeal (most recently in Brymount Pty Ltd v Cummins (No.2), by the Federal Court and by the Queensland Court of Appeal.

The correct approach, in our view, is to treat the rejection of a Calderbank offer as a matter to which the Court should have regard when considering whether to order indemnity costs. As Gyles JA stated in SMEC Testing Services Pty Ltd v Campbelltown City Council-

"In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rules as to costs ..." [Footnotes omitted]

8 With respect to his Honour in Tenth Vandy, I take a different approach to r.26.08(2).

9 The Court of Appeal in Hazeldene's Chicken Farm considered the operation of a Calderbank letter. It was not invited by the facts of the case to consider the operation of an offer of compromise made under Order 26.

10 A Calderbank offer to settle a proceeding is different from an offer of compromise served in accordance with Order 26. In Foster v Galea (No.2) ("Foster"),[5] Byrne J [at 7] contrasted the "fairly mechanical regime of Rule 26.08" with the "more flexible one of discretion as to costs" which exists with an offer of the Calderbank type. Byrne J further observed in Foster, an offer of compromise which fails to satisfy the formal requirements of r.26.02 and r.26.03, may nevertheless be sufficient to be considered as an offer to the effect of a Calderbank offer, in which case the approach to its consideration will be governed by the principles of Hazeldene's Chicken Farm.

11 The more inflexible costs regime established by Order 26 is emphasised by r.63.16 which provides in relation to making a costs order following service of an offer of compromise:

Where an offer of compromise is served and the offer has not been accepted at the time of verdict or judgment, liability for costs shall be determined in accordance with Rule 26.08.

Rule 63.16 limits the discretion of the Court as to costs and imposes a mandatory requirement to apply r.26.08 in accordance with its terms where an offer of compromise is served and the offer has not been accepted at the time of verdict or judgment.

12 The essential differences between a Calderbank letter and an offer of compromise made under Order 26 are twofold.

13 In the first place, unlike the position with a Calderbank letter, rejection by a defendant of an offer of compromise made by a plaintiff does not merely give rise to a matter to which the Court should have regard when considering whether to order indemnity costs. Provided the threshold elements are made out, namely: the service of an offer of compromise which complies with Order 26; the non-acceptance of the offer at the time of verdict or judgment; and the obtaining by the plaintiff of a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer; the plaintiff becomes entitled under r.26.08(2) to a special order for costs pursuant to either r.26.08(2)(a) or (b), whichever is applicable. In other words, in making a claim for a special costs order under r.26.08(2), the plaintiff who is successful at trial in equalling or bettering the offer of compromise which has not been accepted by an unsuccessful defendant, starts from a position of an entitlement to costs on a special basis, once the threshold matters have been established.

14 In the second place, although as is made clear in Hazeldene's Chicken Farm, a Calderbank letter does not give rise to any presumption that the party rejecting the offer should pay the offeror's costs on an indemnity basis if the offeree receives a less favourable result at trial, the effect of r.26.08 is quite different. In particular r.26.08(2) gives rise to an entitlement to an award of costs in favour of a plaintiff on the special basis provided for,"unless the Court otherwise orders". This creates a regulatory presumption permitting costs to be awarded in this manner, subject to the Court being satisfied that special circumstances exist which justify the Court's discretion being exercised in a manner which departs from the Rule. Such circumstances may include, but are not necessarily limited to, considerations as to whether the rejection of the offer was reasonable

15 The service of an offer of compromise, like a Calderbank letter, is a serious step in a proceeding. Rejection of such offers cannot be lightly undertaken.

16 It was submitted by Mr Schlicht, who appeared as counsel for the second defendant that the offer of compromise was not bettered by the plaintiffs at trial. That was because the offer sought, amongst other things, a permanent injunction to which I have referred. That permanent injunction was not ultimately granted at trial. It was put therefore that the result of the trial has been less favourable than the offer and it followed that the terms of r.26.08(2)(b) were not satisfied.

17 However, on a proper construction of the offer of compromise in this case, paragraph 1 was in the alternative to paragraph 2. This was so because if paragraph 2 was acceded to there would have been no purpose in consenting to a permanent injunction in the terms of paragraph 1. The two forms of relief could not work together. This indeed is how I determined the question of relief in the principal proceeding. I denied the grant of a permanent injunction because it would have been totally unnecessary given the order for destruction which was made.

18 Accordingly, looking at the matter in that light, the result of the trial has been no less favourable than the offer, and in those circumstances r.26.08(2)(b) applies. Further, the second defendant has not brought himself outside the operation of the Rule in this case, and I can see no good reason for not applying it. In particular, the second defendant has not established that he acted reasonably in rejecting the offer of compromise, or that any other special circumstances were present which would justify the Court in exercising its discretion in not applying the Rule.

19 As to costs which were incurred prior to 5 March 2010, I see no basis for the Court to order costs on an indemnity basis prior to that time.

20 Reference was made to the well known passage of Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd ("Colgate-Palmolive")[6] where his Honour noted instances where the Court has exercised its discretion in departing from the settled practice that the Court will not usually make an order for the payment of costs on some basis other than the party and party basis. Examples of the exceptions noted by Sheppard J were:

I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152); evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525, Maitland Hospital v Fisher (No. 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal), Crisp v Keng (Supreme Court of New South Wales, 27 September 1993, unreported, Court of Appeal) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

21 In this case it was put that there was a considerable body of evidence provided to the second defendant well prior to trial that the works in question were not authentic and he had ample time therefore to make a decision on the issue as to whether authenticity would be continued to be pressed and to marshal any appropriate evidence against the evidence that he was facing at the trial.

22 However, I do not see anything improper in the conduct of the defence of the second defendant which would justify costs other than on the ordinary basis. He was entitled to challenge the authenticity of the works in question by testing that evidence which was presented at trial, which he did in cross examination of the plaintiffs' witnesses which was undertaken competently through his counsel.

23 He was also entitled to have taken a decision to elect not to give or call evidence in the trial.

24 Accordingly, I do not see any basis for the application of the principles in Colgate-Palmolive such as to justify the award of costs other than on a party/party basis prior to 5 March 2010.

25 I therefore order as follows in relation to costs:

1. The second defendant is to pay the plaintiffs' costs of the proceeding as from 5 March 2010 on an indemnity basis.
2. Otherwise the second defendant is to pay the plaintiffs' costs of the proceeding on a party/party basis including reserved costs.

[1] [2010] VSC 70.

[2] [2005] VSCA 298; [2005] 13 VR 435.

[3] Warren CJ, Maxwell P and Harper AJA.

[5] [2008] VSC 331.

[6] [1993] FCA 536; (1993) 46 FCR 225 at [24].