Calderbank v Calderbank

The Plaintiffs' claim for indemnity costs

1. The Plaintiffs relied on an offer of compromise dated 22 February 2016 made under r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), which provided for judgment for the Plaintiffs in the sum of $74,273.95 plus costs as agreed or as assessed. That offer involved a reduction in the amount claimed, and ultimately recovered, by the Plaintiffs by $30,419.53, and the covering letter noted that r 42.13A of the UCPR would apply as regard costs if the offer of compromise was accepted. That rule provides that, if an offer proposed a judgment in favour of the plaintiff in respect of the claim, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, assessed on an ordinary basis up to the time the offer is made. The Plaintiffs also indicated their intention to rely on that offer in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333 if it was found not to be a valid offer of compromise.
2. In their submissions as to costs, the Plaintiffs sought indemnity costs under UCPR r 20.26 from 23 February 2016 on the basis of their offer of compromise dated 22 February 2016, and noted that their success in the proceedings was a more favourable result than that offered by way of compromise. The Plaintiffs also relied on an affidavit of their solicitor, Mr Andrew Behman dated 18 April 2016, which proved service of the offer of compromise and the absence of a reply to it.
3. Ms Tovey initially submitted that the Plaintiffs' offer of compromise was not an effective offer of compromise as it included costs and she referred to Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311. The Court of Appeal there held that an offer of compromise for the payment of a particular sum which included a statement that the defendant pay the plaintiff's costs as agreed or assessed invalidated an offer of compromise. That decision, however, turned upon the former r 20.26(2) of the UCPR. Counsel properly drew the Court's attention to the amendment to that rule made by the Uniform Civil Procedure Rules (Amendment No 59) 2013 with effect from 7 June 2013. Rule 20.26(2) of the UCPR, as amended, provides that an offer under the rule must not include an amount for costs and must not be expressed to be inclusive of costs.
4. There are several exceptions to the amended rule under UCPR r 20.26(3). The first exception, under UCPR r 20.26(3)(a), is directed to an offer of judgment in favour of the defendant, and is not applicable so far as the Plaintiffs' offer of compromise contemplated judgment for them and not the Defendant. The second exception, under UCPR r 20.26(3)(b), is also not applicable, since the offer contemplated that costs as agreed or as assessed would be paid by the offeree rather than the offeror. The third exception, under r 20.26(3)(c) is also not applicable, so far as the offer was not directed to payment of costs as agreed or assessed out of a specified estate, notional estate or fund. In these circumstances, it does not seem to me that the offer made by the Plaintiffs complied with r 20.26(2) and it therefore cannot take effect as an offer of compromise.
5. The Plaintiffs' offer can, however, take effect as an offer under the principle in Calderbank v Calderbank above, where the covering letter indicated that it would take effect on that basis if it was not effective as an offer of compromise. Ms Tovey correctly submits that, if the offer is treated as a Calderbank offer, no presumption in favour of indemnity costs arises, and something more than a refusal of the offer must be shown. Ms Tovey submits that the Plaintiffs have not shown that the rejection of that offer was unreasonable and that the receipt of a more favourable judgment better than the sum contained in the rejected offer does not, without more, support an award for indemnity costs. Ms Tovey submits that, if costs are ordered under UCPR r 42.34 (which I will address below), costs should be awarded on an ordinary basis only.
6. As Ms Tovey pointed out, the case law establishes that the fact that a party ultimately achieves a worse result than he or she would have achieved if he or she had accepted a Calderbank offer does not itself establish that the other party should be awarded indemnity costs, unless it can be said that it was unreasonable for the first party not to accept that offer, so as to warrant a departure from the general rule as to costs: Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[15]; Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [14], [16]. In Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 1229 at [26], Stevenson J observed that: "If a Calderbank offer is made, but not accepted, the court's discretion to make a special order is enlivened. The court's discretion is an open one, but is commonly enlivened if (a) the party that made the offer achieves a better result than the amount offered, (b) the offer was a genuine offer of compromise, and (c) it was unreasonable of the offeree not to accept: for example Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [7]-[8]."
7. It seems to me that the Plaintiffs' offer in this case involved a genuine element of compromise and the Defendant's rejection of that offer was unreasonable, so as to warrant an order for indemnity costs under the Calderbank principle. That offer involved a substantial discount to the Plaintiffs' claim; the Defendant could and should have recognised, by that time, that the several defences which it ultimately did not press would not be pressed; and it should also have recognised, having regard to the evidence it had led, that its attempt to establish a defence under s 588FG(2) of the Corporations Act was unlikely to succeed, by reason of the matters that ultimately caused it to fail at the hearing, as set out in the principal judgment.
8. For these reasons, I am satisfied that an order for indemnity costs is justified, to take effect from a reasonable time after the making of the offer. In the circumstances, it seems to me that a 14 day period for consideration of the offer should be allowed, and indemnity costs should be allowed from the expiry of that period, subject to the issue as to the application of UCPR r 42.34 which I will now address.

The Defendant's submissions as to choice of Court

1. The Defendant in turn relies on UCPR r 42.34 on the basis that the amount recovered is such that the Plaintiffs will not be permitted costs unless they persuade the Court that an order under the rule is appropriate. That rule provides that: "(1) This rule applies if: (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied that the commencement and continuance of the proceedings in the Supreme Court, rather than the District Court, was warranted."
2. Ms Tovey submits that the Plaintiffs cannot establish that the commencement and continuance of the proceedings in this Court, rather than the District Court, was warranted, the judgment they have obtained is substantially less than the amount of $500,000 referred to in that rule and, Ms Tovey submits, correspondence throughout the proceedings indicates that the Plaintiffs understood their claim to be in the order of $97,628.58, at least if the account between the parties was treated as a running account. Ms Tovey also submits that it was, or should have been, apparent to the Plaintiffs that the proceedings could and should have been commenced in the District Court or the Local Court and that, on that basis, the Plaintiffs are not entitled to their costs of the proceedings.
3. Ms King responds that the commencement of the proceedings in this Court was warranted given its expertise in matters arising under the Corporations Act; that the amount claimed exceeded the jurisdictional limit of the Local Court and the legal costs in running proceedings in this Court and those commenced in the District Court would be comparable; and also submits that the discretion as to costs conferred by s 1335(2) of the Corporations Act would prevail over any limitation imposed by UCPR r 42.34, in the event of any inconsistency. Ms King also submits that the continuation of the proceedings in this Court was warranted where the defence raised issues of substantial complexity including a claim that the Defendant was a secured creditor under the Personal Property Securities Act 2009 (Cth) and a claim for set-off under s 553C of the Corporations Act, the Plaintiffs' response to which occupied a substantial part of the outline of the Plaintiffs' submissions prior to the hearing, although that claim was then abandoned in the Defendant's outline of submissions and at the commencement of the hearing.
4. In his affidavit dated 18 April 2016, the Plaintiffs' solicitor, Mr Behman, also referred to a letter sent by his firm to the Defendant's solicitors dated 25 February 2016, which noted that the proceedings had been commenced in this Court due to its experience in matters arising under the Corporations Act and that the Defendant had not previously objected to the proceedings continuing in this Court, and sought confirmation that the Defendant maintained that position. Mr Behman's evidence was that his firm did not receive a reply to that letter or notice that the Defendant intended to rely on UCPR r 42.34 in opposition to any order for costs. Ms King submits that the Defendant waived any right to object to the proceedings being conducted in this Court by its failure to respond to that letter or to seek to transfer the proceedings under s 1337H of the Corporations Act or to raise any complaint that this Court was not a proper venue for the proceedings.
5. It seems to me possible to, and preferable to, determine this aspect of the application for costs on a narrow basis. Whatever the position at the time the proceedings were commenced, it seems to me that their continuance in this Court was warranted, given the range of the defences which were raised by the Defendant and continued up to the point of written outlines of submissions and the commencement of the hearing. To put that proposition another way, once those defences had been raised, including the issues as to the application of the Personal Property Securities Act and set-off under s 553C of the Corporations Act, it is very likely that this Court would have made an order for transfer of the proceedings to this Court from the District Court, had an application been made for such an order. Where the Court was likely to have made such an order, then it seems to me that the proposition that this Court was an inappropriate jurisdiction for the continuance of the proceedings cannot be sustained.
6. In those circumstances, it is not necessary to express any view as to whether this Court would have been an appropriate Court for a preference claim, in the amount claimed, but for the complexity of the defences raised. It is also not necessary to address the question raised by the Plaintiffs as to the existence of, or effect of, any possible inconsistency between UCPR r 42.34 and s 1335 of the Corporations Act, or the suggestion that the Defendant might be unable to rely on r 42.34 by reason that it had not previously raised any concern as to that matter. I am satisfied that, given the defences that were raised, these proceedings were properly continued in this Court and the Court should make an order that such costs be paid for the purposes of UCPR r 42.34.

Orders

1. Accordingly, the Defendant should pay the Plaintiffs' costs on an ordinary basis up to and including 7 March 2016 and on an indemnity basis from 8 March 2016.

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