District Court of WA|2018-02-06|Before: Mr P

STRZELECKI HOLDINGS PTY LTD -v- JORGENSEN [No 4] [2018] WADC 19 (6 February 2018)

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA

CITATION : STRZELECKI HOLDINGS PTY LTD -v- JORGENSEN [No 4] [2018] WADC 19

Practice and procedure - Costs - Impact of Calderbank offers

Strzelecki pay two thirds of the Jorgensens' costs (including reserved costs) of the action from commencement to 15 October 2013 to be taxed if not agreed

Thereafter Strzelecki pay the Jorgensens' costs of the action (including reserved costs) on an indemnity basis to be taxed if not agreed

Plaintiff : Mr M N Solomon SC with Mr P Van der Zanden

Calderbank v Calderbank [1975] 3 All ER 333

Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115

Jones v Bradley (No 2) [2003] NSWCA 258

Leichhardt Municipal Council v Green [2004] NSWCA 341

Leros Pty Ltd v Terara Pty Ltd [1992] HCA 22; (1992) 174 CLR 407

Mckay v Commissioner of Main Roads [No 7] [2011] WASC 223

SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323

1 EATON DCJ: In this judgment, concerning the costs of an action in this court, I will refer to the plaintiff, Strzelecki Holdings Pty Ltd, as 'Strzelecki' and to the defendants, Mr and Mrs Jorgensen, as 'the Jorgensens'.

2 By an agreement in writing dated 7 May 2007 the Jorgensens agreed to purchase from Strzelecki Apartment 14 at a complex called Oceanic Retreat in Mandurah for $650,000. It stipulated that a deposit of $65,000 was to be paid within 30 days by the Jorgensens to be held in the Century 21 Trust Account. The deposit was paid in accordance with the agreement. The apartment, not then built, was purchased 'off the plans'. The offer was a cash offer. The balance of the purchase price was to be paid on settlement.

3 The apartment complex was built but the contract for the sale of Apartment 14 was never settled due to the parties to it falling into dispute. That dispute led to the action commenced by Strzelecki. It was the subject of a trial in this court which commenced on 11 August 2014 and concluded, following several adjournments, with judgment being reserved on 18 June 2015. I was the trial judge. Judgment was delivered on 30 September 2015.

4 The pleadings comprised Strzelecki's statement of claim, the Jorgensens' defence and counterclaim and Strzelecki's reply and defence to counterclaim. I dismissed Strzelecki's claim and allowed the Jorgensens' counterclaim.

5 In closing submissions at trial the Jorgensens sought orders dismissing Strzelecki's claim, allowing their counterclaim, a declaration that the contract between the parties was avoided, that their deposit pursuant to that contract be returned to them with interest and that Strzelecki pay their costs of the action to be taxed and allowed without regard to the limit imposed by item 17 of the relevant scale and with an allowance for transcript, such costs to be taxed if not agreed.

6 In the final paragraph of my judgment I indicated that I was prepared to make orders along those lines except as to the matter of costs. I would hear counsel for the parties in that regard.

7 In broad terms, on 30 September 2015 I made orders as to principal relief as sought by the Jorgensens and adjourned to allow the parties to make submissions as to costs. In that regard, I made orders for the filing and service of affidavits and submissions.

8 Strzelecki appealed the judgment. It was heard in the Court of Appeal on 18 August 2016. Judgment on the appeal was delivered on 25 October 2016. The appeal was dismissed.

9 The costs of the action are now in dispute. The Jorgensens seek the following orders:

Strzelecki pay the Jorgensens' costs of the proceedings, including any reserved costs, to be taxed and allowed without regard to the limits imposed by item 17 of the scale and with an allowance for transcript, such costs to be taxed, if not agreed, up to 11 October 2013 (or from such other date as the court deems appropriate);
Strzelecki pay the Jorgensens' costs, including any reserved costs on an indemnity basis from 11 October 2013 onwards (or from such other date as the court deems appropriate); and
alternatively to 1 and 2, Strzelecki pay the Jorgensens' costs of the proceedings, including any reserved costs to be taxed and allowed without regard to the limits imposed by items 3(b) and 3(c), 17, 20(a) and 20(c) of the scale and with an allowance for transcript.

10 Strzelecki, in written submissions filed prior to the hearing as to costs, sought an order that the Jorgensens pay 50% of Strzelecki's costs of the action, including any reserved costs and with an allowance for transcript to be taxed if not agreed.

11 To assist me in determining the issue of costs I have the following:

the Jorgensens' written outline of submissions as to costs dated 8 March 2017;
Strzelecki's written outline of submissions as to costs dated 1 May 2017;
the Jorgensens' written outline of submissions dated 16 May 2017 in response to Strzelecki's outline;
an affidavit sworn by Bernard Arthur John Cummins on 8 March 2017; and
the Jorgensens' book of relevant documents dated 6 August 2014.

12 On 27 July 2017, at the hearing as to costs, Mr Solomon SC, counsel for Strzelecki, advised as follows:

I've relooked at the submissions in [sic] the authorities and am not going to argue this morning that the defendant should pay the plaintiff's costs. I think the proper application of the principles in these circumstances is possibly that each party bear their own costs for the reasons I'll advance. But I think the real fairness would be done for reasons I'll advance in my principal submissions, if there were no costs up to 14 February 2014, that is that the plaintiff not be required to pay the defendants' costs notwithstanding its victory to 14 February 2014 ... that was the date on which the amendment was made in respect of which the matter was successful.

13 In broad terms, that is a reference to the judgment of the Court of Appeal. At [3] of the judgment the court said:

Therefore, while Strzelecki has established a number of its grounds of appeal concerning other aspects of the trial judge's reasoning, it has not succeeded in impugning the primary court's orders. Strzelecki's appeal against those orders must be dismissed.

14 In the appeal ground 10 contended that I had erred in concluding that on a proper construction of the Strata Titles Act 1985 ('the Act') a failure by Strzelecki to comply with the obligation to give notice under s 69C of that Act, of itself, precluded Strzelecki from exercising its right to terminate the contract. The Court of Appeal held (at [110]) that Strzelecki's purported termination of the contract did not, as a matter of law, extinguish the Jorgensens' statutory right to avoid the contract. From the point when that right was exercised, the Jorgensens ceased to be liable to pay the damages claimed by Strzelecki for breach of the terms of the contract. Under s 69E of the Act the Jorgensens became entitled to the return of their deposit.

15 It followed that ground 10 of the appeal failed. In consequence, the appeal failed.

16 Returning to the matter of costs and Strzelecki's position at the hearing, Mr Solomon SC submitted at the outset that, as from 14 February 2014 Strzelecki should be required to pay 25% of the Jorgensens' costs.

17 Order 66 r 1(1) of the Rules of the Supreme Court 1971 provides that subject to the express provisions of any statute and of these rules the costs of and incidental to all proceedings shall be in the discretion of the court but, without limiting the general discretion conferred on the court by an act or the terms of O 66, the court will generally order that the successful party to any action or matter recover his costs.

18 Order 66 r 1(2) provides that if the court is of the opinion that the conduct of a party either before or after the commencement of the litigation has resulted in costs being unnecessarily or unreasonably incurred it may deprive that party of costs wholly or in part and may further order him to pay the costs of an unsuccessful party either wholly or in part.

19 Order 66 r 1(3) provides that where a party, though generally successful in an action, has, by the introduction of some issue or issues on which he has failed, increased the costs the court may order such party to pay the costs of such issue or issues.

20 Strzelecki, in its written submissions, and in oral submissions made by counsel, emphasises the latter.

21 Reference is also made by Strzelecki to O 66 r 2(a) which provides that in the absence of any special order, where the statement of claim contains more than one cause of action and the plaintiff succeeds on one or more causes of action and the defendant succeeds on another or others, costs shall be allowed to the plaintiff on the cause or causes of action which he succeeds and to the defendant on that or those on which he succeeds, in the same manner as if separate actions had been brought.

22 The usual rule as to costs is that costs follow the event unless the court considers that some other order ought to be made.

23 A Calderbank offer may be the reason for making some other order.

24 Such an offer is typically in writing and expressed to be without prejudice save as to the question of costs accompanied by information that his letter will be adduced into evidence on the question of costs. There are two potential consequences when the Calderbank offer proves to be more generous than the judgment. The first is that the court allows the offeree costs up to the date of the offer or shortly thereafter but then may order the offeree to pay the offeror's costs after that date. The second relates to allowing the offeror those costs quantified on an indemnity basis as opposed to the usual party and party basis. The consequences of a Calderbank offer rest entirely on the court's discretion. (See GE Dal Pont, Law of Costs, 3rd ed, pars 13.59 - 13.60).

The making of a Calderbank offer does not automatically result in a favourable costs order, notwithstanding that the judgment is more favourable to the party making the offer than the terms of the offer. The court must be satisfied that some other order than costs follow the event is justified: (SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Jones v Bradley (No 2) [2003] NSWCA 258; Leichhardt Municipal Council v Green [2004] NSWCA 341).

25 Generally, as to Calderbank offers, in Mckay v Commissioner of Main Roads [No 7] [2011] WASC 223 Beech J said [93] - [94]:

Calderbank offers are informal offers made on terms expressed to be without prejudice save as to costs. A Calderbank offer can be considered as a relevant factor in the exercise of the costs discretion: Dobb v Hacket (1993) 10 WAR 532, 540; Duvall v Godfrey Virtue & Co (a firm) [2001] WASCA 163 [6] [7]; Den Hoedt & Anor v Barwick [2006] WASCA 196 [112] [113]. There are numerous appellate decisions in other States to the same effect.

The court's approach takes into account the private and public benefits of encouraging reasonable settlements, including possible costs consequences for the party rejecting the offer: Dobb v Hacket (540); Grabavac v Hart [1996] VSC 37; [1997] VR 154, 165; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 [7]. The policy of encouraging reasonable settlement of an action is a factor in the exercise of discretion on costs.

26 His Honour went on to note that Calderbank offers may be used in support of an application for indemnity costs or for an order that the offeree pay the offeror's costs on a party/party basis. At [102] he noted that a Calderbank offer in an amount that exceeds the judgment sum does not give rise to a presumptive entitlement to indemnity costs. The assessment of the unreasonableness of the rejection of a Calderbank offer is to be made at the time that the offer is considered and without the benefit of hindsight. The issue of unreasonableness is not to be undermined by adopting a judgment sum as a yardstick.

27 His Honour (at [174]) expressed the view that the policy of the law of encouraging settlement of actions supports giving significant weight to the exercise of the costs discretion where a Calderbank offer has been made.

28 In Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115 Buss JA set out the relevant principles regarding an award of indemnity costs. He said [16] - [17]:

A Calderbank offer will not justify an award of costs unless its rejection is unreasonable.

All of the relevant circumstances and facts must be considered in determining whether a party's rejection of a Calderbank offer was unreasonable. The mere fact that the recipient of a Calderbank offer is ultimately worse off than he or she would have been had the offer been accepted does not mean that its rejection was unreasonable.

29 At [19] his Honour referred to the following factors as being important when judging the reasonableness of rejection of a Calderbank offer. They were:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed; and

(f) whether the offer foreshadowed an application for indemnity costs in the event of a the offeree's rejection of it.

30 Strzelecki sued the Jorgensens in this court when it filed a writ of summons on 1 June 2011. Strzelecki pleaded that, as vendor in a contract for the sale of an apartment to the Jorgensens, it had, by notice of default dated 1 April 2011 given notice to the Jorgensens that they were in default under the contract and that, in the event of failure to complete their purchase within 10 days, Strzelecki would forfeit the deposit paid by the Jorgensens, sue them for damages and re-sell the apartment. By way of relief Strzelecki sought a declaration that it was entitled to payment of the deposit, with all interest accrued, damages and interest thereon and costs on an indemnity basis pursuant to the contract, including costs incurred prior to the commencement of the action.

31 In their defence the Jorgensens pleaded that there were initial meetings with Strzelecki's agent in March and April 2007 during which certain representations were made to them, including a representation that the apartment complex would be exclusively occupied by tourists and/or short-stay residents and that Strzelecki would not sell to a purchaser who intended to occupy as a permanent resident.

32 The Jorgensens relied upon contentions of express and implied terms and collateral contract. They also relied upon a range of pleaded causes of action, which I need not detail.

33 By way of counterclaim they sought a declaration that the contract had been set aside or was void and unenforceable, return of their deposit, damages for breach of contract and/or for breach of collateral contract and a permanent injunction restraining Strzelecki.

34 In its reply and defence to counterclaim Strzelecki joined issue with the Jorgensens in the various contentions and claims.

35 In August 2011 Strzelecki applied for summary judgment. That application was dismissed with costs to the Jorgensens by order of a registrar on 10 November 2011. Strzelecki filed a Notice of Appeal as to the matter of costs. That issue was resolved by orders made by a judge on 1 February 2012.

36 On 26 March 2012 the action was included in the Inactive Cases List. On 29 November 2012 a registrar ordered that:

Strzelecki's action, having been on the inactive cases list for six continuous months, be dismissed as of 18 September 2012; and
Strzelecki pay the Jorgensens' costs of the action and of certain interlocutory events.

37 On 26 July 2013 Judge Staude allowed the appeal. The matter was listed for a Case Management Hearing.

38 There were, along the way, numerous interlocutory hearings and steps taken.

39 On 14 February 2014 the Jorgensens filed a re-amended defence and counterclaim. Paragraph 16 in that pleading alleged that on 12 November 2010 Strzelecki had lodged for registration with Landgate a strata plan with respect to the apartment complex which varied the preliminary strata plan. The Jorgensens pleaded that Strzelecki was obliged, pursuant to s 69C of the Act to provide notice in writing to the Jorgensens of full particulars of any notifiable variations including to the effect that the preliminary strata plan was proposed to be varied in a material particular.

40 The Jorgensens pleaded that pursuant to s 69D of the Act they were entitled, if Strzelecki failed to give them information that substantially complied with s 69C, to avoid the contract by notice in writing given before settlement.

41 The Jorgensens pleaded, in their amendment, that in breach of its obligations under s 69C of the Act, Strzelecki failed to give them notice of its lodging of the strata plan referred to for registration with Landgate. They were, they pleaded, entitled to avoid the contract by notice in writing given before settlement. Particulars were provided. They were entitled to the return, they pleaded, of their deposit.

42 Reference was made in par 19B of the amendment of a failure to give notice in writing of a notifiable variation relating to the removal or deletion from common areas of car bays.

43 In summarising its judgment the Court of Appeal said:

In 2007 the respondents, Mr and Mrs Jorgensen, entered into a contract with the appellant, Strzelecki Holdings Pty Ltd, for the purchase of a proposed strata titled apartment 'off the plan'. The registered strata plan differed in a material particular from the strata plan proposed by the contract, in that the area of common property shown on the registered strata plan was reduced by 266 square metres. There was no dispute that this was a notifiable variation within the meaning of s 69C of the Strata Titles Act 1985 and that Strzelecki was required to inform the Jorgensens of that notifiable variation. When Strzelecki failed to do so, s 69D (1) of the Act gave the Jorgensens a right to avoid the contract.

Before the Jorgensens exercised their right to avoid the contract, Strzelecki terminated the contract for the Jorgensens 'failure to settle the sale of the apartment within the contractually stipulated time'. However, that termination did not extinguish the Jorgensens' statutory right to avoid the contract, which they subsequently exercised. On this basis, the trial Judge correctly dismissed Strzelecki's claim for damages for breach of contract and declared that the Jorgensens had avoided the contract and were entitled to a return of their deposit.

44 It is clear that the amendment of 14 February 2014 was crucial to the success of the Jorgensens both at trial and on appeal.

45 The relevant part of the Act deals with notifiable information which must be provided by a vendor to a purchaser of a strata title lot. Section 69C of the Act deals with notifiable variations to a strata plan. It requires that a vendor under a contract to sell a lot or proposed lot shall, by notice in writing given to the purchaser, inform the purchaser of full particulars of any notifiable variation. Such notice must be provided as soon as the vendor becomes aware of the variation.

46 By s 69D of the Act, where a vendor who has failed to give a purchaser information that substantially complies with s 69 or s 69C, at the time required by the section, the purchaser has a right to avoid the contract by notice in writing given to the vendor before the settlement of the contract.

47 If a vendor does give to a purchaser information that substantially complies with s 69C at the required time and the purchaser has been materially prejudiced (proof of which lies on the purchaser) by any matter referred to in the notice (and has not agreed to be bound by that matter) the purchaser has a right to avoid the contract by notice in writing given to the vendor within seven working days after the information was given.

48 In oral submissions before me Mr Solomon SC made reference to a concession made on behalf of Strzelecki in the Court of Appeal to the effect that the matter of the car bays was a notifiable variation. He said that Strzelecki maintained its position that because its determination of the contract was valid the statutory right which would have been available to the Jorgensens had been extinguished.

49 Had Strzelecki complied with the provisions of the Act, the Jorgensens would have, at their election, the opportunity of proving material prejudice and that they had not agreed to be bound in that regard. Dependent upon those contingencies, the Jorgensens would have a right to avoid the contract by notice in writing given to Strzelecki within seven working days of the information being given.

50 While in default, under the provisions of the Act, Strzelecki took steps to terminate the contract on the basis of the Jorgensens' alleged fault, being their failure to settle the purchase of Apartment 14 within time.

51 The action was commenced by Strzelecki in those circumstances within weeks of the Jorgensens' alleged default. The Jorgensens responded with a defence and counterclaim.

52 They contend that they acted reasonably in raising various defences in that they were reasonably arguable according to law and on the evidence adduced at trial. Conversely, they submit, they did not act unreasonably in maintaining any of their various defences to the claims made by Strzelecki in prosecuting their counterclaim.

53 In oral submissions before me Mr Solomon SC, for Strzelecki, did not argue that the various issues raised from the outset by the Jorgensens in their defence and counterclaim were raised unreasonably or improperly. He submits just that they were unsuccessful on those issues and that Strzelecki should have the costs of them. He points to the degree to which those issues dominated the trial.

54 In par 50 of its written submissions Strzelecki correctly notes that the change to the common areas was first raised by the Jorgensens in their re-amended defence and counterclaim filed 21 February 2014. At that point the action had been listed for trial. Strzelecki submits:

In the circumstances the Jorgensens cannot claim for costs prior to this time.

55 The flaw in this contention is obvious. Strzelecki had certain obligations as a vendor under the Act. Had it complied with the requirements of the Act, the variation to the common areas relating to car bays may well have provided the Jorgensens with a basis for avoiding the contract. Of course, the Act cast the onus on them, in such circumstances, to prove that they were materially prejudiced by the variation and not bound as a matter of contract.

56 It was the case that, following formation of the contract to purchase Apartment 14, there was a significant slump in the Mandurah real estate market. The value of Apartment 14 was much less than the purchase price agreed to by the Jorgensens. Marketing all apartments in the complex was more difficult than it had been before the slump. In consequence Strzelecki was keen to hold on to those 'off the plan' contracts entered into prior to the downturn. On the other hand, the Jorgensens were aware of the change in the market and the dramatic fall in the value of Apartment 14.

57 Perhaps, in such circumstances, Strzelecki was reluctant to create a situation where a purchaser under contract might be lost. Certainly, the downturn in the market after the Jorgensens had agreed to purchase played a role in events as they unfolded.

58 Had Strzelecki complied with its obligations under the Act the Jorgensens may well have taken steps to avoid the contract. The fact is that Strzelecki did not comply with its obligations, purported to terminate the contract by reason of the Jorgensens alleged default and commenced action in this court which ultimately failed by reason of its own failure to comply with the law.

59 Mr Solomon SC, in his oral submissions before me, made the telling point that the amendments which raised the issue of notifiable variations were not made until February 2014, some years after the commencement of the action. It is true, as he said, that, at the trial, a substantial part of the pleadings, evidence and argument concerned the hotly contested issue of whether there was a representation made to the Jorgensens that the apartment complex would only be marketed as (and sold to prospective purchasers as) short-term and/or tourist accommodation, in other words, not for permanent occupation by purchasers.

60 As mentioned, among the papers provided to me to determine the matter of costs is an affidavit sworn by Bernard Arthur John Cummins on 8 March 2017. At the hearing Mr Solomon SC raised objection to passages of the affidavit which, he submitted, 'disclosed things that occurred at pre-trial conferences'. In particular, he referred me to the following passage in par 6:

From those attendances I can depose without disclosing any detail of the matters discussed that the issues in these proceedings are well-known to both sides and they were extensively ventilated.

61 Mr Solomon SC submitted that the passage quoted was evidence to what was done at the pre-trial conference.

62 He referred also to the following passage from par 14:

Despite a lengthy airing of the issues and the argument advanced by each party, the matter failed to settle and procedural orders were made to advance the action towards a trial.

63 I dismissed the objections to those passages. They are, in each case broadly descriptive. I would expect that, at a pre-trial conference, the issues in the proceedings would be well known to all parties and be extensively ventilated. Equally, it is not uncommon for pre-trial conferences to involve a lengthy airing of the issues without matters being settled. Neither of the passages complained of descend into the substance of the negotiations.

64 Bernard Arthur John Cummins was, at the time of swearing his affidavit, a solicitor in the employ of Murcia Pestell Hillard, solicitors for the Jorgensens for a substantial part of the litigation. In that time the deponent had substantial care and control of the matter for his clients.

65 He annexes the following documents to his affidavit:

a letter written by the Jorgensens' solicitors to Strzelecki's solicitors dated 11 October 2013 marked 'without prejudice save as to costs';
an email dated 11 October 2013 sent to the Jorgensens' solicitors by one Andrew Thorpe, described as 'Director of Legal Services' for Strzelecki;
a letter written by the Jorgensens' solicitors to Strzelecki's solicitors dated 14 October 2013 and marked 'without prejudice save as to costs';
a letter written by the Jorgensens' solicitors to Strzelecki's solicitors dated 16 October 2013 marked 'without prejudice save as to costs';
a letter written by Strzelecki's solicitors to the Jorgensens' solicitors dated 16 October 2013 marked 'without prejudice as to costs';
a letter written by the Jorgensens' solicitors to Strzelecki's solicitors dated 10 July 2014 marked 'without prejudice save as to costs';
a further letter written by the Jorgensens' solicitors to Strzelecki's solicitors dated 10 July 2014 marked 'without prejudice save as to costs';
a letter written by Strzelecki's solicitors to the Jorgensens' solicitors dated 11 September 2014 marked 'without prejudice save as to costs'; and
a letter written by the Jorgensens' solicitors to Strzelecki's solicitors dated 10 March 2015 marked 'without prejudice save as to costs'.

66 The letter of 11 October 2013 written by the Jorgensens' solicitors to Strzelecki's solicitors was in advance of a pre-trial conference listed for 15 October 2013. It contained a proposal to settle the litigation. Importantly, it contained the following passage:

More particularly, our clients are confident that they will establish they were entitled to avoid the contract for purchase as a result of your client's breach of s 69D (1) and (2) of the Strata Titles Act. Your client failed to inform our clients of the variation to the proposed strata plan by the endorsement of a substantive change to the permitted use of the apartments within the development and, more specifically, failed to inform our clients of that proposed variation 'as soon as the vendor [your client] became aware of the variation' to the proposed plan.

67 The importance of the foregoing passage is the reference to Strzelecki's obligations as vendors under the Act and its alleged failure to comply with those obligations.

68 The proposal was put in writing prior to the pre-trial conference on the basis that it would be presented at the conference if it eventuated. Andrew Thorpe, for Strzelecki, replied by email that day that the offer was rejected and added:

Unless a rational offer is put at next week's pre-trial conference this matter will go to trial.

69 Notwithstanding that rebuff, the Jorgensens' solicitors wrote again to Strzelecki's solicitors on 14 August 2013, one day prior to the pre-trial conference, referring to the matter of Leros Pty Ltd v Terara Pty Ltd [1992] HCA 22; (1992) 174 CLR 407 and urging further consideration of the Jorgensens' offer.

70 The issues between the parties were not resolved at the pre-trial conference. On the following day the Jorgensens' solicitors wrote again to Strzelecki's solicitors offering $81,120.96 by consenting to the release of the deposit money held by a settlement agent to Strzelecki. That payment would be 'in full and final settlement of each party's claims against the other in the action'.

71 The letter concluded that the offer was made pursuant to the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333. It indicated that, if the matter proceeded to trial and the Jorgensens prevailed, the letter would be produced to the court in support of an application for costs on an indemnity basis from the date of the letter. The offer was to remain open for a period of 14 days. Time, in that regard, was 'of the essence'.

72 On the same day, in writing, Strzelecki's solicitors rejected the offer and counter-offered. The substance of the counter-offer was that the Jorgensens would pay Strzelecki $250,000 by bank cheque within 28 days or upon delivery of an executed deed of settlement and release prepared by Strzelecki's solicitors. The letter referred to the principles in Calderbank. It advised that if Strzelecki was successful in obtaining a judgment in damages in an amount greater than or equal to $225,000 it would produce the letter in the context of an application for indemnity costs on the basis of the Jorgensens' unreasonable rejection of the offer.

73 By letter of 10 July 2014 the Jorgensens' solicitors wrote to Strzelecki's solicitors with a further proposal for settlement on the basis that they would cause their superannuation fund to enter into an agreement to purchase Apartment 14 in the apartment complex from Strzelecki for $385,000 to be paid by applying the deposit and accrued interest held by the settlement agent (amounting to approximately $82,000) and their superannuation fund paying the balance. There were other terms proposed which need not be detailed. The proposal was made on the basis that the claim, defence and counterclaim, be dismissed with no order as to costs and with any outstanding costs orders being vacated. The offer was to remain open for a period of seven days. The principles of Calderbank were invoked.

74 On the same date Strzelecki's solicitors replied rejecting the offer. The letter included the following passage:

On the basis that in our view, your client would be best advised to compromise this action to avoid a potentially crippling judgment, our client offers to settle by accepting payment of damages by your client of the difference between the contract price and your client's current valuation of $415,000 i.e. $235,000 but further reduced to $225,000.

75 Accordingly, as proposed, the settlement sum would be $225,000 payable within 28 days or upon delivery of an executed deed of settlement and release prepared by Strzelecki's solicitors to include mutual releases and obligations of confidentiality. The proposal included that the action and counterclaim be dismissed with no order as to costs and that any unpaid costs orders be vacated. Again, the principles of Calderbank were invoked. The letter would be disclosed in the context of an application for indemnity costs in the event of the offer not being accepted.

76 Strzelecki made a further Calderbank offer by letter of 11 September 2014. It placed emphasis on the probability that the Jorgensens would emerge from the trial with a judgment against them in the order of $520,000. Accordingly, Strzelecki was prepared to settle on the basis that the Jorgensens would pay $385,000 within 28 days of the delivery of an executed deed of settlement and release prepared by Strzelecki's solicitors. It would include mutual releases and obligations of confidentiality. Again, it was proposed that the claim and counterclaim would be dismissed with no order as to costs and that all unpaid costs orders would be vacated. Reference was again made to the principles in Calderbank and to a potential claim for indemnity costs in the event of a failure to accept.

77 On 10 March 2015 the Jorgensens' solicitors wrote again to Strzelecki's solicitors advancing two proposals by way of settlement of the action. The first involved, in effect, forfeiture of the deposit paid by them and accrued interest (which then stood at about $90,000) and pay a further sum of $60,000 on the basis that their superannuation fund would acquire Apartment 14 in the apartment complex and manage that apartment.

78 The second proposal contemplated that the deposit would be released to the Jorgensens and that Strzelecki paid to them the sum of $150,000 on the basis of a deed of settlement and release.

79 That offer, marked 'without prejudice save as to costs', was rejected.

81 In the first of the offers made by the Jorgensens on 11 October 2013, as mentioned, reference was made to the prospect that they would establish that 'they were entitled to avoid the contract for purchase as a result of your client's breach of s 69D(1) and (2) of the Strata Titles Act'. The proposal advanced by them was that they would cause their superannuation fund to enter into an agreement to purchase from Strzelecki unit 7 in the same apartment complex for $250,000. They proposed that that amount be paid by applying the deposit paid and interest accrued thereon in respect of unit 14 in that complex with the balance of the purchase price, being approximately $170,000, being paid by the Jorgensens' superannuation fund.

82 The Jorgensens proposed that settlement of their superannuation fund's purchase of unit 7 in the complex take place within 10 days of an agreement on that basis being concluded by the parties, that their superannuation fund be entitled to manage unit 7, that the parties agree to maintain strict confidentiality as to the terms of the settlement, that the parties agree to take all steps and execute all documents as may be necessary to give effect to the settlement and that the proceedings, including the defence and counterclaim, be dismissed with no order as to costs. Any outstanding costs orders would be vacated.

83 As mentioned, Mr Thorpe on behalf of Strzelecki rejected the proposed settlement in the briefest of terms.

84 There followed an unsuccessful pre-trial conference. Following the conference the Jorgensens made further offers on differing terms. All came to nothing.

85 Importantly, immediately before and immediately after the pre-trial conference, had their offers been accepted, Strzelecki would have benefited by the payment of substantial sums of money either by the Jorgensens or at their direction. In pursuing its claim for damages, Strzelecki ran the risk of failing in its action. It ultimately did so. The Jorgensens did raise issues on which they were ultimately unsuccessful. Those issues were not, however, improperly or unreasonably raised.

86 Was it reasonable for Strzelecki, in all of the circumstances, to reject the Jorgensens' Calderbank offers? I return to the factors referred to by Buss JA in Ford Motor Company of Australia Limited v Lo Presti.

87 The offers were made in mid-October 2013, well prior to the commencement of the trial in August 2014. In terms of the time allowed to Strzelecki to consider the offers, the first two were made just before and just after, respectively, the pre-trial conference of 15 October 2013. The offer made on the day following the pre-trial conference was specifically made pursuant to the principles in Calderbank and was open for acceptance for a period of 14 days from the date of the letter. That was, in my view, ample time allowed to Strzelecki to consider the offer.

88 The first offer made was, in my view, a substantial compromise on the part of the Jorgensens in that it related to the purchase of a different unit in the apartment complex by them or by an entity associated with them. The second involved, effectively, a forfeiture of the deposit paid by them in respect of unit 14. Both offers were offers of substance.

89 The letter of 11 October 2013 written by the Jorgensens' solicitors to Strzelecki's solicitors specifically raised the matter of Strzelecki's obligations under s 69D(1) and s 69D(2) of the Act. It was, by reason of Strzelecki's failure to abide by its obligations in that regard, that the action failed. Given that there had been a notifiable variation not brought to the Jorgensens' attention, that issue should have been particularly poignant for Strzelecki. Its prospects of success should have, in the light of the content of the letter of 11 October 2013 been reassessed. Instead, the offer was rejected as not being 'rational'.

90 The offers made both before and after the pre-trial conference were clearly expressed. The first was marked 'without prejudice save as to costs'.

91 The letter of 14 October 2013 written by the Jorgensens' solicitors on the day prior to the pre-trial conference is similarly marked and includes the following passage:

3.1.2 Even if entirely successful in proceedings, a party does not recover all its costs actually incurred. Our experience is that the level of shortfall is significant in the District Court. That is particularly so where there has been substantial costs incurred in pre-trial and interlocutory matters. The recovery can be significant (less than 60%). In this matter, the parties have each already incurred substantial costs, a significant proportion of which will be irrecoverable. Further, the parties are about to incur further substantial costs in preparing for and in undertaking the trial, once again there will be a shortfall between the costs incurred by the successful party and those recovered on any assessment or taxation. The shortfall requires parties to give careful consideration to settlement be it structured or otherwise.

3.1.3 Neither our clients nor your clients are professional litigators. The negative cash flow incurred in paying legal costs, in respect of your client, a flow away from core business activity and in our clients' case, is a flow away from retirement payments or a depletion in retirement funds.

3.1.4 It is usual that a structured settlement which delivers some potential benefits to all parties - even though they may consider that if they went to trial they would achieve a better outcome - has better prospects of achieving a settlement rather than where parties seek to press for outcomes which deliver no benefit to the party or both parties receive no benefit.

92 While that letter makes no specific reference of an application for indemnity costs in the event of the offeree's rejection of the offer, it is a very clear statement of the pitfalls of litigation and of the likely consequence that party and party costs will be substantially less than costs otherwise outlaid by the parties.

93 The next letter, written two days later, specifically raises the issue of indemnity costs.

94 As to the letters of 11 October 2013, Strzelecki, in written submissions, makes the point that the reference to the provisions of the Act to notifiable variations did not specifically refer to the car bays and the failure to give notice to the Jorgensens in that regard. Offers of settlement are not pleadings. The reference to the provisions of the Act and to the vendor's obligations in that regard in the context of an offer to settle is significant because it squarely raised a matter, albeit not then pleaded, which was of some consequence.

95 Mr Solomon SC, for Strzelecki, emphasised the various issues raised by the Jorgensens in their response to Strzelecki's claim against them. It was the tourist/short-stay representation issue, ultimately unsuccessful, which dominated much of the pleadings and the trial.

96 In G E Dal Pont, Law of Costs (3rd ed) at [8.7] the author said:

In approaching apportionment of costs a court must strike a balance between not discouraging litigants from canvassing all material issues and not rewarding them for unreasonable conduct in the pursuit of issues. Consistent with this balancing act, there is no fixed rule, only discretion; the court in each case seeks to achieve the outcome most consonant with the justice of each case. In particular, courts have warned of the difficulty of revisiting each issue and tallying who 'wins 'and who 'loses', a concern being that a just and equitable decision on the question of costs is not reached simply as a matter of arithmetic.

97 At [8.9] of that work the author notes that in certain cases there may be a different approach as between plaintiff and defendant. For example, where a plaintiff makes unnecessary and unfounded claims, that plaintiff may be penalised in costs. The rationale for such a differential is that a defendant has little choice, short of settlement or capitulation but to defend the plaintiff's claim. A defendant who proves substantially successful in defending an action should not be penalised in costs on issues on which the defendant failed to the same extent as the plaintiff, who elected to sue.

98 I do not suggest that Strzelecki, in commencing the litigation, were making unnecessary or unfounded claims, but this is clearly a case where the Jorgensens were faced with a 'crippling' judgment in the event they did not defend the action. They were clearly unwilling litigators and made a number of attempts to settle the litigation on terms that were either beneficial to both parties or just to Strzelecki. The latter rejected all offers and elected to pursue its damages claim. In oral submissions before me Mr Solomon SC said:

Now, in plain terms, there is absolutely no evidence that we knew. Your Honour must proceed, with respect, on the basis that we may not have known that there was an adjustment which required us to give us (?) a notice ... This trial did not concern knowledge or motive in relation to the giving of notice ... .

99 The relevant sections of the Act are part of pt V entitled 'Protection of Purchasers'. The Jorgensens were purchasers. It is true that s 69C of the Act provides that a vendor under a contract to sell a lot or proposed lot shall by notice in writing given to the purchaser informing the purchaser of full particulars of any notifiable variation and that the obligation arises as soon as the vendor becomes aware of the variation.

100 The protection of purchasers 'off the plans' who might not know of the existence of a notifiable variation if they are not notified requires a degree of diligence on the part of vendors who are in a position to know of a notifiable variation. The concession made by Strzelecki in the Court of Appeal is important as to the notifiable variation because of the imbalance as between vendor and purchaser in such circumstances, an imbalance recognized in pt V of the Act.

101 In this matter it is perhaps true, as Mr Solomon SC said 'that there is absolutely no evidence that we knew' but that is not to the point. There was a failure on the part of Strzelecki to comply with its obligations under the Act. That failure gave rise to a right to avoid the contract. Putting aside the question of who knew what and when, Strzelecki, having indicated in writing to the Jorgensens that it was 'ready, willing and able to settle' purported to terminate the contract and sued them for forfeiture of the deposit and damages. Strzelecki then rejected all of the Jorgensens' attempts to compromise.

102 In all of the circumstances it is my view that there should be an order that Strzelecki pay two thirds of the Jorgensens' costs (including reserved costs) of the action from commencement to 15 October 2013 to be taxed if not agreed and that, thereafter, Strzelecki pay the Jorgensens' costs of the action (including reserved costs) on an indemnity basis to be taxed if not agreed.

103 The Jorgensens seek special orders pursuant to s 280(2) of the Legal Profession Act 2008. It provides that if a judicial officer is of the opinion that the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter, the court or officer may do all or any of the following:

(a) order the payment of costs above those fixed by the determination;

(b) fix higher limits of costs than those fixed in the determination;

(d) make any order or give any direction for the purposes of enabling costs above those in the determination to be ordered or assessed.

104 In written submissions Strzelecki concedes that there was 'ultimately some complexity' but not arising from the issues which absorbed the time of the parties and the court during the course of the action and the trial.

105 This was a lengthy trial. It was originally listed for three days. Those days were occupied by counsel in opening addresses. The subject matter substantially related to the law of contract and evidence as to the contract. The aspect of the matter which concerned the Act and the protection of purchasers was of some importance and complexity. It is the case that those issues played no part in the litigation until mentioned in an offer made by the Jorgensens immediately prior to the pre-trial conference of 15 October 2013. Thereafter they began to loom large.

106 I decline to make a special order as to costs for the period from commencement to 15 October 2013.

Calderbank v Calderbank

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (150 paragraphs)

STRZELECKI HOLDINGS PTY LTD -v- JORGENSEN [No 4] [2018] WADC 19 (6 February 2018)

STRZELECKI HOLDINGS PTY LTD -v- JORGENSEN [No 4] [2018] WADC 19 (6 February 2018)

Parties

Legislation Cited (2)

Cases Cited (2)