Calderbank v Calderbank

Variation application

1. On 20 June 2022 the solicitor for the defendant, Mr Reidy, sent an email to my associate copied to the company's solicitor referring to the costs order made on 16 June 2022.
2. The email indicated that the parties had exchanged without prejudice correspondence prior to the hearing which the defendant contended gave rise to a special costs order.
3. It was indicated that despite attempts, the defendant had been unable to obtain the company's consent to the terms of that special costs order.
4. The defendant requested that the parties be heard on the papers as to the issue of costs.
5. When proceedings are heard, if the parties anticipate that specific submissions will be or might be sought to be made regarding the question of costs, the parties ought to draw that fact to the attention of the trial judge, prior to the conclusion of the hearing.
6. Having considered the terms of the email, I directed my associate to send an email to the solicitors for the parties.
7. I indicated that unless either party notified objection to my associate by 4:00PM on 21 June 2022, I proposed to make the following orders and directions: "1. Order 2 made on 16 June 2020 is set aside pursuant to r36.16(3B) UCPR. 2. Direct that the parties serve and lodge with the Associate to Meek J on or before 2pm on Friday 24 June 2022 a. any affidavit addressing the question of costs of the proceedings; and b. a short written outline of submissions no longer than 4 pages in length. 3. Direct that the question of costs be determined in chambers without the necessity for further attendance of the parties."
8. My associate received an email initially from the solicitor for the company and then subsequently from counsel for the company.
9. It was indicated that the company consented to the Court's proposed orders.
10. Pursuant to r 36.16(3B), Uniform Civil Procedure Rules 2005 (NSW) (UCPR) the costs order made on 16 June 2022 has been set aside.
11. The parties have availed themselves of the opportunity to provide the Court with evidence and submissions on the question of costs.

Evidence as to costs offers

1. On the variation application the defendant relied upon an affidavit by Mr Reidy sworn 23 June 2022 and the company relied upon an affidavit by Mr Sarai affirmed 27 June 2022.
2. On 23 February 2022 SGL sent a letter to SHL referring to the originating process and affidavit of Ms Macdonald said to have been purportedly filed and served on 21 February 2022.
3. The letter identified various issues in relation to service of the application and commented upon the merits of the company's application. In particular, it was contended that, having regard to the failure to attach the prescribed SEPA notice to the application, the service of the application was ineffective.
4. After summarising what was said to be the defective aspects of the application, the letter asserted that the company was now presumed insolvent and that the defendant was entitled to proceed with an application to wind the company up.
5. In light of those matters the defendant invited the company to withdraw its application by 5:00PM on Wednesday, 23 February 2022 and indicated that, should the company fail to withdraw the application by that time, the defendant would seek to rely on the correspondence when seeking an order that the company pay the defendant's costs on an indemnity basis.
6. Mr Reidy's affidavit does not indicate whether there was any response to that letter, whether immediately or otherwise.
7. On 5 April 2022 Mr Sarai sent to SGL a without prejudice letter offering to settle the proceedings an email referring to an open letter of the same date explaining why the purported statutory demand was a nullity and made an offer to resolve the proceedings on the basis that: 1. the statutory demand was declared null and void and 2. the defendant reimburse the company for the expense of the filing fee of the application in the sum of $3,200 within 7 days.
8. The offer was stated to be available to be accepted up to 5 PM on 12 April 2022 after which time it would lapse.
9. Mr Sarai states that he did not receive any reply from the defendant and accordingly the 5 April offer lapsed.
10. On 27 April 2022 at approximately 5:10 PM Mr Sarai emailed SGL attaching a copy of the affidavit of Ms Macdonald affirmed on 27 April 2022 and drawing to the attention of SGL, on the topic of the validity of service of the originating process, the decision of Cheeseman J in In the matter of Bioaction Pty Ltd [2022] FCA 436 (Bioaction) a decision subsequently relied upon in the proceedings and referred to in the principal judgment.
11. The email noted that in the "unlikely event" that the statutory demand was not declared null and void, the company would rely upon the Bioaction judgment in asserting that the originating application and affidavit in support had both been validly served by email on the office of SGL and served within time.
12. On 27 April 2022 at approximately 5:50 PM SGL sent an email to Mr Sarai stating: "As noted in our email of 22 April 2022, we had been awaiting your response prior to serving our client's evidence in this matter. In light of your response, we now attach the following documents by way of service upon your client"
13. The affidavits of Mr Boxell sworn on 6 April 2022, Mr Tidy sworn 7 April 2022 and Mr Reidy sworn 7 April 2022 were attached.
14. The email concluded that "We will consider the balance of the matters raised in your correspondence in due course".
15. By email dated 5 May 2022 Mr Sarai wrote to SGL, indicating that the affidavit evidence served (by the defendant) on 27 April 2022 clearly calls for a reply and noted that work on the reply is already under way but more time was needed.
16. The email made reference again to the decision in Bioaction and invited SGL to reconsider whether the time of service remains an issue in the case noting that litigation over the issue "brings with it a rise in the costs of the case". The email then proposed a timetable for further preparation for the hearing.
17. On 25 May 2022 SGL sent a letter of offer to SHL, offering to settle the proceedings on terms that: 1. the statutory demand be set aside; and 2. each party bears their own costs.
18. The offer was made in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 (Calderbank) and was open for acceptance until 5:00 PM on 27 May 2022 (Calderbank offer).
19. On 26 May 2022 Mr Sarai of SHL sent an email to SGL rejecting the Calderbank offer, asserting that the company did not believe it was a genuine offer.
20. The email further stated that: "Namely, out (sic) client has made a without prejudice offer to similar terms as outlined in your client's offer back on 5 April 2022 which was ignored and consequently expired (see attached). The plaintiff has in the meantime incurred substantive costs and disbursements which are in excess of $60,000. Consequently, your client would need to better their offer so that the costs (or part of the costs) are paid to the plaintiff to compensate them for running this case which was futile for the defendant from the outset."
21. Subsequent to the principal judgment delivered on 16 June 2022, SGL sent an email to SHL referring to the offer dated 25 May 2022 and requesting consent to order 2 (the costs order) being altered to provide that the company pay the defendant's costs of the proceedings on the ordinary basis up to 25 May 2022 and on the indemnity basis thereafter.
22. A proposed form of email communication to my associate to provide for a modified order to the above effect was set out for the consideration of SHL.
23. Mr Reidy sent a follow-up email to Mr Sarai on the morning of 20 June 2022. Mr Sarai responded shortly thereafter, indicating that he was seeking instructions and would respond to emails during the day.
24. Shortly after 4:00PM on 20 June 2022 Mr Reidy sent an email to Mr Sarai noting that he had not received a reply and indicating that in the absence of any response by 5:00PM a request would be made to the Court that the parties be heard on the papers on the issue of costs.
25. Mr Sarai estimates that the company's legal costs and disbursements of the engagement of Dr Watt (the forensic expert) are approximately $10,000.

Costs principles

1. Costs are in the discretion of the Court, subject to the Civil Procedure Act 2005 (NSW) (CPA), rules of Court and any other Act: s 98(1)(a) CPA.
2. The Court has full power to determine by whom, to whom and to what extent costs are to be paid: s 98(1)(b) CPA.
3. The Court may order that costs are to be awarded on the ordinary basis or on an indemnity basis: s 98(1)(c) CPA.
4. An order for costs may be made by the Court at any stage of the proceedings or after the conclusion of the proceedings: s 98(3) CPA.
5. The general position is that if the Court makes any order as to costs, the Court is to order that the costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs: r 42.1 UCPR.
6. If the Court makes an order for dismissal of the proceedings then generally speaking, unless the Court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed: r 42.20(1) UCPR.
7. The position regarding costs in applications to set aside a statutory demand where the application is unsuccessful is not regarded as being unique or different from the general principle that costs follow the event: F Assaf, Assaf's Winding Up in Insolvency (3rd ed, 2021, LexisNexis) at [9.19] p 634.
8. Generally costs payable to a party under an order of the Court are to be assessed on the ordinary basis: r 42.2 UCPR.
9. The UCPR provides a regime by which offers of compromise may be served, in which case there is what is described under the rules as an entitlement in a party who has obtained a favourable outcome, having regard to the terms of the offer, to have costs assessed on an indemnity basis, unless the Court orders otherwise: e.g. r 42.15 UCPR.
10. The proper exercise of the discretion for costs will clearly have regard to the reason for dismissal of the proceedings in any given case: Ritchie's Uniform Civil Procedure NSW at [42.20.10].
11. The position in relation to offers outside the offer of compromise regime, being offers expressed to be without prejudice except as to costs and relied upon in accordance with the principles in Calderbank, is that there is no prima facie entitlement in a party who has achieved a favourable outcome under the terms of the offer to an indemnity costs order in its favour. Rather, the making of a Calderbank offer is one of a number of circumstances the Court takes into account in exercising its discretion to make an order for costs on an indemnity basis.
12. A Calderbank offer, per se, will generally speaking not justify an order for indemnity costs unless the offer is a genuine offer of compromise and its rejection is unreasonable: e.g. Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [7]; Ying v Song [2011] NSWSC 618 at [26] per Ward J (as her Honour then was).
13. There is an onus on the party making the Calderbank offer to satisfy the Court that it should exercise the costs discretion in its favour: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]. The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ.
14. There are numerous cases of awards of indemnity costs where a party has engaged in inappropriate conduct (such as misleading the Court; maintaining proceedings that are known to have no real prospects of success, maintaining proceedings for an ulterior purpose) or engaged in conduct that has caused unreasonable delay and expense in the proceedings. However, subject to what I note below, there is no suggestion that any of those sorts of considerations apply here.
15. Nonetheless, it is recognised that a prehearing settlement offer which encourages a reasonable settlement of the claim and where the offeree has obtained an outcome significantly less favourable consequent upon the hearing to the outcome offered prehearing may, in appropriate circumstances, give rise to an order for indemnity costs: e.g. Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425.

Submissions

1. The defendant's submissions in relation to the Calderbank offer are essentially that the defendant offered to give the company the substantive relief that it sought in the proceedings on a basis that each party bear their own costs and that such an offer was a genuine compromise.
2. Mr Fielder in his submissions further notes that it was foreshadowed to the company that the company's non-compliance with the SEPA provisions would be fatal to the company's application and notes that this is at least one of the findings that the Court had ultimately made: principal judgment at [327].
3. In particular, Mr Fielder refers to the terms of the email rejecting the offer which indicated that the defendant "would need to better their offer so that the costs (or part of the costs) are paid to the plaintiff to compensate them for running this case which was futile for the defendant from the outset".
4. It is said that rather than accepting "the very reasonable offer" the company chose to press on with the hearing because it desired to have its costs paid on the apparent assumption that the Court would grant the company the substantive relief sought, which it did not.
5. Mr Allan submitted that the provisions of r 42.20 UCPR suggest that the Court's discretion on costs and power to order otherwise is not to be applied reflexively, but instead upon reflection.
6. Mr Allan noted that the question as to what extent justice requires that the company compensate the defendant on the question of costs invites a reasoned assessment along the following lines: "a. So far as the plaintiff should pay costs, it should be on the ordinary basis; b. The defendant should not have its costs of resisting the (large) issue about the delivery of the application by email; c. The corollary is that the plaintiff's costs of proving that delivery should be borne by the defendant, or otherwise set off or allowed against the defendant's costs; d. The court should be alert to the fact that the subject matter of the case was the defendant's admittedly defective demand, which was carelessly prepared; and e. The timing and paucity of information in the defendant's Calderbank offer did not make it unreasonable to reject it, particularly when it was nearly identical to the plaintiff's own earlier offer."
7. Mr Allan then noted that the court had identified five issues at the trial and proceeded to make submissions focusing in particular upon the question of whether effective service had been achieved.
8. Mr Allan drew my attention to authority to the effect that a successful party may in a proper case be deprived of part of its costs or ordered to pay costs of a discrete issue citing Sze Tu v Lowe (No 2) [2015] NSWCA 91 per Gleeson JA at [40], Meagher and Barrett JJA agreeing.
9. In particular, Mr Allan directed my attention to an extrajudicial speech of Beazley JA (as her Excellency then was) in the Hon Justice M J Beazley, "Calderbank Offers 2" [2012] NSWJSchol 33 (a paper delivered to the NSW Young Lawyers Civil Litigation Committee Seminar, 26 September 2012) at [30] highlighting the notion that there an importance of fairly allocating costs based on the parties' respective responsibility for causing them citing Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121] per Hodgson JA.
10. Mr Allan's purpose in referring to Beazley JA's speech was to support submissions relating to attempts by both parties to resolve the proceedings by offers and to focus attention on aspects of those offers and the defendant's conduct in the proceedings.
11. Mr Allan emphasised that: 1. the defendant's offer was sent only a week from the hearing and did not proffer reasons as to why the offer should be accepted other than stating that it was a 'commercial offer'. 2. the company's offer made on 5 April 2022 accompanied by an open letter explaining its position was reasoned and reasonable; 3. the defendant had waited until most costs have been incurred (far beyond the filing fee) to make a similar offer to the offer which the company had first made; 4. the defendant had only conceded on the day before the trial that the demand had a serious defect; and 5. the company had only at that late stage (seemingly a reference to the day before the hearing or in any event late in the piece) "any real sense of the opposition case, when both parties had incurred basically all of their costs".
12. Mr Allan made reference to the decision of White J (as His Honour then was) in Ewen Stewart & Associates Pty Ltd v Blue Mountains Virtual Air Helitours Pty Ltd (No 2) [2011] NSWSC 113 (Ewen Stewart & Associates), in discussing statutory demands, said at [21] that "Litigation is not a game in which parties or their legal advisers should keep their cards close to their chest to achieve a tactical advantage".
13. Ultimately, in concluding the submissions, Mr Allan harked back to the fact that the defendant had maintained the issue in relation to proof of service of the originating process and affidavit within the statutory time period, including the fact that the company had been put to the expense of retaining an expert to prove when the email sent by Mr Sarai was capable of being retrieved.
14. The submission was to the effect that the defendant had only a "tenuous claim" to receive its costs on the ordinary basis and that justice dictates that the company should pay only half of the defendant's ordinary costs.

Determination

1. Many issues were put forward by the company in relation to the relief that it sought in the proceedings.
2. Although the hearing itself was conducted efficiently and well by experienced counsel, the issues were complex and there were clearly risks for both sides in the outcome of the matter.
3. The basic starting point is that costs would ordinarily follow the event to be paid on an ordinary basis.
4. On the defendant's side what is proposed as justifying an alteration of that position is the Calderbank offer made on 25 May 2022.
5. In accordance with the authorities what needs to be considered is whether the offer was a genuine offer and whether the company acted unreasonably in rejecting it.
6. Having regard to the fact that the Calderbank offer provided the company with the outcome that it sought and a reasonable position on the question of costs (that each party bear their own costs), it was clearly in my opinion a genuine offer of settlement of the proceedings.
7. As to whether the company acted unreasonably in rejecting it, the following considerations as to the risks of an unsuccessful outcome are relevant in assessing the company's actions: 1. whilst reference has been made by the company to the issue regarding service, even if the company succeeded on the issue of electronic service of the originating process and supporting affidavit, there was still a significant obstacle in its way of succeeding by reason of the failure to attach the prescribed SEPA notice; 2. for the company, the relief that it sought to have the statutory demand declared as a nullity, having regard to the authorities considered in the principal judgment, was exceptional relief; 3. there was clearly a risk on the basis of the authorities referred to in the principal judgment dealing with questions of nullity that the company might not establish that the demand was a nullity; and 4. the company's initial assertion regarding an offsetting claim never materialised in the proceedings and was ultimately abandoned in submissions prior to and at the hearing. Thus in light of the problematic and ultimately abandoned offsetting claim, the application for the company was in a sense an 'all or nothing' outcome.
8. I think in light of the risks faced by the company it cannot be fairly said (as it has submitted) that "The timing and paucity of information in the defendant's Calderbank offer did not make it unreasonable to reject it, particularly when it was nearly identical to the plaintiff's own earlier offer".
9. Whilst it might be of some assistance to the recipient of an offer to have its rationale and reasons for its terms explained, ultimately the utility of an offer to settle proceedings is in its providing a proposal in terms which are capable of acceptance.
10. Parties may resolve litigation for all manner of reasons only some of which may bear upon the actual legal merits of the likely outcome of the litigation.
11. Thus, merely because a Calderbank offer does not explain its rationale for being made it is not necessarily deprived of worthiness for consideration of its acceptance.
12. Ultimately if an offer is accepted what is accepted and conveyed to the offering party is an acceptance of the terms proposed, as distinct from any communication that the recipient is persuaded that the arguments (if any) in support of the offer as to the likely outcome of the hearing are correct or that any other disclosed rationale informing the offer is so compelling that it has brought about the acceptance.
13. In any event, it is not strictly correct that the Calderbank offer here was shorn of a rationale.
14. The opening part of the Calderbank offer referred to the fact that the defendant's position in relation to the proceedings "is clear and has been set out in detail within previous correspondence and within the evidence [on] which our client intends to rely upon at the upcoming hearing".
15. Part of the earlier detail of correspondence included reference to the significant risk facing the company in the proceedings arising from the failure of the company to attach the SEPA notice to the originating process.
16. The company's submissions on costs do not address its failure to attach the SEPA notice.
17. The timing of the offer and the fact that increased costs have been incurred in in a sense cuts both ways. Whilst the company had incurred increased costs, so had the defendant. The offer on the question of costs was that each party would bear their own costs. Thus apart from offering the company, risk-free of the exigencies of litigation, the relief it sought, the offer was on terms that the defendant who had also incurred increased costs would have to bear itself those increased costs.
18. It seems to me that the offer proposed a very reasonable compromise and in all the circumstances was unreasonably rejected. I am satisfied that the company has discharged the onus of satisfying the Court that it should exercise the costs discretion in its favour.
19. I do not accept the argument that the defendant accepted but only disclosed in submissions that there was a defect in the notice has any material bearing on the issue of costs. It was self-evident the demand was at least defective to the extent that there was a failure to insert an "address for service of [copies of any application and affidavit] in the State or Territory in which the demand is served on the company".
20. I do not consider that the company has made good the submission that it was only just before the hearing that the company "had any real sense of the opposition case when both parties had incurred basically all of their costs".
21. The fact that the company filed an amended originating process on 20 April 2022 seeking alternative relief that the demand is null and void suggests that at least at that time (and likely for some reasonable period before it) the company had made an assessment that it faced significant risks on the issue of having made a valid application to set aside the demand.
22. If the company's reliance upon the comments of White J in Ewen Stewart & Associates is intended to suggest that in some way the defendant failed to disclose issues or the risks of the litigation to the company for tactical advantages I reject that.
23. The fact that the company had earlier served an offer which proposed an outcome (which was not ultimately determined) and required payment of a filing fee, does not, to my mind, sway the consideration that, as at 25 May 2022, when the Calderbank offer was made by the defendant, in the circumstances then prevailing it was unreasonably rejected.
24. As litigation progresses and evolves over time legal advisers and litigants generally will reassess considerations material to compromising proceedings and the risks involved in continuing or defending the litigation.
25. The mere fact that an offer at one point in time bears similarity in terms to an offer or offers made at an earlier point in time does not necessarily define or speak to the reasonableness of the rejection of offers at those earlier points in time. That is because by reason of the passage of time, often numerous other circumstances and considerations have intervened which need to be taken into account and weighed by the parties and their legal advisers, in assessing whether to accept or reject an offer.
26. Subject to one matter, prima facie, in light of the fact that a genuine offer to compromise the proceedings was made, which offer was in my opinion unreasonably rejected, I am inclined to make the order for costs sought by the defendant.
27. The one matter I refer to is that which has been raised by the company namely what, if any, adjustment on costs as between the parties should be made in respect of the litigated issue as whether the email service of the originating process was effective. Contrary to the defendant's submission, I was satisfied, that subject to the SEPA issue, service by email was a permissible and effective form of service in order to engage the statutory provisions for the service of the originating process and supporting affidavit to be effected within the prescribed 21 day period.
28. It seems to me that some discount should be applied to the defendant's costs in light of the fact that expert and lay evidence was led regarding the issue and a degree of time taken on the hearing to address the issue. However, because of the failure to attach the SEPA notice to the originating process, I do not consider that the email service issue assumes the level of significance that Mr Allan seeks to suggest.
29. In the circumstances, I have determined to make the order for costs as sought by the defendant but modified on the basis that, the company pay 90% of the defendant's costs as agreed or assessed: 1. on the ordinary basis, up to and including 25 May 2022; 2. thereafter, on an indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 July 2022