On 7 December 2023 I gave judgment for the plaintiff for nominal damages ($100) in this proceeding, which featured a creditor's claim against a surety. My reasons have been published on Caselaw (Capitalink Pty Ltd v Withnall (No.2) [2023] NSWDC 547).
As indicated in those reasons, although I made a costs order in favour of the defendant (order 2), that was without having heard from the parties on the question of costs and order 3 provided the opportunity for the parties to apply to vary it.
The defendant (Mr Withnall) availed itself of that opportunity and now applies for an order that his costs be paid by the plaintiff (Capitalink) on the ordinary basis up to 19 October 2023 and on an indemnity basis thereafter.
Capitalink does not dispute Mr Withnall obtaining an order for costs, however it does oppose the application that they be partly paid on an indemnity basis.
[2]
Mr Withnall's Calderbank offer
Mr Withnall's application is based upon a letter emailed (at 3:14pm) to Capitalink's solicitors on 20 October 2023 and a supplementary email on the same day (3:56pm). The supplementary email corrected the quantum of the monetary offer of settlement described in the letter. To place the timing of that correspondence in temporal context, the hearing commenced on 30 November 2023 and the proceeding had commenced on 16 December 2021.
Capitalink Pty Ltd v Withnall [2024] NSWDC 3 | Case summary | Zoe
The letter was expressed to be 'without prejudice save as to costs.' Towards the end of it, express reference was made to the principles in Calderbank v Calderbank [1975] 3 All ER 333.
The substantial terms of the letter featured Mr Withnall's offer to settle the proceeding on the basis that:
1. he pay Capitalink the sum of $50,000 (as the sum was corrected in the supplementary email) within 28 days;
2. the proceeding be dismissed;
3. each party bear their own costs of the proceeding; and
4. any security paid into Court be returned to Capitalink.
Within the letter the author provided commentary upon the merits of Capitalink's claim. The commentary was said to relate to both the liability and quantum aspects of Capitalink's claim.
More specifically, in the letter, Mr Withnall's lawyers cited arguments that their client eventually raised before the Court, being:
1. the parties' relations were governed by contract, not by deed and the contract was void for want of consideration;
2. Capitalink did not prove the quantum of its claim; as indicated by the circumstance that the quantum doubled the amount Capitalink was obliged to pay the debtor (DDC);
3. Capitalink did not mitigate its loss in finalising the development; or
4. Capitalink entirely mitigating its loss by its receipt of rental income.
5. The matters referred to in (4) and (5) jeopardised the recovery of any loss from Mr Withnall.
Capitalink did not accept this offer. The outcome of the case was that Mr Withnall was only ordered to pay nominal damages ($100); plainly a much lesser sum of money than that which he had offered to Capitalink ($50,000) in the Calderbank offer; which meant that Mr Withnall ultimately obtained a no less favourable result than that which he had offered.
In his submissions in support of his application, Mr Withnall correctly acknowledged that costs are awarded in the discretion of the Court, and referred to the Court's application of principles relating to costs consequences of limited awards of nominal damages in favour of plaintiffs. Unsurprisingly, he did not take issue with the application of those principles. His application is only that the basis for the award of costs in his favour be partly altered from the ordinary basis (recognised in r 42.2 of the Uniform Civil Procedure Rules 2005 (NSW)) so that the costs were partly to be awarded on an indemnity basis (under r 42.5 of the UCPR) from the day following service of the Calderbank offer.
Mr Withnall cited the two requirements generally understood as warranting an order for indemnity costs, following an offeree's refusal to accept a Calderbank offer: (a) that the offer involved a genuine compromise; and (b) that the rejection of the offer was unreasonable. (Mr Withnall also cited as a requirement that an application for a special costs order be foreshadowed; although that might be understood as inherent in a valid Calderbank offer).
In elaboration of his argument regarding these two requirements, Mr Withnall firstly submitted that the offer was an attempt to reach a genuine compromise. It was not just the case that Mr Withnall offered to forego what could already be inferred (given that the proceeding was nearly 2 years of age at the time of the hearing and he was legally represented for this period), that is, the benefit of receiving a valuable costs order in his favour. In addition to that, he offered to pay a separate sum of money.
In response to Mr Withnall's submissions on this particular requirement, Capitalink did not contest that the offer represented a genuine attempt at settlement. I find that the offer did represent a genuine attempt at settlement.
Secondly, Mr Withnall argued that it was unreasonable for Capitalink to reject the offer. Emphasis was placed upon the commentary in the letter in which Mr Withnall's lawyers opined that Capitalink had not furnished sufficient evidence as to its case on quantum. Mr Withnall submitted that it was "this concern" that the Court 'shared' in awarding only nominal damages.
He submitted, further that the offer was served relatively late in the proceeding; about a month before the scheduled commencement of the hearing date, so that most of the evidence was served and the parties were in a position to realistically assess the strengths and weaknesses of each other's cases.
As to this requirement, Capitalink submitted that it was not unreasonable to reject the offer given that at the time it was made and in the period that it was open for acceptance, Mr Withnall had not raised the point upon which he eventually prevailed.
[3]
Was Capitalink's rejection of the offer reasonable?
I accept that the offer was served in a way that was timely and at a time when both parties were taken to be able to meaningfully (and without significant disruption to their hearing preparation) assess the strengths and weaknesses of their respective positions. I also accept that this extended not only to their cases on liability but also on quantum.
Unlike a rules offer, Calderbank offers do not give rise to something like a presumptive entitlement to costs being payable on an indemnity basis where the offeror ultimately achieves an outcome no less favourable than what it offered (UCPR, r 42.15A).
When offerors provide explanatory commentary in letters constituting Calderbank offers, which concern the merits of the offeree's claim, they are engaging in an exercise in persuasion. This is primarily directed to the offeree, but it is also secondarily, or incidentally, directed to the Court. By pointing out to the offeree the asserted weakness, or weaknesses of the offeree's claim, the offeree may accept the points made and accept the settlement. But incidentally, the offeror can later fairly say to the Court, once the outcome of the case is known, that they did their best to persuade their opponent to accept the settlement offer but the opponent acted unreasonably by: (a) refusing to accept the offer; and (b) continuing on with the opponent's claim. It is the offeree's unreasonableness that constitutes one of the requirements for an indemnity costs order (based on rejection of a Calderbank offer)
Mr Withnall was, to some extent, vindicated about his lawyer's prediction that Capitalink may not have served sufficient evidence to prove the quantum of its claim to an extent, but that obscured the real basis for the dispositive finding in the judgment (at [143]-[157]) that Capitalink had not proven actual loss; which is an anterior matter. Since Capitalink did not establish that it suffered any actual loss, it would not have mattered what the quantum was.
Although the matter of whether Capitalink itself suffered actual loss was adverted to in Mr Withnall's outline of written submissions dated 13 November 2023 (MFI 3 at the hearing) and in his Counsel's closing oral address, it was not a matter that had been specifically pleaded in Mr Withnall's Defence (at paragraph 20) as it arguably could have been (UCPR, r 14.14(2)(b)). Nor was it a matter that was alluded to in the commentary in the Calderbank offer. In other words, Mr Withnall did not attempt to persuade Capitalink to accept his offer on the basis that Capitalink might fail to prove its claim for damages by reason of its inability to prove that it (rather than some other entity) had sustained actual loss.
Although it was not mentioned in Mr Withnall's written submissions on the present application, I consider it pertinent to refer to a point raised in the Calderbank offer regarding 'failure to mitigate.' The first limb of this was to say that Capitalink had not mitigated loss because of its inactivity in completing the development. As is apparent from the Judgment (at [181]-[184]), Mr Withnall's argument was rejected. The second limb was to say that Capitalink had mitigated its loss "entirely" through its receipt of rental income. As is apparent from the Judgment (at [175]-[180] and [185]), this argument was sound in principle, however, the evidence, as it was at the date the offer was made (and even as it finally appeared in the hearing), was not conclusive to support the proposition that Capitalink's loss had been "entirely" mitigated.
For completeness, the only other matter that Mr Withnall cited as a reason for acceptance of the offer was asserted weaknesses in liability issues. But on that score, Capitalink was resoundingly successful.
In summary, the explanatory commentary in the Calderbank offer was such that it was not unreasonable for Capitalink to fail to be persuaded by the points raised in that commentary. It was not unreasonable for Capitalink to reject the offer and continue with the litigation.
[4]
Costs consequences of the refusal of the application
The costs order (order 2) made on 7 December 2023 will remain. On one view, by his unsuccessful application, there should be an exception to that order so that Mr Withnall's costs of making this application (such as the preparation of the supporting affidavit and Counsel's written submissions) should be carved out of that order as an exception. But it is to be recalled that the costs order was made prior to the parties having the opportunity to be heard on costs, the application was not inherently unarguable, and the costs of the application are small.
The appropriate order is simply that Mr Withnall's application for a partial order for indemnity costs should be refused.
[5]
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Decision last updated: 29 January 2024