Carey v Freehills

Federal Court of Australia|2013-11-26|Before: Kenny J

INTRODUCTION 1 On 20 September 2013, the Court dismissed the cross-claim, as amended, brought by Norman Phillip Carey and others ("the Carey parties") against Freehills. The nature of the cross-claim and the attendant circumstances are set out in reasons for judgment delivered that day: see Carey v Freehills [2013] FCA 954. Also on 20 September 2013, I made an order with respect to written submissions on costs, which provided that, absent the receipt of written submissions, the Carey parties were to pay Freehills' costs. 2 Freehills and the Carey parties have since filed written submissions. Freehills has relied on the affidavit of its solicitor, Patrick Xavier Tuohey, sworn on 10 October 2013. The Carey parties have relied on two affidavits, namely, the affidavits of Arthur Metaxas and of Norman Phillip Carey, both sworn on 28 October 2013. Mr Metaxas has deposed that he "has been the solicitor on the record for the Cross-Claimants since about 7 April 2011". 3 Freehills has applied for an order that the Carey parties pay Freehills' costs of and incidental to the proceeding: (a) on a party/party basis up to 9 August 2010 (alternatively, 8 April 2011), and (b) thereafter on an indemnity basis. Alternatively, if it should fail in its indemnity costs application, Freehills has sought its party-party costs from the Carey parties of and incidental to the proceeding. 4 The Carey parties have opposed Freehills' application for indemnity costs "on the grounds that the rejection of the offers was reasonable, given the advice received by various counsel at the time". The Carey parties have also sought an order that they pay Freehills' costs of the cross-claim on a party-party basis save that they would have the order "exclud[e] [Freehill's] entitlement to costs in respect of the various applications, motions and matters referred to in proposed Orders 1.1 to 1.31 of the [cross-claimants' minute of proposed orders in relation to costs dated 28 October 2013]". This minute is referred to hereafter as "the Carey parties' proposed orders". The Carey parties have also sought an order that they be paid the party and party costs of and incidental to "the matters described at proposed Order 2 of the Carey parties' proposed orders, as set out in annexure "A" to these reasons. 5 These reasons for judgment concern the matters agitated in the submissions presently filed on the question of costs. Freehills have previously indicated that it wishes to agitate a further issue. This is whether costs should ultimately be fixed by the Court in a lump sum. This issue is not dealt with in these reasons. 6 The general principles with respect to costs are not in dispute. The starting point for consideration of any question of costs is s 43 of the Federal Court of Australia Act 1976 (Cth), which confers a discretion on the Court in relation to costs. 7 Ordinarily the Court will exercise its discretion so that costs, assessed on a party and party basis, follow the event. In cases under the former Federal Court Rules 1979 (Cth) ("former Rules") (which apply to the compromise offers in this case: see below) a departure from this ordinary practice to award indemnity costs, such as Freehills has sought, has been said to require some special or unusual feature in the case: see Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 and Re Wilcox: Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 152-153 and 156-158. The central question for decision here is whether the particular facts and circumstances of the case justify the making of a costs order on an indemnity (i.e., solicitor and client) basis from either 9 August 2010 or 8 April 2011.

INDEMNITY COSTS 8 I deal first with the question of indemnity costs. Freehills' application for indemnity costs was made on the basis of what Freehills alleged was "the cross-claimants' unreasonable and imprudent rejection of Freehills' reasonable compromise proposal propounded, firstly, on 9 August 2010 and, then again, on 8 April 2011."

2.1 Circumstances giving rise to the indemnity costs application 9 The background to this application can be shortly stated. Up until 1 June 2012, the law firm known as Monahan + Rowell acted on behalf of Freehills in the proceeding. From that date Monahan + Rowell merged with the law firm Colin Biggers & Paisley, which has acted on behalf of Freehills since that time. On 9 August 2010, Monahan + Rowell sent a letter to a law firm called Consult Solicitors, then the solicitors for the cross-claimants ("the 9 August 2010 letter"). This letter was headed "Without prejudice save as to costs" and was sent in reliance on the principles concerning costs set forth in Calderbank v Calderbank [1976] Fam 93; [1975] 3 All ER 333 ("Calderbank v Calderbank"). Omitting formal parts, this letter read: 1. We refer to the cross claims filed on behalf of your clients against Freehills in the following Federal Court Proceedings: (a) No. VID 485 of 2008; (b) No. VID 484 of 2008; (c) No. VID 607 of 2008; (d) No. VID 608 of 2008; (e) No. VID 609 of 2008; (f) No. VID 611 of 2008; (g) No. VID 613 of 2008; and (h) No. VID 614 of 2008. 2. This letter is written in respect of each of those abovementioned proceedings. 3. You will have seen our client's Defence in relation to each of these proceedings. In particular, you will note that our client denies the allegations which your clients make against it. 4. Your clients allege the following retainers with Freehills: (a) General retainer; (b) Listing retainer; (c) Funding structure retainer; (d) ASIC dealings retainer; and (e) Retainer to conduct litigation regarding promissory notes. 5. Freehills denies the retainers as alleged. Further, Freehills says it was never retained to act on behalf of the directors (including Mr Carey) or the cross-claimants, either as alleged or at all. 6. Freehills admits it acted for Westpoint Corporation Pty Ltd ("Westpoint Corporation"), Westpoint Management Limited, Westpoint Holdings Limited, Market Street Mezzanine Pty Ltd, Westpoint Capital Limited, York Street Mezzanine Pty Ltd, Emu Brewery Mezzanine Pty Ltd and Bayshore Mezzanine Pty Ltd in accordance with specific, defined, retainers as set out in paragraph 12 of Freehills' Defence. 7. Freehills was retained by Westpoint Holdings Limited in September 1998 in relation to the proposed registration and listing of Westpoint Holdings Limited. No further instructions were received or work performed or required to be performed after February 2000 and the retainer was terminated. 8. Freehills was never retained to, and was not required to: (a) Advise upon or develop a funds management business within the Westpoint Group; (b) Advise upon or develop an appropriate funding structure to be utilised by the Westpoint Group; (c) Advise on the legality or otherwise of the issue of promissory notes within such funding structure; (d) Advise upon and draft the form of the promissory notes and related documents including information memoranda and application forms. 9. The promissory notes and related documents including information memoranda and application forms were not drafted by Freehills. Limited, specific and qualified advice was given to Westpoint Management Limited in relation to specific questions on limited instructions in relation to the use of promissory notes. Save for one draft information memorandum which was provided to Freehills with the retainer referred to in paragraph 1.2(b)(xv) of Freehills' Defence in Proceeding No. VID 485 of 2008, Freehills did not see any of the information memorandums. 10. Freehills advised Westpoint Management Limited prior to 2 June 2002 that "Where there is a Westpoint Corporation guarantee the promissory note is more likely to be viewed as a financing transaction rather than an investment scheme, however, the matter is not free from doubt". 11. Freehills' first involvement with promissory notes in the Westpoint Group occurred on 17 January 2000, when it was requested by Simon Bell of Westpoint Management Limited to advise on whether or not promissory notes could be issued without a prospectus. 12. Freehills provided very specific, qualified advice on the characteristics and form of promissory notes, and what was required in order that they not be considered to be securities under the Corporations Law or investments in a managed investment scheme. 13. At no time did Freehills advise Westpoint Corporation to raise mezzanine finance for its property development projects by way of the issue of promissory notes. Any decision by Westpoint Corporation to raise mezzanine finance by way of the issue of promissory notes was a decision of Westpoint Corporation's directors and management, without consultation with or advice from Freehills. 14. Freehills never advised or represented to Mr Carey and the Westpoint Group that the raising and deploying of mezzanine finance was in their best interests and was to be preferred over other ways of raising mezzanine finance. In fact, on several occasions, Freehills cautioned them about issuing promissory notes, particularly following the investigation by ASIC in 2000 and notwithstanding the "no action letter" issued by ASIC in August 2000. On 24 August 2000, by letter from Freehills to Westpoint Management Limited, Freehills advised "whilst ASIC did not propose to take any further action in relation to the promissory notes issued by Bayview Mezzanine Pty Ltd, Westpoint Management Limited should not take that as encouragement to make further issues of promissory notes" and "before you use promissory notes for any project, I recommend you seek advice from us on whether the facts of that case are sufficient to justify not registering a managed investment scheme and issuing a prospectus". No such advice was sought from Freehills. 15. In an email on 28 September 2000, Freehills warned "I can't emphasise enough my previous written and verbal comments on the risk you run if promissory notes cannot be regarded as a pure financing transaction. Where repayment is dependent on the success of the development they are funding, this will not be the case and you will be issuing interest in a managed investment scheme, in breach of the Corporations Law - unless the scheme is registered and you wish to issue a prospectus". Those warnings were ignored and no advice was sought from Freehills prior to issuing promissory notes for any other project. The Westpoint Group (and Mr Carey) proceeded at its peril. 16. The cross-claimants allege that Freehills allegedly should have advised that the Westpoint Group raise mezzanine finance by way of: (a) A managed investment scheme operating as an open fund; (b) Separate managed investment schemes in respect of each property development project; (c) The issue of debentures; or (d) Some other means which complied with the Corporations Law. 17. Contrary to those allegations, Freehills did provide advice to Westpoint Corporation and Westpoint Management Limited in relation to fund raising by way of managed investment schemes and debentures. Westpoint Corporation and Westpoint Management Limited were aware of the alternatives available but they chose to fund raise by way of promissory notes because that form of fund raising suited their imperatives in that it provided the opportunity to raise a lot of funds quickly without the time and complication required in preparing prospectuses and providing proper disclosure, in particular, as to commissions (as to which Freehills was not aware) paid to financial advisors used by Westpoint Group to sell promissory notes. 18. ASIC did not commence winding up proceedings because funds were raised by way of promissory notes. The proceedings were commenced because the Westpoint Group companies were insolvent. 19. There are a multitude of reasons for the collapse of the Westpoint Group, including: (a) High corporate overheads, in excess of profits, derived from the Westpoint Group's activities; (b) In relation to the development projects Mezzanine Companies: (i) Excessively high gearing; (ii) Higher than forecast construction costs; (iii) Delays in completing developments leading to higher debt servicing costs and delayed cash flow from sales; (iv) Costly finance structuring; and (v) Inappropriate or ineffective risk management. (c) Further, it is evident from the actions of Mr Carey, the Westpoint Group and the Mezzanine Companies during the time when negotiations were being conducted with ASIC from October 2002 to May 2004, that they would not have acted in any different manner, even if it is found that Freehills was negligent and/or breached the duties owed by it (which is denied). (d) Mr Carey, the Westpoint Group and the Mezzanine Companies continued to issue promissory notes for new projects, despite representations they made to Freehills and ASIC that they were moving away from the issue of promissory notes and intended to implement a regulated form of funding. 20. Having regard to the above matters, it is clear that the cross-claimants' claims against Freehills are fanciful, without any sound basis and doomed to fail. If, as Freehills' expects, the cross-claimants fail in their claims against Freehills, Freehills will be entitled to be award its costs as against the cross-claimants. 21. Nevertheless, Freehills is prepared to offer to settle all of the above proceedings on the basis that, if each of the proceedings against Freehills is dismissed, Freehills will walk away and bear its own costs of the proceedings. 22. This offer will remain open for a period of 14 days from the date of this letter, following which it will be immediately withdrawn. 23. In the event this offer is not accepted and the proceedings proceed to a judgment which is less favourable to the cross-claimants than this offer, Freehills reserves the right to produce this letter to the Court in support of an application for an order that the cross-claimants pay the legal costs of Freehills incurred after the date of this letter on an indemnity basis. 24. In seeking such an order, Freehills rely on the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 33 [sic] and Cutts v Heads [1984] 1 All ER 597. 25. Please acknowledge receipt of this letter. 10 This proceeding is VID 485 of 2008 and the letter therefore applied in terms to it. As the letter itself stated, the offer contained in the letter was open for acceptance at any time in the period of 14 days from the date of the letter. That offer was not accepted in that time. 11 On 8 April 2011, Monahan + Rowell sent another letter to the law firm, Metaxas & Hager Lawyers ("the 8 April 2011 letter"). This firm had by then become the solicitors for the cross-claimants. This letter was also headed "Without prejudice save as to costs" and was sent in reliance on the principles concerning costs set forth in Calderbank v Calderbank. This letter repeated verbatim paragraphs 1 to 20 (inclusive) of the 9 August 2010 letter and continued: 21. Further, we note that the Plaintiffs have resolved all of their claims against the Defendants in the above named proceedings. 22. Having regard to the above matters, it is in our view clear that the cross-claimants' claims against Freehills are fanciful, without any sound basis and doomed to fail. If, as Freehills' expects, the cross-claimants fail in their claims against Freehills, Freehills will be entitled to be awarded its costs as against the cross-claimants. 23. Nevertheless, Freehills is prepared to offer to settle all of the above proceedings on the basis that, if each of the proceedings against Freehills is dismissed, Freehills will walk away and bear its own costs of the proceedings. 24. This offer will remain open for a period of 14 days, from the date of this letter, following which it will be immediately withdrawn. 25. In the event this offer is not accepted and the proceedings proceed to a judgment which is less favourable to the cross-claimants than this offer, Freehills will rely on this letter in making an application to the Court for an order that the cross-claimants pay the legal costs of Freehills incurred after the date of this letter on an indemnity basis, in accordance with the principles applied in Calderbank v Calderbank [1975] 3 All ER 333 and Cutts v Head (1984) 1 All ER 597 as applied by the Honourable Mr Justice Byrne of the Supreme Court in Mutual Community Limited v Lorden Holdings Pty Ltd (unreported, 28 April 1993) and John Holland Construction & Engineering Pty Ltd (unreported, 1 November 1996). 26. Please acknowledge receipt of this letter. 12 As the letter itself stated, the offer contained in the letter was open for acceptance at any time in the period of 14 days from the date of the letter. That offer was not accepted in that time.

2.2 Criteria for assessing Calderbank letters 13 Both the Federal Court Rules 2011 (Cth) ("the 2011 Rules") and the former Rules deal with offers of compromise. The 2011 Rules came into effect on 1 August 2011. They apply to a proceeding started in the Court on or after that date. The present proceeding was commenced before that date. The Rules also apply to a step in a proceeding started before 1 August 2011 if the step is taken after 1 August 2011, subject to a power in the Court to order that the former rules apply with or without qualification to such a step: see generally Rule 1.04 of 2011 Rules. In the present case, whilst the current application for indemnity costs is made pursuant to rule 40.02(a) of the 2011 Rules, consideration of the two offers of compromise, which were both made before 1 August 2011, is not referrable to the 2011 Rules but to the former Rules in so far as they apply. 14 It is plain enough, however, that the offers contained in the 9 August 2010 letter and in the 8 April 2011 letter were not made pursuant to Order 23 of the former Rules, which made provision for offers of compromise. This is evident from their terms. Nonetheless, this does not prevent a party relying on an offer made in reliance on Calderbank v Calderbank: see, for example, University of Western Australia v Gray (No 21) (2008) 249 ALR 360 at 368. 15 A Calderbank offer is a "well recognised means of making offers of settlement in circumstances where the party making the offer ultimately seeks a costs advantage if the offer is not accepted": see Jones v Bradley (No 2) [2003] NSWCA 258 at [5], quoted with approval by Finkelstein J in Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803 ("Brookfield Multiplex") at [9]. 16 Mere refusal of a Calderbank offer followed by a result more favourable to the offeror than that represented by the offer does not of itself warrant an order for indemnity costs: see Black v Lipovac (1998) 217 ALR 386 ("Black v Lipovac") at 432. To justify an order for indemnity costs in favour of the party who made the Calderbank offer, the offeror must show that the refusal to accept it was unreasonable in all the circumstances: see Black v Lipovac at 432-433; Brookfield Multiplex at [11] and the authorities there cited. The reasonableness of the conduct of the offeree is to be viewed in the light of all the circumstances as they existed when the offer was rejected. The fact that the offeree ultimately failed to make out its case does not of itself mean that it acted unreasonably in rejecting an offer: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at 127 [28]. 17 As Griffiths J said in Specsavers Pty Limited v Luxottica Retail Australia Pty Limited (No 2) [2013] FCA 807 at [10]: [A] helpful but non-exhaustive list of circumstances which may be relevant in determining whether the rejection of a Calderbank offer is reasonable or not is set out in Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at [25] and includes: (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (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 an indemnity costs in the event of the offeree's rejection of it. See also Bitech Engineering v Garth Living Pty Ltd [2013] FCA 881 at [30]-[40]. 18 Both parties accept that the factors mentioned at [17] above are relevant to assessing whether or not Freehills has shown that the Carey parties' refusal to accept each of their Calderbank offers was unreasonable in all the circumstances as they existed when the offers were rejected.

2.3 Parties' submissions on factors relevant to Calderbank offers 19 Freehills has submitted that the Carey parties acted unreasonably in rejecting one or other of the offers. This is so for the following reasons. (a) The cross-claim was, initially at least, defensive in that it sought contribution or indemnity in respect of any liability that the cross-claimants may have had on the primary claim brought by the liquidators, as reflected in paragraphs 54 and 55 of the original cross-claim filed on 5 May 2009; and, with the settlement of the liquidators' claim in February 2011, the rationale for the cross-claim had largely evaporated. (b) By the time the Calderbank offers were sent, the cross-claimants had had considerable time to consider Freehills' defence. In any event, the cross-claim failed because the facts relied on by the cross-claimants were insufficient to found their cause of action; and the facts leading to the failure of the cross-claim ought to have been known to them at the time they received the Calderbank offers. (c) The time allowed to the Carey parties to consider the two offers was reasonable. (d) By offering to forego any entitlement to its costs to the date of the Calderbank offers, Freehills was making a genuine and valuable compromise. Moreover, Freehills was, by its offer, giving up any ultimate claim to costs if the cross-claim ran to trial and failed; an offer of genuine value. (e) The Calderbank offers provided a detailed explanation of the flaws and weaknesses in the cross-claimants' case against Freehills; and the matters that led to the ultimate dismissal of the cross-claim were identified in the offers. Further, the deficiencies in their own case ought to have been readily apparent to the cross-claimants. (f) The offers were clear, unambiguous and readily comprehensible. (g) Each offer foreshadowed clearly that Freehills would rely on it in an application for indemnity costs in the event the offer was not accepted and the proceeding proceeded to judgment less favourable to the cross-claimants than the offers. 20 The Carey parties have submitted that their rejection of both Calderbank offers was reasonable. They have supported this submission by reference to the following considerations. (a) The cross-claim was "in its infancy" on 9 August 2010 and, because the cross-claimants' focus was the settlement of the main claim with the plaintiff in the intervening period, the cross-claim had not advanced further at the time the 8 April 2011 offer was made. (b) A period of more than 14 days to consider the offers would have been reasonable in the circumstances. (c) The offers made no compromise; and "any compromise in relation to legal costs would have been minimal, as only a Defence had been filed at that stage". (d) The cross-claimants had received advice in relation to the cross-claim, on the basis of which Mr Carey believed that the cross-claim had reasonable prospects of success and of obtaining an award of damages "in the multi-millions".

2.4 Consideration of claim for indemnity costs 21 For the following reasons, I consider that that it is inappropriate to make an indemnity costs order in this case.

2.4.1 Stage of proceedings 22 A cross-claim against Freehills was first filed on 3 October 2008, but on 11 December 2008 this cross-claim was apparently struck out, with liberty to re-plead. When filed on 5 May 2009, a new cross-claim was, as Freehills, said, partly defensive in the sense that, amongst other relief, it sought contribution or indemnity in respect of any liability Mr Carey may have had if the plaintiffs in the principal proceeding were successful. At the same time, this cross-claim also included a separate claim for damages and other relief. The cross-claim built on the cross-claim filed previously. 23 Freehills filed its defence to the cross-claim on 3 June 2009. In general terms, this defence clearly foreshadowed the defence ultimately relied on at trial (although there were later amendments). In the interim, there was a mediation conference and substantial fights about discovery that did not concern Freehills. On 11 December 2009, the Court ordered that any reply to the cross-respondents' defences be filed by 19 February 2010. No reply was filed at that time. 24 In early 2010, there were motions for transferring this and other proceedings to the Supreme Court of Victoria, which were unsuccessful, as well as various other motions, where Freehills was not a key participant. On 20 May 2010, this proceeding, along with other related proceedings, was listed for directions to "deal with case management including the setting down of trial dates". 25 At a directions hearing on 13 August 2010, the cross-claim and a number of related proceedings was set down for trial in early September 2011. On 31 August 2010, the Court further ordered that the parties make discovery of all documents that they "consider to have a significant probative value to any parties' claim or defence" by 31 January 2011 and that outlines of evidence and affidavits were to be done by 31 March 2011. 26 In view of the above, one may accept that, as the Carey parties said, when Freehills made its first Calderbank offer on 9 August 2010, the cross-claimants' focus had been on other aspects of the litigation. Whilst I do not consider this especially important, I do consider it was significant that, as at 9 August 2010, discovery in relation to the cross-claim had not been made with respect to Freehills' documents; and the parties to the cross-claim had not filed their evidence. The cross-claim had not, moreover, been set down for trial yet. Notwithstanding this, I consider that the case sought to be made against Freehills and Freehills' defence was very largely defined by August 2010. 27 As it happened, the parties failed to comply with the orders and directions of August 2010. The Court file evidences only that the plaintiffs in the principal proceeding filed two "lists of documents to be relied on at the trial" on 28 October and 24 December 2010. As a consequence, on 10 March 2011, orders were made providing for the completion of discovery by 15 April 2011, by the Carey parties and by 13 May 2011, by Freehills; the filing of the Carey parties' affidavit evidence by 29 July 2011; and the filing of Freehills' affidavit evidence by 3 October 2011. The timetabling of the steps in the litigation was further revised, including on 9 June 2011. The cross-claim was fixed for trial on 14 November 2011. 28 As noted, on 8 April 2011, when Freehills made its second Calderbank offer, discovery was not complete and neither the Carey parties nor Freehills had filed their evidence. The parties have not stated whether or not discovery between them was underway or indeed was nearing completion by this April date. If the orders made on 9 June 2011 were complied with by the parties, then discovery would have been complete or approaching completion by 23 June 2011. Furthermore, the Court file does not show that any affidavits or witness statements referable to the cross-claim against Freehills had been filed by this point. Again, however, at 8 April 2011, the case sought to be made against Freehills and Freehills' defence was very largely defined. 29 Thereafter, on 9 June 2011, the time for the completion of discovery was extended to 23 June 2011 and for filing affidavits, to 31 August 2011. On 8 September 2011, the time for filing the Carey parties' affidavit was extended to 30 September 2011 (for lay witnesses) and to 14 October 2011 (for expert witnesses). An order was made that failure on the Carey parties' part to comply would result in the dismissal of the cross-claim against the cross-respondents (which included Freehills). Orders were also made at this time extending the time for filing Freehills' affidavits to 31 October 2011 (for lay witnesses) and 14 November 2011 (for expert witnesses). The start date of the trial was moved to 21 November 2011. 30 There were further amendments to the timetable for trial preparation on 18 October 2011, as a result of which Freehills were given further time to file some of their affidavits and the Carey parties were allowed to file supplementary affidavits of Mr Carey and Mr Rundle. At the same time the Carey parties were given leave to file an amended cross-claim. (A subsequent application to amend the cross-claim was made and refused on 29 November 2011, after the trial had begun.) 31 What became the key affidavit evidence in the trial was filed between 30 September 2011 and 14 November 2011. That is, Mr Bell's affidavit was filed on 30 September 2011. Mr Carey's original affidavit was filed on 30 September 2011, annexing the powerpoint presentation, whilst his consolidated affidavit was filed on 11 November 2011. Mr Rundle swore two affidavits, one filed on 30 September 2011 and the other, on 14 October 2011. Mr Shearwood's affidavit with its detailed account of the firm's conduct and its annexed contemporaneous records was not filed until 14 November 2011. (As already noted, the defence clearly foreshadowed the cross-respondents' case in answer to the cross-claim, including specific reference, in particulars, to some of the documents later relied on at trial; but these details could not be considered as informative to the Carey parties as the key affidavits themselves and their annexures.) 32 On 11 November 2011, the trial start date was re-fixed to 22 November 2011, and dates for filing particular items of evidence were extended. The trial ultimately began on 22 November 2011. 33 Freehills submitted that the stage of the proceeding at which the Calderbank offers were received was of limited importance in this case, because "the facts relied upon by the cross-claim were insufficient to found their cause of action against Freehills". I reject this submission for a number of reasons. First, as already noted, the Carey parties' conduct is to be assessed in the light of all the circumstances as they existed when each of the offers was rejected. This was 9 August 2010 in the case of the first Calderbank offer and 8 April 2011 in the case of the second Calderbank offer. Secondly, the proper question in this context is whether Freehills have shown that the conduct of the Carey parties in rejecting these offers was unreasonable in those circumstances. This was not a case in which the facts relied on by the Carey parties were so insufficient that, properly advised, they should have known from the outset that their claim had no chance of success. Theirs was a claim that turned on both significant factual and legal issues. I reject Freehills' contention that the cross-claimants ought to have known when each of the offers was received that their claim would fail. This is because much turned on Mr Shearwood's evidence, as supported by the firm's detailed contemporaneous records, and the effect of his evidence on Mr Carey's own account. For example, Mr Carey's account of the powerpoint presentation was denied by Mr Shearwood. At both stages at which the offers were made, however, Mr Shearwood's affidavit had not yet been filed. Further, Mr Bell's affidavit (with its lack of corroborative detail) had not yet been sworn. This makes the stage of the proceeding a meaningful criterion for considering whether or not the rejection of these two Calderbank offers was unreasonable.

2.4.2 Period of offer 34 I consider that the period of 14 days from the date of receipt of each offer to have been reasonable in the circumstances because it gave the Carey parties sufficient time to assess its worth. There is no evidence that the Carey parties requested further time to consider the offers in August 2010 or April 2011.

2.4.3 The extent of the compromise offered 35 The offers made in both the 9 August 2010 letter and the 8 April 2011 letter can be described as "walk away offers". That is, Freehills' offer was to bear its own costs on the basis the cross-claim against it was dismissed. Whether or not a "walk away" offer involves "a real and genuine element of compromise" will depend on the circumstances in which it was given: see Brookfield Multiplex at [12]-[14]. While costs had no doubt been incurred by Freehills at the time each of the Calderbank offers was made, there is no evidence as to their quantum. There is little difference in this respect between the Calderbank offer of 9 August 2010 and that of 8 April 2011, notwithstanding the passage of time, since work on the cross-claim appears to have been relatively slight in this intervening period. The significant aspect of the compromise was Freehills' giving up of an ultimate claim for costs - likely to be significant if the cross-claim ran to trial and failed. In this circumstance, the stronger Freehills' defence and the weaker the Carey parties' case, the more an offer was a real compromise. In this case, by the terms of its letters, Freehills disclosed details of its defence that should have caused the Carey parties to give serious consideration to the merits of their claims. 36 At the point at which the offers were made, however, the weaknesses in the Carey parties case indicated in these offers had not yet been further disclosed in the parties' affidavits. Nor had the details of Freehills' extensive contemporaneous records yet been disclosed to the Carey parties and their advisers. Whilst I accept that Freehills' offers of compromise were genuine, they were not "generous" offers. This was so, even though, given what Freehills presumably knew about the strength of its own defence, the offers could not, from Freehills' perspective, be viewed as other than appropriate. The difficulty, viewed objectively from the position of the Carey parties, was that the offers were made at stages in the proceeding when the Carey parties were lacking pertinent information by which to appraise their case.

2.4.4 The offeree's prospects of success, assessed as at the date of the offer 37 The question, what were the Carey parties' prospects of success as at the dates of each offer, must be assessed objectively. In doing so, it is important not to place too much weight on hindsight, which is coloured by the Court's judgment on the cross-claim. Properly framed, the question is whether or not it was reasonable to reject the offers of compromise, having regard to what was known to the Carey parties at the time, not having regard to the ultimate judgment of the Court. As already noted, by the terms of its offers, Freehills disclosed details of its defence. The Carey parties' cross-claim depended, however, on a number of factual and legal questions. As at 8 April 2011 and 9 August 2010, the resolution of key factual issues depended on the nature and cogency of the documentary record, as well as the evidence of the various witnesses, including Freehills' principal witness, Mr Shearwood. Viewed objectively, as at these dates, the Carey parties, via their legal advisers, were not in a position to appreciate fully the difficulties they were to face at the trial because Freehills' documentary record had not been disclosed to them and none of the affidavits in the case had been filed. The resolution of the facts, which as at the date of the two Calderbank offers had to be seen as uncertain, impacted on the nature of the legal issues that were likely to prove critical. As at the dates of the two offers, it might fairly have been said that the Carey parties' case was not untenable, although its likely prospects of success were dependent on various as then unknown matters.

2.4.5 The clarity with which the terms of the offer were expressed 38 The cross-claimants properly accepted that the two Calderbank offers were clear in their terms.

2.4.6 Whether the offer foreshadowed an application for an indemnity costs 39 The cross-claimants properly accepted that the two Calderbank offers foreshadowed a claim for indemnity costs in the event the offers were rejected and the proceedings resulted in a judgment adverse to the cross-claimants.

2.5 Conclusion on indemnity costs 40 On balance, having regard to all the circumstances, particularly the factors set out above, I would not make an indemnity costs order in this case. Freehills have not established that the rejection of the Calderbank offers by the Carey parties on 9 August 2010 and 8 April 2011 was unreasonable (or imprudent) in the relevant sense. Accordingly, I would refuse Freehills' application for indemnity costs from either 9 August 2010 or 8 April 2011. 41 Since Freehills successfully defended the cross-claim against it, however, I would order that the cross-claimants pay Freehills' costs of and incidental to the cross-claim on a party and party basis.

OTHER MATTERS 42 As noted above, the cross-claimants sought an order that the costs of and incidental to certain applications, motions and matters be excluded (collectively, "the excluded matters") from any party and party costs order in Freehills' favour. The cross-claimants submitted that an order in these terms would "provide clarity and guidance to the taxing officer". 43 Broadly speaking, the excluded matters were either matters that did not concern Freehills or matters that it would fall to the taxing officer (or judge, if a lump sum were fixed) to determine at a later date. In so far as these matters did not concern the cross-claim against Freehills, they would not naturally fall within a costs order made in the cross-claim between the Carey parties and Freehills; and accordingly I would say no more about them. In so far as these matters would fall to a taxing officer (or judge, if a lump sum were fixed) it seems to me that they should be left until the proper occasion to consider them arises. 44 Accordingly, I would not make the order sought by the Carey parties in proposed order 1 of the Carey parties' proposed orders. 45 As also noted above, the cross-claimants also sought an order that Freehills pay the Carey parties' costs of and incidental to: (1) the proposed evidence of Richard Gomm, Darren Jackson, David Brownell, Derrick Vickers, David McEvoy and Jorgen Elstoft; and (2) costs "wasted as the case ultimately presented by [Freehills] was not in accordance with its case its case pleaded". 46 The witnesses Gomm, Jackson, Vickers and McEvoy were witnesses for whom the second cross-respondent (ASIC) had prepared affidavits. When the compromise was reached between the second cross-respondent and the Carey parties, it remained open to Freehills to call these witnesses if that proved necessary. It ultimately did not prove necessary to call them. 47 The proposed evidence of Brownell and Elstoft arose directly from Mr Carey's own affidavit in relation to the assistance that the Westpoint Group had received from Boston Consulting Group and Como Consulting with respect to the potential share market float. There could be no doubt that at one stage this was a matter requiring investigation by Freehills. In conformity with the orders of the Court, their affidavits of evidence were filed and served prior to the commencement of the trial. As the trial progressed, however, it became apparent that the evidence of Brownell and Elstoft was unnecessary. This does not, however, disclose any basis for the Carey parties' complaint that costs should be awarded in their favour because potential witnesses for whom Freehills had filed affidavits were not called at trial. 48 Accordingly, I would not make an order in the terms sought by the cross-claimants in proposed order 2.1 of the Carey parties' proposed orders. 49 There is, moreover, little, if any, basis to make an order of the kind sought in proposed order 2.2 of the Carey parties' proposed orders.

DISPOSITION OF COSTS APPLICATION 50 For the reasons stated, I would order that the cross-claimants pay the first cross-respondent's costs of and incidental to the cross-claim on a party and party basis. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

Associate: Dated: 26 November 2013 Annexure "A" THE CROSS-CLAIMANTS' MINUTES OF PROPOSED ORDERS IN RELATION TO COSTS No VID 485 of 2008 IN THE FEDERAL COURT OF AUSTRALIA DISTRICT REGISTRY: VICTORIA DIVISION: GENERAL B E T W E E N NORMAN PHILLIP CAREY & ORS named in the Schedule Cross-Claimants and FREEHILLS & ANOR named in the Schedule First Cross-respondent The Cross-claimants seek that the following orders be made in relation to the costs of the Cross-claim above:

That the Cross-claimants pay the First Cross-respondent's costs of the Cross-claim above on a party and party basis to be taxed if not agreed, with the exception of the costs of and incidental to the following applications, motions and matters: 1.1. The Action by the Plaintiff against the Defendants; 1.2. A foreshadowed application by the First Cross-respondent for security for costs, which was not pursued; 1.3. Any costs incurred by the First Cross-respondent after 11 December 2008 in connection with the Second Cross-respondent's Notice of Motion dated 7 November 2008, consistent with order 5 of the orders of Finkelstein J made on 22 April 2009; 1.4. The mediation before the Honourable Ian Callinan AC in June 2009 and August 2011, including the costs of and incidental to the directions hearing on 28 January 2009 at which the matter was programmed to mediation and the costs of the consent orders dated 29 April 2009; 1.5. The Motion filed by the Fourth Defendant and the Cross-claimants dated 30 March 2009 concerning the joinder of KPMG; 1.6. The Interlocutory Process filed by the Third Plaintiff dated 30 March 2009 concerning the joinder of additional parties; 1.7. The directions hearing before Finkelstein J on 9 April 2009; 1.8. The Amended Notice of Motion filed by the Fourth Defendant and the Cross-claimants dated 22 April 2009, consistent with order 2 of the orders of Finkelstein J dated 6 May 2009; 1.9. The Notice of Motion filed by the Fourth Defendant and the Cross-claimants dated 2 July 2009, seeking discovery of certain categories of documents from the Plaintiff and the Second Cross-respondent; 1.10. The Notice of Motion filed by the Fourth Defendant and the Cross-claimants dated 23 September 2009, seeking further and better discovery of certain categories of documents from the Plaintiff and the Second Cross-respondent; 1.11. The Notice of Motion filed by the Plaintiff and the Second Cross-respondent dated 29 January 2010, regarding the transfer of the Action and related proceedings to the Supreme Court of Victoria, which application was dismissed, and in relation to which Dodds-Streeton J made an order that there be no order as to costs on 22 March 2010; 1.12. The Notice of Motion filed by the Fifth Defendant dated 25 January 2010 seeking orders, inter alia, that the Action be stayed; 1.13. The Third Cross-respondent's Notice of Motion dated 3 March 2010 for removal of the Third Cross-respondent as a party to the Action; 1.14. The directions sought by the Plaintiff and the Second Cross-respondent at the directions hearing on 20 May 2010 for orders, inter alia, in relation to disclosure of the KOR Document Database and the WPC Server Database; 1.15. The Notice of Motion filed by the Plaintiff and the Second Cross-respondent dated 19 May 2010 regarding unmasked documents; 1.16. The Notice of Motion filed by the Fourth defendant dated 10 June 2010, seeking further and better discovery of certain categories of documents from the Plaintiff and the Second Cross-respondent; 1.17. The Notice of Motion filed by the Cross-claimants dated 25 June 2010 seeking further and better particulars from the Second Cross-respondent; 1.18. The Notice of Motion filed by the Third defendant dated 28 June 2010 seeking a stay pending determination of criminal charges; 1.19. The Notice of Motion filed by the Fourth defendant dated 10 August 2010 seeking further and better particulars of the Plaintiff's Amended Statement of Claim; 1.20. The Orders made by Finkelstein J on 25 August 2010 in relation to the Motions dated 19 May 2010, 10 June 2010 and 25 June 2010; 1.21. The Notice of Motion filed by the Plaintiff dated 13 October 2010, regarding variations to asset preservation orders, consistent with the Consent Orders signed by the solicitors for the Plaintiff and the Fourth Defendant dated 23 February 2011, which provide for no order as to costs; 1.22. The Notice of Motion filed by the Cross-claimants dated 24 June 2011 regarding leave to file an amended Cross-Claim against the Second Cross-respondent, leave to interrogate and regarding redacted documents; 1.23. Evidence concerning the solvency of the Westpoint Group on the basis that such was not an issue pleaded by the First Cross-respondent; 1.24. The Notice to Produce dated November 2011 issued in relation to archive boxes in the possession of the First Cross claimant; 1.25. Giving discovery of documents that were not of significant probative value as required by the orders of Kenny J made on 10 March 2011; 1.26. All work undertaken regarding the proposed evidence of Richard Gomm, Derrick Vickers, David McEvoy, Simon Read, Darren Jackson, Craig Colvin SC, David Brownwell and Jorgen Elstoft´ including the preparation of witness statements, any disbursements and expenses associated with these witnesses, including witness fees; 1.27. Subpoenas issued to the Boston Consulting Group; and 1.28. The First Cross-claimant's case that was not in accordance with the case pleaded.
That the First Cross-respondent pay the Cross-claimants' costs of the following, on a party and party basis, to be taxed if not agreed: 2.1. Costs of, and incidental to, the proposed evidence of the following witnesses, including the review of that evidence, the preparation of objections, and the preparation for cross-examination: (a) Richard Gomm; (b) Darren Jackson; (c) David Brownwell; (d) Derrick Vickers; (e) David McEvoy; (f) Jorgen Elstoft 2.2. The costs of the Cross-claimants responding to the case as pleaded, which were costs wasted as the case ultimately presented by the First Cross-respondent was not in accordance with its case pleaded. SCHEDULE OF PARTIES NORMAN PHILLIP CAREY First Cross-Claimant QUARTZ NOMINEES PTY LTD (ACN 008 859 103) ATF THE QUARTZ TRUST Second Cross-claimant HECA NOMINEES PTY LTD (ACN 053 581 874) Third Cross-claimant ACEBID PTY LTD (ACN 074 566 046) Fourth Cross-claimant ANDRIANNI PTY LTD (ACN 005 458 720) ATF THE ANDRIANNI TRUST Fifth Cross-claimant ANN STREET BRISBANE PTY LTD (ACN 101 943 711) ATF THE ANN STREET BRISBANE TRUST Sixth Cross-claimant BENNALONG HOLDINGS PTY LTD (ACN 008 741 008) Seventh Cross-claimant DOSIUS PTY LTD (ACN 009 449 450) Eighth Cross-claimant EARLMIST PTY LTD (RECEIVER & MANAGER APPOINTED) (CONTROLLER APPOINTED) (ACN 069 056 926) ATF THE EARLMIST UNIT TRUST Ninth Cross-claimant ETNAS PTY LTD (ACN 056 599 350) ATF THE ENTAS TRUST Tenth Cross-claimant HEALTHCARE PROPERTIES PTY LTD (ACN 074 501 955) ATF THE HEALTHCARE PROPERTIES TRUST Eleventh Cross-claimant HUNTINGDALE VILLAGE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 085 048 531) ATF THE HUNTINGDALE VILLAGE UNIT TRUST Twelfth Cross-claimant JEVWOOD PTY LTD (ACN 074 525 321) Thirteenth Cross-claimant K.I.S. REALTY PTY LTD (ACN 100 871 314) Fourteenth Cross-claimant KEEP IT SIMPLE INVESTMENTS (GLOBAL) PTY LTD (ACN 100 871 270) Fifteenth Cross-claimant NORTH SYDNEY DEVELOPMENT PTY LTD (CONTROLLER APPOINTED) (ACN 107 037 838) ATF THE NORTH SYDNEY DEVELOPMENT TRUST Sixteenth Cross-claimant PAQUERO PTY LTD (ACN 003 530 556) Seventeenth Cross-claimant PARAGON APARTMENTS LTD (RECEIVER & MANAGER APPOINTED) (ACN 087 200 413) Eighteenth Cross-claimant RENAISSANCE MEZZANINE PTY LTD (ACN 110 978 491) Nineteenth Cross-claimant ROMPRIDE PTY LTD (ACN 074 524 824) ATF THE ERLEY UNIT TRUST Twentieth Cross-claimant SCOTS CHURCH DEVELOPMENT LTD (RECEIVER & MANAGER APPOINTED) (ACN 091 686 323) Twenty-first Cross-claimant SILKCHIME PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 066 849 429) ATF THE SILKCHIME UNIT TRUST Twenty-second Cross-claimant VANNIN PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 067 610 271) ATF THE HAY FAMILY TRUST Twenty-third Cross-claimant WARWICK ENTERTAINMENT CENTRE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 054 246 918) ATF THE WARWICK ENTERTAINMENT CENTRE UNIT TRUST Twenty-forth Cross-claimant WESTPOINT FINANCIAL SERVICES PTY LTD (ACN 074 148 324) Twenty-fifth Cross-claimant WESTPOINT MANAGEMENT (CENTREWAYS) PTY LTD (ACN 082 349 068) ATF THE CENTREWAYS REFURBISHMENT SYNDICATION TRUST Twenty-sixth Cross-claimant

FREEHILLS First Cross-respondent AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Second Cross-respondent

Former Federal Court Rules 1979(Cth)

Federal Court Rules 1979(Cth)

Both the Federal Court Rules 2011(Cth)

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