CBA Investments Limited v Northern Star Limited

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40488/01 EQ 50171/99

BEAZLEY JA HODGSON JA ROLFE AJA

22 May 2002 CBA INVESTMENTS LIMITED v NORTHERN STAR LIMITED, RICHMOND-TWEED TV PTY LIMITED & RICHMOND RIVER BROADCASTERS PTY LIMITED (NO 2) COSTS JUDGMENT 1 THE COURT: The judgment in this matter was handed down on 8 April 2002 dismissing the appeal with costs. The first and second respondent subsequently made an application seeking an order for indemnity costs from the date of serving an offer of compromise on the appellant. Pursuant to directions made on 8 April 2002 the parties filed written submissions addressing the issue of whether the appellant should be ordered to pay indemnity costs. 2 On 30 July 2001 the first and second respondent served a Calderbank letter on the appellant: see Calderbank v Calderbank (1975) 3 All ER 333. The letter was in the following terms: "…we have instructions … to consent to a discontinuance of the appeal with each party to pay their own costs of the appeal only. This offer will remain open for a period of 21 days from the date of this letter… We refer you to the decision in Calderbank v Calderbank (1975) 3 All ER 333 and Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425." 3 On 1 August 2001, the third respondent served a letter on the appellant in relevantly similar terms. The appellant rejected the offers. 4 In Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) ALR 425 Rolfe J discussed the principles governing a Calderbank offer by a defendant. His Honour said at 451-452: "…the proper approach to take to an offer of compromise, whether made under the [Supreme Court Rules] or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer…the unreasonableness was the failure by the offeree to accept the offer, which unreasonableness is demonstrated, prima facie, by the ultimate result…Thus the prima facie position having been established the court must be satisfied that an order for indemnity costs is not appropriate." 5 In Black v Lipovac (FCA, 4 June 1998) the Full Court of the Federal Court (Miles, Heerey and Madgwick JJ) commented on Rolfe J's approach. The Court said at para 217-218: "There is a line of authority in the Federal Court supporting the proposition that the mere refusal of a Calderbank offer does not of itself warrant an order for indemnity costs and the offeror needs to show the conduct of the offeree was unreasonable. The cases are WCW Pty Ltd v Charthill (Olney J, 7 July 1992, unreported), John S Hayes & Associates Pty Ltd v Kimberley-Clark Australia Pty Ltd (1994) 52 FCR 201 (Hill J), Sanko Steamship Co Ltd v Sumitomo Australia Ltd (Sheppard J, 7 February 1996, unreported), MGICA v Kenny (1996) 140 ALR 707 (Lindgren J), Fasold v Roberts (Sackville J, 11 September 1997, unreported). To the contrary is the decision of Rolfe J in the Supreme Court of New South Wales in Multicon …His Honour considered that the non-acceptance of an offer more favourable to the offeree than the judgment ultimately awarded prima facie demonstrated unreasonable conduct and the offeree bore the onus of showing why indemnity costs should not be ordered. In reality there is not a substantial difference between the two views; both accept that the reasonableness of the conduct of the offeree, viewed in light of the circumstances which existed when the offer was rejected, is relevant to the exercise of the discretion to award indemnifying costs. To the extent that there is a difference, we would prefer the by now well established line of authority in decisions of single judges of [the Federal Court]." 6 In Coshott v Learoyd [1999] FCA 276 Wilcox J described the difference between Rolfe J's approach and that of the Federal Court as 'more apparent than real'. His Honour said at para 46: "Everybody agrees there can be no fixed rule…Everybody also agrees that, while the ordinary practice is to award costs on a party-party basis, it is sometimes appropriate to take a different course, including ordering indemnity costs against a party who has acted unreasonably. The difference between Rolfe J and the Federal Court decisions seems to turn on whether there should be a "prima facie presumption" of indemnity costs against a party who has not accepted an offer of compromise made pursuant to the Rules or a Calderbank letter and achieved no better result at trial, or whether this is only a factor to be taken into account in determining whether the offeree acted unreasonably. On either view, the Court has to look at the whole situation, including the circumstances that applied at the time of the non-acceptance of the offer." 7 In SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Giles JA noted that the making of an offer of compromise, which is not bettered, does not automatically result in a different order as to costs. His Honour held at para 37: "All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: see for example, John S Hayes & Associates v Kimberley-Clarke Australia Pty Ltd (1994) 52 FLR 201; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FLR 235." 8 The first and second respondents contend that in the circumstances of a successful appeal, there can be no relevant reason for the appellant to have rejected the offer of compromise. The appellant submits that it could not be said that the rejection of the offers was unreasonable. 9 The present case involved the interpretation of a taxation indemnity provision in a lease entered into as part of a complex commercial transaction. The appellant's sought a declaration and order that the respondents be held jointly and severally liable for the tax component paid by the appellant on the expiration of the lease. The trial judge (Bergin J) dismissed the appellant's summons. The Calderbank offers were made approximately six weeks after Bergin J handed down her judgment. Both at trial and on appeal there was only one agreed amount in issue. The verdict for the respondent was for the whole of the amount in issue. This was not a case which involved an assessment of damages. It could be described as 'an all or nothing case'. In one sense there was very little room for compromise. 10 In the final result on appeal the respondents were successful by majority judgment. Hodgson J (with whom Rolfe AJA agreed) favoured the respondents' interpretation of the taxation provisions but noted in his reasons that there were a number of factors supporting the appellant's interpretation. It could not be argued that the appellant's did not have an arguable case. 11 The compromise offered by the respondents involved the value of the costs of the appeal up to the time of the offer. After considering all the circumstances including the fact that this was an 'all or nothing case', we are of the view that the appellant's failure to accept the offer was not 'unreasonable'. 12 The conclusion that we have reached would not be affected if we were to adopt the Rolfe J approach as set out in Multicon and begin from the presumption that the rejection of the offer prima facie demonstrated unreasonable conduct by the appellant. As was noted by the Full Court of the Federal Court in Black v Lipovac whichever approach is adopted all the circumstances must be considered and weighed up. In the context of this 'all or nothing case' where the respondents submitted a 'walk away offer' we are not persuaded that the circumstances warrant in the exercise of the Court's discretion the making of an indemnity costs order. 13 Accordingly, we make the following orders:

(i) The respondents' application for an indemnity costs order is dismissed;

(ii) The respondents to pay the appellant's costs of the application;

(iii) The appellant to pay the respondents' costs of the appeal. ********************

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