Chapel Road Pty Limited v Australian Securities Investments Commission

Supreme Court of NSW|2014-05-02|Before: Schmidt J

Judgment 1Judgment was given in this matter in March 2014 (see Chapel Road Pty Limited v Australian Securities Investments Commission (No 10) [2014] NSWSC 346). Chapel Road's claim was dismissed. ASIC now estimates that its costs of defending the proceedings amount to some $1,946,128 plus GST. Relying on an offer of settlement made to Chapel Road in 2011, it seeks the following costs orders: "1. An order that the Plaintiff pay the Defendant's costs of the proceeding, on and from 21 April 2011, on an indemnity basis. 2. An order that Mr Anthony Ronald Bennett (Mr Bennett) be jointly and severally liable with the Plaintiff to pay the Defendant's costs of the proceeding and interest on those costs, including on an indemnity basis if order 1 is made, to the extent of his resources. 3. An order that the security for the Defendant's costs deposited by the Plaintiff with, and held by, the Registrar of the Supreme Court of New South Wales in the sum of $175,000 be released to the Defendant. 4. An order that the Plaintiff pay interest at the prescribed rate on any amount payable under an order for the payment of the costs made in the proceedings, from the date on which each such payment was made. 5. An order that the Plaintiff and Mr Bennett pay the Defendant's costs of this application. 6. Any further order that the Court sees fit." 2These orders were opposed, other than order 3, provided that ASIC undertook to repay that sum in the event that Chapel Road's appeal is upheld. That undertaking has been given. On Chapel Road's case the costs order should be made on the usual basis and there should be no order for interest. 3Mr Bennett accepted that he should be held to his undertaking, in the terms given in his affidavit of 8 March 2012, as clarified at the hearing on 15 March 2012.

ASIC's Calderbank offer of 24 March 2011 4The usual costs order under the Uniform Civil Procedure Rules 2005 is that costs follow the event and that they are paid on a party/party basis (see Rule 42.1 and Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 at 566-7 and Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 97). 5There is no issue that rejection of a Calderbank offer may establish circumstances justifying the exercise of the Court's discretion to depart from the usual order, where, as here, the party making the offer achieves a more favourable result at trial (see SMEC Testing Services Pty Ltd v Campbelltown City Counsel [2000] NSWCA 323 at [37]). 6The Calderbank offer of 24 March 2011 was made at a time when the parties had already incurred considerable costs; after Howie J had identified the problems which Chapel Road faced in establishing the misfeasance in public office it pursued against ASIC (see Chapel Road v ASIC (No 2) [2007] NSWSC 975; Aust Torts Reports 81-912); and where costs orders had already been made by:

Harrison AssJ on 29 September 2006 when Chapel Road's statement of claim was dismissed.
Howie J on 31 July 2007 and 25 October 2007, when an appeal against Harrison AssJ's order was partly upheld and Chapel Road was ordered to pay the costs of ASIC's motion of and incidental to the hearing before Harrison AssJ and that otherwise costs were to be costs in the cause.
Registrar Bradford on 1 May 2008 when giving judgment in relation to discovery, with Chapel Road to pay costs in relation to category 5 and those categories which it did not press at the hearing. Other costs were reserved.
Registrar Bradford on 14 November 2008 when Chapel Road was granted leave to file and serve a further amended statement of claim.
Registrar Bradford on 30 November 2009 when Chapel Road was ordered to provide security for costs in relation to ASIC's application for security. 7ASIC's offer was made to Chapel Road on the basis that: "1. the Proceedings are dismissed with no order as to costs; 2. all previous costs orders are vacated; and 3. your client enters into a Deed of Release on terms acceptable to our client, releasing our client and its officers and employees from any claim by your client, any entities connected with it and those persons standing behind your client, in relation to the cancellation of your client's securities dealers' licence." 8Chapel Road accepted that the offer to forego ASIC's existing entitlement to costs involved a compromise. Whether it was an offer which was, on its terms, capable of acceptance and whether its rejection was unreasonable, as ASIC submitted, were in issue. 9There is no question that offers of settlement, whether made under the Rules as offers of compromise, under the general law as Calderbank offers, or otherwise, are relevant to consider when costs are being ordered in accordance with the discretions granted under s 101 of the Civil Procedure Act 2005 (NSW). Evidence of the making of Calderbank and other offers of settlement is admissible under s 131(2)(h) of the Evidence Act 1995 (NSW), as evidence of communications or documents relevant to determining liability for costs (see Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311 at [41] - [43] and [75] - [76]). 10Relevant considerations as to the exercise of the costs discretion when an offer of settlement is not accepted are those discussed in Hazeldene's Chicken Farm Pty Ltd v WorkCover Authority (Vic) (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25]: "(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; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it." 11Offers of settlement which are conditional upon the execution of a deed of release and a confidentiality requirement, have been held to be a proper basis upon which there may be a departure from the usual costs order (see Magenta Nominees Pty Ltd v Richard Ellis (Western Australia) Pty Ltd [1995] FCA 1492). Rejection of an offer conditional on release in relation to separate proceedings involving different parties has been held not to have been unreasonable (see Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors [2006] NSWSC 583 at [73]). 12ASIC urged acceptance of its March 2011 offer on the basis that the claim advanced would be defended successfully; that Chapel Road's case was weak; and that: "Our client's willingness to settle this matter is not indicative of its assessment of its prospects of success in this matter. Our client is very confident that it will be successful in defending the Proceedings. Our client is of the opinion that your client's case is very weak. As you have informed us, your client is relying on the Court drawing an inference that four officers or employees of our client, including the delegate, acted deliberately and maliciously, in substance as part of a conspiracy, to cancel your client's licence, rather than the most likely inference that our client was of the opinion, formed in good faith, that your client failed to comply with the conditions of its licence which warranted some regulatory intervention." 13Not only did this prove to be an accurate assessment of Chapel Road's case, but the comparison on which Chapel Road's case then depended, that is, that others in a position similar to it had been treated differently, was finally not pursued at the hearing in 2013. 14As was submitted for Chapel Road, at the time of this offer, Chapel Road's case depended on a successful pursuit of discovery of documents. It then did not know that such documents even existed. Further, it emerged that the experts the parties called to give evidence agreed that ASIC's approach to its investigation of Chapel Road had accorded with the policies then in operation. 15In the result ASIC submitted that this was a case like that considered in Rickard Constructions v Rickard Hails Moretti & Ors [2005] NSWSC 481, where it was concluded that circumstances displacing the general costs rule had been established. There McDougall J observed: "17 .... there appears to be an increasing tendency for defendants who have made Calderbank offers and achieved a better outcome to seek indemnity costs from the date of the Calderbank offer, relying on the outcome to show that rejection of the offer was unreasonable. That is hindsight analysis. Whilst every application must be considered and dealt with on its particular facts, I do not think that it follows necessarily from the adverse outcome that rejection of the offer was relevantly unreasonable. The search is always, in the context of the particular case, for "sufficient circumstances to displace the general rule that only party and party costs can be recovered by the successful defendant" (to take, slightly out of context but without thereby destroying their applicability, the words of Santow J at para [52]). That task is to be undertaken notionally as at the time the offer was made and rejected." 16That was a case where the Calderbank offer made was "not a reasoned offer, in the sense that it did not set out, in detail, in summary or at all, the basis upon which it was made or the considerations that, looked at reasonably, would justify its acceptance" (at [34]). It was made after a mediation; its acceptance required "near total capitulation; or, to put it another way, as an optimistic offer" (at [38]). His Honour considered, however, that it offered the "very significant advantage: avoidance of an adverse order for costs" (at [39]). 17The circumstances here were quite different. The offer as to costs offered not only the significant advantage of avoiding extensive further costs being incurred in pursuit of documents which were not known to exist, and the costs of a hearing, but also the advantage of Chapel Road being relieved of the consequences of the costs orders already made against it. 18McDougall J found the question of the costs order in Rickard Constructions difficult to resolve, but concluded that the offer was reasonable. Although the offeror's case was strong, there was still a risk of loss and the offer provided the parties, among other things, with an end to substantial current and prospective costs (at [41]). He concluded that its rejection was unreasonable, whether for commercial, legal or other reasons. 19Here, too, the offer as to costs was plainly advantageous to Chapel Road. Its case was not only weak; in order to establish any strong basis upon which it could have been conceivably advanced, a time consuming and expensive discovery process had to be pursued successfully. The documents later discovered were provided in various tranches in 2011 and 2012, for reasons discussed in decisions earlier given in the proceedings. 20As it transpired, that discovery was ultimately a futile exercise. Had timely advice been sought from the expert Chapel Road later called at the hearing, it appears that it would have learned, without pursuit of that process, that discovery was unlikely to assist it. The aspect of its claim which rested on the discovery process was finally not pursued at the hearing. 21In reaching his conclusion McDougall J took into account a claim abandoned at the hearing and observed: "[44] In this context, I think that it is relevant to have regard to what I found in my first judgment were fundamental flaws in the case put by Rickard Constructions against Allianz. In particular, the circumstances that I canvassed in the paragraphs of those reasons referred to in para [17] and, to some extent, paras [20] to [22] above, suggest that the case for Rickard Constructions misconceived, in serious and fundamental ways, what it had to prove if it were to succeed against Allianz in its claim under the policy. In circumstances where, as I infer is more likely than not, those matters were pointed out to Rickard Constructions prior to and in the course of the mediation, the failure to address them thereafter (including in considering Allianz' Calderbank offer) is strongly indicative of unreasonable behaviour; and not by way of hindsight only." 22Here, too, the claim that Chapel Road had been treated differently to others was not finally pressed. 23McDougall J also took into account that the litigation was funded by another entity and inferred that the litigation was conducted for its benefit and that it was its decision to reject the offer, for reasons not revealed on the evidence. His Honour concluded at [46] that in the absence of any evidence or submission as to the reasons of the likely real decision maker, it was not open to conclude that the decision to reject the offer was reasonable. 24Here, too, it was apparent that the litigation which was ultimately funded by Mr Bennett was pursued for his benefit, given his effective ownership of Chapel Road, through the various entities which he described in his evidence. 25Chapel Road resisted the conclusion that similar orders should be made in this case to those made by McDougall J, because of the terms of the offer and its timing, before the discovery process had been concluded. In my view the discovery process does not assist its case, in the circumstances I have discussed. 26The very fact that Chapel Road did not know if the documents it pursued in the discovery process even existed, is a factor which supports ASIC's case that its offer was a reasonable one in the circumstances. 27In this case, it seems to me, that had ASIC's offer been conditional on the execution of a deed in clear terms by the parties to the litigation and even by Mr Bennett, the costs discretion would have had to have been exercised in ASIC's favour. That, however, was not how the offer was couched. 28Chapel Road resisted the indemnity costs order, submitting that it was not unreasonable that the offer was not accepted, because in its terms the offer made was not capable of acceptance. It relied on Kemp v Ryan & Anor [2012] ACTCA 12 at [12] - [13]: "[12] The Master then discussed the requirements to be satisfied for an offer to constitute a valid Calderbank offer. His Honour observed at [16] that: the terms of the settlement offered must be unambiguously clear [and the offer] must be capable of being accepted and thereby concluding the proceedings by creating a binding contract. [13] There is no dispute that the Master thereby made a correct statement of law by reference to authorities such as John Goss Projects Pty Ltd v Thiess Watkins White Constructions Ltd (in liq) [1995] 2 Qd R 591 at 595; Grbavac v Hart [1997] 1 VR 154 at 160 and M T Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163 at [56]. See also Perry v Comcare [2006] 150 FCR 319 (Perry) at 55-57, cited in Facton Ltd (formerly G-Star Raw Denim KFT) v Seo [2011] FCA 344 and G M Holden Ltd v Paine (No 3) [2011] FCA 693 as authority for the principle that the "central requirements" of a Calderbank offer are that it is "clear, precise and certain". : 29In GM Holden Ltd v Paine (No 3) [2011] FCA 693 it was observed at [7]: "Recently in Facton Ltd (formerly known as G-Star Raw Denim KFT) v Seo [2011] FCA 344 at [55], the applicable principles were summarised as follows: 1. the Court's power to award costs is contained in s 43 of the Federal Court of Australia Act 1976 (Cth). The Court has a wide discretion in the award of costs. It is, of course, a discretion which must be exercised judicially and in accordance with well established principles: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at [8] - [10]; 2. the usual course is to order costs on a party and party basis: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 per Sheppard J; 3. indemnity costs can properly be awarded where the circumstances of the case warrant the Court departing from the usual course of ordering costs on a party and party basis. Those circumstances have been variously described as "some special or unusual feature" and include "an imprudent refusal of an offer to compromise": Alpine Hardwoods at [11] and the authorities cited; 4. Order 23 of the Rules headed "Offer of Compromise and Payment into Court" provides a structure which encourages parties to make and consider fair and reasonable offers to settle proceedings: Alpine Hardwoods at [12] and the authorities cited. It is not however a code: Alpine Hardwoods at [18] and [19]. Parties are also able to rely upon the common law principles in relation to Calderbank letters: Calderbank v Calderbank [1975] 3 All ER 333. A Calderbank letter can be considered by the Court in deciding whether to make an order displacing the usual costs order even if O 23 of the Rules has not been followed: Alpine Hardwoods at [18] and the authorities cited; 5. refusal of an offer which satisfies the requirements of a Calderbank letter does not itself warrant an order for indemnity costs: Alpine Hardwoods at [20], [21], [27] and [28]; Black v Lipovac (by his next friend Lipovac) (1998) 217 ALR 386 at [217]. The onus is on the offeror to show that the conduct of the offeree was unreasonable: Alpine Hardwoods at [21], [27] and [28]. The reasonableness of the conduct is viewed in light of the circumstances which existed at the time the offer was rejected; 6. if, however, the central requirements of a Calderbank letter (that it is clear, precise and certain: Perry v Comcare (2006) 150 FCR 319 at [55] - [57]) are not met, it does not mean that the offer cannot be considered by the Court in the exercise of its general costs discretion. Courts will be prepared to pay some regard to an offer of compromise which purports to be in accordance with the Rules but which for some reason is technically deficient if the terms of the offer are such as to leave the offeree in no reasonable doubt as to the nature and extent of what is being offered: Grbavac v Hart [1997] 1 VR 154 at 155. The offer must be certain: Duncan & Weller Pty Ltd v Mendelson [1989] VR 386 at 401 and Grbavac at 155 and 160. It must be capable of acceptance which, if accepted, would have brought the dispute between the parties to an end: Grbavac at 164; and 7. in determining whether an offer should have been rejected, a Court looks at the "reasonableness of the conduct of the offeree, [when] viewed in the light of the circumstances which existed when the offer was rejected": Black at [218]. It has also been described as whether the rejection of the offer was "imprudent" or "unreasonable" (Black at [52] and [216]) or "imprudent, reckless or unreasonable": United Salvage Pty Ltd v Louis Dreyfus Armateurs SNC [2006] FCA 1611 at [18]." 30In this case, but for the problem with the terms of the release required, an indemnity costs order would be properly made against Chapel Road, given the difficulties confronting Chapel Road at the time that the offer was made, which had earlier been identified by Howie J; that its case depended on its successful pursuit, by way of a very expensive discovery process, of documents it did not know existed; the offer was open for 28 days, a period reasonable in the circumstances; and that there was no response given. The compromise offered by ASIC was a significant one, given not only the costs already incurred, but also what it was prepared to give up, the costs orders earlier made in its favour. In the circumstances, given the nature of the proceedings; the difficulty of proving what is alleged in a tort such as this, discussed by Mullins J in Leinenga v Logan City Council [2006] QSC 294 at [64]; and the risks run by refusing the offer, but for the terms in which the requirement as to a release were expressed, there could be no question as to the unreasonableness of its refusal. 31The problem, it seems to me with exercising the discretion in the way for which ASIC contended, is that what it required was not only a release in unspecified terms, described only as terms "acceptable to ASIC", of it and all of its officers and employees from any claim in relation to the cancellation of Chapel Road's securities dealers' licence, but that the release was required to be given by not only Chapel Road and Mr Bennett, but also by "any entities connected with Chapel Road and those persons standing behind it". 32That requirement was certainly not clear. That it was intended to refer only to Chapel Road's shareholders, as was finally submitted for ASIC, is not apparent. Had that been intended the offer could have said so. Entities "connected with" Chapel Road and persons "standing behind them" suggest a wider, unspecified, group. 33If a deed had been provided with the offer which squarely identified those who ASIC required a release from, that would have not only made the offer certain, a different conclusion may have been available on the question of indemnity costs. At the least that would have revealed whether it was within Chapel Road's power to accept the offer, given the persons and entities ASIC required a release from. 34That was not done. In the result, while it is entirely obvious that this offer was otherwise a reasonable one and that it would have been in the parties' and Mr Bennett's considerable interests, to have settled Chapel Road's claim on the basis offered, it cannot be concluded that the offer was one which Chapel Road was capable of accepting and so provides no proper basis upon which the discretion to make an indemnity costs order can be exercised in ASIC's favour.

Interest 35ASIC's case was that an order under s 101 of the Civil Procedure Act for interest would be made in its favour, in the circumstances of this case. 36Such an order was resisted by Chapel Road, which submitted that a relevant consideration was that it had been put out of use of the money provided by way of security as the result of the agreements and orders earlier made as to security. This was submitted to be a proper consideration in the exercise of the costs discretion, having regard to the parties' competing interests. 37In DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (No 2) [2014] NSWCA 142 it was recently observed at [5]: "... Section 101(4) of the Civil Procedure Act 2005 (NSW) empowers the Court to order that interest be paid on any amount payable under an order for the payment of costs. There is a conflict in the authorities in this Court, some of which are referred to in Zepinic v Chateau Constructions (Aust) Ltd (No 2) [2014] NSWCA 99 at [43] - [44]. On the one hand, in Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211; 84 NSWLR 436 this Court said that "a party who contends that there should be an order for interest on costs must do more than point to the fact that the proceedings were protracted and that it had to outlay moneys on its own costs over a long period". On the other hand, in Drummond and Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331, this Court, differently constituted, said that ordinarily there should be an order for interest on costs." 38In the circumstances of this case, which I have earlier discussed, I am satisfied that justice demands that the interest order be made. 39That either Chapel Road or Mr Bennett have been out of pocket as the result of the security provided, for Mr Bennett's apparent benefit, in order that Chapel Road could pursue what was shown to have been a futile case, is not, in my view, a proper basis upon which the exercise of the discretion to order interest can be refused in this case. 40Chapel Road has long known it faced the difficulties which Howie J had identified. There were various procedural delays when Chapel Road recast its case and later there were delays in providing security. Attention was drawn to the weakness of its case in ASIC's settlement offer. That was at a time when its success depended on the pursuit of a fruitless discovery process. These are not circumstances in which an order for interest can justly be refused, notwithstanding the limited security earlier provided, so that Chapel Road could pursue a case, which on the evidence finally led, was bound to fail.

Orders 41For these reasons I order that: 1. Subject to the costs orders already made in the proceedings in favour of the Plaintiff, the Plaintiff otherwise pay the Defendant's costs of the proceedings, as agreed or assessed. 2. The Plaintiff pay interest at the prescribed rate on any amount payable under an order for the payment of the costs made in the proceedings, from the date on which each such payment was made. 3. Mr Anthony Ronald Bennett be jointly and severally liable with the Plaintiff to pay such costs, and interest on those costs, to the extent of his resources. 4. The security for the Defendant's costs deposited with, and held by, the Registrar of the Supreme Court of New South Wales in the sum of $175,000 be released to the Defendant.

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