Solicitors:
Reuben George Lawyers (Plaintiff)
Colin W Love & Co (Defendant )
File Number(s): 2016/00169811
[2]
Judgment
The application before the Court is one brought by the defendant, in essence, for a special order as to costs.
On 28 September 2017, judgment was entered by the Court for the defendant on the plaintiff's claim in debt: Chawla v FAL Healthy Beverages Pty Ltd [2017] NSWDC 270. The Court reserved the question of costs. When judgment was handed down, counsel for the defendant indicated that a special costs order would be sought and directions were made for the filing of brief written submissions. Oral submissions were made by the parties on 25 October 2017.
In support of its application, the defendant relied on an Offer of Compromise dated 21 July 2016 and, in the alternative, on a Calderbank letter dated 25 August 2017. There was no issue in relation to the service of both documents on the dates indicated.
The defendant submitted, in summary, as follows:
1. Costs should follow the event;
2. The only variation to the usual costs order which should be made by the Court is that the defendant should be awarded its costs on an indemnity basis from 22 July 2016 (the day after service of the Offer of Compromise) or, in the alternative, from 25 August 2017 (the date of the Calderbank letter) on the basis of the plaintiff's refusal of the offer to compromise in both of those documents.
The plaintiff submitted, in summary, as follows: first, that no special costs order should be made; secondly, the defendant relied on a significant defence in its pleading which was abandoned at trial; thirdly, the defendant should not be awarded costs for issues which were abandoned by it; fourthly, as a result the defendant should not be entitled to its costs from the plaintiff; fifthly, in the alternative, any costs awarded should be significantly discounted from those which would usually be awarded to a party who was successful in litigation.
In my view, it is important to set out the procedural background to the matter:
1. The plaintiff commenced proceedings against the defendant by way of Statement of Claim filed on 2 June 2016. That claim was one in debt and sought to claim a contractual entitlement under the employment contract to payment in lieu of an alleged six month notice period to which the plaintiff was said to be entitled together with superannuation. Although there was a reference in paragraph 8 of the Statement of Claim to "breach" of the Contract, no relief was claimed for damages;
2. By a Defence filed 21 July 2016, the defendant denied that the plaintiff had any entitlement to any claim for an amount of money calculated pursuant to Clause 30.1 of the employment contract, denied that it breached its obligations under the employment contract as pleaded, and stated that the employment contract was terminated by the defendant pursuant to the defendant's rights to terminate the employment contract set out in Clause 30.4 of the employment contract which was a clause relating to dismissal for cause (paragraphs 7-8 especially paragraph 7(d)). Accordingly, Clause 30.4 was pleaded by the defendant before receipt of the plaintiff's affidavit evidence;
3. The Offer of Compromise relied upon was dated the same day as the Defence was filed. Accordingly, any expenditure by the defendant in legal costs up to that date was modest. There was no evidence before me as to the quantum of that expenditure;
4. Short Minutes of Order were made on 28 September 2016 by the Judicial Registrar in relation to discovery and the service of evidence;
5. It appears from the Court file that evidence was served by the plaintiff and further orders were made on 8 March 2017 for the service of evidence by the defendant and reply evidence by the plaintiff;
6. An Amended Defence was filed by the defendant on 3 April 2017. This pleading added detailed additional allegations relating to the plaintiff's alleged employment by Mad Mex Franchising Pty Ltd which would have arguably entitled the defendant to have terminated the employment of the plaintiff pursuant to Clause 30.4.1 of the employment contract: see paragraph 7(e) of the Amended Defence. It was also pleaded that the plaintiff suffered no loss;
7. Orders were made on 8 May 2017 setting the matter down for hearing. These included that the defendant had leave to rely on the Amended Defence filed on 3 April 2017 and for the filing of a Reply by the plaintiff;
8. A Reply was filed late on 7 August 2017. It pleaded that consent was provided by the defendant for the continued employment with Mad Mex by the plaintiff by conversations with senior officers of the defendant being a director, Mr Xenos, and a senior employee, Mr Refaat. Significantly, in paragraph 10 of the Reply, the plaintiff denied paragraph 11(c) of the Amended Defence and pleaded that the plaintiff was not required to mitigate any loss or damage as the plaintiff did not make a claim for loss or damage but rather made a claim in contract alone and, accordingly, there was no requirement to mitigate. Although the defendant argued the pleading was somewhat vague it appears to me to make the plaintiff's claim clearly one in debt;
9. The defendant's written submissions referred to various affidavit evidence served in the proceedings which was not before me at the final hearing or on the application;
10. The Calderbank letter which I have referred to earlier was then served by the defendant. This conveyed a further offer to settle to the plaintiff to pay him $12,500 inclusive of legal costs, interest, GST and any other amount. The offer was open for acceptance until a time on 1 September 2017 and was effectively rejected by non-acceptance;
11. The defendant says that prior to service of the Reply and an affidavit, the defendant had no way of knowing that it may have consented to the plaintiff remaining employed with Mad Mex. It is then said that upon consideration of the plaintiff's evidence, the defendant invited the plaintiff to agree to facts and issues so as to have the matter heard within the shortest time possible rather than to take up the two days allocated for hearing;
12. There was no evidence before me of correspondence between the parties seeking further and better particulars by the defendant to ascertain the defence on which the plaintiff was intending to rely in resisting the claim of dismissal for cause under Clause 30.4 of the contract.
In the light of the above matters, it is submitted by the defendant, as follows:
1. Section 98 of the Civil Procedure Act 2005 (NSW) gives the Court a broad discretion as to what costs orders to make but that discretion must be exercised judicially;
2. The purpose of an order for costs is not to punish the unsuccessful party but to compensate the successful party for the expense of conducting the proceedings, the subject of the costs orders;
3. There is a presumption that costs follow the event: Part 42.1 of the Uniform Civil Procedure Rules 2005 ("UCPR"). This presumption may be displaced;
4. Part 42 Rule 15A of the UCPR entitles a defendant to indemnity costs from the day following the day an Offer of Compromise was made by it if that Offer was not accepted by the plaintiff and the defendant obtains an order or judgment on the claim no less favourable to the defendant;
5. The Offer complied with Part 42.15A and, accordingly, an appropriate indemnity costs order should be made as sought;
6. Alternatively, the Court should award indemnity costs on the basis of an unreasonable rejection of the Calderbank letter;
7. The fact that the defendant did not pursue every aspect of its Defence at hearing is irrelevant. It is said that no evidence was served by either party on the application of Clause 30.4 of the Contract and the defendant's decision not to rely upon the double employment defence with Mad Mex and the defendant in relation to the plaintiff, was entirely reasonable. Although it is said that Mr Refaat claims that he did not consent to the double employment, Mr Xenos deposed to having consented. Further, if the defendant could not have been expected to obtain instructions from Mr Xenos, there was no conduct on the part of the defendant that disentitles it to its costs.
The plaintiff submits, in summary:
1. There should be no indemnity costs order because there should be no usual costs order;
2. The defendant abandoned its pleaded Defence;
3. The case as run at trial was substantially reduced from the case on the pleadings;
4. This was referred to by the Court in its reasons for decision: although the usual order as to costs is that cost follow the event, the costs should be fair and reasonable and where significant issues are abandoned there should be a discount from those orders or no costs orders should be made in favour of the plaintiff.
[3]
Relevant Statutory Provisions and Rules
Section 98(1) of the Civil Procedure Act 2005 (NSW) provides:
Courts powers as to costs
(1) Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.
Part 42.1 of the UCPR provides
42.1 General rule that costs follow the event (cf SCR Part 52A, rule 11)
Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.
Part 42.15A of the UCPR provides as follows:
42.15A Where offer not accepted and judgment no less favourable to defendant
(1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer.
(2) Unless the court orders otherwise:
(a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and
(b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis:
(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and
(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
[4]
Principles applicable
As submitted by the defendant, the Court has a discretion in relation to the question of costs. However, it is not an unfettered discretion and must be exercised judicially and in accordance with established cost principles.
The usual rule is set out in Part 42.1 of the UCPR which is that the Court is to order that the costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs.
The event in the present case is whether the plaintiff was successful in establishing an entitlement to the contractual debt which he asserted. The plaintiff was not successful and the defendant instead was successful in resisting the claim. Accordingly, the general rule, in those circumstances, is that the defendant would have an order for costs on the ordinary basis. In the present case, the defendant not only seeks an order for costs but a special order for costs in the light of its Offer of Compromise and, in the alternative, its Calderbank letter.
The plaintiff in the present case points to the failure by the defendant to pursue a pleaded Defence being a Defence based on a dismissal for cause of the plaintiff under Clause 30.4 of the Contract. It is said that the defendant should either not be awarded any costs or should have its costs reduced and that in those circumstances a special order for costs is not appropriate.
In some circumstances, it may be appropriate to make a proportionate finding as to the time spent on the issues on which the successful party has failed: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 at [25].
Generally, however, the Court will not apportion costs where a party has been successful on some issues and not on other issues, unless there are exceptional or unusual circumstances. In McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 306 at [21] Ward J stated as follows:
[21] It has been said that the discretion to apportion costs is one to be exercised only in the most exceptional of circumstances (Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201 ; (1979) 42 FLR 213; (1979) ATPR 40-141) and, as noted above, in Cretazzo v Lombardi (1975) 13 SASR 4, at 12, Jacobs J recognised the need for the court to be mindful not to discourage litigants from canvassing all material issues for fear of an adverse costs order (and see Stena Rederi Aktiblag v Austal Ships Sales Pty Ltd [2007] FCA 1141, at [12]).
Later her Honour stated the following at [43]:
[43] Overall, I am not satisfied that this is a case in which fairness demands an apportionment of the costs referable to separate issues in the proceedings and, in saying this, I am mindful of the caution that the ultimate ends of justice may not be served if a party is dissuaded by risk of costs from canvassing all issues which may be material to the determination of the case, to paraphrase from what was said by Jacob J in Cretazzo (at 12).
McLaughlin has been referred to with approval in later cases. However, of course, each case needs to be considered on its facts: see the comments of Davies J in AAP Industries Pty Ltd v Rehau Pty Ltd (No 2) [2017] NSWSC 1136 at [64]. In some cases a reduction in a party's costs because some issues were not established is appropriate: see Misek v McBride (No2) [2017] NSWSC 796 at [35].
In the present case, the only evidence before the Court on the application was the Offer of Compromise and the Calderbank letter being the letter from Colin W Love & Co Lawyers, to Reuben George Lawyers dated 25 August 2017. There was no evidence before the Court in relation to the affidavit evidence which was served in the course of preparation for trial. Accordingly, the Court is left to infer matters from the pleadings and from the interlocutory orders made as reflected on the Court file. I have set out the procedural history above.
I am therefore not in a position to determine what resources were devoted to the potential defence under Clause 30.4 of the Contract in the light of the agreed issues which were placed before me at the final trial. This has placed the Court at a considerable disadvantage.
[5]
The Offer of Compromise
In relation to the reliance by the defendant on the Offer of Compromise, it appears, as stated above, that the Offer complied with Part 42.15A. However, as indicated, the Offer was dated the same date as the Defence was filed. There is no evidence before the Court as to the legal costs and disbursements incurred by the defendant as at that date.
In Toyota Finance Australia Ltd v Gardiner (No 2) [2016] NSWCA 181 the Court of Appeal stated as follows at [13]-[18]:
[13] Rule 42.15A of the UCPR applies when a defendant has made an offer which is not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of that offer. In those circumstances, the defendant is entitled to a special costs order from the time the offer was made, unless the Court orders otherwise. This rule is applicable to appeals: UCPR rr 51.47 and 51.48.
[14] The making of a valid offer of compromise does not, however, guarantee a special costs order. This is a matter for the Court's discretion.
[15] It is clear that "where no significant compromise at all is made by a party to an appeal, the default position provided for in the rules will not be applied": Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3 at [5]; Taheri v Vitek (No 2) [2014] NSWCA 344 at [9]-[11].
[16] In the present case, the offer of compromise was made by the respondent almost immediately after the Notice of Appeal had been filed. No evidence was filed by the respondent which identified any amount of solicitor's costs or counsel's fees which would have been forgone by the respondent had the offer of compromise been accepted.
[17] Acceptance of the offer required "almost complete capitulation" by the appellant and, in our view, it would not be appropriate in those circumstances for the appellant's non-acceptance of this offer to result in a special costs order.
[18] The respondent has not demonstrated that its offer of 11 December 2015 represented a genuine compromise. It follows that the order of the Court as to costs made on 12 July 2016 should not be varied.
In considering the application, I also note the following general principles:
1. In circumstances where there is a valid Offer of Compromise, it is for the offeree to establish a proper basis for depriving the offeror of the prima facie entitlement to costs: Nominal Defendant v Hawkins [2011] NSWCA 9 at [53];
2. Exceptional circumstances are not necessary before the Court may "otherwise order": Regency Media v AAV Australia Pty Ltd [2009] NSWCA 386 at [15];
3. The discretion to otherwise order should be exercised having regard to all the circumstances of the case: Perisher Blue Pty Ltd v Nair Smith (No 2) [2015] NSWCA 268 at [32].
Putting aside the general costs order which should be made, in my view this case is very similar to the Toyota Finance Australia Ltd case, above, for the following reasons:
1. As stated, in that case the making of a valid Offer of Compromise does not guarantee a special costs order. It is a matter for the Court's overall discretion;
2. No significant compromise at all was made by the defendant in the present case. Acceptance of the offer required "almost complete capitulation" by the plaintiff. There was no evidence filed by the defendant which identified any amount of solicitors' costs or counsel's fees which would have been foregone by the defendant had the Offer of Compromise been accepted. It is, however, to be assumed that some costs would have been incurred;
3. In those circumstances, the Offer of Compromise did not appear to be a genuine compromise. No payment of any money was proposed;
4. Accordingly, in all those circumstances, in my view, a special costs order made on the basis of the non-acceptance of the Offer of Compromise is not appropriate. The offer did not amount to a compromise but rather in substance amounted to a complete capitulation by the plaintiff.
[6]
The Calderbank letter
Turning to the Calderbank letter, the rejection of a Calderbank letter does not mean that indemnity costs follow as a matter of course. It must be demonstrated that rejection of the offer was "unreasonable" in all the circumstances of the case: Leichardt Municipal Council v Green [2004] NSWCA 341 at [19]; Jones v Bradley (No 2) [2003] NSWCA 258 at [12]; Russell v Edwards (No 2) [2006] NSWCA 52 at [8]; Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [7].
In my opinion, the failure by the plaintiff to accept the Calderbank offer was not unreasonable in the circumstances. That is because Clause 2 on the second page of the letter required the granting by the plaintiff of "full releases and indemnities" and the plaintiff agreeing "to confidentiality and non-disparagement clauses". It is unclear what these terms meant and whether releases and indemnities being "full" related to matters other than the issues in dispute in the proceedings. No draft Deed as proposed was attached to the letter. In those circumstances, in my view, it was not unreasonable for the plaintiff not to accept the offer.
Accordingly, in my opinion no indemnity costs order should be made either in relation to the Offer of Compromise or the Calderbank letter. That leaves the question of the general costs of the proceedings.
[7]
Should the usual costs order be made?
It seems to me, from the history of the matter and the pleadings, that the defendant relied for some considerable time on the defence under Clause 30.4 of the Contract. Presumably, it thought it had some proper basis for doing so. Because of the agreed terms at the trial I am not in a position to determine what efforts or costs were devoted to this defence. Although matters are referred to in the submissions of counsel for the defendant on the costs issue, the evidence before me does not allow this issue to be fully investigated. However, it seems the plaintiff's alleged double employment was a matter which at least was thoroughly investigated and led to affidavit evidence being served and the Amended Defence.
This defence was not pursued at the trial and a defence based solely on the argument that Clause 30.1 was inapplicable was relied on together with the submissions about Clause 30.2.
In my view, exercising the discretion which I have as to costs, there should be carved out in relation to an order for costs the time spent in relation to the Clause 30.4 defence. Reliance on a dismissal for cause is a very significant defence in relation to an employment contract. The defence was relied upon from 21 July 2016 and expanded in the Amended Defence. Regrettably I am not in a position to determine this as a percentage which would save the parties some time in an assessment. In my view, within the Dungowan Manly case principles, there are exceptional circumstances because of the reliance on that clause by the defendant.
I encourage the parties to try and resolve this costs issue on a percentage basis.
For these reasons I make the following Orders:
1. The plaintiff is to pay the defendant's costs of the proceedings as agreed or assessed except the defendant's costs in relation to the pleaded defence under Clause 30.4 of the employment contract between the plaintiff and the defendant dated 23 November 2015.
2. The application of the defendant for indemnity costs is dismissed.
In relation to the question of the costs of the application, I note that the plaintiff sought in his counsel's submissions (paragraph 13) that the defendant should not, in the circumstances, be entitled to its costs from the plaintiff. The parties have each had some success in the application.
Accordingly, exercising my discretion as to costs under Part 42.1, in my view, each party should bear his or its own costs of the application.
[8]
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Decision last updated: 03 November 2017