Commonwealth Bank of Australia v Hamilton

Judgment 1HIS HONOUR: Judgment in these proceedings was delivered on 14 March 2012 and the following orders were made: (1)Verdict and judgment for the first defendant (Jason Hamilton) against the plaintiff (the bank). (2)Verdict and judgment for the second defendant (Karen Hamilton) against the plaintiff (the bank). (3)Verdict and judgment for the plaintiff (the bank) against the third defendant (Peter Webb) in the sum of $497,056.00 (4)The cross-claims of the cross-claimants (Jason Hamilton and Karen Hamilton) against the cross-defendant (Peter Webb) are dismissed. (5)Verdict and judgment for the cross-defendant (LawCover) in the second-cross claim against the cross-claimant (Peter Webb). 2The parties were heard on the question of costs on 25 June 2012. I was informed that agreement as to costs had been reached between: (i)the plaintiff (the bank) and the third defendant (Peter Webb) and; (ii)the cross-claimant (Peter Webb) and the cross-defendant (Lawcover) 3Orders will be made in accordance with the short minutes that were tendered. 4There were two issues that remain unresolved. The first was whether Peter Webb was to be made liable for the costs of the bank's action against Mr and Mrs Hamilton against whom the bank was unsuccessful. The bank sought an order of the type commonly referred to as a Sanderson order: Sanderson v Blyth Theatre Co [1903] 2 KB 533. The second was a claim by Mr and Mrs Hamilton for indemnity costs. 5Mr Ginges, counsel for Mr and Mrs Hamilton, supported the bank's application for a Sanderson order, but asked that it be made on an ordinary basis even though he foreshadowed that the Hamiltons would be claiming indemnity costs against the bank. Mr Ginges told me that agreement had been reached with Mr Webb as to the quantum of costs should a Sanderson order be made. Mr and Mrs Hamilton did not ask for a Bullock order: (see Bullock v London General Omnibus Company [1907] 1 KB 264) as they had reached an agreement with the bank during the proceedings that they would not enforce any costs orders that might be obtained against the bank. 6Mr Argyropoulos, who appeared for Mr Webb, said that the third defendant neither consented to nor opposed the making of a Bullock or Sanderson order, but that agreement had been reached with Mr and Mrs Hamilton as to the total amount (including the cross-claim) that he might be liable for their costs. 7The approach taken for Mr and Mrs Hamilton entails: (a)an order that Mr Webb pay the costs of the proceedings in which they were successful as against the bank (a Sanderson order), but those costs be limited to an ordinary basis (or whatever might be the amount agreed with Mr Webb) and; (b)an order that the bank pay their costs on an indemnity basis, with the bank's liability for costs being restricted to the difference between the costs assessed on an indemnity basis and those costs assessed on an ordinary basis to be paid pursuant to the Sanderson order by Mr Webb. 8Mr Ginges asked for such orders notwithstanding the agreement that his clients entered into with the bank during the proceedings. One of the arguments advanced by Mr Smallbone, counsel for the bank, was that any such order for indemnity costs was futile and should not be made because of that agreement. Mr Ginges contended that the court would not need to consider the agreement between Mr and Mrs Hamilton and the bank and the question of futility did not arise as his clients were seeking other advice. 9At the conclusion of oral submissions, I indicated to the parties that I proposed to make a Sanderson order. 10Although costs are in the discretion of the court (s 98 Civil Procedure Act 2005), r 42.1 Uniform Civil Procedure Rules (UCPR) creates a presumption that costs "follow the event". Mr and Mrs Hamilton are entitled to an order for costs against the bank unless the court determines that some other order be made. The bank and Mr and Mrs Hamilton submit that, in the circumstances of the case, a Sanderson order is warranted. 11The underlying principle is one of fairness: Council of the City of Liverpool v Turano [No 2] [2009] NSWCA 176 at [14-15]. In determining whether it is fair to impose liability on the unsuccessful defendant for the costs of the successful defendants, two matters require consideration. Firstly, was it reasonable and proper for the bank to join the successful defendants?: Roads and Traffic Authority of NSW v Dederer [2007] HCA 42; (2007) 234 CLR 330; Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215. Secondly, there must be some conduct on the part of the unsuccessful defendant that makes it fair to impose liability on it for the successful defendants' costs: Gould v Veggleas; Turano [No 2]. 12In this case, it was reasonable and proper for the bank to join Mr and Mrs Hamilton. It is fair to impose liability upon Mr Webb for the Hamiltons' costs as it was his dishonest participation in the deception of the bank that was vital to the success of Mr Lee's fraudulent scheme. As a consequence of his conduct, the bank lost the ability to recover from Mr and Mrs Hamilton all of the moneys advanced. The justice of the case requires the making of a Sanderson order. 13Accordingly, Mr Webb should pay the Hamiltons' costs of the bank's proceeding against them. The justice of the case also requires Mr Webb to pay the costs of the Hamiltons' cross-claims against him as the bank's lack of success against Mr and Mrs Hamilton rendered their cross-claims nugatory. In these circumstances, the presumption that costs "follow the event " is displaced. Such costs are to be assessed on an ordinary basis or in the amount agreed between the Hamiltons and Mr Webb. 14The question remains whether the Hamiltons should have indemnity costs in the bank's proceedings against them, so that the bank be ordered to pay the difference between the ordinary costs payable by Mr Webb and costs assessed on an indemnity basis. 15The basis of the Hamiltons' claim for indemnity costs is that they made Calderbank offers of compromise to the bank. The first offer was made by letter dated 10 May 2007 from the Hamilton's solicitor Andrew Luong. The letter, relevantly, states: "...we are instructed to seek a resolution by offering to give the bank possession of the mortgaged property on condition that each of our clients be released from their respective mortgages on an indemnity basis. This offer is made in accordance with the Calderbank v Calderbank principle and we reserve our rights to rely upon this letter as to the issue of costs should legal proceeding eventuates (sic)". 16The offer was also made on behalf of Ms Beresford-Maning, who was not a party to the present proceedings. The bank, however, appears to have understood that the offer was confined to Ms Beresford-Maning and Mr Smallbone submitted that it was. It is evident, however, from the letter that the offer embraced Mr and Mrs Hamilton as well as Ms Beresford-Maning. 17It is surprising that when Robert Ralston, the bank's credit manager, responded by letter dated 14 May 2007 to Mr Luong in terms which manifested a misunderstanding that the offer was confined to Ms Beresford-Maning, that the position was not clarified in further correspondence. Mr Luong, it seems, took Mr Ralston's advice that it was "premature to make a Calberbank offer" to be a rejection of the Hamilton and Beresford-Maning offers. It appears that the offer of settlement was subsequently rejected as "a without prejudice settlement conference" was held on 19 July 2007 which was unsuccessful. The bank commenced proceedings against Mr and Mrs Hamilton on 2 October 2007. 18The second offer was contained in a letter dated 11 January 2008 from Mr Luong to Gadens Lawyers. The Hamiltons proposed that the following consent orders be made: "1. The plaintiff be given possession of the Land. 2. The proceedings otherwise be dismissed with each party to pay its own costs." 19The bank rejected the offer, but the Hamiltons on 4 May 2010 consented to orders being made for the bank to have possession of units 12 and 13 Lydbrook Street (the land). Furthermore, the bank and the Hamiltons entered into an agreement in September 2010, whereby they agreed to "limit their dispute." The terms of the agreement included the following: "1. The Bank agrees that it will not enforce or proceed to execution upon any money judgment or costs judgment that it obtains against Mr & Mrs Hamilton or either of them in the above mentioned proceedings, whether for principal, interest, rents, profits or costs, except to the extent of any recovery made by Mr & Mrs Hamilton or either of them against the cross defendant Lee or the cross defendant Webb or against any other third party in respect of the same loss or indemnified liability. ... 7. Mr & Mrs Hamilton agree that they will not enforce or proceed to execution upon any costs order that they obtain against the Bank in the proceedings. 8. Mr & Mrs Hamilton agree that they will forever withdraw and abandon their defences under the Contracts Review Act, the Consumer Credit Code, the Trade Practices Act and the ASIC Act..." 20There are a number of principles fundamental to the exercise of the discretion to award indemnity costs in the case of a Calderbank offer. First, the court's power to make an order for indemnity costs is enlivened with the rejection of a Calderbank offer where the final result is less favourable to the offeree. It does not create a prima facie right to such an order: Chief Commissioner of State Revenue v Platinum Investments Management Ltd (No 2) [2011] NSWCA 197. Second, the Calderbank offer must have been shown to have been a genuine offer of compromise: Leichhardt Municipal Council v Green [2004] NSWCA 341. Third, it must be demonstrated that the rejection of the offer was unreasonable: Ofria v Cameron (No 2) [2008] NSWCA 242. The Hamiltons bear the persuasive burden of satisfying the court to exercise its discretion in their favour. 21I do not think that the "final result" should be confined to the court's orders so that what occurred between the Hamiltons and the bank during the proceedings is to be ignored. The Hamiltons consented to the bank having possession of the land and to the non-enforcement of any costs order that might be obtained against the bank. It is far from clear that the reality of the final result was less favourable to the bank than the offers that were made. 22In any event, I am not persuaded that it was unreasonable for the bank to reject the offers. Mrs Hamilton bore the onus of establishing that the signature purporting to be hers on the loan agreement, the mortgage and the guarantee were forgeries. Other important issues were whether she had adopted the loan agreement and had provided Mr Webb with the authority to act for her on the transaction and to request cheque 14. I do not accept Mr Ginges's submission that "the bank ... must have known ... that it had a poor case against Mrs Hamilton." 23The question of forgery did not arise in Mr Hamilton's proceedings. Mr Ginges contended that Mr Hamilton had a substantive defence under "the Consumer Code", which was subsequently abandoned in the agreement with the bank. Although defences founded upon the Contracts Review Act 1980, the Trade Practices Act 1974 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) were pleaded, it was by no means certain that those defences would have been successful. 24Mr Ginges criticised the bank's approach to the proceedings, contending that its assertion of fraud extended the length of the hearing. Although the hearing went beyond the original estimate, the finding of Mr Webb's dishonesty advantaged Mr and Mrs Hamilton and I do not accept this argument. 25Mr and Mrs Hamilton have not demonstrated that the rejection of the offers by the bank was unreasonable. I do not propose to make an order for indemnity costs. 26Mr and Mrs Hamilton obtained summary judgment against Graham Lee and an itemised schedule of their costs has been sent to me in chambers. I will make an order for costs in the amount sought. Orders 27Accordingly, I make the following orders: