Cong Xu v Austino Property Development Pty Ltd

General principles 5The unreasonable refusal of an offer of compromise is an accepted ground for exercising a discretion to award indemnity costs: Colgate Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225; Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 344 at [6]-[8]. The Court of Appeal in Miwa noted (at [8]) that the approach frequently adopted in this jurisdiction, when considering whether a failure to accept an offer of compromise warrants a departure from the usual order as to costs, was: ...to ask two questions, namely whether - (a) there was a genuine offer of compromise, and (b) it was unreasonable for the offeree not to accept it. 6The question whether an offer of compromise is genuine does not depend upon the subjective intentions of the offeror: Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 at [23]; Miwa, supra, at [9]. Rather, the question depends on whether the compromise is real or of substance: Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so: Hobartville Stud v Union Insurance Co (1991) 25 NSWLR 358 at 368 per Giles J. 7A "genuine" compromise has been contrasted with a mere demand for capitulation, or a compromise which is trivial, derisory or contemptuous: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [30]-[31]; Singh v Singh (No 2) [2004] NSWSC 225; Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [30]-[32]. Ultimately, the Court must make a value judgment, in all the circumstances, as to the offer of compromise (and as to the conduct of the parties in relation to it): Leichhardt Municipal Council, supra, at [21]. 8The offer of compromise must be judged, in large measure, as at the time the offer was made: Regency Media, supra, at [33]. 9The Victorian Court of Appeal summarised in Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298; 13 VR 435 at [23]-[25] the principles and factors to be considered when assessing whether a rejection of an offer is unreasonable: The test of unreasonable rejection 23 In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as "manifestly" or "plainly" unreasonable. 24 Of course, deciding whether conduct is "reasonable" or "unreasonable" will always involve matters of judgment and impression. These are questions about which different judges might properly arrive at different conclusions. As Gleeson, C.J. said recently, "unreasonableness is a protean concept". But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this. Factors relevant to assessing reasonableness 25 The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters: (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 an indemnity costs order in the event of the offeree's rejecting it. (Footnotes omitted.) 10The above list of relevant factors was cited with approval in Miwa, supra, at [12] and in Vieira v O'Shea (No 2) [2012] NSWCA 121 at [22].

The offer and submissions by the parties 11The offer was contained in a letter dated 16 July 2013. The letter was expressed to be "without prejudice except as to costs". It noted that the parties had completed service of their evidence and that the proceedings had been listed for hearing on 19 August 2013, and continued (so far as is relevant): In light of the evidence which has now been served, our client is confident that if the matter is pursued to Hearing that he will be successful. However, having regard to the costs associated with pursuing the matter, we are instructed to make the following settlement offer on a purely commercial basis. If your client will agree to Consent Orders being entered on the following terms: 1. A declaration that the Contract for Sale of Land made between the plaintiff as purchaser and the defendant as vendor on 26 May 2011 ("the Contract") be rectified so that the A.C.N. appearing on the Contract for the vendor be described as A.C.N. 127 194 941 instead of A.C.N. 124 934 989. 2. A declaration that the plaintiff validly rescinded the Contract by Notice of Rescission dated 8 October 2012. 3. A declaration that the plaintiff is entitled to have the deposit in the sum of $126,000 paid by the plaintiff pursuant to the Contract ("the Deposit") returned to it by the defendant, along with all interest earned on the Deposit from 26 May 2011 to date. 4. An order that the defendant pay the plaintiff's costs of the proceeding. then our client is prepared to enter into a Deed of Settlement with your client on the following terms: 5. Notwithstanding the Consent Orders, the parties will both sign a direction addressed to Property Square Retail [sic] authorising Property Square Realty to distribute the deposit monies and interest as follows: (a) $116,000 of the deposit plus all interest earned on the deposit whilst invested in Westpac Term Deposit Account No. XXXX, to be paid to the plaintiff; and (b) $10,000 of the deposit to be paid to the defendant. 6. A release by the plaintiff in favour of the defendant following receipt of the monies referred to at (a) above. 7. A release by the defendant in favour of the plaintiff following receipt of the monies referred to a (b) above. 8. An acknowledgement that the terms of the Deed of Settlement do not affect the order that the defendant is to pay the plaintiff's costs of the proceedings. This offer is a significant compromise on our client's part in that he is willing to forego $10,000 of the deposit plus the interest which he has sought pursuant to paragraph 6 on page 2 of the Statement of Claim. 12That reference to interest is to interest claimed pursuant to s 100 of the Civil Procedure Act 2005. The letter concluded by warning that, in the event the offer was rejected, the plaintiff intended to rely on the offer in an application for indemnity costs under the principles in Calderbank v Calderbank. The offer was expressed to remain open until 5.00 pm on 30 July 2013. 13In essence, therefore, the offer required the defendant to capitulate as a matter of public record, in exchange for payment of $10,000 out of the $126,000 (plus interest) in contention (or, as the plaintiff put it in submissions, roughly 8% of the plaintiff's claim). 14The plaintiff submitted that, in so far as 8% was a "small discount", this did not preclude the offer from being one of genuine compromise (citing Leichhardt Municipal Council, supra, at [37]), and the offer was not derisory. The plaintiff submitted that the offer was made a short time before the hearing, when all of the evidence had been served and each party was in a position to assess the strength of their respective cases. The plaintiff also contended that he "had a relatively strong case and the Defendant had a commensurately weak case, and this should have been apparent to the Defendant." 15It was further submitted that the time allowed for acceptance of the offer (14 days) was a reasonable time in the circumstances, that the terms of the offer were clear, and that it was also clear that the plaintiff intended to rely upon the offer in an application for indemnity costs. 16The defendant submitted that the Consent Orders proposed in the first part of the letter mirrored the orders sought by the plaintiff in his Statement of Claim and thus contained no element of compromise whatsoever. Insofar as the letter then offered $10,000 out of the deposit moneys, the defendant submitted that this element of compromise was minimal. This was especially so in view of the fact that the defendant was required to pay all of the plaintiff's costs, at a time when both parties had already incurred most of their costs. 17The defendant also submitted that it was not unreasonable to reject the offer because "it should not have to consider an offer that requires it to execute Consent Orders and then enter into an ancillary arrangement whereby a Deed is required whereby another set of Orders or outcomes is reached". Such an order, it argued, was "confusing...if not improper". 18It was further submitted that the outcome of the proceedings was not so clear that the defendant's prospects of success were slight. Lastly, the defendant submitted that the offer was over-complicated and lacked clarity.

Consideration 19The defendant did not go so far as to submit that the offer was not a genuine offer of compromise. However, even if the offer is treated as a genuine offer of compromise, I have concluded that it was not in all the circumstances unreasonable for the defendant to not accept the offer. 20The offer required orders, essentially as sought in the Statement of Claim, to be made in the plaintiff's favour, with the defendant to pay the plaintiff's costs. As a matter of public record, it required a complete surrender on the part of the defendant. 21In exchange, the plaintiff offered to pay $10,000 to the defendant out of the deposit moneys, which amounted to only about 8% of the plaintiff's total claim. As it happened, this was $10,000 more than the amount to which the defendant was entitled. 22The plaintiff was clearly confident as to his prospects of success - in the event, justifiably so. Yet the conduct of the defendant in rejecting the offer is not to be judged in hindsight. It is true that, at the time of the offer, the evidence was in and the parties were in a reasonably good position to assess the relative strength of their cases. However, the key issues in the proceedings were ones about which reasonable minds could differ. 23Overall, the offer only contained a minimal element of compromise in respect of a claim which was not guaranteed of success. In these circumstances, I do not think that the failure of the defendant to accept the offer has been shown to be unreasonable. 24Accordingly, I decline to make any variation to the existing order as to costs. The plaintiff's application is refused with costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 October 2013