Darzi Group Pty Ltd v Nolde Pty Ltd [2022] NSWSC 645 | Case summary

Darzi Group Pty Ltd v Nolde Pty Ltd [2022] NSWSC 645 | Case summary | Zoe

Darzi submitted that the offer that it made was a genuine compromise, because, at the time, Darzi had incurred costs of $12,117.50. Those costs had been incurred by reason of Nolde's wilful refusal, first, to register the original lease as ordered by the New South Wales Court of Appeal in Darzi Group Pty Ltd v Nolde Pty Ltd [2019] NSWCA 210, and, secondly, to grant a new lease in accordance with its contractual obligation to do so in accordance with the exercise by Darzi of an option for renewal.
Darzi submitted that, in those circumstances, and given the offer was made at an early stage of the litigation, Darzi's willingness to forgo its costs was a genuine compromise on its part. In circumstances where Darzi was seeking to obtain its new lease, the only compromise it could make was as to its costs, and it offered to forgo all of them. Darzi submitted that it was not a desultory offer designed to trigger an indemnity costs order. Consequently, the compromise offered was a genuine one.
Darzi submitted that the rejection of the offer by Nolde was unreasonable in the circumstances because it ought to have been plain from the matters cited in Darzi's solicitors' open letter of 27 September 2019 that any resistance to renewing the lease based upon the grounds relied upon by Nolde was doomed to fail, and the reasons cited by Nolde's solicitors for rejecting the offer were that: there are issues with the exhibits to the new lease, that need to be resolved before the new lease can be executed, including the fact that the floor plan annexed to the new lease is factually inaccurate and that there is equipment listed in the "Additional Leased Property" schedule that is not the property of our client and that it does not have a right to lease - agreements will have to be made to resolve this.
Darzi pointed out in its submissions that the exhibits that were referred to in the letter were precisely the same exhibits as to the original lease, being the document referred to in the Court of Appeal's decision as the "15 June Document", which Nolde was ordered to register, but did not initially do so.
Darzi's submissions then anticipated the principal argument that Nolde would raise in opposition to Darzi's application, being the assertion that the proceedings changed substantially in nature between their commencement and the trial. I will explain that change below. Darzi's anticipatory response was that the main issue was and remained Darzi obtaining an order for specific performance against Nolde to sign and register the new lease. Furthermore, the catalyst for the change in the nature of the proceedings was brought about by Nolde foreshadowing the filing of a cross claim. Finally, Darzi submitted that if Nolde had accepted the offer it would have avoided the obligation to pay any of Darzi's legal costs. The result of the proceedings is that Nolde must pay the whole of Darzi's costs of the proceedings, including Nolde's cross claim. Although those costs have not yet been assessed, they will be substantial.
Nolde's primary response to these submissions was to submit that its failure to accept the offer was not unreasonable in the circumstances, and does not justify the Court ordering Nolde to pay any part of Darzi's costs of the proceedings on the indemnity basis, because: 1. The offer was not open for acceptance for a reasonable period of time. 2. The offer was not a genuine offer of compromise but rather was an invitation to Nolde to capitulate. 3. The offer was not capable of acceptance by Nolde in the limited time it was open for acceptance. 4. The offer was made at a very early stage of the proceedings, and after the offer was made there were various new disputes which arose between the parties, and which became the primary focus of the proceedings thereafter.
In support of point (1), Nolde submitted that the question of the reasonableness of the time allowed to an offeree to consider an offer must be judged objectively in the circumstances known, or which should reasonably have been anticipated, by both parties at the time the offer was made: see, e.g., Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 at [22] (Basten JA, Giles and Tobias JJA agreeing at [1]).
Nolde's submissions in support of its point (1) were, in summary:

The strength of Nolde's point (1) must be assessed in its proper context. That is that Darzi had succeeded in the Court of Appeal in obtaining an order that Nolde was obliged to grant a lease to Darzi in the terms of the document that was called the "15 June Document". That document contained an option to renew, and because of the effluxion of time taken by Darzi to obtain a successful result in the proceedings, Darzi had exercised its option to renew before it filed its summons in these proceedings. The principal objective in these proceedings was for Darzi to enforce its entitlement to the grant of a new lease.
It was clear on the evidence in the proceedings before this Court that Mr Koorey, who tendered evidence of his wealth which he claimed was sufficient to justify the Court in ordering Nolde to pay damages to Darzi rather than to order the specific performance of the agreement to grant a new lease, was simply not prepared to comply with the Court of Appeal's orders in accordance with their terms. Nolde's failure to comply promptly with those orders and its claim to be entitled to refuse to grant the new lease to Darzi on what were obviously spurious grounds were in my view a flagrant attempt to avoid compliance with the Court of Appeal's orders.
It would not be appropriate for the Court to consider the sufficiency of the 14 day period to accept the offer as if the proceedings had been commenced by the filing of the statement of claim, so to speak, out of the blue, so that Nolde needed a reasonably lengthy time to determine its legal position and decide whether it was reasonable to accept the offer. Plainly, the purpose of the filing of the summons and the making of the offer was to jolt Nolde into the realisation that due and prompt compliance with the orders of the Court of Appeal of this State was essential.
Although there was evidence that Nolde's former solicitors had ceased to act for it on 8 October 2019, there was no evidence as to the circumstances in which that event took place.
I am satisfied that 14 days was a sufficient time in the circumstances for Mr Koorey to advise Darzi's solicitors that Nolde would accept the offer. It may have been reasonable, had it been the case, for Mr Koorey to have advised Darzi's solicitors that he might not be able to execute the required acts in the 14 day period if he could not obtain new legal representation, or the ANZ did not act quickly enough to provide LRS with a consent to registration of the new lease. If Mr Koorey had done that, but Darzi had not extended the time to enable him to do it, then the Court might have been justified in finding that Darzi's conduct was unreasonable.
Nolde's submission that the 14 day period was not reasonable is artificial because Nolde's subsequent conduct clearly demonstrates that it had no intention at all to accept any such offer as was made by Darzi, and instead it searched for more tendentious grounds upon which to resist the relief sought by Darzi in the summons.
Nolde supported its point (2) by submitting that the offer made by Darzi did not involve a real element of compromise and that it was designed merely to trigger costs sanctions against the offeree. That, according to Nolde's submissions, was because the offer was an invitation to Nolde to capitulate by consenting to all the substantive relief sought by Darzi in the proceedings. Further, Nolde submitted that the fact that Darzi was willing to forgo its costs does not mean that the offer contained any real element of compromise, because the offer was made at a very early stage of the proceedings and therefore there was no reason for Nolde to assume that Darzi had incurred any significant costs at that point of time.
I do not accept Nolde's submissions in support of its point (2). First, as, at that stage, the issue was whether Nolde should grant the new lease to Darzi to give effect to Darzi's rights under the lease that the Court of Appeal had ordered Nolde to grant to Darzi, there was no practical room for Darzi to compromise by accepting less than the grant of the new lease.
Secondly, although Darzi's costs may not have been substantial at that stage, the necessity for the filing of the summons arose because of Nolde's refusal to comply promptly with the Court of Appeal's orders, and Nolde's casting around for grounds to decline to grant to Darzi the new lease to which it was entitled.
It may be that the present is a relatively extreme case, but I am satisfied that in these relatively unique circumstances it was a sufficient element of compromise for Darzi to offer to forgo the whole of the legal costs that it had incurred.
If that were not the case, then the effect of Nolde's submission would be that because the only outcome of the proceedings could be that Nolde was either ordered or not ordered to grant a new lease to Darzi, then Darzi would have had to wait for a time, so that its legal costs could increase - pointlessly - to the extent that they were large enough for the offer to forgo them to be considered to be a genuine compromise.
In support of its point (3), Nolde submitted that a Calderbank offer must be capable of acceptance by the offeree and that Darzi has not proved or demonstrated that the offer was capable of acceptance by Nolde in the 14 day period in which it was open for acceptance. Nolde submitted that Darzi has not adduced any evidence that the ANZ's consent could have been obtained in the 14 day period.
I do not accept that it follows from the principle that the onus of satisfying the Court that it should exercise its discretion to make an indemnity costs order rests on the offeror that it was incumbent upon Darzi to prove by evidence that the ANZ could have given its consent to the registration of the lease within the 14 day period that was allowed.
That would be an extraordinarily difficult forensic obligation for any party in the position of Darzi, who had no relationship with the ANZ, and no feasible means of proving - in the context of a costs application - what the ANZ would or could do in the relevant period.
I would infer that Nolde did nothing to request the ANZ to provide its consent within the 14 day period or at all, and it is likely to be a forensic impossibility for a party in Darzi's position to prove the hypothetical outcome of a prompt request by Nolde to the ANZ to provide its consent.
I consider that the evidentiary burden shifted to Nolde to prove, if that were the case, that it would have been futile for Nolde to have requested the ANZ to provide its consent to the registration of the lease within 14 days.
In any event, costs applications such as the present should be decided in a practical way, and the Court should proceed upon the basis that the proper course for Nolde to have taken was to inform Darzi that it would accept the offer, that it had requested the ANZ to give its consent to the registration of the new lease, but that it might be necessary for Nolde to ask Darzi to extend the 14 day period if the ANZ did not respond sufficiently quickly.
Also, in support of its point (3), Nolde relied upon notifications made by its solicitors to Darzi's solicitors on 6 November 2019, after the end of the 14 day period, that Nolde could not execute the the new lease until the list of "Additional Leased Property" in Exhibit 2 to the new lease had been updated, and that Nolde could not enter into a new lease until at least seven days after it had served a disclosure statement, as required by s 11 of the Retail Leases Act 1994 (NSW).
As to the first of these submissions, Nolde relied on the fact that Exhibit 2 to the new lease was not rectified by Darzi's solicitors until 10 December 2019.
These submissions are in my view entirely artificial, given that it is clear that Mr Koorey had no intention at all to do anything involved in granting the new lease to Darzi except if forced to do so by an order of the Court.
If Nolde had requested Darzi to cause its solicitors to rectify Exhibit 2 promptly after the receipt of the offer, or at least warned them that it would be necessary to do so in the 14 day period that Nolde was considering whether it should accept the offer, I would infer that Darzi's solicitors would have been able to comply with that request.
Nolde has not established that it could not have served a disclosure statement in accordance with the Retail Leases Act that would have expired after seven days within the 14 day period.
In any event, Nolde did not raise this issue until after the 14 day period had expired, and it did not ask Darzi to extend the period to enable this statutory requirement to be complied with.
Finally, in support of its point (4), Nolde submitted that its failure to accept the offer was not unreasonable because of, first, the very early stage at which the offer was made, and, secondly, the fact that subsequent disputes between the parties, which became the primary focus of the proceedings between them, were not the subject of the offer.
I have already explained above why I reject the first part of this submission. The proceedings were commenced to enforce, in practical terms, the order already made by the Court of Appeal that Nolde grant a lease to Darzi in terms of the 15 June 2016 document. Darzi's claim that Nolde grant to it the renewed lease was in substance an outworking of the Court of Appeal's order that had become necessary because of the passage of time. As I explained in the principal judgment at J [10]-[13], on 6 November 2019 Nolde formally and irrevocably withdrew the notice served under s 133E of the Conveyancing Act 1919 (NSW) that Nolde had previously relied upon to justify Nolde's claim that Darzi had not validly exercised the option to renew the lease. Nolde also advised Darzi that it was in the process of executing the lease as required by the Court of Appeal: J [14]. The point is that the proceedings were not in any real sense new but were a further step in the ongoing dispute between the parties.
The second submission made by Nolde in support of its point (4) is, however, more substantial. It is true that both parties served or amended pleadings after the date Darzi made its Calderbank offer with the effect that new issues were introduced into the proceedings (many of which were subsequently abandoned).
I explained my understanding of the issues that ultimately required determination by the Court in the principal judgment at J [12]-[51]. My explanation of the course taken by Nolde in the proceedings is difficult to comprehend and cannot readily be summarised. I will proceed as if the explanation has been incorporated in these reasons.
In broad terms, Nolde's approach to the proceedings may be distilled into two broad categories.
The first is that Nolde, having withdrawn its first s 133E notice as I have explained above, served a further s 133E notice on 12 December 2019, in which it alleged new grounds for resisting an order that it grant Darzi a new lease. That caused Darzi to file an amended summons on 20 December 2019 in which it sought an order that the second notice was not valid under s 133E and alternatively, an order under s 133F that it be relieved of the consequences of any breaches of the lease that were established.
As I explained in J [21]-[22], Nolde ultimately abandoned any claim that Darzi did not have a valid contractual right to an order that Nolde specifically perform its agreement to grant Darzi a new lease. Nolde's only claim was that the Court in the exercise of its discretion should decline to make an order for specific performance on the ground that damages was an adequate remedy, and Nolde had the financial resources to pay any amount of damages that was assessed in favour of Darzi.
For the reasons given at J [267]-[295], I rejected Nolde's submissions and found that it was appropriate for the Court to make an order against Nolde that it specifically perform the agreement to grant a new lease to Darzi.
In simple terms, the Court of Appeal ordered Nolde to grant a lease to Darzi in the terms of the 15 June 2016 document. Nolde did not comply with that order promptly. Darzi exercised the option for renewal in the lease. Nolde resisted granting the new lease on grounds stated in the first s 133E notice. Darzi commenced these proceedings on 10 October 2019. Darzi served the Calderbank offer on 23 October 2019. Nolde did not accept the offer within the 14 day period allowed and did not attempt to do so at any later time. Nolde withdrew the s 133E notice on 6 November 2019 and advised that Darzi had validly exercised the option to renew. On 6 November 2019, Nolde also advised Darzi that it was in the process of executing the lease. However, Nolde then introduced new grounds for resisting granting the new lease to Darzi as stated in its second s 133E notice served on 12 December 2019. Darzi then responded by serving its amended summons and its amended statement of claim. Ultimately, Nolde accepted in final submissions that Darzi had a contractual right to the grant of a new lease, but resisted that relief being granted on the ground that damages would be an adequate remedy. That resistance failed.
In my view, it is not a valid response by Nolde to Darzi's claim that its costs of this issue should be assessed on the indemnity basis that, even if the Calderbank offer was a genuine compromise and it was unreasonable for Nolde not to have accepted that offer within the time allowed, Nolde's failure to accept the offer ceased to have any costs consequences because Nolde introduced into the proceedings new grounds to resist the relief sought by Darzi on which Nolde ultimately failed.
That consideration does not, however, fully deal with Nolde's second submission in support of its point (4) that subsequent disputes between the parties were not the subject of the Calderbank offer. That is because, as I attempted in my analysis of the complex course taken by Nolde in these proceedings to explain at J [37], Nolde also sought to resist an order for specific performance of its agreement to grant a new lease to Darzi on the basis of grounds set out in its third s 129 notice which alleged breaches of the lease committed after 30 November 2019. Nolde's case was that these new breaches absolved it from the obligation to grant the new lease to Darzi because they involved breaches of the original lease in respect of which Darzi was in effect holding over.
Nolde failed in its claim to be entitled to resist an order for specific performance of its agreement to grant the new lease on these grounds, although, as I concluded at J [229], the evidence in respect of the alleged breaches by Darzi of its covenant to keep the leased premises in good condition was inadequate to justify the Court making specific findings that finally determined this issue.
I consider that Nolde's submission that the Calderbank offer did not apply to these subsequent disputes is sound. It is a valid approach to divide the issues in the proceedings into two parts. Those parts are, on the one hand, Nolde's attempt to avoid the making of an order for specific performance on the basis of the alleged breaches by Darzi of the lease that occurred after 30 November 2019 on the one hand, and all other issues in the case on the other. What I describe as all other issues in substance involves Nolde's claim that it was entitled to resist an order for specific performance based upon all events and circumstances occurring before 30 November 2019, which is materially coincident with the service of the Calderbank offer on 23 October 2019. While I am satisfied that the consequences of Nolde's failure to accept the Calderbank offer extends to the whole of Darzi's costs of the proceedings after 5 November 2019 insofar as they concern the events that occurred before 30 November 2019, the Court would not be justified in ordering Nolde to pay costs assessed on the indemnity basis in respect of that part of the case that arose out of alleged breaches of the lease by Darzi that occurred after 30 November 2019.
In relation to Darzi's claim for interest on the costs that it has paid, s 101(4) and (5) of the Civil Procedure Act 2005 (NSW) provide: (4) Unless the court orders otherwise, interest is payable on an amount payable under an order for the payment of costs. (5) Interest on an amount payable under an order for the payment of costs is to be calculated, at the prescribed rate or at any other rate that the court orders, as from the date the order was made or any other date that the court orders.
Darzi seeks an order that the interest on its costs should run from the date when Darzi paid the invoices that it received from its solicitors rather than from the date of the order that interest be paid. It is now conventional for the Court to make such an order in the absence of any countervailing discretionary factors: Lahoud v Lahoud [2006] NSWSC 126 at [82] (Campbell J, as his Honour then was); Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd [2014] NSWCA 158 at [403] (Gleeson JA, Ward JA, as her Honour then was, agreeing at [1], Emmett JA agreeing at [13]); South West Helicopters Pty Ltd v Stephenson (No 2) [2018] NSWCA 99 at [44] (Basten, Leeming and Payne JJA).
It is immaterial that Darzi did not specifically claim an order for interest on its costs or that the interest run from the date of payment in its pleadings. UCPR r 6.12(4) does not require costs to be specifically pleaded and "it would be absurd to suppose that interest on costs needs to be claimed": Tjiong v Tjiong (No 2) [2018] NSWSC 1981 at [103] (Parker J).
There is no requirement that a party establish with evidence that it has been out of pocket for its costs: Grace v Grace (No 9) [2014] NSWSC 1239 at [65] (Brereton J, as his Honour then was). In any event, the affidavit of Darzi's solicitor affirmed on 14 September 2021 establishes that Darzi has incurred costs and paid those costs throughout the course of the proceedings.
As Nolde has not established any discretionary factors that would justify the Court in denying or reducing the interest that should be paid on the costs paid by Darzi, I will make the order sought by Darzi. That order will be formulated in the same way as the equivalent orders made in Lahoud v Lahoud with appropriate adjustments. I note that in Lahoud v Lahoud the Allowed Percentage was calculated substantially using the same formula as in order (4) below, even though, as in the present case, part of the costs was payable on the indemnity basis and the other part on the ordinary basis.
In these circumstances, I presently propose to make the following order for costs and interest: 1. Order the defendant to pay the plaintiff's costs of the proceedings incurred up to 5 November 2019 on the ordinary basis. 2. Order the defendant to pay the plaintiff's costs of the proceedings incurred after 5 November 2019 in respect of the alleged breaches by the plaintiff of the lease occurring after 30 November 2019 on the ordinary basis. 3. Order the defendant to pay the plaintiff's costs of the proceedings incurred after 5 November 2019 in relation to all issues other than the issues referred to in order (2) on the indemnity basis. 4. In this order: X - equals the total amount of costs and disbursements which the plaintiffs have paid or are liable to pay to their legal advisers in connection with these proceedings. Y - equals the total amount of costs and disbursements allowed on assessment to the plaintiff in connection with these proceedings. The Allowed Percentage equals ((y/x) x 100)%. Order the defendant to pay to the plaintiff interest on costs and disbursements, at the rates set out in Schedule 5 Uniform Civil Procedure Rules, on the Allowed Percentage of each amount of costs and disbursements actually paid by the plaintiff, from the date of payment by the plaintiff of each such amount of costs and disbursements until the defendant has paid the costs due to the plaintiff under this order.
Although it is past time for these proceedings to be brought to a conclusion, I am concerned about the possibility that the division that the orders I propose as to what issues will lead to costs being assessed on the ordinary basis or the indemnity basis will generate practical problems in the assessment process that are not apparent; for example, by reason of the existence of overlaps in fact between issues that I have assumed to be separate. It may also be appropriate to adjust the way in which order (4) is formulated. I will give the parties a further 14 days after I publish these reasons for judgment to make submissions to be delivered to my Associate if they wish to suggest any revision to the orders that I propose that respect, to the extent possible, the determination that I have made in principle, but reduce the risk of unintended difficulties or inefficiencies in the assessment process.

Darzi Group Pty Ltd v Nolde Pty Ltd

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Cases Cited (9)