E Group Security Pty Ltd v Chief Commissioner of State Revenue

Plaintiff's submissions

1. As noted, the plaintiff relies on the making of a Calderbank offer for the special costs order it seeks.
2. The offer was made by letter dated 15 December 2020 and labelled "without prejudice save as to costs" (see Annexure B to the affidavit sworn 5 October 2021 by the plaintiff's solicitor, Mr Charbel Azzi). In that letter, the plaintiff offered to settle the entirety of the proceeding on a full and final basis on terms that included payment to the defendant in the sum of $1,800,000 (less the amount of the "interim payments" already paid by the plaintiff, which at that date amounted to $780,000, and which the letter stated that the defendant was entitled to retain). I refer in due course to other stated terms of the offer.
3. The letter stated that the offer was made pursuant to the principles in Calderbank and would be relied on in relation to costs should the defendant not accept the offer. The offer was expressed to be open for 14 days. The letter also noted that the hearing was listed to commence on 1 February 2021 for two weeks.
4. On 12 January 2021, the defendant rejected that offer and made a without prejudice counter-offer, open for 14 days and also expressed to be in accordance with the Calderbank principles, offering to reduce the amount of primary tax by $859,098.78 and to remit the premium component of interest (then at $964,441.40) in full (see Annexure C to Mr Azzi's affidavit). The letter noted that the total amount of primary tax in dispute was $4,065,205.61 and that, under the counter-offer, the total amount of primary tax payable would be $3,206,106.82. The letter stated that the interim payments already made would be retained and applied as an offset against (so as to reduce) the amount that remained to be paid by the plaintiff under the offer.
5. Subsequently, by an open letter dated 29 January 2021, the defendant advised that payments in relation to seven named entities (by whom retrospective declarations had been provided) would be excluded from the taxable wages component included in the payroll tax assessments.
6. The plaintiff submits that indemnity costs should be ordered from the day after the plaintiff's Calderbank offer because, in the circumstances, the defendant's failure to accept that offer was unreasonable (citing Brymount Pty Ltd t/as Watson Toyota v Cummins (No 2) [2005] NSWCA 69 at [14]-[16]).
7. As to the unreasonableness of the defendant's failure to accept the plaintiff's offer, the plaintiff says that part of the context in which this must be seen is that, one month prior to receipt of the plaintiff's offer, the defendant had received the plaintiff's mediation position paper that was provided for a mediation which took place on 13 November 2020 (a copy of which is Annexure A to Mr Azzi's affidavit).
8. It is noted that in the position paper, the plaintiff: drew attention to the distinction between whether service providers are integrated into a client's business and whether they are integral to that business (at [5]; a distinction also referred to in the principal judgment at [318], [323], [333]); identified the relevance of the Security Industry Act 1997 (NSW) and the plaintiff's compliance with that regime to the plaintiff's continued control of its security guards (at [7]-[11]; see the principal judgment at [324]-[326]); and provided a summary of its evidence with an explanation as to why that supported its case (including with pinpoint references to the relevant parts of its evidence to assist the defendant in assessing the strength of the plaintiff's case) (at [12]-[40]).
9. It is submitted that, having received that position paper, the defendant was equipped to consider the strength of the plaintiff's case and to form a view as to the appropriateness of accepting or rejecting the plaintiff's offer.
10. The plaintiff points to my conclusion in the principal judgment that, for several categories of the plaintiff's clients, I could see no basis on which the security guards could be said to be integrated into the client's workforce (see at [331]), but that I had some concern in relation to two categories of the plaintiff's clients (being the commercial buildings and one Food Industry client, Baiada - see at [334]).
11. The plaintiff notes that the amount of the contractor payments referable to those two categories was identified in Mr Chamoun's spreadsheets in evidence at the hearing (see [52]-[54], [63]). A summary of those amounts (excluding amounts referable to jurisdictions outside NSW) is contained in the appendix to the plaintiffs' submissions, which I have treated as an aide memoire. The plaintiff has calculated the total of those contractor payments referable to those two categories across the Tax Years to be $38,557,405.98. Applying the rate of payroll tax for the relevant period (5.45%) (referring to the Payroll Tax Act 2007 (NSW) Sch 1 Pt 1 cl 1 definition of "R" at (e)), the plaintiff has calculated the total potential payroll tax that could have been referable to those two categories across the Tax Years (had the plaintiff failed to pay that tax in relation to those years) as being $2,101,378.63; and notes that the plaintiff's Calderbank offer of $1,800,000 was more than 85% of that amount.
12. Thus, it is submitted that, in relation to the two categories as to which I had expressed some concern, the plaintiff's offer represented a very significant compromise. In those circumstances, it is submitted that it was unreasonable for the defendant not to accept the plaintiff's offer.
13. In relation to the defendant's alternative argument (that there were employment agency contracts between the plaintiff and its wholly-owned subsidiaries), the plaintiff says that this proceeded on a misunderstanding of the legal nature of those arrangements; and says that the true legal nature of those arrangements was apparent from the plaintiff's evidence and was identified in its position paper with specific reference to that evidence (see at [46]; and noting the principal judgment at [341]).
14. It is also noted, as adverted to above, that immediately before the commencement of the trial the defendant abandoned its argument in relation to the plaintiff's exempt clients in respect of whom the plaintiff had provided declarations (see Annexure D to Mr Azzi's affidavit).
15. Thus the plaintiff submits that, in all the circumstances, it was unreasonable for the defendant not to accept the plaintiff's offer.

Defendant's submissions

1. As noted above, the defendant accepts that costs should follow the event and submits that there is no reason for costs to be assessed other than on the ordinary basis.
2. By reference to the background leading up to the hearing (including the initial scope of the claims raised by the plaintiff), the defendant submits that it was reasonable to reserve to himself the opportunity to test the plaintiff's case at hearing (including by way of cross-examination); and says that this supports the conclusion that it was not unreasonable for the defendant not to accept the 15 December 2020 settlement offer. It is said that the reasonableness of having reserved that opportunity is underlined by the concerns identified (at [334]-[336], [341] of the principal judgment) as to the nature of some of the plaintiff's documentary evidence.
3. As to the background to which the defendant points in this context, it is noted that the plaintiff commenced the proceedings by summons in February 2019, and then filed and served the Plaintiff's Appeal Statement on 8 April 2019 seeking orders for withdrawal or revocation of four payroll tax assessments (for the Tax Years) on several bases (not all of which were pressed at the hearing). These included, relevantly, that: contracts between the plaintiff and its clients were not "employment agency contracts" for the purposes of s 37 of the Payroll Tax Act; the defendant was, in any event, estopped from applying payroll tax on the payments in dispute because of representations made in a Revenue NSW audit; and, even if the contracts were employment agency contracts and estoppel did not apply, Payroll Tax Act exemptions applied to many of the contracts.
4. The defendant points to statements contained in the Plaintiff's Appeal Statement (at [17]-[19]) (see Ex B, p 92) in relation to the respective roles of the plaintiff and three related entities regarding the provision of the services in question; emphasising that the plaintiff there stated that it employed no security staff directly (see at 17) and that the plaintiff's various related entities (including E Group Protective Services and Vital Hospitality Group) employed and engaged its security staff (see at [18]).
5. The defendant filed the Defendant's Appeal Statement on 7 May 2019 and an amended Defendant's Appeal Statement on 4 June 2019 (see Ex B, pp 100-111). It is noted that the defendant there stated, by way of defence, that: the plaintiff's contracts with clients were employment agency contracts; alternatively, arrangements between the related entities and the plaintiff were employment agency contracts, in respect of which the plaintiff was jointly and severally liable under s 81 of the Payroll Tax Act for any unpaid payroll tax (see Ex B, pp 108-110) (i.e., the defendant's alternative case); and that no estoppel could lie in respect of the defendant's issuing of notices of assessment under the Taxation Administration Act.
6. It is noted that, between June 2019 and December 2020, the plaintiff served some 29 affidavits (by 21 different deponents) with documentary annexures and exhibits comprising, in aggregate, about 7,000 pages. It is noted that the deponents were employees or officers of the plaintiff (such as Mr Sami Chamoun and Mr Leif Gould) or one of the related entities (such as Mr Chris Tarmagi, who described himself as a security manager employed by E Group Events Australia Pty Ltd; and Mr Arif Kazi, who described himself as a security guard employed by E Group Protective Services Pty Ltd), or representatives of clients.
7. The defendant points out that on 15 December 2020 (which I note was the same day as the Calderbank offer was served) the plaintiff's solicitors sent to the defendant's solicitor a proposed amended appeal statement, the purpose of which was said to be to bring the plaintiff's case in line with the evidence filed to date (and, in particular, [41]-[58] of Mr Chamoun's affidavit sworn on 11 March 2020). The defendant says that the effect of those changes was to recast the allegations in the Plaintiff's Appeal Statement (at [18]) by retracting admissions that the named related entities - not the plaintiff - employed and engaged security guards (as sub-contractors) for the plaintiff; and by alleging that those related entities simply paid the plaintiff's employed security staff and contractors (although qualifying, at 18, that Vital Hospitality Group only did so until July 2017 when it was sold).
8. Correspondence then ensued between the respective solicitors (with the defendant's solicitor on 18 December 2020 withholding consent to the amended appeal statement on the basis of prejudice; and the plaintiff's solicitors responding thereto on 21 December 2020, indicating the plaintiff's intention to seek leave to amend the appeal statement at the commencement of the hearing on 1 February 2021).
9. On 18 January 2021, the defendant's solicitor sent a further letter to the plaintiff's solicitors concerning the draft appeal statement and identifying the prejudice said to arise from the proposed amendment (it being said that the weight of the evidence contradicted the suggestion that the related entities were merely administrative payroll entities during the Tax Years). With a view to seeking to mitigate that prejudice, the defendant served with that letter a notice to produce requiring the production of, inter alia, income tax returns and financial statements for contracts entered into, and invoices issued by, the related entities in question. It is noted that those materials were produced by the plaintiff on 25 January 2021 in electronic form (by link in an emailed letter of that date) comprising in excess of 16,000 pages (which became the Supplementary Court Book).
10. The defendant says that (as could reasonably have been anticipated) many of the documents produced on 25 January 2021, in response to the defendant's notice to produce, assumed significance in the ultimate determination of the proceedings (noting references in the principal judgment, for example, to invoices issued by the plaintiff to clients (see Ex 6, pp 1217-19,556)) (principal judgment at [341]). It is noted that those 16,000 pages also contained copies of security guards' and managers' employment agreements with the plaintiff or one of the related entities (see Ex 6, pp 1015-1217), agreements between the plaintiff and various sub-contractors (see Ex 6, pp 995-1014), and financial statements for the related entities (such as those at Ex 6, pp 198-216).
11. The defendant then consented to leave being granted for the filing of the amended Plaintiff's Appeal Statement. However, it is said that, notwithstanding production of the materials, there continued to be numerous substantial inconsistencies up to the trial between, on the one hand, the plaintiff's case in its amended appeal statement, and on the other hand, the affidavits and documentary evidence that the plaintiff had served or produced (including under the notice to produce).
12. For example, the defendant notes (inconsistent with the plaintiff's claim that the related entities played only payroll functions) the following: various witnesses involved in the provision of the security services to clients were (by their own description) employed by E Group Events or E Group Protective Services; in his affidavit sworn on 23 September 2019 (at [20]) Mr Chamoun had deposed, among other things, that the plaintiff "enters into contracts with clients and invoices the clients and manages the cash flow... It provides the cash to its subsidiaries" and that E Group Protective Services did not start trading until 1 July 2015 (and prior to this the plaintiff "contracted security services through a company called EGR SYD Pty Ltd"); that each of the three named related entities had a "master licence" for the provision of security services under security legislation (referring to Ex 3, and the affidavit affirmed by Ryan McGowan on 28 January 2021 at [22], [35]), and had obtained certification to provide and manage security services (see Ex B, pp 2147-2148); the plaintiff issued "Terms and Conditions" to certain "Events" clients expressly stating that E Group Events (not the plaintiff) was providing the security services (for example, Ex B, p 2936); "Standard Operating Procedures" were issued to some clients indicating that one of the related entities (not the plaintiff) was providing the security services (for example, Ex B at p 1388); E Group Events and E Group Protective Services were only subsidiaries of the plaintiff from 7 March 2018 to 30 June 2018 (the last 3 months of the entire four year period in dispute), and Vital Hospitality Group was never a subsidiary of the plaintiff (see Ex B at pp 8604, 8608, 8614, 8618, and Ex 9); and that the plaintiff's own website and marketing materials were inconsistent with the plaintiff's "recast" case as to the roles played by the related entities (referring to Ex B, pp 7146-7177).
13. Further, the defendant says that a primary argument proffered by the plaintiff (as to why the client contracts could not be employment agency contracts for the purposes of s 37 of the Payroll Tax Act) was that services provided by relevant security guards to the clients were "security services" governed by NSW security industry legislation (by reason of which direction and control could be, and in fact was, only provided in relation to the security services by the plaintiff, not the clients) but that numerous of the documents (including some produced in January 2021) made references to the provision of various types of services that, on one view (and without further elucidation) appeared not to be "security services". In that regard, reference is made to the invoices issued by E Group Security to clients, including reference to the provision of concierge-related services (see Ex 10) (an issue as to which I devoted attention in the principal judgment).
14. The defendant also says that a relevant factor in this regard is the new evidence served at the hearing.
15. It is said that evidence concerning the identity (and relevant characterisation) of clients (of which there were more than 600), and the amounts paid by each client over the disputed Tax Years in respect of the services procured for and provided to those clients, was important because the approach taken by the plaintiff (to discharge its evidentiary onus) was to provide direct evidence of examples of client arrangements falling within particular categories (such as "pubs and clubs", "commercial buildings" and "one-off clients"), and general evidence from the plaintiff's senior managers (as well as those from E Group Events and E Group Protective Services), to the effect that arrangements with other clients within those categories were relevantly similar.
16. The defendant points out that the only evidence served by E Group Security prior to the final hearing purporting to identify all clients within each relevant category, and to identify payments made by each client in each disputed year in respect of the services, was contained in a spreadsheet (see Ex B, pp 2551-2583) (the Chamoun Spreadsheet) which was exhibited, among many other documents, to an affidavit sworn by Mr Chamoun on 23 September 2019. It is noted that all that was said by Mr Chamoun in that affidavit (or any of his affidavits) about the spreadsheet was at [49], in the following terms: At Tab 30, page 890 of the Exhibit is a spreadsheet which summarises E Group's clients by sector and identifies the amounts paid to staff and contractors for each client.
17. The defendant notes that the Chamoun Spreadsheet listed clients under heading and sub-headings for each of the Tax Years, with payment figures and short (bordering on generic) descriptions of services in respect of which the clients had made payments. Objection was taken at the hearing as to its admissibility (including on the basis of s 69(3) of the Evidence Act 1995 (NSW), by reason of the document having been prepared in connection with the proceedings - see T 25.11-21). It is noted that I provisionally read the document and granted the plaintiff leave to adduce additional evidence as to its compilation (see T 31.49-32.3), following which the plaintiff served, on 4 February 2021, an affidavit sworn by Mr Chamoun in relation to the preparation of the document.
18. It is further noted that the plaintiff's witnesses were subject to cross-examination over four days during the trial and, in the course of that cross-examination, provided material evidence in relation to: the circumstances surrounding the provision of security services to clients (reference here being made to the evidence referred to at [56], [84] and [96] of the principal judgment), the preparation and terms of documents (such as SOPs) (see at [67], [84] and [90] of the principal judgment) relating to the provision of the services; and other matters addressed in the judgment (for example those at [87], [141] and [145]). The defendant points out that various factual matters were elucidated through that cross-examination, including matters in respect of which I indicated that I had some concern (namely, the deployment of security staff in connection with concierge and loading dock services in the commercial buildings, and at Baiada) (see at [334]). Relevantly, the defendant notes that evidence beyond what was provided in the plaintiff's affidavits was provided in cross-examination concerning the scope and performance of various of the services.
19. First, as to concierge-related services (and the issuing of invoices referring to such services), reference is made to the evidence provided under cross-examination by the plaintiff's witnesses, including Mr Chamoun (referring to T 53.50-55.10, T 65.35-39, T 66.15-67.16, T 90.3-33 and T 91.33-40), Mr Kieran McGuinness (T 139.20-140.10 and T 140.33-48), and Mr Gould (T 197.24-198.3, T 199.30-200.31 and T 201.42-202.38).
20. Second, as to loading dock services, reference is made to the evidence provided under cross-examination by the plaintiff's witnesses, being Mr Chamoun (referring to T 88.47-89.11 and T 89.33-43), Mr Brian Hill (T 126.35-127.15) and Mr McGuinness (T 139.34-140.14 and T 142.10-37).
21. Third, as to weighbridge services at Baiada, reference is made to the evidence provided under cross-examination by the plaintiff's witnesses, being Mr Chamoun (referring to T 67.29-68.27) and Mr Simon Camilleri (T 190.46-191.9 and T 192.4-194.14).
22. In that context, the defendant turns to the Calderbank letter sent on 15 December 2020. The defendant points (uncontroversially) to the relevant legal principles that apply when considering such an offer (which I do not here propose to set out). As to the application of those principles, the defendant, in support of the contention that it was not unreasonable for him to not accept that offer, submits as follows.
23. First, it is noted (as is apparent from the chronology set out above) that at the time of the offer, the scope of the plaintiff's case remained unsettled (referring to a letter being sent on the same day as the Calderbank letter seeking consent to the proposed amended Plaintiff's Appeal Statement). The defendant says, and I accept, that the changes which the plaintiff was seeking to make to its case were significant - a retraction, in effect, of admissions as to the roles of and arrangements between the plaintiff and the related entities. It is noted that part of the reasoning in the principal judgment turned on these changes (see for example at [341]). It is said that the changes were material to the defendant's defence of the case based on s 81 of the Payroll Tax Act, and it is said that, up to that point, the defendant was reasonably entitled to rely upon the admissions and to have prepared his case in reliance on them.
24. The defendant says that, for the reasons identified in the correspondence referred to above (dated 18 December 2020 and 18 January 2021), the defendant would have been prejudiced by such amendments unless the plaintiff disclosed materials of the kind then sought by the defendant and that, with uncertainty around these issues, the defendant could not reasonably have been expected to consider and accept the settlement offer by 29 December 2020 (when it expired).
25. Second, it is noted that, at the date of the Calderbank letter, the only evidence that had been served by the plaintiff to identify all clients within each relevant category, and to identify payments made by each client in each disputed Tax Year in respect of services, was the Chamoun Spreadsheet. It is said that this (without elucidation through additional evidence from Mr Chamoun) was of questionable admissibility or, in any event, probative value. As noted above, that elucidation was provided (by leave during the course of the hearing) by Mr Chamoun in an additional affidavit served during the hearing. Self-evidently, that evidence was not available at the time of the Calderbank offer.
26. Third, the defendant points to the recognition that proceedings concerned with s 37 of the Payroll Tax Act require a "fact sensitive" analysis (see the principal judgment at [278]) directed to: the particular arrangements said to constitute employment agency contracts; the procurement and provision of services under those contracts; and payments in respect of the provision of those services. It is noted that in the present case the plaintiff had more than 600 clients (thus requiring consideration of far more arrangements than in most s 37 cases). It is submitted that there was very significant complexity by reason of the number of clients and contracts; and due to the limited evidence served by E Group Security as to all clients within each relevant category, and payments made by each client in each disputed Tax Year in respect of services.
27. Fourth, it is said that the form and substance of the Calderbank letter suffered various failings (rendering it not unreasonable not to accept the offer). It is said that the letter provided no explanation as to why the offer should be accepted (or, for that matter, how the amount offered had been determined) and that it failed expressly to identify the costs advantage sought to be achieved were the offer to be rejected. In this context, reference is made to statements to the effect that a Calderbank offer should include precise reasons ("descending to particularity") as to why the offer should be accepted (see NMFM Properties Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77; [2001] FCA 480 at 87-88) and that a Calderbank offer must itself make expressly clear the costs advantage sought to be achieved if the offer is unreasonably rejected (see Huntsman Chemical Company Australia Pty Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 (Huntsman) at 249). The defendant says that it is not sufficient merely to state that an offer is made under the Calderbank principles and will be relied upon for the question of costs; that an offeror must make "expressly clear" the costs advantage sought to be achieved if the offer is rejected (and that this did not here occur).
28. Further, it is noted that the Calderbank letter identified, as a term of the offer (see at [3]), that the parties enter into a deed of settlement and release to be prepared by the plaintiff's solicitors within two weeks of the defendant's acceptance of the offer. The defendant says that it is wholly unclear (or, at best, ambiguous) whether that term (and the parties' entry into such deed) was objectively intended to be a condition to the proposed settlement (or whether, in fact, by reason of that term, the offer could not be capable of acceptance at all). In this respect, it is noted that where proposed settlement terms are indicated to be subject to contract, they may be regarded as "the intended basis for a future contract and not as constituting a contract" (citing in this context the well-known decision of Masters v Cameron (1954) 91 CLR 353 (Masters v Cameron) at 363).
29. Related to the above, the defendant says that certain essential terms of any settlement offer were also unclear or absent so far as they contemplated the disposition of the disputed tax assessments. In this respect, it is noted that the term set out at [2] required that the defendant "release the plaintiff from all claims in respect of the payroll tax assessments the subject of this proceeding …", but was silent as to whether reassessments or compromise assessments would be required to be prepared and issued to reflect the amounts paid and to be paid in accordance with the term included at [1] of the offer; and, if so, for which years. The defendant further postulates that, in proposing (as a term) that the defendant "release" the plaintiff from all claims in respect of the disputed assessment, the plaintiff was at least impliedly asking the defendant to exercise a public power (referring in this context to YWCA Australia v Chief Commissioner of State Revenue (No 2) [2021] NSWSC 102 at [22], which was concerned with whether the Court should "otherwise order" in the exercise of the power in r 42.14(2) of the UCPR).
30. The defendant submits that, within the statutory context of the defendant's administrative functions and powers for the securing and collection of revenue, such a term was not one that, as expressed, the defendant could reasonably accept (without at least agreeing on the disposition of the impugned assessments and issuing of any new assessments). It is submitted that the acceptance of a "release", expressed in such general and ambiguous terms, could amount to an unlawful fettering of the defendant's administrative powers under revenue legislation (including, for example, under s 12(3)(b) of the Taxation Administration Act, which concerns assessments procured by fraud or a deliberate failure to disclose material information).
31. The defendant also points to the fact that the terms in the Calderbank letter are silent in relation to the timing of the $1,800,000 payment (and, correspondingly, the treatment of interest on that amount before payment). Insofar as it was intended that the timing of the payment and treatment of interest be addressed in the deed of settlement contemplated at [3], it is said that any settlement was conditional upon the parties agreeing and executing a settlement deed (and that the terms in the letter were thereby intended as a basis for a future contract, and not as an offer the acceptance of which would constitute a contract).
32. Finally, it is said that the period allowed for the offer to be accepted (14 days) was not reasonable. The defendant says that, as a starting point, there was no reason not to leave the offer open for the usual 28 days, referring to the significance of the timing of the offer as recognised in Young v Young [1998] 2 FLR 1131 at 1140 and noting the time required for an offer of compromise to be open under r 20.26(5) of the UCPR. (I interpose here to note that r 20.26 stipulates that the 28 days is only required for offers made two months or more before the date set down for commencement of the trial, but for those offers made less than two months before trial, such as in the present case, the closing date is "to be such date as is reasonable in the circumstances".) The defendant goes on to say that the limitation of the offer period to 14 days was particularly unreasonable in the present case considering: the complexity of the proceedings; the fact that the offer was made in the second half of December (with various public holidays over the period, and at a time during which parties and their legal representatives typically take holidays and close offices and chambers); and that the offer was made only six weeks from the final hearing.
33. The defendant has pointed to the recognition that a relevant consideration may be the making of the offer late in the proceedings, shortly before trial (see Jones v Bradley (No 2) [2003] NSWCA 258 (Jones v Bradley) at [13]); where it might reasonably be expected that an offeree and the offeree's legal representatives are directing their attention to final preparations for trial (referring by way of example to Maclean v Rottnest Island Authority [2001] WASCA 323 at [36]).
34. It is said that this short period was made all the more unreasonable by reason of the plaintiff having sought, on the same day as it made the Calderbank offer, the defendant's consent to leave being granted to file the proposed amended Plaintiff's Appeal Statement. It is submitted that, by reason of this circumstance alone, the offer should have been made with an acceptance period of the usual 28 days.
35. Pausing here, it is somewhat ironic, perhaps, that the defendant's counter-offer was expressed to be open for the same period as that which the defendant says was unreasonable in the context of the plaintiff's offer - but nothing turns on this and it may well be that other considerations such as the (by then even more) imminent hearing date would have come into play.

Determination

1. Both parties accept that, in accordance with the ordinary rule, costs would follow the event and the defendant would be ordered to pay the plaintiff's costs to be assessed on the ordinary basis pursuant to r 42.2 of the UCPR.
2. It is not disputed that there is a broad discretion in relation to costs orders (s 98 of the Civil Procedure Act 2005 (NSW)), that discretion to be exercised judicially (see Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [22] per Gaudron and Gummow JJ).
3. In the present case, as noted above, the special costs order sought by the plaintiff is said to be justified by reference to the non-acceptance of the plaintiff's 15 December 2020 Calderbank offer. In that regard, I do not apprehend there to be any dispute between the parties as to the principles summarised in the defendant's submissions, including that: the making of a valid Calderbank offer better than the result ultimately obtained does not automatically result in an indemnity costs order (Commonwealth v Gretton [2008] NSWCA 117 at [43]), nor does it raise a prima facie presumption that such order should be made (see Jones v Bradley at [7]-[9]; South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (South Eastern Sydney Area Health Service) at [90]); and that the party seeking the order bears the onus of demonstrating that that rejection of the offer was "unreasonable" in all the circumstances of the case (see Leichhardt Municipal Council v Green [2004] NSWCA 341 (Leichhardt Municipal Council) at [19]).
4. As the defendant has noted, whether such rejection was unreasonable is an evaluative judgment to be made by reference to the terms of the offer and all the relevant surrounding circumstances (King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [11]). The defendant has also noted that a finding of unreasonableness should not be made other than on clear grounds (Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113]).
5. The factors to be taken into regard when considering whether the rejection or non-acceptance of the offer was unreasonable include: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree's prospects of success assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it (see Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25] per Warren CJ, Maxwell P and Harper AJA; Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 at [8] per Buchanan and Tate JJA and Sifris AJA; Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 at [12] per Basten JA (with whom McColl and Campbell JJA agreed)).
6. The defendant has pointed in his submissions to various factors that in other cases have been found to be relevant in determining whether the rejection of a Calderbank offer was not unreasonable, and tending against such finding, including: all relevant evidence not having been served at the time of the offer (Vale v Eggins (No 2) [2007] NSWCA 12 at [22]); the full parameters of the dispute remaining uncertain at the time of the offer (Precision Products (NSW) Pty Ltd v Hawkesbury City Council (2008) 74 NSWLR 102; [2008] NSWCA 278 at [192]); the offeror's case changing after the making of the offer (South Eastern Sydney Area Health Service at [85]); the inclusion of conditions in the offer (Magenta Nominees Pty Ltd v Richard Ellis (WA) Pty Ltd (unreported, FCAFC, Spender, French and Lee JJ, 29 August 1995); and the issues in dispute in the proceedings being complex (MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 242D).
7. Turning to the offer that was made in the present case, there is no doubt that it constituted a genuine offer of compromise (there being substantial payment offered albeit that, as the defendant notes, the time for payment was not clearly stated). The questions that arise are whether it was an offer capable of acceptance and, if it was, whether the plaintiff has established that it was unreasonable for the defendant not to accept it (see Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4] per Handley, Beazley and Basten JJA; see also Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 at [23] per Ipp, McColl and Basten JJA; Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706; [2006] NSWCA 120 at [8] per Basten JA (with whom Santow JA and Young CJ in Eq, as his Honour then was, agreed); Leichhardt Municipal Council at [23] per Santow JA (with whom Bryson JA and Stein AJA agreed)).
8. As to whether the offer in the present case was one capable of acceptance by the defendant, the only question to my mind is as to whether it could be said that acceptance of its terms would unlawfully fetter the defendant's statutory administrative powers (but that seems to me to go more to the reasonableness of non-acceptance than the validity of the offer per se). I am inclined to think that this would depend on precisely what was contemplated by the release which was to be a term of the offer (and that it would have been open to the defendant, had he been minded to accept the offer, to have sought clarification as to the extent of the release). However, it is not necessary here to delve into that interesting aspect of the defendant's submissions (nor as to the Masters v Cameron issue raised in the defendant's submissions) because I have concluded for other reasons that (assuming it to be a valid offer capable of acceptance) it was not unreasonable for the defendant to reject the offer.
9. Addressing the factors commonly taken into consideration in this context, I make the following observations.
10. First, as to the timing of the offer (the stage of the proceeding at which the offer was received and the time allowed to the offeree to consider the offer), the offer was made after an unsuccessful mediation and about six weeks before the hearing was scheduled to commence. The fact that it was open only for 14 days does not of itself necessarily mean that there was not a reasonable time open for its acceptance, nor is any such longer time mandatory for there to be a valid Calderbank offer (although, as a passing observation, unless there were some reason necessitating a shorter acceptance period, it would seem to me that allowing the standard offer of compromise time period would obviate, or at least lessen the force of, complaints as to the time allowed for acceptance). Where (as here) one might assume that the parties were in the throes of preparation for the then upcoming hearing (and thus would have an informed view of the issues in dispute and the merits of the case), a short period of time for acceptance of the offer may not be unreasonable.
11. However, in the present case, that gives rise to the particular difficulty of allowing only 14 days for acceptance of the offer because, at the same time as the offer, the plaintiff was foreshadowing an amended appeal statement. It seems to me not at all unreasonable that the defendant would require time to consider the implications of the proposed amendments (and, as happened, require the production and review of documents to assess the evidentiary basis for the amendments). The defendant raised the issue of prejudice caused by the proposed late amendment of the appeal statement very soon after the amended appeal statement was served and the response to that (with respect) would have done little to address the basis for the defendant's concern as to prejudice. By the time the notice to produce was issued and the requested documents were produced, the time for acceptance of the offer had well and truly expired.
12. To my mind, the complexity of the issues in dispute, and the inconsistencies raised by the proposed amended appeal statement with the evidence served to that point, are powerful factors pointing against a conclusion that it was unreasonable for the defendant not to accept the Calderbank offer at the time it was made. (And in hindsight, although reasonableness or unreasonableness of non-acceptance of the offer is tested at the time of its rejection, the sheer volume of material that was produced in late January 2021, so close to the commencement of the hearing, reinforces my conclusion that it was not unreasonable for the defendant not to accept the offer at the time it was made, particularly given the uncertainty as to the scope of the plaintiff's claim and the inability to test the material in support of the revised claim in the period the offer was open for acceptance.)
13. As to the extent of the compromise offered, I have already noted that I consider it to have included a genuine element of compromise.
14. As to the offeree's prospects of success assessed as at the date of the offer, the difficulty (as adverted to above) is that, with the proposed amendment to the claim, there must have been room for reasonable doubt as to the outcome of the claims made - not least having regard to the different position then being taken as to the respective roles of the entities in the group. I also accept that there was reasonable room for doubt as to the admissibility of (and, if admissible, weight to be placed on) the Chamoun Spreadsheet at the time.
15. As to the clarity with which the terms of the offer were expressed, and the fact that it required entry into a deed of release the terms of which were not identified, I am not persuaded that the intent of the offer was sufficiently ambiguous to render it not unreasonable for the defendant to reject it. After all, it was perfectly feasible for any queries as to what was intended to have been clarified at the time. Issues such as the mechanics of whether there were to be reassessments issued or the like were matters that could have been explored in that period. As to the lack of a specified time for payment, that too could have been clarified (although it does give rise to potential debate as to whether, in the absence of specification of what surely would be an essential term of the offer, acceptance could have given rise to an enforceable contract).
16. As to the complaint made that the offer did not expressly identify the costs advantage sought to be achieved, I do not understand Huntsman to be laying down a rigid rule as to this issue. The Court in Huntsman at 249 said that if a special costs order (including as to indemnity costs) is made "it would be preferable that it should follow due and timely warning by the successful party to the unsuccessful that indemnity costs will be sought". However, their Honours (Kirby P, as his Honour then was, Mahoney JA and Rolfe AJA) were referring in this regard to the dismissal of appeals for want of prosecution, where legal representatives would be "well advised" to warn their opponents that continued prosecution of the appeal, or of the "hopeless points", will result in an application to the Court for a special costs order. As I understand it, their Honours were not suggesting that there should be a blanket rule that any kind of Calderbank offer on the indemnity basis must expressly identify the costs advantage.
17. In the context of modern litigation, I would have thought it was well understood in the profession that a statement that an offer was made invoking the Calderbank principles, and expressly foreshadowing reliance on the letter in relation to the question of costs, was a very clear indication presaging an application for indemnity costs in the event of the offeree rejecting the offer. I do not consider that the letter needed to spell out in more detail that indemnity costs might be sought if the offer were rejected and the outcome at the end of the hearing no more favourable to the offeree than the offer. (And the fact that the defendant's solicitor was aware of such a potential costs consequence was apparent from the terms of the defendant's own Calderbank offer made the following month.)
18. As to whether it was not unreasonable to reject the offer because it did not explain (or "descend to particularity") as to why it should it be accepted, to my mind that is again an arid complaint. The offer was made not long after a mediation in which the plaintiff's position had been explained in considerable detail in the position paper (which broadly presaged the arguments made at the final hearing). True it is that the mediation position paper made reference to the "payroll function" of the plaintiff's subsidiaries (which was seemingly inconsistent with the evidence served at that stage and with the pleaded case), as explained in the defendant's submissions. However, the proposition that it was not unreasonable to reject (or not to accept) the offer because the plaintiff had not articulated in the offer the basis on which it contended that the offer should be accepted cannot, in my opinion, stand in circumstances where the plaintiff had only recently before this made very clear the reasons why it submitted that it would succeed in the proceedings.
19. Balancing all of the above, I have concluded that the timing of the Calderbank offer (it being made not long before the commencement of the hearing and on the very day that a not insignificant amendment to the plaintiff's claim was also being raised - with the consequent need for the defendant to consider the merits of that amended claim and how it stood with the evidence already served), and the short period of time allowed for its acceptance, are such as to have made it not unreasonable for the defendant not to accept the offer. Moreover, it is not insignificant in my opinion that at least some of the evidence that ultimately played a determinative role in my reasoning is evidence that emerged only after the Calderbank offer had expired (and indeed, some did not emerge until the hearing itself, in the course of cross-examination of the plaintiff's witnesses and the additional evidence of Mr Chamoun). I accept that it was not unreasonable at the time that the Calderbank letter was open for acceptance for the defendant to have sought to test at a final hearing the evidence as it stood (and I think that a different view could reasonably have been taken as to the prospects of success on the evidence at that stage than might later have been formed).
20. Accordingly, I have concluded that the appropriate order for costs is that the defendant pay the plaintiff's costs of the proceedings on the ordinary basis. Insofar as the defendant has suggested that such an order needs to be qualified to take into account extant costs orders in the proceedings, I do not agree. Any costs orders already made in the course of the proceedings or in relation to interlocutory aspects of the matter (and in particular I refer to the costs order made on 20 December 2019 in the defendant's favour, to which the defendant has referred) will remain in force. The costs order now to be made will operate only in relation to costs that have not yet been the subject of orders.

Order

1. For the reasons set out above, I make the following order: 1. Order the defendant to pay the plaintiff's costs of the proceeding on the ordinary basis.

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