I gave judgment in this matter on 1 March 2018: Egan v Egan [2018] NSWSC 202 ("the principal judgment"). I directed that the parties were to bring in Short Minutes of Order to reflect my reasons for judgment. I said that I would hear the parties on costs if they were not able to reach agreement on costs in the Short Minutes of Order.
On 7 March 2018 the parties brought in Short Minutes of Order. I made the orders in the agreed document. The parties had not been able to agree on costs. The competing positions of the parties on costs were as follows.
The plaintiff submitted that each party should pay her own costs of the statement of claim but that the defendant should pay the plaintiff's costs on an indemnity basis in respect of the cross-claim from 24 January 2018. Prior to that date no costs should be paid by one party to another in respect of the cross-claim.
The defendant submitted that the plaintiff should pay the defendant's costs on an ordinary basis of both the statement of claim and the cross-claim up to 3 May 2017 and thereafter should pay indemnity costs on both the statement of claim and the cross-claim.
The respective dates identified by the parties for the commencement of indemnity costs sought reflected Calderbank offers served by each such party. The plaintiff's Calderbank letter was dated 23 January 2018 and the defendant's offer was dated 3 May 2017.
My reasons for judgment in the principal judgment may be summarised as follows:
(a) The defendant failed to prove that the deed of loan and the mortgage constituted a sham arrangement;
(b) There had been default by the defendant in making instalment payments of principal and interest pursuant to the deed of loan and the mortgage;
(c) The contract constituted by the deed of loan and the mortgage was unjust in the circumstances of its making; and
(d) The contract should be varied to provide that the plaintiff was obliged for the remaining period of the mortgage to repay principal and interest by equal monthly instalments commencing one month after the making of orders (that date will now be 7 April 2018), that no interest was payable under the mortgage prior to 17 October 2016, and that the interest due from 17 October 2016 should be capitalised up to the date of the making of orders (7 March 2018) and added to the principal sum of $450,000.
Egan v Egan [2018] NSWSC 282 | Case summary | Zoe
On 3 May 2017 solicitors acting for the defendant made a Calderbank offer to the solicitors for the plaintiff in these terms:
1. The property at 1 Bettong Lane, Glenning Valley be sold by Auction with a reserve price agreed to by our client based on an independent property valuation;
2. Your client pay to our client the sum of $40,000.00 prior to the sale of the property to enable our client to relocate;
3. Your client pay to our client the sum of $200,000.00 from the net sale proceeds upon completion of the sale;
4. There be no order as to costs with the intention that each party shall bear its own costs of the Court proceedings.
Our client believes that the above offer is a reasonable offer in all of the circumstances and is a genuine attempt to resolve this matter without the need for further costly litigation.
The above offer is made in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 and is open to be accepted within twenty-one (21) days from the date of this letter.
On 8 May 2017, and without any prior warning, the solicitors wrote again to the plaintiff's solicitors withdrawing the offer made in the letter of 3 May 2017. They said they did so in reliance on the decision of the Court of Appeal in GIO General Limited v Allen [2002] NSWCA 333.
On 23 January 2018 solicitors acting for the plaintiff sent a letter to the defendant's solicitors. The letter made some observations about the defendant's claim and then made a Calderbank offer. The letter relevantly read:
The evidence has been finalised and served by both parties for some time now. We do not think there is any prospect of your client succeeding in respect of the supposed sham. It is quite clear that the standard of evidence required to establish a sham setting the mortgage aside in its entirety simply cannot be made out. Moreover, the supposed purpose of the sham (to protect your client from her husband making a family law claim) does not withstand scrutiny as a matter of logic or chronology. Nor does Barry Egan's Will support your client's claim that it was an advance on her inheritance.
As we mentioned at the mediation, we accept there are some risks that because of your client's alleged understanding or the passage of time, the Court may find in favour of your client on the basis of estoppel (if you are given leave) or the Contracts Review Act (notwithstanding clause 8.2 of the Deed), however, we are confident that in any case, while the Court may find that no interest is owing, it will not find that your client is entitled to have the principal amount written off.
Given your client has effectively lived rent free in the subject property for over 10 years and will benefit from any capital gains made in that time, we think the following offer is a just way to resolve the dispute, reflecting the risks to both parties:
1. Karen to pay Carolyn the sum of $450,000 (the Principal) plus costs as agreed or assessed (Costs).
2. The property the subject of this dispute to be sold by the appointment of a third party trustee for sale upon the acceptance of this offer.
3. The Principal to be paid out of the proceeds on the sale of the property (and an irrevocable authority given to that effect) in priority to all except the agent and trustee.
4. The Costs to be paid out of the proceeds on the sale if agreed or assessed by the time of settlement of the sale of the subject property.
5. Carolyn to pay to Karen the sum of $10,000 for the purpose of bringing the property into a marketable state, being paid half upon the disposal of the proceedings and the other half upon Karen vacating the property.
6. The statement of claim and cross claim be otherwise dismissed.
7. The terms set out above be made by way of orders or Terms of Settlement in Court including any other further orders or notations necessary to give effect to these terms.
This will obviously leave Karen with the balance of the proceeds of sale, a significant windfall in terms of the capital gains on the property.
This offer is open until 4.00pm on 6 February 2018, after which time, the costs of these proceedings will significantly escalate for both parties.
The defendant submitted that she had done better than the offer she made in her letter of 3 May 2017. That was because in the judgment she was entitled to retain the property. Furthermore, it was submitted, the value of the property had increased so that, despite the payments of $240,000 to the defendant as the offer proposed, the plaintiff would, on the sale of the property, receive more than the principal amount of $450,000. In that regard reliance was placed on a print out from www.domain.com.au and www.realestate.com.au, which was tendered by the defendant, showing that the estimated value range for the property was $600,000 to $869,999.
The defendant submitted that the period of time her offer was ultimately left open (five days) was reasonable in all the circumstances. Reliance was placed on what was said by Basten JA in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No. 2) [2008] NSWCA 85 at [15]-[24].
The defendant submitted that the plaintiff was wholly unsuccessful in obtaining possession of the property and of obtaining judgment for the liquidated sum identified in the statement of claim or any amount at all. The defendant submitted that she did better than the offer from the plaintiff's solicitors of 23 January 2018, particularly because she kept the property whereas that offer provided for the sale of the property. The defendant also pointed to the plaintiff's offer as being a repayment of the principal plus costs as agreed or assessed.
The plaintiff submitted that costs were not sought for the statement of claim because, although default was established under the deed of loan and the mortgage, possession and judgment for a liquidated sum was not ordered. The plaintiff submitted that she did not act unreasonably in rejecting the offer of 3 May 2017, particularly as the period in which the offer could be accepted was unreasonably short in the circumstances.
The plaintiff submitted further that it could not be said that the defendant had done better than offer of 3 May 2017 in circumstances where the orders sought in the cross-claim were that the deed of loan and the mortgage should be declared void and be set aside. The defendant was unsuccessful in obtaining those orders. The plaintiff submitted further that at the time the offer of 3 May 2017 was made no evidence on either side had been filed or served. In all of those circumstances the plaintiff submitted that it was not unreasonable for her to reject that offer. It was not essential for the plaintiff to show that she had bettered the offer made where it was made in a Calderbank letter.
The plaintiff submitted that in the light of the identification of particular matters in the Calderbank offer she made of 23 January 2018, together with what was offered, it was unreasonable of the defendant not to have accepted the offer. The offer provided for the plaintiff to recover the principal under the mortgage but not any interest on that principal. Although the orders of the Court provided for the defendant to retain the property, interest became payable from October 2016.
I do not consider that the defendant's submissions should be accepted. First, in the light of the principal judgment and terms of the offer made, it was not unreasonable for it to be rejected by the plaintiff. The evidence about the value of the property was dated 8 February 2018. The offer made was 3 May 2017. There is no evidence about the value of the property at that time or at any surrounding time. Although the defendant's counsel submitted that it was "common knowledge" that values on the Central Coast have "not shifted hugely" in that time, that is not possibly a matter about which I could take judicial notice. When the effect of the judgment is that the plaintiff will be repaid $450,000 with interest from October 2016 there is nothing to suggest that that is a worse result for the plaintiff than if she had agreed to a sale of the property in May 2017 and paid $240,000 to the defendant.
Secondly, at the time the offer was made no evidence had been filed or served. Although the defendant's allegations were set out in the defence, the plaintiff did not have the evidence on which the defendant was intending to rely to support those claims. Although the defendant submitted that the facts were within the plaintiff's knowledge, that is not necessarily so. I held that the significant statement by the defendant's father set out at [33] of the principal judgment was not a statement that was even alleged by the defendant to have been said in the plaintiff's presence, nor was it asserted that the plaintiff was told about it - see at [49].
Thirdly, the period of time in which the plaintiff had to accept the offer was not reasonable. The plaintiff was given 21 days to accept the offer. Without any warning that the offer was to be withdrawn, it was withdrawn five days later. It is not suggested by the plaintiff that it could not be withdrawn in that way (GIO v Allen at [11]-[12]), but it is a matter that affects a consideration of whether the plaintiff's failure to accept it was unreasonable.
Reliance on Kooee Communications is misconceived. The offer in that case was made on the day before the trial was due to commence and was expressed to remain open until 10am on the day of the trial. The litigation was large, commercial litigation where prior offers of compromise had been made. Justice Basten said at [20]:
In considering whether the time allowed for acceptance is "reasonable in all the circumstances" once a trial commences, or indeed final preparation commences, three factors come into play. The first is that both parties may reasonably be expected to have a clear perception of the strengths and weaknesses of their positions, so that the reasonableness of a particular offer may be speedily assessed. Secondly, because significant costs will be accruing on a daily, even an hourly basis, there is a heightened incentive to respond within the time permitted. Thirdly, and counterbalancing the first factor, the need to address the terms of an offer, provide advice and obtain instructions will often be a significant distraction from final preparation.
As to the first of those factors, the offer in the present case was made some months before the matter was fixed for trial and, as I have said, in circumstances where no evidence had been served. It could scarcely be said that the parties could reasonably be expected to have a clear perception of the strengths and weaknesses of their positions, absent that evidence.
The second factor mentioned by Basten JA was scarcely a consideration in the present matter. There was no time or cost pressure so far out from the trial, which had not even been fixed for hearing.
The third factor was not relied upon by the defendant. It is not relevant in the present matter because, unlike in Kooee, there is no suggestion of any lack of time to advise and obtain instructions.
In the present matter, the added factor of a withdrawal of the offer without any warning where the plaintiff had previously been given a longer period, is, as noted above, a further consideration in relation to the unreasonableness or otherwise of the plaintiff not accepting it.
I assume in the defendant's favour (nothing was said about this) that, if I was not minded to order indemnity costs after 3 May 2017, the defendant would seek costs on the ordinary basis for the whole of the proceedings and not just up to 3 May 2017. Such a submission that costs should be payable on an ordinary basis up to 3 May 2017 and, presumably thereafter, takes no account of the fact that the defendant's principal claim, that the contract was a sham and should be set aside entirely, was not successful. It would not be appropriate to order that the plaintiff pay the defendant's costs for the entire proceedings on the ordinary basis.
The defendant's offer of compromise was made after all of the evidence had been served, after the proceedings had been fixed for trial, and within a reasonable time before that trial, with a reasonable period being given for consideration and acceptance. Moreover, the matters identified for asserting that the defendant would fail on her principal claim of a sham contract were many of the matters that were ultimately found in the plaintiff's favour in the principal judgment.
As far as the quantum of the offer was concerned, it was proposed that the plaintiff should receive the principal sum but would forego interest. On the other hand, it was provided that the defendant should pay the plaintiff's costs of the proceedings.
In Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344, the Court of Appeal set out some principles concerned with Calderbank offers. Justice Basten (with whom McColl and Campbell JJA agreed), first pointed out at [6] and [7] that the objects of the rules concerning offers of compromise had been accepted as relevant to informal offers of compromise including Calderbank offers. Justice Basten stressed the significance of the consideration that the offeree obtains no better result from the judgment than was offered. His Honour said at [8] that the two questions frequently asked were whether:
(a) there was a genuine offer of compromise, and
((b) it was unreasonable for the offeree not to accept it.
In relation to unreasonable refusal, his Honour said that there were usually three considerations being (a) timing, (b) relevant factors, and (c) onus of proof. As to (b) relevant factors, Basten JA said:
[12] In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 the Court of Appeal (Warren CJ, Maxwell P and Harper AJA) identified the factors relevant to determining whether the rejection of an offer was unreasonable as including the following:
(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 indemnity costs in the event of the offeree's rejecting it.
[13] The Court rejected the suggestion that an offer need set out with specificity the bases upon which it was said that the offeree should accept the compromise proffered. The relevance of such material would depend upon the extent to which the issues had already been canvassed, for example by way of pre-litigation correspondence, and whether there were circumstances with which the offeror might reasonably expect the offeree not to be conversant. In some circumstances greater leniency may be accorded to a defendant offeree at an early stage of proceedings, than to a plaintiff offeree.
Where proceedings involve relief claimed under the Contracts Review Act 1980 (NSW) or based on unconscionability, there will always be a difficulty in a Calderbank offer sufficiently capturing the terms of the ultimate judgment so that it can be shown that the offeree achieves a result not better than the final judgment. That is obviously so because of the width of the discretion in s 7 of the Contracts Review Act to vary the terms of the unjust contract. That was the problem, in particular, for the plaintiff in the present matter. Seen in general terms, the plaintiff's offer might be thought to have resulted in the defendant obtaining a result not better than the offer, particularly because she is obliged to pay interest on the principal sum during the term of the mortgage. However, in circumstances where the judgment has provided for the defendant to retain the land rather than participate in its immediate sale, I do not think it can be said that her position is worse off than the judgment provided. In that sense, I do not think it can be said that the defendant acted unreasonably in having refused the plaintiff's offer.
Ultimately the plaintiff did not succeed in obtaining possession of the land or the payment of any amount of money to repay the loan with interest. At the same time, the defendant's principal case failed, although she was successful in obtaining orders under the Contracts Review Act to vary the contract in a way which enabled her to keep the land, albeit with the responsibility to pay interest from October 2016. Nor do I think it can be ignored that the plaintiff made out her case for possession of the land and payment of principal and interest based on the contract that was in existence until the Court made its orders.
Further, it is of some significance that the defendant's failure on her principal claim was largely for the reasons put forward by the plaintiff's solicitors in their Calderbank offer. Without any doubt, the greater proportion of the proceedings, both in evidence preparation and in witness time at the trial, was taken up with the defendant's main claim that the contract was a sham.
For all of these reasons I consider that the appropriate order is that there be no order as to costs on either the statement of claim or the cross-claim to the intent that each party should bear her own costs of the proceedings.
[2]
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Decision last updated: 08 March 2018