Expert Group International Pty Ltd v TransAction Solutions Ltd (No 2)

Medium Neutral Citation: Expert Group International Pty Ltd v TransAction Solutions Ltd (No 2) [2025] NSWSC 795

Hearing dates: On the papers

Date of orders: 21 July 2025

Decision date: 21 July 2025

Jurisdiction: Equity - Commercial List

Before: Rees J

Decision: Simple interest awarded; special costs order made.

Catchwords: INTEREST — simple or compound — monies owing under Share Sale Agreement — whether a presumption in favour of simple interest — whether ‘clear agreement’ on compound interest needed — whether simply a question of construction — principles at [12]-[19] — no agreement for compound interest.
COSTS — Calderbank offer — principles at [23]-[24] — while offer open, plaintiff omits to provide copies of 22 discovered documents but provides in good time for consideration — documents not said to be significant — further privileged documents produced after offer expires — not suggested to be significant either — offeror then amends defence — amendment not substantial — special costs order made.

Cases Cited: Expert Group International Pty Ltd v TransAction Solutions Ltd [2025] NSWSC 575
Fergusson v Fyffe (1841) 8 Cl & F 121
Williamson v Williamson (1869) LR 7 Eq 542 LR
Bakker v Chanbri Pty Ltd (1986) 4 BPR 9234
Daniell v Sinclair (1881) 6 App Cas 181
Morton v Elgin-Stuczynski (2008) 19 VR 294; [2008] VSCA 25
Alington Group Architects Ltd v Attorney-General [1998] 2 NZLR 183
Hung v Hung [2017] QSC 200
Hung v Hung [2018] QCA 87
Stein v Torella Holdings Pty Ltd [2009] NSWSC 971
Agricultural and Rural Finance Pty Ltd v Atkinson [2010] NSWSC 1396
El Khoury v Harsany [2018] NSWSC 1774
CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173
Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344
Bryant v Hawkesbury Radio Communication Co-operative Society Ltd [2014] NSWSC 848
ET Petroleum Holdings Pty Ltd v Clarenden Pty Ltd (No 2) [2005] NSWSC 562
South Eastern Sydney Area Health Service v King (No 2) [2006] NSWCA 73
Morris v McEwen [2005] SASC 284
Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd [2001] NSWCA 461; (2001) 53 NSWLR 626
Shaw v Jarldorn [1999] SASC 529; (1999) 76 SASR 28

Texts Cited: Dal Pont, Law of Costs (5th ed, 2021, LexisNexis)
Joseph Chitty, Chitty on Contracts, Specific Contracts (24th ed, 1977, Sweet & Maxwell)

Category: Costs

Parties: Expert Group International Pty Ltd (Plaintiff)
Transaction Solutions Ltd (First Defendant)
Frank Mulcahy (Second Defendant)
Mark Snell (Third Defendant)

Representation: Counsel:
MA Izzo SC / JS Burnett (Plaintiff)
J Giles SC / D Riordan (First Defendant)
Solicitors:
Corrs Chambers Westgarth (Plaintiff)
Mills Oakley Lawyers (First Defendant)
Corrs Chambers Westgarth (Second and Third Defendants – submitting appearance)

File Number(s): xxx

JUDGMENT

1. HER HONOUR: This judgment concerns whether pre-judgment interest should be calculated on a simple or compound basis, and whether any special costs order should be made.

Facts

2. The parties executed a Share Sale Agreement which provided for deferred consideration to be paid by the purchaser based on financial performance in the two years’ post-completion, that is, an ‘earn-out’. The parties agreed on an expert determination procedure in the event that there was a dispute as to the amount of ‘earn-out’. Such a dispute arose.

3. In September 2023, the expert determined that the purchaser was obliged to pay the vendor $9,663,200. In October 2023, the vendor commenced these proceedings, seeking a declaration that the parties were bound by the expert determination. In November 2023, the purchaser filed a defence and cross-claim, contending that the expert determination was affected by a number of “manifest errors”, most significantly, as to the proper construction of the earn-out provisions in the Share Sale Agreement. In December 2023, the vendor amended its summons, seeking rectification of the Share Sale Agreement in the event that the purchaser’s suggested construction was correct.

4. In February 2024, the vendor put on its lay evidence. In May 2024, the purchaser did likewise. In June 2024, the parties turned their minds to discovery. On 24 June 2024, the purchaser’s solicitors circulated proposed categories of discovery to be provided by the vendor, noting that the rectification suit resulted in a waiver of privilege over communications between the vendor and its solicitors in respect of the drafting of the relevant document, being a Variation Deed.

5. In August 2024, consent orders were made for the vendor to give discovery. In September 2024, Stevenson J made directions to address any contested claims for privilege and listed the matter for final hearing with an estimate of three days commencing on 14 April 2025. The parties exchanged discovered documents on 20 September 2024.

6. On 1 November 2024, the vendor served a detailed Calderbank offer, which was open for 28 days. The vendor offered to accept $8,663,200, being a $1 million discount off the expert determination, foregoing some $1 million in interest and foregoing costs. The purchaser does not dispute that the offer presented a genuine compromise.

7. On 13 November 2024, the vendor’s solicitors noticed that the vendor’s discovery did not include copies of 22 documents (over which no privilege had been claimed). The missing documents were provided the next day. On 22 November 2024, the purchaser filed a motion seeking to inspect various privileged documents.

8. The Calderbank offer expired on 29 November 2024, without response. On 6 December 2024, Stevenson J made orders for the vendor to produce various privileged documents for inspection, noting that the purchaser’s motion seeking production was discontinued with no order as to costs. The privileged documents were made available the same day.

9. On 14 March 2025, the vendor filed a motion seeking to amend its defence to the cross-claim. Leave was granted on 20 March 2025. The additional defence was that the purchaser had not followed the expert determination procedure but had raised the proper construction of the Share Sale Agreement late, such that the expert should not have determined that matter at all. (This additional defence did not advance the vendor’s position at trial.)

Interest

12. The first issue is whether interest should be calculated on the basis of simple or compound interest. The parties agreed on the maths.

13. Generally speaking, compound interest is payable by agreement or custom, but not otherwise: Joseph Chitty, Chitty on Contracts, Specific Contracts (24th ed, 1977, Sweet & Maxwell) at [3201], citing Fergusson v Fyffe (1841) 8 Cl & F 121 at 140; Williamson v Williamson (1869) LR 7 Eq 542 LR. For example, it may be said that it is the custom of bankers to charge compound interest on a customer’s indebtedness, as the practice is well settled. There is no custom here. As such, the question is whether the parties agreed that interest would be calculated on a compound basis.

14. Historically, the Courts have approached this question on the basis that, unless there is a “clear agreement” to pay compound interest, then simple interest applies: Bakker v Chanbri Pty Ltd (1986) 4 BPR 9234 at 9236 (Young J), citing Daniell v Sinclair (1881) 6 App Cas 181 at 189 amongst others. There has been a movement away from this approach. In Morton v Elgin-Stuczynski (2008) 19 VR 294; [2008] VSCA 25, Neave JA (with whom Kellam JJA and Cavanough AJA agreed) held that whether interest was to be calculated on a simple or compound basis simply depended on the true construction of the contract, read in the light of surrounding circumstances: at [27]-[28]. In doing so, Neave JA followed the New Zealand Court of Appeal in Alington Group Architects Ltd v Attorney-General [1998] 2 NZLR 183, which held at 189-90:

The question whether the interest payable … is to be simple or compound interest is to be approached without reference to any predisposition the Courts may have demonstrated in favour of simple interest as against compound interest. It is purely one of contractual interpretation. The agreement is to be interpreted so as to give effect to the meaning intended by the parties.

Hence, any such “presumption” in favour of simple interest is out of place in determining the meaning of the words in issue.

15. In Morton v Elgin-Stuczynski, the loan agreement provided that the borrowers were obliged to pay interest “at the rate of interest charged by the Commonwealth Bank of Australia for overdrafts in excess of One Hundred Thousand Dollars ($100,000.00).” The document was not drafted by lawyers. The context was that the borrowers had earlier been refused a loan from their bank. Their friend had withdrawn funds from his bank to get them out of financial difficulty. In these circumstances, the Court considered that the reference to the Commonwealth Bank’s rate of interest meant that interest was to be assessed and paid on the same basis as it would be assessed and paid on a bank loan: at [42], [46].

16. In Hung v Hung [2017] QSC 200, Martin J noted the differing opinions as to whether a presumption of simple interest remained but considered that, regardless of whether there was such a presumption, “it is clear that the question is one of construction. If such a presumption does apply, it only applies where there is ambiguity in the agreement”: at [31]-[32]; overturned on appeal on other issues in Hung v Hung [2018] QCA 87.

17. In this Court, Morton v Elgin-Stuczynski was followed in Stein v Torella Holdings Pty Ltd [2009] NSWSC 971 at [44] (McLaughlin AsJ). However, in Agricultural and Rural Finance Pty Ltd v Atkinson [2010] NSWSC 1396, Einstein J appeared to favour the earlier approach, requiring “clear agreement” to pay compound interest at [130]-[131]. His Honour considered that the ordinary and natural meaning of a contractual provision which merely prescribed that interest was to be payable at a particular percentage rate per annum imposed an obligation to pay simple and not compound interest: at [129].

18. In El Khoury v Harsany [2018] NSWSC 1774, Sackar J took the same approach. The loan agreement provided that the borrower was to pay interest “at the rate specified in Item 6 … as the Lower Rate calculated and charged on the rest periods and payable at the times and computed all as specified in Item 6”. Item 6 specified “2% per month”. His Honour concluded at [118]:

… on the clear wording of the interest rate in Item 6 there is no word “compound” and no clear language to suggest the mechanism of compounding should be superimposed upon the agreement. Rather, the mechanism of interest is formulated in the Loan Agreement in a vague and internally incoherent manner. This means that unless there is a clear agreement to pay compound interest, interest is taken to be simple interest.

19. Whatever adjective is deployed, whether it be “actual agreement” (as in Daniell v Sinclair) or “clear agreement (as in Bakker v Chanbri), the same basic question is posed: what did the parties agree? The usual principles of contractual construction apply. If the parties did not agree that interest would be calculated on a compound basis, then the parties are not entitled to it.

20. Turning to the Share Sale Agreement, cl 10.12 obliged the purchaser to make the Additional Payment as agreed or determined by the Earn Out Expert within 10 business days. Clause 24 provided:

24 Default interest

If any party (Payer) fails to make a payment to any other party (Payee) under this document on or before the due date for payment, then, without limiting any other remedy of the Payee, the Payer must pay to the Payee on demand interest on the due amount calculated at the Default Interest Rate.

21. The Default Interest Rate was a rate equal to the Reserve Bank of Australia cash target rate from time to time plus a margin of 3% per annum: cl 1.1.

22. Unlike the loan agreements which are considered in the case law, the Share Sale Agreement envisaged that either the vendor or purchaser may be obliged to make payment to the other. The contract did not refer to “compound” interest or describe a method of calculating interest which involved compounding. The contract only identified the interest rate that was to be used when calculating interest. I consider that the parties did not agree to compound interest. Absent such agreement, the vendor is not entitled to compound interest. Simple interest is $1,202,585.83.

Special costs order

23. Then to costs, there is no "presumptive entitlement" to indemnity costs flowing from a failure of a party who has rejected a Calderbank offer to achieve a better outcome than provided for in the offer. Rather, the offeror must establish that the Calderbank offer involved a real and genuine element of compromise and that non-acceptance of the Calderbank offer was unreasonable: CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] (per Moore, Finn and Jessup JJ); Miwa Pty Ltd v Siantan Properties Pte Ltd *(*No 2) [2011] NSWCA 344 at [8]-[9] (per Basten JA, McColl and Campbell JJA agreeing).

24. Unreasonableness is to be judged by reference to the circumstances facing the offeree at the time of the offer, and not with the benefit of hindsight: CGU at [75]; Miwa at [11]. The factors which the Court may take into account 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: Miwa at [12].

25. The vendor submitted that the purchaser’s rejection of the first Calderbank offer was unreasonable as the offer was made after evidence had been served and discovery provided. The parties were in a position to assess the merits of their claims. The offer was open for 28 days; there was a reasonable opportunity to consider and respond to the offer. The offer set out the reasons why the vendor considered it was likely to succeed.

26. The purchaser took issue with the vendor’s contentions in, essentially, three respects.

27. First, the purchaser submitted that it had reasonable prospects of success. As the Court concluded, the literal meaning of the Share Sale Agreement was as contended by the purchaser. It could not be said that the purchaser unreasonably pressed a case that was devoid of merit or doomed to fail.

28. I accept this. This can be said for almost any commercial case. But it does not quarantine the purchaser from the risk that, absent accepting an offer which involves a genuine compromise, it may be exposed to an indemnity costs order. In any commercial litigation, the Court expects the parties to act reasonably in settling disputes by compromise, having regard to the risk that each party faces. As Sackar J observed in Bryant v Hawkesbury Radio Communication Co-operative Society Ltd [2014] NSWSC 848 at [157]:

Whilst the system of justice administered by courts in this state is adversarial, in the modern era in my view parties have a distinct and clear obligation to cooperate with each other and the court to achieve a quick and inexpensive solution to their grievances including in my view good faith settlement discussions.

See also ET Petroleum Holdings Pty Ltd v Clarenden Pty Ltd (No 2) [2005] NSWSC 562 at [21] per White J.

29. Second, the purchaser submitted that it was not unreasonable to reject the Calderbank offer as the vendor had, at that time, failed to provide proper discovery. Unless the offeror's case is fairly revealed, the offeree will not be sufficiently aware of that case to enable proper assessment and to determine whether the compromise offered by the offeror is a reasonable one: South Eastern Sydney Area Health Service v King *(*No 2) [2006] NSWCA 73 at [20] per Hunt AJA (with Mason P and McColl JA agreeing). In the absence of these documents, the purchaser was said to have a limited ability to assess the strengths and weaknesses of its case and the reasonableness of the offer.

30. In support of this submission, the purchaser pointed to the 22 documents omitted from initial production and the privileged documents provided on 6 December 2024. That is, this was not a case where the vendor did not pay proper regard to the categories for discovery or fail to give proper discovery at all. Beyond pointing to the omission of the 22 documents in November 2024, the vendor’s solicitor did not suggest that these documents were particularly significant. I note that the 22 documents were promptly supplied on 14 November 2024, being two weeks before the offer expired. There was ample time for the purchaser to consider the import of these documents. I accept that further privileged documents were produced after the first Calderbank offer had expired. Beyond pointing to the fact that these privileged documents were not produced until after the offer had expired, the vendor’s solicitor did not suggest that these documents were particularly significant either.

31. Third, the purchaser submitted that the vendor amended its case after the first Calderbank offer had expired. A relevant consideration to the question of whether an offeree acted unreasonably in rejecting a Calderbank offer is whether the offeror has introduced a new claim after the Calderbank offer has been refused or has lapsed: Morris v McEwen [2005] SASC 284 at [46] per Besanko J. As the purchaser had not been apprised of the full scope of the vendor's case when the first offer was made, it was said that the purchaser was unable to properly assess the vendor's case.

32. As mentioned, whether it was unreasonableness to reject an offer of settlement is to be judged by reference to the circumstances facing the offeree at the time of the offer, and not with the benefit of hindsight. As to whether the offer should be assessed by reference to circumstances which unfolded after the offer was made, the Court may ‘otherwise order’ if the offeror’s case changed substantially after the offer was rejected: Dal Pont, Law o**f Costs (5th ed, 2021, LexisNexis) at [13.42] citing Rolls Royce Industrial Power *(* [2001] NSWCA 461; (2001) 53 NSWLR 626 at 642 (Stein JA). The change in the plaintiff’s case must, however, be substantial, as explained by Perry J in [1999] SASC 529; (1999) 76 SASR 28 at [36], [38]: (emphasis added)

… The circumstances which … might justify relieving a defendant from the obligation to pay solicitor and client costs, will be those where there is such a significant change in the manner in which the plaintiff's case is presented at the trial, or the manner in which the evidence emerges at the trial, that it might fairly be said that the full dimensions of the plaintiff's entitlement could not possibly have been foreseen before the hearing commenced.

…

But the fact that the defendant is caught by surprise by some development at the trial, standing alone, would not ordinarily be sufficient, as it is symptomatic of litigation that the course taken by a trial will often be unpredictable. It will only be in an extreme case that such considerations would avail a defendant. It is not necessary or appropriate, in the context of argument as to the application of the rule, for the Court to embark on a nice comparison between the material discovered before trial, and the evidence as it emerged at the hearing. In considering their response to an offer, defendants must allow for the fact that the course of evidence may turn significantly and unexpectedly against them at the trial. That is an ordinary hazard of litigation which no properly advised defendant should fail to allow for.

See likewise Doyle CJ at [8].

33. I do not consider the amendments to the vendor’s case to be substantial. It was an alternative argument that was easily answered and, fairly obviously, got the vendor nowhere.

34. In the result, this was a commercial dispute between sophisticated parties, ably represented by solicitors and counsel. The amount in issue was substantial and well-defined, having been ascertained in the expert determination. The purchaser was bound by the expert determination unless it could establish that the expert had made a “manifest error”. The requirements for such an error are notoriously high. Given the factual findings made in my primary judgment, the purchaser must also have known that it was pressing for a construction of the Share Sale Agreement which was at odds with the parties’ common intention when the Variation Deed was prepared, and thus at risk of being ‘cured’ by the rectification suit in any event.

35. The offer was made after the parties had put on their evidence and after (the bulk of) discovery had been provided. The Calderbank letter was detailed, presented a genuine compromise, and was open for sufficient time to enable the purchaser to give due consideration. Failure to accept that offer put the vendor to the ongoing cost of establishing its entitlements at trial, including advancing a rectification suit in the event that the purchaser’s proffered construction of the Share Sale Agreement was accepted by the Court and the Court also concluded that the expert’s construction was a “manifest error”. In all of the circumstances, I consider that it was unreasonable for the purchaser not to accept the offer and indemnity costs should follow. It is not necessary to consider the second Calderbank offer or the submissions made in respect of it.

Orders

36. For these reasons I make the following orders:

37. Vary Order 2 made on 24 June 2025 as follows:

Judgment against the first defendant in the sum of $10,864,785.83.

2. Vary Order 4 made on 24 June 2025 as follows:

Order the first defendant to pay the plaintiff’s costs of the proceedings, including the cross-claim, on the ordinary basis until 1 November 2024 and on an indemnity basis thereafter.

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