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[2012] NSWSC 1602
Supreme Court of NSW
2012-12-17
Beech-Jones J
Original judgment source is linked above.
EX TEMPORE Judgment 1On 17 October 2012, I published my substantive judgment in this proceedings dismissing the plaintiffs' claim and the cross claim, Fernandez v Perez [2012] NSWSC 1242 ("Fernandez (No 1)"). I made directions for the filing of submissions concerning costs. Submissions were duly filed, but the parties indicated they wished to make oral submissions. Due to various timetable difficulties which were no one's fault, a date suitable to all could not be found until today. 2The starting point for the consideration of costs is the outcome of the case, namely the failure of the plaintiffs' claim and the failure of an aspect of the cross claim. Overall, this represented a substantial victory for the defendant/cross claimant, Mr Perez. 3Mr Perez seeks an order that the first plaintiff, Mr Fernandez, pay his costs of the proceedings on a party/party basis until 17 May 2010 and on an indemnity basis thereafter. He also seeks an order that the second plaintiff, Mr Uribe, pay his costs on an indemnity basis from 24 September 2010. In the alternative, Mr Perez seeks an order that Mr Fernandez pay his costs of the proceedings on a party/party basis until 19 July 2012 and on an indemnity basis thereafter, and that Mr Uribe pay his costs on a party/party basis from 24 September 2010 until 19 July 2012 and on an indemnity basis thereafter. 4The significance of the dates of 17 May 2012 and 19 July 2012, is that Calderbank letters were sent on behalf of Mr Perez on those dates. The significance of the date, 24 September 2010, is that it was upon that date that Mr Uribe was joined as a plaintiff to this proceedings. 5Mr Fernandez and Mr Uribe resisted any order that they pay indemnity costs. They also sought an order in their favour for the costs of Mr Perez's cross claim and Mr Uribe sought the reserved costs of a notice of motion seeking summary judgment against him that was dismissed by Harrison AsJ on 25 August 2011: Jamie Fernandez Trading as Suave Productions v Armando Christian Perez Trading as Pitbull [2011] NSWSC 1007.
The offer of 17 May 2010 6The offer made on 17 May 2010 was sent one month after a successful mediation involving Mr Fernandez and Mr Perez. Mr Uribe was not party to the proceedings at that time. As is to be expected, the letter containing the offer was marked, "without prejudice except as to costs". It asserted that Mr Fernandez's claim was "untenable" and reminded the recipients of Mr Fernandez's potential costs liability. The proposed settlement involved Mr Perez making a payment of US$30,000 to Mr Fernandez, mutual releases between the parties, the execution of a deed of settlement, the settlement being confidential, and the entering into of orders providing for the dismissal of the proceedings with each party to pay their own costs. The offer was left open for a period of fourteen days. It was not accepted. 7The amount of US$30,000 was said to represent the amount of "deposit" under the agreement between the parties that was paid by Mr Fernandez to Mr Perez and retained by the latter following termination(see Fernandez (No 1) [197] to [199]). 8An affidavit from Mr Perez's solicitor indicates that by the time the offer was made, his client had incurred approximately $105,000 in costs. The proceedings had commenced in 2009 and apparently there had been substantial interlocutory stoushes prior to the mediation. Ultimately, the proposal contained in the letter represented a better outcome for Mr Fernandez than what was achieved in the proceedings. 9In his written submissions, counsel for Mr Perez, Mr Balafoutis, referred me to the discussion in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 of the circumstances in which a court may make an order for indemnity costs where a Calderbank offer has been bettered by the offeror. 10In Miwa at [8] Basten JA noted that the "approach frequently adopted in this jurisdiction has been to ask two questions, namely whether (a) there was a genuine offer of compromise and (b) it was unreasonable for the offeree not to accept it". At [9] his Honour noted the authorities supporting the proposition that the offer must involve "a real and genuine element of compromise" including Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; 67 NSWLR 706 at [8]. I return to this later. 11Basten JA then addressed the criteria by which it was determined that there had been an unreasonable refusal by the offeree. First at [11] his Honour noted that the response of the offeree must be assessed at the time it was made and not with the benefit of hindsight resulting from a known outcome recorded in a the judgment, citing Regency Media Pty Ltd v AAV Australia Pty Limited [2009] NSWCA 368 at [33] per Spigelman CJ, Beazley and McColl JJA. 12Second, Basten JA endorsed the criteria identified by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298, 13 VR 435 namely: "(a) the stage of the proceedings 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." 13In this case, the offer contained in the letter of 17 May 2010 was made at a relatively early stage of the proceedings. I understand that to favour the application because an underlying policy objective being given effect to by this area of discourse is the encouragement of settlements in the early stages of the proceedings before substantial costs and court resources are consumed. The time allowed of fourteen days was sufficient to enable Mr Fernandez to make a considered decision. The offer was sufficiently clear to enable immediate acceptance. It foreshadowed an application for indemnity costs in the event it was rejected. 14The remaining criteria are the extent of the compromise offer and the offeror's prospects of success assessed as at the date of the offer. These criteria are clearly interrelated. 15Mr Fernandez's written submissions did not address this offer, but instead were directed to the offer of 19 July 2012. However, in oral submissions, counsel for Mr Fernandez, Mr Baran, submitted that the offer was too low and did not represent a genuine offer of compromise. He pointed to the costs incurred by Mr Perez at that time, namely $105,000. Mr Baran submitted that I should infer that the substantial costs had been incurred by his client as at the date of that offer as well. Overall, he submitted that an offer of $30,000 in the context of this claim given the likely level of costs his client had incurred was truly derisory. 16In Regency Media, Spigelman CJ discusses the authorities concerning whether the offer made was "a real genuine offer" in the context of considering an offer of compromise for the purposes of UCPR r 42(14), r 42(15) and r 42(15A). In that case, an offer to pay $10,000 was made to settle the claim for possibly $700,000. His Honour characterised that in substance as "invitation to surrender" and found that it would only give rise for an order to indemnity costs if the relevant claim or defence approached something of a character that could be described as frivolous or vexatious (at [31]). 17His Honour's comments were made in the context of contractual dispute which had an "all or nothing" character (at [29]). This was not such a case. Even if the plaintiffs had established that Mr Perez breached an agreement in cancelling the concerts, including any such agreement as varied, they still had to establish that there was a loss of profit, a matter in respect of which Mr Fernandez at least did not have great success (see Fernandez (No 1) at [192] and [194]). 18I certainly did not consider that Mr Fernandez's case could be described as either vexatious or frivolous, or approaching vexatious or frivolous. However it could not be characterised as strong either. He was pursuing a case of breach of contract in circumstances where it was common ground that he missed the deadline for prepayment set out in the written agreement between the parties. He was forced to rely on an argument that the agreement was varied, a proposition which I was not persuaded of, even if I had accepted his evidence where it was in conflict with that of Mr London (see Fernandez (No 1) at [117]). 19At the time the offer was made, Mr Uribe was not a party to the proceedings. The quantification of Mr Fernandez' claim for the loss of profits depended in a large measure on the level of advance ticket sales for only those concerts from which he could have derived profit, namely Perth and Melbourne. Those levels of sales were poor. 20In the end, however, allowing for the weaknesses in his case, I do not consider that it was unreasonable for Mr Fernandez to refuse the offer. In effect, its acceptance would have amounted to a complete capitulation and would have resulted in Mr Fernandez being substantially out of pocket. I am mindful that in the end result he will do much worse than what he would have done had he accepted the offer. However that is not the test. As I have stated, this is not a matter to be approached with the benefit of hindsight based on what is known, but instead is to be assessed by reference to circumstances as they were known at the time the offer was made. 21The offer was not an offer of compromise under the rules. Instead it was a Calderbank letter. Having regard to the criteria identified by Basten JA, in Miwa, I do not consider Mr Fernandez' refusal to accept the offer was unreasonable. I will not make an order for indemnity costs based on the offer of 17 May 2010.
Indemnity costs against Mr Uribe 22The basis put forward for an order of indemnity costs against Mr Uribe from 24 September 2010 is that it was submitted that his claim was bound to fail. In particular, it is submitted that it was inevitable that Mr Uribe would be found not to be a third party beneficiary of the agreement between Mr Fernandez and Mr Perez. 23Mr Perez pointed to that part of Fernandez (No 1) in which I found that even if I had accepted the plaintiffs' submissions on the content of the law of Florida, the evidence fell "a long way short of [establishing] any mutual intention on the part of Mr Fernandez and Mr London for any other promoter [such as Mr Uribe] to benefit": Fernandez (No 1) at [148]. 24I do not consider that Mr Uribe's claim was so lacking in merit from the outset as to warrant an order for indemnity costs. The joinder of Mr Uribe filled something of a lacuna in the proceedings in that the cancellation of the Sydney concert was the one most likely to cause significant losses but Mr Fernandez alone could not seek recovery in respect of that concert as he was not promoting it, even though he had the contractual right to have Pitbull perform at it. 25In any event, there was a considerable scope for debate about the law of Florida on this topic. Further, while I found the documentary material relied on by Mr Uribe was not sufficient to establish his claim, that material might have been sufficient had Mr London made some of the concessions in cross examination that were sought of him. 26I will not order indemnity costs against Mr Uribe from the time of his joinder in September 2010.
The offer of 19 July 2012 27The alternative basis relied on by Mr Perez for an order of indemnity costs against Mr Fernandez and Mr Uribe, arises out of their rejection of a Calderbank offer made on 19 July 2012. 28The letter containing the offer was emailed some time on Thursday, July 2012 and the offer expressed to be open until 9am, 23 July 2012, which was the first day of the hearing. The letter cited various bases upon which it was said that the plaintiffs' claim would fail and then made an offer in the following terms: "... we are instructed to put to you one single and final offer of settlement of all the claims in the proceedings, without any admissions, on the following terms: (a) Mr Perez will pay to Mr Fernandez the sum of USD$50,000 within seven days of execution of a deed as outlined in (e) below; (b) Mr Perez will waive his right to recover the costs owed to him by Mr Fernandez pursuant to the orders of Driver FM made on 12 March 2012 in Federal Magistrates Courts proceedings SYG33/2011 (our client's costs in that case are $133,106.11 and we conservatively expect our client to recover $50,000); (c) the NSW Supreme Court proceedings will be discontinued by consent of all of the parties with no order as to costs and any cost orders made to date in favour of each party be discharged; (d) mutual releases from any and all liability relating to the claims made in the proceedings, or arising out of the subject matter of the proceedings; and (e) the above terms remain strictly confidential to the parties and their legal advisers and be recorded in a deed to be prepared and executed by the parties. This offer remains open until 9.00am, Monday 23 July 2012 and thereafter is immediately withdrawn." 29The reference to the "costs owed to him by Mr Fernandez pursuant to the orders of Driver FM" was to certain proceedings that had been commenced by Mr Perez in the Federal Magistrate's Court of Australia against Mr Fernandez alleging breaches of the Copyright Act and the infringement of his "moral rights" in relation to the use of certain recordings of Mr Perez. As indicated in the letter, these proceedings had been resolved in Mr Perez's favour and had led to a costs order being made against Mr Fernandez. 30Mr Baran submitted that this offer was also derisory, bearing in mind the substantial costs that had been incurred by his client at this point in time. The value of the offer that was made to Mr Fernandez represented a substantial increase on the preceding offer. Nevertheless, bearing in mind the costs that had been incurred for Mr Fernandez, this offer still represented a substantial loss for Mr Fernandez. As for Mr Uribe, the offer would have yielded him nothing other than being relieved of any potential costs liability in favour of the defendant. In effect they were both given one working day to accept a complete capitulation during a time at which it can be expected that they and their legal advisers were busily preparing for a hearing. 31In considering whether sufficient time was allowed, Mr Balafoutis pointed out that the offer was refused by the plaintiffs on Sunday 22 July 2012 and a counter-offer was made. Mr Balafoutis also referred me to the decision of Court of Appeal in Jones v Bradley (No 2) [2003] NSWCA 258 at [9] to [16] as an example of a circumstance where an offer that was open for a brief period and refused founded the making an order for indemnity costs. However in that case, the losing party had initiated the round of offers that led to the application. Thus, it having made an offer requiring a short period of time for response that party could not then complain when it received an offer from the other side in the same terms. That is not the case here. 32Taking into account the factors that I have already referred to, I do not consider that the rejection of this offer in the time that it was indicated that it was open, given its proximity to the hearing, was unreasonable even in light of what was then known about the plaintiffs' case. I decline to make an order for indemnity costs based on the letter of 19 July 2012. 33Subject to considering the next two points, it follows that I will order that both Mr Fernandez and Mr Uribe pay the defendant's costs of the proceedings on a party/party basis
Cross claim and motion for summary judgment 34As I have stated, both Mr Fernandez and Mr Uribe sought the costs of Mr Perez's cross claim. In addressing this, Mr Balafoutis pointed out that only part of his client's cross claim was unsuccessful. He submitted that those aspects of the cross claim which sought to vindicate his client's right to retain the deposit and his client's entitlement to terminate the agreement were successful. He submits that the only unsuccessful part of the cross claim, namely that concerning his client's right to further damages, occupied such a minimal part of the case in terms of evidence and submissions that it does not warrant any diminution in the costs that his client is otherwise entitled to. I agree. I will not make any separate order in relation to the cross claim. 35I have referred to the summary judgment motion that was heard and dismissed by Harrison AsJ on 2 September 2011. It seems that following the joinder of Mr Uribe, Mr Perez filed a motion seeking summary judgment on the basis that the claim was untenable in the sense discussed in General Steel Industries Inc v Commissioner for Railways [1964] HCA 69; 112 CLR 125 at 129. Mr Perez also sought orders that parts of the pleading containing Mr Uribe's claim against Mr Perez be struck out. 36During the course of the motion, it appears that it came to be accepted that there was an aspect of Mr Uribe's pleading that was defective. However, the motion proceeded and her Honour dismissed the application for summary judgment but granted leave to Mr Uribe to further amend his statement of claim. 37As I have indicated, her Honour reserved costs. I was informed from the bar table that there was no discussion about this. I queried whether her Honour might have reserved costs on the basis that, if Mr Perez's argument that the evidence simply could not establish Mr Uribe's claim was successful at trial, then he should get the costs of the motion as well. However I cannot reach that conclusion. Instead, I can only treat the judgment on its face and conclude that by and large, Mr Uribe was successful resisting an application for a summary judgment. This case is one that fell into the gap between not being liable to be dismissed on an application for summary judgment but not being strong enough to win at trial even if all evidentiary disputes were resolved in the plaintiffs' favour. 38Taking into account these matters, the approach I will adopt is to order Mr Perez to pay half of Mr Uribe's costs of the motion before Harrison AsJ. 39Accordingly, I make the following orders: (1)The First Plaintiff pay the Defendant's costs of the proceedings on a party/party basis. (2)Subject to order 3, the Second Plaintiff pay the Defendant's costs of the proceedings on a party/party basis from 24 September 2010. (3)The Defendant pay half of the Second Plaintiff's costs of the motion for summary judgment determined by Harrison AsJ on 2 September 2011. (4)There is no order as to the costs of today's application.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 December 2012
Fernandez
Perez
[2005] VSCA 298
[1964] HCA 69