Girardi as trustee for The Superannuation Fund - Greengate Investments v Duncum - [2021] NSWSC 1138 - NSWSC 2021 case summary

Supreme Court of NSW|2021-09-07|Before: Ward CJ

Background

The background to the dispute (and I here make no findings as to any disputed questions of fact) may be gleaned by reference to the affidavit sworn 3 March 2021 by Mr Girardi in support of the summons and by the affidavit sworn in response on 19 June 2021 by Ms Duncum on behalf of the defendants.
The racehorse in question (Franco Landry) was purchased in March 2016 following the February 2016 PGG Wrightson Standardbred Yearling Sales in New Zealand. Mr Girardi (as trustee for Greengate) acquired a 50% interest in the horse for the sum of NZD $20,125. Mr Girardi has deposed that he understood that the remaining 50% interest was to be held by Premier Stables Pty Ltd (Premier Stables), an entity associated with Mr Tim Butt, a harness racing trainer who is the principal of Premier Stables (see Mr Girardi's affidavit at [21]). Mr Girardi has also deposed to his understanding that he (Mr Girardi) was to be the managing owner of the horse (at [22]) and has explained the significance he attributes to that role (being to avoid potential conflict with a trainer owner as to matters such as over-servicing of a racehorse).

Plaintiff's submissions

Mr Girardi invokes the general rule that costs follow the event and says that he is prima facie entitled to his costs of the proceeding (the defendants cavil with the proposition that there has been an "event" as such in circumstances where the proceeding has been concluded without a hearing on the merits - see below). As noted above, the plaintiff seeks such an order on the indemnity basis. A gross sum costs order is sought, pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act), in the amount of $83,361.87 as itemised in the invoices attached to the affidavit sworn 31 August 2021 by the plaintiff's solicitor, Mr Keith Redenbach, with an additional $9,119.00 for work carried out after 18 August 2021 (as set out in Mr Redenbach's affidavit at [28]), thus totalling $92,480.87 including GST.
As to the discretion to award costs on the indemnity basis, reference is made to what was said by McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (Oshlack) (at [67]; [69]). As to the application for a gross sum costs order, reference is made to the principles outlined in Hamod v State of New South Wales [2011] NSWCA 375 (Hamod) (at [813]), where Beazley JA, as Her Excellency then was, referred to Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 (Harrison) (at [21]-[22]).
The plaintiff submits that, in circumstances where the consent orders disposing of the substantive aspect of the proceeding were substantially the same in effect as the original relief sought in the summons filed on 4 March 2021, the defendants have capitulated and therefore the plaintiff should be entitled to his costs of the proceeding (at the very least on the ordinary basis).
The plaintiff further contends that the defendants engaged in disentitling conduct by, inter alia, failing to consent, soon after the commencement of the proceeding on 4 March 2021, to the orders that were ultimately made (which it is said unnecessarily protracted and increased the costs of the proceeding); and by failing to accept or make reasonable counters to the plaintiff's offers of 24 May 2021 and 5 July 2021, respectively.
The first of those offers was a without prejudice offer, expressed as a Calderbank offer, effectively requiring the defendants to agree to the relief sought in the summons and to pay the plaintiff's costs as assessed or agreed (i.e., as I read it, requiring complete capitulation on the defendants' part and without any apparent element of compromise). The second of those offers, again expressed as a Calderbank offer, introduced the concept of a third party (Gavelhouse or Standard Bred Trader) to conduct the sale but still required the payment of the plaintiff's costs of the proceeding as assessed or agreed and introduced a term that the defendants pay the plaintiff "any outstanding stakes and prize money as agreed or assessed" (relief not sought in the summons and not quantified in the offer).
As to the amount of the costs sought by way of the gross sum costs order, the plaintiff submits (and I accept) that the Court is in a position to make a reasonably well-informed assessment as to the appropriate level of costs having regard to the matters to which Mr Redenbach has deposed in his first affidavit and that the issues in the proceeding were relatively straightforward (citing Bobb v Wombat Securities Pty Ltd (No 2) [2013] NSWSC 863 (Bobb v Wombat Securities) at [8] per Beech-Jones J, as his Honour then was).

Defendants' submissions

Complaint is made by the defendants that, despite their attempts to sell Franco Landry (which they point out included an offer from a third party higher than the plaintiff's own contemporaneous valuations of the horse), the plaintiff filed this proceeding on 4 March 2021 (without warning, it is said) within ten days of the plaintiff rejecting an offer of $40,000 for the horse and the defendants having sought the plaintiff's "best offer" for the defendants' shares in the horse.
The defendants emphasise that the summons sought orders for the sale of the horse to be conducted by the plaintiff himself and for the plaintiff to be awarded his costs. The defendants say that the plaintiff had not at any stage foreshadowed a proceeding for orders that the horse be sold; rather, the plaintiff had foreshadowed a need for the parties to appear in court to "answer charges" and had referred to having garnered "enough evidence to prove without a doubt the [alleged] corrupt practices" (see Ms Duncum's affidavit at [139] and pp 87-88 of the exhibit thereto).
Pausing there, I note that in Mr Girardi's 30 May 2020 "without prejudice" letter (which he has included in his account of dispute resolution attempts) one of the ways that the defendants were there put on notice that "we [presumably Greengate] will remedy the matter" was that "we pursue a claim against our fellow partners". However, the nature of the anticipated claim was not there specified and, in context, it appears that this was foreshadowing a claim in relation to the "various actioned breaches" of the Partnership Act 1982 (NSW) and the Income Tax Assessment Act 1997 to which the letter had earlier referred (see at p 124 of the exhibit to Mr Girardi's affidavit). Moreover, this was some ten months before the present proceeding was instituted. There does not seem to have been any explicit notice given prior to commencement of the proceeding that an application under s 36A of the Conveyancing Act would be made if the defendants did not consent to a sale of the horse (whether on Mr Girardi's terms or otherwise).
The defendants point out that, on 30 March 2021 (i.e., shortly after commencement of the proceeding), Ms Duncum again invited an offer from the plaintiff to buy the horse; and that the plaintiff responded thereto on 30 March 2021 by asserting that he wanted to "await the outcome of the court case and pursue damages due to loss of income and value from mismanagement" (see Ms Duncum's affidavit at [143] and p 94 of the exhibit thereto).
The following day (and inconsistently with his response the day before) Mr Girardi made an offer (which the defendants did not accept) that involved the payment by the defendants of $40,000 for prize money and $52,000 for legal fees; and the transfer of the defendants' shares in Franco Landry to the plaintiff for no consideration (see Ms Duncum's affidavit at [145] and pp 91-92 of the exhibit thereto). The defendants note that in this letter Mr Girardi also stated that that he had "lodged claims in the NSW Supreme Court for negligence and mismanagement by yourself and other owners" (though no claim in negligence or for mismanagement has been brought in the proceeding - and I might add that any such claim would need to be pleaded in any event).
The defendants point to several further offers made by their solicitors between April and July 2021 (to which I refer in due course below) which they say were rejected without reasonable explanation (these, or at least some of these, forming the basis for the defendants' claim for indemnity costs under the Calderbank principles) and they note that the consent orders ultimately made were those which the defendants had themselves proposed in the online court on 4 August 2021 (essentially for the horse to be sold by a third party and proceeds held on trust by the plaintiff's solicitor).
Turning to the separate bases on which the defendants seek indemnity costs, the defendants have submitted as follows.

Unreasonable and unnecessary proceeding

The defendants say that the institution of this proceeding (seeking orders for the sale of the horse) at a time when the defendants were actively trying to sell the horse (either to a third party or to the plaintiff) was unnecessary, unreasonable and antithetical to the plaintiff's overarching obligations pursuant to s 56 of the Civil Procedure Act.
The defendants (as adverted to above) submit that this is not the usual case where the general rule that costs follow the event applies, in that there has been no relevant "event" to follow. It is said that, while the relief sought by the summons was in large part obtained, the defendants had at all times consented to that relief being granted and that, to the extent that some parts of the relief sought were resisted by the defendants (such as for the plaintiff to obtain costs of the proceeding directly out of the proceeds of sale, and power to exercise the sale and retain the proceeds himself), the plaintiff effectively capitulated on those issues (which were ultimately resolved in accordance with the various proposals of the defendants).
Thus, the defendants say that the action should never have been brought in the first place and that the plaintiff capitulated on the only issues in dispute between the parties. The defendants go on to assert that the proceeding was "arguably brought in the absence of good faith and/or tantamount to an abuse of process", referring to Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 (at 362), among others, as an example of cases where indemnity costs orders have been made in proceedings which have been found to have been brought as an abuse of the process and/or for an ulterior or collateral purpose.
As did the plaintiff, reference is made by the defendants to the principles articulated in Lai Qin (at 624). The defendants also refer to the application of those principles by the Court of Appeal in Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 (Nichols v NFS Agribusiness) at [26]ff; and to the caution recognised in the authorities against fostering the misconception that obstinacy and unreasonableness will not result in an order for costs (referring in this regard to Dobb v Hacket (1993) 10 WAR 532 at 540; Harkness v Harkness (No 2) [2012] NSWSC 35 per Hallen J at 18).
However (again as did the plaintiff, albeit with a different proposed outcome), the defendants submit that this is an appropriate case where costs should be awarded despite there being no hearing on the merits.
The defendants say that they were required by the plaintiff's actions to incur not insubstantial legal costs to defend themselves from an unnecessary action (not just the relief sought in the summons but also from the unparticularised claims of damages that were raised throughout correspondence and in Mr Girardi's affidavit - referring to the spectre of negligence claims, claims for underpayment of prize moneys, defamation claims and other accusations raised in the correspondence and affidavit). It is submitted that such conduct amounts to disentitling conduct so as to provide the basis for an adverse costs order, including on an indemnity basis.
Further, the defendants say that, in the present case, no determination of an hypothetical action is necessary to determine the question of which party has been successful on the salient issues because, from the outset of the proceeding, the defendants had agreed to the sale of the horse; and the issues in dispute were narrowed essentially as to who was to conduct the sale of the horse and as to costs. The defendants say that they never compromised on their position in relation to those two issues; rather, it is said that on 10 August 2021, without explanation, the plaintiff capitulated, and the substantive proceedings were finally able to come to an end.
The defendants say that it follows that the plaintiff did not ultimately obtain the relief he sought in respect of the only issues that had ever been in dispute between the parties, and that the limited issues that were in dispute were resolved on the basis of the various proposals of the defendants. The defendants also say that it follows that, due to the early narrowing of the issues by the defendants, all of the costs of the proceeding were incurred in respect of the two limited issues referred to above (i.e., who should conduct the sale and whether costs were to be deducted from the proceeds of sale) and, it is said, in respect of the unparticularised claims for damages that were ultimately never brought by the plaintiff.
Pausing here, I have difficulty if the proposition be that costs should be awarded because allegations were made prior to the litigation in relation to matters that were not ultimately pursued in the proceeding in which the costs orders are here sought; nor would I have necessarily considered the making of such allegations, of itself, to be relevantly disentitling conduct (although I accept that there are cases where threats made prior to litigation might indicate a collateral or ulterior purpose to the bringing of the litigation and hence an abuse of process, it being a well-recognised category of abuse of process where the Court's processes are invoked for an illegitimate or improper purpose - see, for example, Williams v Spautz (1992) 174 CLR 509; [1992] HCA 34 ; Rogers v The Queen (1994) 181 CLR 251 at 287; [1994] HCA 42 per McHugh J)
However, to the extent that Mr Girardi's affidavit evidence expressed various complaints about mismanagement of the horse and the like, I accept that costs would reasonably have been incurred in obtaining evidence to respond thereto and that those could properly be the subject of the present application, even though the foreshadowed claims were not themselves the subject of relief sought in the summons.
The defendants have referred to authorities that recognise that disentitling conduct (that may influence a court to depart from the general rule that costs follow the event - see Oshlack at [40], [69]) can include any conduct "calculated to occasion unnecessary expense" and that it need not necessarily amount to misconduct (citing Keddie v Foxall [1955] VLR 320 at 323-324; Lollis v Lolatzis (No 2) [2008] VSC 35 at [29]) and that disentitling conduct need not amount to a "most exceptional case, or a strong or exceptional case" (citing GR Vaughan (Holdings) Pty Ltd v Vogt [2006] NSWCA 263 at [20]).
The defendants emphasise that the parties were actively seeking third party offers for the horse and negotiating on the sale of their shares to each other. It is submitted that, if the claim was brought for unexplained and unparticularised monetary claims that were never part of the action (and have not been achieved), then the proceeding was arguably for an improper purpose; but in any event the defendants characterise the position as being that the plaintiff sought the coercive powers of the Court to force the sale of a horse that the parties already wanted to sell, simply because the plaintiff wanted to sell it himself.
The defendants note that an order for indemnity costs is not made to punish an unsuccessful plaintiff for persisting with a case that fails but, rather, to compensate a successful defendant for costs incurred when it was unreasonable for the plaintiff to have subjected that party to the expenditure of costs.
The defendants say that in the facts and circumstances of this case, they were unable simply to consent to the summons (save as to costs), and that it was not unreasonable for them actively to defend the proceeding for the following reasons.
First, that the relief sought in prayer 3 of the summons included that the plaintiff conduct the sale of Franco Landry. It is said that, in light of the "unreasonable" refusal of Mr Girardi to accept the offer of $40,000 from the third party in February 2021, and the various "erratic" valuations of the horse by Mr Girardi (from $400,000 in June 2018 to less than $20,000 in February 2021), the defendants could not be confident that Mr Girardi would conduct the sale in the defendants' best interests.
Second, that Mr Girardi had been asserting claims for unparticularised damages for various unparticularised causes of action for some time. It is noted that there was reference to such claims (at least in part) in Mr Girardi's evidence in chief filed in this proceeding, and throughout the correspondence from the plaintiff. The defendants say that it was therefore reasonable and necessary for them to prepare detailed evidence setting out the lengthy and complicated background of the matter in order to respond to the foreshadowed claims for damages; and the defendants say that reasonableness will dictate whether costs are ordered in relation to a party's preparation of material in anticipation that a particular matter is going to be raised at the trial, which is not ultimately raised.

Calderbank offers

The second basis on which the defendants seek indemnity costs orders in their favour is what they maintain was the unreasonable rejection by the plaintiff of various Calderbank offers; and they say that the plaintiff has not obtained a "more favourable result" (via the consent orders) than the relevant offers.
The defendants again emphasise that the relief sought in the summons was, in essence, that the horse be sold (by Mr Girardi himself) and that the proceeds from such sale be distributed to the co-owners as per their agreed ownership shares (and after payment of the plaintiff's legal costs). The defendants point to the following offers made by them to sell the horse and to divide the proceeds of sale (that being the outcome that the summons essentially sought to achieve).
First, the statement by Ms Claudette Chua (the defendants' solicitor) during a without prejudice telephone conversation with Mr Redenbach on 15 April 2021, to the effect that the defendants were surprised about the commencement of proceedings, that each was happy to sell the horse and agreed with the division as proposed by Mr Redenbach's client and that "[b]asically we agree to everything your client seeks except each party bear their own costs".
Pausing here, in an affidavit sworn by Mr Redenbach on 1 September 2021, after receipt of the defendants' evidence on this costs application, objection is taken to inclusion of the file note of this conversation as part of the material exhibited to Ms Chua's affidavit sworn 30 August 2021 on the basis that it contains without prejudice material, being informal discussions between the parties' solicitors. Mr Redenbach goes on to depose that (in the event that this objection is not accepted) he does not accept that the file note is an accurate record of the conversation, pointing, inter alia, to an email sent by Mr Redenbach to two solicitors of his firm at around that time (and to other contemporaneous communications between the legal representatives).
I have some difficulty in the suggestion that without prejudice privilege can be selectively waived in relation to what seem to have been ongoing communications between the parties' legal representatives in their attempts to resolve the dispute between their clients, but it is not necessary here to resolve that question, because in my opinion the file note is not in any way determinative of the costs issue and can be put to one side. Even leaving aside the dispute as to the admissibility of the relevant file note, this would not in my view amount to a Calderbank offer as such; and the fact that the defendants had communicated their agreement to a sale of the horse from an early stage in the proceeding emerges from other communications in any event. All I will here say is that, if the file note is an accurate record of the conversation then the intemperate communications recorded therein would not reflect well on the maker of those statements (and I would make the observation that I have made in other cases as to it being incumbent on officers of the Court to maintain a professional stance in communications with their opponents in litigation). In any event, I am certainly not able here to make any findings as to what was or was not said in the conversation the subject of this file note (which highlights the undesirability of embarking on satellite costs litigation) and nothing here turns on this.
Second, a letter dated 18 May 2021 from the defendants' solicitors to the plaintiff's solicitors (in open correspondence), advising that the defendants agreed to: the sale of the horse; the distribution of the net sale proceeds to occur in accordance with the summons; and for a third party to conduct the sale of the horse; and that the only issue remaining was the issue of costs.
Third, a without prejudice offer dated 18 May 2021 from the defendants' solicitors comprising the same terms as set out above, but including a terms that each party bear its own costs. The letter was explicitly stated to be one made under the Calderbank principles, and the defendants say that it satisfied the Calderbank criteria (including being a real compromise).
I interpose to note that this was followed by the 24 May 2021 letter from the plaintiff's solicitors (on which the plaintiff here relies, that letter being couched as a "without prejudice counter-offer"), seeking that the defendants pay the plaintiff's costs of the proceeding, and that Mr Girardi be authorised to conduct the sale of the horse (and be paid his costs in doing so); which the defendants say it was reasonable for them to reject for the reasons adverted to above.
Reference is made in this context also to an open letter dated 29 June 2021 from the defendants' solicitors (not a settlement offer, in terms, as such) reiterating the defendants' willingness to sell the horse and asking the plaintiff to reconsider its approach to the proceeding, the letter stating that: Unfortunately, despite our clients acceding (in substance) to your client's demands in the Summons, all previous offers have been rejected (or left without a response). Further, there has been no detail provided as to why those offers were unacceptable, and no practical alternative as to who would be better positioned to conduct the sale of Franco Landry, if not an independent third party agent (appointed by agreement with your client). Perhaps this stems from a misapprehension of the scope of this proceeding by your client. In reality, this proceeding is quite simple - it concerns the requested sale of Franco Landry and the division of the resulting proceeds. Our clients are ready, willing and able to effect that sale, and have been for quite some time. To that end, we invite your client to reconsider its approach to this proceeding, and to resolve this proceeding as soon and as simply as possible.
Fourth, a further "without prejudice" offer (again expressed by reference to the Calderbank principles) also dated 29 June 2021 from the defendants' solicitors on essentially the same terms of the 18 May 2021 offer, except that this offer included a term that the plaintiff pay $7,500 in part-payment for the defendants' costs.
This was followed by the plaintiff's solicitors' "without prejudice" letter of 5 July 2021 (to which I have referred above and again this being a letter on which the plaintiff relies) essentially in the terms of the defendants' 29 June 2021 offer, except that it demanded payment of unparticularised prize money and again sought full payment of the plaintiff's costs.
Finally, the defendants refer to the additional orders sought by them and lodged in the online court on 4 August 2021, which were in predominantly the same form as those in the 29 June 2021 offer but for provision for the parties to agree to defer question of costs. It is noted that those were in substance ultimately agreed. The defendants complain that no explanation has been provided as to why those orders were consented to in August 2021 after the refusal of such offers throughout April through to August 2021.
The defendants maintain that the plaintiff has not achieved a result more favourable to him than those offers. Leaving aside the reference by the defendants in this context to the communication on 15 April 2021 (the evidentiary status of which is the subject of dispute), the defendants note that it was proposed on 18 May 2021 that the horse be sold by a third party agent and the proceeds divided as proposed by the plaintiff but that each party bear its own costs (this being a formal Calderbank offer); and that this was proposed on 29 June 2021 on the same basis and with a part-payment for the defendants' costs (again as part of a formal Calderbank offer).
The defendants say that the rejection by the plaintiff of those offers was unreasonable in the context of the circumstances at the relevant time(s); that the plaintiff has not achieved a more favourable result than those offers; and that the defendants should be awarded their costs, including on an indemnity basis, from at least 18 May 2021.
The defendants have not sought an order for costs in a fixed sum but have indicated that their current estimate of costs incurred in the proceeding is approximately $30,000. (Although in their submissions there was a suggestion that information as to those costs could be provided in due course, that is a matter which will now need to abide a costs assessment process.)

Determination

It is well-understood that there is a broad discretion in relation to the making of orders as to costs (see s 98 of the Civil Procedure Act), albeit that it is one that must be exercised judicially and having regard to the overriding statutory mandate provided under s 56 of the Civil Procedure Act. Nor is it in dispute that costs orders in civil litigation are compensatory, not punitive, in nature (Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59; Ohn v Walton (1995) 36 NSWLR 77).
The starting point in the present case is that this is a proceeding that has been settled without a hearing on the merits. Therefore, ordinarily, if the parties have acted reasonably in commencing and defending the proceeding, the proper exercise of the costs discretion will usually result in there being no order as to costs (see Lai Qin at 624 per McHugh J; Nichols v NFS Agribusiness at [8]-[9] per Basten JA and at [30] per Payne JA).
In PRC Capital Pty Ltd v The Trust Company Ltd [2021] NSWSC 1007 (PRC Capital) I emphasised (at [64]) that satellite litigation as to costs should be firmly discouraged and I remain of that view. That is particularly the case if what is sought is a determination of disputed issues of fact as to the matters the subject of the substantive dispute (see Nichols v NFS Agribusiness). It is also the case in my opinion where the making of a costs application, even though it may not require an hypothetical mini-trial, nevertheless requires the review (and assessment) of voluminous correspondence or other materials. In that regard, though I do not suggest that the present case is on all fours with PRC Capital (where there had been forwarded a voluminous amount of correspondence to be reviewed), the complaints on both sides of unreasonable and disentitling conduct on the part of the other side have required an unedifying review of the communications between not only the parties but also between their legal representatives in the course of the dispute.
That said, as made clear in Lai Qin, there are cases where the conduct of a party is "so unreasonable" as to warrant the making of costs orders notwithstanding that there has been no hearing on the merits or (as asserted by both parties in the present case) where there has been a capitulation by one party; and it is well-recognised that special costs orders may be warranted in accordance with the Calderbank principles (those being the two broad lines of authority here invoked.)
As to the first line of authority, there are various examples of conduct of a party against whom costs are sought has been found to be plainly unreasonable (see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others (1988) 81 ALR 397; [1988] FCA 364; Dunstan v Rickwood (No 2) (2007) 38 Fam LR 491; [2007] NSWCA 266 at [44]). In the present context, as to the making of indemnity costs orders by reference to the unreasonable conduct of litigation reference may also be made to Oshlack at [44] per Gaudron and Gummow JJ; White Constructions ACT Pty Ltd (in liq) v White [2004] NSWSC 303 (White Constructions) at [11] per McDougall J; Jamal v Department of Health (1998) 14 NSWLR 252 (Jamal) at 271 per Mahoney JA).
In Oshlack, it was recognised that the discretion to award indemnity costs may be exercised where there is some special or unusual feature or circumstance in the case (concerning the conduct of the party, as a litigant, against whom the order is made and relating to the proceedings in question) to justify such an order (at [44]). The concept of "relevant delinquency" means delinquency bearing a relevant connection to the conduct of the matter, not some form of moral or ethical delinquency (see White Constructions at [11]). A successful party's conduct may be discreditable to the extent that the party is deprived of costs (see, for example, Jamal at 271 per Mahoney JA).
Turning to the complaints that have here been raised as to disentitling conduct, the relevant question is whether it can be concluded that the conduct of the particular party or parties was so unreasonable as to warrant the making of a costs order against that party or those parties.
As to the complaint by the plaintiff in effect that the defendants should have capitulated to his demands at an earlier time, that suffers from the difficulty that the defendants did in fact agree to the sale of the horse at an early stage in the proceeding. Leaving aside the 15 April file note (the evidentiary status of which is hotly contested by the plaintiff, as noted above), it is clear from the 18 May 2021 communications (both on an open basis and on a without prejudice basis) that the defendants were agreeing to a sale of the horse (the only dispute then being as to the logistics of the sale - i.e., who was to conduct it; and whether the plaintiff's costs should be deducted out of the proceeds of sale before they were apportioned between the parties). It seems to me that, in the history of acrimonious dispute that preceded the commencement of the proceeding, it was not unreasonable for the defendants to press for an independent third party to conduct the sale process.
As to the assertion by the plaintiff that there has been a capitulation by the defendants, again that fails to take into account the question as to who it was that was to conduct the sale (this being relied upon by the defendants for their contrary suggestion that it was the plaintiff himself who capitulated in the proceeding).
Suffice it to say that I do not accept that the defendants' conduct was disentitling conduct (nor do I consider that the offers on which the plaintiff relies in this context involved any genuine element of compromise); and hence I am not persuaded that a costs orders should be made in favour of the plaintiff.
It is not therefore necessary to consider the discretion to make a gross sum costs order (see Lambert v Jackson [2011] FamCA 275 at [59]). For completeness, I note that (as the plaintiff has submitted), a gross sum costs order may be appropriate: first, where the costs have been incurred in lengthy or complex cases and it is desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment (per Beazley JA in Hamod at [817], with reference there to Beach Petroleum NL v Johnson (No 2) (1992) 57 FCR 119 at 120; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629; Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006); second, where the issues in the case are straightforward and the Court is in a position to make a reasonably well-informed assessment as to the appropriate level of costs (per Beech-Jones J in Bobb v Wombat Securities at [8]); and, third, if it appears that the party obliged to pay costs would not be able to meet a liability of the order likely to result from the assessment (per Giles JA in Harrison at [21]). The plaintiff points to the endorsement by Dodds-Streeton J in British American Tobacco Australasia Ltd v Taleb (No 4) [2013] FCA 742 (at [22]) of the decision of Kenny J in Bitek Pty Ltd v iConnect Pty Ltd (2012) 290 ALR 288; [2012] FCA 506 (at [17]) where reference was made to the situation where a party's uncooperative conduct has unnecessarily contributed to the costs of the proceedings or where the conduct of the proceedings has wasted the successful party's resources (see also Hamod at [818]).
However, the basis for such an order (here invoked only by the plaintiff) is not made good in the present case as I do not consider that a costs order in the plaintiff's favour is warranted.
I should add that I do not accept that this was a case where the plaintiff was in the position that it had no practical choice but to commence the proceeding when it did. If there had been a clear indication, prior to commencement of the proceeding, that what the plaintiff wanted was simply agreement to the sale of the horse (other than a proliferation of threats as to other largely unspecified claims), and there had been a refusal on the part of the defendants to agree to a sale, then I might have accepted that the plaintiff was effectively forced to commence the proceeding in order to obtain the relief sought (as was the case, for example, in a very different context in Murrumbidgee Irrigation Ltd v M & H Acar Pty Ltd [2019] NSWSC 807), such that it could be said that it was the unreasonableness of the defendants' conduct that had led to the plaintiff unnecessarily to incur the cost of commencing the proceeding; but that did not occur here. I appreciate that the sale of the horse was foreshadowed in the May 2020 correspondence (to which I have referred above) as one way in which Greengate would "remedy" the matter. However, the claims there foreshadowed do not appear to have included an application for a compulsory order for sale and there was no forewarning of the application.
Turning then to the alleged unreasonable conduct or disentitling conduct of the plaintiffs that is here relied upon by the defendants, I do not accept that it was unreasonable for the plaintiff to commence the proceeding seeking an order for the sale of the horse at the stage at which he did, in circumstances where it appears that for some time there had been communication as to what was to happen with the horse and the status of the co-ownership of the horse. I accept that there was no clear forewarning of an intention to commence proceedings seeking the relief that was ultimately claimed (and that the issue as to what was being claimed was, to say the least, muddied by the accusations being bandied around in correspondence as to breaches of legislation or the Australian Harness Racing Rules, unpaid prize moneys, negligence and the like). However, in my opinion that goes to the plaintiff not recovering his costs, if the proceeding was commenced without giving the defendants a proper opportunity to avoid the litigation by agreeing to the sale of the horse in advance; not to the defendants' claim for their own costs as such.
Nor am I able to make any finding of the evidence before me that there was an ulterior or collateral purpose to the commencement of the proceeding (or that it was an abuse of process). The fact that Mr Girardi appears not to have been shy about accusing the defendants of a multitude of sins does not lead me to conclude that the proceeding seeking orders only for the sale of the horse was an abuse of process. Nor does the fact that Mr Girardi's affidavit descended into the complaints he has had in respect of the defendants; not least because it may well be that Mr Girardi considered (or was advised) that in order to obtain the relief pursuant to s 36A of the Conveyancing Act for the sale of the horse he needed to establish that there had been a loss of trust or faith in the relationship between the co-owners (akin to what might need to be established for the winding up of a company on the just and equitable ground, for example); rather than simply the fact of co-ownership, a lack of consent to the sale and that it was appropriate and in the interests of the parties for such an order to be made.
In passing, I note that the power to order the sale of a racehorse pursuant to s 36A of the Conveyancing Act was considered by McLelland J, as his Honour then was, in Ferrari v Beccaris [1979] 2 NSWLR 181. The racehorse there in question was owned by the parties as co-owners as tenants in common in equal shares. His Honour (at 183) considered that s 36A was open to two interpretations "namely, that it does not apply to a case where the chattel or chattels in question are not susceptible to physical division or, alternatively, that in its application to such a case and, indeed, in any case, the expression 'division' embraces, where appropriate, a division by conversion into money and distribution of that money, being in many cases the only method of carrying out a division"; but concluded that the better view was that the section did authorise the sale of a chattel in appropriate cases (and that the case before his Honour was an appropriate case for that course to be taken, his Honour noting that the horse was not permitted to race during the subsistence of the current dispute and that there were continuing expenses being incurred for its maintenance). His Honour concluded that the sale of the horse was in the interests of both parties (but did not consider it appropriate to permit any of the plaintiff's expenses in relation to the horse to be retained out of the proceeds of sale).
I also note that there seems to have been a dispute in the authorities as to the existence of any discretion under s 36A of the Conveyancing Act once it be established that the jurisdiction is enlivened. Young J, as his Honour then was, expressed the view in Naziridis v Rimis (1985) 9 BPR 16,201 that, where the plaintiff established an interest in a chattel to the extent of a moiety, there was no discretion and an order should be made under s 36A of the Conveyancing Act); cf the decision of Brereton J, as his Honour then was, in Beale v Trinkler (2007) 13 BPR 25,225; [2007] NSWSC 1058.
Thus, the excursus by Mr Girardi in his affidavit into his litany of complaints in relation to the mismanagement of the horse and the like may well have been considered necessary in the event that Mr Girardi might need to establish that any discretion under s 36A of the Conveyancing Act should be exercised in favour of a sale (and hence it is inappropriate here to embark upon speculation as to his motivation in the commencement, or proposed ambit, of the proceeding by reference to the accusations earlier made by him against the defendants).
Therefore, the first of the two separate bases on which the defendants seek costs orders in their favour is not made good.
Turning then to the second basis on which the defendants seek special costs orders (and the second of the lines of authority to which I have earlier referred) reliance is placed by the defendants on the Calderbank offers contained in the letters of 18 May 2021 and 29 June 2021.
The principles in relation to special costs orders are well-known (see, for example, Jones v Bradley (No 2) [2003] NSWCA 258 at [8]-[9], the Court of Appeal there approving what had been said by Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]); as is the public policy underlying such orders (see Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 (Miwa v Siantan Properties)).
While the rejection of a Calderbank offer (in circumstances where it later transpires that the final result in the proceeding is less favourable to the offeree), enlivens the discretion to award indemnity costs, it does not create a prima facie right to such an order (see Favotto Family Restaurants Pty Ltd v Chief Commissioner of State Revenue (No 2) [2020] NSWSC 519 (Favotto) at [28]; Chief Commissioner of State Revenue v Platinum Investments Management Ltd (No 2) [2011] NSWCA 197 at [9] per Campbell, Macfarlan JJA and Handley AJA). Where the offer is a Calderbank offer, the onus to demonstrate that it was unreasonable to reject it is on the party seeking to rely on the making of the offer (see Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] per Giles, Ipp and Tobias JJA).
In order to warrant the making of a special costs order, the offer must constitute a genuine offer of compromise that it was unreasonable for the party against whom the order is sought not to accept (see Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4] per Handley, Basten and Beazley 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 v Green [2004] NSWCA 341 at [23] per Santow JA (with whom Bryson JA and Stein AJA agreed).
The factors relevant to take into consideration when considering whether the rejection or non-acceptance of the offer was unreasonable (as summarised in Favotto at [20]-[30]) include: (i) the stage of the proceeding at which the offer was received; (ii) the time allowed to the offeree to consider the offer; (iii) the extent of the compromise offered; (iv) the offeree's prospects of success assessed as at the date of the offer; (v) the clarity with which the terms of the offer were expressed; and (vi) 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 v Siantan Properties at [12] per Basten JA (with whom McColl and Campbell JJA agreed).
Where a Calderbank offer is unreasonably rejected, and the offeror succeeds in litigation, costs may be made on an indemnity basis at least from the date of the offer or thereabouts. Whether such an order will be made will be determined in the exercise of the Court's discretion (see Becker v Queensland Investment Corp (No 2) [2009] ACTSC 147 at [12] per Refshauge J).
Each of the two offers expressed to be Calderbank offers, made by the defendants, did in my opinion involve a genuine element of compromise and each would have produced an outcome more favourable to the plaintiff than that which flows from the making of the consent orders (having regard to the time at which the offers were made and the costs that will have been incurred since then).
Considering the factors summarised above as to the reasonableness or unreasonableness of the rejection of the offers, and turning to the first of the two Calderbank offers, the offer was made on 18 May 2021, at a time when the proceeding had been on foot for approximately two and a half months and before the defendants had filed any evidence in response to Mr Girardi's affidavit; and occurred after both without prejudice and open communications relating to the proposed sale of the horse; and a period of one week was allowed to the offeree to consider the offer (which seems to me to be ample time in light of the narrow ambit of the dispute). The extent of the compromise was that the defendants were agreeing to a sale of the horse and for distribution of the proceeds as provided for in the summons, save that they wished for an independent person to conduct the sale, and they agreed to bear their own costs (which to my mind did involve a genuine element of compromise). The offeree's prospects of success assessed as at the date of the offer would surely have been high insofar as the making of the order for sale was concerned (particularly since there was no real dispute about that aspect of the matter) but there must have been room for doubt as to whether, in the circumstances of the ongoing dispute between the parties, Mr Girardi would be appointed to conduct the sale. There is no issue as to the clarity with which the terms of the offer were expressed; and the letter clearly foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
The second of the offers (dated 29 June 2021) involved similar considerations except that it included a part payment by the plaintiff towards the defendants' costs and therefore was not quite as favourable to the plaintiff as the earlier offer (and hence does not need here to be considered if, as I think it does, the earlier Calderbank offer enlivens the discretion to make a special costs order).
It should also be borne in mind that the first Calderbank offer (as had the open correspondence of the same day) expressed the defendants' view that the commencement of the proceeding was unnecessary and that it amounted to an abuse of process (such that if the matter was pursued to a hearing it was suggested that the plaintiff would be subject to an order to pay the defendants' costs). This would clearly have been a relevant consideration in weighing the benefit of acceptance of the offer against the prospects of success in the proceeding had it been prosecuted to a final hearing (albeit that I accept that the plaintiff is unlikely to have regarded such an outcome as likely since he, as also his legal adviser, appears to have been adamant as to the reasonableness of the plaintiff's position).
I consider that the rejection of the Calderbank offer on 18 May 2021 was in all the circumstances unreasonable. The terms of the offer provided a sensible means for the plaintiff to obtain that which he sought in the proceeding, being the sale of the horse and distribution of the proceeds of sale (other than in respect of his costs) in accordance with his summons, save that the party to conduct the sale was to be an independent third party and that the plaintiff was being asked to bear his own costs of commencing the proceeding.
As to the conduct of the sale by an independent party, there cannot have been a reasonable basis on which to reject that as a sensible way of resolving the dispute. As to the issue of costs, the fact that Mr Girardi was being asked to bear his own costs as part of the offer must be understood in the context that the offer was being made at a very early stage of the proceeding (when one might have thought the costs incurred should not have been great) and where Mr Girardi seems to have commenced the proceeding without first clearly seeking agreement to the sale of the horse untrammelled by the other accusations and demands that had been made. Further, the offer was met by what was, in effect, a demand by the plaintiff for complete capitulation on the defendants' part, which showed no willingness on Mr Girardi's part to compromise.
Therefore, and without wishing to encourage parties to expend further cost in costs applications after a matter has resolved without a hearing on the merits, I consider that the making of a special costs order is warranted in this case, particularly having regard to the public policy underlying the special costs orders regime. But for the apparent insistence of the plaintiff, first, on conducting the sale himself and then on the issue of costs, this matter could have resolved at a much earlier stage (and in accordance with the statutory mandate for the just, quick and cheap resolution of the real issues in dispute).

Orders

For the above reasons, I make the following orders: 1. Order the plaintiff to pay the defendants' costs of the proceeding from 19 May 2021 on the indemnity basis. 2. Otherwise, there be no order as to costs with the intent that the parties each bear their own costs of the proceeding up to and including 18 May 2021.

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: 07 September 2021

Partnership Act 1982(NSW)

Jackson [2011] FamCA 275 Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 Leichhardt Municipal Council v Green [2004] NSWCA 341 Lollis v Lolatzis (No 2) [2008] VSC 35 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Murrumbidgee Irrigation Ltd v M & H Acar Pty Ltd [2019] NSWSC 807) Naziridis v Rimis (1985) 9 BPR 16,201 Nichols v NFS Agibusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 Ohn v Walton (1995) 36 NSWLR 77 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 PRC Capital Pty Ltd v The Trust Company Ltd [2021] NSWSC 1007 Re Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 Rogers v The Queen (1994) 181 CLR 251; [1994] HCA 42 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Travaglini v Raccuia [2012] FCA 620 White Constructions ACT Pty Ltd (in liq) v White [2004] NSWSC 303 Williams v Spautz (1992) 174 CLR 509; [1992] HCA 34 Category: Costs Parties: Daniel Girardi The Trustee for the Superannuation Fund - Greengate Investments (Plaintiff) Virginia Duncum (First Defendant) Stan Gormley (Second Defendant) Ross Murdoch (Third Defendant) Janice Banks (Fourth Defendant) Representation: Counsel: K Redenbach (Solicitor - Plaintiff) J M Elks (1st - 4th Defendants)

Substantive proceeding

By summons filed on 4 March 2021, the plaintiff commenced this proceeding, seeking an order pursuant to s 36A of the Conveyancing Act 1919 (NSW) (Conveyancing Act) that Franco Landry be sold; and consequential orders in relation to the sale and the distribution of the proceeds of sale. (The defendants, shamelessly resorting to use of a racing metaphor, say that this was an action that should never have left the starting gates; and that it placed an unnecessary burden on the defendants and the Court.) Although referred to by the defendants as an unusual proceeding, there is some precedent for such an application in relation to a co-owned racehorse, to which I refer in due course.
On 16 August 2021, consent orders were made disposing of the proceeding other than in relation to the question of costs. By that time, evidence had been filed by both sides in relation to the substantive dispute and presumably the case was at or nearly at a stage where it was ready to be set down for hearing.
The consent orders largely mirror the relief sought in the summons, save (and the defendants emphasise some of these differences) that a named third party agent (i.e., not the plaintiff) is thereby authorised to conduct the sale of the racehorse; that the proceeds of sale are to be held in trust by the plaintiff's solicitors (not the plaintiff); and that the agreed distribution of the sale proceeds does not include the disputed costs of the proceeding (which now fall to be determined on the present application).
A striking feature of the case (which the defendants emphasise in their costs submissions) is that, from an early stage in the proceeding, there has been no dispute between the parties that the racehorse in question should be sold; hence there has been no dispute as to the primary or central aspect of the relief sought by the plaintiff (the dispute being, rather, as to the mechanics of the sale and the vexed issue of costs). Indeed, the defendants complain that the proceeding was instituted at a time when they were actively seeking to achieve a sale of the racehorse - the very thing which the plaintiff was here seeking.
The parties are diametrically opposed on the question of costs.
Both sides accept that the starting point, where an application has been resolved without a hearing on the merits, is that (in accordance with the principles articulated by McHugh J in Re Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6; (Lai Qin), there will usually be no order as to costs where it appears that both parties have acted reasonably in commencing and defending the proceeding and that conduct continues to be reasonable until the litigation is resolved. The plaintiff refers in this regard by way of recent example to the decision in Australian Law Company Pty Ltd v Initiative Holdings Pty Ltd [2019] FCA 1561 (Initiative Holdings) (per Griffiths J at [16]), but countless examples of that proposition can be found in the authorities.

(2007) 38 Fam LR 491

Girardi as trustee for The Superannuation Fund - Greengate Investments v Duncum

At a glance

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Cases Cited (56)

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