Global Consulting Services Pty Ltd v Gresham Property Investments Ltd

Judgment

LEEMING JA: Order 3D made by the Court of Appeal on 18 December 2018 remitted to a single Judge of Appeal that part of a notice of motion, filed 20 November 2018, seeking an order that the first respondent Gresham should pay the appellants' costs of the appeal from 11 August 2018 on an indemnity basis. This judgment resolves that remaining issue.
The appellants' appeal was heard on 17 September 2018 and determined by judgment delivered on 6 November 2018: Global Consulting Services Pty Ltd v Gresham Property Investments Ltd [2018] NSWCA 255. By notice of motion filed 20 November 2018, the successful appellants sought an order that Gresham pay their costs of the appeal on the ordinary basis up until 10 August 2018 and thereafter on an indemnity basis. The basis of that application was an offer expressed to be without prejudice save as to costs made on 31 July 2018. The parties exchanged submissions and affidavits in November and early December 2018, as a result of which the Court of Appeal made orders as to the appellants' costs up to and including 10 August 2018 but deferred resolving the balance of the notice of motion. One reason for doing so was that the submissions raised a fresh issue of fact in relation to an unpaid $850,000 fee, which Gresham maintained was payable from the surplus held by the receiver and manager. Another was that Gresham had filed an application for special leave to appeal: Global Consulting Services Pty Ltd v Gresham Property Investments Ltd (No 2) [2018] NSWCA 313.
My Associate sent the following email to the counsel and solicitors appearing for the parties later in the morning of 18 December 2018: "Dear Practitioners, I refer to the orders made earlier today in this matter. I wish to advise that the Judge of Appeal who will determine the outstanding question of costs will be Leeming JA. The Court understands an application for special leave to appeal has been filed. The Court's expectation is that that application is likely to be determined in around April-May 2019. In the first instance, I am writing to invite any party to advise whether it would seek to have the outstanding question of costs determined in advance of the special leave application. If not, his Honour would propose to defer the determination of the question of costs until the result of the special leave application is known. His Honour would also propose that Gresham contacts these chambers, with a copy to the other parties, when that special leave application has been determined and advises of its result."
No party indicated any opposition to that course.
Special leave to appeal was refused, on the papers, on 20 March 2019: Gresham Property Investments Ltd v Global Consulting Services Pty Ltd [2019] HCASL 89. However, the parties did not contact my chambers to advise of that fact. The High Court's decision first came to my attention on 7 August 2019, following which my Associate raised the question of the outstanding part of the notice of motion with the parties by letter dated 7 August 2019. A follow up letter on 12 August 2019 elicited a response from the appellants' solicitor stating that the motion remained in dispute and that the matter should be determined on the papers on the basis of the submissions in evidence filed late last year. No response was received from Gresham.
The substance of the Calderbank offer was as follows: "The true position is that our clients' submissions have shown, with great clarity, the errors committed by His Honour and properly set out why the appeal should succeed. In our view, the appeal is more likely than not to succeed. The effect of our clients' appeal being allowed would likely be: (a) the full amount currently held (which our clients understand to be approximately $2,700,000.00) being paid to our clients; (b) the costs order made at trial will be reversed leading to a costs order in our clients' favour of approximately $300,000.00; and (c) our clients will be awarded the costs of the appeal. However, our clients are also interested in resolving this matter, albeit at a price which properly reflects the value of our clients' prospects on appeal. Accordingly, our clients are willing to fully and finally resolve the Appeal Proceedings (as defined in your letter) on the basis that: (i) the amount of $1,500,000.00 is released to our clients and the Appeal Proceedings is dismissed; (ii) your clients will forever waive and release its rights to recover from our clients your client's costs in the proceeding at first instance; and (iii) the parties otherwise enter into a deed of settlement containing these terms. Our clients' offer is open for acceptance by your client until 5.00pm on 10 August 2018."
There was no response to that letter.
The evidence before me establishes that as at March 2018, the receiver advised that it currently held proceeds of some $2,700,000. The receiver also advised that any distribution would be in accordance with the terms and conditions contained in an email of 22 March 2017, which was either with agreement of all parties (including the parties entering into a distribution deed and granting releases to the receiver) or alternatively paying the money into court. The evidence does not establish the likely amount of a costs order of the trial, which occupied two days during which senior and junior counsel appeared. However, if the costs recoverable on assessment were less than the $300,000 mentioned in the Calderbank letter, they would nonetheless have been significant.
The applicable principles were uncontroversial. Gresham accepted that the unreasonable rejection of a genuine offer of compromise might enliven the discretion to make a special costs order. Gresham submitted that it was not unreasonable for it to reject the Calderbank offer, because it did not represent a genuine offer of compromise. Gresham provided three reasons for this: "(a) the exact amount available to any of the parties with a claim to the surplus is so uncertain as to make it impossible for Gresham, or the Court, to determine if the offer is a genuine compromise; (b) the amount claimed in the Offer was substantially in excess of funds likely to be available to the Appellants when the surplus is released and therefore did not offer a discount (and thus did not represent a compromise) (c) the Offer was not clear and capable of acceptance because Gresham had no control over the release of the surplus funds."
It will be seen that Gresham maintained both that the exact amount available was so uncertain as to make it impossible to determine if the offer was a genuine compromise and that the amount claimed in the offer was substantially in excess of funds likely to be available to the appellants. To my mind, although both of those propositions may be false, they are unlikely both be true.
Perhaps for that reason, Gresham's submissions do not deal separately with the second point. One paragraph is directed to that point, which is as follows: "In addition, the Appellants' submissions do not take into account a prior-ranking claim on the fund, in an amount of at least $850,000 (plus interest). That claim further reduces any available surplus by at least another $850,000 (plus interest and any enforcement costs), leaving an amount of less than $1,250,000 available to the Appellants (being an amount less than the settlement offer contained in the Calderbank Letter). Mr Walter's affidavit of 5 December 2018 sets out the terms of the 'Option Cancellation Fee' and notes that it would form part of the secured indebtedness of Pentridge."
The "Option Cancellation Fee" was not previously in evidence. There is no reason in principle why further evidence may not be adduced in an application such as this going to a matter relevant to the discretion as to costs. Indeed, the foundation of the application - the Calderbank letter - was not previously in evidence. However, the only evidence of the Option Cancellation Fee was a "side deed" annexed to a solicitor's Mr Walter's affidavit, and a conversation to which he deposed on information and belief.
The "side deed" provided that the $850,000 fee was due and payable on the date of the deed, namely, 24 June 2014. Accordingly, as the appellants submitted, when Gresham drafted its Commercial List Statement, the $850,000 fee was already part of Daimleigh's indebtedness to CVS Senior which the receivers, by filing submitting appearance, had accepted as being correct.
Further, in evidence on the application were communications with the receivers over a period of some 2 years, culminating in the email of March 2018, setting out the amounts available for distribution. That correspondence made no mention of any claim concerning an unpaid $850,000 Option Cancellation Fee. Rather, the receivers proposed distributing what they described as "aggregate surplus proceeds of approximately $2,725,000".
Mr Walter's affidavit sought to take the position as to the Option Cancellation Fee one stage further, by stating that he was informed by the solicitors for the receiver and manager and verily believed that "the Option Cancellation Fee was paid in cash to CVS but was, not, instead, added to the secured debt due by Daimleigh (and Pentridge) (with interests and costs continuing to accrue) [and] the Option Cancellation Fee is payable from the surplus funds held by the receiver and manager of Pentridge."
The appellants submitted that the assertion as to the Option Cancellation Fee being payable from surplus funds is inadmissible. That must be so, it being a question of law. Taking Mr Walter's first proposition at face value, the Option Cancellation Fee was paid "in cash" (whatever that means - it seems unlikely to have been banknotes) more than five years ago. If there was a payment in the form of an electronic transfer or an accounting entry, it is possible that Mr Walter is deposing to there having been a mistake. But if that is the intended import of his evidence, it is with respect, quite unclear.
The best evidence of the amount available for distribution is what the receivers told the parties in a formal way in March 2018, rather than the consequences which are said to follow from contentious evidence on information and belief concerning the "side deed". Mr Walter does not even identify the solicitor acting for the receiver and manager who is said to be the source of the information and belief. Nor does he say when that occurred. Nor does he say what was said. Most importantly, Mr Walter fails to explain how what is said concerning the side deed undercuts what the receivers had said to the parties over a significant period of time.
Gresham's submissions on this point are reproduced in their entirety above. There is a conspicuous lack of detail about this matter, which was raised for the first time in November 2018. If indeed there is such a prior-ranking claim upon the funds in the hands of the receivers, then the interest accruing upon it over the last five years might be expected to be substantial. Yet there is no evidence, let alone any quantification, of that interest.
I am not persuaded on the evidence before me that there is presently a prior-ranking claim of $850,000 (plus interest) on the fund. There seems to me to be various ways in which Gresham could, if it so wished, to establish such a claim much more satisfactorily than has occurred. I appreciate that all that is at stake is the difference between indemnity and ordinary costs of part of a one day appeal, which might in part explain the way the less than comprehensive evidence on this point has been deployed. But that does not relieve me of the obligation of resolving the parties' competing submissions on this question of fact as best I can in light of such evidence as there is.
It will have been noted that Gresham's submission reproduced above referred to a surplus of less than $1,250,000. In addition to the $850,000 which I have now addressed, that also reflected Gresham's submission that "The Appeal Judgment records that Gresham had priority in relation to the first $600,000 released by the Receivers and that this was accepted by the Appellants", citing [27] of that judgment. In response, the appellants submitted: "[T]here was no finding that Gresham is somehow guaranteed to $600,000 from any funds held by the receivers. As set out in AJ [27], the appellants accepted at trial (and continue to accept) that if there is any surplus sum left over after all of the PV lot sale proceeds are applied to satisfying the CVS Senior and CVS Mezz debt then so much of the surplus of PV lot sales as remains is then available to other secured creditors of PV, including Gresham. At trial and on appeal that surplus such was estimated to be $600,000. That is not the same thing as accepting that Gresham is to be paid a fixed sum ..." (original emphasis).
The earlier judgment speaks for itself, but I note that I agree with the appellants' submission.
I do not accept Gresham's first point, which is that the amount available to parties is so uncertain as to make it not unreasonable for Gresham to have rejected the offer. The substance of the appellants' offer was for Gresham to forego its rights to recover the costs of the trial, for the appellants to forego their entitlement to costs of the appeal and costs at trial, and for an amount of $1.5 million to be released to them in priority to Gresham. The first and second aspects of that compromise are plainly sufficiently certain to engage the principles governing Calderbank offers, even though the precise amount of those costs (both at first instance and on appeal) are uncertain. If there was uncertainty as to the third element, then it was open for that to be clarified. But so far as the evidence discloses, Gresham simply failed to engage with the offer.
Finally, I do not accept Gresham's third submission that acceptance of the offer was not within Gresham's unilateral power. It was open to Gresham to accept the offer, which would be subject to terms and conditions already identified by the receivers. There is nothing in the conditions stated in the March 2017 email which suggests they would be particularly onerous, and indeed they involved, by way of a fallback, payment into Court.
There is no reason to displace the ordinary operation of the principles underlying Calderbank offers. The offer represented a substantial compromise. It was unreasonable for Gresham not to have accepted it.
Accordingly, the appropriate order is that the first respondent, Gresham pay the appellants' costs of the appeal from 11 August 2018 on an indemnity basis. That order will include the costs of the appellants' notice of motion filed 20 November 2018.

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