On 23 November 2016 I dismissed the Plaintiffs' Amended Summons seeking an extension of time to have their costs assessed and ordered that the Plaintiffs were to pay the Defendants' costs: Golden Destiny Investments Pty Ltd v McCrohon Bergseng Partners t/as MBP Legal [2016] NSWSC 1639. The Defendants now seek an order that their costs be paid on an indemnity basis and that the Plaintiffs pay interest on the costs.
The Summons was filed on 2 August 2016. The only Plaintiff was Golden Destiny Investments Pty Ltd. The Summons was served on the Defendants on the same day together with the affidavit of Yun Lin affirmed 29 July 2016.
On or about 10 August 2016 CharterLaw Legal Pty Ltd, the solicitors for the Defendants, received a Costs Agreement and Disclosure from counsel. On 12 August 2016 CharterLaw filed a Notice of Appearance on behalf of the Defendants.
On 17 August 2016 CharterLaw sent a letter to Ren Zhou Lawyers who acted for GDI and the other persons who became Plaintiffs on the filing of the Amended Summons on 14 September 2016. The letter was marked "Without prejudice save as to costs".
The letter said that the proceedings had not properly been commenced in that all of the persons who were jointly and severally liable for the legal costs incurred in respect of the Thomson proceedings had not been joined as plaintiffs in the Summons. The letter asserted that the affidavit of Yun Lin did not establish that the limitation period under the Legal Profession Act 2004 (NSW) should be extended and said that the Summons was doomed to fail. It said that in the event that the Defendants were required to put on evidence the Defendants would establish that they suffered prejudice if the extension of time was granted whilst asserting that no loss and damage had been suffered by the Plaintiff because the Plaintiff received an indemnity costs order in the Thomson proceedings.
The letter asserted that the Defendants' costs and disbursements in the proceedings would be between $30,000 and $67,142 plus GST depending which of three eventualities that were set out occurred. The letter said that the Defendants reserved their rights to file a notice of motion to ensure that the Plaintiff and that the other parties became third party payees for adverse costs orders.
The letter then went on to say this:
7. Accordingly, we are instructed to make the following offer to settle these proceedings, without admission to any liability, on the following terms:
(a) That the proceedings against MBP be dismissed;
(b) The Plaintiff and the parties agree that no further claims will be brought against MBP in respect of the Thomson proceedings by any one of them or combination of the same; and
(c) MBP agrees to pay the Plaintiff the sum of $1500 in full and final settlement of all issues between the Plaintiff and the parties on the execution of an agreed settlement deed.
The letter was said to be open for acceptance until 5:00pm on 24 August 2016, and said that the Defendants would rely on the letter pursuant to the principles in Calderbank v Calderbank [1975] Fam 93; [1975] 3 All ER 333 in the event that the offer was not accepted.
On or about 22 August 2016 the Defendants' solicitors were served with an unsealed copy of the Plaintiffs' Amended Summons although that Amended Summons was not filed until 14 September 2016. The Amended Summons added the other parties as Plaintiffs.
On 26 August 2016 the solicitors sent their Costs Agreement and Disclosure to the Defendants.
The offer in the letter of 17 August 2016 was not accepted by the Plaintiffs. It is in those circumstances that the Defendants now seek indemnity costs.
The Defendants submitted that there were six factors to consider in deciding whether a Calderbank offer was unreasonably refused. Those factors were:
(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 at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed an application for an indemnity costs order in the event of the offeree's rejecting it.
The Defendants submitted that if those principles were applied the position was as follows:
(a) the offer was made prior to the service of an amended summons and a further short affidavit on which the Plaintiffs relied and before the Defendants had incurred costs of preparing evidence in response to the Plaintiffs' application;
(b) the offer was expressed to be open and capable of acceptance for a period of one week;
(c) The Defendants' offer of a dismissal of the proceedings in exchange for a contribution towards the costs incurred by the Plaintiffs in preparing their Amended Summons involved an element of compromise on the Defendants' part;
(d) GDI's case was weak and, absent any further developments in the evidence, the Defendants were likely to be successful;
(e) the offer itself was clear, unambiguous and expressed in terms of a dismissal of the proceedings in exchange for a contribution to GDI's legal costs; and
(f) if not accepted and the Plaintiff did no better at the hearing, the offer foreshadowed an application for indemnity costs.
The Defendants submitted that since the proceedings were dismissed the Plaintiffs have not achieved a better result in that they have lost an amount of $1,500.00 offered to them.
The Plaintiffs submitted that at the time the offer was sent GDI was the only plaintiff in the proceedings. The offer stated only that indemnity costs would be sought against GDI if the offer was not accepted.
The Plaintiffs submitted that the proceedings involved a discretionary evaluative decision being made by the Court whether or not GDI had established that it was just and fair for the time to be extended. At the time the offer was made GDI had commenced the proceedings which included paying a filing fee of $2951 and its own legal costs. At that time the Defendants had not entered into a costs agreement with their solicitors although they had retained counsel. The offer to pay $1,500 which was about 50% of the filing fee did not constitute, objectively assessed, a genuine compromise.
The Plaintiffs submitted that it was not unreasonable for GDI not to have accepted the offer given the discretionary nature of the proceedings. The offer was only open for seven days. It could not be said that GDI's prospects of success were so weak that it was unreasonable for it not to have accepted an offer in the amount of $1,500.
[3]
Consideration
In Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Basten JA (McColl and Campbell JJA agreeing) said at [8] that the approach frequently adopted 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.
That approach has been subsequently followed: Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 at [10].
When (b) above was being considered the six factors identified by the Defendants ([12] above) (from the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298) can be taken into account: Miwa at [12].
[4]
Was there a genuine offer of compromise?
In Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 Giles J said at 368:
Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so.
Justice Giles noted that, in that case, the plaintiff who had put forward the offer of compromise asked rhetorically why a plaintiff with a strong claim should have to abandon a significant part of it to overcome the charge that its offer of compromise was no more than colourable. Justice Giles said that the answer to that was that the scheme for offers of compromise (and, it may be added, the approach taken to Calderbank offers) is intended to promote compromise.
In the present case the Defendants clearly considered that they were on very strong ground from the outset. They made that clear in the letter making the offer now under consideration. However, for the reasons given by Giles J in Hobartville, I do not consider that an offer by the Defendants to pay $1,500 even at the early stage the proceedings had reached, is a genuine offer of compromise. As the Plaintiffs submitted, the offer was only about half the costs of the filing fee for the Summons. It was a call to GDI to capitulate: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [59]; Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [30] and [35].
I accept the Plaintiffs' submission also that a consideration of whether the offer was a genuine offer of compromise is informed by the fact that what was being sought in the proceedings was a discretionary evaluative decision. A determination in such a case is more at large than one which involves applying, for example, well known principles of breach or causation in a tort case.
The Defendants may have thought that they were on strong ground, although it is difficult to understand what prejudice they could put forward when all their bills had been paid. However, being on strong ground is not sufficient when it comes to consider whether the offer represents a real compromise as Giles J made clear in Hobartville.
I would reject the Defendants' claim on this ground alone.
[5]
Was the offer unreasonably rejected?
If I am wrong in concluding that what was offered was not a genuine offer of compromise I would also be of the opinion that it was not unreasonable for GDI not to have accepted the offer. The proceedings were at a very early stage. Although the Defendants in their letter said that if they were required to put on evidence they would show that they would suffer prejudice if the extension was granted. However, those advising GDI would have known that it would be much more difficult for actual prejudice to be shown by the Defendants when all of the costs invoices had been promptly paid by the Plaintiffs. In those circumstances, and in the absence of understanding what prejudice the Defendants might have suffered, it was not unreasonable for the Plaintiffs not to have accepted the offer before the evidence was available for an assessment to be made.
A further factor is the time limited for acceptance of the offer was very short in all the circumstances. This was not a case where the hearing was imminent at the time the offer was made (as in Miwa). Whilst it may be accepted that the Defendants were, by the shortness of the period, endeavouring to contain costs on both sides before the matter came to an end, I do not consider that a period of seven days was reasonable at that stage of the proceedings.
Finally, at the time the offer was made the only plaintiff was GDI. As the Defendants pointed out in their letter making the offer, the other five parties (who ultimately became plaintiffs) should have been added as plaintiffs in the proceedings. Although, in one sense, the offer contained in the letter was intended to be addressed to those other parties and to bind them, I do not consider that any indemnity costs order should be made against those other parties. It would have been necessary for the offer to be re-put or reformulated when they were joined to the proceedings.
For these reasons, the Defendants' application to have costs paid on an indemnity basis is refused.
[6]
Interest on costs
The Defendants seek an order under s 101 in relation to interest on costs. The Defendants appear to understand that s 101(4) has been amended so that interest is payable on costs unless the Court otherwise orders: see McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v James (No 2) [2016] NSWCA 260 at [59]. Since the Plaintiffs do not ask the Court to order otherwise it is not clear why the Defendants seek an order that the Court should not otherwise order. This part of the application is misconceived.
[7]
Conclusion
I make the following orders:
(1) The Defendants' application for indemnity costs is dismissed.
(2) The Defendants are to pay the costs of this application.
[8]
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: 16 December 2016