Halsted (Bankrupt) v The Official Trustee in Bankruptcy, in the matter of... [2012] FCA 66 | Case summary

Halsted (Bankrupt) v The Official Trustee in Bankruptcy, in the matter of... [2012] FCA 66 | Case summary | Zoe

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REASONS FOR JUDGMENT 1 On 17 October 2011 I heard and, save in respect of costs, determined an application concerning whether the third respondent, Ask Funding Ltd (Ask Funding), was entitled to be paid the sum of $77,259.62 out of settlement proceeds held in the account of a solicitor's firm on behalf of the applicant: Halsted (Bankrupt) v The Official Trustee in Bankruptcy, in the matter of Halsted (Bankrupt) [2011] FCA 1242 (the principal judgment). These reasons for judgment should be read in conjunction with the principal judgment. I determined that those proceeds were subject to a valid equitable charge in favour of Ask Funding which operated as an equitable assignment to the extent of $77,259.62. That determination resolved the last of what had originally been a number of controversies in the matter. That last controversy might accurately be described as a short cause, which, though not without difficulty, nonetheless involved how particular principles of equity applied in the circumstances of this case. The only active protagonists in respect of that last controversy were Mr Halsted and Ask Funding. 2 I delivered the principal judgment ex tempore. That I was able so to do was, in no small measure, due to the helpful submissions which were made that day on behalf of each of the active parties. 3 Upon my delivering judgment I invited submissions as to costs from the parties. It transpired that a special order as to costs was to be sought, ie something other than an outcome which is that costs follow the event and that they would be taxed on a party and party basis. It transpired that neither party was then in a position to make submissions in respect of such an application, apparently because it was assumed that judgment would not be delivered ex tempore. 4 To make such an assumption in respect of a short cause is unwarranted. Where a party to such a cause considers that, if successful, a special order as to costs is warranted a necessary part of that party's preparation for the hearing of that cause must be preparing to meet the contingency that judgment will be delivered forthwith. That means having immediately available the evidence upon which that party proposes to rely in relation to costs as well as any pertinent authority. In many, if not most, cases it ought also to be apparent to a respondent to such an application, having regard to the receipt of prior "without prejudice" correspondence or a formal offer to settle, that there is a contingency that, if the application is successful, a special order as to costs might be sought against that respondent. Once again, in such circumstances a necessary part of the respondent's preparation must be being in a position to resist any such costs application, if there is any reasonable prospect of its resistance, immediately upon judgment in respect of the substantive issue being delivered (and the converse contingency of success by a respondent may give rise to like considerations). 5 In the result, it proved necessary to give directions for the later filing and service of evidence and related submissions in respect of costs. That it was not possible immediately upon delivery of the principal judgment to resolve the question of costs is regrettable. It has not been possible to determine that costs question before now. 6 Unsurprisingly, Ask Funding submits that costs should follow the event. The special order as to costs it seeks, which is resisted, is that it be ordered that Mr Halsted pay its costs taxed on an indemnity, rather than a party and party, basis. It advances two reasons why costs should be ordered on an indemnity basis: (a) contractual provision; and (b) imprudent or unreasonable rejection by Mr Halsted of one or more prior offers of compromise made by it.

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Contractual provision? 7 Subject to qualifications which are not presently material, s 43 of the Federal Court of Australia Act 1976 (Cth) confers upon the Court a broad discretionary power with respect to the ordering of costs. Though that section has nothing at all to say about any contractual provision in respect of litigation costs, neither, materially, does it state that it is irrelevant to take into account any such provision. Indeed, it is customary to take any such provision into account in the exercise of the costs discretion and ordinarily to exercise that discretion in accordance with any such provision: Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 at 194 (Gomba). However, costs will only be awarded on other than a party and party basis if, upon the proper construction of the contractual provision, it has been agreed that litigation costs be awarded on some other basis: Perpetual Trustees Australia Ltd v Barker (2004) 1 BFRA 130; [2004] SASC 58 at [21] per Duggan J (Perpetual Trustees Australia Ltd v Barker), with whom on this point Doyle CJ and Anderson J each agreed. That position, in turn, is subject to any statutory provision which modifies what would otherwise flow from taking the contractual position into account. 8 Ask Funding made two loans to Mr Halsted but the agreements are in a standard form; hence the use hereafter of the singular. Under the loan agreement (clause 1.1), the "Loan" is defined to mean "the unpaid amount of the Loan Account owing from time to time plus any other monies owing under this Credit contract including … enforcement expenses" (emphasis added). By clause 10.6 of the loan agreement Mr Halsted agreed to pay to Ask Funding "all enforcement expenses in the event of a breach of the Credit Contract being the reasonable amount reasonably incurred or expended by [Ask Funding] in the exercise of any right consequent upon any default …"(emphasis added). A failure to repay "the Loan" when it is due is an event of default under the loan agreement. 9 At the time when the loan agreement was entered into in 2007, the Consumer Credit Code (the Queensland Code) being the Appendix to the Consumer Credit Act 1994 (Qld) (since repealed) was in force. That Act was repealed by the Credit (Commonwealth Powers) Act 2010 (Qld) (s 11) as part of a national scheme which resulted in the adoption of the National Credit Code found in Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth), as amended. It is the Queensland Code which is applicable to this loan agreement, given the date when the agreement was made. Materially, s 45 of the Queensland Code rendered void any mortgage "to the extent that it secures an amount, in relation to any credit contract which it secures, that exceeds the sum of the amount of the liabilities of the debtor under the credit contract and the reasonable enforcement expenses of enforcing the mortgage" (emphasis added). The term "enforcement expenses" was defined in an inclusive way by the Queensland Code (Schedule 1). 10 The provisions, set out above, in the loan agreement in respect of enforcement expenses are not inconsistent with what may constitute "enforcement expenses" for the purposes of the Queensland Code. That being so, there is no basis holding that the provision in respect of those expenses is to any extent rendered void by reason of the application and operation of s 45 of the Queensland Code. No submission to the contrary was made on behalf of Mr Halsted. 11 In Perpetual Trustees Australia Ltd v Barker the mortgage security agreement in respect of the loan contract materially provided (clause 7.2): 7.2 You must pay the Mortgagee all reasonable enforcement expenses the Mortgagee reasonably incurs or expends in exercising its rights under the Mortgage. In the case of legal fees and disbursements, these are payable on the higher of a full indemnity basis or a solicitor and own client basis. [Emphasis added] On the basis of this explicit provision and in accordance with the usual position where there is contractual provision in respect of costs, Duggan J (at [42]), with whom on this point also Doyle CJ and Anderson J agreed, held that the successful party in that case was entitled to its costs on an indemnity or solicitor and own client basis. 12 Ask Funding submitted that the provision in the loan agreement is not materially distinguishable from clause 7.2 of the mortgage security agreement considered in Perpetual Trustees Australia Ltd v Barker. In so doing, Ask Funding set out only the first and not the second sentence of clause 7.2 in its submission. This is apt to mislead. As will be apparent from the terms of the second sentence of that clause, it is in that sentence that the explicit provision in respect of other than party and party costs is to be found. 13 It does not necessarily follow from this absence of express reference to litigation costs on other than a party and party scale that this basis of Ask Funding's claim for a special costs order fails. The question which remains is what is the meaning of the provisions in this loan agreement? As to this, the position is as stated by Duggan J in Perpetual Trustees Australia Ltd v Barker at [22]: The effect of clauses bestowing such rights on mortgagees will depend upon their interpretation in each case and they will not be given effect so as to place mortgagors in a less favourable position than would otherwise be the case unless they are unambiguously expressed. 14 The ordinary way in which the costs discretion would be exercised is that costs would follow the event and, per force of r 40.01 of the Federal Court Rules 2011 (Cth), that such costs would fall to be taxed on a party and party basis. Thus, absent express contractual provision to the contrary or some other consideration intruding, Mr Halsted was entitled to expect that, if the application were decided adversely to him, costs would follow the event but would be limited to such of Ask Funding's litigation costs as were allowable on a party and party taxation. Should he be placed in a less favourable position than this? 15 As has already been demonstrated in relation to clause 7.2 of the agreement considered in Perpetual Trustees Australia Ltd v Barker, the utility, other than in respect of matters of general principle, of other authorities is necessarily dependent upon the language of the contractual term under consideration in those authorities. 16 The clause which fell for consideration in Re Solicitor's Bill of Costs; Re Shanahan (1941) 58 WN (NSW) 132 at 135 (Shanahan) was in these terms: Sixthly, that in addition to all costs and expenses which the mortgagor may be liable at law or in equity to pay in respect of this security or otherwise in relation thereto, the mortgagor will upon demand pay all costs and expenses incurred by the mortgagee in consequence or on account of any default on the part of the mortgagor hereunder or incurred by the mortgagee for the preservation of or in any manner in reference to this security, all of which costs and expenses shall, from the time of payment or expenditure thereof respectively until repaid to the mortgagee by the mortgagor be deemed principal moneys covered by this security, and shall carry interest accordingly. The absence of any explicit reference in the clause to solicitor and own client or indemnity costs will be noted. The following observation was made by Street J of that clause in Shanahan (at 136): The terms of that clause are of the widest possible nature. It imposes upon the mortgagors an obligation to pay something in addition to those costs and expenses which they would be liable at law or in equity to pay, and would appear to be designed to impose upon the mortgagors a higher obligation than would be imposed upon them by the rule as stated in the cases to which I have referred. They are bound to pay on demand all costs and expenses which the mortgagees might not ordinarily be entitled to recover from the mortgagors at law or in equity, if those costs and expenses were incurred on account of any default on the part of the mortgagor, or for the preservation of the security, or if they were incurred in any manner in reference to the security. It is difficult to think of words of a more general application in themselves, and the intention of the parties to extend the rights of the mortgagees in respect of their costs is clear beyond doubt when it is seen that those words refer specifically to costs additional to the costs ordinarily payable at law. In effect, the mortgagors appear to have undertaken to indemnify the mortgagees in respect of any expenditure they may incur in their capacity as mortgagees and in relation to the secured debt. These observations were quoted with approval by Sheppard and Foster JJ in Elders Trustee & Executor Company Limited v E G Reeves Pty Ltd (1988) 20 FCR 164 at 172 (Elders Trustee). Immediately after this and in a passage not set out in Elders Trustee, Street J had further observed in Shanahan (at 136): In my view, this agreement imposes upon the mortgagors an obligation to pay all costs which would be payable by the mortgagees to their own solicitor, and such costs, if properly payable on a "solicitor and his own client" taxation, must be paid by the mortgagor. I do not think that costs which had been unjustifiably or vexatiously incurred by the mortgagees so as to impose an unwarrantable burden on the mortgagors would fall under this clause, and the taxing officer might in some cases be justified in disallowing such costs, even though they might be payable by the mortgagees to their solicitors but speaking in broad terms I think the mortgagees are entitled to be paid all those costs which they are bound to pay to their solicitor, and that the effect of this clause is to require the taxation to be held on that footing. His Honour gave directions to the court's taxing officer accordingly. 17 The clause under consideration in Elders Trustee was described by Sheppard and Foster JJ (at 172) as "closely similar" to that considered by Street J in Shanahan. However, with respect, that clause (see Elders Trustee at 166) provided, after "all costs and expenses", "including costs as between solicitor and client incurred by the mortgagee …" (emphasis added). The clause in Elders Trustee made explicit what Street J is to be taken as having regarded as implicit in the clause considered in Shanahan by virtue of its breadth of language. Because of the explicit contractual provision which existed in the clause under consideration in Elders Trustee, it was not necessary in Elders Trustee for the Full Court to consider what might have been the effect of that clause absent such provision. That Sheppard and Foster JJ did not consider it necessary to add to the passage from Shanahan the further passage which I have quoted underscores this. I do not therefore consider that Elders Trustee binds me to hold that a generally worded clause but one which makes no explicit reference to a liability to pay enforcement litigation costs assessed on other than a party and party basis nonetheless entitles a person in the position of Ask Funding to an order that court costs be taxed on some other, more generous basis. 18 The authorities are not uniform as to whether breadth of language alone is sufficient to entitle a mortgagee to other than party and party costs. A clause materially in these terms fell for consideration by Vaisey J in In re Adelphi Hotel (Brighton) Ld; District Bank Ld v Adelphi Hotel (Brighton) Ld [1953] 1 WLR 955 (Adelphi): … all costs charges and expense incurred or paid by the bank in relation to the negotiation for and preparation completion realisation and enforcement of this security. 19 On the basis of that clause, the bank in that case claimed that it was entitled to its costs not on a party and party basis but rather on an indemnity basis or a solicitor and own client basis (which Vaisey J, at 957, stated "comes to much the same thing") or at any rate as between solicitor and client. That claim was rejected. As to the claim and with respect to the clause, His Lordship stated (at 960): These are certainly wide and comprehensive words, and it is argued with some force that they cover more than the "full costs" (the meaning of which I have already explained) and amount either to a complete unlimited and unqualified indemnity, or at any rate to such a measure of indemnity as would be ascertained on a taxation as between solicitor and client. I cannot so construe the words. As to "full costs", His Lordship had earlier stated (at 958): It must always be remembered that when costs are referred to they are understood to be party and party costs, and not solicitor and client costs, and it is difficult to see in principle why a mortgagor should be called on to reimburse a mortgagee for anything beyond his necessary expenditure. I think that a mortgagee is entitled, as against a mortgagor and against the mortgaged property, to his "full costs", but that expression means ordinary party and party costs, and not costs as between solicitor and client: see Avery v Wood, following Irwine v Reddish, apart, of course, from some special bargain. His Lordship concluded that the bank's costs ought to be taxed on a party and party basis which, as with this Court: Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at 234, is the default position. The reason why in Adelphi Vaisey J did not construe the clause as one entitling the bank to solicitor and client costs was the rule of construction, applicable in the circumstances, which told against construing general words in a contract in favour of a lender or mortgagee so as to subject a borrower or mortgagor to a special or unusual liability, ie an example of the contra proferentum rule. His Lordship put the matter this way (at 960): I thought at one time that Malvern Urban District Council v Malvern Link Gas Co gave support to the claim of the bank, and certainly the words which were under consideration in that case are very similar indeed to those which I am considering in the present case, but the document in which they appear is of a very different character, viz, a contract of sale and purchase, and not one, like the present, to which a well-established rule normally applies, and it seems to me that, if parties desire to depart from such a rule, they must express themselves in plain and unequivocal language. I read the words as indicative of nothing more than an assertion or reminder of the bank's ordinary right, on realising or enforcing its security, to recover its costs, charges and expenses as well as the principal money and interest. Of course the words do confer additional rights in regard to the costs of negotiating, preparing and completing the security, which are matters occurring before the relationship of mortgagor and mortgagee arose. I need not express any definite view as to how the amount of those particular costs ought to have been ascertained. [Footnote reference omitted] 20 A submission grounded in the contra proferentum rule was neither put to Street J in Shanahan nor, which is not unrelated, did his Honour advert to that rule when construing the agreement. I prefer the reasoning of Vaisey J in Adelphi. Adelphi and, for that matter, Shanahan were each referred to by the Court of Appeal in Gomba but the reference to Shanahan was in the different context of an issue as to the interaction between a contractual right to the costs of litigation and the court's general discretion with respect to costs whereas, of the several references made to Adelphi, in that (at 185-186) concerning the construction of these types of clause, the Court of Appeal made no criticism of the approach adopted by Vaisey J. The order made in Gomba directed taxation on an indemnity basis but the language of the clauses under consideration was much more explicit than the provisions of the loan agreement in this case, materially, "on a full indemnity basis" and "whether or not such costs charges and expenses and moneys or part thereof would be allowable on a party and party or solicitor and own client taxation by this court". 21 Generality of language which admits as a matter of construction of doing nothing more than describing the usual or default position as to costs which would prevail in the event that a lender or mortgagee takes enforcement proceedings is not sufficient to subject a borrower or mortgagee to a special liability as to the costs of such proceedings. Explicit language, a "special bargain", is required. The language of cl 10.6 of the loan agreement, "being the reasonable amount reasonably incurred or expended by [Ask Funding] in the exercise of any right consequent upon any default …" is not materially distinguishable from that regarded by Vaisey J in Adelphi as "indicative of nothing more than an assertion or reminder of the bank's ordinary right, on realising or enforcing its security, to recover its costs, charges and expenses as well as the principal money and interest" and that ordinary right in respect of costs is to party and party costs, absent an exercise of the costs discretion in favour of taxation on a more generous scale. 22 The provisions of this loan agreement are not, in my view, by force of language alone, sufficient to entitle Ask Funding to a special order as to costs against Mr Halsted. It follows that I reject this basis upon which Ask Funding sought an order that its costs be taxed on an indemnity basis.

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Imprudent or unreasonable refusal of an offer of compromise? 23 The circumstances of a particular case can warrant, in the exercise of the general discretion as to costs, a departure from the usual, party and party basis upon which costs are ordered to be taxed: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 (Colgate-Palmolive). In Colgate-Palmolive, while highlighting that the circumstances in which a departure from the usual order as to costs are not closed, Sheppard J summarises (at 233) a number of circumstances in which the awarding of costs on an indemnity basis has occurred. One of these is an imprudent refusal of an offer of compromise. 24 Via correspondence between solicitors, Ask Funding made three offers to Mr Halsted, each without prejudice save as to costs (a type often termed, by reference to a case of that name in which their availability and utility is discussed, "Calderbank" letters). The first of these was made by letter between the respective solicitors dated 18 July 2011. It sought the payment of $45,000 by Mr Halsted within seven days in return for compromising all claims which Ask Funding may have against either Mr Halsted or his bankrupt estate. Another term of the offer was that each side would bear its own costs. The offer was open for acceptance until 5:00 pm on 25 July 2011. It was not accepted. 25 This offer was renewed on 11 August 2011 with the fresh acceptance time being specified as 5:00 pm on 25 August 2011. This offer, too, was not accepted. Proceedings were instituted in this Court on 19 August 2011. A final offer was made on 7 October 2011. Under the terms of this offer Mr Halsted was called upon to pay the sum of $50,000 in return for Ask Funding's abandoning any claim which it had on the remaining balance of funds held in his solicitor's trust account and in return for like compromising by Ask Funding of all claims which it have against either him of his bankrupt estate. Other terms of the offer were the discontinuance of the present proceeding with no order as to costs and otherwise each party bearing its own costs. This offer was open for acceptance until 5:00 pm on 12 October 2011. Once again, that offer was not accepted. The hearing of the application which determined the remaining controversy in the matter did not occur until 17 October 2011. 26 These offers must be viewed against the background of what had occurred in relation to Mr Halsted's personal injuries claim since he became bankrupt in September 2010. In or about April 2011 he settled his personal injuries claim. Pursuant to that settlement and on behalf of the defendant to his personal injuries proceeding, the sum of $333,098.80 was paid into the trust account of Slater & Gordon on 13 May 2011. Slater & Gordon had been acing for Mr Halsted in that personal injuries proceeding in succession to Quinn & Scattini upon acquiring the practice of the latter firm. From the sum paid into their trust account, Slater & Gordon deducted no less than $116,169.53, presumably in respect of professional costs and related outlays in relation to the personal injuries proceeding. High though that proportion of the settlement sum may be, it is unnecessary in this proceeding to resolve whether and to what extent those costs and outlays were reasonable. 27 On or about 23 June 2011 Slater & Gordon transferred the balance of the settlement monies, $216,929.27, into the trust account of Taylor David, Mr Halsted's present solicitors. In light of Mr Halsted's supervening bankruptcy, controversy attended what was the fate of that balance. Was it his or did it pass to his trustee in bankruptcy and, in any event, was it subject to an equitable charge in favour of Ask Funding? 28 The offer made on 18 July 2011 was accompanied by and intended to be read in conjunction with an open letter also sent that day by Ask Funding's solicitors to those acting on behalf of Mr Halsted. It made reference to the advances totalling $20,000 which Ask Funding had made to Halsted in 2007. It was stated that the then payout figure under those contracts was $57,122.31. It is evident that, after the receipt of the balance of the settlement monies by Taylor David, some earlier dealing between that firm and Boyd Legal, Ask Funding's solicitors, had preceded this letter for reference is made in it to a request having been made of Ask Funding for the release to Mr Halsted of the "undisputed portion" of those settlement monies. Mr Boyd's evidence was that this earlier request had been by way of a telephone call from Taylor David whereby the release of $60,000 to Mr Halsted was sought in respect of a "business opportunity". 29 Ask Funding's open letter put its entitlement to be paid the payout figure on the basis of a charge. It alleged that the charge was created by what was described as the "credit contracts" (what I have termed the loan agreements in the principal judgment) and irrevocable instructions given by Mr Halsted to Quinn & Scattini. In his submission in respect of costs, Mr Halsted contended that what Ask Funding came to put forward at trial as the foundation for its claim was different. It is true that the irrevocable instructions came not to be relied upon but Ask Funding's position remained that it was entitled to a charge in its favour. It was that position which was vindicated by litigation. 30 Also put in this open letter was a willingness on the part of Ask Funding to consider a release of part of the balance of the settlement monies to Mr Halsted. This was subject to the qualification that Ask Funding would "need to be satisfied that a sufficient component has been retained to cover the current debt and the interest and enforcement expenses which will fall due under the credit contracts during the enforcement process. What will amount to sufficient cover will depend upon the ambit of the dispute (including the possibility of appeal) and the time it is likely to take for the dispute to be resolved." Ask Funding sought from Mr Halsted particulars of his claim as to the balance of the settlement monies. 31 By his solicitor's response of 20 July 2011 Mr Halsted denied that Ask Funding had in law any charge over the net settlement monies. He proposed that $100,000 of the net settlement monies be held in an interest bearing deposit to abide the order of the court in the event of litigation with the remainder being released to him immediately. This proposal was open for acceptance until 2:00 pm on 22 July 2011. It was not, in terms, an offer of compromise, only a proposal as to the disposition of the net settlement monies pending the outcome of litigation. In any event, it was not taken up by Ask Funding. 32 Apart from the further offers which Ask Funding made, referred to already, there was further correspondence between the parties concerning whether some lesser amount might be released to Mr Halsted than that proposed in his solicitor's letter of 20 July 2011 so as to meet medical treatment expenses. Imprecision as to how the amount sought was derived proved to be the sticking point so far as Ask Funding was concerned. It was not unreasonable for Ask Funding to seek to obtain further precision from Mr Halsted as to the expenses he expected to encounter in order to measure this against a considered estimate as to the likely extent, given various litigation contingencies, of how much of the net settlement proceeds might be subject to its claimed charge. Mr Halsted's supervening bankruptcy gave a singular importance to Ask Funding to the charge claimed by it over the settlement monies. 33 In his submissions as to costs Mr Halsted contended that agreement to the release of a portion of the net settlement monies would have obviated the need for proceedings to be instituted. I disagree. It would doubtless have obviated the perceived need for this litigation to have been instituted when it was, but it would not have resolved the question as to whether Ask Funding had an equitable charge, only postponed the final resolution of that controversy. Only compromise or determination by final judgment would have resolved the controversy as between Mr Halsted and Ask Funding. 34 Yet further, any such compromise would have removed one impediment to the release of a portion of the net settlement proceeds but that release would still have required at least the assent of Mr Halsted's trustee in bankruptcy. In the proceedings which came to be issued, the trustee was also named as a party. I infer from this that, before 19 August 2011, a formal admission by the trustee that the net settlement fund did not form part of the "property of the bankrupt" for the purposes of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) had not been received by Mr Halsted from the trustee. Slater & Gordon was also named as a respondent in the proceeding even though it had deducted its costs and outlays from the settlement monies before forwarding the net amount to Taylor David. It may be that the joinder of this firm was out of an abundance of caution. 35 Whatever the reason for the joinder of Slater & Gordon, it was not until 9 September 2011 when the bankruptcy trustee informed the Court that he had no interest in the net settlement sum that this aspect of the matter was resolved. On that day, Greenwood J consequentially determined as a separate question that, by operation of s 116(2)(g) of the Bankruptcy Act, the net settlement sum did not form part of Mr Halsted's property divisible amongst his creditors. His Honour further ordered that Mr Halsted's solicitors be released to the extent of $75,000.00 from an undertaking by which they had undertaken not to pay out any part of the net settlement monies to Mr Halsted. His Honour then gave directions for the further conduct of the proceeding, which amounted by then to the resolution of a controversy as to whether Ask Funding had a charge over the net settlement monies to the extent of the amount of "the Loan" as defined (On 17 October 2011 Mr Halsted was given leave to discontinue the proceedings as against Slater & Gordon with no order as to costs). His Honour further ordered that the disposition of the balance of the net settlement monies was to abide the order of the Court. 36 The outcome of the litigation in respect of Mr Halsted's claim against Ask Funding was less favourable to him than any of the offers made to him by that company. At least so far as offers made by "Calderbank" correspondence are concerned, it does not follow that, just because, after judgment has been delivered, such an offer can be seen to have been more favourable to its recipient than the judgment, that some special order as to costs must be made. There is no presumption that the recipient of the more favourable offer must be visited with a special order as to costs: MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 239. The making of such an order is always a matter for the exercise of a judicial discretion. In the exercise of that discretion, the unreasonableness or imprudence of rejecting such an offer by its recipient is to be judged by the circumstances prevailing as at the time when the offer was open for acceptance, not the wisdom of hindsight. 37 By the time when each of these offers was made, Mr Halsted had already seen a little more than a third of the gross settlement monies paid out to Slater & Gordon. That experience doubtless underscored why it was in his interest to maximise the sum he would ultimately receive from the net settlement monies but it ought also to have underscored the desirability, if at all reasonably possible, of not further diminishing his settlement monies by legal costs, be they his own or those he might be called upon to pay in the event of an adverse outcome in litigation. 38 It was always tolerably clear, given their character, that these settlement monies did not form part of his bankrupt estate. It is not the wisdom of hindsight to hold that the real question was always whether Ask Funding had an equitable charge over them or whether it was just one of his unsecured creditors. If the latter, then it had no claim on the net settlement monies, its right being to prove in his bankruptcy. That was the position not just in respect of the principal of the loans to Mr Halsted and interest thereon but also in respect of any enforcement expenses which by then formed part of "the Loan" as contractually defined. 39 In the principal judgment, at [16], I gave emphasis to an observation made by White J in Jackson v Richards [2005] NSWSC 630 at [20] as to the prospect of very slight differences of language in the instrument said to create a charge producing different legal outcomes. As is apparent from the principal judgment, the position in this case on the documents relied upon by Ask Funding was not straight forward. For all that, none of the offers successively made by Ask Funding in substance put to Mr Halsted that he should just concede the whole of what that company claimed was a secured debt which remained owing to it notwithstanding his bankruptcy. The discount in these offers from the amount claimed by Ask Funding was not derisory. 40 Also to be taken into account when considering the first offer was the possibility that, in the event of litigation and were Ask Funding to succeed in respect of its claim to a charge, its "enforcement expenses" in terms of the loan agreements, forming part of "the Loan" as defined, might be held not only to extend to its party and party costs of the litigation but might also be held to extend to its solicitor and client costs. As I have stated above, even absent an express contractual reference to such costs, there was a difference of authority as to whether the width and generality of language employed was sufficient in any event to ground an expectation that the costs discretion would be exercised in favour of awarding other than party and party costs. That was another factor to be taken into account by Mr Halsted in assessing the risks of litigation. 41 During the time when the second offer remained open for acceptance the possibility of litigation had, at Mr Halsted's initiative, become an actuality. Ever thereafter during the times when both the second and the third offers were open for acceptance, that litigation was on foot gave additional attraction to offers by Ask Funding to Mr Halsted because they were additionally on terms that each side bear its own costs in relation to this proceeding. The benefit potentially present was much greater by the time of the third and final offer in October 2011, having regard to the interlocutory steps taken by that stage. By the time this offer came to be made Mr Halsted and those advising him had the benefit of Mr Templeton's affidavit affirmed on 3 October 2011 and filed the following day, in which he attested that the total then owed under the two loans was $76,178.10 and to which he annexed detailed loan statements together with copies of each loan agreement and related documentation. Once again, the discount, even measured against the total attested loan liability, was far from derisory, to say nothing of the worth of the repetition of a no order as to costs outcome in respect of these proceedings. 42 Mr Halsted pointed in his submissions to examples of cases where even quite dramatic differences between a Calderbank offer and the outcome of litigation had not resulted in the making of a special order as to costs. Such results are however inherently a reflection of the circumstances of those cases rather than indicative of any principle of general application to costs applications other than those which I have already mentioned. For this reason it is unnecessary to refer to these cases. 43 Yet another contingency which loomed for Mr Halsted was that any success at first instance by him in relation to whether the documentation was sufficient to create an equitable charge might be met with an appeal by Ask Funding. That company's solicitors had already expressed the opinion that "enforcement expenses" extended to the costs of any appeal. 44 The interests of Mr Halsted and Ask Funding in relation to the question of whether an equitable charge had been created by the documents were not congruent. These were standard form documents. Ask Funding had a strategic interest in vindicating their efficacy; Mr Halsted did not. When weighing up these offers, the prospect that Ask Funding might appeal in the event it failed in the original jurisdiction was greater than the prospect that Mr Halsted might appeal if he was the party who failed. 45 While the subject is one on which reasonable minds might reasonably differ, I do not see that Mr Halsted was either imprudent or unreasonable to reject Ask Funding's initial offer. There was then no litigation on foot to add a court costs element to "enforcement expenses". At that early stage he was entitled to take the view that a better settlement might be able to be negotiated. In the result, those acting for him seem to have focussed attention on securing the release of a portion of the net settlement proceeds to him, admittedly important, rather than additionally putting to Ask Funding a settlement offer keener than that originally made by that company. 46 So far as the third offer by Ask Funding is concerned, I am firmly of the opinion that, even taking into account the fine questions which might attend whether there was an equitable charge created and the other contingencies I have mentioned, it was imprudent or unreasonable not to have accepted this offer. It was for Mr Halsted to take his own advice as to his prospects on the alleged charge and various costs contingencies. It was not incumbent upon Ask Funding yet further to detail its case. It had already by that stage given detail in pleadings and affidavits beyond that given in earlier correspondence. At the time when this third offer was open for acceptance, it was a very reasonable one, taking into account the risks of litigation and the certainty and finality of outcome a compromise would bring. Mr Halsted was perfectly entitled to have his day in court, but there comes a point when the exercise of that right in the face of a reasonable offer of compromise comes at the price of a special order as to costs in the event of lack of forensic success. The public interest in the resolution of disputes according to law by the exercise of judicial power is complemented by a related public interest in the encouragement of reasonable compromise and the prevention of unnecessary litigation. 47 At the very least and subject to particular provision I intend to make in respect of the costs application, Ask Funding should have its costs after the expiry of that offer, ie on and from 13 October 2011, on an indemnity basis. Should though that period be extended back to the period from the expiry of the second offer, ie on and from 26 August 2011? 48 When these proceedings having been commenced, the initial offer was repeated, it was a very considerable step for a bankrupt to risk denuding by more, perhaps much more, than $45,000, a capital sum that did not form part of his bankrupt estate. Especially that was so in circumstances where, in the time which had elapsed since the first offer had expired, opportunity had not been taken to make to Ask Funding on behalf of Mr Halsted an "all up" counter offer of some lesser capital sum. This was a wasted opportunity. The repetition of the original offer by Ask Funding was unsolicited. It was something of a last chance for Mr Halsted to avoid what could only be anticipated to be a dramatic increase in the "enforcement expense" component of what may prove to be an indebtedness secured by an equitable charge over his net settlement monies, to say nothing of avoiding the interest expense which would continue to accrue, were he unsuccessful in the litigation. The offer was, in my opinion, a very reasonable one. It was, even at the time, for a man in Mt Halsted's position, a reckless gamble not to have accepted it. To continue in the face of such an offer was not proportionate to the adverse risks entailed. Ask Funding's indemnity costs will therefore date from the expiry of this second offer.

Halsted (Bankrupt) v The Official Trustee in Bankruptcy, in the matter of Halsted

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