Hanave Pty Ltd v Nomad Sydney Pty Ltd

Consideration

1. The relevant principles were stated in the Judgment at [22]-[28]. In the present case, the Calderbank offer is relied on not for the purposes of an award of indemnity costs in exercise of the discretion under r 42.1 and 42.2, but rather as a matter to be taken into account in determining whether there is a marked difference in the reasonableness of the actions taken by the parties from the time the offer was made (14 July 2023) (see Judgment at [23(3)] and [26]).
2. While Nomad does not seek indemnity costs, there is no dispute that the Calderbank offer can be taken into account in the exercise of the discretion under s 98: see eg Nabilo v Eagleton [2021] NSWCA 232 at [98].
3. The following matters are relevant to the question whether the Calderbank offer warrants the making of a different order as to costs than would otherwise apply. First, a Calderbank offer must embody a genuine compromise and the party seeking to rely on it must show that it was unreasonable for the unsuccessful party not to have accepted it, which is an evaluative judgment to be made by reference to the terms of the offer and all the circumstances at the time that the offer was made: Wheatley v Lakshmanan (No 2) [2022] NSWSC 851 at [97]-[99]. A genuine offer of compromise is one which involves a party giving something away: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [9].
4. Second, relevant factors in determining whether the rejection of an offer was unreasonable include (a) the stage of the proceeding 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 indemnity costs in the event of the offeree rejecting it: Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25]; Miwa at [12]; Wheatley at [98]. In assessing whether it was unreasonable not to accept the offer, it may be relevant whether the offeror has given an explanation for why the offer was reasonable, but it is not essential. As Basten J said in Miwa at [13]: The relevance of such material would depend upon the extent to which the issues had already been canvassed, for example by way of pre-litigation correspondence, and whether there were circumstances with which the offeror might reasonably expect the offeree not to be conversant. In some circumstances greater leniency may be accorded to a defendant offeree at an early stage of proceedings, than to a plaintiff offeree.
5. Nomad submits that a Calderbank offer can be taken into account in relation to costs notwithstanding that the offeror has not done better than its offer; it is sufficient to have achieved an outcome that is the same as the offer. I accept the correctness of that submission: see eg Fordyce v Fordham [2006] NSWCA 362 at [20]. In this respect, the second sentence at [33] of the Judgment is incorrect. I note that this does not affect the conclusion stated in that paragraph because that earlier offer was made on 17 May 2022, at a very early stage of the proceedings and before the appointment by the Court of Mr Broadhead as an expert to deal with the issues raised by the fire safety order. At that time, there was considerable uncertainty as to what needed to be done (and by whom) to comply with the fire safety order and Hanave could then be said to have a reasonable arguable basis for its claim. I do not regard the rejection of that offer as unreasonable.
6. The Calderbank offer made on 14 July 2023 was a 'walk away' offer. The rejection of a 'walk away' offer where the offeror's legal costs to the date of the offer are significant can be regarded as a genuine offer of compromise: Bradcorp Wilton Park Pty Ltd v Country Garden Wilton West Pty Limited (No 2) [2019] NSWSC 1640 at [38]-[43]; Bathurst Real Estate Pty Ltd v Fairbrother (No 2) [2022] NSWSC 408 at [19]-[22]. In Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA at [17] an offer to forego costs up to the date of the offer (which was made 6 days before the hearing, which was at a late stage of the proceeding) was accepted as being 'financially significant'. Ward CJ in Eq in Ng v Chen [2019] NSWSC 280 at [46]-[47] gave the following overview: [46] As stated above, for the Calderbank principles to be capable of application it is necessary that the offer contain a genuine element of compromise (Miwa at [8] and [9]). Here, the offer in effect amounted to demand for capitulation by the applicant (insofar as it required dismissal of the notice of motion) and hence an acceptance by the applicant that she was a proper and necessary party to the cross-claim and that there was a reasonable cause of action there pleaded against her. A demand for capitulation alone may not be seen as a genuine offer of compromise (see Herning v GWS Machinery Pty Ltd [No 2] [2005] NSWCA 375 at [5]; Klain v Mobbs (No 2) [2008] NSWSC 599 at [5] per Harrison J). However, at least to the extent that costs would here have been involved by the respondent in his solicitors reviewing the notice of motion and engaging in correspondence as to the application, it can be assumed that there was at least a small element of compromise in the offer that there be no order as to costs. [47] As stated at [36] in Leichhardt Municipal Council, it is open to the Court to exercise its discretion to conclude that an offer to 'walk away' based upon each party paying its own costs constitutes a genuine offer of compromise. Moreover, as was submitted by the respondent, it is difficult to see what scope there would be for any other element of compromise - since the position was as to whether the pleading was such as warranted summary dismissal. The respondent argues that once the correct position was pointed out there could not be anything other than an offer requiring in effect capitulation by the applicant. It has been recognised that even a small element of compromise may suffice to attract the application of the Calderbank principles (see Miwa at [17]; Leichhardt Municipal Council at [37]).
7. Hanave relies on certain observations of Robb J in Varcity Solutions Pty Ltd v Gulliver (No 2) [2021] NSWSC 184. In that case his Honour said: [43] It is well-established that a Calderbank offer will not be effective unless it constitutes a genuine compromise that is reasonable in all of the circumstances as known to the parties. [44] In cases where there is some reasonably arguable basis for a plaintiff's claim, or a defence relied upon by a defendant, a Calderbank offer that requires the capitulation by one or other party in return for the offeror only agreeing to bear its own costs will usually not be regarded as a genuine compromise. What is genuine in the case of any particular offer will depend upon the circumstances, and often the stage in the course of the proceedings at which the offer is made will be a significant consideration. [45] However, each case must be decided on its own facts and it is not true to say that a Calderbank offer in which the offeror requires the dismissal of the case against it on the basis that the offeror will pay its own costs can never be a valid Calderbank offer.
8. As is apparent from [44], Robb J recognised that a walk away offer can in an appropriate case be a genuine offer of compromise.
9. In the present case, I am satisfied that the Calderbank offer involved a genuine offer of compromise. While the evidence does not disclose the quantum of Nomad's costs to the date of the offer, I infer that they were significant because Nomad had by that time filed a number of affidavits and submissions on the costs applications, and the matter had been before the Court for directions on several occasions. That Nomad's costs were likely to have been significant is confirmed by the fact that Hanave's costs were very significant at the time of the offer ($750,000).
10. As to the question whether Hanave's rejection of the offer was unreasonable, I will address this by reference to the factors set out at [22] above.
11. As to (a), the letter was sent at a late stage of the proceedings, after the costs applications had been filed and the parties had filed evidence and submissions in relation to their respective applications. By that time Mr Broadhead, the court appointed expert, had issued a final report and a final fire safety certificate which indicated that no further work was required to the Nomad tenancy in order for the fire safety order to be satisfied. While the Council did not send a letter to Hanave confirming that the fire safety order had been satisfied until 21 September 2023 (having inspected the premises on the previous day), in my view, Hanave was in the position as at 14 July 2023 to expect that this would occur. As a consequence it was in a position to assess the likely outcome of the costs hearing in particular that the principles to be applied would be those stated in the Judgment at [22]-[28].
12. As to (b), the letter allowed Hanave four days (and two business days) to consider the offer. This was short. What constitutes a reasonable time depends on the circumstances. Relevant matters include the complexity of the issues, including whether the parties were able to effectively assess the strengths and weaknesses of their respective cases (Braye v Tarnawskyj (No 2) [2019] NSWSC 659); whether the offer was made at a sufficient time before the hearing to allow it to be properly assessed (Brymount Pty Ltd v Cummins [2005] NSWCA 69 at [20]); and whether the offeree sought an extension, as the rejection of the offer without requesting an extension indicates that it was a length of time sufficient for the offeree to consider the offer (Winky Pop Pty Ltd v Mobil Refining Australia Pty Ltd [2015] VSC 580 at [72]). Short periods similar to that in the present case have been accepted as reasonable: see eg Woollahra Municipal Council v Secure Parking Pty Ltd (No 2) [2015] NSWSC 452 at [45] (2 business days); Primus Telecommunications Pty Ltd v CCP Australian Airships Ltd [2003] VSC 141 at [14] (1 business day).
13. In my view the period for which the offer was open, while short, was reasonable in the circumstances. Hanave is a sophisticated litigant and represented by experienced solicitors and counsel who had been involved in the matter from the beginning. It is apparent from Hanave's chronology handed up at the hearing that nothing substantive happened in respect of Nomad's tenancy in the period from 15 June to 21 September 2023 when the Council inspected the premises. At the time the offer was made, the only outstanding issue was whether the Council would accept the final report and fire safety certificate issued by Mr Broadhead and confirm that the fire safety order was satisfied. Hanave should be taken to have been aware that on this occurring, the proceedings would, on any view, be resolved. It should also have been aware at the time the offer was made that the risk of the Council declining to lift the fire safety order for reasons related to the condition of the Nomad tenancy was very low. This is confirmed by the fact that Hanave did not in its letter rejecting the offer or at any time thereafter until I raised the matter at the commencement of the first costs hearing on 8 September 2023 suggest that the determination of the parties' costs applications was premature. In my view, Hanave was in a position to assess for itself the strength of the argument on the costs applications in those circumstances. Had Hanave wished further time to consider its position, it could have sought an extension of the offer in order properly to consider it but instead rejected it.
14. In relation to the submission referred to at [18] above, it is true that the Calderbank offer did not set out reasons why Hanave's costs application would not be successful. However, it (together with Nomad's submissions prior to that date) did set out why Nomad's costs application would succeed which focused on the alleged unreasonableness of Hanave's conduct of the proceedings, and if successful would inevitably have led to Hanave's costs application being unsuccessful. In any event, Hanave was fully conversant with all the issues relevant to its costs application so that an explanation was unnecessary: see [22] above.
15. As to (c), the letter involved compromise in respect of costs of the proceedings which I infer would have been significant.
16. As to (d), at the time the offer was made, for the reasons given at [31] above, in reality the only issue outstanding was costs with the substantive dispute between the parties having been resolved without the need for a final hearing. In those circumstances, Hanave's prospects of success on its cost application, viewed objectively at the date of the offer, were weak when the correct principles are applied.
17. As to (e) and (f), the terms of the offer were clearly expressed and foreshadowed an application for costs in the event that the offer was ignored or rejected.
18. In my view, Hanave's rejection of the Calderbank offer was unreasonable. Nomad's continued prosecution of its costs application after rejection of the Calderbank offer was not unreasonable in the context of Hanave's vigorous prosecution of its claim for indemnity costs. As a consequence, in my view the making and rejection of the offer was a point at which there became a marked difference in the reasonableness of the actions taken by the parties in the proceedings so that one should be rewarded for its reasonable actions and the other should suffer a detriment in costs. The appropriate way to recognise this is to require Hanave to pay Nomad's costs of each party's costs application from 19 July 2023, on the ordinary basis as agreed or assessed.

Conclusion

1. For the above reasons, I will vary order 2 made on 24 May 2024 by an order that Hanave is to pay Nomad's costs of each party's costs application from 19 July 2023 on the ordinary basis as agreed or assessed.

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