HANNAFORD v STEWART

Consideration 19It is necessary, firstly, to consider the basis for the plaintiff's claim in detinue. 20The relief claimed in that respect was, firstly, an order that the defendants deliver up the 10 portrait paintings. A claim was also made for damages for detinue or conversion and, thirdly, costs. 21An essential element of the tort of detinue is the suffering of loss by the plaintiff: General & Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963] 1 WLR 644 and Tabet v Gett (2010) 84 ALJR 292 at [47]. 22Accordingly, it is necessary that the plaintiff establish in evidence that the expenses in question had, in fact, been and further expenses would be incurred by way of insurance, transportation and storage costs arising out of or consequent upon the orders made by McCallum J on 23 March 2010 and the quantum of such expenses. 23No evidence was led on behalf of the plaintiff during the course of the trial as to the actual quantum of the expenses that had been incurred to the date of judgment. The fact, however, that the paintings were transported and stored with a commercial facility gave rise to an inference that expenses of the kind referred to in the preceding paragraph would be incurred. 24The Court has powers under the UCPR, both before and after entry of judgment, to make orders in respect of a matter arising in the context of the pleaded claim in order to give effect to the reasons for judgment. 25The Court, in particular, has power to set aside or vary a judgment or order in the event that a notice of motion for the setting aside or variation is filed before entry of the judgment or order: UCPR , Part 36.16(1). That rule confers a discretionary power to review, correct or alter any judgment that has not been entered: DeL v D-G of Community Services (No 2) (1997) 190 CLR 207 at 215 and Harvey v Phillips (1956) 95 CLR 235. The Court also has power under Part 36.16(3). 26The public interest, it has been held, requires great caution in the exercise of the power, especially where the variation sought would have the practical effect of re-opening the proceedings to enable a significant re-hearing: Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300; Wentworth v Woollahra Municipal Council (1982) 149 CLR 672. 27The commentary to the UCPR 2005 states at 36.16.45 that generally speaking, the power under Part 36, Rule 16 will not be exercised to permit a general re-opening of the case: Smith v NSW Bar Association (No 2) (1992) 176 CLR 256. 28The power has been exercised in the case where a costs issue has been overlooked by counsel ( DeL (supra)). Misapprehension about the basis of the trial judge's reasoning - limited reconsideration: Pittlis v Sherefettin [1986] QB 868, an issue overlooked and further argument allowed: Smith v ANZ Banking Group Limited (1996) 7 BPR 15,069. 29In the present case, however, there was no issue as to the Court's power to grant leave to the plaintiff to adduce evidence as to the quantum of the expenses (nor, in my opinion, could there be any such issue). This was not an application to pursue a "new" claim as, for example, would a claim if made after judgment, for loss of profits from being unable to exhibit the paintings. It was, as I have indicated, limited to the narrow issue concerning the expenses which had only arisen subsequent to the date of the making of the preservation orders on 23 March 2010. There had been references made in correspondence to these expenses: see annexures, pp. 14, 16 and 42 to Mr Connell's affidavit. They were not a "new" matter outside the framework of the case. 30Accordingly, the power to deal with such a matter at this stage enables this Court to deal with issues that are related to the grant of primary relief and thus whether the expenses be characterised as damages or as orders ancillary to and arising in respect of the primary claim in detinue. 31So far as the costs of insurance and transportation incurred since the judgment was delivered are concerned, that is, transportation and delivery of the paintings to Riverton, South Australia, I consider that they too are ancillary to the primary relief claimed for the return of the paintings. They are expenses necessarily incurred in the delivery up of the paintings to the plaintiff at Riverton, South Australia pursuant to the order made. 32The remaining question is whether or not leave should be granted to the plaintiff to tender evidence as to the actual costs as to both past insurance transportation and storage expenses and the expenses that have or will be incurred in transporting the paintings from Sydney to South Australia. 33No submission has been made, nor could there have been, of any prejudice or disadvantage to the defendants in permitting the plaintiff to re-open to adduce evidence as to those expenses. 34I, accordingly, permitted the plaintiff to file and serve the affidavit evidence of Mr Robertson sworn 12 July 2011 as to the expenses to which I have referred. 35The total of the expenses is the amount of $7,589.96. I propose to allow that amount in the order set out below (less a small deduction of $100 in respect of a parking fine charged by the transportation company) - see invoice 14 June 2011, there being no evidence as to the circumstances in which the fine was incurred.

The claim for indemnity costs 36The plaintiff claims a special order against the defendants for costs, namely, indemnity costs as follows:- (1) That the first and second defendants pay the plaintiff's reasonably incurred costs on an indemnity basis. (2) In the alternative, that the first and second defendants pay the plaintiff's costs on the ordinary basis up to and including 1 June 2010, and on an indemnity basis thereafter.

Correspondence from the plaintiff's solicitors 37The evidence in support of the application by the plaintiff for an order for indemnity costs was supported by the affidavit of Mr Stephen Connell, solicitor, sworn 6 July 2011. Annexed to that affidavit were copies of correspondence by the plaintiff's solicitors containing settlement offers and correspondence by Mr Stewart. 38That evidence establishes the following:- (1) On 10 October 2008, the plaintiff's South Australian solicitors, Camatta Lempens, wrote to Bungabura Productions Pty Limited (Mr Bain Stewart) advising that they acted on behalf of Mr Hannaford. The letter advised that, unless all paintings were returned, legal proceedings would be commenced to recover the portraits. (2) On 5 January 2009, the plaintiff's solicitors again wrote to Bungabura. The letter referred to a conversation which it claimed that Mr Stewart agreed to return all 10 paintings. The letter advised that legal proceedings would be commenced to recover the portraits if not received by the end of January 2009. (3) On 28 January 2009, the plaintiff's solicitors again wrote to Bungabura (Mr Stewart). The letter referred to a letter from Mr Stewart dated 30 October 2008. A request was made for the return of the 10 portraits in good order and condition within 14 days of the date of the letter. It advised that instructions had been received to institute legal proceedings to recover the works "... if a genuine response is not received within this time" . (4) On 31 March 2010, the plaintiff's solicitors again wrote. It was addressed to Mr Stewart and set out the plaintiff's instructions. These included):- "3. Mr Hannaford agreed to support your project because he understood that it was to support a mentoring programme for Aboriginal women. We are instructed that you misled him about this. 4. Mr Hannaford would not have agreed to support the project if he had known that it was simply for the benefit of you and your company. 5. Mr Hannaford is the owner of the portraits. He painted them. He was not paid for them. There can be no doubt about this." 39It is unnecessary to set out here the full instructions as detailed in 10 paragraphs of the last-mentioned letter. 40Under the heading "Indemnity costs" , the plaintiff's solicitors formulated a number of propositions. These included:- "· Your claim that Mr Hannaford agreed to gift the paintings to you or to sell them in consideration for 'kudos' or 'accreditation' is absurd and untrue." · Your refusal to return the paintings following Mr Hannaford's request is unconscionable and amounts to a theft of the paintings. We are instructed on this basis to seek orders that you fully indemnify Mr Hannaford in respect of his costs of the recovery proceedings." 41The letter went on to state that the plaintiff's legal costs were substantial - in the vicinity of $50,000 and that they would increase from that point as the matter was prepared for trial. 42The letter foreshadowed that the total costs of the action were likely to exceed $100,000. The letter concluded:- " Resolution of the matter We are writing now to put you on notice of our client's intentions so that you are under no misapprehension as to the likely magnitude of the costs we will be instructed to recover from you. The way for you to avoid this unhappy outcome is to agree to settle the matter now. If you agree to return the paintings without further delay, you will avoid a substantial part of these costs. We suggest that you seek legal advice in respect of these matters and return to us with your proposal to resolve the matter without the need for a trial. We suggest that you do so promptly as we are now embarking upon the very costly exercise of preparing the case for trial. 43In an undated letter, Mr Stewart wrote to the plaintiff's solicitors. In it, he proposed a compromise on a "Without prejudice" basis. The compromise was in the following terms:- "2. Hannaford to obtain copyright and physical ownership of all paintings bar Purcell (Hannaford Paintings). 3. Purcell to obtain copyright and physical ownership of her painting (Purcell Painting)." 4. If Hannaford wishes to exhibit the Hannaford Paintings, he will describe them as part of the 'Black Chicks Talking Project - Bungaburra Productions. 5. If Hannaford wishes to exhibit the Hannaford Paintings anywhere other than at his gallery, then he will seek the permission of Bungaburra ... which will not be unreasonably refused ..." 44It is unnecessary here to set out the full details of the further conditions proposed. Certain of the conditions placed restrictions upon Mr Hannaford's capacity to deal with the paintings including the "Purcell Painting" . The offer called for a response within 14 days. 45On 31 May 2010, the plaintiff's solicitors responded to the "undated letter" which was sent by email on 7 May 2010. 46The letter advised that the offer was rejected. The letter further advised that the plaintiff would agree to settle on the basis of the immediate return of the 10 paintings and that Mr Stewart contribute $50,000 towards his legal costs and other expenses stated then to be estimated at $72,000. In other words, the offer was that the plaintiff would agree to bear at least $20,000 of his own costs. The letter then advised:- "If the offer is not accepted, the matter will proceed to trial and our client will seek to recovery all his costs (which will then be substantially more) on a full indemnity basis." 47On 28 July 2010, Mr Stewart wrote to the plaintiff's solicitor and put a further offer of settlement. The letter proposed, inter alia, that an agreement that ownership of the copyright and the artworks as held by the plaintiff and that a deed of agreement be entered into by the plaintiff that the artworks be donated to the Australian Institute of Aboriginal and Torres Strait Islander Studies (AIATSIS). In the letter, Mr Stewart stated:- "For the sake of clarity, I confirm that I do not have the capacity to pay any money in costs." 48The letter was said to be open for 28 days. 49In an email from Mr Stewart (undated), he advised that he was prepared to resolve the dispute. The letter stated:- "In addition, you and your client should be on notice that both Counsel who will be appearing at trial will do so on a 'spec' basis so that your client is at risk or paying substantial costs." 50The letter concluded with an offer:- "Accordingly, I advise that I and Bungabura am prepared to settle the case by way of consent orders providing for delivery up of the paintings to your client, that there be no order as to costs and the proceedings be otherwise dismissed. This offer remains open until 4.00 pm on 21 January 2010." 51An email was sent on 21 January 2011 by the plaintiff's solicitor to Mr Stewart. It acknowledged the settlement offer (said to be by email dated 14 January 2011). 52In the email in reply, it was stated:- "The problem with your settlement offer is that our client has now incurred significant legal costs in preparing the matter for trial. His costs are currently approaching $100,000. He feels it would be a great injustice if he had to pay that sum without any contribution from you; particularly given the generous gesture he made towards the support of your project." 53The email advised that the expected costs if the matter proceeded to trial would be closer to $150,000. The email then advised:- "Our client remains prepared to compromise. In addition to the return of the paintings, he is prepared to accept a contribution from you of $60,000 towards his costs. This will mean that he will have to pay a sum in the vicinity $40,000 towards the balance of his costs (in addition to the costs of transport and the temporary storage of the paintings). The offer to accept $60,000 represents on our calculation less than 50% of the costs you are ultimately likely to have to pay if we don't settle now. It is a genuine offer to finally resolve the matter without the need for a trial. Please be advised that in making this offer, our client is absolutely sincere. It is his final gesture towards resolving the matter before trial. The offer will remain open until 4.00 pm next Friday 29 January 2011." 54On 27 January 2011, the plaintiff's solicitor confirmed that the offer that had been made on behalf of the plaintiff was made in accordance with the principles in Calderbank v Calderbank (1975) 2 All ER 333 and that the email would be relied upon in an application for indemnity costs. This had not been stated in the email of 21 January 2011.

Consideration 55In the written submissions for the plaintiff, relevant authorities were referred to which require that "special circumstances" be established before an indemnity costs order would be made. Those authorities also deal with particular circumstances that may be considered "special" including those where a party should have known that he or she had no chance of success.

Indemnity costs principles 56In the submissions for the plaintiff, reference was made to a letter sent by the first defendant dated 7 May 2010 to the plaintiff's solicitors. It was said to be a Calderbank letter. The letter, Mr Gregg submitted, represented a continued denial of the plaintiff's ownership in the paintings. 57The written submissions for the plaintiff set out the various findings made in the principal judgment. These were said to be favourable to the plaintiff and unfavourable to the first defendant. I need not here reproduce all of the findings relied upon. 58It was submitted that the discretion of the Court should be exercised so that the first and second defendants pay the plaintiff's reasonably incurred costs of the action on an indemnity basis. 59The order sought for indemnity costs was opposed by the first and second defendants. They relied upon offers made by them, including an offer some six weeks prior to the hearing of a compromise, in support of the submission that it would not be appropriate for an indemnity costs order to be made. 60I do not consider that there is a sufficient basis to warrant the making of an indemnity costs order in the terms of the first alternative put forward on behalf of the plaintiff. 61Even if the submissions be accepted to the effect that the plaintiff had a strong case and that fact ought to have been appreciated by the defendants, I do not consider that it is open for me to find on this application that the defendants acted improperly in defending the claim against them. Even if it be accepted that the prospects of success of the defendants in making out their defence were slim, I do not consider that that itself would constitute a sufficient basis for a proper exercise of the discretion to award indemnity costs. 62Accordingly, the claim on the first basis put forward by the plaintiff fails. 63In relation to indemnity costs, the UCPR contain provisions in 20.25 - 20.32 and 42.13 concerning "offers of compromise" . The rules provide for indemnity costs orders that operate from the day after the relevant offer, in favour of a party whose offer is no less favourable than the final judgment amount. 64However, as noted in the submissions for the defendant, the plaintiff in present proceedings did not make an offer of compromise so as to invoke the provisions of Part 42.13 of the UCPR. 65Correspondence containing an offer to settle a claim, however, may be admissible on a determination of costs questions even if there had been no formal offer of compromise under the Rules: Jones v Bradley (No 2) [2003] NSWCA 258 at [13]. The absence of a formal offer is, accordingly, a relevant, but not a determinative consideration. 66In evaluating whether or not a Calderbank offer can and ought provide the basis for the making of a special costs order (indemnity costs) the offer should involve "a real and genuine element of compromise" : Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; Leichhardt Municipal Council v Green [2004] NSWCA 341 and Ying v Song [2011] NSWSC 618 at [23]. 67In Ying (supra), Ward J dealt with a not dissimilar situation on a Calderbank offer, insofar as an offer of compromise had been made. Her Honour stated:- "24. In the present case, this gives rise to the question whether the offer of compromise (requiring, as it does, a capitulation to the defendants' position, by way of a verdict in their favour, and the payment of a substantial portion of their costs) involves a real and genuine element of compromise. Where an offer is in substance a demand for payment of the full amount claimed, or a formal offer 'designed simply to trigger the entitlement to indemnity costs', or requires dismissal of the claim, then the necessary element of compromise may be said to be lacking (see Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355; Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at [368]; Shorten v David Hurst Constructions Pty Ltd [2008] NSWSC 609 at [6]." 68Her Honour then turned to consider the relevant principles as they apply to Calderbank offers and stated:- "26. The position in relation to offers expressed to be without prejudice (except as to costs) and relied upon as being in accordance with the principles in Calderbank v Calderbank ... differs in that the party seeking to rely on the offer must establish both that it represents a genuine compromise of the dispute and that it was unreasonable for the offeree to reject it. It is recognised that the making of a Calderbank offer is one of the circumstances in which the court may exercise its discretion under rule 42.1 to make some order other than that costs should follow the event but that it does not automatically follow that simply because the offer was more favourable than the judgment, then an indemnity costs order will be made." 69The onus is on the party making the Calderbank offer to satisfy the Court that it should exercise the costs discretion in its favour: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61. 70Mr McAvoy relied upon a number of authorities including Singh v Singh (No 2) [2004] NSWSC 225; Lahoud & Anor v Lahoud & Ors [2006] NSWSC 126 and Kain v Mobbs (No 2) [2008] NSWSC 599. 71The relevant authorities in relation to Calderbank offers have identified a number of matters that may be relevant in assessing whether the Court ought exercise its discretion to make an order for costs on other than the ordinary basis. They include:- (1) The timing of a Calderbank offer (whether early or late in the proceedings). (2) The content and terms of an offer (3) Whether the offer is expressed to be open for a sufficient period of time to provide the offeree with an adequate opportunity to consider it and respond. (4) Whether the settlement is a genuine offer. (5) Whether the offer involves a sufficient degree of compromise. 72I have concluded that the plaintiff is entitled to an indemnity costs order on the alternative basis referred to above against the first defendant, Mr Stewart. 73In some cases, it has been held that an offer is not a genuine offer by way of compromise but effectively requires capitulation by the opposing party. 74In the present case, the offer made on 31 May 2010 (Annexure SGC6 - p.14 to Mr Connell's affidavit) was expressed in terms so as to constitute it a Calderbank settlement offer and further it also expressed the intention that it would be tendered on any later application as to costs. 75The offer made on 31 May 2010, addressed to Mr Stewart, clearly stated that Mr Hannaford's costs to the date of that letter (including, solicitor, counsel's fees and other disbursements) amounted to $72,000. The letter added, "In addition to that sum, our client has incurred storage, transport and insurance costs" . That offer was put upon the basis that Mr Stewart agreed to contribute $50,000 towards his legal costs and other expenses. I consider, having regard to the strength of the plaintiff's case, that the offer represented a genuine offer of settlement and contained a sufficient element of compromise. 76In Ying (supra), Ward J at [84] noted that the offer in that case did involve a genuine element of compromise, noting that the defendants no doubt considered that they had very strong prospects of success. Her Honour observed:- "... In those circumstances, the observation made in Leichhardt by Santow JA seems apt - this seems to me to be a case where a very slight discount on what would be the likely result if the plaintiff failed in its claim did involve a genuine (albeit small) compromise. The offer by the defendants to bear half of what would otherwise likely be their recoverable costs if the matter proceeded to a judgment adverse to Mr Ying does seem to me to satisfy the first requirement of a Calderbank offer to meet in order to justify a special costs order." 77I consider that those observations apply equally to the offer made to Mr Stewart on 31 May 2010. 78The correspondence evidences a real and, I believe, genuine attempt by the plaintiff from the outset (that is, commencing with the letter dated 10 October 2008 - SGC1 to Mr Connell's affidavit) to compromise the proceedings and so avoid litigation. The correspondence also evidences a genuine attempt by the plaintiff, once proceedings had been commenced, to compromise them in circumstances in which he clearly had grounds for considering that he had a strong claim for the relief sought in the statement of claim (in particular, the primary relief for the return of the paintings). 79I accept that the first defendant had adequate opportunity and time to consider the offer made on 31 May 2010 and had adequate information against which to assess the offer and that it did contain an element of compromise. 80I have, as indicated above, concluded that a proper exercise of the discretion on the question of costs is to determine the plaintiff's offer made on 31 May 2010 (expiring on 14 June 2010) to be a proper basis for the making of an indemnity costs order in his favour against Mr Stewart. 81In relation to the second defendant, the plaintiff relied upon the emails of 21 January 2011 and 27 January 2011 to support the claim for indemnity costs from that date against the second defendant, Bungabura. 82As earlier indicated, the offer made on 21 January 2011 proposed a compromise. It was stated that the plaintiff's costs were then currently approaching $100,000. It stated:- "Our client remains prepared to compromise. In addition to the return of the paintings, he is prepared to accept a contribution from you of $60,000 towards his costs. This will mean that he will have to pay a sum in the vicinity of $40,000 towards the balance of his costs (in addition to the costs of transport and the temporary storage of the paintings). The offer to accept $60,000 represents, on our calculation, less than 50% of the costs you are ultimately likely to have to pay if we don't settle now. It is a genuine offer to finally resolve the matter without the need for a trial. Please understand that in making this offer, our client is absolutely sincere. It is his final gesture towards resolving the matter before trial. The offer will remain open until 4.00 pm next Friday, 29 January 2011. This email is of course on a 'without prejudice' basis. ..." 83The email of 27 January 2011 referred to the email of 21 January and added:- "Further to this email, we confirm that the offer as expressed below is made in accordance with the principles set out in Calderbank v Calderbank ... and our client will rely on the below email in an application for indemnity costs." 84The reference to the offer expressed "below" was a reference to the offer as set out in the email of 21 January 2011. 85It was argued on behalf of the defendants that the terms expressed in the two emails did not comply with the Calderbank requirements for an offer and that the defendants, in effect, only had two days between the expiry of the offer of 21 January 2011 (29 January 2011) after receiving the email of 27 January 2011. 86The question is whether or not the first offer was sufficient in its terms to constitute a Calderbank offer, even though it did not contain the additional material set out in the email of 27 January 2011. 87As the commentary to the UCPR indicates at 42.13.22, the question is whether or not an offer made "substantially complies" with the form suggested by Cairns LJ in Calderbank (supra) (that is, including in particular, the offers expressed to be without prejudice save as to costs). 88In Law of Costs , 2 nd ed by G E Dal Pont at 13.66, it is stated that it is arguable that an offeror who "substantially complies" with the rule-based requirements pertaining to offers of compromise should not be placed, costs-wise, in a position markedly different than had he or she fully complied with those requirements. To suggest otherwise would be to place form over substance. 89I have given close attention to the submissions made in determining whether or not it can be said that the terms of the email of 21 January 2011 were, in themselves, sufficient to comply with the Calderbank principles. 90The email of 27 January 2011 only added one statement of significance, namely, "our client will rely on the below email in an application for indemnity costs" . Having given the matter specific consideration, I have concluded that the offer made in the email of 21 January 2011 was a genuine offer of compromise and provided the defendants with sufficient time to consider its terms, the offer being open until 4.00 pm on Friday 29 January 2011. As to the fact that the email of 27 January 2011 was sent with the additional statement is not of significance as it merely addressed the use to which the email would be put, namely, that it would be relied upon in an application for indemnity costs. The email of 27 January 2011 did not add any further terms which would require a reasonable or further period of time for reflection or consideration by the defendants. 91I have, accordingly, concluded that the offer made on 21 January 2011 was an offer in that was in substantial compliance with the requirements of a Calderbank letter and, accordingly, may be relied upon by the plaintiff in its application for indemnity costs against the second defendant. 92Accordingly, the orders I make are as follows:- (1) Order the defendants to pay expenses in respect of the insurance, transportation and storage of the paintings in the amount of $7,489.96. (2) Order the defendants to pay the plaintiff's costs of the proceedings upon the following bases:- (a) By the first defendant, on the ordinary basis up to 14 June 2010 and thereafter on an indemnity basis. (b) By the second defendant, on the ordinary basis up to 29 January 2011 and thereafter on an indemnity basis. 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: 21 July 2011