Hermes Far Eastern Shining Pty Limited v Potable Gold Strike Pty Limited

Catchwords: COSTS – Party/party – bases of quantification – indemnity basis – where a Calderbank offer was made by Defendant – where the Plaintiff capitulated – where the Plaintiff had no prospects of success – whether Calderbank principles apply where there has been no hearing on the merits – where the Plaintiff is to pay the Defendant’s costs – where the Plaintiff is to pay the Defendant’s costs on an indemnity basis from date of Calderbank offer.

Legislation Cited: Conveyancing and Law of Property Act 1884 (Tas)

Cases Cited: Abdi v Abdi (No 2) [2022] NSWSC 582
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397
Ghougassian v Fairfax Community Newspapers Pty Ltd [2015] NSWCA 307
Luo v Carbone [2019] NSWSC 830
Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368
Transfield Services (Australia) Pty Limited v James Gaha [2012] NSWSC 865
Zoobury Pty Ltd v Cariste Pty Ltd (No 2) [2022] NSWSC 1018

Texts Cited: n/a

Category: Costs

Parties: Hermes Far Eastern Shining Pty Limited (Plaintiff)
Potable Gold Strike Pty Limited (Defendant)

Representation: Counsel:
M Painter SC, M Cobb-Clark (Plaintiff)
M Condon SC, D Smith (Defendant)

File Number(s): 2024/280642

Publication restriction: n/a

Judgment

1. There is one outstanding issue in these proceedings. It concerns costs.

Background

2. The proceedings concern real property located at Wattle Grove in Tasmania (Property). The Plaintiff is, or was, the tenant of the Property. The Defendant is the registered owner of the Property.

3. On 13 July 2021, the Defendant commenced proceedings in the Magistrates Court of Tasmania, seeking an order for vacant possession of the Property. Those proceedings are currently in abeyance.

4. The Plaintiff commenced these proceedings on 28 February 2022 in the Supreme Court of Tasmania. It alleged that the Defendant holds the Property on trust for the Plaintiff. A Statement of Claim was filed on 14 June 2022.

5. On 14 July 2022, the Defendant filed a Defence and a Counterclaim. By the Counterclaim, the Defendant sought an order for possession of the Property.

6. On 3 July 2024, the Defendant filed an Amended Defence and Counterclaim, which maintained the claim for possession of the Property.

7. The final hearing of the matter was listed to commence on 5 August 2024 in the Supreme Court of Tasmania. Prior to the final hearing, on 9 July 2024, the Supreme Court of Tasmania acceded to the Plaintiff’s application that the proceedings be transferred to this Court.

8. On 29 August 2024, the Defendant filed a Notice of Motion in this Court seeking, among other things, an order that the claim be summarily dismissed.

9. The Notice of Motion was fixed to be heard on 14 March 2025.

10. On 6 March 2025, the Plaintiff proposed orders contemplating that its claim be dismissed, the Plaintiff to deliver vacant possession of the Property, and the Plaintiff would pay the Defendant’s costs of the proceedings on the ordinary basis. This was a capitulation by the Plaintiff.

11. On 14 March 2025, there was some debate about the appropriate form of orders. I made the following orders:

12. The Writ filed on 28 February 2022 by the Plaintiff be dismissed.

13. The Statement of Claim filed on 14 June 2022 by the Plaintiff be dismissed.

14. The Plaintiff is to deliver vacant possession of the property known as 850 Cygnet Coast Road, Wattle Grove Tasmania, having Tasmania recorder of titles volume 47314 folio 2 by 17 March 2025.

15. The amount of $23,530 held in the trust account of Cronin Miller Litigation pending further order of the Court or agreement between the parties is to be released to the Defendant's nominated bank account within seven days of today's date.

16. The Counterclaim set out in the Defence filed on 3 July 2024 is otherwise dismissed.

17. The proceedings are stood over to 21 March 2025, pending compliance with orders 3 and 4.

18. Grant leave to the Defendant Cross-Claimant to apply for further orders in the event that orders 3 and 4 are not complied with.

19. Grant liberty to the Defendant's representatives to email agreed orders to my Associate vacating the listing on 21 March 2025, if orders 3 and 4 are complied with.

20. Otherwise, the question of whether or not costs in the proceedings should be payable on an indemnity basis from 2 July 2024 is reserved.

21. I considered these orders, and in particular orders (6) and (7), were appropriate and convenient against the possibility that vacant possession was not delivered by 17 March 2025. I understand that vacant possession was delivered. The listing on 21 March 2025 was duly vacated.

22. The orders made on 14 March 2025 did not deal with the question of costs. The Plaintiff maintained its position that the appropriate order was that the Plaintiff would pay the costs of the proceedings on the ordinary basis. The Defendant’s position was that the Plaintiff should pay the Defendant’s costs of the proceedings, including the costs of the Notice of Motion filed on 29 August 2024, on an indemnity basis from 2 July 2024. These reasons deal with that question.

Basis for the Defendant’s application for indemnity costs

14. The application for indemnity costs rests, in part, on a Calderbank letter from the Defendant to the Plaintiff dated 2 July 2024.

15. By that letter, the Defendant’s solicitors asserted that no trust ever existed over the Property and none would be imposed by a Court. Among other things, the letter stated that pursuant to section 60(2)(b) of the Conveyancing and Law of Property Act 1884 (Tas), a declaration of trust respecting any land or interest therein must be manifested and proved by some writing signed by some person who is able to declare such a trust. The letter asserted that no such writing has been pleaded or discovered by the Plaintiff to date. That is, the Defendant relied on what is commonly referred to as the Statute of Frauds.

16. The settlement proposal, in broad terms, contemplated that the Plaintiff’s claim would be dismissed, there would be an order for vacant possession and the Plaintiff would pay 50% of the Defendant’s costs of the proceedings. The element of compromise in the letter concerned the proposal in relation to costs. The offer was open to be accepted until 16 July 2024, which was two weeks after the letter was sent.

17. The Defendant contends that it has achieved a better outcome to the 2 July 2024 offer because the Plaintiff now proposes to pay 100% of the Defendant’s costs in the proceedings on the ordinary basis. The Defendant contends that the unreasonable rejection of the settlement offer warrants an order for indemnity costs.

18. The Defendant supports their application for indemnity costs on other grounds.

19. The Defendant relied on the observations of Emmett JA in Ghougassian v Fairfax Community Newspapers Pty Ltd [2015] NSWCA 307. In that decision, Emmett JA made the following observations at [53]-[57]:

Mere abandonment of a claim may not, of itself, be sufficient to warrant an order for indemnity costs. If, upon material reflection and consideration of the questions, an appellant resolves to abandon an appeal at a stage when the issues have been clarified, it does not necessarily follow that indemnity costs should be ordered. Parties should not be discouraged from the proper, albeit late, abandonment of unwinnable appeals or points. The reality is that close attention to an appeal is often not made until shortly before the hearing of the appeal. Parties should not be discouraged from abandoning bad arguments by reason of the possibility of an order for indemnity costs.

However, the overall attitude of Mr Ghougassian to the conduct of the proceedings gives rise to an inference that they had no legitimate object. That inference is confirmed by the complete abandonment at the last moment without any explanation. There may be good reasons why parties would seek to withdraw an appeal at hearing, quite unconnected with the acceptance of the proposition that the appeal is hopeless. Mr Ghougassian has had ample opportunity to adduce evidence to explain why the proceedings were abandoned at the last moment, but has elected not to do so. On the other hand, Mr Ghougassian submits that the respondents did not warn him in advance that they considered the appeal to be hopeless and that they would seek an order for indemnity costs should the appeal proceed.

The respondents’ response to Mr Ghougassian’s summary of argument had been filed on 2 March 2015. It ought to have been apparent to those advising Mr Ghougassian that the respondents had a good answer to his appeal. Nevertheless, he waited three months before indicating that he no longer wished to prosecute an appeal. Had Mr Ghougassian abandoned his appeal within a reasonable time after considering the respondents’ response, considerable costs would have been avoided. Further, the discourtesy to the court is apparent. The failure to notify the court at an earlier time that the appeal would not proceed may well have deprived other litigants of the opportunity of an earlier hearing. That, of itself, is not decisive, but it is a material factor in considering whether the conduct of Mr Ghougassian should lead to a different order for costs. His conduct is deserving of considerable criticism, although that, of itself, is not a justification for ordering indemnity costs.

An unrebutted inference is available that Mr Ghougassian commenced the proceedings for the purpose of delaying the time by which the costs order at first instance might become enforceable. That inference is available in circumstances where he sought to stay the order for costs, sought review of the initial costs assessment (in respect of which he had advanced no submissions or objections) but failed to pay the costs of the review assessment, and abandoned the appeal on the day before it was fixed for hearing.

While, as I have said, the abandonment of unwinnable appeals or points does not of itself justify an order for indemnity costs, the other factors present in this case justify such an order. Abandonment without explanation, in combination with other factors, may justify an order for indemnity costs. For example, where an action is commenced or continued in circumstances where the moving party, properly advised, ought to have known that there were no prospects of success, indemnity costs may well be appropriate. In the present circumstances, the abandonment of the proceedings at the last moment, without explanation, exacerbates the matter.

20. The Defendant submitted that another factor which justifies an order for indemnity costs is that the proceedings did not have any prospect of success, relying on Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 and Zoobury Pty Ltd v Cariste Pty Ltd (No 2) [2022] NSWSC 1018. The Defendant submitted that the Statute of Frauds defence would always be fatal to the Plaintiff’s claim.

21. I note that the Statute of Frauds defence was not expressly pleaded in the Defence to the Statement of Claim filed on 14 July 2022. It was, however, included in a proposed Amended Defence that was circulated to the Plaintiff around April 2024 and formalised on 3 July 2024. It was expressly adverted to in the Calderbank letter of 2 July 2024.

22. I also note that on 15 August 2024, the Defendant’s solicitors wrote to the Plaintiff’s solicitors “to explain why your client’s claim is certain to fail” and why the Plaintiff “should consent to orders that it’s claim be dismissed with costs”. That letter also relied on section 60(2)(b) of the Conveyancing and Law of Property Act 1884 (Tas). The Defendant does not separately rely on this letter as a Calderbank letter but it does rely on it as supporting its application for indemnity costs, along with the other matters I have summarised above.

23. In short, the Defendant’s application for indemnity costs is based on the following matters:

24. a reasonable offer of settlement was refused;

25. the proceedings have been abandoned without explanation and appear to have had an illegitimate object; and

26. the proceedings had no prospect of success.

The Plaintiff’s grounds for resisting the application for indemnity costs

24. The Plaintiff submitted that the proceedings have not resulted in a formal hearing on the merits, and so the principles in Calderbank do not apply, relying on the decision of Darke J in Luo v Carbone [2019] NSWSC 830. In that decision, Darke J observed at [45] as follows:

Both parties relied on the offers of compromise or Calderbank offers they made. As the proceedings did not proceed to a formal hearing on the merits, these offers could not be relied upon by either party to found a claim for indemnity costs under Division 3 of Part 42 of the UCPR, nor could they fall under the well established principles governing Calderbank letters. Nevertheless, the reasonableness of a party’s rejection of such an offer may be a factor which informs the Court’s discretion to award costs in a particular case. This is because such conduct will be relevant to the basal enquiry described by McHugh J in Lai Qin(supra) as to whether one party has acted unreasonably in the commencement or the maintenance of the proceedings (see, for example, Transfield Services (Australia) Pty Ltd v Gaha [2012] NSWSC 865 at [28]; Seng Hpa v Walker [2017] VSC 320 at [83]; Facek v Gargano [2019] VSC 31 at [15]).

25. I note that the relevant principles that apply when proceedings are finalised without a hearing on the merits were summarised by Ball J in Transfield Services (Australia) Pty Limited v James Gaha [2012] NSWSC 865 at [27]:

The general rule in relation to costs is that costs follow the event unless it appears to the court that some other order should be made: Uniform Civil Procedure Rules 2005, r 42.1. Where proceedings are finalised without a hearing on the merits, there is no event to "enliven" the operation of UCPR r 42.1: Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 547 at [11] per Gzell J. Nor is it appropriate for the court to embark on an inquiry of what the outcome would have been. Consequently, where proceedings are settled and no order for costs has been agreed, it is generally appropriate that each party bear their own costs: Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-5 per McHugh J. There are, however, two exceptions to that general principle. One is where one of the parties has acted so unreasonably that the other party should obtain the costs of the action. The other is where the court is confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried: Lai Qin at 624-5. One instance where the court may be satisfied that that is the position is where the consent orders agreed by the parties amount, in effect, to capitulation by one of the parties.

26. The Plaintiff contends that it was not unreasonable for it to decline to accept the offer of 2 July 2024 for a number of reasons. It submits that the offer was only open for a period of two weeks but raised complex issues of trust law, which required careful legal analysis. It further submitted that the issue was complicated by the prospective transfer of the proceedings to this Court. The Plaintiff also relied on the fact that evidence had not been served by the Defendant at the time the offer was made, see Abdi v Abd**i (No 2) [2022] NSWSC 582 at [30]. The Plaintiff also submitted that the relevant circumstances included that the offer did not include any information about the quantum of costs that the Defendant had incurred: see Abdi at [34].

27. The Plaintiff also submitted that where, as here, a Calderbank offer requires nothing less than complete surrender by a Plaintiff, then in order for indemnity costs consequences to follow, the Plaintiff’s claim would have to approach something of the character of being frivolous or vexatious in order for indemnity cost consequences to apply: see Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [31]-[32].

28. Senior Counsel for the Plaintiff submitted that the Defendant’s submissions came close to asserting that that there should be an automatic entitlement to indemnity costs when the opposing party abandons a bad case, and that that was wrong as a matter of principle. She accepted that the Plaintiff’s case was “poorly conceived” and conceded that the Statute of Frauds point “is a good one”. But she submitted that the Court should not assume that the proceedings would have been dismissed without first giving her client an opportunity to replead. She did not, however, provide any indication of how the Plaintiff could have overcome the Statute of Frauds defence in any repleaded case. She submitted that a party should not be discouraged from abandoning a bad case for fear of an order for indemnity costs.

29. As to the explanation for abandoning the case, the Plaintiff submitted that it was: (1) an obvious commercial decision; and (2) made in the face of a strikeout motion. What this amounted to was a submission that the imminent hearing of the Notice of Motion to dismiss the Plaintiff’s claim caused the Plaintiff to focus upon their case, appreciate that it was “poorly conceived” and elect to abandon their case.

Consideration

30. I accept that I am entitled to take into account the Defendant’s offer letter dated 2 July 2024 in the exercise of my discretion as to costs.

31. The well-established principles that apply in respect of Calderbank letters inform the proper exercise of discretion by the Court in making orders as to costs. Those principles usually arise for consideration following a determination on the merits. Where there has been no determination on the merits, those principles need to be considered sensitively to the fact that there has been no hearing on the merits, and recognising that the starting point in such a case is that there will be no order as to costs. Nevertheless, the Calderbank principles will still inform the proper exercise of discretion in a case such as the present one, when there has been no hearing on the merits.

32. I accept that there is some force in the submission that a party should not be discouraged from abandoning a bad case for fear of an indemnity costs order. However, it is also true that litigants should be discouraged from maintaining cases that are hopeless. The risk of indemnity costs would serve to encourage a litigant with a hopeless case to abandon the case sooner rather than later.

33. Although one needs to be wary of the benefits of hindsight, in the present case, the Plaintiff’s claim always suffered from the fundamental problem that the alleged trust would fail by reason of the Statute of Frauds. Nothing has been put by the Plaintiff that could conceivably overcome this problem. The Plaintiff accepts that it is a good point. It is not one that got better over time.

34. It is true that the Defendant had not filed evidence at the time of the Calderbank letter. However, the Plaintiff could not reasonably expect that the problem it faced by reason of the Statute of Frauds defence would be overcome by the Defendant’s evidence.

35. The Statute of Frauds defence was expressly raised by the Defendant in its proposed Amended Defence circulated in April 2024. It was expressly raised in the Calderbank letter of 2 July 2024. It was also expressly raised in correspondence from the Defendant’s solicitors to the Plaintiff’s solicitors dated 15 August 2024.

36. In my view, the Defendant’s Calderbank letter of 2 July 2024 did offer to resolve the proceedings on a compromised basis, although it was not a substantial compromise. The relevant compromise was that the Plaintiff would pay 50% of the Defendant’s costs as agreed or taxed. I accept that the letter did not set out the quantum of the Defendant’s costs and that this is a relevant consideration in assessing whether the Plaintiff acted reasonably in declining to accept the Calderbank offer. Likewise, I accept that the fact that the offer was open for only two weeks is a relevant consideration.

37. If the Defendant’s application for indemnity costs rested entirely on the Calderbank letter of 2 July 2024, I would have been disinclined to exercise my discretion to make such an award. However, when coupled with the other relevant circumstances in this case, I am satisfied that an order for indemnity costs is appropriate.

38. The Plaintiff’s case was poorly conceived. By the terms of the proposed Amended Defence and the letter of 2 July 2024, the Plaintiff was put squarely on notice of the fundamental problem with its case, namely the Statute of Frauds. I do not think that the Plaintiff has proffered an adequate explanation for the timing of the abandonment of their case.

39. While an imminent hearing requiring the Plaintiff to justify its claim will no doubt serve to focus attention on the merits of the claim, in my view, it was incumbent upon the Plaintiff to pay close attention at all times to the question of whether its case was fundamentally flawed. It had an obvious opportunity to do that in light of the Calderbank offer of 2 July 2024.

40. The Plaintiff’s case never had any prospects of success. I do not think that I can, or should, take into account the submission that the Plaintiff would have sought an opportunity to replead and would have been able to advance some plausible case. Without any explanation as to what that case might look like, it seems to me to be in an irrelevant consideration.

41. While there was no hearing on the merits, it is clear that the Plaintiff’s pleaded case was without merit. I can come to that view with no difficulty in this case because it is common ground. The Calderbank letter of 2 July 2024 presented an occasion where the Plaintiff should have discontinued these proceedings. No good reason has been advanced as to why the Plaintiff maintained its case for as long as it did.

Orders

42. The order of the Court is that the Plaintiff is to pay the Defendant’s costs of the proceedings, with costs to be assessed on an indemnity basis from 2 July 2024, being the date of the Calderbank offer, including in respect of the Defendant’s Notice of Motion filed on 29 August 2024.

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Amendments

26 March 2025

Amended Catchwords