Jainti Pty Ltd v Fraser Panorama Pty Ltd

Supreme Court of NSW|2021-08-04|Before: Ward CJ

Judgment

HER HONOUR: For the reasons that I published at the end of June this year (Jainti Pty Ltd v Fraser Panorama Pty Ltd [2021] NSWSC 744), I determined a dispute as to the entitlement to the sum of $161,160 held in a solicitor's controlled moneys account and concluded that those moneys (which represented part of the final distributions made by Fraser Panorama Pty Ltd, in its capacity as trustee of the Fraser Panorama Trust, in respect of what I referred to as the Fraser Panorama development) were to be paid to the plaintiff (Jainti Pty Ltd) as trustee for the Zambito Trust.
The background to the dispute is set out in my earlier reasons and I do not repeat it (other than as necessary) in these reasons. At the request of the parties, I reserved the question of costs to be dealt with, if possible, on the papers (and made directions for the filing and service of brief written submissions on costs to enable that to occur). I also noted (at [339]) that there might be a question of interest, beyond any interest that has accrued on the moneys since they were placed in the controlled moneys account, and indicated my tentative view on that issue (namely that any claim for additional interest by the plaintiff on the funds distributed wrongly to Anthony would be limited in my view to the period from the distribution in December 2018 and the placement of the moneys in the controlled moneys account; and would be predicated on a finding of knowing receipt of trust moneys).
I have had the opportunity to consider the submissions as to costs and now publish my reasons for the costs orders I propose to make. In these reasons I have adopted the same definitions as in my earlier reasons.

Liquidator's submissions on costs

The starting point for the liquidator's claim for costs is the general rule that costs follow the event, in circumstances where the liquidator was successful in the proceeding. The claim for those costs on an indemnity basis is put for a number of reasons: first, the rejection by Anthony of an Offer of Compromise made on 28 August 2020 (or, if that offer not be a valid Offer of Compromise, then the same offer made as an offer pursuant to the principles of Calderbank v Calderbank [1975] 3 All ER 333 (the Calderbank offer); second, that Anthony put the liquidator to proof on the pleaded Barnes v Addy claim (see Barnes v Addy (1874) LR 9 Ch App 244) yet resiled from this position at the conclusion of the hearing; third, the reopening of Anthony's case following the conclusion of the four day hearing; and, fourth, that it is said that Anthony persisted with the pressing of irrelevant and extraneous contentions regarding the manner in which the liquidation had been conducted.
As to the first, by letter dated 28 August 2020 emailed at 12.28pm, the liquidator's solicitors served an Offer of Compromise expressly relying on r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). The letter stated that if for any reason the Offer of Compromise failed to satisfy the requirements of r 20.26 of the UCPR then the terms in it were expressed to be made as an offer pursuant to the Calderbank principles.
The offer there conveyed was to settle the claim against Anthony on the following terms: that the money held in the controlled moneys account (being no less than $161,160) be paid as to $25,000 to Anthony and the balance to be paid to or at the direction of the liquidator; that all costs orders made in the proceeding be vacated; and that each party pay its own costs of the proceeding. The Offer of Compromise stated that the offer was open for acceptance until 5pm on 25 September 2020 (it being noted that this was at least 28 days from the making of the offer) after which it would lapse.
The letter with which the Offer of Compromise was served set out the reasons why the liquidator asserted that the offer represented a genuine compromise (including various matters that the liquidator says were ultimately borne out by the findings made in the proceeding). The liquidator points out that the letter of 28 August 2020 drew attention to the primary documentation on which the plaintiffs relied in the proceeding (and which ultimately formed the principal basis for the judgment).
The solicitor for Anthony responded at 4.41pm on the day the offer was made, asserting that the correspondence did not comprise a valid Calderbank offer or Offer of Compromise; and rejecting the summary of evidence contained in the covering letter (saying that it omitted to deal with "the only independent witness, Mr Derek Taylor").
The liquidator says that the offer was made in accordance with r 20.26 of the UCPR, thereby engaging r 42.14; and that there is nothing that would justify a departure from the usual course in the present case (noting that where a party resists the operation of r 42.14 the onus is on the offeree to demonstrate why the Court should "order otherwise" - citing Curtis v Harden Shire Council (No 2) [2015] NSWCA 45 at [27]).
In the submissions on this costs application, the liquidator refers to an earlier Calderbank offer that was made (incorrectly dated 27 March 2020 but sent on 13 March 2020) and a later Calderbank offer that was sent on 19 November 2020, each of which was rejected or not accepted by Anthony, but does not rely on those to seek indemnity costs (simply referring to them in a footnote to the written submissions as demonstrating the conduct of the parties and the attempts to settle the proceeding that it is said were rebuffed by Anthony).
As to the second of those matters, as noted above, it is said that Anthony put the plaintiffs to proof on the pleaded Barnes v Addy claim yet resiled from this position at the conclusion of the hearing. It is said that Anthony again changed his position ("did another 'about face'") in his submissions after the hearing. The liquidator says that this materially contributed to the time and expense that was spent in the proceeding, both in terms of evidence and submissions.
As to the third of those matters, the liquidator says that Anthony's supplementary submissions were misconceived (noting that they were ultimately rejected) and that this was a fruitless exercise. The liquidator points to the fact that the supplementary submissions comprised five pages and raised a further hypothesis which was not the subject of submissions during the substantive hearing. It is noted that the reopening "supplementary" written submissions were in addition to Anthony's written outline of opening submissions of fifteen pages and his written closing submissions of twenty-one pages (in contrast to the liquidator's written outline and supplementary submissions, each of five pages). It is submitted that the reopening substantially added to the costs of the proceeding and was wholly unnecessary; and that the liquidator should be indemnified for the work undertaken to meet this failed limb of Anthony's case.
As to the fourth of those matters, complaint is made that (despite the plaintiffs' solicitors pointing to this in the 28 August 2020 letter with reference to the issue of costs), Anthony continued to press his affidavit evidence containing lengthy dissertations as to the conduct of the liquidation which the liquidator says had no bearing on the disposition of the plaintiffs' claim.
Thus, the liquidator contends for an order that Anthony pay the plaintiffs' costs of the proceeding on the ordinary basis until 28 August 2020; and on an indemnity basis from 28 August 2020. In the alternative, it is submitted that Anthony should pay the plaintiffs' costs on the ordinary basis, save that he pay the plaintiffs' costs of and incidental to the reopening application on the indemnity basis.
The liquidator notes that there were a number of instances throughout the proceeding where costs were reserved or no costs order was made; and submits, for the avoidance of doubt, that these costs should be paid by Anthony as part of the costs orders the liquidator proposes. (I agree that this will be the consequence of the making of a costs order in the liquidator's favour and it is not necessary to make provision in the orders to that effect.)
As noted above, the liquidator does not seek to agitate the issue as to additional interest, given that the period involved is only between 21 December 2019 and 11 February 2020 (with a view to minimising further time and expense).

Anthony's submissions on costs

Anthony (consistently with the complaints made in his affidavit evidence filed in the proceeding) contends for a departure from the usual order as to costs largely by reference to the conduct of the liquidation (about which he continues to complain). Anthony seeks an order that each party pay its own costs, referring to the discussion of costs principles in Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 and the cases addressed by Young J, as his Honour then was, in TV Shopping Network Ltd v Scutt (1998) 43 IPR 451.
In particular, Anthony says that a departure from the usual order is warranted in the present case: first, on the basis that there has been conduct of the liquidator (the successful party) which disentitles the liquidator to the beneficial exercise of the discretion in relation to costs; and, second, on the basis that, as an "administrative authority", the liquidator has failed in his duty or been dilatory; and led Anthony (the unsuccessful party) to adopt his course of action.
As to the first of those matters, Anthony complains (again) of delay (and dissipation by costs) in the administration of Jainti's estate in the commencement of the proceeding. It is said that this delay materially affected the funds available for the plaintiffs' (successful) claim notwithstanding Anthony's actions to place the disputed funds into a trust account pending the outcome of the proceeding. (Pausing here, it is not clear how it is suggested that the funds available for the plaintiffs' successful claim have been materially affected. As Anthony himself has emphasised, those funds were placed in a controlled moneys account and there is no suggestion that those funds have been dissipated.)
Anthony says that when the liquidator was appointed as liquidator of Jainti (on 5 September 2011) Jainti was a non-trading investment entity with two separate investment interests, one of which was the Zambito Trust (a discretionary trust); and he says that, at the time of the liquidator's appointment, the winding up was to be a solvent winding up. Anthony complains that at the time the present proceeding was commenced by amended statement of claim on 26 July 2019 (though it was in fact commenced by summons at an earlier date), the winding up had become an insolvent winding up "solely as a result of the liquidator's costs". It is said that there was a delay in this regard (i.e., in the winding up) of more than 7 years and 10 months (plus 21 days).
Complaint is made that the liquidator did not produce in evidence a set of accounts of the administration of the winding up from the time of appointment nor any explanation for the delayed administration of the winding up (a period of eight years); nor did he provide any evidence allocating the responsibility for the delay between issues arising in respect of the two investment interests of Jainti.
Anthony submits that (in the absence of evidence that only the liquidator could provide of conduct of the liquidator's administration of the winding up of Jainti over that eight year period; and of a basis to attribute any or part of the delay to conduct of Anthony), then it should be concluded (it is said in the exercise of the broad costs discretion) that there is no basis to attribute the cause of that delay to any act or omission on the part of Anthony; that the liquidator has not provided any evidential basis to enable an understanding of or excuse for the delay or to attribute the delay to undisclosed issues concerning the winding up of the other Jainti investment; and that the liquidator has not provided any evidence of reasons for the liquidator's delay in commencing the proceedings.
Anthony submits that, in the absence of the delay in the administration of the winding up of Jainti, the documentary records would likely have been more accessible and more complete; witness accounts would have been more contemporary to relevant events and the evidence of Mr Derek Taylor (who Anthony says more than once was the only witness independent of family and extended family members - though as it transpired, Mr Taylor certainly had his own opinion as to the deserving nature of Anthony's claim) would have been able to have been tested more directly and weighed differently. It is submitted that it is for the liquidator to provide explanation for the delay in administration of the winding up; and that the delay by the liquidator in filing the proceeding has prejudiced Anthony (particularly in relation to the evidence of Mr Taylor, who again is said to be the only witness independent of the family and extended family witnesses; and who it is said had no financial stake in the outcome).
For Anthony, it is submitted that, absent the delay in the administration of the winding up of Jainti: any resolution reached concerning the distribution to the trust and out to the beneficiaries would have been a "robust" family discussion as to whether any of the persons named in the trust distribution should receive his 20% share (or a different share or none; the family relationships between the Zamattia and the Morabito families (though under stress eight to ten years ago) would have been materially different; and the resolution six to seven years ago would not have been reduced to a claim by the liquidator for recovery of costs of the winding up administration).
It is submitted that the delay in filing the proceeding is the substantial reason for the liquidator being delayed in establishing his (as has now been found) better claim to receipt of the funds. (Pausing here, since the liquidator is not seeking additional interest, any delay in the liquidator establishing his better claim to receipt of the disputed funds seems beside the point.)
As to the second of the above matters, Anthony submits that the liquidator is in the position of "an administrative authority", being an officer of the Court with specific obligations and powers in the administration of a winding up of affairs of Jainti. It is submitted that, when considering a costs order against an individual (namely, here, Anthony), in the exercise of the broad costs discretion the Court may consider: the period of delay by the successful party (the liquidator) in commencing the proceeding; the impact of that delay on the parties and on the conduct of the proceeding (as submitted above); the absence of any reason provided in the hearing of the matter by the liquidator for that delay that may be attributed to the individual; and the additional difficulty of attributing delay after the commencement of the proceeding to Anthony when Fraser Panorama and Anthony were both active parties and legally represented by the same law firm in the proceeding.
Further, Anthony submits that further context for the exercise of discretion as to costs may be provided by consideration of a number of documents attached to his submissions relating to: the conduct by both parties in relation to attempts to settle, including open and without prejudice communications; and the conduct by Anthony in acting immediately to preserve the disputed funds by placing them in trust. It is submitted that there was a fine balance in the determination (in favour of the liquidator) of the rights and equities of the parties based on the unsatisfactory documentary records.
Complaint is further made that there was an allegation of dishonesty made against Anthony (said to be an allegation without merit) (of falsifying or concocting documents). Amongst other submissions in this regard it is said that persistence with such an allegation constituted a significant bar to the settlement of the proceeding and reference is made to r 15.3 of the UCPR in this regard. It is submitted that the making by an officer of the Court of "the most serious indictment of dishonesty that was unsubstantiated" should not be condoned. (Pausing here, I am not in a position to comment on likely or potential bars to settlement of the proceeding - nor should I; and the fact that the dishonesty allegations were not sustained says nothing as to whether they were properly made in the first place.)
As to the proceeding itself, Anthony refers to the following as matters relevant to the exercise of the costs discretion.
First, the proposition advanced by the liquidator as to the concoction of documents (no allegation of fraud or forgery having been pleaded). Anthony argues that the propositions of forgery (or concoction of documents), which were not put to Mr Derek Taylor, were put to Anthony for no other purpose than to attempt to humiliate and intimidate Anthony.
Second, the withdrawal of the pleaded allegation of "knowing receipt" during the hearing. It is said that there were clear contestable issues between the parties concerning the "constitution documents" and that the persistence up to the hearing of the allegation of knowing receipt: should negate any adverse finding against Anthony for failure to accept "late" offers to settle including the Calderbank offer; and meant that Anthony had to prepare his case to meet this allegation. It is submitted that the hearing was extended because this allegation was maintained live into the hearing.
Third, reference is made to the filing, service and preparation by Anthony in respect of the affidavit of Bruno (which was withdrawn in the circumstances outlined in the principal judgment).
As to the question of interest, submissions were made on this issue by Anthony but in light of the position taken by the liquidator it is not necessary here to consider those.
As to the service of the Calderbank offer (which Anthony does not appear to accept is an Offer of Compromise, although addressing no written submissions to that proposition), it is submitted that, in the context of the present case (where it is said that the liquidator could and should have attempted to resolve the matter and make offers eight years earlier - when there were still funds; there was a benefit to all parties; and the discontent between the family did not exist), the "belated" Calderbank offer should not attract a special costs order for the reasons of the prejudice suffered by all parties as a result of the dilatory conduct of the liquidator.
Hence it is submitted that the appropriate order would be that each party pays its own costs.

Determination

The principles applicable in the exercise of the costs discretion under s 98 of the Civil Procedure Act 2005 (NSW) are well known; the discretion is a wide one but must be exercised judicially; and the general rule is that costs follow the event (r 42.1 of the UCPR), the onus being on a party seeking to contend otherwise to demonstrate why that should be so. Where a special costs order is sought on the basis (as here) of the making of an Offer of Compromise or a Calderbank offer, then it is necessary to address the matters set out below.

Departure from the usual order that costs follow the event

I turn first to the submissions made by Anthony to the effect that there should be a departure from the usual costs order by reference to the liquidator's conduct (either in relation to the conduct of the liquidation or in relation to the conduct of the litigation), before addressing the special costs orders sought by the liquidator.
First, as to the complaints made by Anthony as to delay in the conduct of the liquidation (and the suggestion that the liquidator here bears some evidential onus to explain that delay), the proposition that there should be some interrogation (in the context of determining the costs of the proceeding) into the overall conduct of the liquidation raises similar issues as to the undesirability of satellite litigation as have been well-recognised in relation to costs applications where matters have not proceeded to a final hearing on the merits (see for example Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 and what was said by the Court of Appeal in Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84).
I am not in a position to form a view as to who (if anyone) is to blame for delay (or even as to whether there has been unjustifiable delay) in the conduct of the winding up of Jainti (and it is certainly not appropriate for conclusions to be drawn as to this issue from the lack of evidence put forward by the liquidator to explain his conduct - since that was not an issue in the proceeding before me). It may well be that the state of the company records and/or the lack of co-operation amongst the family members involved in the company had something to do with this but ultimately it would be no more than speculation to embark on such an exercise. Nor could I possibly form the view that the reason the company ended up in a position of being wound up in insolvency was due to the liquidator's delay in its winding up.
There is little doubt that Anthony is dissatisfied with the way in which the conduct of the liquidation has proceeded. However, this is not the forum for such complaints to be aired. The issue ultimately for determination in the principal proceeding (after settlement of the proceeding as against Fraser Panorama) was a discrete issue as to the disputed entitlement to the distribution made by Fraser Panorama to Anthony in 2019 of the 1/5th share in respect of the 34 Units held by Jainti in the Fraser Panorama Unit Trust. The determination of that issue was not the occasion for an excursus into the complaints Anthony (or any of the other family members) has (or may have) about the liquidator's conduct.
Second, as to the complaints made in relation to the liquidator's conduct in the course of the litigation, those seem to be a mixture of complaint as to delay in commencing the proceeding and complaint as to the conduct of the litigation including the making of allegations to the effect that the version of the company documents on which Anthony relied was a concocted version.
As to the complaint that there was delay in the commencement of the litigation, it is difficult to see how that can sensibly be maintained.
It will be recalled (as set out in the chronology of events in the principal reasons) that the appointment of the liquidator (after his appointment as voluntary administrator on 27 May 2011) occurred on 5 September 2011.
Complaint was raised (ironically, perhaps, by Sam and Frank Morabito) in August 2016 as to the receipt by Jainti of its "proper distribution" out of the Fraser Unit Trust (see their solicitors' letter dated 16 August 2016), the assertion being made that there was some $750,000 that was then available for distribution, which was followed by complaint made by the liquidator as to distributions having been made to unit holders but not to Jainti (see the letter dated 26 August 2016 from the solicitors acting for the liquidator to the lawyers then acting, among others, for Anthony). It was in response to the demand for certain undertakings to be provided (by Fraser Panorama and each of Anthony and Mr Derek Taylor) that the liquidator was first notified by Anthony's then lawyers of the asserted Family Trust and his claimed beneficial entitlement to an interest in the 34 Units in the Fraser Unit Trust.
The distribution the subject of the claim as determined by me was one that was made in December 2018 and the proceeding was then commenced by way of summons in early 2019, in which injunctive relief was sought and freezing orders were made. Therefore, the delay in commencement of the proceeding seems at most to have been between the distribution made by Fraser Panorama to Anthony in December 2018 and the filing of the summons in early 2019.
The submissions made as to the effect of a seven or almost eight year delay on matters such as the memory of witnesses and the like are therefore without foundation (and seem in effect to hark back to the overarching complaint as to the conduct of the liquidation). Any delay in commencing the proceeding after the liquidator became aware of the making of the distribution (to, relevantly, Anthony) was minimal (and the proposition that, but for that delay, there would have been a more complete account from various of the witnesses is mere speculation). Relevantly, I cannot accept that Mr Derek Taylor's inability to recall events other than by reference to documents put in front of him would have been any better had the proceeding been commenced in December 2018 than in early 2019.
As to the proposition that the seven or almost eight year delay (which to my mind significantly overstates the delay in any event) was to the prejudice of Anthony because the family relationships would have been materially different or that the family members might at that time have been able to reach agreement (after perhaps "robust" discussion) seems to me not only to be speculative but also squarely inconsistent with the evidence that, by at least 2008, the relations between the Zamattia and Morabito families were strained (see the reference to this evidence in the principal judgment) and that, by late 2016, the relationship between the Zamattia family members (Anthony, David and Bruno) had broken down.
The submission here made for Anthony as to the prejudice suffered by him by reference to delay in the litigation seems to me to hark back to the submission made by Anthony at the hearing to the effect that the prejudicial impact of the conflict between the relevant family members was because of the delay by the liquidator in resolving the disputed claims to the 34 Units. As noted in the principal judgment, it was Anthony's submission that further contemporaneous records would have been available if the enquiry or claim had been made within a reasonable time or (at the latest) within the usual limitation period for civil complaints; and that relevant parties/witnesses would have had a better recollection (or memory refreshed by consideration of contemporaneous records). However, as noted, there was no pleading of any defence of laches or the like. Moreover, this seems to assume that the period of delay should be assessed from the very commencement of the liquidation (in circumstances where Anthony's solicitors did not notify the liquidator of the alleged Family Trust or its termination until 2016 and the disputed distribution was not made until December 2018).
As to the submission that, had the claim been resolved six to seven years ago it would not have been reduced to a claim by the liquidator for recovery of costs of the winding up of the administration, again this is a complaint that goes to the conduct of the liquidation as a whole and is not one that I am in a position properly to explore.
As to the second matter relied upon for a departure from the usual costs order that costs follow the event, this goes to the conduct by the liquidator of the litigation. As to the complaint about delay, I have addressed that above. There is no foundation for the complaint as to delay in commencement of the proceeding and nothing from which I could conclude that, after its commencement, the litigation had not been conducted in a timely manner.
As to the complaint made in relation to the allegations put to Anthony of concocted documents, I do not accept that the liquidator has acted in any way improperly (as an officer of the Court or otherwise). The competing versions of the respective documents (and the stage in the chronology of events as to when they emerged) was such as to give rise to suspicion in all the circumstances. There was no pleaded allegation of forgery or fraud made, as such; rather, the claim against Anthony was of equitable fraud (a knowing receipt claim); and in that context Anthony was challenged in cross-examination as to his account of events in what was a perfectly proper and unobjectionable way (and it was put to him that the documents were concocted). The disparity between the documents was certainly capable of giving rise to the suspicion that the set relied upon by Anthony had been concocted and it was difficult to see who else would have been in a position to do so. Though at the end of the day I made no such finding, I do not consider that there was anything improper or inappropriate in the cross-examination of Anthony on this issue. Further, I did not form the view that the propositions as to the concoction of documents put to Anthony were for the purpose (let alone the only purpose) of humiliating or intimidating Anthony (and nor did he appear humiliated or intimidated in the witness box).
As to the submission made by Anthony to the effect that what occurred in relation to the knowing receipt allegation supports his position in relation to costs, I find this difficult to understand in circumstances where I made clear (at [331] of the principal judgment) that, had it been necessary to determine, I would have found the claim for knowing receipt to be made good for the reasons there set out. The reason that it was not necessary to make such a determination was not because the liquidator resiled from that allegation or abandoned that pleading but because it was conceded by Anthony in submissions (see at T 323.26-32) that if the moneys (as I ultimately found was the case) were properly payable to Jainti as trustee for the Zambito Trust, then an order for the payment of those moneys to Jainti's liquidator should be made.
The final matter raised by Anthony in submissions on this point was as to the circumstances in which Bruno's affidavit was filed and served but then withdrawn (with leave) after a challenge to the evidence of his immobility had been foreshadowed. I dealt with that issue in the principal reasons and see no reason here to revisit what was there said. The liquidator quite properly accepted that a Jones v Dunkel inference (see Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8) might be drawn by reference to the circumstances in which that affidavit was ultimately not relied upon - but there is nothing to suggest that there was any misconduct by the liquidator in having filed the affidavit in the first place.
Having taken into account the submissions raised by Anthony, I am not persuaded that there should be a departure from the usual order that costs follow the event so as to warrant the making of an order that each party pay its own costs. The unfortunate reality is that Anthony maintained his position that he was entitled to the distribution made to him in December 2018 but did not succeed in that contention. Costs should follow the event.
Insofar as there was a reference in Anthony's submissions to the "additional difficulty of attributing delay after the commencement of the proceeding" to Anthony when Fraser Panorama and Anthony were both active parties and legally represented by the same law firm (the relevance of which to the determination as to whether costs should follow the event is not apparent to me), I simply note that the liquidator ultimately cannot obtain double recovery for costs but that if there is some overlap in the costs of the proceeding prior to settlement with Fraser Panorama (such that a costs order in favour of Anthony should not encompass part of those costs) then that would be a question for determination in the costs assessment process (failing agreement between Anthony and the liquidator as to those costs). However, from the time of the settlement of the claims as against Fraser Panorama any costs incurred in the proceeding (including the ultimate hearing) would be recoverable against the only remaining active defendant (namely, Anthony) and it seems likely that this would be the bulk of the costs of the proceeding having regard to the time at which the claims against Fraser Panorama were settled.

Indemnity Costs

Turning then to the liquidator's claim for costs from 28 August 2020 on the indemnity basis, the rationale underlying special costs orders is that which was explained in cases such as Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724, and Commonwealth of Australia v Gretton [2008] NSWCA 117. The public policy objectives of such orders include the encouragement of the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation (see also Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 (Miwa); and Rinehart v Rinehart (No 2) [2020] NSWSC 235 at [141]).
First, as to the Offer of Compromise, it is difficult to see how this was said by Anthony's solicitors not to be a valid Offer of Compromise. It appears on its face to comply with the relevant rules. In its terms the offer made clear that it was invoking the special costs regime and it was open for acceptance for the requisite period. As to the provision for each part to pay its own costs of the proceeding, it has been recognised that a valid offer may specify that each party is to bear its own costs of the proceeding (see Jojeni Investments Pty Ltd v Mosman Municipal Council (No 2) [2015] NSWCA 208 at [10]-[12]; and Leach v Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [31]-[33]). No basis for any asserted non-compliance with the rules was identified in Anthony's submissions.
To warrant the making of a special (indemnity) costs order, the offer must constitute a genuine offer of compromise (see Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4] per Handley, Basten and Beazley JJA (as Her Excellency then was); see also Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706; [2006] NSWCA 120 at [8] per Santow and Basten JJA and Young CJ in Eq (as his Honour then was); Leichhardt Municipal Council v Green [2004] NSWCA 341 (Leichhardt Municipal Council) at [23] per Santow JA with whom Bryson JA and Stein AJA agreed). Here, on its face, the offer contains a genuine element of compromise; and it was clearly more favourable to Anthony than the final judgment. I find that it was a valid Offer of Compromise.
I am not persuaded that there is a reason, consistent with the public policy objectives of the special costs regime, not to determine the costs in accordance with the consequences that ordinarily flow from rejection of an offer by the plaintiff that is more favourable than the final outcome of the proceeding. In that regard I have taken into account the submissions made by Anthony as to why he contends it was not unreasonable for him to reject that offer. I address those matters below.
For completeness, I also consider the position had the offer only been able to be relied upon as a Calderbank offer. The difference in essence, here, is one of onus. Where the offer is a Calderbank offer, the onus to demonstrate that it was unreasonable to reject it is on the party seeking to rely on the making of the offer (here, the liquidator) (see Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] per Giles, Ipp and Tobias JJA). Where the offer is a valid Offer of Compromise, it falls to the party resisting the usual special costs order to persuade the Court that a special costs order should not be made.
As to the consideration of Calderbank offers, the factors relevant to take into consideration are again well-known (and were summarised in Favotto Family Restaurants Pty Ltd v Chief Commissioner of State Revenue (No 2) [2020] NSWSC 519 at [20]-[30]).
Relevantly, while the rejection of a Calderbank offer, in circumstances where it transpires that the final result in the proceeding is less favourable to the offeree, enlivens the discretion to award indemnity costs, it does not create a prima facie right to such an order (see Chief Commissioner of State Revenue v Platinum Investments Management Ltd (No 2) [2011] NSWCA 197 at [9]).
In summary, the factors to which regard will be taken when considering whether the rejection or non-acceptance of the offer was unreasonable include: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree's prospects of success assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it (see Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 at [8]; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 (Hazeldene's Chicken Farm) at [25]; Miwa at [12]).
Turning to the submissions made by Anthony as to the Calderbank offer, as noted above his complaint ultimately seems to be that the liquidator should have attempted to resolve the matter and make offers eight years earlier at a time when there were still funds and the discontent between the family members did not exist. Such a submission is extraordinary when it is considered that this suggests the liquidator should have been attempting to settle a dispute even before one had arisen; and when the evidence well and truly establishes that there was discontent between the Zamattia and Morabito family members even before the appointment of the liquidator (and discontent between the Zamattia family members from a later time but in any event before the litigation had commenced).
The suggestion that the claim could have been resolved at an earlier stage "when there were still funds" again harks back to the dispute as to the overall conduct of the liquidation not the litigation as such.
As to the factors relevant to an assessment of whether the rejection or non-acceptance of the offer was unreasonable, I note the following.
The offer was received just under two months before the hearing was due to commence (and therefore very late in the proceeding but at a time when it could be expected that Anthony would be in a position to form a considered view as to the merits of the case against him). The time allowed to the offeree to consider the offer was consistent with the Offer of Compromise regime; and the extent of the compromise offered was that it represented less than a quarter of the funds in dispute but at least involved a payment to Anthony of funds and involved the benefit of no costs orders against him.
As to the prospects of success assessed as at the date of the offer, it would appear that Anthony's solicitors placed reliance on the acceptance of Mr Taylor's evidence as an independent witness (albeit that, since he was Anthony's witness, it might have been expected that there would have been an appreciation that his recollection was drawn largely if not wholly from the documents he was being shown - and it seems from his cross-examination that he had not been shown all of the documents in any event) - moreover Mr Taylor's recollection would have to be balanced against the treatment in the financial and taxation statements to which I referred in the principal judgment. There is no criticism of the clarity with which the terms of the offer were expressed (and the speed at which it was rejected suggests that there was no difficulty in this regard); and the offer clearly foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
Thus it can be seen that the amount offered was relatively low; and the prospects of success (reasonably assessed) at that time would in my view have been (albeit perhaps not so finely balanced as Anthony's submissions suggest) balanced at least to the extent that there was a prospect of success depending on the acceptance of Mr Taylor's evidence and the extent to which his recollection of events was consistent with the different versions of the relevant documents. Those factors might have pointed in Anthony's favour had the offer solely been considered as a Calderbank offer.
That said, I have concluded that the Offer of Compromise was a valid offer in compliance with the special costs regime under the rules; and I am not persuaded that a departure from the prima facie position under the rules should be made. The public policy underlying special costs orders (to which I have referred above) should be borne in mind and, ultimately, Anthony's claim was one the outcome of which was uncertain (and dependent on an acceptance of oral evidence inconsistent with certain of the documentary evidence). Moreover, Anthony's rejection of the Offer of Compromise must be seen in the context of his evident complaints as to matters extraneous to the issue for determination in the litigation (such as delay in the liquidation, the blame for which he attributes to the liquidator). (In passing, I would add that it behoves litigants in receipt of Offers of Compromise under the rules to give more careful consideration to the offers there made than appears was the case here, having regard to the alacrity with which this offer was rejected. However, my conclusion is not based on the speed with which this offer was rejected.)

Orders

For the above reasons I make the following order, which will now dispose of the proceeding: 1. Order the second defendant to pay the plaintiffs' costs of the proceeding as against the second defendant on the ordinary basis until 28 August 2020 and on an indemnity basis from 28 August 2020.

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