Kelly v Szatow

Supreme Court of NSW|2020-05-20

Judgment

HER HONOUR: On 16 April 2020, I handed down judgment in Kelly v Szatow [2020] NSWSC 407 ("the appeal proceedings") dismissing the plaintiff's appeal in respect of five decisions of the New South Wales Civil and Administrative Tribunal ("the Tribunal"). Costs of the appeal proceedings were reserved. I made an order that if the parties could not come to an agreement as to costs within 7 days, the plaintiff and defendants were to file and serve written submissions in accordance with a timeline. Those submissions were to be limited to 3 pages.
The parties were unable to come to an agreement and I have received their submissions. The plaintiff's submissions were drafted by his counsel, Mr PE King.
In short, the plaintiff seeks that there be no order as to costs, or that any such order be made by instalments out of the plaintiff's allowance as a Councillor. The defendants seek an order that the plaintiff pay their costs of the appeal proceedings on an indemnity basis. Alternatively, they seek their costs of the appeal proceedings on an ordinary basis up until 20 May 2019 and on an indemnity basis thereafter.

The law

The starting point in awarding costs is s 98 of the Civil Procedure Act 2005 (NSW). It relevantly reads: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. ..."

The plaintiff's submissions

The plaintiff submitted over 10 pages of submissions, many of which concerned the costs in the Tribunal proceedings, not the appeal proceedings. His relevant submissions may be condensed as follows.
The first is that the plaintiff was an inexperienced Councillor who had only recently been elected to Ku-ring-ai Council. He appeared in each matter in the Tribunal himself without assistance from Council or staff. The plaintiff submitted that "whilst ignorance is no excuse, the question arises whether a Councillor of greater skill and experience would have conceived and commenced an administrative action in the way [the plaintiff] did" ([12]). He also submitted that it is an "open question whether inexperience, skill and expertise (lack thereof) are mitigating factors against the severity of the statutory costs orders under s 60(3) of the [Civil and Administrative Tribunal Act 2013 (NSW) (the "CAT Act")]." I note that these "questions", if they arise, concern the plaintiff's position in the Tribunal and are not relevant to the costs order in these appeal proceedings, in which the plaintiff was always legally represented.
The second of the plaintiff's broad submissions is that these proceedings raised issues of public importance. On this point he cited "recent events regarding corrupt payments in NSW and Council elections" ([7]) as heightening his concern for exposing public corruption. The plaintiff submitted that he had no legal, financial or other prescribed interest in the proceedings, but instituted them out of a sense of duty ([17]-[18]).
The third is that a costs order made against the plaintiff would expose him to bankruptcy, whereas a costs order made against the defendants would be covered by an expenses and reimbursements policy with Ku-ring-ai Council. The plaintiff also submitted that it was an "open question" whether the defendants had been invoiced and/or served costs agreements by their solicitors ([25]; [27]).
The fourth and final submission is that the defendants did not attempt to seek security for costs against the plaintiff, raising an "open question as to their bona fides in this situation where they know or could reasonably have known of [the plaintiff's] limited financial circumstances and capacity to pay the array of costs orders" (30). The plaintiff submitted that an inference can be drawn from the defendants' failure to seek security for costs that "the sole and substantial purpose of the costs orders is to destroy [the plaintiff] and remove him from Council as the primary purpose. In this sense there is an abuse of process" (30).

The defendants' submissions

The defendants submitted that they are entitled to their costs of the appeal proceedings, as the plaintiff was unsuccessful on all grounds of appeal. As a wholly successful party, the defendants have a "reasonable expectation" of being awarded costs: see Oshlack v Richmond River Council (1998) 193 CLR 72 at [67] and [134].
The defendants submitted that the plaintiff's lack of seniority and experience as a Councillor is incorrect and irrelevant. Lack of experience, or self-representation, will not prevent an order for costs, including indemnity costs: see Spalla v St George Motor Finance Ltd [2006] FCA 1537 at [26]; Salfinger v Nuigini Mining (Australia) Pty Ltd (No 4) [2007] FCA 1594 at [7].
The defendants noted that I rejected the plaintiff's argument that the proceedings were a matter of public interest in Kelly v Szatow at [52], [70] and [215].
As to the plaintiff's financial position, the defendants submitted that the plaintiff is not currently bankrupt, nor subject to any bankruptcy proceedings. Moreover, being bankrupt is not an argument against an award of costs, neither is the potential for bankruptcy: see Mulhern v Pearce (No 2) [2014] FCA 805 at [124]. Further, whether the defendants are covered by an insurance policy is not a relevant consideration as to an award of costs nor any fact in dispute in these proceedings. The proposition that a party ought to be prejudiced in its recovery of costs on the basis that it may hold an independent insurance agreement, is unsupportable and without merit. Whether the defendants have been served with a costs agreement or disclosure statement is also not a relevant consideration as to an award of costs, and any such agreement would be subject to legal professional privilege pursuant to s 119 of the Evidence Act 1995 (NSW).
Finally, the defendants submitted that the balance of the plaintiff's submissions as to the defendants' apparent knowledge and intent regarding security for costs are unsupportable and without merit.

Consideration

The defendants were the successful parties and have an expectation of an award for costs.
The plaintiff's inexperience as a Councillor is not relevant to determining costs, as the plaintiff was legally represented throughout the appeal proceedings. Further, whether the plaintiff could be made bankrupt, or the defendants may be insured in respect of a costs order in these proceedings, are irrelevant to determining whether to award costs. Finally, the plaintiff's submissions on security for costs seem to suggest that the defendants were obliged, for the plaintiff's sake, to ensure that he could afford a costs order in respect of his own appeal to this Court. These submissions should be rejected.
Costs are discretionary. Costs usually follow the event. The plaintiff was wholly unsuccessful and should pay the defendants' costs of the appeal proceedings.
The next issue to be determined is whether the costs should be made on an ordinary or an indemnity basis, on the basis that the plaintiff unreasonably refused to accept two offer(s) made by the defendants in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 ("Calderbank") on 20 May 2019.

The Calderbank offers

In order to be relied upon in an application for costs, a Calderbank offer must offer a genuine compromise, be open for a reasonable period of time and state that the offer is made without prejudice save as to costs.
The costs consequences of a Calderbank offer are in a court's discretion, having regard to all the relevant circumstances of the case: see Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790 ("Cat Media") per Bergin J at [9]. In Cat Media, Bergin J set out the relevant principles as follows. Firstly, there is no prima facie presumption in favour of an award for indemnity costs if the Calderbank offer is not accepted. Secondly, a Calderbank offer that does not offer a genuine compromise, but is designed merely to trigger costs sanctions, will not be treated as genuine. Thirdly, there is no rule that an optimistic offer is not a genuine offer. Whether or not it was reasonable to reject an offer is a relevant consideration, but will not affect the genuineness of the offer. Finally, the onus rests on the applicant for an order for indemnity costs to show that the rejection of the Calderbank offer was unreasonable.
The defendants made two Calderbank offers to the plaintiff.
On 20 May 2019, the defendants made the first Calderbank offer to the plaintiff prior to hearing of the plaintiff's notice of motion to amend dated 17 May 2019. That offer relevantly read: "Without prejudice save as to costs… … We refer to our prior letters of 11 and 29 April 2019. Our clients maintain their position the Supreme Court Appeal is (among other things) out of time, defective and untenable. In the interests of reaching a commercial settlement, our clients are prepared to settle the Supreme Court Appeal on the following terms: 1. Each party pays their own costs of the Supreme Court Appeal. 2. A consent judgment is filed, within 5 days of acceptance of this offer, in the Supreme Court, in the following terms: (a) The proceedings are dismissed in their entirety; and (b) Each party pays their own costs of the proceedings. The above offer is open until 30 May 2019. In the event that your client refuses this offer and our client achieves an outcome equal to or better than this offer we will tender this letter and seek indemnity costs pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333."
The defendants had also sent letters to the plaintiff on 15 and 29 April 2019 setting out the reasons why his appeal would fail, including because it was defective in substance and form, out of time, without leave, not properly particularised, an appeal of a non-appealable decision, without tenable reasons or grounds for appeal and without reasonable prospects of success.
On 15 July 2019, the plaintiff attempted to belatedly accept the defendants' first Calderbank offer, which had expired on 30 May 2019. The defendants rejected his offer to accept and instead made a further offer to the plaintiff on new terms. It relevantly read: "Without prejudice save as to costs … We refer to our clients' prior offer of 20 May 2019. We also refer to our telephone discussion with your Brett Hurley at around 10 am on 15 July 2019 wherein Mr Hurley confirmed your client's instructions to offer to settle the [appeal proceedings] as per the terms of our clients' offer of 20 May 2019. We are instructed to reject this offer. In the interests of reaching a commercial settlement, our clients are prepared to settle the [appeal proceedings] on the following terms: 1. The parties enter into a consent judgment in the following terms: (a) The Supreme Court Appeal proceedings are dismissed in their entirety…(collectively, the motions). (b) The plaintiff pays $25,000 to the defendants in full and final satisfaction of their costs of the [appeal proceedings], payable within 28 days. 2. The parties enter into a Deed of Release, which contains: (a) Releases in relation to the [appeal proceedings] and the motions. (b) In addition to the release on the motion to stay the cost assessments, an undertaking that the plaintiff: (i) Will take no adverse action against the defendants, or other relevant persons, that would in any way inhibit or delay the process of the cost assessment… The above offer is open until 9am tomorrow, 16 July 2019. In the event that your client rejects this offer and our client achieves an outcome equal to or better than this offer we will tender and seek indemnity costs pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333."
The plaintiff did not accept this offer.

Conclusion

In Kelly v Szatow, I held that the plaintiff's prosects of success were poor ([50]); that the plaintiff failed to identify a proper basis on which leave to appeal could be granted ([52]); that the plaintiff's claim was defective in form and not properly particularised ([72]) and that certain decisions were not appealable decisions ([76]). The appeal was also lodged out of time. For these reasons, the judgment in the appeal proceedings was in less favourable terms than the first offer of 20 May 2019, on terms that the plaintiff dismiss the proceedings and each party pay its own costs.
In my view, the defendants' first offer made on 20 May 2019 was genuine. That being said, the first offer was only open until 30 May 2019, leaving the plaintiff with a small window of 10 days to accept. It is my view that this offer was not open for a reasonable period of time. The closing date for acceptance of an offer of compromise, by comparison, is ordinarily 28 days: see UCPR 20.26(5).
The plaintiff attempted to accept the first offer on 15 July 2019, just over 6 weeks after it was made. At that time, the defendants rejected the plaintiff's acceptance and countered with an offer that he dismiss the proceedings and pay $25,000 in satisfaction of their costs, to be accepted by 9 am the following morning. Twenty-five thousand dollars is a significant sum, and 24 hours is an unreasonably short period of time for acceptance. In my view it was not unreasonable for the plaintiff not to have accepted this second offer.
For these reasons, I decline to make an order for indemnity costs against the plaintiff. I order that the plaintiff pay the defendants' costs of the appeal on an ordinary basis.

THE COURT ORDERS THAT: 1. The plaintiff is to pay the defendants' costs of the appeal proceedings on an ordinary 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: 20 May 2020

Administrative Tribunal Act 2013(NSW)

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Judgment (9 paragraphs)

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