King Network Group Pty Ltd v Club of the Clubs Pty Ltd

CATCHWORDS: COSTS - Calderbank offer- whether respondents' rejection of the offer was unreasonable. COSTS- principles relating to jointly represented parties.

Currabubula v State Bank of NSW [2000] NSWSC 232 Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 Korner v H Korner & Co Ltd [1951] Ch 10 CASES CITED: Mike Gaffikin Marine Pty Ltd v Princes Street Marina Pty Ltd (Young J, 15 July 1996, unreported) Nobrega v The Trustee of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133 Re Colquhoun (1854) 5 De GM & G 35; 43 ER 781 Rogers v Kabriel (No 2) [1999] NSWSC 474 Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201

King Network Group Pty Limited (First Appellant) Harry Stamoulis (Second Appellant) PARTIES: King Development Group Pty Limited (Third Appellant) Harry Stamoulis and Helen Stamoulis as representatives of the Estate of Spiros Stamoulis deceased (Fourth Appellant) Club of the Clubs Pty Limited (First Respondent) IMF (Australia) Limited (Second Respondent)

COUNSEL: I M Jackman SC and I G Waller SC (A) B A Coles QC and H Stowe (R)

SOLICITORS: Clayton Utz (A) Ebsworth & Ebsworth (R)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT DATE OF DECISION: 9 November 2006; 11 July 2007

LOWER COURT MEDIUM NEUTRAL CITATION: Club of the Clubs Pty Limited v King Network Group Pty Limited [2006] NSWSC 1138 Club of the Clubs Pty Limited v King Network Group Pty Limited (No 2) [2007] NSWSC 574

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40482/07

HODGSON JA CAMPBELL JA YOUNG JA

Monday 20 July 2009 KING NETWORK GROUP PTY LTD v CLUB OF THE CLUBS PTY LTD (NO 2) Judgment

1 HODGSON JA: I agree with Young JA. 2 CAMPBELL JA: I agree with Young JA. 3 YOUNG JA: We gave judgment in this matter on 10 December 2008 coded [2008] NSWCA 344 which has subsequently been reported as (2008) 69 ACSR 172. 4 The Court indicated its orders in accordance with the judgment of Hodgson JA, but reserved costs and the issue of restitution for further submissions in writing. 5 As to costs, Hodgson JA remarked at [65]-[66]: "[65] As regards the trial, my tentative view is that KNG [King Network Group Pty Ltd] should pay one-half of the plaintiffs' costs of the proceedings, with no order concerning the costs of the other appellants. [66] The matter has some complexity, and I would be prepared to receive further submissions as to costs: submissions from the respondents within seven days … . These submissions should also address the matter of appropriate restitutionary orders." 6 Because of the vacation and the long leave of two of the judges, and the late supply of submissions, it has taken rather longer than anticipated to make the final orders in the appeal. However, in the interim, the parties have agreed on the orders that should be made as to restitution so that it is no longer necessary for the Court to deliberate on that matter. 7 A form of short minutes was provided to Campbell JA, the only one of the judges then in Sydney, on 2 April 2009. The orders have not yet been made because his Honour thought that all three of us should deal with the matter. However, the only difference between the orders originally made and the short minutes are that the Court is asked to note three matters which, in my view, we should do when disposing of the matters of costs. 8 The written submissions, particularly those of the respondents, were replete with reference to authority. I found this of much interest and some utility. However, in the area of costs, so much depends upon the facts and circumstances of each case that reference to authority does not have as much value as it has in other areas of the law. 9 As to costs, the appellants point out that on 6 September 2007, they provided the respondents with a Calderbank letter with respect to the appeal proposing that the proceedings be settled by: (i) in respect of the breach of contract, breach of fiduciary duty and accessory liability claims, the amount of $750,000 together with interest on that sum at Supreme Court rates from 25 June 2002 to 21 September 2007, both days inclusive; (ii) in respect of the debt claims, $230,174.17 together with interest on that sum at Supreme Court rates from 16 August 2001 to 21 September 2007, both days inclusive; (iii) costs on a party and party basis to be agreed or in the absence of agreement to be assessed. The offer was open to 21 September 2007; it was not accepted. 10 The appellants say that the consequence of the judgment on appeal is that the respondents are worse off than they would have been had they accepted the offer. 11 Both sets of counsel acknowledge that there is no presumption that a party who rejects a Calderbank offer and fails to obtain a more favourable result, should necessarily pay the offeror's costs on the indemnity basis and that the critical question is whether the rejection of the offer was unreasonable. Reasonableness is to be judged by reference to the terms of the offer and all the relevant surrounding circumstances. 12 The appellants say that it was unreasonable for the respondents to reject the offer because:

(a) it was made at a stage of the proceedings when the respondents had the benefit of the appellants' submissions both at trial and on appeal;

(b) the offer was a genuine attempt to settle the litigation warranting serious consideration, yet there was no response or engagement in any way in relation to the offer;

(c) ample time was given to consider the offer; and

(d) the offer was put in the plainest terms. 13 As to the costs of the trial, the appellants say that the second, third and fourth appellants succeeded so that they should have their costs of the trial paid by the respondents. They suggest that it might be appropriate merely to order that there be no order as to the costs of the trial, but if there is to be an order made, then such costs that KNG has to pay should be limited to those incurred in prosecuting the claims made against KNG alone as it is put that the dominant issue in the proceedings was the question of accessorial liability of the other appellants. 14 Needless to say, the respondents do not agree with that approach. The respondents' basic submission is that there should be no order for the costs of the appeal and the appropriate order at the trial is that KNG pay 75% of the respondents' costs. 15 The respondents say that the issue of costs on the appeal raises sub-issues, viz:

(a) whether it was unreasonable to reject the Calderbank offer;

(b) if it was unreasonable, what is the appropriate costs order?

(c) what costs order should be made if the Calderbank letter is not effective? 16 The respondents put the general proposition that: "It is not 'unreasonable' for a party to reject a Calderbank offer (and indemnity costs will not be ordered), when the issues are complex and contestable, and the likely outcome of the case can therefore not be reasonably predicted."

Authority for that proposition is given as Nobrega v The Trustee of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133 per Powell JA; four other cases which have followed that approach were also cited. 17 The respondents say that when one analyses the situation, the respondents would have received $1.45 million under the offer and under the judgment of the Court of Appeal, received $1.276 million. The respondents say that, notwithstanding that the judgment was less favourable than the Calderbank offer, the Court should not exercise its discretion to order indemnity costs because the appellants have not discharged their burden of proving that it was unreasonable in all the circumstances for the respondents to reject the offer. 18 Those circumstances include, say the respondents, the fact that under the original judgment they were entitled to $3.22 million. The offer of $1.45 million had to be judged against that quantum with an assessment made of the chances of success in keeping the trial judge's judgment. The trial judge's judgment involved at least three components. It is put that it was not unreasonable for the respondents to consider that they had at the very least a 50% chance of holding the judgment and this broad brush figure alone would indicate that an offer of less than $1.61 million was rather unattractive. 19 It was further submitted by the respondents that, if, instead of taking a broad brush 50/50 approach, one looked more particularly at the circumstances, the respondents held a judgment which appeared to be based on careful and detailed reasoning, there were alternative grounds for upholding the trial judge's decision, the trial judge had made numerous adverse findings about the bad faith of the Stamoulis entities. Furthermore, there was a possibility of success of the cross-appeal. The offer was only 45% of the original judgment and it was only 12% more than what was obtained on appeal. Furthermore, the case was extremely complex and contestable. 20 I believe that I have concisely summarised the respondents' major arguments. 21 The riposte of the appellants was to say that:

"(a) in considering their prospects of success on appeal, the respondents failed to have regard to the decision of the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, which was published on 24 May 2007, almost four months before the Calderbank offer expired;

(b) … the respondents failed to have regard to the fact that dishonest and fraudulent conduct was not pleaded by them and that the trial judge had not addressed the question of whether there was a fraudulent and dishonest design on the part of KNG or Harry Stamoulis; and

(c) they failed to accept that the cross-appeal seeking the whole of [the] profit, not merely 15% of it, was 'without merit'." 22 In my view, substantially for the arguments put forward by the respondents, it seems to me that this was very complex litigation with a number of competing aspects to it and that the offer in the letter was, commercially, probably a little too low to be attractive to the respondents. 23 In those circumstances, the appellants ask that the respondents pay the costs of the appeal. 24 The respondents say that, looking at the matter in accordance with principle, the proper result of the costs of the appeal is that KNG should pay the respondents 66% of the respondents' costs of the appeal and that the respondents should pay the successful appellants 37.5% of the appellants' costs. However, when considering set-off and other factors, it would justify the Court taking a broad brush approach and making no order of the costs of the appeal. 25 The respondents put that there is a recognised "rule of thumb" that a successful jointly represented defendant recovers a proportionate share of the "common" costs which are referable to claims pressed against each of the defendants. That proposition is said to be supported by a number of authorities, including at least two that I decided at first instance, namely, Mike Gaffikin Marine Pty Ltd v Princes Street Marina Pty Ltd (15 July 1996, unreported) and Rogers v Kabriel (No 2) [1999] NSWSC 474. 26 In the latter case I said at [14]: "The authorities show that there is a rule of thumb that is applied when the plaintiff has succeeded against one defendant and not the other defendant, where both defendants have been represented by the same solicitors and counsel. The rule was laid down as early as Re Colquhoun (1854) 5 De GM & G 35; 43 ER 781, and was affirmed in Ellingsen's case [ Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567]. Ellingsen's case has been applied in Australia"

and I referred to Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201. 27 However, in Korner v H Korner & Co Ltd [1951] Ch 10, the English Court of Appeal said at 17 that: "This rule, a rule of thumb is no doubt convenient in an ordinary case; but I do not think that it can be said that it must be applied in every case. Regard must be had to the nature of the case and to the nature of the defences raised to the same claim." 28 If I can paraphrase what they say, the respondents put that the rule of thumb produces the result that the successful appellant should only be entitled to 50% of the costs of the appeal because one presumes that the solicitors would only be billing them 50% and the indemnity principle means that they should not receive more costs than they have to pay. Then one discounts that 50% to reflect their partial failure. 29 However, this does not give enough weight to the factor that the key issue on the appeal was the one where the second, third and fourth appellants were successful. 30 The respondents' submissions cavil at the proposition that, viewed as a whole, the appellants were successful on the appeal. 31 The respondents say that of the nine issues on appeal listed by Hodgson JA at [28] of the principal judgment, six related to KNG of which only one was not won by the respondents. Likewise, it should be noted that the appellants failed on 13 of the 19 grounds of appeal. 32 These statistics are useful. However, often, as here, the Court's assessment of what were the substantial issues on the appeal and the proportion of time occupied by issues is more significant than bare statistics. 33 I agree, however, with the submission that a broad brush approach is justified. Doing the best I can, I would order the respondents pay 75% of the appellants' costs of the appeal. 34 The respondents' submission spends considerable time on the "rule of thumb" in citing the decision of Einstein J in Currabubula v State Bank of NSW [2000] NSWSC 232 seemingly, mainly, for the purpose of having this Court overrule it. 35 Currabubula does seem inconsistent with mainstream authority, but I decline to take up the invitation to be more condemnatory, as there is no real need to do so in this case. 36 As to the costs of trial, the respondents submit that KNG should pay 75% of the plaintiffs' costs of the trial below. They arrive at this figure by saying that there were separate events at the trial, the respondents were entitled to have KNG pay 90% of their costs of the trial, the successful applicants were entitled to 15% and setting this off, leads to a 75% order. 37 The appellants submit there should be no order as to the costs of the trial. 38 In my view, the general approach of the respondents maps out the path to follow. However, as one would expect, it does not deal with all the relevant factors favouring lesser costs such as, the fact that the verdict was very much less than the total amount claimed. 39 In my view, the proper order is that the appellants pay 50% of the respondents' costs of the trial. 40 Accordingly, I propose the following orders of the Court: Orders 1 to 8 as per the document headed "Consent Orders" dated April 2009. 9. Order that the respondents pay 75% of the appellants' costs of the appeal. 10. Order that King Network Group Pty Ltd pay 50% of the respondents' costs of the trial.

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