Lawrence v Ciantar; Ciantar v Lawrence

Supreme Court of NSW|2019-06-14|Before: Henry J

Solicitors: Hedges Legal (Plaintiff/Cross-Defendant) McLean & Associates (First and Second Defendants/First and Second Cross-Claimants) File Number(s): 2017/336803

Judgment

On 26 April 2019, the Court gave judgment in this matter: Lawrence v Ciantar; Ciantar v Lawrence [2019] NSWSC 464 (the Principal Judgment). This judgment deals with the form of the declarations and orders in relation to the defendants' cross-summons and the issue of costs. Events, matters and terms are referred to in this judgment in the same way as in the Principal Judgment.
In the Principal Judgment, I dismissed the plaintiff's summons and ordered the plaintiff to pay the defendants' costs of the summons. I reserved my determination on the relief sought in the cross-summons and invited the parties to provide draft orders to give effect to the reasons in the Principal Judgment within 14 days.
The parties disagree as to the form of one of the declarations to be made in relation to the cross-summons and the costs order to be made in the proceedings. The defendants seek an indemnity costs order from 17 November 2017 or, alternatively, from 21 June 2018 which, if made, would have the effect of varying the costs order I made in the Principal Judgment regarding the costs of the summons.

Background

The background and facts relating to the proceedings are set out in the Principal Judgment and it is not necessary to repeat them in full.
In summary, the plaintiff had claimed a one-third interest in the Property owned by the defendants. That interest was asserted to have arisen pursuant to the terms of an agreement entered into by the parties. In the Principal Judgment, I found that the agreement between the plaintiff and the defendants obliged the plaintiff to carry out and complete the works at the Property required by the development approval in existence at the time of the agreement. I also found that the agreement was a contract caught by the Home Building Act 1989 (NSW) and, as a result, any interest in the Property claimed by the plaintiff under that agreement was void and he was not entitled to specific performance of, or damages under, the agreement.

Form of declaration

The parties have agreed on the terms of three of the four declarations to be made in respect of the cross-summons to give effect to the reasons in the Principal Judgment. This includes the following: "1. A declaration that, on the proper construction of the agreement comprised of the 24 October 2014 letter, the 12 November 2014 letter and oral terms, for works to be undertaken at 5 Angophora Crescent, Forestville NSW being Lot 2584 in DP752038 (together the Agreement), the cross defendant bore the obligation of completing the building works the subject of the development application that was current at that time."
The parties also accept that a declaration should be made reflecting the Court's finding that any interest of the plaintiff in the Property was void due to the operation of the Home Building Act 1989 (NSW). It is agreed that the declaration should include the following words: "4. A declaration that any interest in the Property which was purported to be given to the Plaintiff by the Defendants pursuant to the Agreement is void pursuant to the provisions of section 7D of the Home Building Act 1989 (NSW)."
The only difference between the parties is whether that declaration should also include the words "or otherwise" after the word "Agreement" in the second line.
The defendants contend that the words "or otherwise" should be included because they are consistent with the findings in the Principal Judgment. They also contend that the words are necessary as they encapsulate the finding that any oral component of the agreement reached between the parties, and as asserted in the caveat lodged by the plaintiff which was the subject of the proceedings, is void.
The plaintiff submits that the words "or otherwise" are of an uncertain and broad ambit, would (if included) extend the reach of the orders beyond the scope of the matters canvassed within the Principal Judgment and are not necessary given the terms of proposed declaration 1.
As noted in the plaintiff's submissions, the Court found that the agreement comprised the 24 October 2014 letter, the 12 November 2014 letter and oral terms. That finding is reflected in proposed declaration 1 (the terms of which are agreed between the parties) which defines the "Agreement" to include those letters and the oral terms. It follows that the reference to "Agreement" in the plaintiff's proposed declaration 4 will capture and also render void the oral component (referred to in the caveat) and the words "or otherwise" are unnecessary.
In support of its position, the plaintiff also submits that the addition of the words "or otherwise" in the declaration may have the effect of precluding future claims in respect of issues not litigated or the subject of evidence in the proceedings, such as a possible quantum meruit claim by the plaintiff.
It is not appropriate for me to comment on whether the plaintiff could bring a quantum meruit or other future claim in relation to the Property in the future or whether the Principal Judgment gives rise to any issue estoppels. I accept, however, the defendants' submission that the prospect of the plaintiff making such a claim is not, of itself, a justification for the removal of the words "or otherwise".
The purpose of the declaration is to give effect to the findings of fact and law reached in the Principal Judgment. It is not to be fashioned to suit one party's interests regarding possible future claims.
The relevant findings were that the agreement between the parties (as defined in declaration 1) was partly in writing and partly oral and that it was a contract caught by the Home Building Act. Further, any interest in the Property purported to be given to the plaintiff pursuant to that agreement was void due to the operation of s 7D of the Home Building Act. The declaration proposed by the plaintiff reflects those findings and the words "or otherwise" are, in my view, unnecessary and go beyond the scope of what was relevantly determined in the Principal Judgment.

Indemnity costs

The defendants seek an order that the plaintiff pay their costs of the proceedings on an ordinary basis up to 16 November 2017 and on an indemnity basis thereafter. They submit that this order should be made in circumstances where the plaintiff did not accept an offer of settlement sent on 16 November 2017 (which they say was in the nature of a Calderbank offer), and the defendants obtained a better result than that offer in the Principal Judgment.
In the alternative, the defendants seek an order for indemnity costs from 21 June 2018, as they served the plaintiff with an offer of compromise pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) on 20 June 2018, which the plaintiff did not accept.
The plaintiff concedes that an indemnity costs order should be made against him from 21 June 2018, but opposes the making of an indemnity order from the earlier date.

The 16 November 2017 offer

The offer made on 16 November 2017 was sent by the defendants' solicitor to the plaintiff's solicitor by email headed in bold typeface "Without Prejudice, Save as to Costs".
In the email, the defendants offered to resolve the proceedings on a commercial basis on terms including that the defendants would pay the plaintiff a settlement sum of $10,000.00, the plaintiff's proceedings would be dismissed, each party would pay their own costs and the dismissal and payment of the settlement sum would be without prejudice to the plaintiff being paid an amount for work undertaken at the Property as assessed by a quantity surveyor.
The 16 November offer was made eight days before the plaintiff's application for interlocutory relief (seeking the continuation of the caveat over the Property) was scheduled to be heard. The offer was expressed to be open for acceptance until 4pm on Thursday, 23 November 2017, being the afternoon before the interlocutory hearing.
The plaintiff did not accept the offer. In fact, the plaintiff did not respond to it at all.
It is not in dispute that in the Principal Judgment the defendants obtained a better outcome than the 16 November 2017 offer.

Should costs be awarded on an indemnity basis from the 16 November offer?

The award of costs is a matter within the Court's discretion and the court may order costs on an ordinary or indemnity basis: s 98 Civil Procedure Act 2005 (NSW). The Court's discretion is broad and must be exercised consistently with the overriding mandate provided for in ss 56-60 Civil Procedure Act 2005 (NSW).
The principles applicable to the Court's discretion to award indemnity costs based on an informal offer of compromise or Calderbank offer are well known.
There is no presumption in favour of ordering costs on an indemnity basis because an informal offer of compromise has been made and rejected and the offeror achieved a better outcome that was offered: Jones v Bradley (No 2) [2003] NSWCA 258 at [5] - [8]; Leichardt Municipal Council v Green [2004] NSWCA 341 at [9].
What must be shown is that the informal offer contained a real element of compromise and that it was unreasonable for the offeree not to have accepted it: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 ("Miwa") at [8]. It is the offeror's burden to show that the plaintiff's failure to accept was unreasonable: Miwa at [16]
The factors relevant to determining whether the rejection of an offer was unreasonable include, among other things, the stage of the proceedings at which the offer was made, the time allowed for the offeree to accept the offer, the extent of the compromise offered, the offeree's prospects of success assessed at the date the offer was made, the clarity with which the terms of the offer were expressed and whether the offer foreshadowed an application for indemnity costs in the event the offeree rejected it: Miwa at [12]; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298 at [25].
The plaintiff did not take issue with the 16 November 2017 offer containing a real or genuine element of compromise. The offer included a payment of $10,000 to the plaintiff as well as a payment for the value of work done by the plaintiff at the property. Although these sums were likely to be much less than the dollar value of the plaintiff's claimed interest in the Property, the offer represented an element of compromise on the defendants' part, given the plaintiff's only claim at the time was for a declaration of an interest in the Property.
The plaintiff submits that the 16 November 2017 offer was not effective as a basis for an order for indemnity costs as it was not stated on its face to be a Calderbank offer and did not specify that it would be relied on in support of an application for indemnity costs. The plaintiff submits that it was reasonable for him to have refused the offer as there was no basis, or an insufficient basis, for him to have believed that his refusal would give rise to a potential obligation to pay indemnity costs.
A Calderbank offer is made where a communication is consistent with the structure deployed in Calderbank v Calderbank [1975] 3 All ER 333, namely one which is marked "without prejudice", makes an offer of settlement, and warns that the letter will be relied upon on the question of costs if and when that issue arises: Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322 at [97]; Messiter v Hutchinson (1987) 10 NSWLR 525.
It has been held that to amount to a Calderbank offer "it is necessary that the offer is expressed to be without prejudice except with respect to costs": Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 at [19].
The fact that an offer is not in the precise form suggested in Calderbank v Calderbank [1975] 3 All ER 333 does not mean it is not effective in an argument on costs: Jones v Bradley (No 2) [2003] NSWCA 258 at [15]; Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133.
An offer is of the Calderbank type if it is shown that the offeror intended that the fact of its non-acceptance may be used as a basis for seeking a special costs order in the event of that party's ultimate success in the action. That depends on the message conveyed by the offer itself and any covering letter or other attendant circumstance: Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 at [57].
The 16 November 2017 email was clearly expressed and marked as being "Without Prejudice". It made an offer to settle the proceedings on a full and final basis. The words "Save as to Costs", make it clear that the email would be relied upon on regarding the question of costs if and when that issue arose. Its terms are, therefore, consistent with the structure deployed in Calderbank v Calderbank and are sufficient to constitute a Calderbank offer.
Further, the inclusion of the words "Without Prejudice Save as to Costs" in the context of the offer that was made were, in my view, sufficient to indicate to the plaintiff that the offer would be relied on in support of an indemnity costs application if it was not accepted and the defendants succeeded in obtaining a more favourable result than the offer.
At the time the 16 November 2017 offer was made, the outcome more favourable to the defendants (compared to the offer) was a dismissal of the summons. Absent any Calderbank offer or offer of compromise under r 20.26 of the Uniform Civil Procedure Rules, such an outcome would typically result in the plaintiff being ordered to pay the defendants costs on an ordinary basis: r 42.20 of the Uniform Civil Procedure Rules.
In that context, it should have been apparent to the plaintiff that, if the defendants achieved a more favourable outcome, they intended to rely on the 16 November 2017 offer in support of an application for indemnity costs. Put another way, if the defendants won, there was no apparent cost benefit other than seeking to rely on the offer for an indemnity costs order as, absent the offer, the defendants could expect an order for costs on an ordinary basis.
This was not a situation where the plaintiff was self-represented and may not have understood the import of the expression "Without Prejudice and Save as to Costs". He had an experienced lawyer and counsel representing him. In those circumstances, there should have been no doubt about how the defendants intended to rely on the offer if it was not accepted - namely, that they would seek an indemnity costs order if they obtained a more favourable result.
The plaintiff also contends that it was not unreasonable to have refused the 16 November 2017 offer because it merely asserted that the plaintiff's case was hopeless without adequately explaining why. While accepting that he had some awareness of the defendants' defence at the time the offer was made (based on the initial interlocutory contest regarding the plaintiff's application to extend the caveat), the plaintiff submits that this was not sufficient to place him on notice of the full extent of the defendants' case nor give him a reasonable basis on which to believe his claim was incapable of succeeding.
An assessment of whether it was reasonable to have refused the offer is to be assessed at the time the offer was made having regard to the terms of the offer without resort to the benefit of hindsight: Crump & Ors v Equine Nutrition Systems Pty Ltd trading as Horsepower & Anor (No 2) [2007] NSWSC 25 at [41]; Miwa at [11].
It is relevant in assessing the reasonableness of an offer to consider what was disclosed in the offer and the state of the pleadings, the affidavits and various other communications between the parties when the offer was made: Automotive Holdings Group Pty Ltd v Prime Constructions Australia Pty Ltd (No 2) [2018] NSWSC 315 at [25]; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298 at [27].
The offer in this case included the statement that: "We have had the benefit of reviewing documents provided to us by our clients['] former solicitor and we are of the view that there is very little, if not no chance of your client succeeding with his present application either for interim relief for the continuation of the caveat or for any substantive relief sought"
The email does not explain the reasoning behind that statement.
The defendants submit that the reasons should have been apparent to the plaintiff as evidence had already been filed and the plaintiff was aware of the facts governing the relationship between the parties and the defendants' reliance on the operation of the Home Building Act.
In this case, the 16 November 2017 offer was made at a very early stage of the proceedings, being nine days after the proceedings had been commenced by way of the plaintiff's ex parte application seeking an extension of his caveat over the Property, the filing of the summons in Court and orders abridging the time for service of the summons.
It was made before all the evidence was filed (including all evidence from the defendants), before the interlocutory hearing on the extension of the caveat had been argued and before the cross-summons and amended summons were filed in 2018.
In those circumstances, the offer was made at a time when the plaintiff was unlikely to know the full extent of the case that the defendants were to run and well before knowing the nature and extent of the declaratory relief sought by the defendants.
As the notice of rescission served prior to the proceedings referred to the Home Building Act, I accept the plaintiff was on notice that the defendants were likely to rely on the operation of that Act in their defence. The plaintiff was also on notice of facts relevant to the issues to be raised in the case, including the terms of the key 24 October 2014 and 12 November 2014 letters that comprised part of the Agreement as found in the Principal Judgment.
But the position remains that certain key arguments relied on by the defendants, and on which they succeeded at the hearing, may not have been apparent to the plaintiff at the time the 16 November offer was made. Those arguments include the existence of oral terms of the Agreement as alleged by the defendants, the scope and applicability of the relevant provisions of the Home Building Act to the Agreement, and the basis on which it was said that the defendants were entitled to terminate the Agreement irrespective of the Home Building Act.
Further, and while he failed in the Principal Judgment, the plaintiff's claim could not be described as unarguable, hopeless or having no prospects of success. At the interlocutory hearing of the extension of the caveat the Court determined that there was a serious question to be tried on the construction of the Agreement and that the question could be affected by further evidence to be given. The Principal Judgment also identified that the 12 November 2014 letter was poorly drafted and ambiguous. There was, therefore, a real question in the case about the scope of the Agreement between the parties.
This was not a case involving a claim for damages with an offer to settle by paying a significant sum. It was a case involving declaratory relief about an interest in the Property. The 16 November 2017 offer effectively required the plaintiff to completely give up his claim of that interest in exchange for a payment of a relatively small amount of money without any explanation for why he should do so other than an assertion that there was "very little, if not no, chance of" success. At that stage of the proceedings, the defendants should have done more to explain why their case would succeed and why, therefore, it was reasonable for the plaintiff to accept the 16 November 2017 offer.
Notwithstanding the 16 November 2017 offer was in the nature of a Calderbank offer, it was made at a very early stage of the proceedings when the plaintiff was not fully informed of the nature of the defendants' case. The offer did not articulate the arguments for why it should be accepted. It also effectively required the plaintiff to surrender the only claim he had made in the proceedings, in a context where his claim could not be described as hopeless.
In those circumstances, I am not satisfied that the defendants have shown that the plaintiff's failure to accept the 16 November 2017 offer was unreasonable and that indemnity costs should be payable from that time.

Orders

For these reasons, I make the following declarations and orders: 1. Declare that, on the proper construction of the agreement comprised of the 24 October 2014 letter, the 12 November 2014 letter and oral terms, for works to be undertaken at 5 Angophora Crescent, Forestville NSW being Lot 2584 in DP752038 (together the Agreement), the cross-defendant bore the obligation of completing the building works the subject of the development application that was current at that time. 2. Declare that the Agreement between the parties is a Building Contract for the purposes of the Home Building Act 1989. 3. Declare that the cross-claimants validly terminated the Agreement. 4. Declare that any interest in the Property which was purported to be given to the Plaintiff by the Defendants pursuant to the Agreement is void pursuant to the provisions of section 7D of the Home Building Act 1989. 5. Order the Registrar General to remove caveat AJ221912 registered over the property being Lot 2584 in DP752038 forthwith. 6. Vary the costs order made on 26 April 2019 in these proceedings and order the plaintiff to pay the defendants' costs of the proceedings on an ordinary basis up to 21 June 2018 and, thereafter, on an indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 June 2019

Civil Procedure Act 2005(NSW)ss 56, 57, 58, 59, 60, 98

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