On 9 October 2019, the Court delivered the principal judgment in this matter (Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation (2019) 19 BPR 98,890; [2019] NSWSC 1352 - "the Principal Judgment"). This judgment assumes familiarity with the Principal Judgment.
In the Principal Judgment, the Court determined that the plaintiff failed to establish the existence of a binding and enforceable agreement for lease with the defendant. The Court was satisfied that a concluded agreement for lease was made on 6 April 2016 in the course of dealings between Ms Marlowe and Mr Maxwell on behalf of the defendant and Mr Kreutzer on behalf of the plaintiff, but the Court was not satisfied that the agreement was made on behalf of the defendant by an agent (or agents) acting within the scope of an actual or ostensible authority to do so. The Court also rejected the plaintiff's alternative estoppel claim. In the result, the Court dismissed the plaintiff's Amended Statement of Claim with costs.
On 21 October 2019, the defendant filed a Notice of Motion seeking to vary the Court's orders of 9 October 2019 under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 36.16. By that motion, the defendant sought an order that the defendant pay the plaintiff's costs of the proceedings on an indemnity basis from either 1 May 2018 or 28 July 2019. The Court made directions for the filing and service of any affidavits, and for the provision of written submissions in respect of the application.
The defendant relies upon the affidavit of its solicitor. Annexed to that affidavit are two offers addressed to the plaintiff's solicitor. The first was contained in an email dated 12 April 2018 which was expressed to be a "Calderbank letter". It contains a number of reasons why "there was no valid exercise of the option to renew the lease". Those grounds include:
the notice from Mr Maxwell dated 6 April 2016 purporting to exercise the option to renew was "conditional and therefore invalid";
if not invalid, a number of conditions in the notice were not satisfied. The letter does not clearly identify what those "conditions" were;
the notice purporting to exercise the option was not communicated to the plaintiff during the period in which the option to renew could be exercised under the existing lease;
in any event, the plaintiff was not entitled to specific performance of a new lease for a number of reasons, including that the proposed new lease was for a 10 year term "in breach of clause 4.3 and item 12C of the existing lease"; the proposed new lease "was different in terms to the existing Registered lease"; and if any new lease did in fact come into existence, it was repudiated by the defendant which repudiation was accepted by the plaintiff when it sought to re-lease the property to a third party on 23 August 2017.
The email stated that, for those reasons, the defendant had strong grounds to resist the plaintiff's claim. It was also stated that the value of the plaintiff's claim up to 30 April 2018 was $123,734 (inclusive of GST) and that amount was arguably reduced by the fact that the plaintiff had re-let the property.
The email contained an offer to compromise the proceedings on terms that the defendant pay to the plaintiff the sum of $100,000 within fourteen days of the plaintiff and defendant executing a Deed of Release which would include certain terms. The email also offered that the defendant pay the plaintiff's costs of the proceedings as agreed or assessed. The offer was expressed to be open for acceptance until 5:00pm on 30 April 2018.
I interpose here to note that at the time of service of the above offer, the Statement of Claim then in place was that filed on 5 October 2017. As formulated, the Statement of Claim alleged that the defendant had validly exercised the option to renew on 6 April 2016 such that the plaintiff was required to grant to the defendant a new lease on certain terms. By its Defence filed on 20 December 2017, the defendant claimed that it had entered into negotiations with the plaintiff to renew the lease, and had subsequently agreed to renew the lease subject to the performance by the plaintiff of a number of conditions precedent which were not performed, with the result that the defendant did not renew the lease. No issue was raised concerning authority to bind the defendant to a new lease. The plaintiff filed a Reply on 8 March 2018 which disputed that the exercise of the option on 6 April 2016 included any conditions precedent to the renewal of the lease. It was alleged that any such conditions were in fact terms of the new lease. By the pleadings as then formulated, the parties essentially joined issue only on whether there had been an exercise of the option so as to give rise to an agreement for a new lease.
The issue of Ms Marlowe's or Mr Maxwell's authority was raised for the first time in the defendant's Amended Defence filed on 22 May 2018 (in response to an Amended Statement of Claim filed on 23 April 2018).
The second offer was served by email dated 26 July 2019. It took the form of an Offer of Compromise. The Offer of Compromise stated that the defendant offered to compromise the whole of the proceedings on terms that the defendant pay to the plaintiff $25,000 with costs to be awarded in favour of the plaintiff as agreed or assessed. The offer was expressed to be made "pursuant to Part 20 Division 4 of the Uniform Civil Procedure Code" and was expressed to be open for 28 days after the date on which the offer was made.
Neither the Calderbank offer nor the Offer of Compromise was accepted by the plaintiff.
In its written submissions, the defendant referred to the well-known principles that govern the Court's discretion to award indemnity costs following a party's failure to accept either a Calderbank letter or Offer of Compromise made pursuant to the rules of Court (see Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]). The defendant submitted that the April 2018 offer involved a genuine element of compromise. It was put that $100,000 was a genuine offer in circumstances where the defendant denied liability as a whole, and it was noted that the offer included a term that the defendant pay the plaintiff's costs of the proceedings.
The defendant submitted that the plaintiff's failure to accept the April 2018 offer was unreasonable in the circumstances. It was put that the defendant's offer involved the making of a substantial payment and the payment of the plaintiff's legal costs. It was submitted that the time the offer remained open for acceptance (two weeks) was reasonable in the circumstances, particularly where the plaintiff was represented by solicitors. The defendant noted that the offer was expressed in clear terms, and there was nothing unconventional in the terms of the offer.
The defendant made no specific submissions in respect of whether the July 2019 offer involved a genuine element of compromise. It was simply put that the terms of the offer complied with the requirements of UCPR r 20.26 and that the defendant had obtained a judgment "no less favourable" than the terms of the July 2019 offer. This, it was said, was sufficient to engage UCPR r 42.15A requiring the Court to award indemnity costs from the day after the offer was made, unless the Court orders otherwise. The defendant made no specific submissions as to whether the plaintiff's failure to accept the July 2019 offer was unreasonable. It was submitted that "there are no good reasons" why the Court should order otherwise.
In its written submissions, the plaintiff contended that the defendant's Notice of Motion did not specify the particular head of power relied upon within UCPR r 36.16 to set aside or vary the Court's order for costs. It was put that this was sufficient in itself to warrant dismissal of the defendant's application. I do not accept that submission. It is clear from the nature of the order the subject of the application, and the circumstances in which it was made, that the defendant was intending to rely upon UCPR r 36.16(3).
In relation to the April 2018 offer, the plaintiff did not make any submissions as to whether the offer involved a genuine element of compromise. Rather, the plaintiff submitted that when the offer was made the defendant had not raised any issue with respect to a lack of authority to enter into a new lease. The plaintiff described the grounds relied upon in the April 2018 offer as going only to the existence of a concluded agreement between the parties. It was put that all of the grounds relied upon in the April 2018 offer were ultimately resolved in favour of the plaintiff in the Principal Judgment. The plaintiff noted that the first time the defendant relied upon the defendant's lack of authority was in the Amended Defence filed on 22 May 2018.
In relation to the July 2019 offer, the plaintiff contended that the offer was not a genuine attempt to compromise the claim. It was submitted that the proceedings could be characterised as an "all or nothing" case where the plaintiff would be awarded "in excess of $500,000" or it would get nothing. In those circumstances, the $25,000 payment offered by the defendant was a nominal sum offered close to the final hearing. The plaintiff sought to characterise the offer as an invitation to capitulate made solely for the purpose of obtaining the benefit of the relevant rules of Court. It was put that the offer did not serve the purpose of the relevant rules which is to encourage genuine compromise. The plaintiff also submitted that the offer was a "losing proposition" for the plaintiff because it was fanciful to think that the $25,000 payment would be sufficient to bridge the gap between what the plaintiff had paid in legal costs and what would be recovered on assessment.
The plaintiff further submitted that when the July 2019 offer was made, no evidence (such as the Delegation Manual) had been served by the defendant supporting the contention that there was a lack of authority. It was put that in these circumstances it was not unreasonable to reject the offer.
Neither party disputed the principles to be applied in respect of Calderbank letters and offers of compromise made pursuant to UCPR r 42.15A. I recently summarised those principles in Scott v Ennis-Oakes (No 2) [2019] NSWSC 1647 at [33]-[34]. I adopt those principles here.
I will first address the April 2018 offer. In my opinion, there can be no dispute that the terms of the offer embodied a genuine compromise. In addition to offering to pay the plaintiff's legal costs, the $100,000 sum offered by the defendant comprised a considerable portion of the plaintiff's monetary claim against the defendant as then estimated in the plaintiff's Statement of Claim.
However, I do not think that it was unreasonable for the plaintiff to fail to accept that offer. It is well known that a Court may decline to award indemnity costs against an unsuccessful party if the nature or parameters of the case change significantly between the date of the unaccepted offer and the final hearing (see Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626; [2001] NSWCA 461 at [95]; South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [85]; Fairall v Hobbs (No 2) [2017] NSWCA 133 at [15]; Croghan v Blacktown City Council [2019] NSWCA 248 at [13]). As noted above, the pleadings formulated at the time of the April 2018 offer defined the parameters of the dispute as whether the defendant had validly exercised the option to renew the lease. It was not until the defendant filed its Amended Defence on 22 May 2018 that the defendant put the question of authority in issue. As the plaintiff observes, it was only on this issue that the defendant was ultimately successful in resisting the plaintiff's claim.
For those reasons, I am not satisfied that the plaintiff's failure to accept the April 2018 offer was unreasonable in the circumstances.
I turn next to the July 2019 Offer of Compromise. There is no doubt that the Court's dismissal of the plaintiff's claim on 9 October 2019 resulted in the defendant receiving a judgment no less favourable than the terms of the offer (UCPR r 42.15A(1)). Provided the offer complies with UCPR r 20.26, the defendant is prima facie entitled to an order against the plaintiff for costs to be assessed on an indemnity basis from the day after the day on which the offer was made. It is of course open to the Court to order otherwise.
I am satisfied that the offer complies with the formal requirements set out in UCPR r 20.26. Notwithstanding the infelicitous reference to the "Uniform Civil Procedure Code", the offer ought sensibly be read as including a statement to the effect that it is made pursuant to the rules in Pt 20 Div 4 of the UCPR. As the offer was made less than two months before the commencement of the hearing on 2 September 2019, the offer will only comply with UCPR r 20.26(5)(b) if the time in which the offer is open for acceptance is reasonable in the circumstances. In my view, the 28 days provided in the offer was reasonable in circumstances where almost all the evidence in the proceedings had been served (although not the affidavit in reply of Ms Browning dated 19 August 2019) and the plaintiff was represented by solicitors. I note that the plaintiff did not suggest that this timeframe was unreasonable. I am otherwise satisfied (and the plaintiff took no issue) that the balance of the requirements of UCPR r 20.26 were met.
The principal reason advanced by the plaintiff that the Court should order otherwise is that the terms of the July 2019 offer did not involve a real and genuine element of compromise. I reject that submission. It may be readily accepted that the $25,000 sum offered by the defendant was not a generous sum, particular in light of a claim valued by the plaintiff to be in excess of $450,000. However, the July 2019 offer also contained a term that the defendant pay the plaintiff's costs of the proceedings. The offer was served on the plaintiff at a late stage in the proceedings. Although there is no evidence of the costs incurred by the parties by the time of July 2019 offer, there can be no doubt that those costs would have been substantial. Had the offer been accepted, the defendant would have been required to pay not only the $25,000 sum but also a significant portion of the plaintiff's costs of the proceedings. In those circumstances, I do not accept that the July 2019 offer did not involve a genuine element of compromise. Further, I give little weight to the submission that the offer was a "losing proposition" for the plaintiff. It may have been unattractive but acceptance of it would have been much better for the plaintiff than the outcome ultimately reached (cf Scott v Ennis-Oakes (No 2) (supra) at [37]).
The plaintiff also submitted that when the Offer of Compromise was made, the defendant had served no evidence supporting the contention that there was a lack of authority. I do not think this is correct. At the time of the July 2019 offer, all of the defendant's evidence in chief had been served. This included the affidavit of Ms Browning sworn on 25 February 2019. Annexures "A" and "B" to that affidavit were the Delegation Manual and the Policy and Procedures Manual dealt with in the Principal Judgment at [93]-[100]. Although parts of Ms Browning's affidavit were effectively re-sworn in the form of a new affidavit filed during the course of the hearing, the plaintiff had received by the time of the July 2019 offer the substance of the evidence to be relied upon by the defendant in support of its case that neither Ms Marlowe nor Mr Maxwell had authority to enter into a new lease on behalf of the defendant. The 25 February 2019 affidavit contained statements to the effect that Ms Marlowe did not have authority to enter into new leases, and that in early 2016 the defendant's board had not decided to exercise any option to renew.
A separate point was raised by the plaintiff to the effect that if grounds were shown for the setting aside or variation of the existing costs order, the Court should proceed to exercise its discretion so that the defendant only receive costs from 22 May 2018 when it first raised the issue of lack of authority. It is true that the defence was not raised until the proceedings had been on foot for more than seven months. However, the plaintiff continued to prosecute its case even after the defence was raised and after evidence was served in relation to it. The belated raising of the issue has not been shown to have caused any costs to be wasted. Further, the fact remains that the defendant always had this ultimately successful defence available to it, and was justified in resisting the plaintiff's claim. In all the circumstances, I do not think that the delay in raising the authority defence should have the consequence that the defendant is deprived of costs for the period up to 22 May 2018.
In my opinion, the plaintiff has not demonstrated that the Court should depart from the terms of UCPR r 42.15A(2) to order otherwise. It follows that the prima facie position encapsulated in UCPR r 42.15A(2) should be adhered to. Accordingly, it is appropriate that the existing costs order be varied so that the plaintiff be ordered to pay the defendant's costs of the proceedings from 27 July 2019, being the day after the Offer of Compromise was made, on an indemnity basis.
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Decision last updated: 18 December 2019