Linkara Pty Ltd atf Karathanassis Family Trust v Telstra Corporation Ltd

District Court of NSW|2022-06-29

Judgment

I delivered reasons for judgment in this matter on 16 June 2022 (Linkara Pty Ltd atf Karathanassis Family Trust v Telstra Corporation Ltd [2022] NSWDC 211 [1] ) and directed the parties to consult with a view to making dispositive orders, including orders for costs.
As directed, the parties have supplied the Court with written submissions. They disagree with those orders. The issues are: 1. what orders should be made to reflect the different judgment awards (including interest); 2. who should bear the costs of Linkara's claim; 3. whether (on the premise that Linkara should bear the costs of its claim) Linkara should pay Telstra's costs on an indemnity basis, taking into account offers of compromise served; and 4. whether a gross sum order for costs should be made.

The orders for judgment

Telstra proposed short minutes to deal with the judgments.
In the early part of Linkara's submissions, Mr Karathanassis apparently took issue with the correctness of parts of my earlier reasons. He appeared to suggest that it was unfair or improper for Telstra to rely upon an exclusion or limitation clause. He questioned the correctness of my determination that 'Linkara' was not a 'consumer', for the purposes of its action under the Australian Consumer Law.
When providing the opportunity to the parties to make submissions as to the appropriate dispositive orders, the Court was not inviting the parties to relitigate arguments that were, or could have been, run at the hearing.

Liability for costs

Though its cross-claim was for a modest sum, Telstra wholly succeeded with the claim, over Linkara's opposition. If the counterclaim was run in a separate proceeding, the quantum of its claim was so small as to have justified bringing it in the Local Court, which might have cast doubt upon its entitlement to a costs order [2] ; however, there was no suggestion that its claim did not properly constitute a counterclaim in defence (and arguably as a set-off) in the current proceeding. Telstra is entitled to the costs of its cross-claim.
What was disputed was who should bear the costs of Linkara's claim. Linkara succeeded, in the sense of obtaining a monetary judgment, but the quantum of that judgment (based on its action in contract and not under the Australian Consumer Law) was very modest ($890.90), relative to what was claimed in Linkara's amended pleading ($272,306), and in circumstances where, at least by the hearing, Telstra had admitted breach. As to this last point, it is pertinent to note that neither in its original defence, or in its amended defence (following the amended statement of claim) did Telstra admit liability. Indeed up to May 2021 it disputed that it had entered into any contract with Linkara at all. By its amended defence, Telstra did, however, signal its reliance upon exclusion and limitation clauses which, my earlier reasons reveal, were successfully invoked by it. Even so, it was not until the hearing that Telstra stated its position of how it quantified Linkara's claim on the premise that the contract was breached.
Telstra submits that Linkara did not succeed on its claim, in any conventional sense. It defended all of Linkara's arguments, save for the loss caused by breach of contract, but even on that issue, it was able to limit its loss by reference to an exclusion or limitation clause. Telstra referred to the circumstance that the judgment recovered by Linkara is a small fraction (0.33%) of the quantum of its claim. Viewed as a whole, Telstra succeeded.
Linkara submits that the ordinary rule that costs follow the event should apply. Telstra did not admit breach of contract and forced Linkara to litigate. Further, this was not one of those exceptional cases where it should not only be deprived of its own costs, but be ordered to pay Telstra's costs: the evidence that Linkara relied upon indicated that it had a reasonable case. It could not be said that it had acted unreasonably.

Consideration

It is trite that costs are in the discretion of the Court, including the power to determine by whom, to whom and to what extent, costs are to be paid: Civil Procedure Act 2005 (NSW), ss 98(1)(a) and (b) (emphasis supplied). That position is, however, affected by other provisions of the Civil Procedure Act, and also the Uniform Civil Procedure Rules 2005. The principal rule, in r 42.1 is that costs ordinarily should follow the event, unless it appears to the Court that some other order should be made as to the whole or any part of the costs (emphasis supplied). Another rule is that when a party brings a civil suit in this court, and obtains a judgment in an amount less than $40,000 a costs order will not ordinarily be made unless the Court is satisfied that it was appropriate for the proceeding to be commenced and continued in this Court, rather than the Local Court: r 42.35(1).
This last rule, in my view, presents no insuperable barrier to Linkara. Its action had complex features, which made it suitable to be brought and continued in this Court. Telstra did not suggest otherwise.
Rule 42.1 presents more of a conundrum. The basis for this 'general rule' is that a successful party has a reasonable expectation of being awarded costs against an unsuccessful party and fairness usually dictates that the unsuccessful party typically bears the liability for costs [3] .
The 'event' is also a nuanced expression. On one view, there were two events in this litigation: Linkara's claim and Telstra's claim, so that if the general rule applied, Telstra would be liable to Linkara for the costs of its claim and Linkara would be liable to Telstra for its counterclaim. But that rather narrow view is generally rejected in favour of a consideration of what is the practical outcome of the litigation. The Court's discretionary power as to costs is to be liberally construed in order to achieve justice in the particular case [4] , and as is apparent on the face of r 42.1 itself, it is not uncommon for a court to deprive a 'successful' party of some or all of its costs and even to order it to pay the costs of the unsuccessful party. One situation in which this occurs is where there has been 'disentitling' conduct by the successful party [5] . Telstra does not suggest that there has been any disentitling conduct by Linkara.
Telstra rather argues that this is a case where Linkara brought a claim for compensatory damages and it only recovered a trivial amount, and in such cases, courts have deprived successful parties of their costs [6] .
I agree that this category of circumstance arises here. This was a proceeding in which Linkara sought to vindicate its private rights; not any public right. The private right was to obtain an award of damages flowing from a breach of contract. There was, on any view, a substantial disproportion between the damages Linkara claimed and those which it recovered in the judgment. It is true, as Linkara submits, that Telstra put in issue whether any breach had occurred, but it was not the case, for example, that Linkara was simply bringing an action for declaratory relief. Its objective was to recover substantial damages. It failed in that objective.
I have considered that the justice of fairness of the case indicates that Telstra should recover all of its costs of defending Linkara's claim. I am troubled that a significant reason for Telstra's success was its successful invocation of the exclusion and limitation clause in the contract. Ultimately, Linkara had no real answer to the operation of that clause (save for its impermissible attempt to avoid it by reason of procedural fairness), but Telstra did not invoke the clause until its amended defence was filed on 21 December 2021, well into the proceeding (which was commenced on 6 October 2020). Similarly, another contributor to Telstra's success was its limitations defence. That too was only raised in its amended defence. In fairness to Telstra, it may be said that Linkara's initial statement of claim was not a model pleading, but it appeared to me that both the limitations defence and the exclusion/limitation clause could have been pleaded by Telstra in its initial defence.
Nevertheless, even if there was no exclusion or limitation clause, I found that the quantum of the claim would only have been $7,775.19. When that amount is viewed against that which was eventually claimed $272,306, the gross disproportion remains clear. Linkara did not get close to that sum and as indicated in my earlier reasons, I did not regard its methodology to prove its claim for damages as being reliable.
In the circumstances, I am unable to qualify what I regard as the fair and just result that Linkara should pay Telstra's costs on Linkara's claim.

Application for indemnity costs

In relation to this application, and the application considered in the next section of these reasons, Telstra relies upon a voluminous affidavit of its solicitor, Jacqueline Dinsdale.
Telstra served what it contends were valid [7] offers of compromise on 7 May 2021, 27 May 2021, 7 July 2021 and 26 May 2022.
Before the first of those offers of compromise, in correspondence sent to Linkara dated 10 November 2020, Telstra had indicated what it regarded as weaknesses in Linkara's claim.
The 7 May 2021 offer of compromise was served under the cover of a letter of that date, which, aside from expressly flagging Telstra's reliance upon r 20.26 of the UCPR, reiterated Telstra's view as to the weaknesses of Linkara's claim. Telstra relied upon this as a Calderbank offer in the alternative to its contention that the offer of compromise was a valid rules offer.
In that offer of compromise, the terms which Telstra offered (in an offer expressed to expire in 28 days, being 4 June 2021) were:

Telstra pay Linkara $15,000;
Telstra forego its own counterclaim;
There be no order as to costs.

An offer of compromise dated 27 May 2021 was served under cover of a letter of that date, the latter of which was substantially the same in its content as the Calderbank letter of 7 May 2021. The terms of the offer of compromise of 27 May 2021 (open for acceptance for 28 days) were:

Judgment against Telstra in the sum of $15,000;
Telstra's counterclaim is dismissed;
Telstra is to pay Linkara's costs, as agreed or assessed.

The parties participated in without prejudice settlement discussions on 28 June 2021. On 7 July 2021, Telstra served a further offer of compromise, which was open for acceptance for 28 days and whose terms were:

Judgment against Telstra in the sum of $35,000;
Telstra's counterclaim is dismissed;
Telstra is to pay Linkara's costs, as agreed or assessed.

On 26 May 2022, Telstra enclosed a further offer of compromise, which was open for acceptance for 28 days. The covering letter was expressed to amount to a Calderbank offer, set out Telstra's views, based upon the affidavit evidence that had been served by Linkara in February and March 2022. The terms of the offer of compromise were:

Linkara's statement of claim is dismissed;
Telstra's counterclaim is dismissed.

Parties' contentions

Telstra submitted that each of the rules offers were valid, for fulfilling the requirements in r 20.26, in that they: related to the whole of Linkara's claim and proposed the disposal of Telstra's counterclaim; and did not include an amount for costs; they expressly indicated that the respective offers were made in accordance with r 20.26; and save for the last of the offers, the offers were open for acceptance for 28 days. As to the last of the offers of compromise, it was submitted that although this offer was open for acceptance only for two days, that period was reasonable given the proximity to the hearing.
Alternatively, each of the Calderbank offers were valid and, each informed Linkara about Telstra's views of the merits of Linkara's claim and should be considered in the exercise of the Court's discretion. It was implicitly suggested that Linkara's rejection of its offers was, on each and every occasion, unreasonable.
Linkara submitted that the offers of compromise did not represent genuine offers to compromise the proceeding. As to the 7 May 2021 offer of compromise, that did not take into account the size of Linkara's claim (at stage $250,000) nor matters raised by Linkara at a recent mediation. As to the 27 May 2021 offer of compromise, Mr Karathanassis had asked for the opportunity to meet Telstra representatives and had contact with them, but the offer had expired by the time a meeting was held on 28 June 2021. As to the 7 July 2021 offer of compromise, Mr Karathanassis had again tried to meet Telstra personnel by the time the offer expired. Further, he was trying to consider the material produced on subpoena. As to the 26 May 2022 offer of compromise, this was invalid, since the closing date for acceptance of the offer was unreasonable. As he wrote in his letter on 28 May 2022, Mr Karathanassis did not consider that the time to consider this offer was reasonable and, by the time this offer was sent, Linkara had already expended considerable time and cost. Certain 'discrepancies' were pointed out and Mr Karathanassis also asserted that the offer was not a genuine offer of settlement, with reference to the amount claimed. In Linkara's submissions on costs, Mr Karathanassis says that if given more time to consider the offer, it is likely he would have accepted it.

Consideration

I accept that each of the first three offers (the rules offers) complied with the requirements of r 20.26. Save for the last offer of compromise, the matters which Linkara refers to relate to the question of whether some contrary order should be made under r 42.15 ( or 42.15A) of the UCPR; not the validity of the offers.
In my view, the offer of compromise dated 26 May 2022 (a Thursday) did not provide a reasonable amount of time for acceptance. Ms Dinsdale received instructions to serve an offer of compromise on specific terms by 20 May 2022 (a Friday). She did not suggest that those terms varied from the terms which were ultimately offered. There was no explanation for the additional delay. The offer was made less than 2 business days before the two week sittings in Newcastle (presided over by me) were to commence. The hearing was scheduled to run (and did run) for only a day; even though there were supplementary submissions at the close of argument which would not likely have been anticipated. Telstra and its lawyers would have well understood that Mr Karathanassis was intending to represent Linkara at the hearing and would reasonably have anticipated that he would be embroiled in late preparation for the hearing that eventually occurred shortly thereafter. Although there may not be any objection in principle to a 'walk away' offer being made in a rules offer, in the circumstances, I consider that this offer was sent for the purpose of trying to protect its position on costs. I find that the offer did not comply with r 20.26(5)(b) of the UCPR.
The balance of these submissions, when dealing with the rules offers, will henceforth only refer to those dated 7 and 27 May 2021 and 7 July 2021.
For each of these offers of compromise, noting that Telstra achieved an outcome no less favourable to it than that which it offered Linkara from as early as 7 May 2021, it is presumptively entitled to a costs order on an indemnity basis from that date. However, the ordinary operation of the rule is capable of being displaced, and the Court retains a discretion to make a costs order to the contrary. Notwithstanding this, it is for the offeree (Linkara) to establish a basis for depriving the offeror (Telstra) of a prima facie entitlement to have costs paid on the indemnity basis.
In Walker v Harwood [2017] NSWCA 228, Basten JA (Payne JA agreeing) observed that rule 42.14 (and therefore r 42.15 and 42.15A) effectively 're-define' the 'event' (referred to in r 42.1) so the issue is whether the offeror obtains a better result than that proposed in the offer. Whether the Court will then 'otherwise order' will generally be determined by the conduct of the successful party, including the way in which it has conducted the proceeding (at [20]). But Basten JA said that a tight leash should be maintained in the circumstances when the Court should otherwise order lest the objective of promoting certainty in the operation of rules providing for the costs consequences of offers of compromise be undermined; and to discourage offerees from seeking to 'game the system' and avoid satellite litigation (at [22]).
Circumstances in which the presumption is typically rebutted include offers of compromise not involving a genuine offer, where it is not unreasonable for an offeree to reject the offer of compromise [8] and where the offer is open for an unreasonably (short) period of time.
I have no difficulty in finding that all of the offers of compromise represented genuine offers of settlement. Save for the last of them, all of them contained an offer of a monetary sum which Telstra eventually 'bettered' in the outcome. Also, all of them were open for acceptance for 28 days. The matters that Linkara refers to in its submissions are not persuasive as to the aspect of the genuineness of the offers of compromise. They are focussed upon Linkara's own subjective view of the offers, or reasons why Linkara considered that it was not in a position to meaningfully consider them.
What, however, I struggle with are some matters which, individually or in combination bear upon the reasonableness or otherwise of Linkara's rejection of the offers. In none of the explanatory letters (relied upon as Calderbank offers) did Telstra admit breach of contract. Further, as my earlier reasons indicated, a significant part of Telstra's success in limiting the quantum on Linkara's claim was based upon its successful invocation of exclusion and limitation clauses. These were pleaded in Telstra's Amended Defence file on 21 December 2021, but by then, all but the last of the offers of compromise had expired. Further in none of the explanatory letters was any attention given by Telstra to the estimated quantum of Linkara's claim.
It may be accepted that it was not up to Telstra to indicate what Linkara may obtain in any monetary judgment; and that it was entitled to put Linkara to proof even if it considered that Linkara's claim on quantum was excessively inflated. But, if it did take the view that Linkara's claim on quantum, and if it wanted to take the benefit of the rules offer, it could have explained to Linkara why its claim was so inflated. Effectively, Telstra did not do this until it served the affidavit of Mr Wheeler's affidavit. By then, the time for acceptance of all three of the offers of compromise had well and truly expired. In my opinion, this is an instance where it was not unreasonable for Linkara to reject each of the offers of compromise dated 7 May 2021, 27 May 2021 and 7 July 2021, respectively. That being so, I propose to 'otherwise order' so that the usual costs consequence stemming from a rejection of valid offers of compromise do not apply. The result is no different if I was to treat the explanatory letters of those dates as Calderbank offers, in that I would decline to exercise the Court's discretion to order indemnity costs following rejection of those respective offers.
The reasons I have given which relate substantially to the offers of compromise also apply to Telstra's alternative reliance upon Linkara's rejection of Calderbank offers sent with the offers of compromise.
In the result, I am not inclined to order that costs paid by Linkara to Telstra on its claim should be paid on an indemnity basis.

Application for gross sum order

Linkara implicitly applied for such order. To that end, Mr Karathanassis' affidavit ran to 205 pages; although only some of that (Annexures G to K) may be regarded as germane to an application for a gross sum order. At any rate, since I have ordered that Linkara should pay Telstra's costs, this application falls away.
Ms Dindale's affidavit in support of Telstra's application for this order ran to 191 pages. The annexures relevantly covered:

the invoices issued by Telstra's solicitors, which identified the solicitors who performed the work, narrated (in summary fashion) the work performed, time spent and the cost involved for each entry;
Telstra's Counsel's costs agreement;
Counsel's invoices, which similar to the solicitor invoices, detailed the work performed and the cost of each entry.

Telstra's costs and disbursements totalled $132,669.38, plus GST. Approximately $80,000 were solicitor fees. Counsel's fees amounted to approximately $53,000 (both the solicitor and Counsel fees being exclusive of GST).
In relation to the work performed by Telstra's solicitors, Ms Dinsdale's affidavit indicates that prior to 1 February 2022, all the day-to-day work was performed by a solicitor with four years' experience (post-admission), at a charge-out rate of $442 per hour (plus GST). After 1 February 2022, the solicitor who did the work had one year's experience (post-admission), with a charge out rate of $312 per hour (plus GST). The work performed by the solicitors was overseen by the supervising partner, but fees charged by that partner have been waived. Counsel who was briefed had 18 months' experience (after being called to the Bar) and for out of court work, charged at a rate of $240 per hour.
Telstra submitted that gross sum costs orders have in recent times been recognised as appropriate where the subject matter of the litigation features monetary claims in modest amounts, relative to the costs involved, so as to avoid the spectre of yet further 'satellite' litigation to resolve ongoing disputes about costs.
Telstra submitted further Ms Dinsdale's evidence provided the Court with a measure of confidence, if it was inclined in principle to make the order, that the amount claimed followed a process of appropriate calculation and, further, that the amounts were reasonable; being findings that are usually required before a Court makes an order under s 98(4). Of course the task of the Court on an application under that provision is not itself to perform the role of a costs assessor.
Further, recognising the approach taken in other cases that have concerned this type of application, Telstra has offered to discount its claim by up to 50% with a view to sparing the parties from incurring further costs and time in a cost assessment in circumstances where the quantum of the parties' respective judgments are small.
As indicated, Linkara implicitly made its own application for a gross sum order and provided some evidentiary material in support. It did not, however, respond to Telstra's application should Linkara's own application fail, as it has.
By bringing its own application, Linkara tacitly acknowledges that a gross sum order is preferable, in principle, to a protracted costs assessment. In my view, it was right to do so. The parties have shown no lack of relish in pursuing their disputes; reflected even in the voluminous material each party has relied upon since my earlier reasons were published. Given the modesty of the sums at stake relative to the costs likely to be incurred in an assessment, and mindful of the case management objectives in ss 56-60 of the Civil Procedure Act, I consider it appropriate that there should be a gross sum order.
That leaves the question to be one of quantum for such order. In its written submissions, Telstra identified two alternatives: 1. A sum of $99,502, on an indemnity basis, representing 75% of Telstra's actual costs of and incidental to the proceeding (being $132,669.38); or 2. A sum of $66,334.69, representing 50% of Telstra's actual legal costs or and incidental to the proceeding ($132,669.38).
I have explained why Telstra should not receive its costs on an indemnity basis. Bearing in mind also the case management objectives in ss 56-60 of the Civil Procedure Act (and especially s 60), I prefer the latter alternative.

Orders

The orders of the Court are: 1. The Defendant pay the Plaintiff the sum of $890.90 plus interest of $351.32. 2. The Cross-Defendant pay the Cross-Claimant the total sum of $1,838.91. 3. Pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) the plaintiff (and cross-defendant) is to pay the defendant's (and cross-claimant's) costs in the sum of $66,334.69.

Endnotes

These reasons for judgment assume the reader's familiarity with my reasons on 16 June 2022. Further, as occurred in those earlier reasons, I will refer to the plaintiff/cross-defendant as 'Linkara' and the defendant/cross-claimant as 'Telstra'
UCPR r 42.35
Oshlack v Richmond River Council (1998) 193 CLR 72 per McHugh J at [67]
New South Wales v Stanley [2007] NSWCA 330 at [18]
Oshlack at [69]
Oshlack at [70], Waterwood Hotel Management Pty Ltd v KOP International Pty Ltd [2020] NSWSC 709 per Ward CJ in Eq (as her Honour then was)
This is with reference to r 20.26 of the Uniform Civil Procedure Rules NSW ('UCPR')
Leach v Nominal Defendant (QBE) Insurance (Aust) Ltd (No.2) [2014] NSWCA 391 per McColl JA at [53]-[55]

Amendments 29 June 2022 - Amendment to coversheet made 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: 29 June 2022

Australian Consumer Law Civil Procedure Act 2005(NSW)ss 56-60, 98

Uniform Civil Procedure Rules 2005(NSW)rr 20.26, 42.14, 42.15, 42.25

At a glance

Court

Decision date

Source

Judgment (11 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (6)