Lukaszewicz v Polish Club Limited

Who should pay the costs of the proceedings

1. In their initial submissions as to costs, the Plaintiffs sought their costs of their "Successful Oppression Claim" (as defined) so far as they obtained declaratory relief in relation to specified matters; conceded that the Defendants should otherwise be awarded the costs of the proceedings; and submitted that the costs of any inquiry in respect of their undertaking as to damages should abide the result of that inquiry. The Plaintiffs also submitted that the oppression claim on which they succeeded was the subject of a considerable portion of the respective parties' affidavit evidence and cross-examination. I do not accept that submission, since the Plaintiffs' claim at the hearing was in substance that individual Defendants had intentionally refused to admit some members and admitted others because of their support for Mr and Mrs Gnych or their perceived opposition to the Second Defendant. I did not accept those allegations, and I noted in the Judgment that the individual Defendants had somewhat different approaches to membership questions, and found an aspect of oppression to be established on a more limited basis.
2. On the other hand, in their initial submissions as to costs, the Defendants sought their costs of the proceedings and contended that they were the "successful party" in the proceedings and the relevant event was the dismissal of the proceedings and the discharge of the injunction. They also sought costs on an indemnity basis, relying on a suggested failure by the Plaintiffs to accept genuine offers to compromise the proceedings. In supplementary submissions following the oral hearing, the Defendants also submitted that the Court should not order that they pay the Plaintiffs' costs of obtaining the declaration as to oppression made by the Court. They submitted, and I accept, that the declaration was limited to the affairs of the Club, and did not involve adverse findings against the individual Defendants, and that at least the Second-Sixth Defendants could not properly be burdened with the Plaintiffs' costs in respect of that matter
3. Mr McCulloch and Mr Notley also point to the fact that, as I observed in the Judgment, the Plaintiffs had sought a wide range of relief in respect of the affairs of the Club, including findings against the individual Defendants. The Plaintiffs were not successful in establishing oppression on the basis for which they contended, or in sustaining the allegations made against the individual Defendants, although a more limited declaration of oppression was made in the Judgment and consequential orders. Mr McCulloch and Mr Notley submit that the limited declaration obtained by the Plaintiffs cannot be regarded as a relevant "event" on which they succeeded, where the Court did not make the findings of improper conduct, largely involving allegations of wrongful intention, for which the Plaintiffs had contended. I do not accept the Defendants' submission that the Plaintiffs should be ordered to pay the whole of the Defendants' costs of the proceedings on that basis. It seems to me the Plaintiffs had had a measure of success in establishing oppressive conduct, on a narrower basis than that which they sought to establish and over a limited period, as against the Club only.
4. The Defendants point to a range of matters which they submit unreasonably prolonged the proceedings and increased their costs, including several amendments of the Plaintiffs' pleadings which successively enlarged their case against the Defendants and introduced additional allegations of improper purpose; the range of evidence led by the Plaintiffs seeking to establish improper purpose; the evidence led to establish wrongful refusal to admit suitable applicants as full members of the Club, an allegation that was not established at the hearing; and the failure to establish other pleaded causes of action, particularly as against the Individual Defendants. The Defendants in turn submit that, if an apportionment is to be made, the Court should order that the Plaintiffs pay at least 85% of the Defendants' costs of the proceedings as agreed or as assessed. I do not consider it appropriate to make that order, where the Plaintiffs should pay the whole of the individual Defendants' costs of the proceedings, and their partial success as against the Club should be reflected by an order that the Club pay a part of their costs of the proceedings against it.
5. In response to the Defendants' supplementary submissions, Ms Castle submits that this is not an appropriate case in which to make a percentage costs order in favour of the Defendants, where such an order is typically employed where a plaintiff achieves overall success, but does not succeed on issues which took considerable time, or are responsible for considerable costs, in the proceedings, and is not appropriate where the Plaintiffs have achieved some of the relief they have sought. It seems to me that, here, the Plaintiffs have had limited success, but the range of issues on which they were unsuccessful in fact took considerable time and was responsible for considerable costs in the proceedings.
6. The Plaintiffs also submit that a percentage costs order, covering the whole of the costs of the proceedings, of the kind which I made in Re Employ (No 96) Pty Ltd (in liq) above cannot be made in this case, because it cannot be assumed that the Plaintiffs' costs and the Defendants' costs are broadly equal. I accept that submission, particularly where such a comparison would need to distinguish not only between the costs of the Plaintiffs and the Defendants, but also between the costs of the Club and the costs of the individual Defendants. The Plaintiffs also submit, with some force, that the oppression case was directed to the Club rather than the individual Defendants, although that submission supports the view that the Plaintiffs must pay the individual Defendants' costs of the other claims against them as to which they failed.
7. I do not consider that the Court should make an order in the form initially sought by the Plaintiffs, where that would leave an assessor to determine the costs attributable to the "Successful Oppression Claim", as defined. That would be an exercise of particular difficulty where the Plaintiffs had largely put their oppression case on a different basis from the limited relief that they obtained, and would require difficult and contestable assessments of the costs attributable to other issues in the proceedings which should be awarded in favour of the Defendants. It seems to me that it is preferable that the Court now reach a broad view as to the amount of costs that should be awarded to the Plaintiffs to reflect their limited success on the question of oppression, where I am in a better position to form that view, with my knowledge of the conduct of the proceedings, than an assessor who would necessarily lack that knowledge.
8. It seems to me that the Club should be ordered to pay a relatively small proportion of the Plaintiffs' costs, and the Plaintiffs should be ordered to pay the costs of the individual Defendants where they were wholly unsuccessful as against those individual Defendants. In reaching that result, I bear in mind that, had the Plaintiffs brought a case to establish the narrower oppressive conduct on which they succeeded, and omitted the range of allegations of impropriety on which they failed, that case would have been substantially shorter than the case that they brought, and much of the cross-examination of individual Defendants which they undertook would not have been necessary for that purpose. I also bear in mind that the Plaintiffs' unsuccessful claims as to other matters will have put the Club to significant wasted costs.
9. On balance, it seems to me that the Club should pay 15% of the Plaintiffs' costs of the proceedings, on an ordinary basis, as agreed or as assessed. The Plaintiffs should pay the Second-Sixth Defendants' costs of the proceedings on an ordinary basis. No question of set-off between those costs presently arises, where the orders relate to different Defendants, and there is also no evidence of the amount of costs that have been incurred by the Club on the one hand and the individual Defendants on the other.

The basis on which costs should be ordered

1. The Defendants also submitted that costs awarded in their favour should be assessed on an indemnity basis, having regard to the several offers which they had made to compromise the proceedings. This question does not arise in respect of the Club, but I should address it so far as it is relevant to costs orders made in favour of the Second-Sixth Defendants.
2. In Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[13], Ward J (as her Honour then was) observed that: "The rationale for the principles applied in relation to Calderbank offers was outlined in Commonwealth v Gretton [above] by Beazley JA, her Honour noting (at [41]) that the public policy considerations underpinning the making of favourable costs orders where a Calderbank offer has been made (and not accepted) are the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants. The Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 recently reiterated the public policy objectives of special costs orders in the context of offers of compromise. Basten JA (with whom McColl and Campbell JJA agreed) referred at [6] to the objects underlying the formal offer of compromise procedures under the then court rules that were identified in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 as including: 1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its "bottom line" will be revealed to the court; 2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and 3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation. The onus is on the party seeking to rely on a Calderbank offer (in this case, the defendants) to satisfy the Court that it should exercise the costs discretion in its favour (Evans Shire Council v Richardson (No 2) [2006] NSWCA 61). An indemnity costs order will not automatically follow from the fact that a genuine offer of compromise more favourable than the final judgment was made nor is there any presumption to that effect (Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790; Rolls Royce Industrial Power (Pacific) Limited v James Hardie & Co Pty Limited [2001] NSWCA 461). What must be considered is the reasonableness of the offeree's rejection or non-acceptance of the offer, having regard to the relevant circumstances at the time that the offer fell to be considered (ie, here, as at September 2006) (citing MGICA (1992) Pty Limited v Kenny & Good Pty Limited [1996] 70 FCR 236 per Lindgren J). The question is whether, in all the circumstances, the failure to accept the offer "warrants departure from the ordinary rule as to costs" (SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]). Counsel for the defendants (Mr Stitt) submits that, insofar as the Court is to have regard to the particular circumstances of the case, this includes the evidence advanced, the conduct of the parties and the ultimate result (referring to Knight v Clifton [1971] Ch 700; Hally v Dennis (1955) 95 CLR 661 at 664) and that relevant conduct of the parties to be taken into account may include not only conduct in the course of the proceedings (Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137) but also conduct leading up to commencement of the proceedings (Peters v Peters (1907) 7 SR (NSW) 398 at 399). Save where there is a special costs order by reference to the procedure provided for under the Rules or in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333, it has been said that a court should depart from the general rule (and award indemnity costs only where the conduct of the party against whom the order is sought is "plainly unreasonable" (Sydney City Council v Geftlick [2006] NSWCA 280; Dunstan v Rickwood (No 2) [2007] NSWCA 266). In Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA (at [57]) said that indemnity costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs."
3. In Re MF Global Australia Ltd (in liq); Hopper v Campbell in his capacity as liquidator of MF Global Australia Ltd (in liq) [2015] NSWSC 1583 at [6], I summarised the principles applicable in determining the effect of a Calderbank offer as follows: "… the making of a Calderbank offer does not give rise to a presumption in favour of indemnity costs: Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [14]. Similarly, the fact that a plaintiff ultimately achieves a worse result than he or she would have achieved if he or she had accepted that offer, does not itself establish that the defendant should be awarded indemnity costs, unless it can be said that it was unreasonable for the plaintiff not to accept that offer, so as to warrant a departure from the general rule as to costs: Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [above] at [9]-[11]; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]-[9]; Perisher Blue Pty Ltd v Nair-Smith (No 2) above at [16]."
4. Mr McCulloch and Mr Notley in turn submit, and I accept, that the making and rejection of a Calderbank offer is a factor which may, but will not necessarily, cause the Court in its discretion to order costs on the indemnity basis and the Court may order that costs be assessed on the indemnity basis if it is satisfied that an offer was a genuine offer of compromise and the rejection of the offer was unreasonable: Treloar Constructions Pty Ltd v McMillan (No 2) [2017] NSWCA 146 at [8]-[9].
5. The Defendants rely on offers dated 11 December 2017, 30 May 2018 and 21 February 2019 made by their solicitors to the solicitors for the Plaintiffs, as annexed to an affidavit of Ms Philippa Austin affirmed 28 May 2019, on which the Defendants rely in respect of the costs application. The first of those offers proposed, inter alia, the dismissal of the proceedings with no order as to costs; a new vote to be held as to a resolution in respect of the Club's land and facilities; and certain procedures be adopted in respect of that new vote. The second offer also proposed that ClubsNSW should review decisions made as to suspension, expulsion or rejection and admission of full members of the Club between 2013 and 2018 and make a determination of the validity of those decisions, and for a new vote to be held on the basis of the corrected membership of the Club and on a specified basis. The third offer contemplated that the Club would pay an amount towards the Plaintiffs' costs, but otherwise had largely the same structure as the second offer to which I have referred above.
6. Ms Castle submits that none of the Defendants' offers give rise to the exercise of the discretion to award indemnity costs. She submits that the first offer involved the parties engaging in actions that could not have been the subject of relief given by the Court, and would require an assessment by the Court of a non-curial solution by the application of non-legal standards. She also submits that each of the proposals would have placed the Plaintiffs in a "relatively vague contractual regime" in which they would have been required to engage with the Defendants, with whom they had been in ongoing disagreement and dispute, and at risk of further dispute. Ms Castle also addresses issues as to the extent of information available to the Plaintiffs at the time the offers were made, which it is not necessary for me to address given the findings that I have reached on other grounds. She also submits, and I accept, that the second and third offers were both open for relatively short periods, and the third offer was made in the course of the hearing.
7. I accept that the first of these offers was genuinely made, but it does not seem to me that it was unreasonable for the Plaintiffs to reject it, where the new vote that it contemplated would have been conducted in circumstances that some persons had been excluded from membership and others admitted, without any resolution of the challenge to those steps brought by the Plaintiffs. That offer in any event involved no real element of compromise by the Second-Sixth Defendants, as distinct from the Club.
8. There is no evidence as to whether ClubsNSW would have accepted the role that the Defendants' second offer sought to place upon it, although the parties made submissions as to the scope of ClubNSW's administrative responsibilities, or as to the process which ClubsNSW would have adopted to address contested issues of that character. The Plaintiffs point out that the role proposed for ClubsNSW had difficulties not only as to whether ClubsNSW would agree to perform it, or had undertaken such a role in the past, but also as to who would pay any costs of that exercise and how long it would take. Ms Castle also submits that the uncertainty as to the role of ClubsNSW would have had the result that any contract formed, as a result of acceptance of the Defendants' offer by the Plaintiffs, would have been void for uncertainty. She submits that the relevant provisions of the offer were not severable, where the offer contemplated a regime to move the dispute out of Court and into a different dispute resolution forum, ClubsNSW. The Defendants respond that, if there is an issue as to the availability of the mechanism for ClubsNSW to determine the membership issues, that aspect of their offers could be severed from them. It does not seem to me to be necessary to address principles of severance here, where the severance of any mechanism for review of that issue by ClubsNSW would reinforce the view that I have formed, on other grounds, that the Plaintiffs did not act unreasonably in not accepting the Defendants' offers.
9. While I accept that the second offer was also genuine, it does not seem to me to be unreasonable for the Plaintiffs not to have accepted that offer and to have wanted those issues determined by the Court. That offer also involved no real element of compromise by the Second-Sixth Defendants, as distinct from the Club. I also accept that the third offer was genuine, but it does not seem to me to have been unreasonable for the Plaintiffs to reject it for the same reasons as the second offer, and that offer also involved no real element of compromise by the Second-Sixth Defendants as distinct from the Club.
10. As I noted above, no question arises as to an order for costs in favour of the Club on an indemnity basis, since the Club will be required to pay a portion of the Plaintiffs' costs of the proceedings. I am not satisfied that an order for costs should be made in favour of the Second-Sixth Defendants, and against the Plaintiffs on an indemnity basis by reason of these matters.

Dismissal of the proceedings

1. A question was initially deferred as to whether the proceedings should be dismissed, where the Club still seeks, or may seek, to pursue a claim for damages under undertakings previously provided by the Plaintiffs in respect of interlocutory relief. The Defendants now submit that an order should be made that the Summons and the Second Further Amended Statement of Claim be otherwise dismissed, rather than, that the proceedings otherwise be dismissed. They submit that that course should be taken to allow the inquiry by the Court as to damages to be dealt with in the proceedings, in accordance with orders which I have previously made. Ms Castle indicates that the Plaintiffs see no difficulty in the Summons and Second Further Amended Statement of Claim being otherwise dismissed and agreed to that course. The Summons and Second Further Amended Statement of Claim should be dismissed, where the Defendants seek that order and the Plaintiffs do not contest it.

Orders

1. Accordingly, I make the following orders:
2. Save for the orders made by the Court on 6 June 2019, the Summons and the Second Further Amended Statement of Claim be otherwise dismissed.
3. The First Defendant pay 15% of the Plaintiffs' costs of these proceedings, as agreed or as assessed.
4. The Plaintiffs pay the Second-Sixth Defendants' costs of the proceedings, as agreed or as assessed.

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 July 2019