Meldov Pty Ltd v Bank of Queensland

Supreme Court of NSW|2015-06-11|Before: Slattery J

EX TEMPORE Judgment

This is the Court's second judgment in these proceedings. This judgment refers to events, matters, people and things in the same way as the principal judgment: Meldov Pty Limited v Bank of Queensland [2015] NSWSC 378.
The Court concluded in the principal judgment that the plaintiff, Meldov, was unsuccessful on the grounds that the restitutionary obligation of the mortgagors, the Di Pietros, to the defendant, the Bank, to repay certain moneys mistakenly overpaid by the Bank was secured by the "all moneys" clause of the Bank's first mortgage. Consequent upon the principal judgment, the Court made orders dismissing Meldov's claim.
The present issue before the Court relates to costs. There is no dispute between the parties that the Court should make an order for costs in the Bank's favour against Meldov arising out of the judgment. But the Bank seeks indemnity costs after the service and the expiry without acceptance of an offer of settlement, based on the principles in Calderbank v Calderbank [1975] 3 All ER 333; [1976] Fam 93.
The Bank's Calderbank letter was dated 18 July 2014 and was written after a failed mediation. The letter indicated it would remain open for acceptance until 12 noon on 30 July 2014, a period of 12 days after it was sent. The letter set out the procedural background and then stated the Bank's position on prospects of success and made an offer, as follows: "Prospects In brief, BOQ's position is as follows: a. The Di Pietros' obligations to repay the Additional Funds may be characterised in many ways, including, but not limited to, an agreement to repay, conversion or mistake; b. Notwithstanding the category attributed to the Additional Funds, the Di Pietros had an obligation to repay BOQ the Additional Funds and this obligation was secured by the mortgage over the Brunswick property; and c. The mortgage incorporated Memorandum of Common Provisions Number AA796 (MCP). Pursuant to clause 4.1 of the MCP and the definition of 'total amount owing', the Additional Funds fall within the provisions of the mortgage and consequently, were secured by the mortgage over the Brunswick property. The documentary evidence filed on behalf of your client, does not support your client's allegations and we are confident that if this matter proceeds to a trial, our client will succeed in proving its defence against Meldov. Offer With no admission of liability, our client is prepared to pay Meldov $80,000 in full and final settlement of the proceeding, with payment to be made within 28 days of written acceptance."

Legal principles

The principles of law applicable to the exercise of the Court's discretion on this issue are well known. The Bank as offeror bears the onus of showing Meldov's failure to accept the offer was unreasonable and that the Court should exercise its discretion to award costs other than on the standard basis: Sural SpA v Downer EDI Rail Pty Ltd [2007] NSWSC 1292. There is no presumption in favour of the ordering of costs on the indemnity basis arising from the bare facts that a Calderbank offer was made and rejected, before the offeror achieved a prima facie better result than what was offered: Jones v Bradley (No 2) [2003] NSWCA 258 at [5] - [8]. The alleged unreasonableness of the offeree not taking up the offeror's offer is to be assessed by reference to the situation at the time the offer was made having close regard to the terms of offer and without resort to the benefit of hindsight: Crump v Equine Nutrition Systems Pty Ltd t/a Horsepower (No 2) [2007] NSWSC 25 at [41].
Finally, there is no absolute rule that a Calderbank letter must be expressed as exclusive of costs. But the situation as to costs should be clearly expressed; and it will be more difficult for an offeror to succeed in applying for indemnity costs where the offer is not for an amount plus costs: Elite Protective Personnel Pty Limited & Anor v Salmon [2007] NSWCA 322 ("Elite") at [5] per Beazley JA, at [115] per McColl JA and at [144] per Basten CJ. Meldov says that the Bank has not discharged its obligation to show that it was unreasonable for Meldov not to accept the offer. In substance, Meldov says it was reasonable for it not to accept the offer, although of course the onus of course is on the Bank.
A number of issues on the question of reasonableness were presented in argument. I will deal with them in order.

The Parties' Submissions

Firstly, the Bank says no relevant circumstances changed between the time it made its offer and the outcome of the proceedings by judgment. The offer was made after mediation. Presumably, the parties had canvassed a lot of the issues in argument before a mediator. The Bank says that Meldov was in the same position to assess the strengths and weaknesses of the evidence, to consider accepting the offer after the failed mediation at the end of July 2014 as it was later during the hearing. The offer was made after all affidavit evidence had closed, and pleadings had closed.
It is true, as Meldov points out, that the statement of agreed facts used during the hearing had not been agreed upon by that stage. But the statement of agreed facts emerged from the parties' mutual assessment of the evidence that had been filed before the Calderbank letter. This is not a case where Meldov can say that some new fact emerged after the offer had expired, which could have provided a basis for Meldov to accept the offer had it known that new fact before the offer expired.
The next matter is the 12 day period that was left open for acceptance of the offer. The Bank says that was a reasonable period. Meldov did not strongly contend it was a less than reasonable period. In my view it was reasonable, particularly because of the detailed analysis contained in the Calderbank letter itself of the current situation and the statement of legal position which is the basis for the letter.
Meldov says the form of the letter was confusing. It says it was uncertain looking at the letter whether or not the offer being made was inclusive of costs or not. For this reason Meldov says its failure to accept the offer was understandable. I do not find this argument persuasive for two main reasons. Firstly, if one looks at the letter, the offer is expressed to be a payment to Meldov of "$80,000 in full and final settlement of the proceeding". In my view, that would import an offer inclusive of costs. The term "full and final settlement" implies finality: see Balcomb v Brownlee [2015] NSWSC 361. But this is supported even further by the words "with payment to be made within 28 days with written acceptance" and without any suggestion that the quantum of costs should be agreed or assessed. This is clearly an offer to pay the sum of $80,000 within 28 days, no more and no less. It seems to me there could be no reasonable doubt on the face of letter that it was inclusive of costs.
The second reason to dismiss this argument is that were confusion as to the offer's inclusive or exclusive costs position truly an actuating concern on Meldov's part, it would have been the simplest of acts at the time to remove this confusion for Meldov's solicitor to inquire of the Bank's solicitor whether that was what was meant. That did not happen.
Meldov relies upon the complexity of the issues in the proceeding in arguing that it was not unreasonable of Meldov to refuse the offer. It points to proceedings in Supreme Court of Victoria which were joined between the parties and which were resolved in December 2011 as indicating the complexity of issues between those parties. The Victorian proceedings could not, themselves, have been a reason for it to be unreasonable to accept the offer. The Victorian proceedings were resolved about two and a half years before the offer was made, and Calderbank letters in complex proceedings are not unknown. It can be difficult to frame an adequate Calderbank letter in proceedings with multiple claims. But this was a claim which could be reduced to a simple money judgment. Had Meldov succeeded, it would have obtained a money judgment. A money offer was made in the Calderbank letter. Such complexity as there was does not warrant, in my view, any inference that it was reasonable not to accept the offer.
Meldov also says that it was not unreasonable for it not to accept the offer, because the offer was so different from the amount claimed. There is no doubt that low Calderbank letters, compared to a plaintiff's expectation, can be confronting at times for offerees. But they can also be a basis for plaintiffs to make a realistic assessment of their true position.
If this argument is really one as to whether the offer was genuine, in my view it was. Meldov's own evidence on this motion shows that its actual costs at the time the Calderbank offer was served were approximately $39,328.02. The offer, if accepted, would have meant that Meldov would have had all its costs paid and still received about $40,000. Such an offer, assessed at the time, bears all the hallmarks of a genuine compromise: it would have put a not unsubstantial sum of money in Meldov's pocket after the payment of costs.
Meldov also submits that the fact that the offer was inclusive of costs makes it difficult to assess costs and assess whether the offer should be accepted. The submission is based on the passages from Elite identified above. In some cases it can be difficult, as Elite points out, for an offeree to assess whether or not it should accept an offer because of the difficulty in analysing the correct amount of costs that have been incurred in relation to particular claims. But this is not such a case. Meldov here could readily have asked its solicitors for an assessment of its own costs to date and then decided whether or not to accept the offer.
Meldov's last point is that at the time of the offer there was uncertainty in the law, which made it reasonable to reject the offer. Meldov points to the authority of Estoril Investments Pty Ltd v Westpac Banking Corporation (1993) 6 BPR 13,146 and the cases following it in the principal judgment, as well as the recent judgment of Perpetual Trustee Co Ltd v Moussa [2013] NSWSC 131 ("Moussa"). Mledov says that these authorities produced an arguable basis for Meldov to put the case that it did.
In the end, the Court in the principal judgment distinguished Moussa and applied the other New South Wales Court of Appeal authorities, Fountain v Bank of America National Trust and Savings Association (1992) 5 BPR 11,817 ("Fountain") and Smith v Australia and New Zealand Banking Group Limited (1996) NSWConvR 55-774 ("Smith"). In my view the Court's application of the principles in Fountain and Smith and Hill J's judgment in Donnelly v Commonwealth Bank of Australia (1996) 140 ALR 46 ("Donnelly") were conventional applications of legal reasoning. And the proceedings were the construction of a commercial agreement in accordance with the principles of Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640.
Parties in deciding whether to accept or reject Calderbank offers often have to make decisions not only about uncertainty as to the facts, but uncertainty as to the law. This was not a particularly unusual decision, which would make rejection of the offer reasonable on the ground of legal uncertainty. Nor was this a case, in my view, where the law was particularly confusing. There is no doubt, as the judgment expressed, that Meldov had a clearly arguable case, and one which was well articulated by its lawyers, but the law was not in a state of confusion before the principal judgment.

Conclusion

For all of those reasons, the Court finds that the Bank's submission is correct, it was unreasonable of Meldov not to accept this offer.
Accordingly, the Court makes the following orders and directions: 1. I order that Meldov pay the Bank's costs of these proceedings on the ordinary basis up to and including 30 July 2014. 2. Meldov is to pay the Bank's costs of these proceedings on the indemnity basis from 31 July 2014 until and including today.

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: 12 June 2015

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