COSTS - Party/Party - Application for indemnity costs - where successful party sues as assignee of contract in which unsuccessful party agreed to pay assignor's costs of enforcing contract
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Catchwords
COSTS - Party/Party - Application for indemnity costs - where successful party sues as assignee of contract in which unsuccessful party agreed to pay assignor's costs of enforcing contract
By my judgment delivered on 28 July 2017 ([2017] NSWSC 1002) ("Judgment"), I gave judgment for the Plaintiff, MIS Funding No 1 Pty Ltd ("MIS") in proceedings 2013/258692 ("2013 proceedings") and ordered that proceedings 2016/42689 ("2016 proceedings") brought by Mr Truskett against MIS should be dismissed. I ordered that Mr Truskett should pay MIS's costs of and incidental to both proceedings, as agreed or as assessed. I also directed that the parties bring in agreed Short Minutes of Order to give effect to the Judgment or, if there was no agreement between them, their respective drafts of such orders and short submissions as to the differences between them within 14 days and granted leave to both parties to address a foreshadowed application by MIS for indemnity costs, by reason of earlier offers made by it, if agreement could not be reached between the parties in that respect.
MIS Funding No 1 Pty Limited v N W Truskett [2017] NSWSC 1157 | Case summary | Zoe
The orders sought by MIS in the 2013 proceedings are that judgment be entered in its favour against Mr Truskett in the sum of $203,748.41; the Cross-Claim filed by Mr Truskett is dismissed; and he is to pay MIS's costs of and incidental to the 2013 proceedings on an indemnity basis. The orders sought by MIS in the 2016 proceedings are that Mr Truskett's application is dismissed and he pay MIS's costs of the proceedings on an indemnity basis. The parties have reached agreement as to those orders other than as to the question whether it is appropriate for the Court to order that Mr Truskett pay MIS's costs of the two proceedings on an indemnity basis. Mr Truskett accepts that an order should be made that he pay MIS's costs of and incidental to the two proceedings on the ordinary basis as agreed or as assessed.
That question as to costs is to be determined in the context that s 98 of the Civil Procedure Act 2005 (NSW) confers a discretionary power to determine costs on the court and requires that that discretion be exercised judicially. Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) provides that:
"Subject to this Part, if the court makes any order as to costs, the court is to order that the costs 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."
Rule 42.2 in turn provides that, unless the court orders otherwise or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. Rule 42.5 deals with an order for costs on an indemnity basis.
[3]
MIS's claim for indemnity costs of the 2013 proceedings under the Terms Agreement
First, MIS submits that it is entitled to indemnity costs under cl 4(d) of a Terms Agreement dated 30 June 2006 to which I referred in the Judgment. MIS also points out that it pleaded a claim for indemnity costs in the Statement of Claim in the 2013 proceedings.
Clause 4(d) of the Terms Agreement relevantly provides that Mr Truskett agreed to pay all the costs, charges and expenses of Willmott Forests Ltd ("WFL") in, relevantly, exercising any of its rights under and enforcing the Application (as defined) or the Relevant Agreements (as defined) or the Terms Agreement, and specifically extended to payment of legal costs on a full indemnity basis. In its terms, that clause expressly refers to WFL rather than to MIS which is an assignee of WFL's rights under the relevant agreement. MIS submits that, while costs are ultimately in the Court's discretion, ordinarily the Court will exercise its discretion so as to reflect a contractual right of a party to indemnity costs: Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 at [194]; Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [12]-[13]. In Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3) [2010] NSWSC 1139 at [22], [39], where Nicholas J referred to the decision in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) above as authority that the Court's discretion would normally be exercised to give effect to the contractual entitlement and made an order for indemnity costs on that basis, and McCallum J took the same approach in Westpac Banking Corporation v Mason [2011] NSWSC 1241 at [38].
I am not satisfied that a contractual basis for indemnity costs is established, where cl 4(d) of the Terms Agreement providing for indemnity costs was expressly directed to WFL's costs and no party has drawn any attention to any provision or principle that altered the operation of that clause, absent novation of the agreement, to confer such rights on MIS as an assignee of WFL's rights or to any authorities which addressed that question. On the face of it, costs incurred by MIS are simply not costs, charges and expenses of WFL within the scope of that clause.
[4]
MIS's claim for indemnity costs of the 2013 proceedings relying on a Calderbank letter
Alternatively, MIS submits that it is entitled to indemnity costs from 6 November 2015 by reason of Mr Truskett's failure to accept a Calderbank offer made by MIS on 30 October 2015.
The principles applicable to whether an order for indemnity costs should be made by reason of a Calderbank offer were summarised by Ward J (as her Honour then was) in Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[15], where her Honour observed that:
"The rationale for the principles applied in relation to Calderbank offers was outlined in Commonwealth v Gretton [2008] NSWCA 117 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) Ltd v James Hardie & Co Pty Ltd [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 Ltd v Kenny & Good Pty Ltd [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 [above], 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."
In Re Alsafe Security Products Pty Ltd atf The Alsafe Trust (in liq) [2016] NSWSC 575 at [8], I summarised the principles applicable in determining the effect of a Calderbank offer as follows:
"[T]he fact that a party ultimately achieves a worse result than he or she would have achieved if he or she had accepted a Calderbank offer does not itself establish that the other party should be awarded indemnity costs, unless it can be said that it was unreasonable for the first party 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) [2012] NSWSC 816 at [9]-[15]; Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [14], [16]. In Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 1229 at [26], Stevenson J observed that:
'If a Calderbank offer is made, but not accepted, the court's discretion to make a special order is enlivened. The court's discretion is an open one, but is commonly enlivened if (a) the party that made the offer achieves a better result than the amount offered, (b) the offer was a genuine offer of compromise, and (c) it was unreasonable of the offeree not to accept: for example Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [7]-[8].'"
Mr Truskett submits that MIS's offer of compromise was "fundamentally flawed" in that it did not state what amount was payable with respect to the claim and costs respectively and did not contain any reasons why the offer is a reasonable one. Mr Truskett submitted that that offer was made in circumstances where MIS had by then conceded, by evidence and correspondence, that relevant powers of attorney were required to be registered creating a reasonable inference that neither the Terms Agreement nor the loan transfer or assignment which I addressed in the Judgment were of any effect. Mr Truskett submits that MIS has not established that it was unreasonable of him not to accept the offer.
MIS responds that its offer of compromise was made after MIS had filed its Statement of Claim in August 2013, Mr Truskett had filed his Defence in February 2015 and a Cross-Claim in June 2015, and after MIS had served its evidence in chief in March 2015 and the parties had exchanged particulars. MIS also points out that, prior to that offer, it had previously served another Calderbank offer on Mr Truskett which offered to compromise the claim the subject of the proceedings and another loan owed by Mr Truskett to MIS which was not the subject of the proceedings, and had provided a breakdown of its claims and costs incurred to 1 October 2015; an informal settlement conference had occurred on 27 October 2015; and the proceedings were to be listed for further directions in the District Court of New South Wales, where they had been originally filed, on 6 November 2015.
Although the relevant Calderbank letter was inclusive of costs and MIS there did not identify the amount of the claim and costs that were to be compromised, MIS refers to authority that an offer made inclusive of costs can be an effective Calderbank offer where the recipient has the ability to assess the quantum of the costs claimed so as to determine whether the rejection of the offer would be reasonable: Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [116]. MIS submits that Mr Truskett had information as to that matter, at least by reason of information provided in the earlier Calderbank offer made on 1 October 2015 as to the costs incurred to that date ($42,000) and the amount owing under the Terms Agreement ($159,384.06) and information discussed and exchanged during the informal settlement conference, and that Mr Truskett should have appreciated that the amount of $170,000 inclusive of costs represented a compromise on MIS's claim of approximately $200,000. MIS also submits, in response to a criticism that the offer does not explain why it was reasonable, that it was not required to do so.
MIS submits, and I accept, that its offer was a genuine offer of compromise, where it represented a significant discount to the amount then claimed by MIS by reference to the amount of the loan then claimed and costs. MIS submits that it was unreasonable for Mr Truskett not to have accepted the offer, where it was open for five business days, and made where pleadings, MIS's evidence in chief and content of the informal settlement conference were available to Mr Truskett.
However, I am not satisfied that it was unreasonable for Mr Truskett not to accept the offer of compromise made in the 2013 proceedings, where a real issue arose in respect of the non-registration of the powers of attorney, as to which his case had prospects of success, although that issue was ultimately determined against him in the proceedings.
[5]
MIS's claim for indemnity costs in the 2016 proceedings
MIS also submits that it should have indemnity costs in the 2016 proceedings commenced by Mr Truskett, by reason of WFL's contractual entitlement to indemnity costs under cl 4(d) of the Terms Agreement and Mr Truskett's failure to accept the offer made in 2015 in respect of the 2013 proceedings. MIS points out that the 2016 proceedings largely replicated the facts and matters pleaded in the Defence and Cross-Claim filed in the 2013 proceedings, although MIS was initially not joined in those proceedings. Mr Truskett accepts that an order should be made that he pay MIS's costs of and incidental to the 2016 proceedings on the ordinary basis as agreed or as assessed.
I am not satisfied that an order for indemnity costs should be made against Mr Truskett in the 2016 proceedings for the same reasons that I have not made such an order against him in the 2013 proceedings. No order for indemnity costs was sought against Mr Truskett on any basis that it was unreasonable for him to commence the 2016 proceedings where all relevant issues were or could have been raised in the 2013 proceedings, and a fortiori to do so without joining MIS as party to them, where they raised parallel issues to those raised in the existing proceedings between MIS and Mr Truskett in the District Court. It is accordingly not necessary to determine whether an order for indemnity costs could have been made against Mr Truskett in respect of the 2013 proceedings on that basis.
Accordingly, I make the following orders:
In proceedings 2013/258692:
(a) Judgment be entered in favour of MIS Funding No 1 Pty Limited ("MIS") against Mr Truskett in the sum of $203,748.41.
(b) The Cross-Claim filed by Mr Truskett is dismissed.
(c) Mr Truskett is to pay MIS's costs of and incidental to the 2013 proceedings on an ordinary basis as agreed or as assessed.
In proceedings 2016/42689:
(a) Mr Truskett's application is dismissed.
(b) Mr Truskett pay the costs of MIS Funding No 1 Pty Limited of the proceedings on an ordinary basis as agreed or as assessed.
[6]
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Decision last updated: 01 September 2017