Nicolaou v The Federation of Ethnic Communities' Councils of Australia

Supreme Court of NSW|2015-11-09

Judgment

HER HONOUR: This is a decision in relation to indemnity costs.
On 8 October 2015, I delivered judgment in this matter: see Nicolaou v The Federation of Ethnic Communities' Councils of Australia [2015] NSWSC 1440. On 27 May 2015, the Local Court Magistrate had dismissed the plaintiff's claim. I dismissed the appeal from the Magistrate's decision and affirmed the orders of the Magistrate.
The plaintiff in this Court is Dr Loucas Nicolaou ("Dr Nicolaou"), who was the plaintiff in the Local Court proceedings. The defendant in this Court is the Federation of Ethnic Communities' Councils of Australia ("FECCA"), who was the defendant in the Local Court proceedings.
Both parties have now complied with the timetable and they have furnished their written submissions in relation to costs.
FECCA seeks indemnity costs in relation to these appeal proceedings on the basis of an offer of compromise dated 30 July 2015. It seeks a costs order that Dr Nicolaou pay FECCA's costs on the usual basis up to 29 July 2015 and an order that Dr Nicolaou pay FECCA's costs on an indemnity basis from and including 30 July 2015.
Dr Nicolaou seeks an order that FECCA's costs be paid on an ordinary basis.

The Calderbank offer

On 30 July 2015, FECCA's solicitors forwarded a letter to Dr Nicolaou's solicitors. It relevantly reads: "In our view, on assessment our client would be likely to recover at least $51,282.16 in costs in connection to the Local Court proceedings, comprising: (a) $22,431.35 for the period up to an including 23 October 2014 being 60% of our client's actual costs (of $37,385.59) for that period, being our assessment of our reasonable party/party costs for this period; and (b) $28, 850.81 for the period from 24 October 2014 up to and including 19 June 2015 (being 100% of our client's actual costs for that period) reflecting the indemnity costs order for this period. We consider this to be a conservative assessment and the minimum our client would be likely to recover pursuant to the costs orders. In our view, given the high threshold in respect of applications made under Part 50 of the UCPR, the prospects of your client being granted leave to appeal to the NSW Supreme Court are weak. Further, even if leave is granted, the prospects of your client being successful on appeal are weak. However, it is our client's preference to avoid further costs in connection with the preparation and hearing for your client's Summons in accordance with the current timetable. In these circumstances, our client is prepared to offer to settle this matter on the following basis: (a) Payment by your client to our client of $41,000 in respect of the costs order in the proceedings below (being a discount of approximately 20 percent) within 14 days, on condition that if full payment is not paid within that timeframe your client agrees to our client filing in the Local Court consent orders for judgment in our client's favour for the full amount of our assessment of our costs viz $51,282.16; (b) The Supreme Court proceedings be discontinued, with no order as to costs; and (c) The parties enter into a formal deed of settlement and release incorporating these terms and including mutual clauses as to confidentiality and non-disparagement and mutual releases. We consider this offer reflects a genuine compromise by our client, taking into account the merits of your client's claim and the costs of the litigation to date. This offer remains open for acceptance until 5pm on 6 August 2015. …" (Ex 1).

The law

The starting point is s 98 of the Civil Procedure Act 2005 (NSW).
It relevantly reads: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. ..." [My emphasis]
Rules 42.1 and 42.15A of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") are also relevant. They read: "42.1 General rule that costs follow the event 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. … 42.15A Where offer not accepted and judgment no less favourable to defendant. (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and …"

Indemnity Costs

The general rule is that costs are payable on a party/party basis. A court should only depart from the general rule and award indemnity costs where the conduct of the party against whom the order is sought is plainly unreasonable: see Sydney City Council v Geftlick [2006] NSWCA 280 at [90] per Tobias JA, Mason P and Hodgson JA agreeing. Indemnity costs orders should be reserved for the most unreasonable action by unsuccessful plaintiff: see Leichhardt Municipal Council v Green [2004] NSWCA 341 per Santow JA (at [57]).
In Cat Media Pty Ltd v Allianz Australian Insurance Ltd [2006] NSWSC 790, Bergin J confirmed the relevant principles in relation to Calderbank offers by reference to Leichhardt Municipal Council stating that the costs consequences attendant under the general law upon an offer of compromise made in a Calderbank letter are in the court's discretion, to be exercised having regard to all of the relevant circumstances of the case. Firstly, there is not a prima facie presumption in favour of an award for indemnity costs if the Calderbank offer is not accepted and is not bettered; secondly, a Calderbank offer that has no real element of compromise in it, which is designed merely to trigger costs sanctions, will not be treated as a genuine offer of compromise; thirdly, there is no rule that an optimistic offer is not a genuine offer. Whether or not it was reasonable to reject an offer is a question that may figure in the discretionary balance, but it is not a question which affects the genuineness of the offer; and fourthly, an applicant for an order for indemnity costs consequent upon an unaccepted Calderbank offer must show that the rejection of the offer was unreasonable.
The question for the court is whether the offer was a genuine offer of compromise; and whether it was unreasonable for Dr Nicolaou not to accept the offer: see Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8].

Dr Nicolaou's submissions

Dr Nicolaou submitted that although the offer was put, it does not represent a genuine offer of compromise as to the discount applied, and in the circumstances it was not unreasonable for the offer not to be accepted as the appeal was one that had prospects of success.

FECCA'S submissions

FECCA assessed the costs it would recover pursuant to the costs order in the Local Court proceedings to be $51,282.16. FECCA says that this offer firstly represented a discount of approximately 20% of those costs; and secondly, it proposed the discontinuation of the appeal proceedings in this Court, with no order as to costs. According to FECCA, an acceptance of the offer would have removed the need for a hearing of both Dr Nicolaou's summons seeking leave to appeal, and his appeal, and this would have meant that no further court time would have been required and no costs would have been incurred.
FECCA further submitted that Dr Nicolaou's argument that the offer of compromise was not genuine is difficult to reconcile in light of the fact that it represented both a 20% discount on the recoverable costs of the Local Court proceedings (amounting to about $10,000) and was effectively a walk away offer in respect of the costs of the appeal, saving both parties and the Court time and money. In terms of legal costs, FECCA says that there was real comprise of what it would have recovered if it was successful, and for that reason the offer was genuine.
Finally, FECCA submitted that for Mr Nicolaou to say that it was unreasonable for him to accept the offer of comprise, appears to rest solely on the strength of Dr Nicolaou's case. FECCA says that the conclusion of this Court was that to accept Dr Nicolaou's position on appeal was "one of contortion and not borne out by the objective and circumstances" (J [48]). While at least the appeal was arguable (J [14]) the strength of Dr Nicolaou's case was at best weak and accepting the offer of compromise would have avoided the risk of his failure. Therefore, FECCA says that it was reasonable for Dr Nicolaou to accept the offer of comprise and in light of the result, unreasonable not to accept it.

Conclusion

I agree that at [48] in my earlier judgment, I stated that to accept Dr Nicolaou's approach to establish that an agreement was formed, is one of contortion and not borne out by the objective facts and circumstances.
Although only leave to appeal was listed for hearing before me, with the consent of the parties, I determined both the application for leave to appeal and the appeal itself at the one hearing. That meant court time and the parties' legal costs were saved by obviating the need for a further hearing at a later date. I granted leave to appeal on the basis that Dr Nicolaou's case was arguable but dismissed the appeal after all the issues had been ventilated.
FECCA offered a 20% discount on its legal costs up to 29 July 2015 on the basis that the appeal be discontinued with no order as to costs and the parties enter into a formal deed of settlement and release incorporating these terms and including mutual clauses as to confidentiality and non-disparagement and mutual releases.
It was clear from the reading of the transcript and his affidavit in the Local Court that Dr Nicolaou felt personally aggrieved by the actions of FECCA. He had an arguable case, but ultimately failed on a full hearing of the appeal. He would have felt that an injustice had occurred had he not been permitted to ventilate the issue on appeal. In additional to a slight discount in FECCA's costs, FECCA required Dr Nicolaou to sign a formal deed that incorporated, inter alia, mutual clauses as to confidentiality and non-disparagement. It was not reasonable for Dr Nicolaou to agree to this additional term. In these circumstances, it is my view he did not act unreasonably in not accepting FECCA's offer of compromise dated 30 July 2015. In the exercise of my discretion, I order that the plaintiff is to pay the defendant's costs on an ordinary basis as agreed or assessed. The Court orders that: (1) The plaintiff is to pay the defendant's costs on an ordinary basis as agreed or 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: 09 November 2015

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