(6) Mr Tan should pay the costs of the cross-defendants to the fifth cross-claim.
Costs against both plaintiffs?
72 The defendants submitted that costs orders should be made against both plaintiffs. They pointed to the fact that, when security for costs was sought at a relatively early stage of the proceedings, the plaintiffs opposed giving security because the second plaintiff, ozEcom's liquidator, accepted that he was "exposed to liability for adverse costs orders made against either himself or the Company" (letter of 15 February 2006 from the plaintiffs' solicitors to Hudson Investment's solicitors). It is clear that the plaintiffs regarded that acceptance of liability as an absolute answer to any application for security for costs.
73 Although, as I have indicated, the relevant correspondence passed between the plaintiffs' solicitors and Hudson Investment's solicitors, Mr Cotman did not suggest that there should be any different costs liability as between the plaintiffs and Hudson Investment on the one hand and as between the plaintiffs and the other defendants on the other.
74 In those circumstances, the defendants are entitled to costs orders against both plaintiffs.
Indemnity costs
75 The defendants submitted that any costs ordered to be paid to them by the plaintiffs should be paid on the party and party basis up until 19 February 2007 and on the indemnity basis thereafter. They relied on a letter of 19 February 2007 from Hudson Investment's solicitors to the plaintiffs' solicitors. That letter stated that it was an offer made on behalf of all defendants "with their legal representatives' authorisation".
76 The letter was formulated "as a joint offer to [the plaintiffs] to resolve these proceedings including all cross-claims on a sensible commercial basis without further costs being incurred". It offered payment of "the sum of $150,000.00 to the Plaintiffs, in full and final settlement of all claims and cross-claims made against the Defendants by the Plaintiffs in the Proceedings". It proposed that the proceedings be dismissed or that the plaintiffs discontinue, and that the plaintiffs give appropriate releases to the defendants. Leaving aside machinery matters, the letter provided also that the defendants would pay the plaintiffs' costs up to the date of acceptance in an amount to be agreed or assessed.
77 The offer was expressed to be open for 21 days and to expire at 5:00pm on 12 March 2007. That date was described as "the date when the parties are required to attend to matters for the preparation for the hearing…". The letter noted that there would be substantial costs incurred after that date.
78 The defendants made a further offer on 26 April 2007. It too was "a joint offer… to resolve these proceedings including all cross-claims on a sensible commercial basis". The amount offered was $375,000.00 "inclusive of costs to the Plaintiffs, in full and final settlement of all claims and cross-claims made against the Defendants by the Plaintiffs in the Proceedings". It required that there should be "mutual releases… between all parties to the proceedings and Cross-Claims".
79 Mr Cotman submitted that there should be no order for indemnity costs based on the letter of 19 February 2007, because that letter on its face did not propose the resolution of all matters in dispute between the parties. Specifically, Mr Cotman submitted, the letter made no proposal for the resolution of Hudson Investment's first cross-claim, insofar as that cross-claim sought recovery of the underwriting fee and commission. In this, he contrasted the wording of the letter of 19 February 2007 with that of the letter of 26 April 2007 (which provided specifically for mutual releases that extended to the cross-claims).
80 I do not accept the submission. The letter of 19 February specifically provided that the offer was made "to resolve these proceedings including all cross-claims". Further, it provided that the sum of $150,000.00 was payable "in full and final settlement of all cross-claims made against the Defendants by the Plaintiffs". Perhaps not surprisingly, there was no cross-claim "made" by the plaintiffs against any defendant. The only cross-claims that were "made" in the proceedings were those brought by defendants: against each other and in some cases against ozEcom.
81 In my view, when the letter of 19 February 2007 is read in its entirety, it is clear that the proposal was one for the resolution of all matters in dispute in the proceedings between the parties: whether advanced by way of the plaintiffs' claim against the defendants or by way of the various cross-claims.
82 There was no suggestion that the plaintiffs made any inquiry of the defendants as to whether (contrary to what I think is the clear reading of the letter) Hudson Investment intended to press its cross-claim for recovery of its underwriting fee even if the offer contained in the letter had been accepted.
83 Mr Cotman did not submit that indemnity costs should be refused because the defendants' offer was made by way of Calderbank letter rather than by way of offer of compromise pursuant to UCPR r20.26. The defendants submitted that the rule did not accommodate a joint offer by more than one party. Certainly, subr(1) talks of one party making an offer to another ("any party… any other party"). It may be that the singular should be taken to include the plural; but I accept that the position is unclear. There is of course a difference between an offer of compromise under the rules and an offer in a Calderbank letter. Failure to better the offer contained in an offer of compromise effectively creates presumptions as to costs consequences (see UCPR part 42 division 3). Failure to better a Calderbank offer creates no presumption; before the offeror obtains an order for indemnity costs it must be shown not only that the offeree has not bettered the offer but that the offeree's failure to accept the offer was in all the circumstances unreasonable (see for example SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] and Leichhardt Municipal Council v Green [2004] NSWCA at [19]).
84 Mr Cotman did not submit that the offer contained in the letter of 19 February 2007 was not a genuine offer of compromise, or an offer with no real element of compromise in it, designed merely to trigger costs sanctions (see Santow JA in Leichhardt Council at paras [22], [23]). Thus, it is unnecessary to consider the question; but if it were, I would conclude that the offer did contain a real element of compromise.
85 In the circumstances of this case, I do think that it was, in the relevant sense, unreasonable for the plaintiffs not to accept the offer contained in the letter of 19 February 2007. At the time that letter was written, their claim was for loss of the amount of the capital raising or alternatively of the underwritten amount. For the reasons that I gave in paras [279] to [298] of my earlier reasons, that claim was misconceived. There was a substantial body of authority against it (including at the immediate appellant level). The case on which ozEcom relied - the decision of Giles J in Segenhoe Ltd v Akins (1990) 29 NSWLR 569 - did not deal with the particular point. Indeed, as I observed in para [296], ozEcom's reliance upon it appeared to stem from a misunderstanding of the defendants' submissions on this point.
86 Thus, the effect of the offer of 19 February 2007 is that the plaintiffs would receive $150,000.00 together with their costs to date for a case that, on the existing state of the authorities, was bound to fail. It was not reasonable for the plaintiffs to reject that offer.
87 As I have said, the defendants asked that indemnity costs run from the date of the letter. They relied on the analogy with an offer of compromise. However, the analogy is less than perfect. For a Calderbank offer to be effective, it must allow the offeree a reasonable time to consider and, if thought fit, to accept it. A failure to accept a Calderbank offer before that reasonable time expires cannot of itself be unreasonable. The form of the offer suggests that 21 days was a reasonable time for its consideration. The offer was not rejected. It expired, unaccepted, by effluxion of time. In those circumstances, the relevant unreasonable conduct was the failure to accept the offer within the time limited for its acceptance. In my view, there having been no express rejection, the plaintiffs' conduct did not become unreasonable until that time had expired.
88 Thus, in my view, costs payable by the plaintiffs to the defendants should be paid on the party and party basis up until 12 March 2007 and on the indemnity basis thereafter.
Costs of the cross-claims
89 As I have said, it is my view that the various unsuccessful cross-claimants should bear primary responsibility to the cross-defendants for the costs of the failed cross-claims. The relevant question is whether the plaintiffs should indemnify those cross-claimants for the amounts of those costs. That question arises in relation to the second, third, fourth and fifth cross-claims.
The second cross-claim
90 The second cross-claim included not only a claim for contribution or indemnity but also a claim for payment of Hudson Securities' fee. The claim for payment of the fee cannot be said to have been merely defensive, or reflexive of ozEcom's claim against Hudson Securities. However, the claim for contribution or indemnity did no more than rely on ozEcom's claim against Hudson Investment, in the event that both that claim and the claim against Hudson Securities were successful.
91 Having regard to the facts as I have found them in my earlier judgment, ozEcom must have understood, when it sued both Hudson Investment and Hudson Securities, that there were likely to be cross-claims between them for contribution. To the extent that those cross-claims are defensive, and merely reflect ozEcom's claims against the relevant cross-claimant, then ozEcom - or more accurately, for the reasons that I have given, the plaintiffs - should be ordered to indemnify the cross-claimant.
92 Applying those considerations to the second cross-claim, and seeking to take account of the claim for the fee, an appropriate exercise of the discretion in relation to costs is to order that the costs payable by the plaintiffs to Hudson Securities include one-half of the costs payable by Hudson Securities to Hudson Investment in respect of the second cross-claim.
The third cross-claim
93 This cross-claim was entirely defensive, and reflected only ozEcom's claim against Hudson Investment. For the reasons that I just given in relation to the second cross-claim, the plaintiffs should bear the costs that Hudson Investment is liable to pay Hudson Securities in respect of this cross-claim. Since the third cross-claim contains no extraneous element, the costs payable by the plaintiffs to Hudson Investment should include the whole of the costs payable by Hudson Investment to Hudson Securities in respect of the third cross-claim.
The fourth cross-claim
94 As I have noted in para [65] above, this cross-claim, although brought for contribution or indemnity, was not merely reflexive of claims made by ozEcom (and could not be so, insofar as the cross-defendants to the fourth cross-claim included Messrs Sutton and McLeod, who were not defendants).
95 In those circumstances, I see no reason for ordering the plaintiffs to pay to or indemnify Hudson Investment for the costs that it must pay to the cross-defendants in respect of the fourth cross-claim.