Pallak Pty Ltd v Stoneypint Pty Ltd

(i) Should the defendant receive part or all of its costs on an indemnity basis?

1. In seeking an order for indemnity costs, the defendant relies on two offers made to settle the proceeding. The first one is a pre-litigation offer dated 14 September 2023, and the second is a letter dated 22 May 2025 in advance of trial. Relying upon Rules 63A.28 and 63A.31 of the County Court Civil Procedure Rules 2018 (Vic) ("County Court Rules"), together with the well-known principles relating to Calderbank[1] letters, the defendant submits that both of the offers were unreasonably rejected.
2. The principles relating to Calderbank letters are well known. They were summarised in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[2]
3. As Nettle JA noted in Berrigan Shire Council v Ballerini (No 2):[3]

The rejection of a Calderbank offer not later bettered by judgment does not lead automatically to an indemnity costs order in favour of the offeror. The question in each case is whether the offer was a reasonable offer of compromise, and whether the rejection of the offer was unreasonable, and the answer to that question turns in each case on all the circumstances of the case.

1. The question of unreasonableness of rejection should be considered without the benefit of hindsight and without adducing additional evidence. A party seeking to rely on a Calderbank offer bears the onus of convincing the Court to make the advantageous costs order.[4]
2. The determination of whether the rejection is unreasonable involves mainly judgment and impression. Various matters which a court should ordinarily have regard to include:[5]

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(c) the extent of the compromise offered;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for an indemnity costs order in the event of the offeree rejecting it.

1. The defendant relies upon an offer made by way of letter dated 24 September 2023 which was a pre-litigation offer. Rule 26.08.1 of the County Court Rules deals with this type of offer. If a party, before a proceeding has commenced, has made a pre- litigation offer, and the offer was open to be accepted for a reasonable time and was not accepted, and the offeror obtains an order or judgment no less favourable to the offeror, then the Court shall take the offer into account in determining the costs of the proceeding.
2. The defendant notes the offer was open for seven days. At that time, the plaintiff was represented and the parties were already in dispute. The defendant says the offer was a genuine compromise. It involved a promise to pay the full purchase price of $4 million, plus GST, within 28 days of acceptance. This represented a significant acceleration of the payment terms under the exit agreement which called for the final payment of $1.8 million to be paid on 28 February 2024, being almost six months after the date of the offer. It did not require any payment of legal costs. The defendant contends that the plaintiff's prospects of success were ascertainable as at the date of the offer; the critical matter concerning the enforceability of the exit agreement depending on well-known legal principles. The offer itself was clear, and foreshadowed indemnity costs being sought if refused.
3. The plaintiff says in response that neither of the offers relied upon by the defendant constituted genuine attempts to resolve the dispute, but rather were mere "offers to capitulate". Unlike the rest of r26.08, r26.08.1 does not prescribe the costs consequences of a failure to accept a pre-litigation offer, but simply directs the Court to take into account the failure to accept an offer in the context of the ultimate outcome of the proceeding. The plaintiff accepts that an imprudent refusal of an offer to compromise is recognised as a circumstance warranting indemnity costs.[6] Given r26.08.1 does not prescribe the costs consequences of a failure to accept an offer, it must necessarily follow that the unreasonableness of the failure to accept the offer remains a critical consideration in determining the appropriate costs order to make.
4. The plaintiff referred to a decision of Button J in Re Skytraders Pty Ltd (No 2).[7] This case considered the almost identical Order 26 under the Supreme Court Rules. Her Honour noted that where a plaintiff had unreasonably failed to accept an offer, the Court would consider similar factors to those considered in assessing reasonableness in relation to Calderbank offers. Whilst her Honour was considering r26.08(4) of the Supreme Court Rules, which states that costs consequences only arise when a plaintiff unreasonably refuses an offer, her Honour's comments are still appropriate in the context of r26.08.1. While that rule does not refer to the unreasonableness of a plaintiff rejecting a pre-litigation offer, the plaintiff contends that the reasonableness of the decision to reject the offer must be a factor which should be taken into account.
5. The plaintiff says no aspect of compromise whatsoever was contained in the pre-litigation offer, but rather it required the plaintiff to simply abide by the terms of the exit agreement which was said to be binding. In other words, the pre-litigation offer required the plaintiff to completely accept every aspect of the exit agreement the parties were in dispute over and make a decision to capitulate within 7 days of the receipt of the offer. In those circumstances, the plaintiff's refusal to accept the pre-litigation offer cannot be considered unreasonable.

1. I accept the plaintiff's submission that the pre-litigation offer did not contain any element of compromise and was in effect a demand to give up. It was predicated on the assumption that the exit agreement was binding. The fact that the defendant was willing to pay the purchase price at an accelerated rate did not really amount to a compromise in circumstances where the plaintiff was disputing the validity of the exit agreement. In my view, the offer did not represent a genuine compromise and therefore fails the reasonableness test.[8] In those circumstances, I do not consider it was unreasonable for the plaintiff to have rejected the first offer.

1. In support of its argument that it is entitled to seek indemnity costs from the date of the second letter, the defendant notes that it was made close to trial, which was held on 2-4 June 2025. The offer was open for seven days, which was a sufficient opportunity for the plaintiff to consider the offer, given the significant amount of preparation for trial that had occurred by that stage. The offer was a genuine compromise: it contained an offer to waive a significant portion of the defendant's recoverable legal costs, which were identified then as amounting to $154,167 plus GST, seeking only a contribution of $85,000 (i.e., seeking only approximately 55 per cent of the defendant's legal costs to that point).
2. The offer specifically noted that significantly more costs could be recovered under the recently amended Rules relating to costs introduced in 2024. Further, the plaintiff's prospects of success were well known, or at least well knowable, given the imminence of the trial, noting that witness outlines had been served. The offer specifically referred to admissions in the plaintiff's witness outline as affecting likely prospects, namely, that the amount of the purchase price was agreed. The offer itself was clear, and foreshadowed indemnity costs orders being sought if refused. Additionally, the appropriateness of indemnity costs is fortified by the abandonment of significant claims, which included misleading and deceptive conduct and breach of fiduciary duties, at the conclusion of the hearing. While abandonment of the claim may not be sufficient in itself to warrant an order for indemnity costs,[9] the defendant contends the ultimate lack of evidence for those serious allegations is indicative in this case of claims which ought properly not to have been brought.
3. In response, the plaintiff says the same considerations that apply to the pre-litigation offer apply equally to the later Calderbank letter. Once again, there was no compromise on the terms of the exit agreement - such as offering a slightly higher price to purchase the property - with the only ground given in the Calderbank letter being a willingness on the part of the defendant to accept only what was said to be 55 per cent of their costs to date. The offer therefore amounted to nothing more than an offer to capitulate, the rejection of which was entirely reasonable in the circumstances.
4. The plaintiff referred to a decision of the Court of Appeal in Laming v Jennings.[10] In that case, the appellant had invited the respondent to give up his assertion of title over disputed land. The Court declined to make an order for indemnity costs on the basis that the first offer was made at a stage when the respondent would not have been fully aware of the case made against him and could not make an informed assessment of his prospects of success. As for the second offer, the respondent was invited to give up his claim to title and in addition, pay a very substantial proportion of costs incurred by the appellant. The Court noted that although the appellant's case was clearer when the second offer was made, on no view was the case against the respondent so strong as to make the refusal of the offer unreasonable. The plaintiff contends that the circumstances in Laming are equally applicable to this case. The only benefit to the plaintiff in accepting either of the offers made in this case was avoiding an adverse costs order, which is rarely, if ever, enough to lead to a finding that a special costs order is appropriate.
5. In reply, the defendant submitted this matter is distinguishable from Laming v Jennings.

1. By the time the second offer was made, the plaintiff was in a better position to be able to assess the strengths of its claim, particularly, given that substantial preparation for trial had taken place. The offer was in effect to affirm the price contained for the property in the exit agreement, and the defendant would accept a sum of money for its costs which was said to be a substantial reduction on the amount that would be otherwise payable.
2. As the reasons disclose, there were a number of arguments made about the application of legal principles relating to the construction of contracts. There was also evidentiary matters relating to the issue of whether post-contractual conduct could be taken as an admission that the defendant did not intend to be contractually bound by the exit agreement. There was some dispute on the facts in respect of the latter aspect. Whilst the defendant has succeeded on those issues, I am not persuaded it would have been so obvious to the plaintiff that it was likely it was going to fail with the result that it should have accepted the offer and by not doing so, it acted unreasonably.
3. The other aspect is the issue of costs. The defendant offered to take approximately 55 per cent of its actual costs incurred to that date. Experience tells that if costs are taxed a party may generally recover 50 to 60 per cent of its costs on a party/party basis. So by offering to accept what it could probably only realistically recover on a taxation, there was little, if any compromise on the amount of costs the defendant was willing to accept. Clearly, the defendant would not have been able to recoup the full sum of its costs incurred to the date of the second offer.
4. Overall, I am not persuaded that the plaintiff acted unreasonably in rejecting either the first or the second offers. Therefore, I decline to make an order for indemnity costs.

(ii) was the retention of senior counsel for the defendant warranted?

1. The plaintiff argues the retention of senior counsel was not warranted in this proceeding. Having regard to the statement of issues, the issues raised were not complex areas of law and were largely resolved on findings of fact. Only two witnesses were called. The issues in dispute mostly turned on the Court's findings which related to a distinctly limited period of time, and were also largely based on one brief meeting of which the only record was a handwritten document of several pages. Whilst the amount involved, at first blush, could be seen to be significant, the reality was that it was only a question of whether one party or the other was going to gain more or less out of the exit agreement by reason of an over-value or under-value of the property. On no view of the dispute was the engagement of an experienced senior counsel and an experienced junior counsel warranted.
2. In support of that argument, the plaintiff relies upon s24 of the Civil Procedure Act 2010 ("CPA"), which imposes obligations upon parties to ensure that legal costs are reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute. Consequently, the plaintiff says only the costs of junior counsel should be allowed.
3. In response, the defendant submits that the appropriate course may be to leave the question of allowable fees for counsel to the Costs Court. This might be the appropriate course given that the rate of counsel's fees, in the absence of agreement, will be determined by the Costs Court in any event. If the Court decided to deal with the issue now, the defendant then went on to make submissions as to why the retention of senior counsel was warranted in this case. To the extent that the plaintiff suggested the defendant may have been in breach of s24 of the CPA, by retaining senior counsel, such allegation was firmly rejected.

1. It can be accepted that the Court possesses an overriding discretion in relation to the fixing of an order for costs, including allowances for counsel's fees.[11] The Court has a discretion to certify for two counsel and fix the brief fee, or alternatively, let the Costs Court sort the issue out. It is entirely up to the judge to determine. The Court's discretion in fixing a fee is to be exercised subject to a number of factors, such as the complexity of the matter, the extent of the legal practitioner's involvement in the matter, and any specialised knowledge or skills required. Since 2014, the practice of certifying for two counsel is no longer required under the County Court Rules.[12]
2. The taxation of costs by officers of the Costs Court ensures that costs are evaluated on a logical, fair, and reasonable basis by those who are experienced and familiar with the assessment of costs.[13] In my view, the question of whether the retention of senior counsel was necessary to represent the defendant should be left to the Costs Court, as it is best placed to determine this issue, given its expertise in such matters.
3. I will order that the plaintiff pay the defendant's costs of the proceeding on the standard basis. I will make further orders in accordance with the minutes provided by the defendant attached to its submissions dated 20 November 2025, the form of which was not opposed by the plaintiff.

I certify that these 9 pages are a true copy of the Reasons for Ruling of Her Honour Judge A Ryan delivered on 2 December 2025.

[1] Calderbank v Calderbank [1975] 3 All ER 333

[2] [2005] VSCA 298

[3] [2006] VSCA 65, [33]

[4] Quick on Costs, Thomson Reuters, [340.180]

[5] Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298, [25]

[7] [2022] VSC 523, [23]-[24].

[8] Commissioner of State Revenue v Challenger Listed Investments Ltd (No.2) [2011] VSCA 398, [13]-

[9] See Ianelli v Hancock t/a Hancock Solicitors [2012] NSWSC 417, [32]

[10] [2018] VSCA 354

[11] Per Forrest J in O'Brien v Greater Bendigo City Council [2016] VSC 33, [13]

[12] Per Gorton J in Eastern Health v Neill (No 2) (2022) 67 VR 458

[13] Henwood v Nansor Australia Pty Ltd [2013] VSC 655