Perpetual Trustee Company Ltd v Papantoniou

Judgment 1This judgment decides the successful parties' application for an order for indemnity costs. It assumes familiarity with my principal judgment in [2004] NSWSC 685 and my subsequent judgment in [2014] NSWSC 746 dealing with interest and other ancillary matters. 2The successful parties obtained relief under Contracts Review Act 1980 (NSW). In addition to declaratory relief I ordered compensation in aggregate of about $257,000. With interest this sum swelled to about $320,000. 3The basis of the application for indemnity costs is a Calderbank offer made by letter dated 16th May 2011 (Annexure "A" affidavit of Frank Boitano sworn on 17th June 2014) which was not accepted by the unsuccessful party. The offer was expressed to be "without prejudice excepts as to costs" (sic) and referred to "the principles in the Calderbank case". It was in a sum just short of $285,000. That sum included costs specified at $90,000. The calculations supporting amount of $195,000 sought as compensation were set out in the letter. 4The letter of offer also provided a short form assessment of costs actually incurred by the successful parties totalling $216,345.38 (the solicitors had, to the unsuccessful party's knowledge, been acting since February 2009). 5The offer was subject to a number of terms: first, the trust fund I awarded the unsuccessful party was to be paid to the successful parties immediately in part payment of the offer; secondly an instalment plan was not acceptable, but a period of about 10 weeks was allowed for payment of the balance; thirdly, the Estate was to be released from any further liability for legal costs to the unsuccessful party, but I allowed such legal costs in an additional sum of $4,000; and fourthly, a period of 28 days was allowed for acceptance. 6Acknowledging that difficulties sometimes stand in the way of reliance upon an "inclusive of costs" offer as engaging the discretion permitting indemnity costs, the successful parties argued that the break-down of the various figures provided demonstrates that the offer was not an "all in" offer of an inscrutable type. Instead the offer made clear what was sought by way of compensation and costs and that the unsuccessful party, as an experienced solicitor,"was well placed to assess the reasonableness of the amount claimed in respect of each of those components". The successful parties argue that on any basis, the offer represented "a significant compromise". 7The unsuccessful party argues the inclusive offer "militates against the exercise of a discretion to order indemnity costs"; there was insufficient information provided to afford a proper opportunity to adjudge the reasonableness of the claim for costs; costs were in any event "very high for the stage the case had reached"; it was wrong to view the successful parties as having been entirely successful as the unsuccessful party obtained the award of the trust monies, adjustments in her favour in respect of outstanding legal costs, and a share of the outlays for the failed development; the amount awarded fell well short of the claim; the successful parties succeeded on a basis different from the claim advanced; the method of assessment of the compensation set out in the letter was erroneous as is demonstrated by the judgment. 8Calderbank offers do not give rise to a prima facie presumption in favour of indemnity costs if the offer is not bettered. The question remains one for the Court's discretion, the exercise of which depends upon all the circumstances of the case. A Calderbank offer does not justify indemnity costs order unless its rejection is unreasonable (Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCCA 194 at [7] by Ipp JA, Mason P and McColl JA agreeing). An "all in", or "inclusive", offer will often fail to excite a favourable exercise of the discretion: Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97; cf Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322. 9In a case like the present where the final figure, including interest, is well in excess of an offer which included a specified amount for costs, the difficulties discussed in the Smallacombe line of cases do not really arise. 10 The central question when considering all the circumstances is whether the offer was a genuine offer of compromise, which it was unreasonable for the unsuccessful party not to accept: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4] - [5] and [10] by the Court. The question of the genuineness of the compromise always arises after the event with the benefit of hindsight. There can be no doubt that the amount of compensation sought in the letter of 16th May 2011 is well short of the compensation awarded. However, viewed prospectively the offer was calculated by reference to "full value" of the successful party's loss, albeit calculated on an erroneous basis. The significant compromise on costs was calculated in the first place by reference to costs on a solicitor and client basis. I accept the submission that the costs were surprisingly high. 11I set out the proper basis of calculation of the compensation at [133] - [144] of my principal judgment. The unsuccessful party is correct that the calculation proferred on 16th May 2011 was erroneous. But I do not think that awarding the trust monies to Mrs Papantoniou makes any real difference to the question I now have to decide. In the event, I awarded it to her to avoid double counting in favour of the successful parties. Those trust monies were the surplus remaining out of the payment made by the successful parties to reclaim the property, which I took as my starting point for calculation of the compensation. 12Having said that and acknowledging that the benefit of hindsight shows that the result betters the successful party's offer, the offer was put forward when it was made, I think, as effectively calling for the capitulation of the unsuccessful party. 13This consideration is also relevant to the question of whether the rejection of the offer was unreasonable. As McDougall said in Rickard Construction v Rickard Hails Moretti and Ors [2005] NSWSC 481 at [17]: there appears to be an increasing tendency for defendants who have made Calderbank offers and achieved a better outcome to seek indemnity costs from the date of the Calderbank offer, relying on the outcome to show that rejection of the offer was unreasonable. That is hindsight analysis. Whilst every application must be considered and dealt with on its particular facts, I do not think that it follows necessarily from the adverse outcome that rejection of the offer was relevantly unreasonable. The search is always, in the context of the particular case, for "sufficient circumstances to displace the general rule that only party and party costs can be recovered by the successful defendant" (to take, slightly out of context but without thereby destroying their applicability, the words of Santow J at para [52]). That task is to be undertaken notionally as at the time the offer was made and rejected. The important consideration for present purposes is that the question of unreasonableness is to be decided, notionally, at the time the offer was made and rejected. Looked at this way I am not persuaded that her conduct in rejecting the offer was "relevantly unreasonable". I have rejected the unsuccessful party's Smallacombe argument, but the costs claimed in the offer were high, especially if viewed on the ordinary basis and their reasonableness would have been difficult to assess for that reason. That the unsuccessful party was shown to be correct about adjustments that should be made in her favour when assessing quantum does not demonstrate that there were discrete issues decided in her favour. Not much time was taken up at the hearing on questions going solely to quantum. If the amount of compensation awarded fell short of the claim, it still fell well over the amount of the offer. I did not think that the basis of success was markedly different from the claim advanced. In substance, I accepted the successful party's argument, but granted remedies based upon the contract between them and the unsuccessful party being unjust, rather than the tripartite contract with the lender being unjust. I repeat, in substance the basis of the injustice was the same. However of the various arguments, I have accepted that the offer, when it was made, was not a genuine attempt to compromise, rather it called for capitulation, or unconditional surrender, as the ultimately successful parties then saw it. 14I am not persuaded that I should exercise my discretion to award costs on the indemnity basis from 16th May 2011. I confirm the costs orders made previously. 15I think it appropriate that Mrs Papantoniou, the unsuccessful party, have her costs of this application on the ordinary basis and I so order.