Pittwater Marinas Pty Ltd v Blue Pearl

The Issues

1. Written submissions on costs were filed on behalf of the plaintiff (MFI 5), the first and second defendants (MFI 6) and the third defendant (MFI 7). Counsel for all parties made oral submissions.
2. The issues on costs are: 1. Whether, because of a Calderbank letter, the defendants should have indemnity costs awarded in their favour after 16 November 2021. 2. Whether the plaintiff should be denied any order for costs because of r 42.35 of Uniform Civil Procedure Rules (NSW) (UCPR). 3. Whether orders should be made to reflect the modest success obtained by the plaintiff in contrast to the success of the defendants on nearly all issues.

Issue 1: Calderbank Letter

1. On 16 November 2021 the solicitor for the first and second defendants sent a letter to the solicitor for the plaintiff. The letter said: "We refer to the above matter. We are instructed to make on behalf of our clients, the first and second defendants in the proceedings, the following without admissions offer in full and final settlement of all of the claims made in the proceedings. 1. The first and second defendant to pay to the plaintiff an amount of $10,000 inclusive of costs. 2. The proceedings otherwise be dismissed against all defendants with no other order as to costs. The above represents a genuine and significant compromise by our clients. The offer is made in accordance with Calderbank v Calderbank [1975] 3 All ER 333. Should the offer not be accepted, this letter will be relied upon on the question of costs. This offer is open for acceptance for 14 days (until 5.00pm, 30 November 2021)."
2. The offer was not accepted.
3. As at the date of the Calderbank letter, the defendants had not served any evidence (PX 5).
4. The following principles apply to an application for indemnity costs based on a failure to accept a Calderbank offer: 1. The onus is on the party making the Calderbank offer to satisfy the court that it should exercise the costs discretion in its favour on the basis of the offer having been made. 2. The threshold requirement for a Calderbank offer to have any possible costs consequences is that the offeree did not accept the offer and has ended up worse off under the judgment than if the offer had been accepted. 3. The making of a Calderbank offer is one of the circumstances in which the court may exercise its discretion under UCPR r 42.1 to make some order other than that costs should follow the event, or its discretion under UCPR 42.2 to order that costs be assessed otherwise than on the ordinary basis. 4. It does not automatically follow that the court will make an indemnity costs order simply because the offer represented a genuine offer of compromise and was more favourable than the final judgment. Rather, the question is whether, in all the circumstances, the failure to accept the offer warrants departure from the ordinary rule as to costs, which is a matter to be determined having regard to the circumstances at the time that the offer fell to be considered.
5. Relevant factors in determining whether the failure to accept an offer was unreasonable include: 1. The stage of the proceeding at which the offer was received. 2. The time allowed to the offeree to consider the offer. 3. The extent of the compromise offered. 4. The offeree's prospects of success, assessed as at the date of the offer. 5. The clarity with which the terms of the offer were expressed. 6. Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
6. The Calderbank offer was made after the principal affidavit for the plaintiff had been served (PX 1, Tab 5) but before there was any evidence served for the defendant. When the offer was served the matter was still a long way from a hearing.
7. The first and second defendants allowed only 14 days for the plaintiff to consider the offer. There was no application on behalf of the plaintiff for any extension of time to consider the offer. Given that these proceedings involved commercial litigation between landlord and tenant, I do not think that 14 days was an unreasonable period to allow for consideration of the offer.
8. The Calderbank letter did not set out any assertion or explanation as to why the plaintiff should accept the offer. This is not an invariable requirement in a Calderbank offer, but whether the letter sets out clearly why the plaintiff will have no success, or limited success, is a matter to be taken into account. In the absence of the service of any evidence for the defendants, I find that the plaintiff was not in a position, when the Calderbank letter was received, to realistically assess its prospects of success.
9. On a simplistic approach, the offer of $10,000 was a compromise in relation to the damages obtained by the plaintiff. The costs incurred by the plaintiff at the time of the Calderbank letter, even restricting those costs to the rent claim, are not known to the court. It is impossible to say whether or not the offer of $10,000 was a genuine compromise. In the background, and unknown to the court, would be pre-litigation correspondence and negotiations between the parties, and preparation of the plaintiff's case, including the main affidavit of the principal of the plaintiff company. It would be surprising if those costs were only $5,500 as at November 2021.
10. The Calderbank letter did express the offer in clear terms and did point out that the letter would be relied upon in an application in relation to costs.
11. I find that the plaintiff was not acting unreasonably in failing to accept the offer because: 1. The proceedings were at a relatively early stage. 2. The defendants had not yet served their evidence. 3. In the absence of such evidence, the plaintiff could not make an informed decision as to its prospects of success. 4. The letter contained no explanation of the strength of the defendants' case or the weakness of the plaintiff's case. 5. Given that the offer was made inclusive of costs, it is impossible to ascertain the extent of the compromise involved in the offer.
12. I reject the submission made for the defendants that there should be an indemnity costs order in favour of the defendants, based upon the Calderbank letter.

Issue 2: Rule 42.35 UCPR

1. Rule 42.35 UCPR provides as follows: "(1) This rule applies if: (a) in proceedings in the District Court, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all defendants, in an amount of less than $40,000 and, (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the District Court is satisfied the commencement and continuation of the proceedings in the District Court, rather than the Local Court, was warranted."
2. In relation to the rent claim, the proceedings largely turned upon analysis of a large volume of correspondence between the parties. In relation to the "make good and repairs" claim, the court had to consider a large volume of documentary material as well as affidavits and oral evidence from Mr Nikolaidis, Mr Mason, Mr Puffe, Mr Abbenbroek and the second defendant Ms Pam. In the primary judgment detailed findings were made in relation to the tiles (pars 71-75 of the primary judgment) and the timber wall (par 76 of the primary judgment). Consideration of the claim in relation to the tiles involved deciding legal issues concerning the meaning of the word "reimburse", the meaning of the phrase "structural damage" and the meaning of the phrase "fair wear and tear". Paragraphs 90-111 of the primary judgment set out a consideration of these legal issues and the conclusions reached.
3. The Court of Appeal has held that the commencement and continuation of proceedings in the District Court may be warranted if the case involves factual circumstances of some complexity: Singapore Airlines Cargo Pte Ltd v Principle International Pty Ltd (No. 2) [2017] NSWCA 340.
4. This hearing extended over two days and was conducted with commendable efficiency and skill. It involved consideration of a large amount of documentary material, cross-examination of several witnesses, and consideration of legal principles in relation to both claims made by the plaintiff. The case involved factual and legal issues of some complexity.
5. I find that the commencement and continuation of these proceedings in the District Court, rather than the Local Court, was warranted because of those matters.
6. I reject the submission made for the defendants that the plaintiff should be denied any costs because of r 42.35 UCPR.

Issue 3: Costs of Separate Issues

1. Section 98 of the Civil Procedure Act 2005 (NSW) gives the court a wide discretion in relation to costs. In Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304 at [38] the Court of Appeal summarised the principles governing the making of an order as to costs to reflect the time taken in dealing with a particular issue upon which a party succeeded as follows: 1. Unless a particular issue is clearly dominant or separable, it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed. 2. It may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument. 3. A separable issue can relate to any disputed question of fact or law on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter. 4. Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. 5. The exercise of the discretion depends upon matters of impression and evaluation.
2. I raised the question of such an approach with counsel during oral submissions. Counsel for Pittwater Marinas submitted that 15% of the costs could be attributed to the issue on which the plaintiff succeeded and the other 85% could be attributed to the issues on which the plaintiff lost. Counsel for the first and second defendants submitted that only 5% of the costs could be attributed to the plaintiff's success and the balance of 95% to the success of the defendants. Counsel for the third defendant pointed out that the facts in the case were not the subject of evidence from the third defendant, as he had left the business arrangement well before the dispute arose. However, he remained a guarantor of the obligations of the first defendant. Counsel for the third defendant submitted that he should have 100% of his costs and the plaintiff should have nothing.
3. I have already recorded my own impression of the time and effort in the case taken in relation to documents, oral evidence and submissions. As recited above, my impression is that 10%-20% of the costs related to the rent claim and the other 80%-90% of the costs related to the "make good and repairs" claim. However, as I have pointed out above, the plaintiff succeeded in obtaining a judgment of $4,864.30 in relation to a rent claim of $29,340.08. In other words, the plaintiff only recovered 16.6% of its claimed rent and outgoings.
4. A submission was made that the defendants never disputed that the plaintiff was entitled to $4,864.30 on its rent claim, and that since this was not a triable issue, the plaintiff should have no costs at all. I reject this submission. There was no unequivocal admission to that effect in the Defences, and nor was there payment before trial of that amount. The acceptance of a liability for rent of $4,864.30 first became clear during closing submissions at the trial.
5. In my view it would be appropriate to consider that 5% of the total costs are attributable to that part of the rent and outgoings claim which succeeded. In other words, 95% of the costs relate to matters upon which the defendants were successful. As previously recited, the defendants were entirely successful in defending the "make good and repairs" claim and were largely successful in defending the rent claim.
6. I am reluctant to make an order that the defendants pay 5% of the plaintiff's costs, and the plaintiff pays 95% of the defendants' costs. If the parties could not agree on the fair and reasonable costs, this would mean that the matter would go to a costs assessor, who would have to assess the costs of all parties. It is obvious that 5% of the plaintiff's costs would be well and truly subsumed by 95% of the defendants' costs. There is no point in the parties incurring the considerable expense of a costs assessment in relation to the plaintiff's costs, when none of those costs are going to be paid, given that they will be effectively wiped out by the costs payable by the plaintiff to the defendants.
7. In order to spare the parties unnecessary expense, and in order to achieve a "just, quick and cheap resolution" of the cost issues, as required by s 56 of the Civil Procedure Act, I have come to the conclusion that the appropriate order is for the plaintiff to pay 90% of the defendants' costs. Such a figure recognises that the plaintiff had a modest victory on a limited issue and that the defendants won on nearly every issue.
8. The parties incurred costs in coming to court and arguing the cost issues. The order I make will apply not only to the trial but to this determination of the appropriate costs order.

Order

1. My order is: 1. Order the plaintiff to pay 90% of the costs of the first, second and third defendants.

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