Plaintiff v First Defendant

2 At the time of handing down the judgment the parties requested the opportunity to make submissions in relation to the costs, and in particular, the Defendant sought to put before the Court material in support of an application for indemnity costs based upon Calderbank offers that she had made. I made directions for the filing and service of Outlines of Submissions and the parties subsequently agreed that no Court hearing was required, and the question of costs could be decided on the papers. Each party filed written submissions. The Defendant filed an affidavit.

3 The Defendant's solicitor, Michael Staalkjaer, swore an affidavit deposing to the making of several offers of compromise, as follows:

(a) The First Offer: On 31 January 2013 (that is before the final judgment of the Magistrates' Court but after the refusal of the Court to set aside an earlier default order) he forwarded a letter, by facsimile, to the plaintiff's solicitor, Caleandro Guastalegname & Co. That letter is lengthy and goes into a number of matters preliminary to the point at issue, including that the application for judicial review was bound to fail, complaints about substituted service effected by the plaintiff on the Defendant by service on her solicitor, failures to respond to correspondence, threats to make applications for security for costs, complaints that the plaintiff was in contempt of Court, allegations of abuse of process and that the costs of the judicial review proceeding would be substantial. All of this led to the making of an offer that the Defendant would agree to accept in full and final settlement of her claim, interest and costs the sum of $150,000 payable by $30,000 upon the signing of a deed of settlement on or before 8 February 2013 and the balance due by 8 March 2013. The offer was open until 4pm that day, 31 January 2013. At the end of the letter Mr Staalkjaer reserved the right to rely on the letter in relation to any further costs application;

(b) The Second Offer: A letter dated 7 February 2013 which refers to the First Offer and extends it until 4pm on 12 February 2013, in the form stated in the letter of 31 January 2013 save that there was to be an extension of time for the payment of the amount $30,000 to 19 February 2013 (instead of 8 February 2013) with the balance due on 19 March 2013;

(c) The Third Offer: A letter dated 4 July 2013 in which an offer was made to resolve this proceeding on the basis that the plaintiff agreed to dismiss the proceeding and pay the Defendant's costs in the amount of $10,000 within 30 days from the execution of the consent orders. The offer was open until 15 July 2013. At the end of the letter it is stated:

If your client does not accept the above stated offer we will rely on this correspondence as to the issue of costs.

As has been set out the Plaintiff has a hopeless case which is supported by false and inaccurate material and for these reasons we shall, unless the Plaintiff withdraws its Motion, rely on this correspondence to seek full indemnity cost at the hearing of the proceedings. In this respect you should note that our client is reserving all her rights if the matter proceeds on its current basis to seek an order for indemnity cost against you for providing a false Proper Basis Certificate.

(d) The Fourth Offer: A letter dated 30 July 2013, which followed an unsuccessful judicial mediation held on 29 July 2013. It was said in the letter that the first defendant's costs in this proceeding exceeded $40,000 and a without prejudice offer was made that the plaintiff agree to dismiss the proceeding and pay the first defendant's costs in the amount of $20,000 within 30 days of the execution of the consent orders. The letter ended:

If your client does not accept the above stated offer we note that we will rely on our previous offer dated 04 July 2013 with regards to the issue of costs and we will be seeking indemnity costs from 04 July 2013.

The Fourth Offer was open for acceptance until 1 August 2013, two business days.

(e) On 1 August 2013 the Defendant's solicitor received a letter from the plaintiff's solicitors advising that the offer of settlement was not accepted.

4 The Defendant submitted, at some length, that the Court should exercise its discretion to award indemnity costs in favour of the Defendant against the plaintiff and, in support of that submission, referred to the several letters exhibited to the affidavit of Mr Staalkjaer. It was noted that at the time of the several offers made by those letters:

(a) There was an extant Magistrates' Court order in favour of the Defendant for $111,365.00 plus costs on scale, enforcement proceedings had been commenced in the Magistrates' Court and a Bankruptcy Notice had been issued against the plaintiff; and

(b) The plaintiff had commenced this proceeding, had applied in the Magistrates' Court to vary the Magistrates' Court judgment dated 13 December 2012 under s 110 of the Magistrates' Court Act 1989 and had applied to set aside the Bankruptcy Notice.

5 The plaintiff did not, apparently, respond to the First or Second Offer. There is no evidence as to the response to the Third offer. The Fourth Offer was made after completion of the court book and the mediation.

(a) Each offer was a reasonable offer of compromise and was unreasonably refused. In relation to the First Offer, although it was only open for less than a day, it was extended by the Second Offer and in each case the amounts offered were reasonable having regard to the outstanding amounts and the costs of this proceeding.

(b) There were good reasons to suppose that the plaintiff had no prospects of success in this proceeding so that, properly advised, he should have known that he had no chance of success;

(c) That it must be presumed that the plaintiff had commenced or continued the proceeding for some ulterior motive or because of some wilful disregard of the known facts or clearly established law;

(d) Under s 24 of the Civil Procedure Act 2010 the plaintiff was under an obligation to use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the proceeding are reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute; and

(e) The plaintiff failed to comply with this obligation so that the Court was empowered, under s 28(2) of that Act, to take into account that contravention and make an appropriate costs order.

7 The plaintiff submitted that the appropriate order was that he should pay the first defendant's costs, to be taxed in default of agreement:

(a) On a party party basis up until and including 31 March 2013;

(b) On a standard basis on and from 1 April 2013 (when the new costs rules were introduced).

8 The plaintiff pointed to aspects of the conduct of the Defendant that warranted judicial rebuke and that should not be rewarded with an order for costs on an indemnity basis, or at all, as follows:

(a) The first defendant's solicitor 'played ducks and drakes' in response to the plaintiff's attempt to serve the originating motion as a consequence of which the plaintiff was put to the needless expense and aggravation of applying for and obtaining an order for substituted service. The 'ducks and drakes' referred to are set out in an affidavit in support of the application for substituted service by Mr Frank Guastalegname sworn 13 December 2012;

(b) Whilst this proceeding was on foot, the Defendant returned to the Magistrates' Court -

(i) Without notice to the plaintiff, to obtain judgment for a second time on 13 December 2012; and

(ii) After the default judgment of 13 December 2012 was set aside by consent and again without notice to the plaintiff, to obtain judgment for a third time on 15 March 2013;

(c) Whilst this proceeding was on foot, the Defendant served a Bankruptcy Notice on the plaintiff based on the default judgment obtained on 13 December 2012;

(d) The Defendant has made all manner of unwarranted threats for security for costs, contempt of Court and abuse of process as set out in the letter containing the First Offer;

(e) The Defendant has made false allegations against the plaintiff's counsel and his instructing solicitor in the letter dated 4 July 2013 containing the Third Offer. In particular, there were allegations that

(i) an affidavit sworn by the plaintiff on 24 August 2012 was false and admitted to be false by Mr Marantelli, who appeared for the plaintiff;

(ii) an allegation that a subsequent affidavit to the same effect sworn 28 February 2013 was false and if not withdrawn before the judicial mediation the Defendant would seek to have the affidavit struck out; and

(iii) the Defendant would also raise with the Court the issue of Mr Marantelli and the solicitor for the plaintiff allowing the filing and service of an affidavit known to be false; and

(f) On 25 March 2013 the Court ordered that the lengthy affidavit of Mr Michael Staalkjaer sworn on 15 March 2013 should be replaced with an affidavit that addresses the facts relevant to the relief being sought in the originating motion.

9 In relation to the offers of compromise, the plaintiff submitted that:

(a) The First Offer was open for less than a day, no authority was cited for the proposition that the judicial review application was bound to fail and an offer of compromise which speaks in terms of dollars and cents is inappropriate in a proceeding for judicial review, where the issue is a question of law;

(b) The Second Offer allowed only four business days to respond and was infected with the same problems as the First Offer, and was included in a letter which addressed other matters which were of an open nature.

10 Under s 24 of the Supreme Court Act 1986, the power to award costs is in the discretion of the Court. Whilst the discretion is absolute and unfettered, it has to be exercised judicially, that is, not by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to the litigation: see for example Latoudis v Casey.[3] In the exercise of the discretion, practices or guidelines have developed: Oshlack v Richmond River Council.[4] These practices or guidelines are not legal rules that confine the exercise of the discretion: Norbis v Norbis;[5] Oshlack v Richmond River Council.[6]

11 Although costs are in the discretion of the Court, there is a settled practice (sometimes called a general rule) that in the absence of good reason to the contrary a successful litigant should receive his or her costs: Ritter v Godfrey;[7] Milne v Attorney-General for the State of Tasmania.[8] It is not, however, a legal rule devised to control the exercise of the discretion: Oshlack v Richmond River Council.[9]

12 In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2),[10] the Victorian Court of Appeal said, in relation to Calderbank offers, that the critical question was whether the rejection of the offer was unreasonable in the circumstances. Deciding whether conduct is unreasonable involves matters of judgment and impression. The Court in Hazeldene held that, when considering whether the rejection of a Calderbank offer was unreasonable, a court should ordinarily have regard at least to the following matters:[11]

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

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

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

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

(f) Whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.

13 In Luxmore Pty Ltd v Hydedale Pty Ltd[12] Maxwell P and Kellam JA noted that what was said by the Court of Appeal in Hazeldene was meant to be of assistance to judges in approaching an application for costs consequent upon the service of a Calderbank letter. The Court of Appeal was not there engaging in a kind of judicial legislative process; they were simply giving a direction that these are the matters which the trial judge should ordinarily have regard to, in addition to such other matters as the judge might consider relevant.[13] They remarked that it would be wrong to regard the decision as having prescribed a list of matters which must be taken into account in every case, such that a party failing to get a special order for costs could complain on appeal if one of the matters mentioned by the Court had not been specifically adverted to. Like every question of costs, it is in the discretion of the trial judge and is to be decided according to the circumstances of the particular case.

14 There are some aspects of the matters mentioned in Hazeldene relevant to this application that deserve further elucidation, as follows:

(a) There is no presumption that where such an offer is rejected, the offeree should pay indemnity costs where it receives a less favourable result;[14]

(b) The onus always lies upon the offeror to demonstrate unreasonableness in the offeree;[15]

(c) The policy objectives underlying the principle in Calderbank v Calderbank include:[16]

(i) That it is in the interests of the administration of justice that litigation should be compromised as soon as possible and so save both private and public costs;[17]

(ii) To indemnify an offeror whose offer is later found to have been reasonable against the costs thereafter incurred. This is considered reasonable because from the time of rejection of the offer the real cause of the litigation is the offeree's rejection of the offer;

(iii) To this end, a party in receipt of an offer of compromise should have some incentive to consider the offer seriously. That incentive is the prospect of a special order as to costs;[18]

(iv) It is nevertheless important not to discourage potential litigants from bringing their disputes to the Court;[19]

(d) It is undesirable that Calderbank letters be burdened with technicality;[20]

(e) Where the offer is made by a plaintiff, the requirement that the non-acceptance be unreasonable takes on a particular significance. A plaintiff may be supposed to be aware of the claim which it makes, including, even in a general way, its magnitude and its prospects of success. A defendant, however, faced with an offer of compromise may not have this awareness. If it appears that this lack of awareness is not due to its own default, it is difficult to conclude that its rejection of the offer was unreasonable;

(f) A decision to accept or refuse a Calderbank offer will ordinarily be based upon the offeree's prediction as to the likely outcome of the trial. An erroneous prediction may not be unreasonable if at the time the offeree was, for good reason, in possession of insufficient information to make a proper assessment or if the circumstances upon which it was based later changed;[21]

(g) It does not follow necessarily from an adverse outcome for the offeree that rejection of the offer was relevantly unreasonable. Reliance on the outcome to show that rejection of the offer was unreasonable is a hindsight analysis;[22]

(h) The offer must be one capable of acceptance, such that an offer that is subject to approval by a third party will not constitute a Calderbank offer, but rather an offer to negotiate;[23] and

(i) The reasonableness of an offer, and the assessment of the reasonableness or unreasonableness of a rejection of an offer, will generally be assisted if the maker gives reasons why the offeror should succeed and/or the offeree should fail to do better than the offer. As Sundberg and Emmett JJ said in Dukemaster Pty Ltd v Bluehive Pty Ltd:[24]

[A] Calderbank offer...is unlikely to serve its purpose of attracting an indemnity award of costs if the rejecting applicant fails to recover more than what is offered, unless the offer is a reasonable one and contains a statement of the reasons the offeror maintains that the application will fail.

15 A review of the reasons for judgment in this proceeding shows that although the plaintiff failed, the issues canvased were complex and involved quite difficult questions of construction of the Magistrates' Court Act and Magistrates' Court Rules. Even though the result is favourable to the Defendant, it was not, in my view, so clear that it should be concluded that the plaintiff ought to have known that he had no chance of success. It follows in my view that there is no basis for the proposition that the plaintiff had commenced or continued the proceeding for some ulterior motive or because of some wilful disregard of the known facts or clearly established law.

16 It is also clear, in my view, that the First Offer (31 January 2013) was not open for a sufficient time to enable the plaintiff properly to consider it and it was therefore not unreasonable for the plaintiff to have failed to respond to it. Moreover, the First Offer was accompanied by extensive, and in significant respects, irrelevant contentions and allegations. I will not stay to consider the detail of them. Suffice it to say that they show an entrenched intolerance to the arguments and position of the plaintiff and his legal advisors and a distinctly combative approach to the conduct of the litigation. That approach by the representatives of the Defendant continued throughout the proceeding. It included a prolix affidavit sworn by Mr Staalkjaer on 15 March 2013 containing a considerable amount of irrelevant matters.

17 The Second Offer merely extended the date for acceptance of the First Offer. It did not provide any reasoned justification in support of the merit of the offer of compromise. No doubt by referring to the First Offer it intended to pick up the matters advanced in that offer in support of and justifying the offer made. Beyond the bare assertion that the proceeding was bound to fail, however, there was little advanced in support of the offer. It too was open for only a short time, until 4 pm on 12 February 2013. At that point the principal affidavit in support of the application had not been filed or served. There was no material filed in answer. In my view the Second Offer was premature.

18 The Third Offer was different in character to the First and Second Offers. It proceeded, without stating it, that the orders of the Magistrates' Court would stand and that all that needed to be dealt with in this proceeding was the Defendant's costs. The Third Offer advanced the proposition that, by reference to an outline of submissions that had been filed on behalf of the Defendant on 20 June 2013, the plaintiff's claim in this proceeding would fail and that it was an abuse of process. I repeat that the matter in my view was complex and the position was not so clear, certainly at that stage, as it is in hindsight.

19 The letter in which the Third Offer was made also asserted the making by the plaintiff of a false affidavit, as the plaintiff has referred in his submissions. The allegation of falsity did not emerge at the trial and was not, in my view, warranted. The allegation of the making of false affidavits was, it seems to me, calculated to detract from the offer and was provocative. It inevitably detracts from the reasonableness of the offer made because it is calculated to act in terrorem, and acts as a distinct distraction from what is otherwise not an unreasonable offer in money terms. That is, the offer to accept costs in the amount of $10,000 appears to be a reasonable offer, assuming that the asserted costs of the Defendant up to that point of $20,000 is reasonably accurate.

20 The Fourth Offer followed the unsuccessful judicial mediation. At the point at which it was made the plaintiff was in a much better position to assess the prospects of success. The terms of the offer requiring the payment of $20,000 for the Defendant's costs, where the estimate of the costs incurred was $40,000, seems to be reasonable. However, the offer was open for acceptance until 1 August 2013, that is two days after the date of the offer. In ordinary circumstances that period was unreasonably short. But the fact that the plaintiff responded within the time refusing the offer seems to indicate that in the circumstances of this case (and considering the unsuccessful mediation and earlier offers) that period was a reasonable period.

21 In the case of each of the offers, there was in one way or another a clear indication that the offers would be relied upon by the Defendant in relation to the costs of the proceeding. Unlike most offers made pursuant to the Calderbank principles, there was no reference to the application of those principles in any of the offers. But that is not a fatal objection.

22 The policy objectives to which I have referred that underlie the principle in Calderbank v Calderbank points strongly in favour of the Defendant having her costs on an indemnity basis from some point before the commencement of the trial. The question is, having regard to the Four Offers, from which point should the indemnity costs run?

23 In my view the appropriate point is at the time of the expiry of the Fourth Offer on 1 August 2013. At that time the plaintiff had the benefit of substantially all the material relevant to the trial, including the Submissions of the Defendant as well as his own submissions (filed 13 May 2013) and the benefit of the judicial mediation. The offer has to be viewed against the background of the previous offers. The First and Second Offers were premature and were affected by provocative allegations and assertions that were not relevant to the proper assessment of the risks of the plaintiff failing in the proceeding. That Third Offer was sullied by the presence of irrelevant and provocative allegations of the preparation of false affidavits, but it did follow the filing and service of the Defendant's Submission, which it must be said proved to be substantially correct -in both the result and the essential reasoning. Although the effect of the allegations of the preparation of a false affidavit contained in the letter making the Third Offer is a significant factor against a finding that the Offer was unreasonably refused, the fact of the making of that offer impacts and reinforces the view I take about the Fourth Offer. The preparedness of the Defendant to compromise the proceeding and the fact that a discount against assumed costs of 50% was offered, is significant. The letter containing the Fourth Offer did not contain any irrelevant or provocative material.

24 The Defendant's submission based on s 24 of the Civil Procedure Act 2010 does not in my view add to the force of the submissions made based on the Calderbank offers. All of the matters relevant to the application of that section are taken into account in the assessment of whether the Defendant has established that the plaintiff unreasonably refused one or more of the offers made.

25 In my view it was unreasonable of the plaintiff not to have accepted the Fourth Offer. The appropriate date from which the plaintiff should pay indemnity costs is 2 August 2013.

26 Accordingly, I will order that the plaintiff pay the costs of the Defendant of the proceeding:

(a) On a party and party basis up to and including 31 March 2013;

(b) On a standard basis on and from 1 April 2013 to and including 1 August 2013;

(c) On an indemnity basis on and from 2 August 2013.

[1] Gill v Gill [2014] VSC 250.

[2] This statement of the law draws upon reasons given in the case of Wong v McConville (No 2), [2014] VSC 282.

[3] [1990] HCA 59; (1990) 170 CLR 534, 537; cited with approval in Oshlack v Richmond River Council [1993] HCA 11; (1998) 193 CLR 72, 86.

[4] [1993] HCA 11; (1998) 193 CLR 72, 86.

[5] [1986] HCA 17; (1986) 161 CLR 513, 537.

[6] [1993] HCA 11; (1998) 193 CLR 72, 86.

[7] [1920] 2 KB 47, 52; Donald Campbell and Co Ltd v Pollak [1927] AC 732, 809.

[8] [1956] HCA 48; (1956) 95 CLR 460, 477.

[9] [1993] HCA 11; (1998) 193 CLR 72, 86.

[10] [2005] VSCA 298; (2005) 13 VR 435, 441-2 ('Hazeldene').

[11] Settlement Group Pty Ltd v Purcell Partners (No2) [2014 ]VSCA 68, [5].

[12] (2008) 20 VR 481; [2008] VSCA 212, [11].

[13] Foster v Galea (No 2) [2008] VSC 331, [9].

[14] Hazeldene, [19]; Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd [2004] VSC 351; Fletcher Insulation (Vic) Pty Ltd v Renold Australia Pty Ltd (No 2) [2006] VSC 293, [13]-[17], Byrne J.

[15] Hazeldene, [19]; Foster v Galea (No 2) [2008] VSC 331, [9].

[16] The policy objectives are more fully set out in Hazeldene at [21].

[17] Hazeldene, [21]; M.T. Associates Pty Ltd v Aqua-Max Pty Ltd [2000] VSC 163, [72].

[18] Fletcher Insulation (Vic) Pty Ltd v Renold Australia Pty Ltd (No 2) [2006] VSC 293, [13]-[17], Byrne J.

[19] Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd [2004] VSC 351, [60]; Hazeldene, [22].

[20] BMD Major Projects Pty Ltd v Victorian Urban Development Authority [2007] VSC 441, [5].

[21] Premier Building & Consulting Pty Ltd v Spotless Group Ltd (No 13) [2007] VSC 516, [13], Byrne J.

[22] Rickard Constructions v Rickard Hails Moretti and Ors [2005] NSWSC 481, [17] per McDougall J.

[23] Apostolidis v Kalenik (No 2) [2011] VSCA 329, [61]-[64] (the offer was subject to approval by the Australian Taxation Office, in effect).

[24] [2003] FCAFC 1, [8].