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[2013] WASCA 283
General information, not legal advice.
Court of Appeal (WA)
2013-12-09
Buss JA
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : PRO PROPERTY PTY LTD -v- ORCHARD HOLDINGS PTY LTD [2013] WASCA 283
BETWEEN : PRO PROPERTY PTY LTD as Trustee for ACEHIGH ADELAIDE TRUST trading as COLDWELL BANKER PRO PROPERTY
BETWEEN : PAXHILL PTY LTD as Trustee for the PAXHILL TRUST trading as PROPERTY PEOPLE
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Citation : ORCHARD HOLDINGS PTY LTD -v- PAXHILL PTY LTD AS TRUSTEE FOR PAXHILL TRUST TRADING AS PROPERTY PEOPLE [2012] WASC 271 (S)
Costs - First respondent successful at trial - Calderbank offer by appellants on eve of trial exceeded judgment sum - Trial judge ordered appellants to pay first respondent's costs of the action - Whether appellants entitled to costs after Calderbank offer made - Relevant principles - Significance of timing of Calderbank offer
First respondent to pay appellants' costs after date of Calderbank offer
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No 2) [2008] NSWCA 273
Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115
Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435
House v The King [1936] HCA 40; (1936) 55 CLR 499
Hughes v St Barbara Ltd [2011] WASCA 234 (S)
Jones v Bradley (No 2) [2003] NSWCA 258
Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85
MacLean v Rottnest Island Authority [2001] WASCA 323
Orchard Holdings Pty Ltd v Paxhill Pty Ltd as Trustee for Paxhill Trust trading as Property People [2012] WASC 271
Orchard Holdings Pty Ltd v Paxhill Pty Ltd as Trustee for Paxhill Trust trading as Property People [2012] WASC 271 (S2)
Orchard v Paxhill Pty Ltd as trustee for Paxhill Trust trading as Property People [2012] WASC 271 (S)
Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72
Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd [2001] NSWCA 461; (2001) 53 NSWLR 626
Taylor v Pace Developments Ltd [1991] TLR 228; [1991] BCC 406
2 NEWNES JA: These are appeals against orders made by Allanson J that the respective appellants pay the first respondent's costs of the action before his Honour. The appellants contend, in substance, that his Honour failed properly to take into account Calderbank offers made by the appellants to the first respondent (Orchard) prior to trial.
3 The appellants require leave to appeal: s 60(1)(e) of the Supreme Court Act 1935 (WA). The question of leave was referred to the hearing of the appeal.
4 The appeals were heard together and it is convenient to consider them together.
5 The proceedings below arose out of the sale of some strata-titled units which Orchard, the plaintiff in the action, developed on land in the Perth suburb of Highgate. Orchard was a company controlled by Keith and Sue-Ann Anderson (the Andersons), who are husband and wife and who were the second and third plaintiffs respectively in the action.
6 In early 2006, Orchard purchased four adjoining properties in Highgate with the intention of demolishing the existing buildings, amalgamating the lots and constructing 28 apartments. The selling agent for the land was Paxhill Pty Ltd (the appellant in CACV 120 of 2012), which traded as 'Property People'. Mr Richard Moody (Mr Moody) (the second respondent in CACV 119 of 2012) was a real estate sales representative employed by Property People and Mr Anderson became acquainted with him through the purchase of the land.
7 In order to finance the development, Orchard needed to sell some of the apartments 'off the plans'. Mr Moody, on behalf of Property People, put a proposal to Orchard for Property People to act as agents for Orchard for that purpose. In March 2006, Orchard agreed to appoint Property People as the selling agents.
8 Over the following months, a number of offers to purchase apartments in the development were submitted to Orchard by Mr Moody and accepted by Orchard. Mr Moody told Orchard that deposits had been paid by the purchasers.
9 In about late December 2006 or early January 2007, Mr Moody resigned from Property People and took up employment as a real estate representative with Pro Property Pty Ltd (the appellant in CACV 119 of 2012), which traded as Coldwell Banker Pro Property (Coldwell). In that capacity, Mr Moody subsequently submitted further offers to purchase apartments, which were accepted by Orchard.
10 In March 2007, Orchard commenced discussions about project finance with Westpac. An offer to provide finance was made by Westpac on 30 March 2007. One of the conditions of the offer was that Orchard provide Westpac with at least 15 executed arms length unconditional contracts, with gross sales no less than $10 million, and provide written confirmation from Orchard's real estate agent that it held by way of deposits a minimum of 10% of the total sales contract amount and would not release it without Westpac's consent.
11 Mr Moody provided a letter to Orchard in April 2007 confirming that deposits were held for the executed sales contracts and Orchard forwarded that letter, together with copies of the contracts, to Westpac in May 2007.
12 In early May 2007, final approval was given by Westpac for the finance and the relevant agreements were signed in the first half of May 2007. Work subsequently commenced on the development.
13 By late 2008 the development was nearing completion and Mr Anderson instructed solicitors to write to each of the purchasers requesting certain details required for settlement. It very quickly emerged that some 13 of the contracts were fictitious and that no deposit had been paid in relation to any of them. Those contracts, unbeknown to Orchard or to the principals of Property People and Coldwell, had been fabricated by Mr Moody. On 8 December 2008, Mr Moody resigned from Coldwell.
14 Orchard subsequently engaged another agent to sell those apartments. It took a considerable time to do so but by about the middle of 2010 all but one of the apartments had been sold, albeit for lower prices. In the meantime, Orchard had defaulted under the finance agreement with Westpac. The Andersons were also in default under a housing loan which they had obtained from Westpac and were liable to Westpac for Orchard's debts under a guarantee they had granted to Westpac in connection with the project financing.
15 Orchard and the Andersons commenced an action for damages against Property People and Coldwell alleging misleading or deceptive conduct under the Trade Practices Act 1974 (Cth), breach of contract, breach of a duty of care and breach of fiduciary duty, and against Mr Moody alleging misleading or deceptive conduct under the Fair Trading Act 1987 (WA).
16 A claim for damages was also made against those parties by the Andersons for losses they had allegedly suffered personally as a result of a property transaction they had entered into on the basis that the fictitious sales were genuine and Orchard would be able to meet its liabilities. The Andersons' claim was for a sum of $250,000 allegedly lost on the sale of their family home, and for interest on a loan and costs they incurred in relation to the purchase of another home [358] - [360]. The Andersons' claim was ultimately dismissed with costs and it is unnecessary to say much more about it.
17 In essence, Orchard alleged (relevantly) that each of Property People and Coldwell, by Mr Moody, had presented offers to purchase apartments to Orchard representing that they were genuine offers, as a result of which Orchard had proceeded to obtain finance for and undertake the construction of the development and did not attempt to market those apartments to other prospective purchasers.
18 Orchard claimed that had it not been misled into believing the apartments had been sold it would have achieved an equivalent number of sales of similarly priced apartments from genuine purchasers prior to June 2007. Orchard's losses were particularised in schedule A to the statement of claim (schedule A), in substance, as follows:
Item 1: loss in value of the apartments the subject of fictitious contracts during the period Mr Moody was employed by Property People plus holding costs on those apartments to the date of settlement on the resale of each apartment: $524,349.50;
Item 2: loss in value of the apartments the subject of fictitious contracts during the period Mr Moody was employed by Coldwell, plus holding costs on those apartments (except apartment 25) to the date of settlement on the resale of each apartment, and for apartment 25 (which was unsold) holding costs to the date of the writ: $695,093.58;
Item 3: holding costs of apartments not subject to fictitious contracts but held back from sale in reliance on fictitious contracts, which would otherwise have sold: $1,361,924. (In fact, some $735,000 of that amount appears to relate not to holding costs but to an unpleaded claim for the alleged loss of value of the apartments.)
19 It was evident from the nature of the claims made by Orchard that the outcome on damages depended to a substantial degree upon expert evidence.
20 On the first day of the trial, 17 October, 2011, Orchard applied to amend the statement of claim in several respects. It sought to plead, first, that Property People and Coldwell were liable for Mr Moody's conduct under s 84(2) of the Trade Practices Act and, secondly, that Mr Moody was liable under s 75B of that Act. The amendment to plead s 84(2) was proposed by Orchard's counsel after an exchange with the primary judge on the first day of the trial. It had not previously been foreshadowed and indeed initially before his Honour was contended by Orchard's counsel to be unnecessary. The amendment to plead s 75B had been raised by Orchard shortly before the trial.
21 At the same time, Orchard also applied to amend the statement of claim on the issue of damages. It is necessary to digress briefly to explain the background to that application. On 9 September 2011, Orchard had foreshadowed that it would be seeking a further expert report in relation to the loss of value of the apartments referred to in Item 3 of schedule A. The defendants objected to the evidence being produced at such a late stage. The expert report was subsequently produced and the issue of leave to adduce it at trial was argued before the primary judge on 30 September 2011. On 3 October 2011, the primary judge granted Orchard leave on the basis that the question of leave would be open for reconsideration if the defendants provided evidence that they would be prejudiced by the late provision of the report.
22 The amendment Orchard sought to make to the statement of claim was to plead that it would have sold the apartments referred to in Item 3 by about December 2008, or at least by no later than March 2009, and to claim damages for the reduction in their value between then and when they were eventually sold in 2009 and 2010 (the Item 3 loss of value claim). As mentioned, up to that point the only claim made in relation to the Item 3 apartments was for holding costs.
23 When Orchard's application to make the amendments came before the primary judge on 18 October 2011, they were opposed by the defendants, as was Orchard's reliance on the further expert report. In relation to the amendment to plead the Item 3 loss of value claim, the defendants contended they would be prejudiced by having insufficient time to make the necessary further inquiries into the new claim and to obtain expert evidence in relation to it. In the course of argument the prospect of the trial being adjourned arose. Counsel for Orchard told the primary judge, as he had told his Honour previously, that Orchard wanted to proceed with the trial come what may (ts 20, 117 - 119).
24 The primary judge delivered his decision on the applications on 19 October 2011. His Honour allowed the amendments to the statement of claim to plead s 75B and s 84(2) of the Trade Practices Act, on the ground that they did not materially extend the factual matters in issue and the appellants would not be prejudiced if they were allowed. However, his Honour refused to allow Orchard to adduce the further expert report in support of the Item 3 loss of value claim and refused the amendment to the statement of claim relating to it, on the ground of prejudice to the defendants. His Honour found that further discovery would have to be given by Orchard and the defendants would have insufficient time to make enquiries into the claim and to obtain expert evidence on it. In that connection, he noted that one of the two real estate agents involved in the sales had destroyed its documents. His Honour also noted that no explanation had been provided by Orchard for the delay in seeking to make the claim.
25 After a 15 day trial, the primary judge found that each of Property People and Coldwell was liable, as principal, for breach of s 52 of the Trade Practices Act in the presentation by Mr Moody of the fictitious offers to Orchard. He also found that Mr Moody was liable for that conduct as a person knowingly concerned in the contravention [339]. His Honour noted that the breach of contract claim had not been pursued and it was unnecessary to rule on it, but he dismissed the other causes of action pleaded by Orchard and, as mentioned above, dismissed the claim by the Andersons: Orchard Holdings Pty Ltd v Paxhill Pty Ltd as Trustee for Paxhill Trust trading as Property People [2012] WASC 271.
26 On damages, the effect of the decision of the primary judge was that the total diminution in the value of the apartments referred to in Items 1 and 2 in schedule A was an amount of $844,982. His Honour reduced that amount by 50% on the basis that there was only a 50% chance the apartments the subject of the fictitious sales would have been sold and would have proceeded to settlement in early 2009. That left the damages for Items 1 and 2 in the sum of $422,491. His Honour awarded a further amount of $27,509 in respect of other claims, resulting in total damages of $450,000. His Honour dismissed the claim for holding costs in Item 3 in schedule A.
27 On 20 August 2012, judgment was entered against Property People and Mr Moody, jointly and severally, in the sum of $225,000, and against Coldwell and Mr Moody, jointly and severally, in the sum of $225,000.
28 On 9 May 2013, on the application of Orchard, his Honour amended the judgment under the slip rule to add a further amount of $67,573.14 by way of interest for the period between when the various losses were incurred and the date of judgment: Orchard Holdings Pty Ltd v Paxhill Pty Ltd as Trustee for Paxhill Trust trading as Property People [2012] WASC 271 (S2). The total amount awarded to Orchard was therefore $517,573.14.
29 It is necessary to turn now to the Calderbank offers which were made by Property People, Coldwell and Mr Moody and which lie at the heart of this appeal.
30 On 27 September 2011, some three weeks before trial, Property People made an offer of settlement. The offer, which was expressed to be open until close of business on 11 October 2011, was (relevantly) in the following terms:
31 On 30 September 2011, Coldwell and Mr Moody also made an offer of settlement. The offer, contained in a letter from their solicitors, was expressed to be open until 5.00 pm on 7 October 2011 and was (relevantly) as follows:
3.1 Your clients indemnify our clients against such consequences, both as to costs and otherwise. This offer is made on this basis. Two alternatives are raised below for your consideration.
3.2 If the case against the second and third defendants is dismissed by court order, it may be difficult or not possible to join them back in at the behest of the first defendant. But the first defendant may object to such process.
3.3 It would of course be best if all defendants can settle with all the plaintiffs at the same time. We trust that this can be achieved by obtaining an appropriate settlement offer from the first defendant.
32 In the letter of offer, the lawyers for Coldwell and Mr Moody, having said that they did not wish to argue the merits of the case, set out briefly their contention that the claim against Coldwell must fail because it could not be proved that Mr Moody was acting with Coldwell's authority. They also pressed the merits of a limitation point pleaded at that stage on behalf of Mr Moody.
33 On 14 October 2011 (the Friday before the trial was to begin), Property People, Coldwell and Mr Moody made a joint offer to settle. The offer was sent by facsimile at 2.35 pm that day. It was expressed to be open until 1.00 pm on Monday, 17 October 2011 (the first day of the trial), and was (relevantly) in the following terms:
2.1 [Property People's] share $500,000; and
2.2 [Coldwell and Mr Moody's] share $500,000.
3.1 [Property People's] share 50%; and
3.2 [Coldwell and Mr Moody's] share 50%.
5.1 the Settlement Deed duly executed by [Orchard and the Andersons]; and
5.2 a Minute of Consent Orders dismissing the Action executed by [Orchard and the Andersons].
34 Following judgment, Orchard sought an order that Property People, Coldwell and Mr Moody pay its costs of the action. Property People, Coldwell and Mr Moody, on the other hand, contended that they were entitled to an order that Orchard pay part of their costs of the action, including the whole of the costs of the trial, based on one or other of the Calderbank offers. His Honour rejected that contention and ordered, relevantly, that:
35 As mentioned earlier, the primary judge ordered the Andersons to pay the costs of their unsuccessful claim against Property People, Coldwell and Mr Moody.
36 The primary judge, having set out the Calderbank offers and the circumstances in which they were made, referred to the decision of this court in Hughes v St Barbara Ltd [2011] WASCA 234 (S) [12] for the proposition that the existence of a Calderbank offer which 'it would not have been unreasonable for the other party to accept' will be a powerful factor in the exercise of the court's discretion as to costs. His Honour noted that Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435, concerned a claim for indemnity costs but considered that the matters relevant to whether the rejection of an offer was unreasonable included those set out in that case. Those matters were:
(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; and
(f) whether the offer foreshadowed an application for costs in the event of the offeree's rejecting it [25].
37 The primary judge considered that while each of the offers was for a global sum to Orchard and the Andersons collectively, those parties were so closely related that it was reasonable to make the offer in that way. His Honour noted that each of the offers was more favourable than the result achieved by Orchard and the Andersons in the action.
38 His Honour considered that the factors referred to in Hazeldene's Chicken Farm favoured Property People, Coldwell and Mr Moody. While the joint offer was made on the Friday before trial and was open only until 1.00 pm on the following Monday, by that time Orchard, the Andersons and their lawyers should have been sufficiently in command of their case to assess the reasonableness of the offer within that time.
39 There were, however, two factors which the primary judge considered weighed heavily in favour of Orchard. They were the amendments which Orchard sought to make on the first day of trial to plead s 84(2) and s 75B of the Trade Practices Act, and the amendments to plead the Item 3 loss of value claim. His Honour noted that the latter amendment was disallowed and the provisional leave to rely on the relevant expert evidence withdrawn after the time for accepting the last Calderbank offer had expired. His Honour concluded:
The uncertainty about whether [Orchard and the Andersons] would be permitted to rely on the additional expert evidence is important in assessing whether [Orchard and the Andersons] should, reasonably, have accepted the offers. That uncertainty affected claims for more than $1 million. On the findings made at trial, those claims may not have succeeded. But it is not helpful to speculate about what findings would have been made if the evidence had been different.
This is particularly so where the question is whether it would have been 'not unreasonable' to accept the offer at the earlier time when it was made.
In my view, the general rule that the successful party should recover its costs should apply. The defendants should pay Orchard Holdings' costs of the trial, subject to specific matters which I will deal with below [32] - [33].
40 The primary judge went on to find that there should not be an order under O 66 r 2(a) of the Rules of the Supreme Court 1971 (WA) in favour of Property People, Coldwell and Mr Moody in respect of the causes of action on which Orchard had failed, but his Honour did order that Orchard and the Andersons pay the costs of the applications on the first day of the trial and of two other applications made in the course of the trial.
41 The appellants contend that in light of the Calderbank offers, the primary judge erred in the exercise of his discretion in ordering them to pay Orchard's costs of the trial. Mr Moody did not take part in the appeal.
42 The grounds of appeal (excluding the particulars) were as follows:
43 The grounds of appeal can conveniently be dealt with together. I should note at the outset that Pro Property and Coldwell seek to rely on the Calderbank offers for orders for party and party costs of the trial, so it is unnecessary to consider the position where an order for indemnity costs is sought.
44 The court has a discretion as to costs which, subject to the requirement that it be exercised judicially, is unfettered. Whilst the general rule is that a successful party is entitled to an order for costs (O 66 r 1(1)), that simply reflects the fact that ordinarily such an order will accord with the requirements of justice. Fairness will generally require that the unsuccessful party pay the successful party's costs on the ground that if the litigation had not been brought or defended (as the case may be) by the unsuccessful party, the successful party would not have incurred the costs it did: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [67].
45 But the court will depart from the general rule if in the circumstances it is in the interests of justice to do so. The circumstances in which it will do so are of course impossible to describe exhaustively. As Lloyd LJ observed in Taylor v Pace Developments Ltd [1991] TLR 228; [1991] BCC 406:
There is only one immutable rule in relation to costs, and that is that there are no immutable rules (408).
46 However, one of the circumstances in which the court may depart from the general rule is where the successful party has refused an offer of settlement which was at least as favourable as the judgment obtained by that party after trial. Where the unsuccessful party has been put to the costs of a trial at which the successful party did not achieve an outcome better than had previously been offered by the unsuccessful party, the dictates of fairness may require a different allocation of the liability for costs.
47 The rules of court provide a specific regime in O 24A for offers of compromise to be made and for the ordinary (but not invariable) consequences in costs when such an offer is accepted, or alternatively where such an offer no less favourable than the judgment obtained after trial is refused. Such costs will ordinarily be on a party and party basis.
48 An offer of compromise under O 24A is not, however, the only form of offer that may have consequences as to costs. Order 24A is not an exclusive code for settlement offers. In exercising the discretion as to costs the court may have regard to offers of compromise in other forms, including Calderbank offers. But, what, if any, costs consequences such an offer of compromise may have will depend upon the circumstances of the case. The fact that the offeree does not accept the offer but ends up worse off than if the offer had been accepted is a matter to which the court may have regard in the exercise of the discretion, but it does not necessarily follow that the court will depart from the general rule that costs follow the event. Whether a party's failure to accept such an offer warrants the court departing from the general rule that costs follow the event must depend upon all the circumstances: Jones v Bradley (No 2) [2003] NSWCA 258. In the exercise of the discretion, the overriding consideration must always be what is fair and just between the parties.
49 Generally, however, where a Calderbank offer is not accepted by the offeree and the offeree ends no better off than if the offer had been accepted, if it was unreasonable in the circumstances for the offeree not to accept the offer that will be a powerful factor in the exercise of the court's discretion as to costs. If the offeree's failure to accept the offer was unreasonable, the court will ordinarily make an order for costs in favour of the offeror from the date of the offer and allow the offeree costs only up to that date: Hughes v St Barbara Ltd [12].
50 But while the judgment obtained by the offeree is the yardstick by which the reasonableness of the offer is to be measured, whether it was unreasonable for the offeree not to accept it is to be judged, not with the benefit of that hindsight, but at the time and in the circumstances in which the offer was made: Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd [2001] NSWCA 461; (2001) 53 NSWLR 626, 642. Whether it was reasonable not to accept the offer is to be determined objectively: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85. The factors which may be relevant in that regard again cannot be exhaustively stated but some of the factors which may be relevant are:
51 See Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115 [17]. While that case was concerned with indemnity costs, I consider those factors are also applicable where, as here, the offeror's claim is for party and party costs.
52 As a decision on costs involves an exercise of discretion, this court can only intervene if the appellants establish error on the part of the primary judge, in the sense explained in House v The King [1936] HCA 40; (1936) 55 CLR 499, 504 - 505. In my respectful opinion, the primary judge did fall into such error.
53 As mentioned earlier, the primary judge considered that the factors set out above generally favoured the appellants. His Honour also found that, given the close relationship between Orchard and the Anderson, it was reasonable for each of the offers to be made in a global sum, to be divided up between them as they saw fit.
54 Before the primary judge, the principal ground relied upon by Orchard for its non-acceptance of the joint offer was that it had less than seven business hours to consider the offer, for three of which (on 17 October 2011) their lawyers and representatives were in court. While strictly speaking that is correct, the reliance on business hours has an air of unreality about it. It is not to be expected that the weekend before the start of what was listed to be an eight day trial would be a period in which the representatives of Orchard and its lawyers would be unavailable to give attention to the offer. Weekends in such circumstances are ordinarily periods of considerable activity for the parties and their lawyers rather than periods of repose.
55 Orchard also submitted, somewhat more realistically, that at the time the offer was made the representatives of Orchard and its lawyers were deeply involved in completing preparation of the matter for trial. That, I think, can be accepted. It was argued that in those circumstances the time period for Orchard to consider the offer was unreasonable.
56 Orchard relied in that regard on the following observation in MacLean v Rottnest Island Authority [2001] WASCA 323:
[T]he Court should not encourage the use of a Calderbank letter delivered shortly before trial when the other party might reasonably be expected to have their minds on a number of matters. The use of a Calderbank letter is an aid to the administration of justice and should be encouraged. Its use as an indiscriminately wielded tactical weapon should be discouraged [36].
57 In that case, the defendants had made a Calderbank offer on the Tuesday prior to a trial commencing the following Monday. Whilst the offer exceeded the amount of the judgment obtained by the plaintiff, the Full Court declined to interfere with the order of the trial judge that the defendants pay the plaintiff's costs of the action.
58 However, as the Full Court noted, everything turns on the circumstances of the particular case. There is not, and there cannot be, any stipulation as to a minimum time which an offeree must have to consider an offer. Nor does the fact that an offer is made shortly before the trial necessarily diminish the weight to be given to the offer on the question of costs. Whilst it is obviously desirable that reasonable offers of settlement be made at an early stage of proceedings, it is commonly the case that offers are not made until shortly before trial. The reasons for that are obvious: the preparation for trial will almost invariably place the parties in a much better position to assess their prospects of success, and an imminent trial focuses minds in a way that its distant prospect generally does not.
59 Thus, in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No 2) [2008] NSWCA 273 an offer was sent in the middle of the day on Friday, 9 February expressed to be open until 4.00 pm Tuesday, 13 February. The trial commenced a week later, on Tuesday, 20 February. As the offer was open for less than three business days, the offerees contended that they were not given sufficient opportunity to consider and respond to the offer, particularly at a time when they and their advisors were devoting their energies to preparation for the trial. McColl JA (with whom Spigelman CJ and Beazley JA agreed) rejected that argument. Her Honour said as follows:
The next question is whether Challenger and CHL had an appropriate opportunity to consider and deal with the offer. In my opinion they did. It smacks of naivety to contend that Challenger and CHL were so busy devoting their time to preparation for trial that they could not consider the offer. The period leading up to the trial is precisely when parties are often in the best position to consider an offer. While compromise should be considered from when a party's claim is foreshadowed, clearly the further the process of preparation for trial has advanced, the better will the recipient of an offer be able to assess its prospects of success. Experienced practitioners know that decisions as to whether offers should be accepted are often made in a matter of hours, not days. Further, County had, in my view, clearly explained the basis of its claims on the two earlier occasions to which I have referred. By 9 February 2007 Challenger and CHL had County's affidavit evidence and must have been in a position to evaluate it in light of its own case .... In any event, had Challenger and CHL needed more time to consider the offer, they could have asked for it .... Instead they either responded with what could only be described as a disdainful offer of $50,000 inclusive of costs or, if their letter preceded County's, chose to sit on their offer. It can be inferred that they had evaluated what they regarded as County's prospects of success - wrongly as the judgment in this Court makes clear - at the time they sent their 9 February offer [35].
60 There may be cases where a Calderbank offer is used, not for any genuine purpose of seeking to compromise the action, but as a tactical weapon dispatched at the eleventh hour. It could not, however, be inferred from the circumstances of the offer of 14 October 2011 that that was its purpose. The offer did not come out of the blue. It followed the earlier offers made by Property People and Coldwell separately. Presumably Orchard and its advisors had considered those offers. When the joint offer was made they were not therefore starting from scratch in considering the question of what would constitute a reasonable settlement.
61 Nor was Orchard at a point where it did not have sufficient material to make an informed assessment of its prospects of success in the action. It had witness statements from the other parties, expert reports had been exchanged and a conference of experts had taken place on 28 September 2011.
62 While the time that Orchard had to consider the offer was relatively short, in the circumstances, as the primary judge found, the time was sufficient for the representatives of Orchard to give the offer proper consideration, including taking any necessary legal advice.
63 On the other hand, his Honour considered that the amendments to Orchard's case on the first day of trial and the uncertainty which then existed as to whether Orchard would be permitted to make the Item 3 loss of value claim weighed heavily in favour of Orchard on the question of costs. Notwithstanding that Orchard was worse off than if it had accepted any of the Calderbank offers, his Honour concluded that as the uncertainty affected claims for more than $1 million it was not unreasonable at that stage for Orchard to refuse the offers and that Orchard was therefore entitled to an order for (relevantly) costs after the offers were made.
64 While the primary judge referred to Orchard's application to amend its statement of claim to plead s 84 and s 75B of the Trade Practices Act as a factor in Orchard's favour, it does not seem that in fact that application played any significant part in his Honour's decision. Nor is it apparent how it might have materially affected Orchard's assessment of the Calderbank offers. The need for the amendment to plead s 84 could not have created any uncertainty on Orchard's part as the initial position of Orchard's counsel at the hearing on 17 October 2011 was that the amendment was unnecessary. And the amendment to plead s 75B related only to Mr Moody's liability. In any event, it is evident that his Honour considered the critical factor in Orchard's favour was its uncertainty in respect of the Item 3 loss of value claim.
65 In my opinion, however, the primary judge was in error in concluding that that was a factor capable of assuming any dispositive weight in the circumstances of this case. It ought to have been apparent to Orchard at the time the Calderbank offers were made that there was potentially a serious problem with the proposed Item 3 loss of value claim. The leave granted by the primary judge on 3 October 2011 to adduce the relevant expert evidence was expressly subject to further consideration if the defendants produced evidence that they would be prejudiced by the late production of the evidence. While the two affidavits deposing to prejudice by the defendants were not filed until 17 October 2011 and 18 October 2011 respectively, it was evident from the preceding correspondence attached to those affidavits that, at least by the time of the joint offer if not earlier, there was a real prospect the defendants would seek to reopen the issue of leave on the ground of prejudice. And on the basis of that correspondence it must have been apparent to Orchard's representatives that there was a real risk the expert evidence would not be allowed.
66 To the extent that when the Calderbank offers were made Orchard found itself in a position of some uncertainty as to whether it would be permitted to advance the Item 3 loss of value claim, that was a circumstance entirely of its own making. The application to adduce the expert evidence was made at a very late stage with no proper explanation for its belated appearance. The resulting uncertainty as to whether Orchard would be permitted to run this claim may well have made it more difficult for Orchard to assess whether it should accept one or other of the Calderbank offers, but as its predicament was wholly self-inflicted that was simply something that Orchard had to take into account in assessing the offers. The uncertainty which Orchard had created for itself was not, in my opinion, a factor weighing in Orchard's favour on the question as to on whom, as between the parties, the burden of the costs after the Calderbank offers should fall. His Honour does not appear to have had regard to the fact that Orchard had itself created the uncertainty, which in the circumstances of this case was a highly material consideration.
67 In my respectful view, the primary judge erred in the exercise of his discretion. The orders which his Honour made in respect of costs after the Calderbank offers were made were not orders that could reasonably be made in the proper exercise of the discretion. In the circumstances, they were, with respect, unreasonable or plainly unjust: House v The King. I would grant leave to appeal, allow the appeal and set aside the orders as to costs made by the primary judge.
68 This is not a case where the matter should be remitted to the primary judge to re-exercise the discretion. This court is in a position to exercise the discretion afresh and should do so. The parties have made submissions to this court for that purpose.
69 It is unnecessary to repeat what has been said above in relation to the circumstances in which the Calderbank offers were made, and in particular the joint offer of 14 October 2011.
70 I do not consider that the offer by Property People of 27 September 2011 justifies a departure from the general rule that costs follow the event. In circumstances where there was a live issue in the action as to when Mr Moody ceased to be an employee of Property People and became an employee of Coldwell, an issue which affected the respective liability of those parties to Orchard, Orchard's failure to accept that offer was not unreasonable.
71 I do not consider that the position changed when the offer of 30 September 2011 was made by Coldwell and Mr Moody. In my view, it was not unreasonable for Orchard to decline to accept that offer in the light of the requirement that Orchard indemnify Coldwell and Mr Moody in respect of any claim for contribution made against them by Property People. Indeed, the nature of the case was such that the only practical course was a joint offer by all of the defendants to the action. That obviously occurred to those parties, leading to the joint offer of 14 October 2011.
72 Turning then to the joint offer, contrary to Orchard's submission I do not consider it a significant factor that the joint offer contained a stipulation that the terms of settlement were to be recorded in a deed which was to include a 'confidentiality clause'. In seeking a confidentiality agreement, the offerors were seeking to obtain an advantage that would not be available in any judgment after trial. Confidentiality is not ordinarily available in court proceedings and there was no reason to expect that it would be available in respect of any judgment in the action. The fact that an offeror seeks as part of a settlement offer something which would not be obtainable in a judgment in the action does not, however, mean that the offer cannot be relied upon by the offeror on the question of costs, although it may be a relevant factor in assessing whether it was reasonable for the offeree not to accept the offer.
73 The inclusion in the offer of a requirement for a confidentiality clause was not an objection raised by Orchard before the primary judge. It was first raised in relation to the exercise of the discretion as to costs by this court. The fact that it was not raised below tends to suggest that it did not loom large, if at all, in the minds of the representatives of Orchard when the offer was received. That is not surprising. This was not a case where the vindication of reputation or any analogous issue was involved. It was in substance simply a money claim. A confidentiality provision is a common stipulation in such commercial settlements. And the generality of the stipulation of a 'confidentiality clause' suggested that its terms were open to negotiation. There was nothing to indicate that, if the offer was accepted, it would prevent Orchard from making any disclosure (for instance, to financiers or relevant public authorities) that it might reasonably need to make.
74 No objection was taken on the appeal (or below) to the fact that the offer was made to the Andersons and Orchard jointly, for those parties to apportion among themselves. On the appeal, counsel for Orchard accepted that that was appropriate (appeal ts 33). There is nothing to suggest that the offer of a single sum to them jointly created any difficulties in their assessment or rejection of the joint offer. That is hardly surprising in circumstances where the Andersons controlled Orchard. And in the end, the Andersons failed entirely and Orchard obtained a judgment for barely half the amount of the joint offer.
75 In the circumstances, it is to be inferred that the offer was not accepted simply because the Andersons and Orchard greatly overestimated their prospects of success on the damages claim - as the primary judge observed, 'their expectations were inflated' [28]. That is borne out by the gulf both between the amount sought by Orchard of some $2.58 million (of which the Item 3 loss of value case constituted $735,000) plus interest, and the judgment sum of $517,573.14, in circumstances where Orchard had in its possession the witness statements and expert evidence of all parties, and between the offer amount of $1 million and the judgment sum.
76 In my opinion, this is not a case where costs should simply follow the event. The failure to accept the joint offer was unreasonable and put the appellants to the costs of a 15 day trial. Orchard should bear the consequences in costs. The appropriate orders as to costs are:
77 There are two consequential matters. First, Property People sought an order that the Andersons jointly and severally indemnify Property People for any costs that Property People cannot recover from Orchard by reason of Orchard's inability to pay the costs. That order was sought on the ground that Orchard was a '$2 company', a receiver had been appointed to it, and Property People's costs after 14 October 2011 were in the order of $300,000. Counsel for Property People submitted that as the Andersons controlled Orchard at the relevant time, and presumably made the decision to reject the offer and continue with the action, it was appropriate that they bear any costs that Orchard cannot pay. Counsel could not, however, refer to any case where such an indemnity had been granted, accepting that it was a novel proposition and that there was 'some difficulty' with it.
78 In my view, there is, at least on the material before this court, no basis upon which such an order could properly be made. It is unnecessary to consider whether there are circumstances in which such an order might properly be made and, if so, what those circumstances might be.
79 Finally, Coldwell sought an order, first, that the amount of costs found to be payable by them and Mr Moody to Orchard be set off against the amount of costs found to be payable to them by Orchard; and secondly, that if there is a balance then payable to Coldwell and Mr Moody by Orchard, that amount be set off against the damages still payable by Coldwell and Mr Moody to Orchard. We were told from the bar table that only 40% of the amount of the damages payable by Coldwell and Mr Moody has been paid to Orchard.
80 On the other hand, the damages payable by Property People and Mr Moody to Orchard have been paid. Property People therefore simply sought orders that the amount of costs found to be payable by them to Orchard be set off against the amount of costs found to be payable to them by Orchard.
81 Counsel for Orchard did not resist those orders and I consider them to be appropriate. I would make orders accordingly.
82 In each appeal, I would grant leave to appeal, allow the appeal and set aside the orders as to costs made by the primary judge. The parties should bring in a minute of orders to give effect to these reasons.
(2005) 13 VR 435
(2001) 53 NSWLR 626
(1936) 55 CLR 499
(1998) 193 CLR 72