Richard Austin Ell v Stephen Maxwell Ell & Michael Richard Ell

Judgment 1On 19 March 2014 I delivered reasons for judgment in this matter on the plaintiff's substantive claim against the defendants. I made an order that the plaintiff's claim be dismissed. 2Relevantly, by order 3 I directed the parties to deliver any submissions that they wished to make as to the cost order that should be made in these proceedings within 10 days after the delivery of my reasons for judgment. 3On 31 March 2014 I received written submissions in conformity with this direction from counsel for the plaintiff and counsel for the first to third defendants. The fourth defendant submitted to the order of the court at an early stage of the proceedings, except as to costs. As the claim against her was dismissed, no issue of costs arises in relation to her part in the proceedings. 4It will be convenient to refer to the defendants who have made a submission on costs as the "defendants". The defendants submit that the plaintiff should be ordered to pay their costs of the proceedings up to and including 29 November 2013 on the ordinary basis, that is, party/party costs. They submit that the plaintiff should be ordered to pay 95% of their costs after that date on the indemnity basis. 5It is clear, as the plaintiff accepts, that this is a case where costs should follow the event, and the defendants should at least be entitled to their costs of the proceedings on the ordinary basis. The only issue is whether the plaintiff should be required to pay costs on the indemnity basis for any period. 6The claim for indemnity costs is based upon a Calderbank offer that the defendants made to the plaintiff on 19 November 2013. That offer was made about three weeks before the commencement of the hearing on 11 December 2013. 7The operative part of the Calderbank offer was in the following terms: "In an attempt to resolve the proceedings we are instructed to make the following offer: 1. The defendants offer to compromise the plaintiff's claim for $1. 2. There be no order as to the plaintiff's costs, it being the intention of the parties that the plaintiff is to pay and bear his own costs. 3. There be no order as to the defendant's (sic) costs, it being the intention of the parties that the defendants pay and bear their own costs. 4. The amount of $1.00 is to be paid to the plaintiff on or before 29 November 2013. This offer is open for acceptance until 5 PM Friday, 29 November 2013 by which time if the offer is not accepted the offer will lapse." 8The defendants submit that the issue is whether it was unreasonable for the plaintiff to reject the Calderbank offer. The detail of the defendants' submissions in support of their argument that the plaintiff acted unreasonably is to be found in pars 8 and 9 of their written submissions. In outline, the defendants say that, as the proceedings had been on foot for approximately one year, the offer that the defendants bear their own costs was a significant compromise. They say that, by 29 November 2013, almost all of the evidence in the proceedings had been served, so the plaintiff had a proper opportunity to consider the relative strengths of the parties' cases. There is a finding in the reasons for judgment that the plaintiff had put his case on the basis of evidence which, in some respects, he should have understood had been gilded. The plaintiff must be taken to have known that his contract claim was extremely weak. The rectification claim was also extremely weak. 9The defendants submit that they would be entitled to 100% of their costs after 29 November 2013 on an indemnity basis, but for the fact that the court dismissed their application for leave to amend their defence. The defendants suggest that in the circumstances a 5% discount to their entitlement to indemnity costs is appropriate. 10In response the plaintiff relies upon the summary of the relevant principles in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344, per Basten JA at [9] and following; McColl JA agreeing [1]. I note that Campbell JA at [26] also agreed with Basten JA. He submits that the court always has a general discretion under s 98 of the Civil Procedure Act 2005 (NSW), and, in the context of the rejection by a party of a Calderbank offer, where the party making the offer obtains a result more favourable than the terms of the offer, the court should only consider ordering that indemnity costs be paid where; first, the terms of the offer embodied a genuine compromise; and secondly, the rejection of the offer was unreasonable or manifested some element of delinquency from the unsuccessful party. The plaintiff submits that neither of these requirements is satisfied in the present case. 11Basten JA at [11] noted that: "It is not in doubt that the response of the offeree must be assessed at the time it was made, and not with the benefit of hindsight resulting from a known outcome, recorded in the judgment: Regency Media at [33], however, that factor should not entail a detailed investigation into the state of preparation or knowledge of the offeree as at the date of the offer..." 12His Honour also set out at [12] the factors relevant to determining whether the rejection of an offer was unreasonable. I will have regard to those matters. 13In Leichhardt Municipal Council v Green [2004] NSWCA 341 the Court of Appeal considered the principles applicable to the effect of Calderbank offers in cases where the successful party had, relatively shortly before the commencement of the trial, offered to settle on the basis of a verdict in its favour with each party to bear its own costs. That is effectively the situation in the present case, as the defendants offered to pay the plaintiff $1.00. Santow JA, with whom Bryson and Stein JJA agreed, noted at [18] that the Court of Appeal has accepted that a Calderbank offer is a legitimate alternative to an offer of compromise under the statutory rules. His Honour noted at [19] that one difference between the two procedures was that, "where an offer of compromise has been made under the Rules, a prima facie entitlement arises in the relevant party to have costs awarded in accordance with the appropriate Rule" (emphasis in original). By contrast, where the maker of a Calderbank offer does better at trial than the offer made, the costs consequences lie within the discretion of the court. The various rules concerning offers of compromise are relevant for the court to take into account when considering a Calderbank offer (at [20]). Further (at [21]): "the question of whether [a Calderbank] offer is characterised as a genuine offer of compromise is almost the same as the question of whether costs sanctions should flow from such an offer". 14Santow JA held at [23]: "It is clear that an offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise." 15Bryson JA observed at [59]: "The application for an order for costs to be assessed on the indemnity basis raises the discretionary question the answer to which is not in my view susceptible of much detailed exposition." 16Though concerned with the effect of UCPR r 42.15A in relation to the cost consequences of a party's failing to accept a formal offer of compromise, the decision of the Court of Appeal in Regency Media Pty Ltd v AVV Australia Pty Ltd [2009] NSWCA 368 provides useful guidance in so far as the court considered the reasonableness of a party rejecting an offer to pay $10,000, in response to a contractual claim for payment of more than $800,000, with each party to pay its own costs. The court unanimously said: "[29] As is usually the case in proceedings turning on an issue of contractual interpretation, this was an all or nothing case. The claims did not involve a process of evaluation or assessment in which the end result could vary over a range. Either one party or the other was correct. Whilst a marginal difference between the offer and the result may constitute a real and genuine offer of compromise in a personal injury context, that is not generally true in an all or nothing case" (citations omitted)... [31] An offer which is in substance an invitation to surrender can result in the successful triggering of the indemnity costs mechanisms under the rules. (See r 20.26(2); Leichhardt Municipal Council supra at [36]-[37], [40]). However, as Basten JA suggests in Robb Evans supra at [20], the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case... If it were otherwise, the public policy to encourage settlement would rarely be served, in an all or nothing case. These proceedings were not of that character, as indicated by the success which the respondent had at first instance. [32] The normal order for costs, even in a clear case, is that each party bears its own costs without full indemnity. If a derisory offer, of the kind made in these proceedings, could result in an order for indemnity costs, then it is likely that many, perhaps most, contract interpretation disputes would result in an indemnity costs order, if the formality of an offer in accordance with the rules had been made at an early stage. If the applicant were to succeed in the present case, it is quite likely that such an offer would accompany most statements of claim as a matter of commercial practice. The purpose of the special order - to encourage settlement - would no longer be served. An order for indemnity costs could, in our opinion, become the normal order in many commercial disputes." 17In the present case I have come to the conclusion that it is not appropriate to order the plaintiff to pay any part of the defendants' costs on the indemnity basis. 18This is a case where the plaintiff's case was an all or nothing claim. The plaintiff's case was not frivolous or vexatious. I do not consider that the defendants' offer embodied a real and genuine compromise in the circumstances. As Bryson JA noted in Leichhardt Municipal Council at [59], my reasons for reaching this conclusion are not readily susceptible to detailed exposition. It is entirely unrealistic to expect a judge, who has heard and determined a particular claim on the basis of all of the evidence, to attempt to reconstruct the prospects of success of the parties on the basis of the evidence and other circumstances that obtained, at a time before the commencement of the trial, when a Calderbank offer was rejected. Furthermore, it is unsafe to draw conclusions about the true appearance of the offeree's prospects of success from an analysis of the reasons for judgment that ultimately lead the court to reject that party's claim, or defence, as the case may be. It may be that it appears from the reasons for judgment that the party's case has been resoundingly defeated. It does not necessarily follow that the party's case was frivolous or vexatious, or, to use Bryson JA's expression in Leichhardt Municipal Council at [59], that it was a case "which could not reasonably be argued". It is self-evident that it would be inimical to the interests of justice if a trial judge, after having decided the case following a spirited contest between the parties, was called upon to expose his or her doubts and uncertainties in order to justify a finding that the unsuccessful party was reasonably entitled to reject a Calderbank offer that effectively invited capitulation by the party. 19It is sufficient for me to note that the present case was not in my view an 'open and shut' case, so to speak, or that there was no reasonable basis for the plaintiff to hope that one or more of the grounds upon which he put his claim would succeed, or that following cross examination he would have fared better on the issue of credibility than in fact happened. As is reflected in the strength of the submissions put to the court by his counsel, the plaintiff's case was fairly and properly arguable. 20Furthermore, as the offer was only put shortly before the commencement of the trial, it did not offer to the plaintiff the prospects of avoiding incurring the costs of preparing his claim for hearing. It only offered him the possibility of avoiding his own costs of the hearing and an order that he pay the defendants' costs if his claim failed. That was too little compensation for asking the plaintiff to throw away his hopes of success in his claim, that had been prepared for hearing over a relatively considerable period; which probably involved significant effort, anxiety, and cost on his part. The plaintiff was, so to speak, entitled to his 'day in court'. 21In those circumstances it is appropriate that the plaintiff should be ordered to pay the defendants' costs of the proceedings on the ordinary basis. Although the defendants offered to accept a 5% discount for the failure of their application for leave to amend their defence, in the context of a partial award of indemnity costs, I do not regard the application for leave as having significantly increased the costs of the proceedings. 22In these circumstances I will make the following further order in addition to the orders made on 19 March 2014: (1)Order the plaintiff to pay the defendants' costs of the proceedings on the ordinary basis.