Scott v Ennis-Oakes

Plaintiffs' Application

1. It is convenient to deal with the plaintiffs' application first. As noted above, the plaintiffs primarily seek to vary the costs order made on 23 September 2019 such that the defendant pay the plaintiffs' costs of the proceedings up to and including 15 February 2018. Alternatively, the plaintiffs seek an order that there be no order as to the costs of the proceedings from their commencement up to and including 15 February 2018. The 15 February 2018 date is selected by the plaintiffs because it is the date on which the defendant filed her Amended Defence to rely on Additional Condition 37 as the basis upon which the contract was rescinded.
2. In support of their primary position, the plaintiffs submitted that up until the filing of the Amended Defence, the plaintiffs were justified in bringing and maintaining the proceedings for specific performance of the contract. It was noted that the Court had found (at [42] and [45]-[46]) that the defendant had repudiated the contract on 14 June 2017 by purporting to rescind based on Additional Condition 36.2.
3. The plaintiffs further submitted that but for the supervening event of the defendant's rescission on 21 December 2017 pursuant to Additional Condition 37, the defendant had no defence to the plaintiffs' claim for specific performance such that the plaintiffs would have succeeded on a summary judgment application. It was submitted that up until that point in time, the defendant was relevantly "blameworthy" (a reference to GR Vaughan (Holdings) Pty Ltd v Vogt [2006] NSWCA 263 at [18]-[20], citing Knight v Clifton [1971] Ch 700 at 718 per Sachs LJ) and should not escape the normal costs consequences of that by reason of the supervening event (said to be analogous to the "unexpected matter" referred to in GR Vaughan (Holdings) Pty Ltd v Vogt (supra)). In this regard, the plaintiffs referred to the fact that the only positive allegation in the Defence filed on 3 October 2017 was that it was impossible to complete the contract due to the defendant's inability to source the relevant funds to complete the proposed subdivision. The plaintiffs pointed to the defendant's affidavit sworn on 14 February 2018 which contained an assertion that the defendant had applied for construction finance with RAMS but the application was rejected. However, the plaintiffs submitted, by reference to a copy of the defendant's loan application to RAMS, that such application was for $500,000, an amount greater than the amount said to be required in order to complete the subdivision ($361,635). Thus, it was submitted that the defendant would not have made out her defence to the specific performance claim.
4. In support of their alternative position that there should be no order as to costs of the proceedings up to and including 15 February 2018, the plaintiffs submitted that it became unnecessary for the Court to determine the question of specific performance of the contract in circumstances where it was accepted that the contract had been brought to an end on 21 December 2017. In those circumstances, the relevant principles to be applied were analogous to those where there has been no determination of the dispute on the merits (see Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-5).
5. In her written submissions in response, the defendant submitted that the crux of the plaintiffs' primary contention is that but for the rescission of the contract on 21 December 2017 the plaintiffs would have succeeded in their claim for specific performance. That claim being abandoned in July 2018, the defendant submits that having regard to the obligations imposed on the parties and legal practitioners to facilitate the just, quick and cheap resolution of the real issues in the proceedings, it is not now appropriate to conduct a hypothetical trial into whether such claim would have been successful (referring to Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [31]-[32] and [47]).
6. In any event, the defendant disputed the relevance of the unaccepted repudiation of the contract by the defendant in the assessment of the parties' conduct of the litigation. It was noted that an unaccepted repudiation is a "thing writ in water" that "confers no legal rights of any sort or kind" (see Howard v Pickford Tool Co Ltd [1951] 1 KB 417 at 421).
7. In regards to the plaintiffs' alternative contention that there be no order as to costs, the defendant submitted that the effect of this contention was to redefine the "event" for the purposes of determining costs to the success or failure of the plaintiffs' abandoned claim for specific performance, and not the success or failure in the proceedings overall (which, as the defendant points out, was determined in her favour).
8. Finally, the defendant submitted that if the Court was inclined to accede to the plaintiffs' application, then the appropriate date up to which the Court should depart from the usual order as to costs should be 21 December 2017, the date on which the defendant purported to rescind the contract.
9. In my opinion, the circumstances of the present case warrant some departure from the usual rule that costs follow the event. It is appropriate in my view that there be no order as to the costs of the proceedings up to and including 15 February 2018.
10. The Court determined that on 14 June 2017 the defendant wrongfully purported to rescind the contract. By such conduct, the defendant repudiated the contract. The plaintiffs were plainly justified in commencing proceedings seeking orders for the specific performance of the contract. That position could be said to have been maintained reasonably until 15 February 2018 when the defendant amended her Defence to place reliance upon the purported rescission of the contract pursuant to Additional Condition 37. The plaintiffs ultimately accepted the validity of that rescission. At least until 21 December 2017, the defendant can be seen to have acted wrongfully in respect of the contract. That is so even if the repudiation was not accepted by the plaintiffs.
11. It does not follow, however, that the defendant should pay all or even some of the plaintiffs' costs of the proceedings up until 15 February 2018. I do not accept that the plaintiffs' position in respect of the claim for specific performance was so clear that she would have necessarily succeeded on a summary judgment application. The issues raised in the proceedings were not suitable for determination on a summary basis. The only relief claimed by the plaintiffs in their Statement of Claim was specific performance of the contract. The Defence filed on 3 October 2017 included an allegation that it was impossible to complete the contract due to an inability to obtain the finance necessary to complete the proposed subdivision of the property. This issue, upon which the defendant's loan application to RAMS would have some bearing, would raise numerous questions of fact the resolution of which would almost certainly require cross-examination. Of course, it is not generally appropriate to conduct a hypothetical trial of issues for the purposes of determining questions of costs.
12. Moreover, it remains relevant that the plaintiffs did not accept the defendant's repudiation, or indeed seek to rely upon the repudiation in any way, until the hearing on 16 September 2019. Until then, the only allegations of breach upon which the plaintiffs relied were those in respect of Additional Condition 36 of the contract (which was further confined to Additional Condition 36.2 at the hearing) and alleged implied terms (which were abandoned at the hearing). As noted in the Principal Judgment at [42]-[43], the Court was not satisfied that the defendant had breached Additional Condition 36.2.
13. Having considered all the circumstances of the case, it seems to me that it is appropriate to exercise the Court's discretion to order that each party pay their own costs of the proceedings up until 15 February 2018. The plaintiffs should pay the defendant's costs after 15 February 2018 in accordance with the usual rule that costs follow the event.

Defendant's Application

1. The defendant seeks an order that the plaintiffs pay the defendant's costs of the proceedings on an indemnity basis from 24 April 2019.
2. In support of their application, the defendant relies upon the affidavit of her solicitor affirmed on 4 October 2019. Annexed to that affidavit are two letters written by the defendant's solicitor and sent by email to the plaintiffs' solicitor on 24 April 2019. I interpose here to note that at the time of service of the two letters, the plaintiffs maintained that the defendant's rescission of the contract pursuant to Additional Condition 37 was invalid.
3. The first of these letters was expressed to be written in accordance with the principles in Calderbank v Calderbank [1976] Fam 93. The letter stated that the defendant maintained that the contract was validly rescinded pursuant to Additional Condition 37 and that the allegation that the Scheme of Arrangement Deed was a "sham" (see Principal Judgment at [20]) was without merit.
4. The letter made an offer of settlement on terms that the defendant pay to the plaintiffs $50,000 in full and final settlement of the proceedings; that the proceedings be dismissed; that each party bear their own costs; and that upon entering into a Deed of Settlement and Release, the plaintiffs would provide a release to the defendant from any liability and all claims arising from or in any way connected to the contract or the subject matter of the proceedings. The offer was expressed to be open for acceptance until 5:00pm on 13 May 2019.
5. Enclosed within the second letter served on 24 April 2019 is an Offer of Compromise. The offer is expressed to be made in accordance with UCPR r 20.26. The offer contains terms which are similar to the terms of the offer made in the first letter, save that the Offer of Compromise does not contain any reference to entry into a Deed of Settlement and Release following acceptance of the offer. The Offer of Compromise was expressed to be open for a period of 28 days.
6. The defendant's written submissions were concerned almost entirely with the terms of the Calderbank offer contained within the first letter. It was submitted that the determination of whether a party's rejection or non-acceptance of a Calderbank offer was unreasonable is an evaluative judgment to be made by reference to the terms of the offer and the relevant surrounding circumstances (see King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [11]). It was submitted that those circumstances may include relevant events occurring after the making of the offer (see Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [22]).
7. It was submitted that the Calderbank offer involved a significant compromise that was unreasonable for the plaintiffs to refuse to accept. The defendant pointed to the fact that the letter clearly expressed the defendant's view that the allegation that the Scheme of Arrangement Deed was a sham was unmeritorious. The defendant submits that her position was subsequently borne out by the fact that the plaintiffs later accepted that the defendant's rescission was valid.
8. It was further submitted that there was otherwise no proper basis upon which to refuse to accept the offer. It was put that the plaintiffs' claim for loss of bargain damages was precluded by the application of clear statements of principle made by the High Court of Australia and the Court of Appeal. The defendant also submitted that the offer was open for acceptance for a reasonable period of time.
9. Finally, the defendant observed that provided the Offer of Compromise complied with UCPR r 20.26, then UCPR r 42.15A would apply with the consequence provided for in sub-rule (2), unless the Court orders otherwise.
10. In response, the plaintiffs' submitted that neither the Calderbank offer nor the Offer of Compromise represented any genuine compromise. The plaintiffs referred to the decision in Herning v GWS Machinery Pty Ltd [No 2] [2005] NSWCA 375, a case involving a "walk away" offer served on the appellant by the second respondent which contained terms that each party pay their own costs of the proceedings. In that case, the Court of Appeal observed (at [5]) that it was difficult to know whether the compromise the subject of the walk away offer was significant in the absence of evidence as to the costs incurred. The plaintiffs noted that it was implicit in the Court of Appeal's reasoning that the onus was on the offeror to satisfy the Court that the compromise proffered was genuine.
11. The plaintiffs submitted by analogy to Herning that it was "difficult to know" whether the $50,000 sum offered by the defendant was a genuine compromise. I understood this submission to mean that if the Court was not satisfied on the evidence that it was in a position to know whether the terms of the compromise were significant, the Court should not find that there was a genuine compromise.
12. In a related submission, the plaintiffs submitted that it was not unreasonable to refuse to accept either Calderbank offer or the Offer of Compromise. It was submitted that at the time of the service of the offers, the plaintiffs had incurred significant legal costs. According to the plaintiffs' instructing solicitor, the plaintiffs had incurred approximately $195,000 (inclusive of GST) in legal costs as at 13 May 2019 (the final date for acceptance of the Calderbank offer). It was submitted that had the plaintiffs accepted the offer, they would have suffered a not inconsiderable net "loss" in terms of the costs of the litigation.
13. There was no dispute as to the relevant principles to be applied in respect of Calderbank offers and Offers of Compromise. For a valid Calderbank offer to be a basis for indemnity costs, the offer must represent a genuine compromise which the recipient unreasonably failed to accept, taking into account all the relevant circumstances of the case (see Commonwealth of Australia v Gretton [2008] NSWCA 117 at [44]-[46]).
14. In terms of Offer of Compromise made pursuant to the rules of Court, provided the offer is made in accordance with UCPR r 20.26, then UCPR r 42.15A provides that where the defendant has received a judgment no less favourable than the terms of the offer, then there is prima facie entitlement to costs assessed on the indemnity basis unless some different costs order is shown to be warranted. The Court retains a discretion to decline to order indemnity costs (Toyota Finance Australia Ltd v Gardiner (No 2) [2016] NSWCA 181 at [14]; Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3 at [5]). In this regard, similar principles to those in respect of Calderbank offers have developed in relation to offers of compromise made under the relevant rules of Court (see Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [5]-[8]). Thus, it is well known that such offers must involve a real and genuine element of compromise (Fabre v Lui (No 2) [2015] NSWCA 312 at [6]).
15. In my opinion, both the Calderbank offer and the Offer of Compromise involved a real and genuine element of compromise. Both offers contemplated that the defendant would pay the not insignificant sum of $50,000 to the plaintiffs in full and final satisfaction of the plaintiffs' claim. Both offers also contemplated that each party would pay their own costs in respect of the proceedings. The defendant would thus forego the possibility of obtaining an order for costs against the plaintiffs. It is plain that the legal costs incurred by both parties at the time of the offers would have been substantial. Indeed, the plaintiffs' evidence discloses that they had incurred $195,000 in legal costs by 13 May 2019.
16. There is no doubt that the Court's dismissal of the plaintiffs' claim meant that the defendant received a judgment that was no less favourable to her than the terms of the Offer of Compromise. The plaintiffs did not identify any reason to doubt that the Offer of Compromise complied with the terms of UCPR r 20.26. I cannot discern any such basis myself. It follows from the above that at least insofar as the Offer of Compromise is concerned, the defendant enjoys a presumptive entitlement to costs assessed on an indemnity basis unless the plaintiffs can show a reason not to so order (Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) (supra) at [16]).
17. In my view, no such basis has been demonstrated. The only reason advanced by the plaintiffs for not accepting the offer was that it was not cost effective to do so. However, it would have been considerably more cost effective for the plaintiffs to have accepted the offer. It follows that the defendant has made out an entitlement to indemnity costs on the basis of the Offer of Compromise.
18. I think the same result would apply in relation to the Calderbank offer. In my opinion, it was unreasonable for the plaintiffs not to accept that offer. The proceedings were concerned at that time with whether the defendant could be ordered to specifically perform the contract notwithstanding the defendant's purported rescission under Additional Condition 37. The plaintiffs took issue with the defendant's entry into the Scheme of Arrangement Deed which was the asserted basis of the rescission. Apart from asserting that the Deed was a "sham", there was no particular basis upon which the plaintiffs impugned its legitimacy. These matters were identified by the defendant in the terms of the offer. As the defendant submitted, the plaintiffs latter accepted that the defendant's rescission under Additional Condition 37 was valid. The offer was made at a time when the plaintiffs were in a position to properly assess their prospects of success in the proceedings, and it remained open for acceptance for a sufficient period to enable a proper assessment to occur.
19. Having regard to the terms of UCPR r 42.15A(2), it is appropriate that the plaintiffs be ordered to pay the defendant's costs of the proceedings on an indemnity basis from 25 April 2019, being the day after the Offer of Compromise was made. However, it would not be appropriate that the plaintiffs bear any of the defendant's costs of the Plaintiffs' Application. The plaintiffs obtained partial success on that application over the opposition of the defendant. The parties should bear their own costs of that application.

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