Sihaphone & Anor v Baccam & Anor

The Calderbank offer

1. The hearing commenced on 29 September 2021. One week before, on 22 September 2021, the solicitor for the plaintiffs (who appeared as their advocate at the hearing) sent to the defendants' solicitors a letter (made without prejudice except as to costs) expressed to be in conformity with the principles in Calderbank v Calderbank [1975] 3 All ER 333.
2. The terms of the offer were that the plaintiffs would accept the sum of $100,000 plus costs, if paid within 28 days. The offer was stipulated as being open for acceptance until 5pm on 23 September 2021.
3. There was no accompanying explanation in the letter identifying reasons why the defendants were likely to fail.

EVIDENCE FOR THE DEFENDANTS

1. The defendants relied upon separate letters sent on behalf of the first and second defendants to Farrar Lawyers on 24 September 2021 (a Friday). One was from Andrew Lee Lawyers (representing the second defendant). The other was from Maradock Lawyers (representing the first defendant).

The second defendant's Calderbank offer

1. The letter from Andrew Lee Lawyers to Farrar Lawyers dated 24 September 2021 was in substance, a Calderbank offer served on behalf of the second defendant. The terms of this particular offer were that (1) the plaintiffs withdraw the proceeding against him; and (2) the plaintiffs agree to pay the second defendant's costs of the proceeding in the sum of $5,000 within 60 days. This offer was open for acceptance to 4pm on Monday 27 September 2021, having been emailed at 5:43pm on Friday 24 September 2021.
2. It is this correspondence which the second defendant relies upon to support his own application for a partial indemnity costs order, from 24 September 2021.
3. Amongst other explanatory commentary, the letter specifically asserted that the plaintiffs had no claim against him and that on the basis of the plaintiffs' own evidence, any sums advanced were only made to the first defendant.

The first defendant's Calderbank offer

1. The letter from Maradock Lawyers to Farrar Lawyers dated 24 September 2021 was also, in substance, a Calderbank offer, served on behalf of the first defendant. This was emailed at 4:54pm on Friday.
2. Curiously, aside from a different sum of money which the first defendant offered to receive from the plaintiff for costs ($50,000 to the first defendant rather than $5,000 to the second defendant) the content of this letter generally was almost identical to the content of Mr Lee's offer, of the same date, referred to earlier. The same commentary was supplied.
3. The defendants commonly relied on an affidavit of Dara Vith that had been placed before the List Judge on the same date. That listing was for the purpose of indicating that the defendants acted reasonably in seeking leave to amend their defences. This affidavit set out, in voluminous detail, the circumstances which led to that application and other matters as well.

The first costs order

1. On the first costs order, the plaintiffs obtained a monetary judgment which exceeded the amount offered in the offer. The plaintiffs submitted that the offer represented a genuine offer to settle and that it was unreasonable for the first defendant to reject it having regard to what she knew at the time the offer was made.
2. At the time the offer was made, pleadings were closed and the evidentiary position was unclear. The Court ultimately rejected the first defendant's contentions.
3. Both defendants submitted that because the Calderbank offer did not distinguish the position of the two defendants, it was incapable of being accepted in a way that acknowledged the second defendant's denial of involvement. Although in the result the plaintiffs 'bettered' their position against the first defendant, they did not do so against the second defendant. The defendants also say that the period for acceptance was too short: it was emailed at 9:34am on 22 September 2021 and required acceptance by 5pm the next day. This was complicated by the circumstance, known to the plaintiffs, that both defendants were separately represented and the offer was couched in terms that generated potential conflict. It was not unreasonable for them to have rejected it.
4. In reply to the first defendant's submissions regarding the first costs order, the plaintiffs says that even if the positions of both defendants were not distinguished, either one of them could have accepted; although the plaintiff only relies upon the offer as against the first defendant. Whilst acknowledging that the time for acceptance was short, all the evidence was known. No complaint was raised by Mr Vith about any conflict of interest.

The second costs order

1. There were two alternative arguments raised. The first is that the second defendant should not have any or all of his costs. The second is that the first defendant should pay the second defendant's costs.

Application that second defendant should be deprived of costs

1. The plaintiff relied upon the following matters which suggested that he should be deprived of his costs: 1. up to 17 September 2021, the second defendant adopted an identical defence as the first defendant; making similar admissions; 2. the second defendant acted unreasonably by joining in an application (on 20 August 2021) to withdraw admissions he (and the first defendant) had made in their Defences (24 February 2021) about entry into both contested loan agreements and henceforth advanced a position that he was not a party to the two agreements; 3. following that successful application, the second defendant's changed position made all the difference in that, without the change, the second defendant would have been liable.
2. The plaintiff submitted that the second defendant is not entitled to any costs as a result of these circumstances.
3. The second defendant submits that the plaintiffs failed in their claim against him and the ordinary rule that costs should follow the event should apply (Uniform Civil Procedure Rules 2005 (NSW) ('UCPR') r 42.1).
4. The second defendant disputes that it was only via a late amendment application that the plaintiffs were put on notice that he denied being a contracting party to both loan agreements. He says that this was evident since at least the time when he served his affidavit. This was a reference to his affidavit affirmed on 6 August 2021 read by him in the proceeding, in which he asserted, relevantly: "2. I have never entered into any arrangement to borrow or receive money from … (the First Plaintiff) or ….(the Second Plaintiff) …… 4. I was not present at, and did not witness, any of the conversations between my wife … referred to in (the First Plaintiff's) affidavit ….. 8. I do not know or understand why I have been made a party to these proceedings."
5. This affidavit was served on 9 August 2021.
6. The circumstances in which the second defendant sought to withdraw the admission of entry into agreements and amend his defence were set out in the affidavit of Dara Vith on 23 September 2021 (especially paragraphs 32- 37). The second defendant referred to the circumstance that the List Judge, when granting the application to amend, had already made costs orders, in effect, to compensate the plaintiffs for any prejudice flowing from the 'late' amendments. There was no justification, it was said, for any further reduction in the second defendant's costs.
7. In reply to the second defendant's evidence and submissions, the plaintiffs argued that prior to the date when leave was granted to the second defendant to amend, it was unnecessary for the plaintiffs to prove that the second defendant was a party to both loan agreements. The plaintiffs also took issue with the second defendant apparently arrogating to himself the right to apply for a costs order when he had not brought a motion to do so, as that did not comply with court directions. The plaintiffs also noted that the separate representation of both defendants only arose shortly before the hearing with a view to manufacturing a claim for costs for the second defendant.

Application for Sanderson order

1. The plaintiffs' alternative argument is that a Sanderson order should be made. It was reasonable and proper for the plaintiff to join the second defendant and the plaintiff would have prevailed against the second defendant but for the late amendment. Further, given that the first defendant always knew of the true position (ie the contracting parties) but did nothing herself until late in the proceeding to make the same point as to who were the contracting parties, it is fair to impose liability for the second defendant's costs upon the her.
2. The plaintiff submitted that, until 20 August 2021, the second defendant had admitted that he was a party to the two loan agreements in issue. Until that date, the plaintiffs proceeded on the basis that his position, as a contracting party to both agreements, was not in issue. But by his late amendment application, the second defendant did substantially change his position in a manner which meant that the plaintiffs were required to prove that he was a contracting party to both advances.
3. The second defendant submits that it was not proper for him to have been joined and that this had only occurred to 'spread the potential net of liability so as to obtain an additional defendant who might be able to afford to pay'.

The first costs order

1. Unlike a rules offer made under r 20.26 of the UCPR, [2] , there is no presumptive entitlement in an offeror to indemnity costs arising from the rejection of a Calderbank letter even if the offeror obtains a better outcome from the judgment than the terms of what were offered. The onus remains upon the offeror to establish the entitlement.
2. I accept, on balance, that the term of the offer represented a genuine offer. It represented a significant reduction in the interest component (from the first advance) should the plaintiffs succeed on their money claim on the first advance. The potential reduction on the interest component offered was not so derisory as to invite the inference that the plaintiffs were merely bent upon making an offer that might trigger an entitlement to indemnity costs.
3. However, it remains necessary for the plaintiffs to prove that it was unreasonable for the first defendant to reject the offer.
4. It is notable that the monetary judgment exceeded the settlement sum identified in the Calderbank offer only because of the interest component (from the first advance). The first defendant was in a position to calculate for herself her potential exposure, because of interest (on the first advance), should she fail in her defence of both money claims and, at the time, was therefore capable of assessing that if she lost, she was likely to be exposed to a sum greater than that which had been offered in the Calderbank offer.
5. By itself, however, actual or constructive appreciation of the risk of rejection of the offer does not mean that it was unreasonable for the first defendant to reject it.
6. In positing the contention that her rejection of the offer was unreasonable, the plaintiffs emphasised the circumstance that the Court rejected the first defendant's defences. But the agitation of arguments later rejected by a Court is not synonymous with unreasonable conduct of the nature usually warranting an order for indemnity costs. It is pertinent, in this context, that there is no evidence on this application to indicate that the plaintiffs sought to persuade the first defendant that her defences were likely to fail.
7. As a related but superficially separate point, the plaintiffs pointed to an admission, later withdrawn, by the first defendant that she had entered into the second loan agreement and the Court subsequently found that she had entered into that agreement. But as previously indicated, the first defendant's pleaded position had always been to deny the receipt of the monies advanced under that agreement. So the plaintiffs' argument comes down, again, to the contention that because the first defendant failed in that argument, this partly justified the making of an order for indemnity costs.
8. I am not persuaded that a partial indemnity costs order, based upon rejection of the Calderbank offer, is warranted.
9. It is unnecessary to consider other grounds raised by the first defendant in opposition to this application including the lack of distinction drawn in the offer between the position of both defendants, or the sufficiency of time for consideration of the offer.

Whether the second defendant should be deprived of some of his costs

1. One well-established category of circumstance in which the usual order for costs may be varied is that a successful party may be deprived of its costs if its success is attributable to a ground raised by late amendment down to the date of the amendment [3] .
2. I agree with the plaintiffs that they were entitled to proceed upon the assumption that the question of whether the second defendant was a contracting party to both money claims was not an issue until later conduct, constituted by the second defendant's application to amend; which was determined in very close proximity to the commencement date for the hearing. Whilst I acknowledge that the plaintiffs were compensated for the prejudice occasioned by the late amendment by the costs order made by the List Judge, I consider that the principle I have cited (a) does apply and (b) I am not convinced are met by the costs order. Even if it did, the issue is not really whether the plaintiffs are compensated up until the late amendment, but whether the second defendant should enjoy the entirety of his costs notwithstanding that his position on the question of whether he was a contracting party significantly changed not long before the trial.
3. I consider that the second defendant should be deprived of his costs up until the date of the amendment.

Whether a Sanderson order should be made

1. Given the second defendant's earlier admission, albeit one that was later withdrawn, that he was a contracting party to both agreements, it was reasonable for the plaintiffs to join the second defendant in his claims for breach of their terms. Whether or not he was actually a party to the agreements, there was a real factual question as to whether he benefitted, indirectly or directly, from the advances even if they were made to the first defendant.
2. The real question is whether it is fair to impose liability upon the first defendant.
3. In this regard, the plaintiffs rely upon the first defendant's passivity. The insinuation is that she should have done something to correct the plaintiffs' belief, reinforced by the later admissions, that the second defendant was truly a contracting party.
4. But the principle for Sanderson (and Bullock) orders depends upon an element akin to estoppel; that there has been conduct by the unsuccessful defendant (the first defendant) that makes it reasonable for the plaintiff to join the successful defendant. That is similar to the concept of a 'holding out' relevant to questions of ostensible agency. This was touched upon in the reasons for judgment.
5. The plaintiffs' citation of the circumstance that the second defendant later withdrew his admission that he was a contracting party has already been factored into the result that the plaintiffs' costs exposure, to the second defendant, has been substantially reduced by that event. So that circumstance may be put aside.
6. As explained at greater length in the reasons for judgment ([104]-[113]), nothing was done by the first defendant, prior to the advances, which led the plaintiffs to think that the second defendant was a joint contractor to the two agreements. Further, there is no evidence on this application which would indicate other conduct by the first defendant, subsequent to the advances being made, but before the institution of the proceeding, which might reasonably have led the plaintiffs to think that it was appropriate to join the second defendant.
7. That being so, the conditions for a Sanderson (or Bullock) order are not made out.
8. It follows from this that it is unnecessary to determine the second defendant's apparently contingent application that the plaintiffs partially pay his costs on an indemnity basis as a result of the plaintiffs' continued pursuit of him following their rejection of Mr Lee's Calderbank offer of 24 September 2021. But leaving aside the formal complaint raised by the plaintiffs about an absence of a notice of motion, I would add that if it was necessary to consider that offer, there would be real doubts about whether the offer represented a genuine offer of compromise (there being no indication of which costs were incurred by him which were not collectively incurred by both defendants) and the extremely limited time (noting the time of service for the offer) available for acceptance of the offer.

Result and orders

1. In the result, the application to vary the first costs order fails. The application to vary the second costs order partly succeeds. The parties have enjoyed mixed success in relation to the plaintiffs' notice of motion, which will be reflected in the costs order on the motion.
2. The Court orders: 1. Order 2 made on 18 October 2021 is varied so that it should read: "Judgment for the second defendant against the plaintiffs with the plaintiffs to pay the second defendant's costs of the proceeding on and from 19 September 2021, as agreed or assessed. Otherwise, the parties are to bear their own costs of this claim." 1. The plaintiff's notice of motion filed 25 October 2021 is otherwise dismissed. 2. The parties are to bear their own costs of that motion.

Endnotes

1. Sanderson v Blyth Theatre Co [1903] 2 KB 533
2. UCPR r 42.14.
3. Beoco Ltd v Alfa Laval Co Ltd [1995] 1 QB 137; Faraday v Rappaport [2007] NSWSC 253 at [26] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 November 2021