SSABR Pty Ltd v AMA Group Ltd

Supreme Court of NSW|2024-01-19|Before: Rees J, Mr JA

Solicitors: CBD Law (Plaintiffs) K&L Gates (Defendants) File Number(s): 2021/257009

JUDGMENT

HER HONOUR: I gave judgment in this matter on 15 December 2023: SSABR Pty Ltd v AMA Group Ltd [2023] NSWSC 1551. I ordered the plaintiffs to pay the defendants' costs of the proceedings and made directions for the parties to provide affidavits and submissions in the event that any party sought a special costs order, with any such application to be determined on the papers.
I have since received submissions from the defendants, who seek costs on an indemnity basis on the basis of non-acceptance of a Calderbank letter served shortly before trial. The defendants relied on affidavits of their solicitor, Alexandra Smith. The plaintiffs opposed such an order and provided written submissions. This judgment assumes familiarity with my primary judgment; the same defined terms are used.

Principles

In considering this application, I note the comments of Allsop P in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [5]: Three things need be borne in mind in a judgment such as this on costs: the desirability of avoiding unnecessary recitation of cases (abounding as they are in this area); the desirability of not restating, in different terms, approaches to the broad discretion that have been well settled; and the desirability of dealing with the arguments without over-elaboration, if this is possible.
The principles in determining whether a special costs order should be made on the basis of a Calderbank offer were considered by Ward CJ in Eq in In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) (No 2) [2021] NSWSC 1161 at [93]-[99], which summary I gratefully adopt. The defendants relied on the following portion of her Honour's judgment, which bears repetition: (citations omitted) 93 ... while the rejection or non-acceptance of a Calderbank offer (in circumstances where it later transpires that the final result in the proceeding is less favourable to the offeree) enlivens the discretion to award indemnity costs, it does not create a prima facie right to such an order ... Where the offer is a Calderbank offer, the onus to demonstrate that it was unreasonable to reject it is on the party seeking to rely on the making of the offer ... 94 In order to warrant the making of a special costs order, the offer must constitute a genuine offer of compromise that was unreasonably rejected ... 95 As to what may constitute a genuine compromise ... In some cases a plaintiff's offer which allows only a small discount from 100% success on the claim can be genuine and realistic always depending upon the circumstances. The same is true of defendant's offers: in some cases it will not be necessary to offer any monetary proportion (however slight) of the plaintiff's claim. ... 98 The factors relevant to take into consideration when considering whether the rejection or non-acceptance of the offer was unreasonable ... include: (i) the stage of the proceeding at which the offer was received; (ii) the time allowed to the offeree to consider the offer; (iii) the extent of the compromise offered; (iv) the offeree's prospects of success assessed as at the date of the offer; (v) the clarity with which the terms of the offer were expressed; and (vi) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it ...

Genuine compromise?

The plaintiffs submitted that the offer was tantamount to a walk-away offer, where the offer included a term that "All costs orders made in the Proceedings be vacated". The plaintiffs had the benefit of a costs order in their favour by Stevenson J on 12 November 2021, following the dismissal of the defendants' motion to transfer the proceedings to Victoria. On 27 May 2022, Hammerschlag CJ in Eq reserved the costs of the plaintiffs' application for discovery and ordered the plaintiffs to pay the defendants' costs, if any, thrown away by amendments to the Commercial List Statement. On 25 November 2022, Ball J ordered the plaintiffs to pay the defendants' costs, if any, thrown away as a result of a further amendment to the Commercial List Statement. On 3 October 2023, Ball J ordered the defendants to pay the plaintiffs' costs of a motion filed by the defendants on 5 September 2023 in respect of further discovery and challenges to claims for client legal privilege. The plaintiffs submitted that none of these costs orders had been assessed, nor quantum agreed, between the parties, but the overall effect of these orders was that the plaintiffs would be entitled to a substantial sum from the defendants.
This is not obviously so. The plaintiffs had two costs orders in their favour in respect of two motions. The plaintiffs did not have the benefit of a costs order in respect of the discovery application, and there is no evidence on this application which enables me to form a view as to whether such a costs order would likely be made. The plaintiffs had two costs order against them in respect of amendments to their pleading. I am prepared to accept that, overall, the plaintiffs had more costs orders in their favour, in terms of quantum, than against them. But I do not accept that the costs which the plaintiffs would be entitled to received, once assessed, would come anywhere close to the $500,000 which was offered to them, such that the defendants' offer "was tantamount to a walk-away offer".
The plaintiffs further submitted that, at the time the defendants' offer was made, it was impossible for the plaintiffs to assess what the actual offer was in terms of monetary value, given it was inclusive of costs and contained a term vacating all previous costs orders. The offer was said to lack clarity as to its precise effect. If an offer with "complex costs consequences" was going to be made, at the very least, the offer should have been made with sufficient and reasonable time for the plaintiffs to undertake a fair assessment of what the outcome of any costs agreement and/or assessment process would likely be so that the plaintiffs could ascertain exactly what it was the defendants were offering.
I reject this submission. The defendants' offer was clear and included a (ubiquitous) term that all previous costs orders made in the proceedings would be vacated. It cannot be said that the offer had "complex costs consequences", nor that commercial negotiations should pause to permit the offeree to ascertain what it might receive if those earlier costs orders were assessed. The offeree's legal representatives were well placed to form a view as to what the offeree may be 'giving up' in accepting such a term, and what the net effect would be on the settlement offer. I cannot help but notice that the plaintiffs included the same condition in their Calderbank offer, and presumably expected that the defendants were able to consider such matters in the time that the offer was open, without undue difficulty.
Rather, I consider that the Calderbank offer was a genuine compromise where, if the defendants succeeded at trial, their liability to the plaintiffs would be nil and they would be entitled to their costs. Where the defendants need not have offered even a 'slight' monetary proportion of the plaintiffs' claim (see Re Earth Civil at [95]), they offered to pay a substantial sum and to forego any contribution to its costs of the litigation.

Apportionment?

The plaintiffs submitted that, whilst the defendants had success in the litigation in terms of the final orders made, at least half of the trial was spent dealing with issues relating to the plaintiffs' "central" claim concerning the proper determination of the Earn-Out in accordance with accounting principles. Ultimately, these claims were not determined by the Court as the rectification claim succeeded. It is therefore not known whether the plaintiffs or defendants would have been successful in respect of the plaintiffs' "essential" case. This was said to be a further reason why an award of indemnity costs in the defendants' favour for all the trial costs would neither be fair nor appropriate.
The Court has wide discretionary powers to apportion costs where a case involves multiple issues and a party succeeds on some issues but fails on others. For example, a plaintiff may obtain judgment in their favour but the defendant may have succeeded on issues that occupied the bulk of the time taken by the proceedings. The successful plaintiff may not only be deprived of the costs of those issues but may be ordered as well to pay the defendant's costs in respect of such issues: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [32]-[36] (per Beazley, Tobias and McColl JJA).
The problem here is somewhat different. This is not a case where the plaintiffs succeeded on the accounting issues but failed overall. Rather, it was not necessary to determine the issue at all. The plaintiffs acknowledged at trial that, if the defendants were entitled to rectification, then it did not matter if the plaintiffs 'won' on the accounting issues; there would be no Earn-Out Payment: at [94]. Nor am I in a position to say whether the plaintiffs or the defendants would have succeeded on the accounting issues. I consider that the fact that the parties expended costs in respect of an issue which was not necessary to determine ought not detract from the potential cost consequences of non-acceptance of a commercial settlement offer. Acceptance of the offer would have relieved the parties - and the Court - from determining any issues at all.

Unreasonable rejection?

In what was a far more compelling argument, the plaintiffs submitted that the defendants' offer was open for an exceedingly short period of time, being effectively one business day, immediately before the commencement of the hearing, when counsel were in the midst of preparation. In these circumstances, it was not unreasonable for the plaintiffs to let the offer lapse.
Further, the plaintiffs submitted that the defendants had recently advised that Stephen Harding-Smith, a key witness in the negotiation of the Heads of Agreement and Business Sale Agreement, would not be giving evidence. The plaintiffs had been preparing their case on the basis that the defendants' evidence in support of rectification claim could potentially change and/or expand significantly in view of the defendants' late decision to subpoena Mr Harding-Smith. The defendants' last minute withdrawal of its subpoena requiring Mr Harding-Smith to give evidence meant that the plaintiffs were put in a position of suddenly having to reconsider the prospects of success of the defendants' rectification claim at the time that the offer was served. The very fact that the defendants were taking last-minute steps to subpoena Mr Harding-Smith was said to reveal that the defendants recognised the forensic and evidentiary position relating to the rectification case was complicated. In these circumstances it was not unreasonable for the plaintiffs to reject the offer.
The problem with this submission is that it is unsupported by evidence as to what the plaintiffs' legal representatives had been doing, or now had to do, when the defendants' Calderbank offer was received. As I noted in my primary judgment at [82]-[83], a subpoena to attend to give evidence was issued to Mr Harding-Smith at the request of the defendants on 21 September 2023. According to the subpoena, Mr Harding-Smith lived in Queensland. On 3 October 2023, the defendants' solicitors provided a copy of the subpoena to the plaintiffs, who requested that an outline of evidence be provided. On 10 October 2023, the defendants' solicitor advised that their attempts to confer with Mr Harding-Smith to provide clarity as to his likely evidence had proved unsuccessful. As such, the defendants no longer intended to call him. I do not accept the plaintiffs' characterisation of their asserted actions at the time of receipt of the defendants' offer, which were equally consistent with a late appreciation that they had failed to put on any evidence as to the plaintiffs' intentions, this being critical to their defence of the rectification suit.
The reasonabless of the time an offer is open for acceptance was considered in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85, where a settlement offer was made the day before a trial was due to commence and was open for less than 24 hours. Basten JA (with whom Giles and Tobias JJA agreed) observed that where an offer is made shortly before trial, three factors came into play. At [20]: … The first is that both parties may reasonably be expected to have a clear perception of the strengths and weaknesses of their positions, so that the reasonableness of a particular offer may be speedily assessed. Secondly, because significant costs will be accruing on a daily, even an hourly basis, there is a heightened incentive to respond within the time permitted. Thirdly, and counterbalancing the first factor, the need to address the terms of an offer, provide advice and obtain instructions will often be a significant distraction from final preparation.
Basten JA observed that "it should be accepted that by the day before the hearing, in commercial litigation involving experienced counsel and solicitors, the legal representatives would have been able to give the client an immediate assessment [of relevant considerations] and someone with authority to bind the client would have been available to give instructions based on legal advice as to the preferable response": at [21]. Whether an offer was open for a reasonable time must be judged objectively, in the circumstances known, or which should reasonably be anticipated, by the parties: at [22]. Basten JA concluded that the case was "truly borderline" but was not satisfied that the offer was open for a reasonable time, such that non-acceptance did not engage adverse costs consequences: at [23].
Prevailing circumstances and factors affecting the parties themselves may support a conclusion that the timeframe for acceptance was, objectively, unreasonable. For example, in Goo v Sim (No 2) [2022] NSWSC 651, an offer was made in a detailed letter and open for one business day before hearing. There was no evidence that the parties had been in recent settlement discussions, which might have facilitated an immediate consideration of the offer: at [40]. Further, the offeree's limited grasp of English and the need for a translator had the consequence that the offer was not open for a reasonable period: : at [41] (Henry J). The complexity of the issues in dispute supported the same conclusion in A v Bird [2020] NSWSC 1680, where the offer was open for one day: at [58] (Schmidt AJ). As Giles and Tobias JJA observed in in Kooee, "the court should not be ungenerous to an offeree in determining whether a time is reasonable": at [2].
Ordinarily, I would not countenance an application for indemnity costs made on the basis of an Calderbank offer made so shortly before the commencement of a trial. However, in this case, the defendants' offer was made in response to a Calderbank offer made by the plaintiffs earlier that same day. Also on that day, the parties served their outline of submissions, chronologies, objections, list of issues for determination and lists of authorities. The plaintiffs served a further evidence of Mr Nercessian also sworn that day, under cover of a letter from the plaintiffs' solicitor, Mr Finney, who advised, "In the course of preparing for the hearing … Counsel considers it is better for this fuller account of matters to be addressed by further affidavit from Mr Nercessian". The desirability of a further affidavit was said to have "not become apparent until Counsel has recently begun preparing for the hearing".
This flurry of activity indicates that the parties were then ensconced with their respective counsel preparing for trial and were thus well-placed to receive immediate advice on whether or not the Calderbank offers were worthy of consideration and acceptance, or not. To the extent that the plaintiffs complain that they were then busy preparing for trial, the plaintiffs' legal representatives appear to have been primarily engaged in preparing a further affidavit by Mr Nercessian, responding to the defendants' evidence in support of the rectification suit. Their late occupation with this task appears to have been a problem of the plaintiffs' own making.
As Basten JA observed in Kooee, whether an offer is open for a reasonable time must be judged objectively, in the circumstances known, or which should reasonably be anticipated, by the parties: at [22]. Here, the fact that the plaintiffs had served a Calderbank offer the same day suggests that the plaintiffs had formed the view that there was sufficient time before the commencement of the trial for the parties to consider offers of settlement, having made such an offer themselves. Unlike in Goo v Sim, the defendants' offer did not come 'out of the blue' but in response to the plaintiffs' offer, which likely facilitated an immediate consideration of the offer. Further, this was a commercial dispute, where the plaintiff corporations were advised by experienced counsel and solicitors, and where the director, Mr Nercessian, was an experienced businessperson who was likely well able to understand the advice he was given on the offer and to give prompt instructions.
In the circumstances I consider that, although the time available to consider the offer was limited, the plaintiffs had sufficient opportunity to do so. Indeed, the time for the plaintiffs to consider the offer was longer than the plaintiffs had allowed for the defendants to consider and accept their earlier offer. The terms of the offer were clear and foreshadowed an application for indemnity costs: Re Earth Civil at [98(v)-(vi)]. In all of the circumstances, I consider that the plaintiffs' non-acceptance of the defendants' Calderbank offer was unreasonable and the indemnity costs order ought to be made as sought.

Orders

For these reasons, I make the following orders: 1. Vary Order 4 made on 15 December 2023 such that the plaintiffs' are to pay the defendants' costs of the proceedings: 1. on a party and party basis up to and including 12 October 2023; and 2. on an indemnity basis from 13 October 2023 on.

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At a glance

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Judgment (9 paragraphs)

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Cases Cited (7)

Cited By (3)