Stephen Wayne Velik & Anor v Noreen Steingold

Supreme Court of NSW|2012-09-04|Before: Slattery J, Knoll AM

EX TEMPORE Judgment 1This is my second judgment in these proceedings. It concerns issues of costs. In my principal judgment, Velik v Steingold [2012] NSWSC 860, the Court found that on 15 March 2010 the vendor, Mrs Steingold, validly terminated the contract the subject of the proceedings. The Court found that she was entitled under the contract (clause 9) to the return of the deposit, which was then being held on an agreed basis between the parties. The court also declined to exercise its jurisdiction under the Conveyancing Act, s 55(2A) to return the deposit to the purchasers. Consequential orders were made dealing with the deposit and related matters. Following the principal judgment, argument took place in relation to costs. 2The Court considered in the principal judgment, at [164], that costs issues may arise in the proceedings as a result of the issues raised at trial. Ordinarily costs would follow the event. But the Court pointed out, at [164], that an important ground upon which the vendor succeeded, namely the issue of the application of Contract, special condition 37.1, was only relied upon by the defendant's pleading amendment shortly before trial. The Court considered that the plaintiffs might wish to argue that Mrs Steingold should not recover all of her costs because of the late amendment. Parties may have had other arguments about costs. So the Court directed the filing of submissions about costs issues. That was done. The proceedings came before me for further costs argument on 4 September 2012. 3This judgment should be read together with my principal judgment. References to persons, events and things in this judgment are the same as in the principal judgment. 4There are two main costs issues. First, Mrs Steingold seeks indemnity costs on the basis of two offers made before trial. Secondly, the plaintiffs, Mr and Mrs Velik, say as a result of a late amendment to plead the special condition 37.1 point, on which the defendant ultimately succeeded, that the defendant should be denied her costs. The Veliks say that the proper costs result should be that there be no order as to costs. In the alternative they say they should only pay the defendant's legal costs of the 16 and 17 November 2011 hearing dates.

Mrs Steingold Claims Indemnity Costs 5The defendant, Mrs Steingold, claims indemnity costs. Her claim is put two different ways. She says that she is entitled to indemnity costs of the entire proceedings based upon a settlement offer she made by letter on 26 March 2010. In the alternative, she submits she is entitled to indemnity costs from 10 July 2010, based upon an offer of compromise served on that date. The Veliks take issue with both these contentions. 6Proceedings were commenced in April 2010, between the 26 March 2010 letter of offer and the 10 July 2010 offer of compromise. The letter of 26 March 2010 was sent very close to the events the subject of these proceedings. That letter makes an offer somewhat similar to the course of action that the Court observed in the principal judgment may have been appropriate for the Veliks to take in March 2010. The full relevant text of this 26 March 2010 offer is of some importance to the argument: "Offer 12.The vendor now makes the following without prejudice offer to sell the property at [address not published], St Ives to the purchaser on the terms of the contract dated 4 December 2010, as amended below and in accordance with the attached settlement sheet. The offer is open for acceptance until 10:00am, 7 April 2010, the method of acceptance specified by the vendor is that the purchaser deposits bank cheques by 10:00am, 7 April 2010 in the sums and to the payees set out in the following table in escrow with the vendor's solicitor pending settlement of the sale at a time to be agreed with the vendor's outgoing mortgagee on or before 8 April 2010. Bank cheque payeeAmount Commonwealth Bank of$1,129,139.56 Australia McGrath Lindfield $22,680.00 TOTAL$1,151,819.56 ... 16.If the purchaser wishes to separately submit a claim for arbitration pursuant to the provisions of clause 7.2.3 of the contract, the vendor will respond to the claim in good faith. If an arbitrator appointed pursuant to the contract awards a sum up to 2 % of the contract price to either party then the party ordered to pay the sum will do so with 28 days of such an order. 17.If the purchaser accepts this offer as specified above, the parties will attend settlement on or before 8 April 2010 at a location in Sydney and at a time (to be specified no later than 3:00pm on 7 April 2010 by the vendor's solicitor in writing and served by facsimile transmission to the purchaser's solicitor) and complete the sale. 18.All parties reserve their respective rights should the sale not complete." 7The defendant, Mrs Steingold, pointed out through her counsel, Mr Knoll, that the letter was a reasonably close parallel to what the court described as a sensible short term solution in March 2010 to the parties' then issues: that those issues should be submitted to arbitration. Mr Knoll submitted that the letter demonstrates that the parties could have avoided this litigation before it commenced. He submits that where a defendant makes precisely the sort of offer which the Court finds could have avoided the litigation, the defendant should then have the benefit of an indemnity costs order, notwithstanding that the litigation had not been commenced. I accept Mr Knoll's submission that the letter was a genuine offer in good faith. Mr Knoll submits it would have, if accepted, meant the parties would not have had to resort to litigation. Instead, he says, that the plaintiffs, rather than reply reasonably to this letter, disparaged the defendant's position, saying that Mrs Steingold had no arguable defence. The Veliks dispute these contentions. 8But it is useful to look at the relevant law first. The law on such matters is fairly sparse. It is unusual for parties to rely upon offers made before litigation, although it is certainly not unprecedented. The relevant authorities were recently reviewed by Ward J in Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 587 ("Nu Line"). The principles that emerge from her Honour's review may be shortly stated. A claim for indemnity costs, even in respect of an offer made prior to the commencement of litigation, comes within the court's discretion under the Civil Procedure Act, s 98. Relevant factors determining whether such costs order should be made depend in part upon determining whether the conduct of the party who rejected the offer was unreasonable. 9Relevant factors for determining unreasonableness were identified by the Court of Appeal in Victoria in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298, (2005) 13 VR 435: the stage of the proceedings at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree's prospects of success, assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and, whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it. In Nu Line Ward J then considered particular examples of the application of these general principles. 10One of those examples was Ball J's decision in Downing v WIN Television (NSW) Pty Ltd (No 4) [2011] NSWSC 1257. There Ball J considered that little weight should be placed on an offer which was made approximately ten years before the proceedings commenced, even though the approach afterwards taken by the other party might be characterised as commercially unreasonable. 11As the learned author G E Dal Pont in his Law Of Costs (2nd ed) observed at [1362], offers made before or shortly after proceedings are commenced may be made at a time when it is difficult to make an informed assessment of the offeror's defence or the strength of the plaintiff's claim; but it is certainly true that the response of the offeree must be assessed at the time that it was made and not with the benefit of hindsight: cf Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344. But as Basten JA observed in Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322 the fact that an offer is made early in the proceedings should not, by itself, be given significant weight in assessing the reasonableness of the plaintiff in rejecting it. Clearly it is one of a number of factors to be balanced.

How should this first offer of 26 March 2010 be assessed? 12In my view there are a number of problems with Mrs Steingold's reliance upon this first letter of offer. Applying the principles I have identified I have reached the view that it was not imprudent of Mr and Mrs Velik to refuse the offer contained in that letter, notwithstanding the defendant's later success in the proceedings. There are a number of reasons for this. First, as will appear later in these reasons, there has been substantial debate between the parties about the late reliance by the defendant upon special condition 37.1 of the contract, which was a substantial ultimate reason for her success. The letter of 26 March 2010 makes no reference to her proposed reliance on that special condition. 13The ultimate issue in the proceedings was not notified by the time this offer was made. The Court must assess the offeree's response at the time the offer was made and not with the benefit of hindsight. It would not have been clear to the Veliks at that point, just why Mrs Steingold was likely to succeed in the proceedings, although that was the ultimate result. 14Another important discretionary factor against awarding indemnity costs based on this first 26 March 2010 letter is that the letter did not threaten indemnity costs in the event it was rejected. It really was a different kind of letter: offering as it did an arbitral process to resolve the proceedings at that point. The offer of compromise provisions in UCPR, r 26.20, require the offeror to make clear what the consequence of failing to accept the offer might be. This offer did not do that. This is another reason for the court to consider the letter should not have indemnity costs consequences in the proceedings. 15Moreover, the 26 March 2010 offer made a number of assertions, including one that the contract was to be terminated because of the vendor's notice to complete: an assertion which, as the proceedings have turned out, has been found not to be correct. I found that the notice to complete was not valid. 16Finally Mr Knoll, with his usual persuasiveness, sought to argue that the 26 March 2010 letter clearly gave the Veliks the choice at that point of going to arbitration to pursue the issues they were anxious to raise. But Mr Scruby's answer to that argument is persuasive. The letter does not unequivocally promise the option of arbitration. It simply, and cleverly, reserves the right to consider that option by saying "... the vendor will respond to the claim in good faith" if the purchaser wishes to separately submit a claim to arbitration. The letter is ambiguous as to whether the response "in good faith" will occur within the arbitration, or that all that will happen is that the submission to arbitration will be considered in good faith and may be rejected. 17An important ingredient of an effective offer to found a claim for indemnity costs is that it be clear. In my view this offer is not clear enough to achieve that result. This disposes of the first basis for Mrs Steingold seeking indemnity costs. 18I now turn to Mrs Steingold's offer of compromise of 9 July 2010. The offer of compromise is short and uncomplicated. It is set out below:- "Offer The Defendant offers to compromise the Plaintiffs' claim as follows: 1.The Defendant pay to the Plaintiffs the amount of $40,000. The Defendant offers to compromise the Plaintiffs' claim for costs as follows: 2.The Defendant pay the Plaintiffs the sum of $10,000.00. The offer is made pursuant to the Uniform Civil Procedure Rules 2005 and is open for acceptance for a period of 28 days from the date of this offer." 19By the time this offer was made proceedings had commenced. The making of such offers is governed by the Uniform Civil Procedure Rules, r 20.26. Relevantly UCPR, r 20.26(2) provides:- "An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs." 20This was not an offer of a verdict for the defendant. So the question for consideration is whether the offer of compromise complied with the requirement that it must be exclusive of costs. 21The plaintiffs argue that it did not so comply. I agree with the plaintiffs' submissions. Properly construed the offer of compromise is a single offer of a component in respect of a judgment sum and a separate money component in respect of costs. It is, in substance, an offer of $50,000 inclusive of costs. So much is to be inferred from the statement in the offer that purports to comply with the obligation in UCPR, r 20.26(3)(a), which refers to "the offer" not "the offers". That supports the idea that this is notification of a single offer. There is no option given to the plaintiffs to accept the first part of the offer, "the defendants pay to the plaintiffs the amount of $40,000" but not to accept the other part, "the defendants pay the plaintiffs the sum of $10,000." 22A well accepted practice among experienced practitioners who wish to comply with UCPR, r 20.26(2) is to serve two offers of compromise: one which offers to compromise the claim; and a separate offer which offers to compromise the additional claim for costs. By so doing practitioners regularly avoid the problems that are exhibited by this offer which is really an offer of $50,000 inclusive of costs. 23The Court of Appeal has decided that an offer of compromise that includes a fixed sum component with respect to cost does not comply with UCPR, r 20.26(2): Penrith Rugby League Club Ltd Trading As Cardiff Panthers v Elliot (No 2) [2009] NSWCA 356 at [6], [10] and [12]. There the Court of Appeal stated the law in the following way:- "[6]The appellant relies on two offers made to the respondent. The first offer was dated 12 November 2007 ("First Offer") and was expressed to be an offer made under Pt 20 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). The First Offer was in the following terms: 1.The [appellant] agrees to pay the [respondent] the sum of $5,000.00 for damages together with a sum of $8,000.00 for costs and disbursements. 2.The offer is open for acceptance by the [respondent] for a period of 28 days. 3.This offer is made under Part 20 of the [UCPR]. The First Offer was not accepted by the respondent. ... [10]UCPR, r 42.15A is in Div 3 of Pt 42 of the UCPR. Rule 42.13 provides that Div 3 applies to proceedings in respect of which an offer of compromise is made under r 20.26. In its reply submissions, the appellant conceded that the terms of the First Offer did not comply with r 20.26, in that it was not made "exclusive of costs" as required by r 20.26(2). ... [12]In our opinion, it was not unreasonable for the respondent to reject the First Offer. The offer purported to be made pursuant to the UCPR, but in fact did not comply with the requirements of r 20.26. Moreover, the First Offer was for a very small sum and no explanation was given for the costs offer. In addition, as the respondent points out in her written submissions on costs, the offer was made at a time when the respondent had served her expert's report on liability, but the appellant had not addressed the issues raised in that report." 24The same result flows from other considerations. It is not strictly necessary to adjudicate upon the other reasons why indemnity costs would have been refused on the basis of the 9 July 2010 offer of compromise. The 9 July 2010 offer does not comply with UCPR, r 20.26. But in my view it would have been reasonable in the circumstances for the Veliks to have declined to accept the offer of compromise, because of their state of knowledge of the issues at the time that it was made. Special condition 37.1 on proper analysis of the facts was not a clearly notified issue at the time this offer was made. So Mrs Steingold will not have indemnity costs based upon the 9 July 2010 offer of compromise. 25Mrs Steingold would then normally be entitled to an order for costs on the ordinary basis against Mr and Mrs Velik, subject to their arguments that the proper result should be each party bear their own costs based upon Mrs Steingold's late amendment to the defence. It is to that argument that I now turn.

The Veliks claim costs fall where they die 26The Veliks say that the defendant should not have her costs and that each party should bear their own costs, because of the defendant's late amendment, raising the special condition 37.1 issue. The defendant challenges this argument on a number of bases, the first of which is to argue that the amendment was not late. 27The not-late argument is elaborated a number of ways. They can be briefly summarised. The argument is said to have been evident in various forms of the defence and especially paragraph 27(b), first filed in June 2010. That defence clearly raised and put the plaintiffs on notice that the defendant would rely upon the requirement for Mrs Steingold to have interest paid to her pursuant to condition 55 of the contract. But this part of the defence did not especially raise or refer to special condition 37.1. The defendant, Mrs Steingold, says that some five months before trial, not on the eve of trial, nor in an atmosphere of tense preparation for the first day of hearing, when she swore her affidavit of 23 June 2010, she explicitly referred to special condition 37 as excluding the claim, thereby putting Mr and Mrs Velik on notice of the issue. In my view this was a notification of some significance, even though it did not appear in a formal pleading. The general legal subject matter of special condition 37.1 was clearly in close proximity to the parties' thinking at this time. 28On 13 September 2010 the plaintiffs' solicitors corresponded with the defendant's solicitors: the plaintiffs' solicitors referred, on discovery questions, to the case of Nassif v Caminer [2009] NSWCA 45 in the following terms: "2(a)the documents in item 1 are relevant to the Plaintiffs' pleadings in paragraph 71 of the Further Amended Statement of Claim, and disputed in paragraph 71 of the filed Amended Defence- see eg. Nassif & Ors v Caminer [2009] NSWCA 45 (31 March 2009) at para 71;" 29As the principal judgment in the proceedings shows, Nassif v Caminer was an important basis for the Court's reasoning that special condition 37.1 had the effect which Mr Knoll successfully contended that it had in this case. Notwithstanding that Mrs Steingold did not amend her pleadings, the plaintiffs had a general appreciation of the principles Nassif v Caminer and of its potential dangers for the plaintiffs' case. 30The issue was put clearly approximately a week before the hearing when Mrs Steingold's written submissions were served in accordance with the court's orders. That resulted, without objection on the Veliks' part, in an amendment to the pleadings on the first day of the trial. It could perhaps be inferred from the Veliks' failure to resist this proposed amendment to the pleadings that the Veliks were dealing with a point of law that did not come entirely as a surprise to them. 31In my view Mrs Steingold is right in a general sense that by combination of those matters: the affidavit of June 2010; what is to be inferred from the letter of September 2010; and notification in submissions a week from the hearing, that at least general notice of the issue had been given to the Veliks.

Should costs not follow the event? 32A number of considerations are in play the other way. It is not clear that had this issue been notified earlier it would have made much difference to the outcome of the proceedings. Mr Scruby says with some force that by the time this issue was clearly notified many costs had been incurred on both sides. Mr Scruby was also successful in my view in asserting that special condition 37.1 really was the basis upon which the defendant succeeded. Arguments have been put about the significance of the court failing to grant relief under the Conveyancing Act. I do not think that is material. 33So the Court is faced, in the exercise of its discretion, with balancing a degree of lateness in the amendment with the fact that the plaintiffs were generally aware of the issue to the point that they did not dispute the amendment, when made. This was not a case where, when the submissions came in raising the point, the plaintiffs pressed for an adjournment. I must also consider that the defendant did succeed, and that her conduct has not otherwise been unreasonable in the conduct of the litigation. 34In my view the defendant should substantially have her costs in the proceedings. In the exercise of its discretion the Court will award her not quite all her costs. In my view the proper result in this case is that defendant should have 75 per cent of her costs in the proceedings, including the costs of today, and I will so order. I will also order the exhibits be returned.

Orders 35Accordingly, the Court makes the following orders and directions:- 1.Order that the plaintiffs pay 75 per cent of the defendant's costs of these proceedings, including the costs of the argument as to costs and the costs of today. 2.Order exhibits be returned to the parties.

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: 06 November 2012

Conveyancing Act 1999(NSW)

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