Stewart v Atco Controls Pty Ltd

2. Respondent to pay the appellants' costs of this application.

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

Stewart v Atco Controls Pty Ltd (in Liquidation) [No 2]

Procedure - Costs - Calderbank offer - Where appeal determined, and order for costs made, in favour of appellants - Whether respondent's non-acceptance of Calderbank offer reasonable - Whether respondent should pay costs on indemnity basis.

Words and phrases - "Calderbank offer", "indemnity costs".

CRENNAN, KIEFEL, BELL, GAGELER AND KEANE JJ. The appeal in this matter was determined in favour of the appellants and an order for costs, of both the appeal to this Court and the appeal to the Court of Appeal of the Supreme Court of Victoria, was also made in their favour. They now seek an order that the respondent pay those costs on an indemnity basis, relying upon the non-acceptance by the respondent of a Calderbank offer. The relevant facts may be stated shortly. The issue between the parties when the respondent commenced proceedings in the Supreme Court of Victoria was whether the first appellant, as the liquidator of the second appellant, was entitled to an equitable lien over a fund in the liquidation (referred to in the proceedings as "the settlement sum") for the costs and charges he had incurred in obtaining that fund in proceedings brought against another party. Shortly after the respondent commenced proceedings, the first appellant offered to claim only nominal costs if the respondent discontinued the proceedings. It did not. The respondent was initially successful before Efthim AsJ, but on an appeal by way of hearing de novo, Davies J held that the principle in In re Universal Distributing Co Ltd (In Liq) applied and that the first appellant was entitled to an equitable lien over the settlement sum. That sum was of the order of $1.25 million and the first appellant's claim exceeded that sum. A second offer was made by the first appellant prior to the hearing of the appeal by the Court of Appeal. This is the relevant offer for determining the present application. The offer proposed that: the second appellant retain the settlement sum, no doubt in order to discharge its obligation to pay the first appellant; the sum of $55,000 which the respondent had been ordered to pay by way of security for costs of the appeal be released to the appellants; and the parties execute mutual releases. The offer was expressed to remain open until 26 September 2012. It was not accepted. No further offer was made. This Court has a general discretion as to costs. The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs. The respondent submits that its rejection of the offer was not unreasonable. If that be the test, it would appear to require at the least that the respondent point to a reason for not accepting the offer beyond the usual prospects of being successful in litigation. The offer might have required the respondent to abandon its claim to the settlement sum, but it also contained accommodations in its favour. The appellants would not pursue the not inconsiderable costs which had been ordered in their favour by Davies J (beyond the security for costs). Neither party would risk further costs. At the time the offer was made, the appellants had a judgment in their favour. The principle in Universal Distributing and its application to liquidators are not novel. In order for the respondent to succeed in its claim against the appellants, it was therefore necessary for it to distinguish the principle. This is what it sought to do in the Court of Appeal and its argument was accepted. The decision of this Court on 7 May 2014, however, confirms the application of the principle to the circumstance where costs are incurred by a liquidator in getting in assets. That is the decision which ought to have been made by the Court of Appeal. In these circumstances, it can hardly be said that the respondent's non-acceptance of the offer was reasonable. The application for indemnity costs with respect to the appeal to this Court stands on a different footing. At the time of this appeal, there was no extant offer by the appellants for the respondent to accept. There is consequently no failure on the part of the respondent that could found an order for indemnity costs. In the result, the appellants should have an order for indemnity costs of the appeal to the Court of Appeal, but not of the appeal to this Court. The appellants have been substantially successful on this application, the costs of which may be treated as part of the appeal to this Court. It follows that they will be taxed, if necessary, on the usual basis. The second order of this Court made on 7 May 2014 should be varied by ordering that the appeal to the Court of Appeal of the Supreme Court of Victoria be dismissed with costs, on an indemnity basis.