Superb Build Pty Ltd v Petrosyan

Principles

1. The principles for an award of indemnity costs and the making of a gross sum costs order are not in dispute.

Indemnity costs

1. The defendants say that an order for indemnity costs based on conduct is appropriate where the party entitled to a costs order has been wantonly or recklessly caused to incur the costs. Relevant delinquency must be shown, however the principle is compensatory rather than punitive: Oshlack v Richmond River Council (1998) 193 CLR 72 at [44]; [1998] HCA 11. They also refer to the principles in Calderbank v Calderbank. That case has been the subject of much comment, including by the Court of Appeal in Commonwealth of Australia v Gretton [2008] NSWCA 117 at [38] to [46] and, more recently, 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] per Ward CJ in Eq.
2. The Court's power as to costs derives from s 98 of the CPA and Pt 42 of the UCPR. Costs generally follow the event and are assessed on the ordinary basis. However, the Court retains a discretion not only as to whether costs should follow the event, but also as to the basis on which they are assessed: UCPR rr 42.1 and 42.2.
3. To obtain an order on the basis of being recklessly or wantonly caused to incur costs, the defendants must establish some relevant unreasonable action, including relevant misconduct, in the conduct of the proceedings: Oshlack, Harrison & Anor v Schipp Cameron & Anor v Schipp [2001] NSWCA 13.
4. The exercise of the discretion to award costs on an indemnity basis may be influenced by the existence and content of any prior notice the applicant has given of the intention to make the claim: Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242; (1995) 125 FLR 151. The absence of prior notice, however, will not necessarily preclude such an order being made: Horseshoe Pastoral Company Pty Ltd v Murray Smith (trading as South Coast Tile & Slate Company) (Court of Appeal (NSW), 7 November 1995, unrep).
5. Where costs have been incurred as the result of Calderbank letters, they can form the basis of a special costs order because they facilitate the public policy objective of providing an incentive for disputants to end their litigation as soon as possible. They also give effect to the related public policy of discouraging wasteful behaviour by litigants.
6. The failure of a party to accept a Calderbank offer does not necessarily sound in an award of indemnity costs in favour of the offeror. Merely because the offeror does better in the litigation than he or she would have had the offer been accepted is not, of itself, a sufficient reason. Nevertheless, a general rule has emerged in the cases that, in order to justify an award of indemnity costs, the offer must be a genuine offer of compromise that was unreasonable for the offeree not to accept.
7. This is a matter of discretion, which must be exercised with reference to all of the relevant circumstances in the case. The rejection of a reasonable offer is not per se unreasonable. The ultimate outcome of the litigation is a weighty consideration as it is against that amount that the reasonableness of the offer and response should be, to a significant degree, measured: Alves v Patel [2005] NSWSC 841 at [57] per Adams J. However, it is necessary to consider the facts as they were known at the time of the rejection: Fried v National Australia Bank [2001] FCA 1280 at [17] per Gray J. What could and could not have reasonably been foreseen by the offeree informs this assessment: G Dal Pont, The Law of Costs (3rd ed, 2013, Lexis Nexis Australia) at [13.76]. The strength of the offeror's case or defence also has a significant impact on the Court's assessment of the reasonableness of an offer or its rejection: Commonwealth of Australia v Gretton, supra. Other factors include the stage at which the offer was made and for how long the offer remained open: Dal Pont at [13.76], [13.79]-[13.82].

Gross sum costs order

1. The defendants rely on the power conferred on the Court by s 98(4) of the CPA to order a "specified gross sum instead of assessed costs".
2. The power may be exercised wherever the Court determines the circumstances warrant its exercise: Harrison v Schipp (2002) 54 NSWLR 738 at 742 ([21]); [2002] NSWCA 213. Generally, the approach to assessment is summarised at [22] as: 1. a broad-brush approach will be taken, 2. on the basis of material before the Court, 3. the approach taken must be logical, fair and reasonable; and 4. must only be done where the Court can assess the amount fairly as between the parties, including having sufficient confidence to arrive at an appropriate sum on the information available.
3. The circumstances may include where such an order would avoid the expense, delay and aggravation arising out of taxation: Bell v Hartnett Lawyers (No 2) [2021] NSWSC 1270 at [60] per Slattery J.
4. In determining whether to make a lump sum costs order, the Court may have regard to all relevant information, including the evidence before it, its own observations of the proceedings and the judge's own experience: Bobb v Wombat Securities Pty Ltd & Ors (No 2) [2013] NSWSC 863. The evidence must give the Court sufficient confidence that it can arrive at an appropriate gross sum. Expert evidence is permissible, but not necessary, particularly in small cases. Costs should be proportionate.
5. The power to award a gross sum costs order was exercised by Beech-Jones J (as his Honour then was) in Bobb (No 2). His Honour noted that lump sum costs might be awarded in a short and relatively straightforward case, but noted that the protections afforded by the costs assessment regime should not be undermined by too quick a resort to the power under s 98(4).
6. In that case, his Honour took into account the relative modesty of the costs claimed, being $22,000, the risk that the costs of the assessment might be thrown away due to the impecuniosity of the liable party, and the fact that the issues were straightforward so that the Court could make a reasonably well informed assessment as to the appropriate level of costs.
7. His Honour noted at [8]: Further, it must be borne in mind that the substantive issue of the proceedings was a dispute over the costs assessment process. A further order requiring the re-engagement of that process has the risk that the substantive dispute between the parties will become wider rather than narrower.

Indemnity costs

1. The defendants rely on the conduct of the plaintiff in serving bankruptcy notices (after receipt of the 4 November 2022 letter), lodging a caveat (also after receipt of the 4 November 2022 letter) and seeking garnishee orders in defective terms (prior to the 4 November 2022 letter). They also rely on the failure of the plaintiff to accept the offer of 4 November 2022, which was in terms that were largely reflected in the consent orders made on 5 December 2022, and the orders I made staying these proceedings on 16 February 2023. The offer was to undertake to pay the judgment debt sum, on the release of the deposit for the sale of the defendants' home, into the trust account of the plaintiff's solicitors, to be held pending the determination of the Related Proceedings.
2. The plaintiff says that its conduct was reasonable because it perceived the defendants as being evasive, and it was justified in taking steps to protect its interest as a judgment creditor. It further says that the 4 November 2022 letter ought not be treated as a Calderbank letter because it was not expressed as such, it did not foreshadow an application for indemnity costs and it did not comprise a sacrifice or compromise.
3. It should be clear that the plaintiff's conduct in lodging a caveat without there being any caveatable interest was wrong and should not have occurred. If the plaintiff was concerned about the dissipation of assets in which it had no legal or equitable interest, it should have approached the Court for a freezing order with evidence of the risk of dissipation. Similarly, the plaintiff was on notice from no later than 4 November 2022 that the defendants asserted an offsetting claim, which should at least have given it pause in deciding to proceed with bankruptcy notices.
4. As the defendants rightly concede, however, this conduct forms part of the factual context of the proceedings and the costs the subject of the order sought were not incurred in response to it. In my view, the conduct of the plaintiff was delinquent, however, it was not relevant delinquency for the purpose of this costs application.
5. Further, the plaintiff's subjective perception of "evasiveness" does not derogate from any unreasonableness in failing to accept a genuine offer of compromise. I do not afford that evidence any weight at all in the exercise of my discretion.
6. Nevertheless, I am not satisfied that an order for indemnity costs should be made. The 4 November 2022 letter did not represent a real compromise and did not foreshadow an application for indemnity costs. Moreover, the basis of the plaintiff's opposition to the stay at the hearing was that the defendants had not demonstrated the irreparable prejudice necessary for the Court to order a stay of the judgment that had already been obtained. This was not a matter raised in the 4 November 2022 letter. While the defendants ultimately succeeded, the basis for the plaintiff's opposition was not unreasonable and it was entitled to be heard on the matter.
7. Accordingly, I will not order the defendants' costs of the motion be paid on an indemnity basis. The plaintiff will pay the defendants' costs of the motion of 30 November 2022 on the ordinary basis.

Lump sum costs order

1. According to Mr Cotsis, the defendants incurred $91,062.40 in costs and disbursements in the hearing of the subject Notice of Motion. This sum does not include costs incurred for the removal of the caveat ($1,452.15), bankruptcy proceedings ($8,685.54) or preliminary matters (approximately $20,000). Mr Cotsis sets out a table recording the costs, and has exhibited his invoices, those of counsel and in respect of other disbursements.
2. In his written submissions on behalf of the defendants, Mr Auld sets out the costs sought to be recovered and applies a conventional party/party discount of 35% to the entirety of the costs and disbursements, resulting in a total of $59,190.56. Mr Auld also calculates costs on the basis of an indemnity costs order, such an order having effect from 11 November 2022 (being seven days after the 4 November 2022 letter). Allowing for a discount of 20% of actual costs and disbursements from that date and 35% prior, the total lump sum costs order sought on that basis would be $70,159.39.
3. The defendants' basis for the lump sum costs order is as follows: 1. The application was for a stay of enforcement of a registered judgment; 2. The defendants were not heard on the adjudication; 3. The proceedings were commenced after an offer was made to pay the judgment amount into the plaintiff's solicitor's trust account; 4. The plaintiff had behaved with relevant delinquency by lodging a caveat, seeking garnishee orders and serving bankruptcy notices; 5. There are no further steps to be taken on this file as the dispute has now moved to the Related Proceedings; and 6. There are real doubts as to the ability of the plaintiff to meet a costs order.
4. Mr McDonald, for the plaintiff, says that it would not be possible for the Court to be confident it can assess the amount fairly as between the parties in order to arrive at an appropriate sum. Further, he says that the defendants have not addressed the matters in s 172(1) and (2) of the Legal Profession Uniform Law (NSW), which set out the matters to which regard must be had in considering whether costs have been proportionately and reasonably incurred and are proportionate and reasonable in amount. Mr McDonald further submits that the plaintiff would be deprived of its ordinary rights as part of the normal process of a costs assessment, and in the absence of any evidence as to urgency, there is no reason why costs should be assessed by the Court on this basis.
5. On balance, I am not satisfied that this is an appropriate matter for the making of a lump sum costs order. In my view, the plaintiff is entitled to address the assessment of costs in the ordinary way and the defendants have not made out a sufficient basis in the conduct of the proceedings, the calculation of their proposed recoverable costs, or otherwise, to bypass the usual assessment process. I note that the Related Proceedings are continuing and, absent settlement, will likely result in one or other party obtaining a further order for costs.
6. In the circumstances, the appropriate order remains that which I made on 16 February 2023, namely that the defendants should have their costs, assessed or agreed on the ordinary basis.

Costs

1. As to the costs of this application, the defendants have been unsuccessful in both their claim for indemnity costs and for a lump sum costs order. Accordingly, the plaintiff should have its costs of the motion of 2 March 2023.

Orders

1. The costs orders of the Court, therefore, are: 1. The defendants' motion of 2 March 2023 is dismissed. 2. The defendants are to pay the plaintiff's costs of the motion of 2 March 2023 as agreed or assessed on the ordinary basis.
2. For the avoidance of doubt, the defendants remain entitled to their costs of the 30 November 2022 motion, assessed on the ordinary basis.

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