Sydney Harbour Federation Trust v McCluskey

Consideration 6Special or unusual circumstances do not have to be shown. The test is one of reasonableness: see Bofinger & Anor v Kingsway Group Pty Ltd & Ors (No. 2) [2009] NSWCA 172 at [14] as follows: "[14] The guarantors then submitted that the fifth to seventh respondents had not shown "some special or unusual circumstances". They did not have to. The question was, in short, whether in the circumstances the guarantors unreasonably failed to accept the offer: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Jones v Bradley (No 2) [2003] NSWCA 258; Leichhardt Municipal Council v Green [2004] NSWCA 341." 7The principles are also helpfully summarised by Nicholas J in Roluke Pty Ltd & Anor v Lamaro Consultants Pty Ltd & Anor [2007] NSWSC 671 at [7] - [11] as follows: "The principles [7] Part 42, rule 42.1 is the basic rule that costs follow the event, unless it appears to the court that some other order should be made. The exercise of the court's discretion is to be made with regard to the overall requirements of justice in the particular case. [8] In Oshlack v Richmond River Council (1998) 193 CLR 72, McHugh, J said: '67. The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation. 68. As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice. ' [9] In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No. 3) (1998) 30 ACSR 20, Young, J (as he then was) reviewed the principles applicable to multiple issue cases in which the successful party had lost on some separate issues. He said (p 21) that in such cases it was appropriate for the court to assess costs on each issue or make a reduction in the costs which the successful party obtains because of that party's losses on separate issues. His view was (p 22) that in this context a court does not look at issues as if they were pleader's issues, but approaches the matter with a broad brush. He pointed out (p 24): '... a judge has got to look at the matter globally and in the circumstances of each case and make an order for costs that is fair and reasonable after taking into account the general guidelines'. [10] The principles which guide the approach to be taken where a plaintiff recovered less than the amount offered by a defendant under a Calderbank letter were recently reviewed in Gretton v Commonwealth of Australia [2007] NSWSC 149, by Studdert, J in which he said: '16 It is for the defendant to persuade the Court that the plaintiff acted unreasonably in rejecting its offer. It seems to me that more is required to prove the plaintiff was unreasonable than to prove that the offer which was not accepted was a reasonable offer. In a particular case a plaintiff might act reasonably in rejecting an offer which was within the possible verdict range. 17 What emerges from SMEC and from Jones v Bradley and from Leichhardt Municipal Council v Green is that all the relevant circumstances have to be considered in determining whether the plaintiff's rejection of the settlement offer was unreasonable. Rejection would be unreasonable if it occurred without any consideration or without due consideration of the offer made. Rejection of an offer would be unreasonable if the plaintiff could not reasonably hope to match the offer by proceeding to a hearing. Rejection of an offer would be unreasonable if it involved a disregard of serious problems confronting the plaintiff in establishing liability. However, none of the decisions to which I have referred has sought to define what amounts to unreasonable rejection. I instance the above circumstances as examples of situations in which an offeree would act unreasonably in not accepting an offer, but it has to be recognised that there can be no all embracing definition as to what amounts to unreasonable conduct in failing to accept an offer. All the relevant circumstances of the particular case have to be considered. ... 24 Circumstances to be considered in determining whether the failure to accept the offer was unreasonable or not include the making of an assessment of the strengths and weaknesses of the plaintiff's case looking at the claim prospectively at the time the offer was made. This task is not to be determined with the benefit of hindsight.' (See also Evans Shire Council v Richardson (No. 2) [2006] NSWCA 61; Pollard v Baulderstone Hornibrook Engineering Pty Ltd & Anor (No. 2) [2007] NSWSC 486.) [11] In Crump & Ors v Equine Nutrition Systems Pty Ltd trading as Horsepower & Anor (No. 2) [2007] NSWSC 25, Hoeben, J said: '41 What (the) decisions made clear was that the reasonableness or otherwise of the refusal to accept the Calderbank offer needed to be considered by reference to the situation at the time when the offer was made and not solely by reference to the ultimate outcome of the proceedings. That kind of hindsight analysis has been expressly rejected. Whilst every case has to be considered and dealt with on its particular facts, it does not follow necessarily from an adverse outcome, that rejection of the offer was relevantly unreasonable'." 8More recently in Guest v Karl Romandi & Helen De Luis Pty Ltd (No. 2) [2012] NSWCA 105, the Court of Appeal considered a Calderbank offer made in that case at [5] and [6] as follows: "[5] Whether the rejection of a Calderbank offer justifies, in the exercise of the Court's discretion, a departure from the ordinary rule as to costs depends on whether the final judgment or outcome is no more favourable than the terms of the offer, whether the offer was a genuine offer of compromise and whether, in all the circumstances, the offeree's failure to accept the offer warrants departure from the ordinary rule. This last question is usually resolved by addressing whether the offeree acted unreasonably in refusing to accept the offer: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]-[9]; Commonwealth of Australia v Gretton [2008] NSWCA 117 at [1], [43], [44], [117], [120]. [6] The applicants' offer was not an offer confined to the disposition of the proceedings on the summons and cross-summons. It sought to dispose of the whole of the proceedings between the parties in a way which could not have been achieved by the disposition of the applications for leave to appeal. Because the disposition of those applications did not and could not have the consequence of disposing of the whole of the proceedings, it is not possible or meaningful to compare the outcome of those applications with the outcome proposed by the offer in order to assess whether the offer is more favourable than the outcome of the two applications. For that reason the principles which govern Calderbank offers can have no application to the applicants' letter of 7 March 2012. Put simply, it cannot be said that the result of the outcome of the applications is less favourable to the respondent than the offer. This conclusion makes it unnecessary to consider whether the offer involved a genuine offer of compromise and whether in the circumstances the respondent acted unreasonably in not accepting an offer which was only open for two days." 9In the present case the outcome of the proceedings is less favourable to the second defendant than the terms of either of the offers, at least to the extent that I have ordered her to vacate the premises by 30 April 2012, whereas the offers each extended the time for delivery of possession to the Trust until 30 June 2012. However, in the overall scheme of this litigation, that difference is not particularly significant and it cannot be said by reference to that difference that the second defendant acted unreasonably in rejecting an offer that would have required her to vacate the premises as late as 30 June 2012. There was no certainty when the offers were made that the proceedings, if they remained contested by the defendants, would be disposed of by judgment or order by any particular date. The material before me otherwise discloses that the second defendant had a strong desire for her own personal reasons to remain in possession and occupation of the premises for as long as possible and the dates for vacating the premises proposed in each of the offers that were made by the Trust tacitly recognise that fact. I do not consider that it was unreasonable for the second defendant to reject the offers that were made if regard is had only to the date for the delivery of possession to the Trust. 10However, the offers cannot be dissected. They must each be considered as a whole. The question of whether or not the second defendant's rejection of the offers, or either of them, was unreasonable must take account of the fact that the Trust was originally prepared to forego payment of any of its costs and by the time of the second offer was prepared to accept "an agreed contribution to [its] costs of $50,000 within 14 days". 11It will be apparent from my earlier reasons for judgment that I considered that the second defendant's opposition to the Trust's claim was indefensible. On the material available to me it is not possible to say whether the second defendant took the approach she did, in rejecting the Trust's offers, in considered reliance upon legal advice or in spite of it. For present purposes both the answer and the distinction are irrelevant. In my opinion the Trust's first offer to settle the proceedings was entirely reasonable and the second defendant's rejection of it correspondingly unreasonable. Acceptance of that offer would have seen the second defendant in occupation of the premises until 30 June in the following year with no liability at all for the Trust's costs necessarily incurred in commencing and conducting the proceedings up to the time it was made. 12Rejection of the second offer was in my opinion equally unreasonable. The proceedings were six months older by then. Presumably additional costs of preparation for the hearing on 12 December 2011 had been incurred by the Trust. Correspondence that is attached to the Trust's submissions on this application suggests that its costs were by 8 December 2011 in excess of $150,000. However, in the scheme of things that is not particularly important. That is for the reason that the Trust's original offer had already crystallised its entitlement to claim or to argue in favour of costs on an indemnity basis and the second defendant's rejection of a somewhat less attractive offer at a later time cannot have had the effect of discharging the Trust's continuing ability to rely upon it for present purposes. Indeed, the Trust's second offer was only a relatively small retreat from the generosity of its original offer and correspondingly a somewhat more favourable offer to the second defendant than the increase in the Trust's further costs over time would have justified. 13There does not appear to be any material to support the contention that the second defendant did not have sufficient time to consider the offers. They were each made in clear and unambiguous terms. The offers could not have required anything more than a conference with counsel and solicitor of short duration to understand what they meant. Presumably the first offer was considered in detail by the second defendant and her legal team in advance, and for the purposes, of the settlement conference among the parties that was scheduled for late June 2011. No reasons are suggested as to why or in what particular respects the second defendant was given inadequate time to consider and respond to the offers, and it is difficult to know what they might be. 14Nor is it necessary that an offer to settle proceedings that is not made in accordance with the particular rules that relate to offers of compromise must state that it is made without prejudice save as to costs, or some cognate formulation. One of the reasons that legal proceedings are settled or compromised is to avoid the continuous incurring of legal costs. It is not unreasonable to expect that a party who offers to settle proceedings on certain terms may wish at some later time to rely upon its opponent's rejection of the offer as a basis for the making of some special order as to costs, and that it would be so understood by the recipient of the offer. So much more is that the case in circumstances, as here, where each of the parties is represented by experienced commercial lawyers skilled and knowledgeable in the intricacies and perils of litigation such as this. I note in this respect that the second defendant does not say that she did not, or that those whom she instructed did not, understand or anticipate that the Trust might later seek to rely upon the offer that it made for the purposes that it now promotes.

Disposition 15In my view it was unreasonable for the second defendant to reject each of the Trust's offers. By continuing to defend the proceedings she has achieved a result that is less favourable to her than either of the offers would have produced if accepted. In these circumstances I consider that the second defendant should be ordered to pay the Trust's costs up to and including 30 June 2011 on the ordinary basis and on and from 1 July 2011 on an indemnity basis.

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