The Uniting Church in Australia Property Trust (NSW) v Crowe

Informal offers by Church Trust

The first informal offer upon which counsel for the Church Trust relied for their indemnity costs application was contained in a letter from the Church Trust's solicitors dated 22 September 2022, shortly before the proceedings were commenced. The letter followed earlier correspondence between solicitors for the Church Trust and Mr Crowe described at J1 [147]-[149] and [156]-[163].
The letter began by alleging that certain "Encroaching Structures" had been unlawfully erected on the land by Mr Crowe. These "Encroaching Structures" were the deck; the concrete slab; the upper stair; the balcony; and the roof overhang. The letter made it clear that the Church Trust did not consent to Mr Crowe's continued occupation and use of its land (and, indeed, had previously demanded removal of the Structures) and stated that, as a result, "Mr Crowe's conduct constitutes a deliberate and continuing trespass" on the land which was "actionable per se".
The letter continued: 8. Uniting [the Church Trust] requires and demands that Mr Crowe, by no later than 12 October 2022, sign and return to us the enclosed form of Acknowledgement and form of Undertaking, in which he: 8.1 expressly acknowledges that the Encroaching Structures constitute a continuing trespass (Acknowledgement); and 8.2 undertakes that he will carry out all necessary works to (a) remove the Encroaching Structures from the Uniting Land [number 35] and (b) restore the Uniting Land to the condition that it was in immediately prior to the construction of the Encroaching Structures (Undertaking). These works are to be commenced within 6 months of the date of this letter and are to be completed within 12 months of the date of this letter. 9. In the event that Mr Crowe: 9.1 provides the Signed Acknowledgement and Undertaking within the requisite time frame (that is, by 12 October 2022); and 9.2 carries out all necessary works to (a) remove the Encroaching Structures from the Uniting Land and (b) restore the Uniting Land to the condition that it was in immediately prior to the construction of the Encroaching Structures within the requisite timeframes, Uniting irrevocably agrees that it will not take any further action against Mr Crowe in respect of the Encroachments and/or his trespass onto the Uniting Land, including any action for damages or any other relief. 10. However, if Mr Crowe: 10.1 fails to provide the signed Acknowledgement and Undertaking within the requisite timeframe (that is, by 12 October 2022); and/or 10.2 provides the signed Acknowledgement and Undertaking but fails to carry out all necessary works to (a) remove the Encroaching Structures from the Uniting Land and (b) restore the Uniting Land to the condition that it was in immediately prior to the construction of the Encroaching Structures within the requisite timeframes, Uniting will commence proceedings against Mr Crowe without further notice, in which it may seek, inter alia, orders requiring Mr Crowe to remove the Encroaching Structures and reinstate the Uniting Land, as well as damages for trespass. 11. Further, in the event that our client is compelled to commence proceedings against Mr Crowe, our client will rely on the terms of this letter to seek its costs of the proceedings against Mr Crowe on an indemnity basis, in accordance with the principles in Calderbank v Calderbank [1976] Fam 93 and related cases.
There was no substantive response to this letter before the specified period lapsed.
The second informal offer was contained in a letter from the Church Trust's solicitors dated 17 May this year, shortly before the trial was due to begin. The offer, described as a counter-offer, was set out in [5.3] of the letter: 5.3 If the Defendant: 5.3.1 acknowledges in writing that the [Encroaching Structures] constitute a continuing trespass; and 5.3.2 undertakes to the Court that he will carry out all necessary works to (a) remove the Structures from 35 Edward Street and (b) restore 35 Edward Street to the condition it was in immediately before the construction of the Structures in late 2009; Uniting will agree to: 5.3.3 give the Defendant 18 months, from the date of an agreement, to carry out all works to remove the Structures and restore 35 Edward Street in accordance with the undertaking; and 5.3.4 in lieu of enforcing any rights in respect of costs against your client, accept an amount of $130,000 in settlement of its costs ….
After referring to the substantial costs which the Church Trust had already incurred (said to total $260,000) and the likelihood of future costs, the letter stated that that failure to accept might lead to an application for indemnity costs.
The offer was formally rejected in a letter from Mr Crowe's then solicitors on 31 May. In rejecting the offer, Mr Crowe's solicitors reiterated their arguments that he would succeed in his claim for the grant of easements over the Encroaching Structures.
I do not think that there is any real dispute about these principles to be applied in determining whether to award indemnity costs on the basis of an offer of compromise which is not accepted. The written submissions by counsel for the Church Trust stated the principles in a somewhat different way, but not, to my understanding, in a way which differed in substance, from the way I will express them.
As counsel for the Church Trust acknowledged, it is a necessary condition that the offeror should obtain a result in the proceedings more favourable than the terms of the offer. But unlike a formal offer of compromise under the Rules, the satisfaction of this condition does not create any presumption in favour of an award of indemnity costs. The onus remains on the offeror to demonstrate some good reason for making such an award.
Generally speaking, that requires the offeror to demonstrate that the offeree's failure to accept the offer was unreasonable, having regard to the circumstances of the case at the time the offer was made. Failing to accept an offer which does not contain any substantial element of compromise could really, if ever, be demonstrably unreasonable.
In their submissions in support of the application for indemnity costs, counsel for the Church Trust noted my findings that Mr Crowe was well aware at the time he constructed the Structures that he did not own the land on which they stood (J1 [254]-[256]) and that he decided to go ahead and carry them out for reasons which remain undisclosed (J1 [268], [279]). Counsel also pointed out that, throughout the proceedings, Mr Crowe made no concession that the Church Trust was entitled to any relief at all. To the extent that Mr Crowe succeeded, he succeeded on a limitation ground which was only raised at trial.
As already noted, counsel acknowledged that it was necessary to demonstrate, before either offer could have any affect, that acceptance of the offer would have left Mr Crowe in a more favourable position than what he ultimately achieved. Counsel acknowledged that both offers required Mr Crowe to remove the concrete slab and the upper stair, which he will not ultimately be obliged to do under the orders obtained by the Church Trust. But counsel submitted that, even so, Mr Crowe's failure to accept the offer, had, on balance, clearly left him worse off than if he had accepted it. In particular, by accepting the offer he would have avoided the costs of the proceedings, including the costs liability to the Church Trust. Counsel argued that these costs would have greatly exceeded the expense of removing the slab and the stair.
For her part, counsel for Mr Crowe submitted that it would be incorrect to see him as having opposed any and all efforts to settle the proceedings. Counsel pointed out that Mr Crowe had made a number of offers to settle, including, but not limited to, the offer of November last year which is discussed above (although the other offers were not said to have been more favourable from Mr Crowe's point of view than the ultimate outcome).
Nor did counsel for Mr Crowe accept that the Church Trust had obtained a result more favourable than the terms of its offers. Focussing on the grant of relief, this was not so as the Church Trust had failed to obtain orders for the removal of the slab and the upper stair. Counsel also submitted that it had not been unreasonable for Mr Crowe to defend the proceedings, given the factual and legal complexities involved, and that the offers did not involve any element of compromise, but rather demanded complete capitulation.
An award of indemnity costs on the grounds of unreasonable failure to accept an offer of compromise must be distinguished from an award of indemnity costs on the ground of pursuit of a hopeless claim or defence. In the latter class of case, an award of indemnity costs may be justified if the defendant, properly advised, should have known that the defence was hopeless, and the Court can thereby infer that the defence was pursued for ulterior purposes (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397). In such a case, it is not necessary for the successful plaintiff to have made an offer which involved a degree of compromise and was bettered at trial, or indeed to have made any offer of compromise at all, although the making and refusal of such an offer may assist the Court to draw the inference that the defence was pursued for some ulterior or improper purpose.
In the present case it is true that I found Mr Crowe's evidence unreliable and I disbelieved some parts of it. But it would be going too far to say that Mr Crowe's case was an entirely false one, let alone that, properly advised, he must have known that it was bound to fail. The case was indeed a complicated one, factually and legally. The arguments presented by his counsel properly acknowledged the deficiencies in Mr Crowe's evidence and were presented on the basis that those arguments did not require the Court to accept Mr Crowe's testimony on disputed matters (see J1 [245]).
Most significantly, Mr Crowe's defence to the trespass claim was successful in part. It does not seem to me to matter that the successful defence was raised only at trial. Just as witnesses may unexpectedly collapse under cross-examination, new legal points may unexpectedly emerge or come into focus in the course of proceedings. That is part of the ordinary process of litigation and it something that both parties are expected to consider in formulating and responding to offers of compromise.
There are several difficulties with the application for indemnity costs based on the Church Trust's September 2022 letter of demand. The first parallels the difficulty I have already mentioned concerning Mr Crowe's application for indemnity costs based on his offer of November last year.
The Church Trust's letter of demand was sent before the proceedings had even begun. At that point, Mr Crowe had not made any of the claims which later formed the subject of his cross-claim in the proceedings. The demands therefore concerned only the Trust's trespass claims.
The cross-claim was of course unsuccessful. In the usual way, Mr Crowe should pay the costs of it. But it is hard to see what justice there would be in requiring him to pay such costs on an indemnity basis as a consequence of a failure, even if it was an unreasonable failure, to compromise a different claim.
The reasonableness of Mr Crowe's refusal of the Church Trust's demands must also be considered in the context of the case as it then was, namely a case confined to the Church Trust's trespass claims. Seen in that way, Mr Crowe's eventual success on the claims for removal of the concrete slab and the stair is more significant than counsel for the Trust allowed for in their submissions. Mr Crowe was successful on two of the five claims.
Nor do I accept that the Court should, in making an assessment as to whether the Church Trust achieved a result more favourable than what it demanded, take account of costs that would have been saved had the demands been complied with. The proper comparison is between entitlements to relief which the Trust then had (to the extent vindicated by the court's judgment) and the redress which it demanded. Mr Crowe's costs, are, it seems to me, irrelevant. And, so far as the Trust's costs are concerned, at the time the offer was made no recoverable costs had yet been incurred. For the same reason, the demands did not involve any element of compromise.
The Trust's September 2022 letter reads, apart from the reference to costs being sought on an indemnity basis, like a "letter before action". Traditionally, such a letter would be written on behalf of a prospective plaintiff to a prospective defendant before litigation, and would set out a formal demand for specified redress from the defendant, failing which proceedings might be brought.
The "letter before action" procedure was, and remains, a useful way of indicating that any preliminary negotiations between the parties have ended and if the defendant persists in denying redress to the plaintiff, costs incurred by the plaintiff beyond that point will be recoverable from the defendant through litigation. But those costs will be recoverable in accordance with the Rules, and that means, on an ordinary basis. The entitlement flowing from a letter before action cannot be upgraded to costs on an indemnity basis by simply marking the letter before action "without prejudice except as to costs" and including a Calderbank warning. Of course, a demand which is pitched at a significant discount to the plaintiff's claimed entitlements may give rise to different considerations.
The position so far as the May offer was concerned is not entirely the same. That offer did involve a compromise, or an alleged compromise, of the Church Trust's existing costs entitlement, although no evidence was presented before me (or, more to the point, in the letter itself) to demonstrate what the Church Trust's actual recoverable costs would have been at that time. And if the figure quoted in the letter were correct, then counsel for the Church Trust may be right in asserting that the recoverable costs forgone would have been worth more than the cost of removing the concrete slab and the upper stair, although, again, there was no evidence before me that this was so.
In my view, the Court should be slow in an application such as this to be drawn into such calculations, or to expect the recipient of such an offer to have to undertake them. If an offer had been made, as it could have been, under the Rules, and if it could be clearly demonstrated that the offer had been bettered, then that would be one thing. As it is, the Church Trust must go further and demonstrate unreasonableness on Mr Crowe's part. I am not satisfied that it has done so. The costs order that I make in favour of the Church Trust will therefore be an order for its costs on the ordinary basis.

At a glance

Court

Decision date

Before

Source

Judgment (7 paragraphs)

Parties

Cases Cited (5)