Tonk Sydney Pty Ltd v ILend Capital Pty Ltd

Relevant principles

1. Costs are in the discretion of the Court: s 98(1)(a) CPA. The general rule is that costs follow the event, and a successful party is entitled to their costs assessed on the ordinary basis, 'unless the court orders otherwise or these rules otherwise provide': UCPR rr 42.1 and 42.2. The UCPR 'otherwise provide' under UCPR 42.14, which provides that where an offer of compromise is made by the plaintiff which complies with r 20.26 (compliant offer) but is not accepted by the defendant and the plaintiff obtains an order no less favourable than the terms of the offer, then unless the court otherwise orders, the offeror is entitled to an order for costs on the indemnity basis from the day after the offer was made (in circumstances where it was made before commencement of the trial) and the ordinary basis for costs incurred before that time: UCPR r 42.14(2); s 98(1)(c) CPA.
2. UCPR r 20.26 governs the making of a compliant offer. It includes that an offer 'must not include an amount for costs and must not be expressed to be inclusive of costs': UCPR r 20.26(2)(c). UCPR r 20.26(5) provides that in the case where an offer is made less than two months before the commencement of the trial, the closing date for acceptance of an offer is to be such date as is reasonable in the circumstances.
3. If an offer is not a compliant offer and is instead a Calderbank offer, a plaintiff is not presumptively entitled to its indemnity costs, but the Court may nevertheless exercise its discretion to award indemnity costs, where the plaintiff proves that the Calderbank offer was a genuine compromise, and it was unreasonably rejected: Wheatley v Lakshmanan (No 2) [2022] NSWSC 851 at [97]-[99].
4. The plaintiffs were wholly successful in their claim and are entitled to their costs. The question is whether there is reason to depart from the usual rule that costs are awarded on the ordinary basis by reason of the failure of the defendants to accept the offer.

Plaintiff's submissions

1. The plaintiffs submit that they obtained Judgment in their claim which was no less favourable to the plaintiffs than the terms of their 30 September 2024 offer, which the defendants rejected, entitling the plaintiffs to an order against the defendants for the plaintiffs' costs assessed on the ordinary basis up to and including the date of the offer and on the indemnity basis thereafter (the presumptive basis): UCPR r 42.14.
2. In the present case, the plaintiffs submit that the offer was a compliant offer, including that it did not include an amount for costs, nor was it expressed to be inclusive of costs per r 20.26(2)(c). The Court of Appeal in Jojeni Investments Pty Ltd v Mosman Municipal Council (No 2) [2015] NSWCA 208 at [10]-[12], found that an offer which involved each party bearing its own costs of the proceedings did not offend r 20.26. The prohibition in UCPR r 20.26(2)(c) that offers must not be expressed to be inclusive of costs was not directed to offers that parties bear their own costs: Jojeni at [12]. In Jojeni, the offer of compromise also provided that if it were not a compliant offer, it was intended to take effect as a Calderbank offer (in Jojeni, however, at [17] and [18], the Court exercised its discretion to 'order otherwise' under UCPR r 42.14(2), as the Council as a public authority, was the only appropriate contradictor to the appellant's claim).
3. The plaintiffs submit in relation to UCPR r 20.26(5) (where an offer is made less than two months before the commencement of the trial) that the closing date for acceptance of their offer was reasonable in the circumstances. The offer was made on 30 September 2024, approximately twenty days before the date set for the hearing (21 October 2024), and it was left open for acceptance until 5.00 pm on 8 October 2024. The circumstances described in the Judgment under the heading, 'Procedural Background' at [20]-[24] are apposite to describe the situation.
4. In short, all steps had been taken for preparation, including mediation and service of all affidavits prior to the Court setting down the proceedings for trial on 29 April 2024. Nothing had been done in the matter since the defendants/cross-claimants' then solicitor, Observatory Legal filed their Notice of Ceasing to Act on 10 July 2024, until the matter was listed for pre-trial directions on 30 September 2024. On that occasion, the defendants/cross-claimants failed to turn up by their solicitor, Mr Yakenian who was to represent them. In effect, the Court on 30 September 2024, stood over the proceedings to 9 October 2024, which was the date upon which everyone including the Court needed to be informed as to whether further preparation (and the expense thereof) for trial would be required. This included the collating and printing of the court book (2 volumes), the preparation of written submissions in accordance with the Court's requirements and preparation generally for a 4-day trial. This, according to the plaintiffs' estimation, would attract further fees and charges to be made to the plaintiff in the estimated amount of $55,000.
5. In the circumstances, it is submitted that the timeframe was reasonable. It would have enabled Mr Salim to not only avoid his own costs of preparation for trial and having to return from Lebanon for such purpose, but it would have enabled him and ILend to walk away from the costs that they would inevitably have been ordered to pay in pursuing such a hopeless case in circumstances where they would never have been able to substantiate that ILend provided services to secure an offer of loan, in order to validly charge the fees it was claiming under ILend's purported Mandates to Act (even if effective), as considered by Judgment [74]-[98].
6. If for some reason the Court should find that the plaintiffs' offer of compromise was not a compliant offer, then the plaintiffs submit that it should take effect as a valid Calderbank offer, with the appropriate consequences to follow from unreasonable rejection. The principles in relation to a Calderbank offer where there is no presumptive entitlement to costs are based on whether the defendants unreasonably rejected the plaintiffs' offer. Peden J in Dragon Property Development & Investments Pty Ltd v 183 Eastwood Pty Ltd (No 2) [2022] NSWSC 1000 set out the principles to be applied. In that case, the offer was all inclusive in that it made no separate reference to a cost's component. Nevertheless, the offer specified the approximate legal costs already incurred by the plaintiff to the date of the offer, that led the Court to the conclusion that the defendant unreasonably rejected the plaintiff's offer.

Consideration

1. I agree with the plaintiffs' submission that the offer of compromise dated 30 September 2024 is a compliant offer which was not accepted by the defendants and the plaintiffs have obtained an order no less favourable than the terms of the offer. There is no reason, in my view, for the court to otherwise order and accordingly the plaintiffs are entitled to their costs on the indemnity basis from the day after the offer was made (30 September 2024), and the ordinary basis for costs incurred before that time. I note that it is accepted that it is appropriate not to 'otherwise order' under r 42.14 in the case of a 'walk away' offer: Ritchie's Uniform Civil Procedure NSW at [42.14.11].

Principles

1. Section 98(4)(c) of the CPA provides that the Court may make an order to the effect that the party to whom costs are to be paid is to be entitled to a specified gross sum instead of assessed costs.
2. In Berry Rural Co-operative Society Ltd v Sepak Industries Pty Ltd (No 4) [2018] NSWSC 1902 at [6], Stevenson J summarised the principles to be applied when making a gross sum fixed costs order as follows: (a) the Court is to take a broad-brush approach in determining the amount of a gross sum fixed costs order: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 , [52] (Giles JA). The approach is to achieve the policy outcome sought by the imposition of an order for costs, namely compensation of the party in whose favour the order is made, rather than penalisation of the party being ordered to make the payment; (b) the Court is not required to conduct a detailed examination such as is required on an assessment: Young v Hones (No 3) [2014] NSWSC 499 , [28] (Garling J); see also Penson v Titan National Pty Ltd (No 3) [2015] NSWCA 121 , [7] (Campbell AJA); (c) the Court ought only act where the party seeking costs has furnished the Court with sufficient evidence to permit the Court to have confidence that the gross sum costs proposed are an appropriate sum and reflect a methodology that is logical, fair and reasonable: Beach Petroleum NL v Johnson(No 2) (1995) 57 FCR 119 , 123 (von Doussa J); Young v Hones [29]; Harrison v Schipp [22] and [52]; Hamod v New South Wales [2011] NSWCA 375 , [820] (Beazley, Giles, Whealy JJA); and (d) the Court has routinely applied a discount to the lump sum figure so as to allow for contingencies. This can typically be in a range of a discount of 10-30 per cent: Hamod v New South Wales [820]; Ross v Padget [2016] NSWSC 1851 , [16] and [21] (Sackar J); Fisher-Pollard (by her tutor Fisher-Pollard) v Fisher-Pollard [2018] NSWSC 807 , [38], [44] and [49] (Sackar J).
3. The following additional principles in relation to s 98(4)(c) may be noted: 1. The discretion may be exercised where the assessment of costs would be protracted and expensive and, in particular, if it appears that a party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment. However, the power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]-[22]. 2. The factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred; the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability: Hamod v State of NSW [2011] NSWCA 375 at [816]. 3. The exercise of the power conferred by s 98(4)(c) is particularly appropriate where the costs have been incurred in lengthy or complex cases and it is desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment. This may arise either from the likely length and complexity of the assessment process, or from the likelihood that the additional costs of formal assessment would disadvantage the successful party because of the likely inability of the unsuccessful party to discharge the costs liability in any event: Hamod at [817]. 4. The power may also be exercised where a party's conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceedings: Hamod at [818]. 5. A factor which is relevant and, in many cases, will weigh heavily in favour of a lump sum costs order is bringing finality to the litigation: WLD Practice Holdings Pty Ltd v Stockham [2020] NSWSC 1354 at [9].

Plaintiff's submissions

1. The plaintiffs submitted that a lump sum costs order should be made for the following reasons.
2. First, the plaintiffs issued a Notice to Produce to ILend for bank statements and records of accounts for either ILend or ILend Capital Investment Fund Pty Ltd and nothing was produced (Judgment at [83]). The Notice to Produce dated 19 September 2023 was issued for the forensic purpose of determining whether ILend or any of its associated companies had the capacity to fund a loan. A company search dated 18 September 2024 appearing at CB2 pp 230-237 shows that it has a paid-up capital of $100 in respect of 100 ordinary shares where the shareholder gives the business address as '23' Suite 1, 90-96 Bourke Road, Alexandria, but the shares are not beneficially owned (at CB2 pp 233-234). There is no evidence that ILend has any assets sufficient to meet a costs order in the contemplated likely amount which might be found to be due on assessment.
3. There is also the unexplained absence of the second defendant, Mr Salim, the Company's sole director and controlling mind (admitted in Defence to ASOC at [6]) who has been in Lebanon since March 2024, and has failed to engage properly with the courts processes including the preparation for hearing (Judgment at [38]-[41]), with no date advised for his likely return to Australia. It is unlikely that there would be a turnaround in order to have an efficient, unprotracted and inexpensive assessment of costs that would be met by the second defendant. The Court can take judicial notice of the matters set out in WLD at [58]-[59] that a traditional costs assessment would not be completed in under 7.5 months, and would no doubt require further legal expense which would be disproportionate to any amount found to be ultimately in issue which could not be accounted for by a (discounted) gross sum costs order.
4. Second, the plaintiffs submit that the costs sought to be assessed on a lump sum basis have been incurred almost exclusively due to the conduct of the defendants. This included the necessity to bring these proceedings initially due to caveats lodged on the real property of the plaintiffs (which was subsequently lapsed) and later the defendants' maintenance of PPSR registrations which were registered on 15 June 2022, by which time it was well known to them that the plaintiffs did not consent to the giving of a PPSR interest, and which could not be justified in the absence of services rendered. The continuation of the proceedings by the plaintiffs was also necessary due to the need to defend the cross-claim brought by the defendants for alleged services rendered which totalled $523,600, which was wholly unjustified in light of the fact that ILend could not procure a loan for the plaintiffs for the relevant Cronulla property from 30 March 2022. because the client could not purchase the project site (Judgment at [58]). The plaintiff's amended notice to produce was served after a contested hearing before the Registrar in relation to its terms, but the defendants nevertheless failed to produce the required documents. This is properly seen as a case where a party's conduct has unnecessarily contributed to the costs of the proceedings.
5. Third, the plaintiffs note that they did not pursue a monetary judgment and the defendants' unfounded cross-claim wholly failed.
6. Fourth, the plaintiffs submit that they should not be put to the trouble and expense of having to obtain a costs assessment, particularly where the broadbrush approach to obtaining a lump sum costs order would give the defendants a significant discount from costs that could be ordered in the event that the matter proceeded to assessment. Mr Salim's absence in Lebanon and his adjournment application at the commencement of the hearing, which may be seen as a delay tactic consistent with the approach he has displayed in the past to his 'appearance' in this litigation, weighs heavily in favour making a lump sum costs order in favour of the plaintiffs.
7. Fifth, the plaintiffs submit that in respect of their costs post-30 September 2024, no discount should be applied on formal assessment if an indemnity costs order is in place in relation to those costs. In the present case, the Court can take judicial notice based on the rates of charge of a senior solicitor set out in WLD at [15] and [16] of $600 per hour and $255 per hour for paralegal services (in 2020) compared to Mr Walton's rate of charge of $550 per hour or $110 per hour for paralegal services (in 2022) which are reasonable. Thus, it would be unlikely that the solicitor/client costs component of the charges to be made prior the indemnity costs period would be reduced on assessment by any significant amount. A lower percentage of reduction of 10% would be entirely appropriate in respect of those costs. Nevertheless, as the affidavit evidence in support of this application discloses the plaintiffs are prepared to accept a discount of 25% in relation to those costs as a buffer in order to get the lump sum costs order over the line. This relates to the biggest component of the plaintiffs' costs which might be discounted. Counsel's fees were considered by the experienced plaintiffs' solicitor to be fair and reasonable having regard to the seniority and experience of counsel, consequently no discount should apply to those fees and charges.
8. It is submitted that in the circumstances, it is appropriate that a gross sum costs order in favour of the plaintiffs be made and that the lump sum amount of $177,209 (or such other amount as the Court may determine) is an amount that has been arrived at by a logical, fair and reasonable process which includes an appropriate discount of the costs actually incurred in order to provide a buffer whilst also taking into account the contingencies that would be relevant in any formal costs assessment.

Consideration

1. I agree with the plaintiffs' submission that this is an appropriate case for a gross sum costs order because in my view: (a) the defendants are entirely responsible for the incurring of costs in these proceedings and their conduct has unnecessarily contributed to the costs of the proceedings; (b) the costs incurred are not out of proportion to the quantum in dispute; (c) while the proceedings were not complex, the quantum in dispute necessitated that the matter be taken seriously by the plaintiffs to ensure their success; (d) the capacity of the defendants to meet a costs order is very limited and it is desirable to avoid the time and expense of a costs assessment which will, on any view, be material; (e) the Court can, on the evidence before it, make an assessment of the appropriate sum which is fair as between the parties; and (f) the need for finality in the litigation is a factor weighing in favour of the making of the order.
2. As to the appropriate amount of the costs order, I have reviewed Mr Walton's calculations and I agree that they represent an appropriate methodology for the determination of the amount of the order consistently with the broad-brush approach required to be taken, subject to one matter.
3. As noted above, Pitcher Walton did not have a costs agreement for the matter until 22 November 2022, and the costs relating to the period up to that time were $20,751.50. The absence of a costs agreement meant that Pitcher Walton was only entitled to recover its costs in the matter from the plaintiffs following an assessment of the costs, and the assessor would be required to assess the costs on the basis of what was fair and reasonable, i.e. a quantum meruit, under s 199(2) of the Legal Profession Uniform Law (NSW): see A-Civil Aust Pty Ltd v Meso Solutions Pty Ltd (No 2) [2024] NSWSC 323 at [12]-[15]. As I noted there, the absence of a costs agreement does not preclude the court from making a lump sum costs order. Given the relatively short period in which there was no costs agreement, I consider that the appropriate approach is to apply a 50% discount (rather than a 25% discount) to the relevant component of the costs ($20,751.50) to which the discount applies to estimate what are the fair and reasonable costs for that period. I note that the plaintiffs have not put on expert evidence from a cost's assessor, which would have been a way to approach that component of the overall costs.
4. Applying this further discount, the total amount of the costs for the lump sum costs order, rounding down to the nearest $100, is $172,000.

Conclusion

1. For the above reasons, the Court makes the following orders: 1. An order varying order 6 of 25 October 2024 that the first and second defendants are to pay the costs of the plaintiffs in the proceedings on the ordinary basis up to and including 30 September 2024 and on the indemnity basis thereafter. 2. An order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW) that the costs to be paid by the first and second defendants to the plaintiffs pursuant to order 6 of 25 October 2024 as varied by order 1 above are specified in the gross sum of $172,000 instead of assessed costs.

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