Solicitors: Gavin Parsons and Associates (first and second plaintiff in both proceedings)
Patrick Grimes & Co Solicitors (defendant in 2019 / 85939 and third defendant in 2019 / 67547)
File Number(s): 2019 / 85939; 2019 / 67547
[2]
Judgment
The Court delivered the primary judgment in this matter on 30 October 2020: Varcity Solutions Pty Ltd v Gulliver; Varcity Solutions Pty Ltd v Jagbo Pty Ltd [2020] NSWSC 1517. The primary judgment dealt with two proceedings before the Court, which were called the caveat proceedings and the debt proceedings.
At [104], the Court made the following orders in the caveat proceedings:
(1) Order that the plaintiffs forthwith take all steps necessary to cause the caveat to be withdrawn from the title to the Riverview property.
(2) Order the plaintiffs to pay the defendant's costs of the caveat proceedings.
As is plain from the orders, they had the effect of ending the caveat proceedings in favour of Ms Gulliver by requiring the plaintiffs to withdraw the caveat that had been lodged against the title to the Riverview property of which Ms Gulliver was the sole registered proprietor.
While order 2 required the plaintiffs to pay Ms Gulliver's costs, it did not deal with the basis upon which those costs should be payable.
At [106], the Court also made the following orders in the debt proceedings:
(1) Order the plaintiffs to pay the costs of the third defendant by reason of the Court being unable to hear and determine the proceedings on a final basis at the hearing fixed on 16 October 2020 by reason of the plaintiffs not being ready for the proceedings to be heard.
(2) Order that the costs payable under Order 1 be paid on the indemnity basis.
Those orders were made because the Real Property List Judge had set down both the debt proceedings and the caveat proceedings for final hearing by me commencing on 16 October 2020. In circumstances that I explained in the primary judgment, the plaintiffs in the debt proceedings were not ready to prosecute those proceedings on the date fixed. On the application of the plaintiffs, the Court proceeded to deal only with the caveat proceedings, but made the costs orders in favour of Ms Gulliver in the debt proceedings that are set out above.
I indicated at [107] of the primary judgment that I would make further case management orders in the proceedings in due course.
As I understand matters, the parties to the caveat proceedings have treated the orders made on 30 October 2020 as having finally determined those proceedings.
On 16 December 2020, I made the following orders by consent in the debt proceedings:
(1) The first and second plaintiffs to be granted leave to discontinue the proceedings so far as they concern the third defendant.
(2) The first and second plaintiff and the third defendant to provide written submissions as to the issue of costs to his Honour's associate by 15 January 2021.
Thus, the plaintiffs discontinued their proceedings against Ms Gulliver on 16 December 2020.
For completeness, although it is not directly relevant to the subject matter of these reasons, on 26 February 2021, Darke J entered judgment for the plaintiffs against Mr Gulliver, the second defendant in the debt proceedings, for the amounts claimed, including interest up to judgment and costs.
These reasons deal with the issue of the costs of both proceedings as between the plaintiffs and Ms Gulliver.
Ms Gulliver delivered written submissions on the costs issue on 21 December 2020 and the plaintiffs replied by written submissions dated 15 January 2021.
Ms Gulliver's submissions dealt with the basis on which the plaintiffs should be required to pay Ms Gulliver's costs of the caveat proceedings in accordance with the order made on 30 October 2020, and also the order for costs that should be made consequently upon the discontinuance of the debt proceedings against Ms Gulliver on 16 December 2020.
Ms Gulliver relied upon a Calderbank offer made by her in a letter dated 19 December 2019 from her solicitors to the plaintiffs' solicitors. Relying primarily on Ms Gulliver's 18 June 2019 affidavit, Ms Gulliver offered to settle the caveat proceedings on the basis that the caveat would be withdrawn by a specified date, the proceedings would be dismissed, and each party would pay its own costs of the proceedings. Ms Gulliver also offered to settle the debt proceedings on the basis that those proceedings would be dismissed against her, no order would be sought in respect of the Riverview property, and Ms Gulliver and the plaintiffs would pay their own costs of those proceedings.
The plaintiffs did not respond to Ms Gulliver's Calderbank offer, and the outcome of both proceedings has been as explained above.
Ms Gulliver submitted that the appropriate order for costs in both proceedings is that the plaintiffs pay Ms Gulliver's costs up to 20 December 2019 on the ordinary basis and thereafter on an indemnity basis.
Although Ms Gulliver's submissions appeared to be based upon her service of a Calderbank offer, in her statement of the costs orders that she sought, she referred to Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.15A, which is a rule dealing with the order for costs that may be made when an offer of compromise made under UCPR r 20.26 "is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer". Ms Gulliver's solicitor's 19 December 2019 letter did not comply with UCPR r 20.26(2)(d) in that it did not contain a statement to the effect that the offer was made in accordance with r 20.26. Accordingly, this application is to be determined on the basis that the letter was a Calderbank offer only.
The position adopted by the plaintiffs is that the order for costs in the caveat proceedings made on 30 October 2020 should stand as it is, so that the plaintiffs will be required to pay Ms Gulliver's costs on the ordinary basis. The plaintiffs submit in respect of the debt proceedings that there should be no order as to the costs of the discontinuance, with the intention that each party pay their own costs of the proceedings.
As to the appropriate costs order to be made in the debt proceedings, it is clear that, whatever other order is made, the orders set out above at [9] will stand, and to that extent the plaintiffs will be required to pay Ms Gulliver's costs on the indemnity basis. I think that upon the proper understanding of the plaintiffs' submissions they accept this outcome, and only seek an order that would have the effect that the parties had to pay their own costs in respect of the balance of the debt proceedings.
In respect of the discontinuance of the debt proceedings against Ms Gulliver, the plaintiffs rely upon UCPR r 42.19, which provides:
(1) This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1.
(2) Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued…
The plaintiffs properly accepted that, while UCPR r 42.19(2) does not give rise to a presumption that costs will be ordered against the discontinuing party, it does have the effect that such an order will be made unless there is a discretionary decision to order otherwise: Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [53] per Hodgson JA (Tobias and Basten JJA agreeing). As Hodgson JA said: "In my opinion it also means that there must be 'some positive ground or good reason for departing from the ordinary course' Australiawide Airlines at [54]."
The plaintiffs relied upon the statement of Hodgson JA at [57] that the Court should not make a finding on "… a question that could not be determined until the final hearing, which is precluded by the discontinuance".
The plaintiffs submitted that the discontinuance was made reasonably at a very early stage in the proceedings, whereby only a defence had been put on by Ms Gulliver, and her evidence was otherwise used in the caveat proceedings in which she has already received a costs order.
The plaintiffs relied upon the judgment of Tobias JA in Newcastle Wallsend Coal Co Pty Ltd v Industrial Relations Commission of New South Wales [2006] NSWCA 129 at [21] and [23], where his Honour noted that "where there has been no hearing on the merits the Court is necessarily deprived of the factor that usually determines whether or how it will make a cost order". Tobias JA set out the well-known observations made by McHugh J in Re the Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997] 186 CLR 622 at 624-625; [1997] HCA 6. As McHugh J explained, while the Court may make an order against the discontinuing party on the ground that the party has acted so unreasonably that the other party should obtain the costs of the action, and in other cases where the judge may feel confident one party was almost certain to have succeeded in the matter had it been fully tried, the proper order will usually be that there is no order as to the costs of the proceedings where both parties have acted reasonably in commencing and defending the proceedings. That is because the Court will not determine the outcome of the proceedings had the discontinuance not occurred, if that course will deprive the parties of the benefits of the discontinuance.
The plaintiffs also relied upon the argument that their decision to discontinue the debt proceedings against Ms Gulliver had given proper weight and respect to the reasoning of the Court in the primary judgment.
On the issue of whether the plaintiff should be ordered to pay Ms Gulliver's costs of the debt proceedings, I am not satisfied that the plaintiffs have established that this is a proper matter for the Court to exercise its discretion to make a costs order that departs from the usual effect of UCPR r 42.19.
In essence, as explained more fully in the primary judgment, the plaintiffs' claim against Ms Gulliver was that it had a charge over a proprietary interest to which Mr Gulliver was entitled in the Riverview property of which Ms Gulliver was the sole registered proprietor. The plaintiffs' prospects of success depended entirely upon their being able to establish that Ms Gulliver held the Riverview property on a constructive trust for Mr Gulliver. That is a claim that the plaintiffs would have to make out without any assistance from Mr Gulliver.
The evidence available to the plaintiffs established that Mr Gulliver had made some vague claims to be entitled to an interest in the Riverview property at the time he and his company borrowed money from the plaintiffs. The plaintiffs had not followed up those claims by requiring Mr Gulliver to provide reliable corroboration. The plaintiffs commenced the debt proceedings against Ms Gulliver without having any evidence available to them other than Mr Gulliver's vague claims. The plaintiffs continued to prosecute the debt proceedings against Ms Gulliver notwithstanding the evidence in her affidavit that there was no basis for a finding that she held the Riverview property on any form of constructive trust for Mr Gulliver. As noted at [76] of the primary judgment, over the period of more than 18 months since the caveat proceedings were commenced, the plaintiffs had taken no forensic steps to obtain any evidence that might establish the constructive trust that was fundamental to the plaintiffs' claim against Ms Gulliver.
In my view, the evidence available to the Court, which includes the evidence of the conduct and outcome of the caveat proceedings, demonstrates that the plaintiffs instituted the debt proceedings against Ms Gulliver on a very insubstantial foundation, they did nothing over the course of those proceedings that realistically improved their prospects of success, and they ultimately made a prudent decision to discontinue the claim against Ms Gulliver. That may be a sensible course for them to have taken, in order to cut their losses, but the circumstances do not justify the Court in depriving Ms Gulliver of the benefit of a costs order against the plaintiffs.
The question then becomes whether the Court should order the plaintiffs to pay Ms Gulliver's costs of both proceedings on the basis of their non-acceptance of the Calderbank offer made by Ms Gulliver on 19 December 2019.
The debt proceedings were commenced by statement of claim filed on 1 March 2019.The plaintiffs commenced the caveat proceedings by summons filed on 18 March 2019.
By her defence in the debt proceedings filed on 20 November 2019, Ms Gulliver denied the basis of any claim that Mr Gulliver had a proprietary interest in the Riverview property: see the primary judgment at [46].
Ms Gulliver gave her evidence by affidavit sworn on 20 June 2019: see the summary of that evidence at [48] to [55] of the primary judgment.
The effect of that evidence was that, although Ms Gulliver accepted that Mr Gulliver had made some financial contributions to the family from time to time, the Riverview property was purchased in Ms Gulliver's name with her money, and she serviced the mortgage on the property.
If at the end of any proceedings Ms Gulliver's sworn evidence stood, then the plaintiffs' claims against her in both the caveat and the debt proceedings would necessarily fail.
Notwithstanding the time that has elapsed, by the time of the hearing in the caveat proceedings, the plaintiffs had not taken any steps to make available to them any evidence that was capable of reasonably contradicting the evidence served by Ms Gulliver in defence of the claim against her.
It is in this context that it is necessary to consider the terms of the Calderbank offer made by Ms Gulliver in her solicitors' letter of 19 December 2019. That offer was made six months after the date Ms Gulliver's affidavit was sworn, so that the plaintiffs had had a considerable period in which to investigate and respond to Ms Gulliver's evidence.
That fact was noted in the Calderbank offer, which also noted that Ms Gulliver's evidence was at that stage unchallenged.
Ms Gulliver made the offer summarised above, to the effect that the caveat be withdrawn, each of the proceedings be dismissed, and each party would pay its own costs of the proceedings.
The plaintiffs' primary response was to submit that an offer that does no more than offer a capitulation or a 'walkaway' will not satisfy the Court that a genuine compromise has been offered, and the Court will not make an order for the payment of costs on the indemnity basis for failure by a party to accept a Calderbank offer unless the offer is considered to be a genuine compromise in all of the circumstances: Mega-Top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3, citing Taheri v Vitek (No 2) [2014] NSWCA 344 at [9]-[11].
The plaintiffs also relied upon the submission that Ms Gulliver has not demonstrated that the rejection of the Calderbank offer was unreasonable: Commonwealth of Australia v Gretton [2008] NSWCA 117 at [1], [44] and [117].
It is well-established that a Calderbank offer will not be effective unless it constitutes a genuine compromise that is reasonable in all of the circumstances as known to the parties.
In cases where there is some reasonably arguable basis for a plaintiff's claim, or a defence relied upon by a defendant, a Calderbank offer that requires the capitulation by one or other party in return for the offeror only agreeing to bear its own costs will usually not be regarded as a genuine compromise. What is genuine in the case of any particular offer will depend upon the circumstances, and often the stage in the course of the proceedings at which the offer is made will be a significant consideration.
However, each case must be decided on its own facts and it is not true to say that a Calderbank offer in which the offeror requires the dismissal of the case against it on the basis that the offeror will pay its own costs can never be a valid Calderbank offer.
The commencement of litigation against a party is likely to be an onerous imposition and can only be justified when the plaintiff has some reasonable evidentiary basis for making the claim. Prospective plaintiffs cannot be allowed to think that they can commence proceedings against a defendant, without any reasonable basis for making the claim, and then expect that they will not be at risk of an order that they pay the defendant's costs on the indemnity basis following the service of a Calderbank offer if the defendant does not offer to pay or meet some part of the plaintiff's claim. The costs principles applied by the Court do not mandate that defendants agree to pay what is sometimes called 'go away money'.
There will be cases where the basis that the plaintiff discloses for its claim is so insubstantial that an offer made, after disclosure of the defendant's evidence, will be considered to have a proper element of compromise even though all that the defendant offers is to pay its own costs.
As has been explained in the primary judgment, and as I have noted above, the plaintiffs commenced their proceedings against Ms Gulliver on the basis that Mr Gulliver made vague claims, at the time the plaintiffs made their loans, that he had an interest in the Riverview property. A search of the title to the property would have disclosed that Ms Gulliver was the sole registered proprietor. The plaintiffs apparently obtained a small number of documents that were consistent with Mr Gulliver having made odd payments as part of the family finances in the context of the family's occupation of the Riverview property as their residence. The plaintiffs made no enquiries of Ms Gulliver at the time. They did not do anything to substantiate that Mr Gulliver had any proprietary interest in the Riverview property.
If Mr Gulliver did have a proprietary interest in the Riverview property, it was in the nature of a constructive trust founded upon financial or other contributions made by Mr Gulliver to the acquisition or maintenance of the property. In the absence of Mr Gulliver as a witness to support the plaintiffs' claim, that claim could only be sustained by relatively comprehensive documentary evidence concerning the contributions allegedly made by Mr Gulliver.
There was no evidence that the plaintiffs took any steps, including by communication with Ms Gulliver, to determine, before they commenced their proceedings, that they had any evidentiary prospects of success. By the date of the Calderbank offer, and by the later date of the hearing of the caveat proceedings, the plaintiffs were in no better position.
The plaintiffs have not shown that at any time they had evidence available to them that gave them any prospects of success in their claim against Ms Gulliver, and they have definitely not shown that they had any reasonable prospects of success. The joinder of Ms Gulliver as a defendant to the debt proceedings and the prosecution of the caveat proceedings against her was no more than a speculative exercise.
In the particular circumstances of this case, I am satisfied that Ms Gulliver's offer to bear her own costs of both proceedings, as contained in her Calderbank offer dated 19 December 2019, was a genuine and reasonable compromise of a case against her that was as weak as the plaintiffs' case.
In rejecting the offer, and subjecting Ms Gulliver to the need to incur further legal costs, with the inevitable outcome that has finally occurred, the plaintiffs' conduct was so unreasonable as to justify the Court in making an order that the plaintiffs pay Ms Gulliver's costs of both proceedings on the indemnity basis from 20 December 2019.
Accordingly, the Court makes the following orders:
[3]
In the debt proceedings
1. Order the plaintiffs to pay the third defendant's costs on the ordinary basis up to 19 December 2019.
2. Order the plaintiffs to pay the third defendant's costs on the indemnity basis from 20 December 2019.
[4]
In the caveat proceedings
(3) Order the plaintiffs to pay the defendant's costs on the ordinary basis up to 19 December 2019.
(4) Order the plaintiffs to pay the defendant's costs on the indemnity basis from 20 December 2019.
[5]
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Decision last updated: 06 April 2021