Vintage Marine Art Pty Ltd v Robert Craig Henderson

The law on costs

1. The starting point is s 98 of the Civil Procedure Act 2005 (NSW).
2. It relevantly reads: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. …" [My emphasis]
3. Rules 42.1 and 42.15A of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") are also relevant. They read: "42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. … 42.15A Where offer not accepted and judgment no less favourable to defendant (1) This rule applies if the offer 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. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."

Indemnity costs

1. The general rule is that costs are payable on a party/party basis. A court should only depart from the general rule and award indemnity costs where the conduct of the party against whom the order is sought is plainly unreasonable: see Sydney City Council v Geftlick [2006] NSWCA 280 at [90] per Tobias JA, Mason P and Hodgson JA agreeing. Indemnity costs orders should be reserved for the most unreasonable action by unsuccessful plaintiff: see Leichhardt Municipal Council v Green [2004] NSWCA 341 per Santow JA (at [57]).
2. In Cat Media Pty Ltd v Allianz Australian Insurance Ltd [2006] NSWSC 790, Bergin J confirmed the relevant principles in relation to Calderbank offers by reference to Leichhardt Municipal Council stating that the costs consequences attendant under the general law upon an offer of compromise made in a Calderbank letter are in the court's discretion, to be exercised having regard to all of the relevant circumstances of the case. Firstly, there is not a prima facie presumption in favour of an award for indemnity costs if the Calderbank offer is not accepted and is not bettered; secondly, a Calderbank offer that has no real element of compromise in it, which is designed merely to trigger costs sanctions, will not be treated as a genuine offer of compromise; thirdly, there is no rule that an optimistic offer is not a genuine offer. Whether or not it was reasonable to reject an offer is a question that may figure in the discretionary balance, but it is not a question which affects the genuineness of the offer; and fourthly, an applicant for an order for indemnity costs consequent upon an unaccepted Calderbank offer must show that the rejection of the offer was unreasonable.
3. The question for the court is whether the offer was a genuine offer of compromise; and whether it was unreasonable for the defendants not to accept the offer: see also Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8].

The defendants' submissions

1. The defendants say that if the Calderbank letter was accepted, then it could be assumed that Vintage Marine Art NSW in fact have come up with $10,000 by 24 October 2015 and a further $25,000 two months prior to trial. It is unclear where Vintage Marine Art NSW could get these funds in light of the affidavit read in Court (see the financial position of Ms Dombosh as set out at J[48]). But despite being fully aware that it could come up with these funds, it proceeded to instruct its representatives to make the stultification submission to the Court.
2. The Calderbank letter was without prejudice, and the defendants could not tender it before the Court in the substantive application. But now that the Court has accepted the stultification argument (J[46], [48]) Vintage Marine Art NSW cannot have it both ways and rely on the letter to seek a costs order. The dilemma can be illustrated as follows: either the submission was true and the letter was false; or the letter was true and the submission was false.
3. The defendants say that Vintage Marine Art NSW ought not now be allowed to turn around and rely on this letter, in light of the way it elected to resist the application and costs ought not follow the event and an order be made in the defendants' favour.

Vintage Marine Art NSW's submissions

1. Vintage Marine Art NSW submitted that there simply no inconsistency of the kind referred to the defendants. Its submission that the proceedings would be stultified was made in circumstances where the defendants were seeking security in the sum of $100,000. I agree that I made a finding that the provision of security in the sum of $100,000 would stultify the proceedings (J [58]).
2. Vintage Marine Art NSW says that more importantly, the submission concerning stultification was made against the backdrop of evidence that its two directors had some assets/funds in particular, and that Ms Dombosch had access to funds from external sources, but it did not amount to much.
3. Paragraph 44 of Ms Antzoulatos' affidavit addressed the position of Ms Demarest. She had US$10,000 in bank accounts. In paragraph 45 Ms Antzoulatos deposed to being informed by Ms Demarest that she did not have the "capacity to financially support the plaintiff in respect of the security for costs sought by the defendants". Vintage Marine Art NSW submitted that these words are consistent with the submission made as to how the evidence should be read.
4. According to counsel for Vintage Marine Art NSW, it did not suggest that its two directors were destitute; but on the contrary Vintage Marine Art made plain that its legal costs were being paid and that Ms Dombosch had access to gifts from friends and family. There was no submission that those gifts had come to an end. The Court did not take the view that the directors were destitute, having regard to the order it made.
5. Any offer that attempts to settle an application for security for costs involves the application of intuitive guesswork. There are a wide range of discretionary considerations, and no prescriptive rules. Vintage Marine Art NSW was entitled to make what turned out to be a "high" offer against the possibility that the defendants might convince the Court to award a higher sum that might be beyond its capacity to pay. How Vintage Marine Art NSW might fund the amount it offered was a matter for it, having regard to the fact that the last (and greater) tranche would be paid well in the future and having regard to how its directors might prioritise their scarce resources over the time (perhaps in consultation with their legal advisers). The offer undoubtedly involved an element of risk, given Ms Dombosch's reliance on gifts from family and friends.

Ms Dombosch's undertaking

1. The defendants submitted that they resisted the application for security in part on the basis that Ms Dombosch offered an undertaking to the Court to submit to an order that she be personally liable for any costs order in favour of the defendants.
2. In my reasons for judgment, I took into account the fact that Ms Dombosch "has undertaken to be personally liable for any costs" (J[56]) but I did not require her to enter into such an undertaking.

Conclusion

1. It is my view that Vintage Marine Art NSW's offer was a genuine offer of compromise. It offered to provide security for costs in the total sum of $35,000 in two tranches. The defendants sought security for costs in the sum of $100,000. On the evidence of the two directors, Vintage Marine Art NSW was not in a financial position to provide security in the sum of $100,000; but Ms Dombosch's affidavit evidence showed that she had access to a modest sum of money.
2. In these circumstances it was unreasonable for the defendants to reject Vintage Marine NSW's Calderbank offer. The sum of $35,000 is greater than the sum of $10,000 I ultimately ordered to be provided as security for costs. I make an order that Vintage Marine Art NSW pay the defendants costs of the notice of motion filed 22 June 2015 up to 24 August 2015 on an ordinary basis. From the 25 August 2015, the defendants are to pay Vintage Marine Art NSW's costs of the notice of motion dated 22 June 2015 on an indemnity basis.

The Court orders that: (1) The plaintiff is to pay the defendants costs of the notice of motion filed 22 June 2015 up to 24 August 2015 on an ordinary basis. (2) The defendants are to pay the plaintiff's costs of the notice of motion dated 22 June 2015 from 25 August 2015 on an indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 November 2015