Solicitors:
Ronayne Owen Lawyers (first and second plaintiffs/ cross-defendants on the first cross-claim/ cross-claimants on the second cross-claim)
Keystone Lawyers (defendant/ cross-claimant on the first cross-claim)
F Harris (third cross-defendant on the first cross-claim/ first cross-defendant on the second cross-claim)
File Number(s): 2020/216914
[2]
Judgment
The Court published its principal judgment in these proceedings on 3 November 2021: Wassell v Ken Carr Bobcat & Tipper Hire Pty Ltd [2021] NSWSC 1415.
The Court dismissed the plaintiffs' claim and directed the parties to provide appropriate short minutes of order to give effect to the reasons in the principal judgment.
Orders were made on 11 November 2021 in accordance with short minutes of order agreed between the parties. By order 9, the Court ordered the plaintiffs to pay the defendant's costs of the proceeding including its cross claim as agreed or assessed. By order 10, directions were made in respect of the defendant's application for the plaintiffs to pay its costs of the proceeding on an indemnity basis.
In accordance with the directions, the defendant filed submissions on 17 November 2021 and the plaintiffs replied on 26 November 2021.
The basis of the application that the costs payable by the plaintiffs be assessed on the indemnity basis was the failure by the plaintiffs to accept a Calderbank offer made in a letter dated 11 June 2021 by the defendant's solicitors to the plaintiffs' solicitors.
Paragraph 2 of the letter drew the plaintiffs' attention to the decision of the Court of Appeal in CEG Direct Securities Pty Ltd v Wang [2021] NSWCA 76 (CEG Direct Securities). The letter observed: "Given this decision, we consider our client will succeed in the current proceedings."
CEG Direct Securities was considered at [42]-[56] and [189], [190] and [225] of the principal judgment.
The defendant's solicitors made the following offer in par 3 of their letter:
In the interest of avoiding further legal expenses we are instructed to make the following offer to settle the matter:
a. The Statement of Claim is dismissed;
b. Judgment on our client's Statement of Cross-Claim such that there is a declaration the Mortgage, Security Interest, Guarantee & Indemnity and Loan Agreement are unenforceable. Our client's claim against the Registrar General is dismissed;
c. Each party pays its own costs;
d. Your clients indemnify our client from any costs order payable to the Registrar General; and
e. Your client can continue with its cross-claim against the Registrar General.
The plaintiffs did not accept the defendant's Calderbank offer.
The only element of compromise in this offer was that the defendant would pay its own costs. The letter advised that the defendant's legal costs exceeded $60,000 including GST.
I accept the defendant's submission made in support of its application that, as identified by Basten JA in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344, there are two questions relevant to whether a party who does not accept a Calderbank offer should be ordered to pay the other party's costs on the indemnity basis, if that party achieves a better result in the proceedings than what was offered. Those questions are (a) whether there was a genuine offer of compromise, and (b) whether it was unreasonable for the offeree not to accept it.
In acknowledgement that the Calderbank offer was what is sometimes called a 'walk away' offer, the defendant relied upon the following authorities as to when such an offer involves a real and genuine compromise: Taheri v Vitek (No 2) [2014] NSWCA 344; Fabre v Lui (No 2) [2015] NSWCA 312; and South Western Sydney Local Health District v Gould (No 2) [2018] NSWCA 160.
It will be sufficient to set out the following extract from the judgment of the Court of Appeal in the first of those decisions:
[9] However, as the appellant's submissions point out, the offers made on 17 July and 10 December 2013 in large measure invited capitulation by the appellants in each appeal. There is no evidence before the Court as to the costs incurred by the respondents at those times (some three weeks after the commencement of the first appeal, and seven days after the commencement of the second appeal). It would be expected that virtually no costs would have been incurred by those times.
[10] In our view, it would not be appropriate for the non-acceptance of either of those offers to lead to the consequences for which Pt 42, r 42.15 provides. The only measure of compromise involved on the part of the respondents was not to seek their costs which could not, by that stage, have been significant: cf Botany Bay City Council v Latham (No 2) [2013] NSWCA 450 at [12] (Adamson J, Ward and Leeming JJA agreeing). If that were not so, then the rule could be engaged by a defendant (or a respondent to an appeal) early in the litigation making a "walk-away" offer of compromise; that would not serve the public policy of encouraging settlement.
[11] For the same reasons, if the correspondence of 17 July and 10 December 2013 be treated in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333, the same result obtains.
[12] The position is different in relation to the final offer of compromise, which was served under cover of a letter dated 2 May 2014. By then, there had been an exchange of written submissions on each appeal. The offer of compromise was that in each appeal there be "judgment in favour of the respondents" with no order as to costs. Those offers were open for acceptance for 14 days, until 16 May 2014. Moreover, the letter stated that the respondents' costs on a solicitor/client basis in both appeals, excluding fees of senior counsel, were approximately $120,000. The letter said "accordingly, the compromise proposed in the offer of compromise is very generous".
[13] It is not possible, on the materials available to this Court, to determine whether the costs recoverable on assessment incurred by the respondents are $120,000 or anything approaching that amount (which seems extraordinarily high). However, by that time, the respondents had undoubtedly incurred substantial costs and the appellant was well aware of the nature of the submissions the respondents would be making on the appeals. It was correct to say that this final offer of compromise involved a significant element of compromise, and it was unreasonable for the appellant not to accept it.
[14] Accordingly, the respondents are entitled to have their costs on an indemnity basis, in each appeal, from 2 May 2014 onwards.
The Calderbank offer was made after all of the evidence in the proceedings had been served. Consequently, the plaintiffs should have been apprised of all of the forensic issues in the matter. It is likely that the defendant would have been allowed a substantial proportion of the $60,000 in costs that it was said to have incurred on an assessment.
An offer by a defendant in these circumstances to forego an amount of costs in the order of $60,000, when the amount of the plaintiffs' claim was for little more than $185,000, is capable of being a genuine offer of compromise. However, where the Calderbank offer is a 'walk away' offer, it is difficult to separate a consideration of the strength of the defendant's case from the issue of whether a real compromise was offered.
It may therefore be more realistic to deal with the defendant's application first from the perspective of whether or not it was reasonable for the plaintiffs to have rejected the offer.
I consider that, in the circumstances of this case, it was reasonable for the plaintiffs to have rejected the defendant's offer, and that the plaintiff's prospects of success were sufficiently great that a real or genuine compromise would have required that the defendant offer to pay the plaintiffs a relatively considerable proportion of the amount of their claim. In short, by reason of the relationship between the strength of the plaintiffs' case and the need for there to be a real compromise, I do not accept that this is a case where the plaintiffs' failure to accept a 'walk away' offer is a justification for ordering them to pay the defendant's costs on the indemnity basis.
As a general matter, I consider that this case raised genuinely contestable issues on both sides and that the likely outcome was reasonably evenly balanced. I think that appears reasonably obvious from the process of reasoning contained in the judgment.
I do not accept that the plaintiffs' case was doomed to fail by the reasoning in CEG Direct Securities. As appears from [225] of the principal judgment, there was a proper argument available to the plaintiffs that the loan agreement contained terms that overcame the effect of the conclusion reached by the Court of Appeal that although the mortgage was indefeasible it secured nothing. The fact that I did not ultimately accept the plaintiffs' submission does not have the retrospective effect that it was never reasonably arguable.
More significantly, however, I consider that this is a case where the plaintiffs were always entitled to test the evidence of the defendant's principals in cross-examination. This is a case where all parties were innocent, and every person involved succumbed to the deceit of the fraudster. It is clear that the defendant's principals were naive and relatively easily persuaded by the fraudster. It was ultimately crucial to the defendant's success that I accepted the principals' evidence, even though more sophisticated persons would have been unlikely to be deceived by the fraudster's relatively conspicuous machinations. If I had found that the principals had been aware of or turned a blind eye to the fraudster's conduct, the plaintiffs' case may well have succeeded.
Consequently, the order of the Court is: The costs of the defendant that the plaintiffs were ordered to pay by order 9 made on 11 November 2021 are to be assessed on the ordinary basis.
[3]
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: 13 December 2021