Xue v Karimbla Properties

Supreme Court of NSW|2023-07-07|Before: Henry J

JUDGMENT

On 25 May 2023, I gave judgment in this matter, dismissing the plaintiffs' claim and ordering the plaintiffs to pay the first and second defendants' costs on an ordinary basis unless a party sought a different costs order within 14 days: Xue v Karimbla Properties (No.45) Pty Ltd [2023] NSWSC 552.
These reasons deal with the defendants' application for indemnity costs from 8 February 2022, on the basis of a Calderbank offer. They assume familiarity with the judgment and adopt the same terms.
The defendants rely on written submissions filed 8 June 2023.
On 19 June 2023, a direction was made for the plaintiffs to file and serve written submissions and any affidavits in response to the defendants' application by 28 June 2023, and the parties were notified that the Court would determine the issue of costs on the papers.
No written submissions or evidence have been filed by the plaintiffs.
On 30 June 2023, my Chambers received an email from the plaintiffs' solicitor advising that the plaintiffs disagreed with the first and second defendants' application for a special costs order, they had filed a notice of intention to appeal and they wished for the defendants' costs application to be considered following the result of the appeal. By email sent from my Chambers to the parties that day, the plaintiffs' solicitor was notified that the application would be dealt with in accordance with the direction made (noting that the time for the plaintiffs to file and serve any written submissions and affidavits had been extended to 30 June 2023) and the filing of the notice of intention to appeal did not warrant deferral of the determination of the issue of costs at first instance.

Defendants' application

The basis on which the defendants seek a special costs order is their making of an offer contained in a letter dated 7 February 2022, a copy of which is annexed to their written submissions, which was non accepted by the plaintiffs.
The letter was sent from the Office of the General Counsel of Meriton Group, addressed to the solicitors for the plaintiffs and expressed to be "Without Prejudice Save as to Costs". It was sent 13 days after an unsuccessful Court ordered mediation which was held on 25 January 2022.
The letter contains an offer of settlement in the following terms: "a. The Plaintiffs to discontinue the proceedings as against the First and Second Defendants with no order as to costs. b. Subject to the terms below, the First and Second Defendants are to prepare a brief deed of settlement and release providing for an agreement as between the Plaintiffs and the First and Second Defendants to discontinue the proceedings as against the First and Second Defendants with no order as to costs (Deed), together with a notice of discontinuance of the proceedings as against the First and Second Defendant (Discontinuance), within 3 business days of acceptance of this offer by the Plaintiffs. c. The Plaintiffs to sign and return the Deed and the Discontinuance within 3 business days of receipt of same. d. The Deed is to provide the usual releases and indemnities to the Plaintiffs and the First and Second Defendants and that the parties bear their own costs of the proceedings. e. The Discontinuance shall make no order as to costs, with the intention that each party bears its own costs."
The offer was expressed to be open for a period of 28 days from the date of the letter, after which time it would lapse and would no longer be capable of acceptance, and it was said to be made in accordance with the principles enunciated in Calderbank v Calderbank [1976] Fam Law 93; [1975] 3 All ER 333 (Calderbank). The letter also stated that, if the offer was not accepted and the matter proceeded to hearing, then the defendants would rely upon it in relation to the question of costs.
The letter also sets out the defendants' contentions as to why they considered the plaintiffs' case to be "highly unmeritorious and ultimately doomed to fail", based on a review of the plaintiffs' evidence that had been served at that time. The following matters were referred to in support of that contention: the plaintiffs' evidence comprised "little more than bare assertions, self-serving opinions and inadmissible hearsay"; the lack of evidence that the plaintiffs sought to obtain financing elsewhere which, by Mr Xue's own evidence, was a condition placed by Mr Chen on Meriton providing finance; the objective evidence that established that the plaintiffs were offered vendor finance of 6% per annum which the plaintiffs refused; and the lack of explanation and clarity around the term "market rate", noting that the published interest rate for Meriton vendor finance at the time was 6% per annum and the rate offered by the major banks made little sense given Meriton is not a bank and never represented itself as one.
The offer was not accepted by the plaintiffs. According to the defendants' written submissions, their solicitor contacted the plaintiffs' solicitor to follow up on the offer and was informed that they would not accept it. No written response or counteroffer was subsequently received.

Consideration and determination

The principles applicable to the making of an order for costs are well established. The Court has a broad discretion as to costs under s 98 of the Civil Procedure Act 2005 (NSW) (CPA) and the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and can determine to what extent costs should be awarded and whether they are awarded on an ordinary or indemnity basis.
The Court's discretion must be exercised judicially and consistently with the overriding mandate provided for in ss 56-60 of the CPA, and with regard to the principle that the award of costs is compensatory in nature, not punitive: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [44], per Gaudron and Gummow JJ.
The usual rule is that costs follow the event unless it appears that some other order should be made as to part or all of the costs, and that costs are payable on an ordinary basis: UCPR, rr 42.1, 42.2.
The rejection of a Calderbank offer in circumstances where the final outcome is less favourable to the offeree than that contained in the offer may enliven the discretion to award indemnity costs but it does not create any prima facie right to such an order. To warrant making an indemnity costs order, a Calderbank offer must embody a genuine compromise and be shown by the party seeking to rely on it that it was unreasonable for the unsuccessful party not to accept it: Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 at [8] and [12]-[19], per Basten JA (with whom McColl and Campbell JJA agreed).
The factors relevant to whether the non-acceptance of a Calderbank offer was unreasonable include the stage of the proceedings at which the offer was received, the time allowed for acceptance, the extent of the compromise, the offeree's prospects of success assessed at the date of the offer and whether the offer foreshadowed an application for indemnity costs in the event of its rejection: Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 3) [2021] NSWCA 160 at [25], per Bell P, Macfarlan JA and Leeming JA.
The defendants submit that the plaintiffs' refusal to accept the offer was unreasonable on the basis that: "a. The Calderbank Offer clearly sets out the difficulties in the plaintiffs' case, including the deficiencies in Mr Xue's evidence as to what interest rate was offered to the plaintiffs to settle the purchase of the property. b. The plaintiffs were afforded 28 days to accept the offer. No written response was received and Meriton's lawyer contacted the plaintiffs' lawyer by telephone following the expiry of the Calderbank Offer, which confirmed that it would not be accepted. c. The offer was compelling and required compromise on the part of Meriton and given the plaintiffs had received a monetary settlement from the third defendant, VSTAR Lawyers for $55,000, their compromise was substantially less than envisaged at that point in time. d. The Calderbank offer was clear and unambiguous and stated Meriton's intention to seek its costs from the date of the offer to be awarded on an indemnity basis."
In this case, the basis of the defendants' offer to settle was that the proceedings be discontinued with no order as to costs. It was a "walk away offer" that only involved a compromise to the extent of the costs of the proceedings.
A "walk away offer" of the kind relied on by the defendants is capable of engaging the principles in Calderbank, provided that it involves a significant element of compromise, such as where the costs incurred could be seen as objectively substantial, for example, in light of the volume of affidavit evidence prepared or other interlocutory steps: Taheri v Vitek (No 2) [2014] NSWCA 344 at [9]-[14], per Bathurst CJ, Emmett and Leeming JJA.
There is no evidence of the actual costs incurred by the defendants at the time the offer was made, although the defendants' written submissions refer to an amount of approximately $20,000 that they had incurred as at the date of the mediation. That amount is to be considered in circumstances where: the plaintiffs' monetary claim was for a return of a deposit of $87,300 and unspecified damages (which were not sought at the hearing); the defendants were represented by Meriton's in-house counsel and not by external solicitors; at the time the offer was made, the proceedings were well advanced and the parties had attended a mediation; and on 10 December 2021, the proceedings were listed for hearing with an estimate of five days commencing on 12 September 2022, at which the defendants were represented by Senior Counsel. As recorded in the judgment, the plaintiffs also settled with the third defendant for $55,000 (inclusive of costs). Considered in that context, I am satisfied that the offer involved a real and genuine element of compromise on the part of the defendants and was not made simply as an invitation to capitulate or to trigger costs sanctions.
As to prospects of success, the issues with the plaintiffs' case that were raised by the defendants in their letter dated 7 February 2022 referred to matters that were not dissimilar to the issues with the plaintiffs' case that were referred to in the judgment. Although Mr Xue's first affidavit was not rejected as inadmissible, it did not comply with r 31.62 of the UCPR and the Court rejected key aspects of Mr Xue's evidence having regard to, amongst other things, the contemporaneous documents, the evidence of Mr Chen and Mr Kang and the unreliability of Mr Xue's evidence. The plaintiffs' claim was dismissed as a consequence of the Court's finding that the alleged Vendor Finance Representations had not been made. However, the judgment records that there were other issues with the plaintiffs' case based on their reliance on the term "market rate" as well as their failure to establish causation in circumstances where they had been offered vendor finance at a 6% interest rate (subject to an application being made), chose to reject that offer and sought a rate of 3.5% that was below all of the bank rates at that time. In my view, the legal and factual questions for determination were sufficiently certain at the time the offer was made for the plaintiffs to have undertaken a reasonable assessment and identified the weaknesses of their case.
As to the other factors relevant to the non-acceptance of a Calderbank offer, the offer clearly stated that it was made in accordance with the well-known principles in Calderbank and would be relied on by the defendants on the question of costs. The time allowed for the plaintiffs to consider the offer, being 28 days, was a sufficient opportunity for them to consider and respond given that the offer was made after the pleadings had been closed, the evidence had been exchanged and the parties had attended a Court ordered mediation.
Taking into account all of the above factors, I consider that it was unreasonable for the plaintiffs to have declined to accept the defendants' offer.
For these reasons, I make the following orders: 1. Order 2 of the orders made on 25 May 2023 be varied to provide that the plaintiffs pay the first and second defendants' costs of the proceedings: 1. from 23 September 2020 to 7 February 2022, on an ordinary basis; and 2. from 8 February 2022 thereafter, 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: 07 July 2023

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