Ying v Song [2011] NSWSC 618 | Case summary

Ying v Song [2011] NSWSC 618 | Case summary | Zoe

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JUDGMENT 1HER HONOUR : On 22 December 2010, I handed down my reasons for judgment in these proceedings. I found in favour of the defendants and dismissed the plaintiff's claim. I indicated that I would hear submissions as to costs at a time convenient to Counsel. As it transpired, orders in relation to the costs of the proceedings as between the parties were not the subject of submissions until 10 June 2011. The delay arose because, following the judgment, the defendants indicated that they wished to make a particular application in relation to the costs of the proceedings. To that end, after some delay, they filed a Notice of Motion dated 1 April 2011 seeking indemnity costs orders not only against the plaintiff (Ming Ying) but also against the solicitor and barrister who appeared for Mr Ying in the proceedings before me, Mr Chan and Ms Winfield. Those lawyers are the second and third respondents and are separately represented on the motion. 2At a directions hearing prior to the hearing of the motion on 10 June 2011, Counsel appearing for the second and third respondents (respectively, Mr Downing and Mr Elliott) submitted that the hearing of the application for personal (indemnity) costs orders against their clients should be deferred until after the hearing of an appeal that I am told has been filed in respect of the judgment I handed down on the substantive disputes between Mr Ying and the defendants. It was said that this was appropriate since the legal representatives might wish, on the hearing of the costs applications against them, to put in evidence matters the subject of legal professional privilege (that privilege reposing in their client Mr Ying), the disclosure of which would be possible only if there was a waiver of privilege (which might be unlikely prior to the hearing of the appeal) and thus the legal representatives might be hindered in their ability to conduct their defence to the current costs application. I considered there to be some force in that submission. (It was also suggested by Mr Downing that a successful appeal would obviate the need for the present costs application. I make no comment on that submission.) 3Counsel for the defendants (Mr Lawson) indicated that in the interests of having orders made as to costs prior to the hearing of the appeal (which it seemed to me would be desirable in order to avoid a multiplicity of proceedings, in the event that the plaintiff were also to appeal whatever costs orders might now be made), the application for indemnity costs would be pressed at this stage only on the basis of the various settlement offers that had been made in relation to the proceedings. That said, Mr Lawson not unreasonably wished to reserve to the defendants the potential to make a further application for costs, on the same basis as will be the subject of their costs applications against the legal representatives, should the defendants' cost position not otherwise be adequately met by the costs order that is made at the conclusion of this application. Mr Lawson indicated that any such application would not be pressed until after the determination of the appeal. It could then be heard together with the costs applications against the legal representatives. It seemed to me that this was the course most consistent with the statutory objectives of s 56 of the Civil Procedure Act 2005 (NSW) and I proceeded accordingly. 4In those circumstances, on 10 June 2011 I heard the application for costs only as against Mr Ying and the only orders then sought by the defendants were orders 1, 4 and 5 as set out in their Notice of Motion (those broadly being as to the indemnity costs claimed against Mr Ying and an order for the payment of interest on moneys already disbursed by way of the costs of the proceedings) with the balance of the motion being stood over for hearing at a later date. 5The two issues now for determination, therefore, are whether Mr Ying should pay the defendants' costs of the proceedings on an indemnity basis (it not being contended that there should not at least be a costs order on a party/party basis in accordance with the general rule that costs should follow the event) and whether Mr Ying should pay interest (and if so on what basis) on the costs paid by the defendants in the course of the proceedings. Background 6The background to this matter is set out in my reasons for judgment published on 22 December last year and I do not repeat that here, save to note that the proceedings involved a dispute between former family members over shares in the second defendant, Budget Scaffold Supplies Pty Ltd ("BSS") and in respect of amounts recorded at one stage in the financial records of BSS as a shareholder loan from Mr Ying to the company. 7When the proceedings were initially commenced, in July 2006, the sole defendant was the first defendant (Lida Song), who is Mr Ying's former brother-in-law, and the sole relief claimed related to the transfer of the BSS shares into Mr Song's name. A declaration was sought that Mr Song held those shares on trust for Mr Ying. (The nature of the trust was not identified.) Mr Ying also sought an order that Mr Song account to him for all benefits received from BSS in Mr Song's capacity as holder of the 25 shares and that he do all things necessary to transfer the shares back to Mr Ying. 8Subsequently, in September 2007, the summons was amended to join BSS as the second defendant and additional relief was sought both against the company and against Mr Song (as summarised at [30], [36]-[38] of my principal reasons). Relevantly, in the context of one of the submissions made in the present application, this amendment was made (and BSS joined as a party to the proceedings) at a time after the making in August 2006 of the first of the Calderbank offers to which I was taken on the present application. 9In the proceedings, as they were constituted by the time of the hearing before me, Mr Ying sought declaratory relief in relation to 25 shares in BSS (those being shares that had been transferred to Mr Ying by Mr Song and later, at Mr Song's instigation and without Mr Ying's consent, transferred back to Mr Song) and in relation to certain sums that Mr Ying said he had paid to the company ($106,000 allegedly paid to the company in connection with the acquisition of the BSS shares and another amount of some $30,775 said to have been advanced as a loan to the company). Mr Ying contended that Mr Song held the 25 BSS shares on trust for him and, further, that BSS held the sum of $116,800 on constructive trust for him. Mr Ying also sought an order for the taking of accounts and an enquiry as to the dealings and transactions by or in relation to BSS. 10According to Mr Song, whose evidence I accepted in relation to the transactions in question as more credible than that of Mr Ying, the BSS shares were only transferred to Mr Ying (and the company's records only recorded the particular sums in question as shareholder loans by Mr Ying) as part of an attempt to present a false impression of Mr Ying's assets in Australia to the Department of Immigration so as to assist in Mr Ying's attempt to obtain permanent residency in Australia. (I indicated at the time I handed down my reasons last year that I wished to hear submissions as to why I should not refer the matter so disclosed on the evidence before me to the immigration authorities. Mr Song has, however, since then disclosed these matters of his own volition and in evidence before me on this occasion was correspondence from the Department of Immigration confirming that Mr Song has made such disclosure and advising that it does not propose to take any action at this stage. Therefore it is not necessary or appropriate for me to take any further steps in that regard.) 11As noted in my principal reasons for judgment, a difficulty throughout the hearing was the imprecision as to the basis on which it was alleged that Mr Ying was entitled to some of the relief sought in these proceedings. It was only in the course of closing submissions, for example, that it was asserted that Mr Song owed fiduciary obligations to his former brother-in-law (as a 'self-appointed' fiduciary) and that the circumstances in which the BSS shares came to be registered in Mr Song's name gave rise to a constructive (or resulting) trust by analogy with cases such as Black v S Freedman & Company [1910] HCA 58; (1910) 12 CLR 105. It was then also submitted that a Quistclose trust had arisen. 12In effect, what Mr Ying seemed ultimately to be asserting was an entitlement both to the shares and to recover the $106,000 that he says he paid (but that his Counsel said that he did by way of a loan to BSS) to acquire those shares. 13At [53] of my principal reasons I expressed the view that the explanation given by Mr Ying in the witness box was suggestive of the case, as ultimately put, being one fashioned to meet the relief sought rather than by reference to the underlying facts of the case. In other words, the suggestion that there was a loan to the company seemed to be put on the basis of an assumption that it should be treated as a loan if Mr Ying did not receive back what he says he paid to acquire the shares. 14For the reasons I outlined in my principal judgment, I held that Mr Song did not hold his 25 BSS shares on trust for Mr Ying (constructive or otherwise); that BSS did not hold any moneys on constructive trust for Mr Ying; and that the evidence did not establish that there was a loan to BSS in relation to the $106,000 cheque that had been provided to it. I further noted (at [290]) my view that the claim against BSS (for a trust over funds said to have been repayable by it as a loan or to account for the use or benefit of what was said to have been a loan to it) was misconceived from the outset. (This is relevant when considering the reasonableness of the rejection of settlement offers made by BSS.) 15With that background in mind, I turn to the issues now before me for determination. At the outset, I note that generally there is said to be a broad discretion as to the making of costs orders, as recognised in Oshlack v Richmond River Council (1998) 193 CLR 72. (i) Basis on which costs should be ordered 16As noted above, the claim for an indemnity costs order is made (at this stage) in reliance on a series of settlement offers, only one of which purported to be an offer of compromise under the Rules. Offers of Compromise 17Under the Uniform Civil Procedure Rul es (Rule 42.15) if a valid offer of compromise is made by a defendant (and not accepted), then (unless the Court otherwise orders) if the final judgment is not less favourable to the plaintiff, the defendant is entitled to a costs order on an indemnity basis from the day following the day on which the offer was made (in this case that would be 11 August 2006). This may involve a balancing, as well as an arithmetical, exercise depending on the terms of the offer of compromise. 18In Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at [725], the Court of Appeal said that the special costs rules were expected to apply "in the ordinary case". In Morgan v Johnson (1998) 44 NSWLR 578 (at [581] -[582]), it was said that the Rules confer a "prima facie" entitlement to special costs orders in those circumstances. Other cases say that "compelling" or "exceptional" circumstances would be required to justify a departure from the special costs rules ( Hillier v Sheather (1995) 36 NSWLR 414 (at 422B-E) per Kirby P; South Eastern Area Health Service v King [2006] NSWCA 2 at [83] per Hunt AJA; and Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 at [35]-[37] per Basten JA and see discussion in Ritchie's Commentary at [20.27.15]). In Rosebanner Pty Ltd v Ausgrid [2011] NSWCA 150, the Court of Appeal recently confirmed that the rationale of the rules in relation to offers of compromise, as described in Morgan v Johnson , has significant force. 19There are particular requirements with which an offer of compromise must comply in order to bring the matter within the operation of the special costs rules. Relevantly, for present purposes, Rule 20.26(2) provides that an offer must be exclusive of costs "except where it states that it is a verdict for the defendant and that the parties are to bear their own costs". The relevance of this in the present case is that, although the offer of compromise on which the defendants now rely was not expressed to be "inclusive" of costs, it was an offer that required the plaintiff to agree to entry of a verdict in the defendants' favour but not on the basis that the parties bear their own costs (instead, on a less favourable basis to the plaintiff, namely that he pay a percentage of the defendants' costs). 20In Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194, Ipp JA emphasised that an offer that did not comply with the then equivalent provisions in the Supreme Court Rules (because it was expressed to be inclusive of the costs of the proceedings) was not invalid, "it merely has no effect under the Uniform Civil Procedure Rules" [24], applying the reasoning in Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349. His Honour went on to note that an offer of compromise to which effect could not be given for the reason that it was expressed to be inclusive of costs might nevertheless take effect as a Calderbank offer. 21At [27] his Honour said: Calderbank offers are simply offers that do not comply with the relevant rules of court relating to the making of offers of compromise: Jones v Bradley (No 2) (at [5]). Whether an offer, intended to be an offer under the Uniform Civil Procedure Rules but which is ineffective because it does not comply with those Rules, operates as a Calderbank offer, depends upon the intention of the offeror as revealed by the terms of the offer. The offer may disclose an intention that it should take effect only if it complies with the Uniform Civil Procedure Rules. On the other hand, it may disclose a general intent to make an offer, irrespective of whether it takes effect under the Uniform Civil Procedure Rules or not. (my emphasis) 22In the Salvation Army case, the offer of compromise expressly provided that if it was ineffective under the Uniform Civil Procedure Rules (there contemplated because of the possibility that different Rules might be said to apply in probate proceedings) then the offer was to be treated as a Calderbank offer. His Honour considered that the offer reflected an overriding intent that, irrespective of its application under the relevant Rules that might apply to it, it should take effect as a Calderbank offer and said "In my opinion, the offer of compromise was capable of being accepted by the appellant on the basis that it was an informal Calderbank offer and should be regarded as such an offer". 23The offer must involve "a real and genuine element of compromise" ( Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; Leichhardt Municipal Council v Green [2004] NSWCA 341). 24In the present case, this gives rise to the question whether the offer of compromise (requiring, as it does, a capitulation to the defendants' position, by way of a verdict in their favour, and the payment of a substantial portion of their costs) involves a real and genuine element of compromise. Where an offer is in substance a demand for payment of the full amount claimed, or a formal offer "designed simply to trigger the entitlement to indemnity costs", or requires dismissal of the claim, then the necessary element of compromise may be said to be lacking (see Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at [355]; Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at [368]; Shorten v David Hurst Constructions Pty Ltd [2008] NSWSC 609 at [6]). 25To the extent that Rule 20.26(2) expressly contemplates that a defendant may issue an offer of compromise providing for a verdict in its favour on a 'walkaway' basis (i.e., on the basis that each party bear its own costs), then this would seem to involve a recognition that such an offer involves an acceptable level of compromise. What is less clear is that an offer of compromise that provides for a verdict in other (less favourable) circumstances will do so. Calderbank offers 26The position in relation to offers expressed to be without prejudice except as to costs (and relied upon as being in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586) differs in that the party seeking to rely on the offer must establish both that it represents a genuine compromise of the dispute and that it was unreasonable for the offeree to reject it. It is recognised that the making of a Calderbank offer is one of the circumstances in which the court may exercise its discretion under Rule 42.1 to make some order other than that costs should follow the event but that it does not automatically follow that simply because the offer was more favourable than the judgment then an indemnity costs order will be made. 27In Commonwealth of Australia v Gretton [2008] NSWCA 117, Beazley JA noted the public policy considerations that underpin the making of favourable costs orders where a Calderbank offer has been made, (at [41]) those being the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants. Her Honour noted that the making of a Calderbank offer does not automatically result in a favourable costs order, notwithstanding that the judgment is more favourable to the party making the offer than the terms of the offer, referring to what was said by Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37], to the effect that the question is whether in all the circumstances the failure to accept the offer "warrants departure from the ordinary rule as to costs". The onus is on the party making a Calderbank offer to satisfy the court that it should exercise the costs discretion in its favour ( Evans Shire Council v Richardson (No 2) [2006] NSWCA 61). 28In Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790, Bergin J (as her Honour then was), summarising the relevant principles to be gleaned from the Court of Appeal decision i n Leichhardt noted that the discretion as to the cost consequences attendant under the general law upon an offer of compromise made in a Calderbank letter is to be exercised having regard to all of the relevant circumstances of the case. Her Honour observed not only that 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 but also that "there is no rule that an optimistic offer is not a genuine offer". 29Relevantly, in Cat Media , her Honour accepted that the offer there made by the defendant was a genuine offer of compromise (although describing it as a 'borderline' case), where the offer represented a payment that would have covered only a portion of the plaintiff's costs incurred up to that time. Her Honour noted that, in submissions, the plaintiff had argued that the offer was, in reality, no more than an invitation to capitulate and had relied upon what was said by Bryson JA in Leichhardt at [59]: The respondent's case did not succeed but it was not a case which could not reasonably be argued ... The only element of compromise in the offer was as to costs: otherwise it was a call on the respondent to capitulate and give up: the element of compromise was slight and the respondent's ultimate lack of success does not to my mind demonstrate that the reasonable course for the respondent was to capitulate, nor does anything show that the respondent was delinquent with going on with the trial or in resisting the appeal. 30Her Honour (in considering that submission, and the defendant's submission in response that Santow JA in the same case had recognised that a 'walkaway' offer could, in a particular case, be a genuine offer, as could an offer which allowed only a small discount from 100% success be genuine and realistic depending on the circumstances of the case) noted (at [15]) that: An offer to pay only a portion of the plaintiff's costs at such a late stage of the proceedings may well present as equivalent to a requirement that the plaintiff capitulate. I am of the view that it is a borderline case but on balance, the fact that the defendant was willing at that time to give up - or compromise - what it saw as its strong position and pay $100,000 to the plaintiff persuades me that the offer was a genuine offer of compromise. 31In Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322, it was suggested that unless a Calderbank or informal offer of compromise involved some direct inconsistency with the formal "offer of compromise" rules, the content and terms of such an offer would be of relevance to the exercise of the costs discretion (at [133]-[135]). 32There is a question as to the consequences which should flow from the making of an "inclusive of costs" Calderbank letter, in circumstances where the offer of compromise rules provide for offers to be made on an exclusive of costs basis. 33In Elite , McColl JA noted the line of authority, commencing with Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97, to the effect that a Calderbank letter expressed to be inclusive of costs will not warrant departure from the usual basis upon which a successful party's costs are calculated. 34In Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (Formerly GIO Insurance Ltd) and Ors [2006] NSWSC 583, Einstein J, in a passage noted by her Honour in Elite , said at [40]-[41]: It has been held that a Calderbank letter which is expressed to be 'inclusive of costs', is insufficiently precise to qualify as a Calderbank offer, for the reason that the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim and the costs incurred in advancing it: Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102; Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Pty Ltd) [1998] 1429 FCA 11, BC9805993 (Smallacombe Pty Ltd v Lockyer Investments Co Pty Ltd was referred to by Young J in Rosser v Maritime Services Board of New South Wales (No 3) (unreported, Supreme Court of New South Wales, 25 November 1997, Young J, BC9706221). These authorities recognise the importance of isolating the costs component in such a way which is clear and capable of proper assessment independently of the principal claim, as part of a Calderbank letter. 35McColl JA noted (at [101]) that Campbell J (as his Honour then was) had made the same point in White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 910 (in a case where the Calderbank offer had encompassed an amount both for damages and costs). Her Honour then considered Victorian authority where it had been held that a Calderbank letter could be expressed to be on an all-inclusive basis ( M T Associates Pty Ltd v Aqua-Max Pty Ltd & Anor [2000] VSC 163 per Gillard J, observing that many cases were settled on an "all in" basis and "[t]here is little difficulty in making an assessment of the likely amount of the claim and costs"). 36Her Honour noted (at [103]) that in an ex tempore judgment in DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1251; (2004) 51 ACSR 555 (at [12]-[13]), Allsop J (as his Honour then was) had referred to Smallacombe, Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Pty Ltd) [1998] FCA 1429 (Unreported Judgment of the Federal Court of Australia, Moore J, 11 November 1998) and Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602, and did not regard Smallacombe as having articulated "a definitive rule that in an application for costs, an offer that was an all inclusive sum could not, in any circumstances, be taken into account by a Court in considering whether thereafter indemnity costs should be awarded". 37There is, of course, a distinction between a finding that an inclusive offer in a particular case does not enable a determination as to whether proceedings are more or less favourable than the offer (as was the difficulty in Associated Confectionery ) on the one hand, and a conclusion that a costs inclusive offer can never be treated as giving rise to a special costs order on the other hand. 38After considering the divergent lines of authority, McColl JA came to the following conclusion (from [111]): The Smallacombe line of authority has been developed by experienced trial judges whose views, in my opinion, should be accorded great weight. The underlying premise of such cases rests in the proposition that an offeree cannot be said to have acted unreasonably in not accepting an offer expressed to be inclusive of costs, because the offeree does not have an adequate opportunity to consider the offer and because of the difficulties posed when a court comes to consider the reasonableness of the offeree's conduct in rejecting/not accepting it. In other words such an offer presents practical difficulties. (my emphasis) First, the recipient of such an offer would not know the likely party and party costs to date on taxation or assessment: see Smallacombe (at 102); Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2). Secondly, in considering the reasonableness of the offer at the time the question of its costs consequences arose, it would be necessary to indulge in a taxation, or assessment, of costs: Associated Confectionery (at 351). The Court should not be required to postpone the decision as to the basis upon which costs should be awarded while awaiting the outcome of that exercise. Nor should it be required either to speculate as to what the outcome of an assessment might be, nor arbitrate on a dispute between the parties on this topic. In Smallacombe (at 102) Spender J opined that "all-in" offers "would not promote the finality of litigation, but fragment it", a proposition implicitly recognised by Cole J (as his Honour then was) in W Jeffreys Holdings Pty Ltd v Appleyard and Associates (1990) 10 BCL 298 when he said "[g]reat difficulty is encountered if offers are framed in Calderbank letters on an inclusive of costs basis. It leads to ex post facto and unsubstantiated estimates of what costs may have been at a given date". 39McColl JA expressed concurrence with the view expressed by Allsop J, as his Honour then was in DSE Holdings , (at [115]) that: ... I agree with Allsop J that Smallacombe does not lay down a "definitive rule" that an "all-in" Calderbank offer can never be considered on the question of indemnity costs. The Court cannot fetter the s 98 discretion by legal rules: Oshlack (at [35]). Smallacombe does, however, afford guidance as to the exercise of the s 98(1) discretion. It informs the question of the reasonableness of an offeree's refusal to accept an "all-in" offer. In my view it has a sound practical basis. While I accept each case should be considered on its facts, Smallacombe provides sound reasons to discourage offerors from drafting Calderbank letters on an "all-in" basis. 40I note that her Honour said that, even had the offer not been inclusive of costs, her prima facie view would have been that it did not, in the circumstances in which it was made, attract an indemnity costs order because it was open for acceptance for only one week at a time when there was no imminent trial and the respondent's solicitors forwarded under cover of the same letter a quantity of economic loss material which it would have been necessary for the appellant's solicitors to assess. In noting the longer time period within which equivalent offers of compromise were required to be open, her Honour said (at [117]) "Prima facie, I see no reason why litigants who choose not to avail themselves of the rules as to Offers of Compromise should be in a better position than those who do, if they radically foreshorten the period in which an offer is open for consideration". 41Insofar as the reasonableness of a party's rejection of an inclusive of costs Calderbank offer is referable to the difficulty the recipient has in determining the likely costs at the relevant time, the time at which such an offer has been made seems to me to be relevant. It was said, for example, in Elite at [143] - [144] per Basten JA that: If a party in receipt of an offer wishes to know how far the sum offered will go in meeting its costs up to that time, all it has to do is ask its lawyers. In an age where lawyers are required to provide advance estimates of their fees and in circumstances where commercial services are billed on a monthly basis, it is unrealistic to suggest that the recipient of an inclusive offer will be confused or otherwise unable to assess the financial risk of proceeding with litigation. In any event, the offeree is likely to be liable for legal fees exceeding the costs recoverable from the other party. Most litigants, in considering offers, will want to know from their own lawyers, how much they will receive in the hand. Of course, if the offer is not left open for a reasonable time, that might itself make non-acceptance a reasonable course. However, an offeree which is genuinely seeking to assess its position, might be advised to seek more time, if it thinks that is reasonably required. The suggestion that a Calderbank letter which is expressed to be inclusive of costs is "insufficiently precise to qualify as a Calderbank offer" requires to be addressed in particular circumstances. A defendant who fears that even if successful it will be unable to recover costs awarded against the plaintiff, may wish to make an offer in full and final settlement, without further disputation over costs. It may wish to place pressure on the plaintiff to consider the offer favourably by reserving an entitlement to use the offer in relation to costs if the matter proceeds to trial. There is no reason based on policy or principle which would preclude a defendant relying on such an offer only when it is said to be exclusive of costs. Such an inclusive offer will not cause the plaintiff embarrassment: its value will be that amount remaining to him or her after deducting costs already incurred, which the plaintiff's lawyer should be readily able to quantify. The disadvantage of an inclusive offer lies with the defendant if the matter proceeds to judgment. Where the judgment is equal to or above the inclusive figure, the defendant will have failed to better its own offer. However, if the judgment is below the offer there may be uncertainty because the offer included an unquantified element for costs incurred up to the time when it lapsed or was rejected. No doubt the figure for costs incurred to that time by the plaintiff could be resolved by some form of assessment, but if the calculation of the damages component is not clearly seen to provide a figure above the judgment, then the interests of justice will usually not be served by incurring further expense in assessing the costs element of an offer and the plaintiff would be entitled to his or her costs: see Smallacombe above at [140]. (my emphasis) 42At [146] his Honour further held that: ... the fact that a defendant's offer is made early in the proceedings should not by itself be given significant weight in assessing the reasonableness of the plaintiff in rejecting it. Nor should significant weight usually be given to what the plaintiff did or did not know at that stage. Were it otherwise, the more complex the litigation the less likely that the rejection of an early offer which proves to have been fair and reasonable, will have costs consequences. That tendency would diminish rather than enhance the purpose to be discerned from Calderbank offers and court rules. and at [149]: In the present case, the fact that the offer was said to be open for only seven days may well be a factor suggesting that a failure to accept the offer was not unreasonable. However, it is but one circumstances to be considered and should not by itself lead to any prima facie conclusion. The absence of any request for an extension of time would be relevant in assessing reasonableness , as would the fact that the offer was made in response to an offer by the defendants which itself required acceptance within seven days. (my emphasis) 43Ritchie's Commentary (at [42.13.25]), noting the differing views as to inclusive of costs Calderbank offers, expresses the opinion that the first rationale for disregarding such offers (the difficulty for the courts in determining whether a judgment amount is no less favourable than an unaccepted offer) has no persuasive force where the final judgment substantially exceeds the offer (or equally, it might be said, where the final judgment establishes that the claim had no foundation and is dismissed altogether, as is the present case) and that the second reason (namely the difficulty for an offeree in assessing the real value of the offer) has little force in the case of a defendant's offer because the plaintiff should be well able to make a reasonable estimate of the costs they have incurred (referring to what was said by Basten JA in Elite at [144]-[145]). 44With the above in mind, I turn to the particular offers made in the present case. Each must be considered in the light of the context and time at which it was made. 10 August 2006 Calderbank letter 45The first offer on which reliance is placed was that contained in a letter dated 10 August 2006 (only a month after the proceedings commenced by way of summons in July 2006 and at a time when the sole defendant was Mr Song). 46In that letter, which was headed "Without Prejudice except as to Costs", Mr Song's lawyers conveyed an offer by Mr Song to pay the sum of $10,000 inclusive of costs, interest and GST (if payable) in full and final settlement of the proceedings, within 14 days. The letter noted that if the offer was accepted then "an appropriate Deed of Settlement and Release will need to be entered into between the parties" and that the defendant's lawyers could draft a suitable deed. 47The letter made clear that the offer was being put forward as a "Calderbank" settlement offer and that the intention was that it would be tendered on any later application as to costs. 48It could not be suggested that the offer was made so close to the trial that Mr Ying was not able to give sufficient consideration to it (having regard to the practical exigencies of trial preparation, that being a factor considered in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85). Nor could it sensibly be said that Mr Ying was unable to assess the offer because of a lack of understanding as to what the case was - it was, after all, Mr Ying's claim to the shares that was then being pressed. 49As to the offer being inclusive of costs, it must be noted that the proceedings had only just been instituted. Apart from the fact that one would expect the plaintiff's costs at that stage to be relatively low (being, presumably, the costs of drafting and service of the initiating process), it could not possibly have been difficult (had Mr Ying wished to assess the overall worth of the offer in monetary terms) for Mr Ying to find out from his solicitors what their then costs were. There is no suggestion that he did so (and what is done in response to a Calderbank offer can be taken into account in assessing the reasonableness of its rejection). 50Mr Lawson submits that this was an offer in its terms capable of acceptance and that there was no suggestion (by the reference to the need to enter into a Deed of Settlement and Release) that anything other than a deed reflecting the offer contained in the letter would be required. It is submitted that 14 days was a reasonable time for acceptance in the circumstances (having regard to the fact that the case at that stage was one that turned on factual issues in relation to the BSS shares that should have been well within Mr Ying's own knowledge). 51It is further submitted by Mr Lawson that it was unreasonable for that offer to be refused for the following reasons: first, because Mr Ying did no better on the hearing (something on which little weight can be placed since there is no prima facie presumption that a less favourable outcome warrants a departure from the usual costs order, as explained in the authorities noted earlier); second, because the reason that Mr Ying did no better on the hearing was that on the facts there was no entitlement to the relief sought (which is of some significance in circumstances where the claim to the shares was based on a version of events that Mr Ying must be taken to have known at the time was a sham); and, third, that nothing that subsequently became available to Mr Ying throughout the course of the proceedings had put him in a better position to consider the prospects of success on his claim than what he had when he received the letter of 10 August 2006. 52In particular, it is said that on the facts (as found) Mr Ying must always have known that his case had no basis. In other words, having regard to the finding that the shares were registered in Mr Ying's name as part of a sham arrangement to mislead the Department of Immigration, Mr Ying cannot reasonably have believed that he was entitled to a beneficial interest in the shares as at the time the Calderbank offer was made (and thus a payment to settle his claim to those shares of $10,000 would have represented something in the nature of a windfall gain - and therefore pointing to the unreasonableness of its rejection). 53No evidence was adduced by Mr Ying on the present application as to the reason for his refusal of this offer. However, reliance is placed by Mr Deng, the solicitor appearing for Mr Ying, on the letter responding to this offer as evidencing that reason. 54By letter dated 15 August 2006, William Chan & Co expressed the view (albeit a view formed without, according to the letter, the writer being able to understand the basis of the offer) that the offer was "clearly inadequate". 55The letter noted (as was the case) that the claim was only against Mr Song (and was not a claim against BSS) and stated that "Our client has an independent claim for repayment of the loan, inter alia, against Budget which it will pursue at the appropriate time". Thus, it could not be suggested that there was any misunderstanding on Mr Ying's part as to the ambit of the proceedings (namely that the proceedings he had commenced related only to the 25 BSS shares) and the reasonableness for the rejection of the offer must be tested by reference to that claim (since there was nothing in the offer to suggest that it encompassed any as yet unclaimed entitlement by Mr Ying beyond his assertion of a claim to the 25 BSS shares. 56The basis on which the $10,000 offer in relation to the share claim was rejected (by reference to Mr Chan's letter) seems to have been that it did not reflect, in Mr Ying's opinion, the true value of the shares (representing a 25% interest in the company). The letter indicated a willingness to consider a "realistic offer" for the shares or for the shareholding in BSS to be independently valued.

Offer of Compromise of 30 July 2009 57The second offer on which reliance was placed was a formal offer purporting in its terms to be an offer of compromise under the rules. It was made after the parties had attended a mediation of the dispute (in November 2006), the details of which (as is appropriate) were not before the court. Suffice to say that the mediation was obviously unsuccessful as the matter proceeded to a contested hearing. 58The hearing before me commenced on 2 July 2009. At that time objection was taken to the plaintiff's evidence and an application was (unsuccessfully) made at that stage by the defendants for the dismissal of the proceedings. The proceedings were adjourned to December that year. Shortly after the proceedings had been adjourned, and some months before the resumption of the hearing, on 30 July 2009 the formal offer of compromise was served, offering to compromise the claim on terms that there be, first, a verdict in favour of the defendants and, secondly, that Mr Ying pay 50% of the defendants' costs of the proceedings as agreed or assessed . 59That offer must, on any view, be one which if accepted would have put Mr Ying in a better position than he is in now (where there is a verdict against him and he faces at the very least the prospect of an order that he pay the full amount of the party/party costs as agreed or assessed). The fact that the basis of the costs is not specified in the offer does not, in my view, cause any difficulty in comparing the result on the operation of the offer with that achieved on the trial (since it is predicated on the costs as assessed or agreed and must be read as applicable to those costs on whatever basis ultimately ordered). Where there is, however, room for uncertainty in my view (although this was not raised by Mr Deng's submissions) is as to how the plaintiff should have assessed the offer at the time it was made, when the basis on which the costs to be paid by him if he accepted the offer was not made clear in the offer. 60Ms Walker (the solicitor who has acted for Mr Song throughout) deposes that she received no response to that offer of compromise. 30 September 2009 Calderbank letter 61The hearing resumed in December 2009. On 30 September 2009, prior to the resumption of the hearing, a further "without prejudice" (except as to costs) letter was sent to the plaintiff's solicitors, offering to pay the sum of $25 (coincidentally or otherwise, the par value for the BSS shares) to settle the matter on the basis that the plaintiff pay 50% of the defendants' costs of the proceedings. Again the basis on which costs should be assessed or agreed for the purposes of that offer was not specified in the letter. And again, Ms Walker deposes that there was no response to this letter.
1 December 2009 Calderbank letter 62On 1 December 2009, yet a further without prejudice letter was sent, repeating the offer that had been made in the formal Offer of Compromise (namely to settle the proceedings on the basis of a verdict for the defendants and payment of 50% of their costs). Ms Walker deposes that she received no response to that offer of compromise.

The plaintiff pay the first defendant's costs of the proceedings up to and including 10 August 2006 on a party/party basis.
Subject to any further order pursuant to the liberty granted in 3 below, the plaintiff pay the first and second defendant's costs of the proceedings from and including 11 August 2006 as to 50% of the actual solicitor/client costs and disbursements on an indemnity basis and as to the remaining 50% of the actual solicitor/client costs and disbursements on a party/party basis.
I grant liberty to the defendants, within 14 days of the determination or other disposition of any appeal to the Court of Appeal by the plaintiff from my principal judgment in these proceedings, to apply to vary the costs order made in 2 above and for the whole of the of the proceedings to be ordered in their favour on an indemnity basis.
I order the plaintiff to pay to the first and second defendants interest at the prescribed rate as defined in s 101(5) of the Civil Procedure Act 2005 on costs and disbursements paid by each of them to their legal advisers in connection with these proceedings on the Allowed Percentage (as defined below) of each amount of costs and disbursements actually paid by either of the defendants, from the date of payment by that defendant of each such amount of costs and disbursements until such time as the plaintiff has paid the costs due to the defendants under any order made in these proceedings. For the purposes of this order: X - equals the total amount of costs and disbursements which the plaintiffs have paid or are liable to pay to their legal advisers in connection with these proceedings. Y - equals the total amount of costs and disbursements allowed on assessment to the plaintiffs in connection with these proceedings. The Allowed Percentage equals ((y/x ) x 100)%

Events since 1 December 2009 Calderbank letter 63Accordingly, by the time of the resumption of the hearing and before any cross-examination of the plaintiff or his sister had commenced, no less than four settlement offers had been made to Mr Ying. The hearing resumed in December 2009. At the close of the plaintiff's case on 3 December 2009 (and before it was again adjourned pending an application for leave to appeal and then appeal brought by the defendants to an evidentiary ruling I had made against them) Mr Lawson invited the plaintiff to argue a 'no case to answer' submission pursuant to Part 29 rule 10 of the Uniform Civil Procedure Rules in relation to either or both of the claimed loans (i.e. the basis of the claims against BSS), making it clear that this would be relied on in relation to any subsequent costs dispute. The plaintiff declined to do so. 64The hearing ultimately resumed in September 2010 with the defendants' case. Judgment was delivered in December 2010 in the defendants' favour. Assessment of costs offers 65As can be seen, other than the first Calderbank letter, the settlement offers required, in effect, consent by Mr Ying to the entry of a verdict against him (in that regard, it seems to me that the $25 offer is so nominal as to be treated in effect as tantamount to a verdict for the defendants). Similarly, the offers other than the first, although not expressed to be inclusive of costs, required the payment by Mr Ying to the defendants of half of their costs (as assessed or agreed) on an unstated (i.e. as to whether this be party/party or solicitor/client) basis - those offers therefore being clearly less favourable for the plaintiff than a walkaway would have been. 66As to the first offer, Mr Deng submits that the offer contained in the 10 August 2006 offer (made before the Amended Summons was filed) related only to the BSS shares. Mr Deng submits that it is not an offer that could have been accepted "as it did not provide for the fact of the shares the subject of the application and therefore omits to deal with the substantive issue in the proceedings". As I understand it, what Mr Deng submits is that the offer left unclear where the ownership of the shares would lie if the offer were to be accepted. I do not accept that proposition. The import of the offer is very clear - if it had been accepted, Mr Ying would be paid $10,000 in satisfaction of his claim. That claim included the transfer of the shares back to him. Therefore the only reasonable construction to be placed on the letter was that if Mr Ying accepted the sum then offered his claim would be satisfied and the shares would remain in Mr Song's hands. 67Indeed, not only is that the obvious meaning of the offer, it is the meaning that Mr Ying's legal representatives themselves appear to have taken from that offer, since Mr Chan's letter in response suggests that this was an inadequate price for the shares. Furthermore, insofar as the letter from Mr Chan asserts that Mr Ying could still maintain a claim against BSS, that appears to make clear his understanding that the offer related only to the claims made in the proceedings as then constituted. (I note that there was no evidence that Mr Song's lawyers had written back to suggest that the offer went further than the BSS share claim, which seems to confirm that at that stage everyone understood the $10,000 offer as relating solely to that claim and not to any other claim that Mr Ying was or may then have been contemplating in relation to the shareholder accounts in the books of BSS.) 68Mr Deng has pointed out that this offer was made before the Amended Summons was filed (as is clearly the case) and that not all the relevant evidence had been served; and submits that the scope of the case was then uncertain. However, at the time the offer was served the case, as appearing from the summons, was within fairly narrow bounds. The claim as to the BSS shares was one that depended on the facts surrounding the initial transfer to Mr Ying (and, on Mr Song's version of the agreement, on the events since then in relation to Mr Ying's immigration status - it being suggested during the hearing that on Mr Song's version of events there was a breach in the transfer back of the shares prior to the determination of Mr Ying's residency). Those were matters peculiarly within the respective parties' knowledge. This was Mr Ying's claim. I must assume that he commenced it not only with the benefit of legal advice but with a clear understanding of the factual background to the claim (if not the legal principles relevant thereto). He must therefore have appreciated (or been advised) that ultimately the case would be likely to turn on who was believed as to the relevant conversations in relation to the transfer of the shares (even accepting that the respective versions would need to be tested against the documentary evidence). Nor was it (as was Cat Media ) a case involving the construction of a particular document where there were two reasonably arguable available views. 69The other basis on which it is said by Mr Deng that this offer was not effective is that it did not comply with the Uniform Civil Procedure Rules 20.26(2), insofar as it is expressed to be inclusive of costs. As noted earlier, the extent to which a Calderbank offer does not follow the position that would apply under the Rules (and particularly where it is made on an inclusive of costs basis) is a relevant matter to take into account having regard to the reasonableness of rejection of an offer so made. 70While the authorities suggest that an offeror would be well advised to avoid making "inclusive of costs" Calderbank offers (not least because that would minimise the risk that the offer would not achieve a more favourable costs consequence than the usual order for costs), they fall short of holding that such an offer can never give rise to indemnity costs orders. 71In considering the difficulties that may be posed by such an offer in the present case, the reasons advanced in the cases referred to above do not seem to be apposite in the present case. First, there is no difficulty in assessing the 10 August letter in comparison with the outcome at the conclusion of the hearing. On any view, a $10,000 sum inclusive of costs must be more favourable than the present outcome (unless it is suggested that William Chan & Co have charged Mr Ying somewhere in the order of $10,000 to draft the summons with which the proceedings were instituted). Secondly, there can have been no difficulty for Mr Ying in assessing the value of the settlement offer to him (since he had but to ask his lawyers what costs had been incurred in the short time from commencement of the proceedings, including the necessary costs incurred prior to commencement of the proceedings in taking instructions and drafting the summons and the like). 72What seems to be put by Mr Deng is that it was reasonable to reject that offer because Mr Ying was not in a position to assess for himself how much the shares would be worth to him (had the claim to those shares succeeded). Presumably this is put on the basis that Mr Song had control of the shares at the relevant time. Mr Ying, however, had been the holder of the shares and involved in the company not long before the 2006 proceedings began (and on his version of events this was more than a 'paper' shareholding or involvement in the company). It seems somewhat disingenuous of a plaintiff who maintains that the shares were transferred to him pursuant to a share sale arrangement (and not a sham arrangement as the defendant contends) and who was privy to information in relation to the company, to suggest that an assessment of the value of the shares could not reasonably have been made at that time. Mr Ying maintained that he was entitled to a 25% share in the company. He was clearly of the view that this was worth far more than $10,000. Any suggestion that he rejected the offer because he was not able to place an assessment on its value compared to the value of his claim is not plausible. 73Mr Lawson noted that the letter made reference to a settlement deed. However, there was no suggestion that this was intended to extend beyond the ambit of the offer contained in the letter and such a requirement is a not uncommon feature of settlements of litigation. (Nor was any complaint made as to this aspect of the offer in Mr Deng's submissions.) 74In my view that first offer was an offer capable of acceptance and was a genuine offer and unreasonably rejected. The fact that proceedings changed subsequently to incorporate new claims does not make the initial rejection of the offer reasonable (and the new claims met with the same fate as the earlier ones in any event). Nor does the fact that the claim was made at an early stage detract from the unreasonableness of its rejection - indeed in Elite , it was said that the making of an offer at an early stage is not something that should be given significant weight in assessing the reasonableness of the offer (there, in circumstances where it had been submitted that the early time at which the offer was made was a factor that made it reasonable for the plaintiff to reject it). 75Here, it seems that the focus (in considering the initial Calderbank offer) was on whether it represented a sufficient price for the 'purchase' of the BSS shares (by reference to the underlying assets of the business). However, on the facts as I have found them, Mr Ying must always have been aware that the transfer of the shares to him had been as part of a sham arrangement to mislead the Department of Immigration (and, at most, the transfer back to Mr Song at a time earlier than had been contemplated and without his consent might have given rise to a claim had there been any loss suffered as a result) and would not have lead to any obligation on the part of Mr Song to pay money to acquire what had at all times been understood to be his shares in the company. 76Had a realistic view been taken by Mr Ying as to the prospects of success of the plaintiff's claims at that point (which is the underlying rationale for the Calderbank principles), then a very different view would surely have been taken as to the offers made. I consider the rejection of the first Calderbank offer to have been unreasonable. 77That leads me to conclude that Mr Ying should pay Mr Song's costs of the proceedings on an indemnity basis from 10 August 2006. I turn then to consider the position of the costs of BSS, which was not joined as a party to the proceedings until after the making of that first offer. There were three offers made after that time, to which BSS was a party. 78The submissions made by Mr Deng on the offers made in 2009 were grouped together (there being no differentiation drawn by Mr Deng as between the formal offer of compromise and the subsequent Calderbank offers). The complaint made by Mr Deng is threefold. 79First, it is said that the offers are not effective offers because they were made only on behalf of Mr Song. As far as the offer of compromise is concerned, this is contradicted by the terms of the offer itself. As to the subsequent offers, although there is reference to "my client" (in the singular) in the text of the letter of in my view makes it clear that the offer was an offer to compromise claims against both the defendants. 80Secondly, it is said that the offers were not effective offers because they were not exclusive of costs. In relation to the offer of compromise, the rules, insofar as they make specific provision for an offer that comprises entry of an adverse verdict, contemplate an offer that is on a walk-away basis. In those circumstances, it seems to me that the rules do not contemplate an offer of compromise of the kind that was made in July 2009. 81This can be tested by looking at the component parts of the offer as formulated. An offer to settle on the basis of a verdict in one's favour is not an offer that contains any obvious element of compromise - the only compromise therefore is in the proportion of fees that will be accepted in settlement of the costs if the offer is accepted. However, the only kind of costs offer envisaged by the rules for entry of a verdict in favour of the defendant is one that involves a walk-away. Had it been considered that there was a sufficient element of compromise in an offer to accept only a percentage of one's costs, then the rules could have made provision for such a situation accordingly. Therefore, it seems to me that the offer of compromise that was made falls outside the scope of the costs regime and therefore (while not invalid as an offer per se) is not effective to give rise to the special costs regime under the rules. 82The question then is as to whether this offer can nevertheless take effect as a Calderbank offer, applying the reasoning in Salvation Army . The difficulty that I have in the present case is that in Salvation Army there was an express statement that permitted the finding of the relevant intention. Here there is no such statement. Furthermore, the history of the making of the various costs suggests that the defendants were well aware of the difference between the respective kinds of offer and had they had a general intention of the kind set out in Salvation Army , they could be expected to have expressed that at the time of service of the offer of compromise. Therefore, I do not consider that this offer can be read as intended to operate (if ineffective as an offer of compromise) as a Calderbank offer and hence no indemnity costs consequences flow from the failure to accept the offer of compromise. 83As to the two offers that were clearly not offers of compromise, the relevant questions (as considered in the context of the first offer) are whether there was a genuine element of compromise, given that they required entry of verdict for the defendants, and whether it was unreasonable for Mr Ying to reject those offers. As noted above, the onus is on the defendants to establish both of those matters. 84As to the first of those issues, I am of the view that (although borderline) each of the 2009 Calderbank letters did involve a genuine element of compromise. The defendants no doubt considered that they had a very strong prospect of success (as evidenced by the fact that at the close of the plaintiff's case they had posed a no case to answer invitation). The claim against BSS was misconceived at the outset and the claim against Mr Ying was doomed to fail if Mr Song's version of events was accepted. In those circumstances the observation made in Leichhardt by Santow JA seems apt - this seems to me to be a case where a very slight discount on what would be the likely result if the plaintiff failed in its claim did involve a genuine (albeit small) compromise. The offer by the defendants to bear half of what would otherwise likely be their recoverable costs if the matter proceeded to a judgment adverse to Mr Ying does seem to me to satisfy the first requirement for a Calderbank offer to meet in order to justify a special costs order. 85The next question, however, is as to whether it was reasonable for the plaintiff to refuse that offer. Mr Deng contends that the offers were uncertain as to which "client" was to pay the money and as to the amount of the costs being sought. As to the first matter raised by this contention, it is not suggested that there was any particular consequence as to the identity of the party making the offer - in particular it could not in my view be suggested that on acceptance of the offer one of the defendants would remain free to pursue any claim against the plaintiff in relation to the matters in the proceedings, such as the balance of its costs. As to the second, I consider that this complaint has more force. 86I have referred above to the difficulty that can arise in relation to uncertainty as to the amount of costs comprised in a Calderbank offer. In the context of the 2009 offers, there is more of a difficulty with this aspect since what was there being put forward in 2009 was that Mr Ying pay a percentage of the defendants' costs (rather than absorbing his own costs out of a sum to be paid to him as was the case under the initial offer). The amount of the defendants' costs would not so readily have been assessable by Mr Ying. 87As Beazley JA noted in Gretton , in considering a reasonableness of the offer at that time, an assessment would need to be made of the costs in question. On one view it might be said that with a hopeless claim the precise quantum of costs might not need to be known in order to assess the offer, if what is being offered is a percentage of costs that would otherwise be payable under an adverse costs order. Nevertheless I note that her Honour considered the following point to have been well made by Goldberg J in relation to this issue in Dr Martens (at [24]) (albeit that his Honour was there considering an offer that was inclusive of costs not one here which is a offer requiring the payment of costs): If the purpose of a Calderbank letter is to offer to bring litigation to an end it should be couched in such terms as enable the offeree to make a carefully considered comparison between the offer made and the ultimate relief it is seeking in all its aspects. An offer inclusive of costs confuses this issue as it puts the offeree in a position of not being able to determine the appropriate amount to attribute to the money sum it is seeking. Although an estimate can be made of what the offeree's taxed party and party costs might be at the time of the offer, the offeree is not being offered the opportunity to have those costs assessed by taxation in default of agreement, in addition to being made an offer to settle its claim. As a matter of principle, if a party is to be put at risk of losing its costs, even if ultimately successful, by not accepting an offer made to settle or compromise the proceeding at a point of time prior to trial, that risk should only be imposed if the party is given the opportunity, at the time of the offer, to obtain its taxed costs to date in addition to the offer made, knowing that it has been able to make a careful comparative assessment of the value of the offer as against the ultimate relief sought to be obtained. 88In relation to the 2009 offers, in order to assess them against the ultimate relief sought to be obtained Mr Ying would need to understand the likely ambit of the costs he would be required to pay to Mr Song and BSS. True it is that he could have asked for information in that regard (whereas there was no question raised with the defendants' solicitors as to this matter - the various offers in 2009 seemingly simply being ignored - they certainly did not meet with the courtesy of a response). However, the weight of authority would suggest that where the question of costs included in a Calderbank offer is not able reasonably to be assessed by the offeree then it will not be unreasonable for that offeree to reject the offer. 89Mr Deng relies upon Smallacombe and Elite for the submission that it was impossible for Mr Ying to assess the real value of the offers made in 2009 and that to the extent that the costs consequences of an unaccepted Calderbank letter can be influenced by the operation of the court rules, indemnity costs should not be awarded where the Calderbank offer was not exclusive of costs. 90The quantum of costs that had been incurred by the defendants at the relevant time was not indicated in either of the 2009 Calderbank offers nor did the offers specify the basis on which the costs the subject of the offers were to be assessed. An offer to accept 50% of the assessed or agreed costs would arithmetically be likely to represent a compromise (albeit perhaps only a small compromise) on whatever basis the offer was couched (if one can assume that 50% of the solicitor/client costs did not exceed the costs to which Mr Song might be entitled on a party/party basis). However, whether such an assumption could be made would depend on the comparative position between the solicitor/client costs and the party/party costs and this is not assessable on the face of the offers. 91Therefore, although I consider that the 2009 Calderbank offers did not require a total capitulation in the sense considered in the above cases (since they necessarily involved the defendants bearing a not insignificant amount of their own legal costs for proceedings in which they have now been wholly successful in the result), and though I have taken into account the fact that the 2009 offers were also made at a relatively early stage of the proceedings (since those offers were made before the main hearing commenced in earnest, although after costs would have been incurred in the preparation of the initial evidence for the trial), I am not persuaded that it was unreasonable for Mr Ying to reject those offers having regard to the uncertainty as to what he was being asked to pay by way of costs under those offers. 92The third matter to which Mr Deng pointed was that the offers "did not provide for the fate of the shares" and thus failed to deal with the substantial issue in the proceedings. I have considered this already in the context of the first Calderbank letter. It is perfectly clear what is intended to be the fate of the shares under the offers - they were to remain with Mr Song. 93For completeness I note that it was submitted by Mr Deng that I should take into account (when assessing the reasonableness of Mr Ying's rejection of the offers) the fact that there had been a reference in the 2009 offer to a potential investigation into the alleged immigration fraud. It was suggested that this would be a factor in the reasonableness as to why "in the subjective mind of the plaintiff" it would not accept the offer. It is not clear to me the basis on which that submission was put, unless it is suggested that Mr Ying considered that there was an interest in having his name 'cleared' of any wrongful conduct and thus that it was reasonable for him to reject the offer. If, however, that was his concern then I do not accept that this was something that would have made his rejection of the offer reasonable - I was not taken to any authority that would suggest that it was reasonable to pursue misconceived litigation in the hope of clearing one's name, assuming that is what Mr Deng was seeking to suggest by this submission. Nor do I think that acceptance of the offers would have amounted to any kind of implied admission of wrongful conduct so as to have given some reasonable basis for the rejection of the offers on that ground.) 94In Corbett Court Pty Limited v Quasar Constructions (NSW) Pty Limited [2008] NSWSC 1423, Hammerschlag J summarised the instances where the general rule as to costs may be displaced, noting, relevantly that one such instance is where a successful party unreasonably pursues or persists with points which have no merit (such conduct will constitute a consideration relevant to the ordering of costs even in circumstances where that party is generally successful, referring to Oshlack at [122]) and that another such instance is where a party may be deprived of costs if its conduct in relation to the matter is so discreditable as to warrant this, there referring to Jamal v Secretary Department of Health (1988) 14 NSWLR 252 at [271]. 95There was a submission made in the main hearing to the effect that Mr Song had behaved in an intimidatory way during the trial and had made hurtful allegations of outstanding police matters against Mr Ying in China (which it was said had caused him considerable stress). I commented on that submission in my earlier judgment. I am not persuaded that it is relevant to the present costs application nor do I think that the reference to a possible investigation into the arrangements entered into between the parties in relation to Mr Ying's visa application are such as to deprive Mr Song or BSS of an indemnity costs order that might otherwise be available to one or both of them. The fact is that in my view both Mr Ying and Mr Song behaved discreditably in relation to the immigration authorities. (Mr Song expressed remorse for this at the trial and has made a full disclosure to the authorities since then. Mr Ying, for his part, denies any such misconduct.) 96The final matter to note in relation to the 2009 offers, and the claim by BSS for indemnity costs based on those offers, is that I have not addressed an argument based on the principles espoused in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 as to whether costs should be ordered on an indemnity basis because of the merits of the claim at the outset. It seems to me that this falls within the ambit of the defendants' application that has been deferred for argument if and when necessary after the determination of the foreshadowed by appeal by Mr Ying. 97Therefore, I consider that the appropriate result in relation to costs having regard to the offers that were made would be, in effect, for Mr Ying to pay Mr Song's costs on a party/party basis up to and including 10 August 2006 and on an indemnity basis from and including 11 August 2006 and (subject to any further order) for Mr Ying to pay the costs of BSS of the proceedings on a party/party basis. That said, I have had regard to the undesirability of further costs being incurred in a time-consuming exercise of separating out the costs referable to one or other of the defendants (and in that context to the recognition by Campbell J, as his Honour then was, in Lahoud, to which I refer below, to the fact that in litigation there may be payments from time to time of lump sums on account of costs without allocation to particular items of work). There may also be occasions (and this case is possibly one) where the interests of two defendants are sufficiently aligned that the costs are borne jointly without allocation as between the separate claims made against each of them. I do not consider that it is in the interests of the just, quick and cheap resolution of the real issues in dispute between the parties (or the expeditious conduct of litigation) that further time and costs be spent on a costs assessment exercise of the kind that it likely to be necessary having regard to the different basis on which the costs of the first and second defendants would fall to be assessed if I were to make orders of the kind considered above. 98Noting the broad discretion in the making of costs orders, and the concerns I have referred to above, I am of the view that the most appropriate way to proceed is to make a "broad brush" assessment of the costs as between first and second defendants by reference to the separate issues that concerned them respectively as defendants in the proceedings (bearing in mind what was said in Fexuto Pty Ltd v Bosjnak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 in relation to the use of a broad brush in the context of apportioning costs as between various issues in a proceeding). On that basis, I am of the view that the appropriate costs order at this stage is for the plaintiff to pay the costs of Mr Song from the commencement of the proceedings up to and including 10 August 2006 on a party party basis and that the first and second defendants' costs of the proceedings thereafter should be paid by the plaintiff as to 50% on an indemnity basis and as to 50% on a party/party basis. (ii) Interest 99The defendants seek interest on the costs paid by them pursuant to s 101 of the Civil Procedure Act . Both parties seem to have accepted that an order for payment of interest on costs does not require a special case to be established. In Woods v Woods [2001] NSWSC 1108 Hamilton J noted that the usual justification for such an order is that the successful litigant has been out of pocket by the payment of costs to his or her lawyers. 100In Davies v Kur-ring-gai Municipal Council [2003] NSWSC 1010, Austin J said at [5]: The cases to which I have been referred show that: in general, judicial discretions in relation to the award of interest should be exercised to ensure that the successful party is properly compensated ( Bennett v Jones [1977] 2 NSWLR 355; Home Owners Insurance Pty Ltd v Job (1983) 2 ANZ Ins Cas 60-635; Falkner v Bou rke (1990) 19 NSWLR 574); the Court examines all the circumstances of the case in deciding whether to make an order for interest on costs under s 95(4) or s 76, including such matters as whether the successful party has been out of pocket for a lengthy time, whether the unsuccessful party has benefited from the use of money during that time, and the conduct of the parties ( Grogan v Thiess Contractors Pty Ltd [2002] NSWSC 1101 (22 December 2002), at [11] per Barr J). though his Honour went on to express the view that such an order was not warranted simply because moneys had been paid on account of costs, noting that in some cases an order for the payment of interest on costs has been found to be justified principally because the claimant had paid substantial legal costs from time to time over a lengthy period ( Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd [2002] NSWSC 280) and in other cases the court had been influenced by the indigent circumstances of the claimant (referring to Woods v Woods ). His Honour accepted that a "special" case was not required to be made out and emphasised the cost to an individual of proceedings in this Court. 101In Joseph Lahoud & Anor v Victor Lahoud & Ors [2006] NSWSC 126, Campbell J considered an application pursuant to s 101 of the Civil Procedure Act for interest on costs paid to the successful parties' lawyers for costs and disbursements over the course of the proceedings and said at [82] and [83]: In my view it is appropriate to make an order for the payment of interest on costs. There is no requirement, before an order for payment of interest on costs is made, for the Court to be satisfied that the circumstances of the case are out of the ordinary: Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 at [10] per Barr J; Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liquidation) & Ors [2002] NSWSC 280 at [23]-[25] per Einstein J; Puntoriero & Anor v Water Administration Ministerial Corporation [2002] NSWSC 217 at [10] per Grove J; Davies v Ku-ring-Gai Municipal Council [2003] NSWSC 1010 at [7] per Austin J. To the extent to which the plaintiffs have been out of pocket as a result of having to pay their lawyers' costs and disbursements, it is appropriate that the compensation which is recognised in the Court's order for costs take into account the fact that the plaintiffs have been out of pocket in that way: Hughes Bros v The Trustees of the Roman Catholic Church [1999] NSWSC 1051 at [60]; Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 at [12]; Woods v Woods [2001] NSWSC 1108 at [29]; Australian Development Corporation Pty Limited v White Constructions (ACT) Pty Ltd (in liquidation) & Ors [2002] NSWSC 280 at [17]; Puntoriero & Anor v Water Administration Ministerial Corporation [2002] NSWSC 217 at [10]; Optus Networks Pty Ltd & Ors v Leighton Contractors Pty Limited & Ors [2005] NSWSC 156 at [9]; Roads and Traffic Authority v Cremona (No 3) [2005] NSWCA 13 at [34]. 102In Cat Media Bergin J (as her Honour then was) referred to the matters considered by Campbell J in Lahoud and said (at [28] - [29]): There is no doubt that in this case that the defendant has been paying costs to its legal advisors during the period since the proceedings commenced. The proceedings were commenced two years ago and the defendant has been out of that money from the time it paid those costs. The plaintiff submitted that the circumstances of this case are not such as to warrant the exercise of my discretion in favour of the defendant as the defendant could hardly be described as being in "indigent circumstances". It is not necessary to establish that an applicant for an award of interest on costs is in such circumstances. This is particularly so in commercial causes. Parties to commercial litigation must understand that where large amounts of money are paid for litigating in this List interest on costs may be awarded to a successful party. The exercise of this discretion is focused upon the fact that the successful party has been out of its money for some time and the consideration of whether the successful party will be appropriately compensated by an award of costs in its favour without an award of interest. It is not apt to suggest that the defendant is a large insurance company, as was suggested by the submission that it was not in indigent circumstances. It will depend upon the circumstances of each case but where the parties to the litigation are commercial parties suing and being sued for millions of dollars, the fact that the successful party has been out of money that could have been used otherwise in the commercial enterprise is a relevant factor to be taken into account in the exercise of the discretion. The matters to which Campbell J referred in Lahoud at [84] are relevant to this case. 103In Farkas v Northcity Financial Services Pty Ltd [2006] NSWSC 1036, her Honour emphasised that in Cat Media she had not intended to convey that an award of interest should be limited to cases where money could otherwise have been used in a commercial enterprise. There, the fact that an individual plaintiff has been out of his money (whether it could have been used in his professional enterprise or otherwise) was a relevant factor to be taken into account in the exercise of the discretion to award interest under s 101(4) of the Act. 104Here, as noted earlier, Mr Deng did not resist an order for interest on the costs that had been paid out by the defendants to their legal representatives in the course of the proceedings. Ms Walker's affidavit sworn 19 April 2011 contained comprehensive details of the dates on which and amounts in which the legal costs had been paid referable to the conduct of the defence. However, although Mr Deng did not dispute that in accordance with generally accepted principles an order for interest would lie, he said that he was not in a position to accept the proposed formulation for interest that was put forward by Mr Lawson. 105The question was as to how that order for interest should be formulated. In Lahoud , Campbell J had expressed the following concern: The form of the order for interest on costs has occasioned me some concern. As the plaintiffs have succeeded in obtaining an order for indemnity costs in relation to only one issue in the proceedings, it is possible that there will be some costs and disbursements which the plaintiff has paid from time to time as the litigation progressed, but which are not allowed on assessment. It might sometimes be possible to cast an order in the form of allowing interest only on such costs as the plaintiff has paid as are allowed on assessment - but such an order would require the assessor to conduct what would amount to a separate assessment in relation to each payment that the plaintiffs had made. While the making of such a series of costs assessments would be within the scope of section 353 Legal Profession Act 2004, adopting such a procedure has the potential for making the costs assessment itself more complex and expensive. Further, it sometimes happens in the course of litigation - and the evidence does not tell me whether it has happened in the course of this litigation - that a litigant makes payments to his lawyers from time to time of lump sums on account of costs, without purporting to allocate those payments to particular memoranda of fees or items of work performed. If that had happened in the present case, one could not tell whether the whole or any part of such a payment had been allowed on assessment. 106In that case, Campbell J concluded at [85]-[86] that: In all the circumstances, the appropriate way of calculating interest on costs is to ascertain the total of the amounts which the plaintiffs have paid and are liable to pay for costs and disbursements, ascertain the total amount of costs and disbursements allowed on assessment, calculate the percentage which the total amount allowed on assessment bears to the total costs and disbursements which the plaintiffs have paid or are liable to pay, and allow the plaintiffs interest on that percentage of each payment which they have made from time to time on account of costs and disbursements. I recognise that that method of proceeding contains within it the possibility that the plaintiffs might have paid for some items of work which the assessor discounts considerably or totally. If the plaintiffs had paid such an amount comparatively early in the course of the litigation, and interest was allowed on the percentage of that amount which seems to me to be appropriate, then the plaintiffs would be somewhat overpaid interest, by comparison to the amount that the plaintiffs would receive if individual assessments of each payment made were carried out. Conversely, if the plaintiffs paid for such an item of work comparatively late in the course of the litigation, the method of proceeding which I am proposing to adopt could result in the plaintiffs being underpaid interest, by comparison to the amount that the plaintiffs would receive if individual assessments of each payment made were carried out. However, it seems to me that those possibilities are ones which fall within the ambit of the degree of approximation and estimation which is frequently involved in assessing compensation. I do not regard them as a reason for not following that method. 107This was followed by Bergin J in Cat Media . Mr Lawson, not having before him the precise formula for the calculation of interest that was adopted in those cases, proposed the following formula for interest, as a fair compromise: The Plaintiff to pay the First and Second Defendant interest on costs at the "prescribed rate" (as defined in Section 101(5] of the Civil Procedure Act 2005] from the date, or dates, that the First and / or the Second Defendant paid to its legal advisors (Watkins Tapsell and Colin Biggers and Paisley or any other legal advisors] fees for legal services on condition that the total interest paid under this order be calculated by multiplying the total interest payable at the prescribed rate on fees paid by the First and Second Defendant by the total fees allowed on assessment divided by the total fees claimed on assessment. That is: Interest payable = Interest calculated in accordance with Section 101(4] and (5](a] of the Civil Procedure Act 2005 x (multiplied by] Total costs allowed on assessment / (divided by] Total costs claimed on assessment. 108Mr Deng sought time to review the material and to make further submissions on this aspect of the matter. Those further submissions (served on 15 June 2011) were to the effect that it was unnecessary to adopt the formula proposed by the defendants. Mr Deng submits that the accuracy of the formula cannot be assessed (because the bills of costs have not been provided and "a copy of ledgers indicating payments made [by the defendants] from 2006 to date" have not been served). Mr Deng's submission noted that the proposed formula calculate interest payment on costs by multiplying the total interest payable at the prescribed rate on the fees paid by the total fees allowed on an assessment divided by the total fees claimed on assessment. Mr Deng contended at para [3] that: The Plaintiff submits that most difficult part of the calculation of interests will be to calculate the total interests payable on the total fees claimed. Should any item be disallowed in the cost assessment; the interests on the item can be easily deducted from the total interest claimed. Should the costs allowed be assessed as a proportion of the costs claim, the proportion determined by the assessor can also be easily applied to calculate the new costs. 109For the reasons which were outlined by Campbell J in Lahoud (and accepted by her Honour in Cat Media ), I consider that it is appropriate to adopt a formula which avoids the complex and expensive task of a costs assessor calculating interest on individual payments, particularly where, as here, an indemnity costs order will be granted for only part of the costs of the proceedings but may be the subject of a further application in due course. 110Therefore, I propose to order interest broadly in accordance with what might be called the Lahoud formula. Orders 111For the reasons set out above I make the following orders:

Ying v Song

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