Supreme Court New South Wales Medium Neutral Citation: Shalhoub v Johnson (No 2) [2020] NSWSC 1506 Hearing dates: On the papers Date of orders: 28 October 2020 Decision date: 28 October 2020 Jurisdiction: Equity Before: Darke J Decision: Unsuccessful plaintiff ordered to pay defendants' costs on an indemnity basis from day after Calderbank offer made by the defendants lapsed. Catchwords: COSTS – departing from general rule – Calderbank offers – two Calderbank offers made by the defendants – neither offer accepted – first offer held not to be a genuine offer of compromise – second offer held to be a genuine offer of compromise that it was unreasonable of plaintiff not to accept – indemnity costs ordered in favour of defendants from day after lapse of second offer Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Cases Cited: Commonwealth of Australia v Gretton [2008] NSWCA 117 King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Shalhoub v Johnson [2020] NSWSC 1321 Category: Costs Parties: Maria Shalhoub (Plaintiff) Michael Joseph Johnson (First Defendant) Sheila Pyper Royles (Second Defendant) Representation: Solicitors: Oliveri Lawyers (Plaintiff) Shaw Reynolds Lawyers (Defendants) File Number(s): 2018/335720 Publication restriction: None Judgment 1. The Court delivered judgment in these proceedings on 29 September 2020 (Shalhoub v Johnson [2020] NSWSC 1321). The proceedings concerned a claim in negligence for an alleged breach of the duty of care referred to in s 177 of the Conveyancing Act 1919 (NSW). 2. The plaintiff is the registered proprietor of No 8 Helena Street, Randwick. By her Amended Statement of Claim filed 13 August 2019, the plaintiff alleged that the defendants, who are the owners of the neighbouring property, No 6 Helena Street, negligently caused works to be undertaken on No 6 which in turn caused a removal or reduction of support for No 8. The Amended Statement of Claim sought compensation for damage to the property in the amount of $137,685, and injunctive relief to compel the defendants to cease work and restore support to No 8. The injunctive relief was ultimately not pressed at the hearing. 3. Of central importance to the dispute was the condition of a retaining wall, located mostly on No 6, which runs adjacent to the boundary between the two properties. The plaintiff claimed that the manner in which the works were conducted, in particular, the excavation and movement of soil near the wall without the provision of shoring, caused rotation of the wall. It was alleged that the rotation removed or reduced adequate support for No 8 and caused cracking and damage to structures on the property. 4. In the principal judgment, the Court determined that the plaintiff failed to establish that the works were carried out negligently, and further failed to show that the works caused rotation to the wall or the sustaining of damage to any structures. The Court ordered that the Amended Statement of Claim be dismissed with costs. 5. On 12 October 2020, the defendants filed a Notice of Motion seeking to vary the Court's order as to costs to an order that the plaintiff pay the defendants' costs of the proceedings on an indemnity basis from 14 February 2019. Directions were made for the parties to serve and provide brief written submissions with a view to the matter being dealt with on the papers. The Court has considered the defendants' submissions dated 16 October 2020 and the plaintiff's submissions dated 23 October 2020. 6. The defendants rely upon the affidavit of their solicitor, Ms Alyce Kliese, affirmed on 12 October 2020. Annexed to that affidavit are two offers addressed to the plaintiff's solicitor. The first was contained in an email dated 1 February 2019. The offer was expressed to be without prejudice save as to costs and made in accordance with the principles in Calderbank v Calderbank (1975) 3 All ER 333. It was said to be made in "full and final settlement of these proceedings". In essence, the offer was that the defendants pay $5,000 to the plaintiff and the parties enter into a Deed of Settlement and Release, whereby "the parties agree to release each other from all future claims, demands and actions relating to damage to the property without effecting [sic] the party's rights under the Dividing Fences Act 1991". Each party would pay their own costs. The letter stated that the offer remained open until 5pm on 14 February 2019. 7. The letter further stated that the defendants denied any impact on the retaining wall or its integrity as a result of works done by the defendants, and that the plaintiff was aware of the condition of the wall prior to the undertaking of works. It was stated that the plaintiff was aware of the reports of a consulting engineering firm (SDA Structures Pty Ltd) dated 22 December 2012 and 20 October 2017 showing that various other factors had contributed to the leaning of the wall. It was said that the defendants considered that the assessment of damages provided in the form of quotations would not be upheld, and that the plaintiff's claim, even on her own evidence, cannot be substantiated. 8. By letter dated 14 February 2019, the plaintiff rejected that offer. Her solicitor stated that the offer was not a reasonable or proper compromise of respective rights and risks, but was rather an invitation to capitulate provided solely for tactical purposes. It was also stated that the proposed release was too wide in light of the small monetary amount offered. It was said that the plaintiff does not accept or agree with the engineering reports. 9. The second offer annexed to Ms Kliese's affidavit is in the form of a letter dated 6 May 2019. The offer is again expressed to be a Calderbank Offer, without prejudice save as to costs, made in full and final settlement of the proceedings and all disputes between the parties relating to any of the subject matters of the proceedings. The terms of the offer include: 1. The parties shall undertake the tasks as set out in Schedule A attached to the letter; 2. The parties shall be responsible for payments as set out in Schedule A; and 3. The parties shall enter into a Deed of Settlement and Release whereby: 1. each party is to pay their own costs subject to Schedule A; and 2. the parties agree to release each other from all future claims relating to damage to the property without effecting [sic] the party's rights under the Dividing Fences Act 1991. 1. Schedule A set out several provisions of the proposed settlement, including that: 1. The defendants will replace and pay for a new retaining wall to be rebuilt in the same location as currently, although in a straight line, parallel with the boundary; 2. The design of the wall is to be based upon specifications developed by Istruct, and constructed by a licenced and insured contractor as chosen by the defendants; 3. The defendants will bear the cost of obtaining the Complying Development Certificate; 4. If required by the plaintiff, the plaintiff's expert, Triaxial, may be appointed to provide independent validation of the design, independent validation of the suitability of the contractor, and granted up to three inspections during construction to validate its quality; 5. The plaintiff will remove the portion of the garden bed built upon the retaining wall at the rear of No 8 Helena Street and bear the costs of that removal; 6. The defendants will replace and bear the cost of a new fence on top of the retaining wall; and 7. The proceedings would be dismissed with each party bearing their own costs. 1. The defendants again denied that the works had any impact on the retaining wall, but acknowledged that both parties seek to have the area surrounding the retaining wall, and the retaining wall itself, built in such a way that ensures both parties are satisfied that their properties are secure. 2. The offer was stated to be open until 5pm on 21 May 2019. The plaintiff made no response to the offer. The offer thus lapsed on 21 May 2019. 3. There was no dispute as to the applicable principles in respect of Calderbank offers. For a Calderbank offer to trigger indemnity costs consequences, the offer must represent a genuine compromise which the recipient unreasonably failed to accept, taking into account all the relevant circumstances of the case (see Commonwealth of Australia v Gretton [2008] NSWCA 117 at [44]-[46]; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]). The determination of whether a rejection or non-acceptance of a Calderbank offer is unreasonable is an evaluative judgment to be made by reference to the terms of the offer and the relevant surrounding circumstances (see King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [11]). Of course, an unreasonable failure to accept a Calderbank offer which is a genuine compromise does not always result in an award of indemnity costs. The failure to accept the offer is a factor that may, depending on the circumstances, warrant the exercise of the Court's discretion to award indemnity costs. 4. In my opinion, the Calderbank offer of 1 February 2019 did not represent a genuine offer of compromise. I accept the plaintiff's submission in this respect. The offer was $5000 inclusive of costs. Even though the proceedings were at an early stage, it is likely that the plaintiff had already incurred legal costs of at least that amount. Moreover, I consider the sum of $5000 to be insignificant in relation to the amount of damages claimed by the plaintiff. In my view, the offer was designed to trigger costs consequences in the event that the defendants were successful in the proceedings. The defendants submitted that they considered the plaintiff's claim to lack merit having regard to the report of Mr Daniel Cully of Triaxial Consulting Pty Ltd dated 20 February 2018 (the First Triaxial Report) and the SDA Structures Report, however the offer was made before formal evidence in the proceedings had been served. I do not think that the plaintiff's claim could reasonably be treated as hopeless at that stage. I therefore accept the plaintiff's submission that it was not unreasonable of her not to accept this offer. 5. I turn now to the offer made on 6 May 2019. The plaintiff submitted that the offer is not able to be regarded as a Calderbank offer because a number of the conditions set out in Schedule A to the offer are vague, imprecise and dependent upon the approval of authorities or performance by third parties. It was submitted that there was no certainty that the conditions set out in Schedule A would ever be met. It was further submitted that the scope of the mutual releases went well beyond the scope of the dispute in these proceedings. 6. I do not agree that the offer should not be regarded as a Calderbank offer. It is true that if the offer was accepted, the defendants would be obliged to carry out works that would require the approval of the local Council, but this does not give rise to such uncertainty that no binding agreement would come into existence. In my opinion, the offer, if accepted, would have given rise to a concluded contract that would include implied terms requiring the defendants to seek to obtain, at their cost, any necessary approvals. The defendants would be bound to have a new retaining wall built in accordance with the terms of offer, at their cost. It must not be overlooked that the plaintiff was herself seeking injunctive relief to require the defendants to restore support to the plaintiff's property. In the context of this case that must be taken to include works to repair or replace the retaining wall which the plaintiff alleged had been damaged as a result of negligence on the part of the defendants. The subject matter of the offer was an apt response to the complaints made by the plaintiff in the proceedings. 7. I would add, for what it is worth, that when the offer was made the plaintiff did not point out that there was some uncertainty about it which would preclude either proper consideration of the offer or the making of a binding contract upon acceptance. The offer was simply not responded to by the plaintiff. 8. In my opinion, the Calderbank offer of 6 May 2019 represented a genuine offer of compromise. That is clear from the substantial obligations the defendants would have had in relation to the construction of a new retaining wall if the offer had been accepted. Moreover, I think that it was unreasonable of the plaintiff not to accept the offer. Acceptance of the offer would have put the plaintiff in a position to enforce an agreement the performance of which would have gone a long way towards satisfying the complaints made by the plaintiff in the proceedings. I note, that out of the $137,685 damages claim ultimately pressed by the plaintiff, a substantial component was attributable to works associated with the retaining wall. Acceptance of the offer would have placed the plaintiff in a much better position than she is now having prosecuted her case and lost. 9. I do not accept that the scope of the proposed mutual releases go beyond the scope of the dispute in these proceedings. The offer contemplates that the parties will release each other from all future claims relating to damage to the property. Read in the context of the offer as a whole (including paragraph 3 of the letter), it is clear that the proposed releases would cover claims that concern the subject matters of the proceedings. That is, the allegations that the defendants were responsible for the damage to the plaintiff's property through the works they carried out on their property in about 2012 and 2018. The requiring of appropriately worded mutual releases of the breadth of those proposed here seems to me to be orthodox and reasonable, and in conformity with one of the central purposes of an offer of compromise, namely, the achievement of finality. 10. Having considered all of the circumstances of the matter, it is my view that the unreasonable failure of the plaintiff to accept the offer made on 6 May 2019 warrants the making of an order for indemnity costs in favour of the defendants. I think it would be appropriate for indemnity costs to be awarded from 22 May 2019, the day after the offer lapsed. I note that the plaintiff submitted that such an order should not be made because the defendant only sought an order that indemnity costs run from the date the earlier offer was rejected. I do not accept that submission, which seems to me to disregard the substance of the enquiry which is to consider whether, and if so to what extent, it would be appropriate to exercise the Court's discretion as to costs under s 98 of the Civil Procedure Act 2005 (NSW) to award indemnity costs in favour of the defendants. 11. For the above reasons, the Court will vary the order for costs made on 29 September 2020 so that it becomes an order that the plaintiff pay the defendants' costs of the proceedings up to and including 21 May 2019 on the ordinary basis, and thereafter on an indemnity basis. I will note, for completeness, that the indemnity costs component of the order will include the defendants' costs of the Notice of Motion filed on 12 October 2020. ********** 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: 28 October 2020