Supreme Court New South Wales Medium Neutral Citation: CEG Direct Securities Pty Ltd v Shining Pty Ltd (No 3) [2020] NSWSC 1562 Hearing dates: On the papers Date of orders: 5 November 2020 Decision date: 05 November 2020 Jurisdiction: Common Law Before: Cavanagh J Decision: The third and fourth defendants are entitled to indemnity costs from 23 July 2019. Catchwords: COSTS — Party/Party — Bases of quantification — Indemnity basis — Offers of compromise — Reasonableness of rejecting offers not determinative — Whether exceptional case Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 42.14, 42.15, 42.15A Cases Cited: Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586 CEG Direct Securities Pty Ltd v Shining Pty Ltd (No 2) [2020] NSWSC 1213 Commonwealth of Australia v Gretton [2008] NSWCA 117 Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 Houatchanthara v Bednarczyk (Court of Appeal (NSW), 14 October 1996, unrep) Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 Morgan v Johnson (1998) 44 NSWLR 578; [1998] NSWSC 367 Walker v Harwood [2017] NSWCA 228 Winau Aust Pty Ltd & Ors v LCC Property Development Pty Limited & Ors (No 2) [2020] NSWSC 586 Category: Costs Parties: CEG Direct Securities Pty Ltd (Plaintiff/First Cross-Defendant) Xihai Wang (Third Defendant/Second Cross-Claimant) Hai Rong Li (Fourth Defendant/First Cross-Claimant) Registrar-General of Land Titles (Third Cross-Defendant) Representation: Counsel: J Baird (Plaintiff/First Cross-Defendant) D Smallbone (Third and Fourth Defendants/First and Second Cross-Claimants) A Douglas-Baker (Third Cross-Defendant) Solicitors: Ronayne Owen Lawyers (Plaintiff/First Cross-Defendant) David Kam & Co Solicitors (Third and Fourth Defendants/First and Second Cross-Claimants) Office of the Registrar-General (Third Cross-Defendant) File Number(s): 2018/44966 Publication restriction: None Judgment 1. This is the decision on costs consequent upon the orders made in relation to the plaintiff's claim for possession and payment of sums said to be owing by the third and fourth defendants. 2. The effect of my earlier decision and the answers to the separate questions is that the third and fourth defendants were successful in resisting the claim for possession and payment of the sums sought by the plaintiff. [1] 3. As part of the agreed short minutes of order of 11 September 2020, I ordered that: 1. The plaintiff/first cross-defendant pay the third and fourth defendants costs of the proceedings on the claim and the first cross-claim; 2. The costs payable by the plaintiff to the third and fourth defendants be assessed on an ordinary basis for the period up to 22 July 2019; 3. The further consideration of the basis of assessment of costs for the period from 23 July 2019 was reserved (subject to receiving submissions and evidence). 1. I have now received submissions and evidence relevant to costs. 2. The issue I am dealing with is limited to the question of whether the third and fourth defendants are entitled to indemnity costs as and from 23 July 2019. 3. The basis on which the third and fourth defendants seek indemnity costs from 23 July 2019 is that they served an offer of compromise on that day, pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR"). 4. The offer was in writing and, in fact, comprised four alternative offers, each addressed to the plaintiff. 5. The offers did contain a number of different components but they are summarised by the third and fourth defendants for the purposes of their submissions on costs as follows: "(a) The first offer is to the Plaintiff and seeks that the whole of the Plaintiff's claim be dismissed as against the Third and Fourth Defendants with no order as to costs. (b) The second and third offers are to the Plaintiff/First Cross-Defendant and seek judgment in favour of the Cross-Claimants on the First Cross-Claim on issues of the Deed of Guarantee and Indemnity (so far as it concerns the Third and Fourth Defendants) and the Plaintiff's registered mortgages. (c) The second and third offers are alternatives to each other as they contain a different compromise for relief on the First Cross-Claim in relation to the mortgages. Thus, the second offer is only capable of acceptance if the third offer is not accepted. (d) The fourth offer is to the Plaintiff/First Cross-Defendant and to the Third Cross-Defendant (Registrar General of Land Titles) and seeks judgment in favour of the Cross-Claimants on the First Cross-Claim in relation to the forged Powers of Attorney." 1. The parties have provided comprehensive and helpful submissions as to the principles applicable to such offers of compromise. However, it is not necessary to review all of those principles as: 1. the plaintiff does not dispute that the offers were valid offers of compromise (or at least one was); 2. the plaintiff does not dispute that the offers were capable of acceptance (or at least one was); 3. the plaintiff does not dispute the principles that should be applied in general terms. 1. Indeed, the plaintiff's resistance to the awarding of indemnity costs is only on the basis that it was not unreasonable for it not to accept the offer of compromise (I will refer to the offers in the singular). The plaintiff identifies three reasons in support of that proposition being: 1. The offer of compromise was made at a relatively early stage of the proceedings before all of the evidence had been finalised and long before service of the expert report of Mr Steven Dubedat on 12 June 2020 and service of the affidavit of Mr Juan Francisco Uzebaga on 1 July 2020. 2. The arguments on construction of the mortgages were complex. It could not be suggested that the construction contended for by the plaintiff was untenable or that it was unreasonable of it to pursue the argument. 3. The judgment in Winau Aust Pty Ltd & Ors v LCC Property Development Pty Limited & Ors (No 2) [2] was only handed down by Kunc J on 19 May 2020. I referred to this judgment in my decision in support of the third and fourth defendants' construction. It is currently on appeal. 1. It is thus accepted by the plaintiff that the third and fourth defendants have obtained an order or judgment on the claim no less favourable to the third and fourth defendants than the terms of the offer. 2. As set out in r 42.15A, the third and fourth defendants are entitled to an order for indemnity costs, having regard to the offer of compromise served "unless the court orders otherwise". 3. The single question that arises is whether I should order otherwise. 4. The plaintiff's position on the question of indemnity costs gives rise to two questions being: 1. Was it reasonable for the plaintiff to have not accepted the offer of compromise in all of the circumstances? 2. If it was so reasonable, is this a sufficient basis for displacing the operation of the rule entitling the third and fourth defendants to indemnity costs? That is, does it follow that I should otherwise order? 1. The plaintiff relies on a number of decisions in which both offers of compromise and Calderbank v Calderbank [3] offers have been considered. Whilst the principles that apply to Calderbank offers and offers of compromise under the UCPR are very similar, there are some subtle differences. 2. In Commonwealth of Australia v Gretton, [4] Beazley JA said: "[44] Two general 'rules' have emerged relating to Calderbank offers, namely, that to justify the making of an order for costs on an indemnity basis, the offer must be a genuine offer of compromise, which it is unreasonable for the appellant not to accept: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4]-[5]; Leichhardt Municipal Council v Green at [21]-[24], [36]. However, as this Court (Santow, Bryson JJA, Stein AJA) pointed out in Leichhardt Municipal Council v Green at [8], the 'common law principles' that have been developed in relation to costs 'operate merely as guides to how the discretion might appropriately be exercised'. The principles or rules to which I have just referred fall within that category." 1. As her Honour went on to say, the onus is on the party making a Calderbank offer to satisfy the Court that it should exercise the cost discretion in its favour. [5] 2. The approach to offers of compromise is slightly different because rr 42.14 and 42.15 of the UCPR create a presumption that when the successful party made an offer on terms more favourable to the unsuccessful party than the result the successful party ultimately achieved, the unsuccessful party should pay the successful party's costs on an indemnity basis, subject to the Court's discretion to order otherwise. 3. It is not up to the successful party to establish that the Court should not otherwise order. Further, whether it was unreasonable for the unsuccessful party to have rejected the offer of compromise is a relevant but not determinative fact. [6] 4. Even if I consider that it was not unreasonable for the plaintiff to have rejected the offers of compromise, I may decline to exercise the discretion to "otherwise order". [7] The mere fact that it was reasonable for a litigant to take the view that he or she did in rejecting the offer may not be enough to displace the rule. 5. The prima facie consequence of an offer of compromise is that the rule will be enforced against the non-accepting party. The rule should only be departed from for proper reasons which, in general, only arise in an exceptional case. [8] 6. In order to understand the submissions of the parties, it is necessary to say something about the background to the matter. The facts are set out in the principal judgment. [9] 7. The plaintiff sought possession of land and an order for payment of sums owing to it from the third and fourth defendants, who were the parents of the second defendant. The second defendant was the principal of the first defendant company. The second defendant had signed mortgages on behalf of the third and fourth defendants, pursuant to registered powers of attorney. 8. Suffice to say that the third and fourth defendants knew nothing of all this. As I have found, their signatures on the powers of attorney were forged. They resisted the plaintiff's claim for possession and payment on the basis that their signatures were forged and that, despite registration of the mortgages, the mortgages secured nothing. 9. Of course, the plaintiff was unaware that the signatures had been forged and sought to enforce its entitlements under the mortgages and loan agreements. Both the third and fourth defendants deposed in their affidavits to the fact that the signatures were forged. Those affidavits were served on the plaintiff well prior to the offers of compromise being on 3 and 5 October 2018 respectively. 10. Further, the third and fourth defendants point to other evidence that tends to support their assertions that their signatures were forged. In particular, they served movement records obtained from the Australian Department of Home Affairs which suggested that they were in Australia at the time when they were alleged to have signed certain documents in China, being direction and authority documents. 11. The third and fourth defendants thus submit that there was other corroborative evidence that should have placed the plaintiff on notice as to the strength of the third and fourth defendants' case, rendering it unreasonable for the third and fourth defendants not to accept the offer of compromise. 12. The critical point relied upon by the plaintiff is that the third and fourth defendants did not serve the expert report of Mr Dubedat or the affidavit of Mr Uzabeaga until shortly before the hearing. 13. On one view, it would be somewhat unusual if reasonable conduct required the plaintiff, as mortgagee, to essentially give up when faced with affidavits of mortgagors suggesting that their signatures were forged. In that sense, it might be said that the plaintiff was quite entitled to pursue its claim. Its conduct in not merely accepting the assertions of the third and fourth defendants was hardly unreasonable. 14. Further, as the plaintiff submits, there were complex issues relating to the construction of the mortgages about which there were competing arguments. Of course, on receipt of the third and fourth defendants' expert evidence, the plaintiff then determined not to challenge the assertion of forgery but it continued to pursue its case based on its preferred construction of the mortgages. 15. Again, it was entitled to do so. There were arguments available to it. However, the question of whether it was reasonable for the plaintiff to continue on with the litigation is not determinative. As was said in Maitland Hospital v Fisher (No 2), [10] a party's reasonable belief as to its own chances of success does not alone provide a basis for denying an order for indemnity costs. 16. Similarly, as was said in Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2), [11] the mere fact that it was reasonable for the plaintiff to take the view that it did in rejecting the offer is not enough to displace the rule (being the rule in respect of offers of compromise). 17. It does not seem to me that the fact that the plaintiff may have considered that it had a reasonable argument on its construction point is a sufficient basis for shifting the presumption. If it be otherwise, the purpose and intent of the rule would be easily negated by a party demonstrating that the points which it wished to pursue were reasonably arguable. 18. I do not consider that the offer of compromise was served at an early stage. It was served eight months after the third and fourth defendants' affidavits. Further, at the time of serving of the offer of compromise, the plaintiff did not have any contrary evidence. 19. The third and fourth defendants had not sought to corroborate their own evidence through expert evidence at that stage but there is nothing in the UCPR relating to offers of compromise which suggests that they cannot be relied upon until all evidence is being served by the successful party, or that in some way, the service of additional evidence corroborating the early evidence should preclude the successful party from relying on an offer of compromise. 20. It may be commercially appropriate and desirable for the plaintiff to both maintain its construction argument and not necessarily accept that the powers of attorney were forged. However, I do not consider that those matters should be determinative. Further, whilst Winau (No 2) was decided subsequent to the offer of compromise, that decision was just one matter relevant to the construction issue. 21. I do not consider that there is anything out of the ordinary in what occurred in the conduct of the litigation. It may have been reasonable for the plaintiff to maintain belief in its arguments, but I do not consider that the circumstances justify a departure from the presumption set out in the rule. 22. On my understanding of the rule, the third and fourth defendants are entitled to indemnity costs from the day following the day on which the offer was made. The third and fourth defendants are thus entitled to indemnity costs from 23 July 2019. ********** Endnotes 1. CEG Direct Securities Pty Ltd v Shining Pty Ltd (No 2) [2020] NSWSC 1213. 2. [2020] NSWSC 586 ("Winau (No 2)"). 3. [1975] 3 All ER 333; [1975] 3 WLR 586. 4. [2008] NSWCA 117 at [44]. 5. Gretton at [46]; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61. 6. Walker v Harwood [2017] NSWCA 228 at [17], [59]. 7. Morgan v Johnson (1998) 44 NSWLR 578 at 581–582 (Mason P); [1998] NSWSC 367. 8. Houatchanthara v Bednarczyk (Court of Appeal (NSW), 14 October 1996, unrep). 9. CEG Direct Securities Pty Ltd v Shining Pty Ltd (No 2) [2020] NSWSC 1213. 10. (1992) 27 NSWLR 721 at 725. 11. [2014] NSWCA 391 at [48]. 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: 05 November 2020