Shandong Delisi Food Co Ltd v Yolarno Pty Ltd (No 2) [2022] NSWSC 85

Supreme Court New South Wales

Medium Neutral Citation: Shandong Delisi Food Co Ltd v Yolarno Pty Ltd (No 2) [2022] NSWSC 85 Hearing dates: 7 February 2022 Date of orders: 7 February 2022 Decision date: 07 February 2022 Jurisdiction: Equity - Commercial List Before: Parker J Decision: See [25] Catchwords: COSTS – indemnity costs – formal offer of compromise by plaintiff bettered in judgment – presumptive entitlement to indemnity costs – commercial claim – "modest" degree of compromise – construction arguments in support of claim not explained – no sufficient reason to depart from presumptive entitlement Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) r 42.14 Cases Cited: Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3 Mendonca v Tonna (No 3) [2020] NSWCA 332 Taheri v Vitek [2014] NSWCA 344 Category: Costs Parties: Shandong Delisi Food Co Limited (Plaintiff) Yolarno Pty Limited (Defendant) Representation: Counsel: S H Hartford Davis/C Marshall (Plaintiff) S Nixon SC/H Atkin (Defendant)

Solicitors: Corrs Chambers Westgarth (Plaintiff) King & Wood Mallesons (Defendant) File Number(s): 2020/106935 Publication restriction: Nil

Judgment – EX TEMPORE Revised from transcript; issued 9 February 2022 1. On 17 January I delivered my substantive judgment in this matter: Shandong Delisi Food Co Ltd v Yolarno Pty Ltd [2022] NSWSC 17. This judgment concerns the consequential orders to be made in light of the conclusions which I reached. It assumes familiarity with my January judgment and uses the same abbreviations as I used in that judgment. 2. I found Delisi entitled to judgment for the amount of the Advanced Payment (principal amount $6 million). The parties agree that, including interest, the amount due is $7,697,409.97. There will be judgment in favour of Delisi for that amount. 3. As I recorded in my January judgment a cross-claim had earlier been filed but the parties agree that the cross-claim should be dismissed with no order as to costs. I will proceed to make that order as well. The parties also agree that the security lodged by Delisi for Yolarno's costs should be paid out. 4. There was a last-minute dispute before me about whether there should be an interim stay of the judgment to allow Yolarno to lodge its appeal and make an application to the Court of Appeal for a stay pending the hearing of the appeal. The question was whether, as a condition of such an interim stay, the judgment debt should be paid into Court. 5. Following some debate, counsel for Delisi accepted that a two-week interim stay would not cause his client any prejudice. I therefore propose to accede to the defendant's request. There will be an unconditional stay for two weeks which will be sufficient time for Yolarno to approach the Court of Appeal about extension. 6. The substantive dispute between the parties is about the costs of Delisi's claim. The parties agree that Delisi is entitled to costs of its claim, at least on the ordinary basis. Delisi claims costs on an indemnity basis from 20 April 2021 onwards. This claim is disputed by Yolarno. 7. The claim for indemnity costs is based on an offer made by Delisi on 19 April last year. The offer was for Yolarno to consent to judgment in the sum of $5 million with no order as to costs. That offer was not accepted. 8. There is no dispute from counsel for Yolarno that the judgment to be entered in favour of Delisi is more favourable than the offer. The offer involved a discount on the principal amount claimed, and the abandonment of any claim for interest and costs to that point (the proceedings had been commenced in 2020). Counsel also accepted that the offer complied with the terms of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). 9. The offer therefore created a presumptive entitlement to indemnity costs from 20 April onwards, unless the Court should consider it appropriate to order otherwise: UCPR r 42.14. Counsel for Yolarno advanced two factors in support of the argument that the Court should do so. 10. The first was that in counsel's characterisation, the compromise was real but "modest". Counsel referred me to Court of Appeal authority to the effect that an offer made pursuant to the rules will generally not attract indemnity costs (that is, the Court will usually order otherwise) where "no significant compromise is made by the offeror": see Mendonca v Tonna (No 3) [2020] NSWCA 332 at [24]. 11. The Court of Appeal cited as authority for that proposition its earlier decision in Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3 at [5], where in turn the Court referred to its decision in Taheri v Vitek [2014] NSWCA 344 at [9]-[11]. In both of these cases the only compromise involved in the offer was that the offeror gave up costs by agreeing to "walk away". In each case the offer was made relatively early in the proceedings so the costs foregone were not significant. 12. As the Court characterised the offer in Mega-top, there was "no significant compromise at all". That is clearly and concededly not this case. In the end, I did not understand counsel for Yolarno to rely on this factor, on its own, as justifying the Court ordering otherwise under the Rules. Counsel's argument relied on the conjunction of the supposedly "modest" compromise with the other factor in the case to which I now turn. 13. As I mentioned in my January judgment, the agreement which is the subject of the claim was effectively treated by the parties as having come to an end in July 2016. There was some communication between Delisi (then represented by a different firm of solicitors) and Yolarno at that stage, but Delisi took no action to pursue its claim. That did not happen until March 2018 when a letter of demand was sent by Delisi's current solicitors to the solicitors for Yolarno. And, as I have mentioned, it was not until 2020 that the proceedings were commenced. 14. Counsel for Yolarno observed that the interpretation of the SSSA propounded by Delisi's former solicitors in the 2016 correspondence was inconsistent with the arguments which ultimately prevailed before me. Counsel submitted that it was really only when Delisi's submissions were filed for the purpose of the trial that the arguments on which Delisi was ultimately successful were fully and clearly articulated. 15. Counsel pointed to a letter from Yolarno's solicitors in July 2021, three months after the offer was made. Yolarno's solicitors wrote: Your client purported to terminate the Share Sale and Subscription Agreement at a time when it was not entitled to do so. Even on your client's best case, the notice of termination was given at least one day early and so constituted a repudiation. Nothing in your client's evidence assists your client in this regard and your client has never explained how it could realistically hope to overcome this issue. 1. Counsel for Yolarno submitted that this in effect was an invitation to Delisi to articulate its claim, which Delisi failed to do. Counsel submitted that in the circumstances the offer had been made before the full scope of the dispute between the parties had been exposed and this, combined with the "modest" discount, was sufficient reason for the Court to order otherwise. 2. As counsel for Delisi pointed out, the passage which I have quoted from the correspondence must be understood in its context. The first point to make is that Yolarno's solicitors did not at the time of the offer apparently seek any explanation from Delisi about the nature of its claim. The second is that the correspondence in question arose out of a request by Delisi for a mediation. That request was refused. 3. The passage that I have quoted from Yolarno's solicitors appears to have been put forward as an explanation or justification for Yolarno's refusal to mediate. In response, Delisi's solicitors stated: As to the points made in your email, we do not propose to debate matters for submission at this time other than to say that the points made are rejected. If your client wished to better understand our client's position, a mediation would have been a suitable forum for that to occur. Your client does not wish to attend a mediation. 1. In my view, the Court should be wary of introducing rules of thumb in the exercise of the discretion which would cut across what r 42.14 says and what it does not say. The rule does not require as a condition of validity of the notice of offer that it contain any explanation for the terms of the compromise. 2. As I have mentioned, there was no request from the solicitors for Yolarno for some sort of explanation of the basis of the offer at the time that it was made. Indeed, I am not sure whether the passage which I have quoted from Yolarno's solicitors is properly characterised as such a request either, but even if it was, that is irrelevant to the exercise of the discretion, which depends upon the circumstances as they stood at the time the offer was made. 3. I accept that in some circumstances there may be a change to the plaintiff's case which is so radical as to make it unreasonable, if that changed case ultimately succeeds, for an offer of compromise which predated the change to have the effect of imposing indemnity costs on the defendant. But at the same time, refinement, clarification and articulation of a party's case is an ordinary incident of the conduct of litigation, particularly litigation conducted in the Commercial List. 4. In this context it is worth noting that in the passage that I have quoted, the solicitors asserted that Delisi's notice of termination was itself a repudiation, an argument which counsel for Yolarno did not press at trial. This, of course, is not a criticism of anyone. It is just an illustration of the ordinary forensic course that as proceedings approach trial the parties refine their arguments, selecting the aspects of those arguments which seem more attractive. 5. I do not think that what happened here involved any significant departure from the usual run of litigation. The articulation of Delisi's arguments before the trial should not have been completely outside the contemplation of Yolarno at the time the offer was made. There is no evidence from Yolarno to that effect. Yolarno did not abandon its defence when Delisi refined its case for trial, and I see no reason to think that that would have happened had the refinement occurred earlier. 6. For these reasons in the exercise of my discretion I decline to order otherwise for the purposes of r 42.14. Delisi will receive an order for indemnity costs from 20 April 2021 in accordance with its presumptive entitlement under the rules. 7. The orders of the Court are: 1. Order judgment be entered for the plaintiffs in the amount of $7,697,409.97. 2. Order the defendant pay the plaintiff's costs of the principal claim as agreed or assessed: 1. prior to 20 April 2021, on the ordinary basis; 2. from 20 April 2021, on an indemnity basis. 1. Order the cross-claim be dismissed with no order as to costs. 2. Order the amounts paid by the plaintiff into Court as security for the defendant's costs be returned to the plaintiff. 3. Order that execution on Order 1 be stayed for a period of 14 days.