Supreme Court New South Wales Medium Neutral Citation: GJA Kalra Pty Ltd v Amgade Pty Ltd and Anor (No 2) [2022] NSWSC 707 Hearing dates: On the papers Date of orders: 31 May 2022 Decision date: 31 May 2022 Jurisdiction: Equity Before: Peden J Decision: 1. The order made as to the costs in the principal judgment stands. 2. The defendants are to pay the plaintiff's costs of the application for a special costs order on the ordinary basis as agreed or assessed. Catchwords: COSTS — Party/Party — Exceptions to general rule that costs follow the event — Offers of compromise/Calderbank offers — Abandonment of claim Cases Cited: Abdi v Abdi (No 2) [2022] NSWSC 582 Assaf v Skalkos [2002] NSWSC 935 Calderbank v Calderbank (1975) 3 All ER 333 Commonwealth v Gretton [2008] NSWCA 117 Danidale Pty Ltd v Abigroup Contractors Pty Ltd (No 2) [2007] VSC 552 Geoffrey Andrew Smith v Robert Gould [2014] VSCA 138 Ghunaim v Bart (No 2) [2006] NSWCA 82 GJA Kalra Pty Ltd v Amgade Pty Ltd and Anor [2022] NSWSC 509 Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 CR 435; [2005] VSCA 298 MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 Vale v Eggins (No 2) [2007] NSWCA 12 Ying v Song [2011] NSWSC 618 Category: Costs Parties: GJA Kalra Pty Ltd (Plaintiff) Amgade Pty Ltd (First Defendant) Todarello Property Investments Pty Ltd (Second Defendant) Representation: Counsel: J Mack and L James (Plaintiff) P Afshar (First and Second Defendants) Solicitors: Felicio Law Firm (Plaintiff) KB Legals (First and Second Defendants) File Number(s): 2019/198412 Publication restriction: Nil Judgment 1. On 29 April 2022, I published reasons for judgment in this matter (GJA Kalra Pty Ltd v Amgade Pty Ltd and Anor [2022] NSWSC 509), which involved a dispute between the plaintiff lessee and defendant lessor of a property. The plaintiff/lessee's claim primarily concerned whether the lessor was liable by reason of a promissory estoppel based on a representation concerning a wastewater system on the leased property. 2. I dismissed the plaintiff's claim, finding that no estoppel had been made out; the first defendant did not make any representation to the plaintiff at the relevant time. I also found that the plaintiff did not rely on any representation made to it by the defendants in executing the transfer documents, nor did it suffer any relevant detriment by reason of the defendants' actions, and that the defendants did not act unconscionably in their dealings with the plaintiff. 3. I ordered at [130] of my reasons that the plaintiff pay the defendants' costs on the ordinary basis as agreed or assessed, unless a party sought a different costs order. 4. The defendants have sought special costs orders on two bases: (1) the making of a Calderbank offer by the defendants, and (2) the abandonment at trial of the "damages" claim for the loss of the motel's revenue. 5. The plaintiff resists the application for special costs orders and submits that the costs of the proceeding should be paid on the ordinary basis (as proposed in the principal judgment at [130]) and that the defendants should pay the plaintiff's costs of this costs application. Calderbank offer 1. Five days before the commencement of the hearing, on 6 April 2022 at 11.41pm, the defendants sent to the plaintiff an offer referencing the principles outlined in Calderbank v Calderbank (1975) 3 All ER 333. The letter offered resolution of the proceedings on the following terms: 1. The proceeding would be dismissed by consent. 2. There would be an order that your client pays 50% of our client's [the defendants] costs of the proceeding as agreed or assessed. 3. The parties mutually release and covenant not to sue one another in relation to the subject matter of the proceeding. 4. Your client acknowledges that the Lease governs the parties' relationship. 5. The parties agree the usual terms as to confidentiality, non-disparagement and other boilerplate terms. 1. Just recently Ward P summarised the well-known principles in relation to costs in Abdi v Abdi (No 2) [2022] NSWSC 582 at [19]-[30]: [19] It is well-recognised that there is a broad discretion as to costs (see s 98 of the Civil Procedure Act 2005 (NSW); Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (Oshlack)) but that it must be exercised judicially (see Oshlack at [22] per Gaudron and Gummow JJ) and having regard to the overriding statutory purpose mandated by s 56 of the Civil Procedure Act. The usual order is that costs follow the event (see r 42.1 of the UCPR); unless the Court considers that some other order ought to be made (see Commonwealth of Australia v Gretton [2008] NSWCA 117 (Commonwealth v Gretton) at [38] per Beazley JA, as Her Excellency then was (with whom Mason P agreed)). [20] The purpose of costs awards is primarily compensatory not punitive (see Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [37] per Gleeson JA, with whom Meagher and Barrett JJA concurred, his Honour there citing Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 at 542 per Mason CJ; and see also Ohn v Walton (1995) 36 NSWLR 77). The discretion to be exercised in a manner which is primarily directed to the position of the successful party. [21] However, it is also well known that there are circumstances in which special costs orders are warranted. Leaving aside cases of relevant delinquency (see Fountain Selected Meats (Sales) Pty Ltd v Universal Produce Merchants Pty Ltd (1988) 81 ALR 397; [1988] FCA 364; Dunstan v Rickwood (No 2) [2007] NSWCA 266 at [44] per McColl JA), special costs orders are commonly sought where the offer of compromise procedure under the UCPR is validly invoked or where the Calderbank principles are applicable. The public policy underlying the making of special costs orders in such circumstances is the interest in encouraging settlement of litigation and discouraging wasteful and unreasonable behaviour of litigants (see Leichardt Municipal Council; Maitland v Fisher (No 2) (1992) 27 NSWLR 721 at 724 per the Court). 1. Significantly, her Honour continued in relation to principles concerning Calderbank offers: [23] … In Whitney v Dream Developments (2013) 84 NSWLR 311; [2013] NSWCA 188 , the Court of Appeal considered what amounts to the essence of a Calderbank, emphasis being placed on whether the offer (or the circumstances in which it was conveyed) indicated the intention that it was to be relied on as to costs if it were to be rejected or not accepted and a judgment more favourable than the offer be achieved (see Bathurst CJ at [42]; Barrett JA similarly at [57]-[59]), it being crucial (in determining whether the offer took effect as a Calderbank offer) to determine the manifested objective intention of the offeror… [24] It is also necessary, to enliven the discretion to make special costs orders by reference to the rejection of a Calderbank offer, that the offer in question amounts to a genuine offer of compromise (that was it unreasonable for the party against whom the order is sought not to accept) (see the authorities referred to by the plaintiff above; and see also Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4] per Handley, Basten and Beazley JJA; and Hancock v Arnold (No 2) [2009] NSWCA 19 at [23] per Ipp, McColl and Basten JJA). … [26] The making of a valid Calderbank offer that is better than the result ultimately obtained at the conclusion of a contested hearing does not automatically result in an indemnity costs order (see Commonwealth v Gretton at [43]), nor does it raise a prima facie presumption that such an order should be made (see SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (at [37]) per Giles JA; Jones v Bradley (No 2) [2003] NSWCA 258 (Jones v Bradley) at [7]-[9] per Meagher, Beazley and Santow JJA; South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (South Eastern Sydney Area Health Service) at [90] per Hunt AJA; see also Favotto Family Restaurants Pty Ltd v Chief Commissioner of State Revenue (No 2) [2020] NSWSC 519 (Favotto) at [28]; Chief Commissioner of State Revenue v Platinum Investments Management Ltd (No 2) [2011] NSWCA 197 at [9] per Campbell and Macfarlan JJA and Handley AJA. [27] The party seeking the special costs order bears the onus of demonstrating that the rejection of the offer was "unreasonable" in all the circumstances of the case (see Leichhardt Municipal Council at [19]; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] per Giles, Ipp and Tobias JJA). [28] Whether rejection of a Calderbank offer (or other offer of settlement) was unreasonable is an evaluative judgment to be made by reference to the terms of the offer and all the relevant surrounding circumstances (King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [11] per Young JA with whom Campbell and Hodgson JJA agreed). It has been said that a finding of unreasonableness should not be made other than on clear grounds (Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113] per Basten JA with whom Giles JA and Young CJ in Eq agreed). [29] The factors to be taken into regard when considering whether the rejection or non-acceptance of the offer was unreasonable (summarised in Favotto at [20]-[30]) include: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree's prospects of success assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it (see Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25] per Warren CJ, Maxwell P and Harper AJA; Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 at [8] per Buchanan and Tate JJA and Sifris AJA; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12] per Basten JA with whom McColl and Campbell JJA agreed). [30] Factors that have been found to be relevant in determining whether the rejection of a Calderbank offer was not unreasonable, and tending against such finding, have included: all relevant evidence not having been served at the time of the offer (Vale v Eggins (No 2) [2007] NSWCA 12 at [22] per Beazley JA); the full parameters of the dispute remaining uncertain at the time of the offer (Precision Products (NSW) Pty Ltd v Hawkesbury City Council (2008) 74 NSWLR 102; [2008] NSWCA 278 at [192] per Allsop P with whom Beazley and McColl JJA agreed); the offeror's case changing after the making of the offer (South Eastern Sydney Area Health Service at [85] per Hunt AJA); the inclusion of conditions in the offer (Magenta Nominees Pty Ltd v Richard Ellis (WA) Pty Ltd (unreported, FCAFC, Spender, French and Lee JJ, 29 August 1995); and the issues in dispute in the proceedings being complex (MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 242D per Lindgren J)… Whether offer was "valid" 1. Blandly the plaintiff submits that the offer is not a valid one, but does not provide reasons. I reject that submission as I consider that the offer in the present case was in the form of a valid offer. The offer stated: "[t]his offer is made in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333". Although it was not explicitly apparent in the terms of the offer that it would be relied on for the purposes of a special costs order, should it not be accepted and the defendants obtain a better outcome in the judgment, the letter does state that it is "without prejudice save as to costs." I consider this sufficient to constitute a valid offer: Assaf v Skalkos [2000] NSWSC 935 at [110] (Carruthers AJ); Geoffrey Andrew Smith v Robert Gould [2014] VSCA 138 at [156] (Warren CJ, Osborn and Beach JJA). Whether offer contained a genuine compromise 1. Moving to the requirement that the offer contained a genuine compromise, the defendants submitted that an offer to bear 50% of their own costs of the proceeding was a substantial compromise. The defendants say that the offer, had it been accepted, would have placed the plaintiff in a better position than it ultimately achieved in the litigation (which is clearly the case as it would not then have been exposed to the adverse costs order that has now been made). 2. The plaintiff submits that the offer was not a genuine attempt to settle the proceeding, particularly considering that the offer was made: 1. when the proceedings had been on foot for almost three years, and 2. the day after the defendants served new evidence (out of time). 1. The extent of that compromise was not readily ascertainable in financial terms from the offer. I discuss this further below. Whether rejection was unreasonable 1. The defendants submit that the plaintiff unreasonably rejected the offer. Both parties have raised various factors said to be relevant in the exercise of the Court's discretion. 2. First, as to timing of the offer, the defendants submit that the offer was made close to the trial, at which time the plaintiff was fully aware of its position. In addition, the defendants note that the defendants' solicitor had informed the plaintiff of the weaknesses of its case in a letter dated 15 February 2022, which was sent in the context of a proposal to mediate. The defendants say that, in these circumstances, the plaintiff could have quickly assessed the reasonableness of the offer balanced against its perception of its prospects of success. Further, the defendants suggest that there was nothing that would have stopped the plaintiff from seeking additional time to respond to the offer. 3. The plaintiff submits that the time for consideration of the offer was too short, and that there is no requirement for an offeree to seek an extension of the time during which an offer remains open. In addition, there is no evidence that an extension would have been granted. 4. Further in relation to timing, the plaintiff submits that it was not unreasonable for it not to accept the offer particularly because the defendants served new evidence the day before the offer was made. This evidence was served out of time and without leave, merely a few days before the hearing. 5. Secondly, the plaintiff submits that the expressed basis for the offer was inconsistent with the findings in the principal judgment. It says that the weaknesses of the plaintiff's case were not set out in the offer, and, in fact, the Court ultimately found against the plaintiff on a matter which did not feature prominently in the defendants' opening or closing submissions. 6. Thirdly, the plaintiff submits that the offer did not quantify the legal costs of the defendants (as is usual in such offers) and the plaintiff was unable to determine the value of the offer. 7. On balance I do not consider that the plaintiff unreasonably rejected the offer for the following reasons. 8. The offer was made on 6 April 2022, approximately five days before trial. However, the defendants served 106 pages of new evidence on the plaintiff on 5 April 2022 at 5:04pm. The new evidence was relevant to findings in the case, including the date of the meeting at which the representation was made, and the finding that the representation was not made to the plaintiff. Therefore, the service of late evidence tells against the plaintiff's rejection of the offer being unreasonable (Vale v Eggins (No 2) [2007] NSWCA 12 at [22] per Beazley JA), particularly in light of the time the offer remained open. While neither party raised the strength of their respective cases as a relevant consideration, I consider that the service of new evidence impacted on the plaintiff's ability to assess the relative strengths of its case in the limited period provided by the offer. 9. As to the time allowed to consider the offer, it remained open until 4:00pm on 7 April 2022 (effectively 13 hours after the offer was made). In MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 at 240, Lindgren J described a Calderbank offer left open for 1 day as "an extreme case". In Ghunaim v Bart (No 2) [2006] NSWCA 82 at [28], McColl JA (with whom Giles and Ipp JJA agreed) described the period of 3 hours afforded to an offeree to accept a Calderbank offer on the first day of trial as a "period so brief it might be regarded as derisory" and held that "[a] party should not be rewarded by an indemnity costs order in such circumstances". While alone the short time available for acceptance may not lead to a conclusion in the plaintiff's favour, I do consider it a strong factor pointing against a finding of unreasonableness. 10. As I noted above, the extent of the compromise as to the defendants' costs was not readily ascertainable in financial terms from the offer. In Commonwealth v Gretton [2008] NSWCA 117 at [98]-[100], Beazley JA, with whom Mason P agreed, noted that in considering a reasonableness of the offer at the time the offer is made, an assessment would need to be made of the costs in question. The quantum of costs that had been incurred by the defendants at the relevant time was not indicated in the 6 April offer or the 15 February correspondence. While it might seem likely that 50% of the defendants' solicitor/client costs would not exceed the costs to which the defendants might be entitled on a party/party basis, this is not assessable on the face of the offer and therefore also tells against the plaintiff unreasonably rejecting the offer: Ying v Song [2011] NSWSC 618 at [90] (Ward J). 11. A final consideration supporting the conclusion that the plaintiff did not unreasonably reject the offer is that the offer did not explicitly foreshadow the costs consequences of rejection of the offer: see Danidale Pty Ltd v Abigroup Contractors Pty Ltd (No 2) [2007] VSC 552 at [17] (Habersberger J); Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 CR 435; [2005] VSCA 298 at [25] (Warren CJ, Maxwell P and Harper AJA). 12. For the above reasons, I do not consider the defendants are entitled to a special costs order based on the offer. Costs of the abandoned "damages" claim 1. The defendants also submit that the Court should make a special costs order in relation to the wasted costs of the "damages" claim for loss of the motel's revenue, because this claim was abandoned by the plaintiff at the trial. These costs include the costs of expert evidence, including the conclaves between the expert witnesses for the plaintiff and the defendants. 2. The defendants submit that this claim was severable from the balance of the plaintiff's case, although they accept that it was only relevant if the plaintiff succeeded on its liability case. 3. In response, the plaintiff submits that there is no principled basis for the Court to exercise its power to award indemnity costs. The plaintiff notes that the issues bound up in the plaintiff's expert report were not hopeless and that the parties' experts reasonably differed on their approach to the task at hand. 4. The plaintiff further submits that it should not be criticised for abandoning the claim at trial, thereby narrowing the issues for determination. It is said that "[t]here is a perversity inherent in the notion that the plaintiff should have maintained the damages claim at trial so as to avoid an indemnity costs order". 5. Finally, the plaintiff submits that the sequence of events involving the service of and response to the expert reports was a rational and reasonable approach to the issue by the plaintiff, who abandoned the claim after assessing the defendants' objections. 6. Generally, the abandonment of an aspect of a party's case does not of itself raise the prospect of an indemnity costs order in respect of that particular claim. 7. There is no demonstrated impropriety on the part of the plaintiff which, in my view, would justify the Court making an order for indemnity costs. Further, I do not accept that this was a case where, properly advised, the plaintiff ought to have known when they commenced the proceeding that there was no prospect of success in relation to the damages claim. The plaintiff should not be punished for its decision to limit the issues at trial. 8. Therefore, I do not consider that an indemnity costs order should be made in relation to the abandoned damages claim in circumstances where the defendants nevertheless have the benefit of an ordinary costs order covering that aspect of the case. Orders 1. The Court orders that: 1. The order made as to the costs in the principal judgment stands. 2. The defendants are to pay the plaintiff's costs of the application for a special costs order on the ordinary basis as agreed or assessed. ********** 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: 31 May 2022