Supreme Court New South Wales Medium Neutral Citation: Hawkes Menangle Pty Ltd v Brennan (No 2) [2023] NSWSC 1486 Hearing dates: On the papers Date of orders: 01 December 2023 Decision date: 01 December 2023 Jurisdiction: Equity - Real Property List Before: Richmond J Decision: Defendants pay the plaintiff's costs of the proceedings on the ordinary basis up to and including 28 September 2022 and on an indemnity basis thereafter. Catchwords: COSTS — Party/Party — bases of quantification — indemnity basis — Calderbank offer — no issue of principle Legislation Cited: Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Calderbank v Calderbank [1975] 3 WLR 586; [1975] 3 All ER 333 Grbavac v Hart [1997] 1 VR 154 at 165; [1996] VSC 37 Hawkes Menangle Pty Ltd v Brennan [2023] NSWSC 1095 Hawkesbury City Council v The Civil Experts Pty Ltd t/as TCE Contracting (No 2) [2023] NSWSC 1108 Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 Lowe v Lowe (No 3) [2015] NSWSC 1800 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Sewell v Zelden (No 2) [2010] NSWSC 1181 Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 3) [2021] NSWCA 160 Wheatley v Lakshmanan (No 2) [2022] NSWSC 851 Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 Zillotto v Hakin [2013] NSWCA 359 Category: Costs Parties: Hawkes Menangle Pty Ltd (Plaintiff) Stephen Leonard Brennan (First Defendant) Gregory John Holdsworth (Second Defendant) Representation: Counsel: D Allen (Plaintiff) M J Wells (Defendants) Solicitors: Darby Jones (Plaintiff) Nott and Co Solicitors (Defendants) File Number(s): 2022/210748 Publication restriction: Nil JUDGMENT 1. In the substantive decision in these proceedings the plaintiff was successful in its contention that a contract for the sale of land remained on foot and was enforceable: Hawkes Menangle Pty Ltd v Brennan [2023] NSWSC 1095 (Judgment). This judgment deals with the plaintiff's application for its costs to be paid by the defendant on an indemnity basis because the defendants refused an offer of compromise contained in a letter sent before the commencement of the proceedings or, alternatively, that costs be paid on an indemnity basis from 29 September 2022, because the defendants had unreasonably refused a Calderbank offer made on 16 September 2022. In support of its application, the plaintiff relies on the affidavit of Osman Khanji dated 29 September 2023 which annexes the two letters relied on. The defendants submit that costs should only be ordered against them on the ordinary basis. Background 1. The plaintiff is the purchaser under a contract for the sale of land in New South Wales and sought an order for specific performance of the contract against the defendants, the vendors under the contract. The defendants had issued a notice to terminate the contract which was only valid if a notice to complete served by the defendants on the plaintiff on 9 June 2022 was valid. This turned on whether the completion date under the contract was 8 June 2022, as the vendors contended (in which case the contract was validly terminated by the defendants), or 9 June 2022, as the plaintiff contended (in which case it had not been validly terminated). Resolution of that issue depended on two questions: first, whether on the proper construction of the contract, the completion date was 8 or 9 June 2022 and, second, if the latter, whether the completion date had been varied by agreement of the parties, to 8 June 2022. The plaintiff succeeded on both questions. First offer 1. The first "offer" was contained in a letter sent to the defendants' solicitor on 8 July 2022, and open for acceptance until 1 pm on 11 July 2022 (first letter). The first letter set out the factual background to the dispute and explained why on the proper construction of the contract the completion date was 9 June 2022 so that the notice to complete was invalid. The letter concluded, under the heading 'Moving Forward' (emphasis in original): We invite the Vendors to re-affirm the Contract and issue a further Notice to Complete, pursuant to clause 34.1 of the Contract. We look forward to receiving such confirmation by 1:00pm, 11 July 2022. In the event that we do not receive confirmation of your client's intention to re-affirm the contract, we are instructed to file the attached Summons forthwith and seek specific performance of the Contract. 1. The summons attached to the first letter is in substantially the same form as the one ultimately filed by the plaintiff on 19 July 2022. 2. The first letter was sent after considerable correspondence between the parties as to whether a valid notice to complete had been issued. The prospect of legal proceedings on this issue was first raised on 8 July 2022 in the first letter. 3. On 13 July 2022, the defendants' solicitors responded noting that the solicitor with carriage of the matter was in Brisbane, and that they would not be in a position to respond until after he returned on 15 July 2022. The plaintiff's solicitor replied on the same day, inquiring if a deadline for responding to the letter by 7 pm on 15 July 2022 would be sufficient time to obtain instructions. The defendants did not reply to this letter, and the summons was filed on 19 July 2022 without further correspondence between the parties. 4. The first letter was not expressed to be an offer made pursuant to the principles in Calderbank v Calderbank [1975] 3 WLR 586; [1975] 3 All ER 333 (Calderbank), nor did it foreshadow any costs consequences for failing to accept the offer. Nevertheless, the plaintiff submits that it was unreasonable for the defendant to have rejected the offer contained in it because the first letter stated why the contract between the parties was still on foot, that the plaintiff was ready, willing and able to settle, and that the plaintiff would file a summons seeking specific performance and costs of the action if the defendants did not accept the offer. 5. The defendants submit that the first letter did not contain a genuine offer of compromise as it did not involve the plaintiff 'giving something away': Hawkesbury City Council v The Civil Experts Pty Ltd t/as TCE Contracting (No 2) [2023] NSWSC 1108 at [10]. Moreover, to the extent the first letter contained a genuine offer of compromise, the rejection of the offer contained in it was not unreasonable. In particular, it is noted that the letter was received prior to the commencement of the proceedings; it allowed the defendants less than one business day to consider the offer; it offered no element of compromise as it effectively required the defendants to capitulate entirely; and it did not foreshadow an application for indemnity costs in the event of its rejection. Second offer 1. The plaintiff's solicitor sent a second letter to the defendants' solicitor on 16 September 2022 (the second letter), which contained an offer on the following terms (emphasis in original): 1. The parties are to enter into orders by consent disposing of the proceedings as follows: 1. An order that the first and second defendants affirm, or otherwise re-affirm the contract 2. An order for specific performance of the contract for the sale of land, and to require the first and second defendants to be ready, willing and able to effect the conveyance of the Land on a date that is no earlier than 14 days after the making of this order, unless otherwise agreed between the parties. 3. The proceedings be dismissed, with no order as to costs. 4. The first and second defendants covenant and agree that the: a. notice to complete issued on 9 June 2022; and b. notice of termination issued on 24 June 2022; are hereby withdrawn. 2. We will settle on the figure of $1,112,890.27 as outlined in the attached Settlement Statement sheet. 3. The parties are to document their agreement to the above in a deed of settlement. If our client's offer is accepted in principle, we will prepare and circulate a deed of settlement for execution by the parties. There is no binding agreement until the parties have executed a deed of settlement. In other words, if your client accepts this offer in principle, but the parties' fail to exchange a counter-part and mutually agreed deed of settlement, then there is no settlement and the parties are to proceed, with the litigation as originally intended. 1. The second letter noted that the offer was made in accordance with Calderbank principles and was open for acceptance until 28 September 2022. The second letter did not set out the reasons why the plaintiff considered that it would be successful in the proceedings but the defendants could have been in no doubt that the reasons were the same as set out in the first letter. The letter also stated: Given the state of the proceedings and the relief sought, it is our client's intention to reach a resolution, prior to the costs of the litigation becoming prohibitive to any potential settlement. Primarily, our client seeks the remedy of specific performance and makes it plain that it is ready, willing and able to settle… 1. At the time the second letter was sent, the plaintiff had filed and served the only affidavit on which it relied at the hearing, being the affidavit of the plaintiff's solicitor, sworn on 19 July 2022. The defendants' evidence was not filed and served until 23 November 2022. 2. The plaintiff submits that this was a genuine offer of compromise that ought to have been accepted by the defendants because: first, it offered a real compromise in the sense that settlement was to occur without the plaintiff being paid its costs of the proceedings or seeking any other relief as a result of the defendants' breach of the contract; second, it was reasonable to require the agreement to be formalised in a deed of settlement; and third, the plaintiff offered to furnish proof that it was able to settle in accordance with the offer. 3. The defendant submits that it was not unreasonable to reject the offer in the second letter for essentially two reasons: first, the plaintiff did not provide any explanation as to the reasonableness of the offer, merely asserting that fact in the second letter; and second, the plaintiff failed to identify the reasons why it would ultimately succeed at trial. Moreover, the defendant submits that the plaintiff was unsuccessful in relation to its alternative argument regarding the land tax certificate referred to at [59]–[60] in the Judgment, which it had adverted to in the first letter and advanced at trial. Consideration 1. Under s 98 of the Civil Procedure Act 2005 (NSW), costs are in the discretion of the Court. Although the discretion conferred by s 98 is broad, it must be exercised judicially in accordance with established principle and factors directly connected with the litigation: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65]. Under the general rules stated in Uniform Civil Procedure Rules 2005 (NSW) (UCPR) rr 42.1 and 42.2, costs follow the event and are payable on the ordinary basis. Offers of compromise provide a basis for departing from the general rule that costs are to be assessed on the ordinary basis and, instead, to award costs on the indemnity basis. Two recognised kinds of offer of compromise for this purpose are offers made under UCPR r 22.6 (in which case the cost consequences are as set out in Div A of Part 42 of the UCPR) and a Calderbank offer (which although relevant to the exercise of the discretion under r 42.1 and r 42.2 does not automatically result in a favourable exercise of that discretion). 2. In order to warrant the making of an indemnity costs order, a Calderbank offer must embody a genuine compromise and the party seeking to rely on it must show that it was unreasonable for the unsuccessful party not to have accepted it, which is an evaluative judgment to be made by reference to the terms of the offer and all the circumstances at the time that the offer was made: Wheatley v Lakshmanan (No 2) [2022] NSWSC 851 at [97]–[99]. 3. A genuine offer of compromise is one which involves a party giving something away: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [9]. 4. Relevant factors in determining whether the rejection of an offer was unreasonable include (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed at the date of the offer; (e) the clarity with which the terms of the offer were expressed; and (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it: Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25]; Miwa at [12]; Wheatley at [98]. 5. In assessing whether it was unreasonable not to accept the offer, it may be relevant whether the offeror has given an explanation for why the offer was reasonable, but it is not essential. As Basten JA said in Miwa at [13]: The relevance of such material would depend upon the extent to which the issues had already been canvassed, for example by way of pre-litigation correspondence, and whether there were circumstances with which the offeror might reasonably expect the offeree not to be conversant. In some circumstances greater leniency may be accorded to a defendant offeree at an early stage of proceedings, than to a plaintiff offeree. 1. The second letter is a Calderbank offer, but the first letter is not, as there is no mention in it, or in the accompanying correspondence, that it will be relied on in respect of costs: see Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 at [42] and [57]. However, I will approach the first letter on the basis that it is still appropriate to have regard to it as one of the relevant matters in the exercise of the discretion under r 42.2, because that rule does not prescribe the matters which are to be taken into account in exercising the costs discretion. Indeed, the list of factors to which regard is had in determining whether the rejection of an informal offer of compromise is unreasonable set out at [17] above include "whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it", which suggests that the failure of an informal offer of compromise to foreshadow that consequence does not automatically disentitle the party making the offer from claiming indemnity costs. 2. Support for the view that the Court can have regard to informal offers of compromise which are not Calderbank offers is found in Grbavac v Hart [1997] 1 VR 154 at 165; [1996] VSC 37; Zillotto v Hakin [2013] NSWCA 359 at [134]; and Lowe v Lowe (No 3) [2015] NSWSC 1800 at [69]. For example, an offer of compromise which is not a Calderbank offer but points out to a defendant that their defence is hopeless would be relevant to the exercise of the discretion to award indemnity costs: Sewell v Zelden (No 2) [2010] NSWSC 1181 at [30]–[31] and [49]–[53]. 3. In my view, the first letter does not justify the making of an order for indemnity costs in the present case. As the defendants submitted, the first letter did not contain a genuine offer of compromise as nothing was given away, and it gave the defendants only a short time to consider the offer. It cannot be said that the defendants' position was one which they should have known had no prospect of success. Accordingly, I decline to depart from the general rule in r 42.2 as a result of the first letter. 4. The second letter is expressed to be a Calderbank offer, and involved genuine compromise in respect of the costs of the proceedings. While the evidence does not establish the actual costs of the plaintiff by the time of the second letter, I infer that they were significant because the plaintiff had by the time of the second letter filed the summons and its evidence, and the proceedings had been before the Court for directions on two occasions. While the second letter did not set out the reasons why the plaintiff would succeed, the defendants could have no doubt that the reasons were those stated in the first letter. As noted above, the first letter explained clearly the plaintiff's position as to why the notice to complete was invalid on the proper construction of the contract and while the defendants would advance at the hearing an argument that the contract had been varied, the defendants were quite capable of assessing their prospects of success on that argument, particularly as it was an argument on which they had the onus of proof. 5. I will now address the factors mentioned at [17] above. As to (a), while the letter was sent at an early stage of the proceedings, the plaintiff's evidence had been filed and the defendants were in a position to assess their prospects of success. As to (b), the time allowed for the defendants to consider the offer was 12 days, which was reasonable in the circumstances. As to (c), the letter involved compromise in respect of costs of the proceedings which I infer would have been significant, particularly in the context of a contract for sale of land for a price of $1,250,000. As to (d), while it is necessary to assess the defendants' prospects of success without hindsight, in my view the defendants' case was weak and that would have been apparent at the time the letter was received. As to (e), the terms of the offer are clear. As to (f), the letter foreshadowed an application for indemnity costs in the event of the defendants rejecting it. 6. I have taken into account the fact that under the second letter acceptance of the offer contained in it would not lead to a binding agreement, and it would be necessary for the parties to enter into a deed of settlement. In my view, it is a standard approach for the terms of settlement of litigation to be embodied in a deed of settlement. Importantly, the defendants' solicitor did not write to the plaintiff's solicitor requesting details of what the deed would contain or a copy of the deed and, instead, simply ignored the second letter, cf Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 3) [2021] NSWCA 160 at [29]. In the circumstances, I do not regard the requirement for the parties to enter into a deed of settlement, if the offer was accepted, as bearing on the exercise of the discretion and note that the defendants in their submissions did not contend otherwise. 7. In my opinion, taking all these matters into account, it was unreasonable for the defendants to reject the offer in the second letter. Accordingly, the Court will order that the defendants pay the plaintiff's costs of the proceedings on the ordinary basis up to and including 28 September 2022, and on an indemnity basis thereafter. ********** 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: 01 December 2023