Supreme Court New South Wales Medium Neutral Citation: Teo & Anor v Twyford bht Cunningham (No 2) [2023] NSWSC 1626 Hearing dates: On the papers Date of orders: 19 December 2023 Decision date: 19 December 2023 Jurisdiction: Equity Before: Henry J Decision: Defendant's application for indemnity costs refused Catchwords: COSTS — Application for indemnity costs on the basis of unsuccessful plaintiffs' failure to accept Calderbank offer — Where offer made following filing of defence — No variation to the orders that costs payable on an ordinary basis Legislation Cited: Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Calderbank v Calderbank [1976] Fam Law 93; [1975] 3 All ER 333 James v Douglas [2016] NSWCA 178 Leichhardt Municipal Council v Green [2004] NSWCA 341 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Ofria v Cameron (No 2) [2008] NSWCA 242 Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 152 ALR 83; [1998] HCA 11 Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 3) [2021] NSWCA 160 Category: Costs Parties: Carolyn Teo (First Plaintiff) Raven Gibb-Kalvin Spirit (Second Plaintiff) David Twyford by his tutor Maurice Cunningham (Defendant) Representation: Counsel: E White (Plaintiffs) J Gatland (Defendant) Solicitors: Webb Thom & Associates (Plaintiffs) Cunningham Solicitors (Defendant) File Number(s): 2021/00201440 Publication restriction: Nil JUDGMENT 1. On 30 November 2023, I delivered reasons for judgment in this matter and made orders dismissing the plaintiffs' claim and for the plaintiffs to pay the defendant's costs of the proceedings as agreed or assessed: Teo & Anor v Twyford bht Cunningham [2023] NSWSC 1470 (Judgment). 2. These reasons deal with the defendant's application made on 7 December 2023 for a different costs order. They assume familiarity with the Judgment and adopt the same terms. 3. On 8 December 2023, the Court made directions for the plaintiffs to file and serve written submissions and any evidence in response to the defendant's application by 4.00pm on 14 December 2023, and for the application to be dealt with on the papers. 4. No written submissions or evidence were filed by the plaintiffs by that date and no request was made for an extension of time to do so. Accordingly, I have proceeded to consider the defendant's application on the basis of the material received from the defendant, in the absence of submissions or evidence from the plaintiffs and on the facts as I know them. 5. The defendant seeks his costs on the ordinary basis up to and including 17 September 2021 and on an indemnity basis thereafter on the basis of an offer contained in a letter dated 17 September 2021 from Mr Cunningham (the defendant's solicitor) to Mr Thom (the plaintiffs' solicitor) which was not accepted by the plaintiffs. 6. The letter was marked "Without Prejudice, Save as to Costs" and the offer was in the following terms: 1. The Plaintiffs will release the Defendant from all claims whatsoever. Such release will be recorded in a deed of settlement. 2. The Plaintiffs will discontinue the proceedings, with the Defendant's consent and on the basis that there be no order as to costs. (The effect being that each party bears its own costs and makes no claim against the other.) 3. The defendant, by his tutor, will co-operate and do all things reasonably required of him to obtain a Court approval of the settlement recorded in the deed. 4. Should no approval be obtained, the parties are no longer bound by the terms of the settlement will seek the matter proceed to hearing to be determined by the Court. 1. The offer was expressed to be open until 4 October 2021 (a period of 17 days from the date of the letter) and made in accordance with the principles in Calderbank v Calderbank [1976] Fam Law 93; [1975] 3 All ER 333 (Calderbank). The letter set out the reasons why the defendant contended that he was entitled to rescind the Contract under cl 34 and the plaintiffs' claim would fail, and advised that it would be relied on for costs if the matter proceeded to hearing. 2. The plaintiffs made a counter-offer by letter dated 29 September 2021, which provided for the defendant (by his tutor) to complete the Contract and for the plaintiffs not to claim damages, which offer was expressed to be made under Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 20.26(2), exclusive of costs and open for a period of 28 days. That offer was not accepted by the defendant. Consideration and determination 1. The principles applicable to the making of an order for costs are well established. The Court has a broad discretion under s 98 of the Civil Procedure Act 2005 (NSW) (CPA) and the UCPR to determine on what basis and to what extent costs should be awarded. 2. The Court's discretion must be exercised judicially and consistently with the overriding mandate provided for in ss 56–60 of the CPA, and with regard to the principle that the award of costs is compensatory in nature, not punitive: Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 152 ALR 83; [1998] HCA 11 at [44], per Gaudron and Gummow JJ. 3. The usual rule is that costs follow the event and are payable on an ordinary basis unless it appears that some other order should be made as to part or all of the costs: UCPR, rr 42.1 and 42.2. 4. The rejection of a Calderbank offer in circumstances where the final outcome is less favourable to the offeree than that contained in the offer may enliven the discretion to award indemnity costs but it does not create any prima facie right to such an order. To warrant making an indemnity costs order, the Calderbank offer must embody a genuine compromise and be shown by the party seeking to rely on it that it was unreasonable for the unsuccessful party not to accept it: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] and [12]–[19], per Basten JA (with whom McColl and Campbell JJA agreed); Leichhardt Municipal Council v Green [2004] NSWCA 341 at [21]–[24] and [36]; and Ofria v Cameron (No 2) [2008] NSWCA 242 at [20]. 5. Factors relevant to determining whether the non-acceptance of a Calderbank offer was reasonable or not include the stage of the proceedings at which the offer was received, the time allowed for acceptance, the extent of the compromise, the offeree's prospects of success assessed at the date of the offer and whether the offer foreshadowed an application for indemnity costs in the event of its rejection: Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 3) [2021] NSWCA 160 at [25], per Bell P (as his Honour then was), Macfarlan and Leeming JJA. 6. The defendant submits that the offer contained in the 17 September letter was a genuine offer of compromise as it was made before significant legal costs had been incurred in preparing evidence, including expert evidence to defend the proceedings, and that the plaintiffs' rejection of the offer was unreasonable. His submissions refer to the following matters in support of that submission: 1. the offer was made within three months of the litigation being commenced, at the earliest practical stage after the defendant had joined issue with the claim, and more than a year before the commencement of the hearing; 2. the case is a small private matter, concerning the interpretation of a term in a contract for the sale of land which is readily re-drafted or re-negotiated on proper advice, noting that the plaintiffs were legally represented at all times, and did not involve a question of general public interest; 3. despite the abundance of clinical evidence and the concurrence of the plaintiffs' own expert concerning the defendant's mental state, the defendant had to go to the additional expense of qualifying an expert witness and having intimate and embarrassing details of his mental health exposed in public in order to defend the matter; and 4. the offer was clear in its terms, with the only possible complication being that it would have required approval of the Court as the defendant was represented by his tutor, Mr Cunningham. 1. Having considered the defendant's submissions, I am not persuaded that the Court should exercise its discretion and award indemnity costs in this case. 2. The defendant's Calderbank offer provided for the proceedings to be discontinued with no order as to costs. While a "walk away" offer of this kind is capable of engaging the principles in Calderbank, the only measure of compromise involved on the part of the defendant was not to seek the costs that he was likely to recover on an ordinary basis if the offer was not accepted which, at that stage, were not significant given that the letter advised that the defendant's costs incurred at the date the offer was made were "substantially less than $10,000". An offer to forgo party/party costs of that amount does not, in my view, involve a real concession or genuine compromise, even in the context where the defendant was an individual litigant who may have had to bear some or all of those costs personally. 3. Further, at the time the offer was made, the proceedings were at an early stage of preparation. A defence may have been filed but no lay evidence had been served on behalf of the defendant, no expert evidence had been served and the plaintiffs were yet to issue and consider documents produced on subpoena, including from the Mental Health Unit of South East Regional Hospital and Dr Malik at the Bluehouse Surgery. The plaintiffs may have made a counter-offer but, considered objectively and acknowledging the importance of the expert evidence in this case, in the absence of that evidence and the subpoenaed materials, at the time the offer was made it seems unlikely that the plaintiffs would have been in a position to properly test the defendant's assertions in the 17 September letter and his defence and make a realistic assessment of the probable outcome of the proceedings. 4. It follows that I do not consider that making an offer at an early stage of the proceedings is a factor that weighs in favour of the defendant in this case. Nor is the fact that the proceedings involved a question of contractual interpretation. The outcome of the proceedings was, in a sense, binary, as it involved an "all or nothing" case based on the Court's construction of cl 34 of the Contract and an objective consideration of the totality of the evidence. However, this was not a case where it could be said that the plaintiffs' claim was frivolous or vexatious, such as to support an indemnity costs order against them. 5. Having regard to these matters, I do not consider that the defendant has established that it was unreasonable for the plaintiffs to have rejected his offer at the time it was made. 6. The defendant's submissions also seek costs on an indemnity basis in respect of a motion filed by the plaintiffs seeking access to material produced by the defendant's former solicitors in Bega. According to the defendant's submissions, the plaintiffs pressed for access to material over which there had been a valid claim for client legal privilege, which was determined in favour of the defendant by Hammerschlag CJ in Eq on 14 September 2022. The defendant submitted that the manner in which the application was conducted was "redolent of suspicion about the defendant's mental state" which was reflected throughout the conduct of the hearing and there was no basis, at any stage, for that suspicion. 7. On 14 September 2022, his Honour made orders dismissing the motion and for the costs of the motion to be costs in the cause. In light of those orders, the outcome of the defendant's application for indemnity costs more generally and the reasons that follow, I do not consider that the Court should award costs in respect of the motion on a different basis to the costs of the proceedings more generally. 8. The plaintiffs may have been suspicious of the defendant's claim that he became mentally ill after the Contract was entered into and raised allegations of some form of contrivance, but the primary issues raised by the plaintiffs' case related to the construction of cl 34 of the Contract and questions of fact about whether and when the defendant became mentally ill. Further, and while acknowledging that the Court made no finding of malingering or misconduct on the part of the defendant, I am not persuaded that he has established that the plaintiffs' conduct in filing the motion and pressing for access to the documents was plainly unreasonable, relevantly delinquent or that there was no basis at all for the allegations made, such as to warrant the making of an indemnity order: James v Douglas [2016] NSWCA 178 at [63]. 9. For these reasons, I decline to vary the costs order made on 30 November 2023 that provides for the plaintiffs to pay the defendant's costs as agreed or assessed, which costs are to be paid on an ordinary basis. ********** 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: 19 December 2023