Supreme Court New South Wales Medium Neutral Citation: Pirrottina v Pirrottina (No 2) [2024] NSWSC 1053 Hearing dates: On the papers Date of orders: 9 September 2024 Decision date: 09 September 2024 Jurisdiction: Equity Before: Rees J Decision: Indemnity costs ordered from Calderbank offer. Catchwords: NOTICE TO ADMIT FACTS – purpose – cost incentives – principles at [33]-[38] – not entitled to indemnity costs before date of notice – Kohari v NSW Trustee followed. COSTS – dissolution of partnership – principles at [52]. CALDERBANK OFFERS – whether complexity of proceedings precluded acceptance of offer or indemnity costs for non-acceptance – principles at [55], [69]-[72] – multi-issue proceedings may require a complicated offer to resolve all aspects of the dispute – whether offeree achieved better outcome than offer – whether unreasonable to reject offer – complex inquiry – at the time of the offer, offeree did not even dispute offeror's evidence on key issue on which other issues would likely turn – indemnity costs ordered. Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW), rr 17.3, 42.8 Cases Cited: Alves v Patel [2005] NSWSC 841 Bryant v Hawkesbury Radio Communication Co-operative Society Ltd [2014] NSWSC Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (No 2) [2010] NSWSC 490 CGU Insurance Ltd v Corrections Corp of Australia Staff Superannuation Ltd [2008] FCAFC 173 Curac v Morey-Hype [2006] NSWSC 1171 ET Petroleum Holdings Pty Ltd v Clarenden Pty Ltd (No 2) [2005] NSWSC 562 Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 Kohari v NSW Trustee & Guardian (No 3) [2017] NSWSC 1431 Kvaerner Oil & Gas Australia Pty Ltd v Egis Consulting Australia Ltd [2003] NSWSC 75 LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (No 2) [2002] NSWSC 72 Meadow Gem Pty Ltd v ANZ Executors and Trustees (Supreme Court (Vic), Byrne J, 11 June 1996, unrep) Millane v Nationwide News Pty Ltd [2004] NSWSC 1023 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [19] Owners Corporation Strata Plan 61288 v Brookfield Multiplex Ltd [2012] NSWSC 1586 Pirrottina v Pirrottina [2024] NSWSC 558 Radovanovic v Stekovic [2024] NSWCA 129 Re Heavy Plant Leasing Pty Ltd [2017] NSWSC 1835 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 Category: Costs Parties: Rocco Pirrottina (Plaintiff) Saverio Pirrottina (Defendant) Representation: Counsel: C Wood SC / J Hart (Plaintiff) M Ashhurst SC / K Dyon (Defendant) Solicitors: Williams The Law Firm (Plaintiff) Cara Marasco & Co (Defendant) File Number(s): 2022/358515 JUDGMENT 1. HER HONOUR: I gave judgment in this matter on 14 May 2024 and directed the parties to bring in orders as to how they wished to proceed in respect of costs: Pirrottina v Pirrottina [2024] NSWSC 558. On 30 May 2024, I made orders, by consent, for the parties to file evidence and submissions. The parties have since served affidavits by their respective solicitors, Hien Duong on behalf of the plaintiff (Rocco) and Luigi Marasco on behalf of the defendant (Sam). In addition, I have received detailed written submissions. 2. Sam objected to Mr Duong's affidavit to the extent that he set out his state of mind at various times, including after Rocco rejected the Calderbank offer. Further, Mr Duong referred to three real estate appraisals obtained by Rocco for use in a mediation. I have admitted Mr Duong's evidence as to what he thought about the Calderbank offer but rejected his evidence in respect of the appraisals. 3. A recurring problem with Mr Duong's affidavit (and Rocco's written submissions) is that propositions were advanced which were not accepted in my primary judgment and thus cannot be accepted in support of the costs outcome for which Rocco now contends. Mr Duong's affidavit was also based, in part, on instructions from Rocco, against whom I made an adverse credit finding: Pirrottina at [16]. In the circumstances, my inclination to accept the veracity of instructions given by Rocco to Mr Duong is somewhat diminished. The dispute 1. To assess whether indemnity costs should be ordered following non-acceptance of a Calderbank offer, it is necessary to know something about the dispute. This dispute was between two brothers, Rocco and Sam, on the dissolution of their partnership. The brothers were engaged in citrus production at orchards in Mangrove Mountain, on which Sam's house was built on an acre of land (the Lot). The partnership also operated on a farm in Kulnura (Rocco's farm). The produce was sold at Flemington Markets in Sydney. The brothers were effectively given the Mangrove Mountain farm and business by their parents, Mr and Mrs Pirrottina Snr. 2. After Mr Pirrottina Snr died, relations between the brothers soured. Under the ministrations of Mrs Pirrottina Snr, the brothers agreed that Sam would buy-out Rocco's interest in the Mangrove Mountain farm and business but, in calculating a buy-out figure, Sam's house would be deducted from the value of the Mangrove Mountain farm. Rocco's farm would also be excluded. In furtherance of the buy-out, Sam took over the partnership accounts and banking. Sam obtained a valuation of the Mangrove Mountain farm from Colliers, valuing the property at $4.73 million, of which some $303,000 was referable to Sam's house. A valuation was also obtained from Blue Gum Asset Advisory in respect of plant and equipment, valued at $645,660. In May 2021, Sam offered to pay Rocco some $2.48 million, being half of the value of the Mangrove Mountain farm and business, less Sam's house. 3. In August 2021, Rocco instructed Colliers to provide an updated assessment of the Mangrove Mountain farm, which was provided in September 2021; the market value was now $5 million. In November 2021, Sam proposed to pay Rocco some $2.574 million. Tempers frayed. On 8 January 2022, the police made a provisional apprehended violence order (AVO) against Rocco at the request of Sam's son, following an argument at the Mangrove Mountain farm. On 6 July 2022, Rocco gave notice of dissolution of the partnership, if it was not already dissolved. Rocco no longer wished to proceed with the buy-out but to appoint a receiver to the partnership assets. Rocco asserted, for the first time, that Sam's house was a partnership asset. The proceedings 1. In November 2022, Rocco commenced these proceedings, seeking declarations and orders to dissolve the partnership, identify partnership assets, appoint receivers and take accounts. Prayer 4 of the Summons listed assets said to comprise partnership assets, being the Mangrove Mountain farm (in sub-paragraph (a)), eight Flemington Market stalls (in sub-paragraph (b)) and 45 items of plant and equipment (in sub-paragraphs (c) and (d)(i)-(xliv)). 2. On 2 December 2022, Lindsay J made orders by consent inter alia for Sam to authorise the partnership accountant, Antonio Tisano, to provide Rocco with access to partnership accounts. Emails ensued between Rocco's solicitor and Mr Tisano in respect of the provision of partnership records. Mr Duong complained that the documents provided fell well short of what was required. I made no finding in this regard in my primary judgment, notwithstanding the same complaints being made at trial. That is, the complaint was not established. 3. Rocco filed an affidavit in support of the Summons, to which Sam replied by affidavit on 10 February 2023. On 3 March 2023, the brothers took part in an unsuccessful mediation, which took all day and extended into the early evening. Further offers were made by Sam and Rocco in the days following the mediation, but not accepted. 4. On 22 March 2023, Sam filed a cross-claim, seeking a declaration that he had an equitable interest in the Lot, as identified by a survey, and the improvements on the Lot. (Mr Duong said the instructions given to the surveyor were "markedly different" from the description in Sam's affidavit. The suggestion was not accepted at trial and I do not accept it now). In addition, Sam sought a declaration that citrus trees and an irrigation system on Rocco's farm were partnership assets. Sam sought an order that the proceedings be referred to a referee for the taking of the accounts of the partnership, such account to include profits made by Rocco through the sale of fruit from the citrus trees on Rocco's farm and the use of partnership funds by either brother for personal purposes without the consent of the other. The offer 1. On 3 April 2023, Sam made a Calderbank offer to Rocco, accompanied by the survey of the Lot and a valuation report from CBRE in respect of the Mangrove Mountain farm as at 27 February 2023. CBRE opined that market value was between $4.89 million and $5.09 million. The mid-point between these figures was $4,998,773. 2. The format of the Calderbank offer followed the prayers for relief in the Summons. Sam made three offers. 1. To buy-out Rocco's interest in all of the suggested partnership assets listed in the Summons plus a new tractor acquired by Sam in October 2022 for $32,353 "at a value to be determined by the Court". 2. To buy-out Rocco's interest in the assets in (a) excluding three of the Flemington Markets stalls "at a value to be determined by the Court". (These three stalls were later agreed by the brothers to be a partnership asset but leased to a third party.) 3. To buy-out Rocco's interest in the assets in (b) for $2,788,243.50, based on the CBRE valuation and the Blue Gum Asset Advisory valuation with some extra thrown in. In short, $2,348,243.50 was attributed to Rocco's 50% interest in the Mangrove Mountain farm (being the midpoint of the CBRE valuation, halved) less $303,513 for Sam's house (from the earlier Colliers' valuation) and thus making no allowance for the land value of the Lot. A further $440,000 was attributed to plant and equipment, being 50% of the Blue Gum Asset Advisory valuation plus $32,353 for the new tractor plus an additional $100,993.50 to bring the total to $440,000. 1. For each alternative, Sam also offered: 1. to pay such of Rocco's costs of the proceedings "that the Court determines is appropriate in the circumstances"; 2. not to seek any payment on account of partnership assets on Rocco's farm; and 3. a final accounting exercise in relation to the partnership to be carried out by Mr Tisano or, as proposed by Rocco, a forensic audit of the partnership accounts. 1. The offer was open until 5pm on 17 April 2023. The offer was said to represent a fair and pragmatic solution, where "it has long been agreed between the parties that [Sam] would buy out [Rocco]'s interest" in the Mangrove Mountain farm and the partnership, and where Sam's interest in the Lot had been recognised by the parties since the mid-1990s. 2. On 4 April 2023, by consent, Kunc J appointed Joe Sparachino to monitor the cash takings at the Flemington Market stalls. Mr Duong said he is informed by Rocco and believes that, prior to the orders made by Kunc J on 4 April 2023, Rocco did not have knowledge of the partnership finances for the period after October 2020, when Sam took over control of the partnership accounts. Only two reports were provided to Rocco under Kunc J's orders before the Calderbank offer expired, and even then, these reports were limited to the sale of fruit at the markets on Saturday. (I am unsure what difference this made to acceptance of the Calderbank offer, which included an offer for an account to be taken). In any event, the offer was not accepted. 3. In May 2023, Rocco filed a Statement of Claim and Sam filed a defence. The assets said by Rocco to comprise partnership assets now included two more tractors and three Toyota motor vehicles. For his part, Sam denied that the Mangrove Mountain farm was an asset of the partnership. He admitted that five of the Flemington Market stalls belonged to the partnership but denied that three stalls fell into this category (being three different Flemington Market stalls to those referred to in offer (b)). Two market stalls were said to have been given to Sam by Mr Pirrottina Snr. Sam contended that he purchased the third stall prior to commencement of the partnership. Of the plant and equipment, Sam admitted that all but one Kubota tractor and the three Toyota motor vehicles were assets of the partnership; the tractor and Toyota motor vehicles were said to have been purchased with personal funds. In addition to the trees and irrigation system installed on Rocco's farm, Sam also contended that various items of equipment, including an Iseki tractor, were assets of the partnership in Rocco's possession. 4. On 21 April 2023, by consent, Parker J made orders for the appointment of a joint expert to value the Mangrove Mountain farm and the Lot. On 14 July 2023, Mr Wood valued Mangrove Mountain farm at $6.5 million. Mr Wood separately valued the Lot at $1.76 million. It will be immediately noted that Mr Wood's valuation was higher than the market value assessed by CBRE. The Notice to Admit 1. From May to October 2023, Sam filed a number of affidavits in respect of improvements to the Lot and renovations made to Sam's house, including affidavits by brother-in-law Rocco Marando, father-in-law Tommaso Valvo, wife Marisa, renderer Richard Cetinic, painter Phillip Lagana, carpenter Bass Yasin, builder Christopher Hajje, roof tiler Terry Lamb, carpenter John Leccas, bricklayer Joseph Vumbaca and plumber Laurie Douglas. 2. On 3 October 2023, Sam served a Notice to Admit Facts, attaching a schedule summarising the payments made by Sam for renovations carried out on his home and on which Sam relied to support his claim for an equitable interest in the Lot. The Notice to Admit Facts drew on the evidence which Sam had served. In particular, Rocco was asked to admit that, in about 1996, Sam constructed concrete driveways to the Lot and pathways on the Lot, together with landscaping works. These works were carried out by his father-in-law, Mr Falvo, as a gift to Sam and his wife and cost some $70,000 but, with a builder's margin, would have costs some $94,500. In addition, from 2004 to June 2022, Sam carried out improvement works at his personal expense as set out in the accompanying schedule. This schedule contained 52 line items, each of which set out: the date on which the work was carried out; the nature of the work and the tradesperson who performed it; the cost; the method of payment and, supporting evidence. 3. On 16 October 2023, Rocco served a Notice Disputing Facts, disputing each and every fact set out in the Notice to Admit Facts. On 17 November 2023, at a directions hearing before Parker J, Rocco's failure to properly engage with the Notice to Admit Facts was raised. His Honour made orders extending the time for Rocco to respond to the Notice to Admit Facts. On 4 December 2023, Rocco advised that he did not propose to amend his Notice Disputing Facts. The trial 1. The trial commenced on 11 March 2024. Rocco's claim was now articulated in a Further Amended Statement of Claim. The matters for determination at trial were fivefold: 1. When did the partnership come to an end? 2. Was the Mangrove Mountain farm a partnership asset? 3. Did Sam have an equitable interest in the Lot as a consequence of representations made by Mr and Mrs Pirrottina Snr that the Lot and the house were his? 4. When the parents later transferred the Mangrove Mountain farm to the brothers as tenants-in-common in equal shares, did Rocco acquire his interest subject to a personal equity in favour of Sam, such that Rocco held his title on trust for Sam in respect of the Lot? Alternatively, was Rocco estopped from suggesting otherwise, including by reason of Sam's improvements to the Lot in the 20 years which followed? 5. What orders, if any, should be made for the sale of the Mangrove Mountain farm and other partnership assets, either under s 66G of the Conveyancing Act 1919 (NSW) or the Partnership Act 1892 (NSW)? 1. The parties agreed that a referee would determine which of the remaining disputed items of plant and equipment belonged to the partnership. At the commencement of the trial, I made consent orders referring to a referee the question of whether the Kubota tractor, three Flemington Market stalls, three Toyota vehicles, the fruit trees and irrigation system on Rocco's farm and the Iseki tractor were the property of the partnership. These orders were supplemented by further orders on 18 March 2024, to add various plant and equipment referred to in Rocco's affidavit but not in the Summons, reserving to Sam the right to contend before the referee that the additional assets were not pleaded and thus may not be pursued before the referee. The parties also agreed that a referee would provide an account, where both brothers were concerned that the other had used partnership funds for their own benefit. 2. At the conclusion of the trial, Sam put on a further affidavit when it was realised that, by oversight, he had not disclosed the fact that he was paying his sons $300 a week in cash for their work at Flemington Market on Saturday mornings. The total amount of such wages paid since December 2022 was $40,500. Mr Duong said it was not until Sam served this affidavit that he or Rocco became aware of these cash payments. Judgment and orders 1. On 14 May 2024, I gave judgment and made orders declaring that the partnership between the brothers was dissolved on 8 January 2022. I concluded that the Mangrove Mountain farm was not a partnership asset. I declared that Sam had an equitable interest in the Lot and Rocco held his title to the Mangrove Mountain farm on trust for Sam to the extent of that interest. I directed Sam to obtain an updated valuation of the Mangrove Mountain property from Mr Wood; Sam was entitled to acquire Rocco's interest in the Mangrove Mountain farm for 40% of the updated market value. 2. Rocco had sought the appointment of receivers to sell the remaining partnership assets, while Sam had sought to buy-out Rocco's interest in the assets for fair value. Where it was necessary for some partnership assets (fixtures) to be bought-out, and practical to proceed in this manner in respect of other partnership assets, the utility in appointing a receiver to sell the few assets that remained declined accordingly. I asked the parties to bring in orders to permit each brother to buy-out the partnership assets in their possession, then giving the other brother an opportunity to do so, before auctioning any remaining partnership assets and dividing the proceeds equally. 3. Sam sought to resolve the question of costs with Rocco, advising that his costs were some $800,000. On 27 May 2024, Rocco replied that it was too early to determine the question of costs given the remaining issues to be resolved in respect of partnership assets and an account. On 30 May 2024, I made consent orders for the parties to file evidence and submissions on costs. Notwithstanding this, Rocco's main submission is that it is still too early to decide the question of costs. 4. On 30 May 2024, I also made orders by consent, jointly appointing a valuer to assess items agreed to be partnership property. Each party had the option to purchase any of the assets in their possession at the price assigned by the valuer. If not, the other brother had the option of purchasing the item at the assigned value or, failing this, the items were to be sold at auction, with the proceeds of the auction to be paid to the partnership. Orders were also made for a reference, with the referee's report to be provided to the Court by 16 August 2024. In addition, an independent accountant was jointly appointed to prepare the final accounts of the partnership and report their findings by 30 August 2024. In the event that citrus trees on Rocco's farm were determined to be assets of the partnership by the referee, then further orders were made for the taking of accounts in respect of this partnership asset. 5. On 3 June 2024, Mr Wood provided an updated valuation for the Mangrove Mountain farm in the amount of $6.9 million. On 29 June 2024, Grays Valuations provided a valuation of agricultural plant and equipment, totalling $607,900. On 22 July 2024, I made further consent orders, jointly appointing another valuer to value the partnership assets not valued by Grays Valuations. 6. On 6 August 2024, referee Anthony Lo Surdo SC provided his report as referee. The referee's findings were largely in favour of Sam. The additional assets referred to the referee on 18 March 2024 were found not to be the subject of the proceedings and thus not able to be pursued in the reference but, in any event, were not partnership assets. The Iseki tractor and 140 cumquat trees on Rocco's farm were found to be assets of the partnership. The balance of the assets referred to the referee were not assets of the partnership. The referee concluded that Rocco should bear the costs of the reference. The report of the independent accountant is awaited. Cost consequences: Notice to Admit 1. Sam sought indemnity costs under r 42.8 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) for proving the facts in his Notice to Admit Facts. Mr Marasco said that, as a result of Rocco's refusal to admit that Sam carried out the renovations to his home, Sam was put to considerable effort and expense in proving this, calling numerous witnesses. Some of the tradespeople who gave evidence of the facts set out in the schedule attached to the Notice to Admit Facts, being Mr Vumbaca, Mr Leccas and Mr Hajje, were cross-examined by Rocco at trial. Sam also relied on the evidence of Mr Douglas, Mr Lamb, Mr Yasin and Mr Lagana, who Rocco decided during the course of the trial were no longer required for cross-examination, this being after Sam's solicitors had gone to the trouble and expense of arranging their attendance. Evidence was also given in respect of the renovations referred to in the schedule by Sam, Marisa and Mr Marando. 2. Mr Duong re-stated Rocco's position at trial in respect of the renovations, in particular, that Rocco believed that he did not know the details of many of the payments and thought that his mother had paid for the renovations. Mr Duong professed himself to be surprised by some of the evidence given by the tradespeople at trial, "I believed then and now that Rocco did not believe that Sam had paid for all, or even a substantial portion of the renovations to the second residence." I note that Rocco comprehensively failed to establish this proposition at trial. 3. Rocco submitted that any costs order should be limited to costs incurred by Sam after the service of the notice: Kohari v NSW Trustee & Guardian (No 3) [2017] NSWSC 1431 at [11]. It was said to be unsurprising that Rocco put Sam to proof on this issue as these matters were not within Rocco's knowledge. That, by itself, was said to be a good reason to depart from r 42.8 of the UCPR: Kohari v NSW Trustee and Guardian (No 3) [2017] NSWSC 1431 at [16] (per Parker J). What Rocco did know was that (in respect of an item not referred to in the schedule) Douglas Cetinic had been paid by his mother in respect of some work on the cottage: Pirrottina at [89], albeit not as much as Mr Cetinic said. Further, all of the evidence in support of the schedule had been served before the Notice to Admit was served. As such, non-admission did not put Sam to further expense because the expense had already been incurred by him. Consideration 1. A requesting party may, by notice served on another, require them to admit for the purpose of the proceedings the facts specified in the notice; they have 14 days to decide whether to dispute or admit that fact: r 17.3. Rule 42.8(2) of the UCPR provides: 42.8 Dispute of fact subsequently proved or admitted … (2) Unless the court orders otherwise, the disputing party must, after the conclusion of proceedings in which a fact in dispute is subsequently proved or is subsequently admitted by the disputing party, pay the requesting party's costs, assessed on an indemnity basis, being costs incurred by the requesting party— (a) in proving the fact, or (b) if the fact has not been proved—in preparation for the purpose of proving the fact. … 1. In this rule, "disputing party" means the person who serves a notice disputing facts, while the "requesting party" is the party who was served with that notice: r 42.8(1). 2. Obviously enough, the purpose of the Notice to Admit regime is to identify the facts which are seriously in dispute, rather than those which are not, such that the Court's time can be devoted to resolving the real issues between the parties. To improve the efficacy of this regime, and to focus the mind of the party asked to admit facts, r 42.8 adds a costs incentive. Rule 42.8 provides the 'default position', casting the onus onto the party seeking an "otherwise order" to show why some different order should be made: Re Heavy Plant Leasing Pty Ltd [2017] NSWSC 1835 at [24] (per Brereton J). The rule is intended to encourage parties to consider realistically whether they will put the other party to the cost of proving each and every fact; the risk of a cost burden if the fact is proved provides an incentive to narrow the issues, shorten trials and save costs: Meadow Gem Pty Ltd v ANZ Executors and Trustees (Supreme Court (Vic), Byrne J, 11 June 1996, unrep) at 5. The purpose of the rule is to provide a sanction in situations where a fact which should be admitted is not admitted such that proceedings are needlessly prolonged: Millane v Nationwide News Pty Ltd [2004] NSWSC 1023 at [20] (Hoeben J). 3. It is not necessary for a party to serve all their evidence in respect of a particular fact before serving a Notice to Admit, as this would undermine the rationale of the rule: Heavy Plant Leasing at [24]. As such, the party who has received a Notice to Admit must decide whether to admit those facts based on their assessment as to whether that fact is true, either from their own knowledge or from the evidence served in the proceedings in respect of that fact as at the date of the notice. The party receiving the notice may already know that the fact is true. The party may assess that that fact is likely to be established at trial, whether they know that fact to be true or not, and that in those circumstances it would be sensible to admit that fact rather than for the parties to continue to incur costs in seeking to establish, or to contest, that fact. The party may also admit a fact where they consider that the fact does not matter. 4. It is not necessary for the party receiving the Notice to Admit to admit those facts if they are not in a position to assess the truth of the facts in the 14 day period; the Court may "otherwise order" where the receiving party acted reasonably in disputing those facts, or frame an order such that any costs consequences only 'run' from when they ought to have made the admission: Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (No 2) [2010] NSWSC 490 at [16] (White J). 5. As to whether the "requesting party" is entitled to indemnity costs for costs incurred in proving the fact before the Notice to Admit Facts was served, I agree with the observations of Parker J in Kohari v NSW Trustee & Guardian (No 3) [2017] NSWSC 1431 that such costs are not included. At [11]: "… I accept that in terms the rule does not say that the costs are limited to costs incurred after the notice disputing the fact has been served. However, it may be implicit in the phrase 'costs incurred by the requesting party' that the costs have been incurred by a party who, at the time the costs were incurred, had already been served with a notice disputing the fact. In my view, that would be consistent with the evident purpose of the rule, which is to give the disputing party an opportunity, before disputing the fact, to admit the fact and avoid the costs which may thereafter be incurred in proving it. If the party who receives a notice to admit a fact admits that fact, then the rule can have no application, and it seems somewhat strange that a subsequent dispute about the fact would give the party serving the notice to admit the fact a right to recover costs already incurred in relation to that fact, which it would not otherwise have." 1. I am not satisfied that I should "otherwise order" in this case. Sam went to some trouble to serve comprehensive evidence in support of the improvements and renovations before serving the Notice to Admit Facts. Notwithstanding this, Rocco disputed each and every fact. When Rocco was given another opportunity to properly address the Notice to Admit Facts, he did not budge. 2. I reject the submission that Rocco's non-admissions did not put Sam to further expense, where those expenses had already been incurred before service of the notice. Putting those facts in issue certainly prolonged the trial by the evidence and cross-examination of the relevant witnesses, hotly contested, on relatively minor outlays. By my rough tally, 20% of the trial was occupied by the examination of witnesses on this topic. This was not the best use of the Court's time, where some of the tradespeople cost as little as $550 and some building materials cost even less. 3. I noted in my primary judgment that "Sam and Marisa put on a significant amount of evidence, including calling nine tradespeople, to prove that the renovations were personally funded": Pirrottina at [70]. I accepted the evidence of the father-in-law, Mr Falvo, and, by and large, accepted the evidence of Sam, Marisa and the tradespeople as well. I concluded in my primary judgment at [103]: "Having regard to the bank statements, surviving contemporaneous records, and the evidence of the tradespeople overall, I find that Sam and Marisa funded the improvements to Sam's house and the Lot from 2004 on. The various renovations, extensions and improvements were effected with the knowledge of Mr and Mrs Pirrottina Snr and Rocco, who had no objection to Sam outlaying his funds in this manner. Mrs Pirrottina Snr did make some of the cash payments to at least one tradesperson, Douglas Cetinic. Whether that cash came from the partnership, from the parents personally, or was cash held by Mrs Pirrottina Snr but due to Sam, is not known. Mrs Pirrottina Snr also paid for the steel beam. While Mr and Mrs Pirrottina Snr appear to have been prone to acts of parental generosity (including helping both Sam and Rocco buy various investment properties), the evidence suggests that payments by the parents on Sam's renovations were minimal in the scheme of things." 1. Not all of the renovations referred to in the schedule attached to the Notice to Admit were proved at trial. I found that a steel beam ($1,500) was paid for by Mrs Pirrottina Snr. I found that Mr Vumbaca was paid $3,150, not the $6,000 referred to in the schedule. The items on which Sam did not succeed were minimal in the scheme of things. 2. I also found that Rocco understood that Sam was entitled to live in his house with his family and, as a consequence, was also entitled to improve and extend Sam's house as he saw fit to make his family comfortable: Pirrottina at [206]. I attached little weight to Rocco's late assertion that his mother funded the improvements. In Pirrottina at [100]: "As to whether Sam paid for the improvements and extensions, as opposed to Mrs Pirrottina Snr, it was not until Rocco's eighth affidavit that he disputed that the improvements were funded by Sam. I attach little weight to Rocco's late assertion that his mother funded the improvements. It was not until cross-examination that Rocco said there were records kept by the partnership in the office as to the cost of the improvements on Sam's house. (It will be recalled that Rocco maintained the partnership books and records in his office, in the years before the brothers fell out.) Rocco agreed that he had not mentioned this earlier and should have done so. Rocco then agreed that he was unable to point to any partnership accounts that showed that the money used for the improvements came from the partnership, "It was all cash". Rocco then said that there were no handwritten records of any partnership money used to carry on the works, to his knowledge." 1. Whilst Rocco 'cherry picked' any word or phrase on which Sam's witnesses were not wholly accepted, this ignored the import of my judgment: Sam renovated his home in plain sight of Rocco for years and with Rocco's knowledge and involvement. Rocco's late assertion in his eighth affidavit that Mrs Pirrotinna Snr paid for the renovations was disingenuous. As such, I reject the submission that these matters were not within Rocco's knowledge. In these circumstances, Rocco ought to pay Sam's costs on an indemnity basis of proving these matters, being costs incurred in proving those facts on and after 3 October 2023. Cost consequences: Calderbank offer 1. Sam submitted that he was overwhelmingly successful in the proceedings. He sought costs on an indemnity basis from the date of the Calderbank letter, such costs being limited to the matters dealt with in the proceedings and not including the costs of the reference or the account. Sam submitted that the Calderbank offer was drafted in a manner that was generous to Rocco. Sam would acquire Rocco's interest in the Mangrove Mountain farm (excluding the Lot) at a value to be determined by the Court. Or, Sam would acquire Rocco's interest in the Mangrove Mountain farm (excluding the Lot) for $2,348,243.50, being the midpoint of the CBRE valuation of the Mangrove Mountain farm ($4,988,773) less CBRE's valuation of the improvements on the Lot ($303,513), and not allocating to Sam any land value of the Lot. As such, the offer of some $2.35 million for Rocco's interest in the Mangrove Mountain farm was 47% of the value of the farm and did not require Rocco to make any payment in connection with the land value of the Lot. As the Calderbank offer noted, this represented a "significant concession" in the interests of reaching a settlement. It followed from my primary judgment that Sam is entitled to purchase Rocco's interest in the Mangrove Mountain farm at 40% of market value. Rocco could not rely on movements in the property market to suggest that Sam did not ultimately achieve a better result than the Calderbank offer. Nor was there anything to suggest that the CBRE valuation was inaccurate, where earlier valuations from Colliers, commissioned by Sam and Rocco, valued the Mangrove Mountain farm at $4,730,000 and $5,000,000 respectively. 2. Sam submitted that both offers were made on the basis that Sam would pay Rocco's costs of the proceedings; Rocco need not make payment to Sam for improvements and expenditure made by Sam on Rocco's farm. The offer was open for a sufficient time for Rocco to consider the offer, where the brothers had been discussing the terms of the buy-out by Sam of Rocco's interest in the Mangrove Mountain farm and partnership assets since September 2020. Rocco did not request that the offer stay open for a longer period of time for him to properly consider it. The fact that Sam provided Rocco with alternatives, all of which Rocco refused, weighed in favour of a finding of unreasonableness. 3. Sam submitted that he had therefore achieved a better result in the proceedings, in circumstances where Sam's costs were now payable by Rocco in the ordinary course, and Sam retained his right to pursue Rocco for amounts owed to him in respect of Rocco's farm. It should have been clear to Rocco that his unconscionable attempt to deny Sam's equitable interest in the Lot would not succeed. Rocco's refusal to engage with the offer was said to be representative of his attitude to these proceedings, steadfastly pursuing litigation against his brother in an ultimately futile, and expensive, exercise. 4. Rocco's submissions persisted in re-agitating contentions which were not accepted at trial. Putting those to one side, Rocco submitted that, depending on the reference and the taking of the account, Rocco may do better than the Calderbank offer but it was too early to say. In a proceeding that involved entitlements in a common fund (like a partnership, deceased estate, or the dissolution of a joint endeavour), it was commonplace for costs to be ordered out of the fund: Curac v Morey-Hype [2006] NSWSC 1171 at [4]-[5] (Hamilton J). 5. Mr Duong gave various reasons as to why the three alternatives posed in the Calderbank offer were too vague or otherwise impermissible of comprehension on his part. Mr Duong said, "Even now, after findings of fact have been made and part of the case determined, the case is a complex one. Even knowing what I know now about the findings that have been made … I do not think that I would have been able to give advice about acceptance or rejection of the offer". 6. As to the CBRE valuation, Mr Duong said the valuation was obtained by Sam and without input from Rocco. Mr Duong was concerned that the valuation may understate the true value of the Mangrove Mountain farm. Mr Duong was instructed that Rocco believed that the property was worth significantly more than the CBRE valuation and would be likely to achieve a higher price at a properly conducted auction. As to the survey, Mr Duong said he was not in a position to make a meaningful assessment of the evidence about Sam's claim for a skirt of land around Sam's home. These matters added to his difficulty in assessing the strength or otherwise of Sam's proprietary claim. Mr Duong said that, even now, he cannot calculate whether Rocco will be more successful than Sam's Calderbank offer, but expects that Rocco will likely argue that he has 'beaten' the offer. (Mr Duong's affidavit was made before the adverse referee report.) 7. Rocco submitted that the CBRE valuation was "wildly" different to the joint valuation. On some aspects, Sam did better than the offer, but he was worse off on others. The complexity of the offer and the orders, and the difficulty in comparing the results, weighed against the conclusion that Rocco behaved unreasonably in rejecting the offer in April 2023. In comparing the Calderbank offer to the primary judgment, Rocco submitted that it was unclear what would have happened to the partnership funds in the various bank accounts if the offer had been accepted or whether the claim for post-dissolution profits could have been pursued. Further, Rocco submitted that accepting the offer would have involved capitulation on legally complex matters: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [19] (per Basten JA). It would have been unreasonable to refuse such an offer only if Rocco's prospects of success in defending the proceedings were slight. They could not be so described. In the circumstances of the legal and factual complexity of the case, the 14 days in which the offer was open was an insufficient time in which to consider the offer. A lot of evidence was filed after the Calderbank offer. Rocco may still do better than a post-judgment without prejudice offer which he made on 27 May 2024. Consideration 1. Before turning to the Calderbank offer, it is relevant to consider what costs order should be made absent that offer. The costs of the proceedings for the winding up of partnerships are dealt with in the manner described by Hamilton J in Curac v Morey-Hype at [5]: "… the rule is 'to pay the costs of an action for dissolution out of the partnership assets unless there is good reason to the contrary'. The basis for this as illustrated by Jessel MR in Hamer v Giles (1879) 11 Ch D 942 is that these costs should be treated as part of the 'necessary administration' of the partnership. If, of course, some substantive dispute between the parties is also determined in the winding up proceedings, then the situation changes and there is a reversion to the ordinary rules as to costs …" 1. There is good reason here to proceed otherwise than to pay the costs of the proceedings out of the partnership assets, where there were substantive disputes between the brothers which required determination. As such, the ordinary rules as to costs apply. Sam succeeded in the proceedings. I agree that the result of the independent accountant's report is of no moment for present purposes, where the parties did not require me to consider that matter. It follows that Sam is entitled to his costs of the proceedings. To this may be added Sam's entitlement to indemnity costs on and from 3 October 2023 in respect of the costs of proving the facts in the Notice to Admit Facts. 2. Where Sam's costs were said to be some $800,000 in May 2024 (on a solicitor and client basis), I have assumed in what follows that Rocco will be obliged to pay Sam roughly $560,000 on a party and party basis, allowing an additional element for indemnity costs in respect of the Notice to Admit Facts. Obviously, this figure may prove to be quite different following a costs assessment. 3. There is no "presumptive entitlement" to indemnity costs flowing from a failure of a party who has rejected a Calderbank offer to achieve a better outcome than provided for in the offer. Rather, the offeror must establish that the Calderbank offer involved a real and genuine element of compromise and that non-acceptance of the Calderbank offer was unreasonable: CGU Insurance Ltd v Corrections Corp of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] (per Moore, Finn and Jessup JJ); Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]-[9] (per Basten JA, McColl and Campbell JJA agreeing). 4. Rocco did not suggest that the Calderbank offer did not involve a real and genuine element of compromise. I reject the submission that the time allowed for Rocco to consider the offer was too short, where Rocco had the assistance of senior counsel from the inception of these proceedings and where the Calderbank offer was made a month after a mediation. Indeed, the brothers had spent the previous two years trying to bring the partnership to an end, initially under the guidance of their mother and then later separately represented by solicitors. The position of the brothers was set out in their affidavits served before the mediation. Further offers had been exchanged, but not accepted, after the mediation. Rocco was well-placed to consider the Calderbank offer and make a decision within the 14 day period or, if not, to request further time to do so. No request for additional time was made. 5. The real issues are twofold. First, would acceptance of the Calderbank offer have achieved a better outcome for Rocco than has prevailed? Second, was Rocco's non-acceptance of the Calderbank offer unreasonable in all of the circumstances? 6. Turning to the first issue, I agree with Rocco that comparing the Calderbank offers with the outcome which he achieved is complicated, where the proceedings involved a number of issues and a wide range of potential outcomes. It was not the sort of dispute amenable to the offer of compromise regime in r 20.26, UCPR. Having tried, but failed, to resolve the matter at mediation and by post-mediation offers, a Calderbank letter seeking to compromise the various aspects of this particular, multi-issue dispute was really the only way to try and gain some form of costs protection if a proposal involving genuine compromise was not accepted. 7. I have set out the three offers contained in the Calderbank letter at [11]-[14]. I confess I do not understand the difference between (a) and (b), save that the assets identified in (b) provided the basis for the specific dollar amount offered in (c). That aside, if Rocco was to choose between (a) and (b), then surely he would choose (a), where the assets to be valued by the Court would include eight, not five, Flemington Market stalls. In what follows, I have put offer (b) to one side. I am also unclear on what happened to the new tractor referred to in the offers and have proceeded on the basis that the cost of the tractor, being $32,353, is of insufficient moment to affect my considerations. 8. In respect of the offer of costs, it is not correct to say, as Sam submitted, that his offers were made on the basis that he would pay Rocco's costs of the proceedings. The offer was to pay such of Rocco's costs of the proceedings "that the Court determines is appropriate in the circumstances". That might have been nothing in circumstances where the Court had not determined the issues in dispute. As McHugh J observed in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, "If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled … the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings": at 624–625. I have proceeded on the basis that Sam's offer in respect of costs was the chance, but not the certainty, that Sam would be ordered to pay some of Rocco's costs. I have treated this aspect of the offer as having no monetary value. 9. Sam offered to either buy-out Rocco for an amount to be determined by the Court (offer (a)) or a fixed sum of $2,788,243.50 (offer (c)). Rocco could either accept a fixed sum immediately (offer (c)) or, if that amount was thought inadequate, proceed to have that value determined by the Court (offer (a)). The latter course would involve further time and some expense, and presented a risk to both brothers that the value as determined by the Court may be greater or lesser than the fixed sum. 10. I do not think it can be confidently said that acceptance of the fixed sum offer (c) would have achieved a better outcome for Rocco than has prevailed. This is because Mr Wood's valuation of 14 July 2023 was materially higher than the CBRE valuation, both as to the value of the Mangrove Mountain farm but also as to the value of the Lot (where the land value of the Lot had now been assessed). Following Mr Wood's updated valuation provided after my judgment, Rocco will receive $2.76 million for his interest in the Mangrove Mountain farm. This is more than the $2,348,243.50 attributed to Rocco's interest in the Mangrove Farm "minus the Lot" in offer (c). Presumably a portion of this 'uplift' is attributable to the passage of time and general market movements since the CBRE valuation was obtained 16 months earlier. Absent evidence as to what portion of the amount that Rocco will receive from Sam is attributable to market movements, I am in no position to say. Where the consequences of an indemnity costs order are significant, I consider that I should approach the matter conservatively. 11. So far as offer (c) offered $400,000 for plant and equipment, as events have transpired, the partnership assets are, by and large, as asserted by Sam rather than as asserted by Rocco. Each brother is entitled to buy-out those assets in their possession, then has an option to buy-out partnership assets in the possession of the other which are unwanted, and then will receive half of the proceeds of sale of any remaining partnership assets as auctioned. I am in no position to say whether Rocco will ultimately receive more than $440,000 in plant and equipment or in kind. That is, I cannot say whether Rocco would have achieved a better outcome than has prevailed, had he accepted $2,788,243.50 in offer (c). 12. What remains for consideration is offer (a): to buy-out Rocco's interest in the Mangrove Mountain farm, minus the Lot, and partnership assets at an amount to be determined by the Court. 13. So far as the Mangrove Mountain farm is concerned, what will now happen is what Sam offered. 14. So far as the eight Flemington Market stalls are concerned, the brothers agreed that five stalls were partnership assets, whilst the referee has determined that the remaining three stalls are not. Rocco would have faired better in respect of the Flemington Market stalls if he had accepted offer (a). 15. So far as the 45 items of plant and equipment are concerned, 40 items are in Sam's possession while five items are in Rocco's possession (being the items in prayer 4(d)(ii), (iv), (xviii), (xx) and (xli)). Sam is entitled to buy-out 40 items as now valued by Grays, while Rocco is entitled to buy-out the five items if he wishes (according to the Grays' valuation, the market value of these items totals $107,500). Whether Sam or Rocco have opted to buy-out these partnership assets is unknown. Rocco will also be required to buy-out additional partnership assets as asserted by Sam, being cumquat trees and the Iseki tractor in Rocco's possession. The result in respect of plant and equipment is along the lines of what Sam offered where, rather than appoint a receiver to auction all partnership assets, Sam will, by and large, buy-out Rocco's interest in most of the plant and equipment while Rocco will have to buy-out Sam's interest in some assets which Rocco denied were partnership assets at all. Overall, Sam's offer in respect of plant and equipment is what will now happen. 16. In addition, whilst Rocco would probably not have received any of his costs if he had accepted offer (a), Sam is now entitled to his costs of these proceedings on a party and party basis, together with indemnity costs in respect of the cost of proving the facts in the Notice to Admit from 3 October 2023 on. I have assumed for working purposes that Rocco will be obliged to pay some $560,000 in costs. On this component of the Calderbank letter, Rocco would have faired better if he had accepted any of the offers. Overall, I conclude that Rocco would have faired better if he had accepted offer (a). Rocco would also not have incurred further legal costs himself since April 2023, which he must now bear. 17. The final question is whether Rocco acted unreasonably, in all of the circumstances, in not accepting the offer at the time that it was made. The offeror bears the onus of establishing to the Court's satisfaction that, in all the circumstances, failure to accept the offer was unreasonable: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] (per Giles, Ipp and Tobias JJA). Unreasonableness is to be judged by reference to the circumstances facing the offeree at the time of the offer, and not with the benefit of hindsight: CGU at [75]; Miwa at [11]. The factors which the Court may take into account 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's rejection: Miwa at [12]. The Court's inquiry into whether the offeree's non-acceptance of a Calderbank offer was unreasonable in all the circumstances can be complex: Radovanovic v Stekovic [2024] NSWCA 129 at [68] (per Payne JA, Gleeson and Meagher JJA agreeing). 18. A relatively low offer may support an indemnity costs order: Owners Corporation Strata Plan 61288 v Brookfield Multiplex Ltd [2012] NSWSC 1586 per McDougall J at [27]. Against this, the reasonableness of the refusal of a Calderbank offer may also be affected by the complexity of the proceedings. For example, in LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (No 2) [2002] NSWSC 72, Barrett J declined to order indemnity costs despite finding that a defendant's Calderbank offer was reasonable, as the "case was not clear cut … with a myriad of issues of some complexity on which it would have been by no means easy to predict the outcome in advance of full presentation of evidence and full argument": at [53]-[55]. 19. The complexity of proceedings may prevent acceptance of a Calderbank offer or the making of an indemnity costs order for non-acceptance, but "[t]his is not however to suggest that the touchstone for exercise of the discretion is complexity of issues. The type of issues, the stances of the parties and the timing of a Calderbank letter are all relevant requiring to be carefully weighed in terms of the reasonableness criterion": Kvaerner Oil & Gas Australia Pty Ltd v Egis Consulting Australia Ltd [2003] NSWSC 75 at [9] (Einstein J). In Alves v Patel [2005] NSWSC 841, counsel submitted that it was not plainly unreasonable to reject a Calderbank offer where the issues in evidence were complex and contestable and the likely outcome of the case could not be reasonably predicted. Adams J noted, "It is important to bear in mind that it is not necessary, or even reasonable, for a defendant to insist on being able to predict the outcome of every issue – even every major issue – in the case before considering settlement": at [55]. 20. As in any commercial litigation, the Court expects the parties to act reasonably in settling disputes by compromise, having regard to the risk that each party faces. As Sackar J observed in Bryant v Hawkesbury Radio Communication Co-operative Society Ltd [2014] NSWSC 848 at [157]: "Whilst the system of justice administered by courts in this state is adversarial, in the modern era in my view parties have a distinct and clear obligation to cooperate with each other and the court to achieve a quick and inexpensive solution to their grievances including in my view good faith settlement discussions." See also ET Petroleum Holdings Pty Ltd v Clarenden Pty Ltd (No 2) [2005] NSWSC 562 at [21] per White J. 1. As to the suggested complexity of this dispute, at its heart, the brothers disagreed on two key issues: whether Sam had an interest in the Lot, and whether the partnership assets should be dealt with by the appointment of a receiver or a buy-out. For practical purposes, if Sam was successful in establishing that he had an interest in the Lot, then a buy-out was likely to follow where appointing a receiver would defeat that interest. The remaining partnership assets, whilst numerous, were of relatively minor value. 2. Accepting any of the offers in the Calderbank letter involved Rocco conceding both key issues, that is, acknowledging Sam's interest in the Lot and permitting the buy-out process to be completed. Beyond this, however, the Calderbank offer was made on the basis that all the assets which Rocco claimed to be the partnership property were partnership property, despite the fact that Sam disputed that certain of those assets were in fact partnership property. In addition, assets that Sam claimed to be the partnership property, which Rocco disputed, were excluded from partnership assets. The offer was also made on the basis that an account would be carried out by either the partnership accountant or a forensic auditor, such that Rocco's lack of access to partnership accounts and any related concerns could also be addressed. 3. Given the safeguards built into offer (a) – asset value being determined by the Court plus an account – what was Rocco really giving up by accepting the offer? He would have had to concede Sam's interest in the Lot. Whether Sam had an interest in the Lot was a subject with which both brothers had intimate knowledge, it being a topic discussed over the years around the family dining table and where both brothers lived in adjoining homesteads for most of their lives. At the stage of the proceedings at which the Calderbank offer was made, Rocco did not even dispute Sam's evidence in respect of the Lot or renovations; he only disputed this evidence much later: Pirrottina at [32], [35]-[36], [100]. That is, Sam's offer was made at a time when Rocco was personally aware of the facts relevant to Sam's asserted interest in the Lot and did not dispute those facts. 4. Was it unreasonable for Rocco to reject the offer at the time it was made? Sam's offer was, essentially, to conclude the arrangement the brothers had agreed with their mother and at a figure which did not compromise Rocco's right to receive fair value for his interest in the Mangrove Mountain farm or the partnership assets. With the assistance of senior counsel then briefed, I consider that Rocco was able to assess whether Sam's offer should be accepted or whether he should press on in the hope of achieving a better result. Overall, I consider that Rocco's non-acceptance of the offer was unreasonable in the circumstances at the time when the offer was made. As I noted in my primary judgment, Rocco ultimately appeared to have taken a particularly dogged stance vis a vis his brother, as Rocco considered that the way things had worked out was "not fair": at [16]. It follows, that I am satisfied that an indemnity costs order should be made from the date of the offer. Sam's entitlement to indemnity costs in respect of the Notice to Admit Facts is absorbed within such an order. Orders 1. For these reasons, I make the following orders: 1. Subject to order 3 below, the Plaintiff/Cross-Defendant pay the Defendant/Cross-Claimant's costs of the proceedings on an ordinary basis up to and including 3 April 2023, to be assessed if not agreed. 2. Subject to order 3 below, the Plaintiff/Cross-Defendant pay the Defendant/Cross-Claimant's costs of the proceedings on an indemnity basis from and including 4 April 2023, to be assessed if not agreed. 3. The costs subject to orders 1 and 2 above shall exclude: 1. costs incurred in connection with the separate questions that are to be determined by way of reference (the Reference) pursuant to the orders in these proceedings dated 11 March 2024, as varied by the orders dated 18 March 2024, and pursuant to orders 5 to 13 of the orders in the proceedings dated 30 May 2024 (the 30 May 2024 Orders); and 2. costs incurred in connection with the account to be conducted pursuant to orders 14 to 19 of the 30 March 2024 Orders, which will be borne by the parties equally pursuant to order 19 of the 30 May 2024 Orders. ********** 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: 09 September 2024