EAGLAND v FAVRETTO [NO 2] SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL PRIESTLEY, CLARKE and SHELLER JJA 20 February, 11 March, 18 July 1996 [1996] NSWCA 165 INDEMNITY COSTS — Calderbank letter Priestley JA, Clarke JA and Sheller JA. (INDEMNITY COSTS) The appellants appealed against a decision of Bainton J which was solely concerned with the resolution of the separate question whether the respondents or either of them had ceased to be directors of Barlile Corporation Limited. This turned upon whether the respondents had ever been full time executives of the company or a related corporation. Bainton J concluded that the appellants had not discharged the onus of showing that the respondents had ever been full time executives of the company or a related corporation. In the course of doing so, his Honour made findings of fact against the first appellant which the appellants claimed were reached in circumstances which involveddepartures from the fundamental principles of fair trial. On 11 March 1996 this Court upheld these submissions, set aside his Honour's judgment and remitted the proceedings to the Commercial [sic] Division to be re-tried. The Court ordered the respondents to pay the costs of the appeal and to have a certificate under the Suitors Fund Act. On 11 March 1996 when the Court announced its decision, counsel for the appellants applied for an order that the costs of the appeal be awarded on an indemnity basis. The respondents opposed this application. Both sides filed written submissions. The application was based on a Calderbank letter dated 13 October 1995 from the appellants" solicitors to the respondents" solicitors. The letter referred to findings adverse to the first appellant on numerous issues which, it was said, were not issues in the case, could not conceivably have been relevant and were not subject to any advance notice by the Judge or of any argument. This was quite apart from the appellants" contention that the findings on relevant facts were against overwhelming evidence. The writer acknowledged that in a real sense the matters complained of were not the fault of the respondents and continued: In those circumstances, our clients offer to resolve the question of the application and any appeal with your clients on the following basis: (a) by consent the Judgment of Bainton J be set aside;(b) the separate issue heard by his Honour be remitted back to the Equity Division for re-hearing; (c) the costs of the hearing before Bainton J and of the appeal be costs in the cause of the re-hearing. The appellants reserved the right to tender the letter on the question of whether the respondents should pay the costs of the appeal and of the hearing on an indemnity basis. The offer was open for acceptance until 9.30 am on 23 October 1995. The offer was not accepted. The appellants submit that the offer was precisely the outcome of the appeal except for the costs of the appeal. The offer that the costs of the appeal be costs in the cause of the re-hearing was said to be a real and substantial compromise. 2 UNREPORTED JUDGMENTS Both parties referred to a number of cases but these throw little light on the particular circumstances of this appeal beyond emphasising that ultimately the matter is one for the discretion of the Court to be exercised judicially. In the appeal there were two separate questions. First, whether Bainton J came to the correct conclusion on the evidence properly before him; secondly, whether his decision was vitiated by procedural unfairness. It is acknowledged that if, as this Court found, the decision was vitiated by procedural unfairness, that was not the fault of either the appellants or the respondents. The respondents had the benefit of a judgment. The offer was that the question of who would ultimately pay the costs of the appeal would await the outcome ofthe new trial. If the respondents accepted the Calderbank offer they were accepting the need for a new trial with the expense that involved. An appellate Court will strive to avoid a new trial if possible. Parties should do likewise. The respondents wished to argue against the need for a new trial. As it turned out in this case it proved not to be possible. In the circumstances we do not think, based on the offer that was made, an order for indemnity costs is appropriate. The situation would have been very different if an offer had been made to settle the proceedings without the necessity for a new trial. In our opinion this application should be refused and the appellants ordered to pay the respondents" costs of it. The orders made on 11 March 1996 are confirmed except that order 2 should be amended by deleting the word 'Commercial' and substituting the word 'Equity'. Orders accordingly. Counsel for the appellant: RV Gyles QC/DJ Hammerschlag/VF Kerr Solicitors for the appellant: Sharwood Eyers Wilkie Counsel for the respondent: NA Cotman Solicitors for the respondent: Cowley Hearne