New South Wales Supreme Court CITATION : Enron Australia Finance Pty Limited (in Liquidation) v Integral Energy Australia [2002] NSWSC 819 FILE NUMBER(S) : SC 50042/02 HEARING DATE(S) : 5/9/02 JUDGMENT DATE : 5 September 2002 Enron Australia Finance Pty Limited (in Liquidation) (Plaintiff) PARTIES : Integral Energy Australia (Defendant) JUDGMENT OF : Einstein J Mr V Kerr (Plaintiff) COUNSEL : Mr D Knoll (Defendant) SOLICITORS : Blake Dawson Waldron (Plaintiff) Corrs Chambers Westgarth (Defendant) CATCHWORDS : Practice and procedure - Costs - Calderbank letters - Offers of compromise - Failure to give 28 days in which to accept Calderbank offer may disentitle successful party from receiving indemnity costs for period post Calderbank letter. LEGISLATION CITED : Supreme Court Rules Arenson v Arenson [1977] AC 405 Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 CASES CITED : Murphy & Allen v Swinbank: Swinbank v Cleary [1999] NSWSC 1098 Oshlack v Richmond River Council (1998) 152 ALR 83 Re Buckton [1907] 2 Ch 406 DECISION : The defendant pay the plaintiff's costs of the separate question issues on a party/party basis. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Thursday 5 September 2002 ex tempore Revised 17 September 2002 50042/02 ENRON AUSTRALIA FINANCE (IN LIQUIDATION) PTY LIMITED v INTEGRAL ENERGY AUSTRALIA JUDGMENT - On application for costs 1 These proceedings were heard between 19 and 23 August 2002. A reserved judgment was delivered on 3 September 2002. 2 The matter is before the Court in terms of debate as to short minutes of order and submissions as to costs. The only matter which remains in dispute concerns the question of costs and the otherwise short minutes of order have been prepared and are agreed by the parties as properly reflecting the judgment. 3 The plaintiff seeks an order that the defendant pay its costs of the questions raised by the plaintiff's amended summons filed on 24 July 2002 as amended by the addition of paragraph 17A(c) and the demurrer question (raised by the defendant's opposition to leave being granted to the plaintiff to amend to plead the allegations in paragraphs 7A and 17A(a) and (b) of the proposed further amended summons) being the questions the subject of the Court's order for separate determination of 20 August 2002. Those costs are sought on a party/party basis up to and including 1 August 2002 and on an indemnity basis thereafter. 4 The claim to costs on a party/party basis up to and including 1 August 2002 is, as I understand it, simply put by reference to the usual principle as explained by McHugh J in the High Court of Australia in Oshlack v Richmond River Council (1998) 152 ALR 83 at paragraph 67, that subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The reasons are grounded in fairness and policy, the primary focus of an award of costs in that sense being to indemnify the successful party. McHugh J was there referring to the practice of the usual order for costs being an order for party/party costs. 5 The plaintiff's further claim to costs after 1 August 2002 on an indemnity basis is grounded upon the Calderbank letter sent on 1 August 2002 by the plaintiff's solicitors to the defendant's solicitors which has been read without objection. As Mr Kerr of junior counsel for the plaintiff who has argued the costs matter has made clear, a careful reading of paragraph 7(a) of the letter strongly suggests that following the construction given in the judgment, the plaintiff will have done far better at the end of the day then they there offered; in short the offer, I accept, seems to have been an offer which could not, in the light of the Court's construction, be said to have been unreasonable. 6 That having been said, Mr Knoll of junior counsel who has argued the costs issue on behalf of the defendant, has made the valid point that unless and until the bringing down of a final adjudication by, presumably, new reference market makers, one will not know the precise ultimate or bottom line figure. 7 Mr Knoll in turn submits firstly, that the proper course for the Court to take is to order that all of the costs of both parties on, I understood him, a party and party basis, be visited upon the plaintiff. The proposition in that regard relies upon the submission that this was effectively a test case and was a case run for, the benefit of a number of other counter-parties who, although not having been parties to these proceedings, in his submission will gain the benefit of the findings in the case. 8 Mr Knoll sought to cite some authorities in support of the proposition, for example that in a circumstance where the construction of a will is the relevant issue, a suit brought by the executor or trustee by way of the proper construction, although in form a case of adverse litigation, in substance may be regarded as an amicable proceeding for the determination of a question for the benefit of all concerned. In those circumstances one can certainly find authorities in support of the proposition that all parties costs are taxed as between solicitor and client and come out of the estate. One only such example which Mr Knoll referred the Court, to was the decision in Re Buckton [1907] 2 Ch 406. 9 During the course of address Mr Kerr took the Court to a passage in the judgment of Rolfe J in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 at p 451. In that passage Rolfe J expressed the view that: "The proper approach to take to an offer of compromise, whether made under the rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer which unreasonableness is demonstrated, prima facie by the ultimate result..." 10 In Murphy & Allen v Swinbank: Swinbank v Cleary [1999] NSWSC 1098 I had occasion to consider that expression of principle by Rolfe J. In Murphy & Allen the following appears: "The Trustees point out that the Calderbank letters were written from 23 July 1999 (17 days before the hearing) to 6 August 1999 (3 days before the hearing). The Trustees point out that the offers were open for very limited periods of time ranging from 7 days (including week-ends) to parts of a day. A convenient table setting out these periods of time is set out in paragraph 4 of the Trustees' written submissions which records the duration of relevant offers from particular insurers as running from a one day duration of offer to a seven day duration of offer. This table must however be reconciled with Annexure 'A' to Ms Hobson's affidavit which details the first and second rounds of counter offer. The Trustees also submit that no offer of compromise was made under the Supreme Court Rules as an offer made under Part 22 must remain open for at least 28 days (Part 22 Rule 3(2)). The Trustees submit that the evident purpose of this requirement is to give the party to whom the offer is addressed, sufficient time to consider it. The Trustees submit that this is of particular significance where, as is said to have been the case in these proceedings, the offers, with one possible exception, were made within 14 days preceding the commencement of the hearing on 9 August 1999. The Trustees submit that the insurers, having not availed themselves of the statutory regime laid down by Part 22, have failed to explain why they did not do so. The Trustees' submission is that given that the insurers Calderbank offers gave less - in fact, in all cases, much less - than the 28 days required to be given under Part 22, and in circumstances where the Calderbank offers were made at a time when the Trustees must have been known to be preparing for hearing, the Court should be slow, absent some proper explanation, to give the insurers an outcome that they could not have obtained by following the statutory procedure. This is said to be particularly so where most of the insurers who made offers were involved as insurers for at least two and in many cases three of the insurance years in question. The Trustees' submission which I accept, is that where this was the case, analysis and consideration of any offer of compromise involved not just the year 3 issues but all issues in the proceedings. The Trustees accept in their submissions that the Court may take into account a Calderbank offer when considering whether or not a special order should be made in relation to costs but that a special order for costs does not follow automatically. They point out that in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425, Rolfe J at 451 stated that 'an order would usually be made in favour of the successful offer or from the date of the making of the offer.' The Trustees submit that that would only be where, in all the circumstances, the offer allowed a reasonable time - prima facie 28 days is suggested as a reasonable time - for its acceptance. The Trustees submit that where, as they suggest, this did not occur, then either no special order for costs should be made or if a special order is contemplated, it should date only from the expiry of the reasonable period - the Trustees submit that in this case the statutory analogue suggests 28 days from the making of the offers. The submission is then that this is such a small period of time that it does not justify making any special order." 11 As Mr Kerr has accepted, if it is appropriate to take into account the time delimited under the rules for the making of an offer of compromise, which requires such an offer to be open for at least twenty-eight days, then the 1 August 2002 letter from Blake Dawson Waldron to Corrs Chambers was only written some seventeen or eighteen days before the hearing. 12 In terms of the judgment in and approach taken in Murphy that period was insufficient. On that approach it would be necessary for some explanation to be given as to why, in that circumstance of the shortening of the relevant time period, the plaintiff should be entitled to indemnity costs notwithstanding the Calderbank letter and its terms. 13 To that extent the explanation which Mr Kerr has advanced has been that this was in fact a case where the matter was case managed and an extremely short time table sought and accepted by both parties. He points out that the proceedings were given a hearing date on the first return of the summons, so that there was, as between the commencement of the proceedings in May and the actual hearing, a reasonably short period, all things being considered, and by way of comparison against certainly the vast majority of litigation in the commercial list. 14 Hence Mr Kerr submits that although less than the twenty-eight days requisite for a notice of compromise was permitted by the Calderbank letter, it should be read in the light of the way in which the matter was case managed. 15 His submission is that seven days should be regarded as a reasonable time within which the Calderbank letter could have been accepted but was not. In that regard, as I understood him, his submission was that the Court should order costs on a party/party basis up to and including 8 August 2002 and on an indemnity basis thereafter. 16 Mr Kerr further has submitted that, as is the case, there is no evidence in relation to the other counter-parties who apparently also had electricity swap contracts with Enron, as to the precise terms of the ISDA Master Agreement, as presumably also varied in the case of those parties, and as, for example, to whether or not the very same contract in terms as was litigated presently before the Court, had been entered with all or some of those counter-parties. There is substance in that submission. 17 It is also necessary to perhaps bear in mind, although neither party has addressed a single submission to this circumstance, that following the dismissal of the demurrer it is the case that these proceedings are not yet finally determined. They are determined as to the matters which were the subject of the Court's order for separate determination and it is only costs of and related to those sections of the proceedings that the costs argument has taken place. In short, both parties seem to have taken as a given and accepted - as I do for the purpose of these reasons - the notion that the balance of the proceedings will have to be dealt with on a quarantined basis and on their merits. 18 In the joint judgment of Gaudron and Gummow JJ in Oshlack there was reference made to indemnity basis costs. Their Honour at paragraphs 44 on page 95 said: "It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstances of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a 'solicitor and client' basis or on an indemnity basis." 19 Taking into account all the facts, matters and circumstances to which I have referred and which were put by the respective counsel for the two parties and taking into account the circumstance that this was a difficult question of construction in a complex field which was very strongly litigated by both parties, taking also into account as relevant, what I regard as the lateness of the Calderbank letter, to my mind in all the circumstances there is no relevant delinquency to be inferred by the failure of the defendant to accept this Calderbank letter in these circumstances. 20 For those reasons I am not disposed to make any form of order by way of indemnity costs and the appropriate order will require that the defendant pay the plaintiff's costs of the separate question issues on a party/party basis. 21 I make orders in terms of paras 1 to 7 inclusive of the short minutes of order which I initial and date 5 September 2002. I certify that paragraphs 1 - 21 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 5 September 2002 ex tempore and revised on 17 September 2002 ___________________ Susan Piggott Associate 17 September 2002 Last Modified: 09/18/2002 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.