New South Wales Supreme Court CITATION : Ermsdorf Holdings v Yuyucuoglu [2004] NSWSC 681 HEARING DATE(S) : 21 July 2004 JUDGMENT DATE : 4 August 2004 JURISDICTION: 10890/2004 JUDGMENT OF : Master Harrison DECISION : (1) Leave to appeal is granted; (2) The appeal is dimissed; (3) The summons filed 30 March 2004 is dismissed; (4) The plaintiff is to pay the first defendants' costs as agreed or assessed. CATCHWORDS : Leave to appeal decision of Local Court Magistrate - award of indemnity orders LEGISLATION CITED : Local Court (Civil Claims) Act 1970 (NSW) - s 69(2B)(c) Local Courts (Civil Claims) Rules - Part 31A r 12(9) Anglo-Cyprian Trade Agencies Ltd v Paphros Wine Industries Ltd [1951] 1 All ER 873 Calderbank v Calderbank [1975] 3 All ER 333 CASES CITED : House v King (1936) 55 CLR 499 Oshlack v Richmond River Council (1998) 193 CLR 72 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Ermsdorf Holdings Pty ltd (ACN 003 511 546) t/as Town & Country Real Estate, Burwood (Plaintiff) PARTIES : Sevin Yuyucuoglu & Sezal Yuyucuoglu (First Defendants) Magistrate Gary Still (Second Defendant) FILE NUMBER(S) : SC 10890/2004 Mr J Collins (Plaintiff) COUNSEL : Mr M W Sneddon (First Defendants) Mr N Pertoulis, Pertoulis Lawyers (Plaintiff) Mr A Acar, SOLICITORS : AI Legal (First Defendants) Mr T Twohill Crown Solicitor (Second Defendant) LOWER COURT Local Court JURISDICTION : LOWER COURT 2120/2002 FILE NUMBER(S) : LOWER COURT Still LCM JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON WEDNESDAY, 4 AUGUST 2004 10890/2004 - ERMSDORF HOLDINGS PTY LTD (ACN 003 511 546) t/as TOWN & COUNTRY REAL ESTATE, BURWOOD v SEVIN YUYUCUOGLU & 2 ORS JUDGMENT (Leave to appeal decision of Local Court Magistrate - award of indemnity orders) 1 MASTER: By summons filed 30 March 2004 the plaintiff seeks firstly, an order that the costs orders of Magistrate Gary Still entered in matter No 2120/2002 at the Local Court Burwood on 2 March 2004 be set aside; secondly, an order that the defendants pay the plaintiffs' costs of and incidental to both the hearing and the arbitration as agreed or assessed on a party/party basis; and thirdly, an order that the defendants pay the plaintiff's costs of this appeal. The plaintiff is Ermsdorf Holdings Pty Ltd (ACN 003 511 546) t/as Town & Country Real Estate, Burwood (Ermsdorf). The first defendants are Sevin Yuyucuoglu and Sezal Yuyucuoglu (the Yuyucuoglus). The second defendant is Magistrate Gary Still. The plaintiff relied on the affidavit of Nicholas Pertsoulis sworn 27 April 2004. The second defendant has filed a submitting appearance. Leave to appeal 2 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 69(2B)(c) of the Local Courts (Civil Claims) Act 1970 (NSW) provides that an appeal in relation to costs does not lie to this Court except by leave. Section 69(4) of the Local Courts (Civil Claims) Act provides that the court may determine an appeal by either (a) setting the judgment or order aside or (b) by varying the terms of the judgment or order or (c) by setting the judgment or order aside and remitting the matter for determination in accordance with the court's directions or (d) by dismissing the appeal. 3 In general, to grant leave two thresholds have to be satisfied, namely firstly whether in all the circumstances the decision attracts sufficient doubt to warrant its reconsideration on appeal, and secondly, whether substantial injustice would result if leave was refused supposing the decision is wrong. It is important to bear in mind that the purpose of the leave requirement is that it is intended to act as a filter to ensure unsuitable appeal proceedings are not able to be brought with the attendant demands which that places upon the resources of the court, the burden which it places upon other parties and the delays which it causes to other litigants. I accept that the costs order payable by the plaintiff outweighs the amount awarded in its favour. 4 The plaintiff wrongly had a judgment against it at arbitration and obtained judgment in its favour upon rehearing. This leads me to the view that substantial injustice would result should the decision be wrong and even though there is a wide discretion to award costs, this case is one that warrant reconsideration. Hence leave to appeal is granted. Grounds of appeal 5 The plaintiff appeals from the costs orders of Magistrate Still made on 2 March 2004. The grounds of appeal are mainly, that the Magistrate erred in law in finding the Yuyucuoglus had made an offer to Ermsdorf in substantially the same terms as the judgment; that the Magistrate erred in law in failing to address Ermsdorf's submission as to not receiving the letter of offer dated 28 February 2003 (the 28 February letter) and as relied upon by the Yuyucuoglus; the Magistrate erred in law in considering the effect of the letter of offer dated 4 March 2003 (the 4 March letter) the Magistrate should have found the offer, in either the 28 February letter or the 4 March letter; the Magistrate erred in failing to allow for the costs and disbursements incurred by the plaintiff in having to commence and continue proceedings up to the date of the offer; the Magistrate erred in law in failing to consider whether Ermsdorf's rejection of the Yuyucuoglus' offer was reasonable in the relevant circumstances; the Magistrate erred in not finding that Ermsdorf's rejection of the defendants' offer was reasonable in the circumstances; and the Magistrate erred in finding that Ermsdorf had no prospects of success in its original claim. 6 The principles according to which this court is to decide whether the Magistrate's discretionary decision to make an order for costs are stated definitively in a short passage in the joint judgment of Dixon, Evatt and McTiernan JJ in House v The King (1936) 55 CLR 499 at 504-505. It is, I think, useful to re-state them as follows: "The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred." Local Court proceedings 7 The plaintiff sued the defendant for management fees it alleges are due to it as a result of its appointment as managing agent for the defendant's properties at 129-133 Parramatta Road, Auburn and 97 Station Street, Auburn. 8 On 14 July 2003 this matter was dealt with by way of arbitration. At page 3 the Arbitrator stated: "Whilst much has been made as to termination and/or repudiation in respect of the agreement, to me the threshold question seems to be whether or not I accept that the agreement between the parties as altered was for a term of three (3) years from the 25th June, 2001. Indeed the Plaintiff's case as contained in the Statement of Claim is based on just this proposition and the Defendant's Amended Defence admits the whole of the allegations made by the Plaintiff in its Statement of Claim with the exceptions of paragraph 8 and 16. I have to determine on the balance of probabilities therefore whether or not the agreement between the parties was to continue for a period of three (3) years from 25th June, 2001. I find on the evidence before me that such was not the case. I would find it difficult to accept on the basis of the evidence as to the relationship between the parties that the Defendant would have agreed to such a term and other than the Plaintiff's assertions there is no other evidence of such a term." 9 Then the Arbitrator made a surprising decision, namely: "This being the case the Plaintiff must fail. The question does arise as to the adequacy of the notice of termination given by the Defendants. The Defendants Counsel in his submissions at paragraph 24 concedes that the Plaintiff is entitled to three (3) months damages and puts a figure on that amount but suggests that other expenses have it be deducted from it. I respectfully agree with that submission and in the absence of evidence of what the correct amount is, I must find for the Defendants. In view of the above I formally make an award in favour of the Defendants with the plaintiff to pay the Defendants costs of $4,400.00 inclusive of GST." 10 The plaintiff sought a rehearing. On 9 February 2004 the Magistrate determined the rehearing. The issues in dispute had been identified by the parties and appear in the judgment. The Magistrate found that the defendant did not wrongfully repudiate the further agreement but exercised a lawful right to terminate embodied in the original agreement of 1998 and carried out on or after variation as to its terms on or around 25 June 2001. The losses as particularised in paragraph 18 of the statement of claim could not be substantiated. In particular, the Magistrate was critical of the plaintiff's evidence. The Magistrate analysed the facts and concluded that there was a continuing inability to appropriately manage the defendant's affairs and discharge his obligations to the defendant pursuant to the agreement or agreements in a commercial and appropriate way. In the light of this finding the Magistrate was of the view that he could not accept the plaintiff's evidence that the omissions from the letter of 10 September 2001 as to a three year term and the plaintiff's over-statement of that term in the letter of 25 January 2002 of a supposed five year agreement were simply errors of maths or the omissions of others (t 5.45-55). 11 The Magistrate entered judgment for the plaintiff in the sum of $1,312.00 being the management fees calculated at 5 per cent on the existing leases from 7 January 2002 to 7 April 2002 (i.e. approximately 90 days) plus interest under the rules, if applicable. The parties made written submission on costs which the Magistrate dealt with in Chambers. 12 On 2 March 2004 the Magistrate gave a short judgment on costs. "I have considered the parties written submissions as to costs. In my view the defendants are entitled to an award of Indemnity costs because: 1. An offer in substantially the same terms as judgement was made by the defendant either in late February or early March 2003. 2. In essence that offer reflected the percentage of management fees due to the plaintiff for the 90 day notice period of termination (a period of notice acknowledged by the Plaintiff). 3. The judgement makes clear that on the evidence the plaintiff could never have realistically recovered more. That finding is consistent with the arbitrators finding in August, 2003. 4. Quite aside from the offer made the litigation had in my view only a remote prospect of success in the quantum sought i.e. $14,721.17. Again the judgement and arbitration decision support such a conclusion." 13 The Magistrate then made an order that the defendant was entitled to indemnity costs from 4 March 2003, (including costs of arbitration) to date. 14 The letter dated 4 March 2003 from the first defendant's solicitor to the plaintiff's solicitor relevantly stated: "… 4. Your client is holding approximately $687.50 in rent collected on behalf of our client from Australian Posters, we enclose letter received from Australian Posters. 5. The agreement provided for termination of the agreement by giving 90 days notice in writing. 6. Management Fees for one year is $5,188.16, as per the statement of claim. 90 days worth of management fees equates to is $1,279.27 7. Out client will agree to pay your client $591.77 and allow your client to keep the $687.50 held in trust to settle this matter. … 9. We will also file an application for summary dismissal if your client does not accept our clients offer within 7 days." 15 In relation to the ground of appeal relating to the effect of the letter of 28 February, there was a dispute as to whether the plaintiff had actually received this letter. However there was no dispute that the plaintiff received the letter of 4 March 2003. The Magistrate considered the latter letter and the order for indemnity costs took effect as from the letter dated 4 March 2003 There was no error in this approach. 16 There is a broad discretion to award costs. Section 34 of the Local Court (Civil Claims) Act provides for costs to be in the discretion of the Court subject to any of the rules and any other Act. There are many cases that articulate the same principle as expressed by Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 where their Honours stated [at 97]: "The expression the 'usual order as to costs' embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation. As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice. The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, Devlin J formulated the relevant principle as follows: 'No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.' 'Misconduct' in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute." 17 In Anglo-Cyprian Trade Agencies Ltd v Paphros Wine Industries Ltd [1951] 1 All ER 873) Delvin J went on to say, immediately after the quote reproduced above, that in applying the rule, it is necessary to decide whether the plaintiff has really been successful and that a plaintiff who recovers nominal damages ought necessarily be regarded as a "successful plaintiff" but that it is necessary to examine the facts of each particular case. An award of nominal damages ought not today be regarded as a "peg on which to hang costs" – see Nexus Minerals NL v Brutus Constructions Pty Limited & Kozyrski, (Unreported, Federal Court, 10 September 1997). Calderbank Offers 18 In SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] Giles JA referred to the effect of a Calderbank letter when making a determination as to costs. An offer made by letter to settle a proceeding which is later sought to be relied upon in the determination of costs draws its name from the English case of Calderbank v Calderbank [1975] 3 All ER 333. "The making of an offer of compromise in the form of a Calderbank letter where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: see for example, John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FLR 201; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FLR 235." 19 The effect is that while the court may take such an offer into account in determining the issue of costs, it is not determinative of the issue. It is merely one factor for the court to weigh in the exercise of its discretion. 20 The Calderbank offer was made prior to the arbitration and rehearing taking place. The Magistrate exercised his discretion to award costs on an indemnity basis from the date of the Calderbank letter in favour of the first defendants because an offer in substantially the same terms as the judgment was made by the first defendants by letter dated 4 March 2004. In essence, that offer reflected the percentage of management fees due to the plaintiff for the 90 day notice period of termination, it did not however make provision for costs and interest. The Magistrate also considered that the plaintiff's claim had only a remote prospect of success in obtaining damages in the sum claimed, $14,712.17. The plaintiff ended up no better off than he would have had he accepted the offer as the amount offered was modest and offered early in the proceedings, interest and costs would have been also modest. 21 The chances of success were remote and this was largely because of the plaintiff's own letters which were inaccurate and in conflict with the plaintiff's oral version of the contractual arrangements. The Magistrate was critical of plaintiff's explaining away the contrary statements made in its letters as to the terms of the managing agreement as simply errors of maths or omissions of others. From the outset, that conflict should have been apparent to the plaintiff. While the Magistrate does not specifically state that the offeree's failure to accept the offer in all the circumstances warrants departure from the ordinary order as to costs, there are circumstances which allowed the Magistrate to depart from the usual order for costs and exercise his discretion in relation to costs as he did. This Court would not intervene to alter this decision. There is no error of law. By virtue of the order made, the first defendants were deprived of their costs on a party/party basis from the date of service of the statement of claim to 3 March 2004. 22 The plaintiff also submitted that the Magistrate was bound by the statutory obligation of Part 31A r 12(9) of the Local Courts (Civil Claims) Rules 1988 (NSW). Part 31A r 12(9) of the Local Courts (Civil Claims) Rules states that "In exercising its discretion under section 34 of the Act in respect of an action in its General Division, a court must consider whether or not the action should have been heard and determined in the court's Small Claims Division" but it was the plaintiff not the defendant who chose the general division and not the small claims division of the Local Court as the forum in which to bring its claim. 23 The appeal is dismissed. The summons filed 30 March 2004 is dismissed. 24 Costs are discretionary. Costs normally follow the event. The plaintiff is to pay the first defendants' costs as agreed or assessed. The Court orders: (1) Leave to appeal is granted (2) The appeal is dismissed. (3) The summons filed 30 March 2004 is dismissed. (4) The plaintiff is to pay the first defendants' costs as agreed or assessed. ********* Last Modified: 08/06/2004 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.