Gilsan v Optus [No 4] [2005] NSWSC 1073

New South Wales Supreme Court

CITATION : Gilsan v Optus [No 4] [2005] NSWSC 1073

HEARING DATE(S) : 14 October 2005

JUDGMENT DATE : 14 October 2005

JUDGMENT OF : McDougall J at 1

DECISION : See para [41] of judgment

CATCHWORDS : COSTS - apportionment - whether apportionment should be made reflecting success and failure of parties on particular issues - whether result of cross-claim should be included in apportionment - whether results of subsequent judgments in proceedings should be reflected in apportionment - indemnity costs - whether indemnity costs should be awarded - whether oral Calderbank offer effective - whether subsequent judgments would interrupt effect of indemnity costs - no question of principle

Civil Procedure Act 2005 Supreme Court Act 1970 LEGISLATION CITED : Supreme Court Rules Uniform Civil Procedure Rules 2005

CASES CITED : NRMA Limited v Morgan (No 3) (1999) NSWSC 768

Gilsan (International) Limited (Plaintiff) PARTIES : Optus Networks Pty Limited (Defendant)

FILE NUMBER(S) : SC 50056/02

F Kunc (Plaintiff) COUNSEL : I M Jackman SC (Defendant)

Gadens (Plaintiff) SOLICITORS : Gilbert & Tobin (Defendant)

LOWER COURT JURISDICTION :

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

McDOUGALL J

Friday 14 October 2005 Ex tempore (revised 17 October 2005)

50056/02 GILSAN (INTERNATIONAL) LIMITED v OPTUS NETWORKS PTY LIMITED [NO 4] JUDGMENT 1 HIS HONOUR: I have dealt with the issues in these proceedings in my three earlier judgments: Gilsan v Optus [2004] NSWSC 1077; Gilsan v Optus [No 2] [2005] NSWSC 38; and Gilsan v Optus [No 3] [2005] NSWSC 518. The resolution of the issues through that somewhat tedious process has resulted in the entry of judgment in favour of Gilsan in the sum of USD10.026 million. This judgment deals with the question of costs. 2 The parties suggested that there were, in substance, three matters to be dealt with. The first was the question of the costs of Gilsan's claim. Included in that is the question whether there should be any apportionment of those costs to reflect among other things success and failure on various issues. The second question within that is whether, and if so for what period, Gilsan should have indemnity costs. 3 The second matter related to the costs of the cross-claim. In this context, it is necessary to bear in mind that the cross-claim was relied upon (and to an extent succeeded) as a defence by way of set-off. 4 The third matter related to the impact, on the overall view to which I might come on costs, of the second and third judgments and the parties' relative measures of success and failure under them. 5 I take the relevant principles as to costs to be as summarised by Giles J in NRMA Limited v Morgan (No 3) (1999) NSWSC 768 at paras [23] to [25]. For convenience, I set those paragraphs out: "[23] By s76 of the Supreme Court Act costs are in the discretion of the Court. The discretion is a judicial discretion, to be exercised on proper grounds and not at whim. The starting-point is prescribed by Pt52 r11 of the Rules, that costs follow the event unless it "appears to the court that some other order should be made as to the whole or any part of the costs". [24] Principles according to which some other order may be made are fairly well established. If a party fails on some issues, the circumstances may make it reasonable that he be deprived of the costs of those issues, or even be ordered to pay the other party's costs of those issues. For this purpose, issues may be issues in a pleading sense of bases of claim, or may be disputed questions of fact or law. But it must be remembered that parties should not be dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case, and unless a particular issue or group of issues is clearly dominant or separable from the balance of the proceedings it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between the issues on which he was successful and those on which he failed. It is sufficient to refer to Cretazzo v Lombardi (1975) 13 SASR 4 at 12; Hughes v Western Australian Cricket Association (1986) ATPR 40-748 at 48,136; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 271-2; and Waters v P C Henderson (Australia) Pty Ltd (NSWCA, 6 July 1997, unreported). [25] If an order reflecting success or failure on issues is made, it is appropriate to have regard to the time referable to the issues, although necessarily without mathematical precision (Lenning v Alexander Proudfood Co World Headquarters (NSWCA, 22 April 1991, unreported)). It is not necessary that the issue or issues on which the party failed was or were raised by him unreasonably (Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 615)." 6 If one substitutes, for the reference to s 76 of Supreme Court Act 1970, a reference to s 98 of the Civil Procedure Act 2005, and for the reference to Pt 52 r 11 of the Supreme Court Rules a reference to r 42.1 of the Uniform Civil Procedure Rules 2005, those paragraphs in my view describe precisely the approach that I should take. 7 I turn first of all to the costs of Gilsan's claim. 8 As a reference to my first judgment will show, there were a very large number of issues - 58 in all - that the parties propounded for my determination. The bulk of those issues were determined by my first judgment (to the extent that they were pressed); but some, relating to quantification, were reserved. They were reserved because, it was hoped, the parties could agree on the outcome, following on my conclusions, without the need for further argument. 9 The claim as originally propounded by Gilsan in its summons was for an amount of USD15.3 million. As I have said, the amount for which it succeeded was USD10.026 million. Even though the latter figure includes a substantial amount for interest, it is apparent that, overall, Gilsan had a substantial measure of success. 10 Accepting as I have said I do, the warnings in the authorities (referred by Giles J in NRMA v Morgan at para [24]) against seeking to divide cases up too precisely into issues and to seek to allocate costs according to success or failure on those issues, it is nonetheless, I think, possible to say in the present case that there was one issue that was clearly separable from the others. I refer to the so called "rogue traffic" claim, with which I dealt at paras [177] and following of my first judgment. As those paragraphs show, and as the parties recognised in their submissions today, there was a substantially discrete body of evidence (documentary and oral) and submissions devoted to that issue. That was an issue on which Gilsan failed. I do think that it is appropriate to take account of that in moulding an appropriate order as to costs. 11 The parties have put on a body of evidence that seeks to show the time that was devoted to various issues in the proceedings. In the nature of things, that evidence is necessarily impressionistic and, to an extent, imprecise. Neither party challenged, by cross-examination, the evidence adduced by the other; I must therefore proceed on the basis that in each case the evidence represents the best efforts of the person giving it to estimate the apportionment of time. 12 For Gilsan, that evidence comes from its solicitor, Mr Mattock. He estimated that the rogue traffic claim occupied some 15 per cent of the time spent on the issues raised in the summons and reply. 13 For Optus, that evidence was given by its former solicitor, Ms Watts. She estimated the time relating to the rogue traffic issue as occupying some 20 to 25 per cent of the time - in her case, as I understood it, overall and not merely as a proportion of the time relating to Gilsan's case advanced through its summons and reply. 14 A third estimate was given in correspondence between the parties. That estimate was given by Gilbert and Tobin, the solicitors for Optus. They estimated the proportion of time relevant to the issue as being 15 per cent - again, as I understand it, of time overall and not merely of time relevant to the issues raised in the plaintiff's case. 15 Because Mr Mattock has made his estimate on a slightly different basis to that used by Ms Watts and Gilbert and Tobin, it is difficult to correlate precisely the three estimates. However, as a broad rule of thumb, I think it appropriate to say that cross-claim issues occupied of the order of 40 per cent of the total time at the first hearing. If that be correct then, it might be thought, Mr Mattock's estimate of fifteen per cent, of time relevant to the plaintiff's claim alone, might come down to about nine or ten per cent overall. 16 It is impossible to be precise in these matters and, as I indicated in the course of argument, I have absolutely no impression myself, separate to the estimate given to me by the parties, of the time devoted to each issue. Thus, any apportionment that I do make will be of necessity of a rough and ready nature (an approach that, I am relieved to see, was adopted by Giles J in NRMA v Morgan: see para [28]). 17 Further, I think, any apportionment of costs needs to take into account the fact that Optus succeeded on one issue raised in it by its cross-claim, and that that success was reflected, through the mechanism of set-off, in the judgment ultimately obtained by Gilsan. 18 To jump ahead: the parties urged me, at one stage, to make separate orders for the costs of Gilsan's claim and of the cross-claim. I do not think that I should do so, because I think that any attempt to do so would present an assessor with a nightmarish task. Particularly in circumstances where the matters raised by way of cross-claim were raised also in the defence, through the mechanism of set off, I think that the better approach, and certainly one that would facilitate assessment, is to make an order for the costs of the proceedings overall (ie, of the claim and the cross-claim). 19 In taking that approach, therefore, the allowance that is made, on a global basis and not on an issue by issue basis, for relative success and failure needs to take into account not only the specific separable issue relating to rogue traffic but also, as I have said, the fact that Optus succeeded to some extent on its cross-claim, and that this success led to a reduction in the total amount awarded in favour of Gilsan. 20 It is also, I think, necessary to recognise that through the dropping of issues, and the multiple judgments, further points of success and failure emerged. Again, I think, it is better to recognise that in an overall or global assessment rather than in attempting to award costs up to certain dates, so as to seek to take account of preparation, hearing and decision on particular issues raised in the successive judgments. 21 When one puts all those matters together, the result that, I think, reflects the substantial degree of success that Gilsan has achieved, but also take account of the significant failures that it suffered in some areas of the case, is that on a global basis it should have some 75 per cent of its costs of the proceedings, including in that the cross-claim, except in so far as there have been specific costs orders made to date (which no one has asked me to disturb). 22 In saying this, as will be appreciated, I have dealt with the second and third broad areas, namely the costs of the cross-claim and the impact on the costs of the second and third judgments. 23 The next matter to be considered is, therefore, the question of indemnity costs. 24 The chronology of the attempts made by the parties to settle is set out in Mr Mattock's first affidavit, sworn 12 August 2005. That chronology reveals, among other things, that there was a mediation on 18 December 2002, resumed on 11 April 2003, and offers to settle thereafter. An offer of compromise pursuant to Pt 22 of the Supreme Court Rules was served on 30 June 2003, whereby Gilsan offered to accept USD10.9 million plus costs. Thereafter, an oral offer was made between counsel on a "Calderbank" basis on 11 August 2004, whereby Gilsan offered to settle for USD6.5 million. That oral offer made no specific reference to costs (although I would infer that it was inclusive of costs in an unspecified amount), and did not limit a time for acceptance (in which case, presumably, one would imply a reasonable time for acceptance). 25 Finally, from the plaintiff's perspective, there was a formal Calderbank offer made by letter dated 20 August 2004. That offer proposed settlement again in the sum of the USD6.5 million, of which USD500,000 was said to represent costs. That offer was open for acceptance until 4pm on 27 August 2004. 26 There is no evidence of any express response to the offer of compromise under the Rules or to the oral offer. The response to the letter of 20 August 2004 was conveyed in a letter of 24 August 2004 from Gilbert and Tobin (for Optus) to Gadens (for Gilsan). That letter made no reference to either the oral or written Calderbank offers, but did offer to settle for the sum of USD1 million inclusive of costs, with associated terms for releases and the like. It should be therefore treated, consistent with basic contractual principles, as a counter offer that rejected, and therefore in effect destroyed as being capable of acceptance, the Calderbank offer of 20 August 2004. 27 Gilsan's response the following day was to reject that offer and renew the offer set out in its letter of 20 August 2004. That renewed offer was not accepted within time. However, on 2 September 2004 (the hearing commenced on 6 September 2004), Optus furnished a revised offer of settlement, in the sum of USD1.5 million together with USD250,000 on account of costs. It was a feature of this offer, as it had been of Optus' previous offer, that monies held on account of security of costs, provided by Gilsan, be released to Gilsan. The evidence does not disclose that there was any response to this last offer. 28 I do not think that the offer of compromise under the Rules should be given any weight. Clearly, the outcome achieved by Gilsan did not equal, let alone better, the amount offered. As I have said, it recovered an amount of USD10.026 million. If one reduces that, on account of the interest that accrued between the date when the offer of compromise was made and the date of judgment, the effective amount to be compared to the amount offered is (in very approximate terms ) USD9.4 million. 29 Mr Kunc of counsel for Gilsan submitted that I should take account of the offer as demonstrating a willingness on the part of Gilsan to engage in negotiation, and that I should take into account the apparent failure of Optus to reply. I do not think that I should. The reason is, as Mr Jackman of Senior Counsel for Optus submitted, that to do so could require his clients to breach, or give up, confidentiality and privilege in relation to whatever (if any) attempts to settle may have been made between June 2003 and August 2004. 30 I turn now to the Calderbank offers. The basis on which a Calderbank offer will enliven the jurisdiction to make an order for indemnity costs is that the conduct of the person to whom it is made in rejecting it (expressly or by implication) can be categorised as sufficiently unreasonable so as to take the case outside the ordinary rule, namely that costs should be ordered on a party/party basis. Thus, I think, the enquiry must focus on whether or not it was reasonable for the party to whom the offer was made to reject it. The significance of that is twofold. Firstly, its requires an assessment of the offer to be made against the outcome. Secondly, for the purpose of the starting date, I think that the relevant time is not the date of making the offer but the date of rejection. Where the offer is simply not accepted, then the date of rejection would ordinarily be the date on which the offer, in accordance with its terms, expires. In the present case, however, the offer was rejected by the making of a counter offer and the relevant date is, I think, 24 August 2004. 31 Mr Kunc submitted, particularly having regard to the making of the oral offer, that the relevant date should be either 11 August (when the oral offer was made) or 20 August (when the written offer was made). I do not think this is so. Firstly, in relation to the oral offer, it did not seek to apportion the amount between damages and costs. Secondly, it did not in terms limit a date for acceptance. The former matter makes it somewhat difficult for the party to whom the offer is directed to assess its reasonableness. The latter means that it is difficult to say at what stage the conduct of the party to whom it is directed, in not accepting, could be categorised as unreasonable. 32 Further, I think, the formality of the offer, and the consequences that may flow from its non acceptance, support the view that it is the written offer rather than some antecedent oral offer that is significant. 33 The outcome achieved by Gilsan was very substantially better than the outcome that, by its Calderbank offer, it indicated that it would accept. I have no way of assessing the reasonableness of the assessment of USD500,000 for costs as at 20 August 2004 (although it may be noted that this was a time less than three weeks before the commencement of the hearing, and that, as became abundantly plain at the hearing, a huge amount of pre-trial preparation had been carried out). Nonetheless, if one takes that as a benchmark figure, and adds it to the verdict and judgment actually recovered, it is apparent that, even allowing for interest, Gilsan bettered its offer (when one takes costs into consideration) by at least USD4 million. 34 It must have been apparent, at the time the offer was made and rejected, that the further costs of preparation, and the costs of conducting the hearing, would be very substantial. Further, on the view that I have taken, it should have been appreciated by Optus that the offer involved a very significant element of discount. In this context, as in others, Mr Jackman pointed to the circumstance that the bulk of the amount found in favour of Gilsan reflected the outcome on two particular issues - relating to the date when the CTA's between Optus and the overseas carriers took effect, and relating to the effect of the benchmark order. That it is correct. Nonetheless, even allowing for that, Gilsan succeeded in an amount very greatly beyond the amount that it offered. 35 Another relevant matter in this context is the disparity between Optus' counter offer and the amount of the judgment. The first counter offer was about 1/10th, and the second about 1/8th, of the judgment sum. 36 When one takes all those matters into consideration, I think that it is appropriate to recognise the effect of the written Calderbank offer and its rejection by making an order for indemnity costs. It follows, in my view, that indemnity costs on that proportion of Gilsan's costs which I have decided should be paid by Optus - 75 per cent of the costs of the proceedings except those costs caught up by other orders - should be paid on the indemnity basis from 24 August 2004. 37 The next question to consider is whether, if at all, the entitlement to costs on an indemnity basis should come to an end. In this context, Gilsan submitted that the entitlement should continue, because, it said, the balance of the proceedings was effectively governed by the making and rejection of the Calderbank offer. Optus submitted that any entitlement to indemnity costs should come to an end in December 2004, when the issues agitated by the parties and decided in my second judgment were heard and determined. 38 I do not think that it is appropriate to take the stand that Optus advocated. I have already indicated why, in my view, the second and third judgments should not be considered separately in making an overall assessment of costs. That is because in substance the parties agreed to a regime whereby a number of issues were decided, on the basis that the parties thereafter be able to agree on the outcome; but if the parties could not agree, then there would be a need for further hearing and further decision. That this happened twice rather than once is unfortunate; but it does not alter the fact that there was an overall hearing and decision, although in three tranches, of the entirety of the issues on which the parties were unable to agree. Both for that the reason and because I have already taken the relative measures of success and failure (in all three judgments) into account in reaching my 75 per cent assessment, I do not think that the intervention of the second, or the second and third, or third decisions should provide a basis for interrupting the entitlement to indemnity costs that I find flows from the Calderbank offer and its rejection. 39 Further, I think, in principle the point made by Mr Kunc is correct. If the Calderbank offer had been accepted, the proceedings would have come to an end. None of the hearings would have been necessary. If, as I have found, it was unreasonable not to accept that offer, then all the consequences of that non acceptance should ordinarily attract the appropriate outcome, namely indemnity costs. It would only be if subsequent events in some way intercepted (to adopt the language of tort, amounted to a novus actus interveniens) the progress of the proceedings thereafter that some variation of the order might be appropriate. 40 As I have already said, the way in which I have approached the costs issues takes account, in an overall way rather than on a piece by piece basis, not just the costs relating to Gilsan's claims (including its reply claim) but the claims made by Optus in its cross-claim. However, since I have indicated that the cross-claim occupied roughly 40 per cent of the total (first) hearing, it is necessary to add a note as to why the partial success of Optus in its cross-claim did not result in some greater deduction, than 25 per cent, from the costs to which Optus, by virtue of its success, is entitled. In substance there were 4 principal issues agitated by Optus in its cross-claim. They related to the provision of services; the claim for Hellenic traffic; the AT&T overpayment claim; and the overpayment to Gilsan claim. Optus succeeded only on the first of those - known as the quantum meruit claim. The fourth was withdrawn, and the second and third were determined adversely to Optus. Thus, although Optus obtained a measure of success on its cross-claim (which success, as I have said more than once, was reflected by way of reduction in the amount payable by it to Gilsan), that success related to a relatively small proposition of the overall time devoted to the cross-claim. Mr Mattock estimated that at ten per cent of the time relevant to the cross-claim. Ms Watts assessed it at ten per cent of the time overall. Gilbert and Tobin assessed it at five per cent of the time overall. On any view, it was not such a measure of success as to warrant some greater deduction, from the costs otherwise payable to Gilsan, than the 25 per cent that I have indicated. 41 I therefore make the following orders: