New South Wales Supreme Court CITATION : Westbury Holdings Kiama Pty Ltd v ASIC [2007] NSWSC 1064 HEARING DATE(S) : 13/09/07 JUDGMENT DATE : 21 September 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Confirmation of order that applicants pay respondents' costs of interlocutory process filed on 14 March 2007 CATCHWORDS : PROCEDURE - costs - application for assessment on the indemnity basis - where respondents invited applicants to capitulate - where some grounds upon which the invitation was made were found not to have substance and others were not argued LEGISLATION CITED : Corporations Act 2001 (Cth), s.601AH Jones v Bradley No. 2 [2003] NSWCA 258 Leichhardt Municipal Council v Green [2004] NSWCA 341 CASES CITED : Pollard v Baulderstone Hornibrook Engineering Pty Ltd No. 2 [2007] NSWSC 486 Singh v Singh (No 3) [2004] NSWSC 866 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Westbury Holdings Kiama Pty Ltd v Australian Securities and Investments Commission (2007) 25 ACLC 710 Westbury Holdings Kiama Pty Limited and Peter Fitzgerald - Plaintiffs/Respondents PARTIES : Australian Securities and Investments Commission - Defendant Miltonbrook Pty Limited, Miltonbrook Land Pty Limited, Embrook Pty Limited - Applicants FILE NUMBER(S) : SC 6104/06 COUNSEL : Mr D.L. Warren - Plaintiffs/Respondents Mr G.J. Nell SC - Applicants SOLICITORS : Heard McEwan Legal - Plaintiffs/Respondents Russell McLelland Brown - Applicants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY, 21 SEPTEMBER 2007 6104/06 WESTBURY HOLDINGS KIAMA PTY LIMITED v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION JUDGMENT 1 On 11 May 2007, I ordered, stating reasons, that an interlocutory process filed on 14 March 2007 by Miltonbrook Pty Ltd, Embrook Holdings Pty Ltd and Miltonbrook Land Pty Ltd (which I shall call "the Miltonbrook parties") be dismissed with costs: see Westbury Holdings Kiama Pty Ltd v Australian Securities and Investments Commission (2007) 25 ACLC 710. The Miltonbrook parties contended that the court should set aside orders made on 5 March 2007, including an order under s.601AH of the Corporations Act 2001 (Cth) directing Australian Securities and Investments Commission to reinstate the registration of Churnwood Holdings Pty Ltd. 2 When judgment on the interlocutory process was delivered, the respondents/plaintiffs ("Westbury") gave notice of an application for an order that costs be assessed on the indemnity basis. Because I was about to enter upon long leave, that application was listed for hearing on 13 September 2007. The application was pursued on that occasion. 3 In contending that the costs awarded against the Miltonbrook parties as unsuccessful applicants should be assessed on the indemnity basis, Westbury relied wholly on a letter sent by its solicitors to the solicitors for the Miltonbrook parties shortly after the interlocutory process was served. After pointing out that Westbury had acted upon orders obtained by it from the court on 5 March 2007 (which, as I have said, included an order s.601AH of the Corporations Act 2001 (Cth) that Australian Securities and Investments Commission reinstate the registration of Churnwood Holdings Pty Ltd) and that the reinstatement of registration of Churnwood Holdings Pty Ltd had been completed, Westbury's solicitors said: "We are instructed to oppose your interlocutory application. We are of the opinion that your client's application has neither merit nor any standing to bring the application in the first place because the orders have already been made. The proper course by [sic] Notice of appeal to the Court of Appeal. Our client complied with Section 601AH of the Corporations Act. The Court was satisfied that the components required by that Section were met. The matters you seek to raise are those which ought to be argued in the substantive matter in Equity. You should note that proceedings have been issued in the Supreme Court Equity Division in the form of the draft Statement of Claim that was provided to you prior to Christmas. In that draft document provided at that time you will have noted it was at all times our client's intention to have Churnwood Holdings Pty Limited reinstated. Our client certainly has grounds as a 'person aggrieved', particularly as we assert the options were assigned appropriately, the loans were not repaid hence the options subsisted. There is substantial evidence to establish our client's right to a share of the Companies and Profits previously advised. We offer you the opportunity to discontinue with the Interlocutory Process on the basis that each party pays its own costs. Should you fail to accept this offer and the matter is determined by the Court more favourably to our client, we shall tender a copy of this letter to the Court and seek an Order for indemnity costs against your Client and your Firm." 4 On the hearing of the application with which I am now dealing, Mr Warren submitted on behalf of Westbury that the letter was a Calderbank letter making it necessary to consider principles emerging from a number of decisions of the Court of Appeal, in particular, SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, Jones v Bradley No. 2 [2003] NSWCA 258 and Leichhardt Municipal Council v Green [2004] NSWCA 341. A useful summation of the principles appears in the judgment of Hislop J in Pollard v Baulderstone Hornibrook Engineering Pty Ltd No. 2 [2007] NSWSC 486. I gratefully adopt paragraphs 5 to 9 of his Honour's judgment: "Rule 42.1 of the Uniform Civil Procedure Rules 2005 ("the rules") provides 'Subject to this Part, if the court makes any order as to costs, the court is to order that the 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'. Rule 42.15 of the rules provides, relevantly, that where an offer of compromise is made by a defendant pursuant to rule 20.26, and the plaintiff does not accept that offer and recovers a judgment less favourable to him or her than the terms of the offer then, unless the Court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs until the beginning of the date following the day on which the offer was made from which date the defendant is entitled to its costs assessed on an indemnity basis. In the case of an offer pursuant to rule 20.26 the court's discretion to 'order otherwise' will, in general, be exercised only in an exceptional case - Leichhardt Municipal Council v Green [2004] NSWCA 341 and it is for the plaintiff to prove that the court should 'order otherwise' - Gretton v The Commonwealth of Australia [2007] NSWSC 149 at [9]. The court may also make an order that a defendant is entitled to indemnity costs where an offer has been made in a Calderbank letter and the judgment obtained by the plaintiff is less favourable to him or her than the terms of the offer. Unlike a notice of offer of compromise under rule 20.26 '…the mere making of an offer by a "Calderbank letter" and its non-acceptance followed by a result more favourable to the offeror (less favourable to the offeree) than that represented by the offer will not automatically lead to the making of an order for payment of costs on an indemnity basis' - MGICA (1992) Pty Ltd v Kenny and Good Pty Ltd (1996) 70 FCR 236 at 239. The court may have regard to a Calderbank letter when deciding questions of costs but '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' – SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37], Jones v Bradley (No 2) [2003] NSWCA 258. Relevant factors are whether the rejection of the compromise offer was reasonable in the circumstances and the timeframe in which the offeree had to consider the offer – Crump v Equine Nutrition Systems Pty Limited (No 2) [2007] NSWSC 25 at [40]. It is for the defendant to persuade the court that the plaintiff acted unreasonably in rejecting the Calderbank offer - Gretton at [16]. Circumstances to be considered in determining whether the failure to accept the offer was unreasonable or not include the making of an assessment of the strengths and weaknesses of the plaintiff's case looking at the claim prospectively at the time the offer was made. This task is not to be determined with the benefit of hindsight - Gretton at [24]." 5 The contention of Westbury is that the letter I have quoted conveyed an offer – or invitation – which was, at the time, of such a nature that it was unreasonable for the Miltonbrook parties to persist with their application rather than withdrawing it. Five reasons why the application was doomed to fail were advanced in the letter: 1. The application had no merit. 2. The Miltonbrook parties had no standing to bring the application because the order for reinstatement had been made. 3. The proper course was for the applicants to appeal to the Court of Appeal. 4. The matters sought to be raised should rather be argued in the separate proceedings in which the reinstated company became engaged. 5. Westbury had grounds as a person aggrieved. 6 The first of these contentions was ultimately not made out – at least if "no merit" was intended to indicate entire absence of merit. At least one matter was decided favourably to the Miltonbrook parties – namely, that Westbury had placed before the court an incomplete description of relevant matters (see paragraph [16] of the judgment of 11 May 2007). I do not accept that the case of the Miltonbrook parties was devoid of all merit. 7 As to the second matter, the Miltonbrook parties were not found to have lacked standing, although it is true that the circumstance that the reinstatement order had been acted upon by ASIC was ultimately the decisive consideration against the grant of the relief they sought. On the question of standing, there was a finding that the Miltonbrook parties were entitled to be heard. 8 The third and fourth points raised in the solicitors' letter are misconceived and were, in any event, not raised when the interlocutory process was heard. 9 As to the fifth matter, the court found it unnecessary to consider the point which accordingly played no part in the outcome: see paragraph [12] of the judgment. 10 I am of the opinion that, while the proposal conveyed by Westbury's solicitor was in essence an invitation to capitulate, rejection of that proposal is, for the purposes of the present application, relevant to an assessment of the reasonableness of the behaviour of the Miltonbrook parties. But I am also of the opinion that, viewed in the context prevailing at the time the letter was received, it was not unreasonable for the Miltonbrook parties to reject the invitation to capitulate and to persist in their attempts to have the orders of 5 March 2007 set aside. I say this, first, because there was merit in their contention that Westbury had caused the court to act on the basis of incomplete information and, second, because the substantial reason for Miltonbrook's failure (the finding that the reinstatement order was, in effect, beyond recall) was not something that Westbury relied upon in maintaining that the Miltonbrook parties should retire from the field. 11 There will be no order that the costs awarded against the Miltonbrook parties be assessed on the indemnity basis. Miltonbrook does not seek to resist an order that it pay costs on the party/party basis, so the appropriate outcome is a costs order in the terms indicated when judgment was delivered on 11 May 2007. 12 The Miltonbrook parties contend that the application by Westbury for an indemnity costs order is a discrete matter which produced a separate and new "event" for the purposes of the rule that costs should follow the event, with the result that they should have the costs of that application. 13 For reasons I sought to explain in Singh v Singh (No 3) [2004] NSWSC 866 (including a theoretically infinite multiplicity of costs applications), I do not consider that to be an appropriate approach in matters of this kind – except, perhaps, in special cases. In the present case, the argument on costs should be seen as part of the overall "event" and the court should simply confirm the order that the applicants under the interlocutory process filed on 14 March 2007 pay the costs of the respondents thereto, so that the whole of the costs assessed on the party/party basis are covered. ********** 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.