Supreme Court New South Wales Medium Neutral Citation: Gattellaro v Spencer (No 2) [2011] NSWSC 5 Hearing dates: On written submissions Decision date: 02 February 2011 Jurisdiction: Common Law Before: Hislop J Decision: Application for indemnity costs refused. The defendants to pay the plaintiff's costs of this application. Catchwords: Common law - indemnity costs - no issue of principle. Cases Cited: O'Keefe v Hayes Knight GTO Pty Limited [2005] FCA 1559 Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited (1988) 81 ALR 397 Category: Consequential orders Parties: Yolanda Gattellaro (Plaintiff) Keith Spencer (1st Defendant) William S Whitby (2nd Defendant) David J Adams (3rd Defendant) Representation: Counsel: D.W. Elliott (Plaintiff) D. Langusch (Defendants) Solicitors: Julie A. Orsini (Plaintiff) Yeldham Price O'Brien Lusk (Defendants) File Number(s): 2005/269546 Introduction 1This was an action by the plaintiff to recover damages from the defendants, a firm of solicitors, for alleged professional negligence by them. The action was unsuccessful. The plaintiff was ordered to pay the defendants' costs. 2The defendants have made application for an order pursuant to the Court's discretion that the plaintiff pay the defendants' costs: (a) on an indemnity basis from the commencement of the proceedings, or (b) in the alternative, on a party-party basis up to and including 2 April 2008, and on an indemnity basis thereafter, or (c) in the further alternative, on a party-party basis up to and including 18 March 2010 and on an indemnity basis thereafter. 3The application is opposed by the plaintiff. A. Costs on indemnity basis from the commencement of the proceedings 4The defendants sought this order on the basis that the action had been commenced in circumstances where the plaintiff, properly advised, should have known that she had no chance of success. The defendants relied upon O'Keefe v Hayes Knight GTO Pty Limited [2005] FCA 1559 at [34] and Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited (1988) 81 ALR 397 at 401. 5The plaintiff submitted that the plaintiff's claim was neither fanciful nor hopeless nor without substance. 6This was a complex matter. It was based upon events occurring many years prior to the commencement of the proceedings. Problems with recollection and issues of credit were significant and potentially relevant to all parties. In my opinion, it has not been established that at the commencement of proceedings, the plaintiff, properly advised, should have known that she had no chance of success. This ground fails. B. Costs on an indemnity basis from 3 April 2008 7The defendants sought this order based upon a letter by their solicitors to the plaintiff's solicitor dated 2 April 2008. In that letter, after a consideration of some evidential materials, the solicitors invited the plaintiff's solicitor to reconsider the plaintiff's position and in particular her prospects of success. The letter made clear that if successful the defendants would be seeking an order for their costs in full. 8The plaintiff's solicitor, by letter dated 4 April 2008, responded to the letter dated 2 April 2008. Issue was taken as to a number of assertions in the defendants' solicitor's letter and a significant sum was sought from the defendants by way of settlement. It was asserted that if the offer was not accepted, the plaintiff would require the defendants to either file their evidence in accordance with the timetable or the plaintiff would proceed to apply for summary judgment in respect of the plaintiff's entire claim. 9The plaintiff submitted the letter dated 2 April 2008 ought not carry costs sanctions as it was not an offer and had been forwarded at a time when the defendants' evidence had not been filed, thus preventing the plaintiff from assessing the merits of the defendants' case and the need to compromise. 10In my opinion, this correspondence does not provide a basis for an indemnity costs order. It may have done so had it been established that the plaintiff, properly advised, should have known that she had no chance of success in continuing the proceedings. However, in my opinion, this was not the case for the reasons previously referred to. C. Costs on an indemnity basis from 19 March 2010 11The defendants sought this order in reliance upon a Calderbank letter delivered to the plaintiff's solicitors at court on 18 March 2010. By that letter the defendants offered to resolve the proceedings on the basis that there be a verdict in favour of the defendants with no order as to the costs of the proceedings. The offer was expressed to be open until 5.00 pm on 18 March 2010. It was rejected by the plaintiff at about 11.55 am on 18 March 2010. 12It was submitted by the defendants that it was unreasonable for the plaintiff not to accept the offer. She knew, or ought to have known, that her claim had no reasonable prospects of success and that she was likely to be held liable to pay the defendants' costs if the matter proceeded, particularly as her case against the defendants was built on testimony which, by the time of the making of the offer, was demonstrably inconsistent and unreliable. 13The plaintiff submitted the offer was ineffectual as it did not allow a reasonable opportunity and time for consideration, it did not allow a reasonable time for acceptance, it required the plaintiff to abandon her claim in full, thus affording no real compromise apart from a possible saving on costs and it was not a genuine compromise but was designed simply to trigger the payment of costs on an indemnity basis. 14In my opinion, the short time permitted for consideration and acceptance of the Calderbank offer does not render it ineffectual as the plaintiff was able to, and did, respond to the offer within the time stipulated. However, a Calderbank offer only has effect if the non-acceptance of it was unreasonable. In my opinion, having regard to the nature of the proceedings, it was not unreasonable for the plaintiff to reject an offer which involved complete capitulation, albeit with a costs saving, in circumstances where the defendants had yet to be tested by cross examination in circumstances where their affidavit evidence did not satisfactorily deal with all matters and where it was likely their recollection of events would be found faulty at least in some respects. This ground fails. Conclusion 15The application for indemnity costs is refused. The defendants are to pay the plaintiff's costs of this application. ********** 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. Decision last updated: 02 February 2011