Supreme Court New South Wales Medium Neutral Citation: Destri Enterprises Pty Ltd & Ors v Donald James Maxwell (No. 2) [2012] NSWSC 405 Hearing dates: 24 April 2012 Decision date: 24 April 2012 Jurisdiction: Equity Division Before: Slattery J Decision: Indemnity costs not awarded. Calderbank letter ineffective. Plaintiffs ordered to pay the defendant's costs on the ordinary basis, as agreed or assessed. Catchwords: COSTS - indemnity costs - Calderbank letter expresses an inclusive of costs offer - whether reasonable for plaintiffs to refuse to accept offer - whether defendant entitled to indemnity costs. Legislation Cited: Conveyancing Act 1919 (NSW), s 89 Uniform Civil Procedure Rules 2005 (NSW), 20.26(2) Cases Cited: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Run-Off Ltd [2006] NSWSC 583 Destri Enterprises Pty Ltd & Ors v Donald James Maxwell [2012] NSWSC 295 Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 Smallacombe v Lockyer Investment Co Pty Limited (1993) 42 FCR 97 White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 910 Category: Costs Parties: First Plaintiff:- Destri Enterprises Pty Ltd Second Plaintiff:- Brian Noonan Third Plaintiff:- Lorraine Noonan Fourth Plaintiff:- David George Fifth Plaintiff:- Joanne George Sixth Plaintiff:- Noel Delforce Defendant:- Donald James Maxwell Representation: Plaintiffs:- F.F.F. Salama Defendant:- G. Ng Plaintiffs:- R. Alamein, Heidtman & Co Lawyers Defendant:- Richard Barron, Richard Barron Lawyer File Number(s): 2010/237862 Publication restriction: No. EX TEMPORE Judgment 1The Court gave its principal judgment in these proceedings on 30 March 2012: Destri Enterprises Pty Ltd & Ors v Donald James Maxwell [2012] NSWSC 295. Events, matters and things are referred to in this judgment the same way as they are in the principal judgment. In the principal judgment the Court found that the plaintiffs had failed to establish any basis for exercising the Court's powers under Conveyancing Act, s 89 to extinguish the Luskintyre Easement. The court made findings that the easement serves a useful purpose. In particular, it provides an alternative means of access to the owners of the Kaludah Estate to remove livestock through lot 122 in the event of flooding. 2The proceedings have been listed today to argue and decide the question of costs. The matter was argued this morning at 9.30 and then was adjourned for judgment this afternoon, so the parties would have a short opportunity of referring the court to relevant authority, which they have now done. 3The issues are in short compass. The court has received concise and helpful submissions from counsel for both sides which have enabled the Court to focus on the true matters in issue. It is useful first perhaps to indicate what is not in issue before proceeding to deal with what is in issue. 4The unsuccessful plaintiffs acknowledge that they should pay the defendant's costs on the ordinary basis. There was at first a degree of uncertainty as to whether that just meant the first plaintiff or all plaintiffs. But it seems to the Court, as all plaintiffs were joined and all plaintiffs through the one set of lawyers pursued their unsuccessful proceedings, that they should all suffer a costs order against them. Notwithstanding the plaintiffs' internal arrangements, there seems to be no basis to discriminate among them about which should suffer an order for costs. 5But I note that as a result of the pre-trial directions given for the late joinder of some of these plaintiffs, that the first plaintiff has indemnified most, if not all, of the other plaintiffs in respect of a possible adverse costs order. So, all the other plaintiffs can look to the first plaintiff for the reimbursement of the costs they will have to pay the defendant. 6So the remaining issue is whether or not the defendant, should have the indemnity costs order he claims in addition to costs on the ordinary basis. The defendant's argument is based upon the pre-trial correspondence (Exhibit 1). Mr Richard Barron, the solicitor for the defendant, wrote to the solicitors for the plaintiffs, Messrs Heidtman & Co on 8 November 2011 making an offer as follows:- "'Without Prejudice except as to Costs' Dear Madam, RE: MAXWELL ATS DESTRI ENTERPRISES PTY LTD SUPREME COURT CASE NO: 2010/237862 We refer to past correspondence. Our client has instructed us that he will agree to settling your clients' claim on the basis that the right of way be reduced to 10 metres in width and that your clients pay to him the sum of $50,000.00 in payment of his costs. Kindly obtain your clients' instructions and advise of the same. As this matter is listed for hearing commencing on Monday 21st November, 2011 the offer will remain open until 9am on 21st November, 2011. Yours faithfully, R.M.BARRON" 7That letter was quickly replied to by Messrs Heidtman & Co, on 10 November 2011 in the following terms:- "Dear Sir, Destri Enterprises Pty Ltd & Ors v Donald James Maxwell Supreme Court Proceedings NO. 2010/237862 We refer to the above matter and to your letter of offer dated 8 November 2011. We note that our client is unable to respond to your offer as it does not appear to be a genuine offer that complies with the rules. Furthermore, it does not appear to be ase don any of the expert evidence served by the Defendant as to the compensatory value of the reduction of the Right of Way. Yours faithfully, HEIDTMAN & CO" 8The defendant claims that his solicitor's 8 November 2011 letter was effective as a Calderbank letter, entitling him to indemnity costs from on or about 8 November 2011. 9There are a number of Calderbank related issues that have fallen by the wayside during argument. I will mention them in a moment. Only one issue remains to be determined, namely, whether the fact that the 8 November 2011 letter includes a term, "that your clients pay to him the sum of $50,000 in payment of his costs" makes the offer inclusive of costs and an offer which, in the circumstances, it was unreasonable to expect the plaintiffs to accept. 10The issues which have gone away may be simply stated. Mr Salama has appropriately conceded, if I may say so, that although the 8 November letter does not describe itself as a Calderbank letter, it is capable of being effective as a Calderbank letter, because it is expressed in the words "without prejudice except as to costs". It is also conceded, again appropriately, that the offer to reduce the Luskintyre easement to a width of 10 metres is a genuine compromise, given the existing easement width is 20 metres. 11Finally on the eliminated issues, Mr Salama argued that when the defendant made the offer, the plaintiffs were not in an adequate position to assess the quality of the defendant's evidence that would enable them to determine their prospects of success. But I do not think that argument is successful. The plaintiffs' lack of success on that argument is grounded in the defendant's submission. The defendant rightly submits that when he made the offer on 8 November there was enough evidence from Mr Wickham about his journeys over the Luskintyre easement and from the surveys, about the usefulness of the easement in a number of flooding conditions other than a one percent flood. This evidence made it clear that there was a soundly arguable case that the easement may be presently useful. 12This leads to the remaining issue, whether or not this is a costs inclusive offer which it was not unreasonable for the plaintiffs to refuse. The barristers on both sides have referred the court to relevant authority, which has to some extent has thrown light upon this issue. But in other ways the authority shows how open-ended the law is in this area. 13The state of the law is neatly encapsulated in the debate within the Court of Appeal's decision in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 (Beazley, McColl and Basten JJA), a personal injuries case on appeal from the District Court. The relevant issue of whether or not indemnity costs could be awarded in respect of an inclusive of costs offer was considered by each of the judges of appeal. 14Their Honours in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 considered the development of this part of the law from its beginnings in the Federal Court of Australia's decision, Smallacombe v Lockyer Investment Co Pty Limited (1993) 42 FCR 97. Smallacombe v Lockyer Investment Co Pty Limited is authority for the proposition that a Calderbank letter expressed to be inclusive of costs will not warrant departure from the usual basis upon which a successful party's costs are calculated. Smallacombe v Lockyer Investment Co Pty Limited was applied by Einstein J in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Run-Off Ltd [2006] NSWSC 583 at 40 and by Campbell J in White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 910 at 12. 15In Elite Protective Personnel Pty Ltd v Salmon, Beazley JA pointed out that there are authorities in this Court "that an offer of compromise, which is expressed inclusive of costs, may form the basis upon which the court awards indemnity costs" [6]. Thus, Smallacombe v Lockyer Investment Co Pty Limited does not express a rule of law that inclusive of costs offers cannot operate as effective Calderbank letters. McColl JA explained in her judgment the practical disadvantages of inclusive of costs offers. "111 The Smallacombe line of authority has been developed by experienced trial judges whose views, in my opinion, should be accorded great weight. The underlying premise of such cases rests in the proposition that an offeree cannot be said to have acted unreasonably in not accepting an offer expressed to be inclusive of costs, because of the offeree does not have an adequate opportunity to consider the offer and because of the difficulties posed when a court comes to consider the reasonableness of the offeree's conduct in rejecting/not accepting it. In other words such an offer presents practical difficulties. 112 First, the recipient of such an offer would not know the likely party and party costs to date on taxation or assessment: see Smallacombe (at 102); Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2). Secondly, in considering the reasonableness of the offer at the time the question of its costs consequences arose, it would be necessary to indulge in a taxation, or assessment, of costs: Associated Confectionery (at 351). The Court should not be required to postpone the decision as to the basis upon which costs should be awarded while awaiting the outcome of that exercise. Nor should it be required either to speculate as to what the outcome of an assessment might be, nor arbitrate on a dispute between the parties on this topic." 16In his judgment Elite Protective Personnel Pty Ltd v Salmon Basten JA at [142] to [144] took a more liberal view of the kind of offer that could could qualify as a Calderbank offer. His Honour explained that there are circumstances in which an inclusive of costs offer may nevertheless act as a Calderbank letter. He points out the need for a flexible approach, one that takes account for example of the opportunity the offeree may have to ask for more information about the offer. 17In the result, however, in Elite Protective Personnel Pty Ltd v Salmon Beazley, McColl and Basten JJA agreed that that it was not appropriate to award indemnity costs in that case. The question seems to me to be an open one, depending as it often does upon the form of the letter and the circumstances in each case. 18I make the following relevant observations about the facts. There is no evidence before me of any correspondence between the parties in which either side has explained the calculation of the defendant's costs of $50,000 at the time these offers were made. The offer was made only approximately two weeks before the hearing commenced. It was made at a time when there was a very substantial degree of pre-trial activity going on between the parties. Extra plaintiffs were being joined. Several directions hearings were being held before court at short notice. It would have been a time of rapidly changing costs on both sides. It was also a time of considerable pre-trial pressure. 19Even if the plaintiffs' conduct is to be assessed flexibly, these are not circumstances conducive to assessing the plaintiffs by very high standards of diligence, for example, in seeking to ask the defendant for more particulars of his costs to date. I doubt the plaintiffs would have had time to do that in the pre-trial circumstances they faced in this case. 20Moreover, the circumstances of the claim are such that the Richard Barron letter of 8 November 2011 can truly be assessed as one inclusive of costs. Some of the defendant's expert evidence had placed figures up to $45,000 on the compensation that might be payable in respect of the complete extinguishment of the easement. The 8 November letter is somewhat ambiguous. Its statement that, "Your client's [that is the plaintiff's] pay to him the sum of $50,000 in payment of his costs" [emphasis added] is not entirely clear. Does the word "costs" means legal costs or may it include the costs of, or associated with, the extinguishment of the easement or compensation therefor? It seems that the amount being sought from the plaintiff may be a mixture of compensation for legal costs and the loss of 10 metres of the Luskintyre easement. 21Other correspondence between the parties has been tendered. But it does not throw much relevant light on this issue. It seems to me that in these circumstances the plaintiffs were thrown into a position of difficulty, of the kind identified by Justice McColl in paragraphs [111] and [112] of her Honour's judgment, quoted earlier in these reasons. Because of that, it was reasonable for them to refuse to accept the 8 November offer. Indeed, the terms of their response emphasise that they were suffering some of the difficulties mentioned by Justice McColl. They said: "We note that our client is unable to respond to your offer because it does not appear to be a genuine offer that complies with the rules." 22Justice McColl points out in Elite Protective Personnel Pty Ltd v Salmon paragraph [116] that one of the reasons that Uniform Civil Procedure Rule 20.26(2) was introduced, requiring UCPR, r 20 offers to be exclusive of costs, is to prevent the court from becoming embroiled in determining collateral issues, such as (1) the offeree's ability to assess the quantum of the costs component of an offer, or (2) the reasonableness of the opinion an offeree forms as to this issue at the time of rejection/non-acceptance. Her Honour said at [116]:- "116 Further, Smallacombe reflects the policy considerations which, no doubt, led to the adoption of UCPR 20.26(2). Requiring Calderbank offers to be exclusive of costs prevents a court from becoming embroiled in collateral issues, such as the offeree's ability to assess the quantum of the costs component of an offer or the reasonableness of the opinion as to this issue an offeree formed at the time of rejection/non-acceptance. In this respect Calderbank offers which are exclusive of costs assist the Court in facilitating the just, quick and cheap resolution of the real issues in the proceedings: S 56(1) Civil Procedure Act." 23It may well be that the requirements of UCPR, r 20.26(2) now makes it more difficult for parties to rely upon inclusive of costs offers. Where UCPR, r 20.26(2) sets a standard of costs- exclusive offers, and makes available a UCPR based method for their deployment, it may become harder to justify upholding the effectiveness of costs inclusive offers, as a basis for making indemnity costs orders. 24But in this case it seems, for the reasons indicated, that it was not unreasonable for the plaintiff to refuse to accept the defendant's 8 November offer. I will not order indemnity costs in the defendant's favour. 25The orders therefore will be that the plaintiffs will pay the defendant's costs of these proceedings on the ordinary basis, as agreed or assessed. ********** 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: 27 April 2012