District Court New South Wales Medium Neutral Citation: WK Marble & Granite Pty Ltd v JKE Holdings Pty Ltd (No 2) [2013] NSWDC 310 Hearing dates: On the papers Decision date: 18 October 2013 Jurisdiction: Civil Before: P Taylor SC DCJ Decision: (1) Plaintiff to pay the second defendant's costs arising from the matter of the undertaking raised in the plaintiff's undated submissions entitled "Plaintiff's Submissions on Costs". (2) Subject to order 1, the second defendant to pay the plaintiff's costs on an indemnity basis. Catchwords: COSTS - indemnity costs - Calderbank offers - whether capable of immediate acceptance - whether rejection was reasonable - whether sufficient time for acceptance - contractual provision for solicitor/client costs UNDERTAKING - acceptance - whether raised in time Legislation Cited: Uniform Civil Procedure Rules 2005, r 18.1, r 18.2, r 42.1, r 42.5 Cases Cited: Calderbank v Calderbank [1975] 3 All ER 333 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3) [2010] NSWSC 1139 Pelechowski v Registrar, The Court of Appeal NSW (1999) 198 CLR 435 Texts Cited: Ritchie's Uniform Civil Procedure NSW Category: Costs Parties: WK Marble & Granite Pty Limited (ACN 074 331 981) (plaintiff) JKE Holdings Pty Limited (ACN 099 561 387) (first defendant) Bahia Elia (second defendant) Joe Elia (third defendant) Karen Elia (fourth defendant) Representation: Mr C E Bannan (plaintiff) Mr M Auld (second defendant) Eakin McCaffery Cox Lawyers (plaintiff) JK Solicitors (second defendant) File Number(s): 2011/326421 Publication restriction: No Judgment ON COSTS 1On 20 September 2013 I gave judgment in favour of the plaintiff in the sum of $646,345.59. Costs were reserved pending the provision of written submissions. The plaintiff also seeks to raise a matter concerning an undertaking previously given by the defendant unrelated to the issue of costs. COSTS 2The plaintiff seeks an order for indemnity costs. It relies upon two matters. 3First, that it is entitled to indemnity costs based upon the offers made to the second defendant in accordance with the authority of Calderbank v Calderbank [1975] 3 All ER 333. 4Secondly, it submits that the contractual provisions in the loan agreement entitle the plaintiff to indemnity costs. 5As to the first issue, there were no relevant offers of compromise made in accordance with the rules. Accordingly, there is no presumption in favour of a special costs order. Rather, the plaintiff must show that the second defendant acted unreasonably in rejecting a settlement offer. See the cases referred to in Ritchie's Uniform Civil Procedure NSW at [42.13.26]. 6In the absence of proof of unreasonable conduct by the second defendant, the ordinary rule that costs follow the event would apply in accordance with Uniform Civil Procedure Rule 42.1. 7Before me are four settlement proposals, three by the plaintiff and one by the second defendant. All of the four proposals contemplated that the second defendant would provide $100,000 of specified equipment and payment of a further $200,000. (a) THE SECOND DEFENDANT'S OFFER 8Although the proposal of the second defendant is said to be an offer "in similar terms" to offers by the plaintiff, I am not satisfied that it properly can be regarded as an offer. It was not framed as an offer but stated, "we suggest that the matter is settled on the following Terms," and concluded, "Please obtain your clients instructions regarding the above proposal." 9Those provisions raise in my mind a real doubt as to whether the second defendant's proposal was capable of immediate acceptance by the plaintiff. Further, the defendant's proposal contained the following provision: "The parties acknowledge and agree that they will endeavour to settle the matter on the above terms the latest by the end of August 2013. If the matter does not settle by that time it will be in the discretion of each party to proceed with the matter as they deem fit, noting that a Hearing dates [sic] have been allocated for the 17 and 18 September 2013." 10No similar provision to this was in any of the plaintiff's proposals. The effect of this term was to limit any agreement to one obliging each party, and relevantly the second defendant, to "endeavour" (perhaps use its best endeavours) to settle the matter. If the amount proposed to be paid by the second defendant was unavailable then the hearing would proceed. In the result, the second defendant's proposal dated 5 June 2013, if capable of acceptance and if it was accepted by the plaintiff, would leave the plaintiff uncertain for some three months until the end of August 2013 as to whether the matter had truly settled or whether the hearing would proceed. 11It operated more in the nature of an option to settle in favour of the second defendant. For that reason alone I would not regard it as a reasonable offer or one that it would be unreasonable for the plaintiff to reject. 12Thirdly, the second defendant made the offer. It indicated a payment in cash and kind of about $300,000. That is far below the amount awarded to the plaintiff in the judgment. 13Accordingly, it is not an offer that is probative in assessing whether the plaintiff should obtain a costs order or a special costs order. (b) THE PLAINTIFF'S OFFERS 14As noted earlier, the proposals made by the plaintiff also contemplated payments by the second defendant totalling about $300,000 in value. The first proposal, dated 22 May 2013, sought instructions regarding the execution of a deed, a copy of which was provided. Like the second defendant's proposal, this too was not an offer capable of acceptance. Indeed, the second defendant's proposal dated 5 June 2013, considered above, was a response to the deed and provided the "instructions" that the plaintiff sought. I do not think that this proposal entitles the plaintiff to any special costs order. 15The second proposal of the plaintiff dated 12 June 2013 contained a clear offer on specific terms, again requiring some $300,000 consideration to be paid by the second defendant. It provided, "This offer is open for acceptance until 5pm on Friday 14 June 2013 whereupon it will lapse." There are two reasons why I do not think the second defendant's failure to accept this offer was unreasonable. 16First, the offer required acceptance within two days of the offer. In my view, this is an unreasonably short period, especially as the hearing of the proceedings remained about three months away. The analogous provisions in the Uniform Civil Procedure Rules 2005 concerning an offer of compromise require that the offer be open for acceptance for 28 days. 17Whilst these provisions are not determinative of whether the period for acceptance in this offer is reasonable, they are relevant in my determination that two days was not a reasonable period. 18Secondly, the second proposal of the plaintiff offered only to discontinue the proceedings. A discontinuance would not operate to preclude further proceedings being commenced. Thus, the acceptance of the proposal would not, or might not, settle the proceedings finally. I recognise that the proposal does refer to "full and final settlement of the proceedings," but there remains an ambiguity as to whether the present proceedings, or alternatively the whole dispute, was being resolved. 19In my view, that ambiguity justified the second defendant in not accepting the proposal. 20The third proposal, in a letter dated 8 July 2013, offered to "extend the offer" contained in the second proposal of the plaintiff so that it remained open until 5pm on 6 August 2013. By 8 July 2013, of course, the second proposal had lapsed. But I think the letter enlivened the offer in the second proposal and allowed about 28 days for it to be accepted. This provision differs from the unreasonably short period of acceptance contained in the second proposal and thereby cures its primary defect. 21However, the other defect in the second proposal remains, namely that the offer only entitles the second defendant to have the proceedings discontinued with no assurance that they would not be recommenced, or at least no certain assurance that they would not be recommenced. For this reason, I do not regard the second defendant's failure to accept the third proposal as unreasonable and accordingly, I am not persuaded that the settlement offers provide a reason for a special costs order. 22The other basis for a special costs order sought by the plaintiff is that the contract obliged the second defendant to pay indemnity costs. Clause 4(d) of the agreement provides: "The Guarantors indemnify the Lender against any and all losses and expenses of any nature including the costs of preparation of this Agreement, stamp duty (if any) and legal costs on a solicitor/client basis arising in any way out of its dealings with the Borrower, the intent being that the Guarantor is primarily liable for payment to the Lender of such losses and expenses and of the Loan Advance." 23Generally, contractual provisions that provide for indemnity costs should be given effect: see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3) [2010] NSWSC 1139 at [39]. The second defendant submits that the Court retains a discretion in respect of costs. So much can be accepted. But the proper exercise of the discretion, in the case of a contractual provision entitling the plaintiff to indemnity costs, generally involves the making of a special order in accordance with the contractual provision. The second defendant also submitted that the clause "does not support the awarding of indemnity costs (without any qualification as to reasonableness)." 24If this submission is suggesting that reasonableness is irrelevant to the costs awarded pursuant to an indemnity costs order, it is mistaken. If the second defendant were to persuade the costs assessor that any particular cost appeared to be unreasonable, that cost would not be allowed even under an indemnity costs order: see Uniform Civil Procedure Rule 42.5(b). 25Finally, the second defendant submits that the clause is limited to "dealings with the Borrower" and does not cover the costs of enforcing the guarantee. 26I do not accept that this is the correct construction of the clause. It provides that the guarantor "indemnify" the lender against losses and expenses "of any nature...arising in any way out of its dealings with the Borrower." It seems clear to me that the costs of enforcing the guarantee are costs that in a way (at least) arise out of the dealings with the borrower. 27Although the clause provides for indemnification of legal costs on a solicitor/client basis, I would not be minded to allow costs for which the lender might be obligated to pay to its solicitor but which, as against the second defendant, were unreasonable costs and not within the ambit of an indemnity costs order. In any event, the plaintiff does not seek such an order. 28Accordingly, for these reasons the second defendant should be ordered to pay the plaintiff's costs on an indemnity basis. THE UNDERTAKING 29On 15 February 2013 the second defendant gave an undertaking to the Court in the following terms (omitting the definitions): "1. Until further order of the Court, the Second Defendant undertakes to the Court, that she will not: a. further Encumber the Property; and/or b. Deal with the Property. 2. This undertaking does not prohibit the Second Defendant from doing any act set out in 1(a) or (b) above for the purpose of paying her reasonable legal costs of these proceedings provided that the Second Defendant provides 21 days' written notice to the solicitors for the Plaintiff of her intention to do any act set out in 1(a) or (b) above." 30The undertaking was signed and dated by the second defendant. The plaintiff "asks the Court to accept the undertakings." The undertaking was presumably accepted when it was filed in February. Whether or not that is the case, and whatever be the ambit of the undertaking, an issue is raised about whether I can or should entertain this application after the matter has concluded. The second defendant submits that the Court "does not have jurisdiction to order injunctive relief at large in these proceedings" and refers to the authority of Pelechowski v Registrar, The Court of Appeal NSW (1999) 198 CLR 435 at [45]. 31The second defendant also submits that "the undertaking was an interlocutory undertaking to preserve the status quo until judgment." 32Whilst the decision in Pelechowski may offer support for the second defendant's contention, I do not think I should deal with the matter. The remedy sought of accepting the undertaking is not clear. There has been no reasonable opportunity to ventilate the dispute, as this issue was not before me on the hearing. 33Further, the only question reserved in the judgment was in respect of costs and it is inappropriate to deal with these matters after judgment, at least without a formal application: see Uniform Civil Procedure Rule 18.1, which requires an application to be made by motion. Rule 18.2(1) requires a notice of motion to be filed and served. 34The plaintiff has not submitted that any of the exceptions to r 18.2 apply and it is not apparent to me that they do. 35Accordingly, I do not propose to deal with the jurisdiction question raised by the second defendant, the factual question of whether the undertaking was an interlocutory question, the construction of the undertaking, any current operation of the undertaking and the remedy of accepting the undertaking. 36If either party wishes to make an application in respect of the undertaking in the usual way, they are, of course, at liberty to do so. Whether that application has merit or is misconceived, whether because of the time at which it is made or for other reasons, will be determined on that application if it is made. 37As the plaintiff has failed on this matter of the undertaking, the second defendant is entitled to an order for costs arising from the matter of the undertaking raised by the plaintiff in its undated submission on costs provided on 23 September 2013. 38Accordingly, the orders of the Court in respect of costs are: (1)Plaintiff to pay the second defendant's costs arising from the matter of the undertaking raised in the plaintiff's undated submissions entitled "Plaintiff's Submissions on Costs". (2)Subject to order 1, the second defendant to pay the plaintiff's costs on an indemnity basis. ********** 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: 03 April 2014