Supreme Court New South Wales Medium Neutral Citation: Jianwei Liu v State of New South Wales (No. 2) [2014] NSWSC 993 Hearing dates: 23 July 2014 Decision date: 25 July 2014 Jurisdiction: Common Law Before: Nicholas AJ Decision: See paragraph 33. Catchwords: COSTS - Calderbank offer of settlement proposed by the defendant - offer not accepted by the plaintiff - whether plaintiff was unreasonable to reject the offer of compromise - whether commencement and continuation of the proceedings in the Supreme Court was warranted pursuant to UCPR r 42.34 - judgment less than $500,000 threshold - claim involved neither factual nor legal complexity - each party to bear his/its costs of the proceedings up to and including the deadline to accept offer of compromise - plaintiff to pay the defendant's costs on an indemnity basis thereafter. Cases Cited: Armory v Delamirie (1722) 1 Strange 505; [1722] EWHC KB J94 Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322 Jianwei Liu v State of New South Wales [2014] NSWSC 933 Category: Costs Parties: Plaintiff: Jianwei Liu Defendant: State of New South Wales Representation: Counsel: Plaintiff: T. Morahan Defendant: B. Bradley Solicitors: Plaintiff: Karrina Chen, Chen Shan Lawyers Defendant: Stephanie Mulvey, Henry Davis York File Number(s): 2012/151321 Publication restriction: No Judgment 1On 23 July 2014 I heard argument on the question of the order for costs to be made in these proceedings. The plaintiff claims an order for costs against the defendant on the ordinary basis. The defendant claims that each party should bear his/its own costs of the proceedings up to and including 7 April 2014, and thereafter the plaintiff to pay the defendant's costs on an indemnity basis. 2In accordance with reasons delivered on 16 July 2014, I proposed to award damages to the plaintiff in the total amount of $27,615 of which there was the amount of $10,000 for the monetary value of the jade pendant. On 23 July 2014 the parties agreed on interest in the amount of $6,500. I thereupon ordered judgment for the plaintiff for damages and interest in the total amount of $34,115. 3The relevant procedural background is as follows. 4The proceedings were commenced by a Statement of Claim filed on 11 May 2012, in which the particulars of damages included an allegation that the estimated value of the pendant was $1.5 million. The Defence filed 12 September 2012, inter alia, put damages in issue. 5On 10 May 2013 the plaintiff was ordered to file expert reports on valuation by 21 June 2013, extended by order made on 28 June 2013 to 22 August 2013, to enable a valuation to be obtained. 6On 20 November 2013, before Davies J, the plaintiff corrected the amount claimed in the particulars for the pendant by substituting the Australian dollar equivalent of RMB1.5 million (then said to be about $270,000), for the amount of $1.5 million. Leave was granted to the defendant to rely upon the expert reports of Mr Joel of 18 and 19 November 2013. The plaintiff was ordered to serve any expert reports in reply by 18 December 2013. 7On 10 February 2014 the proceedings were again before Davies J on an issue concerning mediation, during which the following exchange took place between his Honour and the plaintiff's solicitor: "HIS HONOUR: I want you to understand this very clearly, Ms Chen, because the way this case has been conducted by the plaintiff is a disgrace. For the amount that is involved in it is ridiculous that it is even in this Court. I order a mediation, you consent and then you don't go to it because you have changed your mind about the costs of it. If you don't attend this settlement conference you will need to justify why it shouldn't be struck out on the next occasion. CHEN: Your Honour, just to clarify for mediation, I apologise for I didn't think of the costs but if your Honour say that this matter is just about $1,000, I don't agree because-- HIS HONOUR: You don't have any evidence that it is anything at all. CHEN: Your Honour, we have evidence saying that valuers can't value the jade pendant without seeing the physical jade pendant. It is unlike what my friend said, we just can't value. We gave expert evidence saying without the physical jade pendant, so they can't just value, otherwise it is just an assumption, and I talked to many valuers and they have the same opinion. What evidence we can give if the valuer can't give a figure? His HONUR: It may be very unfortunate, and I said this to you on the last occasion, it may be unfortunate that it has been destroyed and therefore you have this difficulty, but you can only succeed in this Court if you show what its value was and you don't have any evidence. If Mr Bradley hadn't gone off and got evidence there'd be nothing. " 8On 3 March 2014 the parties were given leave to obtain a hearing date. 9By letter of 8 April 2014 the defendant's solicitors made a Calderbank offer to the plaintiff's solicitors which included: "We have reviewed the evidence you have served so far and maintain that the plaintiff lacks sufficient, or any, evidence justifying the approximately $250,000 he now claims for the jade pendant. We have also obtained a supplementary report from our expert, Mr Warren Joel. He maintains that the pendant is worth, at most, no more than $5,000 to $10,000. We have served a copy of Mr Joel's supplementary report on you today by way of a separate letter. A two day hearing is likely to be expensive, involving interpreters and several expert and lay witnesses. Pursuant to rule 42.34 of the UCPR, we will submit that we should not be required to pay the plaintiff's costs as the proceedings have been commenced in the District Court. In the interests of a commercial and timely resolution of the proceedings, and given that this matter is listed for hearing on 1-2 July 2014, our client offers to settle the proceedings on the following terms: We agree to pay $40,000, inclusive of costs, in full and final settlement of his claim. If your client does not accept this offer and obtains an outcome at trial no more favourable than the terms of this offer, our client will produce this letter to the court on the question of costs. Our client will seek that your client pays the costs of the proceedings on an indemnity basis from the date of this letter. " 10The offer was open for acceptance until 29 April 2014 but was not accepted. 11By letter of 29 May 2014 the defendant's solicitors made another Calderbank offer in terms substantially similar to those in the letter of 8 April 2014. It was open for acceptance until 12 June 2014, but was not accepted. 12By letter of 26 June 2014 the defendant's solicitors made another Calderbank offer in terms substantially similar to those in the earlier letters, but increased the amount offered to $50,000, inclusive of costs. It was open for acceptance until 30 June 2014, but was not accepted. 13Under s 98 Civil Procedure Act 2005, subject to the rules, costs are in the discretion of the Court. UCPR, Part 42, rule 42.1 is the general rule that costs follow the event unless it appears to the court that some other order should be made. 14Rule 42.34 provides: "42.34 Costs order not to be made in proceedings in Supreme Court unless Court satisfied proceedings in appropriate court (1) This rule applies if: (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted." Consideration 15The only issue for trial was the assessment of damages for the loss of the necklace and pendant, and whether it should include an amount for compensation for sentimental value of those items. The plaintiff adduced no evidence of the value of the pendant or the necklace. I awarded compensation for sentimental value for the loss of the pendant in the amount of $2,500. 16At the trial the plaintiff's solicitor, Ms Chen, gave affidavit evidence of numerous unsuccessful attempts to locate an appropriate expert to provide a valuation report for these proceedings. In evidence were letters of 14 December 2013 and 24 March 2014 to Ms Chen from Catherine Ricketts, an expert valuer, who declined to provide a valuation of the pendant. Her letter of 14 December 2013 advised to the effect that absent physical inspection of the pendant "...any valuation would be simple speculation." 17For the defendant it was submitted that the plaintiff was not entitled to an order for costs. It was submitted that the commencement and the continuation of the proceedings in this Court, rather than the District Court, or, indeed, than the Local Court, was not warranted. 18The defendant submitted the factors to be taken into account in the exercise of discretion included the amount claimed, particularly for the pendant, as to which the only evidence was of a valuation up to $10,000; the straightforward nature of the claim which involved neither legal or factual complexity; and that the amount of any judgment would necessarily be for an amount substantially less than the threshold amount of $500,000. 19On the other hand, the plaintiff submitted that it was appropriate that the proceedings be conducted in this Court because he always had maintained the pendant was of considerable value although, because it had been destroyed, its value was impossible to assess. It was also put that the matter could involve novel application of the principle in Armory v Delamirie ((1722) 1 Strange 505; [1722] EWHC KB J94) which would be more appropriate for consideration for determination in this Court. 20In my opinion, the plaintiff's entitlement to an order for costs depends upon the Court being satisfied that the commencement and continuation of the proceedings in this Court, rather than in the District Court, was warranted. In other words, unless the Court is affirmatively satisfied that the maintenance of proceedings in this Court are warranted it would not ordinarily make an order for costs in the plaintiff's favour. 21I am entirely unpersuaded that the commencement and continuation of these proceedings in this Court, rather than the District Court, was warranted. I accept generally the defendant's submissions on this issue. From its outset, there was no aspect of the claim which justified its determination in this Court. Furthermore, this conclusion should come as no surprise to the plaintiff and his legal representatives had they turned their minds to the risk involved in mounting a case the only real issue in which was the value of the pendant with no evidence to support it. 22The plaintiff embarked upon the trial with no evidence to support an assessment of the value of the pendant, or to meet the range of the valuation asserted by Mr Joel. It is plain that by the end of the hearing before Davies J on 10 February 2014, prior to the fixing of the hearing dates, the plaintiff's legal representatives were well aware of the difficulties which the lack of evidence presented. The risks were emphasised in the letters from the defendant's solicitors of 8 April, 29 May, and 26 June, 2014. 23Relevantly, from 20 November 2013, after correcting the claim for the pendant to the amount of about $270,000, the plaintiff's legal representatives would, or should, have been aware that the amount of any judgment obtained against the defendant would attract the application of r 42.34. It follows that they would, or should, have been aware that an order for costs for the plaintiff would not ordinarily be made unless the Court was satisfied that the commencement and continuation of the proceedings in this Court was warranted (r 42.34(2)). 24An underlying purpose of r 42.34 (and also r 42.35) is to encourage parties to litigate small claims in an appropriate court. In the circumstances of this case, to order the defendant to pay the plaintiff's costs would defeat the purpose of the rule. Accordingly, I reject the plaintiff's claim for such an order. 25I turn to the issue of failure of the plaintiff to accept any of the Calderbank offers. The defendant seeks an order, in part, that the plaintiff pay its costs from 8 April 2014, the date of the first offer, on an indemnity basis. 26An award of indemnity costs involves the exercise of a discretion, which requires consideration of any offer of compromise according to its terms, and whether, in all the circumstances, an order for indemnity costs should be made. An offer of compromise which is inclusive of costs may form the basis upon which the Court awards indemnity costs (Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322, per Beazley JA, paras 5, 6, 7). In the same case, Basten JA observed: "[143] ...If a party in receipt of an offer wishes to know how far the sum offered will go in meeting its costs up to that time, all it has to do is ask its lawyers. In an age where lawyers are required to provide advance estimates of their fees and in circumstances where commercial services are billed on a monthly basis, it is unrealistic to suggest that the recipient of an inclusive offer will be confused or otherwise unable to assess the financial risk of proceeding with litigation. In any event, the offeree is likely to be liable for legal fees exceeding the costs recoverable from the other party. Most litigants, in considering offers, will want to know from their own lawyers, how much they will receive in the hand. Of course, if the offer is not left open for a reasonable time, that might itself make non-acceptance a reasonable course. However, an offeree which is genuinely seeking to assess its position, might be advised to seek more time, if it thinks that is reasonably required. [144] The suggestion that a Calderbank letter which is expressed to be inclusive of costs is "insufficiently precise to qualify as a Calderbank offer" requires to be addressed in particular circumstances. A defendant who fears that even if successful it will be unable to recover costs awarded against the plaintiff, may wish to make an offer in full and final settlement, without further disputation over costs. It may wish to place pressure on the plaintiff to consider the offer favourably by reserving an entitlement to use the offer in relation to costs if the matter proceeds to trial. There is no reason based on policy or principle which would preclude a defendant relying on such an offer only when it is said to be exclusive of costs. Such an inclusive offer will not cause the plaintiff embarrassment: its value will be that amount remaining to him or her after deducting costs already incurred, which the plaintiff's lawyer should be readily able to quantify. The disadvantage of an inclusive offer lies with the defendant if the matter proceeds to judgment. Where the judgment is equal to or above the inclusive figure, the defendant will have failed to better its own offer. However, if the judgment is below the offer there may be uncertainty because the offer included an unquantified element for costs incurred up to the time when it lapsed or was rejected. No doubt the figure for costs incurred to that time by the plaintiff could be resolved by some form of assessment, but if the calculation of the damages component is not clearly seen to provide a figure above the judgment, then the interests of justice will usually not be served by incurring further expense in assessing the costs element of an offer and the plaintiff would be entitled to his or her costs: see Smallacombe above at [140]." 27It is convenient to deal with the offer of 8 April 2014 which proposed settlement for the payment of $40,000 inclusive of costs. 28For the plaintiff, the outcome of the trial was an award of damages (excluding interest) in the amount of $27,615, with no order for costs against the defendant. As earlier held, the plaintiff failed in his claim for an order for costs against the defendant because, under r 42.34, the Court was not satisfied that the conduct of the proceedings in this Court was warranted. 29In my opinion, the question whether the plaintiff's failure to accept the offer was reasonable requires consideration of its terms which set the context in which the amount offered was to be considered. It referred to the lack of evidence to justify the plaintiff's claim of about $250,000 for the pendant, and to Mr Joel's evidence of a valuation range of about $5,000 to $10,000. Specific reference was made to r 42.34 and to the defendant's stance that it should not be required to pay the plaintiff's costs. It stated that if the offer was not accepted and the plaintiff failed to obtain an outcome more favourable than the offer, an application for indemnity costs would be made. 30Upon receiving the offer the plaintiff's legal representatives were bound to give reasonable consideration to its terms before deciding whether or not to accept it. The exercise necessarily involved an evaluation of the plaintiff's prospects of success in obtaining a judgment equal to or above the inclusive figure of $40,000. In this case, a significant matter to be taken into account was the inevitable application of r 42.34 and the reality, prima facie, that whatever amount of damages was obtained, the plaintiff would have no entitlement to costs. In these circumstances, the figure offered would be reasonably understood to be wholly referrable to the damages component of a judgment. 31In my opinion, in circumstances where the only evidence as to value was Mr Joel's report, the offer of $40,000 inclusive of costs understood as referrable to damages was a genuine offer of compromise. Given that the plaintiff had no evidentiary basis for thinking that he would be likely to obtain a judgment equal to or better than the offer, in my opinion his failure to accept it was unreasonable, with the consequence that an indemnity costs order should be made against him. 32The offer was open for acceptance until 29 April 2014. Contrary to the defendant's submissions, in my opinion the order should operate in respect of the defendant's costs after the date of expiry of the offer. Conclusion 33It is ordered that each party is to bear his/its costs of the proceedings up to and including 29 April 2014, and thereafter the plaintiff to pay the defendant'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: 25 July 2014