Supreme Court New South Wales Medium Neutral Citation: Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd (No 2) [2015] NSWSC 687 Hearing dates: Decided on the papers Date of orders: 02 June 2015 Decision date: 02 June 2015 Jurisdiction: Equity Division Before: Robb J Decision: The Court (1) orders that the costs that the plaintiff is required to pay to the defendants under order 2 made on 2 April 2015 be payable on the ordinary basis (2) orders that the defendants have leave to file the affidavit of Laura Charlotte Scotton sworn on 8 April 2015 Catchwords: PROCEDURE – costs – plaintiff's claim in substantive proceedings was dismissed – plaintiff ordered to pay the defendants' cost of proceedings on the ordinary basis – defendants seek costs be paid on the indemnity basis – Calderbank offers made by defendants – proceedings involved contentious issues which were reasonably arguable on both sides – defendant required to make genuine compromise of the plaintiff's claim – Calderbank offers ineffective – costs be payable on the ordinary basis Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Tugrul v Tarrants Financial Consultants Pty Ltd (No 5) [2014] NSWSC 437 Category: Costs Parties: Harold R Finger & Co Pty Ltd (plaintiff) Karellas Investments Pty Ltd (first defendant) Karellas Group Pty Ltd (second defendant) Representation: Counsel: DH Murr SC/J Horowitz (plaintiff) CR Newlinds SC/D Barnett (first and second defendants) Solicitors: Reid & Vessely (plaintiff) Williams Love & Nicol (first and second defendant) File Number(s): 2012/171813 Publication restriction: None Judgment 1. On 2 April 2015, I published reasons for judgment in these proceedings in which I ordered that the plaintiff's claim be dismissed, and that the plaintiff pay the defendants' cost of the proceedings. 2. The present reasons deal with an application by the defendants that the plaintiff be ordered to pay their costs on the indemnity basis, rather than the ordinary basis, from a number of different alternative dates. 3. The parties have served written submissions on this issue, and the application has been determined in chambers on the basis of those submissions. 4. The defendants have relied in support of their application upon the affidavit of Laura Charlotte Scotton sworn on 8 April 2015. In due course I will make an order that the affidavit may be filed. I will treat it as having been read for the purposes of the application. The plaintiff has not, in its written submissions, objected to any part of the affidavit being admitted. 5. The principal proceedings were in relative terms complex. I will assume an understanding of the issues in those proceedings, as well as of the terms of the principal reasons for judgment. 6. On 15 December 2011, the solicitors for the plaintiff wrote a letter to the solicitors for the defendants in which they provided an estimate of the damage suffered by the plaintiff at $3,167,333.40. The plaintiff's solicitors invited the defendants to enter into meaningful negotiations for the prompt settlement of the claim. 7. The defendants' solicitors responded on 22 December 2011. Their letter contained an explanation of the defendants' position, and stated reasons why the defendants contended that the position of the plaintiff was unsustainable. The defendants' solicitor said that the defendants would rely upon the letter in relation to the issue of seeking indemnity costs in defending any claim made by the plaintiff. 8. Further correspondence ensued between the solicitors in which they debated the strength of the plaintiff's claim. This correspondence in substance involved detailed analyses of the correspondence between the solicitors that took place at the time of the alleged repudiation of the relevant agreement by the defendants, for the apparent purpose of seeking to persuade the other party of the validity of each party's case. The positions adopted by both sides were relatively absolute, in the sense that the plaintiff asserted that it was entitled to damages in the order of the amount that was originally claimed, and the defendants retorted that the plaintiff was entitled to nothing. 9. In a letter to the plaintiff's solicitors dated 6 February 2012, and expressed to be "without prejudice, save as to costs", the defendants' solicitors advised that if the plaintiff chose to file and serve a statement of claim without addressing any of the arguments in the letter, and the Court found substantially in accordance with the matters stated in the letter, then the defendants would rely upon the letter on an application for indemnity costs. 10. The plaintiff commenced its proceedings on 30 May 2012. The defendants' solicitors responded on 8 August 2012 by sending a further letter to the plaintiff's solicitors. The letter put forward detailed arguments as to why the plaintiff's case was not strong and stated: However, in the interest of the commercial resolution of the claim, our client has instructed us to make the following offer to settle this matter in the following terms: (1) Your client discontinue its claim against Karellas; (2) Each party bear its own costs of and incidental to the proceedings; (3) A deed of settlement and release be executed by the parties. This offer of settlement remains open until 5 PM on 29 August 2012. The terms of the offer contained herein are made in accordance with the principles set out in Calderbank v Calderbank [1975] 1 All ER 333. In the event that your client rejects this offer then our client reserves the right to tender this letter to the Court on the determination of costs. 1. On 1 May 2014, the defendants' solicitors wrote a further letter to the solicitors for the plaintiff, which was also expressed to be "without prejudice save as to costs". The letter, in substance, made an assumption on the basis of the evidence that had been served to that date that the relevant agreement was a binding contract which had been repudiated by the defendants. The letter asserted that, even on that basis, the evidence did not establish that the plaintiff had suffered any loss. That assertion was made on the basis of an expert report that is referred to in the letter, but which was not ultimately relied upon by the defendants at the hearing. The letter made the following offer: … On that basis, and without any admission, we are instructed to make the following offer: 1. The second defendant pay to the plaintiff the sum of $1000 (the Settlement Sum) in full and final settlement of the Proceedings; 2. The Settlement Sum be paid by way of bank cheque within 7 days of acceptance of this offer; and 3. The Proceedings be discontinued within 7 days of payment of the Settlement Sum with no order as to costs. We will forward a draft Deed of settlement and release for your client's consideration upon acceptance on (sic) this offer. Our clients' offer remains open until 5.00 on 16 May 2014 and acceptance must be in writing. The terms of the offer contained herein are made in accordance with the principles set out in Calderbank v Calderbank [1973] 1 All ER 333. In the event that your client rejects this offer then our clients reserve the right to tender this letter to the Court on the determination of costs. In addition, we enclose for your attention our clients' offer of compromise pursuant to rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW). 1. The enclosed offer of compromise under rule 20.26 was consistent with the Calderbank offer made in the letter, but made it clear that the amount of $1000 was to be in settlement of the plaintiff's claim, and it included an order that "these proceedings be discontinued with no order as to costs". 2. The defendants seek an order that the plaintiff pay their costs on the indemnity basis, alternatively, as to the whole of the costs, as to the costs after 8 August 2012, and as to the costs after 1 May 2014. In the last mentioned two cases, the defendants ask for costs on the ordinary basis up to the stated dates. 3. The defendants relied upon the decision of Kunc J in Tugrul v Tarrants Financial Consultants Pty Ltd (No 5) [2014] NSWSC 437 at [4] to [6]. The defendants appear to argue that indemnity costs should be awarded against the plaintiff on the ground that the plaintiff was delinquent and, properly advised, should have known that it had no chance of success. They also argue that indemnity costs should be awarded against the plaintiff because it ignored the Calderbank offers. Finally, they also rely upon UCPR Part 20 Division 4 and Part 42, Division 3. 4. In response, the plaintiff has submitted that the Calderbank offers were ineffective because they did not involve a real and genuine element of compromise: Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706 at [8] per Basten JA. The plaintiff also specifically relies upon the observations made by the Court of Appeal in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [29] to [35]. Briefly, in that case, the Court of Appeal warned against indemnity costs being awarded in favour of a successful party who had made a derisory offer, with no real element of compromise, particularly in a case that, in practical terms, was an all or nothing case. In such a case the making of an offer that is in substance an invitation to surrender, should not usually result in an order for indemnity costs, even if the recipient of the offer's case fails entirely, because that would have the tendency of making the award of indemnity costs the norm in such cases, because of the non-acceptance of offers made as of course, which did not involve a true compromise. 5. Even a cursory consideration of the principal reasons for judgment will readily show that the present proceedings involved a significant number of contentious issues, many of which, included crucial issues concerning the question of whether or not the defendants had repudiated the agreement, and whether, in consequence, the plaintiff was entitled to terminate it were reasonably arguable on both sides. The outcome of a significant number of the issues was finely balanced. 6. Furthermore, the reasons for judgment have not yet sustained the defendants' argument that, even if there was a valid agreement that had been repudiated by the defendants, the plaintiff was doomed from the outset to receive no award of damages. For reasons that are set out in the principal judgment, I did not make an assessment of any damages that the plaintiff may have suffered, in case it may be found that I was wrong in my reasoning on the issue of liability. Nonetheless, I discussed a significant number of difficulties that I perceived arose in relation to the quantification of the damages to which the plaintiff may have been entitled, if it had succeeded in establishing a breach of the agreement by one or both of the defendants. That reasoning, incomplete as it was, left open the possibility that the plaintiff would have recovered some amount for damages, even if of a lesser amount than it sought. One important conclusion that I reached was that the defendants may not have been entitled to offset the whole of the profit that the plaintiff earned from carrying out the residential development of the property, but only the difference between the whole of the profit actually earned, and the profit that the plaintiff could have earned in any event if the contract had been performed by the defendants. I should repeat that the reasons for judgment do not reach any concluded view on that issue. 7. In my view, the strength of the defendants' case by no means justified what was effectively an invitation to the plaintiff to surrender. The strength of the plaintiff's case called for a genuine compromise on the part of the defendants, which would have involved the defendants, at the least, offering a significant compromise of the plaintiff's claim. It is not necessary for the Court to speculate upon what may have been a proper offer. It is clear that the offers that were made were derisory, and I am not satisfied that the Calderbank offers should be treated as being effective. 8. I reject the defendants' argument that the plaintiff should have known that it had no prospects of success. On the contrary, the plaintiff had considerable prospects and only lost the case on balance in respect of a small number of crucial issues. 9. Furthermore, the offer of compromise served by the defendants on 1 May 2014 did not comply with the requirements of UCPR r 20.26(2)(c) because the offer was effectively expressed to be inclusive of costs. 10. I order that the costs that the plaintiff is required to pay to the defendants under order 2 made on 2 April 2015, be payable on the ordinary basis. 11. I also order that the defendants have leave to file the affidavit of Laura Charlotte Scotton sworn on 8 April 2015. ********** 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 June 2015