Supreme Court New South Wales Medium Neutral Citation: Groves v Matt O'Connor & Associates Pty Ltd (No. 2) [2015] NSWSC 817 Hearing dates: 22 June 2015 Date of orders: 25 June 2015 Decision date: 25 June 2015 Jurisdiction: Equity Division Before: Slattery J Decision: The plaintiff is to pay the defendants' costs of the proceedings on the ordinary basis. The defendants are to pay the plaintiff's costs of their application for indemnity costs. Catchwords: COSTS – indemnity costs – whether the plaintiff commenced or continued its action when it should have known it had no prospects of success – Calderbank letters – whether the plaintiff unreasonably rejected the defendants' Calderbank offers – whether the defendants achieved a better outcome than under the Calderbank offer – where no evidence was adduced as to the defendants' costs Cases Cited: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Limited (No. 2) [2009] NSWCA 12 Calderbank v Calderbank [1975] 3 All ER 333 Chief Commissioner of State Revenue v Platinum Investments Management Ltd (No. 2) [2011] NSWCA 197 Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 768 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchant Pty Ltd (1988) 81 ALR 397 Huntsman Chemical Co Australia Pty Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242 Ofria v Cameron (No. 2) [2008] NSWCA 242 Meldov Pty Ltd v Bank of Queensland (No. 2) [2015] NSWSC 740 Groves v Matt O'Connor & Associates Pty Ltd [2015] NSWSC 664 Category: Costs Parties: Plaintiff: William John Groves First defendant: Matt O'Connor & Associates Pty Ltd ATF Matt O'Connor Family Trust Second defendant: Matthew O'Connor Representation: Counsel: Plaintiff: A. D'Arville Defendants: S. Reuben Solicitors: Plaintiff: Michael Stevens, SRM Lawyers Defendants: Matt O'Connor File Number(s): 2011/170251 Publication restriction: No Judgment 1. This is my second judgment in these proceedings. In the Court's first judgment given on 29 May 2015 the Court found that the defendants were successful in resisting the plaintiff's motion for summary judgment grounded upon the terms of a deed made on 1 March 2013 ("the Deed") between them: Groves v Matt O'Connor & Associates Pty Ltd [2015] NSWSC 664. This second judgment deals with costs. Events, matters and things are referred to in this judgment in the same way as they are in the Court's principal judgment. 2. The unsuccessful plaintiff, Mr Groves, concedes by his counsel Mr D'Arville, that he should pay the defendants', the O'Connor parties', costs of these proceedings. But the O'Connor parties contend for indemnity costs through their counsel Mr Reuben on two grounds: (1) that the action was commenced or continued in circumstances where the moving party, properly advised, should have known it had no prospects of success; and (2) that the result the O'Connor parties achieved bettered the Calderbank letters they served between September 2013 and April 2014 before the hearing of the proceedings. These reasons deal with each of these contentions. 3. The difference between the O'Connor parties succeeding on their first argument and Calderbank argument is mainly one of timing. If the first basis for indemnity costs were successful the O'Connor parties would be entitled to indemnity costs from July 2013, when they were first faced with Mr Groves' motion. If they were successful in relation to their second argument they would be entitled to indemnity costs from September 2013 or alternatively January or April 2014, when the Calderbank letters were sent, the hearing having taken place in August 2014. Indemnity Costs – No Prospects of Success 1. The O'Connor parties submit that Mr Groves should have known, even before these proceedings were commenced, that they had no chance of success. The O'Connor parties contend that this must have been known to Mr Groves at an early stage and that the position did not change, so this is an appropriate case for Mr Groves to pay the O'Connor parties' costs on the indemnity basis. 2. The applicable legal principles are clear. Where an action has been commenced or continued in circumstances where the moving party, properly advised, should have known that it had no chance of success, indemnity costs may be awarded: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Limited (No.2) [2009] NSWCA 12 ("Gordian") at [4] and Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchant Pty Ltd (1988) 81 ALR 397 ("Fountain") at 401. Where an action has been commenced or continued in those circumstances the action is presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts or the clearly established law: Fountain at 401. 3. The O'Connor parties contend that Mr Groves' factual case at trial came down to the alleged failure to supply "Records" in accordance with the March 2013 Deed. The O'Connor parties say this was a factual issue that Mr Groves should have thoroughly checked before bringing the motion. And they submit that if he had made a thorough check before bringing the motion then, properly advised, he would have known he had no prospects of success. The O'Connor parties further submit that it was not until the third day of the trial, on 6 August 2014, that Mr Groves or his advisers turned their mind to the contents of the records and databases that had been supplied under the Deed to have their contents verified, even though these were essential to Mr Groves proving his case. 4. But it was not until the Exchange Directions were made during the course of the trial, providing for the exchange of further information between the parties (see the principal judgment at [9], [10] and [11]) that Mr Groves focused on the actual contents of the records supplied 1 May 2013 pursuant to the Deed, even though strict proof of these records was essential to Mr Groves' success in the proceedings. 5. The inspections that took place following the Court's Exchange Directions resulted in Mr Groves accepting that many of the documents that his motion initially alleged had not been given to him by the O'Connor parties, had actually been provided: principal judgment at [11]. The O'Connor parties say that if Mr Groves had properly attended to the preparation of his case he would have appreciated, well before the motion was filed, that he did not know whether he had received the records or not and that there was therefore a real likelihood that the proceedings would fail. The O'Connor parties say this is evident from the number of pleaded issues that the plaintiff abandoned after the Exchange Directions. The Court remarked in the principal judgment on the possibility that costs issues in relation to the abandoned claims may have to be separately assessed: principal judgment at [11]. 6. The O'Connor parties point to matters they say show that Mr Groves did not properly investigate the facts underlying his own case. They say that, if properly investigated, it would have been obvious to Mr Groves there was no failure by the O'Connor parties to supply records in accordance with their obligations under the Deed. In support of this contention the O'Connor parties point to the following, mainly affidavit, evidence of Mr Groves, which showed: (1) that Mr O'Connor had stated in emails as early as 6 May that the relevant records and information had been supplied to him on the hard drive; (2) that Mr Groves had himself deposed that Mr O'Connor had assisted him by attending at Mr Groves' office and accessing the data on the portable hard drive through the "SoftAssist" software; (3) that Mr Groves had engaged his own IT specialist by the end of May 2013; (4) that Mr Groves had obtained through his wife, Mrs Sonia Groves, a licence for the SoftAssist program that allowed read only access to certain files on the hard drive; (5) that Mr O'Connor had said to Mrs Sonia Groves by email on 4 June 2013 that a "read only licence may be available for SoftAssist" and had asked her "did anyone make contact regarding that?"; (6) that counsel for Mr Groves had conceded at the beginning of the hearing that the plaintiff did have access to the hard drive; (7) that Mr O'Connor had only become aware of Mr Groves' database accessibility problems after Mr Groves served an affidavit in November 2013; (8) that the evidence of IT specialist Mr Kris Cranfield showed how inexpensively the Access 2010 and 2013 programs could have been purchased and used; and (9) that, as the Court found in the principal judgment (at [154]), responsibility fell to Mr Groves to solve these issues as the O'Connor parties had complied with the Deed's definition of supplying "machine readable" records. 7. Mr D'Arville's argument for Mr Groves against an award of indemnity costs on the first basis is persuasive. He submits that the proceedings first involved an overarching question of contractual interpretation about whether Mr Groves could not only accept some of the Select Clients and use their information and goodwill but at the same time also claim that other records and information had not been provided and take advantage of the summary judgment provisions of the Deed. The second issue in the case was that, even if Mr Groves was successful on his contractual interpretation argument, whether or not certain records had been delivered to Mr Groves in machine readable form still had to be made out. On each of these points Mr D'Arville submits that Mr Groves' case was either arguable or was properly maintainable on the evidence in the form that it was presented to the Court. 8. The Court needs no persuasion that Mr Groves' position on the contractual interpretation issue was arguable. Although Mr D'Arville's submissions on behalf of Mr Groves were unsuccessful, they were both reasonable and maintainable from the complex provisions of the Deed. There is no basis in my view to order indemnity costs on the interpretation issue. But the interpretation issue suffused much of the argument on the other issues and became a recurring theme in submissions during the hearing. 9. I also accept Mr D'Arville's submission that important parts of Mr Groves' case about missing records depended upon issues of credit and other issues that developed in the course of the hearing. The high value claims related to the Workflow Files and the emails and will be dealt with first. 10. One of the factual issues was whether the O'Connor parties had provided certain emails that had passed through Mr and Mrs O'Connor's email inboxes to Mr Groves: principal judgment at [68]. There was a contest in oral evidence about whether Mr Groves had agreed with Mr O'Connor that he (Mr Groves) was not expecting to receive every email that had gone through Mr or Mrs O'Connor's inboxes with respect to Selected Clients. The Court accepted Mr O'Connor's version of these conversations, in what was one of the central factual contests in the proceedings. In my view, it could not be predicted which way that contest would go before both parties were heard in the witness box during the proceedings. The Court has not found that this claim for non-delivered emails was otherwise not maintainable. 11. The Workflow files, was another of the substantial issues in the proceedings. The Court was required to assess the expert evidence of Mr Kris Cranfield as to the market availability of Microsoft 2010 and 2013, the detail of which only emerged under questioning during the hearing. Whilst it is theoretically possible to argue that this material was discoverable by Mr Groves before he commenced the proceedings, this evidence was not laid out in detail by any party before the hearing commenced. It was only as a result of the Exchange Directions that the issues narrowed and crystalised and the real differences between the parties, such as this one, became far more obvious. 12. Moving to the lower value claims, similar problems for the O'Connor parties' contentions arise with respect to the statutory records and financial statements. It is true that after the Exchange Directions Mr Groves' claim for missing statutory records was abandoned and the issues were only maintained with respect to some missing financial statements. But Mr D'Arville sufficiently demonstrated in the course of submissions, without the Court having to detail it further in these reasons, that Mr Groves was not unreasonable in bringing a case in which he gave a list of records he expected to receive and said upon review of those records he believed he had not received them, and indicated what he thought was missing. Mr D'Arville submits with some force that Mr O'Connor did not clearly explain before hearing that the reason some of the tax returns were missing was that the O'Connor parties had never produced them in the first place. The O'Connor parties may have had a much stronger case for indemnity costs, if they had initiated well before the hearing by a motion a crystalisation of the issues such as occurred during the Exchange Directions. If in those circumstances Mr Groves had still refused to abandon his claim, then an indemnity costs order may have been appropriate. 13. There is a tendency in the O'Connor parties' submissions to look at their case on indemnity costs as though the result of the Exchange Directions and the consequent abandonment of claims should have been obvious to everyone before the hearing started. In my view the O'Connor parties bear some responsibility for not promoting something like the Exchange Directions earlier than three days into the hearing. The O'Connor parties cannot blame Mr Groves for not pursuing the objective verification of data records, which the O'Connor parties themselves did not require, even though the onus was not theirs. What the Exchange Directions did was to deny Mr Groves the opportunity of pursuing the case based upon his oral testimony: those directions eliminated a trial of oaths on competing versions and required the parties to look at the underlying materials. That then led to the abandonment of some of Mr Groves' claims. 14. The principles of Fountain and Gordian are not engaged here. The O'Connor parties have not made out their contention that Mr Groves should have known that these proceedings had no chance of success. Indemnity Costs Based Upon Calderbank Letters 1. The O'Connor parties made Calderbank offers to Mr Groves before the hearing of August 2014. The O'Connor parties rely upon three Calderbank offers, the first on 18 September 2013, the second on 20 January 2014 and the third on 7 April 2014. The O'Connor parties contend that they achieved a better result in the proceedings than had been offered in each of these letters and that Mr Groves would have been better off accepting one of them. 2. The applicable principles of law in relation to Calderbank letters may be shortly stated. An unreasonable rejection of a Calderbank offer, where the final result is less favourable to the offeree, enlivens the Court's jurisdiction to award indemnity costs, although it does not create a prima facie right to such an order; rather the question becomes whether the rejection of the offer was unreasonable: Chief Commissioner of State Revenue v Platinum Investments Management Ltd (No. 2) [2011] NSWCA 197 at [9]. The Court must give proper weight to Calderbank offers and encourage settlement, particularly in cases involving modest claims: Ofria v Cameron (No. 2) [2008] NSWCA 242 at [24]. A formal warning of an intention to claim indemnity costs in the Calderbank letter will make the awarding of indemnity costs more likely: Huntsman Chemical Co Australia Pty Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242. The offeree's alleged unreasonableness in not accepting the Calderbank offer is to be assessed at the time the offer was made, having close regard to the terms of the offer and without resort to the benefit of hindsight: Meldov Pty Ltd v Bank of Queensland (No. 2) [2015] NSWSC 740 ("Meldov") at [6]. Ordinarily, if indemnity costs are to be granted following a Calderbank offer it is appropriate for the order to operate from the date of expiry of the offer: Meldov at [5]. 3. Different considerations apply to each of the three offers, the offer of 18 September 2013, the offer of 20 January 2014 and the offer of 7 April 2014. The O'Connor parties relied on two other letters of 9 August and 14 August 2014. But it was conceded at the hearing that those August 2014 letters, which were sent during the hearing, were not true Calderbank letters. No more now needs to be said about them. 4. The O'Connor parties' 18 September 2013 offer (Exhibit B) was expressed to be "without prejudice, save as to costs" and apart from referring to Calderbank v Calderbank [1975] 3 All ER 333 and similar authorities provided as follows: "We are instructed to making the following offer, on a without prejudice and without admission basis, in full and final settlement of the Plaintiffs extant notice of motion filed 1 July 2013 (as amended):- 1. The Defendants pay to the Plaintiff the sum of $20,000.00 inclusive of any GST (if any) 2. The Defendants pay to the Plaintiff the sum of $7,000.00 (inclusive GST) on account of the Plaintiffs costs; 3. The motion otherwise be dismissed with no order as to costs; 4. The earlier costs order made in favour of the Plaintiff on 30 August 2013 by Justice Darke be costs as agreed or assessed; 5. Upon acceptance of this offer, the parties will enter into a Deed of Mutual Release; and 6. The Defendants will settle payment with the Plaintiff in accordance with the terms of the Deed of Mutual Release. The offer remains open for acceptance, in writing, until 4:00pm, Wednesday, 25 September 2013, after which this offer will lapse without further notice." 1. The O'Connor parties' letter of 20 January 2014 (Exhibit D), similarly expressed itself to be "without prejudice, except as to costs" referred to Calderbank principles and provided as follows: "We refer to the above and offer to settle the proceedings (with mutual releases & discharges to be provided by all parties) on the following terms: 1. Proceedings dismissed and the Plaintiff's extant notice of motion (as amended) dismissed; 2. Each party pay their own costs and any existing costs orders to be discharged; 3. Parties to execute a Deed of Settlement & Mutual Discharge & Release which Deed is to provide for full and complete mutual releases including with respect to all alleged causes of action be they at law, statute or equity and any alleged choses in action arising in any way from the initial and then later dealings between the parties. Such Deed to include a clause or clauses rendering it capable of being raised as a bar to any proceedings being brought by the Plaintiff including with respect to the allegations raised in the Plaintiff's evidence. The offer remains open for acceptance, in writing, by 4:00pm on Friday 31 January 2014 after which this offer will lapse without further notice." 1. The O'Connor parties' letter of 7 April 2014 (Exhibit D) was similarly structured and offered as follows: "This notwithstanding, as the Defendants are currently desirous of adopting a commercial approach to this matter, and in a spirit of compromise, the Defendants make the following offer in full and final settlement of the Motion / Points of Claim and all disputes and claims (both past, present and future) as follows:- 1. Proceedings dismissed and the Plaintiffs extant notice of motion (as amended) dismissed; 2. The Plaintiff to pay the Defendants' costs in the agreed sum of $30,000 plus GST (which would be by way of verdict and judgment for the Defendants in this amount); and 3. Parties to execute a Deed of Settlement, Mutual Discharge & Release which Deed is to provide for full and complete mutual releases including all alleged causes of action be they at law, statute or equity and any alleged choses in action arising in any way from the initial and then later dealings between the parties. Such Deed to include a clause or clauses rendering it capable of being raised as a bar to any proceedings being brought by the Plaintiff including with respect to the allegations raised in the Plaintiff's evidence. The offer remains open for acceptance, in writing, by 4:00pm on Monday 5 May 2014 after which this offer will lapse without further notice." 1. One consideration as to whether or not it is reasonable to accept a Calderbank letter is the period of time that the offer is open for acceptance. No issue was taken in the course of argument that the offerees, the O'Connor parties had allowed insufficient time for acceptance of the Calderbank letters. The issue of whether it was reasonable or not to accept these Calderbank letters may be made on other grounds. These reasons will deal with each of the three letters in turn. 2. The first Calderbank letter was sent on 18 September 2013. The second Calderbank letter was served by email on 20 January 2014. 3. As Mr D'Arville persuasively pointed out, the main difficulty with the O'Connor parties relying upon the first and second Calderbank letters was that their principal evidence in the proceedings was not served until March 2014, after the offers in both these letters had expired. Mr Groves did not know what the O'Connor parties' answer to his case was when he was considering whether the first two Calderbank offers should be accepted or not. It is well established that if a party does not have all the necessary evidence to assess a Calderbank offer, it would be reasonable for that party to wait until it had seen that evidence before agreeing to compromise the case: Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 768. Mr Reuben on behalf of the O'Connor parties sought to answer this contention by saying that the O'Connor parties did not have all the evidence from Mr Groves' side of the case either. Whilst that may be true, it does not assist the O'Connor parties. All the submission serves to show is that the case developed considerably on both sides after the first two Calderbank letters were served. 4. This disposes of the O'Connor parties' arguments based on the first and second Calderbank letters. The O'Connor parties serve their third Calderbank letter by email on 7 April 2014. 5. The third Calderbank letter does not found an order for indemnity costs. The third Calderbank letter of 7 April 2014 offers to have the proceedings dismissed and offers that Mr Groves pay the O'Connor parties' costs of these proceedings in the sum of $30,000. On the evidence now before the Court it is not clear that the O'Connor parties did better than the third Calderbank letter. To prove they had bettered the offer in the third Calderbank letter they would had to show their legal costs at the date of the offer were less than $30,000. They have not adduced evidence to show that. When this issue emerged in the costs argument Mr Reuben applied for leave to adduce such evidence. But the Court declined to allow that, on the bases that the indemnity costs issues had long been well known, that the evidence should have been adduced much earlier and that these proceedings relate to a transaction which is approximately six years old. They should be brought to finality without further adjournments on costs issues. Conclusions and Orders 1. The O'Connor parties have been unsuccessful in demonstrating that they should have an order for indemnity costs on either of the bases they have propounded. The Court will order Mr Groves to pay the O'Connor parties' costs of the proceedings on the ordinary basis. But the O'Connor parties should not have their costs of their application for indemnity costs. So the orders of the Court will be as follows: 1. Subject to Order 2, order the plaintiff to pay the defendants' costs of these proceedings. 2. Order the defendants to pay the plaintiff's costs of the defendants' application for indemnity costs. ********** 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 June 2015