Supreme Court New South Wales Medium Neutral Citation: T & DC Pty Limited v Workforce Clothing Pty Limited (No 2) [2016] NSWSC 239 Hearing dates: Application determined on the papers Date of orders: 14 March 2016 Decision date: 14 March 2016 Jurisdiction: Common Law Before: McCallum J Decision: Plaintiff to pay the defendant's costs as agreed or assessed on the ordinary basis Catchwords: COSTS – application for indemnity costs based on Calderbank offer – consideration of proportionality of costs to interest at stake – whether disproportionality establishes unreasonableness of refusing offer Legislation Cited: Civil Procedure Act 2005 (NSW), s 60 Local Court Practice Note Civ 1, Part G Cases Cited: Calderbank v Calderbank [1975] 3 All ER 333 T&DC Pty Ltd v Workforce Clothing Pty Ltd [2015] NSWSC 1731 Category: Costs Parties: T & DC Pty Limited (plaintiff) Workforce Clothing Pty Limited (defendant) Representation: Counsel: C Alexander (plaintiff) D Tynan (defendant) Solicitors: Bull, Son & Schmidt Lawyers (plaintiff) Rockwell Olivier (Perth) Pty Ltd (defendant) File Number(s): 2014/136181 Publication restriction: None Judgment 1. HER HONOUR: The plaintiff in these proceedings brought an appeal against a decision of the Local Court. In the proceedings below, the Court gave judgment for the defendant and ordered the plaintiff to pay the defendant's costs as assessed on the ordinary basis up to a certain date and on an indemnity basis thereafter (excluding a particular costs order). 2. On 5 November 2015, I dismissed the appeal with costs: T&DC Pty Ltd v Workforce Clothing Pty Ltd [2015] NSWSC 1731. The defendant then sought an opportunity to apply for indemnity costs, relying on a Calderbank letter dated 10 July 2014. The plaintiff opposes the application. 3. The application is supported by the affidavit of Matthew Winfield sworn 3 December 2015. Mr Winfield states that, following the publication of the Magistrate's decision on 9 April 2014 and the commencement of the appeal on 6 May 2014, the defendant's former solicitor sent two letters to the plaintiff's solicitor on 10 July 2014. One was an open letter quantifying the defendant's costs as ordered by the magistrate in the sum of $59,389.87. The letter estimated the amount likely to be claimed on assessment in the sum of $55,043.86 and sought payment of that amount. 4. The second letter of the same date was a "without prejudice" letter offering to compromise the appeal. The letter referred to the sum of $55,043.86 claimed in the open letter and stated that the defendant was willing to accept the sum of $45,000 in full and final satisfaction of its costs and on the basis that each party would bear their own costs of the appeal. The letter made explicit that the offer was made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333. The offer was open for acceptance for a period of 21 days. 5. In the main body of the letter, the solicitor set out, by reference to each ground of appeal specified in the summons, his contentions as to why he thought the appeal would fail. 6. The plaintiff did not respond to that offer other than by counter offer made on 10 September 2014. On that date, the plaintiff's solicitor wrote to the defendant's solicitor offering to compromise the proceedings on the basis that the orders of the magistrate would be set aside and in lieu thereof that there would be judgment for the defendant and an order that the plaintiff pay the defendant's costs as agreed or assessed in accordance with Part G of Local Court Practice Note Civ 1. After a further exchange in which it was clarified that the plaintiff's offer was intended to cap the costs at 25% of the amount claimed in the underlying proceedings, the defendant rejected that offer. 7. There is no dispute as to the principles to be applied on the present application. The task is to consider whether the defendant's offer dated 10 July 2014 was a genuine offer of compromise and whether it was unreasonable for the plaintiff not to accept it. 8. The offer reflected a compromise in the order of about $10,000 on the amount the defendant's solicitor asserted would be awarded upon assessment of his costs of the proceedings in the Local Court. However, no bill of those costs in assessable form has been prepared (or at least there is none in evidence). It is accordingly difficult to assess the strength of that assertion. The amount claimed of $55,000 is not inherently implausible but, conversely, could include claims that would not be allowed even in an assessment on the indemnity basis. It is simply not possible to judge that issue. 9. The question whether it was unreasonable for the plaintiff not to accept the offer is also difficult to determine. It may be accepted, as submitted by the defendant, that the offer was made in a timely way, before the parties had expended significant costs on the preparation and hearing of the appeal and that it was open for a reasonable period. As already noted, the Calderbank letter set out the defendant's reasons for contending that the appeal would fail, as it ultimately did. In fairness to the plaintiff, however, it should be acknowledged that the issues raised by the appeal were considerably more complex than the letter suggests. 10. Separately, the defendant's submissions rely on the fact that the plaintiff itself made an offer, indicating it had turned its mind to settlement. I do not think that informs the question of the reasonableness of not accepting the defendant's offer one way or the other. 11. In my view, the most significant issue raised by the defendant's submissions is the issue of proportionality. The defendant contends that the plaintiff's conduct in rejecting the offer must be assessed having regard to the costs the parties were likely to incur compared with the comparatively small debt the subject of the proceedings. Proportionality is certainly a concern in the present case. In the primary judgment, I considered the disproportion between the costs claimed in the proceedings below and the interest at stake in the context of my determination to refuse leave to appeal against the magistrate's decision as to costs. I said (at [85]): For those reasons, I would refuse leave to appeal against the decision as to costs. I have reached that conclusion with some equivocation in light of the obvious disproportion between the costs claimed and the interest at stake. In an ideal world, the practice note would protect litigants against such outcomes. But the position of the defendant must be considered too. If there were no power to award costs as the magistrate did, the sensible commercial decision in the face of a weak but complex claim would be to capitulate to default judgment in the amount claimed rather than to defend the case. That would serve justice no better than disproportionate costs. No system is perfect; the magistrate took a robust approach but one which, in my view, was open to his Honour. 1. It does not follow from those reasons that the plaintiff was unreasonable to fight on rather than to capitulate to the defendant's Calderbank offer. On the contrary, my reasons set out above were intended to reflect a recognition that, although proportionality is an important object of the practice and procedure of the court (as reflected in s 60 of the Civil Procedure Act 2005 (NSW)), the prospect of disproportionate costs should not in itself compel a party to capitulate to a claim it would otherwise resist at pain of failing to recover costs (or paying another party's costs). As submitted by the plaintiff in opposing the present application, it was not unreasonable for the plaintiff to take the position that the costs below should have been ordered in accordance with the practice note. The plaintiff submitted that, from its perspective, "all it was trying to do was enforce the express words of the Local Court's own practice note". 2. In all the circumstances, I am not persuaded that it was unreasonable of the plaintiff not to accept the offer communicated in the Calderbank letter. For those reasons, I confirm the order made upon publication of the judgment that the plaintiff pay the defendant's costs as agreed or assessed on the ordinary 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: 15 March 2016