Supreme Court New South Wales Medium Neutral Citation: Fan v Han (No. 2) [2016] NSWSC 1651 Hearing dates: 16 November 2016 Decision date: 16 November 2016 Jurisdiction: Equity Before: White J Decision: Order that the first defendant pay three-quarters of the plaintiff's costs of the proceedings up to and including 16 September 2016, and pay the plaintiff's costs of the proceedings on the indemnity basis thereafter. Catchwords: PRACTICE AND PROCEDURE — costs — plaintiff succeeded on one of two alternative bases — alternative bases did not give rise to severable issues — no alternative basis dominant over another — defendant enjoyed a measure of success on cross claim — plaintiff made an offer of compromise — offer of compromise included term that all existing cost orders made in the proceedings be vacated — defendant did not accept offer of compromise — whether plaintiff entitled to an order that the defendant pay costs on the indemnity basis — plaintiff obtained judgment no less favourable to the plaintiff than the terms of the offer — whether offer valid under r 20.26 of the Uniform Civil Procedure Rules 2005 not decided — offer valid as a Calderbank offer — defendant did not act reasonably in rejecting the plaintiff's offer — defendant to pay 80 per cent of plaintiff's costs up to the date on which the offer of compromise was made and pay plaintiff's costs on the indemnity basis thereafter Legislation Cited: Family Law Act 1975 (Cth) Cases Cited: Fan v Han [2016] NSWSC 1488 Jojeni Investments Pty Ltd v Mosman Municipal Council (No 2) [2015] NSWCA 208 Reitano v Reitano [2012] NSWSC 1127 Category: Costs Parties: Yi Jun Fan (Plaintiff) Rui Han (First Defendant) Representation: Counsel: A Macauley (Plaintiff) A Gruzman (First Defendant) Solicitors: Du & Associates Lawyers (Plaintiff) Di Lizio & Associates (First Defendant) File Number(s): 2012/151309 Judgment 1. HIS HONOUR: This judgment concerns what costs orders should be made consequent upon my judgment of 25 October 2016 (Fan v Han [2016] NSWSC 1488). Following delivery of those reasons, I have today made a declaration that Ms Han holds the Auburn property on trust as to a 33.1 per cent share for Mr Fan and I have made orders for the payment of moneys that had been paid into court to both Mr Fan and Ms Han subject to an adjustment of $4,911.13 in favour of Mr Fan to reflect my conclusions at paras 92(b) and 92(d) of my reasons. 2. Mr Fan recognises that as Ms Han has enjoyed a measure of success on her cross claim having obtained in effect judgment for $20,091.51, which is set off against Mr Fan's entitlement to contribution from her, that some discount should be applied to the costs which Mr Fan submits he is entitled to as the successful party. 3. He submits that the appropriate discount would be 20 per cent and should apply only up to 16 September 2016. From that date Mr Fan seeks costs on the indemnity basis pursuant to an offer of compromise sent on 16 September 2016. That offer of compromise provided: "The plaintiff/cross-defendant offers to compromise: (a) the whole of his claim against the first defendant/cross-claimant; and (b) the whole of the first defendant's/cross-claimant's cross-claim against him (the Cross Claim), on the following terms: Order that the entirety of the funds paid into court, being $180,603.12 plus any interest that has accumulated thereon, be paid out to the plaintiff and the first defendant in the following proportions: 50% to the plaintiff; and 50% to the first defendant. Declare that the first defendant holds 25% of the property located at 11/53 Northumberland Road, Auburn NSW, being Lot 11 in SP9751, on trust for the plaintiff. The plaintiff's proceedings otherwise be dismissed with no order as to costs. Judgment for the cross-defendant on the Cross Claim, with no order as to costs on the Cross Claim. All existing costs orders made in the proceedings be vacated. This Offer of Compromise is made in accordance with rl 20.26 of the Uniform Civil Procedure Rules 2005 (NSW). This Offer of Compromise is open for acceptance until 9am, 21 September 2016." 1. It was served with another offer of compromise in the alternative in which the plaintiff offered to compromise the claim on the basis that $170,000 of the $180,603.12 in court be paid to the plaintiff, and the remainder being $10,603.12 plus interest be paid to Ms Han. 2. Mr Fan's claims were made in the alternative and the two offers of compromise reflected the alternative bases upon which Mr Fan brought his claim. He succeeded on the alternative basis that he was entitled to a beneficial interest in the Auburn property and I have declared that Ms Han holds that property on trust for him as to a 33.1 per cent share which is clearly more advantageous to him than the compromise offer that she held the property as to a 25 per cent share for him. 3. Moreover, I have made orders for the payment of moneys out of court in a way which is more advantageous to Mr Fan than the offer made. He seeks costs on the indemnity basis from 16 September 2016. 4. Ms Han submits that the appropriate costs order is that she pay 40 per cent of Mr Fan's costs of his claims against her and that he pay her costs of the cross claim on which she submits she was the successful party. 5. There is no dispute as to the relevant principles. In particular, this is a case in which there are multiple issues and it is a case in which the parties have had mixed success. In such a case a party, if successful, may be deprived of part of his or her costs, notwithstanding that he or she has not acted unreasonably. However, where there are multiple issues the court generally does not attempt to differentiate between the issues. Unless a particular issue or group of issues is clearly dominant or severable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between the particular issues on which the parties succeeded or failed. 6. In this case, the issues raised on Ms Han's cross-claim are severable from the issues raised on Mr Fan's claims, but the alternative bases upon which Mr Fan claimed did not give rise to severable issues. Nor was one dominant over another. 7. It is true that the primary basis upon which Mr Fan put his claim, namely, that he was entitled to all of the moneys paid into court because he was beneficially entitled to the whole of the North Parramatta property failed, but his alternative claim to a beneficial interest in the Auburn property succeeded and was the converse of the case that he primarily put. 8. It is not at all clear to me that his success on the alternative basis will be less advantageous to him than the primary basis upon which he put his claim. Indeed, to the contrary, depending upon the movement in the prices of property in the Auburn area, it may well be that he is financially better off on the basis upon which he has succeeded. 9. In any event, the evidence in relation to the issues raised in Mr Fan's claim went equally to both ways in which his claims were put and it is not possible to sever or separate those matters. If Mr Fan's claim had been the only claim to be dealt with, I think he would have been entitled to his costs of the proceedings subject, possibly, to an adjustment to reflect the fact that his alternative claim was not pleaded until an amended statement of claim was filed on 7 October 2015. 10. Having said that, the evidence does not suggest that work done prior to the amendment of the pleading would have been wasted. An order has been made for Mr Fan to pay Ms Han's costs thrown away by reason of the amendments to the pleadings and, in my view, no other particular adjustment would be warranted by reason of the claim on which Mr Fan succeeded having been raised by amendment. 11. Before turning to the effect of the offers of compromise, it is necessary to say something more about what costs orders should be made independently of the offers. Counsel for Ms Han submitted that because this was a dispute between what he called family members, there should be no order as to costs of the proceedings citing in that respect what was said by Pembroke J in Reitano v Reitano [2012] NSWSC 1127 at [39]. 12. I do not understand his Honour in that case to be expressing any general principle as to costs in a family dispute. The particular costs order made in that case was the result of the exercise of a discretion about costs under s 98 and was at least partially based upon the relief which the successful plaintiff obtained being conditional upon his giving an undertaking to the court in respect of the transfer of property to the first defendant. In any event, I doubt that this case should be characterised as a case between family members. Rather it is a case between divorced spouses. 13. Counsel for Ms Han also submitted that if these proceedings had been heard in the Family Court on an application for the alteration of property interests then the ordinary principle would be that each party to the proceedings should bear his or her own costs (Family Law Act 1975 (Cth), s 117). But the fact is that these are not proceedings under the Family Law Act. Ms Han chose to discontinue the proceedings in the Federal Circuit Court in which she had sought an alteration of property interests. 14. Prima facie costs follow the event in accordance with r 42.1 of the Uniform Civil Procedure Rules. One matter that is relevant to the exercise of the costs discretion is the raising of defences by Ms Han, that I dealt with at [43] and following of my first judgment, that I concluded at [57] were a distraction that significantly added to the length of the hearing. 15. It is not appropriate in this case to make separate orders as to the costs of the plaintiff's claim on the one hand and the costs of the cross claim on the other. The hearing proceeded in a way that would make any such dissection of costs a difficult if not impossible task. Prima facie the first defendant is entitled to the costs order in her favour in respect of the cross-claim and the plaintiff is entitled to a costs order in his favour and there would be a set-off of the respective costs. However, rather than submit the parties to such a difficult assessment, it is better to simply make an order for costs which will be in favour of the plaintiff but which reflects a discount to take into account Ms Han's entitlement to a costs order in respect of the cross-claim. 16. In relation to that cross-claim, the relief that Ms Han sought was essentially for an order for the taking of an account of moneys received by Mr Fan from the renting of the Auburn property and of the moneys disbursed by him from the rental with an order that he pay Ms Fan the balance found on the taking of accounts. 17. It appears from the pleading that the amount that Ms Han claimed on such an account totalled $50,768. Mr Fan, in his defence to the cross-claim, denied that Ms Han was entitled to the relief claimed but he did not dispute that he had collected rents for the property and he did not plead any ground of defence that would disentitle Ms Han to an account. At the hearing Mr Fan did not dispute that Ms Han was entitled to an account. Rather, the dispute was as to quantum. 18. I found that the difference between the rents collected within the six year period before the filing of the cross-claim and the expenses incurred, after the deduction of moneys paid to the parties' son on Ms Han's behalf, totalled $30,032.15. Because I found that Mr Fan is beneficially entitled to a 33.1 per cent share of the Auburn property. I found that he was liable to account to Ms Han for 66.9 per cent which is $20,091.51. The claim is, obviously, modest in the extreme. 19. If it had been the only issue in the proceedings which, for reasons I will come to, I think realistically it ought to have been, then the matter was one that ought to have been dealt with in the Local Court. 20. I do not consider that there should be a discount of the costs to which Mr Fan is entitled on his claim by reason of the fact that he succeeded only on the alternative basis on which he made the claim. 21. As I have said, I do not consider that those alternative ways in which the claims were put meant that they are severable and nor was one dominant over the other. Particularly having regard to the defences that were raised to that claim which I considered to be misconceived, there would be no basis for depriving Mr Fan of any of his costs of the claim. But taking account of Ms Han's limited success on her cross-claim, I think the costs which Mr Fan should be entitled to recover should be discounted by 25 per cent rather than the 20 per cent sought by him. 22. In making that discount I have had regard to the fact that there is a notional set-off between costs to which each party would otherwise be entitled. 23. It is necessary, however, to consider the offer of compromise. The initial question is whether the offer of compromise conforms with r 20.26. For reasons to which I will come, it will not be necessary conclusively to determine that question because even if the offer falls outside the terms of that rule, it has effect as a Calderbank offer and I think it was not reasonable for Ms Han to have rejected the offers made. 24. Rule 20.26 relevantly provides: "20.26 Making of offer (cf SCR Part 22, rules 1A, 2, 3 and 4; DCR Part 19A, rules 1, 2, 2A, 3 and 4; LCR Part 17A, rules 2 and 5) (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer under this rule: (a) must identify: (i) the claim or part of the claim to which it relates, and (ii) the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and (b) if the offer relates only to part of a claim in the proceedings, must include a statement: (i) in the case of an offer by the plaintiff, as to whether the balance of the proceedings is to be abandoned or pursued, or (ii) in the case of an offer by a defendant, as to whether the balance of the proceedings will be defended or conceded, and (c) must not include an amount for costs and must not be expressed to be inclusive of costs, and (d) must bear a statement to the effect that the offer is made in accordance with these rules, and (e) if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to that interim payment, and (f) must specify the period of time within which the offer is open for acceptance. (3) An offer under this rule may propose: (a) a judgment in favour of the defendant: (i) with no order as to costs, or (ii) despite subrule (2) (c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or (b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or (c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer. … (5) The closing date for acceptance of an offer: (a) in the case of an offer made two months or more before the date set down for commencement of the trial—is to be no less than 28 days after the date on which the offer is made, and (b) in any other case—is to be such date as is reasonable in the circumstances." 1. Counsel for Ms Fan submitted that the offer of compromise did not provide a reasonable time for its consideration and acceptance. The proceeding was set down for hearing on 21 September 2016. The parties had attended a mediation on 12 September 2016. That was unsuccessful. The offer of compromise was open for acceptance until 9:00 am on the first day of hearing. 2. Given that at the time the offer was made the parties should have been fully apprised of the strengths and weaknesses of their own case and that of the opposite party, I think that the time allowed for acceptance of the offer was reasonable. The offer should have been capable of speedy assessment. As I have said, two offers of compromise were made and they were mutually exclusive and only one could be accepted, but they reflected the alternative bases upon which the plaintiff put his case. 3. I think the first defendant, if properly advised, did not act reasonably in not accepting either offer. The defences that she advanced to the plaintiff's claim, as articulated in the written submissions, provided immediately before the hearing were misconceived and, as I have said, were a distraction. 4. In any event, Ms Han had more than sufficient time, in my view, to consider and weigh the offers. 5. The offer of compromise falls within the literal terms of r 20.26(2). It includes a term, however, that if the offer were accepted, existing costs orders would be vacated. Counsel were not able to refer me to any authority in which the validity of such an offer in terms of the current r 20.26 has been considered. 6. Costs orders had been made in favour of both parties. On 9 April and 7 August 2015, Mr Fan was ordered to pay Ms Han's costs of appearances before a registrar. On 30 September 2015 he was ordered to pay Ms Han's costs thrown away by reason of amendments to his pleadings. On 29 August 2016 Ms Han was ordered to pay Mr Fan's costs of a notice of motion that concerned production of documents. The effect of the offer of compromise, if accepted, would have been to have wiped the slate clean so as to bring the disputes between the parties to an end. 7. What is, arguably an analogous position was considered by the Court of Appeal in Jojeni Investments Pty Ltd v Mosman Municipal Council (No 2) [2015] NSWCA 208. In that case the Court of Appeal considered offers of compromise that included a term that each party should bear its own costs of the proceedings. The court said of that: "[10] All of Jojeni's offers involved each party bearing its own costs of the proceedings. Council submitted that an offer that each party pay its own costs was in substance the same as an offer which is inclusive of costs. It relied on what was said by Emmett JA in Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 ; 84 NSWLR 311 at [72], 'Where an offer is made inclusive of costs, a figure is proposed under which the plaintiff will receive that figure and will also pay its costs out of that figure'. On that basis, Council submitted that the offers did not comply with r 20.26(2)(c), which provides that an offer under that rule 'must not be expressed to be inclusive of costs'. [11] Council's submission must be rejected. First, Jojeni's offers were not expressed to be inclusive of costs. Council's submission turns upon giving an expansive construction to the prohibition in r 20.26(2)(c), so that it extends to offers which, so it is said, amount in substance to offers where the successful party ends up bearing its own costs. However, the purpose of the rule is clear. It is directed to the mischief of a monetary offer in a lump sum which does not differentiate between a plaintiff's claim (which will regularly have been the subject of pleadings, particulars and evidence) and the plaintiff's costs (as to which the other party will have no basis for making an informed decision to compromise). Further, an offer expressed to be inclusive of costs is not capable of ready comparison with a judgment obtained by the party in the event that the offer is not accepted and the matter proceeds to a final hearing. For example, to take a case where a plaintiff is seeking a money judgment, is an offer that a defendant pay $400,000 inclusive of costs 'no less favourable' than a judgment in the plaintiff's favour in the amount of $300,000 and an order that the defendant pay the plaintiff's costs? The prohibition in r 20.26(2)(c) avoids the difficulty that it may not be possible to determine whether the default position of indemnity cost applies until the costs have been assessed. [12] It is clear from the above that the prohibition in r 20.26(2)(c) was not directed to offers such as those made by Jojeni. [13] Secondly, Council's submission would create an anomaly. Rule 20.26(3)(a)(i) provides that a defendant may make a 'walk-away' offer of judgment in its favour with no order as to costs, and yet comply with the rule. The same applies to a respondent in respect of an appeal: r 51.47, see Taheri v Vitek (No 2) [2014] NSWCA 344 at [8]. This confirms that the regime extends to offers which leave each party to bear its own costs." 1. Insofar as the term of the offer of compromise that all existing costs orders in the proceedings be vacated applied to the costs orders in favour of Ms Han, then the purpose of r 20.26(2)(c) identified at [11] of Jojeni is satisfied. That is to say Ms Han would know what her costs were and could make an informed decision as to what she would be giving up if she agreed to vacate the costs orders that had been made in her favour. On the other hand, she would not be able to assess what Mr Fan was giving up by his offering to vacate the costs order made in his favour. 2. However, she would be able to weigh up the offer at least to this extent: that Mr Fan was offering something more than was proposed in paras 1 and 2 of the offer. Realistically, she should have been in the position to make an informed assessment of the merits of the offer. Even if para 5 of the offer of compromise had been limited to the existing costs order made in favour of Ms Han she could have appreciated that the offers made were ones that were attractive and, indeed, bettered a realistic assessment of her position in the litigation. 3. The offers are not expressed to be inclusive of costs and do not fall within the literal terms of r 20.26(2)(c). But rather than make a decision on the construction of the rule in what is an ex tempore judgment when neither counsel has been able to provide me with authority directly on point, I think it better to deal with the question by treating the offer of compromise as a Calderbank offer. 4. For reasons I have given, I do not consider that Ms Han acted reasonably in rejecting the offer. 5. I think that on a realistic appreciation of her position, she or those advising her ought to have come to the conclusion that Mr Fan would be entitled to one or other of the claims to relief that he made, and that Ms Han was unlikely to do better than at least one or other of the offers. 6. Only time will tell, but unless there has been only extremely modest movements in the property market in the Auburn area, it is likely that the alternative basis upon which Mr Fan has succeeded will provide him with a better financial return than if he had succeeded in his primary claim. 7. For these reasons, I consider that Mr Fan is entitled to his costs of the proceedings from 16 September 2016 on the indemnity basis. 8. I order that the first defendant pay three-quarters of the plaintiff's costs of the proceedings up to and including 16 September 2016, and pay the plaintiff's costs of the proceedings on the indemnity basis thereafter. 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: 23 November 2016