Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Treloar Constructions Pty Limited v McMillan (No 2) [2017] NSWCA 146 Hearing dates: On the papers Decision date: 22 June 2017 Before: Beazley P; Gleeson JA; Emmett AJA Decision: (1) The security for costs paid into Court on 14 November 2016 by the appellant for the costs of the respondent in the sum of $75,000 be released to the appellant pursuant to r 41.3 of the Uniform Civil Procedure Rules 2005 (NSW). (2) Order 2 made by the Court on 6 April 2017 be varied as follows: (a) Set aside the orders made in the District Court and, in lieu thereof, direct the entry of judgment for the plaintiff in the sum of $418,991.77 together with interest up to the date of judgment for $321,974.45 and order the defendant to pay the plaintiff's costs in the District Court on an ordinary basis. (3) Order 3 made by the Court on 6 April 2017 be varied as follows: (a) The respondent pay the appellant's costs of the appeal on the ordinary basis up to 18 August 2016 and thereafter on an indemnity basis and the respondent to have a certificate under the Suitors' Fund Act 1951 (NSW) if so entitled. (4) The respondent pay the appellant's costs of this motion. Catchwords: COSTS – indemnity costs – application for order that costs at first instance be assessed on the indemnity basis – reliance on settlement offer made prior to trial as constituting "Calderbank offer" – no indication in settlement offer that non-acceptance would be relied on as a basis for seeking indemnity costs – settlement offer insufficient basis to make indemnity costs order COSTS – indemnity costs – offer of compromise in accordance with Uniform Civil Procedure Rules 2005 (NSW), r 20.26 made prior to appeal proceedings – no discretionary reason to order costs otherwise than as provided by r 42.14 Legislation Cited: Civil Procedure Act 2005 (NSW) Legal Profession Uniform Law (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Botany Bay City Council v Minister for Local Government (No 2) [2016] NSWCA 127 Calderbank v Calderbank [1975] 3 All ER 333 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Mohareb v Palmer [2016] NSWCA 378 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 Category: Principal judgment Parties: Treloar Constructions Pty Limited (Appellant) Brian McMillan (Respondent) Representation: Counsel: T Alexis SC; D J A Mackay (Appellant) A McGrath SC; J Shepard (Respondent) Solicitors: Diamond Conway (Appellant) Somerset Ryckmans (Respondent) File Number(s): 2016/81735 Decision under appeal Court or tribunal: District Court Date of Decision: 19 February 2016 Before: Gibb DCJ File Number(s): 2013/223785 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. THE COURT: On 6 April 2017, the Court gave judgment in these proceedings, allowing the appeal: Treloar Constructions Pty Limited v McMillan [2017] NSWCA 72 (the principal judgment). On that date, the Court made the following orders: "1 Appeal allowed; 2 Set aside the orders made in the District Court and, in lieu thereof, direct the entry of judgment for the plaintiff in the sum of $418,991.77 together with interest and order the defendant to pay the plaintiff's costs; 3 The respondent to pay the appellant's costs of the appeal and to have a certificate under the Suitors' Fund Act 1951 (NSW) if so entitled." 1. By notice of motion filed 19 April 2017, the appellant now seeks the following relief: "1 The security for costs paid into Court on 14 November 2016 by the appellant for the costs of the respondent in the sum of $75,000 be released to the appellant pursuant to rule 41.3 of the Uniform Civil Procedure Rules 2005 (NSW). 2 Order 2 made by the Court on 6 April 2017 be varied as follows: a. Set aside the orders made in the District Court and, in lieu thereof, direct the entry of judgment for the plaintiff in the sum of $418,991.77 together with interest up to the date of judgment for $321,974.45 and order the defendant to pay the plaintiff's costs up to 7 November 2014 on an ordinary basis and thereafter on an indemnity basis including the costs of the application to have the defendant's costs from the District Court assessed. 3 Order 3 made by the Court on 6 April 2017 be varied as follows: a. The respondent pay the appellant's costs of the appeal on the ordinary basis up to 18 August 2016 and thereafter on an indemnity basis and the respondent to have a certificate under the Suitors' Fund Act 1951 (NSW) if so entitled. 4 The respondent pays the appellant's costs of this motion." 1. In support of the notice of motion, the appellant filed an affidavit deposed by its solicitor on 19 April 2017. At a directions hearing on 1 May 2017, orders were made that the notice of motion be determined on the papers. The appellant was directed to file any submissions by 8 May 2017, but did so on 10 May 2017. The respondent was directed to file any submissions by 15 May 2017. No submissions were filed by the respondent. Costs of the proceedings in the District Court 1. In respect of the proceedings in the District Court, the appellant seeks indemnity costs from 7 November 2014 onwards on the basis of a letter of that date sent by its solicitor to the respondent's solicitor. The trial in the District Court commenced just over a year later on 7 December 2015. The letter in question was sent "WITHOUT PREJUDICE" and commenced by setting out the appellant's position on the key elements of its insolvent trading claim against the respondent. The letter concluded as follows: "Accordingly, our client is confident that it will establish that Mr McMillan failed to meet his obligations as a director of McMillan Prestige in preventing it from trading whilst insolvent and will succeed in its claim against your client. To the claim of $408,019.38 our client would be entitled in the normal course for an award of interest and legal costs. Our client estimates that interest of at least $300,000 would be payable on the above amount. Legal costs could be likely to exceed $150,000 if the matter proceeds to hearing. Further our client would seek to recover the costs it incurred to date to fund the liquidator of approximately $140,000 as well as legal costs incurred in seeking to recover the debts of the company of approximately $80,000. Collectively then, if our client is successful as it anticipates it will be, your client would face a liability of well over $1,050,000. We note your comments to the writer that your client does not have the means to satisfy any judgment that may be obtained against him. Even if that is correct, our client would be entitled to seek to have a trustee in bankruptcy appointed over your client in order to enforce his judgment. Nevertheless, our client is prepared to be commercial to resolve this matter. Our client is willing to settle this matter for $495,000. This offer remains open for 14 days from the date of this letter." 1. The appellant's submissions characterised the 7 November 2014 letter as a "Calderbank offer": see Calderbank v Calderbank [1975] 3 All ER 333. The appellant submitted that the letter "set out cogent reasons why the appellant would succeed and the respondent would be found to have engaged in insolvent trading". On the basis that it ultimately obtained judgment for $418,991.77, and calculated pre-judgment interest of $289,553.22 for a total of $708,544.99, the appellant submitted that the offer of $495,000 "represented a compromise and was reasonable". Consideration 1. Subject to the rules and to any other Act, costs are in the discretion of the Court: Civil Procedure Act 2005 (NSW) (CPA), s 98. Pursuant to the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.2: "Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis." 1. The Court may, in its discretion, order that costs be assessed on the indemnity basis: CPA, s 98(1)(c); UCPR, r 42.5. Although not confined to established categories of case, the discretion to order costs on the indemnity basis is to be exercised judicially and in accordance with principle: see, for example, Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 per McHugh J at [65]; Botany Bay City Council v Minister for Local Government (No 2) [2016] NSWCA 127 at [5]; Mohareb v Palmer [2016] NSWCA 378 at [53]. 2. The making, and rejection, of a Calderbank offer is one factor which may, but will not necessarily, cause the Court in its discretion to order costs on the indemnity basis. Barrett JA explained in Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188, at [57], that an offer will qualify as a Calderbank offer: "… only if the maker of it is shown to intend that the fact of its non-acceptance may be deployed as a basis for seeking a special costs order in the event of that party's ultimate success in the action. Everything therefore depends on the message conveyed by the offer itself and any covering letter or other attendant circumstance." 1. The rejection of an offer of that type may cause the Court to make an order that costs be assessed on the indemnity basis if the Court is satisfied that (1) the offer was a genuine offer of compromise and (2) the rejection of the offer was unreasonable: see, for example, Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]. 2. Although no fixed form of words is required for an offer to constitute a Calderbank offer, an indication that the offer will be relied on in relation to the question of costs should a verdict more favourable than the offer be achieved "is the essence of a Calderbank offer": per Bathurst CJ in Whitney v Dream Developments Pty Ltd at [42]. The 7 November 2014 letter does not embody an offer of the type contemplated for the reason that it fails this essential requirement. 3. It may be accepted that, on the appellant's then estimation and the ultimate result, the offer to settle the matter for $495,000 embodied a compromise on its part. However, there was nothing in the 7 November 2014 letter which indicated that non-acceptance of the offer would be relied on as a basis for seeking a special costs order. The 7 November 2014 letter was sent "WITHOUT PREJUDICE" rather than "WITHOUT PREJUDICE EXCEPT AS TO COSTS", as is common, but not necessary, practice. Nonetheless, unlike the subsequent correspondence in relation to the respondent's costs assessment application and in relation to the appeal proceedings, there was simply no indication that the 7 November 2014 letter would be relied on as a Calderbank offer or at all in relation to costs. In the circumstances, there is insufficient cause to order that the appellant have its costs in the District Court on the indemnity basis. Costs of the respondent's costs assessment application 1. The appellant also seeks indemnity costs in relation to the respondent's costs assessment application in relation to the costs in the District Court. The proceedings in this Court were commenced by notice of appeal filed on 18 May 2016. In September 2016, the appellant's solicitor wrote to the respondent's solicitor requesting that the respondent delay the costs assessment of the costs in the District Court until after the appeal was determined. In a letter dated 19 September 2016, the appellant's solicitor wrote: "Our client is concerned that if its appeal is successful, the costs expended responding to your client's costs application will have been wasted. Moreover and more particularly, given that your client has indicated that he is impecunious on multiple occasions, our client is gravely concerned that if any payment is made to your client in respect of costs, your client will be unable to repay same in the event that the costs order is reversed on appeal. In those circumstances, the appropriate course would be for your client to withdraw his costs application, without prejudice to his rights following the determination of the appeal. If you are instructed to press the costs application we are instructed to bring an application to stay the costs order pending the determination of our client's appeal. We note given the expected time frame for the determination of the matter that this proposal would not unduly prejudice your client. Please let us have your response by 5pm on 20 September 2016, failing which we will assume your client is pressing his application and will proceed accordingly. We will tender this letter on the question of costs." 1. That request was declined in an email from the respondent's solicitor on 21 September 2016. In a further letter on 27 September 2016, the appellant's solicitor wrote: "I refer to your email of 21 September 2016 in response to our letter of 19 September 2016, declining to withdraw your client's costs application pending the outcome of the Court of Appeal proceedings. First, we want to put your client on notice that in the event that the appeal is successful we will seek indemnity costs in relation to the costs application. We maintain that the costs application should be delayed until after the hearing of the appeal." 1. In its submissions, the appellant acknowledged that the respondent was entitled to enforce the costs order made by the District Court and, to that end, to have the costs assessed. However, the appellant submitted that the respondent having done so prior to the determination of the appeal, and the appeal having been allowed, the respondent should bear the appellant's costs on the costs assessment application on an indemnity basis. Consideration 1. So far as is relevant for present purposes, this Court's powers as to costs are sourced in CPA, s 98. That section is found in Div 2 of Pt 7 of the CPA, which is entitled "Costs in proceedings". The word "proceedings" is not defined in the CPA, although "civil proceedings" are defined in s 3(1) so as to encompass "any proceedings other than criminal proceedings". Relevantly, CPA, s 3(1), defines "costs" in the following terms: "… costs, in relation to proceedings, means costs payable in or in relation to the proceedings, and includes fees, disbursements, expenses and remuneration." 1. By the operation of CPA, s 98(6)(b), "costs" will include "the costs of the proceedings giving rise to the appeal". 2. The proceedings in this Court were an appeal against the judgment of the District Court on the appellant's insolvent trading claim. The assessment of the respondent's costs in the District Court was not the subject of this appeal, and CPA, s 98 does not provide any basis for this Court to make orders as to the costs of the costs assessment application. 3. The costs of the respondent's costs assessment application are governed by the Legal Profession Uniform Law (NSW) (LPUL). Any of the parties specified in LPUL, s 198(1) may bring an application for an assessment of the whole or any part of legal costs payable to a law practice. Such an application will be determined by a costs assessor: LPUL, s 199(1). Section 205(1) makes provision for appeals against, and the review of, decisions of costs assessors "in the jurisdiction for which the costs assessor exercised his or her functions in relation to the decision". Pursuant to s 205(2), "the court or tribunal hearing the appeal or reviewing the decision may make any order it considers appropriate on the appeal or review". That is not this Court. Accordingly, the appellant's application for those costs is rejected. Costs of the appeal 1. In respect of the proceedings in this Court, the appellant seeks indemnity costs from 18 August 2016 onwards on the basis of a letter of that date sent by its solicitor to the respondent's solicitor. The letter in question was sent "WITHOUT PREJUDICE EXCEPT AS TO COSTS", and commenced by rejecting an earlier offer by the respondent dated 6 July 2016. After detailing the appellant's position on the issues in the appeal, the letter continued as follows: "Offer of compromise Notwithstanding our client's views of the prospects of success, we are instructed to make an offer to resolve the proceedings. The plaintiff offers to resolve the whole of its appeal in accordance with Rule 20.26. The orders proposed by the plaintiff for the disposal of the claim are as follows: 1. Appeal allowed. 2. The judgment and the orders of the District Court below made on 19 February 2016 and 17 March 2016 be set aside. 3. In lieu thereof, judgment for the plaintiff in the sum of $190,000. The offer remains open to be accepted for 35 days from the date of the offer. Calderbank offer In the alternative and without derogating from the above offer of compromise, the above offer of compromise will be relied upon in support of an application for indemnity costs in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333." 1. The appellant submitted that, by virtue of the 18 August 2016 letter and the operation of UCPR, r 42.14, it is entitled to an order for its costs on the appeal on the indemnity basis as from 18 August 2016. Consideration 1. The provisions of the UCPR governing the making and consequences of offers of compromise apply to proceedings in this Court: UCPR, rr 51.47, 51.48. Pursuant to UCPR, r 51.47(2), any such offer should be made in the form prescribed by UCPR, r 20.26. 2. The 18 August 2016 letter satisfies these requirements as to form. The letter identified the claim to which it related and proposed orders as to the disposition of that claim: UCPR, r 20.26(2)(a). The letter did not purport to include an amount for costs, nor was it expressed to be inclusive of costs: UCPR, r 20.26(2)(c). The letter stated that the offer was one to resolve the appeal "in accordance with Rule 20.26" and specified the period of time within which it was open for acceptance: UCPR, rr 20.26(2)(d), (f). 3. In circumstances where an offer of compromise made by an appellant/plaintiff is not accepted, and the appellant/plaintiff obtains judgment no less favourable to the appellant/plaintiff than the terms of the offer, the costs consequences are as contemplated by UCPR, r 42.14. In the principal judgment in these proceedings, the Court directed judgment for the appellant in the sum of $418,991.77. That was clearly no less favourable than the judgment for $190,000 proposed by the appellant in the 18 August 2016 letter. 4. As the appellant's offer of compromise was not accepted by the respondent, subject to a discretion in the Court to order otherwise, UCPR, r 42.14(2) entitles the appellant to an order for its costs against the respondent on the ordinary basis up to and including 18 August 2016 and thereafter on the indemnity basis. There is no discretionary reason for the Court to order otherwise. Other matters 1. The appellant having succeeded on appeal, the sum of $75,000 paid into court as security for the respondent's costs should be released to the appellant: UCPR, r 41.3. The orders of the Court should also be amended as sought to incorporate the calculated interest up to the date of judgment. Orders 1. The Court makes the following orders: (1) The security for costs paid into Court on 14 November 2016 by the appellant for the costs of the respondent in the sum of $75,000 be released to the appellant pursuant to r 41.3 of the Uniform Civil Procedure Rules 2005 (NSW). (2) Order 2 made by the Court on 6 April 2017 be varied as follows: (a) Set aside the orders made in the District Court and, in lieu thereof, direct the entry of judgment for the plaintiff in the sum of $418,991.77 together with interest up to the date of judgment for $321,974.45 and order the defendant to pay the plaintiff's costs in the District Court on an ordinary basis. (3) Order 3 made by the Court on 6 April 2017 be varied as follows: (a) The respondent pay the appellant's costs of the appeal on the ordinary basis up to 18 August 2016 and thereafter on an indemnity basis and the respondent to have a certificate under the Suitors' Fund Act 1951 (NSW) if so entitled. (4) The respondent pay the appellant's costs of this motion. ********** 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: 22 June 2017