Supreme Court New South Wales Medium Neutral Citation: In the matter of GTH Equipment Pty Ltd [2017] NSWSC 1816 Hearing dates: 13 November 2017, costs submissions 29 November and 6 December 2017 Decision date: 21 December 2017 Jurisdiction: Equity - Corporations List Before: Black J Decision: The Court orders that the Defendant pay the Plaintiff's costs and disbursements of the proceeding quantified on a lump sum basis as $15,810.20 as well as the Plaintiff's costs of the argument as to costs, on and after 24 November 2017, as agreed or as assessed. Catchwords: COSTS — Party/Party — Exceptions to general rule that costs follow the event — Offers of compromise/Calderbank offers – where offer made to compromise two proceedings for a single sum – proper order as to costs of one proceeding COSTS — Party/Party — Application for gross sum costs order – where costs of assessment would be disproportionate Legislation Cited: - Civil Procedure Act 2005 (NSW), s 98(4) - Uniform Civil Procedure Rules 2005 (NSW), r 42.1 Cases Cited: - Calderbank v Calderbank [1975] 3 All ER 333 - Dubow v Fitness First Australia Pty Ltd (No 2) [2012] NSWSC 961 - Liberty Industrial Pty Ltd v Donald Mcarthy Trading Australia Pty Ltd [2013] NSWSC 279 - Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 - Re Aquaqueen International Pty Ltd [2015] NSWSC 500 - Re GTH Equipment Pty Ltd [2017] NSWSC 1617 - Re MF Global Australia Ltd (in liq); Hopper v Campbell in his capacity as liquidator of MF Global Australia Ltd (in liq) [2015] NSWSC 1583 - Re Palladium Consulting Pty Ltd [2013] NSWSC 92 Category: Costs Parties: GTH Equipment Pty Ltd (Plaintiff) Merlo Group Australia Pty Ltd (Defendant) Representation: Counsel: J T Johnson (Plaintiff) P Afshar (Defendant) Solicitors: Beazley Boorman (Plaintiff) Coleman Greig (Defendant) File Number(s): 2017/252597 Judgment 1. On 24 November 2017, I delivered judgment in this matter ([2017] NSWSC 1617) and made orders that a creditor's statutory demand dated 4 August 2017 ("Demand") issued by the Defendant, Merlo Group Australia Pty Ltd ("MGA") to the Plaintiff, GTH Equipment Pty Ltd ("GTH"), be set aside and that MGA pay GTH's costs of the application as agreed or as assessed. GTH then sought a lump sum costs order under s 98(4) of the Civil Procedure Act 2005 (NSW) and MGA indicated that, notwithstanding that GTH had obtained an order setting aside the Demand, it sought to be heard as to the question of costs. I then made orders for written submissions in respect of the question of costs. 2. It will be convenient first to deal with MGA's submissions. MGA submits that an order should be made that it be paid its costs of the proceedings after 2 November 2017 or, alternatively, that each party should be ordered to pay its own costs of the proceedings. 3. MGA relies on a letter dated 2 November 2017 from its solicitors to GTH's solicitors. That letter was labelled "without prejudice save as to costs" and referred to District Court proceedings between the parties and the commencement of the proceedings to set aside the Demand and made an offer to resolve both the District Court proceedings and the application to set aside the Demand (excluding costs orders in the District Court proceedings which would be left to assessment in due course) on terms, inter alia, that GTH pay MGA a substantial amount in full and final settlement of the District Court proceedings and the Supreme Court proceedings within 14 days from the date the offer was accepted by GTH. That offer was said to be made on the basis of the principles set out in Calderbank v Calderbank [1975] 3 All ER 333 and was left open for acceptance for 7 days. 4. Mr Afshar, who appears for MGA, refers to r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) which provides that, subject to Pt 42, if the Court makes any order as to costs, it should order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. Mr Afshar also refers to the summary of the applicable principles by Ward J (as her Honour then was) in Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]–[15]. Her Honour observed that: "The rationale for the principles applied in relation to Calderbank offers was outlined in Commonwealth v Gretton [above] by Beazley JA, her Honour noting (at [41]) that the public policy considerations underpinning the making of favourable costs orders where a Calderbank offer has been made (and not accepted) are the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants. The Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 recently reiterated the public policy objectives of special costs orders in the context of offers of compromise. Basten JA (with whom McColl and Campbell JJA agreed) referred at [6] to the objects underlying the formal offer of compromise procedures under the then court rules that were identified in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 as including: 1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its "bottom line" will be revealed to the court; 2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and 3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation. The onus is on the party seeking to rely on a Calderbank offer (in this case, the defendants) to satisfy the court that it should exercise the costs discretion in its favour (Evans Shire Council v Richardson (No 2) [2006] NSWCA 61). An indemnity costs order will not automatically follow from the fact that a genuine offer of compromise more favourable than the final judgment was made nor is there any presumption to that effect (Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790; Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd [2001] NSWCA 461). What must be considered is the reasonableness of the offeree's rejection or non-acceptance of the offer, having regard to the relevant circumstances at the time that the offer fell to be considered (ie, here, as at September 2006) (citing MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd [1996] 70 FCR 236 per Lindgren J). The question is whether, in all the circumstances, the failure to accept the offer "warrants departure from the ordinary rule as to costs" (SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]). Counsel for the defendants (Mr Stitt) submits that, insofar as the Court is to have regard to the particular circumstances of the case, this includes the evidence advanced, the conduct of the parties and the ultimate result (referring to Knight v Clifton [1971] Ch 700; Hally v Dennis (1955) 95 CLR 661 at 664) and that relevant conduct of the parties to be taken into account may include not only conduct in the course of the proceedings (Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137) but also conduct leading up to commencement of the proceedings (Peters v Peters (1907) 7 SR (NSW) 398 at 399). Save where there is a special costs order by reference to the procedure provided for under the Rules or in accordance with the principles in Calderbank v Calderbank [above], it has been said that a court should depart from the general rule (and award indemnity costs only where the conduct of the party against whom the order is sought is "plainly unreasonable" (Sydney City Council v Geftlick [2006] NSWCA 280; Dunstan v Rickwood (No 2) [2007] NSWCA 266). In Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA (at [57]) said that indemnity costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs." 1. In Re MF Global Australia Ltd (in liq); Hopper v Campbell in his capacity as liquidator of MF Global Australia Ltd (in liq) [2015] NSWSC 1583 at [6], I referred to that decision and summarised the principles applicable in determining the effect of a Calderbank offer as follows: "… the making of a Calderbank offer does not give rise to a presumption in favour of indemnity costs: Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [14]. Similarly, the fact that a plaintiff ultimately achieves a worse result than he or she would have achieved if he or she had accepted that offer, does not itself establish that the defendant should be awarded indemnity costs, unless it can be said that it was unreasonable for the plaintiff not to accept that offer, so as to warrant a departure from the general rule as to costs: Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [above] at [9]–[11]; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]–[9]; Perisher Blue Pty Ltd v Nair-Smith (No 2) above at [16]." 1. Mr Afshar submitted that the letter dated 2 November 2017 offered to accept a lesser amount than the amount claimed in the Demand although, on the face of it, that letter appears to have required the payment of $55,425.23 (defined as the "Settlement Sum") rather than the amount of $29,099.15 to which Mr Afshar refers in submissions. However, even if that letter had the effect for which Mr Afshar contends, it linked the resolution of the application to set aside the Demand with the resolution of the District Court proceedings. MGA submits that it was unreasonable for GTH not to accept that offer, on the basis of the suggested discount involved in it. I do not accept that submission, where GTH was entitled to pursue an application to set aside the Demand, which was defective, rather than being required to compromise the District Court proceedings in order to avoid a presumption of insolvency arising from a failure to comply with that Demand. 2. Mr Beazley, who appears for GTH, responds to this submission by pointing out that GTH had, by the date of the letter from MGA's solicitors, incurred the filing and hearing allocation fee for the application to set aside the Demand and a substantial amount of solicitor's costs and that MGA's offer extended to the District Court proceedings, was conditional upon GTH making payments to MGA, and was not an offer to reduce the amount claimed in the Demand or an unconditional offer to withdraw the Demand. 3. I am not satisfied that it was unreasonable for GTH to pursue its application to set aside the Demand, rather than accepting MGA's offer that also required resolution of the District Court proceedings. I am therefore also not satisfied that there is any basis to depart from the usual order that costs follow the event, either to order that GTH pay MGA's costs after 2 November 2017, the date of that letter, or that there should be no order as to costs. 4. As I noted above, GTH seeks a lump sum costs order. By its submissions served on 29 November 2017, GTH indicated that it sought a lump sum costs order in the amount of $17,846.30, comprising $6,787 by way of professional costs, $3,000 for Counsel's fees and amounts in respect of the filing fee, a hearing allocation fee and an ASIC search fee. GTH did not claim for goods and services tax because it is registered for GST. GTH relied on a draft itemised bill in support of that application. Mr Beazley referred to my summary of the circumstances in which a gross sum costs order could be made in Re Aquaqueen International Pty Ltd [2015] NSWSC 500 at [16]–[21]. I there observed that: "Section 98(4) of the Civil Procedure Act 2005 (NSW) relevantly provides that the Court may make an order to the effect that a party to whom costs are to be paid is entitled to a specified gross sum instead of assessed costs. That power is commonly exercised where costs have been incurred in a lengthy or complex case although it is not in its terms limited to such a case: Simone Starr-Diamond v Talus Diamond (No 4) [2013] NSWSC 811 at [8]. The power to make a gross sum costs order should only be exercised where the Court considers it can do so fairly between the parties, including achieving an appropriate sum on the materials available to it, and the court typically applies a discount in assessing costs on a gross sum basis: Ritchie's Uniform Civil Procedure NSW [s 98.65]; Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23. In Hamod v State of New South Wales [2011] NSWCA 375 at [816]-[817], Beazley JA (with whom Giles and Whealy JJA agreed) summarised factors relevant to the making of a gross sum costs order as follows: "The terms of s 98(4), together with the more general considerations reflected in the Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred (for example, Harrison v Schipp); the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability: Ritchie's Uniform Civil Procedure NSW at [s 98.45]. The exercise of the power conferred by s 98(4) is particularly appropriate where the costs have been incurred in lengthy or complex cases and it is desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment. This may arise either from the likely length and complexity of the assessment process: Beach Petroleum NL v Johnson (No 2) at 120; Charlick Trading Pty Ltd v Australian National Railways Commission; Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006; or from the likelihood that the additional costs of formal assessment would disadvantage the successful party because of the likely inability of the unsuccessful party to discharge the costs liability in any event: Harrison v Schipp; Sony Entertainment (Aust) Ltd v Smith (2005) 215 ALR 788 at [90], [194]–[195]; Hadid v Lenfest Communications Inc [2000] FCA 628." Her Honour there noted that the capacity of the unsuccessful party to satisfy any costs liability was relevant to the question whether a gross sum costs order should be made, and the same point has been made in other cases: Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738 at [21]; Hadid v Lenfest Communications Inc [2000] FCA 628 at [25]; Dye v Commonwealth Securities Ltd No 2 [2012] FCA 407. The Plaintiffs also submit that a gross sum costs order may be made to avoid the expense, delay and aggregation involved in litigation arising out of an assessment: Harrison v Schipp above. … Where a gross costs order is to be made, the Court is not required to undertake a detailed examination of the kind which would be undertaken in a cost assessment, in determining a gross sum payable, and will apply "a broad brush" approach: Hadid v Lenfest Communications Inc above at [35]; Harrison v Schipp above at [22]. The Plaintiffs also refer to the observations of Pembroke J in Ireland (as Executor of the Estate of the late Gordon) v Retallack (No 2) [2011] NSWSC 1096 at [38]-[41]) to the effect that: "The terms of s 98(4)(c) are not subject to any express limitation, other than that an order may only be made before costs are referred for assessment. Nor is there any apparent basis for imposing an implied qualification arising from the language of the whole of s 98 or the surrounding statutory provisions or the evident purpose of Div 2 of the Act. It is well accepted that, subject to the proviso that it be exercised judicially, the court has an unlimited discretion when making an order pursuant to s 98(4) … Nonetheless, the power should only be exercised where the court considers that it can do so fairly between the parties. That includes a requirement that it has sufficient confidence that it is able to arrive at an appropriate sum on the information that is made available …The parties should of course be given an adequate opportunity to make submissions … Further, the power may be exercised broadly. A process similar to an assessment is not necessarily envisaged … Although considerations that would be relevant to an assessment may be taken into account … The court should however be confident that the approach which it adopts to the estimation of costs is logical, fair and reasonable…" [citations omitted] In Filmlock Pty Ltd v Nissi Investments Pty Ltd (No 3) [2013] NSWSC 1594 at [3], Pembroke J referred to his observations in Ireland v Retallack (No 2) above and again emphasised the utility of the power under s 98(4)(c) of the Civil Procedure Act as a means of enhancing the interests of justice and furthering the overriding purpose in an appropriate case." 1. Mr Beazley submitted that the parties were in continuing litigation in the District Court of New South Wales, the costs claimed were relatively small and the delay of and costs in an assessment would be disproportionate, where it was unlikely that the parties would reach agreement as to costs. MGA responds that, if it is required to pay GTH's costs, those should be as agreed or as assessed, and also advanced criticisms of the time spent by GTH's solicitors reflected in the claimed costs. 2. I am satisfied that this is a proper case for a lump sum costs order, and there is every reason to think that the delay in assessment and the costs of assessment would be disproportionate in the circumstances of a relatively straightforward application to set aside a creditor's statutory demand. It seems to me that such an order may more readily be made where the bulk of the costs claimed relate to Counsel's fees, the filing fee and the hearing allocation fee, as to which there is little room for dispute. I will not, however, make an order for lump sum costs on a solicitor/client basis, which is the approach for which GTH contends. The amount of costs should be discounted to 70% of the solicitor/client costs claimed, consistent with a percentage that has frequently been accepted by this Court in respect of applications for gross sum costs orders: see, for example, Dubow v Fitness First Australia Pty Ltd (No 2) [2012] NSWSC 961 at [14]–[21]; Re Palladium Consulting Pty Ltd [2013] NSWSC 92 at [14]; Liberty Industrial Pty Ltd v Donald Mcarthy Trading Australia Pty Ltd [2013] NSWSC 279 at [17]; Re Aquaqueen International Pty Ltd above. I am satisfied that that will be sufficient to take account of the criticisms made by MGA of the time spent in respect of the solicitor's work, and that the amounts raised by those criticisms are not sufficiently material to warrant the further costs of or delay in an assessment. 3. Since GTH has been successful in its application for a lump sum costs order, and MGA has been unsuccessful in its resistance to that order and unsuccessful in its contention that a contrary order should be made, MGA should also pay the costs of the costs application on and from 24 November 2017. 4. Accordingly, I make the following orders: 1. Order 2 made by Black J on 24 November 2017 be vacated. 2. The Defendant pay the Plaintiff's costs and disbursements, quantified on a lump sum basis as $15,810.20. 3. The Defendant pay the Plaintiff's costs of the argument as to costs, on and after 24 November 2017, as agreed or as assessed. ********** Amendments 04 January 2018 - Correct typographical error. 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