Supreme Court New South Wales Medium Neutral Citation: Maroubra Pool Café Pty Ltd v Fedele (No 2) [2018] NSWSC 192 Hearing dates: On the papers Date of orders: 23 February 2018 Decision date: 23 February 2018 Jurisdiction: Equity Before: Darke J Decision: See paragraph [24] Catchwords: COSTS – departing from general rule – defendants unreasonably failed to accept Calderbank offer – indemnity costs ordered from date of offer – plaintiff succeeded on some issues and failed on others – appropriate to order that defendants pay only half of plaintiff's costs for period prior to offer Legislation Cited: Environmental Planning and Assessment Act 1979 (NSW) Uniform Civil Procedure Rules 2005 (NSW), r 42.1 Cases Cited: Blair v Curran (1939) 62 CLR 464 Maroubra Pool Café Pty Ltd v Fedele [2017] NSWSC 1722 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Reichel v Magrath (1889) 14 App Cas 665 Walton v Gardiner (1993) 177 CLR 378 Category: Costs Parties: Maroubra Pool Café Pty Ltd (Plaintiff) Antonio Fedele (First Defendant) Maria Fedele (Second Defendant) Representation: Counsel: Mr M Ashhurst SC with Mr P M Barham (Plaintiff) Mr C W Robinson (Defendants) Solicitors: Borodin Legal (Plaintiff) Dimarco Lawyers (Defendants) File Number(s): 2015/378241 Publication restriction: None Judgment 1. Judgment in this commercial lease matter was delivered on 12 December 2017 (see Maroubra Pool Café Pty Ltd v Fedele [2017] NSWSC 1722). By reference to the six principal issues identified in the judgment (at [2]), the plaintiff succeeded on three issues (issues 1, 3 and 5), was partly successful on one issue (issue 4), and was unsuccessful on two issues (issues 2 and 6). The parties have reached agreement on the form of orders to give effect to the Court's reasons, but remain in dispute as to costs. 2. The Court made directions for written submissions, with a view to the question of costs being determined on the papers. Submissions have now been received from each side. As neither side has indicated that a further oral hearing is necessary, the Court will proceed to deal with costs on the papers. 3. The parties take very different positions on costs. The plaintiff submitted that indemnity costs should be awarded in its favour from 20 October 2017 because the defendants unreasonably failed to accept a Calderbank offer which contained a genuine offer of compromise (see Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]). In respect of the period up to 20 October 2017, the plaintiff seeks costs on the ordinary basis but, in recognition of its partial success, accept that the defendants should only have to pay 75% of its costs for that period. 4. The defendants submitted that because the plaintiff was on balance the less successful party (and on one issue should have to bear the costs in any event), the appropriate order for costs was that the plaintiff pay two-thirds of the defendants' costs. The defendants also disputed the plaintiff's claim for indemnity costs on the basis that the Calderbank offer referred to matters "outside the litigation" and was hence ineffective to trigger the Calderbank principles. 5. I will deal first with the indemnity costs question. 6. The Calderbank offer made on 20 October 2017 was in the following terms: The Defendants withdraw their Notice of Termination and to Quit dated 7 March 2016. The parties enter into a Deed of Settlement and Release acknowledging that the Lease remains in operation and that the Plaintiff has not at any time prior to the date of the Deed been in breach of the Lease or if it has, the Defendants waive any entitlements under the Lease in respect of the said breaches. The Lease be varied to demise the Courtyard area to the Plaintiff on the same terms as the balance of the Lease, save that other tenants be permitted access to the Courtyard area for the purpose of storage of rubbish bins, and removal and replacement of their rubbish bins to and from that area. The Defendants do all acts and sign all things necessary to align the Café's indoor (DA 689/2012) and outdoor (DA 792/2014) trading hours to 7:00am – 10:00pm Monday to Sundays. Proceedings to be dismissed. Each party to pay its/their own costs. Any existing costs orders to be vacated. 1. The offer was made 10 days prior to the commencement of the hearing, and was expressed to be open for acceptance until noon on 27 October 2017. 2. The Court subsequently found in the plaintiff's favour as follows: 1. that a certain courtyard area formed part of the premises demised under the lease; 2. that the purported termination of the lease by the defendants on 7 March 2016 was invalid; 3. that the defendants remained obliged to install a certain drainage pipe at the premises; and 4. that the defendants were obliged to provide their consent to an application by the plaintiff under s 96 of the Environmental Planning and Assessment Act 1979 (NSW) to allow indoor dining to commence at 7:00am each day rather than 8:00am. 1. The Calderbank offer essentially entailed the vindication of the plaintiff's position on (a), (b) and (d) above. To the extent that the plaintiff prevailed on (c) above, a relatively minor issue, the plaintiff can be seen to have done better than the offer. 2. However, the defendant suggests that paragraph 2 of the offer, which called for a deed in which the defendants would acknowledge that the plaintiff was not at any time prior to the deed in breach of the lease, went beyond the boundaries of the litigation. The defendants contend that prior to the making of the offer the plaintiff had committed various breaches of the lease that were not the subject of the litigation. If that is so, it can be said that, as the offer, if accepted, would require the defendants to expressly waive any entitlements under the lease in respect of those breaches, the offer entailed a benefit that the plaintiff would not be able to achieve (and did not in fact achieve) in the litigation. 3. Nevertheless, for the reasons which follow, I do not think that much significance can be given to this matter in circumstances where the defendants chose not to allege further breaches in the proceedings. 4. Quite apart from the issue of relief against forfeiture, where the existence of these breaches would be relevant, the question of whether the plaintiff was in breach of the lease and the related question of whether the plaintiff was entitled to a refund of the security deposit were squarely raised on the pleadings (see Second Further Amended Statement of Claim prayers for relief 2.3 and 4.1, and paragraph 67.61). The defendants denied the allegations that the plaintiff was not in breach and was entitled to a refund of the security deposit (see Defence to Second Further Amended Statement of Claim at paragraph 67.61). This matter was determined adversely to the defendants (see the earlier judgment at [120]). The agreed orders provide for the return of the security deposit to the plaintiff (see Order 6). The basis of Order 6 is a conclusion that the plaintiff is not in breach of the lease (see Item 17 of the Reference Schedule to the lease). It is therefore difficult to see a basis upon which the defendants could now assert the existence of these further breaches (see Blair v Curran (1939) 62 CLR 464 at 502, 510 and 531-2; see also Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 602 and 604, and Walton v Gardiner (1993) 177 CLR 378 at 393 referring to Reichel v Magrath (1889) 14 App Cas 665 at 668). Accordingly, I do not think that the plaintiff's offer of 20 October 2017 entailed a benefit of any significance that the plaintiff did not achieve in the litigation. 5. I conclude therefore that the outcome ultimately achieved by the plaintiff was at least as favourable to it as the terms of its offer. There is no doubt that the offer involved a genuine element of compromise. It did not include any amount in respect of the plaintiff's claim in conversion. That was a substantial claim for damages which, although not successful, was plainly arguable. 6. In my opinion, it was unreasonable of the defendants not to accept the offer. It was made at a time when the issues were clear and the prospects at trial ought to have been able to be fully assessed. Had the offer been accepted the costs of the trial and at least some of the preparation for the trial could have been avoided. 7. In these circumstances I think that it is appropriate to order that the defendants pay the plaintiff's costs from 20 October 2017 on the indemnity basis. 8. I turn now to consider the question of costs in the period prior to 20 October 2017. 9. As noted earlier, the plaintiff accepted that the defendants should not have to pay all of its costs in respect of that period. A proportion of 75% was advanced as appropriate. That was put forward on the basis that the conversion claim, upon which the plaintiff failed, was a largely discrete and separate issue, and it was one of the three main issues in the case. 10. The defendants submitted that the plaintiff was on balance the less successful party. The defendants submitted that the plaintiff only succeeded on four issues, two of which were relatively minor. In relation to one of the issues upon which the plaintiffs succeeded, namely, the question of validity of the termination of the lease, the defendants submitted that the plaintiff should bear the costs of that issue in any event. This was because the defendants, relying upon the ASIC register, acted reasonably in alleging a breach of the lease (concerning a change in control of the lessee), and the reason the breach and hence the right to terminate was not established was that the statements made by the plaintiff to ASIC were in fact false. 11. There is some substance in that complaint although I note that the defendants chose to maintain the validity of the termination even after affidavits were served which provided an explanation of what occurred in relation to the ASIC register. 12. Both sides in effect invite the Court to make an overall award of costs that reflects the parties' degree of success and failure on the numerous issues in dispute. That is necessarily a broad and somewhat impressionistic task. 13. It seems to me that a suitable way of looking at the matter is to regard the plaintiff as having succeeded on two of the three main issues in terms of evidentiary focus and time spent at the trial. These are the courtyard issue (including the related Australian Consumer Law claim that did not need to be determined), the termination issue, and the conversion case. In relation to the three lesser issues, the plaintiff succeeded on one, had partial success on one, and lost on one. 14. On this basis the plaintiff should be regarded as the successful party. I do not accept the defendants' submission to the contrary. Nonetheless, as recognised by the plaintiff itself, circumstances exist which render it appropriate to depart from the usual position that costs simply follow the event (see Uniform Civil Procedure Rules 2005 (NSW) r 42.1). 15. Taking into account the valid point made by the defendants concerning the termination issue, and making an allowance for matters (particularly the conversion case) upon which the plaintiff failed, I think that an appropriate order would be that the defendants pay 50% of the plaintiff's costs in respect of the period prior to 20 October 2017. 16. Accordingly, the Court orders that the defendants pay 50% of the plaintiff's costs up to 19 October 2017 on the ordinary basis, and all of the plaintiff's costs thereafter on the indemnity 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: 23 February 2018