Agricultural and Rural Finance Pty Ltd v Atkinson

[2010] NSWSC 1396

CITATION:	Agricultural and Rural Finance Pty Limited v John Edward Atkinson & Ors [2010] NSWSC 1396
HEARING DATE(S):	22/9/10, 23/9/10, 29/11/10
JUDGMENT DATE :	2 December 2010
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	The parties are to bring in short minutes of order to deal with the entirety of these reasons.
CATCHWORDS:	Costs - Whether proved that defendants received plaintiff’s offers of compromise - Whether offers of compromise valid under applicable Court rules - Whether offers of compromise, if not effective under the rules, could operate as Calderbank offers - Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 and Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 applied - Whether subsequent Calderbank offers inadmissible under Civil Procedure Act 2005 30(4)(b) - Whether plaintiff entitled to indemnity costs on basis of Calderbank offer that was admissible - Two or more unsuccessful defendants - Whether appropriate order that defendants liable for plaintiff’s costs on a joint and several basis or that each defendant be liable for a proportionate amount of costs - Contract - Interpretation of agreements to determine proper calculation of interest payable - Procedure - Whether leave should be granted to file a Notice of Ceasing to Act under Uniform Civil Procedure Rules 2005 r 7.29
LEGISLATION CITED:	Bankruptcy Act 1966 (Cth) Contracts Review Act 1980 (NSW) Civil Procedure Act 2005 (NSW) Evidence Act 1995 (NSW) Supreme Court Rules 1970 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
CATEGORY:	Consequential orders
CASES CITED:	Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349 Australand Corporation (Qld) Pty Ltd v Johnson [2007] QSC 128 Azzi & Ors v Volvo Car Australia Pty Ltd (Costs) [2007] NSWSC 375 Bakker v Chanbri Pty Limited (1986) 4 BPR 9234 Currabubula & Paola v State Bank of New South Wales [2000] NSWSC 232 Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 Farrow Mortgage Services Pty Ltd (In Liq) v Tunevitsch Pty Ltd (1998) 8 TAS R 65 Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 1126 Kowalczuk v Accom Finance [2008] NSWCA 343 Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 Mike Gaffikin Marine Pty Ltd v Princes Street Marina Pty Ltd (unreported, Young J, 15 July 1996) Morris v Riverwild Management Pty Ltd [2009] VSC 439 Morton v Elgin-Stuczynski [2008] VSCA 25 Penrith Rugby League Club Ltd Trading as Cardiff Panthers v Elliot (No 2) [2009] NSWCA 356 Polaris Holding Co v Airservices Australia [1997] FCA 208 Probiotec Ltd v University of Melbourne (2008) 166 FCR 30 Rushcutters Bay Smash Repairs Pty Ltd v H McKenna Netmakers Pty LTd [2003] NSWSC 670 Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660 Saunders v Nash [1991] 2 VR 63; Sharjade Pty Ltd v RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd [2008] NSWSC 1347 Stein v Torella Holdings Pty Limited [2009] NSWSC 971 Tarabay v Fifty Property Investments Pty Ltd [2009] NSWSC 951 TSB Developments Pty Limited v HCH & K Fisheries Pty Limited [2003] TASSC 136; Thiess Watkins White Construction Ltd (in liq) v Witan Nominees (1985) Pty Ltd [1992] 2 Qd R 452 Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201 Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194
TEXTS CITED:	HG Beale, Chitty on Contracts (Sweet & Maxwell, 30th ed, 2008) G A Weaver, & C R Craigie, The Law Relating to Banker and Customer in Australia (Lawbook Co, 3rd ed, 2003)
PARTIES:	Agricultural and Rural Finance Pty Limited (Plaintiff) John Edward Atkinson (1st Defendant) Peter Brakatselos (14th Defendant) Geoffrey Nevell Fredericksen (35th Defendant) Allan Patrick Holmes (52nd Defendant) Nicholas Charles Rowe (75th Defendant) Maria Francesca Russo (78th Defendant) David James Wardle (95th Defendant) Jennifer Dianne Wallace (124th Defendant) Franco Giannuzzi (149th Defendant) Gavin Winston Long (172nd Defendant) Maria Michael (177th Defendant) Maria Francesca Russo (189th Defendant) Christina Spyrakis (193rd Defendant) Oceania Agriculture Limited (Second Cross Defendant)
FILE NUMBER(S):	SC 2003/0092819
COUNSEL:	Mr T Hale SC, Mr C Bevan (Plaintiff) Mr S Epstein SC, Ms A Tsekouras (1st, 14th, 35th, 52nd, 75th, 78th, 95th, 124th, 149th, 172nd, 177th, 189th, 193rd Defendants)
SOLICITORS:	Evangelos Patakas & Associates (Plaintiff) Abadee Dresdner Freeman ((1st, 14th, 35th, 52nd, 75th, 78th, 95th, 124th, 149th, 172nd, 177th, 189th, 193rd Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Thursday 2 December 2010

2003/0092819 Agricultural and Rural Finance Pty Limited v John Edward Atkinson & Ors

JUDGMENT

The issues that remain for determination in these proceedings

1 The remaining matters for decision were before the Court on Wednesday 22 September and Thursday 23 September 2010, and Monday 29 November 2010.

2 On those occasions the principal issues were identified as:

i. the costs issue, namely whether the plaintiff was entitled to indemnity costs against the sundry defendants on the various bases claimed;

ii. the further question as to the proper approach to be taken to matters concerning interest.

3 Before dealing with the principal issues it is convenient to deal with some minor issues that were reserved upon.

Evidence admitted on the voir dire pending a ruling on admissibility

4 The following evidence admitted on the voir dire is now allowed:

Transcript of 23 September 2010

i. The evidence given at page 34 line 6 -up to page 40 line 29;

ii. The evidence given at page 40 line 34-up to page 47 line 12;

iii. The evidence given at page 47 line 19 -up to 47 line 49.

The issue concerning Mr Atkinson's position

5 On the last day of argument concerning the remaining matters for determination an issue arose concerning the position of Mr Atkinson.

6 Both parties were given an opportunity to furnish submissions in relation to the somewhat unusual position which obtained. It is convenient to set out each parties submissions.

The plaintiff’s submissions

7 The plaintiff’s submissions were as follows:

i. Abadee Dresdner & Freeman (“ ADF” ) have acted for Mr Atkinson in these proceedings.

ii. On Friday, 26 November 2010 ADF filed a Notice of Ceasing to Act as the legal representative of Mr Atkinson. The plaintiff’s solicitor was served with a copy of the Notice on the afternoon of Friday, 26 November. This was the last business day before the resumed Hearing on Monday, 29 November 2010.

iii. Filing of the Notice required the leave of the Court pursuant to UCP r 7.29(2)(a). No such leave has been sought or obtained. Accordingly the Notice is ineffective.

iv. UCP r 7.29(2)(a) applies “ in the case of proceedings for which a date for trial has been fixed” . This clearly applies to the present proceedings. The trial had not only been fixed but judgment has been given on liability. Accordingly ADF was not entitled to file or serve the Notice unless it had served on Mr Atkinson a Notice of Intention to File and at least 24 days before filing the Notice of Ceasing to Act.

v. This was not done. The “ Notice of Ceasing to Act” states that the “ Notice of Intention” was filed and served on Mr Atkinson and on the Trustees and Bankruptcy on 19 November. Thus only 7 days notice was given.

vi. The clear purpose of the rule was that where Court proceedings are imminent sufficient time must be given to the solicitor’s client to make alternate arrangements so that the hearing can proceed and will not unduly be affected by the solicitor’s ceasing to act. It is to avoid as far as possible a solicitor ceasing to act in circumstances in which the former client does not have sufficient time to secure adequate representation. Were it otherwise this may not only cause injustice to the client, but also lead to an adjournment of the hearing with consequent disadvantage and inconvenience to the other party as well as to the administration of justice.

vii. The Notice of Ceasing to Act is, therefore, ineffective. ADF seeks leave under UCP r 7.29 to render it effective.

viii. The exercise of the discretion to grant leave under UCP r 7.29(2) is subject to sections 5691), 57(1) and (2) and 58 of the Civil Procedure Act . The application of these sections to the exercise of discretion UCP r 7.29(2) would lead to the Court in the circumstances not granting leave. The reasons for this are as follows.


a) Firstly , upon Mr Atkinson’s bankruptcy the action against him was not stayed although an application might be made to stay the proceedings: section 60(1)(b) Bankruptcy Act, 1966. The entry of judgment against Mr Atkinson would mean that the judgment against him would form the basis of the plaintiff’s proof of debt against Mr Atkinson’s bankrupt estate. Proceeding against him therefore has utility. It determines his liability including his liability for costs. See UCP r 6.30(1) regarding the causes of action against Mr Atkinson on the summons, and UCP r. 6.30(2) regarding his cross claim against the plaintiff (which was dismissed on 17 June 2010).

b) If ADF’s application for leave were granted it would have the effect that neither Mr Atkinson nor his bankrupt estate’s trustees were present or represented at the hearing on 29 November 2010. The absence of representation might be seen as a basis to set aside the judgment against him, thus leading to additional costs and court time and potential uncertainty.

c) Secondly , the plaintiff was given notice of Mr Atkinson’s bankruptcy and the Notice of Ceasing to Act so late (late last Friday, 26 November 2010) that it had no opportunity to respond to notice of these changed circumstances. It had no opportunity to ensure that Mr Atkinson’s bankruptcy trustees were present. Mr Forsyth of ADF had been aware of the bankruptcy since 1 November: see his oral evidence give on 29 November 2010. He did not advise the plaintiffs of this until it was too late for the plaintiff to do anything about the changed circumstances.

d) It Thirdly , the final submissions of both the plaintiff and the ADF defendants specifically addressed the claim against Mr Atkinson: see Defendants’ Submissions on Interests and Costs dated 16 September 2010 at [54] and the plaintiff’s “ Reply to Defendants’ Supplementary Costs dated 26 November 2010” at [18] to [27] and, in particular, at [24] to [25]. The submissions on behalf of the ADF defendants included submissions on behalf of Mr Atkinson. Everything that could be put on behalf of Mr Atkinson was put. The submissions were prepared while ADF acted for Mr Atkinson.

e) The fact of the matter is that Mr Atkinson was represented by ADF at the hearing on 29 November 2010. To grant leave to ADF to cease to act for Mr Atkinson would, in effect, be inconsistent with the reality of what has in fact occurred.

f) Fourthly , ADF has acted for Mr Atkinson for the past six months while Mr Atkinson has been bankrupt. Mr Atkinson gave sworn evidence in that period. The defence to the proceeding was prosecuted on his behalf as was the cross claim in that period. Mr Atkinson had no authority to so instruct ADF. See Defendants’ Submissions on Notice of Ceasing to Act dated 30 November 2010 at annexure ‘C’ (bankruptcy trustees’ solicitors’ letter dated 26 November 2010). There is no principled reason why this six-month long state of affairs should not now continue until the entry of judgment. See UCP r 36.11(1) on the new procedure for the automatic computerised entry of judgment in the Court once the judgment on interest and costs which was reserved yesterday is delivered and formal orders are made to give effect to it.

The defendants’ submissions

8 In my view the defendants’ submissions are of substance. They were as follows:

i. On 26 November 2010 a Notice of Ceasing to Act was filed by Mr Forsyth with respect to Mr Atkinson and was served on the solicitors for the other parties to these proceedings (attachment "A").

ii. Whether the filing of the Notice of Ceasing to Act may have been irregular, in terms of UCPR r7.29, is irrelevant to any issue now before the Court.

iii. It is clear that Mr Atkinson is bankrupt, in consequence of an order made on a Creditors' Petition on 27 May 2010. That is confirmed by Mr Forsyth's bankruptcy search dated 1 November 2010 (attachment "B").

iv. Whether Mr Forsyth is or is not properly treated as the solicitor on the record for Mr Atkinson cannot alter Mr Atkinson's status as a bankrupt, nor the consequences of the bankruptcy for the purposes of these proceedings.

v. It is clear that the contract of retainer under which Mr Atkinson retained Mr Forsyth as his solicitor was terminated by Mr Atkinson's bankruptcy.

vi. It is clear that Mr Forsyth no longer has any authority to represent Mr Atkinson in the present proceedings or to instruct counsel on his behalf, whether or not a Notice of Ceasing to Act has been filed or has been validly filed.

vii. As the proceedings against Mr Atkinson concern a provable debt in his bankrupt estate, any authority to act on his behalf would have to emanate from his trustees in bankruptcy. Mr Forsyth holds no such authority.

viii. The position of the trustees in bankruptcy in relation to the proceedings is as stated by them in their solicitors' letter dated 26 November 2010 (attachment "C").

ix. For these reasons, the regularity of the filing of the Notice of Ceasing to Act in terms of UCPR r 7.29 is not a matter which requires resolution.

x. If it was a matter which required resolution, it should be held that the filing of the Notice of Ceasing to Act complied with r 7.29(2)(b); in that 7 days' notice was given (both to the trustees in bankruptcy and to Mr Atkinson), as is shown in paragraph 2 of the Notice.

xi. The proceedings yesterday were not a "trial" in terms of r 7.29(2)(a). "Trial" is defined by s.3 Civil Procedure Act 2005 to mean "any hearing that is not an interlocutory hearing" .

xii. On the contrary view, that the 28 day period prescribed by r 7.29(2)(a) is applicable, then leave should be given for the shorter period to apply in this case – to the extent that (contrary to the above submissions), there be any need for this to be done.

xiii. The 28-day period and the process prescribed by r7.29 is protective of the position of the client in cases of the withdrawal of a solicitor. It is not protective of the position of the other parties to the litigation.

xiv. As between Mr Atkinson and Mr Forsyth; in circumstances where Mr Atkinson did not inform Mr Forsyth of Mr Atkinson's bankruptcy and has not responded to Mr Forsyth's correspondence, it is appropriate that Mr Forsyth should be permitted to withdraw from representing Mr Atkinson, if Mr Forsyth so wishes.

9 In consequence the Court grants leave to Mr Forsyth to file a notice of ceasing to act.

The plaintiff’s claim for indemnity costs

10 The plaintiff's claim for indemnity costs was put on two broad bases. The first concerned a claim that offers of compromise had been served on various defendants in July 2003. There was also a contention from the plaintiffs that there were Calderbank offers which were served on 27 May 2009, 8 July 2009 and 23 March 2010.

11 The plaintiff’s evidence in relation to offers of compromise included the calling of Mr Claude Cassegrain in an attempt to establish a system of procedure in relation to the defendants said to have had offers of compromise which were posted to them. In relation to a number of the defendants, they denied having received those offers of compromise. Hence there was a dispute which on the one hand involved the plaintiffs camp identifying the system and asking the Court to infer that letters were posted and received, and on the other hand consisted of the giving of evidence by sundry defendants that they had never received such communications.

Dealing with the evidence given by the sundry witnesses

The evidence given by Mr Sarks

12 In my view the evidence given by Mr Sarks cannot be regarded as having been reliable. He endeavoured to give evidence that there was a system under which offers of compromise were to be sent to approximately 200 defendants. His own involvement in this exercise left a great deal to be desired. He himself had played no part in the sending out of offers of compromise. He had not personally put in place a system in respect of which offers of compromise could later be seen to have been sent out. He was only able to give second-hand evidence of having seen other persons prepare schedules. As to which defendants were served and when they were served that was a matter which he had nothing to do with.

The evidence given by Mr Thomas Cassegrain

13 Mr Thomas Cassegrain gave evidence that in July 2003 he was involved in an exercise involving the postage of bundles of envelopes to defendants in Court proceedings. His evidence was that he was from time to time asked to take bundles of envelopes down to the post office and to post them however he had kept no records of on what day he had sent out those envelopes. His evidence of what had happened left an enormous amount to be desired. On a number of occasions his evidence amounted to simply stating that he could not recall what had happened. He was able to give evidence that his father had kept records but he only saw those records on a later occasion.

The evidence given by Mr Claude Cassegrain

14 Mr Claude Cassegrain had given evidence of having witnessed the process of offers of compromise being prepared and posted. His evidence was that he gave them to his son and he also posted some himself.

15 He was heavily taxed by the cross-examiner as to whether or not there was any documentary evidence that he had sent remaining letters of compromise out and he accepted that there was no person who could corroborate what he was saying about having sent offers of compromise to the directors and Clayton Utz solicitors.

16 He did however give evidence that it had been a matter of importance in his mind that there was some record of what offers of compromise had been sent. His evidence was that he kept some such records of the offers of compromise that had been sent up to 22 July. His further evidence was that at 22 July, all remaining non-sent letters of compromise were posted so that he did not need to tick them off. He accepted that as a consequence it was correct to say that there was no record of any remaining offers of compromise being posted. [Although later Mr Cassegrain testified that out of the offers said to have been sent on 22 July, eleven were marked return to sender and ten of these were postmarked 22 July].

17 He did however keep some handwritten documents which he had marked exhibit CC 5 to his affidavit. This gave a record of the numbers which were posted. On a number of occasions Mr Cassegrain accepted that he could have made mistakes. Nevertheless, at the end of his cross-examination I formed the view that on the balance of probabilities most, but not all, of the offers of compromise which he gave evidence had been sent by him or through his son had indeed been sent. It will be apparent from the analysis below that in accepting the evidence of the defendants who maintained they never received the July 2003 offer of compromise, I necessarily reject, to a certain extent, Mr Cassegrain’s contention that he sent all of the July 2003 offers of compromise.

The evidence given by Mr Fredericksen

18 Mr Fredericksen under cross-examination in respect of whether or not he was able to remember seven years after the event whether or not he had actually received an offer of compromise was able to say on his oath without any equivocation whatsoever that he had never at any time had an offer of compromise delivered to his home by post. In my view that evidence rang true. He is accepted as a witness of truth.

The evidence given by Ms Michael

19 Ms Michael gave evidence that the first time that she became aware of the alleged offer of compromise made to her was when she received an e-mail from her solicitor prior to which she had no knowledge of the alleged offer of compromise, nor was she aware that any such offer was in existence. Her evidence was that she could honestly say that she had not received any such document even back in 2003. Her evidence was that she is quite ordered in her approach with things. She filed most things. She would have recalled receiving the document on which she was being cross-examined.

20 In my view her evidence should be accepted.

The evidence given by Mr Wardle

21 Mr Wardle was shown a notice of demand seemingly addressed to him and to be found in exhibit EP 95. He had no recollection of receiving that document. Nor did he have any recollection of receiving the document which he was shown being page 15 of CC1, which was a standard memorandum sent with all offers of compromise, headed “Personal & Confidential – Information Only – Ris Analysis/Farm – Without Prejudice”. While he was certain that there were documents which he had received in the course of 2003 that he did not recall receiving, nevertheless he did not recall receiving page 15 of CC 1. Furthermore, he did not recall receiving an offer of compromise – annexure A to his affidavit of 2 September 2010. He testified that there was no reason why he should have received it, since he had sent a letter to the then representative of ARF saying please send all future communications to his solicitors, but whether his then solicitors had a copy of it he did not know. [Mr Wardle deposed that his then solicitors never communicated with him about or mentioned the existence of the alleged offer of compromise]. Challenged that he may have received the above documents but could not now recall, he restated that he did not believe he received the documents. In my view his evidence should be accepted.

The evidence given by Mr Rowe

22 Mr Rowe had no recollection of receiving the document at page 13 of EP 95 – the cross-examiner actually called it BP95 but it is clear exhibit EP 95 was being referred to - being a letter of demand. His evidence was that it could not be the case that he saw that document during 2003. Likewise he had not seen the standard memorandum attached to all offers of compromise – page 15 of exhibit CC1 – during 2003. Mr Rowe deposed that he had only become aware of the July 2003 offer of compromise in May 2010, when his solicitor had alerted him to it. He is accepted as a witness of truth.

The evidence given by Ms Russo

23 Ms Russo could not recall receiving the letter of demand cross-examined on as exhibit EP95 page 15. The evidence was that she had been very vigilant with her records, both paper and electronic and she simply did not recall receiving that document. Nor could she recall having received the standard memorandum attached to all offers of compromise – page 15 CC1. On some four separate occasions Ms Russo gave evidence that she had not received the offer of compromise which was attached as annexure A to her affidavit of 1 September 2010. In my view her evidence should be accepted.

The evidence given by Ms Spyrakis

24 Ms Spyrakis was shown page 34 in EP95 being a letter of demand. She recalled receiving a summons and specifically recalled that the summons came after the letter of demand. Thus the witness agreed that she had received the letter of demand. Her evidence was that she had not received the standard memorandum attached to all offers of compromise - page 15 of CC1. Her evidence was that she had kept at home files of what she did receive and what the lawyers had as well. This document was not on her file. She testified that the offer of compromise was not on her files and had she received it she would have done something with it, as it looked like a legal document. She would have been concerned about it had she received it. Ultimately, her evidence was that she did not receive the offer of compromise. She is accepted as a witness of truth.

Evidence given by Mr Atkinson

25 Evidence was given by Mr Atkinson who was shown the summons which had been served on him during the course of 2003. When he received that summons he had sent it to the solicitors. He was also shown the document referred to as EP 95. He could not recall seeing it or getting it, but had he received it he would have passed it onto his solicitors.

26 His evidence was that although a number of other defendants received the standard memorandum attached to all offers of compromise - page 15 of CC1 - which they passed on to him, he himself did not receive such a document through the post. Likewise Mr Atkinson gave evidence that he did not receive a copy of the offer of settlement directed to him in 2003. The basis for him saying this was that he was named in the document and if he had seen this he would have recalled it. This in turn reflected that other farmers had received the offer of compromise and forwarded documents in similar terms to him. However, Mr Atkinson testified he never received an offer himself. In my view his evidence should be accepted as truthful.

The evidence given by Mr Long

27 Mr Long recalled having been served with a summons in these proceedings during the course of 2003 and that the summons had been delivered by mail. In being shown EP95 at page 27 and being a notice of demand addressed to him he thought that he may have received it. However in being shown the standard memorandum attached to all offers of compromise - page 15 of CC1 - he could not recall that document and having looked through his files recently he did not remember coming across that document even in his files at home or at his solicitor’s office.

28 His attention was drawn to the documents which were annexures A and B in his affidavit, being respectively an offer of compromise addressed to him and an offer of compromise addressed to himself and Mr David James Stewart. Mr Long accepted that that was the sort of document that had it been received would have been sent to his solicitors. However his evidence was that he had not received that particular document. His evidence was that he had looked through his documents at home and various files and that he had original prospectuses in those files and documents through the whole proceedings but that this particular document was not in those files. For that reason he concluded that he had not received the document. He was asked to accept that it was possible that he did receive the document in 2003 but no longer had any recollection of doing so and his answer was that this was a possibility because it was a long time ago but it certainly was not in the files that he had.

29 In my view his evidence should be accepted as truthful.

The evidence of Mr Giannuzzi

30 The evidence of Mr Giannuzzi was that he believed having received a summons but he could not recall thereafter receiving a letter of demand although there may have been some correspondence.

31 His further evidence was that he could not recall when Clayton Utz were appointed but he had not received the annexure set out in his affidavit being a letter of compromise. Under oath he swore that he had been through all of his files which were stacked high and that he was able to say that he had not received the offer of compromise, being annexure A to his affidavit.

32 In my view he should be accepted as a witness of truth.

The finding as to service of the July 2003 offers of compromise

33 In the above, I have accepted the evidence of each of the defendants who gave evidence that they did not receive the July 2003 offers of compromise addressed to them. I thus only accept that Mr Claude Cassegrain caused most, but not all, of the offers of compromise to be sent.

34 It follows that the plaintiff’s indemnity costs argument based on the July 2003 offer fails in relation to all of the defendants who gave evidence that they did not receive the offer.

35 Additionally, ARF does not seek to rely on the July 2003 offers of compromise against Mr Brakatselos and Mr Holmes, because the sum offered in the offers of compromise addressed to them was more than the sum for which they are liable for under the final judgment. [Relevant here is Annexure A to the affidavit of Mr Patakas of 1 September 2010 (No 2), which shows that at 4 July 2003 the debt claimed by ARF against Messrs Brakatselos and Holmes in relation to loans on which ARF has succeeded was less than the offer of compromise made by ARF at that date].

36 The only defendant for which the plaintiff’s claim for indemnity costs based on the July 2003 offers of compromise needs to be considered is Mrs Wallace.

37 Mrs Wallace was able to locate a copy of the offer of compromise dated 4 July 2003 in her papers and produced it under a notice to produce issued by the plaintiff. Her counsel submitted that no admission was made that Mrs Wallace had received the offer at the time alleged by the plaintiff. This submission is rejected. The appropriate inference - with Mr Cassegrain’s evidence as to the system for posting offers accepted as generally reliable - is that Mrs Wallace received the offer of compromise at the time alleged by the plaintiff.

Was the July 2003 offer valid under the relevant rules?

38 The form of the alleged offers state that they are made in accordance with Part 22 of the Supreme Court Rules, as they were then in force, as Rule 1A (2)(b) required. The defendants submitted that they were not “in accordance with” that Part of the Rules.

39 In the purported offers the plaintiff offers to compromise the claims in question on the terms that:

i. The relevant defendant pay to the plaintiff a specified sum, being 75% of the amount claimed in the plaintiff’s Summons including interest to the date of the offer;

ii. A specified amount in relation to costs.

40 In Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 1126 Nicholas J interpreted the rules which are presently in question as follows:

[10] An offer inclusive of costs is not an offer of compromise in accordance with Pt 22 r 2 to which Pt 52A r 22 applies. This, in my opinion, follows from the decision of Giles J in Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349, in which he said (p 351G):

There is, I think, a readily seen reason why that should be so. If the impact of costs upon an offer had to be borne in mind then whenever a court was required, in order to give effect to Pt 52 r 17(4) or r 17(5), to determine whether the offer was more favourable or less favourable than the result of the proceedings it would be necessary to indulge in a taxation of costs. That is simply not practicable.

[11] Consistently, in my opinion, an offer which includes a specified amount for costs should not be considered differently, and is not an offer of compromise under Pt 22 r 2. Furthermore, since that decision the position has been made quite clear. Part 22 has been amended to establish a scheme which distinguishes between an offer to compromise a non-costs claim (Pt 22 Div 1) and an offer to compromise a costs claim (Pt 22 Div 2). The result is stated in Ritchie’s Supreme Court Procedure NSW para 52A.22.7, correctly in my view, that where it is desired to achieve a compromise in relation to both the principal claim in the proceedings and costs a separate “costs offer” must be made in accordance with Pt 22 r 10. Such an offer may be made either at the same time as the principal offer or at any time before delivery of the other party’s bill of costs.

41 In Gibbons the plaintiff offered to settle the matter on the basis that the defendant pay the plaintiff’s claim in full and a specified amount in relation to costs. Nicholas J held the offer did not attract the application of Pt 52A r 22 as inter alia it included a specified amount for costs.

42 In the present case the plaintiff’s offer included a specified amount for costs and thus, on the above reasoning, was not an offer of compromise under Pt 22r 2. Accordingly, no entitlement to indemnity costs could arise under Pt 52A r22(4).

43 I further note that comments in the recent decision of Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141, concerning similar issues under the Uniform Civil Procedure Rules, support the above reasoning. In that case, Giles JA, Handley AJA and Whealy J held that:

ii. [Rule 20.26.2 of the UCPR, which states that “an offer must be exclusive of costs …”] is part of an offer of compromise regime first found in the Supreme Court Rules 1970 (NSW). It can be seen as reflecting the judicial interpretation of Pts 22 and 52 of those Rules.” [At [17]].

ii. “It has been held that an offer of a money sum and an identified sum for costs falls foul of r 20.26(2): Penrith Rugby League Club Ltd Trading as Cardiff Panthers v Elliot (No 2) [2009] NSWCA 356; Tarabay v Fifty Property Investments Pty Ltd [2009] NSWSC 951.” [At [27]].

44 In the present case, the plaintiff did not make a “costs offer” separate to its offer to compromise the principal claim. In my view, this option was not open to the plaintiff since Pt 22 rule 10 permits a defendant to make a separate costs offer. It follows that I do not accept the plaintiff’s submission that it could rely on Pt 22 rule 10.

Were the July 2003 offers effective as Calderbank offers?

45 The plaintiff raised an alternative argument that the July 2003 offers should operate as Calderbank offers upon which the plaintiff could rely in order to support an order for indemnity costs as from the date of those offers on a discretionary consideration.

46 In Trustee for theSalvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194, Ipp JA, Mason P and McColl JA agreeing, held that:

Whether an offer, intended to be an offer under the Uniform Civil Procedure Rules but which is ineffective because it does not comply with those Rules, operates as a Calderbank offer, depends upon the intention of the offeror as revealed by the terms of the offer. The offer may disclose an intention that it should take effect only if it complies with the Uniform Civil Procedure Rules . On the other hand, it may disclose a general intent to make an offer, irrespective of whether it takes effect under the Uniform Civil Procedure Rules or not.

47 In Trustee for the Salvation Army, the offer explicitly stated that it was intended to offer as a Calderbank offer if it did not comply with the relevant rules. In the recent case of Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141, Giles JA, Handley AJA and Whealy J held in relation to the offer in question, at [33]-[34]:

[33] The offer was explicitly an offer of compromise under r 20.26. Unlike the offer considered in Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) , it was not said that it was intended to operate as a Calderbank offer if it was ineffective under the rules. The statement that the letter that the offer would be relied on in support of an application for indemnity costs did not go beyond affirming that costs would be claimed under the offer of compromise regime in the rules.

[34] The intention must be made clear. It would be unfair for a party to be subject to the consequences of a Calderbank offer if it was not made clear that the offer should be treated as such. A party receiving an offer of compromise apparently made under the rules should be entitled to decide whether or not to accept it according to the offer of compromise regime in the rules, including deciding whether or not it is an effective offer of compromise.

48 In the present case the offer of compromise was stated to be made “in accordance with Part 22 of the Supreme Court Rules”. There was no explicit statement that the offer was to operate as a Calderbank offer if it did not constitute a valid offer under the Rules. Thus on the above authorities the offer cannot be relied upon as constituting a Calderbank offer.

Turning to the subsequent Calderbank offers

49 The plaintiff contends in the alternative that the defendants should be held liable for indemnity costs of the proceedings based on any of three Calderbank offers made by it, dated 27 May 2009, 8 July 2009 or 23 March 2010.

The Calderbank offer of 27 May 2009

50 The defendants contend that this offer was made in the context of the Court-ordered mediation held on 18, 19 and 26 May 2009 and as such is inadmissible.

51 Section 30 of the Civil Procedure Act 2005 provides:

(1) “In this section, mediation session includes any steps taken … in the course of the follow-up of a session” [in general under s 25 a mediation session is defined as “a meeting arranged for the mediation of a matter”]...

(4) Subject to section 29(2) [which is not presently relevant]:


(a) evidence of anything said or of any admission made in a mediation session is not admissible in any proceedings before any court or other body, and

(b) a document prepared for the purposes of, or in the course of, or as a result of, a mediation session, or any copy of such a document, is not admissible in evidence in any proceedings before any court or other body.

52 In Azzi & Ors v Volvo Car Australia Pty Ltd (Costs) [2007] NSWSC 375, Brereton J held that s. 30(4) of the Civil Procedure Act had effect notwithstanding s.131(2)(h) of the Evidence Act 1995. The effect of s.30(4) is therefore that it:

"excludes from admissibility (not only on the question of costs, but at all) evidence of what transpires at a mediation session. That it extends to proceedings in respect of costs is plain enough on its face: the provision says that such evidence is not admissible in any proceedings, any court or other body” (at [13]).

53 Similar issues to the present question were dealt with by Bergin J (as Her Honour then was) in Sharjade Pty Ltd v RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd [2008] NSWSC 1347. In that case, the parties left a mediation at 5pm on the day in question, and the mediator did not say at the conclusion of that meeting that the mediation was at an end, nor did the mediator notify the Court pursuant to r 20.7 of the Uniform Civil Procedure Rules 2005. That Rule provides:

20.7 Notification of conclusion of mediation

Within 7 days after the conclusion of the mediation, the mediator must advise the court of the fact that the mediation has been concluded.

54 One and a half hours after the parties left the meeting with the mediator, it was claimed a Calderbank offer was made by the second defendant to the plaintiff. The plaintiff contended the offer was inadmissible under s 30(4) of the Civil Procedure Act 2005.

55 Bergin J noted at [28]:

There is no definition of the term “the follow-up of a session” as used in s 30(1) of the Civil Procedure Act . It is a rather loose term and where the Court does not know, as a fact, the time and date on which the mediation was “concluded” because r 20.7 has not been complied with, it is very difficult to know whether communications were part of a follow-up of a mediation session.

56 In Sharjade there was unchallenged evidence that the offer in question was a document that the plaintiff’s representative had asked the second defendant prior to the mediation meeting concluding to put in writing so that he could see the details and take legal advice. Bergin J concluded in the circumstances that it was a document prepared in the course of and/or “as a result of” a mediation session.

57 In the present case, the offer of 27 May 2009 by the plaintiff appears at pages 21-23 of Exhibit EP 96. Importantly, the offer was made in the following terms “Further to the individual offers made by several of your clients [the defendants] yesterday at the continuation of the mediation we advise that were are instructed that those offers are rejected and our clients makes [sic.] the counter offers of settlement set out in the enclosed schedule”. The schedule was headed “without prejudice mediation purposes only”.

58 In the present case the mediator did not file a notice r 20.7 as to the conclusion of the mediation. This highlights the relevance of Bergin J’s recommendation in Sharjade at [22] to amend r 20.7 to require the mediator to notify the Court of the time and date on which the “mediation” session commenced and concluded.

59 Mr Patakas, solicitor for the plaintiff, deposed, in reply to the defendants’ contentions, that the mediation concluded on 26 May 2009 when a follow up mediation conference took place between the parties’ legal representatives after the mediation held on 18 and 19 May 2009. I will assume this is correct for present purposes.

60 It is important to bear in mind that a “mediation session” is defined for the purposes of section 30 to include any steps taken in the course of the follow up of a session. Thus the definition of “mediation session” actually includes some steps taken after the relevant meeting arranged for the mediation has taken place.

61 In all of the circumstances, I am of the view that the offer of 27 May 2009 was a document prepared for the purposes of, or in the course of, or as a result, of the mediation session concluding on 26 May 2009. Thus the document is not admissible in the present proceedings.

62 It will be apparent that I do not accept the plaintiff’s submissions in this area, which were essentially that the mediation session had ended on 26 May 2009 and nothing beyond that date should be regarded as privileged. The above conclusion does not impermissibly extend the concept of “steps taken in the course of the follow up” of a mediation session.

The Calderbank offer of 8 July 2009

63 This offer appears at pages 40-50 of exhibit EP 96.

64 The relevant inquiry is again whether this document was prepared for the purposes of, or in the course of, or as a result of, a “mediation session” (which is defined to include any steps “taken in the course of the follow up of a session”), such that it is inadmissible under s 30(4)(b).

65 The defendants contend that this offer is inadmissible on the basis that the “mediation session” was still ongoing at this point.

66 It is thus necessary to consider when the relevant mediation session ended.

67 The relevant considerations are as follows:

i. The orders made by me on 31 March 2010 referred the proceedings to mediation to occur “on or before 31 May 2010” (Exhibit EP 101 at p72).

ii. No one appeared before the mediator after the 26 May 2009 meeting and the mediator did not render a fee for acting as mediator after that date.

iii. However, the plaintiff conceded that for several weeks after 26 May 2009, the mediator liaised with Senior Counsel and solicitors for each party, at his own instigation, to ensure that those settlements which were reached at the mediation before him were documented and consummated. I accept that this is generally a fair characterisation of the mediator’s ongoing involvement. Importantly however, post the 26 May 2009 meeting, it is clear from the correspondence that the parties were still negotiating the terms of settlements, and offers and counter-offers were made.

iv. Specifically, the mediator’s involvement was as follows:


a) The mediator, Mr Ellicott QC, was copied into a facsimile of 17 June 2009 from Clayton Utz, the defendants’ then solicitors, to the plaintiff’s solicitors. That documented set out the status of offers and counter-offers that had been made between the parties. Clayton Utz noted “On 15 June 2009, we were informed by Mr Ellicott QC [the mediator] that he had spoken with your client’s senior counsel, Mr Fagan, in relation to the Postal D proposal [an offer of compromise made by the defendants] and expressed the view he believed it to be reasonable”. In relation to defendants who had made separate offers of settlement during mediation, the facsimile noted “in respect of the following defendants, further information was provided by Mr Ellicott to Mr Fagan on 15 June 2009 for further consideration and we note that Mr Fagan is to refer to Mr Ellicott by Thursday 18 June 2009”.

b) Mr Ellicott was copied into another letter of 7 July 2009 from Clayton Utz to the plaintiff’s solicitors, where Clayton Utz stated, in relation to not receiving the plaintiff’s response to offers of compromise from individual defendants, “on 2 July 2009, Mr Fagan confirmed with Mr Ellicott QC that he had settled this letter [ie. the plaintiff’s response being sought by the defendants]”.


v. The Clayton Utz letter of 7 July 2009 appears to have been followed in terms of chronology by the plaintiff’s letter of 8 July 2009 containing the offers of compromise now in question. The stated purpose of that letter was to convey offers of settlement in respect of each of the defendants to whom the Clayton Utz letter of 17 June 2009 had referred.

vi. As the plaintiff correctly submitted, the concept of “the follow up of a session” cannot be stretched indefinitely to cover all offers of compromise made after a mediation.

68 In my view the facsimile of 8 July 2009 containing the relevant offers was not a document prepared for the purposes of, or in the course. of or as a result of, a mediation session. Thus the document is admissible in these proceedings.

Exercising the relevant discretion in relation to the Calderbank offer of 8 July 2009

69 In all of the circumstances, I do not think that the plaintiff is entitled to costs on an indemnity basis after 8 July 2009. In the very unusual circumstances of this case, the principled exercise of the relevant discretion is to order that the defendants pay the costs of the plaintiff of and incidental to proceedings on the summons, and also the costs of the two cross-defendants of the proceedings on the cross-claims (the plaintiff and OAL), on the usual basis.

The Calderbank letter of 23 March 2010

70 The parties were in disagreement as to whether a purported Calderbank letter of 23 March 2010 could be relied upon by the plaintiff, who attempted to utilise the letter to gain an indemnity costs order from that date. Even assuming that the letter constituted a valid offer, I am of the view that the above outlined exercise of the relevant discretion, namely that the defendants pay the plaintiff and OAL’s costs on the usual basis, remains appropriate. Thus it is unnecessary to further consider the March letter.

Should per defendant costs orders be made?

71 The defendants contend for an order that the costs payable by them should be ordered on the basis that each defendant is to pay:

i. any costs of the plaintiff referable to his or her case exclusively; and

ii. his or her proportion of costs other than costs referred to in paragraph (i) worked out on a per defendant basis by reference to the number of active defendants at any one time.

72 The plaintiff contends that the appropriate order is that the defendants be jointly and severally liable for the plaintiff’s costs.

73 In Rushcutters Bay Smash Repairs Pty Ltd v H McKenna Netmakers Pty ltd & Ors [2003] NSWSC 670 Gzell J examined the relevant principles concerning orders for costs against two or more unsuccessful defendants. His Honour stated, inter alia:

[2] Ordinarily, costs will follow the event and, ordinarily, an order for costs made against two or more defendants is joint and several as between them ( Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660 at 663). The justification for the joint and several liability is that a plaintiff as the successful party is, prima facie, entitled to its costs of the action and if one of the unsuccessful defendants is unable or unwilling to meet its share of the obligation, the misfortune should be that of the "partners in crime" and not that of the plaintiff ( Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201 at 210). …

[12] I do not understand his Honour to mean by the expression "partners in crime" that there must be some delinquency in which the defendants are jointly involved beyond a finding against them in favour of the plaintiff before the conventional order should be made. His Honour's use of inverted commas clearly indicates a metaphorical use of words.

[13] In Mike Gaffikin Marine Pty Ltd v Princes Street Marina Pty Ltd (unreported, Young J, 15 July 1996) his Honour, having observed that orders for costs against two or more defendants are both joint and several, went on to say that the Court could make an order for costs to some other effect but it would usually only do so if there were some special circumstances, citing Nicholas. His Honour said a Court ordinarily would not do so if the defendants could, in a practical sense, be considered "partners in crime." The reason was that if one defendant should, for instance, become insolvent it was a more just solution that the other defendant should pay the costs, rather than the loss fall on the successful party.

[14] In Thiess Watkins White Construction Ltd (in liq) v Witan Nominees (1985) Pty Ltd [1992] 2 Qd R 452 at 454, Cooper J said that the general rule that costs against two or more persons are joint and several should not be disturbed unless, and only to the extent that, one defendant conducted a separate and distinct defence that incurred costs that could not be attributed to the joint conduct of the defendants in the defence of the action.

74 The decision in Probiotec Ltd v University of Melbourne (2008) 166 FCR 30 highlights the discretionary nature of the Court’s power to award costs, including where a plaintiff has succeeded against multiple defendants. In that case, at [56] Rares J rejected the existence of a hard and fast rule that in such circumstances defendants are not severally liable for costs caused by a separate defence only applicable to another defendant. At [91] Besanko J held:

… when considering the appropriate order as to costs in the case of two or more unsuccessful respondents it is appropriate to consider not only whether one respondent has put forward a separate defence but also any other factors relevant to that respondent’s conduct and the effect of that conduct on the incurring of costs by the applicant.

75 The defendants put forward the following points in support of their contention:

i. The defendants seek to invoke a “rule of thumb” I referred to in Currabubula & Paola v State Bank of New South Wales [2000] NSWSC 232 at [95]. However that rule is applicable where a defendant is partially successful and partially unsuccessful, and is accordingly not applicable in the present case where the plaintiff has succeeded against all defendants.

ii. The defendants distinguish the case of Australand Corporation (Qld) Pty Ltd v Johnson & Ors [2007] QSC 128 wherein at [14] McMurdo J held that it was not appropriate to make an order that each of the wholly unsuccessful defendant be severally liable for a specified proportion of the plaintiff’s costs. Essentially, I am of the view that such comparisons are of little use to the task at hand.

iii. The defendants contend that to avoid double recovery of costs, any claim the plaintiff makes for costs will need to have regard to those costs referable to any defendants with whom it has settled for an amount inclusive of costs. I deal with this point below.

76 The following are among the factors relevant to the exercise of the discretion to award costs:

i. In the first interlocutory judgment given at the beginning of the trial (2010 NSWSC 311), there were issues relevant only to particular defendants. However, there were also significant issues of relevance to all active defendants.

ii. In the second interlocutory judgment given during the trial (2010 NSWSC 425) there were issues of very significant commonality to all active defendants.

iii. At trial the defendants put forward a two-pronged case:


a) All the active defendants ran a Contracts Review Act case. That case had very significant areas of commonality amongst the active defendants.

b) Some but not all of the active defendants contended that they were punctual in making relevant payments. It is true that this involved a consideration of the particular circumstances of individual defendants. But in my view this part of the case still involved significant areas of commonality.

77 The plaintiff raised the following valid point against the making of the costs orders sought by the defendants. None of the defendants against whom the plaintiff has settled, or the one defendant against whom judgment has been obtained (in the Test Case), has had the benefit of a costs order to only pay their proportionate costs of the case. Rather, defendants who have settled have apparently accepted a liability for “the costs of the summons” and “the costs of the cross-claim”. Thus the plaintiff informs me that the costs orders against such defendants remain to be assessed. I agree that it is too late to make the costs orders sought by the remaining active defendants when the vast majority of other defendants have become liable for ordinary costs orders. Additionally, the orders sought by the active defendants would involve a denial of procedural fairness to the non-active defendants who have not been heard on this question.

78 In all the circumstances, the principled exercise of the relevant discretion is not to accede to the special costs order sought by the defendants. Instead, the defendants should all be liable on a joint and several basis for the plaintiff’s costs. As stated above, I order that the defendants pay the costs of the plaintiff of and incidental to proceedings on the summons, and also the costs of the two cross-defendants of the proceedings on the cross-claims (the plaintiff and OAL), on the usual basis, not an indemnity basis.

79 There is one potential qualification to the last paragraph. The defendants highlighted the possibility that under some of the settlements which have already occurred, the plaintiff may have been paid an amount inclusive of costs. [I have not been told this has actually occurred, and thus the following may be moot]. However if it has occurred, the consequence would be that the plaintiff had already recovered certain amounts for costs, and without an appropriate adjustment, there could be a double recovery of such costs.

80 The defendants relied on Morris v Riverwild Management Pty Ltd [2009] VSC 439, where it was held inter alia at [6] that there is a well-established principle against double recovery. In Morris, various settlements were entered into that were inclusive of costs. Only Mr Morris, as a result of his settlement, was left with an obligation to pay costs. At [8] it was held that the costs sought against Mr Morris should not be recoverable to the extent that those costs were referable to, and part of, the costs comprised in the other settlements.

81 In my view the double-recovery issue can be dealt with simply by ordering that any costs which the plaintiff has already recovered by way of settlements inclusive of costs must be subtracted from the costs that would otherwise be assessed as being recoverable by it against the defendants.

82 There is the issue of how any amounts for costs included in existing settlement agreements will be quantified, if such agreements do not express a specific amount referable to costs. In my view, if there are any existing settlements for an amount inclusive of costs, and the amount referable to costs is not expressed, the relevant officer will have to determine what part of such a settlement was referable to costs. The amount referable to costs in any such existing settlements will then be subtracted from the amount of costs that would otherwise be recoverable by the plaintiff against the defendants.

Costs orders sought by particular defendants against the plaintiff

83 The defendants Ms Michael, Mr Rowe, and Mr Fredricksen claim indemnity costs from the plaintiff from certain dates on which they made offers to the plaintiff. Ms Spyrakis also deposes to an offer which could be utilised to seek indemnity costs.

Mr Rowe

84 Mr Rowe deposes that on 2 May 2010 he instructed his solicitor, Mr Forsyth, to offer to settle the plaintiff’s claim on the basis that he would pay 100% of the plaintiff’s claim plus the costs of the plaintiff and OAL assessed on an ordinary basis. Mr Forsyth accordingly wrote to the plaintiff’s solicitors on 2 and 3 May 2010.

85 Mr Patakas, solicitor for the plaintiff, deposes [EP5 at [7]] that these offers were not accepted, as it was qualified as to the cost order, and he had a conversation on 4 May 2010 with Mr Forsyth where he stated that his client would only accept an offer under which the relevant defendant was to pay costs of the plaintiff as agreed or assessed.

86 In the circumstances, including that the offer in question was made well into a major trial, I find Mr Rowe is not entitled to indemnity costs.

Ms Michael

87 Mr Forsyth deposes that on or about 2 May, he communicated an offer from Ms Michael to the plaintiff to settle the plaintiff’s claim against her on the basis that she would pay 100% of the claim plus the plaintiff and OAL’s costs assessed on the ordinary basis.

88 Mr Forsyth deposes that he did not receive a response until a discussion on 12 May with Mr Patakas where Mr Forsyth deposes that Mr Patakas said the offer was rejected, as his client would only settle if Ms Michael paid 100% plus indemnity costs. Mr Patakas denies that he did not respond until 12 May, saying he replied on 4 May. He denies that he stated his client would only accept an offer of indemnity costs, instead deposing as outlined in the next paragraph.

89 Mr Patakas deposes that the offer of 2 and 3 May 2010 was not accepted, as it was qualified as to the cost order, and he had a conversation on 4 May 2010 with Mr Forsyth where he stated that his client would only accept an offer under which the relevant defendant was to pay costs of the plaintiff as agreed or assessed.

90 Ms Michael deposes that an offer of compromise was made on her instructions to the plaintiff on 13 May 2010, the offer amount being calculated as an amount somewhat in excess of her calculation of the claimed loan balance at 31 May 2010. Ms Michael deposes this offer was not accepted by the plaintiff. This was an offer under Pt 20 Division 4 of the Uniform Civil Procedure Rules 2005.

91 Mr Patakas, deposes as to various matters concerning this later offer, including the limited time allowed to reply.

92 Ultimately, in relation to the offer made on 2 May, I am of the view that Ms Michael is not entitled to indemnity costs.

93 In relation to the offer of 13 May 2005 made under the rules, even assuming the offer was valid (the plaintiff submits it was not), and that the judgement obtained by the plaintiff was as or less favourable to the plaintiff than the offer, I would order otherwise under r 42.15(2), such that Ms Michael would not be entitled to indemnity costs against the plaintiff.

94 The offer of 13 May 2010 could not operate as a Calderbank offer since it was not expressed to be intended to operate as such if it was not a valid offer under the rules: see Dean v Stockland, as extracted above.

Mr Fredericksen

95 Having regard to the affidavit of Mr Forsyth, Mr Fredericksen’s solicitor, it is apparent that there was an offer, initially communicated orally by Mr Forsyth to Mr Patakas, the plaintiff’s solicitor, on 13 May 2010, that is in issue. The solicitors for both sides appear to be in disagreement as to various circumstances surrounding this offer.

96 I am able to put the factual differences between the two solicitors to one side. There is no controversy that the offer was communicated initially on 13 May 2010 in a conversation between Mr Forsyth and Mr Patakas. I am of the view that in the circumstances Mr Fredricksen is not entitled to indemnity costs against the plaintiff on the basis of the offer.

Ms Spyrakis

97 Ms Spyrakis deposes that her solicitors made an offer of compromise on her behalf on 13 May 2010, the offer amount calculated as being an amount somewhat in excess of her calculation of the balances owing on her loans as at 31 May 2010.

98 Mr Patakas admits he received the relevant letter on 13 May at 4.49pm, the letter stating that the offer contained therein expired by 2pm on 17 May 2010, that is some 1.5 business days after receipt of the letter.

99 Mr Patakas deposes that the ARF was unable to respond to the offer in the relevant time since closing submissions were to occur on 18 and 19 May 2010 and it raised new issues as to the interest payable, meaning he accordingly wrote to the defendant solicitors on 17 May 2010 complaining about the new issues raised and the limited to reply.

100 The offer made on behalf of Ms Spyrakis was expressed to be made in accordance with Part 20 Division 4 of the Uniform Civil Procedure Rules 2005. Even assuming that the offer was valid, and that the judgment obtained by the plaintiff was as or less favourable to the plaintiff than the offer, I would order otherwise under r 42.15(2), such that Ms Spyrakis would not be entitled to indemnity costs against the plaintiff.

101 The offer of 13 May 2010 could not operate as a Calderbank offer since it was not expressed to be intended to operate as such if it was not a valid offer under the rules: see Dean v Stockland, as extracted above.

Dealing with the interest question

102 In what follows the Court adopts as correct the defendants’ position in relation to the principled approach concerning the interest payable on the principal outstanding under the loans which are the subject of these proceedings.

103 In Exhibit "EP 92" to the affidavit of Evangelos Patakas sworn 1 September 2010, the plaintiff sets out its calculation of interest payable on the principal outstanding under the loans which are the subject of these proceedings, on a number of different bases.

104 In general terms, the plaintiff has claimed the following:

(a) The principal amount outstanding under the subject loan agreements as reduced by the principal repayments made during the term of the loans. Typically, principal repayments were made approximately three months following the entry into the loan agreement by the defendants;

(b) Interest from the date of the loan at the rate of 10.5% per annum, compounding alternately, annually or monthly until termination (which occurred on 4 January 2003); and
(c) After termination of the Projects and the calling up of all the loans, compound interest at the rate of 10.5% per annum from the date of termination to date, such interest compounding alternately annually, monthly or daily.

105 The plaintiff’s current position is different from the position it has maintained to date in these proceedings in that it has now, for the first time, claimed interest prior to termination on the basis described above, whereas previously its claim was for interest at the lower contractual rate (ie 7.57% or 8.5% per annum) compounding annually on 30 June in each relevant year. Further, the plaintiff has now for the first time, claimed interest after termination, compounding on a daily or monthly basis; whereas until now it had claimed interest compounding on an annual basis. In this regard, see the affidavit of Evangelos Patakas sworn 29 April 2010.

The defendants’ position on this issue

106 The defendants’ position on this issue as follows:

(a) The lower contractual rate of interest (7.57% or 8.5% per annum) is payable in accordance with clause 3 of the various loan agreements until termination (on 4 January 2003), with such interest compounding annually on 30 June each year commencing from the third year of the loan (the first two years of interest having been paid in advance).

(b) From 4 January 2003, upon termination having occurred, the provisions of clause 3 no longer apply and the position is dealt with in clause 5.2 of the loan agreement. That clause, which in its terms applies "notwithstanding anything contained in this agreement", provides for simple interest to be paid at the rate of 10.5% per annum.

(c) Helpfully the defendants have set out the relevant provisions of the loan agreements (ignoring some typographical errors in the originals). Those provisions are in turn to be found at the end of these reasons.

Interest before termination

107 The relevant provisions of the subject loan agreements are:

(a) Under clause 3.1, interest is chargeable on the Principal Sum outstanding from time to time at the rate of 10.5% per annum payable monthly in advance.

(b) Clause 3.1, providing for a rate of 10.5% per annum, is however expressly "subject to clause 3.2 and 3.3 below" .

(c) For the first year, by clause 3.2, the rate is reduced to the lower rate, 8.5% per annum or 7.75% per annum (as the case may be), in consideration of the Borrower paying interest in advance on the execution of the agreement. Invariably this interest was paid.

(d) For the second year, by clause 3.3.(a)(i), the rate is reduced to the lower rate, in further consideration of the Borrower paying interest for the second year in advance on a designated date. In the case of some defendants, this interest was paid on time and in other cases it was not paid on time.

(e) For the third and subsequent years, by clause 3.3(a)(ii), the rate is reduced to the lower rate, in consideration of the Borrower paying interest under clause 3.3(b) or (c). Only clause 3.3(b) is applicable to the defendants.

(f) Under clause 3.3(b), interest following that payable for the first two years was to be paid out of the proceeds of the sale of tea tree oil. No such proceeds were in fact ever obtained.

(g) Under clause 3.4, any interest which became due and payable "during the previous 12 months" and was not paid by 30 June of that year: "will be capitalised so as to form part of the Principal Sum then outstanding" .

108 Accordingly, clause 3 deals with the position prior to termination and provides a regime whereby compound interest is provided for under clause 3.4 but not otherwise.

109 The pre-termination position therefore is that, in consideration for the Lender reducing the rate from 10.5% per annum to 8.5% (or 7.75%):

(a) the Borrower agreed to pay interest for the first year, in advance and on the execution of the agreement (clause 3.2);

(b) the Borrower agreed to pay interest for the second year in advance (cl. 3.3(a)(i)); and

(c) the Borrower agreed to pay interest for the third and subsequent years, either out of the proceeds of the sale of oil or in cash, failing which the interest was to be capitalised (cl.3.4).

110 As noted above, invariably the interest payable on execution of the agreement was paid. As for the interest for the second year that was payable pursuant to clause 3.3(a)(i), such interest was in the case of all the defendants paid, albeit as the Court has found in some cases not punctually. However, in such cases, there has been no suggestion that this default ever grounded any calling up of a loan by the plaintiff, under clause 5.2 or otherwise. It is common ground that no loan was accelerated by reason of any payment of interest being unpunctual (as the Court has now held it was).

111 The plaintiff now contends (in the case of all defendants) that interest is payable at the higher rate – 10.5% per annum – from the date of the loan advance.

112 That contention cannot be reconciled with the language of the loan agreements.

113 10.5% per annum is the post-termination rate, by reason of clause 5.2. Pre-termination, the rate is prescribed in clause 3.

114 For the first year's interest, the rate is the lower rate, by reason of clause 3.2. For the second and later years, the rate is again the lower rate, by reason of clause 3.3.

115 While clause 3.1 prescribes a rate of 10.5% per annum, it is "subject to clauses 3.2 and 3.3 below". These clauses are themselves overridden – but only post-termination – by clause 5.2, which applies "Notwithstanding anything contained in this agreement".

116 Thus, it is only after "the Lender elects to call up the whole of the Principal Sum …", under clause 5.2, that by the combined operation of clause 3.1, 3.2, 3.3 and 5.2, the higher rate of 10.5% per annum is applicable.

117 The plaintiff contends that the lower rate of interest is applicable only if the Borrower complies with obligations as to punctual payment of interest. There is nothing in the language of the loan documentation to support that interpretation.

118 It is noteworthy that the form of drafting in the loan documentation now under consideration is not in accordance with that in common usage, such as in Kowalczuk v Accom Finance [2008] NSWCA 343, whereby there is a defined "higher rate" and a "lower rate"; and the "higher rate" is payable if payment is not made within 7 days of the due date.

119 That the plaintiff’s current interpretation of the documentation does not accord with its natural and ordinary meaning is also shown by the way in which the parties actually performed their agreement. For example, in the letters preceding the making of the formal demands on 6 January 2003 each defendant was invited to make payment before the loans were called up for default and the amounts sought were amounts which incorporated interest at the lower contractual rate.

120 Likewise, it is evident that the plaintiff's current interpretation of the loan documentation in relation to compound interest does not accord with the natural and ordinary meaning of the documents. The plaintiff’s own evidence shows such an interpretation to be contrary to legal advice it obtained for the purpose. In particular, in evidence is a letter dated 8 April 2009 from the plaintiff’s solicitors to the defendants’ then solicitors. The plaintiff’s solicitors stated that having sought senior counsel’s advice they accepted that the lower contractual rate applied prior to 4 January 2003 and that it compounds annually. The plaintiff is now putting forward a range of submissions at odds with this concession.

121 Furthermore, the summons in these proceedings claims the various principal amounts including interest capitalised at the lower rate together with a future daily rate for interest (at the higher rate). Accordingly, what the plaintiff is now seeking amounts to an application for the amendment of the summons after the hearing and the final reasons for judgment.

122 There is no justification within the terms of the contractual documentation for the imposition of compound interest upon any other basis than that the subject of express stipulation in clause 3.4, which clearly in its terms contemplates compounding on an annual basis and in the particular circumstances referred to in that clause. The compounding which clause 3.4 provides for is annual (not monthly) compounding. That is because:

(a) interest is payable at a per annum and not a per month basis; and

b) the clause refers to interest which has accrued "during the previous 12 months" , which has not been paid "by 30 June at the end of that year" .

Interest after termination

123 After termination, which is to say after 4 January 2003 (when the plaintiff made demand for all the outstanding loans), clause 5.2 became applicable, so that: "… if the Lender elects to call up the whole of the Principal Sum remaining outstanding pursuant to any default by the Borrower, interest on the whole of the Principal Sum shall then be calculated at the rate of 10.5% per annum …".

124 That provision as to the calculation of interest after termination, is expressed to apply:

"Notwithstanding anything contained in this agreement …".

125 Thus, the specific (and any implied) provisions of clause 3, dealing with the pre-termination interest regime and allowing then for the capitalising or compounding of interest are expressly inapplicable to the post-termination position.

126 Where clause 5.2, makes interest payable on the "Principal Sum", it uses that term in the manner defined in Recital D of the loan agreement. That Recital states that the "Principal Sum" is the sum set out in item 2 of the Schedule to the loan agreement "including capitalised interest as provided in clause 3.4".

127 Accordingly, for the purpose of clause 5.2 of the loan agreement, the Principal Sum is the initial Principal Sum borrowed less repayments of principal during the life of the loan agreement, plus all interest which has been capitalised pursuant to clause 3.4. Again this accords with the notices of demand and supporting documents which were issued to the various Borrowers.

128 What clause 5.2 operates on therefore is all that has "accrued" pursuant to clause 3.4 together with the original sum borrowed. It is upon this amount that interest is payable at the rate of 10.5%, "on demand".

129 A contractual provision which merely prescribes that interest is to be payable at a particular percentage rate per annum, imposes an obligation to pay simple and not compound interest. That is the ordinary and natural meaning of such words as appear in clause 5.2.

130 In Bakker v Chanbri Pty Limited (1986) 4 BPR 9234 at 9236 Young J held that unless there is a clear agreement to pay compound interest, interest is taken to be simple interest (see also TSB Developments Pty Limited v HCH & K Fisheries Pty Limited [2003] TASSC 136; Farrow Mortgage Services Pty Ltd (In Liq) v Tunevitsch Pty Ltd (1998) 8 TAS R 65; Polaris Holding Co v Airservices Australia [1997] FCA 208).

131 It should be noted that what is required, in accordance with these authorities, is not merely "agreement" but "clear agreement".

132 In Stein v Torella Holdings Pty Limited [2009] NSWSC 971, McLachlan AsJ cited Chitty on Contracts, 30^th ed, 2008, Vol 2, p922, [38.269] for the proposition: "It is settled law that compound interest is payable either by agreement or by custom, but not otherwise".

133 Exceptionally, by reason of a recognised custom or practice on the part of banks, compound interest is payable on bank overdrafts: see Weaver & Craigie’s, The Law Relating to Banker and Customer in Australia, 3^rd ed, [3.2010-2080]. A contract with a non-bank, which requires interest to be payable at the rates or on the conditions imposed by a bank may thus be construed as requiring the payment of compound interest: Saunders v Nash [1991] 2 VR 63; Morton v Elgin-Stuczynski [2008] VSCA 25.

134 There is nothing at all in the terms of the loan documentation here under consideration to displace the ordinary meaning of clause 5.2 as prescribing interest on a simple basis and not otherwise.

135 Moreover, here the loan documentation makes specific reference to the Lender’s right to charge compound interest, pre-termination in clause 3.4 (interest … will be capitalised…) and confers no such right, in clause 5.2, with respect to the post-termination position (a higher rate of simple interest then becoming payable).

136 The maxims expressio unius est exclusio alterius (the expression of one thing is the exclusion of another) and expressum facit cessare tacitum (the express makes the implied cease) – see Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 at 23-6 – are thus applicable, if necessary, to displace any implication that clause 5.2 may be read as conferring a right to compound interest.

137 Those maxims should, of course, be treated with caution and they must yield to the language of the contract as a whole. The present case is one where the language of the contract as a whole, gives no support to any right to post- termination compound interest; a position which is merely fortified by the express stipulation in clause 3.4 and the expressio unius principle.

138 Furthermore, for there to be the necessary "clear agreement" making compound interest payable, it is essential that there be "clear agreement" as to the basis upon which the interest is to be compounded: ie annually, monthly, daily, etc. That is to say, there must be "clear agreement" as to with what "rests" the interest is to be compounded.

139 Interest which is compounded at 10.5% per annum is not the same as interest compounded at 0.875% per month. Nor is it the same as interest compounded at 0.0287671% per day. Nor does it correspond with any other arbitrary division of time, be it per fortnight, per minute, per second, etc; within which the interest is to "rest", before being compounded.

140 The lack of any "clear agreement" as to the type of compound interest which is to be applicable, is a further strong indication that it is to be simple and not compound interest which is to be payable, at the higher rate of 10.5% per annum, post-termination, under clause 5.2.

141 Finally, it should be observed that in the summons in these proceedings, the plaintiff has claimed an amount of principal (and accrued interest) together with a "daily rate" of interest in each case. A cursory consideration of the amount claimed will show that the "daily rate" is an amount calculated at the rate of 10.5% per annum. A "daily rate" is incompatible with a claim for compound interest. There has been no claim for compound interest in the summons and accordingly, as in the case of interest prior to default, the plaintiff is attempting to amend its pleading after judgment.

142 For the above reasons, the defendants’ position on interest is accepted.

143 The parties are to bring in short minute of order that deal with the entirety of these reasons.

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Annexure A

Extracts from Loan Agreements

Recitals

…..

The Borrower has requested that the Lender lend and the Lender wishes to lend to the Borrower the sums set out in Item 2 of the Schedule (individually defined as provided in the Schedule and collectively referred to as the “Principal Sum” which term also includes capitalised interest as provided in clause 3.4) upon the terms and conditions of the agreement.

3. Interest

3.1 Subject to Clauses 3.2 and 3.3 below, interest shall be chargeable on the Principal Sum outstanding from time to time at the rate of 10.5% per annum payable monthly in advance.
3.2 In consideration of the Lender discounting the rate of interest set out in Clause 3.1 by 2% per annum the Borrower agrees to pay upon the execution of this agreement the first year’s interest on the Principal Sum advanced at the rate of 8.5% [or 7.75%] per annum computed from 30 June 1997 [or date of execution] unless otherwise agreed between the parties.
3.3 (a) In further consideration for the Lender:

(i) reducing the rate of interest during the second year of this agreement to 8.5%[ or 7.75%].
the Borrower will pay to the Lender on or before 30 June 1998 [or beginning of the second year] interest for 12 months in advance on the Principal Sum then outstanding; and
(ii) reducing the rates payable from and including the commencement of year 3 until repayment in full of the outstanding Principal Sum to 8.5% [or 7.75%] per annum,
the Borrower will pay the Lender interest as set out in paragraph (b) below or, where applicable, paragraph (c) below.
(b) Interest set out in clause 3.3(a)(ii) above shall be calculated monthly in advance on the Principal Sum then outstanding and shall become due and payable subject to such payment being made from the income of the Borrower from the Business as contemplated in clause 42.2 of the Project Deed after payment of:
i) all licence fees;
ii) all management fees and charges; and
iii) any other amount payable prior to interest in accordance with Clause 42.2 of the Project Deed;
and subject further to Clauses 3.4 and 7
(c) In the event that a Farmer makes an election under clause 18.2 of the Licence and Management Agreement, interest that the Farmer would have paid in accordance with paragraph (b) had the Farmer not made the election must be paid by the Farmer on demand of the Lender.

3.4 Any interest which becomes due and payable during the previous 12 months which is not paid by 30 June at the end of that year pursuant to clause 3.3(c) will be capitalised so as to form part of the Principal Sum then outstanding.

5. Default

5.1 The parties agree that subject to clause 7 below the whole of the Principal Sum remaining outstanding shall become immediately repayable at the option of the Lender on the happening of any one or more of the following events without the necessity of any notice of demand:

(a) if the Borrower defaults in the due and punctual payment of interest or the Principal Sum or any repayment instalment or any other moneys payable under this agreement;
(b) if the Borrower defaults in the observance or performance in any of his other covenants or obligations contained in this agreement;
(c) if the Borrower ceases to carry on the Business.
5.2 Notwithstanding anything contained in this agreement if the Lender elects to call up the whole of the Principal Sum remaining outstanding pursuant to any default by the Borrower, interest on the whole of the Principal Sum remaining outstanding shall then be calculated at the rate of 10.5% per annum and shall be payable on demand.

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