Engadine Medical Imaging Services Pty Ltd as trustee for the Engadine Unit Trust v Mena Ibrahim (No 2)

[2025] NSWSC 126

Supreme Court

New South Wales

Medium Neutral Citation:

Engadine Medical Imaging Services Pty Ltd as trustee for the Engadine Unit Trust v Mena Ibrahim (No 2) [2025] NSWSC 126

Hearing dates:

13 February 2025

Date of orders:

28 February 2025

Decision date:

28 February 2025

Jurisdiction:

Equity

Before:

McGrath J

Decision:

Order dispensing with the requirements for the defendants to file a notice of motion in the application to vary a prior costs order and order for the plaintiffs to pay the costs of the defendants on an indemnity basis arising from the expiry of a Calderbank offer.

Catchwords:

COSTS — party/party — application for indemnity costs — whether conduct of litigation by plaintiffs unreasonable or delinquent — Calderbank offer — whether unreasonable for unsuccessful party not to accept offer

CIVIL PROCEDURE — time — where applicants seek variation to costs orders entered — where no notice of motion to vary the costs orders was filed within 14 days of orders being entered as required by r 36.16(3A) UCPR — where applicants notified both court and other parties of motion in writing within time — where applicants proceeded to file notice of motion out of time — whether appropriate for court to dispense with prescribing form of notice for motion

Legislation Cited:

Civil Procedure Act 2005 (NSW) ss 10, 14, 56, 98

Uniform Civil Procedure Rules 2005 (NSW) rr 1.12, 4.10, 18.1, 18.2, 36.15, 36.16, 42.1, 42.2, 42.4, 42.5, 42.15A

Cases Cited:

Abdi v Abdi (No 2) [2022] NSWSC 582

Anderson v Canaccord Genuity Financial Ltd (No 2) [2022] NSWSC 649

AT v Commissioner of Police (NSW) (No 2) [2010] NSWCA 337

Bailey v Marinoff (1971) 125 CLR 529; [1971] HCA 49

Bluth v Boyded Industries Pty Ltd (No 2) [2024] NSWCA 194

Burrell v R (2008) 238 CLR 218; [2008] HCA 34

Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131

Calderbank v Calderbank [1975] 3 All ER 333

Cappello v HomeBuilding Pty Ltd [2023] NSWCA 109

Coalroc Contractors Pty Ltd v Matinca [2023] NSWCA 83

Coastwide Fabrication & Erection Pty Ltd v Honeysett (No 2) [2009] NSWCA 291

Commonwealth of Australia v Gretton [2008] NSWCA 117

Deputy Commissioner of Taxation v Meredith (No 2) (2008) 75 NSWLR 462; [2008] NSWCA 133

Diver v Neal [2009] NSWCA 115

DJL v Central Authority (2000) 201 CLR 226; [2000] HCA 17

Engadine Medical Imaging Services Pty Ltd as trustee for the Engadine Unit Trust v Mena Ibrahim [2024] NSWSC 1399

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; [1988] FCA 364

Ghougassian v Fairfax Community Newspapers Pty Ltd [2015] NSWCA 307

Habib v Nationwide News Pty Ltd (No 2) [2010] NSWCA 291

Hancock v Arnold (No 2) [2009] NSWCA 19

Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199

Kable v State of New South Wales (No 2) [2012] NSWCA 361

Kekatos v Stafford [2009] NSWCA 219

Malouf v Prince (No 2) [2010] NSWCA 51

Mead v Watson [2005] NSWCA 133

Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344

Odlum v Friend (No 2) [2024] NSWCA 252

Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11

Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Ltd (No 2) [2009] NSWCA 336

Rodi v Gelonesi [2016] NSWCA 348

SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323

Wentworth v Rogers (No 5) (1986) 6 NSWLR 534

Whitney v Dream Developments (2013) 84 NSWLR 311; [2013] NSWCA 188

Category:

Costs

Parties:

Engadine Medical Imaging Services Pty Ltd ATF the Engadine Unit Trust (First Plaintiff/Respondent)
Ali Kyatt (Second Plaintiff/Respondent)
Advanced Imaging Pty Ltd ATF the Kyatt Family Trust (Third Plaintiff/Respondent)
Mena Ibrahim (First Defendant/Applicant)
Engadine Medical Imaging Pty Ltd (Second Defendant/Applicant)
Nabeel Chaudhry (Third Defendant/Applicant)
Warilla Diagnostic Imaging Pty Ltd ATF Warilla Diagnostic Image Trust trading as Focus Radiology (Fourth Defendant/Applicant)
Focus Radiology Dapto Pty Ltd (Fifth Defendant/Applicant)
Focus Radiology Warrawong Pty Ltd (Sixth Defendant/Applicant)
Dapto Imaging Pty Ltd ATF the Dapto Medical Imaging Unit Trust (Seventh Defendant/Applicant)
Warrawong Imaging Pty Ltd ATF the Warrawong Medical Imaging Unit Trust (Eighth Defendant/Applicant)

Representation:

Counsel:
M Klooster (Plaintiffs/Respondents)
M Collins (First, Second, Seventh and Eighth Defendants/Applicants)
G Sirtes SC and F Di Lizia (Third, Fourth, Fifth and Sixth Defendants/Applicants)

Solicitors:
New South Lawyers (Plaintiffs/Respondents)
Bridges Lawyers (First, Second, Seventh and Eighth Defendants/Applicants)
Madison Marcus (Third, Fourth, Fifth and Sixth Defendants/Applicants)

File Number(s):

2023/00134691

Publication restriction:

Nil

JUDGMENT

INTRODUCTION

1. This judgment concerns the issue of costs arising from the judgment I delivered in Engadine Medical Imaging Services Pty Ltd as trustee for the Engadine Unit Trust v Mena Ibrahim [2024] NSWSC 1399 (Principal Judgment). This judgment assumes familiarity with, and adopts the shorthand expressions and defined terms used in, the Principal Judgment.

2. The proceedings were brought by the plaintiffs, Engadine Medical Imaging Services Pty Ltd (EMIS) as trustee for the Engadine Unit Trust, Dr Ali Kyatt and Advanced Imaging Pty Ltd as trustee for the Kyatt Family Trust, against various defendants being:

1. Mena Ibrahim (First Defendant);

2. Engadine Medical Imaging Pty Ltd (Second Defendant);

3. Nabeel Chaudhry (Third Defendant);

4. Warilla Diagnostic Imaging Pty Ltd as trustee for Warilla Diagnostic Image Trust trading as Focus Radiology (Fourth Defendant);

5. Focus Radiology Dapto Pty Ltd (Fifth Defendant);

6. Focus Radiology Warrawong Pty Ltd (Sixth Defendant);

7. Dapto Imaging Pty Ltd as trustee for the Dapto Medical Imaging Unit Trust (Seventh Defendant); and

8. Warrawong Imaging Pty Ltd as trustee for the Warrawong Medical Imaging Unit Trust (Eighth Defendant).

3. The defendants have defended the proceedings as two distinct groups, the first group comprising Mr Ibrahim, Engadine Medical Imaging, Dapto Imaging and Warrawong Imaging (together, the Ibrahim defendants) and the second group comprising Mr Chaudhry, Warilla Diagnostic Imaging, Focus Radiology Dapto and Focus Radiology Warrawong (together, the Chaudhry defendants).

4. At the conclusion of the Principal Judgment, I made orders dismissing the plaintiffs’ claims against the defendants and for the plaintiffs to pay the costs of the defendants.

5. The Ibrahim defendants have now applied pursuant to r 36.16(3A) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and the court’s inherent jurisdiction to vary the costs order I made in the Principal Judgment so that the plaintiffs pay the costs of the Ibrahim defendants on an indemnity basis or, alternatively, that the plaintiffs pay the costs of the Ibrahim defendants on the ordinary basis up to and including 20 November 2023 and an indemnity basis on and from 21 November 2023. The Ibrahim defendants also seek an order that the plaintiffs pay the costs of the Ibrahim defendants of this application on an indemnity basis.

6. Similarly, the Chaudhry defendants have also applied pursuant to r 36.16(3A) of the UCPR and the court’s inherent jurisdiction to vary the costs order I made in the Principal Judgment so that the plaintiffs pay the costs of the Chaudhry defendants on an indemnity basis or, alternatively, the plaintiffs pay the costs of the Chaudhry defendants on the ordinary basis up to and including 20 November 2023 and an indemnity basis on and from 21 November 2023. In addition, the Chaudhry defendants seek orders that the plaintiffs pay the costs of the Chaudhry defendants on an indemnity basis in connection with reserve costs orders made by the court on 2 May 2023 and 21 June 2023. Further, the Chaudhry defendants also seek an order that the plaintiffs pay the costs of the Chaudhry defendants of this application on an indemnity basis.

7. In each application, the defendants have sought an order for indemnity costs on the basis that the plaintiffs should have been aware that their claims would inevitably fail or, alternatively, the unreasonable failure of the plaintiffs to accept an offer made to them by the defendants jointly within the principles of Calderbank v Calderbank [1975] 3 All ER 333 (Calderbank offer).

8. There are three issues I am required to determine. For the reasons set out below, I have determined that:

1. I should dispense with the requirement that the defendants file a notice of motion for their applications under r 36.16(3A) of the UCPR to vary the costs order I made on 6 November 2024.

2. The plaintiffs should not be required to pay the defendants’ costs on an indemnity basis for the whole of the proceedings.

3. The plaintiffs should pay the costs of the defendants on the ordinary basis up to and including 20 November 2023 and on an indemnity basis after that time based on the unreasonable failure of the plaintiffs to accept the Calderbank offer made to them on 7 November 2023 by the defendants jointly.

4. The plaintiffs should pay the defendants’ costs of these applications on an indemnity basis.

RELEVANT FACTS

9. The relevant facts underlying the claims made by the plaintiffs against the defendants are set out in full in the Principal Judgment at [21]–[339].

10. The additional facts that are not mentioned in the Principal Judgment but are relevant for the determining the issue of costs are described below.

Procedural history and Calderbank letter

11. On 27 April 2023, the plaintiffs commenced the proceedings by approaching the Duty Judge in the Equity Division of this court seeking leave to file a summons and supporting affidavits in which they sought urgent interlocutory relief against the defendants.

12. On 2 May 2023, by consent and on a without admissions basis, the Chaudhry defendants agreed to the making of interim orders until the plaintiffs’ application for injunctive relief was heard. The question of costs between the plaintiffs and the Chaudhry defendants was reserved and the proceedings were expedited.

13. On 26 May 2023, the plaintiffs filed an amended statement of claim in the proceedings in which the primary claim against all of the defendants was based on an alleged joint venture agreement said to have governed the business relationship between Dr Kyatt, Mr Ibrahim and Mr Chaudhry.

14. On 21 June 2023, by consent and on a without admissions basis, the defendants agreed to a continuation of the interim orders made on 2 May 2023 until the determination of the proceedings. The question of costs of the plaintiffs’ application for interim relief was reserved.

15. On 29 June 2023, the Ibrahim defendants filed an application seeking security for their costs of the proceedings in the sum of $278,000. On 7 July 2023, this court made orders to that effect.

16. On 21 July 2023, by consent, this court ordered the plaintiffs to provide security for the Chaudhry defendants’ costs of the proceedings, also in the sum of $278,000.

17. In July 2023 and April 2024, in compliance with the orders of this court, the plaintiffs paid in excess of $556,000 into court as security for the defendants’ costs.

18. On 16 August 2023, the Chaudhry defendants filed their defence to the amended statement of claim.

19. On 24 August 2023, the Ibrahim defendants filed their defence to the amended statement of claim.

20. On 6 October 2023, the Ibrahim defendants filed and served their evidence in reply to the plaintiffs’ evidence in chief.

21. On 10 October 2023, the Chaudhry defendants filed and served their evidence in reply to the plaintiffs’ evidence in chief.

22. On 7 November 2023, Bridges Lawyers (acting jointly on behalf of all defendants) sent a letter to New South Lawyers (acting for the plaintiffs) marked “Without Prejudice, Save as to Costs” making an offer on behalf of all the defendants to settle the proceedings without prejudice, save as to costs, in accordance with the principles in Calderbank (Calderbank letter).

23. The Calderbank letter set out some of the history of the proceedings and included the following:

4. As previously indicated, a number of paragraphs within the ASOC are embarrassing, likely to cause undue delay and are liable to be struck out pursuant to rule 14.28 of the Uniform Civil Procedure Rules 2005 (NSW). We have previously raised this issue (on a number of occasions). The Defendants reserve all of their rights in this respect.

5.   We note that your clients have previously indicated to us (and to the Court) that they have served all of their evidence in chief in support of their claims the subject of the ASOC.

6.   Leaving aside the deficiencies in your clients’ ASOC together with the failure of your clients to properly articulate the case that the defendants are required to meet, we consider that your clients’ evidence in the proceedings is deficient and will not support a finding by the Court in favour of your clients in respect of any of the claims they have advanced against the Defendants. In this regard (and non—exhaustively), your clients have failed to establish the existence and terms of the alleged joint venture.

7.   In the circumstances, we consider that your clients have limited (if any) prospects of success in relation to the claims the subject of the ASOC.

8.   Further, the defendants have now serve their evidence in response to your clients’ evidence in chief and as such, your clients are now squarely on notice of the defendants’ position in respect of the allegations your clients have made against them.

24. The offer made in the Calderbank letter was in the following form:

9.   Having regard to the matters set out above and in circumstances where your clients have limited (if any) prospects of success in prosecuting the claims the subject of the ASOC against the Defendants, we are instructed on a without admission basis to propose the following offer in full and final settlement of the claims the subject of the ASOC (Settlement Offer):

(a)   The:

(i)   First, Second, Seventh and Eighth Defendants are to pay the Plaintiffs the sum of $50,000; and

(ii)   Third to Sixth Defendants are to pay the Plaintiffs the sum of $50,000,

in full and final settlement of all claims the subject of the ASOC (Settlement Sum).

(b)   The sum of $300,000 that has been paid by the Plaintiffs into Court on account of the Defendants’ security for costs is to be released to the Plaintiffs.

(c)   The Parties to consent to orders discharging the injunctive relief granted by the Court on 2 May 2203 [sic] (as continued on 3 May 2023 and 21 June 2023) and releasing the Plaintiffs from the undertaking as to damages given on 2 May 2023.

(d)   The First Defendant and Third Defendant shall cause the unit holdings that they control in the “Engadine Imaging Trust” to be transferred to the Second Plaintiff (or his nominee) for $1.

(e)   The ASOC be dismissed with no order as to costs.

25. The offer made in the Calderbank letter was expressed to be open for acceptance by the plaintiffs until 5pm on 20 November 2023.

26. The plaintiffs did not respond to the Calderbank letter.

27. On 31 January 2024, the plaintiffs served their evidence in reply.

28. On 12 April 2024, the Chaudhry defendants served further evidence.

29. On 2 May 2024, the Ibrahim defendants completed discovery.

30. On 7 May 2024, the Chaudhry defendants completed discovery.

31. The trial commenced on 13 May 2024, and continued on 15 and 16 May 2024.

32. On 15 May 2024:

1. Dr Kyatt was cross-examined, and the defendants indicated that they did not intend to call evidence from Messrs Ibrahim and Chaudhry.

2. I made orders dismissing the proceedings against Warilla Diagnostic Imaging, with costs reserved.

3. An application was made by the plaintiffs to amend the amended statement of claim. That application was opposed and then withdrawn, and I made orders that the plaintiffs pay the defendant’s costs in relation to the withdrawn application.

33. On 16 May 2024, counsel for the plaintiffs wrote to the legal representatives for the defendants indicating that the only claims to be pursued by the plaintiffs were those against Messrs Chaudhry and Ibrahim relating to the Engadine Practice and that no claims were made in respect of the Dapto Practice and the Warrawong Practice. As I noted in the Principal Judgment at [2], this involved the scope of the plaintiffs’ claims significantly narrowing as substantial claims were dropped.

34. During the course of the hearing on 16 May 2024, the plaintiffs provided a draft form of the further amended statement of claim (FASOC), for which I granted leave to file on 18 July 2024.

Findings in the Principal Judgment

35. On 6 November 2024, I delivered the Principal Judgment. The Principal Judgment included central findings that can be summarised as follows:

1. I formed an adverse view of the credibility and reliability of the evidence given by Dr Kyatt (Principal Judgment, at [14]–[16]).

2. The allegation that Mr Ibrahim was an officer of EMIS at any relevant time was not established (Principal Judgment, at [352]).

3. The plaintiffs’ claim that Mr Ibrahim engaged in misleading or deceptive conduct failed (Principal Judgment, at [373], [380]) because of the following:

1. I was not satisfied that any of the alleged representations were made by Mr Ibrahim to Dr Kyatt (Principal Judgment, at [374]).

2. Dr Kyatt did not rely on anything said to him by Mr Ibrahim or Mr Ibrahim’s lawyers and the whole of Dr Kyatt’s reliance in entering the Deed of Settlement was placed on his own lawyers. Dr Kyatt conceded as much in cross-examination. It was also agreed in the Deed of Settlement that Dr Kyatt did not rely on Mr Ibrahim or Mr Ibrahim’s lawyers (Principal Judgment, at [376]–[377]).

3. Any silence by Mr Ibrahim concerning his involvement in the establishment of Focus Radiology Engadine was not actionable by the plaintiffs as an instance of misleading or deceptive conduct. The circumstances were not such as to give rise to any reasonable expectation that Mr Ibrahim would reveal his plans to Dr Kyatt (Principal Judgment, at [378]–[379]).

4. I rejected the claim for breach of confidential information against Mr Ibrahim (Principal Judgment, at [388], [393]) because of the following:

1. The alleged Duty of Confidentiality is not pleaded to be owed by Mr Ibrahim to any particular person (Principal Judgment, at [389]).

2. The plaintiffs failed to identify the precise information that Mr Ibrahim was said to have (mis)used, having only done so in global terms (Principal Judgment, at [390]).

3. Mr Ibrahim was given access to the financial information of EMIS in accordance with the right contained in cl 13.2 of the Engadine Trust Deed, which provides that unit holders may inspect the financial statements and books of account in relation to the Engadine Imaging Trust (Principal Judgment, at [391]).

4. The plaintiffs failed to demonstrate how Mr Ibrahim was said to have used the Confidential Information and how such a use had caused loss to the plaintiffs or gain to Mr Ibrahim (Principal Judgment, at [392]).

5. All of the pleaded allegations against Mr Chaudhry to the effect that he breached his statutory and fiduciary duties as a director of EMIS failed (Principal Judgment, at [421]) because of the following:

1. There was no evidence that Mr Chaudhry had any involvement in:

1. the operations of Engadine Medical Imaging;

2. the steps taken by Mr Ibrahim to obtain the New Lease of the Engadine Premises in the name of Engadine Medical Imaging;

3. the steps taken by Mr Ibrahim to obtain the Focus Engadine Lease of the Focus Engadine Premises; or

4. Mr Ibrahim’s negotiations of the draft Deed (including any knowledge of these negotiations) which ultimately resulted in the execution of the Deed of Settlement and the Deed of Assignment (Principal Judgment, at [414]–[415]).

2. In relation to the allegation that Mr Chaudhry induced or attempted to induce employees or contractors of EMIS, presumably to leave EMIS and join Engadine Medical Imaging, or assisted Mr Ibrahim to do this. The only evidence of steps being taken to have employees of EMIS leave and join Engadine Medical Imaging involving Mr Chaudhry is in March 2023, by which time Mr Chaudhry was no longer a director of EMIS and did not owe any duties to EMIS (Principal Judgment, at [416]).

2. In relation to the allegation that Mr Chaudhry retained and used for the benefit of himself and others, and other than for the benefit of EMIS, the Confidential Information, or, alternatively, assisted Mr Ibrahim to do this, this allegation essentially failed for the following reasons: the failure to identify the precise information Mr Chaudhry was said to have used; the failure to demonstrate how Mr Chaudhry is said to have used the Confidential Information; and how such a use caused loss to the plaintiffs or gain to Mr Chaudhry (Principal Judgment, at [417]).

3. In relation to the allegation that Mr Chaudhry canvassed, solicited and accepted approaches from customers of the Engadine Practice, or alternatively assisted Mr Ibrahim to do this, there was simply no evidence to support this allegation (Principal Judgment, at [418]).

4. In relation to the allegation that Mr Chaudhry established the Competing Business and used the Confidential Information and property for its benefit to the exclusion of EMIS and other than for the benefit of EMIS, or alternatively assisted Mr Ibrahim to do this; there was no evidence that Mr Chaudhry had any involvement in establishing the Focus Engadine Practice which was established by Mr Ibrahim as the sole director, secretary and shareholder of Engadine Medical Imaging (Principal Judgment, at [419]).

5. In relation to the allegation that Mr Chaudhry refused or neglected to sign documents to enable the New Lease to be assigned from Engadine Medical Imaging to EMIS, there was no evidence that he did so (Principal Judgment, at [420]).

6. The plaintiffs did not demonstrate by admissible evidence any loss that could support the claims against Mr Ibrahim and Mr Chaudhry (Principal Judgment, at [426]).

36. In addition, there were other specific instances in which I made findings that there was no evidence about a particular matter, including the following:

1. There was no evidence of what, if any, action was taken in response to the suggestion by Mr Ibrahim that shareholders’ funds be distributed weekly (Principal Judgment, at [90]–[91]).

2. There was no evidence that Mr Ibrahim consulted with either Dr Kyatt or Mr Chaudhry before taking the step of terminating the employment of Jong Min Son (Principal Judgment, at [94], [348](4)).

3. There was no evidence of whether or not a meeting between Mr Ibrahim and Mr Garland concerning the Lease of the Engadine Premises took place in September 2022 (Principal Judgment, at [170]–[171]).

4. There was no evidence that before the Deed of Settlement and Deed of Assignment were executed, Mr Chaudhry was asked to sign them on behalf of EMIS (Principal Judgment, at [306]).

5. There was no evidence from which I could make a finding that the discussion on 24 July 2019 between Dr Kyatt, Dr Jasim, Mr Chaudhry, Mr Ibrahim and Ms Rhoden demonstrates that Mr Ibrahim made or participated in the making of a decision which affected the whole or a substantial part of the business of EMIS, or that Mr Ibrahim had the capacity to significantly affect the financial standing of EMIS, or that Mr Ibrahim was a person in accordance with whose instructions or wishes the directors of EMIS were accustomed to act (Principal Judgment, at [348](6)).

6. The plaintiffs did not refer to any evidence on which I could make a finding that Mr Ibrahim was involved in renegotiating the Lease (Principal Judgment, at [348](7)).

37. Following the delivery of the Principal Judgment, orders were then made and entered that the FASOC filed 18 July 2024 is dismissed and the plaintiffs are to pay the costs of the defendants.

Steps taken after the Principal Judgment and entry of the orders

38. On 12 November 2024, Bridges Lawyers (acting for the Ibrahim defendants) sent a letter by email to New South Lawyers (acting for the plaintiffs) referring to the Principal Judgment, stating that they were instructed to file a motion seeking orders that the plaintiffs pay the Ibrahim defendants’ costs of the proceedings on an indemnity basis and inviting the plaintiffs to consent to such an order. The letter sought a response by 5pm on 13 November 2024, failing which the Ibrahim defendants would take steps to seek payment of their costs on an indemnity basis.

39. On 13 November 2024, Madison Marcus (acting for the Chaudhry defendants) sent a letter by email to New South Lawyers stating that they agreed with Bridges Lawyers that the costs order made in the Principal Judgment ought to be varied to require the plaintiffs to pay the defendants’ costs of the proceedings on an indemnity basis. The letter sought confirmation that the plaintiffs agreed to the proposed variation of the costs order and sought a response by 5pm on 14 November 2024, failing which the Chaudhry defendants would take steps necessary to seek the proposed variation of the costs order.

40. On 19 November 2024 at 3:54pm, Bridges Lawyers sent an email to my Associate to which they attached a notice of motion dated 19 November 2024 and a supporting affidavit seeking orders for costs in favour of the Ibrahim defendants on an indemnity basis. Bridges Lawyers stated that the notice of motion had not been filed as they wished to ensure that it was heard by me and asked if I would prefer for the notice of motion to be filed.

41. On 19 November 2024 at 6:14pm, Madison Marcus sent an email to my Associate foreshadowing that a similar application on behalf of the Chaudhry defendants would be provided the following day.

42. On 20 November 2024 at 5:40pm, Madison Marcus sent an email to my Associate to which they attached a notice of motion dated 20 November 2024 and a supporting affidavit seeking orders for costs in favour of the Chaudhry defendants on an indemnity basis. Similarly, Madison Marcus stated that the notice of motion had not been filed as they wished to ensure that it was heard by me and stated that they would file and serve sealed copies of their motion “on the court’s instructions”.

43. On 21 and 22 November 2024 respectively, the Ibrahim defendants and the Chaudhry defendants each filed a notice of motion seeking a variation of the costs order contained in the Principal Judgment and in its place the making of orders for the payment of their respective costs on an indemnity basis.

ISSUE 1: DISPENSATION OF MOTION FOR VARIATION OF COSTS ORDER

44. The first issue I have to determine is whether I grant a dispensation to the defendants to apply to vary the costs order I made on 6 November 2024, each having failed to file a notice of motion within 14 days after the orders following the Principal Judgment were entered.

Legal principles

Power to vary entered order at common law

45. At common law, and subject to limited qualification, the general rule as to this court’s power to vary orders is as stated in Bailey v Marinoff (1971) 125 CLR 529; [1971] HCA 49, Barwick CJ at 530:

… Once an order disposing of a proceeding has been perfected by being drawn up as the record of a court, that proceeding apart from any specific and relevant statutory provision is at an end in that court and is in its substance, in my opinion, beyond recall by that court. It would, in my opinion, not promote the due administration of the law or the promotion of justice for a court to have a power to reinstate a proceeding of which it has finally disposed.

46. This general rule, which provides for the finality of a perfected judgment or order, continues to operate at common law: DJL v Central Authority (2000) 201 CLR 226; [2000] HCA 17, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ at [38] citing Bailey, Barwick CJ at 530.

47. It follows that the power of this court to entertain an application to vary orders once entered depends first upon the two questions posed by Basten JA (with whom Giles and Ipp JJA agreed) in Deputy Commissioner of Taxation v Meredith (No 2) (2008) 75 NSWLR 462; [2008] NSWCA 133 at [7]:

1. whether the orders were entered prior to the application to vary them; and

2. if so, whether there is some statutory authority conferring power on this court to reopen entered orders.

48. Previously, the entry of orders in this court required a party or parties to proceedings to draft a minute of the orders indicated in the judgment. This draft minute was then filed with the Registry before being signed and sealed by the Registrar. Under this procedure, parties to proceedings received notice of the application for the entry of orders by service of the draft minute and, until the orders were sealed by the Registrar, the court had the power to review them: Meredith, Basten JA at [8].

49. In the interests of expediency, and pursuant to r 36.11 of the UCPR, the entry of orders and judgments in this court now occurs electronically and a judgment or order is taken to be entered when it is recorded in the computerised court record system. Consequently, orders are now generally entered or “perfected” on the same day upon which judgment is delivered.

50. In these circumstances, absent statutory modification, application of the common law would result in very limited grounds upon which a judgment or order could be varied almost immediately after judgment is delivered.

Power to vary entered order under UCPR

51. The UCPR modifies the common law position and sets out several circumstances in which the court can set aside or vary orders once formally entered: Pt 36, Div 4 of the UCPR.

52. The general power of the court to set aside a judgment or order is provided for by r 36.15 of the UCPR.

53. A further power of the court to set aside or vary a judgment or order is provided for by r 36.16 of the UCPR, which relevantly provides:

36.16 Further power to set aside or vary judgment or order

(1)   The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order.

(2)   The court may set aside or vary a judgment or order after it has been entered if--

(a)   it is a default judgment (other than a default judgment given in open court), or

(b)   it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or

(c)   in the case of proceedings for possession of land, it has been given or made in the absence of a person whom the court has ordered to be added as a defendant, whether or not the absent person had notice of the relevant hearing or of the application for the judgment or order.

(3)   In addition to its powers under subrules (1) and (2), the court may set aside or vary any judgment or order except so far as it--

(a)   determines any claim for relief, or determines any question (whether of fact or law or both) arising on any claim for relief, or

(b)   dismisses proceedings, or dismisses proceedings so far as concerns the whole or any part of any claim for relief.

(3A)   If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered.

(3B)   Within 14 days after a judgment or order is entered, the court may of its own motion set aside or vary the judgment or order as if the judgment or order had not been entered.

(3C)   Despite rule 1.12, the court may not extend the time limited by subrule (3A) or (3B).

(4)   Nothing in this rule affects any other power of the court to set aside or vary a judgment or order.

54. For applications made after the judgment or order is entered, the relevant provisions are rr 36.16(3A), (3B) and (3C). In this judgment, I will refer to each of these provisions as subr (3A), subr (3B) and subr (3C), respectively.

55. The purpose of r 36.16 of the UCPR is to allow a window of 14 days after the formal entry of a judgment or order in this court where the entry of judgment takes place largely contemporaneously with its delivery: Meredith, at [15]. During that 14-day period, a party to the proceedings may approach the court in the prescribed form to seek a variation of the relevant judgment or order.

56. It is clear from the unambiguous wording of subr (3A) and subr (3C) that an application for the variation of a judgment or order must be filed within 14 days after the judgment or order was entered.

57. It is equally clear from subr (3C) that, despite r 1.12 of the UCPR which provides the general power of this court to extend or abridge any time limit fixed by the rules, the time limit stipulated by subr (3A) is not extendable: Malouf v Prince (No 2) [2010] NSWCA 51, McColl and Macfarlan JJA and Nicholas J at [17]:

…The inability to extend the time period for which subr (3A) provides confirms the limited nature of the court’s power. This is consistent with the fact that UCPR 36.16 operates as an exemption from the general rule earlier referred to. However the gateway to relief is narrow. If it were otherwise it would undermine “the need for judgments and orders to be final and certain as to their operation”: Deputy Cmr of Taxation v Meredith (No 2) (at [15]).

58. If a costs application is not formally made by notice of motion within time, the court may lack the power to entertain the application: Meredith, at [15]; Kekatos v Stafford [2009] NSWCA 219, Allsop ACJ (with whom Giles and Campbell JJA agreed) at [107]; Coastwide Fabrication & Erection Pty Ltd v Honeysett (No 2) [2009] NSWCA 291, McDougall J (with whom Ipp and Young JJA agreed) at [12]–[15].

59. The stringency of r 36.16 of the UCPR has been explained as dealing with the fundamentally important question of the finality of litigation: Kable v State of New South Wales (No 2) [2012] NSWCA 361, Allsop P at [2]: Odlum v Friend (No 2) [2024] NSWCA 252, Leeming JA, Mitchelmore JA and Harrison CJ at CL at [11].

60. While not raised in the matter before me, it has previously been suggested in obiter that r 36.16(3) of the UCPR may provide an alternative means by which a party could apply to vary or set aside orders in respect of ancillary or consequential relief, such as a costs order, without reliance on subr (3A): Hancock v Arnold (No 2) [2009] NSWCA 19, Ipp, McColl and Basten JJA at [10]:

The precise scope of this provision [UCPR 36.16(3)] is unclear. Read literally, it might be thought to operate only in respect of orders which were not sought by any party. That reading seems implausible. Given its context, it is more likely that the distinction intended to be drawn is between substantive relief, to which the power does not extend, and ancillary or consequential relief, to which it does extend. On that understanding, a costs order would clearly fall within the latter category. Such a distinction would make practical sense because appropriate orders as to costs frequently depend upon the existence of offers of compromise which are properly not known to the Court until after substantive relief has been determined.

61. Some eight months later, Campbell JA (with whom McColl JA and Sackville AJA agreed) expressed a contrary view, without the benefit of argument, in Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Ltd (No 2) [2009] NSWCA 336, at [8]:

Uninstructed by argument, I would have thought that the order for costs pronounced in this matter on 22 September 2009 was one that “determines any claim for relief”, and thus that UCPR 36.16(3) was not applicable.

62. This “unresolved tension” was examined at some length in Habib v Nationwide News Pty Ltd (No 2) [2010] NSWCA 291 at [35]–[39] in which the Court of Appeal (Hodgson JJA, Tobias and McColl JA) considered, without deciding, that the weight of authority aligned with the views of Campbell JA at [8] in Refrigerated Roadways. This view has found support in later decisions albeit, again, without deciding the issue: Rodi v Gelonesi [2016] NSWCA 348, Payne JA at [34]–[38].

Power to dispense with rules

63. Section 14 of the Civil Procedure Act 2005 (NSW) (CPA) provides as follows:

14   Court may dispense with rules in particular cases

In relation to particular civil proceedings, the court may, by order, dispense with any requirement of rules of court if satisfied that it is appropriate to do so in the circumstances of the case.

64. For the purposes of s 14 of the CPA, the rules of court are taken to include the uniform rules to the extent that they are applicable in this court: s 10 of the CPA.

65. It is noted that there is also a distinct, general “dispensation power” within r 18.2(2)(c) of the UCPR concerning the requirement to file and/or serve notices of motion, an example of the exercise of which is set out in Coalroc Contractors Pty Ltd v Matinca [2023] NSWCA 83, Adamson JA at [13](2).

66. Rule 18.2 of the UCPR provides as follows (emphasis added):

18.2   Requirement for notice

(1)   A person may not move the court to make any order unless notice of motion has been filed and served on each person affected by the proposed order.

(2)   Despite subrule (1), a person may move the court to make an order without notice of motion having been filed or served on a person if—

(a)   that person consents to the making of the order, or

(b)   the preparation, filing or service of the notice would cause undue delay or other prejudice to the person by whom the order is sought, or

(c)   the court dispenses with the requirement for such notice to be filed or served, or

(d)   under these rules or the practice of the court, the motion may be made without the prior filing or service (as the case may be) of notice of motion.

67. There are authorities for the dispensation of the requirement to file a notice of motion in cases such as the matter before me: see, for example, Kable, Basten JA at [9], [15]–[16]; Hancock, Ipp, McColl and Basten JJA at [10]–[12]; Bluth v Boyded Industries Pty Ltd (No 2) [2024] NSWCA 194, Bell CJ, Gleeson and Harrison JJA at [28]–[29], [33]–[35]. Relevantly, in each of these cases:

1. some form of notice of the motion – either written or oral – had generally been provided to both the court and the affected party within the 14-day time limit (with the exception of Bluth, where the court was not approached within time); and

2. the requirement being dispensed with was the requirement to file or serve a notice of motion under r 18.1(1) of the UCPR, not the time constraint imposed by subr (3A) specifically, nor subr (3A) generally.

68. Courts have so far avoided dispensing with the time constraint imposed by subr (3A) in circumstances where that constraint is expressed as a precondition for the exercise of the statutory power provided by that subrule, and dispensing with the subrule entirely would leave one party with the finality of judgment that flows from its formal entry at general law: AT v Commissioner of Police (NSW) (No 2) [2010] NSWCA 337, Basten JA (with whom Beazley and Macfarlan JJA agreed) at [9]–[10]:

[9] Although the possibility of reliance on s 14 was also noted in Spina v Permanent Custodians Ltd (No 2) [2009] NSWCA 419 at [9], the difficulty with such an approach is that the course permitted by s 14 must act differentially, so as to remove the time limit and leave an unlimited power in the court to vary orders which have been entered. Because r 36.16 itself precludes the operation of r 1.12, which might otherwise allow the court to extend the time, this would constitute a rewriting of r 36 in a way clearly not envisaged by its terms: cf r 36.16(3C).

[10]   Nor is it possible to omit the whole of the rule, because then one would be left with the general law, which does not permit a court, absent statutory authority, to vary orders once they have been entered: DJL v Central Authority [2000] HCA 17 ; 201 CLR 226 at [38]–[40], referring to Baley v Marinoff [1971] HCA 49 ; 125 CLR 529 at 530. In Malouf v Prince (No 2) [2010] NSWCA 51 at [20], the court (McColl and Macfarlan JJA, Nicholas J) referred to a statement in Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; 239 CLR 75 at [23] where French CJ, Gummow, Hayne and Crennan JJ stated:

“It is no doubt arguable that the reference to “any requirement of rules of court” in s 14 limits its application to rules imposing some duty on parties and does not extend it to a rule imposing limitations on the power of the court to order costs.”

69. While it appears settled that dispensation under s 14 of the CPA may apply in the appropriate case to ameliorate the stringency of subr (3A), in conjunction with subr (3C), it is far from satisfactory and is not to be normalised. So much was noted in Kable, by Allsop P at [2]–[4] stating:

[2] Rules 36.15, 36.16, 36.17 and 36.18 deal with important questions concerning variation of orders of the Court. Rule 36.16 is particularly important. It deals with the fundamentally important question of finality of litigation: see in particular subrules (3A), (3B) and (3C). Parties should not think that they can, at their choice, avoid the operation of the Rules by less formal communication. The Rules take their form because of the regularity and good order promoted by the procedures there set down in respect of such an important topic. Too often practitioners consider that they can say something on the occasion of delivery of judgment or send an email to judge’s chambers (the latter sometimes, though not here, without the knowledge of the other side - a serious breach of professional etiquette and possibly a breach of duty to the Court) and thereby hold their client’s position, irrespective of the Rules. The profession should understand that this is not the case.

[3] I am persuaded, however, that in the present circumstances it would be unjust not to permit s 14 of the Civil Procedure Act 2005 to be used to dispense with the filing of a notice of motion when there was adequate notice to the Court and to the other side as to the application. But I would not permit the exercise of the power to go beyond the content of the letter in question. That would raise the far more difficult question as to whether s 14 can operate to override the operation of r 36.16(3C) and, if it can, the stringency of any such operation.

[4]   It should not be thought that the above course sanctions as satisfactory, or regularises, the procedure used in this case.

Submissions

The Ibrahim defendants

70. The Ibrahim defendants submit that, in circumstances where their application to vary the costs order by notice of motion was provided to my Associate on 19 November 2024 (13 days after the costs order was made) but not stamped as filed with the registry until 21 November 2024, being one day after the 14-day period contemplated by subr (3A), this is an appropriate case for an order to be made under s 14 of the CPA dispensing with the requirements of either r 4.10(1) or r 18.2(1) of the UCPR. The Ibrahim defendants say that notice of the precise application made within the filed notice of motion was given within time.

71. The Ibrahim defendants argue that the decision in Bluth “sets the bar pretty low” for an application of this kind.

The Chaudhry defendants

72. The Chaudhry defendants adopted the submissions of the Ibrahim defendants on this issue, saying that I should similarly make an order under s 14 of the CPA dispensing with the requirements of r 4.10(1) or r 18.2(1) of the UCPR in their favour with respect to their application to vary the costs order I made.

The plaintiffs

73. The plaintiffs did not contest this issue and made no submissions in respect of it.

Consideration

74. The notice of motion filed on behalf of the Ibrahim defendants was filed on 21 November 2024, being 15 days after the Principal Judgment was delivered and orders were entered.

75. The notice of motion filed on behalf of the Chaudhry defendants was filed on 22 November 2024, being 16 days after the Principal Judgment was delivered and orders were entered.

76. First, it must be said that the practice adopted by the defendants in this matter of preparing the relevant notices of motions and supporting affidavits within time, only to file them out of time, is a curious one.

77. Parties seeking the variation of an order of this kind will generally find themselves in front of the judicial officer who decided the substantive proceedings and the ascertainment of this probability should not be cause for disregard of, or non-compliance with, the rules of the court.

78. Furthermore, the suggestion that parties should file motions “on the court’s instructions” is not a practice recognised by this court and should not be followed. Parties seeking a variation of a judgment or order should do so in accordance with the UCPR, specifically subr (3A).

79. I do not accept the proposition submitted on behalf of the Ibrahim defendants that, by their decision in Bluth, the Court of Appeal has “set the bar pretty low” for applications to dispense with the time constraints imposed by subr (3A).

80. That proposition is contrary to several considered statements emerging from both the Court of Appeal and the High Court of Australia, concerning r 36.16 of the UCPR and the import of the subject matter to which it relates: Kable, Allsop P at [2]–[4]; Habib, Hodgson, Tobias and McColl JJA at [27]–[31]; Diver v Neal [2009] NSWCA 115, Allsop P, Ipp and Basten JJA at [4]–[5]; Bailey, Barwick CJ at 530; Burrell v R (2008) 238 CLR 218; [2008] HCA 34, Gummow ACJ, Hayne, Heydon, Crennan and Kiefel JJ at [15]–[16].

81. In Bluth, one party (the successful appellant) sent a letter to the other (the unsuccessful respondent) 7 days after costs orders were entered, providing notice of their intention to seek a variation of those orders – in that case, seeking to give effect to r 42.15A of the UCPR – and proposing the parties approach the court jointly to seek that variation by consent. It is useful to set out the chronology of key events, as summarised by the Court of Appeal (Bell CJ, Gleeson and Harrison JJA) at [10]–[13]:

[10]   On 11 April 2024, HWLE’s solicitors wrote to Boyded’s solicitors stating their intention to seek a variation of the Court’s costs orders made on 4 April 2024 and to approach the Court jointly for that purpose. On 16 April 2024, Boyded’s solicitors replied that they were seeking instructions and anticipated being in a position to respond the next day. On 17 April 2024, Boyded’s solicitors responded to HWLE’s letter, stating that Boyded did not agree to the parties approaching this Court jointly as to costs. On 26 April 2024, HWLE’s solicitors wrote to Boyded’s solicitors, indicating that they would take steps to file an application seeking to vary the Court’s costs orders. HWLE’s solicitors subsequently contacted Harrison CJ at CL’s Associate by email noting HWLE’s intention to seek a variation and enquiring whether a notice of motion would be required.

[11]   On 29 April 2024, Boyded’s solicitors wrote to HWLE’s solicitors, referring to HWLE’s solicitors’ email of 26 April 2024 to his Honour’s Associate, indicating that the time for seeking to vary the Court’s costs orders had expired before that correspondence had been sent. Boyded’s solicitors also invited HWLE’s solicitors to withdraw their request to vary the Court’s costs orders.

[12]   Also on 29 April 2024, his Honour’s Associate wrote to the parties advising that a notice of motion would not be necessary and inviting the parties to agree upon a timetable for the exchange of submissions so that the issue might be determined on the papers.

[13]   Boyded now draws attention to the fact that, even if HWLE’s letter of 26 April 2024 is treated as the relevant “motion” to vary the costs orders, it was the first communication to the Court about that, and it was some 22 days after the orders in question had been made.

82. Three matters arising from this summary of the facts in Bluth should be noted for present purposes:

1. It was held that the appellant’s letter issued within 7 days of the judgment provided “sufficient, if not complete, notice of the relief” to the party affected by the application: Bluth, at [35].

2. The appellant did not approach the court with their application within time but – in circumstances where, upon approaching the court, his Honour’s Associate advised that the (late) filing of a notice of motion would not be necessary – this did not preclude the application of s 14 of the CPA on the facts of that case.

3. The respondent in Bluth failed to reference some prejudice or special disadvantage they might sustain if the formalities concerning the filing and service of a notice of motion within 14 days of the orders being entered were not followed: Bluth, at [35].

83. In the matter before me:

1. Unsealed copies of the notices of motion and affidavits in support on behalf of the Ibrahim defendants and the Chaudhry defendants were provided to the court, and to the solicitors acting for the plaintiffs, within time, on 19 and 20 November 2024, respectively.

2. The Ibrahim defendants and the Chaudhry defendants approached both the plaintiffs and the court with their application within time.

3. The plaintiffs did not contest the applications for dispensation and therefore there was no suggestion of any prejudice or special disadvantage that might flow from it.

84. There are several cases in which notice of the motion within the 14-day time constraint – either written or oral – has been held to be sufficient notice for the purposes of subr (3A) and has justified, in the appropriate case, the dispensation of the requirement to file a notice of motion to be heard on the question of costs: Bluth; Kable; Hancock.

85. While in each of these cases, so far as I can tell, a formal notice of motion was never filed, I would find it extraordinary that a party who provides “sufficient, if not complete notice” of the motion within the 14-day time constraint, and then proceeds to file the motion out of time, should find themselves in any worse position and be precluded from similar dispensation under s 14 of the CPA.

86. In the matter before me, the plaintiffs were served with unsealed copies of the notices of motion and the supporting affidavit within 14 days of the orders being entered and they do not suggest any prejudice or special disadvantage that might flow from dispensation of the kind sought.

87. Accordingly, and consistent with the approach taken by the Court of Appeal in Bluth, I am satisfied that it is appropriate in the circumstances of this case, where sufficient notice of the motion was provided within 14 days, that I exercise the powers in s 14 of the CPA to dispense with the requirements in rr 36.16(3A) and 18.2(1) of the UCPR for the filing of a notice of motion in respect of the defendants’ applications under r 36.16(3A) of the UCPR to vary the costs order I made on 6 November 2024.

ISSUE 2: INDEMNITY COSTS BASED ON CONDUCT

88. The second issue for my determination is whether I should make an order that the costs of the defendants should be paid on an indemnity basis by the plaintiffs based on the plaintiffs’ conduct of the proceedings.

Legal principles

89. The principal statutory provision containing the court’s powers as to costs is s 98 of the CPA, which relevantly states:

(1)   Subject to rules of court and to this or any other Act —

(a)   costs are in the discretion of the court, and

(b)   the court has full power to determine by whom, to whom and to what extent costs are to be paid, and

(c)   the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.

(2)   Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court.

(3)   An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings.

(4)   In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to—

(a)   costs up to, or from, a specified stage of the proceedings, or

(b)   a specified proportion of the assessed costs, or

(c)   a specified gross sum instead of assessed costs, or

(d)   such proportion of the assessed costs as does not exceed a specified amount.

…

90. The discretion to award costs under s 98 of the CPA is broad and the section itself is to be construed liberally: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11, Gaudron and Gummow JJ at [21]. The discretion is, however, subject to the rules of court, including the UCPR.

91. Rules 42.1, 42.2, 42.4 and 42.5 of the UCPR relevantly provide:

42.1   General rule that costs follow the event

Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.

42.2   General rule as to assessment of costs

Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis.

…

42.4   Power to order maximum costs

(1)   The court may by order, of its own motion or on the application of a party, specify the maximum costs that may be recovered by one party from another.

…

42.5   Indemnity costs

If the court determines that costs are to be paid on an indemnity basis:

(a)   in the case of costs payable out of property held or controlled by a person who is a party to the proceedings:

(i)   in the capacity of trustee, executor, administrator or legal representative of a deceased estate, or

(ii)   in any other fiduciary capacity,

all costs (other than those that have been incurred in breach of the person’s duty in that capacity) are to be allowed, and

(b)   in any other case, all costs (other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount) are to be allowed.

…

92. A number of observations regarding the exercise of the discretion to award costs made by McHugh J in Oshlack at [67]–[68] should be kept in mind, as summarised below:

1. An award of costs rests on fairness between the parties, with the unsuccessful party bearing the liability for the costs of the proceedings.

2. The primary purpose of an award of costs is to indemnify the successful party, not to punish an unsuccessful party because, had the proceedings not been brought, the successful party would not have incurred the expense of them.

3. As a matter of policy, one beneficial by-product of the compensatory purpose may well be to instil in a party contemplating commencing the proceedings a sober realisation of the potential financial expense involved.

93. The discretion to award indemnity costs must be exercised judicially, based on some “special or unusual feature” or “relevant delinquency” that justifies an award. Further, the conduct of the party against whom indemnity costs are sought must be connected with the litigation itself and, more specifically, the way the litigation was conducted: see Oshlack, Gaudron and Gummow JJ at [44]; Mead v Watson [2005] NSWCA 133, Sheller, Ipp and Tobias JJA at [8]–[9]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131, Meagher and Barrett JJA and Tobias AJA at [6].

94. A summary of the relevant principles relating to the discretion to award costs on an indemnity basis based on the conduct of a party can be found in Cappello v HomeBuilding Pty Ltd [2023] NSWCA 109, in which Mitchelmore JA (with whom Simpson AJA and Meagher JA agreed) at [46]–[48] stated:

[46]   The Court has a discretion to award costs on an ordinary or indemnity basis. Usually costs will follow the event, unless the Court considers that some other order ought to be made: Civil Procedure Act 2005 (NSW), s 98; Uniform Civil Procedure Rules 2005 (NSW), r 42.1; Collier v Country Women’s Association of New South Wales [2018] NSWCA 36 at [116] (“Collier”).

[47]   For an order of indemnity costs to be made, the conduct of the party against whom such costs are sought must usually exhibit some special or unusual feature: Collier at [117]. The focus is on the way the litigation was conducted: Mead v Watson [2005] NSWCA 133 at [8]-[9]. For example, the discretion may be enlivened where a party persists in what should have been seen to be a hopeless case, such as where the case was unduly prolonged by groundless contentions: Ferella at [36]; Liverpool City Council v Estephan (Executor and Administrator of the Estate of the late Jocelyn Estephan and Ors) [2009] NSWCA 161 at [93] (“Liverpool City Council”). It has also been said that indemnity costs may be awarded where the unsuccessful party’s conduct was unreasonable or delinquent: Amirbeaggi v Matrix Group Co Pty Ltd [2021] NSWCA 21 at [18].

[48]   The categories of circumstances in which the discretion may be exercised are not closed: Liverpool City Council at [93]. Ultimately, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on the ordinary basis: Liverpool City Council at [93].

95. An aspect of “relevant delinquency” to which reference is made in Oshlack and repeated in Cappello may arise from a party inevitably failing to prove that it has suffered any loss due to evidence that suffered from fundamental defects, an instance of which was dealt with in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199, in which McDougall J said at [64]–[65]:

[64]   The inference that I draw from all of this is that the plaintiffs, knowing or accepting that they would have to prove damages by comparing the amounts paid by them for the rights, notes or shares with their true value at the relevant time, elected to do so on the basis of evidence that suffered from the fundamental defects to which I adverted in the relevant paragraphs of Ingot (No.6).

[65]   It seems to me to be inevitable that the plaintiffs, properly advised, must have realised that the evidence led by them at the trial could not prove that they had sustained any loss according to the methodology for quantification of loss that they advanced. I think that this is an example of relevant delinquency sufficient to justify an award of indemnity costs. The inevitable result of the plaintiffs’ approach was to subject the defendants to what turned out to be a six month hearing, to defend a case that was bound to fail. It follows that, in principle, the defendants have made out their claim to have costs assessed on the indemnity basis.

96. This reasoning in Ingot was cited with approval in Anderson v Canaccord Genuity Financial Ltd (No 2) [2022] NSWSC 649 by Ward CJ in Eq at [20].

97. As I have already mentioned, r 42.5 of the UCPR details the costs to be allowed when the court orders that costs are to be paid on an indemnity basis.

Submissions

The Ibrahim defendants

98. The Ibrahim defendants submit that the plaintiffs’ claims were not only unsuccessful but suffered from a “relevant delinquency” such that the court should exercise its costs discretion to order that the plaintiffs pay the Ibrahim defendants’ costs of the whole proceedings on an indemnity basis, citing Oshlack, Gaudron and Gummow JJ at [44].

99. The “relevant delinquency” identified by the Ibrahim defendants is the plaintiffs’ failure to demonstrate by admissible evidence any loss to support their claims, citing Ingot, at [65] and Anderson, at [20]. Specifically, it was submitted “the lack of any evidence of loss had the inevitable result of subjecting the Ibrahim Defendants to complex proceedings (run expeditiously) that were bound to fail”.

100. The argument of the Ibrahim defendants is as follows:

1. The release in the Deed of Settlement represented a significant impediment to the plaintiffs’ claims, which did not depend in any way on the defendants’ evidence or on any credit findings made in the Principal Judgment. If the Deed of Settlement survived challenge then, in the absence of the evidence of any loss, the claims against all of the Ibrahim defendants would fail and that this was evident at the time the proceedings were commenced. Even if the release in the Deed of Settlement was set aside, the balance of the relief sought depended on the plaintiffs proving loss, which they did not seek to do.

1. The same solicitors who negotiated the Deed of Settlement acted for the plaintiffs in the proceedings so it must have been directly in their minds that the release would be a real problem. All of the pleaded representations were said to be in writing or by conduct (FASOC, at [34]–[37]), with none of the representations made orally. Whether those matters could be proved must have been considered by the plaintiffs in preparing their claim and they must have known that none of those things would turn on the defendants’ evidence, any discovery or credit findings. None of the pleaded representations were found in the Principal Judgment.

2. While credit findings with respect to Dr Kyatt were made in the Principal Judgment, most of the relevant findings with respect to the release in the Deed of Settlement did not turn on credit findings. They turned on contemporaneous documents, including correspondence from Dr Kyatt’s solicitors, which Dr Kyatt would have had at the time he commenced the proceedings. The suggestion that the plaintiffs could not have known this outcome because they did not know how Dr Kyatt would perform under cross-examination cannot be accepted where the relevant findings with respect to the release were not made on that basis.

3. The pleading that the plaintiffs relied on the representations (FASOC, at [44]) could only be proved by evidence from Dr Kyatt and/or his lawyers. Dr Kyatt conceded in cross-examination (Principal Judgment, at [316]) that he wholly relied on his lawyers, and he must have known that he had so relied when they were preparing the pleading.

4. At the time the plaintiffs commenced the proceedings and certainly by the next day, they had served all of their evidence in chief and had informed the court accordingly.

5. All the material that the plaintiffs needed to assess whether the claim of misleading or deceptive conduct against Mr Ibrahim had any prospects was in the plaintiffs’ possession before they commenced these proceedings.

6. The form of relief which was sought in the FASOC against Mr Ibrahim in prayers 2 and 3 was compensation, either under the Corporations Act 2001 (Cth) or as equitable compensation. The form of relief sought in the FASOC against Mr Ibrahim in prayers 4 and 5 was a declaration that Mr Ibrahim held his shareholding in Engadine Medical Imaging on trust for the benefit of Dr Kyatt and an order that Mr Ibrahim transfer that shareholding to Dr Kyatt.

7. The form of relief which was sought in the FASOC against Mr Chaudhry in prayers 20 and 21 was compensation, either under the Corporations Act or as equitable compensation. There was no constructive trust relief sought against Mr Chaudhry.

8. The constructive trust that is pleaded in paragraph 57 of the FASOC was that the monies derived from the Competing Business and held by Engadine Medical Imaging from the breaches of Mr Ibrahim and Mr Chaudhry were used by Engadine Medical Imaging to own and operate the Competing Business. It was pleaded that as a result, Mr Ibrahim, Mr Chaudhry and Engadine Medical Imaging held any beneficial interest in the Competing Business on constructive trust for the plaintiffs to secure monies used in the Competing Business derived from the breaches. However, this trust claim could not have succeeded without some evidence of loss in the form of the monies used in the Competing Business, which were never proved.

9. There is no allegation in the FASOC that Mr Chaudhry had any interest in the Competing Business. The sole director and shareholder of Engadine Medical Imaging was pleaded to be Mr Ibrahim (FASOC, at [4.4]) and the Competing Business being owned by Engadine Medical Imaging (FASOC, at [5.4]). There could not have been any claim of constructive trust against Mr Chaudhry, as conceded by the plaintiffs in their closing submissions. The only claim that the plaintiffs had against Mr Chaudhry was for compensation.

10. There is no evidence to support the contention that the performance of Dr Kyatt in the witness box caused him to abandon the claims concerning the JVA. In the absence of any evidence as to why claims concerning the JVA were abandoned, there could be no finding that it was Dr Kyatt’s performance that caused that abandonment.

The Chaudhry defendants

101. The Chaudhry defendants endorsed and adopted the submissions of the Ibrahim defendants to the extent they applied to the Chaudhry defendants.

102. The submissions of the Chaudhry defendants are that the court should exercise its costs discretion to order that the plaintiffs pay the Chaudhry defendants’ costs of the whole proceedings on an indemnity basis, for the following reasons:

1. An order for costs on the indemnity basis may be appropriate where an action has been commenced and continued in circumstances where the applicant, properly advised, should have known that there were no prospects of success, citing Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; [1988] FCA 364, Woodward J at 401.

2. A substantial part of the plaintiffs’ claim concerned an alleged JVA. That claim was abandoned on the morning of the last day of the three-day hearing in circumstances where the proceedings had already addressed a large volume of factual and documentary material. Consequently, the parties had incurred significant costs and spent substantial time on the joint venture issue. This abandonment resulted in the claim against the fourth to sixth defendants being dismissed. These particular circumstances warrant the making of a special costs order, citing Ghougassian v Fairfax Community Newspapers Pty Ltd [2015] NSWCA 307, Emmett JA at [53]–[57].

3. As to the balance of the plaintiffs’ case as it concerns the Chaudhry defendants, specifically the claims made against Mr Chaudhry, there was a “substantial lack of merit to the plaintiffs’ case”, which warrants an order for costs on an indemnity basis for the whole of the proceedings. This order is said to be justified by a close analysis of my reasons in the Principal Judgment that determined there was no admissible evidence of any loss suffered by the plaintiffs and that a substantial part of the plaintiffs’ case on liability was not supported by evidence, citing the Principal Judgment, at [395], [415]–[420], [426].

4. While the Principal Judgment did make some credit findings against Dr Kyatt, the ultimate resolution of the determination is that this was a case that failed on the basis of an absence of evidence. To the extent that Dr Kyatt’s evidence was not accepted, that may have been a slight contributing factor.

5. There were multiple findings in the Principal Judgment that there was no evidence of a particular matter, one of those being in relation to loss.

6. It was so apparent that there were deficiencies in the evidence that supported the plaintiffs’ case and this reflected itself not just in the findings in the Principal Judgment, but also in the forensic decisions the defendants made to not even go into evidence and call any of their witnesses.

7. It is not necessary for the plaintiffs’ case to be condemned as hopeless to justify an award of indemnity costs. In light of the fact that there was no evidence across multiple matters, both as to quantum and liability, there should be an inference drawn that that the reason why the decision was made to abandon the joint venture claim was equally because it was plainly unsustainable on the evidence as well, and also not something that was dependent upon the performance of Dr Kyatt in the witness box.

103. As an extension of their primary position, the Chaudhry defendants also seek to vary the costs orders made on an interlocutory basis in these proceedings. Specifically, the Chaudhry defendants seek an order for their costs on the indemnity basis in relation to the following reserved costs orders:

1. order 10 of the orders made by the court on 2 May 2023; and

2. order 5 of the orders made by the court on 21 June 2023.

The plaintiffs

104. The plaintiffs oppose any costs order on an indemnity basis in favour of the defendants for the following reasons:

1. It is not open to the court to find the plaintiffs’ claim had no prospects of success or was hopeless from the outset because:

1. This court did not make any findings in the Principal Judgment that the plaintiffs’ claim had no prospect of success, or was without substance, groundless, fanciful, hopeless, or so weak as to be futile.

2. One of the primary reasons the plaintiffs’ claims failed was that this court formed an adverse view of the credibility and reliability of their key witness, Dr Kyatt. Because these findings as to credit and reliability could only be made after final hearing, it is suggested they were not something that could be anticipated by the plaintiffs or their legal representatives, either at the time proceedings were commenced or when the Calderbank offer was made.

2. Another primary reason why the plaintiffs’ claim failed was Dr Kyatt’s evidence during cross-examination as to reliance, citing the Principal Judgment, at [316]–[317], [376]. Similarly, it is suggested this evidence was not something that could be anticipated by the plaintiffs or their legal representatives, either at the time proceedings were commenced or when the Calderbank offer was made.

3. Mere weakness of an arguable case is insufficient to warrant an exercise of this court’s discretion to award costs on an indemnity basis, citing Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, Kirby P at 542. The plaintiffs’ case was arguable. The plaintiffs’ case failed because findings of fact were not made due to adverse credibility findings of this court and the reliability of Dr Kyatt’s evidence under cross-examination.

4. No application for summary dismissal was made by the defendants and this is said to be a telling factor favouring a finding that the plaintiffs’ claim was not hopeless from the outset.

5. Whilst the plaintiffs had some transparency that a competing business was operating, they had no transparency as to the structure of that competing business as between Mr Ibrahim and Mr Chaudhry. It took the plaintiffs’ use of the coercive powers of the court to obtain discovery of documents to determine how the Competing Business was structured and operating.

6. The plaintiffs pleaded from the outset how it was that they sought to overcome the release in the Deed of Settlement through the claim of misleading or deceptive conduct based on representations in writing and by conduct. The mere failure of that claim does not justify an award of indemnity costs.

7. The plaintiffs’ abandonment of the joint venture claim was caused by the performance of Dr Kyatt in the witness box and this decision aligned with the obligations imposed by s 56 of the CPA.

8. The reason why the plaintiffs did not adduce expert evidence as to loss was because they elected, on the final day of the hearing, to seek that a constructive trust be declared over the Competing Business. This relief was pleaded from the outset and became the plaintiffs’ primary claim for relief. Further, the finding in the Principal Judgment at [426] was that there was no admissible evidence of loss to support the claims not that there was no material which could support that claim.

9. Ultimately, it is said the plaintiffs’ failure turned heavily on what occurred at the final hearing. For this reason, the defendants cannot discharge their onus to establish that the plaintiffs’ claim had no prospects of success.

Consideration

105. In my view, applying the factors summarised in Cappello, this is not a case in which I can conclude that the plaintiffs’ conduct had some special or unusual feature which would justify an order that the plaintiffs pay the defendants’ costs on an indemnity basis from the commencement of the proceedings.

106. In particular, this is not a case that could be properly described as the plaintiffs’ persisting in a hopeless case or unduly prolonging the case with groundless contentions. Nor is it a case in which the plaintiffs acted unreasonably or with delinquency.

107. Applying the principles recited in Ghougassian at [53]–[57], the mere abandonment of the joint venture case during the course of the trial is not sufficient to warrant an order for indemnity costs and there must be other factors present to justify such an order.

108. In this case, on or around 27 March 2023, the plaintiffs became aware that the Engadine Practice has ceased to operate at the Engadine Premises and that Mr Ibrahim was operating a new radiology practice (Focus Radiology Engadine) out of the Focus Engadine Premises (approximately 100 metres from the Engadine Premises). Over the course of the next week, the plaintiffs conducted their investigations in an effort to determine what had taken place. On 27 April 2023, just on a month after the new radiology practice began to operate, the proceedings were commenced.

109. Until the defendants provided a basis on which they proposed to defend the proceedings by filing their defences in August 2023 and their evidence in October 2023, the plaintiffs were still in the dark as to what exactly had taken place with respect to the Engadine Practice and Focus Radiology Engadine. I consider that none of the conduct of the plaintiffs up until the defences and evidence were provided could properly be described as falling within the categories stated in Cappello as supporting an order for indemnity costs.

110. While it is true that the plaintiffs knew they had to overcome the operation of the releases in the Deed of Settlement to maintain their claims against the Ibrahim defendants, they had an arguable basis for doing so in the form of the alleged representations made by Dr Kyatt and the alleged reliance on those representations by Dr Kyatt. Although I found that the plaintiffs’ claims failed, I consider that they were arguable claims and could not be regarded as without any merit or classified as groundless. In my assessment, the plaintiffs’ failure was based on my assessment of the evidence before me at the hearing, not because of any unreasonable conduct on the part of the plaintiffs in maintaining the claims.

111. In relation to the defendants’ argument concerning the finding in the Principal Judgment at [426] that the plaintiffs failed to demonstrate by admissible evidence any loss to support their claims, in my view this is not a case of the type dealt with in Ingot at [65] and Anderson at [20] where the failure could be described as a delinquency such as to justify an award of indemnity costs. In this case, claims for relief by way of constructive trust as well as monetary relief were present from the outset and were pressed by the plaintiffs at the final hearing. The finding that I made in the Principal Judgment at [426] was that the material before me could not prove any loss. However, in light of the constructive trust claim that the plaintiffs maintained, it was not inevitable that the plaintiffs would be without remedy against the defendants if I had found that the plaintiffs’ claims should succeed.

112. I do not agree with the defendant’s argument that the plaintiffs could not succeed in their constructive trust relief if they were unable to prove loss to the plaintiffs. The claims for damages required the plaintiffs to show that they had suffered loss themselves from the alleged breaches by Mr Ibrahim and Mr Chaudhry. The claim for a constructive trust required the plaintiffs to show that the Competing Business run by Engadine Medical Imaging had earned monies from the alleged breaches by Mr Ibrahim and Mr Chaudhry. The issues of damages and constructive trust are therefore directed to entirely different financial outcomes, respectively being the financial impact of the conduct on the plaintiffs and the financial impact of the conduct on Engadine Medical Imaging. Where the plaintiffs persisted in their claim for a constructive trust in the proceedings, it could not be said that their claims were bound to fail due to a lack of admissible evidence of loss.

ISSUE 3: INDEMNITY COSTS BASED ON CALDERBANK OFFER

113. The third issue I am required to decide is whether an award of indemnity costs should be made in favour of the defendants on the basis that they made the Calderbank offer to the plaintiffs.

Legal principles

114. The principles relating to the awarding of indemnity costs based on the failure of a party to accept an offer of compromise contained in a Calderbank letter were set out in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, in which Giles JA at [37] stated:

… The making of an offer of compromise in the form of a Calderbank letter (from Calderbank v Calderbank (1976) Fam 93), where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree’s failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure. …

115. In Commonwealth of Australia v Gretton [2008] NSWCA 117, Beazley JA (with whom Mason P agreed and Hodgson JA substantially agreed) at [44]–[45] indicated that there are two general requirements to justify making an order for costs on an indemnity basis following a Calderbank offer, stating:

[44]   Two general ‘rules’ have emerged relating to Calderbank offers, namely, that to justify the making of an order for costs on an indemnity basis, the offer must be a genuine offer of compromise, which it is unreasonable for the appellant not to accept: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4]-[5]; Leichhardt Municipal Council v Green at [21]-[24], [36]. However, as this Court (Santow, Bryson JJA, Stein AJA) pointed out in Leichhardt Municipal Council v Green at [8], the ‘common law principles’ that have been developed in relation to costs “operate merely as guides to how the discretion might appropriately be exercised”. The principles or rules to which I have just referred fall within that category.

[45]   The discretion is to be exercised having regard to all the relevant circumstances in the case. The question that had been raised in Leichhardt Municipal Council v Green was whether there had been a genuine offer of compromise. As the Court said at [21]:

“There is little appreciable difference between saying that an offer should not in the court’s discretion attract costs sanctions in the circumstances and saying that an offer is not a genuine offer of compromise in the circumstances. Both depend upon a value judgment of the offer and the conduct of the parties in the circumstances of the claim.”

116. In Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188, Barrett JA (with whom Beazley P and McColl JA agreed) at [57]–[60], in making additional remarks to the reasons of Bathurst CJ, considered several matters relevant to the determination of whether an offer took effect as a Calderbank offer, noting that it is crucial to determine the manifested objective intention of the offeror, stating:

[57]   An offer is of the Calderbank type only if the maker of it is shown to intend that the fact of its non-acceptance may be deployed as a basis for seeking a special costs order in the event of that party’s ultimate success in the action. Everything therefore depends on the message conveyed by the offer itself and any covering letter or other attendant circumstance.

[58]   The possibility that an ineffective or deficient offer purportedly made in accordance with the rules might take effect as a Calderbank offer has been recognised in several cases. It is sufficient to refer to Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 in which Ipp JA (with the concurrence of Mason P and McColl JA) said (at [27]):

“Calderbank offers are simply offers that do not comply with the relevant rules of court relating to the making of offers of compromise: Jones v Bradley (No 2) [[2003] NSWCA 58] (at [5]). 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 no.” (emphasis added)

[59]   As this passage makes clear, the crucial matter is the manifested intention of the offeror. In the present case, the message conveyed by the making of each offer in the context in which it was made was that the plaintiff intended to have resort to the r 20.26 regime. In the absence of any intimation (for, example, in a covering letter) that the plaintiff intended its offer expressly founded on r 20.26 to have some secondary or alternative significance, the fact that the plaintiff’s attempt to act under r 20.26 miscarried neither required nor justified any assumption of intended secondary or alternative significance. Faced with an offer that purported to have significance under r 20.26 (and not otherwise) but which, on its face, exhibited a feature inconsistent with that rule, the correct course for the defendant to adopt was to regard the purported offer as having no force at all. The defendant was not required to speculate about some alternative intention on the part of the plaintiff; nor was the defendant justified in doing so.

[60]   The plaintiff did not indicate, either expressly or by implication, that, if the offer did not take effect under the rules, the plaintiff still reserved the right to rely on it on the question of costs. An essential ingredient of a Calderbank offer was therefore absent: see Calderbank v Calderbank (above) at 596. The correct characterisation in this case corresponds with that which, in Old v McInnes, commended itself to Meagher JA (at [106]) and Giles JA (concurring).

117. In Dream Developments, Bathurst CJ (with whom Beazley P and McColl JA agreed) at [42] concluded that the essence of a Calderbank offer is an intention that the offer (or the circumstances in which it was conveyed) indicated that it would be relied on in relation to costs, should a verdict more favourable than the offer be achieved, stating:

In the present case all that there was, were the offers of compromise, the second seeking a greater amount by way of settlement than the former. There was nothing in either of the offers to indicate that they were intended to have effect other than as offers under r  20.26. Further, there was nothing in the correspondence with which the offers were enclosed or in the surrounding circumstance to indicate they would be relied on in relation to the question of costs should a verdict more favourable than the offer be achieved. Such an indication, in my opinion, is the essence of a Calderbank offer.

118. In Abdi v Abdi (No 2) [2022] NSWSC 582, Ward P at [27]–[30] provided a statement of the principles relating to an award of indemnity costs following the rejection of a Calderbank offer as follows:

[27]   The party seeking the special costs order bears the onus of demonstrating that the rejection of the offer was “unreasonable” in all the circumstances of the case (see Leichhardt Municipal Council at [19]; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] per Giles, Ipp and Tobias JJA).

[28]   Whether rejection of a Calderbank offer (or other offer of settlement) was unreasonable is an evaluative judgment to be made by reference to the terms of the offer and all the relevant surrounding circumstances (King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [11] per Young JA with whom Campbell and Hodgson JJA agreed). It has been said that a finding of unreasonableness should not be made other than on clear grounds (Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113] per Basten JA with whom Giles JA and Young CJ in Eq agreed).

[29]   The factors to be taken into regard when considering whether the rejection or non-acceptance of the offer was unreasonable (summarised in Favotto at [20]-[30]) include: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree’s prospects of success assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it (see Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25] per Warren CJ, Maxwell P and Harper AJA; Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 at [8] per Buchanan and Tate JJA and Sifris AJA; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12] per Basten JA with whom McColl and Campbell JJA agreed).

[30]   Factors that have been found to be relevant in determining whether the rejection of a Calderbank offer was not unreasonable, and tending against such finding, have included: all relevant evidence not having been served at the time of the offer (Vale v Eggins (No 2) [2007] NSWCA 12 at [22] per Beazley JA); the full parameters of the dispute remaining uncertain at the time of the offer (Precision Products (NSW) Pty Ltd v Hawkesbury City Council (2008) 74 NSWLR 102; [2008] NSWCA 278 at [192] per Allsop P with whom Beazley and McColl JJA agreed); the offeror’s case changing after the making of the offer (South Eastern Sydney Area Health Service at [85] per Hunt AJA); the inclusion of conditions in the offer (Magenta Nominees Pty Ltd v Richard Ellis (WA) Pty Ltd (unreported, FCAFC, Spender, French and Lee JJ, 29 August 1995); and the issues in dispute in the proceedings being complex (MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 242D per Lindgren J). (Other than the first, it is difficult to see that any of these factors is here applicable.)

Submissions

The Ibrahim defendants

119. As an alternative to their argument for indemnity costs of the proceedings, the Ibrahim defendants submitted that they are entitled to an order for indemnity costs from 21 November 2023 for the following reasons:

1. The plaintiffs’ rejection of the Calderbank offer was not reasonable in the circumstances. The plaintiffs were in a position to assess the prospects of their claim at the time the offer was made based on the following factors:

1. The period of time the plaintiffs had to consider the offer was reasonable in the circumstances.

2. The offer was plainly made in accordance with the principles espoused in Calderbank. The offer explicitly stated that if the result of the proceedings was more favourable to the defendants, the plaintiffs’ failure to accept the offer would be relied upon to seek an order for costs on the indemnity basis.

3. If the court accepts that the plaintiffs’ rejection of the offer was unreasonable and the result of the proceedings was more favourable to the Ibrahim defendants than the proposed settlement terms, then the court should exercise its discretion as to costs to make an order for the Ibrahim defendants’ costs on an indemnity basis from 21 November 2023, rather than on the ordinary basis.

2. To the extent any separate costs order is necessary for this application, the Ibrahim defendants also seek their costs of this application on an indemnity basis. In support of this submission, the Ibrahim defendants rely on the terms of their letter dated 12 November 2024.

The Chaudhry defendants

120. Also as an alternative position, the Chaudhry defendants submit that they are entitled to an order for indemnity costs from 21 November 2023 because the plaintiffs’ failure to accept the Calderbank offer was not reasonable in the circumstances. The balance of factors that are said to weigh firmly in favour of this conclusion include:

1. The result of the proceedings was more favourable to the Chaudhry defendants than the proposed settlement terms, and so there is a persuasive burden on the plaintiffs to show rejection of the Calderbank offer was not unreasonable.

2. The offer made plain it was made in accordance with the principles espoused in Calderbank and it would be later relied upon to seek costs on an indemnity basis.

3. The offer was substantial in circumstances where there was no admissible evidence of any loss suffered by the plaintiffs and a substantial part of the plaintiffs’ case on liability was supported by no evidence, citing the Principal Judgment, at [415]–[420], [426]. This lack of merit in the plaintiffs’ case is said to compound the extent of the unreasonableness in failing to accept the offer, as well as the extent of the compromise which the offer embodied.

4. The period of time the plaintiffs had to consider the offer was reasonable in the circumstances.

5. At the time the offer was made, the plaintiffs were in a position to assess the parties’ pleaded positions, as well as the nature, content and quality of their evidence. Consequently, it is said that that any lack of merit in the plaintiffs’ case, including the lack of evidence on loss and liability, would have been readily apparent at the time the offer was made.

6. The plaintiffs did not engage with the offer or make a counter-offer. Had they done so, it would have obviated the substantial expenditure on costs of the proceedings in circumstances where judgment was delivered almost one full year later.

121. While it was not a matter canvassed in their written or oral submissions, it is noted that the Chaudhry defendants also seek their costs of this application on an indemnity basis, presumably in reliance on the terms of their letter dated 13 November 2024.

The plaintiffs

122. The plaintiffs’ submissions with respect to the Calderbank offer can be summarised in the following way:

1. The plaintiffs’ conduct in not accepting the Calderbank offer does not entitle the defendants to an order for costs on an indemnity basis. The making of a Calderbank offer that is bettered by the offeror does not in itself entitle the offeror to an order for costs on an indemnity basis. The exercise of this court’s discretion as to costs “depends on all the relevant circumstances of that case”, citing SMEC Testing, Giles JA at [37].

2. The plaintiffs’ conduct in failing to accept the Calderbank offer was not unreasonable for the following reasons:

1. The onus is on the defendants to demonstrate it was unreasonable for the plaintiffs not to accept the offer, citing Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344.

2. At the time the offer was made, the parties had not yet served all their evidence, and no discovery whatsoever had occurred. Accordingly, the plaintiffs were not able to make an informed assessment of the strength or otherwise of their case.

3. In the absence of all evidence having been served and all documents discovered, it was not possible for the plaintiffs’ legal representatives to properly consider the contention raised in the body of the Calderbank letter that the plaintiffs’ claim could not succeed.

4. Ultimately, the plaintiffs’ failure turned heavily on what occurred at final hearing, including the adverse credibility and reliability findings that the court made in regard to Dr Kyatt and the evidence he gave during cross-examination. In light of the information available at the time, and the reasons why the plaintiffs’ claim ultimately did not succeed, the plaintiffs did not act unreasonably in failing to accept the offer.

Consideration

123. Weighing all of the circumstances of this case in the manner set out below, in the application of the principles in SMEC Testing, Gretton and Dream Developments outlined above, in my view I should exercise my discretion to order the plaintiffs to pay the costs of the defendants on an indemnity basis on and from 21 November 2023 based on the plaintiffs’ failure to accept the offer made in the Calderbank letter.

124. The Calderbank offer was made after the plaintiffs had served all of their evidence in chief, the defendants had served their defences, and the defendants had served all of their evidence in response to that of the plaintiffs. As a result, the plaintiffs were in a position to assess the prospects of their claim by the time the offer contained in the Calderbank letter was received by them.

125. The Calderbank offer was also made after the plaintiffs were ordered to provide security for the defendants’ costs such that the plaintiffs had within their contemplation the potential financial expense, and risk, posed by proceeding to hearing.

126. I do not consider that it was necessary for all of the discovery to be completed and the hearing to be conducted before the plaintiffs were in a position to give a proper assessment of their likelihood of success in the proceedings. Although I made numerous findings regarding the credibility and reliability of the evidence of Dr Kyatt, those matters were not essential to the central assessment of the various claims. In particular, one of the matters I identified as a reason for the failure of the plaintiffs’ misleading or deceptive conduct claim involved an acceptance of Dr Kyatt’s evidence that the whole of his reliance for the entry into the Deed of Settlement was what was said to him by his lawyers, not anything represented to him by Mr Ibrahim.

127. The Calderbank letter expressly detailed the defendants’ views of the deficiencies in the plaintiffs’ claims and their evidence in the proceedings, concluding that it would “not support a finding by the Court in favour of your clients in respect of any of the claims they have advanced against the Defendants”. In light of the conclusions I reached in the Principal Judgment, as summarised above, this statement was prescient. But it was also soundly based on an analysis of the material that the plaintiffs had provided to that time and did not depend in any way on whether the credibility and reliability of Dr Kyatt’s evidence would survive cross-examination at trial over 6 months later.

128. I specifically reject the notion that a Calderbank letter in advance of the trial cannot operate to cause the discretion to be exercised in favour of an award of indemnity costs because the outcome of the cross-examination of the principal witness for the plaintiffs was not known. It would be an extraordinarily rare case in which such a factor would have such weight, and this case is certainly not one within that category. At the time the Calderbank letter was received by the plaintiffs, they had marshalled all of their evidence in chief, served it and knew the defendants’ evidence in response. They could make a fully informed assessment on their prospects of success.

129. In my opinion, the offer made in the Calderbank letter for the defendants to pay a total of $100,000 in full and final settlement of the plaintiffs’ claims with mutual releases was genuine and entirely reasonable, as was the period of 13 days that the plaintiffs were given to provide their response. The offer also explicitly stated that it was made “without prejudice, save as to costs” in accordance with the principles in Calderbank and would be relied upon by the defendants to seek an order for costs on an indemnity basis if the defendants achieved a better result at the hearing. The objective manifest intention of the defendants was that they would rely on the offer contained in the Calderbank letter to make an application for indemnity costs if the plaintiffs did not accept the offer within the time stipulated and the defendants went on to achieve a better result at the hearing.

130. The defendants received a significantly better result at the hearing (dismissal of the plaintiffs’ claims) than the offer in the Calderbank letter.

131. In all the circumstances, it was unreasonable for the plaintiffs not to accept the Calderbank offer within the period in which it was open for acceptance, which was by 5pm on 20 November 2023.

132. As a result, I consider that I should make orders varying the costs order I made on 6 November 2024, so that the plaintiffs pay the defendants’ costs on the ordinary basis up to and including 20 November 2023 and on an indemnity basis after that time. In addition, the costs to be paid on an indemnity basis will include the costs of this application.

133. Given the above, I will also make orders that the plaintiffs are to pay the costs of the defendants that were reserved on 2 May 2023 and 21 June 2023. In circumstances where these costs pre-date the Calderbank offer, they are costs in the cause and are to be paid on the ordinary basis.

ORDERS

134. For the reasons set out above, I propose to make the following orders:

1. Order under s 14 of the Civil Procedure Act 2005 (NSW) dispensing with the requirements in rr 36.16(3A) and 18.2(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) for the defendants to file a notice of motion for their applications under r 36.16(3A) of the UCPR to vary order 2 made on 6 November 2024.

2. Order that the plaintiffs are to pay the costs of the defendants which were reserved on 2 May 2023 and 21 June 2023.

3. Order under r 36.16(3A) of the UCPR varying order 2 made on 6 November 2024 as follows:

The plaintiffs are to pay the costs of the defendants on the ordinary basis up to including 20 November 2023 and on an indemnity basis on and from 21 November 2023.

4. Order that the plaintiffs are to pay the costs of the defendants in relation to the respective notices of motion filed 21 and 22 November 2024 by the defendants on an indemnity basis.

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Decision last updated: 28 February 2025