Equuscorp Pty Ltd v Manuel Jimenez & Ors (No 2) No. Scciv-00-474

EQUUSCORP PTY LTD v MANUEL JIMENEZ & ORS (NO 2)
[2002] SASC 266
Civil

BESANKO J I published reasons for judgment in this action on 16 July 2002. In those reasons I set out the orders which I was prepared to make.
In addition to those orders the plaintiff seeks the following orders as to costs:
“4.The second defendant and the fourth defendant pay the plaintiff’s costs of the action up to and including 27^th day of March 2002 to be taxed if not agreed.
5.The second defendant and the fourth defendant pay the plaintiff’s costs of the action from the 28^th day of March 2002 on a full indemnity basis to be taxed if not agreed.”
The second defendant and the fourth defendant oppose the plaintiff’s application. They submit that it is not an appropriate case for the awarding of costs on a full indemnity basis.
The second defendant and the fourth defendant in turn make their own application for costs with respect to a particular issue. They submit that the plaintiff should pay their costs on the issue of whether or not the second defendant was bound by the Discount Facility Deeds. For convenience I will refer to this issue as the “guarantee issue”. Unless it is necessary to identify the particular defendant, I will refer to the second defendant and fourth defendant as “the defendants”.
The evidence I received in support of the plaintiff’s application consisted of two letters from the plaintiff’s solicitors to the defendants’ solicitors. The first letter is dated 25 March 2002. The body of the letter provides:
“We refer to our discussion with you a short time ago.
We confirm that settlement negotiations with Manuel and Petra Jimenez are well advanced and that there is a strong prospect that the claim against them will be resolved prior to the trial next week. If so, the trial next week will be primarily concerned with the claim of the fourth defendant that he is beneficially entitled to the property at Woodville as a result of an oral trust.
We are instructed to advise that, subject to a settlement being reached with Manuel and Petra Jimenez, our client is prepared to discontinue claims against both of your clients and to bear its own costs. It will require your clients to forego the claim that the Woodville property is held beneficially for the fourth defendant and to do so in a way that is final and binding. It will also require Elma to consent to whatever steps are necessary to implement the terms of settlement agreed with Manuel and Petra Jimenez.
Would you kindly advise your clients’ attitude to settlement of this matter.”
The second letter is dated 27 March 2002, and the body of the letter provides:
“We refer to our discussions with you in the past few days and our fax earlier this week in relation to settlement of this matter.
We confirm that the plaintiff is likely to settle with Manuel and Petra Jimenez. We expect that settlement will be completed today.
In our facsimile transmission we advised that the plaintiff was prepared to settle with each of your clients on the basis that they walk away from the litigation, forego the claim that an oral trust was created in favour of Ramon Jimenez and with all parties to bear their own costs of the litigation.
Your clients have rejected the offer of settlement and put no alternative proposition.
We propose to refer to this matter at the conclusion of the trial on the plaintiff’s application that your clients pay to the plaintiff its costs on an indemnity basis.
This letter is written without prejudice except as to costs.”
The defendants put forward an affidavit of their solicitor in support of their application. The affidavit is an affidavit from Mr A W B Nicolas sworn on 25 July 2002. In essence, it outlines the substantial amount of work done by the defendants and their legal advisers with respect to the guarantee issue from 3April 2002 to the commencement of the trial on 8 April 2002. It also outlines to the extent to which the guarantee issue occupied time at trial.
The Plaintiff’s Application for Indemnity Costs
The plaintiff’s principal submission was that the letter from its solicitors dated 27 March 2002 was a Calderbank letter,[1] and that the defendants’ failure to achieve a result better than that set out in that letter means that they should pay the plaintiff’s costs from 28 March 2002 on an indemnity basis.
[1] Calderbank v Calderbank [1976] Fam. 93.
I note that the letter was sent after the plaintiff’s offer was refused. It records the substance of the offer and the fact of refusal. I do not think the fact that it was sent after the offer was refused diminishes the force of the plaintiff’s submission.
In my reasons for judgment I set out the relief claimed by the plaintiff in the Statement of Claim as it was at the commencement of the trial.[2]
[2] Para 35.
I held a directions hearing in the action on Friday 5 April 2002. All parties appeared save and except for the first and fifth defendants. Counsel for the third defendant said,
“The other matter is that we would expect on Monday morning to be able to advise you that we have settled with the plaintiff. It’s 99.9% I think it would be fair enough to say. It’s just a case of final nutting out and that agreement would be likely to involve the first defendant as well.”
As recorded in my reasons for judgment I was advised on Monday 8 April 2002 that the matter had settled as against the first defendant and the third defendant.
Counsel for the plaintiff also told me at the commencement of the trial that the only relief sought against the remaining defendants (ie the second defendant and the fourth defendant) was an order for the removal of the caveat lodged by the fourth defendant, and as against the second defendant a declaration in the following terms:
“A declaration that the plaintiff has an equitable charge upon the estate and interest of the first and second defendants and each of them, on the land comprised in Certificate of Title Register Book Volume 5175 Folio 137 securing to the plaintiff the sum of $882,303.”
Rule 41 of the Supreme Court Rules 1987 deals with offers by a plaintiff to settle. Such offers may be made up to twenty one days prior to trial. They may be accepted by a defendant up to seven days prior to trial. Rule 41.04 provides,
“41.04Where a defendant has not accepted a plaintiff’s offer made pursuant to this Rule and the sum recovered or, as the case may be, the proportion of the debt or damages or the relief recovered by the plaintiff is equal to or greater than that contained in the plaintiff’s offer, the Court, unless it thinks proper to order otherwise, shall order the defendant to pay the whole of the plaintiff’s costs of action to be taxed as between solicitor and client.”
The plaintiff could not have embodied all of the relief that it sought in the Statement of Claim in an offer filed under Rule 41 of the Supreme Court Rules.
The plaintiff submits that the letter from its solicitors dated 27 March 2002 was a Calderbank letter, and that there is a prima facie presumption in the event of the offer not being accepted, and in the event of the offeree not receiving a result more favourable than the offer, that the offeree should pay the costs of the other party on an indemnity basis from the date of the making of the offer.
I was referred to a number of cases which discuss the precise effect of a Calderbank letter.[3] In Pirrotta v Citibank & Ors[4] (“Pirrotta”), Debelle J speaking for the Full Court said,
“Given the approach of the trial Judge, it is unnecessary for this Court to determine whether it should follow the approach of the Supreme Court of New South Wales as exemplified in Multicon or follow the other line of cases to the effect that a Calderbank letter is but one of the factors to be considered when determining whether to order indemnity costs. In the result, there might not be a great deal of difference between the two approaches. As the matter was not fully canvassed in argument, it is better to defer any final decision until an occasion when the matter is fully argued.”
[3] Pirrotta v Citibank Limited & Ors (1998) 72 SASR 259; Duke Group Limited (in liquidation) v Pilmer & Ors Unreported judgment number S6699 delivered 1 June 1998; MGICA (1992) Ltd v Kenny & Good PtyLtd (No 2) (1996) 70 FCR 236; (1996) 140 ALR 707; IMT Associates Pty Limited v Aqua-Max Pty Ltd & Cook’s Body Works Pty Ltd [2000] VSC 163.
[4] At page 266.
His Honour went on to consider the case before the Court on the basis that until the matter was fully argued the proper approach was that the writing of a Calderbank letter should be one of the factors to be weighed by the Court when considering whether to order indemnity costs.
The matter was not fully argued before me, and I propose to adopt the same approach as the approach adopted by the Full Court in Pirrotta.
Debelle J made some other observations in Pirrotta which are relevant to the present case. His Honour said that Rule 41 is not the only means by which a plaintiff might make an offer to compromise an action. Rule 41 might not always apply to multi party litigation or where the litigation is otherwise complex. His Honour also expressed the view that it is undesirable to permit a regime which differs markedly from the regime contemplated by the Rules of Court. His Honour expressed the view that the terms of a Calderbank letter should, as a general rule, and so far as is reasonably practicable, conform to the regime in Rule 41.
Some observations may be made about the offer referred to in the letter dated 27 March 2002. First, it is clear from the letter (which must be read together with the letter dated 25 March 2002), that the offer put by the plaintiff was conditional upon the plaintiff reaching a settlement with Manuel and Petra Jimenez, namely the first defendant and the third defendant. In fact, the plaintiff did not settle with the first defendant and the third defendant until some time between 5 and 8 April 2002. Even though the offer was apparently rejected by the defendants at some stage between 25 March and 27 March 2002 any acceptance by the defendants at that time would have been conditional upon the plaintiff settling with the first defendant and the third defendant. In other words, in the events which transpired the offer could only ever have been conditional until a short time prior to the commencement of the trial on 8 April 2002. Secondly, the offer included a requirement that the second defendant consent to whatever steps were necessary to implement the terms of settlement agreed with the first defendant and the third defendant. Those steps were not known at the time the offer was made. Although this might be considered a relatively minor point, it does mean that there was at least one aspect of the offer which was to be clarified or worked out. Thirdly, the offer was not made in the period up to 21 days prior to trial. Again, although I do not think this is in any way decisive, it seems to me to have some relevance. Fourthly, there is at least some uncertainty associated with the precise terms of the offer made by the plaintiff. Whilst the letter refers to the plaintiff discontinuing its action, it also refers to some acknowledgment by the defendants in a way which is final and binding. The declaration sought against the second defendant at the commencement of the trial has already been described. By the end of the hearing the plaintiff indicated that it sought no order beyond the following order:
“ACIn the alternative to AB, a declaration that the second defendant has no beneficial estate or interest in the land comprised in Certificate of Title Register Book Volume 5175 Folio 137.”
Once it was accepted that the second defendant had no beneficial interest in the property it was not appropriate to make the order sought by the plaintiff at the commencement of the trial.
The plaintiff sought to support its submissions as to the proper effect to be given to the Calderbank letter, or alternatively, sought to justify its claim for indemnity costs on the alternative ground that the defendants’ defence was clearly untenable. There is much force in the plaintiff’s submission. The absence of written evidence of the alleged trust in favour of Ramon was a difficulty which must have been obvious from the start. Furthermore, the defendants’ submission with respect to the effect of the written Declaration of Trust, and whether the defendants were arguing that this document was legally ineffective or were arguing in favour of a sub-trust was unclear for a good part of the trial.
Even acknowledging these matters I do not think that the defence was manifestly untenable or raised groundless allegations in the sense referred to in the authorities.[5]
[5] Colgate Palmolive v Cussons (1993) 46 FCR 225 at 233; Civil Procedure South Australia Judge Lunn page 10, 699.
I return to the claim for indemnity costs after 28 March 2002 based principally on the Calderbank letter. I have already referred to the letter and a number of difficulties with it. The question is whether there was an imprudent refusal of an offer to compromise in circumstances where there were difficulties with the oral trust argument. The offer could not have been accepted until just prior to the commencement of the trial on 8 April 2002. Even though notice of the broad features of the offer were known well before that day it would not be unreasonable to allow a hypothetical reasonable defendant a period within which to consider the offer and its implications. The trial occupied a little over three and a half days of the week commencing 8 April 2002 and a little over half a day (mainly addresses) on 17 April 2002. Having regard to the matters I have mentioned I am not prepared to make the special order sought by the plaintiff.
Defendants’ Application for Costs in relation to the Guarantee Issue
The defendants submit that the plaintiff effectively abandoned its claim based on the guarantees in the Discount Facility Deeds and that this was equivalent or similar to a plaintiff discontinuing a claim before or during a trial. It was submitted that the plaintiff ought to pay the defendants’ costs of this issue.
There is power to award costs in relation to a particular issue to a party who, although unsuccessful in the action, has been successful on that particular issue. The Court will be cautious in exercising the power. In In Re Elgindata Ltd (No 2)[6] Nourse LJ said in discussing the relevant principles,
“In part they depend upon established practice or implication from the rules. The principles are these. (1) Costs are in the discretion of the court. (2) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made. (3) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs. (4) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but order him to pay the whole or a part of an unsuccessful party’s costs. Of these principles the first, second and fourth are expressly recognised or provided for by rr 2(4), 3(3) and 10 respectively. The third depends on well-established practice. Moreover, the fourth implies that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs.”
[6] [1993] 1 All ER 232 at 237.
In Cretazzo v Lombardi,[7] Jacobs J said,
“Trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.”
[7] (1975) 13 SASR 4 at 16.
In considering the defendants’ application for costs on the guarantee issue, I bear in mind the following facts:
1.The plaintiff’s claims against the second defendant before the amendments at trial included a claim for an order that the second defendant pay the plaintiff the sum of $980,341.50.
In relation to the plaintiff’s claim for a declaration that it was entitled to a charge upon the estate and interest of the first and second defendants securing to the plaintiff the principal sum of $980,341.50, the second defendant pleaded that there was a trust in favour of Ramon, and that she was not bound by the Discount Facility Deeds. She did not plead in the alternative that by virtue of her bankruptcy she had no interest in the property.
2.The letters from the plaintiff’s solicitors to the second defendant’s solicitors dated 25 March and 27 March 2002 respectively suggest that the principal issue between the two parties related to the claim of the fourth defendant that he had an equitable interest in the property by virtue of a declaration of trust.
3.During his opening, counsel for the plaintiff made it clear that the only effective order sought against the second defendant was a declaration in the same terms as that to which the first defendant had consented (transcript 11).
4.On the second day of the trial the plaintiff sought leave to amend the Statement of Claim. It sought leave to amend the Claim for Relief to include the following:
“ACIn the alternative to AB, a declaration that the second defendant has no beneficial estate or interest in the land comprised in Certificate of Title Registered Volume 5175 Folio 173.”
On the third day of trial the second defendant indicated that she had no objection to the making of a declaration in those terms.
Neither party made detailed submissions on the effect of the relevant provisions of the Bankruptcy Act 1966 (Cth), that is to say ss 58, 90-94, 116 and 153. It seems to me that both parties (ie, the plaintiff and the second defendant) have to share the responsibility for the fact that ultimately there was no issue between them.
The other point I note is that the defendants have not been successful on the issue in the sense of having a judicial determination in their favour. The fact is that the issue ceased to be a live one.
In all these circumstances I am not persuaded that as far as costs are concerned I should treat the guarantee issue as any different from the other issues in the action.
Conclusion
There should be an order that the second defendant and the fourth defendant pay the plaintiff’s costs of the action to be taxed if not agreed.
JUDGMENT CITATIONS
LISTED IN ORDER OF APPEARANCE IN JUDGMENT
1.   Calderbank v Calderbank [1976] Fam. 93.
2.   Para 35.
3.   Pirrotta v Citibank Limited & Ors (1998) 72 SASR 259; Duke Group Limited (in liquidation) v Pilmer & Ors Unreported judgment number S6699 delivered 1 June 1998; MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236; (1996) 140 ALR 707; IMT Associates Pty Limited v Aqua-Max Pty Ltd & Cook’s Body Works Pty Ltd [2000] VSC 163.
4.   At page 266.
5.   Colgate Palmolive v Cussons (1993) 46 FCR 225 at 233; Civil Procedure South Australia Judge Lunn page 10, 699.
6. [1993] 1 All ER 232 at 237.
7. (1975) 13 SASR 4 at 16.

[2002] SASC 266

8 August 2002