Freedom Development Group Pty Limited v D'Ettorre Properties Pty Limited T/as D'Ettorre Real Estate (No 2)

[2023] NSWCA 185

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Freedom Development Group Pty Limited v D’Ettorre Properties Pty Limited T/as D’Ettorre Real Estate (No 2) [2023] NSWCA 185

Hearing dates:

On the papers

Date of orders:

9 August 2023

Decision date:

09 August 2023

Before:

Gleeson JA at [1]
Leeming JA at [36]
Kirk JA at [37]

Decision:

(1)   Dismiss the appellants’ notice of motion filed 10 May 2023.

(2)   Order that the appellants pay the respondent’s costs of the motion.

Catchwords:

COSTS — Application to vary costs order — Whether special costs order should be made in relation to proceedings below — Calderbank offer — Offer of compromise under UCPR, r 20.26 — Whether offers reflected genuine compromise — Whether unreasonable for plaintiff not to accept the offers

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW), r 20.26, 36.16(3A), 42.1, 42.15A

Cases Cited:

Brighten v Traino (No 2) [2019] NSWCA 203

Calderbank v Calderbank (1975) 3 All ER 333

Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358

Koprivnjak v Koprivnjak (No 3) [2022] NSWCA 62

Krolczyk v Winner t/as J Winner Building Services [2022] NSWCA 196

Leach v Nominal Defendant (QBE Insurance) (Aust) Limited (No 2) [2014] NSWCA 391

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

Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368

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

Taheri v Vitek (No 2) [2014] NSWCA 344

Valmont Interiors Pty Ltd v Giorgio Armani Australia (No 3) [2021] NSWCA 160

Category:

Costs

Parties:

Freedom Development Group Pty Limited (First appellant)
Edward Fernon (Second appellant)
D’Ettorre Properties Pty Limited T/as D’Ettorre Real Estate (Respondent)

Representation:

Counsel:
Ms R Thrift (Appellants)
Mr N Ford / A Smyth (Respondent)

Solicitors:
Breene & Breene Solicitors (Appellants)
E Berman & Co (Respondent)

File Number(s):

2022/246812

 Decision under appeal 

Court or tribunal:

District Court of New South Wales

Jurisdiction:

Civil

Date of Decision:

27 July 2022

Before:

Olsson SC DCJ

File Number(s):

2020/200811

Judgment

1. GLEESON JA: Judgment in the appeal was given on 26 April 2023: D’Ettorre Properties Pty Ltd t/as D’Ettorre Real Estate v Freedom Development Group Pty Ltd & Anor [2023] NSWCA 81. The successful appellants applied to vary the costs order made by this Court that the respondent pay their costs of the District Court proceedings and instead sought a special order in relation to the costs of those proceedings.

The Appeal

2. The trial judge had upheld damages claims by D’Ettorre Properties Pty Ltd (DRE) against Freedom Development Group Pty Ltd (Freedom) and Mr Edward Fernon for commission payable under an agency agreement with Freedom arising out of the sale of two neighbouring properties at Wansey Road, Randwick, and for misleading conduct by Mr Fernon.

3. This Court allowed the appeal and set aside the judgment in favour of DRE against the appellants in the sum of $154,275 and orders for interest and costs and, in lieu, made orders dismissing the District Court proceedings and that DRE pay Freedom’s costs of those proceedings.

Application to vary costs order

4. The appellants seek a special order that DRE pay their costs in the District Court on an ordinary basis up until 14 January 2021, or alternatively until 1 October 2020, and on and indemnity basis on and from 15 January 2021, or alternatively 2 October 2020.

5. The application is based on an offer of compromise expressed to be made under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and an earlier Calderbank offer (Calderbank v Calderbank [1975] 3 All ER 333). It is not in dispute that the motion was filed within the 14-day time period prescribed by UCPR, r 36.16(3A).

6. DRE opposed the application contending that there was no substantial element of compromise in either offer, or the Court should exercise its discretion to “order otherwise” because it was not unreasonable for DRW not to accept either offer. DRE also says that the Court should decline to make a special order in relation to costs below because of the finality of proceedings and disentitling conduct by the appellants.

7. It should be said immediately that there is no merit in DRE’s submission that the application to vary the costs order in respect of the underlying proceedings should be refused on the grounds of finality. That ignored the Court’s power under UCPR, r 36.16(3A) to vary a costs order.

Offer of compromise

8. The offer of compromise dated 14 January 2021 was stated to be in accordance with UCPR, r 20.26, and offered to compromise the whole of the claim on terms that the proceedings be dismissed and there be no order as to costs. The offer was expressed to be open for acceptance until 28 days after the date of the offer.

9. The proceedings had been commenced by statement of claim filed 7 July 2020. The appellants filed their defence on 12 August 2020. An amended defence was filed on 9 November 2020 and a further amended defence was filed with leave on 25 May 2021. The trial commenced on 8 June 2021 and occupied five days.

10. It is not in dispute that the offer of compromise was in accordance with UCPR, r 20.26. The rules expressly permit a defendant to make an offer of judgment in favour of the defendant with no order as to costs: UCPR, r 20.26(3). An offer in terms that the proceedings be dismissed and there be no order as to costs satisfies r 20.26: Koprivnjak v Koprivnjak (No 3) [2022] NSWCA 62 at [20]-[32]; Taheri v Vitek (No 2) [2014] NSWCA 344 at [8].

11. The appellants say that there is no reason why the usual cost consequences in UCPR, r 42.15A should not follow. That rule provides a default position that costs incurred after the offer be assessed on an indemnity basis if the order or judgment on the claim is “no less favourable” than the terms of the offer.

12. To attract an indemnity costs order by the operation of the UCPR relating to an offer of compromise, an offer must involve a “genuine offer of compromise” and not merely be made so as to trigger the costs consequences under the rules: Leach v Nominal Defendant (QBE Insurance) (Aust) Limited (No 2) [2014] NSWCA 391 at [41] citing Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [16] (Spigelman CJ, Beazley and McColl JJA). The essential question is whether the appellant “[gave] something away”: Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368.

13. Even where a defendant is entitled to an order against a plaintiff for the defendant’s costs in respect of a claim under UCPR, r 42.15A(2), the Court retains a discretion to “order otherwise”.

14. The offer of compromise in this case was a “walk away” offer. The appellants expressed their willingness to settle on the basis that the parties each bear their own costs. Such an offer may be capable of constituting a genuine offer of compromise so as to trigger the costs consequences of the rules: Leach at [50]-[51]. But that is not always so; the “claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case”: Regency Media at [31], which was cited and followed in Leach at [51].

15. As the Court said in Brighten v Traino (No 2) [2019] NSWCA 203 at [14], of an offer of compromise in respect of an appeal:

It will always be the case that an offer of compromise will be made in order to trigger the costs sanction which it is the purpose of the rules to provide. However, the purpose of the rule is not to provide an unconditional mechanism to vary the usual provisions as to assessable costs. Rather, it is intended to promote genuine attempts at settlement. That purpose is not necessarily served by a demand to abandon proceedings (or capitulate) if nothing is offered in return, unless the proceedings are patently hopeless. Even in the latter case, it may be expected that a respondent to an appeal would seek to point that out and provide a reason why it believes that to be so.

16. The essential issue at trial was whether DRE had “effectively introduced” the actual purchaser of the properties to Freedom, given that Mr Ben Ingham, the purchaser introduced by DRE to Freedom, was one of the directors of the actual purchaser and a guarantor of its obligations under the nomination deeds. DRE’s claim at trial cannot be described as being so “weak” that the claim approaches the character of a claim that is frivolous or vexatious.

17. Nor was it unreasonable for DRE not to accept the offer. At the time of the offer of compromise, there was no attempt by the appellants to explain why DRE’s claims were doomed to fail. This is a case in which it would have been appropriate for the appellants to explain the factual basis upon which they asserted the proceedings to be hopeless, which was the implication of their walk-away offer.

18. In these circumstances, there are proper reasons for ordering otherwise so as to disapply the cost consequence provided by the rules.

19. It is not necessary to address DRE’s reliance on the appellant’s asserted disentitling conduct as a reason to order otherwise. Insofar as relevant, these matters are considered below in the context of the Calderbank offer.

Calderbank offer

20. The Calderbank offer contained in a letter from Freedom’s solicitors to DRE’s solicitors dated 1 October 2020 commenced with the statement “It is our clients’ position that they have a full defence to the plaintiff’s claim. Having said that, our clients are willing to adopt a commercial approach”, and thereafter offered to settle the proceedings on the basis that:

1. Freedom pay DRE the sum of $10,000 (inclusive of any GST) inclusive of costs in full and final settlement of the proceedings, payable within 14 days of exchange of a deed of release;

2. the parties enter into a deed containing mutual releases of all claims, including any claims that have been raised, or could have been raised in the proceedings; and

3. the proceedings otherwise [be] dismissed with no order as to costs.

21. The letter stated that the appellants consider the offer “to be a reasonable compromise given the documents produced in answer to [the] notice to produce”. The offer was stated to be open for acceptance until 5 pm on 9 October 2020.

22. A Calderbank offer does not trigger an automatic order for indemnity costs: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] (Giles JA); Valmont Interiors Pty Ltd v Giorgio Armani Australia (No 3) [2021] NSWCA 160 at [21] (Bell P, Macfarlan and Leeming JJA).

23. The question is whether there was a genuine offer of compromise, and whether the offeree acted unreasonably in all the circumstances in refusing the offer, with the issue of reasonableness being assessed at the time of the offer is made and not with the benefit of hindsight: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]; Krolczyk v Winner t/as J Winner Building Services [2022] NSWCA 196 at [217] (Griffiths AJA, White and Kirk JJA agreeing).

24. Accepting that the offer of $10,000 inclusive of costs gave away something, and to that extent can be said to be genuine, it is to be kept in mind when considering the totality of the circumstances that the offer involved a very minor benefit for DRE compared to the quantum of its claim for commission of some $154,000.

25. The Calderbank offer was made at an early stage after pleadings had closed, and the appellants had produced documents to DRE in response a notice to produce served on 27 August 2020. Those documents included the nomination deeds nominating the actual purchaser of the properties and communications evidencing Mr Ippolito’s role as agent, being the person the appellants asserted in their defence had introduced the actual purchaser of the properties. The appellants served the Calderbank offer approximately three weeks later.

26. The appellants say that the production of these documents, together with the other material produced, was sufficient to enable DRE to assess the defence put forward by the appellants because it was apparent who the actual purchaser was, and that Mr Ippolito, as agent, introduced that actual purchaser.

27. DRE responds that it was not unreasonable for it to reject the Calderbank offer in all the circumstances. It is said that it had no sensible reason, during the first eight days of October 2020, to accept even the premise on which the offer was put. This was a reference to the statements by the appellants’ solicitor, Mr Breene, in his letter to DRE’s solicitor asserting that his clients had “a full defence”, but also that the sum of $10,000 in “full and final” settlement reflected their adoption of a “commercial approach”.

28. I have concluded that DRE did not act unreasonably in not accepting the offer.

29. First, the offer was made at an early stage of the proceedings before DRE had had an opportunity to undertake factual enquires which it could have made, including by the issue of subpoenas to third parties, relating to whether Mr Ben Ingham had a direct or indirect ownership interest in the actual purchaser or an interest as beneficiary in the trust of which the actual purchaser was the trustee, and whether he had requested or received any consideration for giving guarantees of the actual purchaser’s obligations to Freedom under the nomination deeds.

30. Second, the sum offered inclusive of costs was minor compared to DRE’s claim.

31. Third, at the time of the Calderbank offer, there was no attempt by the appellants to explain the assertion by their solicitor that they had “a full defence”. Again, it would have been appropriate for the appellants to explain the factual basis for that assertion beyond that the actual purchaser was a different entity to the purchaser introduced to Freedom by DRE.

32. Insofar as DRE complained that the appellants had engaged in disentitling conduct relating to (a) the separate proceedings by DRE for preliminary discovery commenced on 22 April 2020, and (b) asserted delays by the appellants in the underlying proceedings, such as when producing documents in answer to a notice to produce (one week late), and in responding to the request for particulars (about one month), none of these matters have any temporal or other relevance to the question of whether it was unreasonable in all the circumstances for DRE not to accept the offer. Nor, in any event, are the asserted delays of any real significance. It is not necessary to address the other “disentitling” matters raised by DRE in written submissions.

33. I am satisfied that there are proper reasons to decline to make a special order based on the Calderbank offer.

Conclusion and orders

34. For the above reasons, the Court should decline to vary the cost order previously made on 26 April 2023 with respect to the District Court proceedings. There is no reason why costs of the motion should not follow the event: UCPR, r 42.1.

35. I propose the following orders:

1. Dismiss the appellants’ notice of motion filed 10 May 2023.

2. Order that the appellant pay the respondent’s costs of the motion.

36. LEEMING JA: I agree with Gleeson JA.

37. KIRK JA: I agree with Gleeson JA.

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Decision last updated: 09 August 2023