Fussell v Hanrahan t/as Dignan & Hanrahan Solicitors (No 2)

[2025] NSWSC 129

Supreme Court

New South Wales

Medium Neutral Citation:

Fussell v Hanrahan t/as Dignan & Hanrahan Solicitors (No 2) [2025] NSWSC 129

Hearing dates:

On the papers

Date of orders:

12 March 2025

Decision date:

12 March 2025

Jurisdiction:

Common Law

Before:

Davies J

Decision:

(1) Order 3 made by me on 21 November 2024 is varied as follows:

(a) The plaintiffs are to pay the first and second defendants’ costs on the ordinary basis up to and including 25 June 2024 and thereafter on the indemnity basis.

(b) The plaintiffs are to pay the third defendant’s costs on the ordinary basis.

(2) The plaintiffs are to pay the first and second defendants’ costs of the notice of motion filed 5 December 2024.

Catchwords:

COSTS – party/party – exceptions to general rule that costs follow the event – offers of compromise/Calderbank offers – where the offeror’s requirement that a deed of release be agreed lacked precision – where it was not unreasonable for the plaintiffs to reject the defendants’ Calderbank offer

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW) r 36.16

Cases Cited:

Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 583

Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353

Commonwealth of Australia v Gretton [2008] NSWCA 117

Evans Shire Council v Richardson (No 2) [2006] NSWCA 61; (2006) 14 BPR 26,639

Fussell v Deigan [2018] NSWSC 1419; (2018) 19 BPR 38,755

Fussell v Hanrahan t/as Dignan & Hanrahan Solicitors [2024] NSWSC 1388

Grant v John Grant v Sons Pty Ltd (1954) 91 CLR 112; [1954] HCA 23

Hong v Gui [2022] NSWSC 598

Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 1229

Novelly v Tamqia Pty Ltd (No 2) [2024] NSWCA 209

Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816

Re A/safe Security Products Pty Ltd atf A/safe Trust (in Iiq) [2016] NSWSC 575

Vale v Eggins (No 2) [2007] NSWCA 12

Texts Cited:

Nil

Category:

Costs

Parties:

Bernard James Fussell (First Plaintiff)
Blue Star Trading Corporation Pty Ltd (Second Plaintiff)
Bruce Vincent Hanrahan t/as Dignan & Hanrahan Solicitors (First Defendant)
David James Duncombe t/as Dignan & Hanrahan Solicitors (Second Defendant)

Representation:

Counsel:
On the papers

Solicitors:
Penhall & Co (First & Second Plaintiffs)
K & L Gates (First & Second Defendants)

File Number(s):

2018/138304

Publication restriction:

Nil

JUDGMENT

1. On 21 November 2024 I gave judgment in proceedings commenced by the plaintiffs against the first and second defendants, and against the third defendant: Fussell v Hanrahan t/as Dignan & Hanrahan Solicitors [2024] NSWSC 1388 (“Fussell”). The judgment was as follows:

1. Judgment for the first and second defendants.

2. Judgment for the third defendant.

3. The plaintiffs are to pay the defendants’ costs.

These reasons assume familiarity with my reasons for that judgment.

2. By notice of motion filed 5 December 2024 the first and second defendants seek the following orders:

1. Pursuant to rule 36.16 of the Uniform Civil Procedure Rules 2005 (NSW), Order 3 of the orders made by Justice Davies on 21 November 2024 be varied so as to read:

(a) the plaintiffs to pay the costs of the first and second defendants up to and including 3 September 2020 (or alternatively, 25 June 2024; or alternatively, 30 July 2024) on the ordinary basis; and

(b) the plaintiffs to pay the costs of the first and second defendants on and from 4 September 2020 (or alternatively, 26 June 2024; or alternatively, 31 July 2024) on an indemnity basis.

2.   The plaintiffs to pay the first and second defendants' costs of this motion.

3. The above costs order is sought on the basis of a Calderbank offer made by the solicitors for the first and second defendants in a letter of 4 September 2020. The letter was in response to an offer from the plaintiffs.

4. The letter set out a number of reasons why the first and second defendants considered that the plaintiffs would have difficulty in the matter, chiefly as a result of findings made by Parker J in the proceedings Mr Fussell had taken against Ms Deigan: Fussell v Deigan [2018] NSWSC 1419; (2018) 19 BPR 38,755. Two further reasons were put forward in the letter for rejecting the plaintiffs’ offer and making the offer contained in the letter. The first reason was that even if Mr Fussell had instructed the first and second defendants to object to the form of cl 33 the request to amend it would have been rejected by the vendor. Secondly, the first and second defendants maintained that it was by no means clear that Mr Fussell had the necessary funds to complete the purchase.

5. In all of those circumstances, the first and second defendants offered to settle the proceedings by the payment of a sum of $1.2 million inclusive of costs, with the letter saying,

My clients would require a deed of release; with payment being made 28 days after the date of the deed.

6. On 9 September 2020 Mr Stephen Titus, the solicitor for the plaintiffs, sent an email to Mr Greg Couston, the solicitor for the first and second defendants and Ms Natalie Polorotoff, a solicitor assisting Mr Couston, saying that the offer was rejected, but the plaintiffs were prepared to accept $1.4.m inclusive of costs.

7. On 14 September 2020, Mr Couston wrote again to Mr Titus saying:

1.   Thank you for your recent correspondence.

2.   Your client’s offer is not acceptable to our clients.

3.   I have been instructed to repeat my client’s offer to settle these proceedings for $1.2m – subject to a deed of release containing broad release provisions, covenant not to sue others, confidentiality terms and finalisation of the proceedings.

8. It appears to have been agreed that Mr Couston would send a draft deed of release to Mr Titus although no figure had been agreed upon at that stage. On 9 October 2020 a draft deed of release was then forwarded to Mr Titus. Clause  5 headed “Covenant not to sue” provided:

5.1   Bernard, Clayton and Blue Star (and each of them) covenant not to sue any other person, partnership, company or entity in respect of any Claims arising out of, relating to, or in any way connected with any one or more of the Release Subjects.

9. Clayton was one of Mr Fussell’s sons and a director of Blue Star Trading Corporation Pty Limited, the second plaintiff. “Claims” was defined as including:

all actions, suits, causes of action, arbitrations, debts, liabilities, dues, costs, claims, demands, directions, orders, verdicts and judgments either at law or in equity or arising under a statute whether arising out of negligence or otherwise.

“Release Subjects” was defined as meaning:

(a) Property; (b) Conveyance; (c) Contract for Sale; (d) Lease; (e) Life Estate; (f) Transfer; (g) Documents; (h) Retainer; (i) Deed of Life Estate; (j) Transfer Document; (k) Purchase Contention; (l) Legal Services; (m) Rescission Notices; (n) Specific Performance Proceedings; (o) Court of Appeal Proceedings; (p) Current Court Proceedings; (q) Alleged Acts and Omissions; (r) Allegations; (s) Alleged Loss and Damage; (t) Current Court Documents and Correspondence; (u) the facts, matters and circumstances the subject of the Court Documents and Correspondence; (v) the matters referred to in the recitals under the heading “Background” (or any of them).

10. The significance of cl 5 was probably that Mr Brown had not by that time been joined to the proceedings. That only occurred on 8 July 2021.

11. In response to the draft deed of release Mr Titus, in a letter of 15 October 2020, said (inter alia):

10.   Clause 5.1 must be limited in its scope of operation to the Hanrahan parties. Accordingly, it should read: -

“Bernard, Clayton and Blue Star (and each of them) covenant not to sue any of the Hanrahan parties in respect of any Claims arising out of, relating to, or in any way connected with any one or more of the Release Subjects.”

12. In an email of 27 October 2020, Ms Polorotoff responded by saying that Mr Titus’s proposal for cl 5.1 was not agreed. However, she asked if Mr Titus would consider the following modification of the clause:

Bernard, Clayton and Blue Star (and each of them) covenant not to sue any other person, partnership, company or entity in respect of any Claims which are not Apportionable Claims arising out of, relating to, or in any way connected with any one or more of the Release Subjects.

(emphasis added)

13. Subsequently on 27 October 2020, Mr Titus had a telephone conversation with Mr Couston. He made a lengthy file note of what was said, and it is clear from that file note that cl 5.1 had been included in the Deed of Release because of Mr Brown’s involvement in the conveyance. The file note said:

Telephone conversation with Greg Couston. I said to him that we sought to establish whether LawCover was the insurer for Steve Brown. I said that the covenant may cause us a problem. That we did we did (sic) not want to do anything which might ensure that the damages which Bernie could recover were only $1,500,000.00 rather than three. That we had not fully considered the position of the claim against Brown. That we might move to a situation where I thought I could obtain instructions on a $1,250,000.00 offer. We might then move to either a Calderbank Offer or an Offer of Compromise or to go before the Judge to say we had reached agreement, Greg replied on a without prejudice basis that he was happy to recommend $1,250,000.00. That they wanted to avoid a cross claim. They were content for us to sue Steven Brown but did not want to have him cross claiming against Hanrahan after they had closed their file. He said that Natalie was to come back to me in relation to the amendments we had sought in the deed. He noted that the concept of our providing an indemnity was not palatable to our client. He said that Steven Brown could run a non-apportionable claim. He said that a claim for deceptive and misleading conduct or in contract or in tort basically negligence was okay because the act did not allow Steve Brown to cross claim against him. He said if a claim was made for a non-apportionable claim then they had a problem. He said he could not as yet determine what that might be.

14. On 1 December 2020 Mr Titus sent an email to Ms Polorotoff and Mr Couston saying:

We refer to previous correspondence. Senior counsel has advised that there are two separate actions against Mr Hanrahan and against Steven Brown and for the convenience of all concerned it is appropriate to amend the current process to include Mr Brown as a defendant and it is not appropriate to attempt to settle the claim against Mr Hanrahan.

Having regard to workload and the time of the year we seek to stand the matter over until some time in the new term commencing in February 2021 so that a further amended statement of claim is available and can be provided to you and steps taken to have that issued and Mr Brown added as a defendant.

15. It seems that negotiations then stalled until after Mr Brown had been added as a third defendant.

16. On 10 June 2022, Mr Couston put forward an offer of $1.25 million that had been offered at a mediation. The offer was said to be subject to a mutually satisfactory deed of release,

which, of course, would accommodate the plaintiffs (sic) continuance of their proceedings against the third defendant.

17. Nothing came of that offer.

18. The next offer relied upon by the first and second defendants, made by email on 26 June 2024, was a further Calderbank offer in the sum of $1,525,000.00 inclusive of costs. Thereafter, on 31 July 2024 the solicitors for the first and second defendants offered to settle the proceedings by the payment of $1.4 million to the plaintiffs with each party to pay their own costs of the proceedings. The offer went on to say, however:

We understand the third defendant is also making an offer this evening.

Unless and until your clients accept the offer made by the third defendant, this offer is conditional on our clients reaching agreement with the third defendant in relation to the cross-claims.

19. The parties agree on the relevant principles associated with Calderbank offers. These principles are helpfully summarised in the written submissions of the first and second defendants as follows.

20. If a Calderbank offer is made, but not accepted, the Court's discretion to make a special order is enlivened. The discretion is an open one, but is commonly enlivened if (a) the party that made the offer achieves a better result than the amount offered, (b) the offer was a genuine offer of compromise, and (c) it was unreasonable of the offeree not to accept: Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 1229 at [26] per Stevenson J, cited with approval by Black J in Re A/safe Security Products Pty Ltd atf A/safe Trust (in Iiq) [2016] NSWSC 575 at [8] and Hong v Gui [2022] NSWSC 598 at [7].

21. The relevant question is whether the offeree's failure to accept the offer, in all the circumstances, warrants a departure from the ordinary rule as to costs: Novelly v Tamqia Pty Ltd (No 2) [2024] NSWCA 209 at [8].

22. Factors relevant to the question of whether a rejection of an offer is unreasonable include whether the offeree had an adequate opportunity in terms of time and information to enable it to consider and deal with the offer: Novelly v Tamqia at [9]. What must be considered is the reasonableness of the offeree's rejection or non-acceptance of the offer, having regard to the relevant circumstances at the time that the offer fell to be considered: Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [11] per Ward J (as her Honour then was). When undertaking this inquiry, the Court may have regard to the analysis of the legal issues which the recipient could have performed at the time of the offer, based on the information available to them: Hong v Gui at [8].

23. Three other matters should be noted. First, the onus is on the party making a Calderbank offer to satisfy the Court that it should exercise the costs discretion in its favour: Commonwealth of Australia v Gretton [2008] NSWCA 117 at [46]; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61; (2006) 14 BPR 26,639 at [26]. Secondly, a test of unreasonableness should not be upheld other than on clear grounds: Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at 113. Thirdly, a factor relevant to the reasonableness of rejection is whether any or what conditions have been placed on the offer: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 583 at [73]-[74], where acceptance of the offer in that case was tied to the offeree releasing all claims made by it in other proceedings.

24. The plaintiffs submit that it was reasonable not to accept the first offer made on 4 September 2020 for three reasons. First, there was a requirement to release all claims and all persons as part of that offer. Secondly, there was uncertainty as to the issue of causation at the date of that offer. That was because by that time the affidavit of the vendor’s solicitor, Ms Diegan, had not been served. It will be recalled that in her affidavit Ms Diegan gave this evidence:

[71]   If Mr Hanrahan had requested that clause 33 of the special conditions of the Fussell Contract be deleted, my advice to Mr Lockrey would have been not to delete the clause. This clause or a clause in similar terms is in all my precedent contracts.

25. Thirdly, the plaintiffs submit that the Court would not conclude that the plaintiffs ought to have foreseen the likelihood of the Court’s finding that they did not have the funds to complete the transaction.

26. In relation to the issue of the deed of release, the first and second defendants submit that the reasonableness or otherwise of rejecting a Calderbank offer must be considered having regard to the relevant circumstances at the time the offer fell to be considered, relying on what was said by Ward J in Nu Line Construction Group at [11]. The first and second defendants submit that the plaintiffs’ argument about the proposed deed of release was based entirely on communications that occurred after the plaintiffs had rejected the first and second defendants’ offer of 4 September 2020. The first and second defendants submit also that the renewal of the offer to settle $1.2 million on 14 September 2020 was, on a correct legal analysis, a new offer because the earlier one had been rejected. They submit that as part of the ensuing negotiations about that offer (i.e. the “renewed” offer) the first and second defendants sent the draft deed of release and negotiations ensued about the draft deed.

27. Whilst not doubting the principle from Nu Line Construction Group relied upon by the first and second defendants, it is necessary to look at the terms of the correspondence. Three things were being put forward by the first and second defendants in their offer of 4 September 2020. The first was an offer to pay $1.2 million inclusive of costs. Secondly, a deed of release would be required. Thirdly, payment was to be made within 28 days after the date of the deed. It is clear, therefore, that the deed of release was an essential term of the offer being made. It is also clear from the correspondence and negotiations which followed, what the first and second defendants required in that deed of release.

28. The first and second defendants rely on what was said in the judgment of Dixon CJ, Fullagar, Kitto and Taylor JJ in Grant v John Grant v Sons Pty Ltd (1954) 91 CLR 112 at 123:

The principle relied upon is that adopted by the common law long ago for the restriction of wide general words of a release should be restrained by the particular occasion: Knight v Cole. Thus the general words of a release are to be restrained by the particular recital: Payler v Homersham.

(citations omitted)

29. The first and second defendants submit on the basis of that principle that the release would be construed as being limited to that thing or things that were in contemplation of the parties at the time the release was given.

30. Of course, general words of a release are not being construed here; rather, the principle seems to be being applied by analogy. However, there can be little doubt from the subsequent correspondence and course of negotiations that the release that was intended by the first and second defendants was wider than a simple release of all claims against the first and second defendants. They intended that the release would extend to a release of claims against Mr Brown because of their concern that any claim against him might result in a cross-claim against them. The width of the release required by the first and second defendants would not, in fact, sit easily with the principle in Grant they relied on from Grant.

31. Viewed another way, the requirement of the first and second defendants that a deed of release be entered into by the plaintiffs was so lacking in precision that it was not unreasonable for the plaintiffs to reject the offer. The course of negotiations points to the fact that, quite apart from the amount of the offer, there was no agreement between the parties about the deed of release that was a condition of the offer of the first and second defendants. It may be taken that the respective positions of the parties set out above at [7]-[12] were their positions at the time the offer was made on 4 September 2020.

32. The requirement for the execution of a deed of release in those circumstances, while entirely understandable when seen from the perspective of the first and second defendants, means that they have not discharged their onus of showing that the plaintiffs’ rejection of their offer was unreasonable.

33. If, as the first and second defendants seem to suggest, the operative offer was the “renewed” offer one made on 14 September 2020 (para [7] above), because the plaintiffs rejected the offer of 4 September 2020, the significance of the deed is highlighted. That is because the letter accompanying it required a “deed of release containing broad release provisions, covenants not to sue others”. That requirement undercuts reliance on the principle identified in Grant which would read down general words in a release. The first and second defendants wanted to prevent the plaintiffs suing anyone else, chiefly but not limited to Mr Brown, in a way that might affect them. Faced with that requirement, even if the width of the definition of “Release Subjects” (at [9] above) is not taken into account (and it certainly gives an indication of the thinking of the first and second defendants), it was not unreasonable of the plaintiffs to reject that offer.

29. It is only necessary, therefore, to say something briefly about the other bases on which the plaintiffs claim that they did not unreasonably reject the offer of 4 September 2020. The first basis was that it could not have been known at that time the outcome of a request to amend cl 33. There is some strength in that point. The evidence of the defendants generally was not served until late in 2023 including the affidavit of Ms Diegan. While it can be accepted that the clause as drafted was of greater benefit to the vendor, especially given his age and health, there was certainly an arguable case by the plaintiffs that the vendor was anxious to sell, with previous interested buyers not proceeding. In that way, a request to amend cl 33 to remove the vendor’s right to rescind in the event of death might have been agreed to. Where all the evidence has not been served, that provides a basis for a refusal to find that the rejection was unreasonable: Vale v Eggins (No 2) [2007] NSWCA 12 at [22]. In the absence of Ms Diegan’s evidence, it was not unreasonable for the plaintiffs to have rejected the offer.

30. The other basis was that it was that it could not have been foreseen that the Court would find that Mr Fussell did not have the funds to complete the contract. If this were the only basis for rejecting the offer I would have considered that the plaintiffs behaved unreasonably in doing so. Mr Fussell had already given evidence in the specific performance proceedings that he did not have the available funds to settle on 10 May 2017: see Fussell at [228]. Although Mr Fussell wanted to say in the present proceedings that the evidence he gave in the specific performance proceedings was wrong, he also had to explain away his email of 14 May 2017 to Mr Brown. In any event, Mr Fussell must have known the true position of his lack of funds to complete the contract. The findings made in Fussell about Mr Fussell not having the funds to complete were based on matters that Mr Fussell must have known in September 2020.

31. The first and second defendants do not rely on the offer made on 10 June 2022.

32. The plaintiffs now say that they are prepared to consent to an order that they pay costs on the ordinary basis up to and including 25 June 2024 and thereafter to pay cost on an indemnity basis. They also consent to paying the cost of the first and second defendants’ notice of motion.

33. Accordingly, I make the following orders:

1. Order 3 made by me on 21 November 2024 is varied as follows:

(a)   The plaintiffs are to pay the first and second defendants’ costs on the ordinary basis up to and including 25 June 2024 and thereafter on the indemnity basis.

(b)   The plaintiffs are to pay the third defendant’s costs on the ordinary basis.

2. The plaintiffs are to pay the first and second defendants’ costs of the notice of motion filed 5 December 2024.

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Decision last updated: 12 March 2025