GPG Fortitude Valley v Thakral Capital Australia (No 3 - costs)
[2018] NSWSC 1627
•26 October 2018
Supreme Court
New South Wales
Medium Neutral Citation: GPG Fortitude Valley v Thakral Capital Australia (No 3 – costs) [2018] NSWSC 1627 Hearing dates: On the papers. Date of orders: 26 October 2018 Decision date: 26 October 2018 Jurisdiction: Equity - Commercial List Before: McDougall J Decision: Order that costs be paid on the ordinary basis up until 19 July 2018 and on the indemnity basis thereafter.
Catchwords: COSTS – application for indemnity costs – Calderbank letter – whether letter offered a genuine element of compromise – whether unreasonable to reject offer – whether indemnity costs should be payable from date of letter or date of rejection – no question of principle. Cases Cited: Calderbank v Calderbank [1976] Fam 93
GPG Fortitude Valley v Thakral Capital Australia (No 2) [2018] NSWSC 1388
GPG Fortitude Valley v Thakral Capital Australia [2018] NSWSC 1196
Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344
Rickard Constructions v Rickard Hails Moretti [2005] NSWSC 481Category: Costs Parties: GPG Fortitude Valley Issuer Pty Ltd (First Plaintiff)
GPG Fortitude Valley Pty Ltd (Second Plaintiff)
237 Barry Parade Pty Ltd (Third Plaintiff)
Thakral Capital Australia Pty Ltd (First Defendant)
TCAP Investments Limited (Second Defendant)
Diversity Capital Limited (Third Defendant)
Thakral Capital Investments Limited (Fourth Defendant)Representation: Counsel:
Solicitors:
G D Dalton QC / D R Sulan (Plaintiffs)
T J F McEvoy QC (Defendants)
Arnold Bloch Leibler (Plaintiff)
Cornwall Stodard (Defendants)
File Number(s): 2018/74572
Judgment
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HIS HONOUR: I dealt with the substantive issues in my judgment given on 3 August 2018: GPG Fortitude Valley v Thakral Capital Australia [1] . On 31 August 2018, I dealt with a belated application by the defendants (referred to collectively as Thakral), to bring a cross-claim[2] . In these reasons, I deal with the plaintiffs’ (referred to collectively as GPG) application for indemnity costs.
1. [2018] NSWSC 1196.
2. GPG Fortitude Valley v Thakral Capital Australia (No 2) [2018] NSWSC 1388.
Issues in the proceedings
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There were, as the parties agreed, three issues for decision. The first was whether, by cl 17.1(e) of the relevant agreement, what they called, and I shall call, the “Interstage Loan” was required to bear interest and be secured. The second issue was whether there had been a breach of that obligation, so construed, because the Interstage Loan did not bear interest and was not secured. The third was whether, if the two previous questions were answered “yes”, there had occurred an Event of Default.
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For Thakral to succeed in showing that an Event of Default had occurred, each of the first two questions had to be answered “yes”. However, even if the first two questions were so answered, it would not follow automatically that an Event of Default had occurred: see my first reasons at [53].
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When I wrote my first judgment, I took the approach of leaving aside the first two questions, and (on the assumption, but not deciding, that each should be answered “yes”) considering whether an Event of Default had occurred. As I pointed out at [53], if a breach had occurred there could only have been an Event of Default if that breach affected the ability of GPG to pay what was called the Additional Return, and did so in a material and adverse way. Since there was no evidence that the breach, had it occurred, could have had that effect, I concluded that no Event of Default had occurred simply because the Interstage Loan was not secured and did not bear interest.
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Accordingly, I granted appropriate declaratory relief [3] , and ordered Thakral to pay GPG’s costs.
3. It was necessary to do so because although it was Thakral that alleged default and the occurrence of an Event of Default, GPG had been forced to litigate to make good its claim that no Event of Default had occurred.
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The second judgment can be put aside because, relevantly for present purposes, I made no order as to costs in respect of the notice of motion with which it dealt.
The application for indemnity costs
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GPG relies on a Calderbank [4] letter dated 12 July 2018. In that letter, GPG’s solicitors Arnold Bloch Leibler (ABL) pointed out the reasons why, in their view, their client would succeed. The letter made the point (which was self-evident both from the structure of the proceedings and from GPG’s outline submissions which had by then been served) that even if the question of breach were answered in favour of Thakral, it did not follow that an Event of Default had occurred. The letter pointed out:
There is no admissible evidence that the failure of the loan to be secured and/or subject to interest has had a material adverse effect on our clients’ ability to comply with their obligations under any Finance Document.
4. Calderbank v Calderbank [1976] Fam 93.
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As will be apparent from what I have said, I agreed with that proposition.
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The letter offered to settle on the basis that GPG would pay Thakral $1; each side would bear its own costs to date; Thakral would withdraw its allegation that there had occurred an Event of Default by reason of the matters the subject of the proceedings; and the proceedings be discontinued.
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The offer was rejected on 19 July 2018.
The parties’ submissions on costs
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GPG’s submissions referred to Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [5] . GPG submitted that:
there was a genuine element of compromise, because of the proposal to bear its own costs; and
it was unreasonable for Thakral not to accept the offer, because the last point made – that there was no evidence capable of showing that any breach of the relevant obligation had had any material effect, whether adverse or otherwise, on GPG’s ability to pay the Additional Return – was plain beyond argument.
5. [2011] NSWCA 344.
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Thakral submitted that it was not unreasonable for it to reject the offer, because it had a genuine commercial interest in having the first of the three issues – whether the Interstage Loan was required to bear interest and be secured – decided. It noted, correctly, that the declaratory relief sought by GPG raised this as the first step along the way to the proposition that there was no Event of Default, and that GPG’s statement of the real issues in dispute took a similar course.
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Thakral submitted that it did not follow, from my decision to overlook the first and second issues, that it was relevantly unreasonable to reject GPG’s proposal for dealing with the third. It submitted that the question of “reasonableness” should be assessed at the time the offer was made and not with the benefit of hindsight[6] .
6. See my judgment in Rickard Constructions v Rickard Hails Moretti [2005] NSWSC 481 at [17].
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Further, Thakral submitted, there was no genuine element of compromise embodied in the offer. This aspect of Thakral’s submissions did not grapple with the uncomfortable fact that GPG had offered to bear its own costs in the event the offer were accepted.
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Finally, Thakral submitted, the offer, being one made six business days before the commencement of the hearing, was “made chiefly with the intention of securing a costs advantage rather than a genuine attempt at settlement”.
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It is not necessary to summarise GPG’s submissions in reply.
Decision
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Thakral’s proposition that “the cl 17.1(e) construction issues… were the focus of the litigation”[7] is not, in my view, correct. GPG was forced to go to court because Thakral insisted that there had occurred an Event of Default, and would not withdraw that assertion. True it is that the Event of Default was said to have occurred by reason of the alleged breach of cl 17.1(e). But the fact of breach (were it established) had no independent significance. It was but a stepping-stone along the way to the ultimate conclusion. That, in essence, is the reason I decided to deal with the issues in the way that I did.
7. Written submissions on costs at [9].
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If Thakral had some genuine interest in raising the cl 17.1(e) question as an independent or free-standing dispute that required resolution, it could have done so by way of cross-claim filed at the appropriate time or, by leave, thereafter but before the hearing. It did not do so.
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ABL’s letter pointed out, as GPG’s submissions had done a few days earlier, that on any view as to breach of cl 17.1(e), Thakral could not succeed on the Event of Default issue (or, putting it the other way round, that GPG must succeed in gaining the declaratory relief that it sought on that issue), because there was no evidentiary foundation for the necessary element of material adverse effect. Even if that point had not occurred to Thakral when it, or its legal advisers, considered GPG’s outline submissions, the point was placed squarely before Thakral in ABL’s letter. It does not appear that Thakral sought to grapple with the point when it received ABL’s letter.
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In short, and looking at the matter as at 12 July 2018, Thakral, if it had given serious consideration to the letter and the offer set out in it, should have realised that even if the intermediate questions were decided in its favour, the ultimate, and in the scheme of things important, question must have been decided in favour of GPG.
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I do not accept that the offer involved no genuine element of comprise. GPG offered to forego its costs to date. Those costs cannot have been insubstantial. Thakral must have known that because it, no doubt had incurred costs of like magnitude.
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Nor do I think that there is any basis for concluding that GPG’s offer was some sort of tactical device, designed to deflect Thakral from the preparation of its case and written “with the intention of securing a costs advantage”. On the contrary, I think the letter ought be viewed as a genuine attempt to focus on the real and important issue, and to propose a way of dealing with that. The reason favouring that course was plain from the letter: the absence of any admissible evidence on the question of material adverse effect.
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In all the circumstances, I conclude that the true cause of the costs that were incurred after 19 July 2018, the date of rejection of the offer, was Thakral’s unreasonable decision to persist with the litigation.
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It follows, subject to the question of timing, that GPG should have the order that it seeks.
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ABL’s letter threatened that, were the offer rejected, indemnity costs would be sought from the date of the letter. Thakral submitted that costs should flow from the time of rejection. That was so, Thakral submitted, because it was entitled to a reasonable opportunity to consider the offer.
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In my view, Thakral’s position on this point is correct. The letter did not limit a time for acceptance. Thakral was required to attend to preparation of the case for hearing (including by finalising its written submissions). GPG did not submit that the time taken to consider the offer was, in all the circumstances, unreasonable.
Order
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I order that the costs payable pursuant to order 2 made on 3 August 2018 be assessed on the ordinary basis up until 19 July 2018 and on the indemnity basis thereafter.
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Endnotes
Decision last updated: 29 October 2018
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