Guo Hui Cai v Xiao Yan Guo (No 2)
[2014] NSWSC 1416
•15 October 2014
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: Guo Hui Cai v Xiao Yan Guo (No 2) [2014] NSWSC 1416 Hearing dates: 3 October 2014 Decision date: 15 October 2014 Jurisdiction: Equity Division Before: Kunc J Decision: Plaintiff to pay defendant's costs on the ordinary basis up to 22 May 2014 and thereafter on the indemnity basis
Catchwords: COSTS - Indemnity costs - Offers of compromise very early and then later in proceedings - Offers of compromise where limitation defence - Whether offers applicable where final orders made by consent - Conflict of first instance authorities - UCPR Pt 20 r 20.25; Pt 42 r 42.15A Legislation Cited: Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Cai v Guo [2014] NSWSC 380
Chidiac v Maatouk [2010] NSWSC 386
Commissioner of Taxation v Moodie [2014] NSWCA 59; (2014) 308 ALR 571; (2014) 282 FLR 453; (2014) 98 ACSR 274
Drinkwater v Caddyrack Pty Ltd (No 3) (Supreme Court (NSW) 28 November 1997 unreported)
Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497
Haller v Ayre [2005] QCA 224
In the matter of Rivercorp Pty Ltd [2012] NSWSC 576
Ji v Firth t/as Firths the Compensation Lawyers [2013] NSWSC 186
Metro Hotel Sydney Pty Ltd v Kol Tov Pty Ltd [2010] NSWSC 1195
Nau v Kemp & Associates [2010] NSWCA 164; (2010) 77 NSWLR 687
Newcrest Mining Ltd v Thornton [2012] HCA 60; (2012) 248 CLR 555; (2012) 293 ALR 493; (2012) 87 ALJR 198
Ogilvie v Adams [1981] VR 1041
Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368
Taheri v Vitek (No 2) [2014] NSWCA 344
Undershaft (No 1) Ltd v Commissioner of Taxation [2009] FCA 41
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311
Young v Queensland Trustees Ltd; [1956] HCA 51; (1956) 99 CLR 560Category: Costs Parties: Guo Hui Cai (aka Wayne Cai) (Plaintiff)
Xiao Yan Guo (Defendant)Representation: Counsel: E. Havas (Solicitor) (Plaintiff)
T. Saunders (Defendant)
Solicitors: Eidan Havas & Associates (Plaintiff)
Lin Tang & Co Lawyers (Defendant)
File Number(s): 2013/193706 Publication restriction: No
Judgment
Summary
These proceedings were commenced in the District Court claiming a debt of $120,000. They were subsequently transferred to this Court. On 4 September 2014, by consent, the proceedings were dismissed. The plaintiff consents to an order that he pay the defendant's costs of the proceedings on the ordinary basis.
The defendant seeks her costs in the proceedings on the indemnity basis relying, among other things, on two "walk away" offers of compromise served in accordance with UCPR Pt 20, r 20.26. The first offer of compromise was made very early in the proceedings, the second much later. While the Court has concluded that offers of compromise can apply where proceedings are settled by consent orders, the first offer did not contain any real compromise. Because of the costs the defendant had incurred by the time of the second "walk away" offer, it contained a sufficient element of compromise. The defendant is entitled to her costs on the indemnity basis from the day after that second offer.
Procedural history
By statement of claim filed on 25 June 2013 in the District Court the plaintiff ("Mr Cai") sued the defendant ("Ms Guo") in relation to an alleged loan of $120,000. The pleading was straightforward:
7. In or about January 2006, the Plaintiff agreed to lend money to the Defendant.
Particulars
a. The agreement was oral, between the Defendant's father on behalf of the Defendant and the Plaintiff in person.
b. The agreed purpose of the loan was to assist the Defendant with the purchase of a property situated at and known as 1/10 Australia Street, Hurstville 2220, in the State of New South Wales, being the whole of the land comprised in the Certificate of Title Folio Identifier 1/SP75569.
c. The agreed rate of interest is the standard variable rate prevailing from time to time.
8. Pursuant to the said agreement, on 14 February 2006, the Plaintiff caused to be paid to the Defendant's bank account a sum of $120,000.000 via IMT.
9. In the premises, the said sum of $120,000 is money lent by the Plaintiff to the Defendant.
10. In the premises the Defendant is indebted to the Plaintiff for the said sum of $120,000.
Ms Guo's defence filed on 26 July 2013 denied Mr Cai's claim, contending that Mr Cai "acted as intermediary only for an administration fee and did not own any of the moneys transferred to his bank accounts in three separate transactions from Saw Motion Limited. Any money advanced to the defendant by the plaintiff was not a loan". The defence did not go on to specify what the advance was, if it was not a loan. It is unnecessary to consider whether it should have specified what Ms Guo said it was. Paragraph 7 of Ms Guo's defence also alleged that Mr Cai's claim was statute barred.
By letter dated 31 July 2013 Ms Guo's lawyers wrote to Mr Cai's lawyers making an offer of compromise pursuant to UCPR Part r 20.26 (the "First Offer"):
I refer to the statement of claim in the matter of Guo Hui Cai (aka Wayne Cai) v Xiao Yan Guo (Matter No. 2013/193706) served on our client on 29th June 2013. We act for the defendant in these proceedings and have filed a Form 6 Notice of Appearance and Defence in the Sydney District Court.
We urge your client to seriously reconsider continuing with these proceedings. In our view the statement of claim coupled with the defence filed in response, demonstrates that your client has no reasonable prospects of success, and in fact has no prospects of success.
We have banking documentation supplied by the plaintiff to the defendant, that establishes that the monies claimed to have been "lent" to the defendant, were never his. We will be calling evidence from a representative of Saw Motion Limited at the trial if necessary to establish this.
In any event these proceedings have been filed out of time pursuant to section 14 of the Limitation Act 1969.
This offer is made pursuant to Reg 20.26 of the Uniform Civil Procedure Rules 2005, and in accordance with these rules. This offer relates to the whole claim. This offer is open for 28 days after the date on which your office receives this offer.
Our offer is for you to consent to judgment for the defendant or alternatively, that the whole matter be dismissed, with no order as to costs. We further require the caveat to be removed from the defendant's property.
If this offer is not accepted, we will seek indemnity costs from the date of this letter if judgment is eventually in our favour.
Mr Cai did not accept the First Offer. Rather, on 15 August 2013 Mr Cai filed a reply which responded to the limitation defence:
2. The plaintiff denies paragraph 7 of the Defence, and:
a. says that it was an express term of the said loan agreement between the plaintiff by himself and the defendant by her father, that the loan would be repaid when the Defendant obtained her Australian permanent residency;
b. says that it was an implied term of the said loan agreement that if the Defendant failed to obtain or decided not to obtain her Australian permanent residency within a reasonable time, the loan should be then repaid,
c. says that it was an implied term of the said loan agreement that the defendant should notify the plaintiff when she had obtained her Australian permanent residence or when she had finally failed to obtain the same or finally decided not to proceed to obtain the same.
d. says that within 6 years prior to the commencement of the proceedings the defendant obtained or finally failed to obtain or finally decided not to obtain her Australian permanent residence and a reasonable time for obtaining it expired.
e. says, further or in the alternative, that the defendant did not notify the plaintiff of the progress of her endeavours to obtain Australian permanent residence and thereby encouraged the plaintiff to assume that those endeavours had continued for a reasonable period, being not less than two years, and by reason thereof, she is estopped from alleging that the loan fell due for repayment within the first two years after the advance.
f. says that the defendant by her father represented to the Plaintiff on numerous occasions within 6 years prior to the commencement of the action that if the plaintiff allowed the defendant further time to pay, then the defendant's father would guarantee repayment and in consideration thereof, the plaintiff permitted such further time, and by reason thereof, the action accrued again or, alternatively, the defendant is estopped from alleging that the action did not commence within 6 years prior to the commencement of the action.
On 27 August 2013 Mr Cai's solicitors sought Ms Guo's consent to file an amended statement of claim in the District Court. Ms Guo opposed this and Mr Cai filed a notice of motion.
On 8 October 2013 the District Court permitted Mr Cai to file an amended statement of claim which added the following, which had already appeared in the reply (see paragraph [6] above):
7A. Further or in the alternative, defendant by her father agreed with the Plaintiff on numerous occasions within 6 years prior to the commencement of the action that if the plaintiff allowed the defendant further time to pay, then the defendant's father would guarantee repayment of the said loan.
7B. In consideration thereof, the plaintiff of each occasion agreed to permit further time for payment.
In permitting the amendment, which was obviously intended to meet the limitation defence, the District Court ordered Mr Cai to provide further and better particulars. Orders were also made for the matter to proceed to trial on oral evidence.
On 19 November 2013 consent orders, proposed by Mr Cai, were made regarding discovery.
On 30 January 2014 Mr Cai's solicitor served a notice of ceasing to act.
On 7 February 2014 Mr Cai's new solicitors served a notice of change of solicitors.
Shortly after, both parties exchanged lists of documents.
On 20 February 2014 Mr Cai's new solicitors served a summons seeking to have the proceedings transferred to this Court with a motion to vacate the District Court trial dates of 26 and 27 February 2014.
Also on 20 February 2014 Ms Guo filed a notice of motion to vacate the District Court hearing due to what was said to be Mr Cai's failure to comply with the discovery orders.
On 21 February 2014 the District Court vacated the hearing fixed in that court pending the determination of Mr Cai's application for the proceedings to be transferred to this Court.
In late February or early March the parties exchanged further documents.
On 17 March 2014 Ms Guo's solicitors wrote to Mr Cai's new solicitors proposing a conference to occur between counsel the following week "with a view to settlement". That settlement conference never happened.
On 31 March 2014, Fullerton J, sitting as Duty Judge, determined Mr Cai's transfer application in his favour (Cai v Guo [2014] NSWSC 380). Her Honour noted:
9. The relief sought in the statement of claim under which the plaintiff seeks relief in this Court includes a declaration that the defendant holds the Hurstville property on trust in a notional split of shares equal to the sum presumably said to be advanced by him, an order that the defendant transfer that nominated interest in the property to him as a tenant in common and a further order, pursuant to s 66G of the Conveyancing Act 1919 (NSW), that a trustee be appointed for sale of the property. Alternatively, a declaration is sought that the plaintiff is entitled to a charge on the property in the amount of $120,000 plus interest, since the date of the advance on 14 February 2006. Alternatively, judgment for the plaintiff in the sum of $120,000 and interest pursuant to s 100 of the Civil Procedure Act.
10. Although what is said to be a trust underlying the transfer of the funds into the defendant's bank account in February 2006, and the related relief sought is substantially different from that which is sought in the District Court proceedings, that may not of itself be a reason for refusing the application to transfer the proceedings. I do note, however, that since the equitable relief is the dominant relief sought by the proposed proceedings in this court, it would not be subject to the Limitation Act1969 (NSW) defence pleaded below.
11. The defendant does not submit that the evidence upon which the plaintiff's claim is grounded is likely to be different in either proceeding, or that the evidence already assembled is likely to be different and for that reason that there is any particular prejudice occasioned to him were the proceedings transferred to this Court. In addition, as I understand it, the underlying factual question in dispute appears to be the same in both proceedings, namely both the provenance of the moneys deposited to the defendant's bank account, and under whose authority they were transferred from China and receipted by the local bank account.
Her Honour ultimately resolved the application in this way:
15. The overriding purpose, as articulated in s 56 of the Civil Procedure Act and its application in a civil dispute, or where the court is exercising any power under this Act or by the rules of the court, is to facilitate the just, quick and cheap resolution of the real issues in dispute. I also note that a party to proceedings is under a statutory duty to assist the court to further that overriding purpose and to participate in the processes of the court with that outcome in mind.
16. Whilst there has been delay occasioned by the plaintiff's non-compliance with certain orders made in the District Court proceedings, I do not regard the plaintiff's conduct to date as disentitling him from seeking to have the proceedings transferred to this Court where, as he contends, the appropriate relief, if made out, would be available to him.
17. That said, the proceedings were commenced in the District Court and it was only after a change of solicitor and after a review of the proceedings in preparation for hearing that the application is made involving, as it does, a very substantial recasting of the relief sought.
18. I am informed from the bar table through Mr Saunders who appears for the defendant, that the costs generated to date in preparation of the District Court proceedings, proceedings which I note are well advanced, indeed with a hearing date having been recently vacated, are estimated to amount to $35,000. Whilst it is fair to anticipate that some of the work already done will be put to proof of matters in dispute in the proceedings that are proposed to be transferred to this Court, I do not consider that it is fair and equitable that the defendant bear that cost in anticipation of recovering his costs if he is successful.
19. Following the preparation of some short minutes, the proceedings will be transferred into this Court on condition that the plaintiff pays to the defendant on or before 10 April 2014, which is a full working week in advance of the next listing in the District Court, the sum of $12,500 representing part of the costs thrown away in the District Court proceedings.
Mr Cai paid the $12,500 in accordance with her Honour's order and the proceedings continued in this Court.
By letter dated 22 May 2014 Ms Guo's solicitors made a further offer of compromise (the "Second Offer"):
We refer to the above matter and to the statement of claim served on our client on 01.05.2014.
Our client continues to maintain her position in relation to this dispute. Briefly, our client denies any owed from monies claimed to have been loaned by the plaintiff.
The banking documentation supplied by the plaintiff to the defendant clearly establishes that the monies claimed to have been "lent" to the defendant, were never his. The bank statements and receipts (including those sent to the plaintiff by the defendant during discovery) reconcile four incoming transactions from Saw Motion Limited to Guo Hui Cai on 27.01.2006 with four outgoing transactions from Guo Hui Cai to Xiao Yan Guo on 06.02.2006 and 14.02.2006 for the total sum of $374,960.00. These transactions also include the disputed sum of $120,000.00 advanced to the defendant on 14.02.2006. We will be relying on this evidence to establish that the plaintiff acted solely as an intermediary, did not own any of the monies transferred to his bank accounts and therefore did not advance any monies to the defendant as a loan. We will also be calling evidence from a representative of Saw Motion Limited at the trial if necessary to establish this.
As such, we urge your client to seriously reconsider continuing with these proceedings. In our view the statement of claim along with the evidence in our possession so far demonstrates that your client has no reasonable prospects of success, and may in fact have no prospects of success in this dispute.
In consideration of avoiding a costly protracted litigation, we are instructed to propose that your client consent to a judgment in favour of the defendant (or alternatively to discontinue this statement of claim), with no order as to costs. We further require the caveat to be removed from the defendant's property.
This offer is made pursuant to Reg 20.26 of the Uniform Civil Procedure Rules 2005 and in accordance with these rules. This offer relates to the whole claim and is open for 30 days after the date on which this offer is made i.e. 21 May 2014.
Should your client not accept the offer and continue proceedings, our client will rely upon this letter on the issue of costs. We further advise you that a similar offer of compromise was sent to the previous legal representatives of the plaintiff on 31st July 2013 and was not accepted.
We look forward to your response.
Mr Cai did not accept the Second Offer.
On 3 July 2014 Ms Guo filed a notice of motion for summary dismissal of Mr Cai's claim or, in the alternative, for security for costs.
On 27 August 2014 Mr Cai changed solicitors again, appointing Mr Havas, who appeared at the hearing before me.
On 4 September 2014, by consent, Mr Cai's claim against Ms Guo was dismissed. Orders were made to allow Ms Guo to amend her notice of motion (referred to in paragraph [24] above) to include a claim for her costs of the proceedings on the indemnity basis. It is that prayer for relief that was argued before me.
The parties' submissions
Mr T Saunders of Counsel appeared for Ms Guo. He submitted that Ms Guo was entitled to her costs of the proceedings on the indemnity basis for the following five reasons:
(1) The First Offer and the Second Offer were offers of compromise in accordance with the rules. Ms Guo is entitled to indemnity costs in accordance with UCPR Part 42, r 42.15A.
(2) Alternatively, the First Offer and the Second Offer could otherwise be treated as Calderbank offers and the Court's discretion to order indemnity costs should be exercised in favour of Ms Guo.
(3) Mr Cai's case had always been hopeless. It was always clear that the funds subject to the loan were not Mr Cai's and the claim was, in any event, statute barred.
(4) The proceedings amounted to an abuse of process or were tainted by misconduct on behalf of Mr Cai. This was evident from Mr Cai sending Ms Guo a letter which, it was submitted, bordered on blackmail in an attempt to persuade Ms Guo to pay the alleged debt.
(5) There had been unreasonable conduct or relevant delinquency on the part of Mr Cai. This included conduct which delayed and unnecessarily prolonged the proceedings, including failure to give proper discovery and making "multitudinous" amendments and retaining three different solicitors and claiming the attention of two different courts.
Mr Havas submitted on behalf of Mr Cai that the offers of compromise were demands for complete capitulation and, as such, did not involve a real element of compromise. He also submitted that the facts did not bear out the other grounds relied upon by Ms Guo.
Offers of compromise and consent orders - the parties' submissions
Mr Havas, correctly, did not submit for Mr Cai that there was any technical deficiency in the First Offer and the Second Offer insofar as they complied with Part 20, r 20.26 as to the form of an offer of compromise. His argument focused on the apparent lack of compromise in either of those offers.
During the course of argument it became apparent that an essential preliminary question raised by the application was whether the rules in relation to offers of compromise and their effect on costs operated when the proceedings were resolved by consent. The practical importance of this question for present purposes was that if the rules applied and Mr Cai's submission that the offers lacked the requisite element of compromise was rejected, then the forensic landscape was considerably in Ms Guo's favour. Under r 42.15A she was "entitled" to an order for indemnity costs from the day after any relevant offer "unless the Court orders otherwise".
The proper construction of UCPR Part 42, r 42.15A
Whether or not the rules apply to proceedings that have been resolved by consent requires, in this case, consideration of the proper construction of UCPR Part 42, r 42.15A:
42.15A Where offer not accepted and judgment no less favourable to defendant
(1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer.
(2) Unless the court orders otherwise:
(a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and
(b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis:
(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and
(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
It will be apparent from the terms of the rule that the precise question is whether the rule applies when the "order or judgment on the claim (which) is no less favourable to the defendant than the terms of the offer" that the defendant "obtains" has been "obtained" by consent rather than by judgment of the Court after a contested hearing.
Mr Cai drew attention to the observation in Ritchie's Uniform Civil Procedure NSW at [42.20.10] that the Court of Appeal has interpreted UCPR Part 42, r 42.20 ("If the Court makes an order for dismissal of proceedings ...") as including dismissals by consent without a hearing on the merits as well as dismissals after a hearing, citing several cases including Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497 at [87]. On the contrary, Ms Guo submitted that while the language of "makes an order" in r 42.20 might apply equally to orders by consent or after a contest, the reference in r 42.15A to "the defendant obtains an order or judgment" was not so neutral. To obtain an order or judgment, it was submitted, naturally pointed to the result of a contested hearing rather than a consent order.
Offers of compromise and consent orders - consideration
In this case, determining the proper construction of r 42.15A is complicated by two matters. First, insofar as the construction of r 42.20 may be relevant, the applicability of that rule to dismissals by consent appears to have been assumed rather than decided. So much becomes apparent from a review of Fordyce and the other cases referred to in Ritchie. Second, my researches have disclosed a conflict between judges at first instance on the question. This was not something to which the parties drew my attention. I shall deal with each of these matters in turn.
Is r 42.20 relevant?
One of the case referred to in Ritchie on r 42.20 is Metro Hotel Sydney Pty Ltd v Kol Tov Pty Ltd [2010] NSWSC 1195. In that case Hamilton AJ was considering the costs consequences of a case where, by consent, the parties' respective claims had been dismissed. His Honour said:
5. The statutory rule presently relevant was included in the Uniform Civil Procedure Rules 2005 ("the UCPR"). It is r 42.20:
"(1) If the court makes an order for the dismissal of proceedings, either generally or in relation to a particular cause of action or in relation to the whole or part of any claim, then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed."
That rule is juxtaposed to r 42.19, which deals with the costs of discontinued proceedings.
6 One possible reading of r 42.20 is that it should be taken to refer only to proceedings dismissed after a hearing on the merits. If it were read that way, it would leave the law as laid down in Lai Qin supra totally untouched.
7 That, however, is not the way in which the rule has been read in the Court of Appeal. It has been read instead as including dismissals by consent without a hearing on the merits, as well as dismissals after a hearing. The Court of Appeal has made it plain that this is the view that it takes of the incidence of r 42.20. This means, of course, that it intrudes upon the pattern laid down in Lai Qin: see Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497 at [87]; Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [48], [53]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [78]. However, it is made plain in the same cases that r 42.20 does not give rise to a presumption that costs will be ordered against the plaintiff, but merely creates a starting point that will govern costs unless the outcome is displaced by a discretionary decision.
When the Court of Appeal cases referred to in paragraph [7] of Hamilton AJ's reasons are reviewed, his Honour's reference to the way in which r 42.20 "has been read" in the Court of Appeal is entirely justified. In none of those decisions was the Court of Appeal squarely dealing with a submission that, as a matter of construction, r 42.20 did not apply to dismissals by consent.
In drawing this to attention I am not to be taken as disagreeing with the approach the Court of Appeal has taken. I have approached the parties' arguments on the basis that I am bound by decisions of the Court of Appeal to the effect that r 42.20 applies to orders for dismissal made by consent. However, even on that basis I do not think r 42.20 is of any assistance on the question of the proper construction of r 42.15A. There are two reasons for this.
First, the language of the two rules differs in relation to both the premise and the consequence: "if the Court makes an order ... the plaintiff must pay" (r 42.20) as opposed to "the defendant obtains an order ... the defendant is entitled to an order" (r 42.15A).
Second, r 42.20 is a rule of general application. It is part of Division 5 of Part 42, which is headed "Proceedings discontinued or dismissed". By contrast, r 42.15A is part of Division 3 of Part 42 dealing exclusively with the consequences of offers of compromise made under r 20.26. As such, important issues arise of r 42.15A being read consistently with the other parts of Division 3 as well as r 20.26. Furthermore, the special considerations of public policy in favour of encouraging settlements must also be taken into account in resolving any ambiguity of expression in r 42.15A.
For these reasons I do not think that the law in relation to r 42.20 is of any assistance in construing r 42.15A. The fundamental task is to construe the words of the rule. However, this gives rise to the second problem to which I have referred, namely a conflict in the authorities at first instance.
Conflicting judicial interpretations
The conflict between judges at first instance of this Court arises between the decision of Brereton J in In the matter of Rivercorp Pty Ltd [2012] NSWSC 576 ("Rivercorp") and the decision of Campbell J in Ji v Firth t/as Firths the Compensation Lawyers [2013] NSWSC 186 ("Ji"). In Ji Campbell J was considering r 42.15A and, in particular, r 42.15. In Rivercorp Brereton J was considered r 42.14. Nothing turns on this because in each rule the language of the relevant party "obtains an order or judgment on the claim" is identical and it could not be sensibly suggested that the applicability of rr 42.14, 42.15 and 42.15A to consent orders might be decided differently.
In Rivercorp, the Court entered judgment by consent in favour of the plaintiffs against the first defendant, the Commissioner of Taxation. The consent judgment was for an amount greater than the sum for which the plaintiffs had offered to compromise their claim in an offer of compromise. One of the submissions made by the Commissioner opposing the application of r 42.14 was that the rule only applied where there had been a contested hearing. His Honour resolved that submission as follows (his Honour's references to r 42.15 are an error and should be to r 42.14):
7. The second reason advanced for not applying the prima facie position established under r 42.15 is that it is said that r 42.15 was intended to apply to circumstances of determination after a contested hearing rather than to a settlement. As to this, first, there is nothing in the rule itself which limits its operation in that way. Secondly, to limit the rule in such a way would mean that a party could avoid its consequences by not accepting a reasonable offer of compromise until, for example, the day before trial, but then settling the case on terms less favourable to it and more favourable to the offeror than prevailed at the time when the offer of compromise was made. That illustrates that such a construction of the rule would run entirely counter to its purpose of promoting early settlement. I reject the second submission.
Brereton J's decision in Rivercorp that the Commissioner pay the plaintiffs' costs on a party-party basis until the date of the offer of compromise and on an indemnity basis thereafter in accordance with r 42.14 was the subject of an appeal under the name Commissioner of Taxation v Moodie [2014] NSWCA 59; (2014) 308 ALR 571; (2014) 282 FLR 453; (2014) 98 ACSR 274 ("Moodie"). The appeal was unsuccessful and Brereton J's decision was upheld. However, the grounds of appeal did not include any challenge to his Honour's decision as to the construction of r 42.14 (set out in paragraph [41] above). In broad terms, the appeal was concerned with various challenges to the exercise of his Honour's discretion on the basis that r 42.14 applied. In Moodie the Court of Appeal did not have to determine the question of construction and my researches have not found any other authority binding upon me on the question.
Rivercorp was decided in May 2012. Ji was decided in March 2013, before both the argument and the judgment in Moodie. It does not appear that Campbell J was referred to Rivercorp. In Ji the plaintiff sued his former lawyers. Ultimately the proceedings were settled by entry of a consent judgment in favour of the plaintiff for $14,000. In the course of his Honour's reasons (at [31]) he held that an offer of compromise served by the defendant legal practice on 6 July 2012 was not relevantly an offer of compromise under the rules because it did not contain any true offer of compromise.
What his Honour went on to say is, therefore, technically obiter dicta but nevertheless, in my respectful opinion, requires careful consideration as a matter of comity between judges of coordinate authority:
34. But nor does r 42.15 apply in my opinion. That rule applies where the defendant makes an offer which is not accepted by the plaintiff, "and the plaintiff obtains an order or judgment on the claim concerned as favourable to the plaintiff, or less favourable to the plaintiff, than the terms of the offer". Had I decided that the offer of 6 July 2012 was an offer of compromise under the Rules, I would still have been of the view that r 42.15 was inapplicable. In my judgment, the expression "obtains an order or judgment on the claim" refers to a decision made by the court after a contest: compare with the reasoning in Newcrest Mining Ltd v. Thornton [2012] HCA 60; and Nau v. Kemp & Associates Pty Ltd [2010] NSWCA 164; (2010) 77 NSWLR 687. By parity of reasoning with those cases, which concern the interpretation of the apportionment legislation, the natural meaning of the phrase "obtains an order or judgment" is the pronouncement of a relevant order or judgment in favour of a party following judicial determination of a contest, rather than by consent.
35. That this is so is confirmed by the terms of r 42.13A. Where, as here, an offer of compromise is made by the client as plaintiff (see Annexure "T" and "U" to the affidavit of Mr. McQuilkin), which is accepted by the defendant, the prima facie rule is that the plaintiff is entitled to costs in respect of the claim assessed on the ordinary basis up to the time when the offer was made (r 42.13A(2)), unless, inter alia, the Court otherwise orders. There is no default provision for indemnity costs. This points clearly to the conclusion that rr 42.14, 42.15 and 42.15A are intended to operate after the judicial resolution of a contest.
I referred in the preceding paragraph to the concept of judicial comity. In approaching the issue before me I respectfully adopt as correct the exposition of the impact of judicial comity in a case such as the present set out by Lindgren J in Undershaft (No 1) Ltd v Commissioner of Taxation [2009] FCA 41:
68. The notion of judicial comity raises interesting questions. I am not bound to follow Edmonds J in Virgin Holdings, it being a decision of co-ordinate authority. However, the answers to the following questions are not so obvious. In what circumstances, if at all, am I bound to accord influence to his Honour's decision? Am I bound independently to reach my own conclusion? If so, and my conclusion does not accord with that of his Honour, by reference to what principles, if at all, am I at liberty to discard my own conclusion in favour of his Honour's?
69. Before referring to the authorities, I will state my understanding of the role of considerations of judicial comity by reference to the task confronting me.
70. First, I must embark on my own independent consideration of the issues for decision with a view to reaching my own independent conclusion on them. The oath of judicial office requires me to do no less. If my own conclusion, independently reached, is consistent with his Honour's, there is no scope for his decision to influence me beyond "fortifying" me in my conclusion.
71. Second, I must not follow his Honour should I reach the view that his Honour was "clearly" or "plainly" wrong.
72. Third, I may (not must) follow his Honour's (supposedly inconsistent) decision once it is clear that that decision is not "plainly" or "clearly" wrong.
73. Fourth, accepting the strong desirability of certainty and stability in judicial decision-making in the administration of justice, I will in fact follow his Honour's inconsistent decision unless I conclude that it was clearly or plainly wrong, or that for some other reason those same interests of justice demand that I adhere to my own conclusion in preference to his Honour's supposedly erroneous one.
74. While the expression "clearly wrong" and "plainly wrong" may be open to criticism, they usefully remind the later judge of the interests of justice in consistency of decision-making in a system of which the individual judge is but a part. The "choice" to follow an earlier inconsistent decision of co-ordinate authority is, however, as a matter of law, discretionary and depends on the circumstances of a particular case. These will properly include considerations of the length of the period during which the earlier decision has stood, and whether it has been relied upon in the arrangement of human affairs.
Mindful, in particular, of what Lindgren J says in paragraph [70] extracted above, I will consider the proper construction of r 42.15A independently and then review my own conclusion against the conflicting analyses in Rivercorp and Ji.
The starting, and most important, point is the ordinary meaning of the word "obtains" in the expression "obtains an order or judgment on the claim" in r 42.15A(1). It is not a legal term of art and is to be given its plain English meaning. The Macquarie Dictionary records that meaning as "to come into possession of; get or acquire; procure, as by effort or request". In its natural and ordinary meaning "obtains" clearly includes an order or judgment which is the product of either agreement (request) between the parties or determination by the Court (effort). The width of the word "obtains" and the absence of any express qualification in the rule as to how the order or judgment has been obtained display a clear legislative intention that no distinction is to be drawn between how the order or judgment has been obtained.
While the proper meaning is clear from the plain language of the rule, that conclusion should be tested by considering whether there is anything in the policy underlying the rule which would justify the word "obtains" being read down in the way for which Ms Guo contends so as to exclude orders or judgments obtained by consent. There is no such policy justification. On the contrary, the policy underlying the provisions relating to offers of compromise is to encourage early settlement. This is done by giving the failure to accept an offer of compromise real costs consequences, evidenced by the use of the strong language of the successful party being "entitled" to a particular form of order. That policy would be completely undermined if it became apparent that an offer of compromise could be rejected with impunity by the offeree in the hope that the offeree might be able to negotiate a more favourable (to the offeree) settlement later in the proceedings without suffering the consequences of the offer of compromise.
It will be apparent from what I have said in paragraphs [48] to [49] above that, even without the benefit of the decisions in Rivercorp and Ji, my independent view of the proper construction of r 42.15A accords with the approach taken by Brereton J in Rivercorp for the reasons his Honour there sets out (see paragraph [42] above). I will next consider Campbell J's reasoning in Ji.
As is apparent from paragraph [34] of Campbell J's judgment in Ji, his Honour reached his conclusion "by parity of reasoning" with the decision of the High Court in Newcrest Mining Ltd v Thornton [2012] HCA 60; (2012) 248 CLR 555; (2012) 293 ALR 493; (2012) 87 ALJR 198 ("Newcrest") and of the Court of Appeal in Nau v Kemp & Associates [2010] NSWCA 164; (2010) 77 NSWLR 687 ("Nau"). With the utmost respect to his Honour, the difficulty of his Honour's approach is that his Honour's reasons do not expose how he applies the "reasoning" in Newcrest and Nau to reach his conclusion. If "reasoning" is understood at a high level of generality, it is to be acknowledged that in both cases the relevant courts looked at the literal words of the sections under consideration and tested that construction against the context in which those words appeared and matters such as the legislative history and policy which informed the particular legislation. I readily accept that is the correct approach. However, my application of that approach has led me to a different conclusion to that of Campbell J. As I will next discuss, this is because there is a material difference between the language of r 42.15A and the statutes under consideration in Newcrest and Nau.
If the "reasoning" referred to by his Honour is understood more specifically as being confined to the interpretation of specific words, then again I respectfully conclude that a material difference between the language of r 42.15A and the legislation considered in Newcrest and Nau means that there is no relevant parity or similarity that leads to the result reached by Campbell J. The key difference between the case at bar and those before the High Court and the New South Wales Court of Appeal was that in the cases before those courts their ultimate decision was based on the presence of the word "awarded" in the relevant legislation. That word, or anything like it, is absent from r 42.15A.
In Newcrest the High Court was considering s 7(1)(b) of the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA), in particular the words "the judgment first given" in the context "the sums recoverable under the judgments given in those actions by way of damages shall not in the aggregate exceed the amount of the damages awarded by the judgment first given". The question was whether the section applied when the "judgment first given" was a consent judgment. The majority reached their conclusion that "the judgment first given" could not be a consent judgment because the word "awarded" pointed to a judicial conclusion after analysing the relevant arguments to determine what should be awarded (see per French CJ at [28]-[29]. Heydon J at [36]-[40] and Bell J at [126]).
Nau was decided before Newcrest, however the reasoning and result were the same, with the New South Wales Court of Appeal considering this State's equivalent of the Western Australian legislation that was before the High Court in Newcrest. Each of the judges in the Court of Appeal looked at the literal meaning of the words used and tested their construction by reference to context, history or policy. This was most succinctly expressed by Campbell JA:
230 In my view there are no considerations of context, history or policy that displace the construction I arrived at by considering the meaning of the words of the provision. The preferable construction is thus that there are "damages awarded", within the meaning of section 5(1)(b), only if the court has assessed the quantum of those damages. For that reason, the judge was wrong in summarily disposing of the 2005 Action.
The other two members of the Court followed the same approach to reach the same conclusion: per McColl JA at [100]-[101] and Sackville AJA at [262]-[263].
The other matter upon which Campbell J relied (at paragraph [35]) of Ji - see paragraph [45] above) was the terms of r 42.13A. His Honour's reasoning in reliance on the terms of that rule is no longer applicable. That is because his Honour was considering r 42.13A as it stood prior to 7 June 2013. The present application is governed by the rules relating to offers of compromise after amendments made on 7 June 2013. The current form of r 42.13A is in quite different terms to its predecessor considered by Campbell J and does not provide a basis, one way or the other, to determine whether an order or judgment obtained by consent engages r 42.15A (or rr 42.14 or 42.15):
42.13A Where offer accepted and no provision for costs
(1) This rule applies if the offer:
(a) is accepted by the offeree, and
(b) does not make provision for costs in respect of the claim.
(2) If the offer proposed a judgment in favour of the plaintiff in respect of the claim, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made.
(3) If the offer proposed a judgment in favour of the defendant in respect of the claim (including a dismissal of a summons or a statement of claim), the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made.
The position I have reached may be summarised as follows. Looking at the question independently without regard to either Rivercorp or Ji, on its proper construction r 42.15A applies whether the order or judgment has been obtained after a contested hearing or by consent. I am fortified in that view by the decision in Rivercorp. I respectfully decline to follow the obiter dicta on this question in Ji. Because they are obiter dicta it is unnecessary for me to, and I do not, express any view as to whether Campbell J's conclusion is clearly or plainly wrong for the purposes of the principles identified by Lindgren J (see paragraph [46] above).
Do the First and Second Offers contain a compromise?
Given the conclusion I have expressed in the preceding paragraph and the (correct) absence of any submission that the First and Second Offers were, as a matter of form, technically deficient to constitute offers of compromise under the rules, it is next necessary to consider Mr Havas' submission for Mr Cai that neither of the offers constituted a true compromise. As part of his submissions on this point, Mr Havas also submitted that, given the absence of compromise, Mr Cai's claim was not so weak as to be frivolous or vexatious. Absent the necessary element of compromise, an offer of compromise to capitulate would generally only engage the offeror's entitlement to indemnity costs under r 42.15A if the claim was frivolous or vexatious. This point was made by the Court of Appeal in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368:
31 An offer which is in substance an invitation to surrender can result in the successful triggering of the indemnity costs mechanisms under the rules. (See r 20.26(2); Leichhardt Municipal Council supra at [36]-[37], [40].) However, as Basten JA suggests in Robb Evans supra at [20], the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case. (See also Hancock v Arnold supra at [17].) If it were otherwise, the public policy to encourage settlement would rarely be served, in an all or nothing case. These proceedings were not of that character, as indicated by the success which the respondent had at first instance.
Insofar as the question of compromise is concerned, the First Offer and the Second Offer must be considered separately given the different points in the history of the proceedings at which each was made.
The First Offer was made five weeks after the statement of claim and five days after the defence, respectively, were filed. The Second Offer was made on 22 May 2014. By that date, as the chronology set out in paragraphs [3] to [26] demonstrates, many interlocutory steps, including the setting down of the matter for trial in the District Court, had occurred. There was evidence before the Court from Ms Guo's solicitors as to Ms Guo's legal costs and when they had been incurred. By the date of the First Offer Ms Guo's legal costs (which the Court infers relate to solicitors and counsel taking instructions on the statement of claim, advising thereon and drafting Ms Guo's defence) totalled $3,646 on a solicitor/client basis. However, by the date of the Second Offer Ms Guo's solicitor/client costs were approximately $38,800, from which must be deducted the $12,500 paid by Mr Cai in accordance with Fullerton J's order (see paragraph [21] above). Making that allowance, as at the date of the Second Offer Ms Guo's outstanding solicitor/client legal costs were approximately $26,300.
The situation of offers of compromise made very early and then later in proceedings was considered by the Court of Appeal in Taheri v Vitek (No 2) [2014] NSWCA 344, delivered on the same day as I heard the argument in these proceedings. The Court said:
9. However, as the appellant's submissions point out, the offers made on 17 July and 10 December 2013 in large measure invited capitulation by the appellants in each appeal. There is no evidence before the Court as to the costs incurred by the respondents at those times (some three weeks after the commencement of the first appeal, and seven days after the commencement of the second appeal). It would be expected that virtually no costs would have been incurred by those times.
10. In our view, it would not be appropriate for the non-acceptance of either of those offers to lead to the consequences for which Pt 42, r 42.15 provides. The only measure of compromise involved on the part of the respondents was not to seek their costs which could not, by that stage, have been significant: cf Botany Bay City Council v Latham (No 2) [2013] NSWCA 450 at [12] (Adamson J, Ward and Leeming JJA agreeing). If that were not so, then the rule could be engaged by a defendant (or a respondent to an appeal) early in the litigation making a "walk-away" offer of compromise; that would not serve the public policy of encouraging settlement.
11. For the same reasons, if the correspondence of 17 July and 10 December 2013 be treated in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333, the same result obtains.
12. The position is different in relation to the final offer of compromise, which was served under cover of a letter dated 2 May 2014. By then, there had been an exchange of written submissions on each appeal. The offer of compromise was that in each appeal there be "judgment in favour of the respondents" with no order as to costs. Those offers were open for acceptance for 14 days, until 16 May 2014. Moreover, the letter stated that the respondents' costs on a solicitor/client basis in both appeals, excluding fees of senior counsel, were approximately $120,000. The letter said "accordingly, the compromise proposed in the offer of compromise is very generous".
13. It is not possible, on the materials available to this Court, to determine whether the costs recoverable on assessment incurred by the respondents are $120,000 or anything approaching that amount (which seems extraordinarily high). However, by that time, the respondents had undoubtedly incurred substantial costs and the appellant was well aware of the nature of the submissions the respondents would be making on the appeals. It was correct to say that this final offer of compromise involved a significant element of compromise, and it was unreasonable for the appellant not to accept it.
14. Accordingly, the respondents are entitled to have their costs on an indemnity basis, in each appeal, from 2 May 2014 onwards.
I propose to apply a similar approach to the First Offer and Second Offer.
The First Offer
The only measure of compromise in the First Offer was that Ms Guo would not seek her costs. As I have recorded in paragraph [60] above, the evidence shows that Ms Guo's costs at that point were $3,646. In the context of a claim for $120,000, I do not regard that degree of compromise as being sufficiently significant to demonstrate a true compromise. The policy consideration identified by the Court of Appeal in Taheri is equally applicable in this case: it would not serve the public policy of encouraging settlement for a plaintiff to be able to make a "walk away" offer of compromise that would engage the rules so early in the course of the litigation in the absence of having incurred significant costs. What may constitute "significant" costs will depend on the circumstances of each case, not least the alleged value of the claim. I do not regard the costs incurred by Ms Guo as at the date of the First Offer as being significant.
In reaching this conclusion, I have not overlooked the alleged weakness of Mr Cai's case. This is important because as the Court of Appeal has recognised (see paragraph [61] above) a defendant may be justified in making an offer of compromise early (or, indeed, at any other time) which involves little or no element of compromise if the case is frivolous or vexatious. Whether the plaintiff's case answers that description must be considered at the time of the relevant offer.
It was submitted for Ms Guo that for two reasons Mr Cai's case was so weak as to make it frivolous or vexatious: the fact that Ms Guo was able to demonstrate that the money advanced by Mr Cai did not belong to Mr Cai and, second, that the claim was statute barred.
As at the date of the First Offer, based on the pleadings as they then stood, it could not be reasonably concluded that Mr Cai's claim was so weak as to be frivolous or vexatious. The fact that Ms Guo could demonstrate that Mr Cai had been put in funds by Saw Motion Limited to make the advance the subject of the proceedings does not, in and of itself, demonstrate that Mr Cai was only acting as an intermediary. As Fullerton J observed (see paragraph [19] above), a central factual dispute in the case would be the capacity in which Mr Cai advanced the funds.
Nor was the limitation defence a sufficiently obvious and complete answer to the claim at the time the First Offer was made. Mr Saunders drew the Court's attention to the decision of the High Court in Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560 at [10] that "a loan of money payable on request creates an immediate debt". He submitted that it followed that the cause of action alleged in the statement of claim arose in January 2006 and expired in January 2012, more than a year before the proceedings had been commenced.
That contention is prima facie correct given that on the bare facts pleaded in Mr Cai's statement of claim a term would be implied that the loan was repayable on demand. In those circumstances the law was explained by Fullagar J in Ogilvie v Adams [1981] VR 1041 at 1049 (and approved on numerous occasions since, for example, by the Queensland Court of Appeal in Haller v Ayre [2005] QCA 224 at 26-30, by Young J (as his Honour then was) in Drinkwater v Caddyrack Pty Ltd (No 3) (Supreme Court (NSW) 28 November 1997 unreported) and by Ward J (as her Honour then was) in Chidiac v Maatouk [2010] NSWSC 386 at [236]):
There is a long-settled rule of construction that, where there is a present debt between the parties to a contract to repay money, and the only terms as to repayment of the debt are to be spelled out of a promise to repay on demand, or out of a statement that the money is to be repaid or repayable on demand (or on request), an instantaneous cause of action, upon the very creation of the contract, arises in the lender. Whether one calls it a rule of law or not does not seem to me to matter. The only reason why I have chosen the expression "rule of construction" is because other words or terms may appear in the contract which may be in the circumstances sufficient to show an intention that the cause of action is not to arise until some actual demand or some form of demand is made or until some period after demand has elapsed.
However, even with an apparently clear answer to Mr Cai's claim, it would be premature to characterise that claim as frivolous and vexatious and, therefore, it was premature to make a "walk away" offer of compromise until there had been a reasonable opportunity for Mr Cai to respond by reply or amendment to the limitation plea. In this case the First Offer came five days after the defence had been filed. Both a reply and an amendment application followed within four weeks of the defence being filed.
It is usually necessary to allow an opportunity to respond to a plea of a limitation defence in the context of offers of compromise because limitation questions can often invite close examination of the facts. This explains the reluctance of the High Court for limitation questions to be determined on a strike out: Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at [31] per Mason CJ, Dawson, Gaudron and McHugh JJ.
In a case such as the present, construing an oral contract, there may be other facts or circumstances from which the Court would infer "an intention that the cause of action is not to arise until some actual demand or some form of demand is made or until some period after demand has elapsed". That possibility should be foreclosed before a claim like Mr Cai's could be considered frivolous and vexatious and as being hopeless due to the limitation defence. Even in the absence of a reply or timely amendment, a defendant with an apparently good limitation defence who wishes to make an early offer of compromise before significant costs have been incurred should generally raise the apparent strength of the defence in correspondence with the plaintiff and consider any reply before making a "walk away" offer of compromise.
It follows from what I have said in the preceding paragraphs that the First Offer was not an offer that would engage r 42.15A. Finally, in relation to the First Offer, there is nothing in the terms of the offer, or in the surrounding circumstances, to indicate that if it did not constitute an offer of compromise under the rules it was otherwise proposed to be relied upon on the question of costs irrespective of its effectiveness as an offer of compromise: Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311 at [43]. Accordingly, the First Offer is not available to be treated as a Calderbank letter.
The Second Offer
In contrast to the First Offer, the Second Offer was made at a time when Ms Guo had incurred significant costs. They were approximately $26,300 (see paragraph [60] above). The Court has no difficulty in concluding that offering to forego a potential entitlement to that amount of money represented a real compromise on Ms Guo's part. Mr Cai's submission that the Second Offer lacked the requisite element of compromise is rejected.
It follows that in accordance with r 42.15A(2) Ms Guo is entitled to an order against Mr Cai for Ms Guo's costs on the ordinary basis up to and including 22 May 2014 and on the indemnity basis as and from 22 May 2014, "unless the Court orders otherwise". Once the rule is engaged, the onus is on the unsuccessful offeree, in this case Mr Cai, to demonstrate why the Court should order otherwise.
The law in New South Wales is currently unsettled as to what is required to be demonstrated for the Court to order otherwise. This was noted by McColl JA in Moodie:
64. There is a conflict in decisions of this court as to whether exceptional circumstances are required before the court may exercise the UCPR 42.12(2) discretion to "otherwise order" (see Barakat v Bazdarova [2012] NSWCA 140 ("Barakat") (at [42] - [49]) per Tobias AJA (Bathurst CJ and Whealy JA agreeing)) or whether that discretion has to be exercised having regard to all the circumstances of the case: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 (at [15]).
65. Tobias AJA concluded in Barakat (at [50]) that it was unnecessary to determine which line of authority to follow because he was of the view that none of the circumstances of that case would justify depriving the respondent of indemnity costs.
It is unnecessary for me to attempt to resolve the difference in the authorities. This is because, understandably in circumstances where Mr Cai consented to judgment, he has not sought to point to any circumstances, exceptional or otherwise, that would justify the Court ordering otherwise.
The other grounds advanced by Ms Guo
By reason of the Second Offer, Ms Guo is entitled to her costs on the indemnity basis on and from 23 May 2014. The last question the Court needs to consider is whether any of the other matters advanced by Ms Guo warrant an indemnity costs order being made in her favour for the period up to and including 22 May 2014. That order could be made either under the Court's power to order otherwise in r 42.15A(2) or by the application of general law principles in relation to indemnity costs.
Ms Guo advanced three grounds in support of an indemnity costs order. I will consider each in turn.
The first ground was her contention that Mr Cai's case was so hopeless that it engaged the Court's general jurisdiction to order indemnity costs. For the reasons set out in paragraphs [66] to [71] above I disagree. Furthermore, there is nothing in the evidence before me to suggest that something occurred or became known between the time of the First Offer and the dismissal of the proceedings that demonstrates, conclusively or otherwise, that Mr Cai's case was hopeless. It was (correctly) not suggested that any inference could be drawn from the consent dismissal itself.
The second ground for indemnity costs was that the proceedings amounted to an abuse of process or misconduct on behalf of Mr Cai. This submission was based upon a letter which Mr Cai sent to Ms Guo on 4 June 2014. The letter demanded repayment of the alleged loan together with interest and the legal costs which Mr Cai said he had incurred. All of this was to be paid to a nominated account by 7 June 2014. The letter, which was unsigned, continued that if the money was not paid, Mr Cai would take documents produced in the proceedings and make them available to a Chinese court that was apparently investigating allegations of corruption against Ms Guo's father. Amongst other things, the letter alleged that the evidence in these proceedings would demonstrate to the Chinese court that the money that had been transferred through Saw Motion Limited was in fact Ms Guo's father's money which he had extorted from people in China.
Although the letter was unsigned, there was no evidence before me that Mr Cai denied sending the letter. There was, however, evidence, which I accept, that his solicitors knew nothing about the sending of the letter and that Mr Cai's solicitor had sought to excuse the letter to Ms Guo's solicitor by suggesting that Mr Cai had written the letter because he (Mr Cai) was frustrated that the alleged debt had not yet been paid back.
The Court views a letter of this kind extremely seriously. It arguably constitutes a contempt of court by one party attempting to intimidate the other in connection with the proceedings. However, the fact that the letter was sent does not, of itself, cast doubt on the bona fides of Mr Cai's claim against Ms Guo. Nor is there any evidence that, having been told by Ms Guo's solicitors that they had nothing to do with the letter, Mr Cai's solicitors took the matter of the letter any further.
An order for indemnity costs is not punitive. The letter was sent within the period for which the Court has already determined Ms Guo is entitled to her costs on the indemnity basis. It does not demonstrate that the proceedings themselves were unfounded or fraudulent. For these reasons it does not provide a basis for the Court to order indemnity costs for the period prior to 22 May 2014.
Finally, I should observe that given Mr Cai consented to the dismissal of the proceedings and Ms Guo has apparently not taken the sending of the letter any further, I do not regard it to be appropriate for the Court to take any further action in relation to the letter of its own motion. The position would almost certainly have been completely different if the letter had been drawn to the Court's attention at a time when the proceedings remained on foot.
Ms Guo's third submission drew attention to Mr Cai's alleged unnecessary prolonging of the proceedings, failure to give proper discovery and making "multitudinous" amendments.
I do not regard Mr Cai's delays as set out in the chronology in paragraphs [3] to [21] above or inadequate initial disclosure of documents as being sufficiently serious to attract an order for indemnity costs. Ms Guo's understandable frustration at Mr Cai's less than efficient conduct of the litigation does not translate into or justify an order for indemnity costs.
Nor can the other interlocutory incidents referred to by Ms Guo warrant an indemnity costs order. In the absence of evidence that Mr Cai's changes of solicitor were done in bad faith or for an improper purpose, nothing can be made of that. Mr Cai's application to transfer the proceedings to the Supreme Court was successful. Therefore, that application cannot give rise to an adverse costs consequence for Mr Cai over and above the orders made by Fullerton J.
Similarly, the fact that Mr Cai's claim has been amended does not warrant an indemnity costs order. The evidence discloses only two amendments. The first was allowed by the District Court (see paragraph [8] above). The second, I infer, was the further version of the claim referred to by Fullerton J in paragraph [9] of her judgment (see paragraph [19] above). There is no material before the Court on this application to support the conclusion that this later proposed version was not propounded in good faith or for a proper purpose.
Conclusion and orders
Ms Guo's application for indemnity costs by reference to the First Offer fails. Her application for indemnity costs by reference to the Second Offer succeeds. She has not demonstrated any other basis upon which the Court should order Mr Cai to pay her costs prior to the date of the Second Offer on the indemnity basis.
Insofar as the costs of the costs argument are concerned, Ms Guo has had only partial success. Nevertheless, given that the costs application took place in the context of Mr Cai's consent to the dismissal of these proceedings, my provisional view is that Ms Guo's lack of complete success will be adequately reflected by limiting the costs of the argument before me to her costs on the ordinary basis rather than the indemnity costs that would otherwise have applied pursuant to r 42.15A. Subject to affording Ms Guo an opportunity to be heard, the costs order I propose is that Mr Cai pay Ms Guo's costs of her amended notice of motion filed 5 September 2014 (including, for the avoidance of doubt, the costs of the hearing before me on 3 October 2014) on the ordinary basis.
The Court orders:
(1) The plaintiff pay the defendant's costs of the proceedings up to and including 22 May 2014 on the ordinary basis;
(2) The plaintiff pay the defendant's costs of the proceedings (including, for the avoidance of doubt, the costs of the defendant's notice of motion filed on 3 July 2014) on and from 23 May 2014 up to and including 4 September 2014 on the indemnity basis.
Amendments
15 October 2014 - (No 2) added as previous judgment in same matter
Amended paragraphs: Case Title cover page
Decision last updated: 15 October 2014
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