H20 Learning Pty Ltd v Swim Loops Pty Ltd t/as Jump Swim Schools (No. 2)

[2019] NSWDC 207

District Court

New South Wales

Medium Neutral Citation:	H20 Learning Pty Ltd v Swim Loops Pty Ltd t/as Jump Swim Schools & Ors (No. 2) [2019] NSWDC 207
Hearing dates:	On the papers
Date of orders:	28 May 2019
Decision date:	28 May 2019
Jurisdiction:	Civil
Before:	Abadee DCJ
Decision:	See paragraph 20.
Catchwords:	COSTS – Calderbank offer – whether Plaintiff’s rejection of an offer of settlement was unreasonable - offer of compromise – presumptive entitlement of Defendants to costs on indemnity basis arising – whether Court should ‘otherwise order’ on ground that the Defendants unnecessarily increased the costs of proceedings.
Legislation Cited:	Uniform Civil Procedure Rules
Cases Cited:	Calderbank v Calderbank [1976] Fam 93 Jones v Bradley (No.2) [2003] NSWCA 258 Loulach Developments Pty Ltd v Roads and Maritime Services (No.2) [2019] NSWSC 601 Ofria v Cameron (No.2) [2008] NSWCA 242
Category:	Costs
Parties:	H20 Learning Pty Ltd (Plaintiff) Swim Loops Pty Ltd t/as Jump! Swim Schools (First Defendant) Mr Campbell (Second Defendant) Mr Rice (Third Defendant) Mr Hurry (Fourth Defendant)
Representation:	Counsel: Mr D A Allen (Plaintiff) Mr M Gunning (First to Fourth Defendants)   Solicitors: Baybridge Lawyers (Plaintiff) MistryFallahi Lawyers & Business Advisors (Defendants)
File Number(s):	2017/333142
Publication restriction:	Nil.

Judgment

Background

1. I gave verdicts for the Defendants in this proceeding on 9 May 2019: H20 Learning Pty Ltd v Swim Loops Pty Ltd t/as Jump Swim Schools [2019] NSWDC 165. The dispositive reasoning (summarised at [209] of the reasons for judgement) indicated that the Plaintiff failed to make out its pleaded representation and, even if it did, it did not establish a causal connection between the misleading or deceptive conduct of the Defendants and its alleged loss. I ordered that the Plaintiff pay the Defendants’ costs, whilst granting liberty to apply for any special costs order.

2. The Defendants have now invoked that liberty and have applied for a special costs order, framed with various permutations:

1. the Plaintiff pay the Defendants’ (entire) costs of the proceedings on an indemnity basis;

2. Alternatively, the Plaintiff pay:

1. the First Defendant’s costs on an ordinary basis up until 19 April 2019; and on an indemnity basis as and from 19 April 2019;

2. the Second, Third and Fourth Defendants’ costs on an ordinary basis until 2 February 2018, 14 February 2018, 14 March 2018 or 19 April 2018; and on an indemnity basis as and from 2 February 2018, 14 February 2018, 14 March 2018, or 19 April 2019

3. Further in the alternative, the Plaintiff pay:

1. the First Defendant’s costs on an ordinary basis up until 27 April 2019, and on an indemnity basis as and from 27 April 2019;

2. the Second, Third and Fourth Defendants’ costs on an ordinary basis up until 2 February 2018, 14 February 2018, 14 March 2018 or 27 April 2019, and on an indemnity basis as and from 2 February 2018, 14 February 2018, 14 March 2018 or 27 April 2019

3. For its part, the Plaintiff resists these applications and submits that the Defendants should not obtain all of their costs because they unnecessarily increased the cost of the proceeding.

The Defendants’ alternative applications

Calderbank offer of 3 October 2017

4. The first of the Defendants’ applications is founded upon ‘without prejudice’ correspondence exchanged between the parties prior to the commencement of the proceeding on 3 November 2017. In particular, on 3 October 2017 the in-house counsel of the First Defendant sent a letter of settlement to the Plaintiff’s solicitors which purported to be based upon the principles of Calderbank v Calderbank [1976] Fam 93. Materially, the First Defendant offered to settle the dispute on the basis that it paid to the Plaintiff the sum of $160,000. This figure was referable to the amount claimed in a draft pleading with a discount for one month’s rent and the landlord’s legal costs, plus a compromise for items claimed in the draft pleading.

5. This offer was rejected on 20 October 2017 and that rejection prompted further correspondence from the First Defendant on 31 October 2017.

6. The Defendants referred to authority (Ofria v Cameron (No.2) [2008] NSWCA 242 at [27]) which posits that Calderbank offers may effectively be made prior to the commencement of proceeding. They submit that the amount offered was reasonable and represented a genuine offer to settle. Further, they submit that the offer was open for a reasonable period and that the Plaintiff’s decision to reject the offer was unreasonable and caused the parties to incur unnecessary costs.

7. The Court of Appeal’s decision in Ofria, whilst providing an indication that reasonable Calderbank offers prior to proceeding may ultimately carry substantial weight, is plainly distinguishable. In Ofria, the Court of Appeal emphasised the modest size of the claim (less than $50,000) and the corresponding risk that the costs of the litigation were disproportionate to the quantum. In this case the quantum was much more significant than that and it could not be readily said that legal costs would obviously appear disproportionate to the quantum of the Plaintiff’s claim.

8. The real or ultimate question in assessing the efficacy of Calderbank offers, on the premise (which I assume here) that the settlement sum offered is reasonable and a genuine attempt to settle, is whether it was unreasonable for the offeree to reject it: Jones v Bradley (No.2) [2003] NSWCA 258.

9. I am not satisfied that the Plaintiff’s decision to reject the offer of settlement on 3 October 2017 was unreasonable. A difficulty for the Defendants, in this respect, is the limited material put before me to support this specific application. The letter of 3 October 2017 refers to a draft pleading, however the contents of that draft pleading were not put before me. The letter of 3 October 2017 also referred to previous correspondence (18 September 2017 and another letter of 3 October 2017), which was similarly not put before me. The letter, on its face, appears to be referable to a contractual claim; which was not the claim ultimately pursued by the Plaintiff before the Court. It also appears that certain commercial considerations, not articulated in the letter, were also influential to the offer.

10. For this reason, I do not regard the Calderbank letter of 3 October 2017 as warranting a departure from the existing costs orders made.

Offer of compromise – 18 April 2019

11. On 18 April 2019 the Defendants’ lawyers conveyed an offer of compromise which, in the explanatory covering letter, was expressed to be an offer made in accordance with rule 20.26 of the Uniform Civil Procedure Rules (UCPR). The offer was open for acceptance on or before 30 April 2019. In other words, the offer was open for 12 days, and expired on the first day of the trial.

12. Pursuant to r 20.26(4)(b) of the UCPR, where, as here, the closing date for acceptance of a purported rules offer is the date of the hearing, the period for acceptance effectively must be “reasonable” in the circumstances. The Plaintiff did not argue that a period of 12 days was unreasonable and, in my view, given the proximity of the trial, the parties and their lawyers would have had a sufficient period, allowed for by this offer, to assess the offer having regard to their assessment of their prospects in the trial.

13. The offer of compromise was expressed to be put on behalf of all the defendants. The terms of the offer were:

1. The proceedings be dismissed by consent;

2. No order as to costs.

14. As was very recently explained by Leeming JA in Loulach Developments Pty Ltd v Roads and Maritime Services (No.2) [2019] NSWSC 601, ‘walk away’ offers made pursuant to r 20.26, which are made close to trial, may constitute a genuine offer of settlement, since the offeror is foregoing a valuable entitlement, being the possibility of obtaining a favourable costs order. In this case, the letter enclosing the offer of compromise alluded to a sum of $30,000 in legal fees and disbursements being incurred by the defendants up to that point.

15. Plainly, the Defendants obtained a more favourable result than that which was offered to the Plaintiff. That prima facie engages r 42.15A of the Uniform Civil Procedure Rules such that there is a presumptive entitlement to costs in the defendants’ favour. This is subject to the Court’s discretion to ‘otherwise order’.

16. The Plaintiff submits that there is a basis, or at least partial basis, for the Court otherwise ordering in this context. It submits that the Defendants unnecessarily increased the costs of the proceedings. In this regard, it submits that the Defendants unsuccessfully disputed the prospective liability of the natural person Defendants (that is the Second, Third and Fourth Defendants), they unsuccessfully relied upon a release in one of the two franchise deeds, they put in issue whether the pleaded representation was a ‘future’ representation and pursued a defence of absence of causation even if the pleaded representation was made out. They also say that the Third and Fourth Defendants failed to attend a mediation.

17. In my view, none of these matters make out any basis to disturb the ordinary operation of r 42.15A. The matters were not truly ‘separable’ or discrete issues that would warrant any apportionment of the kind that the Plaintiff intimates should be made. In particular, any action for damages for statutory misleading or deceptive conduct contains multiple elements, all of which a claimant must establish to found an entitlement to damages. A Defendant, or Defendants, will ordinarily need, in its or their defence, to meet or respond to all of those elements of the claimant’s case. In this case, the Plaintiff failed at the threshold by its failure to establish the representation it relied upon, but that did not relieve the Defendants the time and expense of the necessity to respond to all of the other elements. The Defendants’ reliance upon a release is something of an exception to this, as it may be regarded as a special defence, which the Defendants did not succeed upon, however the costs of that matter were only slight and do not warrant any apportionment.

18. Finally, based upon the material put before me in relation to this application, the Court is not in a position to assess whether or not a mediation process was rendered ineffective as a result of the alleged absence of natural person Defendants from that process.

19. I accept, therefore that the proper exercise of the Court’s discretion requires that variation be made to the existing costs orders, to reflect an effective rules offer made on 18 April 2019, which was bettered by the Defendants in the ultimate result. This makes it unnecessary for me to consider the third alternative application.

20. I order that the order for costs made on 9 May 2019 be varied and the following orders are substituted:

1. The Plaintiff is to pay the Defendants’ costs of the proceedings up to 18 April 2019 on the ordinary basis.

2. The Plaintiff is to pay the Defendants’ costs of the proceedings from 19 April 2019 on an indemnity basis.

21. The costs of the present application fall within order 2, above.

Release

22. The Defendants have flagged an application to seek payment out of Court in relation to the security for costs furnished by the Plaintiff. The Plaintiff resists that order, contending that it is premature.

23. In my view, it is inappropriate for the Court to make further orders at this stage. If and when the Defendants are minded to bring such application, that should be pursued by a notice of motion with supporting evidence. The application will then be determined in the ordinary course of the Court’s case management.

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Decision last updated: 28 May 2019