Harris v Harris (No 2)

[2013] NSWSC 1157

Supreme Court

New South Wales

Medium Neutral Citation:	Brian John Harris v Mark Harris (No 2) [2013] NSWSC 1157
Hearing dates:	6 and 13 August 2013 (written submissions)
Decision date:	21 August 2013
Jurisdiction:	Equity Division
Before:	Kunc J
Decision:	Indemnity costs ordered
Catchwords:	COSTS - Calderbank letter - Indemnity costs - Whether refusal of offer unreasonable
Legislation Cited:	Contracts Review Act 1980 (NSW) Legal Aid Commission Act 1979 (NSW)
Cases Cited:	Calderbank v Calderbank (1975) 3 All ER 333 Commonwealth of Australia v Gretton [2008] NSWCA 117 Harris v Harris [2013] NSWSC 1010 Illawarra Hotel Co Pty Limited v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211
Category:	Costs
Parties:	Brian John Harris (Plaintiff) Mark Harris (Defendant)
Representation:	Counsel: Mr P. Batley (Plaintiff) Mr E. Yin (Solicitor) (Defendant) Solicitors: Legal Aid Commission NSW (Plaintiff) Mitry Lawyers (Defendant)
File Number(s):	2011/330917
Publication restriction:	No

Judgment

Summary

1. On 30 July 2013 I delivered the principal judgment in this matter (Harris v Harris [2013] NSWSC 1010). Terms defined in that judgment have the same meaning in this judgment.

1. I dismissed Brian's statement of claim and ordered him to pay Mark's costs. These reasons should be read in conjunction with the principal judgment.

1. Mark has applied for indemnity costs, in reliance upon an offer to settle the proceedings from his solicitors to Brian's solicitors dated 10 April 2013 (the "Offer"). The Offer was made in accordance with the principles in Calderbank v Calderbank (1975) 3 All ER 333. The Offer was open for acceptance until 4.00pm on 23 April 2013. It was not accepted.

1. I made orders for the parties to file submissions in relation to Mark's application. They have done so. The parties agreed that I should decide the application on the papers and that is what has occurred.

1. Brian's failure to accept the Offer was objectively unreasonable. In the exercise of the Court's discretion Mark is entitled to an order that his costs of and incidental to the proceedings from and including 24 April 2013 be paid on the indemnity basis.

The applicable principles

1. The applicable legal principles are:

(1)   The Court's power in relation to costs is discretionary subject to the rules of Court. The general rule is that costs follow the event and are assessed on the ordinary basis.

(2)   Where a Calderbank offer has been made public policy objectives of encouraging an early end to litigation and discouraging wasteful and unreasonable behaviour by litigants underpins the making of favourable costs orders.

(3)   The making of a Calderbank offer does not automatically result in a favourable costs order, notwithstanding that the judgment is more favourable to the party making the offer than the terms of the offer.

(4)   Two guides have been developed as to how the discretion might appropriately be exercised when a Calderbank offer has been made: first, that the offer is a genuine offer of compromise; and, second, whether it was unreasonable for the offeree not to have accepted.

(5)   The question of unreasonableness is to be approached objectively in the circumstances known (or which should reasonably have been anticipated) by both parties at the time the offer was made.

(6)   The discretion is to be exercised having regard to all the relevant circumstances in the case.

(7)   The onus is on the party making a Calderbank offer to satisfy the Court that it should exercise the costs discretion in its favour.

1. I have summarised these principles from the extensive exposition of them in Commonwealth of Australia v Gretton [2008] NSWCA 117 ("Gretton") at [38]-[46] and Illawarra Hotel Co Pty Limited v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211 at [17].

1. The Offer was lengthy. So as not to interrupt the narrative of this judgment, the Offer is reproduced in full in an appendix to these reasons.

1. The resolution of the proceedings proposed in the Offer was:

(1)   Judgment in favour of Mark;

(2)   Mark to pay Brian $30,000; and

(3)   Each party to pay his own costs.

1. The Offer was subject to the parties entering into a deed of release which was to be approved by the Court (this last requirement presumably being based upon the parties' mutual understanding that Brian was mentally incompetent and was acting through a tutor).

1. The Offer advanced four reasons for its acceptance. In the absence of Brian being available for cross-examination, it was said that his statement would not be admitted into evidence or, even if it was, that it would be accorded almost no weight. Reliance was placed on the two year time limitation in the Contracts Review Act 1980 (NSW) (the "Act"). Next it was said that any claim for a life tenancy would fail because, inter alia, "the incontrovertible evidence supports our client's defence that no such agreement was made". Finally, it was contended that insofar as some claim for undue influence might be being made (that in itself not being clear from the statement of claim), there was no evidence of predatory conduct by Mark against Brian.

The parties' submissions on costs

1. Brian accepted the applicability of the principles which I have set out in paragraph 6 above. The gravamen of Brian's submissions was that the elements of the case identified by Mark in the Offer as leading to the conclusion that Brian would fail were significantly different from the basis on which the Court ultimately decided the case. These differences included that Brian was ultimately available for cross-examination and his statement was admitted over objection; that the limitation point under the Act was ultimately not pressed; and, that the claim for a life tenancy was not pressed after what was said to be Mark's concession that relief under the Act was not time barred. It was submitted for Brian that the failure to accept the Offer was not unreasonable given that the shape of the case changed in the course of the hearing and that the Offer did not identify the evaluation of the evidence that the contract was not unjust as a reason for its acceptance.

1. Brian also raised a discretionary consideration on the basis that he was legally aided. Both Brian and his tutor are, subject to certain inapplicable exceptions, protected from exposure to liability for costs by s 47 of the Legal Aid Commission Act 1979 (NSW). It is the Commission that will be liable to pay any costs and, at the moment, the maximum amount of costs that the Commission would pay was $15,000. In circumstances where it appeared likely that Mark's costs would have exceeded that amount, his application for indemnity costs was in a practical sense futile.

1. Mark submitted that Brian's rejection of the Offer was unreasonable because the fundamentals of Brian's case were the same at the time of the Offer and at the hearing. No advantage should be accorded to Brian from Mark's abandonment of the limitation argument (which itself was then said to lead to Brian not pressing his claim for a life tenancy), because the limitation argument was not abandoned until the hearing. This occurred because it was only then that Brian articulated his claim under the Act for the first time in a way which made it clear that the limitation period was inapplicable.

1. Mark's submissions are to be preferred over Brian's.

Resolution

1. The matter which fundamentally informs my decision on this question is that, as is clear from the statement of claim, at all times from the commencement of the proceedings Brian's case was primarily and overwhelmingly one under the Act. This meant the main issue was always whether the agreement, transfer and lease were relevantly unjust. That did not change. The claim for a life tenancy was clearly in the alternative.

1. Brian accepts that the Offer involved an element of compromise by Mark. Brian's submissions, with respect, correctly identified that the central issue for my consideration was whether his rejection of the Offer was unreasonable in all the circumstances at the time the Offer was made.

1. The starting point of this analysis must be that it will not be unreasonable to reject an offer that is itself unreasonable. I find that the Offer was reasonable both in its terms and as to the period for which it was open. I consider that the proposed payment of $30,000 demonstrated not only an element of compromise but was, in and of itself, a reasonable offer in circumstances where Brian had not articulated at the time of the Offer (either in the statement of claim or otherwise) the precise relief he would be seeking under the Act, monetary or otherwise. That did not come until the first day of the hearing.

1. The Court of Appeal in Gretton at [15] recorded the trial judge in that case as having identified three circumstances when rejection of an offer might be considered unreasonable: if no proper consideration was given to the offer; if the plaintiff could not reasonably hope to match the offer by proceeding to a hearing; or if rejection of the offer involved disregarding serious problems confronting the plaintiff in establishing liability. While that list is not exhaustive, it provides, with respect, some useful guidelines.

1. I accept Mark's submission that it was unreasonable of Brian to reject the Offer because the basic elements of his case at the time of the Offer were the same as at hearing, namely the claim under the Act. The Offer put Brian's entitlement to relief under the Act squarely in issue. To adopt the language of the trial judge in Gretton, the effect of Mark's submission is that the rejection of the Offer involved disregarding serious problems confronting Brian in establishing liability. In my view, that is correct. Those problems were present at the time of the Offer and it is not an impermissible exercise of hindsight from what in fact occurred to conclude objectively that those problems should have been apparent and taken into account at the time the Offer was rejected.

1. I should make clear that the conclusion I have reached is an objective one. It does not involve, and is not the product of, subjective analysis or criticism of the decision taken on behalf of Brian not to accept the Offer. There is nothing before me to suggest that the Offer was not given proper consideration.

1. The problems relate to both how Brian was going to have his evidence admitted and, even if it was admitted, whether it was sufficient to make out his claim under the Act. In relation to the former, at the time of the Offer there is no doubt that those advising Brian intended to apply for his written evidence to be admitted under an exception to the hearsay rule because he was not mentally competent to give evidence. However, in circumstances where at the time of the Offer the parties' evidence was largely filed, no medical evidence had been filed for Brian supporting that proposition. In the absence of such evidence there would or should have been a real issue in the minds of Brian's advisers as to his whether or not his evidence would ultimately be admitted.

1. There was also the problem that faced Brian even if his evidence were to be admitted. If his evidence was admitted in circumstances where he was unavailable for cross-examination, it must or should have been anticipated that there would be a serious question as to the weight of that evidence when compared to contemporary documents. This had to be particularly so when it was no part of Brian's case that he did not understand that the Property was being sold at a considerable under value and that his own version of events did not suggest any improper pressure being applied to him by Mark.

1. Insofar as some consideration may have been given to the allegation that Mark had told Brian that it was not possible to grant more than a seven year lease, that case was arguably contradicted, and certainly not supported by, RBS's contemporary correspondence in relation to the transaction (see especially RBS's letter of 23 December 2003 addressed to both Brian and Mark referred to in paragraph 96 of the principal judgment).

1. In summary, at the time of the Offer Brian's side of the record was or ought to have been aware of the evidentiary problems confronting Brian in making out his main case under the Act. Those problems cast real doubts over whether his evidence would be admitted at all and, even if it was admitted, whether in its terms that evidence would assist his case, even if it was given weight. RBS's contemporary correspondence was unhelpful to the case Brian wanted to advance. Approaching the matter objectively having regard to the circumstances that were known or which ought to have been known to the parties at the time the Offer was made, in particular what was known or ought to have been known by Brian's side, I am satisfied that it was unreasonable for Brian not to have accepted the Offer.

1. None of the three main arguments put on behalf of Brian dissuade me from the conclusion I have reached. I will deal with each argument in turn.

1. Brian submitted that none of the arguments raised in the Offer were in fact arguments which the Court decided in Mark's favour. In the circumstances of this case where the fundamental nature of Brian's claim did not change between the time of the Offer and the hearing, I do not think this is relevant.

1. Not all Calderbank letters include reasons as to why they should be accepted. However, parties sometimes include reasons to fortify their submission of unreasonable refusal if the offeror succeeds for some or all of the reasons set out in the Calderbank letter. That is legitimate and will usually be relevant to the question of whether refusal of the offer was unreasonable. However, I am not persuaded that in all cases a submission of unreasonable refusal is necessarily neutralised where an offeror succeeds for reasons other than those that were proffered in the Calderbank letter. That fact will simply be one of the circumstances which the Court should take into account.

1. In this case the Offer does touch on matters which the Court found persuasive, albeit in a slightly different context to how it was deployed in the Offer, e.g. the reasons given for why a claim in undue influence would not succeed. Those reasons capture some of the facts which were at the heart of my conclusion that Brian's claim under the Act failed, namely the lack of predatory or colourable conduct by Mark. However, in the present case the fact that Mark succeeded for reasons different to those dealt with in the Offer is in my assessment irrelevant or neutral, having regard to the fact that at all times Brian's case remained one primarily for relief under the Act.

1. Brian's second major submission was that the case had changed by the time it came to trial so that some of the matters relied on in the Offer were overtaken by events and never had to be considered. Undoubtedly there will be cases where that consideration is highly relevant. For a Calderbank offer to be able rationally to affect the exercise of the discretion to displace the usual consequence of the costs following the event and being assessed on the ordinary basis, the event the subject of the Calderbank letter must be substantially the same as the event constituted by the issues at the hearing. That nexus will be broken for the purposes of determining whether a refusal was unreasonable if the issues in or shape of the case at the time of a Calderbank offer are materially different to those which ultimately were the subject of the hearing.

1. I do not think that consideration is applicable in the present case for two reasons. First, as I have already said, the fundamental nature of Brian's case as being one for relief under the Act never changed. Second, insofar as some issues fell away, the cause of that was Brian finally articulating at the hearing (and not before) with precision how his case was put and precisely what relief was sought under the Act. Mark (correctly in my view) then recognised that the limitation defence should not be pressed, which had the further consequence of Brian not pressing his alternative claim for a life tenancy. The fact that Brian was able to attend for cross-examination seems to have come as a surprise to everybody and therefore should not weigh in anyone's favour for the purposes of the present application.

1. Finally, Brian submitted that if Mark's solicitor client costs exceed $15,000.00 (which I assume for the sake of the argument must be so), the application is futile as a practical matter because the maximum Mark can recover under the Legal Aid guidelines is $15,000.00. Whether a party will or will not recover all or any of the costs ordered in its favour will rarely, if ever, be a factor relevant to the exercise of the Court's discretion in relation to costs, including the basis on which those costs should be assessed. Entitlement to a particular costs order is quite different to actually recovering those costs.

1. Because costs are discretionary and the circumstances in which the discretion is to be exercised are innumerably various, I do not go so far as to say the prospect of recovery will never be relevant to the exercise of the discretion. However, I do not see any reason why that consideration should have any application to the present case. While it is unclear whether the effect of Brian's submission goes so far, I should also record my view that the fact that the subject of a costs order is legally aided and that the amount of costs recoverable are therefore capped are matters which, in and of themselves, do not disentitle the successful opponent from an order for indemnity costs if it is otherwise appropriate.

1. Finally, as the Offer was expressed to be open for acceptance up to and including 23 April 2013, it is appropriate that Brian's liability for Mark's costs on the indemnity basis should commence from the next day.

Orders

1. To give effect to these reasons, the orders of the Court are:

(1)   Vacate order 2 made on 30 July 2013.

(2)   The plaintiff pay the defendant's costs of and incidental to the proceedings up to and including 23 April 2013 on the ordinary basis and thereafter (including the defendant's application for indemnity costs) on the indemnity basis.

APPENDIX

We note the matter is listed for hearing on 18 July 2013 for two days.

On any view, the documents produced by Dr Alexander of Wyong Family Practice, place a serious question over:

a) Brian Harris' capacity to give the statement he is said to rely on (dated 12 August 2011); and

b) his ability to give instructions from about late July 2011.

We have formed the view that the Court will uphold our clients objection to the admission of the statement of Brian Harris dated 12 August 2011, in the event he is not available for cross examination and because he lacked capacity at the time he is said to have made that statement (which is some 8 years after the alleged fact). Even if it is admitted, we are confident almost no weight would be applied to it.

Noting the entirety of Brian's claim is brought under the Contracts Review Act 1980 for relief from unjustness said to have prevailed "at the time the [instruments] were entered into" there can be no doubt that even if the Court was minded to grant the relief sought, the 2 year time limitation in that Act, precludes the Court from granting such relief.

Although it is not properly sought on the face of your client's claim, if he does seek a declaration of life tenancy, we believe the Court would not exercise its discretion to make such a declaration because:

a) the incontrovertible evidence supports our client's defence that no such agreement was made;

b) no such agreement is evidenced in writing (section 54A and 23C of the Conveyancing Act) and is therefore unenforceable;

c) your client's own evidence does not support the making of such a declaration;

d) your client no longer intends on residing at the property because he lacks capacity,

Although there is no clear claim for relief from undue influence, to the extent that your client believes one is made, there is not one scintilla of evidence of predatory conduct by our client that would warrant such a finding. Your client approached our client for desperate help. The bare fact of this case is, our client was the only person on earth that helped your client (in the only way he could) in his moment of desperation. Your client in fact derived great benefit from our client's generosity which afforded him an acquittal.

Brian was legally represented in the conveyance. He has not sought to adduce any evidence from that conveyance that would support a finding of an agreement (let alone a discussion) of life tenancy or indeed any nefarious conduct whatsoever by our client,

While your client's current predicament is regrettable, none of it is relevant to the questions his tutor is asking the Court to determine.

Having said the above, in the event our client succeeds, such an outcome is likely to preserve the status quo whilst leaving our client with the costs of these proceedings, given your client's impecuniosity. For that reason, and that reason alone, we are instructed to attempt to resolve these proceedings in the following way:

1. Judgment in favour of our client;

2. Our client pays your client $30,000; and

3. Each party pays their own costs.

The Offer is subject to both parties properly entering into a deed of release which is approved by the Court.

This offer is made on a without prejudice basis and in accordance with the principles in Calderbank v Calderbank (1975) 3 All ER 333 and without any admission on the part of our client. In other words in the event this offer is not accepted and our client obtains an outcome equal to or better than the terms of this offer, our client will tender this letter to the Court in relation to the question of costs and seek an order seek that your client pays our client's costs on an indemnity basis.

This offer is open for acceptance until 4.00pm on 23 April 2013 and will lapse automatically after that time.

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Decision last updated: 21 August 2013