In the matter of Natural Raw C Pty Ltd (No 3)

[2022] NSWSC 1443

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Natural Raw C Pty Ltd (No 3) [2022] NSWSC 1443

Hearing dates:

On the papers

Decision date:

24 October 2022

Jurisdiction:

Equity

Before:

Peden J

Decision:

(1) No order as to costs of the proceedings up to and including 6 March 2022.

(2) Plaintiff to pay the Second Defendant’s costs on an ordinary basis from 7 March 2022 to 15 September 2022 and on an indemnity basis from 15 September to 30 September 2022.

(3) No order as to costs of the parties’ applications for special costs orders.

Catchwords:

COSTS — Party/Party — Exceptions to general rule that costs follow the event — Calderbank offer — Whether there is an “event” if hearing to determine price of shares is the result of a compromise of substantive proceedings

Legislation Cited:

Civil Procedure Act 2005 (NSW) ss 3, 56

Uniform Civil Procedure Rules 2005 (NSW) r 42.1

Cases Cited:

Abdi v Abdi (No 2) [2022] NSWSC 582

Calderbank v Calderbank (1975) 3 All ER 333

Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 210

In the matter of Natural Raw C Pty Ltd [2021] NSWSC 1659

In the matter of Natural Raw C Pty Ltd (No 2) [2022] NSWSC 1334

Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622

Sze Tu v Lowe (No 2) [2015] NSWCA 91

Windsurfing International Inc v Petit [1987] AIPC 90-441

Category:

Costs

Parties:

Greemblue Pty Ltd (Plaintiff)
Natural Raw C Pty Ltd (First Defendant)
Scott Mendelsohn (Second Defendant)

Representation:

Counsel:
J Pokoney (Plaintiff)
No appearance (First Defendant)
D R Stack and D F Elliott (Second Defendant)

Solicitors:
Brown Ward King (Plaintiff)
Emerson Lewis Lawyers (First Defendant)
Piper Alderman (Second Defendant)

File Number(s):

2021/235721

Publication restriction:

Nil

Judgment

1. On 30 September 2022, I published reasons for judgment in this matter ([2022] NSWSC 1334), which involved the Court fixing the price for the purchase by the Second Defendant of the Plaintiff’s shares in the company, Natural Raw C Pty Ltd.

2. At the hearing, the Plaintiff agitated for a purchase price of $1,963,913 and the Second Defendant agitated for a purchase price of $178,253. I fixed the price as sought by the Second Defendant.

3. The Second Defendant now seeks a special costs order in relation to part of the proceedings relying on two offers in accordance with Calderbank v Calderbank (1975) 3 All ER 333 that were rejected by the Plaintiff.

4. The first Calderbank offer was made on 24 February 2022 in terms that the Second Defendant would pay a purchase price of $1,256,000 for the shares. That offer was specified to close one week later. That figure was based on Mr Mullins’ initial valuation as an independent expert appointed by the parties. However, that initial valuation was never finalised and the orders for the appointment of an independent valuer were later set aside by Rees J: [2021] NSWSC 1659.

5. The first Calderbank offer also included a term that “all previous costs orders in the proceedings are to be vacated and the Supreme Court of NSW proceedings are to be dismissed with no order as to costs”. That term was not repeated in the second Calderbank offer.

6. The second Calderbank offer was made on 15 September 2022 “on a purely commercial basis”, in terms that the Second Defendant would pay a purchase price of $500,000. That offer was specified to close five days later, just before the hearing.

Relevant principles

7. Recently, Ward P summarised the well-known principles in relation to costs in Abdi v Abdi (No 2) [2022] NSWSC 582 at [19]-[30] (citations omitted):

[19] It is well-recognised that there is a broad discretion as to costs … but that it must be exercised judicially … and having regard to the overriding statutory purpose mandated by s 56 of the Civil Procedure Act. The usual order is that costs follow the event (see r 42.1 of the UCPR); unless the Court considers that some other order ought to be made…

[20] The purpose of costs awards is primarily compensatory not punitive... The discretion to be exercised in a manner which is primarily directed to the position of the successful party.

[21] However, it is also well known that there are circumstances in which special costs orders are warranted. Leaving aside cases of relevant delinquency…, special costs orders are commonly sought where the offer of compromise procedure under the UCPR is validly invoked or where the Calderbank principles are applicable. The public policy underlying the making of special costs orders in such circumstances is the interest in encouraging settlement of litigation and discouraging wasteful and unreasonable behaviour of litigants…

8. Her Honour continued in relation to principles concerning Calderbank offers:

[23] … In Whitney v Dream Developments (2013) 84 NSWLR 311; [2013] NSWCA 188 , the Court of Appeal considered what amounts to the essence of a Calderbank, emphasis being placed on whether the offer (or the circumstances in which it was conveyed) indicated the intention that it was to be relied on as to costs if it were to be rejected or not accepted and a judgment more favourable than the offer be achieved (see Bathurst CJ at [42]; Barrett JA similarly at [57]-[59]), it being crucial (in determining whether the offer took effect as a Calderbank offer) to determine the manifested objective intention of the offeror…

[24] It is also necessary, to enliven the discretion to make special costs orders by reference to the rejection of a Calderbank offer, that the offer in question amounts to a genuine offer of compromise (that was it unreasonable for the party against whom the order is sought not to accept) (see the authorities referred to by the plaintiff above; and see also Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4] per Handley, Basten and Beazley JJA; and Hancock v Arnold (No 2) [2009] NSWCA 19 at [23] per Ipp, McColl and Basten JJA).

…

[26] The making of a valid Calderbank offer that is better than the result ultimately obtained at the conclusion of a contested hearing does not automatically result in an indemnity costs order (see Commonwealth v Gretton at [43]), nor does it raise a prima facie presumption that such an order should be made (see SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (at [37]) per Giles JA; Jones v Bradley (No 2) [2003] NSWCA 258 (Jones v Bradley) at [7]-[9] per Meagher, Beazley and Santow JJA; South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (South Eastern Sydney Area Health Service) at [90] per Hunt AJA; see also Favotto Family Restaurants Pty Ltd v Chief Commissioner of State Revenue (No 2) [2020] NSWSC 519 (Favotto) at [28]; Chief Commissioner of State Revenue v Platinum Investments Management Ltd (No 2) [2011] NSWCA 197 at [9] per Campbell and Macfarlan JJA and Handley AJA.

[27] The party seeking the special costs order bears the onus of demonstrating that the rejection of the offer was “unreasonable” in all the circumstances of the case (see Leichhardt Municipal Council at [19]; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] per Giles, Ipp and Tobias JJA).

[28] Whether rejection of a Calderbank offer (or other offer of settlement) was unreasonable is an evaluative judgment to be made by reference to the terms of the offer and all the relevant surrounding circumstances (King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [11] per Young JA with whom Campbell and Hodgson JJA agreed). It has been said that a finding of unreasonableness should not be made other than on clear grounds (Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113] per Basten JA with whom Giles JA and Young CJ in Eq agreed).

[29] The factors to be taken into regard when considering whether the rejection or non-acceptance of the offer was unreasonable (summarised in Favotto at [20]-[30]) include: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree’s prospects of success assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it (see Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25] per Warren CJ, Maxwell P and Harper AJA; Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 at [8] per Buchanan and Tate JJA and Sifris AJA; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12] per Basten JA with whom McColl and Campbell JJA agreed).

[30] Factors that have been found to be relevant in determining whether the rejection of a Calderbank offer was not unreasonable, and tending against such finding, have included: all relevant evidence not having been served at the time of the offer (Vale v Eggins (No 2) [2007] NSWCA 12 at [22] per Beazley JA); the full parameters of the dispute remaining uncertain at the time of the offer (Precision Products (NSW) Pty Ltd v Hawkesbury City Council (2008) 74 NSWLR 102; [2008] NSWCA 278 at [192] per Allsop P with whom Beazley and McColl JJA agreed); the offeror’s case changing after the making of the offer (South Eastern Sydney Area Health Service at [85] per Hunt AJA); the inclusion of conditions in the offer (Magenta Nominees Pty Ltd v Richard Ellis (WA) Pty Ltd (unreported, FCAFC, Spender, French and Lee JJ, 29 August 1995); and the issues in dispute in the proceedings being complex (MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 242D per Lindgren J)…The principles in relation to Calderbank offers are well established and were . Relevantly, for the Court to exercise its discretion, the offer must contain a genuine compromise, the successful offeror must achieve the same or a better outcome than if the offeree had accepted the offer, and the Court must be satisfied that it was unreasonable on the part of the offeree not to have accepted the offer.

Determination

9. The Plaintiff opposed the Second Defendant’s proposed special costs order and submitted that costs orders ought to be made by reference to the various stages of the proceedings being:

Between 18 August 2021 when the proceedings were commenced and 17 September 2021 when consent orders were made by Black J with a buy-out procedure with a price to be fixed by an independent expert (First Stage).

Between 18 September 2021 and 21 December 2021 in which the parties’ initial resolution was rendered unworkable (Second Stage).

Between 7 March 2022 and 30 September 2022 in which the parties agreed to resolve the proceedings through the procedure described in the consent orders made by Black J on 7 March 2022 (Third Stage).

10. The Plaintiff submitted that the appropriate order would be as follows:

The Second Defendant pay the Plaintiff’s costs of the proceedings for the period 10 November 2021 and 21 December 2021 on the ordinary basis, as agreed or assessed; and

Otherwise, there be no order as to the costs of the proceedings.

First Stage

11. As to the First Stage, the parties ultimately agree that there ought to be no order as to costs because there was no hearing on the merits: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625 (McHugh J). I make no order as to costs for the First Stage.

12. However, the parties did not agree on the appropriate costs orders for the Second and Third Stages.

Second Stage

13. In relation to the Second Stage, the Plaintiff submitted the Second Defendant should pay its costs because of the Second Defendant’s “unreasonable” conduct in relation to Black J’s orders of 17 September 2021 appointing an independent valuer. The Plaintiff placed reliance on the comments of Rees J in [2021] NSWSC 1659 at [38] and [57]:

[38] … not only had Mr Mendelsohn undermined the agreed process documented in the Orders, Mr Mendelsohn now sought to injunct [the Plaintiff’s] efforts to retrieve the situation.

…

[57] … This has been a waste of time and money, and the second defendant has only got himself to blame.

14. Rees J did make a costs order in favour of the Plaintiff concerning the interlocutory motions that led to those comments and her Honour’s judgment setting aside the previous consent orders. However, her Honour also stated:

[58] … The parties remain obliged to share equally the fees charged by Mr Mullins for his work. Mr Mullins is entitled to be paid in a timely manner.

[59] It may be that, in the circumstances, the parties can agree that the costs should be borne differently. An appropriate course may be for Mr Mendelsohn to pay Mr Mullins costs in the first instance, those costs to thereafter be Mr Mendelsohn’s costs in his cause. However, I did not hear from the parties on this topic when their respective interlocutory processes were heard and it is appropriate that they be given an opportunity to resolve the matter or proffer orders to deal with this aspect.

15. The Second Defendant resisted the costs order sought by the Plaintiff on the bases that:

1. Rees J did not make an order as to that stage of the proceedings when she had evidence before her; and

2. The Second Defendant’s conduct was not “so unreasonable” so as to warrant costs.

3. The Second Defendant submitted that no order as to costs was appropriate, as there was no hearing on the merits during the Second Stage also.

16. I do not accept that the Plaintiff is entitled to its costs of the Second Stage in circumstances where the work carried out by Mr Mullins was unlikely wasted in his preparation of the report latterly relied upon by the Second Defendant, which formed the basis of the price determined by the Court.

17. I consider it is appropriate to make no order as to costs in relation to the Second Stage.

Third Stage

18. In relation to the Third Stage, the Plaintiff submitted that no order as to costs should be made because the additional orders of Black J on 7 March 2022 reflected the parties’ compromise that the Court fix a price for the shares and, therefore, there was neither a “claim, nor any counterclaim” nor any “event”, but rather the completion of the parties’ settlement agreement through the agreed mechanism.

19. I reject that submission and accept the Second Defendant’s submission that the “event” is context-specific and refers to the practical result: Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [39] (Gleeson JA with whom Meagher and Barrett JJA agreed). While authorities speak of an “event” being the outcome of a “claim”: see, eg, Windsurfing International Inc v Petit [1987] AIPC 90-441 at 37,861-37862 (Waddell J), there is also nothing to preclude a proper characterisation of “event” as the “event of the claim or counterclaim”: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 210 at [15].

20. I do not accept the plaintiff’s submission that there was no “claim” or “counterclaim” adjudicated at the hearing on 26-27 September such that a practical result cannot be identified. On one view, if the Plaintiff’s submissions were accepted, that would allow parties to effectively avoid any costs consequences where the Court’s hearing followed on from any compromise to the parties’ position. That may encourage compromises and perhaps be consistent with the overriding purpose of civil litigation expressed in s 56 of the Civil Procedure Act 2005 (NSW) (CPA). That was not argued before me.

21. The better view is that the requirement for a “claim” is not to be construed in a limited or technical way. There is no statutory definition of “claim” in the UCPR or the CPA. However, s 3(1) of the CPA does define a “claim for relief” broadly and inclusively as the following:

Claim for relief includes—

(a) a claim for possession of land, and

(b) a claim for delivery of goods, and

(c) a claim for the recovery of damages or other money, and

(d) a claim for a declaration of right, and

(e) a claim for the determination of any question or matter that may be determined by the court, and

(f) any other claim (whether legal, equitable or otherwise) that is justiciable in the court).

22. The mere fact that the parties compromised part of the proceedings does not change the practical reality that the parties required the Court to determine a disputed issue, namely the price of the shares. At most, the parties’ compromise was only a compromise at that point in time and a precursor to the contested hearing, in relation to which there was no compromise that costs would not be sought.

23. Therefore, I consider that it is appropriate for the Plaintiff to pay the Second Defendant’s costs of the adversarial contest adjudicated by the Court where the Second Defendant was ultimately successful, in circumstances where the parties could not agree on the appropriate “price” and requested the Court to do so. Accordingly, the general rule as to costs applies: UCPR r 42.1.

Should costs be on an indemnity basis?

24. I accept the Plaintiff’s submission that it was not unreasonable of the Plaintiff to reject the first Calderbank offer. The context of that offer was based on an unfinalized report of Mr Mullins. The Plaintiff was not in possession of Mr Groves’ report, nor Mr Mullins’ finalised report, and it was not sufficiently clear to the Plaintiff what his prospects of success of obtaining a better price than that offered were.

25. However, I consider that the Second Defendant is entitled to rely upon the second Calderbank offer. By that time, the Plaintiff had been in possession of both expert reports and the joint report for some months.

26. The fact that that the second offer was issued with only 5 days remaining until the commencement of the hearing is not a reason to refuse reliance upon it; by that time, the Plaintiff ought to have been fully aware of the risks of the litigation. The offer was a clear compromise of the Second Defendant’s position and I consider it was unreasonable of the Plaintiff not to have accepted it.

27. Neither party has succeeded in relation to their original costs’ applications made after the judgment was given, and therefore I will not make a costs order in either party’s favour in that regard.

Orders

28. For those reasons I make the following orders:

1. No order as to costs of the proceedings up to and including 6 March 2022.

2. Plaintiff to pay the Second Defendant’s costs on an ordinary basis from 7 March 2022 to 15 September 2022 and on an indemnity basis from 15 September to 30 September 2022.

3. No order as to costs of the parties’ applications for special costs orders.

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Decision last updated: 24 October 2022