Leadenhall (Australia) Pty Ltd v Lewbell Nominees Pty Ltd (No 2) - [2025] SADC 92

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
LEADENHALL (AUSTRALIA) PTY LTD v LEWBELL NOMINEES PTY LTD & ORS (No 2)
[2025] SADC 92
Judgment of her Honour Judge Thomas
21 July 2025
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - INFORMAL OFFERS AND CALDERBANK LETTERS - GENERALLY
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - INDEMNITY COSTS
The respondents seek indemnity costs for their costs of action on dismissal of the applicant’s claim, relying on four informal offers and a relevant offer within the meaning of r 132.4 of the Uniform Civil Rules 2020 (SA) to which r 132.10(3)(e) applies.
Held:
1.In the circumstances of this case, none of the informal offers relied on by the respondents warrant an award of indemnity costs.
a.It was not unreasonable for the applicant not to accept the first informal offer made before action, when the contract was still on foot and before the parties knew whether success would be achieved under the contract, despite their differences as to its meaning.
b.The second informal offer did not communicate an offer in terms capable of giving rise to a legally binding agreement if accepted. There was nothing unreasonable about the applicant’s conduct in connection with this offer.
c.The third informal offer did not convey any offer of compromise, let alone make any offer in terms capable of giving rise to a legally binding agreement if accepted.
d.The fourth informal offer was otiose. It was made after the relevant offer expired, without being accepted by the applicant.

2.The introduction of the respondents’ rectification defence after the expiry of the relevant offer does not engage the Court’s overriding discretion as to costs and warrant departure from the operation of r 132.10(3)(e) of the Uniform Civil Rules in the circumstances of this case.
3.Given the mixed result on the costs dispute, there should be no order as to the costs of the costs dispute.
District Court Act 1991 (SA); Uniform Civil Rules 2020 (SA), referred to.
BHP Billiton Limited v Parker [2012] SASCFC 73; Calderbank v Calderbank [1975] 3 All ER 333; Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353; Commonwealth v Gretton [2008] NSWCA 117; Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61; Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115; Ghunaim v Bart (No 2) [2006] NSWCA 82; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] 13 VR 435; Jones v Bradley (No 2) [2003] NSWCA 258; Leadenhall (Australia) Pty Ltd v Lewbell Nominees Pty Ltd & Ors [2025] SADC 17; Leichardt Municipal Council v Green [2004] NSWCA 341; Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd [2004] VSC 351; Phantom Precision Engineering Pty Ltd v Luscombe (No 2) [2021] SASC 103; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Trinity College v Commissioner of State Taxation (No 2) [2024] SASC 41, considered.

LEADENHALL (AUSTRALIA) PTY LTD v LEWBELL NOMINEES PTY LTD & ORS (No 2)
[2025] SADC 92
Issues for Determination

On 26 February 2025, the Court dismissed the applicant’s claim for recovery of contract debts arising from its alleged entitlement to payment of two success fees as part of its remuneration under a written services contract with the respondents.[1]
[1] Leadenhall (Australia) Pty Ltd v Lewbell Nominees Pty Ltd & Ors [2025] SADC 17 (Leadenhall (No 1)); FDN 88.
The Court found that, properly construed, the contract only entitled the applicant corporate advisor (Leadenhall) to payment of a success fee if all of the companies in the Bernie Lewis group of companies were sold, whether by a sale of business or assets or the issues of securities under one or more “Contracts” or to one or more “Acquirers” (both as defined in the contract). Further, properly construed, the contract did not provide for multiple minimum success fees to be payable and did not contemplate any remuneration additional to the agreed monthly retainer fee if only part of the Bernie Lewis group was sold.
Regardless of the definition of success under the contract, the Court found on the proven facts that the contract did not apply to the sale of the BL Insurance Services’ client book.
Having found on its proper construction the contract operated as the respondents contended, it was not necessary for the Court to consider the respondents’ defence of rectification.[2]
[2] Ibid at [15] and [253].
The parties were unable to agree on costs.
The respondents claim the entirety of their costs of action on an indemnity basis, relying on Leadenhall’s non-acceptance of a series of informal offers made both before and after the institution of the proceeding as well as the making of a relevant offer (relevant offer) within the meaning of r 132.10(1) of the Uniform Civil Rules 2020 (SA) (the Uniform Rules).
In pressing their positions, the parties relied on written submissions.[3] During the course of oral argument both parties made concessions that narrowed the issues in dispute on costs.
[3] Summary of Argument of Applicant (FDN 92) (Leadenhall’s Written Argument); Written Submissions of First to Third Respondents (FDN 91) (Respondents’ Submissions).
The respondents’ counsel accepted that this was not a case where Leadenhall’s claim had no reasonable prospects of success, despite the respondents’ written submissions identifying this factor as a relevant costs principle.[4] The construction question at the heart of the parties’ dispute was a difficult and nuanced issue in the final analysis. This factor was therefore not a consideration that weighed in favour of exercising the Court’s discretion as to indemnity costs in this case in considering the respondents’ informal offers.
[4] 1 April 2025 T4.31-5.9; Respondents’ Submissions at [11]-[13].
Leadenhall’s counsel made three concessions by reference to Leadenhall’s Written Argument. First, since the Court had already made costs orders in Leadenhall’s favour on the respondents’ application to amend its defence and such costs were not costs in the cause, paragraph 7 of Leadenhall’s Written Argument was not pressed.[5]
[5] 1 April 2025, T16.25-17.7.
Secondly, in light of the respondents’ concession that it was not the case that the unsuccessful applicant’s claim had no reasonable prospects of success and the pending appeal of the Court’s judgment was not relevant, paragraph 2 was not pressed either.[6]
[6] T19.25-21.29.
The third concession was that given the dismissal of Leadenhall’s claim, the respondents should have their costs of action on the basis that costs follow the event and Leadenhall could not avoid indemnity costs after 2 February 2022, the date of expiry of the respondents’ relevant offer as a consequence of the operation of r 132.10(3)(e) of the Uniform Rules. Consequently, paragraph 6.1 of Leadenhall’s Written Argument was not pressed.[7] Nonetheless, Leadenhall contends the Court should exercise its overriding discretion on costs and not award indemnity costs against it for the period after the amendment application that introduced the respondents’ rectification defence was made. It submits to do so would be unfair.
[7] T15.37-16.1; T17.8-.9.
Leadenhall also opposes any order for indemnity costs on the basis of the respondents’ informal offers, contending generally that its rejection of these offers was not unreasonable or imprudent. However, it did not engage in its written or oral submissions with the detail of any of the respondents’ informal offers and why at a granular level it considers these offers do not inform the Court’s discretion on indemnity costs in the respondents’ favour.
In the end, there are two issues to be determined on costs. First, are the respondents entitled to indemnity costs as a result of Leadenhall’s non-acceptance of their informal offers? Secondly, should the Court exercise its overriding discretion as to costs under r 132.10(3)(e) of the Uniform Rules by not awarding indemnity costs after the respondents’ successful application to amend introduced their rectification defence?
Are the respondents entitled to indemnity costs as a result of Leadenhall’s non-acceptance of their informal offers?
The Relevant Principles
The general costs principles are well-established. As often is the case, it is their application that is contentious.
Section 42(1) of the District Court Act 1991 and r 194.5(1)(d) of the Uniform Rules confer an unfettered discretion as to costs. The general rule is that costs follow the event.[8] The Court may award costs on a standard costs, solicitor/client, indemnity or another basis specified by the Court.[9] In exercising its discretion as to costs the Court may have regard to any factors it considers relevant, including by way of example, any unreasonable conduct of a party in connection with a proceeding or the non-acceptance by a party of an offer made by another party to resolve the proceeding.[10]
[8] Uniform Rules r 194.5(2).
[9] Ibid r 194.3(1).
[10] Ibid r 194.6.
The costs principles in circumstances where informal offers (as opposed to formal offers under r 132.4 of the Uniform Rules) have not been accepted were recently discussed by Blue J in Trinity College v Commissioner of State Taxation (No 2) (Trinity College (No 2)).[11] His Honour observed there were effectively five elements to this established set of circumstances for a ‘special costs order’:[12]
1.The party seeking the special costs order made an informal offer to the other party;
2.The offer was an offer to resolve the action;
3.The offer involved genuine compromise;
4.The offeree would have been better off accepting the offer compared to the position under the court’s judgment; and
5.It was unreasonable for the offeree not to accept the offer.
[11] [2024] SASC 41 at [36]-[45] (Trinity College (No 2)).
[12] Ibid at [45] (citations omitted).
His Honour emphasised the fundamental principle that it is necessary to consider all relevant circumstances before departing from the ordinary position as to costs, observing that whether the elements identified are satisfied or not does not necessarily entail that the Court will or will not make a special costs order. As the New South Wales Court of Appeal stated in SMEC Testing Services Pty Ltd v Campbelltown City Council:[13]
The making of an offer of compromise in the form of a Calderbank letter … where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure…
(citations omitted)
[13] [2000] NSWCA 323 at [37] (Giles JA) endorsed as “the [correct] approach which should be consistently applied when dealing with Calderbank offers” in Jones v Bradley (No 2) [2003] NSWCA 258 at [9].
Despite the policy considerations underlying the availability of special costs orders where offers of compromise are rejected, there are other competing objectives of equal importance:[14]
…Potential litigants should not be discouraged from bringing their dispute to the Courts. It is such considerations which underlie the general rule that an order for special costs should only be made in special circumstances.
[14] Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd [2004] VSC 351 at [60] (Redlich J), cited with approval in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] 13 VR 435 at [22].
As to unreasonableness, a central issue in this costs dispute, Blue J in Trinity College (No 2) said:[15]
It must have been unreasonable for the offeree not to accept the offer. This is a critical element. The discretion to make a special costs order on the ground of non-acceptance of an offer will not be exercised without the establishment of this element.
(citations omitted)
[15] Op cit at [59].
After again emphasising the need to consider objectively all the relevant circumstances in assessing any such unreasonableness, Blue J non-exhaustively identified the following circumstances as being relevant:[16]
[16] Ibid at [61].
·    the offeree’s prospective prospects of success in respect of liability and quantum;
·    the extent of compromise involved;
·    the stage in the action when the offer is made;
·    the time for which the offer is open;
·    the clarity of the offer;
·    whether there is an important and/or difficult question of law involved in the case;
·    whether the offer could have been made as a formal offer;
·    whether the offeror explained the rationale for the offer including explaining why the offeree’s case was untenable or weak or problematic; and
·    whether the offeror foreshadowed a special costs order being sought.
(citations omitted)
Notably, unreasonableness is not established merely because the offeree would have been better off accepting the offer.[17] Unreasonableness must be established on clear grounds.[18]
[17] Ibid [63] citing Jones v Bradley (No 2) [2003] NSWCA 258 at [7]-[9] (Meagher, Beazley and Santow JJA); Leichardt Municipal Council v Green [2004] NSWCA 341 at [56] (Santow JA, Bryson JA and Stein AJA agreeing); Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115 at [18] and [31] (Buss JA, Wheeler JA agreeing) and cases there cited.
[18] Ibid [64] citing Leichardt Municipal Council v Green [2004] NSWCA 341 at [47] (Santow JA, Bryson JA and Stein AJA agreeing); Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113] (Basten JA, Giles JA and Young CJ agreeing); Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115 at [19] (Buss JA, Wheeler JA agreeing); Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 at [43] (Giles JA, Handley AJA and Whealey J).
As Lovell J said in Phantom Precision Engineering Pty Ltd v Luscombe (No 2):[19]
…The Court should be careful not to assess whether the rejection of a Calderbank offer was reasonable through the prism of hindsight. The reasonableness of the refusal must be considered by reference to the situation at the time the offer was made, not solely by reference to the ultimate outcome of the proceedings. More broadly, failure to accept a Calderbank offer does not create a presumption in favour of the offeror to an indemnity costs order, even where the offeror ultimately obtains a better result. A Calderbank offer is a factor to be taken into account as part of the totality of relevant considerations when
exercising the Court’s discretion to award indemnity costs.
(citations omitted)

[19] [2021] SASC 103 (Phantom Precision) at [22].
Finally, the onus of proof and persuasion is on the respondents, the parties seeking a special costs order in this case in reliance on their informal offers.[20]
[20] Ibid [48] citing Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] (Giles, Ipp and Tobias JJA); Commonwealth v Gretton [2008] NSWCA 117 at [46], [74] (Beazley JA, Mason P agreeing); Ghunaim v Bart (No 2) [2006] NSWCA 82 at [25] (McColl JA, Giles and Ipp JA agreeing); Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115 at [21] (Buss JA, Wheeler JA agreeing).
The Respondents’ Informal Offers
Overview
The respondents rely on four informal offers in connection with the disputes the subject of this proceeding.
Three were made before Leadenhall instituted its action in the Magistrates Court on 10 November 2021 seeking $89,723.67 for unpaid invoiced fees for one alleged event of success plus contract interest and costs.[21] The first informal offer was made before the Uniform Rules commenced. Because the first three offers were made before action, the respondents were unable to make a formal offer under the District Court Rules 2006 or the Uniform Rules. They should not be afforded less weight because they did not conform with the scheme of the applicable rules for a formal offer of settlement.
[21] Claim (FDN 1).
The fourth informal offer was made some six months after institution of the proceeding and before Leadenhall amended its claim on 17 June 2022 to seek two success fees plus contract interest and costs and judgment in the amount of $262,321.90[22] and the proceeding was transferred to this Court.[23] In exercising the Court’s discretion as to costs, this offer should not necessarily be given the weight that a formal offer according with the scheme of the rules would be given.[24]
[22] Claim (Revision 1) (FDN 22).
[23] FDN 21.
[24] BHP Billiton Limited v Parker [2012] SASCFC 73 at [268] (Doyle CJ and White J).
All the informal offers were made well before the respondents’ successful application to amend to introduce rectification as a defence in its amended defence filed on 9 August 2023.[25]
Circumstances of the First Informal Offer
[25] Defence – Revision 2 (FDN 57).
The background to the parties’ dispute is set out in the Court’s reasons for judgment.[26] The salient facts as relevant to the first informal offer are as follows.
[26] Leadenhall (No 1) at [125]-[131].
Dispute about Leadenhall’s fees under the advisory contract first arose in December 2018 when Mr Lebbon sent Mr Lewis an email raising for discussion the issue of there being most likely three completions and the unfairness of there being three or only one minimum success fees.
The dispute escalated in May 2019 when Mr Lebbon invoiced the respondents for one success fee less paid retainer fees given the impending sale contract for BL Financial Solutions. Mr Lewis responded stating: “The job is not complete yet” among other things.[27]
[27] Exhibit A3.162, a copy of which comprises Exhibit GM-1 to the Affidavit of Giuseppe Mottillo made on 7 March 2025 (FDN 90) (the Mottillo Affidavit).
The respondents did not pay Leadenhall’s invoice. Mr Lebbon then refused to do any more work until Leadenhall’s invoice was paid. On 24 June 2019, Mr Lebbon demanded by email that the respondents ensure Leadenhall’s invoiced fees were paid from the proceeds of sale under the BL Financial Solutions sale contract.[28] At the time negotiations ongoing for sale of Bl Insurance Services’ assets.
[28] Exhibit GM-1 to the Mottillo Affidavit.
In response, on 28 June 2019, the respondents’ solicitors, CCK Lawyers, sent two letters to Leadenhall. The first (open) letter set out an explanation in some detail as to why, on a proper construction of the contract, Leadenhall was not then entitled to any success fee and enclosed a formal notice terminating the contract on 90 days’ notice effective from 26 September 2019.[29]
[29] Exhibit GM-2 to the Mottillo Affidavit.
The second letter was expressed to be made on a without prejudice basis save as to costs and reserved the respondents’ rights to rely on it consistent with Calderbank v Calderbank[30] principles and the decisions following it.[31]
[30] [1975] 3 All ER 333.
[31] Exhibit GM-3 to the Mottillo Affidavit.

It referred to the explanation given in the open letter as to why at that stage no success fee was payable under the terms of the contract. The letter then proceeded to set out the terms of an offer to resolve any dispute between the parties in connection with or arising out of the advisory contract on a full and final basis. It offered the payment by the respondents of a first and a second settlement amount to Leadenhall, which payments would depend on the outcome of the sale of the BL Insurance Services and BL Home Loans businesses (if any were made) within two years from the date of the letter. Next, it provided Leadenhall release and indemnify the respondents against any costs (including legal fees on a solicitor client basis) suffered or incurred as a result of any breach of the term of the proposed settlement agreement.
The offer was stated to be open for 14 days to 12:00pm on 12 July 2019.
This offer lapsed without being accepted by Leadenhall. Whilst Mr Lebbon’s email responses did not expressly reject the respondents’ offer, he did ask whether the 28 June 2019 letter was intended to serve as a dispute notice under the contract and referred to his earlier correspondence with Mr Lewis.[32] What response (if any) was given by CCK Lawyers to Mr Lebbon’s questions is not in evidence and unknown.
Analysis of the First Informal Offer
[32] Exhibit GM-4 to the Mottillo Affidavit.
In summary, the respondents contend the first informal offer was a genuine, reasonable and commercial offer that gave Leadenhall the opportunity to receive further payments if the proposed scenarios eventuated and, if accepted, would have avoided the respondents incurring substantial costs. They submit that Leadenhall had adequate information to determine the reasonableness of their offer because of the explanations given in their open offer. In these circumstances, the respondents contend it was unreasonable or imprudent for Leadenhall to have rejected the respondents’ first informal offer, despite the circumstances that would have led to payment of the first or second settlement amounts never eventuating.[33]
[33] Respondents’ Submissions at [28]-[32].
It should be accepted that the first informal offer was open for a reasonable time and made informally by way of a Calderbank letter when the respondents were unable to make a formal offer under the rules then in force. Whilst the letter did not expressly foreshadow an application for indemnity costs, this was implicit from the reservation of their rights made with regard to Calderbank principles.
Whilst this letter offered a commercial compromise of an escalating dispute about the meaning of success under the contract, it was very early in the unfolding circumstances of the dispute when Leadenhall’s assignment was incomplete. The advisory contract was still on foot when the offer expired. Negotiations with Thomas for the purchase of BL Insurance Service’s assets were still ongoing.
Whilst the correspondence preceding this offer identified a claim that was determined at trial, read in context of CCK Lawyers’s open letter on behalf of the respondents of the same date, that letter gave an incomplete explanation of the reasons why Leadenhall was not entitled to a minimum success fee. The offer expressly stated that it did not address several arguments in support of Leadenhall’s contentions[34] and reserved the respondents’ rights to raise further argument.[35]
[34] Exhibit GM-2 to the Mottillo Affidavit at [2.13].
[35] Ibid at [2.15].
The offer contemplated further payments only if two scenarios eventuated (which did not) and therefore did not offer any compromise of Leadenhall’s claim to be already entitled to a minimum success fee at a time when neither party had incurred any costs of action. Instead, its terms included a release and indemnity in favour of the respondents. These terms were extraneous to the issues in dispute the subject of the action, giving rise to some difficulty in comparing Leadenhall’s position under the offer compared to the outcome under the Court’s judgment.
At the time, Leadenhall was not represented by solicitors. Mr Lebbon’s email responses on behalf of Leadenhall were not unreasonable in context of the parties’ previous communications and the dispute resolution process in the advisory contract. The apparent lack of response from CCK Lawyers to Mr Lebbon’s question about that process is of some weight and favours Leadenhall’s position.
Weighing all these circumstances, that Leadenhall would have been better off accepting the offer and avoided the respondents incurring substantial legal costs in defending Leadenhall’s claim to trial does not of itself establish unreasonableness warranting a special costs order. Non-acceptance of an informal offer to settle inevitably results in the offeree incurring further costs. For this to constitute unreasonableness by itself would mean a special costs order must ordinarily follow where offers of compromise are rejected. This find so would be unprincipled.
Importantly, at the time neither party knew whether success under the contact would be achieved, despite their differences as to its meaning.
The respondents have not discharged their onus and established any clear ground as to why Leadenhall’s non-acceptance of their first informal offer was unreasonable in all the circumstances and warrants a departure from awarding the respondents their costs of action on a standard costs basis.
Circumstances of the Second Informal Offer
By letter dated 1 December 2020,[36] Leadenhall’s solicitors, Diaspora Legal, wrote to the respondents’ solicitors demanding payment of Leadenhall’s May 2019[37] invoice in full ($77,000 including GST) and reserving its rights in respect of debt collection and legal expenses. The letter offered a settlement on payment of the lesser sum of $55,000 including GST since further payments of $22,000 had been received and applied. Failing payment, the letter gave notice of Leadenhall’s intention to institute proceedings in the Magistrates Court and proposed a pre-action meeting, attaching a costs estimate that was not in evidence.
[36] Exhibit GM-5 to the Mottillo Affidavit.
[37] It was incorrectly dated as being a “2020” invoice.
The respondents’ solicitors responded by letter dated 8 December 2020,[38] rejecting the settlement offer proposed by Diaspora Legal and stating that:[39]
Our clients are prepared to settle this claim on the basis that each party bears its own costs of dealing with this dispute (including the costs of attending the meeting proposed in your letter, if required).
[38] Exhibit GM-6 to the Mottillo Affidavit.
[39] Ibid page 29.
Like the first informal offer, it referred to the open letter dated 28 June 2019 that “explained in some detail the reasons why no success fee was payable”.[40]
[40] Ibid.
The second informal offer was not accepted by Leadenhall. There is no evidence before the Court as to the circumstances of its non-acceptance or whether the proposed pre-action meeting occurred.
Analysis of the Second Informal Offer
The respondents contend that Leadenhall should pay their costs of action on an indemnity basis because their costs would have been avoided entirely had the second informal offer been accepted and Leadenhall would have been better off if it had accepted it than under the judgment of the Court. They contend this follows because on dismissal of its claim, under the judgment Leadenhall is liable for the respondents’ costs of action at least on a standard basis.
Like the first informal offer, this offer was made before action but at a time when the Uniform Rules were in force. However, unlike the first informal offer, this offer does not foreshadow any special costs order being made.
More importantly, this letter did not communicate an offer in terms capable of giving rise to a legally binding agreement if accepted. Instead, it communicates a preparedness to settle on a certain basis. It therefore has no weight in informing the Court’s discretion on costs in favour of the respondents.
Furthermore, in the context of the demands made in Diaspora Legal’s letter dated 1 December 2020 and proposal for a pre-action meeting, it would not necessarily have been unreasonable for Leadenhall to not accept a walk away offer had one been made in terms capable of giving rise to a legally binding agreement if accepted.
Circumstances of the Third Informal Offer
The respondents’ third informal offer was made in the form of an email from their solicitor, Mr Rosser to Mr Finlayson of Diaspora Legal sent on 9 November 2021.[41]
[41] Exhibit GM-7 to the Mottillo Affidavit.
It was stated as being sent in response to Mr Finlayson’s email of 4 November 2021 which attached a draft statement of claim and invited the respondents’ participation in mediation or continued pre-action steps. Mr Finlayson’s email and its attachment were not in evidence.
Analysis of the Third Informal Offer
Contrary to the respondents’ submissions, Mr Rosser’s email contained no offer of compromise (genuine or otherwise). The statement that “Leadenhall should desist from pursuing this claim”,[42] in context did not convey an offer that the parties resolve their disputes by walking away, let alone make any offer in terms capable of giving rise to a legally binding agreement if accepted.
[42] Ibid page 30.
Instead, Mr Rosser invited Leadenhall to commence litigation without delay if it insisted on commencing “hopeless litigation”.[43] There was nothing conciliatory in these or the other words Mr Rosser used to describe Leadenhall’s claim: that is, a claim of “no substance” and “As pleaded, the case is doomed to fail.”[44]
[43] Ibid.
[44] Ibid.
Furthermore, the implicit refusal of Mr Finlayson’s invitation to participate in mediation or continue pre-action steps weighs heavily against exercising the Court’s discretion as to costs in the respondents’ favour on the basis had any offer been conveyed in this email.
Accordingly, Mr Rosser’s reservation of rights to refer to the email on the question of costs at any point in the event litigation was commenced and seek indemnity costs has no weight in informing the Court’s discretion on costs.
The Fourth Informal Offer
The respondents’ fourth informal offer was made by way of a letter dated 27 May 2022 from CCK Lawyers to Diaspora Legal.[45] The letter made an offer to discontinue the proceeding with no order as to costs, each party bearing their own costs and proposed Leadenhall release each of the respondents from all liability in connection with the proceeding and Leadenhall’s fees under the contract.
[45] Exhibit GM-8 to the Mottillo Affidavit.
It is unclear why the respondents sought to rely on this informal offer. It was made after the expiry of the relevant offer that was not accepted by Leadenhall and expired on 2 February 2022. Given Leadenhall accepts it cannot avoid an order for indemnity costs after 2 February 2022 but before 18 July 2023, this informal letter it otiose.
Conclusion
Having regard to the relevant circumstances discussed above, bearing in mind the preliminary stage of the dispute between the parties, the extent of compromise offered and the circumstances surrounding Leadenhall’s non-acceptance of any such offer (where one was made in terms capable of acceptance), it was not unreasonable for Leadenhall not to accept any of the informal offers relied on.
It is therefore not appropriate to exercise the Court’s discretion in favour of the respondents by ordering they recover their costs of action on an indemnity basis by reason of Leadenhall’s non-acceptance of any or all of the informal offers relied upon.
Should the Court exercise its overriding discretion as to costs under r 132.10(3)(e) of the Uniform Rules by not awarding indemnity costs after the respondents’ successful application to amend introduced their rectification defence?
The Parties’ Contentions
As already mentioned, Leadenhall accepts that it cannot avoid indemnity costs after 2 February 2022, the date of expiry of the respondents’ relevant offer for the purposes of under r 132.10(3)(e) of the Uniform Rules. It contends however that it would be unfair to award indemnity costs on the basis of the relevant offer after the respondents made their application on 18 July 2023 to amend and introduced their rectification defence. It was said to be unfair because the rectification defence was not within the parties’ contemplation at the time of the offers (generally and not just the relevant offer), and added to the admissible evidence, complexity and length of the trial.[46]
[46] Leadenhall’s Written Argument at [4].
The respondents disagree and contend there is no reason for the Court to depart from the presumption provided for in rule 132.10(3)(e) of the Uniform Rules that they are entitled to an order against Leadenhall for their costs of action on an indemnity basis after 2 February 2022.
The Circumstances of the Relevant Offer
The respondents first proposed their rectification defence in a draft amended defence on 12 July 2023 and sought the applicant’s consent for leave to amend. The applicant opposed the proposed amendments. On 18 July 2023, the respondents made a formal application to amend.[47]
[47] FDN 41.
Following argument on 2 August 2023, leave was granted for the respondents to amend to introduce a defence of rectification and ex tempore reasons delivered.[48] An order was made against the respondents in favour of the applicant for the costs thrown away by reason of the respondents’ amended defence on an indemnity basis, payable when the claim was determined by judgment, to be taxed or agreed.[49]
Analysis
[48] FDN 59.
[49] FDN 56. Contrary to Leadenhall’s Written Argument at [7].
The relevant offer expired on 2 February 2022, 14 days after it was filed and served without being accepted by Leadenhall. On the evidence, the rectification defence introduced by an application to amend made on 18 July 2023 was not within the parties’ contemplation at the time the relevant offer was open for acceptance some 18 months earlier.
Whilst this is true it does not follow that it is unfair for indemnity costs to be awarded in consequence of the operation of r 132.10(3)(e) of the Uniform Rules, given the secondary nature of the rectification defence for several reasons.
First, costs follow the event and ordinarily it is appropriate for the Court to award costs without attempting to differentiate between issues which were successful or unsuccessful, [50] let alone unnecessary to determine because they were contingent on issues being unsuccessful which were ultimately successful. In this case, an issues-based approach to costs is inappropriate, particularly bearing in mind these were not the only issues. There was also Leadenhall’s unsuccessful claim for the sale of the BL Insurance Services’ client book.[51]
[50] Phantom Precision at [11].
[51] Leadenhall (No 1) at [232]-[253].
Secondly, there was nothing unreasonable in itself about the respondents introducing a secondary defence in case Leadenhall’s construction of the contract was preferred. Litigants should not be discouraged from bringing all their defences to the courts.
Thirdly, Leadenhall, properly advised, should have appreciated it was at risk of indemnity costs under r 132.10(3)(e) of the Uniform Rules from 2 February 2022 if ultimately judgment was obtained dismissing its claim. If the construction question were resolved in the respondents’ favour, it would inevitably result in dismissal of Leadenhall’s claim without it being necessary to consider the respondents’ rectification defence.
Despite being at risk of indemnity costs under r 132.10(3)(e) of the Uniform Rules from 2 February 2022, Leadenhall did not take any steps to properly address this risk, whether before or after the grant of leave to amend to introduce the rectification defence. It did not file a formal offer or, on the evidence before the Court, take any steps to put the respondents on notice of its position as regards the respondents’ relevant offer having been not accepted without the respondents’ rectification defence being in contemplation. Instead, Leadenhall continued to propound its construction of the contract it favoured and challenged the rectification defence, ultimately failing on the primary construction issue.
Accordingly, bearing in mind the important policy considerations underlying r 132.10 of the Uniform Rules where a relevant offer is not accepted, there is no clear reason in the circumstances of this case to engage the Court’s overriding discretion as to costs by not making an order against Leadenhall for the respondents’ cost of action on an indemnity basis after 18 July 2023.
Conclusion
The respondents should have their costs of action on a standard basis until 2 February 2022 and thereafter on an indemnity basis, certified fit for junior counsel. Given the mixed result on the costs dispute, there should be no order as to the costs of the costs dispute.