Liew & Anor v Barthelmess & Ors (No.2)

[2024] NSWDC 403

District Court

New South Wales

Medium Neutral Citation:

Liew & Anor v Barthelmess & Ors (No.2) [2024] NSWDC 403

Hearing dates:

On the papers

Date of orders:

On the papers

Decision date:

09 September 2024

Jurisdiction:

Civil

Before:

Abadee DCJ

Decision:

See paragraph [46]

Catchwords:

COSTS – successful party’s application for indemnity costs – multiple offers of settlement, including offer prior to commencement of proceeding

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 36.16(3), 42.14, 42.15A

Cases Cited:

Calderbank v Calderbank [1975] 3 All ER 333

Commonwealth v Gretton [2008] NSWCA 117

Leichhardt Municipal Council v Green [2004] NSWCA 341

Liew & Anor v Barthelmess & Ors [2024] NSWDC 344

Texts Cited:

Nil

Category:

Costs

Parties:

Ms Liz Yuman Liew (First Plaintiff/First Cross-Defendant)
Ms Lihua Wu (Second Plaintiff/Second Cross-Defendant)
Mr Jonathan Joshua Barthelmess (First Defendant/First Cross-Claimant)
Ms Laurette Ruth Macsween (Second Defendant/Second Cross-Claimant)
Ms Prudence Gai Macsween (Third Defendant/Third Cross-Claimant)

Representation:

Counsel:
Ms A. Elizabeth (Defendants/Cross-Claimants)

Solicitors:
MJF Law (Defendants/Cross-Claimants)
JC Legal (First and Second Plaintiffs/Cross-Defendants)

File Number(s):

2023/00107792

Publication restriction:

Nil

REASONS FOR JUDGMENT

Introduction

1. I delivered reasons for judgment in this proceeding on 13 August 2024^[1] . The case featured an attempt by the purchasers of a luxury property at Darling Point to recover the monies they paid upon entry into three, interconnected contracts in November 2021. For their part, the vendors (as cross-claimants) sought to retain the monies ($400,000) paid to their agent and also sought an order for the balance of monies payable ($340,000) on the deposits. The contracts were terminated in March 2022. The purchasers commenced the proceeding on 3 April 2023. The Vendors filed their (original iteration of their) cross-claim on 10 May 2023.

   1. Liew & Anor v Barthelmess & Ors [2024] NSWDC 344

2. I found in the vendors’ favour and ordered the purchasers to pay the vendors the sum of $340,000, with interest.

3. On the issue of costs, at paragraph [183] of the judgment, I stated that although a claim for indemnity costs was identified in the cross-claim, the vendors had not, through their Counsel’s written or oral submissions, asked to be heard in support of any special costs order and ordered ^[2] that the purchasers pay the vendors’ costs on the ordinary basis.

   2. Order 5

4. By a notice of motion dated 26 August 2024, the vendors applied, pursuant to r 36.16(3) of the Uniform Civil Procedure Rules 2005 (NSW) (‘UCPR’) for a variation of that costs order that was made. They sought an order that the purchasers pay the vendors’ costs of the proceedings on an indemnity basis. As set out in the supporting affidavit, the application, more precisely, was an order for indemnity costs:

1. from 25 February 2023;

2. from 20 September 2023; or

3. from 25 June 2024.

5. The application is based upon the purchasers’ rejection of multiple settlement offers, including one before the commencement of the proceeding.

Evidence

6. Upon the Court’s receipt of the vendors’ application, I arranged, through my Associate, to convey to the parties directions for the filing and service of evidence in response by the purchasers (by 30 August 2024) and submissions (relevantly) in chief by the vendors (2 September 2024), and by the purchasers (by 5 September 2024).

7. Mr Mark Fester, the vendors’ solicitor, affirmed an affidavit in support of the application for variation of the costs order. At page 5 of his affidavit, he annexed a summary of offers of settlement by the parties in the proceedings. Most, but not all, of the offers were by the vendors. Having regard to the way that the vendors put their application, I will, to the extent necessary, consider the three material offers emphasised, being: (a) a Calderbank offer made on 25 February 2023; (b) an offer of compromise/Calderbank offer made on 20 September 2023; and (c) an offer of compromise/Calderbank offer made on 25 June 2024.

8. Despite the opportunity afforded to them by the Court’s directions, the purchasers did not serve any evidence in opposition to the application. Nor did they supply the Court with any written submissions.

The Calderbank offer

9. On 25 February 2023, solicitors for the vendors, MJF Law, sent two letters to the then solicitors for the purchasers. Both letters were sent after the purchasers’ solicitors had made an earlier offer (6 February 2023) and therefore clearly at a time when litigation was in both parties’ contemplation.

10. The first letter (comprising 12 pages) was an ‘open’ letter. As Mr Fester accurately noted in his affidavit, this letter featured a summary of events and purported to state applicable principles of law. On the last page, it set out the vendors’ demand which, in substance, required the purchasers to take multiple steps that would, viewed in combination, see to it that the vendors received payment of $795,000 into their trust account.

11. The second letter was expressed to be ‘without prejudice save as to costs’ and incorporated a reference to the open letter of the same date. It stipulated a ‘counteroffer’ (ie to the purchasers’ offer of 6 February) whose terms, to paraphrase, involved:

1. the purchasers consenting to the release of $400,000 (then in the vendors’ agent’s trust account) to the vendors; and

2. the purchasers’ payment of $340,000 to the vendors

with both events to occur within 14 days.

12. This settlement offer was open for acceptance until 3 March 2023. Reference was made to the principles in the decision in Calderbank v Calderbank [1975] 3 All ER 333 in the circumstance that the offer was rejected and the vendors obtained a judgment in more favourable terms.

Offer of compromise/Calderbank offer of 20 September 2023

13. To reiterate, the purchasers commenced litigation on 3 April 2023.

14. On 20 September 2023, MJF Law sent a 7 page letter to the purchasers’ then solicitors. Towards the end of the letter, the letter was expressed or purported to be made pursuant to r 20.26 of the UCPR; although, as an alternative, reliance was also placed upon Calderbank principles.

15. In explanation for the unusual length of a document purporting to be a rules offer, this letter also featured not insignificant argument on questions of law and/or questions of mixed law and fact.

16. The terms of the offer, in paraphrase, required the purchasers:

1. to enter into a deed of settlement and release;

2. to provide their consent to the vendors’ agent releasing $400,000 to the vendors; and

3. to pay $160,000.

17. The payments represented, in effect, an aggregate sum of $560,000.

18. The offer was open for a period of 28 days (ie 18 October 2023). It was expressed as being referable to the proceedings initiated by the statement of claim and cross-claim, respectively.

19. Further, as an additional term of the offer, both parties were to bear their own costs.

20. The purchasers rejected this offer.

Offer of compromise/Calderbank offer of 25 June 2024

21. On 25 June 2024, the MJF Law sent a 4-page letter to the purchasers’ solicitor. It purported to be a rules offer (making express reference to r 20.26 of the UCPR) but alternatively, expressly indicated an intention for it to constitute, if necessary, a Calderbank offer. The letter was expressed to be without prejudice except as to costs.

22. It was expressed to be open for 28 days.

23. The terms of the offer, in paraphrase, required the purchasers:

1. to enter into a deed of settlement and release; and

2. to provide their consent to the vendors’ agent releasing $400,000 to the vendors; and

3. to pay $100,000.

24. By the offer, the parties were to bear their own costs of the proceedings.

25. The purchasers rejected this offer as well.

Submissions

26. Insofar as at least two of the settlement offers they relied upon purported to be rules offers, the vendors relied upon r 42.14 of the UCPR.

27. The vendors’ Counsel also referred the Court to well-established principles concerning Calderbank offers.

28. As to the first of the offers, Counsel acknowledged that although the same ‘headline’ figure of $740,000 ordered by the Court was the same as that which was offered, the vendors obtained a more favourable result by reason of the final court orders requiring that the purchasers pay the vendors’ interest and costs.

29. As to the second of the offers, the vendors submitted, firstly, that the offer complied with the requirements for a valid rules offer under r 20.26. The vendors argued that the offer represented a genuine offer of compromise, substantially reducing their quantified claim on the ‘third deposit’. It was unreasonable for the purchasers to reject it. The ordinary operation of r 42.14 should apply; but, if it did not, indemnity costs should be awarded under Calderbank principles.

30. As to the third of the offers, the vendors noted that the amount offered did not provide for interest and costs and, whilst noting the different settlement sum that was offered in comparison with the second offer, argued that indemnity costs should flow from rejection of the offer for substantially the same reasons.

31. The purchasers did not make any submissions in opposition to the application.

Consideration

32. As indicated, in the result, by the judgment, the vendors:

1. obtained an order that $400,000 be released to the vendors;

2. obtained an order for a monetary payment of $360,000; and

3. obtained an order for interest on the monetary payment.

The Calderbank offer

33. As to the first of the settlement offers relied upon, a Calderbank offer does not have the same status as a rules offer, to the extent of providing any presumptive entitlement to an order for indemnity costs should the offeree reject the offer and the offer obtains a more favourable result: Commonwealth v Gretton [2008] NSWCA 117 at [43]. The vendors still bear the persuasive burden of proof of satisfying the Court that an order for indemnity costs should be made in their favour. Two applicable principles are commonly applicable. One is that the offeree’s rejection of the offer is unreasonable; the other is that the offer of settlement must represent a genuine offer of compromise. The last principle indicates that offers only designed to trigger costs sanctions are not ‘genuine’. Offers designed to invite a party to capitulate cannot be regarded as amounting to a genuine offer of compromise^[3] .

    3. Leichhardt Municipal Council v Green [2004] NSWCA 341

34. The vendors’ Calderbank offer was made prior to the commencement of litigation. That does not necessarily disqualify it from having effect for the purposes of the costs consequences of litigation commenced after the offer was made.

35. The vendors’ problem, however, is that the offer they made on this date effectively invited the purchasers to capitulate to the vendors’ demand at that point in time. Given its timing as a settlement offer before a proceeding had even commenced, at that point, it had no entitlement to claim legal costs that it was offering to forego. Further, as I noted at J[183], I did not regard the purchasers’ constructional argument as being hopeless. It was not, in short, a genuine offer to compromise.

36. I reject the application for an order for indemnity costs based on the purchasers rejection of the offer of 25 February 2023.

The rules offer

37. The vendors’ solicitor’s letter of 20 September 2023, in its form, represents a curious hybrid of a rules offer and, alternatively, a Calderbank offer. Most rules offers are not accompanied, within the document by which they are made, by an elaborate attempt to persuade the offeree of the rightness of the offeror’s position; as this one does.

38. Notwithstanding its unusual form, the letter does comply with the requirements of r 20.26 of the UCPR.

39. It is also the case that, for the purposes of r 42.15A (looking from the perspective of the statement of claim) or r 42.14 (looking from the perspective of the cross-claim) of the UCPR. I find that the vendors obtained a result no less favourable than what they offered the purchasers.

40. Although orders for costs are, of course, discretionary, they are subject to court rules, such as rr 42.15A and 42.14. Ordinarily, the purchasers should pay the vendors’ costs on an indemnity basis from the day following the day the offer was made; in this case 21 September 2023.

41. Further, both of those rules provide an exception, where the purchasers have persuaded the Court to ‘otherwise order’.

42. No argument was raised by the purchasers as to why the Court would ‘otherwise order’.

43. The vendors are entitled to have their costs paid on an indemnity basis from the day after the offer of 20 September 2023 was made.

44. This conclusion obviates any need for the Court to consider the significance of the third of the settlement offers relied upon.

Costs of the motion for variation

45. By their notice of motion (prayer 3), the vendors disclaimed any claim for the costs in respect of the motion.

Orders

46. For these reasons, the Court orders:

1. Order 5 made on 13 August 2024 is varied, so that it reads:

“(1) Subject to order 2 made on 9 September 2024, the plaintiffs/cross-defendants are to pay the defendants/cross-claimants’ costs of the proceedings:

(a)   up to 20 September 2023 on the ordinary basis; and

(b)   from 21 September 2023 on an indemnity basis

as agreed or assessed.”

2. There is no order as to costs in respect of the defendants/cross-claimants’ motion of 26 August 2024.

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Endnotes

Decision last updated: 09 September 2024