Pastina Pty Ltd v Hosanna Excelsis One Universal Church Inc (No 2) - [2020] SADC 64

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
PASTINA PTY LTD v HOSANNA EXCELSIS ONE UNIVERSAL CHURCH INC (NO 2)
[2020] SADC 64
Decision of His Honour Judge Burnett
27 May 2020
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - GENERAL MATTERS - GENERALLY
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - INFORMAL OFFERS AND CALDERBANK LETTERS
On 17 April 2020, I published my Reasons in this matter and found the plaintiff was entitled to judgment in its favour. On 8 May 2020, I entered formal judgment in favour of the plaintiff in the sum of $430,740.18 inclusive of pre-judgment interest.
The plaintiff now seeks orders for indemnity costs and that costs be awarded on a lump sum basis.
The basis of the application for indemnity costs arises out of the conduct of the defendant during the course of the proceedings. It also relies upon failure of the defendant to accept an informal offer of settlement (a Calderbank Offer) made on 20 December 2019.
In a number of respects, I find that the defendant has engaged in unsatisfactory conduct in relation to its estoppel defence. That conduct occurred in December 2019 when the matter was first listed for trial. The conduct of the defendant and its officers in relation to the estoppel included:
(1)     Wrongly asserting that it had not been provided with certain documents critical to its estoppel defence.
(2)     Altering, contrary to an order made by Judge Slattery, documents that were on its officer’s computers prior to delivery up to an expert so as to advance its estoppel defence.
(3)     Advancing, as part of its estoppel defence, an allegation that it was not until March 2018 that the plaintiff advised the defendant that it (the plaintiff) was holding the defendant to a five year lease when that allegation could not be sustained and was contrary to documents in the defendant’s possession.
(4)     The abandonment of the estoppel defence in its first iteration in December 2019 and subsequently abandoning the reformulated estoppel plea at trial.
Accordingly, in the exercise of my discretion, I find that the plaintiff is entitled to costs on an indemnity basis in relation to the estoppel defence.
I also determine, in the exercise of my discretion, that the plaintiff is also entitled to indemnity costs in relation to the offer that it made on 20 December 2019.
The offer was made at an advanced stage of the proceedings, represented a genuine settlement offer, was clear and unequivocal, was open for a reasonable period of time and was made at a time when the parties were aware of the issues. The only matter advanced by the defendant as to why the order should not be made was that the question of construction remained highly arguable. I accept that this was the case, but that is not a sufficient reason, by itself, in the circumstances to refuse an order.
It is not appropriate to award costs on a lump sum basis.
It is held:
(1)     The defendant pay the costs of the plaintiff on and from 14 January 2020 on an indemnity basis subject to any existing costs orders.
(2)     The defendant pay the costs of the plaintiff of and incidental to its plea of estoppel as contained in paragraph 10 of its defence and counter-claim on an indemnity basis subject to any existing costs orders.
(3)     Otherwise the defendant pay the costs of the plaintiff on a party and party basis.
(4)     The application for costs to be assessed on a lump sum basis is refused.
District Court Rules 2006 (SA) r 33; r 263; r 264; ; Retail and Commercial Leases Act 1995 (SA) s 20B; District Court Act 1991 (SA) s 42, referred to.
Calderbank v Calderbank [1975] 3 All ER 333; Cirillo v Consolidated Press Property Ltd (No 2) [2007] FCA 179; Dowling v Fairfax Media Publications Pty Ltd (No 2) [2010] FCAFC 28; Casley-Smith v FS Evans & Sons Pty Ltd (No 6) (1989) 148 LSJS 483; Residues Treatment and Trading Co Ltd v Southern Resources Ltd (1988) 147 LSJS 310; Flashback Holding Pty Ltd v Showtime DVD Holdings Pty Ltd (No 7) [2010] FCA 913; Lowe v Mack Trucks Australia Pty Ltd (No 2) [2008] FCA 711; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; Alexander v Australian Community Pharmacy Authority (No 3) [2010] FCA 506; Diakyne Pty Ltd v Ralph (No 2) [2009] FCA 780; Gryst v Dromana Estate Ltd (No 2) [2008] FCA 1499; CP (Adelaide) v Hartford (Holdings) (No 10) [2002] 221 LSJS 124; [2002] SADC 102; Stewart v Atco Controls Pty Ltd (in Liq) (No 2) (2014) 311 ALR 351; [2014] HCA 31; Black & Decker Inc v GMCA Pty Ltd (No 4) [2008] FCA 1737; Ualesi t/as Australian Empire Imports v Expeditors International Pty Ltd [2006] FCA 26; Byrnes v Brisconnections Management Co Ltd (No 2) [2009] FCA 1432; BHP Billiton Ltd v Parker (2012) 113 SASR 206; Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd [2014] SASC 141; NZI Insurance Australia Ltd v Baryzcka (2003) 85 SASR 497; SMEC Testing Services Pty Ltd v Campbelltown City Council [2002] NSWCA 323; Nominal Defendant v Dighton (No 2) [2012] SASCFC 97; Jones v Dunkel [1959] ALR 367; (1959) 101 CLR 298; Cornwell v Rowan (No 4) [2006] SASC 111, considered.

PASTINA PTY LTD v HOSANNA EXCELSIS ONE UNIVERSAL CHURCH INC (NO 2)
[2020] SADC 64
Introduction

The trial of this matter was heard in February 2020.
On 17 April 2020, I published my reasons for judgment in which I found the plaintiff was entitled to damages in the sum of $383,207.16 plus pre-judgment interest. Formal judgment was entered in favour of the plaintiff on 8 May 2020 in the sum of $430,740.18, inclusive of pre-judgment interest.
The plaintiff, by interlocutory application dated 24 April 2020, has sought costs on an indemnity basis (including an order that existing costs orders in its favour be increased so that they are made on an indemnity basis) and further that costs be adjudicated on a lump sum basis.
The plaintiff relies on what it describes as the arc of the conduct of the defendant from the commencement of the proceedings as a justification for the order for indemnity costs. I will consider that conduct both individually and collectively. Part of that conduct includes the failure of the defendant to accept a Calderbank offer made by the plaintiff on 20 December 2019.
Background Facts
It is necessary to examine the course of the proceedings in some detail to understand the context in which the plaintiff’s application for indemnity costs is made.
The dispute had its genesis in September 2017. The defendant wrote a letter to the plaintiff dated 21 September 2017 giving 30 days’ notice that it was vacating the premises. That letter was sent by email to the plaintiff on 23 September 2017.
On 9 October 2017, the plaintiff’s solicitors sent a letter by email to the defendant in which it asserted that the lease was for a five year term commencing on 1 May 2015 and expiring 30 April 2020. The email was addressed to [email protected].
The plaintiff’s solicitors sent a further letter by both express post and email dated 4 December 2017 in which it further repeated its position that the defendant was bound by a five year lease which commenced on 1 May 2015. The email was also addressed to [email protected] (the open letter). The hard copy of the letter was posted to the address of Pastor Lorraine Carter at 63 Avonmore Avenue, Payneham South.
The plaintiff’s solicitors sent a further letter on 4 December 2017 to the defendant, by both express post and email (to the same postal and email address), which stated that the letter was made in accordance with r 33 of the District Court Rules 2006 (DCR)(the Rule 33 letter). The letter was brief and referred to previous correspondence as setting out the basis of the plaintiff’s claim. The letter went on to say that the plaintiff was willing to resolve its claim by accepting the sum of $375,388.56 in full and final settlement of all claims between the parties inclusive of costs. The offer remained open for a period of 21 days. The defendant did not respond to the offer contained within the Rule 33 letter and did not make any counter offer.
The plaintiff’s solicitors sent a further letter to the defendant dated 9 January 2018 by express post to the defendant. That letter was sent by express post to the defendant at the address PO Box 836, Modbury, South Australia 5092 and enclosed the two letters dated 4 December 2017 which had been marked “not at this address” and were returned to the plaintiff’s solicitors as the sender of those letters.
During the course of the proceedings, the defendant denied receiving the above emails and letters. I am satisfied that the defendant received the emails dated 9 October 2017 and the two emails dated 4 December 2017. In the proceedings, a forensic examination was undertaken of the defendant’s computers. The email of 4 December 2017 (the open letter) was found in the inbox of that email account along with another, unrelated email sent from that email address on 10 December 2017. That demonstrates that the email account was operative during this period. For these reasons and in the absence of any evidence from the defendant, I am satisfied that the defendant received the emails of 9 October 2017 and the two emails of 4 December 2017.
The plaintiff instituted proceedings in the Magistrates Court on 2 March 2018. The matter was later removed to the District Court.
The documents that were posted for service by the plaintiff to the address of the defendant at 27A Gurney Street, South Plympton and were returned “not at this address”. That address was recorded as its address in the Charities Register but not as its postal address. When the documents were ultimately served, the defendant in its defence and counterclaim filed in the Magistrates Court, stated that its address was 27A Gurney Street, South Plympton.
In these circumstances, the plaintiff asks me to infer that the defendant falsely returned the initiating documents as “not known as this address” to avoid service. However, given that the documents were not served at the nominated postal address of the defendant and further that the only other evidence of the property at South Plympton was that it was a property owned by Mrs Carter, the administrator of the defendant, I am not prepared to infer that the defendant falsely returned the documents and was attempting to avoid service.
In its first defence and counter claim filed on 11 April 2018, the defendant pleaded in response to paragraph [10] of the Particulars of Claim that the plaintiff was in any event estopped from asserting a new lease. No particulars were given of the estoppel plea.
The plaintiff submitted that the defendant unreasonably refused to mediate, but the evidence does not support the making of such a finding. I accept the submissions of the defendant that it is not clear on the evidence why a mediation did not proceed.
The plaintiff criticised the conduct of the defendant consequent upon the obtaining of a freezing order in September 2019. Whilst there is some force in those criticisms, I do not consider that the conduct affected the proceedings as a whole such that they would provide a basis for making a special costs order.
On 26 November 2019, the defendant produced by way of disclosure:
(1) A copy of the minutes of the meeting of the board of the defendant held on 14 November 2014;
(2) A copy of the minutes of the meeting of the board of the defendant held on 19 January 2015.
The plaintiff asks me to find that these documents were false.
On 27 November 2019, the plaintiff’s solicitors sent an index of the proposed trial book and included in that index:
(1) The letter from the plaintiff’s solicitors to the defendant dated 9 October 2017;
(2) The open letter from the plaintiff’s solicitors to the defendant dated 4 December 2017;
(3) The letter from the plaintiff’s solicitors to the defendant dated 9 January 2018;
(4) The letter from the plaintiff’s solicitors to the defendant dated 2 March 2018.
The defendant’s solicitors requested a copy of these documents on 10 December 2019 and advised the plaintiff that the documents had not, to the best of their knowledge, been previously disclosed or provided to them.
At the commencement of the trial on 11 December 2019 the defendant sought an adjournment of the trial on the basis of the disclosure on the previous day of these documents. The defendant said these documents were critical to its estoppel defence.
Although it had not been articulated previously, the defendant outlined its estoppel case. The defendant alleged that after the expiry of the five year term of the initial lease in April 2015, it acted on the assumption, induced by and shared by the plaintiff, that the defendant was a monthly tenant and not bound to a further five year lease. Acting and relying upon that assumption, the defendant entered into a new lease of different premises with a third party in November 2017. Only after the defendant had bound itself to these arrangements, did the plaintiff assert that in fact the defendant was bound to a further five year lease with the plaintiff as a result of the operation of s 20B of the Retail and Commercial Leases Act 1995 (SA). The defendant’s counsel at trial advised the Court that it was not until March 2018 that the defendant knew that the plaintiff was asserting that the defendant was bound to a five year lease. The defendant’s counsel at trial also advised the Court that the board of the defendant had decided at its meeting held in November 2014 and January 2015 meetings that it was not going to renew the lease for a further 5 years, but that it would approach Ms Alvaro of the plaintiff with a view to continuing on a month to month tenancy.
It is obvious the documents set out in paragraph [20] above, if received by the defendant, would have been fatal to the defendant’s contention that it was only in March 2018 that it was first advised that the plaintiff was asserting a five year lease.
In fact, the plaintiff’s solicitors had on 9 April 2019 sent to the defendant’s previous solicitors the letters dated 4 December 2017 (the open letter) and 9 January 2018. The plaintiff’s solicitors had also sent to the defendant’s solicitors on 27 November 2019 a hard copy of all the documents in the proposed tender book and an electronic copy of those documents on 28 November 2019.
As I record later in these Reasons, the plaintiff obtained an order that the computer devices of the defendant and its officers be examined by a forensic computer expert, Mr Miller. The examination of Mr Miller found a copy of the minutes of the meeting held on 24 October 2017 which made reference to the lawyer of the plaintiff claiming that the defendant was required to stay at the building to 2020. That reference suggests that the defendant had received the letter of 9 October 2017 from the plaintiff’s solicitors. The minutes also suggest that the defendant had informed the plaintiff that the lease was to be on a month to month rental basis. The properties of the document again showed that it was again last modified on 16 December 2019 in contravention of Judge Slattery’s orders.
The above analysis demonstrates that the basis of the adjournment application of the defendant that it had only the previous day received the documents set out in paragraph [20] was wrong. It was also clear that the allegation that the plaintiff had only asserted that it was entitled to a five year lease in March 2018 was false and therefore an estoppel defence based on that assumption could not be sustained.
Judge Slattery adjourned the trial to 2.00 pm on 13 December 2019 to allow the defendant time to reformulate its estoppel claim. By reason of that adjournment, it became apparent that the trial having been listed for three days, would not proceed.
On 12 December 2019, the defendant reformulated its estoppel case such that it no longer relied on the alleged conduct of the plaintiff that it had not asserted a five-year lease, but instead relied upon the conversation between Ms Lorraine Carter on behalf of the defendant and Ms Rosina Alvaro on behalf of the plaintiff in December 2014 in which it was alleged that Ms Carter advised Ms Alvaro that the defendant did not wish to take up a further five-year lease and would continue only as a monthly tenant and the acquiescence of Ms Alvaro to that proposition.
On 13 December 2019, Judge Slattery made orders that the defendant and certain of its officers, including Ms Carter and Ms Foreman, produce their electronic devices for examination by Mr Miller of Clifton Hall, acting as the forensic computer expert for the plaintiff. As part of these orders, Judge Slattery ordered that the defendant and Ms Carter and Ms Foreman be restrained from deleting or making any alteration to the electronic devices before delivering them up to Mr Miller.
As I have stated earlier in these Reasons, as part of the forensic examination of the defendant’s computers, Mr Miller found on one of the email addresses of the defendant, the email from the plaintiff’s solicitors dated 4 December 2017(the open letter).
The evidence adduced by the plaintiff showed that after the order of the 13 December 2019 by Judge Slattery, Ms Foreman altered her device to bolster the estoppel defence of the defendant. I gave the defendant the opportunity to respond to the evidence and put on an explanation as to why the minutes had been altered. The defendant chose not to do so. In these circumstances, the failure of Ms Foreman to proffer an explanation as to what happened, gives rise to an inference that her evidence would not have assisted the defendant.[1]
[1] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 312
In the absence of any explanation, I find that Ms Foreman, on behalf of the defendant, altered her device by amending the minutes of the meeting of the board of the defendant held on 14 November 2014 and 19 January 2015, to bolster the defence of the defendant that the plaintiff was estopped from asserting that the defendant was not holding over on a monthly tenancy.
I refer to the following evidence in in support of that finding:
·On 26 November 2019, the defendant produced certain documents which had been disclosed in its list of documents and which I have referred to earlier in these Reasons. The documents produced included the minutes of the meeting of the board of the defendant held on 14 November 2014. These minutes were sealed and signed.
·These minutes recorded in paragraph [3] that the lease was to expire on 30 April 2015 but the defendant decided not to exercise the five-year renewal and “it was decided that the administrator should approach Rosina Alvaro (of Pastina Pty Ltd) because of her personal contact with a view to us continuing on a month to month rental basis”.
·The same version of the minutes of 14 November 2014 was found by Mr Miller on the computer of Ms Foreman, the public officer of the defendant. However, the properties of the document showed that the document was modified on 15 December 2019 after the order of Judge Slattery that there be no alteration to the electronic devices before they were delivered up to Mr Miller.
·Ms Carter, the administrator of the defendant, had on her computer a different version of the minutes of 14 November 2014 which did not contain any reference to proposed discussions between Ms Alvaro and Ms Carter of the defendant holding over on a monthly basis. Mr Miller’s investigations found that this document was last modified on 22 November 2016.

Clearly, an alteration was made to the minutes of 14 November 2014 that were on Ms Foreman’s computer on 15 December 2019 in direct contravention of the order of Judge Slattery.
I am not able to determine which version of the documents is a true record of the minutes.
The second set of minutes that were disclosed in November 2019 by the defendant were the minutes of the board meeting of the defendant held on 19 January 2015.
The version that was disclosed by the defendant in November 2019 makes reference at paragraph [1] to the administrator, Ms Carter, phoning the landlord, Ms Rosina Alvaro, to say that the defendant would not be taking another five-year lease but would go on a monthly rental basis.
The same version of minutes of the meeting of the board of the defendant held on 19 January 2015 was found by Mr Miller on Ms Foreman’s computer. Again, that forensic analysis shows this version of document was also modified on 15 December 2019, in contravention of the order of Judge Slattery.
The version of the minutes of that meeting on 19 January 2015 that were found on Ms Carter’s device made no reference to that conversation. Those minutes were last altered on 22 September 2016.
The minutes of the meeting of the board of the defendant held on 24 October 2017 were also altered on 16 December 2019 in contravention of the order of Judge Slattery.
On 20 December 2019, the plaintiff’s solicitors wrote to the defendant’s solicitors making an offer of settlement in reliance upon the principles set out in Calderbank v Calderbank [1975] 3 All ER 333. In that letter, the plaintiff offered to settle for the sum of $300,000.00 plus costs. That offer was open for acceptance to 13 January 2020.
The terms of the offer were:
a.Judgment for the plaintiff in the sum of $300,000;
b.An order that the counterclaim be dismissed;
c.The parties bear their own costs of the adjournment of the trial on 13 December 2019 but otherwise the defendant pay the plaintiff’s costs on a party and basis;
d.The parties mutually release each other from all claims arising out of or in connection with the lease and/or occupation of the premises by the defendant.
The offer was left open for three weeks and as the plaintiff submitted and the defendant properly conceded, the defendant’s solicitors were back at work at least by 8 January 2020 when they provided new particulars in relation to the estoppel claim. The defendant properly did not contest that the offer was left open for a reasonable time. In assessing the reasonableness of the time for which the offer was open, I also take into account the fact that the timetabling orders made by Judge Slattery in December 2019 required considerable work and the incurring of substantial costs in mid to late January 2020.
In its Second Defence and Counterclaim filed on 10 February 2020, the defendant provided particulars of the estoppel defence. The particulars provided related to the alleged conversation between Mr Carter and Ms Alvaro in December 2014. The allegations that it was not until March 2018, that the plaintiff first advised the defendant that it maintained that the lease was for a five year period were abandoned.
The trial commenced on 17 February 2019.
During the course of the trial the defendant abandoned the reformulated estoppel defence.
Legal principles
Section 42 of the District Court Act 1991 (SA) gives the Court an unfettered discretion as to costs, subject to the operation of the DCR.
Pursuant to DCR 263, as a general rule, costs follow the event.
DCR 264(1) provides that the court may in the exercise of its discretion as to costs award costs on any basis that the court considers appropriate. DCR 264(2) provides that as a general rule, costs will be awarded on a party and party basis. DCR 264(5)(b) provides that in exercising its general discretion as to costs, the court may award costs on an indemnity basis. DCR 264(5)(c) provides that costs may be awarded by way of lump sum.
The awarding of costs on an indemnity basis is intended to compensate a party fully for costs.[2]
[2] Cirillo v Consolidated Press Property Ltd [2007] FCA 179 at [5].
The conduct of a party may justify an order for indemnity costs.[3] Indemnity costs may also be awarded when one party conducts a case in such a way as to cause a loss of time.[4]
[3] Flashback Holding Pty Ltd v Showtime DVD Holdings Pty Ltd ( No7) [2010] FCA 913 at [14].
[4] Lowe v Mack Trucks Australia Pty Ltd (No 2) [2008] FCA 711 at [6].
In Colgate-Palmolive Co & Anor v Cussons Pty Ltd[5] Shepherd J set out the circumstances in which the court will exercise its discretion to award indemnity costs. In that case, Shepherd J held that notwithstanding that the categories in which the discretion made be exercised are not closed:
…it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weeks (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messitier v Hutchinson (1987) 10 NSWLR 225; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal)….
[5] (1993) 46 FCR 225 at 233.
An imprudent failure of a party to accept an offer of compromise can lead to an order for indemnity costs. As the Full Court in BHP Billiton Ltd v Parker[6] emphasised, the concept of an “imprudent refusal” is a shorthand encapsulation of an approach in the exercise of the court’s discretion to depart from the usual order and make some form of special costs order. Therefore, the mere refusal of the Calderbank offer is not itself sufficient to say that the respondent was acting imprudently.[7] The whole of the circumstances surrounding the offer must be considered including the stage the proceedings were at when the offer was made, the time allowed to consider the offer, the extent of the compromise, prospects of success, the clarity in which the terms were expressed and whether the offer foreshadowed indemnity costs.[8]
[6] (2012) 113 SASR 206 at [265].
[7] Alexander v Australian Community Pharmacy Authority (No 3) [2010] FCA 506 at [22], [35]; Diakyne Pty Ltd v Ralph (No 2) [2009] FCA 780 at [10]; Gryst vDromana Estate Pty Ltd [2008] FCA 1499 at [3]; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]
[8] Nominal Defendant v Dighton (No 2) [2012] SASCFC 323 at [8].
It follows that, the bettering of a Calderbank offer does not give an automatic entitlement to solicitor in client costs.[9]
[9] CP (Adelaide) v Hartford (Holdings) (2002) 221 LSJS 124; [2002] SADC 102 but left open on appeal.
The failure to employ the regime under the rules and make a formal offer under the rules may in some situations be a factor against awarding indemnity costs.[10] However, the High Court has said non-acceptance of a Calderbank offer is a factor, in some cases a strong factor for allowing indemnity costs and usually to resist the order the respondent would have to show a reason for not accepting it beyond its prospects of being successful.[11]
[10] Duke Group Ltd (in Liquidation) v Pilmer (1998) SASC 6699.
[11] Stewart v Atco Controls Pty Ltd (in Liquidation) (No 2) (2014) [2014] HCA 31; (2014) 252 CLR 331 at [4]
In Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2),[12] Blue J reviewed the authorities relating to Calderbank offers and distilled the following principles:
(1)The mere fact that it was open to the offeror to file a formal offer under the Rules is not in itself a reason to discount reliance upon rejection or non-acceptance of an informal offer as a reason to make an order departing from the general rule that costs on a party and party basis follow the event (a special costs order);
(2)While non-acceptance or rejection of an informal offer can be a relevant factor to take into account, it is not the only relevant factor and all relevant factors should be considered in deciding whether to make a special costs order;
(3)In assessing whether the offeree had a reasonable time to assess whether to accept the offer, it is necessary to take into account all the circumstances, including the stage the action has reached, the information available to the offeree, previous negotiations between the parties, legal representation of the offeree, the nature of the issues in the action and whether there was a response by the offeree to the offer;
(4)In deciding whether to make a special costs order, it is relevant to compare the form and substance of the informal offer with the form and substance of a formal offer under the Rules;
(5)The mere fact that an offer is expressed to remain open for less than 14 days or for less than the period of a formal offer under the rules, is not in itself fatal to an application for a special costs order founded on non-acceptance of the informal offer.
[12] [2014] SASC 141; (2014) 120 SASR 433
It is often said that the discretion to award costs in a lump sum will be exercised in complex cases. The costs of taxing the bill will be substantial and there will be a substantial outlay and inconvenience in the taxation.[13] The rationale behind the rule is that it will avoid prolonged disputes in relation to costs.[14]
[13] Black & DeckerIncv GMCA Pty Ltd (No 4) [2008] FCA 1737 at [3]
[14] Anastasia Ualesi & Anor v Expeditors International Pty Ltd [2006] FCA 26 at [14].
Alternatively, in some cases which are straight forward fixing costs by way of a lump sum may be a convenient way of dealing with costs.[15]
[15] Byrnes v Brisconnections Management Co Pty Ltd (No 2) [2009] FCA 1432.
In Cornwall v Rowan (No 4),[16] the Court identified the following factors as relevant to the exercise of the discretion to award costs on a lump sum basis:
(1) The length and complexity of the case;
(2)Whether full recovery of the taxed costs was not anticipated or was questionable;
(3)Whether the taxation process was likely to be costly and protracted because of the length and complexity of the case or because of the behaviour of one of the parties.
[16] [2006] SASC 111 at [12]
Determination of application for indemnity costs
The plaintiff’s application for costs to be awarded on an indemnity basis is founded on two matters: first, the conduct of the defendant in the whole of the litigation and secondly, (as both part of the collective conduct of the defendant, but also as a separate ground), the imprudent failure of the defendant to accept the offers of settlement contained in the 20 December 2019 informal letter of offer.
The plaintiff also relied upon the defendant’s failure to accept the offer contained in the rule 33 notice that was sent by letter dated 4 December 2017. Under DCR 33(7), the court may take into account the terms and response to an offer made under this rule and the extent to which it was reasonable or unreasonable.
I do not consider that the Rule 33 letter provides a justification, either individually or as part of the overall conduct of the defendant, as a basis for the award of costs on an indemnity basis. I accept the submissions of the defendant in this regard. In particular, the offer was made before the proceedings were instituted and at a time when the defendant did not, on the evidence, have legal representation. I also take into account (1) the extent of the comprise (compared to the final judgment) was minimal and (2) the issue of construction was difficult and no previous authority was determinative. I accept also at this point (and prior to the judgment given by Doyle J on the summary judgment appeal), the defendant could draw comfort from the Full Court decision in NZI Insurance Australia Ltd v Baryzcka.[17]
[17] (2003) 85 SASR 497 at [41]-[42]
I also do not take into account the submission that the defendant deliberately avoided service. As I found previously, I do not consider that the evidence was sufficient for me to make such a finding. In any event, the defendant was served shortly thereafter. Only minimal cost and delay occurred as a result of the first attempt at service.
I have expressed earlier in these Reasons my findings in relation to the mediation and freezing orders and my conclusion that they do not provide a basis, in the circumstances, for the awarding of indemnity costs.
I consider that the conduct of the defendant in relation to the estoppel defence was unsatisfactory. I refer to the following findings that I have made:
(1)The wrongful assertion by the defendant that it only received on 10 December 2019 (the day before the commencement of the trial) the emails and letters from the plaintiff dated 9 October 2017, 4 December 2017 and 9 January 2018 in which the plaintiff asserted that it was entitled to a five year lease. This assertion was wrong in that the evidence demonstrated that the 4 December 2017 letter was on the computer of Ms Foreman, the 4 December 2017 and 9 January 2018 letters had been provided to the defendant’s previous solicitors on 9 April 2018 and all documents had been sent to the defendant’s solicitors on 27 November 2019.
(2)The altering of the minutes found on Ms Foreman’s computer in breach of the order of Judge Slattery with a view to enhancing their estoppel case;
(3)The abandonment of the first iteration of the estoppel case in December 2019 (which included the assertion that the defendant was only advised that the plaintiff was asserting a five year lease in March 2019. The documents demonstrated that this allegation was unsustainable and the estoppel defence based on such an allegation was also unsustainable;
(4) The abandonment of the estoppel defence during the course of the trial in February 2020.
In these circumstances, I consider on the evidence before me that the conduct of the defendant:
(1)Was, in relation to the altering of the minutes, made in knowing disregard of the orders of Judge Slattery and to advance its estoppel defence. I accept the submission of the plaintiff that this conduct could be equated with dishonesty;
(2)In relation to the estoppel plea as a whole caused loss of time to the Court and to the plaintiff;
(3)Caused loss of time to the Court and to the plaintiff by wrongly asserting at the commencement of the trial on 11 December 2019 that it had only received the documents on the previous day, when that was not the case;
(4)Ought never have made the allegation that it was not until March 2018 that the plaintiff advised the defendant that it was seeking a five year lease.
In these circumstances, I consider that the conduct of the defendant in relation to the estoppel defence falls within the categories of conduct discussed by Shepherd J in Colgate Palmolive v Cussons that justify the awarding of indemnity costs.
I therefore propose to order that the defendant pay the plaintiff its costs on an indemnity basis in relation to the estoppel defence. However, I do not propose to alter existing costs orders which were made previously in the matter. They were discrete orders made by a Judge or Master of this Court that took into account the circumstances of the particular application and the determination of that application.
I do not consider that an order for indemnity costs should be made in respect of the whole matter. Up until the first day of the aborted trial in December 2019, the matter had proceeded in a conventional way and there was no conduct of the defendant that justified the exercise of my discretion to award costs on an indemnity basis. As I stated previously, the issue of construction of the Retail and Commercial Leases Act was not straightforward and I accept that the defendant had reasonable prospects of success in relation to that issue.
In relation to the informal offer of settlement from the plaintiff’s solicitors (the Calderbank offer), the defendant, quite properly:
(1)Accepted that the form of the offer did not depart significantly from the requirements of a formal offer under the rules;
(2)Did not take any point in relation to the time for which the offer was open.
In opposition to the application for indemnity costs, the defendant submitted that the construction issue was highly arguable and therefore I should not, in the exercise of my discretion, make an award of indemnity costs.
I accept that the issue of construction was highly arguable, but disagree with the submission of the defendant that matter alone provides sufficient justification for the refusal of an order. The offer was made in terms similar to a formal offer under the rules, was clear and unequivocal and represented a genuine offer of settlement where the plaintiff offered a considerable discount of its claim, was open for a reasonable period of time and was made at a time when the parties were fully aware of the relevant issues and argument. In this regard, the offer was made after the aborted trial in December 2019 and after the summary judgment appeal heard by Doyle J.
The High Court in Atco[18] (referred to previously in these Reasons), held that usually to resist the order for indemnity costs in these circumstances, a respondent must show a reason for not accepting the offer beyond its prospects of being successful.
[18] Stewart v Atco Controls Pty Ltd (in Liq) (No 2) (2014) 311 ALR 351; [2014] HCA 31
The defendant has not shown any other reason for refusing the order and for the reasons that I set out above, I consider that after 13 January 2020 (when the time for the acceptance of the offer expired), in the exercise of my discretion, indemnity costs should be awarded to the plaintiff. Again that order is subject to any existing costs orders that have already been made.
Lump Sum Costs
I do not consider that the costs should be awarded on a lump sum basis.
I have had regard to the matters referred to in Cornwall v Rowan (No 4).[19] This was not protracted or complex litigation; the trial was completed in less than four days.
[19] [2006] SASC 111 at [12]
For this reason, I do not consider that the taxation of costs will be protracted. I anticipate that the taxation would be a usual, run of the mill taxation. The attitude of the defendant is not likely to cause the taxation to be prolonged.
There is no evidence that the defendant will not be able to meet the judgment debt and the ultimate costs order.
The orders that I have made in relation to indemnity costs on the issue of estoppel and subsequent to the expiry of the Calderbank offer on 13 January 2020 but that costs be otherwise calculated on a party and party basis makes a lump sum order more difficult.
Orders
I therefore propose to make the following orders:
(1)The defendant pay the costs of the plaintiff on and from 14 January 2020 on an indemnity basis, subject to any existing costs orders;
(2)The defendant pay the costs of the plaintiff of and incidental to its plea of estoppel as contained in paragraph [10] of the first and second defence and counterclaim on an indemnity basis, subject to any existing costs orders;
(3)Otherwise the defendant pay the costs of the plaintiff on a party and party basis;
(4)I decline the plaintiff’s application to award costs on a lump sum basis.