Redin v Dechellis Homes Pty Ltd (No 2) - [2020] SADC 78

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
REDIN v DECHELLIS HOMES PTY LTD & ORS (NO 2)
[2020] SADC 78
Decision of His Honour Judge Chivell
26 June 2020
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - INFORMAL OFFERS AND CALDERBANK LETTERS
Plaintiff’s claim against all defendants dismissed – defendants seeking costs on an indemnity basis – consideration of each offer to settle and the general principles applicable to the award of indemnity costs – party-party and indemnity costs awarded accordingly.
District Court Civil Rules 2006 (SA) r 187, r 188F, r 263, referred to.
Pastina Pty Ltd v Hosanna Excelsis One Universal Church Inc (No 2) [2020] SADC 64; Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2) (2014) 120 SASR 433; Morris v McEwen & Anor (2005) 92 SASR 281; McLean v DID Piling Pty Ltd & Ors (No 2) [2014] SASC 135, considered.

REDIN v DECHELLIS HOMES PTY LTD & ORS (NO 2)
[2020] SADC 78

The plaintiff’s claim against the three defendants was dismissed on 28 May 2020. My reasons for doing so are published at [2020] SADC 63.
The defendants have applied for orders that the plaintiff pay their costs on an indemnity basis.
The relevant legal principles were outlined by Burnett DCJ in Pastina Pty Ltd v Hosanna Excelsis One Universal Church Inc (No 2) as follows:[1]
[1] [2020] SADC 64, [48]-[57].
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.
The conduct of a party may justify an order for indemnity costs. Indemnity costs may also be awarded when one party conducts a case in such a way as to cause a loss of time.
In Colgate-Palmolive Co & Anor v Cussons Pty Ltd 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)….
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 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. 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.
It follows that, the bettering of a Calderbank offer does not give an automatic entitlement to solicitor in client costs.
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. 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.
In Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2), 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.
[Citations omitted]
With respect, I agree with and adopt those observations for the purposes of these proceedings.
The Application by the First Defendant
The plaintiff’s claim against the first defendant was dismissed because there was no evidence that the first defendant played any role in the events the subject of this action.[2]
[2] Reasons, [9].
The first defendant points to the following matters:
·its solicitors wrote to the plaintiff’s solicitors on 3 October 2018 pointing out that ‘(t)he First Defendant is the incorrect entity and no claim and/or remedy can be maintained or recovered from (it)’. The letter gave notice that the first defendant would claim indemnity costs if the action was pursued. No reply was received;
·the first defendant’s solicitors wrote to the plaintiff’s solicitors again on 11 February 2020. This time the payslips of Mr Milos Jurkovic were included to show he was an employee of the third defendant, not the first defendant. The first defendant again invited the plaintiff to discontinue provided it paid its costs of $2,000. This offer was not accepted either.
There were further negotiations between the parties later, which involved both the first and third defendants, but the plaintiff failed to deal with the separate offers made by the first defendant outlined above.
The plaintiff has been on notice since 3 October 2018 that the first defendant was the wrong party. The first defendant had given him all the information necessary to reach that conclusion. It warned the plaintiff that it would seek indemnity costs if it persisted.
I conclude that the first defendant should have its costs of the action on a party-party basis until 3 October 2018, and on an indemnity basis from that time on.
The Application by the Third Defendant
The third defendant denied that it had a duty of care to the plaintiff. I found that such a duty existed.[3] I found that there had been no breach of that duty by the third defendant.[4] The plaintiff’s claims against the third defendant in nuisance, trespass and pursuant to the Fences Act 1975 (SA) were dismissed.
[3] Reasons, [68].
[4] Reasons, [144].
On 7 June 2019, the solicitors for the first and third defendants wrote to the plaintiff’s solicitors offering to pay the plaintiff $19,000, which was the same amount that the plaintiff had previously sought from the second defendant. The plaintiff had previously sought $61,000 from the first and third defendants. The email stated:
My client is prepared to settle the claim on the basis that each defendant contribute equally to any settlement. I note that you are prepared to accept the sum of $19,000 from the Second Defendant. My client is prepared to offer the sum of $19,000.
The offer from the second defendant was to pay $19,000 plus 23.75% of the plaintiff’s costs on a party-party basis provided the first and third defendants paid $61,000 plus 76.25% of the plaintiff’s costs on the same basis. The offer from the first and third defendants was silent as to the question of costs. Ms Stanley, counsel for the first and third defendants, submitted that the court should infer that it was an offer to pay $19,000 plus 50% of the plaintiff’s costs. I do not accept that. There is also an inference that it was an offer to pay $19,000 plus 23.75% of the plaintiff’s costs. That is not a clear inference either.
The offer made by the first and third defendants was stated to remain open for 28 days. Ten days later, on 17 June 2019, the plaintiff rejected the offer, not because it was unclear as to costs, but because ‘we are instructed to communicate the rejection of your client’s offer to you as expeditiously as possible so that the retaining of the experts is not delayed whilst your offer still remained open for acceptance’.
It is not clear to me why the plaintiff’s solicitors were concerned that the first and third defendants’ offer would delay expert reports. The first and third defendants had made it clear that they did not propose to get any expert reports. They did not have an extension of time from the Master to do so. The second defendant did have such an extension.
Rule 187 of the District Court Civil Rules 2006, which applied at the time, defines a ‘formal offer’ to settle litigation. Ms Stanley conceded that the 7 June 2019 offer was not a ‘formal offer’ as defined. The first and third defendants are therefore not entitled to an order for indemnity costs (subject to the overriding discretion of the court) pursuant to DCR 188F.
However, the imprudent failure to accept an informal offer to settle can still lead to an order for indemnity costs. The passage from Essential Beauty[5] quoted by Burnett DCJ above makes that clear.
[5] Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2) [2014] SASC 141; (2014) 120 SASR 433.
In opposing an order for indemnity costs, Mr Harris QC, counsel for the plaintiff, made the following points:
·there should be some special or unusual feature about a particular case to justify an award for indemnity costs;
·one such feature might be a failure to better a Calderbank offer;
·Calderbank offers ought usually to conform with the timelines specified in the Rules, since that is what the court regards as a reasonable period, quoting White J in Morris v McEwen & Anor:[6]
Turning to the circumstances of the present appeal, it is apparent that there are a number of differences between the defendants’ offer on the one hand, and an offer lodged in accordance with Rule 40, on the other. The defendants’ offer was expressed to be open for 7 days only. Furthermore, the defendants stated expressly that their offer was the only offer of settlement which would be made and that it would not be repeated. For the reasons already given, this was not the kind of offer contemplated by Rules 40.01 and 40.02. It was submitted on the appeal for the defendants, that they had to limit the period during which the offer would remain open in order to limit the amount of costs for which they would be liable in the event of its acceptance. Absent such a limitation, it was said that it would have been open to the plaintiff to accept the offer at any time right up to, and even during, the trial. That would have meant that the plaintiff would have been entitled to payment of his costs to the time of acceptance. I do not accept that submission. Whilst the concern of the defendants to limit their potential liability for the costs of the plaintiff is understandable, it would have been open to them to specify in the letter of offer that they offered to pay the plaintiff the sum of $20,000 and, in addition, the plaintiff’s reasonable party and party costs incurred up to, say, a date 14 days after the date of the offer. An offer in those terms would have achieved for the defendants the protection which they sought. Being expressed to be open for a short time only, the offer did not achieve one of the aims of the régime established by Rule 40. It did not afford to the plaintiff a continuing opportunity to reflect on the adequacy of the offer in the light of further consideration of his prospects. The terms of the offer, together with the plaintiff’s rejection of it on 6 May 2003, created the circumstance that the plaintiff was then left with two options only: proceed to trial or abandon his claim altogether. That is not consistent with the “spirit and intent” of Rule 40.
[Citation omitted]
I do not take White J’s remarks as asserting that failure to comply with the Rules in a Calderbank letter will render it useless in an application for indemnity costs. Blue J in Essential Beauty made this clear. White J was merely pointing out the risks associated with non-compliance.
[6] [2005] SASC 284; (2005) 92 SASR 281, [76].
The more unreasonable the timeline is, the less likely it is that it will justify an order. That is illustrated by the facts in Morris, in that the offer in that case was only effectively open for two days. The fact that the defendant responded within one day did not make the offer reasonable.[7]
[7] See also Nicholson J in McLean v DID Piling Pty Ltd & Ors (No 2) [2014] SASC 135, [20]-[21].
In addition, the defendant in Morris, who was the party seeking indemnity costs, had not made full discovery so that the merits of the offer could be assessed. This was a strong additional reason to exercise the discretion against him.[8]
[8] See the remarks of Debelle J in Morris at [2].
The other point of distinction with the present case is that in Morris, the trial judge had awarded costs in favour of the plaintiff up to 14 days after the period allowed by the offer ran out, and then costs against the plaintiff thereafter on the basis that the plaintiff had succeeded in obtaining judgment for a sum below the amount offered in the Calderbank letter. That is a different situation from an application for indemnity costs.
Mr Harris QC pointed out that if the offer from the first and third defendants had been a formal offer pursuant to DCR 187, the silence as to costs would have been cured by the deeming provision in DCR 187(6)(b).
Be that as it may, I accept the submission of the plaintiff that the silence of the first and third defendants on the question of costs made it impossible for the plaintiff to assess the value of the offer. The Rules, and the relevant authorities, place no onus on the offeree to enquire about the details of the offer if they are uncertain. By parity of reasoning with Morris, where the failure of the defendant to disclose relevant material made it more difficult, if not impossible, to evaluate the offer, I conclude that the offer in this case should not be relied upon.
Ms Stanley submitted that the various delays, late disclosures and late evidence she identified justify an order for indemnity costs. Without descending into detail, I do not accept that submission. If the Calderbank offer had been more felicitously expressed, such difficulties might have been a factor which made an order for indemnity costs more appropriate. But of themselves, I do not accept that these issues are sufficient to justify an order for indemnity costs.
I order that the plaintiff should pay the third defendant’s costs of the action on a party-party basis, to be assessed if they cannot be agreed.
The Application by the Second Defendant
The contentions of the second defendant that the plaintiff had no cause of action because none of the trees constituting the hedge were on the plaintiff’s land, that even if there were, there was no duty of care owed by the second defendant to the plaintiff, and that there was no breach of any duty of care, were unsuccessful.
I held that the breach of duty of care by the second defendant consisted of one isolated incident, which caused no damage to the plaintiff. If that conclusion was incorrect, damages were assessed at $30,000, which would have been below the $60,000 cut-off point provided by DCR 263(2)(g), below which a successful plaintiff is not to be awarded costs.[9]
[9] See also UCR 194.5(11).
The second defendant refers to a Calderbank letter written to the plaintiff on 22 March 2018, at a very early stage of the proceedings, offering to ‘bear its own costs of and incidental to the proceedings incurred to date if your client discontinues the claim within seven days of the date of this letter’.[10]
[10] Exhibit MS5 to the affidavit of Matthew Selley deposed on 11 June 2020.
I accept the plaintiff’s submission that the rejection of such an offer would not justify an order for indemnity costs for the reasons expressed by Blue J in Essential Beauty at [63]:
If a plaintiff were to make an informal offer to a defendant to agree to judgment for the full amount of the plaintiff’s claim together with interest and party and party costs, the rejection of such an offer would be incapable of comprising a ground for making a special costs order because acceptance of the offer would involve a complete capitulation by the defendant. If it were so regarded, such informal offers would become universal, as would special costs orders. The same applies to an informal offer by a defendant to a plaintiff to judgment being entered dismissing the plaintiff’s claim with an order that the plaintiff pay the defendant’s party and party costs. For this reason, there is a considerable body of authority that, to form a ground for making a special costs order, an informal offer must involve genuine compromise by the party compared to its position on success at trial.
[Citation omitted]
I do not accept that, at that stage, the offer constituted a ‘genuine compromise’.
On 8 January 2020, the second defendant filed a formal offer pursuant to DCR 187(4) in which it offered:
·to pay the plaintiff $19,000;
·to pay 23.75% of the plaintiff’s costs;
·the offer to remain open until 17 January 2020 (nine days);
·other procedural steps to be taken.
On the same day, the second defendant’s solicitors sent a Calderbank letter in similar terms, and which made a number of assertions about the plaintiff’s claim, many of which were successful at trial.

The offers were rejected the next day, the plaintiff’s solicitors describing them as ‘hopelessly inadequate’. The second defendant’s solicitors responded to the plaintiff’s reasons for rejecting the offers, and their contentions were fully successful at trial. The plaintiff received clear notice of the deficiencies in his case, which were:
·on the evidence as it stood then, there was no evidence of breach of duty;[11]
·there was no evidence that the plaintiff’s hedge would survive the removal of trees on Mr Noushabadi’s side of the boundary;
·there was no evidence that the section of hedge that collapsed was on the plaintiff’s side of the boundary;
·the remainder of the hedge was removed on the plaintiff’s instructions;
·the hedge had been planted on land the subject of an easement;
·other similar contentions about the claims in trespass and the Fences Act, Mr Ross’ evidence on damages and the valuation by Mr Bruce.
[11] Perhaps ironically, that evidence was supplied by Mr Robert Young, the second defendant’s employee, who was called by the second defendant at trial.
Mr Harris QC submitted that because the offer was open for nine days rather than 14, it was invalid. He pointed to DCR 187(6)(c). That rule provides:
(6) A formal offer—
…
(c)may be expressed to lapse after the expiration of a stipulated time, being not less than 14 days after service of the offer, but if silent will be taken to remain open until it lapses or is withdrawn in accordance with rule 188;
…
The rule does not require a formal offer to be limited in time. If it is not so limited, DCR 187(6)(c) applies. An offer that is limited to nine days does not qualify as a formal offer under the Rules.
As I have mentioned, there was also a Calderbank letter containing an offer in the same terms.[12] This offer was not invalidated by the technical defect in the formal offer.
[12] Exhibit MS8 to the affidavit of Matthew Selley deposed on 11 June 2020.
I agree with Mr Harris QC’s argument that the almost immediate rejection of the Calderbank offer by his client did not render the length of the limiting period a non-issue. It is, however, relevant to the question of the reasonableness of the offer. It is, as Mr Harris conceded, ‘one of the factors’.[13]
[13] T 23.
In my view, having regard to the state of the evidence at that time, it was extremely imprudent of the plaintiff to reject the second defendant’s Calderbank offer in such a peremptory way. The second defendant’s solicitors made a genuine attempt to point out some of the deficiencies in the plaintiff’s case, using even and non‑confrontational language. When they received the brusque refusal, the solicitors for the second defendant made a further attempt to explain their client’s position.[14] They received no reply.
[14] Exhibit MS10 to the affidavit of Matthew Selley deposed on 11 June 2020.
The time specified for acceptance in the second defendant’s Calderbank offer, having regard to the imminence of the trial, was not unreasonable. It clearly was a non-issue to the plaintiff at the time. I fail to see why it should constitute an important issue now.
As to the second defendant’s submission about the various delays, late disclosures and late evidence, although it is not necessary to do so in light of the above reasons, I add that had it been necessary to consider them, I would have regarded them as another factor which would have made an order for indemnity costs appropriate.
In all the circumstances, I consider it appropriate to order that the plaintiff pay the second defendant’s costs on a party-party basis to 17 January 2020 and on an indemnity basis thereafter.
Orders
1.The plaintiff to pay the first defendant’s costs of the action on a party-party basis until 3 October 2018, and on an indemnity basis thereafter, to be assessed if not agreed.
2.The plaintiff to pay the third defendant’s costs of the action on a party-party basis, to be assessed if not agreed.
3.The plaintiff to pay the second defendant’s costs of the action on a party-party basis to 17 January 2020, and on an indemnity basis thereafter, to be assessed if not agreed.
These orders were made administratively in chambers. The attention of the parties is drawn to DCR 226(3), which provides that a judgment or order takes effect when notice thereof is served on the parties.