Smith v Shilkin (No 3)

[2020] NSWSC 787

Supreme Court

New South Wales

Medium Neutral Citation:

Smith v Shilkin (No 3) [2020] NSWSC 787

Hearing dates:

In Chambers and on the papers

Date of orders:

23 June 2020

Decision date:

23 June 2020

Jurisdiction:

Equity

Before:

Hallen J

Decision:

The Court:

(1) Orders that the Plaintiffs are to pay 75 per cent of the Defendants’ costs of the 2017 proceedings.

(2) Orders that the Defendants are to pay the Plaintiffs’ costs of all of the interlocutory hearings in respect of the 2018 proceedings.

Catchwords:

COSTS – Two proceedings involving the same parties in which various interlocutory hearings conducted – Determination of the costs of the interlocutory hearings in each proceeding – Apportionment of costs in respect of the interlocutory proceedings in the 2017 proceedings – No apportionment of costs in respect of the interlocutory proceedings in the 2018 proceedings – Whether costs should be calculated on the indemnity basis and should be payable forthwith

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 56, 98

Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 42.1, 42.7, 42.13, 42.15A, 42.20, 42.32

Cases Cited:

Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194

Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65

Blendell v Byrne; The Estate of Noeline Joan Blendell (No 2) [2019] NSWSC 798

Brasington v Overton Investments Pty Ltd [2001] FCA 571

Bullabidgee Pty Ltd v McCleary (No 2) [2011] NSWCA 343

Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398

Evans Shire Council v Richardson (No 2) [2006] NSWCA 61

Evans v Braddock (No 2) [2015] NSWSC 518

Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432

Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCAFC 97; [2002] FCA 424

Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298

Helou v M & J Enterprises (No 2) [2016] NSWSC 1609

Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375

Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84; [2010] FCAFC 5

In the matter of Cheal Industries Pty Ltd - Fitzpatrick v Cheal [2012] NSWSC 932

In the matter of Hillsea Pty Limited [2019] NSWSC 1309

Kazal v Independent Commission Against Corruption (No 2) [2020] NSWSC 17

Kazar (Liquidator) v Kargarian; In the Matter of Frontier Architects Pty Ltd (In Liq) (2011) 197 FCR 113; [2011] FCAFC 136

Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391

Leichhardt Municipal Council v Green [2004] NSWCA 341

Liverpool City Council v Estephan Estephan (Executor and Administrator of the Estate of the late Jocelyn Estephan) [2009] NSWCA 161

Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481; [2008] VSCA 212

Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd (2019) 133 SASR 408; [2019] SASC 39

Meres v Meres (No 2) [2017] NSWSC 523

Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344

NRMA Insurance for Nominal Defendant v Al-Bayati (No 2) [2019] NSWCA 14

Ohn v Walton (1995) 36 NSWLR 77

Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11

Pavlovic v Universal Music Australia Pty Ltd (No 2) [2016] NSWCA 31

Rakovich v Marszalek [2020] NSWSC 589

Ruddock v Vadarlis (No 2) (2001) 115 FCR 229; [2001] FCA 1865

Sahab Holdings Pty Limited v Registrar-General (No 3) [2010] NSWSC 403

Smith v Shilkin [2018] NSWSC 1582

Smith v Shilkin (No 2) [2019] NSWSC 969

The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706; [2006] NSWCA 120

Truenergy Pty Ltd v Dispute Resolution Panel (No 2) [2009] VSC 612

Category:

Costs

Parties:

Alexander Noel Smith (First Plaintiff)
Adam Poche (Second Plaintiff)
Melissa Poche (Third Plaintiff)
Aidan Conrecode (Fourth Plaintiff)
Catherine Walsh (Fifth Plaintiff)
Steven Andrew Shilkin (First Defendant)
Ashley Shilkin (Second Defendant)

Representation:

Counsel:
C E Bannan (Plaintiffs)
R W Douglas (Defendants)

Solicitors:
Horton Rhodes (Plaintiffs)
Katja J Levy (Defendants)

File Number(s):

2018/71614; 2017/119572

Judgment

Introduction

1. HIS HONOUR: Following a hearing over two days on 11 and 12 June 2019, I delivered the second judgment involving these parties on 1 August 2019, which bears the medium neutral citation Smith v Shilkin (No 2) [2019] NSWSC 969 (the Judgment). Following the Judgment, the parties provided a form of orders upon which agreement, ultimately, was reached. On 23 August 2019, the Court made orders disposing of the issues (principally relating to service) that had been agitated, other than in respect of the costs of the proceedings.

2. Relevantly, I also made directions for the filing and service of any evidence sought to be relied upon on the costs issue and for submissions to be filed and served. I ordered that the argument as to costs be listed for hearing before me on 16 April 2020, having been informed that the hearing would take one day. The balance of the proceedings (other than the costs issue) was stood over to 14 October 2019 before the Registrar in Equity.

3. This judgment concerns the costs of a number of notices of motion that have been heard, not only by me, but also by Slattery J and by Rein J. Slattery J ordered that the costs of the applications before him, as well as the costs of the 2017 proceedings (discussed further below), be reserved for determination as part of the costs of the principal interlocutory claims.

4. His Honour’s order was in the following terms:

“Costs of the Shilkins’ July 2018 motion and of today’s application are reserved for determination by the trial judge after the hearing of the 2018 proceedings (together with the determination of all issues of the costs of the 2017 proceedings before they were stayed today).”

5. Although on one view his Honour’s order reserved the issue of costs for determination before the trial judge at the conclusion of the hearing of the substantive proceedings, the parties have proceeded on the basis that the costs issue should be determined as part of these reasons.

6. Rein J, when making his orders, reserved the costs of the matter before him.

7. I am satisfied that it is appropriate to deal with the costs of the interlocutory applications in the 2017 and in the 2018 proceedings. Neither party suggested that it was not appropriate for me to deal with the issue of costs of all of the interlocutory hearings to the extent that they have not already been dealt with. What would not be appropriate, in this case, is for the costs of the interlocutory proceedings to simply be reserved, until orders are made in the substantive proceedings, as they might simply be forgotten. The interlocutory hearings involved a separate and completed phase of the substantive proceedings. The 2017 proceedings have been stayed and, as I understand it the 2018 proceedings are continuing.

8. Sensibly, and pragmatically, in view of the recent events involving the COVID-19 pandemic, the parties’ legal representatives agreed with the suggestion that this Court should now determine the issue of costs on the papers.

9. The amount of judicial time that has already been spent on the interlocutory proceedings, including hearings before Slattery J (on 19 October 2018), Rein J (on 26 September 2018) and me, and the time that has passed since proceedings were first commenced in 2017, has been increased by the evidence sought to be referred to and also the submissions on costs. A further affidavit was filed on behalf of the Defendants and an electronic Court Book, comprising over 1200 pages was also provided to my Chambers. The Plaintiffs’ written submissions in chief on the costs issue were 8 pages long comprising 28 paragraphs. The Defendants’ written submissions in chief were 15 pages long, comprising 118 paragraphs. The Plaintiffs’ written submissions in reply were 5 pages long, comprising 27 paragraphs. The Defendants’ written submissions in reply were 8 pages long, and comprised 51 paragraphs.

10. I have carefully read the submissions and even though I do not propose to refer to them in detail, I have borne them in mind when dealing with the costs consequences. As to the further material, I have read it but am of the view that, for the most part, it is of little assistance in the determination of the costs issue.

11. In my view, the Defendants’ legal representatives have sought to re-agitate many of the matters dealt with in the Judgment, with a view, presumably, to providing a justification for the conduct of the Defendants (and themselves) in the conduct of the proceedings referred to in the Judgment.

12. Whilst the parties and, if necessary, the Court of Appeal, should be able to understand why the trial judge has reached a particular outcome on the question of costs from the reasons for judgment, the adequacy of the reasons must be assessed in the context of the sometimes competing need to enable and encourage the efficient disposition of interlocutory disputes (of which the proceedings to date have only involved).

13. In Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481 at 484 [12]; [2008] VSCA 212, Maxwell P and Kellam JA wrote, at [12]:

“In the ordinary case, it is both appropriate and desirable that a costs question be decided at the conclusion of argument. Rarely will it be necessary for a judge to give detailed reasons for decision adverting to every matter debated in argument. This Court will assume, as should the parties, that every matter addressed in argument on costs has been considered. This Court will set its face against any proposition which would require judges disposing of questions of costs to give elaborate reasons.”

14. Doyle J in Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd (2019) 133 SASR 408 at 418–419 [54]; [2019] SASC 39 at [54] wrote:

“In the case of interlocutory disputes, little by way of reasoning may be required. Certainly reasoning that is brief and to the point is to be encouraged. That is particularly so in relation to issues of costs. In an interlocutory context, as long as the key planks in the judge’s reasoning process leading to the relevant decision are apparent, that will generally suffice. And in the case of relatively simple interlocutory disputes, little more than the judge’s conclusion on the key issue or issues leading to the outcome may be required. It will not generally be necessary to refer to each and every aspect or nuance of the submissions put by the parties. Nor will it be necessary to refer to every factor that was relevant to the exercise of an interlocutory discretion. While it is important that the parties (and in particular the losing party) and the appellate court understand why the judge has reached a particular outcome, the adequacy of the reasons must be assessed in the context of the sometimes competing need to enable and encourage the efficient disposition of interlocutory disputes.” (citations omitted)

The Judgment

15. These reasons assume familiarity with, and use the terms defined in, the Judgment. However, it is necessary to set out the context of the proceedings.

16. At the commencement of the Judgment, I noted that the proceedings involving the Plaintiffs and at least the first Defendant, had commenced in April 2017 (the 2017 proceedings); that those proceedings had been amended, in November 2017, adding, amongst other things, the second Defendant; that a copy of the Statement of Claim, and the amended Statement of Claim, was in the possession of at least the Defendants’ legal adviser, and each of the Defendants, in December 2017; and that fresh proceedings were commenced in March 2018 (the 2018 proceedings), the Statement of Claim in respect of which was in the possession of the Defendants’ legal representative and both of the Defendants, shortly thereafter: Judgment at [6].

17. In the Judgment, I also pointed out that, despite over one year having passed since the 2018 proceedings were commenced, no defence had been filed, by either Defendant, to the Statement of Claim in the 2018 proceedings and that despite it having been accepted that “delivery” of that Statement of Claim had been properly effected upon each of the Defendants, in late October 2018, the Defendants had continued to argue about service of the initiating process: Judgment at [7].

18. I added at [8]–[9]:

“… there have been no less than four different occasions that the Court has had to deal with one, or other, aspect of the proceedings, extensively, without, it seems, the proceedings being able to be progressed in any meaningful way. On each such occasion, a significant amount of time has had to be spent, by the Court, dealing with the multitude of repeated issues that the parties’ legal representatives, have raised.

In the submissions, each party, at least in part, attributes the blame for the events that have occurred upon the other party. In my view, having considered all of the evidence that has been read in these proceedings, each of the parties, and their legal representatives, bear some of the responsibility for what has occurred and neither can escape censure.”

19. Unsurprisingly, in each proceeding, each of the parties now claims costs against the opposing parties.

20. I have, previously, set out in some detail the way in which the matters proceeded. I have, naturally, re-read, and again considered the “Procedural Events and Chronology”, “The application before Rein J” and “The application before Slattery J” set out at [24]–[135] of the Judgment in reaching my conclusion on the issue of costs.

21. At [136]–[140] of the Judgment, I set out the issues that I had to determine and at [233]–[267], I set out the conclusions reached. These matters and others in the Judgment, together with some additional matters set out below, determine how the burden of the costs is to be borne.

22. It is necessary to consider the costs of the 2017 proceedings separately from the costs of the 2018 proceedings because the consequences are different.

23. At [62] of the Judgment, I noted in relation to the 2018 proceedings that:

“On 5 April 2018, the Plaintiffs’ solicitor sent an email to the Defendants’ solicitor stating:

‘The plaintiffs agree that the 2018 proceeding should be stayed pending determination of the parties’ respective notices of motion in the 2017 proceeding.’”

24. I then referred to the events that had occurred before me when the matter was first listed for hearing on 26 April 2018, noting that the Plaintiffs had appreciated that they could not continue with the 2017 proceedings and the 2018 proceedings concurrently.

25. Subsequently, in October 2018, Slattery J was required to deal with the continuation of the 2017 proceedings, which his Honour did in reasons for judgment that bear the medium neutral citation Smith v Shilkin [2018] NSWSC 1582. I set out the relevant passages of his Honour’s reasons at [129]–[135] of the Judgment.

The Submissions in respect of the 2017 proceedings

26. The Plaintiffs sought the following order for their costs of the 2017 proceedings:

“The defendants pay the plaintiffs’ costs of and incidental to the proceedings up to, and including, 19 October 2018 on an indemnity basis, such costs to be payable forthwith.”

27. Counsel for the Plaintiffs, only briefly, addressed the costs of the 2017 proceedings. He submitted that a similar order should be made in respect of the 2017 proceedings as that which he submitted should be made in the 2018 proceedings. He wrote at par 26 of his submissions:

“In the plaintiffs’ submission, it is also appropriate to make a similar order in respect of the 2017 Proceedings. As with the 2018 Proceedings, the sole issue that has arisen in those proceedings is whether the defendants had been validly served. As with the 2018 Proceedings, the Court found that the defendants were well aware of the proceedings and had a copy of the amended statement of claim but they chose nevertheless, repeatedly, to require the plaintiffs to attempt to effect service in any event despite the fact that the purpose of service had been fulfilled. It follows that the same costs order should be made in respect of the 2017 Proceedings (see paragraph 22 above).”

28. Relevantly, par 22 provided:

“In the present case, the failure to serve the defendants is not in any way the fault of the plaintiffs. As noted in paragraph 14(b) above, the Court found that the only fault lies with their legal representatives (and that fault was the result of inadvertent mistakes rather than deliberate obfuscation), and that that fault should not be attributed to the plaintiffs.”

29. Counsel for the Plaintiffs also submitted, albeit in reply, at par 7:

“As the Court has observed, the one thing that the defendants maintained as a mantra from the beginning of Ms Levy's involvement in the case was that she did not have instructions to accept service (11-12 June 2019 Transcript (T): T27.15-17). The defendants took ‘every single point possible to defeat the service of the documents’ (T68.24-25). That is a form of litigation misconduct (Morris v McConaghy Australia Pty Ltd (No 5) [2018] FCA 1582 at [5]) which justifies the ordering of costs on an indemnity basis payable forthwith in both proceedings.”

30. The Defendants sought their costs of the 2017 proceedings, much like the Plaintiffs, on the indemnity basis:

“In those circumstances, the defendants should have their costs of and incidental to:

(a)   the First Proceedings:

(i)   on an indemnity basis until the date of the Calderbank letter (4 March 2018) by reason that resisting the application was evidently unmeritorious and took place where the plaintiffs declined to address the merits of the issue until they conceded that service was ineffective, alternatively on a party-party basis being, in substance and in effect, a plaintiff discontinuance;

(ii)   on an indemnity basis from the date of the Calderbank letter (4 March 2018), being thereafter a perpetuation of a proceedings in which the plaintiffs failed to achieve a better result than provided in the Calderbank letter, where the proceedings was not compromised, but the plaintiffs simply abandoned it; and

(iii)   on an indemnity basis from the date of the filing of the Second Proceedings (5 March 2018), by reason that the first proceedings was thereafter an abuse of process …”

31. Counsel for the Defendants submitted that there were eight reasons why the Defendants ought to be entitled to those costs on the indemnity basis: Defendants’ Submissions in Support of Costs at pars 78–98. In short compass, they are as follows:

1. The Defendants had prevailed in the 2017 Proceedings through obtaining a permanent stay of the proceedings and therefore costs ought to follow the event. Counsel for the Defendants submitted that the Defendants had legitimate objectives in bringing their application.

2. The Defendants had made an early offer to resolve the proceedings.

3. The multitude of hearing dates, submissions and affidavits could not be attributed to the Defendants. It was said that the Defendants always stood ready to argue the matter. Any failure by the parties to resolve the matter, it was submitted, was the fault of the Plaintiffs.

4. The Defendants’ application in the 2017 proceedings made a “compelling prima facie case in fact and law”. This, it was said, was implicitly accepted by the Plaintiffs by virtue of their acquiescence to the permanent stay of the proceedings. Further, counsel for the Defendants relied heavily on:

“… the fact that the plaintiffs admitted that the UCPR 12.11 applicants had not been served means that there was, and is, no dispute on this point. That point should have been promptly and properly conceded, which would have meant the issue would only be consequences of the plaintiffs’ misdisclosure on ex parte application.” (emphasis in original)

5. In a submission that picked up the final sentence of the passage quoted above, it was submitted that the Plaintiffs had “misdisclosed” on the ex parte application on 19 October 2017. This was submitted to be a “powerful factor in support of indemnity costs”.

5. The Plaintiffs had failed to comply with the relevant provisions of the Civil Procedure Act. This arose, it was submitted, from the Plaintiffs resisting the Defendants’ “meritorious application”.

6. Counsel for the Defendants attempted to counter allegations levied against the Defendants and their conduct in the proceedings. He rejected any suggestion that the Defendants’ conduct was the “wasteful and reprehensible playing of an impermissible game”. He submitted instead that the Defendants’ solicitor was justified in taking the course that she did. In particular, he submitted at pars 91–92:

“The UCPR 12.11 applicants were put in their circumstance by the specific threats of the plaintiffs. So far as freezing orders are concerned, the threats were both serious and evidently groundless (since the only represented UCPR 12.11 applicant was an unserved non-party, and no such application was made in the 2 years thereafter). It would be an unwise (and dangerous) move for a solicitor to file an appearance to an unserved and out-of-time originating process, at least without having explained the suspected (but unknown) risks to a potential (and here actual) non-party.

The reasonable attempts of Mr A Shilkin’s solicitor to solve the problem by offering to accept service on condition that he was provided with the Court filings to date (which would expose the absence of leave to amend) was rejected for no sound reason. The refusal of an entirely proper request for a copy of the originating process, the current pleading and the application to extend and amend the originating process, premised on a groundless challenge to retainer was likely to elicit suspicion. In the end, the suspicions proved justified.”

8. The 2017 proceedings were stayed as an abuse of process. The Plaintiffs, so it was submitted, held the ability to elect which of the 2017 or 2018 proceedings would be continued. It was submitted that their “last minute shift” to the 2018 proceedings weighed against any costs order being made in their favour.

32. In conclusion, counsel for the Defendants submitted:

“Consequently, the UCPR 12.11 applicants’ motion (and their response to the plaintiffs’ counter-motion) was reasonable in its instigation, reasonable in its conduct and, ultimately, entirely justified.

It is not the case that compliance with CPA 55 to 60, properly construed, require supine acquiescence in any ill-founded assertion that a plaintiff advances, including an acknowledged abuse of process, for fear that a properly grounded (and ultimately successful) resistance to a meritless claim will be ultimately sanctioned by an indemnity costs order against the successful resister.”

33. As referred to above, counsel for the Defendants submitted that the Defendants had made an early offer to resolve the proceedings. He stated at par 80:

“Second, the UCPR 12.11 applicants made an early offer to resolve the dispute, on more favourable terms than those ultimately accomplished by the plaintiffs (being a permanent stay) compliant with the procedure under the UCPR for settlement offers, and with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 (EWCA). No explanation for the refusal to accept that offer at the time (or at all) has ever been forthcoming. In the circumstances then existing, and as they were disclosed subsequently, the refusal of that offer was unreasonable and, for that reason, the UCPR 12.11 applicants should have their costs on an indemnity basis since at least 4 March 2018.”

34. The offer to which counsel for the Defendants referred was annexed to an Affidavit of Katja Jane Levy, solicitor for the Defendants, sworn 3 March 2020. She stated:

“Annexed hereto and marked “A” is a copy of a letter I caused to be sent to the plaintiffs’ solicitors on or about 4 March 2018, which letter was sent in accordance with UCPR2 0.25 – 20.30 [sic] and Rules 42.13 – 42.17, and further in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 (EWCA). I have not received any substantive response to this letter.”

35. It was submitted that the offer was an offer of compromise made in accordance with the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) for the making of formal offers of compromise. At par 49, counsel submitted:

“On 4 March 2018, plaintiffs were 20 days late, having given no substantive response to the UCPR 12.11 applicants’ objections (for more than 90 days). The UCPR 12.11 applicants made an offer to settle the countermotions pursuant to UCPR 20 and 42, and in accordance with Calderbank v Calderbank [1975] 3 All ER 333 (EWCA).”

36. As already noted, he submitted that the offer was “… compliant with the procedure under the UCPR for settlement offers …”.

37. It was expressed to be a Calderbank offer in the alternative. At pars 3–4, the offer provided:

“This offer is made in accordance with the UCPR. In particular, the Applicants refer to Rules 20.25 – 20.30 and Rules 42.13 – 42.17.

In the event that the Offer of Compromise is found not to be valid under the UCPR, the Applicants will on the question of costs rely on this offer in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 (EWCA).”

38. Counsel for the Plaintiffs responded as follows:

1. The ‘offer’ was in respect of the 2017 Proceedings and was made on 4 March 2018, the day before the 2018 Proceedings were filed and following protracted correspondence as to whether service was technically valid. The ‘offer’ (Annexure A Levy 03.03.20) was that:

   a.   the plaintiffs accept that the amended statement of claim was not valid (paragraph 1(a));

   b.   the plaintiffs accept that the Court had no jurisdiction over Ashley Shilkin (paragraph 1(b));

   c.   the amended statement of claim be rejected for filing (paragraph 2);

   d.   a declaration that service had not been validly effected (paragraph 3);

   e.   a declaration that the time for service had expired, and not subsequently extended (paragraph 4) – this was despite the order of 26 October 2017 extending time; and

   f.   the defendants be relieved of any obligation to file any document (such as, perhaps most obviously, a defence to the statement of claim) (paragraph 5).

2. In other words, there was no element of compromise whatsoever (cf the plaintiffs’ offer discussed at paragraph 16(g) of the submissions in chief). As acknowledged by the defendants ([52] defendants’ submissions), the ‘offer’ did not even contemplate that each party would bear its own costs. It simply invited the plaintiffs to capitulate completely on the technical arguments as to why service was invalid, and why those defects could not be cured.

3. Self-evidently, the ‘offer’ does not assist the defendants. The debate about costs should never have been deferred on the basis of this letter. The further costs thereby occasioned – with an exchange of submissions in chief and in reply, preparation of further affidavits and the compilation of a 1,200 page bundle – are, perhaps being conservative, regrettable.” (emphasis in original)

   39. Counsel for the Plaintiffs also made some additional submissions in reply, including:

   1. The Defendants had not “prevailed” in the 2017 proceedings. Counsel for the Plaintiffs submitted that the 2017 proceedings were in fact stayed at the request of the Plaintiffs and that the Plaintiffs’ intention in this regard had been repeatedly communicated.

   2. Nothing prevented an order for costs being made against an application pursuant to UCPR r 12.11.

   40. Counsel for the Defendants also provided reply submissions. At par 13, he submitted:

“In the First Proceedings, the originating process was not timely served (and the purported defendants maintained that many of the causes of action were statute expired before, and following, the filing of the (actual) originating process). The objection to a stale writ as invalid is not an exercise in impermissible gamesmanship – it is merely insisting on compliance with a rule that is designed to ensure that a plaintiff must act with reasonable dispatch or forfeit his claim. To award an indemnity costs order for properly raising such an objection would be to eviscerate UCPR 6.2 and, thereby, the Limitations Act. There is no warrant for that course (were it even possible).”

The Submissions in respect of the 2018 proceedings

41. The Plaintiffs sought the following orders as to the costs of the 2018 proceedings (bearing in mind that the 2018 proceedings are still continuing):

“The defendants pay the plaintiffs’ costs of and incidental to the defendants’ amended notice of motion filed 14 November 2018 on an indemnity basis, such costs to be payable forthwith.

The defendants pay the plaintiffs’ costs of and incidental to the plaintiffs’ notice of motion filed 23 October 2018 on an indemnity basis, such costs to be payable forthwith.

The defendants otherwise pay the plaintiffs’ costs of and incidental to the proceedings up to, and including, 1 August 2019 on an indemnity basis, such costs to be payable forthwith.”

42. On the issue of the costs of the 2018 proceedings, the Plaintiffs’ argument was effectively in two stages. First, counsel submitted that the Plaintiffs had been successful on the issues the subject of the Judgment. He submitted that, in view of the Plaintiffs’ success, costs ought to follow the event.

43. Secondly, it was submitted that aspects of the Defendants’ conduct in respect of the 2018 proceedings justified the awarding of the Plaintiffs’ costs on the indemnity basis. (It is not necessary to set out the particular conduct that counsel referred to as, for the most part, I have already addressed such matters in the Judgment.)

44. Counsel for the Plaintiffs concluded:

“In the present case, the failure to serve the defendants is not in any way the fault of the plaintiffs. As noted in paragraph 14(b) above, the Court found that the only fault lies with their legal representatives (and that fault was the result of inadvertent mistakes rather than deliberate obfuscation), and that that fault should not be attributed to the plaintiffs.

More importantly, there is no doubt that the defendants in the present case (as in Morris) were well aware of the proceedings and had a copy of the pleading, but chose to require the defendants to re-serve the pleading repeatedly. Given that the purpose of service of bringing the proceedings to the attention of the defendant had been fulfilled, this amounts to playing technical games: see Abela v Baadarani [2013] 1 WLR 2043; [2013] UKSC 44 at [25] and [38] (which is extracted in the Judgment at [197]).

Further, and at the risk of repetition, the plaintiffs in this case have been successful in their quest for the Court to declare that service has been validly accepted and the defendants’ various challenges to service were all unsuccessful.

In the plaintiffs’ submission, that is plainly sufficient to support an order in respect of both the parties’ competing motions in relation to service and the 2018 Proceedings generally (on the basis that, regrettably, the entire content of the 2018 Proceedings to date has concerned the question of whether the defendants have been validly served).”

45. The Defendants sought, in respect of the 2018 proceedings:

“In those circumstances, the defendants should have their costs of and incidental to:

…

(b)   the Second Proceedings:

(i)   up until the date upon which they elected to prosecute only the Second Proceedings on 19 October 2018 (as was then ordered by Slattery J), on an indemnity basis, by reason that it was to that date an abuse of process; and

(ii)   including the costs of their application to stay the Second Proceedings as an abuse of process, by reason that the Second Proceedings was an abuse of process whilst the First Proceedings was outstanding (since the proceedings made overlapping allegations, as Slattery J held) and the defendants in the Second Proceedings could not know which proceedings the plaintiffs would finally elect for until they did so (but the evidence supported the position that the plaintiffs were prosecuting only the First Proceedings until the Election Date) …”

46. Counsel for the Defendants relied heavily on the fact that, for a period of time, both the 2017 and the 2018 proceedings were on foot. During that time, so he submitted, the 2018 proceedings could be seen as an abuse of process as the Plaintiffs were claiming “duplicative relief” to the 2017 proceedings. He continued:

“That position was not clearly altered until the day of the hearing of the (then) UCPR 12.11 applicant’s motion to stay the Second Proceedings as an abuse of process: 19 October 2018 (the Election Date). It was only then that the plaintiffs unequivocally and definitively elected in favour of the Second Proceedings (and thereby acquiesced in the permanent stay of the First Proceedings for abuse of process).

Only at the hearing of Defendants’ application for stay for abuse, did the plaintiffs consent to the stay of the First Proceedings as an abuse of process (which removed the abuse, since 1 of the 2 duplicative proceedings was stayed).”

47. However, in the Defendants’ submissions in reply, counsel for the Defendants appeared to retreat from part of his submission. He seemed to concede that the Plaintiffs were successful in resisting the Defendants’ application to set aside the orders made by Rein J. He submitted at pars 43–44:

“However, the result in favour of the plaintiffs would ordinarily entitle the plaintiffs to the ordinary cost of the application, by reason that they prevailed upon it. Defendants accept that and did so in open Court.

This dispute is not about plaintiffs’ costs of the application on the ordinary basis: this dispute is about whether plaintiffs may claim the costs of drawing their statement of claim and all their costs prior to 1 August 2019 (that is, long before the defendants were served and for a year afterwards, including a substantially amended further statement of claim). It is about whether all those costs may be claimed on an indemnity basis.” (emphasis in original)

48. He submitted, further, at pars 45–46:

“Defendants submit that there was nothing in the fact of revisitation of an ex parte order, the raising of a recognised ground of prejudice, or the observation that there was no explanation of the delay (ex parte or inter partes) to set against the prejudice, which warranted a special costs order, especially covering the whole conduct of the litigation for some 2 years.

Further, there is nothing in that application to revisit the ex parte order which would justify imposing any costs on the defendant other than the costs of and incidental to that application to revisit.”

Determination

49. There was not, and could not really be, any dispute about the relevant principles that apply in the determination of the costs of the interlocutory proceedings.

50. The relevant principles relating to the determination of costs are well-known. One starts in any determination of costs with s 98(1) of the Civil Procedure Act2005 (NSW), which provides that subject to the rules of court and to that, or any other Act, costs are in the discretion of the court, and the court has full power to determine by whom, to whom, and to what extent, costs are to be paid. The discretion must be exercised judicially and with regard to the overriding statutory mandate in respect of the conduct of litigation in this Court (see s 56 of the Civil Procedure Act) for the just, quick and cheap resolution of the real issues in dispute.

51. The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWLR 77 at 79 (Gleeson CJ).

52. UCPR r 42.1 provides that costs should follow the event unless it appears to the court that some other order should be made as to the whole, or any part of the costs.

53. UCPR r 42.7 provides:

(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including—

(a) costs that are reserved, and

(b) costs in respect of any such application or step in respect of which no order as to costs is made,

are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.

(2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings.

54. Unless the Court otherwise orders, pursuant to UCPR r 42.7(2), the costs of the 2018 proceedings will not be payable forthwith. They will, as contemplated by the rule, not become payable until the conclusion of the proceedings. In other words, the enforceability of the costs of interlocutory proceedings is, unless the Court otherwise orders, postponed until the conclusion of the proceedings: Helou v M & J Enterprises (No 2) [2016] NSWSC 1609 at [5] (Campbell J).

55. Ultimately, “costs in interlocutory proceedings, like costs in the main proceedings, lie in the exercise of discretion of the Court, which discretion must be exercised judicially”: Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 199 (Hill J).

56. The circumstances in which a court will order that costs be payable forthwith are referred to in the decision of Barrett J (as his Honour then was) in Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432.

57. In Pavlovic v Universal Music Australia Pty Ltd (No 2) [2016] NSWCA 31, the unanimous Court of Appeal summarised Barrett J’s decision, and others, at [15]–[18]:

“In Fiduciary Ltd v Morningstar Research Pty [Ltd] Barrett J identified three factors relevant to the determination of whether such an order should be made, namely:

(1) That the interlocutory decision represents ‘the determination of a separately identifiable matter or may be viewed as the completion of a discrete aspect’ of the case (at [11]);

(2) That some conduct of the unsuccessful party may be seen as being unreasonable (at [12]); and

(3) That there is still some considerable distance to go in the litigation so that it may be appropriate that the successful party obtain the fruits of its costs order now (at [13]): see also Solarus Projects v Vero Insurance (No 4) [2013] NSWSC 1012 at [4]; Francis v CPI Graphics Ltd [2011] NSWSC 317 at [22]; ASIC v Rich [2003] NSWSC 297 at [86].

UCPR, r 42.7(2) confers a general discretion on the Court to make ‘some other order’ than the rule otherwise prescribes. As is the case with any judicial discretion where no criteria for its exercise are specified in the conferring legislation, its proper exercise depends upon a consideration of all the circumstances of the case having regard to the interests of justice. It is uncontroversial that such discretions are to be ‘exercised judicially, according to rules of reason and justice, and not arbitrarily or capriciously or according to private opinion’: House v The King [1936] HCA 40; 55 CLR 499 at 503; see also King v Commercial Bank of Australia Ltd [1920] HCA 62; 28 CLR 289 at 292-293; Lucas v Yorke (1983) 50 ALR 228 at 229; Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [22]. Olney J adverted to this in Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd [1992] FCA 291; (1992) 36 FCR 297 at 312, a decision on the Federal Court Rules 1979 (Cth), O62, r 3(3), which was in similar terms to UCPR, r 42.7:

‘The rule does not suggest any particular criteria by which the court should be guided in approaching such an application, and accordingly I take the view that the discretion should be exercised in favour of a party who establishes that the demands of justice require that there be a departure from what appears to be the general practice envisaged by the rule, namely, that an order for costs of an interlocutory proceeding should not entitle a party to have a bill of costs taxed until the principal proceeding in which the interlocutory order was made is concluded.’

In Bevillesta v D Tannous McColl JA, Allsop P and Handley AJA agreeing, stated, at [37], that beyond factors such as those described by Barrett J in Fiduciary v Morningstar, in making a determination under UCPR, r 42.7, regard must also be had to the ‘dictates of justice’, as required by the Civil Procedure Act, s 58.

Section 58 provides that, in deciding to make an order or direction for the management of proceedings, consideration is to be given to the ‘dictates of justice’, which includes, inter alia, having regard to ss 56 and 57 of the Civil Procedure Act: s 58(2)(a). A range of other factors are set out in s 58(2)(b). Whilst it is not necessarily apparent to us that s 58 applies to an application under UCPR, r 42.7, there is no doubt, as we have said, that in exercising a discretion otherwise unconfined by the conferring statute, the Court is required to take into account all relevant circumstances and determine the matter having regard to the interests of justice.”

58. In Brasington v Overton Investments Pty Ltd [2001] FCA 571 at [13], Emmett J (as his Honour then was) identified the rationale of the principle that costs of interlocutory proceedings were not ordinarily payable forthwith as that:

“… since an interlocutory proceeding does not resolve the final issues between the parties, it would, in ordinary circumstances, be inappropriate that an unsuccessful party in an interlocutory proceeding be required to pay costs immediately, since that party might ultimately be entitled to an order for costs in the substantive proceeding. The general principle appears to be that costs ought to be resolved when the proceeding has been concluded, and the rights of the parties have been finally determined.”

59. UCPR r 42.20(1) provides that if the court makes an order for the dismissal of proceedings, then unless the court otherwise orders, the plaintiff must pay the defendant’s costs of the proceedings to the extent to which the proceedings have been dismissed.

60. More generally, it is worth recalling that in Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84 at 89 [17]; [2010] FCAFC 5, Gray J (Lindgren J agreeing) wrote, at [17]:

“The overriding principle that costs are in the discretion of the Court can also be expressed in terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the question where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding.”

61. Ultimately, the Civil Procedure Act and the UCPR require the court to make such order as it thinks just in the particular circumstances of the case: Bullabidgee Pty Ltd v McCleary (No 2) [2011] NSWCA 343 at [10] (The Court).

62. As was noted (albeit in another context) in Kazar (Liquidator) v Kargarian; In the Matter of Frontier Architects Pty Ltd (In Liq) (2011) 197 FCR 113 at 116–117 [9]; [2011] FCAFC 136 at [9] (Greenwood and Rares JJ):

“The exercise of the discretion takes account of all of the contextual circumstances of the litigation and the conduct of the parties. One aspect of the award of costs is a recognition that a party has been put to expense which, taking account of the merits as ultimately found on the trial of the action, might otherwise have been avoided. That consideration does not infuse the award of costs with any sense of penalty or punishment but simply recognises the compensatory nature of an award of costs, in context and according to principle. That is why an award of costs, although involving the exercise of a discretion, generally favours the successful party. As to the importance the community attaches to legal costs incurred of and incidental to the resolution of controversies before courts, see Clark v Commissioner of Taxation [2010] FCA 415 at [90]; Uniline Australia Ltd v SBriggs Pty Ltd (No. 2) [2009] FCA 920; (2009) 82 IPR 56 at [38]; and, Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [130] to [132].”

63. In Ohn v Walton at 79, Gleeson CJ (as his Honour then was) wrote:

“The usual rationale of making a costs order is that it is just and reasonable that the successful party should be reimbursed for costs incurred, in the absence of grounds connected with the charge or conduct of the proceedings which make it unjust or unreasonable that there should be such reimbursement.”

64. In Sahab Holdings Pty Limited v Registrar-General (No 3) [2010] NSWSC 403 at [37], Slattery J recognised that, in an appropriate case, a costs order may be formulated to reflect the degree of success on distinct issues.

65. As a corollary of that principle, the conduct of a party may well be relevant in the exercise of the discretion. In Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at 236 [15]; [2001] FCA 1865, Black CJ and French J said, relevantly, at [15]:

“And a trial judge may award only a proportion of the successful party's costs if the conduct of that party at trial was such as to unreasonably prolong the proceedings …” (citations omitted)

66. McHugh J (Brennan CJ agreeing) explained in Oshlack v Richmond River Council (1998) 193 CLR 72 at 97–98 [69]; [1998] HCA 11 at [69], one of the traditional exceptions to the usual order as to costs (that is, that costs follow the event) is where some conduct of the successful party disentitles it to the beneficial exercise of the court’s discretion. One example given by his Honour is where the successful party “unnecessarily protracts the proceedings”.

67. The Court may order that costs are to be awarded on the ordinary basis or on the indemnity basis. In Liverpool City Council v Estephan Estephan (Executor and Administrator of the Estate of the late Jocelyn Estephan) [2009] NSWCA 161, Giles JA (McColl JA agreeing) stated at [100]–[101]:

“Section 56 of the Civil Procedure Act now adds emphasis to occasion to depart from costs on the ordinary basis where failure properly to conduct the proceedings had caused costs to be incurred unnecessarily. But it does not override the need for a rational connection between the reason for departure and the extent of the departure.

There may no doubt be cases in which the effect of the misconduct is so pervasive that, in a proper exercise of the general discretion, the higher level of reimbursement can extend to the entire costs of the proceedings. That is perhaps the explanation for Adelaide Congregation Jehovah’s Witnesses Incorporated v Pegasus Leasing Ltd (Olsson J, SASC, 24 December 1996, unreported), where the defence was described as unrealistic and uncompromising as to all issues and leading to a very protracted trial. It is necessary to remember that the trial judge was exercising a discretion, and a discretion in relation to costs as to which this Court is particularly cautious in its intervention; a trial judge is in an advantageous position in arriving at the just disposition of costs. However, the trial judge did not express a pervasive effect of the Council’s conduct of which he was critical, or say that the Council acted unreasonably in defending at all.”

68. In Hamod v State of New South Wales (2002) 188 ALR 659 at 665 [20]; [2002] FCAFC 97; [2002] FCA 424 at [20], Gray J (Carr and Goldberg JJ agreeing) explained the principle for an award of indemnity costs in the following terms:

“Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.”

69. His Honour’s remarks are equally applicable to an award of costs calculated on the indemnity basis under the Civil Procedure Act and the UCPR: see, for example, In the matter of Hillsea Pty Limited [2019] NSWSC 1309 at [13] (Black J); Kazal v Independent Commission Against Corruption (No 2) [2020] NSWSC 17 at [58] (N Adams J).

70. I have considered the principles that apply in respect of an offer of compromise in Blendell v Byrne; The Estate of Noeline Joan Blendell (No 2) [2019] NSWSC 798 at [61]–[70] with reference to my earlier decision in Meres v Meres (No 2) [2017] NSWSC 523 at [40]–[44]. I also recently summarised the principles relevant to Calderbank offers in Rakovich v Marszalek [2020] NSWSC 589 at [258]–[267]. I do not propose to repeat those principles here. What follows, therefore, is merely by way of emphasis and elaboration.

71. The assessment of the costs consequences of a purported offer of compromise is a two-stage process. As I explained in Meres v Meres (No 2) at [43]–[44]:

“From the authorities, it appears the question for determination regarding the effect of what is said to be an Offer of Compromise involves a two-stage process. The first stage is to enquire whether the offer made is an ‘Offer of Compromise’ at all, within the meaning of the UCPR. This will depend, in part, on whether it satisfies the formal requirements laid down by UCPR rule 20.26. It also depends, in part, on whether the offer made is one that can truly be called a ‘compromise’.

If the court concludes that the offer which is made is an ‘Offer of Compromise’ within the meaning of the Rules, and that the offer made is one that can truly be called a compromise, then UCPR rule 42.15A(2) operates to establish a ‘default’ position, relevantly that, if the defendant obtains a judgment no less favourable than that which the defendant had offered to accept, then indemnity costs would follow. It is then that the second stage of the process arises, in that the court can ‘otherwise order’. The court will ‘otherwise order’ if it is persuaded that is appropriate, in the interests of justice, that the ‘default’ position ought not apply: Manly Council v Bryne (No 2) [2004] NSWCA 227, per Campbell JA, at [10]; Evans v Braddock (No 2) [2015] NSWSC 518, at [52].”

72. For the relevant costs rules in the UCPR to apply, the purported offer of compromise must meet the requirements of UCPR r 20.26: UCPR, r 42.13. Once satisfied, UCPR r 42.15A then provides:

(1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer.

(2) Unless the court orders otherwise -

(a) the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and

(b) the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, assessed on an indemnity basis—

(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.

73. The question is then whether the Court should “otherwise order” pursuant to UCPR r 42.15A(2). As to this question, McColl JA (Gleeson JA and Sackville AJA agreeing) considered in Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [45]–[48]:

“The onus is on the appellant to demonstrate why the Court should depart from the consequence of his rejection of the Offer: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 (at [35]) per McColl JA (Mason P and McClellan CJ at CL agreeing); Miwa (at [16]).

There is a conflict in decisions of this court as to whether exceptional circumstances are required before the court may exercise the discretion to ‘order otherwise’ in relation to an unaccepted offer of compromise or whether that discretion has to be exercised having regard to all the circumstances of the case: Commissioner of Taxation v Moodie [2014] NSWCA 59; (2014) 282 FLR 453 (at [64]) per McColl JA.

An ‘exceptional circumstances’ test could be seen as a gloss on the language of the relevant rules their text does not admit. That suggestion was discounted by Hely J in relation to the like power to ‘otherwise order[s]’ in O 23, r 11(4) of the Federal Court Rules 1979 (Cth) (as then in force): Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; (2004) 212 ALR 281 (at [17]). Rather, his Honour was of the view that such language merely ‘convey[s] that the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case’. In my view his Honour’s observation sufficiently encapsulates the approach to be adopted in the present case.

It is impossible exhaustively to state the circumstances in which the court’s discretion to ‘order otherwise’ might be exercised: New South Wales Insurance Ministerial Corporation v Reeve (at 102). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: Morgan v Johnson (at 582). However that does not mean that reasonableness of the rejection is an irrelevant consideration: see Seven Network Ltd v News Ltd (at [64] - [67]); Uniting Church in Australia Property Trust (NSW) t/as Northaven Retirement Village v Takacs (No 2) [2008] NSWCA 172 (at [15]) per Hodgson JA (McColl JA agreeing); cf Basten JA (at [32] - [33]).”

74. In contrast, a Calderbank offer does not attract the same cost consequences as a formal offer of compromise made under the UCPR. Its presence does not yield any presumption of a costs order outside the normal rules. In an appropriate case, the existence of a Calderbank offer may influence, but not govern, the exercise of discretion supporting a different order as to costs. It enables the Court to consider whether it should exercise its discretion to make a costs order other than as provided by the UCPR rr 42.1 and 42.2. Nor does the making of a more favourable Calderbank offer appear to be determinative of what kind of (more favourable) costs order (or order other than the usual) should be made: In the matter of Cheal Industries Pty Ltd - Fitzpatrick v Cheal [2012] NSWSC 932 at [54] (Ward J, as her Honour then was).

75. In order to warrant the making of a special (indemnity) costs order, it is clear that the offer must “[constitute] a genuine offer of compromise, which it was unreasonable for the [unsuccessful party] not to accept”: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4] (The Court); The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706 at 708 [8]; [2006] NSWCA 120 at [8] (Basten JA, Santow JA and Young CJ in Eq agreeing); Leichhardt Municipal Council v Green [2004] NSWCA 341 at [23] (Santow JA, Bryson JA and Stein AJA agreeing). Further, where the offer is a Calderbank offer, the onus to demonstrate that it was unreasonable to reject it is on the party seeking to rely on the making of the offer: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] (The Court).

76. Even where it is held that a Calderbank offer should have been accepted, and the offeree achieves a result at the hearing as, or less, favourable than the offer, there is no automatic consequence. What must be considered is the reasonableness of the offeree’s rejection or non-acceptance of that offer, a matter to be determined having regard to the circumstances at the time that the offer fell to be considered. The question is whether, in all the circumstances, the failure to accept the offer warrants departure from the ordinary rule as to costs.

77. The Court will have regard to a number of factors when considering whether the rejection or non-acceptance of the offer was unreasonable, including: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree’s prospects of success assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it: Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 at [8] (Buchanan and Tate JJA and Sifris AJA); Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at 442 [25]; [2005] VSCA 298 at [25] (Warren CJ, Maxwell P and Harper AJA); Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12] (Basten JA, McColl and Campbell JJA agreeing).

78. In Evans v Braddock (No 2) [2015] NSWSC 518, I added, at [50]:

“To these principles, I should add that service of a Calderbank offer serves a number of purposes, including to promote settlement and also to give the offeror cost protection in the event of an unreasonable refusal by the offeree. Furthermore, ‘to some extent any offer of compromise or Calderbank offer is necessarily a tactical weapon. At the heart of a Calderbank offer are two factors – settlement of the case and protection on costs if the offer is ultimately regarded as reasonable. Characterisation as a tactical weapon does not necessarily defeat the efficacy or the genuineness of the offer’: Zealley v Liquorland (Australia) Pty Ltd & Anor (Costs Ruling) [2015] VSC 133, per J Forrest J, at [18] and [24].”

79. As adverted to above, for a Calderbank offer to be taken into account, it must be a genuine offer of compromise and not merely constitute, in effect, a demand to capitulate (see Truenergy Pty Ltd v Dispute Resolution Panel (No 2) [2009] VSC 612 at [14] (Cavanough J), quoting Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65 at [17] (Callaway JA, Chernov JA agreeing on this issue)) or a trigger for costs sanctions (see Leichhardt Municipal Council v Green at [39] (Santow JA)).

80. As stated above, I do not propose to address in these reasons each and every nuance of the submissions provided on behalf of the Plaintiffs and the Defendants. It suffices to refer only to certain aspects of those submissions and other factors weighing on my discretion.

81. There is merit in the Plaintiffs’ submissions on the relevance of the offer made. There is also force in the Plaintiffs’ submission, at least in respect of the 2018 proceedings, that the Defendants failed in obtaining the relief that they had sought (notably, the Court declined to discharge the order of Rein J extending the time for service); and that the Plaintiffs had succeeded in obtaining the relief that they had sought (notably, the Court declared that each of the first and second Defendant had been properly served).

82. In the 2017 proceedings, the Defendants were successful in obtaining a permanent stay of those proceedings. In that respect, counsel for the Defendants was correct to submit that the Defendants “prevailed” in those proceedings.

83. However, the success of both parties on some issues, in respect of both the 2017 proceedings and the 2018 proceedings, must be tempered by their, and their legal representatives’, conduct throughout the proceedings. Indeed, the conduct of the parties and their legal representatives is a matter that deserves significant attention.

84. The Court made a number of attempts to encourage the parties to avoid the large amount of time and costs that have been incurred. For example, when the matter was listed before me on 26 April 2018, I said to the parties, at Tcpt, 26 April 2018, p 20(43–46):

“HIS HONOUR: Can I suggest this, Mr Douglas. Could I suggest that I take the short adjournment now. You and Mr Golledge have a chat to see if there’s any way forward that would save the inordinate amount of costs that are going to occur. “

85. On the same day, I made a “Smyth order”, that is an order contemplated by UCPR r 42.32, that each party’s legal representative serve upon the party he, or she, represented, a notice that specified an estimate of the best outcome that the party was likely to achieve if the party was successful, an estimate of the worst outcome that the party was likely to undergo if the party was unsuccessful, an estimate of the costs and disbursements that had been incurred up to and including the date of the notice, and an estimate of the largest amount by way of costs that the party might be ordered to pay if the party was wholly unsuccessful. I understand that this direction was complied with but it did not lead to the costs issue being resolved.

85. Neither party tendered a copy of the notice that had been served in compliance with the direction.

86. I should also refer to a part of the transcript of 12 June 2019, at Tcpt, 12 June 2019, p 113(32) – p 115(01), which, it seems, encapsulates the principal argument about the costs of the 2017 proceedings:

“HIS HONOUR: … I don’t want to get into a costs argument now but one of the difficulties is that you really did not decide, once you commenced the proceedings in 2018, what was going to be done. You can’t have it both ways. Had you agreed and maintained the position that nothing was going to occur with the 2017 or the 2018 proceedings once the 2018 proceedings were commenced, that would be one thing. But this is what occurred, [was] it not, at least as I see it. You had the 2017 proceedings. There was a hearing allocated for the determination of the defendants’ argument under rule 12.11 in relation to the 2017 proceedings. To avoid that argument you commenced the 2018 proceedings but you didn't say to the defendants well, now that we have commenced the 2018 proceedings there is no longer any need to determine the 2017 proceedings because we’ll continue with the 2018 proceedings.

You wanted to have both proceedings remaining on foot, albeit that one or other of them was not going to be pursued. But in the event that occurred both were being pursued because you were pursuing the 2018 proceedings by all the steps you took in regard to service and so on including applications before Justice Rein whilst, at the same time, not saying to the defendants well, we don’t need Justice Hallen to determine the 2017 arguments any longer because we won’t be relying on that.

So what you wanted to do was to have both proceedings on foot until such time as the Court determined whether or not the argument about the 2017 proceedings by the defendants were going to be successful or not.

BANNAN: Could I respond quickly?

HIS HONOUR: You can but I don’t want to argue costs today.

BANNAN: I understand. But I do want to say two things quickly. One, we did say that, at least from September 2018, so it would only be a period from March to September 2018 where there was any uncertainty.

Secondly, and more importantly, what we did say and this goes back to the whole purpose of service. What we did say constantly, what the then solicitors for the plaintiffs said constantly is look, the purpose of service has now been fulfilled. You have these documents. You have the 134 paragraph statement of claim whether it is these proceedings or the others. We don’t really care. We want to move this litigation forward.

HIS HONOUR: That was not theirs to determine. It was for you to determine. You were the plaintiffs and you had two proceedings on foot and you weren’t telling them which proceeding was going to be determined. So they had to fight you effectively on two fronts. They had to fight you in relation to the 2017 proceedings because that is what was listed before me on 31 October.

It was only on 21 October when the matter was before Justice Slattery it became obvious that it was no longer necessary for the 2017 issues that had been listed before me on the 31 October were not required. In addition to that, they also had to deal with the application in relation to the 2018 proceedings that they had commenced before Justice Parker initially and which came to be heard by Justice Slattery.

BANNAN: Your Honour, in my submission what clearly emerges from the correspondence was that the plaintiffs put various proposals to say let’s move this dispute forward, you had notice of this. And there was no attempt to pursue--

HIS HONOUR: Whether or not that was true they had to fight you on two fronts and both fronts were being persisted with. They were persisting with the front that Justice Slattery had to determine and you were persisting with the front that I had to determine. So there were two proceedings on foot until Justice Slattery stayed the 2017 proceedings on 21 October.

Now, it may be that you told them in September that you were content for a permanent stay, I don’t know, I can’t remember the precise date. But say you told them, there is still a period of time they had to deal between March and September when they had to deal with two sets of proceedings. Anyway, you will have an opportunity to put what you want on that.”

88. Having considered all of the matters, I am of the view that the determination of the issue of costs of the 2017 proceedings is, ultimately, relatively straightforward. The Plaintiffs should pay the majority of the Defendants’ costs of the 2017 proceedings. They could, and should, have indicated at a time far earlier than they did, that they would consent to a stay of those proceedings and this could, and should, have been done immediately after the 2018 proceedings were commenced.

89. But, this is not to say that the conduct of the Defendants should not be criticised. The Defendants, once the 2017 Statement of Claim was amended, were taking points that did not need to be taken. They were well aware of the proceedings and that the technical points that they were taking did not assist in the just, quick and cheap determination of the proceedings.

90. As stated above, the offer made by the Defendants in the 2017 proceedings, in my view, is of little relevance in the determination of the issue of costs. It is clear, as counsel for the Plaintiffs submitted, that there was no genuine element of compromise in the Defendants’ offer: Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) at [41]–[42] (McColl JA). Rather, it was merely a call for the Plaintiffs to capitulate to the Defendants’ position.

91. The position in this regard was stated by Macfarlan JA and Barrett AJA in NRMA Insurance for Nominal Defendant v Al-Bayati (No 2) [2019] NSWCA 14 at [5]:

“While an offer that is in substance an invitation to surrender usually lacks the elements of ‘give and take’ that characterise compromise, it can in certain circumstances result in the successful triggering of the indemnity costs mechanism under the rules: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [31]. But for that to happen, the claim or defence must be something approaching the character of frivolous or vexatious: ibid quoting Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 at [20]. The overriding question goes to the reasonableness of the conduct of the recipient in not accepting the offer. Rejection or non-acceptance of an offer to capitulate cannot, in general, be unreasonable if the case sought to be advanced by the rejecting (or non-accepting) party has some colour of substance to it.”

92. I am not satisfied that this was a case where Plaintiffs’ claim was one approaching frivolous or vexatious, at least not at the date of the Defendants’ offer, which was one day prior to the commencement of the 2018 proceedings. Even if I am wrong in that conclusion, I am satisfied that the conduct of the Defendants, and their legal representatives, was such that the Plaintiffs may have considered that the most practical way forward, was to commence the 2018 proceedings.

93. Should the Defendants’ offer be considered a Calderbank offer, the lack of a genuine compromise discounts its relevance and does not lead me to the view that I should exercise my discretion in favour of the Defendants.

94. Nonetheless, in my view, the Plaintiffs should pay 75 per cent of the Defendants’ costs of the 2017 proceedings.

95. The determination of the issue of costs of the 2018 proceedings is also relatively straightforward. The Defendants failed entirely in achieving what they wanted to achieve. They may consider that they were entitled to take technical, and other, points, but it is clear that both of the Defendants, as well as their legal representatives, were well aware of the nature of the proceedings. The persistence in maintaining those technical points was, ultimately, to no avail. Indeed, every available, and other, argument was deployed against the Plaintiffs’ application. Their conduct, in this regard, does not assist them in defending an order for them to pay the Plaintiffs’ costs. What occurred by all of the points being taken, was simply an inordinate prolongation of the substantive proceedings.

96. Of course, subject to s 56 of the Civil Procedure Act, a party may take such course as he, she or it, is advised. However, there are, or may be, costs consequences of taking that course. In this regard, s 56(5) is specific in permitting the court to take into account any failure to comply with subs (3) or subs (4) in exercising a discretion with respect to costs. I do so in the circumstances of this case.

97. In my view, whilst the Court has been somewhat critical of the conduct of the Defendants and their legal representatives, I cannot be satisfied that it warrants making an order for costs on the indemnity basis.

98. I am not satisfied that there is a sufficient basis for an order to be made in respect of the 2018 proceeding for the costs that I have ordered to be paid to be paid forthwith. There are many issues, both of fact and of law, yet to be determined in the substantive proceedings. The end result thereof is not clear. In any event, any delay in having the substantive proceedings heard will enable each of the parties to have their costs assessed formally, as it is highly unlikely, based upon the conduct of the parties to date that any less formal method leading to an agreement of costs will be reached, even though the enforcement of any formal certificate of assessed costs will not be able to be enforced until the 2018 proceedings are heard and determined.

99. As the 2017 proceedings have been permanently stayed, the Defendants are entitled to their costs.

100. In the exercise of my discretion, and in the interests of justice, the Court:

1. Orders that the Plaintiffs are to pay 75 per cent of the Defendants’ costs of the 2017 proceedings.

2. Orders that the Defendants are to pay the Plaintiffs’ costs of all of the interlocutory hearings in respect of the 2018 proceedings.

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Decision last updated: 24 June 2020