Westpac Banking Corporation v ZH International Pty Ltd (No. 2)

[2015] NSWSC 679

Supreme Court

New South Wales

Medium Neutral Citation:	Westpac Banking Corporation v ZH International Pty Ltd (No. 2) [2015] NSWSC 679
Hearing dates:	On the papers
Decision date:	02 June 2015
Jurisdiction:	Common Law
Before:	Adamson J
Decision:	(1) Order the defendants to pay the plaintiff’s costs of the proceedings on the ordinary basis up to and including 6 May 2015 and on an indemnity basis thereafter.
Catchwords:	COSTS – indemnity costs – successful plaintiff sought order for indemnity costs on basis of two offers of compromise – order not appropriate in relation to defendants’ failure to accept first offer – defendants’ refusal of second offer unreasonable – indemnity costs awarded EVIDENCE – admissibility of affidavit evidence of settlement negotiations sought to be read on application for indemnity costs – whether evidence admissible under s 131(2)(e) or (g) – evidence rejected
Legislation Cited:	Civil Procedure Act 2005 (NSW), s 98 Evidence Act 1995 (NSW), s 131
Cases Cited:	Calderbank v Calderbank [1976] Fam 93 Messiter v Hutchinson (1987) 10 NSWLR 525 Westpac Banking Corporation v ZH International Pty Ltd; Bronte Properties Pty Ltd v ZH International Pty Ltd [2015] NSWSC 607
Texts Cited:	---
Category:	Costs
Parties:	Westpac Banking Corporation (Plaintiff) ZH International Pty Ltd (First Defendant) Hui Zhang (aka John Zhang and Hu Zhang) (Second Defendant)
Representation:	Counsel: AP Coleman SC/TD Castle (Plaintiff) P Bolster (Defendants) Solicitors: Gadens Lawyers (Plaintiff) Marando Solicitors (Defendants)
File Number(s):	2013/184759
Publication restriction:	---

Judgment

Introduction

1. I made orders and published reasons in this matter on 22 May 2015: Westpac Banking Corporation v ZH International Pty Ltd; Bronte Properties Pty Ltd v ZH International Pty Ltd [2015] NSWSC 607 (the Principal Judgment). All abbreviations in the Principal Judgment apply to these reasons. The Bank succeeded in its claim for possession, the defendants having failed to establish that the Bank was estopped from relying on its legal rights, that the conduct of the Bank in relying on its legal rights was unconscionable or that the Bank had engaged in misleading or deceptive conduct.

2. Following publication of the Principal Judgment, the Bank applied for orders that ZH International and Mr Zhang pay its costs of the proceedings on an indemnity basis. It sought the order either from 7 October 2014 as a result of an offer it made on 23 September 2014 (the First Offer) or from 6 May 2015 as a result of an offer it made on 5 May 2015 (the Second Offer).

The First Offer

3. The Bank’s primary evidence was served on 18 July 2013. The evidence in response to the defendants’ defence, together with the Bank’s exhibit bundle, was served on 15 September 2014.

4. On 23 September 2014 the Bank’s solicitors made the First Offer. The First Offer, which was open to be accepted until 7 October 2014, was that the defendants consent to judgment for possession of Unit 8 and to an order that each party bear its or his own costs.

5. In the letter to the defendants’ solicitors that contained the First Offer, the Bank’s solicitors set out why the Bank contended it ought succeed in obtaining the order for possession in respect of Unit 8. It referred to Calderbank v Calderbank [1976] Fam 93 and Messiter v Hutchinson (1987) 10 NSWLR 525 and indicated that it would rely on any failure to accept the offer in support of an application for indemnity costs. The Bank relied, in summary, on the following:

1. The Builder’s statutory declaration dated 30 July 2010;

2. The Builder’s letter dated 6 June 2011;

3. The failure of the Builder and the Developer to obtain the Bank’s consent to the purported variation of the Building Contract or to the Sale Contract;

4. The Builder’s withdrawal of the caveat on 24 January 2013; and

5. The caveat lodged by Bronte Bowling Club that prevailed over the Builder’s interest in Unit 8 as it was lodged prior in time.

6. The Bank contended that it was unreasonable of the defendants not to accept the First Offer as the Bank’s legal position was strong, if not unassailable. The Bank submitted that it was telling that Mr Marando, the defendants’ solicitor, admitted in cross-examination that when he received the Bank’s evidence in September 2014 he did not even read it, much less review it to assess the strength of the defendants’ defences.

7. The Bank, in its written submissions in support of the application for indemnity costs, also contended:

“Indeed, it is an available inference that the defendants and Mr Zhang saw a benefit in continuing litigation which was highly likely to fail, as he would be entitled to continue to occupy Unit 8, without charge, whilst the litigation continued. This is not a reasonable basis for non-acceptance of an offer which provides a genuine compromise for the proceedings.”

8. The Bank relied on the circumstance that it could be taken to have expended significant costs in prosecuting the proceedings to that point. It submitted, accordingly, that the “walk away” terms of the First Offer involved a substantial compromise.

9. The defendants submitted that the First Offer was, in substance, a demand for capitulation and did not involve any real compromise by the Bank. They also submitted that there was no basis to infer that the defendants were motivated in refusing to resolve the proceedings by the circumstance that Mr Zhang could continue to live in Unit 8 until the Bank obtained an order for possession.

10. The Court’s power to award costs is discretionary: s 98 of the Civil Procedure Act 2005 (NSW). The principles that apply to the exercise of the discretion are not in doubt. Their application depends on the circumstances of each case.

11. I am not persuaded that an order for indemnity costs is appropriate on the basis of the defendants’ failure to accept the First Offer. The matters set out above on which the Bank relied pertained to its legal rights and did not really address the substance or gravamen of the defendants’ estoppel defence. Furthermore, two of the documents on which the Bank relied, the statutory declaration dated 30 July 2010 and the letter dated 6 July 2011, were not, in fact, signed by Mr Zhang, although they appeared to be. Although Mr Marando did not review the Bank’s evidence, this task may have been performed by someone in his firm or by counsel. He explained in his evidence that, once he became a witness in the proceedings, he no longer played an active role in the preparation of the matter for hearing. I would not infer that no assessment was made of the Bank’s and the defendants’ respective prospects of success at the time of the First Offer merely because Mr Marando himself did not conduct the assessment.

12. Although the Bank had undoubtedly spent considerable sums preparing its evidence, I do not regard the “walk away” offer as containing the requisite degree of compromise in the circumstances of the present case. Further, while I agree that the inference on which the Bank relied as to why the defendants did not bring the proceedings to an earlier resolution by accepting the First Offer was “available” in that it had not been excluded, I would not, without more, draw that inference. The Bank’s submission was tantamount to an allegation that the defendants had abused the processes of the Court. In my view, there was insufficient evidence to support this allegation.

The Second Offer

13. The Second Offer was made by letter dated 5 May 2015, six days before the hearing was due to commence. It was expressed to remain open for 24 hours. In substance, the Bank offered to pay the defendants the sum of $150,000 in return for the defendants entering into a deed that would give the Bank the right to take possession of Unit 8 and have the caveat lodged by ZH International removed. The Bank’s solicitors expressed that the Second Offer was made without prejudice except as to costs, referred to Calderbank v Calderbank and Messiter v Hutchinson and informed the defendants’ solicitors that it would be relied upon in an application for indemnity costs.

14. At that time Mr Marando was still the solicitor on the record for the defendants. He, or his staff and counsel, can be taken to have been aware of all issues in the proceedings.

15. The Bank submitted that the Second Offer represented a genuine compromise of the proceedings and that the defendants’ refusal was unreasonable. It contended that the limited time within which it was open to be accepted was both reasonable and sufficient having regard to the imminence of the hearing.

16. The defendants accepted that the Second Offer involved a sufficient degree of compromise and did not dispute that it contained the requisite indication that it would be relied upon. However, they contended that the time allowed for acceptance was not reasonable and that it ought not be concluded that its rejection was unreasonable.

17. The plaintiff submitted in response that a mediation had taken place on 29 April 2015 and that the Second Offer was, in substance, a repetition of the Bank’s final offer at the mediation.

The evidence of the Bank’s offer at mediation

18. In support of its submission in response, the Bank read the affidavit of Fintan O’Connor dated 27 May 2015 to which was annexed the Mediation Agreement. Mr O’Connor deposed to the terms of the offer put by the Bank at the mediation, which correspond with the Second Offer. The defendants objected to the affidavit of Mr O’Connor on the basis that the disclosure of matters in the affidavit constituted a breach of cl 21 of the Mediation Agreement and was inadmissible by reason of s 131 of the Evidence Act 1995 (NSW). The Bank contended that although cl 21 did not permit the Bank to adduce evidence of the defendants’ responses to its offers, it did not prohibit the Bank from adducing evidence of any offer it made at the mediation. The Bank relied on s 131(2)(e) and (g) in support of its contention that the evidence was not inadmissible by reason of s 131(1).

19. Clause 21 of the Mediation Agreement provided:

“The parties and the mediator agree not to disclose to anyone not involved in the mediation process any information or documentation received by them in preparation for, or during, the mediation process, and not to use that information or documentation for any purpose except the mediation, except to the extent that:

-   It is specified in Schedule 3 [nothing was specified in the Schedule];

-   It is required by law;

-   It is required for the purpose of obtaining legal advice; or

-   The information becomes public knowledge otherwise than by reason of a breach of this agreement.”

20. Section 131 of the Evidence Act relevantly provides:

“Exclusion of evidence of settlement negotiations

(1) Evidence is not to be adduced of:

(a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute

. . .

(2) Subsection (1) does not apply if:

. . .

(e) the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute, or

. . .

(g) evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence. . .”

21. In my view, both the fact that the Bank made an offer at the mediation and the contents of the offer are covered by the prohibition on disclosure in cl 21 of the Mediation Agreement since these matters constitute “information received by” a party “during the mediation process”. Accordingly, their disclosure is in breach of cl 21 unless “required by law”.

22. The evidence (apart from the affidavit objected to) established that the Second Offer was sent by letter dated 5 May 2015. The defendants did not adduce any evidence on the costs application. Mr Bolster, who appeared at the proceedings on behalf of the defendants and made written submissions in opposition to the Bank’s application for indemnity costs, submitted that:

“. . . the narrow window for acceptance period (a mere 24 hours) was not reasonable and that therefore it was not unreasonable for them to not accept that offer.”

23. In my view, the prohibition in s 131(1) is not relevantly qualified in the present case by either s 131(2)(e) or (g). I do not consider that the disclosure of the fact that the Bank made an offer in similar terms to the Second Offer in the mediation to be authorised by those provisions. It would be different if the defendants had adduced evidence to the effect, for example, that the terms of the Second Offer took them by surprise. All that Mr Bolster submitted was that it was open for such a short time that the defendants’ non-acceptance ought not be regarded as unreasonable.

24. Further, there is, in my view, a substantial difference between an offer which is made “without prejudice” (such as the one made by the Bank in the mediation) and an offer which is expressed to be made “without prejudice except as to costs” (such as the Second Offer). The latter offer carries costs consequences; the former does not. That they may otherwise be similar does not authorise the disclosure of the mediation offer in the circumstances of the present case.

25. Accordingly I reject the affidavit of Mr O’Connor and disregard the Bank’s submission in so far as it referred to the mediation and that the Second Offer replicated an offer the Bank made at the mediation.

Whether a special order for costs ought be made on the basis of the Second Offer

26. I am satisfied that it is appropriate to order that the Bank’s costs from 6 May 2015 be paid on an indemnity basis. Although the time within which the Second Offer was to be left open was relatively short, the reasonableness of length of time of such offers depends on the circumstances. By the time the Second Offer was made not only had all the evidence been served but the parties’ legal representatives can be taken to have completely, or almost completely, prepared the matter for hearing. In these circumstances it is reasonable to expect that offers such as the Second Offer could be relatively promptly assessed and instructions obtained for their acceptance or rejection. Moreover, had the time for response proved to be too short the defendants’ legal representatives could have approached the Bank’s legal representatives to seek an extension of the Second Offer with a view to preserving the position until advice could be given and instructions obtained. There is no evidence of any such extension having been sought.

27. In my view, it was not reasonable for the defendants to reject the Second Offer. I am persuaded that it is appropriate that the Bank obtain the benefit of an order for costs on an indemnity basis from 6 May 2015 on the basis of the Second Offer.

Orders

28. I make the following orders:

1. Order the defendants to pay the plaintiff’s costs of the proceedings on the ordinary basis up to and including 6 May 2015 and on an indemnity basis thereafter.

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Decision last updated: 02 June 2015