Lewis v Lewis (No 2)[2022] QSC 219

SUPREME COURT OF QUEENSLAND

Introduction

1. [1]
   On 30 September 2022, after the trial of these proceedings, I delivered my judgment in the matter of Lewis v Lewis [2022] QSC 208. These reasons are to be read in conjunction with the reasons set out in that judgment.
2. [2]
   I dismissed Robert’s counterclaim, declared the Partnership was dissolved on 21 January 2019 and made orders for the winding up of the business and affairs of the Partnership. I stated that I would hear the parties as to costs.
3. [3]
   The parties provided me with written submissions setting out their respective positions on the question of costs. On 6 October 2022, I heard oral submissions and reserved my decision.
4. [4]
   Richard seeks his costs of the whole of the proceedings on an indemnity basis pursuant to r 360 of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”) due to Robert’s rejection of an offer made under r 353 of the UCPR. Alternatively, Richard seeks costs on an indemnity basis on the basis of a purported Calderbank offer.^[1]
5. [5]
   Robert says costs are not payable in accordance with r 360 of the UCPR. He further says that the purported Calderbank offer was not valid. In those circumstances, he contends the appropriate order to be made is that he pay Richard’s costs of the proceedings on the standard basis.

The offer

6. [6]
   Although Richard made several offers to settle before trial, the particular offer in question here is the written offer contained in a letter from Richard’s solicitors to Robert’s solicitors dated 30 May 2019.^[2]
7. [7]
   At that time, the procedural chronology of the proceedings to date was as follows:

   1. (a)
      on 7 January 2019, Richard commenced a proceeding by originating application, seeking orders, inter alia, for an equal distribution, between him and Robert, of certain funds held in the Partnership’s solicitors’ trust account. Those funds were the proceeds of the sale of assets of the Partnership.
   2. (b)
      on 24 January 2019, Daubney J vacated the hearing of Richard’s originating application and ordered that the proceeding continue as if started by claim.
   3. (c)
      on 18 February 2019, Richard filed and served a Statement of Claim. By paragraph 31 of that pleading, Richard disputed the Defendant’s entitlement to any such claims for wages from the Partnership and further asserted that there was no apparent basis, contractual or otherwise, for the claims made. The relief sought by Richard included a declaration that he was entitled to half the funds held in the solicitors’ trust account and an order for half of those funds to be immediately released to him. A further alternative order sought by Richard was that the business and affairs of the Partnership be wound up. As part of that order, Richard sought a final settlement of accounts to ascertain the distribution of assets of the Partnership, and the distribution of assets of the Partnership in accordance with ss 42 and 47 of the Partnership Act 1891 (Qld), without deduction for Robert’s claimed unpaid wages and rent, as per his letter of 7 December 2018.
   4. (d)
      on 21 March 2019, Robert filed a Notice of Intention to Defend and a Defence and Counterclaim. In response to paragraph 31 of the Statement of Claim, the Defence stated at paragraph 27:

…the defendant says the precise nature of his claims against the Partnership are as set out in and constituted by the counterclaim herein.

Paragraph 6 of the Counterclaim asserted, inter alia:

…it was an implied term of the parties’ agreement that…prior to the sharing of the profits of the Partnership’s business, the defendant would receive a reasonable remuneration for his oversight and management of the Partnership Properties… (“the Remuneration Term”).

It was pleaded that the Remuneration Term was to be implied from various circumstances which were particularised. In his prayer for relief, Robert sought a declaration that he was:

…entitled to reasonable remuneration for his past management of the Partnership Properties, in the sum of $318,000 (plus interest thereupon)… and that such total sum is to be recognised as a liability of the Partnership in the final settlement of the Partnership’s accounts.

5. (e)
   on 15 April 2019, Robert filed an Amended Defence and Counterclaim. The Amended Defence contained the same paragraph 27 as the original Defence. The Amended Counterclaim was slightly amended but otherwise continued to assert the Remuneration Term was an implied term of the Partnership agreement and, on that basis, Robert was entitled to reasonable remuneration in the sum of $318,000 (plus interest thereupon) which ought to be recognised as a liability of the Partnership.
6. (f)
   on 7 May 2019, Robert filed an Amended Defence and Further Amended Counterclaim. The Amended Defence contained the same paragraph 27 as the original Defence. The Further Amended Counterclaim contained expanded amended pleadings in respect of the asserted basis for the implied Remuneration Term.  The relief sought by the Further Amended Counterclaim continued to be pleaded in the same terms as the Amended Counterclaim.
7. (g)
   on 27 May 2019, Richard provided Robert with his Reply and Answer to the Amended Defence and Further Amended Counterclaim filed 7 May 2019. Richard denied the existence of the Remuneration Term asserted by Robert. The Answer and Reply was later filed on 2 July 2019.

8. [8]
   The course of the pleadings, further amendments and the substantial change to the way in which Robert’s remuneration claim was ultimately advanced at trial are set out in further detail at paragraphs [260] to [277] of my reasons in Lewis v Lewis [2022] QSC 208.
9. [9]
   Richard’s solicitors’ letter of 30 May 2019 was endorsed “Without Prejudice Save as to Costs”. It noted Richard intended to “vigorously defend” Robert’s claim for unpaid historic remuneration owed to him by the Partnership. It then set out what were said to be two major flaws in Robert’s claim. The first identified flaw was that the Court would be unlikely to find that the alleged Remuneration Term should be implied into any agreement. The second was that the bulk of the claim (for the period from 1982 to 1988) was time-barred.
10. [10]
    Following the setting out of reasons for the two alleged major flaws in Robert’s claim, the letter contained a heading titled “Offer” (“the Offer”). The opening paragraph under that heading stated:

This offer is made pursuant to rule 353 (Chapter 9, Part 5) of the Uniform Civil Procedure Rules 1999 (Qld) (‘UCPR’). Alternatively, this is a Calderbank letter made on a “without prejudice” basis save as to costs pursuant to the decision in Calderbank v Calderbank [1975] 3 All ER 333 and Nolan v Nolan & Anor (No. 2) [2003] VSC 136.

11. [11]
    The letter then set out the conditions of an “…offer to settle all of the claims in the proceedings…” The conditions included that Richard would pay Robert $10,000 within 14 days of acceptance of the offer; that there would be an equal distribution of the funds held in the Partnership solicitors’ trust account; that each party would withdraw their claims against the other; and that the parties would agree to consent orders to discontinue both the claim and the counterclaim, with no order as to costs.
12. [12]
    The concluding paragraph of the Offer stated:

Should your client fail to accept this offer, our client intends to rely on this letter on the question of costs.

13. [13]
    The letter did not state in express terms that Richard would seek indemnity costs in the event that the Offer was not accepted.

Submissions

14. [14]
    Richard submits that he is entitled to his costs on the basis of the usual rule that costs follow the event. He submits, though, that he is entitled to indemnity costs under r 360 of the UCPR as the Offer was an offer made under the UCPR that was not accepted by Robert, and Richard subsequently obtained an order no less favourable than the Offer. Richard further submits that it is evident that he was, at all material times, willing and able to carry out what was proposed in the Offer. In those circumstances, Richard submits the Court must order Robert to pay his costs on an indemnity basis, unless Robert shows why some other order for costs is appropriate.
15. [15]
    Richard submits that he is entitled to indemnity costs under r 360 for the whole of the proceedings, encompassing both the claim and the counterclaim, and that it is not necessary to separately consider the individual components. With respect to the fact Richard was a plaintiff on his claim but a defendant to the counterclaim, and therefore both r 360 and 361 of the UCPR are potentially engaged, Richard argues that this point does not preclude the application of r 360 of the UCPR in the circumstances of this case.  He contends this follows from the fact that the claim and counterclaim were intertwined. He submits that by his claim he had always sought orders for the winding up of the Partnership and the distribution of its assets, without allowing any deduction for Robert’s claimed unpaid wages. That remained the case on the pleadings extant at the time of trial.
16. [16]
    In the event that r 360 is not engaged, Richard advances the alternative submission that the Offer was a Calderbank offer. On that basis, he therefore seeks indemnity costs from 14 June 2019. Richard submits that the letter did not need to expressly state that he would seek indemnity costs for it to be a valid Calderbank offer.
17. [17]
    Robert submits the primary issue at trial was the determination of his wages claim, brought by his counterclaim. On that basis, Robert argues that Richard is not entitled to indemnity costs under r 360 of the UCPR for the whole of the proceedings, encompassed by the claim and counterclaim. Robert relies upon the observations of Mullins J (as her Honour then was) in Australia & New Zealand Banking Group Ltd v Alirezai (No 2),^[3] where her Honour noted the definitions of “plaintiff” and “defendant” for the purposes of the UCPR and the necessity to maintain those distinctions when considering an order for costs under rr 360 or 361 of the UCPR.  On the basis of her Honour’s reasoning, Robert submits that for the purposes of r 360, Richard is only to be regarded as a plaintiff in respect of his claim. He is otherwise to be regarded as a defendant to Robert’s counterclaim.
18. [18]
    In those circumstances, Robert submits that because the real dispute between the parties was raised by his counterclaim, the relevant rule of the UCPR to be considered would actually be r 361. Robert concedes, however, that r 361 has no application here where he, as the plaintiff on his counterclaim, failed to obtain any judgment at all in his favour. That being so, Robert submits that the general rule should apply, that costs follow the event unless the Court considers some other order is appropriate, and that such costs are payable on the standard basis.
19. [19]
    With respect to the purported Calderbank offer, Robert submits it is invalid as a Calderbank offer as it did not comply with the essential requirements of such an offer. In particular, he submits the Offer failed to foreshadow or intimate that indemnity costs would be sought by Richard in the event that the Offer was not accepted. In that respect, Robert relies on the decision of Wiggins Island Coal Export Terminal Pty Limited v Civil Mining & Construction Pty Ltd.^[4]

Consideration

20. [20]
    Whilst it is the case that Richard obtained an order no less favourable than the Offer, I am not satisfied r 360 should be applied in this case so as to require Robert to pay Richard’s costs of the whole of the proceedings (the claim and the counterclaim) on an indemnity basis. In my view, the necessity for the distinction to be made between “plaintiff” and “defendant” for the purposes of rr 360 and 361, emphasised by Mullins J in Australia & New Zealand Banking Group Ltd v Alirezai (No 2),^[5] applies here.
21. [21]
    In that case, her Honour relevantly stated:^[6]

In this proceeding the real dispute between the parties was raised by the defendant’s counterclaim. Very little time was spent during the trial on the matters that were necessary to prove the plaintiff’s entitlement to recover possession of the land. The trial was primarily concerned with the issues raised by the defendant’s counterclaim. Without the defendant’s counterclaim, there would have been no defence based on the counterclaim.

…

If the plaintiff’s submissions were correct, the result that would follow in allowing the plaintiff to recover costs pursuant to r 360 on the basis that the costs of the plaintiff of both the claim and counterclaim were caught within r 360 would not accord with the substance of the proceeding and should be addressed by the exercise of the residual discretion which still applies where the offer to settle triggers the application of r 360.

22. [22]
    In my view, those observations are apt to the circumstances of this case. I accept Robert’s submission that the primary issue at trial was the determination of his wages claim, brought by his counterclaim. Whilst it is true that from the outset Richard sought orders for the winding up of the Partnership, with the added proviso that there be no allowance for Robert’s wages claim, in my assessment, the proceedings and subsequent trial have been conducted on the basis that Robert was the moving party seeking to establish the Partnership’s liability for his unpaid historical wages. This was not a matter where Robert simply sought to defend Richard’s claim by making a counterclaim.
23. [23]
    However, I do not accept Robert’s argument that if indemnity costs are not awarded in accordance with r 360 of the UCPR, then the appropriate order is for Robert to pay Richard’s costs of the proceedings on the standard basis. In my opinion, Richard is entitled to indemnity costs of the proceedings (the claim and the counterclaim) from 14 June 2019, on the basis that the Offer constituted a valid Calderbank offer that was unreasonably rejected by Robert.
24. [24]
    There is no necessity for a Calderbank letter to expressly state that indemnity costs will be sought in the event the relevant offer communicated by the letter is rejected. What is necessary is that the letter “intimate” or put the other party “on notice” that such costs will be sought in the event the relevant offer is rejected.
25. [25]
    In Wiggins Island Coal Export Terminal Pty Limited v Civil Mining & Construction Pty Ltd,^[7] Holmes CJ (with whom Philippides JA and Brown J agreed), considered whether an offer to settle, expressed as being an offer under the UCPR, but held to be not one to which rr 360 and 361 could apply, was nevertheless an effective Calderbank offer. The Chief Justice considered various authorities which had determined that an invalid “rules” offer could nonetheless constitute a valid Calderbank offer, provided the necessary features of a Calderbank offer were present, namely:^[8]

    1. (a)
       it set out an offer to settle the proceedings which was clear and capable of being accepted;
    2. (b)
       it was expressed to be made without prejudice save as to costs, with the reservation that it could be used in evidence on that question;
    3. (c)
       it was open for acceptance for a reasonable time; and
    4. (d)
       it put the other party on notice that if it were not accepted in that time, indemnity costs would be sought.
26. [26]
    In my opinion, each of those necessary features were present in this case.
27. [27]
    I am satisfied that the form and content of the 30 May 2019 letter, together with the circumstances in which it was sent and received, sufficiently put Robert on notice that indemnity costs would be sought in the event that the Offer was not accepted. The Offer was expressed as being an offer made pursuant to r 353 of the UCPR (and therefore with the potential to alter the usual basis for a costs order in due course). The clearly stated alternative basis for the Offer was that it was a Calderbank offer. It was made on a “without prejudice” basis save as to costs. It advised that if the offer was not accepted, Richard intended to rely on it on the question of costs. Robert was represented by a firm of solicitors, engaged by him to conduct commercial litigation in the Supreme Court of Queensland. In the circumstances, I infer they would have been well aware of the usual purpose and effect of a letter expressed to be a Calderbank letter, regardless of whether it expressly stated that it would be relied upon in due course to seek costs on an indemnity basis if the Offer was not accepted.
28. [28]
    That being so, in my opinion, it is appropriate in this case to depart from the ordinary position that costs are payable on the standard basis. In my view, Robert’s failure to accept the Offer was unreasonable, having regard to its terms and the subsequent reasons why I dismissed his counterclaim at trial.

Conclusion

29. [29]
    I consider the Plaintiff is entitled to receive his costs of the whole of the proceedings on an indemnity basis, on account of Richard’s refusal of his Calderbank offer.
30. [30]
    Accordingly, the order I make with respect to costs is:

1. The Defendant is to pay the Plaintiff’s costs of the proceedings, as agreed or assessed:
   1. a.
      on the standard basis until 13 June 2019; and thereafter
   1. b.
      on an indemnity basis from 14 June 2019.