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- Sentinel Property Group Pty Ltd v ABH Hotel Pty Ltd[2022] QSC 266
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Sentinel Property Group Pty Ltd v ABH Hotel Pty Ltd[2022] QSC 266
Sentinel Property Group Pty Ltd v ABH Hotel Pty Ltd[2022] QSC 266
SUPREME COURT OF QUEENSLAND
CITATION: | Sentinel Property Group Pty Ltd v ABH Hotel Pty Ltd & Anor [2022] QSC 266 |
PARTIES: | SENTINEL PROPERTY GROUP PTY LTD ACN 149 805 489 (plaintiff) v ABH HOTEL PTY LTD ACN 622 296 011 AS TRUSTEE FOR THE ABH HOTEL TRUST (defendant) and SENTINEL MULTI-SECTOR INCOME PTY LTD ACN 645 514 521 AS TRUSTEE FOR THE SENTINEL MULTI-SECTOR INCOME TRUST (defendant added by counterclaim) |
FILE NO/S: | BS 12953 of 2020 |
DIVISION: | Trial Division |
PROCEEDING: | Trial |
ORIGINATING COURT: | Supreme Court |
DELIVERED ON: | 29 November 2022 |
DELIVERED AT: | Brisbane |
HEARING DATE: | Decision without an oral hearing. Written submissions filed 29 September 2022, and 21 and 25 October 2022. |
JUDGE: | Bradley J |
ORDER: | THE ORDER OF THE COURT IS THAT: The plaintiff pay the defendant’s costs of the proceeding:
|
CATCHWORDS: | PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – GENERAL RULE – COSTS FOLLOW THE EVENT – COSTS OF ISSUES – OFFERS OF COMPROMISE – INFORMAL OFFERS AND CALDERBANK LETTERS – UNREASONABLE REFUSAL OF OFFER – where the plaintiff was unsuccessful on all its claims at trial – where the defendant was successful on its counterclaim at trial – where the defendant made an offer to settle the proceeding before the trial by accepting a fixed sum from the plaintiff with the proceeding being dismissed with no order as to costs and mutual releases and discharges – whether costs should follow the event – whether the costs the plaintiff should pay to the defendant ought to be reduced because of issues on which the plaintiff succeeded and the defendant failed – whether the plaintiff failed to obtain an order more favourable to it than the defendant’s offer – whether the plaintiff’s rejection of the offer was imprudent or unreasonable – whether the defendant’s offer was a genuine offer of compromise – whether the plaintiff should pay the defendant’s costs incurred after the defendant’s offer on the indemnity basis |
COUNSEL: | B O'Donnell KC and C A Johnstone for the plaintiff and the defendant by counterclaim. D Savage KC and C H Matthews for the defendant |
SOLICITORS: | Russells for the plaintiff and the defendant by counterclaim |
- [1]These reasons concern the orders the court should make about the parties’ costs of this proceeding.
- [2]On 8 September 2021, the defendant offered to accept $150,000 in return for the dismissal of the plaintiff’s claim, with no order as to costs. The defendant said the offer was “made pursuant to Chapter 9, Part 5 of the UCPR and alternatively, on the principles in cases such as Calderbank v Calderbank (1975) 3 All ER 333”.
- [3]The plaintiff did not accept the defendant’s offer.
- [4]The proceeding went to trial about four weeks later. The trial occupied five hearing days and was followed by written submissions from the parties. Each side was represented by two counsel. The court reserved its decision to consider the submissions before giving judgment.
- [5]On 26 August 2022, the court made three declarations sought by the defendant, ordered judgment for the defendant on the plaintiff’s claim and judgment for the defendant against the plaintiff and the defendant added by counterclaim on the counterclaim, and ordered the removal of a caveat lodged by the plaintiff. It is difficult to contemplate a greater level of success for the defendant in the proceeding.
The costs orders sought
- [6]On 21 September 2022, the plaintiff filed written submissions by its counsel and an affidavit of Mr Khan. The affidavit exhibited 58 pages of information and analysis of paragraphs of the pleadings, written submissions, documents in the trial bundle, documents disclosed by the parties, witness preparation and other attendances. On 28 September 2022, the defendant filed written submissions by its counsel on costs and an affidavit of Mr Hamilton. The matter was listed for short oral submissions on 29 September 2022. On that occasion, the plaintiff’s counsel was not able to proceed due to serious matters raised by the defendant in its written submissions, filed the day before. The court directed the defendant to consider the plaintiff’s counsel’s concerns about the defendant’s submissions and advise within 24 hours whether the defendant maintained or withdrew the contentious parts of the written submissions it has filed. On 29 September 2022, the defendant filed amended written submissions deleting the contentious parts of its earlier submissions. On 21 October 2022, the plaintiff filed further written submissions. On 25 October 2022, the defendant filed reply submissions. Subsequently, it was agreed that the court should determine the costs questions without an oral hearing.
- [7]In summary:
- (a)The plaintiff seeks an apportionment of the costs, by reference to an “issues-based” approach, in the form of a reduction by a percentage of the defendant’s overall costs to be paid by the plaintiff in the range of 40% to 50%.
- (b)The defendant seeks an order that the plaintiff pay its costs of proceeding on the standard basis to the date of its offer and thereafter on the indemnity basis.
- (a)
Discretion as to the order that should be made
- [8]The court has a wide discretion in awarding costs.[1] It must exercise the discretion judicially and by reference to relevant considerations. The primary purpose of any costs order is to protect a successful party from the undue depletion of its resources from the pursuit of its lawful rights or the defence of its lawful conduct. It is not to punish an unsuccessful (or insufficiently successful) party.[2] The UCPR includes provisions affecting costs order in particular circumstances. For the reasons below, the rules do not dictate the orders to be made in this instance.
Whether the usual costs order should be adjusted by reference to issues
- [9]It is convenient to consider the plaintiff’s proposal first. The plaintiff says it had success on some issues in the proceeding. It has undertaken an “attendance based analysis” of three “issues”, considering the documents disclosed by the parties, the documents tendered at the trial, and the witness statements relied upon. The plaintiff estimates that 48% of those attendance costs related to an issue on which the plaintiff succeeded, namely whether there was a legally binding agreement or whether the plaintiff repudiated such an agreement.
- [10]The plaintiff commenced the proceeding on 2 December 2020. There were three versions of the claim, five versions of the statement of claim, and two sets of further and better particulars of versions of the statement of claim. The plaintiff was unable to obtain relief on any of the alternative bases of claim with which it commenced the trial. Its success on whether there was a legally binding agreement and whether it repudiated such an agreement had no effect on the outcome of the proceeding. Just as the court would not wish to encourage parties to contest issues or topics on which they are unlikely to succeed, the court would not wish to encourage parties to pursue issues that have no ultimate effect on the outcome in a proceeding.
- [11]In a case with multiple issues, “the court does not generally attempt to differentiate between those issues on which a party is successful and those on which it fails, unless a particular issue or group of issues is clearly dominant or separable.”[3]
- [12]The outcome of the trial demonstrates this is not an appropriate case to embark upon an apportionment of costs, based directly or indirectly on “issues”. A party who has success on a discrete issue and fails to obtain any relief should not harbour an expectation that it will recover any costs of its ultimately fruitless pursuit of that issue, or that there will be a reduction in the costs it must pay to the ultimately successful party on that account. I have considered the nature and extent of the plaintiff’s success on issues. The circumstances do not call for an order that affords the defendant less protection because, in the successful defence of its lawful conduct, the defendant was unsuccessful or insufficiently successful on issues that did not alter the final outcome.
- [13]If the outcome of the trial were not sufficient to resolve this point, then the affidavit of Mr Khan with its exhibit, and the submissions filed by the parties about the “issues”, would suffice. The superficially simple conclusions reached by Mr Khan are based on a complicated and subjective analysis and assessment of a large volume of documents and time-recording records.
- [14]The court is to apply the rules relevant to costs with the objective of avoiding undue delay, expense, and technicality, and facilitating the just and expeditious resolution of the real issues at a minimum of expense. It follows that, in most matters, the exercise of the court’s discretion to make an order about costs should not involve examination of many pages of schedules analysing the allocation of the time spent by individual solicitors on “issues” or other information about the various bases on which a plaintiff advanced its claim and on which a defendant sought to defend itself against the claim. The present matter does not warrant such an exercise.
- [15]The plaintiff should pay the defendant’s costs of the proceeding, without an adjustment for individual issues.
Whether the defendant should have some costs assessed on the indemnity basis
- [16]There is some contention about whether the defendant’s offer was made under r 361. It could not have been made under any other provision in chapter 9 part 5 of the UCPR. It matters not. If the defendant’s offer was made under r 361, then the outcome of the proceeding shows that the appropriate order for costs is not the order that might be made if r 361(2) were applied.[4]
- [17]As noted above, the extent of the defendant’s success calls for an order that the plaintiff pay the defendant’s costs of the proceeding.
- [18]The issue is whether any part of those costs ought to be assessed on the indemnity basis.
- [19]Each of the parties to litigation should have an interest in resolving their dispute at a minimum cost. There is also a public interest in parties acting reasonably and not making unreasonable use of the courts, to the detriment of other litigants and the community generally. The public substantially meets the cost of the litigation process. The possibility of costs being assessed on the indemnity basis provides an incentive for plaintiffs and defendants to consider compromise. It has long been recognised that the court might encourage compromise and the shortening of litigation, and consider offers of compromise as “assisting the court towards justice in making the order as to costs.”[5]
- [20]An indemnity costs order is typically deployed where a party has acted plainly unreasonably and, in doing so, increased the costs the other party has incurred.[6] In such a case, other things being equal, the court may conclude an award of costs on the standard basis would be insufficient to protect the successful party from the undue depletion of its resources, and that an indemnity costs order is appropriate as a means of achieving a fairer result. The unreasonable or imprudent rejection of an offer of compromise may justify an order that the rejecting party pay the offering party’s costs to be assessed on the indemnity basis.[7] That is a basis on which the defendant seeks such an order in this proceeding.
- [21]The defendant advanced other bases for an indemnity costs order. To the extent that those matters were maintained, I am not persuaded that, by themselves, they would justify such an order. Nor do I consider they add anything of importance to the defendant’s argument about the offer.
Was this a Calderbank offer?
- [22]Courts have accepted and encouraged the practice of making offers, including so-called Calderbank letters, because, like offers under the rules, they:
“facilitate the public policy objective of providing an incentive for the disputants to end their litigation as soon as possible. Furthermore, however, it can be seen as also influenced by the related public policy of discouraging wasteful and unreasonable behaviour by litigants.”[8]
- [23]The defendant’s offer was expressly made, in the alternative to the UCPR, “on the principles in cases such as Calderbank v Calderbank”.[9] This distinguishes it from the offer considered in Wiggins Island Coal Export Terminal Pty Limited v Civil Mining & Construction Pty Ltd [WICET],[10] which the plaintiff cited. In WICET, the offer contained nothing to indicate expressly that it was to operate as a Calderbank offer.
- [24]Here, the defendant’s letter set out why it was contended the plaintiff’s case was “bound to fail”, relying on changes the plaintiff had made to its pleading, abandoning a “key part” of the case about the mortgagees’ consent, and the further changes the plaintiff was then proposing to make. The defendant did not have to descend to specificity.[11] The plaintiff could decide whether to accept the offer by considering the merits and prospects of its claim. Additional chest-thumping by the defendant, in the offer or the covering letter, would not have changed that position.
- [25]As the High Court noted in Stewart v Atco Controls Pty Ltd (In Liquidation) (No 2):
“The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs.”[12]
- [26]The use of Calderbank letters is so common that legally represented parties in commercial litigation may be taken to be aware that the court may consider the offer in deciding whether to depart from the usual costs order; that is if the offer is not accepted and the result for the offeree is worse than if it had accepted it.[13] The possible consequences of rejection of a reasonable and genuine Calderbank offer include an order for costs to be assessed on the indemnity basis.
Was the failure to accept the offer unreasonable?
- [27]The defendant bears the onus of showing the plaintiff’s rejection of the offer was unreasonable, in all the circumstances.[14]
- [28]In J & D Rigging Pty Ltd v Agripower Australia Ltd,[15] the Court of Appeal quoted with approval the following six matters identified by the Victorian Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2),[16] as those “at least” to which a court should ordinarily have regard in considering whether rejection of a Calderbank offer was unreasonable:
- (a)the stage of the proceeding at which the offer was received;
- (b)the time allowed to the offeree to consider the offer;
- (c)the extent of the compromise offered;
- (d)the offeree’s prospects of success, assessed at the date of the offer;
- (e)the clarity with which the terms of the offer were expressed; and
- (f)whether the offer foreshadowed an application for an indemnity costs order in the event of the offeree rejecting it.
- (a)
- [29]The defendant’s offer was made about four weeks before the trial commenced. The proceeding had been placed on the commercial list on 6 April 2021, and directions had been made for the third version of the plaintiff’s pleading to be filed and served, and for disclosure. Before the offer was made, there were four further commercial list reviews. Directions had been made for the delivery of witness statements, and the preparation of a trial bundle.
- [30]By 8 September 2021, the plaintiff ought to have had an informed view of its case, the defence, the issues, the evidence available to it, the evidence it needed to adduce, and the matters of law that were likely to be important in the outcome of the trial. It was an appropriate time to consider an offer of settlement.
- [31]The offer was open for acceptance for 14 days. The plaintiff was represented by an experienced firm and two experienced counsel. Two weeks was a reasonable time to allow the defendant to consider the offer.
- [32]The defendant’s standard costs to 8 September 2021 have been itemised in accordance with the scale and conservatively estimated at $189,000, being about 30% of its actual costs. It follows the defendant’s actual costs were about $630,000 to that date.
- [33]In fixing the offer at $150,000, the defendant applied a notional discount of about 20% to its conservative assessment of its standard costs to that date of $189,000.
- [34]There is no real prospect that the costs the plaintiff would be ordered to pay to the defendant for the proceeding, including the trial, assessed on the standard basis, would be $150,000 or less. The defendant’s offer also stipulated mutual releases and discharges. The plaintiff’s caveat would be removed, and the defendant would not be able to pursue any claim for loss or damage occasioned by it. It was a significant compromise on the part of the defendant. I am satisfied the defendant’s offer was a genuine offer of compromise, made in good faith.
- [35]The plaintiff would have saved its own additional costs of the proceeding, including the trial and the further exchanges to determine the appropriate costs orders, had it accepted the offer. The defendant would have saved its costs and, the plaintiff would not have incurred a liability to pay the defendant’s costs on any basis.
- [36]As the defendant’s evidence shows, the costs involved were not minimal. The offer was of significant benefit to the plaintiff.
- [37]The dispute was about whether the plaintiff was entitled to specific performance of an option to purchase a large commercial property for $41 million. It was not purchasing the hotel business trading from the land, but would become the landlord, if the option were to be exercised and the purchase were to be completed. The plaintiff was an investor. It identified no personal attachment to the property. It was simply a business transaction. The plaintiff used the court’s resources to pursue its commercial interest, as it was entitled to do. This does not impose any burden on a party to compromise its legal rights to accommodate the public interest. It does invite a clinical consideration of the reasonableness of the rejection of an offer.
- [38]The defendant owned the property the subject of the plaintiff’s claim and a related company owned another similar property in the same region. The defendant was connected by personal relationships with the trading entities conducting the two hotel businesses. During the global pandemic, in a tourist region, the defendant was seeking to sell the properties to discharge debt owed to a bank and a private lender, who held mortgage security over one or both of the properties. The option to purchase the property, on which the plaintiff sued, was subject to the mortgagees’ consent. Neither mortgagee gave consent.
- [39]On 12 November 2020, after the mortgagees’ consent had been refused, the plaintiff lodged a caveat over the title to the property, preventing registration of an instrument affecting the land. A consequence of the plaintiff commencing this proceeding on 2 December 2020 was that the plaintiff’s caveat did not lapse. The rejection of the defendant’s offer had the consequence that the proceeding continued to trial and then to judgment. The caveat remained over the title until the court ordered its removal on 26 August 2022.
- [40]During the period the offer was open, the plaintiff recast its statement of claim, adding a new primary case and a new alternative case. The plaintiff’s former case was pleaded as a further alternative. It is reasonable to assume the plaintiff applied some thought to its claim and its prospects of success at that time, in making the late and extensive changes to its claim.
- [41]It is not clear whether the plaintiff made any assessment of its prospects or sought professional legal opinion about them. When the offer was made, acting reasonably, the plaintiff would have assessed its prospects of success to be poor. It is not clear whether the plaintiff had any view, or a different view, of its prospects and, if it did, how it came to that conclusion. Perhaps, like Mr Micawber, the plaintiff believed something would turn up to bring it success.
- [42]In any event, acting reasonably, the plaintiff ought to have given the defendant’s offer the most careful consideration. In doing so, the plaintiff ought to have considered the possible consequences of rejecting the offer, including the possibility it might be ordered to pay the defendant’s costs assessed on the indemnity basis from that time.
- [43]The defendant obtained the relief it sought, including declarations binding on the plaintiff. As the plaintiff’s submissions acknowledge, the defendant should have an order that the plaintiff pay some amount for the defendant’s costs.
- [44]The plaintiff submits its failure to accept the offer was reasonable “having regard to the state of the evidence and the pleadings in the period when the offer was current”.
- [45]The reference to the “state of the evidence” is to comments made by Mr Savage QC on 27 July 2021 at a commercial list review. That was before any witness statement or expert report had been filed or served. Mr Savage told the court that whether the defendant would call bank witnesses would depend “on the sort of case that’s found in the other side’s statements”, which were yet to be delivered. The plaintiff had copies of the contemporaneous documents in which the mortgagees had declined to consent to the option. The plaintiff had these before the proceeding was commenced. Mr Savage’s qualified comments provided no reasonable basis to reject the offer.
- [46]As noted above, while the offer was open, the plaintiff amended its pleading and the defendant complied with a court direction to file and serve a defence to that third amended statement of claim. The defendant’s letter enclosing the offer refers to the plaintiff’s then foreshadowed amendment.[17] The defendant relied on these changes to justify the offer.
- [47]The plaintiff says the deletion of some positive allegations from the defence signalled the defendant would likely not call a bank officer as a witness. That was a correct interpretation of the change. No bank officer was called at the trial. I have considered these events in reaching a conclusion on the prudence and reasonableness of the plaintiff’s failure to accept the offer. They were not a reasonable basis for the plaintiff to decline to accept the offer.
- [48]The plaintiff says the offer was not in clear terms and there is no evidence by which the court can be satisfied that the order obtained by the defendant is not more favourable to the plaintiff than the defendant’s offer. I reject that submission.
- [49]The offer was very simple: a payment of a fixed sum and the dismissal of the proceeding with no order as to costs. The plaintiff’s inference that it did not appreciate the $150,000 was for the defendant’s costs, lacks credibility.
- [50]For the reasons noted at [25] above, by being expressly made in accordance with the principles in Calderbank v Calderbank, the defendant’s offer foreshadowed an application for indemnity costs in the event the plaintiff did not accept it.
- [51]The plaintiff’s rejection of the defendant’s offer was objectively imprudent and unreasonable, considering all the circumstances of the case, including the apparent strength of each party’s case at the time that the offer was made.
Consequences of not accepting the offer
- [52]By not accepting the offer, the plaintiff continued to involve the defendant in the proceeding, including the trial, all it required, and all that followed it. An order for the plaintiff to pay the defendant’s costs after the offer to be assessed on the standard basis would be insufficient to protect the defendant from the undue depletion of its resources caused by the plaintiff’s imprudent and unreasonable rejection of the offer.
- [53]Costs assessed on an indemnity basis would not fully compensate the defendant for having to come to court to defend itself. The defendant will still bear unrecoverable costs. However, an order for post-offer costs to be assessed on the indemnity basis is a means of achieving a fairer result for the defendant.[18] It is a result the defendant could not achieve through Chapter 9 Part 5 of the UCPR. As noted above, a r 361 order is not appropriate here, where the plaintiff has failed completely and the defendant has been completely successful. Here, a Calderbank type of offer is a more useful and effective measure.
- [54]The circumstances permit the court to order the plaintiff to pay the defendant’s costs on the indemnity basis, from the date of the offer. There is no reason to conclude making such an order would deter plaintiffs with good prospects from pressing their claims, make parties feel unreasonably constrained to compromise cases, or discourage parties from offering reasonable compromises.
Final disposition
- [55]There should be an order that the plaintiff pay the defendant’s costs of the proceeding to be assessed on the standard basis up to and including 8 September 2021 and on the indemnity basis from and including 9 September 2021.
Footnotes
[1] Uniform Civil Procedure Rules 1999 (Qld) (UCPR) rr 681(1), 766(1)(d), 785(1).
[2] Latoudis v Casey (1990) 170 CLR 534 at 543 (Mason CJ), 562-563 (Toohey J), 567 (McHugh J).
[3] Jones v Trad (No 3) [2013] NSWCA 463, [14] (Ward, Emmett and Gleeson JJA), citing Elite Protective Personnal Pty Ltd v Salmon (No 2) [2007] NSWCA 373, [6] (Beasley, McColl and Basten JJA).
[4] Rule 361(2) would otherwise require the defendant to pay the plaintiff’s costs, on the standard basis, up to and including the day it served the offer, and require the plaintiff to pay the defendant’s costs, on the standard basis, after the day the offer was served.
[5] Computer Machinery Co Ltd v Drescher [1983] 1 WLR 1379 at 1383 (Megarry VC).
[6] Tector v FAI General Insurance Company Ltd [2001] 2 Qd R 463, 464 [5] (McMurdo P, Pincus JA and White J).
[7] Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, 233 (Sheppard J).
[8]Leichhardt Municipal Council v Green [2004] NSWCA 341 at [14] (Santow JA).
[9] It was also purportedly made “pursuant to Chapter 9 Part 5 of the UCPR.”
[10] [2021] QCA 8.
[11] Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435, 442 [27] (Warren CJ, Maxwell P and Harper AJA), adopting Aljade & MKIC v OCBC [2004] VSC 351 at [95] (Redlich J).
[12] (2014) 252 CLR 331, [4] (Crennan, Kiefel, Bell, Gageler and Keane JJ).
[13] SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, [37] (Giles JA).
[14] Evans Shire Council v Richardson (No 2) [2006] NSWCA 61, [26] (Giles, Ip and Tobias JJA).
[15] [2014] QCA 23, [6] (Holmes JA, Applegarth and Boddice JJ).
[16] (2005) 13 VR 435, 442 [25].
[17] The plaintiff provided the proposed third amended statement of claim to the defendant on 7 September 2021, the day before the offer was made.
[18] Petrotrade Inc v Texaco Ltd [2002] 1 WLR 947 (CA), 494 [64] (Lord Woolf MR).