Litfin v Wenck [No 2][2024] QSC 220

SUPREME COURT OF QUEENSLAND

1. [1]
   On 9 August 2024 an order was made that the originating application be dismissed and reasons were published (Judgment).^[1] Further, directions were made for the parties to file submissions in relation to costs and it was agreed that costs be dealt with on the papers.
2. [2]
   The defined terms in the Judgment are used in these reasons, unless stated to the contrary.
3. [3]
   The Respondent seeks three orders in respect of costs:

   1. That the Applicant pay the Respondent’s costs of and incidental to the Originating Application (including any reserved costs) on the standard basis from commencement of the Originating Application until 22 January 2024, to be agreed or assessed.
   2. That the assessment of the Respondent’s costs on a standard basis be made on the basis that, except so far as they are of unreasonable amount, the fees of senior counsel and junior counsel should be regarded as costs necessary and proper.
   3. That the Applicant pay the Respondent’s costs of and incidental to the Originating Application (including any reserved costs) on the indemnity basis on and from 23 January 2024, to be agreed or assessed.
4. [4]
   The Applicant contends that the appropriate order in relation to costs is that the Applicant pay the Respondent’s costs of and incidental to the Originating Application (including any reserved costs) on the standard basis.
5. [5]
   In light of the divergence in the orders sought, it is necessary to consider the relevant legal principles as well as the specific factual circumstances relied upon in respect to costs.

Respondent’s position

6. [6]
   The Respondent seeks costs pursuant to r 681 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR), which are in the discretion of the court and follow the event unless the court orders otherwise. Pursuant to r 702 UCPR costs are to be assessed on the standard basis unless the UCPR or an order of the court provides otherwise.
7. [7]
   The Respondent submits that costs should be paid on and from 23 January 2024 on the indemnity basis pursuant to r 703(1) UCPR by reason of the Respondent having offered to resolve the proceedings on the basis set out in a letter dated 22 December 2023 (Respondent’s Offer), which was not accepted by the Respondent.^[2]
8. [8]
   The Respondent’s Offer was:

   1. Made pursuant to the principles identified in Calderbank v Calderbank.^[3]
   2. That the proceeding be dismissed by consent, with each party to bear their own costs.
   3. The offer was open for four weeks.
   4. Foreshadowed that indemnity costs would be sought if the offer was not accepted.
9. [9]
   The Respondent outlines the relevant principles in respect of an application for indemnity costs arising from the operation of a Calderbank offer. In particular, the Respondent relies on the summary of the principles in the reasons of Cooper J in the Queensland Court of Appeal in McGee v Independent Assessor & Anor [No 2].^[4]
10. [10]
    The relevant principles include:

    1. The discretion provided by r 681 UCPR is wide but is informed by the statement of principle that the usual exercise of the discretion is that costs follow the event.^[5]
    2. A recognised circumstance in which the court may exercise its discretion to order costs on the indemnity basis is where a party unreasonably rejects or fails to accept a Calderbank offer.^[6]
    3. There is no presumption of disposition in favour of ordering an assessment on the indemnity basis simply because a party rejects an offer and subsequently obtains a less favourable judgment.^[7]
    4. The failure to accept a Calderbank offer is a matter to which a court should have regard when considering whether to order indemnity costs. The critical question is whether the rejection of the offer was unreasonable in the circumstances. The party seeking the order must show that the other party acted unreasonably or imprudently in not accepting the offer.^[8]
    5. The consideration of whether the rejection of an offer was unreasonable should ordinarily have regard to at least the following matters:^[9]
       1. the stage of the proceeding at which the offer was received;
       2. the time allowed for the offeree to consider the offer;
       3. the extent of the compromised offer;
       4. the offeree’s prospects of success, as assessed at the date of the offer;
       5. the clarity with which the terms of the offer were expressed; and
       6. whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
    6. The non-acceptance of a Calderbank offer may in some cases be a strong factor to be taken into account on an application for indemnity costs.^[10]
    7. If the offeree makes a submission that rejection of the offer was not unreasonable, then it should at least point to a reason for not accepting the offer beyond the usual prospects of being successful in litigation.^[11]
11. [11]
    The Respondent points to the following facts as being relevant to the consideration of the issue of costs:

    1. The Respondent’s Offer was made on 2 December 2023.
    2. At that time all the lay and expert evidence had been filed and served, with the exception of the three joint expert reports (JERs) on air, town planning and valuation issues.
    3. The Respondent’s Offer was left open for a period of four weeks. The Applicant did not suggest that she required any additional time to consider the Respondent’s Offer.^[12]
    4. The Respondent’s Offer expressly foreshadowed that indemnity costs would be sought if the offer was not accepted and the Applicant did not obtain a more favourable outcome at trial.
    5. The offer of compromise in the Respondent’s Offer was meaningful, particularly having regard to the material filed, the anticipated length of trial (which was listed for five days) and the technical and legal issues relevant to the application.^[13]
    6. The Respondent’s Offer was in clear terms.
    7. Further the Respondent’s Offer identified the legal and factual basis upon which the Respondent contended the Applicant would fail.  In particular, the Respondent explained the reasons why the Applicant would fail:
       1. even if consideration was limited to only light and air; and
       2. on the exercise of the discretion, even if one or both grounds under the Property Law Act 1974 (Qld) (Property Law Act) were established.
    8. These reasons ultimately aligned with the manner in which the issues were dealt with at the trial, and as addressed in the Judgment.^[14]
12. [12]
    In respect of the issue of prospects of success, the Respondent contends that:

    1. The Respondent’s Offer was written at the close of the expert evidence.
    2. The Respondent’s Offer identified a number of issues in respect of the expert evidence of particular relevance, including:
       1. Even without considering the views and outlook, the evidence of Mr King and Mr McGowan established that:
          1. the light and air secured by the easement represented a “practical benefit of substantial value, utility or advantage”; and
          2. extinguishment of the easement would “cause substantial injury … through the substantial loss of access to light”.^[15]
       2. That the Applicant purchased the Litfin Land with full knowledge of the Easement^[16] was relevant to the exercise of the discretion and weighed against the discretion being exercised in the Applicant’s favour.
       3. A reason that the Applicant says it could not use the land for a residential purpose was the impact of the ROL Approval at the front of the Litfin Land.^[17]
       4. The evidence of Mr Rofail (wind engineer) was unlikely to be accepted in circumstances where it had not been based on detailed modelling.^[18]
       5. There was some divergence between the relief sought in respect of modification of the Easement and the Proposed Extension, which were not in all respects supported by the Applicant’s experts.
13. [13]
    The Respondent also relies on the following additional factors:

    1. The inadequacy of Mr Rofail’s report identified in the Respondent’s Offer was ultimately found by the Court.^[19]
    2. There was no evidence to contradict Mr King’s findings with respect to light.^[20] The only evidence provided by the Applicant with respect to light were the shade diagrams prepared by Mr Ross, which related only to direct sunlight.
    3. At the time of the Respondent’s Offer, the Applicant had the second report of Mr King containing the data logger information and conclusions.^[21]
    4. In respect of the valuation evidence, Mr Leeson’s report was deficient and this was ultimately found by the Court.^[22]
    5. At the time of the Respondent’s Offer, the Applicant’s own town planner, Mr Taylor, had provided the opinion that the amenity conferred by the existence of the Easement was unique, desirable, preferable to that otherwise generally available and provided a substantial benefit which may be lost if the Easement was removed.^[23]
14. [14]
    The Respondent contends that the Applicant’s rejection of the Respondent’s Offer should be considered in the context of the offer made by the Applicant on 18 March 2024 (Applicant’s Offer),^[24] after the JERs had been filed.
15. [15]
    The Applicant’s Offer set out the Applicant’s position as follows:

    1. There was no practical benefit with respect to light and air.
    2. The Respondent’s position was based on an “illusion” which could not support ancillary or indirect rights.
    3. It was asserted that at trial cross-examination would reveal that the Easement was invented solely for an ancillary purpose. Consequently, no substantial injury would result from extinguishment or modification of the Easement.
    4. Alternatively, if there was practical benefit it did not have substantial value and compensation was adequate.
16. [16]
    Relevantly to the current considerations, at trial the Respondent was not cross-examined on this point or at all. His evidence was not challenged.
17. [17]
    It is in these circumstances that the Respondent contends that the rejection of the Respondent’s Offer by the Applicant was unreasonable. In particular, the rejection of the Respondent’s Offer was unreasonable or imprudent for the following reasons:

    1. It relied upon a false premise, namely that the Easement’s sole purpose was to protect a view and it provided no practical benefit. This ignored the wording of the Easement itself as well as the legal proposition that collateral or incidental benefits were relevant.^[25]
    2. The inaccuracy of the premise had been responded to previously by the Respondent.^[26]
    3. The Applicant did not take any account of the practical benefits identified in the statement of the Respondent and the Respondent’s experts.^[27]
    4. The assertion that there was no substantial injury if the Easement was modified or extinguished could only be made by completely discounting:
       1. the evidence of the Respondent, in respect of which he was not cross-examined;
       2. the evidence of Mr King in respect of light and which was not traversed by an expert on behalf of the Applicant;
       3. the “self-evident short comings” of Mr Rofail’s report; and
       4. the opinions of the Applicant’s own expert, Mr Taylor.
    5. It ignored the discretionary consideration that the Applicant purchased the land with knowledge of the Easement and had owned the land since 2012.^[28]
    6. The sole reason for the application was the Applicant’s wish to make the Litfin Land more enjoyable or convenient for her own private purposes,^[29] including having the opportunity to subdivide at the front of the property.^[30]
    7. There was not, on the material filed, a significant preponderance of circumstances in favour of the Applicant.
    8. Ultimately, the Applicant failed to satisfy the requirements under either s 181(1)(b) or (d) of the Property Law Act to enliven the Court’s discretion.
18. [18]
    In light of these matters, the Respondent submits that at the time the offer lapsed, it was probable that the Applicant would fail in her application.
19. [19]
    The Respondent repeated the Respondent’s Offer on 28 March 2024 (Repeated Offer), and the Repeated Offer was left open until 17 April 2024. The Repeated Offer was not accepted.^[31]
20. [20]
    The Respondent submits that the fact that the Repeated Offer was not accepted following the provision of the town planning JERs suggests that the Applicant did not accept that on her own evidence she could not establish an absence of practical benefit or injury, nor did she have any prospect of establishing a ground under s 181(1)(b)(i) or (d) of the Property Law Act that was necessary.
21. [21]
    In all of these circumstances, it is submitted that the Court should depart from the usual order in respect of costs and order that:

    1. the Applicant pay the Respondent’s costs (including reserved costs) to be assessed on the standard basis until 22 January 2024; and
    2. the Applicant pay the Respondent’s costs (including reserved costs) to be assessed of the indemnity basis on and from 23 January 2024.
22. [22]
    Further, to the extent that the costs on a standard basis form part of the order, it is submitted that the costs should include the costs of two counsel.
23. [23]
    It is submitted that the originating application dealt with:

    1. Significant and permanent property rights.
    2. Extensive evidence included approximately 18 expert reports covering complex issues such as town planning and the Brisbane City Council development requirements.
    3. There was detailed cross-examination in respect of the Brisbane City Council development requirements and the valuation evidence.
    4. The Applicant’s valuation evidence was ultimately rejected.^[32]
24. [24]
    It is also submitted that the legal issues were of some complexity and required significant research. This is reflected in the authorities referred to in the submissions and also the lengthy consideration of the authorities in the Judgment.
25. [25]
    It is submitted that it was appropriate for senior and junior counsel to be retained and is reflected in the second order sought by the Respondent.

Applicant’s position

26. [26]
    The Applicant submits that the Respondent should have its costs on the standard basis and the application for indemnity costs should be refused.
27. [27]
    The Applicant agrees with the Calderbank principles set out in the Respondent’s submissions which are reproduced above.  However, it is submitted that the principles do not apply here as:

    1. the Respondent’s Offer did not include an element of genuine compromise; and
    2. in any event the Respondent’s Offer was not unreasonably rejected by the Applicant.^[33]
28. [28]
    The Applicant contends as follows:

    1. The Respondent’s Offer proposed a “walk away” and the offer did nothing to resolve the issue between the parties.
    2. The absence of a meaningful compromise in itself justified the Applicant’s decision to reject it.
    3. The rejection of the offer was not unreasonable. The Court did not find that the Applicant’s case was frivolous, vexatious or conducted in bad faith. Rather, the Judgment indicates that the issues were contestable and required judicial resolution.
    4. The fact that the Applicant’s arguments were ultimately unsuccessful does not mean that her conduct in pursuing the application was unreasonable or imprudent.
29. [29]
    The Applicant relies on the decision of Muir J in Alpine Pty Ltd v Brisbane City Council^[34] as being a consideration of a “walk away” offer, being an offer that the proceeding be discontinued. 
30. [30]
    In that case, her Honour refused to order indemnity costs. The Applicant points to the comments at paragraph [15] where Muir J stated:

“Again, the fact the respondent contended that the applicant’s grounds of review were not justified or had insufficient prospects of success, does not render the applicant’s non-acceptance of the offer unreasonable.”

31. [31]
    The Applicant also contends:

    1. At the time of the Respondent’s Offer, it was not unreasonable for the Applicant to believe that her application for the modification or extinguishment of the Easement, supported by expert evidence and legal principles, had merit and required determination by the Court.^[35]
    2. The Applicant evoked her statutory right to modify or extinguish the Easement that impeded the reasonable use of the Litfin Land.^[36]
    3. The issues raised were not straight forward and there was legitimate scope for judicial determination.
    4. The Judgment demonstrates the unsettled and competing legal principles, including the “divergence in the authorities” regarding s 181 of the Property Law Act.^[37]
    5. The extent of the compromise was the same as discussed by Muir J in Alpine Pty Ltd v Brisbane City Council.^[38]
32. [32]
    In these circumstances, the Court’s decision to dismiss the application does not, in itself, imply that the rejection of the Respondent’s Offer was unreasonable.
33. [33]
    The Applicant also contends that the complexity and significance of the proceedings are such that the rejection of the Respondent’s Offer was not unreasonable. In particular, the Applicant contends that the rejection of the Respondent’s Offer should be assessed against the arguments run at trial and the findings of the Court in the Judgment.
34. [34]
    That is:

    1. The issues involved important and unresolved questions regarding competing property rights and the interpretation of statutory provisions under the Property Law Act.
    2. The Applicant sought to use her land for the purposes the Court accepted were ordinarily allowed but for the Easement.  The Respondent sought to impose his property rights as contained in the Easement and ancillary to the words of the Easement. The Applicant sought the Court’s determination of the competing rights.
35. [35]
    The Applicant submits that while the Court ultimately found for the Respondent, the decision of the Court was “clearly a balancing exercise, with considerable discretion”.
36. [36]
    Further, it is submitted that the application for indemnity costs must be evaluated in light of the “overall proportionality of the order”. The imposition of indemnity costs would be disproportionate to the conduct of the Applicant and the nature of the case. It is in these circumstances it is submitted an order for standard costs is appropriate and proportionate.
37. [37]
    Further, it is submitted that it is not necessary for the Court to certify the participation of both senior and junior counsel and that r 702(2) of the UCPR adequately provides for costs necessary or proper for the attainment of justice.

Respondent’s position in reply

38. [38]
    The Respondent contends in reply that some of the matters raised in the Applicant’s submissions are not relevant to the question of indemnity costs arising from the rejection of a Respondent’s Offer. The relevant circumstances are those identified in the Court of Appeal decision in McGee v Independent Assessor & Anor.
39. [39]
    The Respondent contends that the Court is to consider whether the rejection of the Respondent’s Offer was unreasonable by considering, among other relevant circumstances, the strengths and weaknesses of the relevant party’s case respectively at the time the offer was made and that the Applicant ultimately failed in the proceeding.
40. [40]
    The Respondent rejects the submission that the Respondent’s Offer did nothing to resolve the issue between the parties. The Respondent’s Offer was that the proceeding be dismissed rather than discontinued. That is, the claim was to be determined by consent against the Applicant.
41. [41]
    Whilst it is true that the Respondent’s Offer did not take into account the costs expended by the Applicant, it did take into account the costs expended by the Respondent. The Respondent’s Offer in effect offered to settle the Applicant’s exposure to the Respondent’s costs if the offer was accepted. In this regard it is submitted that the Respondent’s Offer was genuine and significant.
42. [42]
    The Respondent further contends that the Respondent’s Offer was a genuine compromise. The Respondent submits that the authorities relied upon by the Applicant do not support the Applicant’s contention in this regard.
43. [43]
    In Hobartville Stud Pty Ltd v Union Insurance Co Ltd,^[39] Giles J noted that the offer made was for $1 less than the amount of the claim. Relevantly, his Honour stated:

“Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so.”^[40]

44. [44]
    However, the Respondent contends that this case is not authority for the proposition that a “walk away” offer cannot be a genuine compromise. Whether it is or is not is a question of fact.^[41]
45. [45]
    Further, in Teo & Anor v Twyford bht Cunningham (No 2),^[42] the offer being considered was made at a very early stage, no significant costs had been incurred, no lay or expert evidence had been provided and further documents sought by subpoena had not been received and reviewed. In those circumstances, the Court did not accept that the failure to accept the offer was unreasonable. It was particularly in circumstances where it was:

“unlikely that the plaintiffs would have been in a position to properly test the defendant’s assertions in the 17 September letter and make a realistic assessment of the probable outcome of the proceeding.”

46. [46]
    The Respondent contends that the opposite is in fact true in this case. Here:

    1. The Applicant had all the material which would be placed before the Court, save for the JERs.
    2. The Applicant had access to each of her own experts to assess the matters in question.
47. [47]
    In any event, the subsequent rejection of the Repeated Offer in March 2024 is relied upon to show that the Applicant was not persuaded by the material contained in the JERs, including the statements regarding practical benefits accepted by her town planning expert, Mr Taylor.^[43]
48. [48]
    In respect of Alpine Pty Ltd v Brisbane City Council,^[44] the Respondent submits that Muir J was considering costs on a judicial review application which her Honour had dismissed. The offer was for the application to be discontinued with each party to bear their own costs.
49. [49]
    In that case, her Honour was primarily concerned with whether the offer was unreasonably rejected, taking account of the prospects of success at the date of the offer.
50. [50]
    The Respondent contends that the case is not authority for the proposition that the offer being limited to costs was a feature which counted against the offeror. The order turned on the particular facts of that case.
51. [51]
    In considering whether a “walk away” offer could constitute an offer for the purposes of an offer made in accordance with the Calderbank principles, the Respondent relies upon the comments of Finkelstein J in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (No 4).^[45]
52. [52]
    In that case, it was recognised that a “walk away” offer may or may not constitute a valid offer and what is required to be considered is whether the offer involves a real and genuine compromise.^[46]
53. [53]
    His Honour relevantly stated:

“One can easily envisage circumstances where a ‘walk away’ offer must be regarded as a genuine offer of compromise. Take for example a case that has progressed for some time and the parties’ costs are quite high. In that event an offer to walk away may, in a business sense, be a significant offer.”^[47]

54. [54]
    Further, Finkelstein J also observed:

“Conversely there are circumstances, and this case is an example, where an offer to walk away does not involve any real give and take. Here the offer was made some 12 days after the last appearance was filed … I accept that up to the time of the offer the defendants had incurred some costs. But probably not a lot …”^[48]

55. [55]
    These statements of Finkelstein J have been quoted with approval by the Full Court of the Federal Court of Australia in Rakman International Pty Ltd v Boss Fire & Safety Pty Ltd.^[49]
56. [56]
    The Respondent also relies upon the reasoning of Greenwood J in Clark v Commissioner of Taxation,^[50] where his Honour stated:

“[T]he notion that the applicants are giving up nothing of substance by offering to compromise on the footing that they will absorb the recoverable costs incurred to the date of the offer misunderstands the lay community’s concerns about legal costs and therefore the concerns lay litigants hold about costs. Costs do not lie at the margins for litigants. They are real and of value. When a party elects as part of its offer to abandon a claim to recoverable costs (which in the circumstances must be taken to be a good claim) in the order of $123,000 or $153,000 or possibly $184,000, a real concession arises.”

57. [57]
    Relevantly, in the current matter all of the material was filed, save for the JERs. The material consisted of 18^[51] expert reports and the costs incurred by 20 July 2023 were identified as “substantial”.^[52]
58. [58]
    Further, in the Applicant’s Offer the Applicant’s own assessment of the Respondent’s costs was at least $175,000.^[53]
59. [59]
    The Respondent submits that having regard to the time the proceeding had been on foot, the amount of expert material that had been filed and the extent of the reports, the costs incurred by the Respondent (which it was willing to forgo in the Respondent’s Offer) could not be viewed as other than sufficiently substantial to be classified as a genuine compromise.
60. [60]
    Further, the Applicant misstates the test to be applied. This is not a question of the case being one that should have been struck out as having no prospects of success. Rather, the jurisdiction to award indemnity costs arises on a different basis. That is whether in all the circumstances, including the provision of all of the evidence and correspondence explaining why the Applicant was likely to lose, rejection of the offer was unreasonable.
61. [61]
    It is not an answer or sufficient for the Applicant to say that her position was not unarguable and that she in effect wished to take the matter to trial. That was her right, but the right was not without risk.
62. [62]
    The Respondent also submits that it is of particular relevance that:

    1. the Applicant did not cross-examine the Respondent; and
    2. failed to relevantly accept that the evidence established that the Easement protected and provided practical benefits, even if it was limited only to light and air.
63. [63]
    The Applicant’s misconception as to there being no practical benefit then carried through into the consideration that there was no substantial injury.
64. [64]
    The Respondent contends that the Applicant’s position was not based upon a consideration of the evidence, but rather by reason of a preconceived and incorrect understanding that light and air could not provide practical benefits capable of protection by the registration of the Easement.
65. [65]
    Further, the Applicant also failed to take into account the matters relevant to the exercise of the discretion even if she had been otherwise successful.
66. [66]
    The Respondent contends that the submissions from the Applicant do not grapple with the submissions made at [7] to [12] of the Respondent’s primary cost submissions.^[54]
67. [67]
    In particular, it is submitted that the Applicant was never in a position to establish:

    1. as a matter of fact that there was no practical benefit with respect to light; and
    2. that there would be no injury in respect of light should the Easement be extinguished or modified in accordance with the Proposed Extension.
68. [68]
    Even on the Applicant’s narrow reading of the Easement the Respondent submits that “failure loomed large”.
69. [69]
    In respect of the Applicant’s contention as to proportionality of the costs, it is submitted that no factual basis is put forward to suggest any relevant disproportionality arises. Further, this is to be considered in the context that permanent property rights were the subject of the dispute. In these circumstances, the matters before the Court were not insubstantial in terms of the potential effect on the Respondent.
70. [70]
    In respect of the proposed order as to two counsel, it is submitted that the utility of such an order was identified by Daubney J in Hobbs v Oildrive Pty Ltd (No 2).^[55] It is submitted that the Court has an overriding discretion to permit costs on a particular basis or to permit particular costs even though an appointed assessor will assess the costs applying the test under r 702(2) UCPR.
71. [71]
    In the present case, the Respondent submits that the Court is in a superior position to decide whether two counsel were necessary for the proper attainment of justice.
72. [72]
    It is also submitted that the Applicant does not oppose the making of the order merely that it is unnecessary.
73. [73]
    Accordingly, it is submitted that the Court should make the orders proposed by the Respondent.

Consideration

74. [74]
    The starting point is that the Respondent was wholly successful at the trial and the Applicant should be ordered to pay the Respondent’s costs of and incidental to the application on a standard basis, unless another order is appropriate.
75. [75]
    The Court has the discretion to order indemnity costs and the authorities recognise that the unreasonable refusal of a Calderbank offer may be a proper basis for the exercise of the Court’s discretion.
76. [76]
    The relevant principles have been helpfully summarised by Cooper J in McGee v Independent Assessor & Anor^[56]and which have been outlined previously in these reasons.  The principles are not contentious between the parties.
77. [77]
    The Respondent’s Offer complied with the technical requirements to be a valid Calderbank offer. 
78. [78]
    The relevant issue is whether it was unreasonable for the Applicant to reject the Respondent’s Offer.  This is to be considered at the time the offer was made.
79. [79]
    The onus generally lies on the party seeking an order for indemnity costs to establish the entitlement to an award of indemnity costs based on the unreasonable rejection of an offer to compromise.^[57]
80. [80]
    Ultimately the award of indemnity costs involves the exercise of a discretion.  There is no rule that a Calderbank offer that is a discontinuance or a dismissal of the proceeding with each party bearing their own costs cannot be the basis upon which the Court exercises its discretion to award indemnity costs.  The proper exercise of the discretion is in all of the circumstances in a particular case.
81. [81]
    In considering whether the Applicant acted unreasonably in rejecting the Respondent’s Offer, consideration is to be given to the strengths and weaknesses of the Applicant’s case prospectively at the time the offer was made.  It is, however, relevant that the Applicant ultimately failed.^[58]
82. [82]
    Bond J in SHA Premier Constructions Pty Ltd v Niclin Construction Pty Ltd (No 2)^[59] recognised that there are two competing policy considerations; encouraging settlement and not discouraging litigants from bringing their disputes to the courts.^[60]
83. [83]
    His Honour recognised that the policy rationale for awarding costs on an indemnity basis after the unreasonable rejection of an offer is that:

“from the time of the unreasonable rejection, notionally the real cause and occasion of the litigation is the unreasonable attitude adopted by the offeree”.^[61]

84. [84]
    Bond J also recognised that in deciding the question of whether the rejection of the offer was unreasonable in all the circumstances, consideration should be given to the non-exhaustive list of factors identified.^[62]
85. [85]
    Considering these in turn:

    1. The stage of the proceedings at which the offer was received.
       1. The Respondent’s Offer was made after all of the evidence had been filed and served, except for the JERs.
       2. All of the legal and factual issues were known and able to be evaluated.
       3. The JERs that came after the Respondent’s Offer were substantially consistent with the previous expert evidence.  The fact the JERs were not available at the time of the Respondent’s Offer did not prejudice the Applicant’s ability to evaluate the Respondent’s Offer and to weigh up the risks of proceeding to trial.
    2. The time allowed to the offeree to consider the offer.
       1. A 14-day period is often regarded as the minimum period to be a reasonable period.
       2. The Respondent’s Offer was dated 22 December 2023 and was open for acceptance until 5pm 22 January 2024.
       3. The Respondent’s Offer was open for 4 weeks, which is likely to be a consequence of the Christmas/New Year period. 
       4. There is no evidence or suggestion that the time was not reasonable to consider the offer.
    3. The extent of the compromise offered.
       1. The Respondent’s Offer included a substantial compromise given the amount of costs that had likely been incurred by that time. 
       2. If the Applicant had discontinued the application at the time of the Respondent’s Offer, the Applicant would have been liable to pay the Respondent’s costs up to that time on the standard basis.^[63] 
       3. At that point in time, the Respondent was offering to have the application finalised by it being dismissed and to forego those costs that he would otherwise be entitled to.
    4. The clarity with which the terms of the offer were expressed.
       1. The Respondent’s Offer was expressed in clear terms.
       2. Further, the Respondent’s Offer outlined the basis upon which the Respondent contended it was unreasonable for the Applicant to reject the offer by identifying key reasons why Applicant would not be successful at trial.
       3. The Respondent’s Offer took into account the evidence that had been filed and served by that time and articulated the deficiencies and/or weaknesses in the applicant’s case.  Many of these were ultimately found to be the position in the Judgment.  
    5. Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
       1. The Respondent’s Offer expressly stated that if the offer was rejected and proves more favourable than the outcome at trial, the Respondent intended to apply for costs on an indemnity basis.
    6. The offeree’s prospects of success, assessed at the date of the offer.
       1. In making the Respondent’s Offer the Respondent made an assessment of prospects of success if the matter proceeded to trial.   The terms of the Respondent’s Offer, including the reasons articulated in the letter, are that the Respondent had good prospects should the matter proceed to trial.  In particular, the Respondent’s letter identified weaknesses in the applicant’s case in respect of both establishing the grounds under the Property Law Act and also the discretionary considerations if a ground was established.
       2. In assessing the offer, the Applicant similarly was required to undertake  an assessment of the prospects of success and an assessment of the possible exposure to costs if the matter proceeded to trial.  This included an objective assessment of the strengths and weaknesses of her own case in light of the matters raised in the Respondent’s Offer (and other relevant correspondence between the parties) and the evidence.
       3. The Applicant was legally represented and had the additional benefit of being able to get further advice from the experts retained on her behalf.
       4. The outcome as reflected in the Judgment is not determinative but is a factor to be taken into account.  Further, the reasons for Judgment are also a factor in the assessment of reasonableness.  That is, while reasonableness is viewed as at the time of the offer, it is relevant to consider whether the arguments identified in the Calderbank offer were ultimately accepted by the Court.
       5. The matters identified as being “fatal” to the applicant’s case on both the grounds and the exercise of the discretion were consistent with the way that the Judgment “played out”.
       6. The legal issues and the facts were known at the time of the Respondent’s Offer.
86. [86]
    In all of the circumstances, the Respondent has discharged the onus on him to establish that the Applicant’s rejection of the Respondent’s offer was unreasonable.
87. [87]
    This is so, particularly in light of the following matters:

    1. The Applicant should have been aware of the consequences of the rejection of the Respondent’s Offer and by proceeding to have the issues determined at trial, the Applicant did so knowing that the litigation risks included the potential reallocation of the costs risk.
    2. The potential reallocation of the costs risk was in accordance with the Calderbank line of authorities, including the statement of principle by Bond J in SHA Premier Constructions Pty Ltd v Niclin Construction Pty Ltd (No 2).^[64]
    3. If the Applicant did not “better” the Respondent’s Offer, she was at risk of having to pay the Respondent’s costs on an indemnity basis, at least from the expiration of the Respondent’s Offer.
88. [88]
    The Applicant’s assessment of her own case appears to have been mis-founded, particularly in respect of the “indirect” benefits relied upon by the Respondent.  This is reflected in the Applicant’s Offer on 18 March 2024 and also the rejection of the Repeated Offer by the Respondent on 28 March 2024 (being one month before the hearing).
89. [89]
    Whilst it was open to the Applicant to press ahead to have the issues determined by the Court, that was in the context that if she was unsuccessful the potential costs consequences were altered on the basis of the unreasonable rejection of the Calderbank offer.
90. [90]
    The Applicant’s lack of a full appreciation of the deficiencies in the Applicant’s legal and factual case at the time of the Respondent’s Offer (and ultimately at trial) is reflected in the Applicant’s costs submissions.  While the legal issues may have appeared complex, they were readily identifiable. The application of the law to the facts was also relatively straight forward. The submission that the case was not frivolous, vexatious or conducted in bad faith is not an answer to the current application for indemnity costs.
91. [91]
    The Applicant submitted that the Court “ultimately found in favour of the respondent, however the decision of the Court was clearing a balancing exercise, with considerable discretion”.^[65] This fails to appreciate that the Applicant failed to establish either of the two grounds under the Property Law Act and as a consequence the Court’s discretion did not arise.  While the Judgment does deal with the discretionary ground as well, the Applicant in effect failed at the first hurdle. 
92. [92]
    The Applicant only succeeded on the first element of the ground in s 181(1)(b) of the Property Law Act and did not establish any other element of the grounds relied upon. This involved matters of law and fact, and did not involve the exercise of a discretion at that stage.
93. [93]
    The evidence at the time of the Respondent’s Offer and the trial was the same, apart from the JERs.^[66] The legal issues were also the same.  The Respondent pointed out clear deficiencies in the Applicant’s claim as part of the Respondent’s Offer, which were reflected in the Judgment. 
94. [94]
    In all of the circumstances, I am satisfied that the Applicant’s rejection of the Respondent’s Offer was unreasonable and justifies a departure from the general costs rule in r 681 of the UCPR.
95. [95]
    Accordingly, it is appropriate to order that the Applicant pay the Respondent’s costs on and from 23 January 2024 on an indemnity basis.
96. [96]
    In respect of the standard costs order, it is also appropriate to make the order that the fees of senior and junior counsel be regarded as costs necessary and proper.    The hearing was short but intense.  The nature of the relevant legal principles and evidence required detailed research and consideration. Further, there is utility in making the order as it provides certainty. In all of the circumstances, the involvement of senior and junior counsel was necessary and proper for the attainment of justice.

Orders

97. [97]
    Accordingly, the orders are as follows:

1. That the Applicant pay the Respondent’s costs of and incidental to the Originating Application (including any reserved costs) on the standard basis from commencement of the Originating Application until 22 January 2024, to be agreed or assessed.
2. That the assessment of the Respondent’s costs on a standard basis be made on the basis that, except so far as they are of unreasonable amount, the fees of senior counsel and junior counsel should be regarded as costs necessary and proper.
3. That the Applicant pay the Respondent’s costs of and incidental to the Originating Application (including any reserved costs) on the indemnity basis on and from 23 January 2024, to be agreed or assessed.