Schwartz Family Co Pty Ltd v Capitol Carpets Pty Ltd

On 8 March 2019, for the reasons set out in Schwartz Family Co Pty Ltd v Capitol Carpets Pty Ltd [2019] NSWSC 238, the Court made a declaration to the effect of the relief sought by the plaintiff in its amended summons and granted liberty to apply. This result meant that the plaintiff was substantially successful in its claim.

The defendant submitted, in effect, that costs should follow the event. However, the plaintiff sought an order that its costs be paid on an indemnity basis. The Court permitted the parties to provide short written submissions on costs. Both parties were content to proceed without a further oral hearing on that issue.

The Court has full discretion to award costs, and may order that costs be awarded on the ordinary or an indemnity basis: s 98 of the Civil Procedure Act 2005 (NSW). Generally, costs are to be assessed on the ordinary basis, unless the Court orders otherwise: r 42.2 of Uniform Civil Procedure Rules 2005 (NSW).

The plaintiff submitted that because the subject matter of the claim was a settlement in relation to an entitlement of the defendant to costs, it would be inimical to the policy underlying the common law if the party seeking to enforce such a settlement was required to incur additional irrecoverable costs in enforcing the settlement. It was said that such a result could only be avoided if the plaintiff was awarded indemnity costs. The plaintiff referred to the comments of Kirby J in Baxter v Obacelo Pty Ltd (2001) 205 CLR 635 at [75]; [2001] HCA 66 (Baxter).

In addition, the plaintiff submitted that it had sought, by letter dated 17 July 2018, an undertaking from the defendant in similar terms to the relief sought in the amended summons and had cautioned the defendant that it proposed to rely upon such letter on a claim for costs on an indemnity basis. The undertaking was not provided by the defendant and the plaintiff claimed that it had no option but to commence proceedings. In these circumstances, it was said that the principles in Calderbank v Calderbank [1975] 3 All ER 333 (Calderbank) should be applied and the defendant should be ordered to pay the plaintiff’s costs on an indemnity basis.

In my view, the plaintiff is entitled to its costs. However, those costs should not be ordered to be paid on an indemnity basis. I accept the defendant’s submission that a party who succeeds in enforcing a compromise (including a compromise in relation to costs) is not, merely as a result of that success, entitled to indemnity costs. The comments of Kirby J in Baxter concerning the importance of not inhibiting parties from settling proceedings, relied upon by the plaintiff, do not establish that a party which succeeds in enforcing a compromise is entitled to indemnity costs. His Honour said in Baxter at [75]:

In the present case, the authorities concerning the availability of indemnity costs are applicable. These include Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353, where the more modern authorities were considered at [105] to [113]. One principle to be derived from Chaina at [113] is that an unsuccessful party should not be at risk of an indemnity costs order “absent some blameworthy conduct on its part”.

In the present case, in my view, there was no blameworthy conduct on the part of the defendant so as to justify its being ordered to pay costs on an indemnity basis. The defendant resisted the plaintiff’s claim on bases that were reasonably open and properly arguable, especially in light of the somewhat unsettled state of the law in relation to mistake. No legitimate criticism could be made of the way in which these proceedings were conducted on behalf of the defendant. Requiring the plaintiff’s solicitor for cross examination on his affidavit was quite proper and the cross examination of Mr Hourn was entirely appropriate.

In addition, the plaintiff relied upon the defendant’s failure to give the undertaking sought in the plaintiff’s letter of 17 July 2018 as justifying the making of an indemnity costs order.

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: Stewart v Atco Controls Pty Ltd (in Liquidation) [No 2] (2014) 252 CLR 331 at [4]; [2014] HCA 31. Nonetheless, in the present case, the defendant’s failure to give the undertaking sought does not, in my view, constitute a basis for ordering costs to be paid on an indemnity basis.

The plaintiff’s letter of 17 July 2018 contained the following:

It can be noted that order 3 sought in the original summons was:

In the amended summons filed on 21 November 2018, this order was amended to include a reference to the costs order in proceedings 2015/351848 made on 16 December 2016 as well. As it happened, for the reasons given in the principal judgment at [135], I did not think it appropriate in the circumstances to make such an order.

It is well established that a Calderbank letter will only provide a proper basis for an indemnity costs order if it constitutes a genuine offer of compromise, which it is unreasonable for the defendant not to accept: Herning v GWS Machinery Pty Ltd [No. 2] [2005] NSWCA 375 (Herning) at [4]. Where an offer involves “no real element of compromise” but merely “invites capitulation by the [defendant]”, it will not result in a variation of the usual costs order: Herning at [5].

The terms of the plaintiff’s letter of 17 July 2018 indicate that it was seeking, in effect, capitulation and did not involve any significant element of compromise. Further, in my view, it was not unreasonable for the defendant to refuse to provide the undertaking sought in the circumstances at the time, especially as the plaintiff had not commenced proceedings or provided its evidence to the defendant. Indeed, the plaintiff’s letter reads more as a letter of demand rather than an offer of compromise.

For all of these reasons, I do not accept that there is a proper basis for departing from the usual order requiring costs to be paid on the ordinary basis.

Accordingly, the Court orders that the defendant pay the plaintiff’s costs of these proceedings as agreed or assessed on the ordinary basis.