Kovac v Chanak (No 2)

HIS HONOUR: On 31 July 2017 the Court delivered its reasons in these proceedings (the “principal judgment”). Terms in the principal judgment have the same meaning in these reasons.

The effect of the principal judgment was complete success for Libby against George, being that George should transfer plots 33 and 34 to Libby.

The parties have agreed the terms of orders to give effect to the principal judgment. The only matter on which they disagree is Libby's application that George should pay her costs of the proceedings on the indemnity basis. That application is made by reference to a series of offers, most relevantly prior to the commencement of the proceedings by the filing of a statement of claim on 14 September 2015.

In the exercise of its costs discretion and for the reasons which follow, the Court has determined that George should pay Libby's costs of the entire proceedings on the indemnity basis.

These reasons should be read in conjunction with the principal judgment, so I will not repeat the background facts set out in those reasons. It is sufficient to note that the relevant conversations which the Court was satisfied give rise to the estoppel which founds Libby's case, took place in the weeks prior to Jovan's death on 17 June 2012.

On 12 July 2013, Libby's solicitors wrote to George, detailing the history of the dispute. The letter sets out Libby's case to the same effect as the case that was pressed in the subsequent correspondence and ultimately advanced at trial. The letter draws attention to a quotation for exhumation of Jovan of $28,720.17 and continues:

Mr McGrath of Counsel, who appeared for Libby, did not rely on that letter as anything more than background, and as demonstrating a willingness on the part of Libby to resolve the dispute. There is no evidence of any response from George to that letter.

The next letter was sent by Libby's lawyers to George's lawyers on 18 December 2014 and was marked "Without Prejudice - Save as to Costs". It expressly set out that the offer contained in the letter was made in reliance upon the well-known principles in Calderbank v Calderbank [1975] 3 All ER 333 (“Calderbank”).

The offer made in that letter (the “December 2014 letter”) was:

The December 2014 letter drew the following response by letter from George's solicitors dated 13 January 2015:

On 22 June 2015, Libby's solicitor again wrote to George's solicitors in a letter marked "Without Prejudice - Save as to Costs" (the “June 2015 letter”). The letter drew attention to the recent decision of Robb J in Vosnakis v Arfaras [2015] NSWSC 625 ("Vosnakis"). The letter asserts (as was ultimately found to be the case in the principal judgment) that there was a significant factual similarity between Vosnakis and the dispute between the parties in these proceedings. The letter concludes:

The June 2015 letter drew a response on 8 July 2015 to this effect:

The proceedings were commenced on 14 September 2015.

On 19 June 2017 (at a time when George was unrepresented), Libby's lawyers sent a further letter marked "Without Prejudice Save as to Costs" and expressly referring to the principles in Calderbank (the “June 2017 letter”).

The June 2017 letter was set against the background that the proceedings were listed for hearing before me commencing only a few weeks later on 4 July 2017. The letter includes:

There is no evidence that the offer made in the June 2017 letter was ever responded to by George.

On 28 June 2017, yet another "Without Prejudice - Save as to Costs" offer was made by Libby's solicitors to the solicitors by then retained for George. It is not necessary for me to set out the terms of that letter, other than noting that it drew a counter offer on 26 June 2017 offering permission to exhume Jovan and an offer by George to pay Libby $8,000, with the proceedings to be dismissed and each party to pay their own legal costs. There is no evidence as to express rejection of that offer.

On 3 July 2017 a further “WITHOUT PREJUDICE SAVE AS TO COSTS” offer was made by George's solicitors:

Mr McGrath submitted that the facts which I have set out warranted either:

There was no difference between the parties as to the applicable principles, including that offers of the kind under consideration were relevant in the exercise of the Court's discretion as to costs, even if they had been made prior to the commencement of the proceedings, and that a central issue was whether the offeree’s rejection of the offer was not unreasonable.

The application for indemnity costs of the entire proceedings turns on the December 2014 letter set out in paragraph [9] above.

It was submitted for George that his rejection of the December 2014 letter was not unreasonable for two reasons.

First, it was said that the offer sought transfer of the burial licence to the plaintiff or her nominee. Criticism was made that transfer to a "nominee" was not any relief the Court could have given to Libby. I do not accept that as a relevant or sufficient criticism. It is clear that what the offer primarily contemplated was transfer to Libby. If the Court was satisfied that Libby was entitled to have the burial plot transferred to her, then no doubt if she had asked for an order that they be transferred to her nominee, then the Court could ultimately have made such an order.

The more substantial basis for George’s submission that his refusal was not unreasonable was that the offer contained in the December 2014 letter did not involve a sufficient element of compromise, but merely invited capitulation. It was submitted that in those circumstances, the Court should not vary the usual costs order.

In support of the proposition that a sufficient element of compromise was required rather than inviting capitulation, Mr S F Hughes of Counsel, who appeared for George, referred to Leichhardt Municipal Council v Green [2004] NSWCA 341 at [31]-[37] and Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375.

In some cases, such as money claims, the question of an element of compromise may be more readily identified. That is to say, for example, if a claim is made for $100,000 and the claimant offers to compromise by receiving $50,000, then it is reasonably straightforward to identify that there has been a compromise.

However, in my opinion, whether or not there has been an element of compromise depends upon the nature of the case. There will be some cases, because of their nature, where the principal relief is of an "all or nothing" nature and the issue of costs may be the only area where a party is able to demonstrate compromise. It seems to me that these proceedings were just such a case.

In making that observation, I have not overlooked Mr Hughes' reference to the offer made by George on the day before the hearing which was for the transfer of one plot only. It was submitted that it was always open to Libby to compromise by offering to receive only the transfer of one plot. That is true. However, I do not think that is the only type of compromise that would have been sufficient to engage the Court's discretion to displace the usual order as to costs. In my opinion, the offer on the part of Libby contained in the December 2014 letter to pay $15,770 to George with each party paying its own costs, represents a sufficient element of compromise in all the circumstances, notwithstanding that the principal term of the offer was for the transfer of both plots.

I am satisfied that George's rejection of the offer was unreasonable. So much is demonstrated by the outcome of the proceedings. However, more importantly, it is demonstrated when one takes into account that this was a case where the truth of the matters between the parties was known only to the parties themselves. That is to say, based upon the findings in the principal judgment, viewed objectively, I am satisfied that George either knew or ought to have known that Libby's evidence as to what had passed between them was true. In that regard, I rely upon this conclusion in the principal judgment in relation to George.

The usual order is that costs follow the events. There is no dispute between the parties that, given Libby's success, she ought to have her costs on the ordinary basis. I am satisfied, for the reasons that I have set out, that this is an appropriate case for the Court to exercise its discretion to order that George should pay Libby's costs of the entire proceedings on the indemnity basis by reason of his rejection of the offer made in the December 2014 letter. If it were necessary to do so, I would also find for the reasons set out in paragraph [29] above that he acted unreasonably in defending the proceedings.

If I am wrong in the conclusion I have reached and the matter goes further, I should indicate that I would have reached the same conclusion in relation to George's rejection of the offer contained in the June 2017 letter for the same reasons. It offers an above market payment for the plots and, given the proceedings were well advanced by then, the value of an offer to forego an entitlement to costs would have been significant. I would have ordered George to pay Libby's costs of the proceedings up to and including 19 June 2017 on the ordinary basis and thereafter on the indemnity basis.

I will make orders in accordance with the document that has been provided by Mr McGrath, which includes for George to pay Libby's costs of the proceedings on the indemnity basis.