Bathurst Real Estate Pty Ltd v Fairbrother (No 2) 408

The Court delivered its principal judgment in these proceedings on 29 March 2022 (Bathurst Real Estate Pty Ltd v Fairbrother [2022] NSWSC 351) (the Principal Judgment). These reasons assume familiarity, and should be read with, the Principal Judgment. Defined terms in the Principal Judgment have the same meaning in these reasons.

In the Principal Judgment, the Court determined that the proceedings should be dismissed. This judgment deals with the question of costs, which the parties agreed should be dealt with on the papers. The Court received written submissions from Mr J Ireland of Queen’s Counsel with Mr D McGirr, Solicitor, for the defendants and from Mr D Mahendra of Counsel for BRE.

The defendants sought their costs of the proceedings on the indemnity basis by reference to an offer made in a Calderbank letter sent early in the history of the proceedings. For the reasons which follow, the Court has concluded that BRE did not act unreasonably in refusing to accept that offer. Those reasons may be summarised as being that the offer did not represent a genuine attempt at a compromise and was not open for acceptance for a reasonable time. Costs will, therefore, follow the event in the usual way, with BRE as the unsuccessful party paying the defendants’ costs on the ordinary basis.

The relevant background facts may be conveniently taken from the Principal Judgment:

Less than three weeks after the commencement of the proceedings, Fairbrother’s and Cleary’s solicitors (Smile not yet being a party) sent a letter to BRE’s solicitor making an offer to settle the proceedings (the Offer). The letter was marked “Without Prejudice Save as to Costs”, expressly relied on the principles in Calderbank v Calderbank [1975] 3 All ER 333, and foreshadowed that it would be tendered in support of an application for indemnity costs from the date of the letter if BRE did not obtain an order more favourable than the terms of the Offer. The letter included:

BRE did not accept the Offer.

The defendants’ submissions were pithily expressed:

BRE made five points.

First, it submitted that the Offer was made at a very early stage in the proceedings. No defence had been filed, no evidence had been served by the defendants and no subpoenas had been issued. The defendants would hardly have incurred any significant costs at all at the time the Offer was made, so that an offer for each party to pay their own costs was not a compromise.

In support of this proposition, BRE relied on the decision of Giles JA in Townsend v Townsend (No 2) [2001] NSWCA 145 (Townsend), in which his Honour declined to order indemnity costs:

BRE submitted that the present case was on all fours with the authority just cited. This was because, at the date of the Offer, BRE would hardly have incurred any costs, such that there was no element of compromise but rather an invitation to capitulate.

Second, BRE submitted that it was not unreasonable for it to have rejected the Offer when it was only open for seven days, in contradistinction to the requirement under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) for an offer of compromise under those rules to be open for no less than 28 days.

BRE relied on these dicta of McColl JA in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 (Elite):

Third, BRE submitted that the Offer was not made by Smile (which was not then a party to the proceedings) and accordingly Smile could not obtain the benefit of the Offer.

Fourth, BRE had at all times acted reasonably and had not conducted the litigation in a way that would justify a special costs order. This submission referred to the Court’s findings in the Principal Judgment, in particular on the primary question of whether the Undertaking prohibited the use of the Hashtag with the Publications. The Court had found that the constructional choice advanced by BRE was clearly or reasonably arguable (see [69] of the Principal Judgment).

Fifth, BRE drew attention to the fact that Fairbrother’s and Cleary’s solicitors never responded to BRE’s solicitor’s letter of 19 August 2020 (see [4] above).

There is no dispute about the applicable principles, namely that the effect of a Calderbank offer is not automatic but may be relevant to the exercise of the Court’s discretion; it must reflect a genuine compromise; the successful offeror must achieve the same or a better outcome than if the offeree had accepted the Offer; and the Court must be satisfied that it was unreasonable on the part of the offeree not to have accepted the Offer.

The Court accepts the first, second and fifth submissions made on behalf of BRE with the result that the Court finds that BRE did not act unreasonably by not accepting the Offer. I will say a little more about each of BRE’s submissions in the order in which they were made.

As to the first submission, it may be accepted that a “walk away” offer can be a true compromise for the purposes of a Calderbank offer in some cases. It is nevertheless instructive to consider the two cases cited for the defendants.

The offer in LMC was a “walk away” offer. It was made five weeks before the trial. While recorded with less precision, the offer of compromise in Cabport “was made prior to the hearing before Olsson DCJ” (at [8]). I should record for completeness that it is not apparent that the offer in that case was a “walk away” offer, although nothing turns on that for present purposes.

The timing of the offers in those two cases is to be contrasted with the present case, where the Offer was made less than three weeks after the proceedings had been commenced. While every case must turn on its own facts, the Court accepts that Giles JA’s reasoning in Townsend is equally applicable to these proceedings with the same result.

In reaching that conclusion, the Court has not overlooked the assertion in the defendants’ submissions (see [7] above) that the then defendants’ legal costs were “not insignificant at the date the offer was made”. However, that does not avail them for two reasons. First, the Offer could have, but did not disclose the then defendants’ costs at the time of the Offer to demonstrate what they were giving up if the Offer was accepted. Second, no evidence was filed with the present application to prove what those costs were when the Offer was made.

Turning to BRE’s second submission, I accept that, so early in the proceedings and with no relevant Court event imminent, leaving the Offer open for only 7 days was not an adequate period of time. No reason has been advanced by the defendants as to why such a short time had to be specified when the litigation had barely begun. For the same reasons, I would have reached the same conclusion if the Offer had been open for 14 days (as appears to be the suggestion in the defendants’ submissions, which I can only assume is an error).

Nevertheless, while I accept the force of McColl JA’s comparison in Elite with the requirement for an offer of compromise under the rules to be open for at least 28 days (if made more than two months before the hearing – see UCPR Pt 20 r 20.26(5)(a)), in my respectful opinion it would be an error to interpret her Honour’s observation as an inflexible rule. I do not suggest that her Honour intended it as such. There will be many situations where a Calderbank offer open for less than 28 days can be effective, depending upon the point in the litigation in which it is made. It should also be recalled that an offer of compromise made in the two months before a hearing is only required to be open for so long “as is reasonable in the circumstances” (UCPR Pt 20 r 20.26(5)(b)).

The point made by McColl JA is not expressly dealt with in the judgment of Beazley JA (as her Honour then was) in Elite. I would respectfully adopt what fell from Basten JA in the same case:

Having cited his Honour’s observations, I should add that in the present case I do not regard it as unreasonable that BRE did not ask for an extension of time to consider the Offer. This is because it was made so early in the litigation and BRE was entitled to await the defendants’ evidence and take advantage of interlocutory processes to seek to obtain evidence that would have been only in the knowledge or possession of Fairbrother and Cleary that could have assisted BRE in proving its case.

As for the fifth reason, being Fairbrother’s and Cleary’s failure to respond to BRE’s solicitor’s letter of 19 August 2020, I adhere to what I said at [33] in the Principal Judgment: “It may be that this entire situation could have been avoided if the remedial steps that had been taken by Smile had been promptly reported to BRE’s solicitors.” Given the adversarial nature of litigation, silence breeds suspicion and gives rise, rightly or wrongly, to the thought “what is the other party hiding?”. For an aggrieved litigant, an opponent’s failure to respond to correspondence will rarely, if ever, be interpreted as innocence or oversight.

While Fairbrother’s and Cleary’s failure to respond to BRE’s solicitor letter is not dispositive of the question, their silence fortifies the Court in its conclusion that BRE, having received no response, did not act unreasonably in refusing to accept an offer that was peremptory in tone, open for a very short period and made so quickly after the proceedings were commenced. Having now been seized of the evidence of what occurred, I remain of the view that a prompt apology and explanation by the defendants to BRE (or its solicitors) could have avoided this litigation completely.

As to BRE’s fourth submission, the Court expresses no concluded view. Subject only to the requirements of being exercised judicially and for a proper purpose, the Court’s costs discretion is a wide one. There may well be cases where a successful defendant who is not a party to proceedings at the time when other defendants made an effective Calderbank offer may nevertheless be able to take advantage of that offer. This might be the case, for example, if the later joined defendant could demonstrate that early settlement with the other defendants would have meant that the later joined defendant would never have been vexed with the litigation.

As to BRE’s fifth submission, the fact that a party may have conducted litigation reasonably will, in most cases, be irrelevant to the exercise of the Court’s discretion in relation to a Calderbank letter. Many unsuccessful litigants conduct litigation reasonably and have arguable points to make, but nevertheless will be found to have unreasonably refused to accept a Calderbank offer.

Finally, I note that Mr Ireland QC’s submissions for the defendants referred to a claim for damages that was not pursued by BRE. However, no application was made for a specific indemnity costs order in relation to costs (if any) that had been incurred by the defendants solely referable to meeting the abandoned damages claim.

The orders of the Court are: