Engadine Medical Imaging Services Pty Ltd as trustee for the Engadine Unit Trust v Mena Ibrahim (No 2)

This judgment concerns the issue of costs arising from the judgment I delivered in Engadine Medical Imaging Services Pty Ltd as trustee for the Engadine Unit Trust v Mena Ibrahim [2024] NSWSC 1399 (Principal Judgment). This judgment assumes familiarity with, and adopts the shorthand expressions and defined terms used in, the Principal Judgment.

The proceedings were brought by the plaintiffs, Engadine Medical Imaging Services Pty Ltd (EMIS) as trustee for the Engadine Unit Trust, Dr Ali Kyatt and Advanced Imaging Pty Ltd as trustee for the Kyatt Family Trust, against various defendants being:

The defendants have defended the proceedings as two distinct groups, the first group comprising Mr Ibrahim, Engadine Medical Imaging, Dapto Imaging and Warrawong Imaging (together, the Ibrahim defendants) and the second group comprising Mr Chaudhry, Warilla Diagnostic Imaging, Focus Radiology Dapto and Focus Radiology Warrawong (together, the Chaudhry defendants).

At the conclusion of the Principal Judgment, I made orders dismissing the plaintiffs’ claims against the defendants and for the plaintiffs to pay the costs of the defendants.

The Ibrahim defendants have now applied pursuant to r 36.16(3A) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and the court’s inherent jurisdiction to vary the costs order I made in the Principal Judgment so that the plaintiffs pay the costs of the Ibrahim defendants on an indemnity basis or, alternatively, that the plaintiffs pay the costs of the Ibrahim defendants on the ordinary basis up to and including 20 November 2023 and an indemnity basis on and from 21 November 2023. The Ibrahim defendants also seek an order that the plaintiffs pay the costs of the Ibrahim defendants of this application on an indemnity basis.

Similarly, the Chaudhry defendants have also applied pursuant to r 36.16(3A) of the UCPR and the court’s inherent jurisdiction to vary the costs order I made in the Principal Judgment so that the plaintiffs pay the costs of the Chaudhry defendants on an indemnity basis or, alternatively, the plaintiffs pay the costs of the Chaudhry defendants on the ordinary basis up to and including 20 November 2023 and an indemnity basis on and from 21 November 2023. In addition, the Chaudhry defendants seek orders that the plaintiffs pay the costs of the Chaudhry defendants on an indemnity basis in connection with reserve costs orders made by the court on 2 May 2023 and 21 June 2023. Further, the Chaudhry defendants also seek an order that the plaintiffs pay the costs of the Chaudhry defendants of this application on an indemnity basis.

In each application, the defendants have sought an order for indemnity costs on the basis that the plaintiffs should have been aware that their claims would inevitably fail or, alternatively, the unreasonable failure of the plaintiffs to accept an offer made to them by the defendants jointly within the principles of Calderbank v Calderbank [1975] 3 All ER 333 (Calderbank offer).

There are three issues I am required to determine. For the reasons set out below, I have determined that:

The relevant facts underlying the claims made by the plaintiffs against the defendants are set out in full in the Principal Judgment at [21]–[339].

The additional facts that are not mentioned in the Principal Judgment but are relevant for the determining the issue of costs are described below.

On 27 April 2023, the plaintiffs commenced the proceedings by approaching the Duty Judge in the Equity Division of this court seeking leave to file a summons and supporting affidavits in which they sought urgent interlocutory relief against the defendants.

On 2 May 2023, by consent and on a without admissions basis, the Chaudhry defendants agreed to the making of interim orders until the plaintiffs’ application for injunctive relief was heard. The question of costs between the plaintiffs and the Chaudhry defendants was reserved and the proceedings were expedited.

On 26 May 2023, the plaintiffs filed an amended statement of claim in the proceedings in which the primary claim against all of the defendants was based on an alleged joint venture agreement said to have governed the business relationship between Dr Kyatt, Mr Ibrahim and Mr Chaudhry.

On 21 June 2023, by consent and on a without admissions basis, the defendants agreed to a continuation of the interim orders made on 2 May 2023 until the determination of the proceedings. The question of costs of the plaintiffs’ application for interim relief was reserved.

On 29 June 2023, the Ibrahim defendants filed an application seeking security for their costs of the proceedings in the sum of $278,000. On 7 July 2023, this court made orders to that effect.

On 21 July 2023, by consent, this court ordered the plaintiffs to provide security for the Chaudhry defendants’ costs of the proceedings, also in the sum of $278,000.

In July 2023 and April 2024, in compliance with the orders of this court, the plaintiffs paid in excess of $556,000 into court as security for the defendants’ costs.

On 16 August 2023, the Chaudhry defendants filed their defence to the amended statement of claim.

On 24 August 2023, the Ibrahim defendants filed their defence to the amended statement of claim.

On 6 October 2023, the Ibrahim defendants filed and served their evidence in reply to the plaintiffs’ evidence in chief.

On 10 October 2023, the Chaudhry defendants filed and served their evidence in reply to the plaintiffs’ evidence in chief.

On 7 November 2023, Bridges Lawyers (acting jointly on behalf of all defendants) sent a letter to New South Lawyers (acting for the plaintiffs) marked “Without Prejudice, Save as to Costs” making an offer on behalf of all the defendants to settle the proceedings without prejudice, save as to costs, in accordance with the principles in Calderbank (Calderbank letter).

The Calderbank letter set out some of the history of the proceedings and included the following:

The offer made in the Calderbank letter was in the following form:

The offer made in the Calderbank letter was expressed to be open for acceptance by the plaintiffs until 5pm on 20 November 2023.

The plaintiffs did not respond to the Calderbank letter.

On 31 January 2024, the plaintiffs served their evidence in reply.

On 12 April 2024, the Chaudhry defendants served further evidence.

On 2 May 2024, the Ibrahim defendants completed discovery.

On 7 May 2024, the Chaudhry defendants completed discovery.

The trial commenced on 13 May 2024, and continued on 15 and 16 May 2024.

On 15 May 2024:

On 16 May 2024, counsel for the plaintiffs wrote to the legal representatives for the defendants indicating that the only claims to be pursued by the plaintiffs were those against Messrs Chaudhry and Ibrahim relating to the Engadine Practice and that no claims were made in respect of the Dapto Practice and the Warrawong Practice. As I noted in the Principal Judgment at [2], this involved the scope of the plaintiffs’ claims significantly narrowing as substantial claims were dropped.

During the course of the hearing on 16 May 2024, the plaintiffs provided a draft form of the further amended statement of claim (FASOC), for which I granted leave to file on 18 July 2024.

On 6 November 2024, I delivered the Principal Judgment. The Principal Judgment included central findings that can be summarised as follows:

In addition, there were other specific instances in which I made findings that there was no evidence about a particular matter, including the following:

Following the delivery of the Principal Judgment, orders were then made and entered that the FASOC filed 18 July 2024 is dismissed and the plaintiffs are to pay the costs of the defendants.

On 12 November 2024, Bridges Lawyers (acting for the Ibrahim defendants) sent a letter by email to New South Lawyers (acting for the plaintiffs) referring to the Principal Judgment, stating that they were instructed to file a motion seeking orders that the plaintiffs pay the Ibrahim defendants’ costs of the proceedings on an indemnity basis and inviting the plaintiffs to consent to such an order. The letter sought a response by 5pm on 13 November 2024, failing which the Ibrahim defendants would take steps to seek payment of their costs on an indemnity basis.

On 13 November 2024, Madison Marcus (acting for the Chaudhry defendants) sent a letter by email to New South Lawyers stating that they agreed with Bridges Lawyers that the costs order made in the Principal Judgment ought to be varied to require the plaintiffs to pay the defendants’ costs of the proceedings on an indemnity basis. The letter sought confirmation that the plaintiffs agreed to the proposed variation of the costs order and sought a response by 5pm on 14 November 2024, failing which the Chaudhry defendants would take steps necessary to seek the proposed variation of the costs order.

On 19 November 2024 at 3:54pm, Bridges Lawyers sent an email to my Associate to which they attached a notice of motion dated 19 November 2024 and a supporting affidavit seeking orders for costs in favour of the Ibrahim defendants on an indemnity basis. Bridges Lawyers stated that the notice of motion had not been filed as they wished to ensure that it was heard by me and asked if I would prefer for the notice of motion to be filed.

On 19 November 2024 at 6:14pm, Madison Marcus sent an email to my Associate foreshadowing that a similar application on behalf of the Chaudhry defendants would be provided the following day.

On 20 November 2024 at 5:40pm, Madison Marcus sent an email to my Associate to which they attached a notice of motion dated 20 November 2024 and a supporting affidavit seeking orders for costs in favour of the Chaudhry defendants on an indemnity basis. Similarly, Madison Marcus stated that the notice of motion had not been filed as they wished to ensure that it was heard by me and stated that they would file and serve sealed copies of their motion “on the court’s instructions”.

On 21 and 22 November 2024 respectively, the Ibrahim defendants and the Chaudhry defendants each filed a notice of motion seeking a variation of the costs order contained in the Principal Judgment and in its place the making of orders for the payment of their respective costs on an indemnity basis.

The first issue I have to determine is whether I grant a dispensation to the defendants to apply to vary the costs order I made on 6 November 2024, each having failed to file a notice of motion within 14 days after the orders following the Principal Judgment were entered.

At common law, and subject to limited qualification, the general rule as to this court’s power to vary orders is as stated in Bailey v Marinoff (1971) 125 CLR 529; [1971] HCA 49, Barwick CJ at 530:

This general rule, which provides for the finality of a perfected judgment or order, continues to operate at common law: DJL v Central Authority (2000) 201 CLR 226; [2000] HCA 17, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ at [38] citing Bailey, Barwick CJ at 530.

It follows that the power of this court to entertain an application to vary orders once entered depends first upon the two questions posed by Basten JA (with whom Giles and Ipp JJA agreed) in Deputy Commissioner of Taxation v Meredith (No 2) (2008) 75 NSWLR 462; [2008] NSWCA 133 at [7]:

Previously, the entry of orders in this court required a party or parties to proceedings to draft a minute of the orders indicated in the judgment. This draft minute was then filed with the Registry before being signed and sealed by the Registrar. Under this procedure, parties to proceedings received notice of the application for the entry of orders by service of the draft minute and, until the orders were sealed by the Registrar, the court had the power to review them: Meredith, Basten JA at [8].

In the interests of expediency, and pursuant to r 36.11 of the UCPR, the entry of orders and judgments in this court now occurs electronically and a judgment or order is taken to be entered when it is recorded in the computerised court record system. Consequently, orders are now generally entered or “perfected” on the same day upon which judgment is delivered.

In these circumstances, absent statutory modification, application of the common law would result in very limited grounds upon which a judgment or order could be varied almost immediately after judgment is delivered.

The UCPR modifies the common law position and sets out several circumstances in which the court can set aside or vary orders once formally entered: Pt 36, Div 4 of the UCPR.

The general power of the court to set aside a judgment or order is provided for by r 36.15 of the UCPR.

A further power of the court to set aside or vary a judgment or order is provided for by r 36.16 of the UCPR, which relevantly provides:

For applications made after the judgment or order is entered, the relevant provisions are rr 36.16(3A), (3B) and (3C). In this judgment, I will refer to each of these provisions as subr (3A), subr (3B) and subr (3C), respectively.

The purpose of r 36.16 of the UCPR is to allow a window of 14 days after the formal entry of a judgment or order in this court where the entry of judgment takes place largely contemporaneously with its delivery: Meredith, at [15]. During that 14-day period, a party to the proceedings may approach the court in the prescribed form to seek a variation of the relevant judgment or order.

It is clear from the unambiguous wording of subr (3A) and subr (3C) that an application for the variation of a judgment or order must be filed within 14 days after the judgment or order was entered.

It is equally clear from subr (3C) that, despite r 1.12 of the UCPR which provides the general power of this court to extend or abridge any time limit fixed by the rules, the time limit stipulated by subr (3A) is not extendable: Malouf v Prince (No 2) [2010] NSWCA 51, McColl and Macfarlan JJA and Nicholas J at [17]:

If a costs application is not formally made by notice of motion within time, the court may lack the power to entertain the application: Meredith, at [15]; Kekatos v Stafford [2009] NSWCA 219, Allsop ACJ (with whom Giles and Campbell JJA agreed) at [107]; Coastwide Fabrication & Erection Pty Ltd v Honeysett (No 2) [2009] NSWCA 291, McDougall J (with whom Ipp and Young JJA agreed) at [12]–[15].

The stringency of r 36.16 of the UCPR has been explained as dealing with the fundamentally important question of the finality of litigation: Kable v State of New South Wales (No 2) [2012] NSWCA 361, Allsop P at [2]: Odlum v Friend (No 2) [2024] NSWCA 252, Leeming JA, Mitchelmore JA and Harrison CJ at CL at [11].

While not raised in the matter before me, it has previously been suggested in obiter that r 36.16(3) of the UCPR may provide an alternative means by which a party could apply to vary or set aside orders in respect of ancillary or consequential relief, such as a costs order, without reliance on subr (3A): Hancock v Arnold (No 2) [2009] NSWCA 19, Ipp, McColl and Basten JJA at [10]:

Some eight months later, Campbell JA (with whom McColl JA and Sackville AJA agreed) expressed a contrary view, without the benefit of argument, in Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Ltd (No 2) [2009] NSWCA 336, at [8]:

This “unresolved tension” was examined at some length in Habib v Nationwide News Pty Ltd (No 2) [2010] NSWCA 291 at [35]–[39] in which the Court of Appeal (Hodgson JJA, Tobias and McColl JA) considered, without deciding, that the weight of authority aligned with the views of Campbell JA at [8] in Refrigerated Roadways. This view has found support in later decisions albeit, again, without deciding the issue: Rodi v Gelonesi [2016] NSWCA 348, Payne JA at [34]–[38].

Section 14 of the Civil Procedure Act 2005 (NSW) (CPA) provides as follows:

For the purposes of s 14 of the CPA, the rules of court are taken to include the uniform rules to the extent that they are applicable in this court: s 10 of the CPA.

It is noted that there is also a distinct, general “dispensation power” within r 18.2(2)(c) of the UCPR concerning the requirement to file and/or serve notices of motion, an example of the exercise of which is set out in Coalroc Contractors Pty Ltd v Matinca [2023] NSWCA 83, Adamson JA at [13](2).

Rule 18.2 of the UCPR provides as follows (emphasis added):

There are authorities for the dispensation of the requirement to file a notice of motion in cases such as the matter before me: see, for example, Kable, Basten JA at [9], [15]–[16]; Hancock, Ipp, McColl and Basten JJA at [10]–[12]; Bluth v Boyded Industries Pty Ltd (No 2) [2024] NSWCA 194, Bell CJ, Gleeson and Harrison JJA at [28]–[29], [33]–[35]. Relevantly, in each of these cases:

Courts have so far avoided dispensing with the time constraint imposed by subr (3A) in circumstances where that constraint is expressed as a precondition for the exercise of the statutory power provided by that subrule, and dispensing with the subrule entirely would leave one party with the finality of judgment that flows from its formal entry at general law: AT v Commissioner of Police (NSW) (No 2) [2010] NSWCA 337, Basten JA (with whom Beazley and Macfarlan JJA agreed) at [9]–[10]:

While it appears settled that dispensation under s 14 of the CPA may apply in the appropriate case to ameliorate the stringency of subr (3A), in conjunction with subr (3C), it is far from satisfactory and is not to be normalised. So much was noted in Kable, by Allsop P at [2]–[4] stating:

The Ibrahim defendants submit that, in circumstances where their application to vary the costs order by notice of motion was provided to my Associate on 19 November 2024 (13 days after the costs order was made) but not stamped as filed with the registry until 21 November 2024, being one day after the 14-day period contemplated by subr (3A), this is an appropriate case for an order to be made under s 14 of the CPA dispensing with the requirements of either r 4.10(1) or r 18.2(1) of the UCPR. The Ibrahim defendants say that notice of the precise application made within the filed notice of motion was given within time.

The Ibrahim defendants argue that the decision in Bluth “sets the bar pretty low” for an application of this kind.

The Chaudhry defendants adopted the submissions of the Ibrahim defendants on this issue, saying that I should similarly make an order under s 14 of the CPA dispensing with the requirements of r 4.10(1) or r 18.2(1) of the UCPR in their favour with respect to their application to vary the costs order I made.

The plaintiffs did not contest this issue and made no submissions in respect of it.

The notice of motion filed on behalf of the Ibrahim defendants was filed on 21 November 2024, being 15 days after the Principal Judgment was delivered and orders were entered.

The notice of motion filed on behalf of the Chaudhry defendants was filed on 22 November 2024, being 16 days after the Principal Judgment was delivered and orders were entered.

First, it must be said that the practice adopted by the defendants in this matter of preparing the relevant notices of motions and supporting affidavits within time, only to file them out of time, is a curious one.

Parties seeking the variation of an order of this kind will generally find themselves in front of the judicial officer who decided the substantive proceedings and the ascertainment of this probability should not be cause for disregard of, or non-compliance with, the rules of the court.

Furthermore, the suggestion that parties should file motions “on the court’s instructions” is not a practice recognised by this court and should not be followed. Parties seeking a variation of a judgment or order should do so in accordance with the UCPR, specifically subr (3A).

I do not accept the proposition submitted on behalf of the Ibrahim defendants that, by their decision in Bluth, the Court of Appeal has “set the bar pretty low” for applications to dispense with the time constraints imposed by subr (3A).

That proposition is contrary to several considered statements emerging from both the Court of Appeal and the High Court of Australia, concerning r 36.16 of the UCPR and the import of the subject matter to which it relates: Kable, Allsop P at [2]–[4]; Habib, Hodgson, Tobias and McColl JJA at [27]–[31]; Diver v Neal [2009] NSWCA 115, Allsop P, Ipp and Basten JJA at [4]–[5]; Bailey, Barwick CJ at 530; Burrell v R (2008) 238 CLR 218; [2008] HCA 34, Gummow ACJ, Hayne, Heydon, Crennan and Kiefel JJ at [15]–[16].

In Bluth, one party (the successful appellant) sent a letter to the other (the unsuccessful respondent) 7 days after costs orders were entered, providing notice of their intention to seek a variation of those orders – in that case, seeking to give effect to r 42.15A of the UCPR – and proposing the parties approach the court jointly to seek that variation by consent. It is useful to set out the chronology of key events, as summarised by the Court of Appeal (Bell CJ, Gleeson and Harrison JJA) at [10]–[13]:

Three matters arising from this summary of the facts in Bluth should be noted for present purposes:

In the matter before me:

There are several cases in which notice of the motion within the 14-day time constraint – either written or oral – has been held to be sufficient notice for the purposes of subr (3A) and has justified, in the appropriate case, the dispensation of the requirement to file a notice of motion to be heard on the question of costs: Bluth; Kable; Hancock.

While in each of these cases, so far as I can tell, a formal notice of motion was never filed, I would find it extraordinary that a party who provides “sufficient, if not complete notice” of the motion within the 14-day time constraint, and then proceeds to file the motion out of time, should find themselves in any worse position and be precluded from similar dispensation under s 14 of the CPA.

In the matter before me, the plaintiffs were served with unsealed copies of the notices of motion and the supporting affidavit within 14 days of the orders being entered and they do not suggest any prejudice or special disadvantage that might flow from dispensation of the kind sought.

Accordingly, and consistent with the approach taken by the Court of Appeal in Bluth, I am satisfied that it is appropriate in the circumstances of this case, where sufficient notice of the motion was provided within 14 days, that I exercise the powers in s 14 of the CPA to dispense with the requirements in rr 36.16(3A) and 18.2(1) of the UCPR for the filing of a notice of motion in respect of the defendants’ applications under r 36.16(3A) of the UCPR to vary the costs order I made on 6 November 2024.

The second issue for my determination is whether I should make an order that the costs of the defendants should be paid on an indemnity basis by the plaintiffs based on the plaintiffs’ conduct of the proceedings.

The principal statutory provision containing the court’s powers as to costs is s 98 of the CPA, which relevantly states:

The discretion to award costs under s 98 of the CPA is broad and the section itself is to be construed liberally: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11, Gaudron and Gummow JJ at [21]. The discretion is, however, subject to the rules of court, including the UCPR.

Rules 42.1, 42.2, 42.4 and 42.5 of the UCPR relevantly provide:

A number of observations regarding the exercise of the discretion to award costs made by McHugh J in Oshlack at [67]–[68] should be kept in mind, as summarised below:

The discretion to award indemnity costs must be exercised judicially, based on some “special or unusual feature” or “relevant delinquency” that justifies an award. Further, the conduct of the party against whom indemnity costs are sought must be connected with the litigation itself and, more specifically, the way the litigation was conducted: see Oshlack, Gaudron and Gummow JJ at [44]; Mead v Watson [2005] NSWCA 133, Sheller, Ipp and Tobias JJA at [8]–[9]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131, Meagher and Barrett JJA and Tobias AJA at [6].

A summary of the relevant principles relating to the discretion to award costs on an indemnity basis based on the conduct of a party can be found in Cappello v HomeBuilding Pty Ltd [2023] NSWCA 109, in which Mitchelmore JA (with whom Simpson AJA and Meagher JA agreed) at [46]–[48] stated:

An aspect of “relevant delinquency” to which reference is made in Oshlack and repeated in Cappello may arise from a party inevitably failing to prove that it has suffered any loss due to evidence that suffered from fundamental defects, an instance of which was dealt with in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199, in which McDougall J said at [64]–[65]:

This reasoning in Ingot was cited with approval in Anderson v Canaccord Genuity Financial Ltd (No 2) [2022] NSWSC 649 by Ward CJ in Eq at [20].

As I have already mentioned, r 42.5 of the UCPR details the costs to be allowed when the court orders that costs are to be paid on an indemnity basis.

The Ibrahim defendants submit that the plaintiffs’ claims were not only unsuccessful but suffered from a “relevant delinquency” such that the court should exercise its costs discretion to order that the plaintiffs pay the Ibrahim defendants’ costs of the whole proceedings on an indemnity basis, citing Oshlack, Gaudron and Gummow JJ at [44].

The “relevant delinquency” identified by the Ibrahim defendants is the plaintiffs’ failure to demonstrate by admissible evidence any loss to support their claims, citing Ingot, at [65] and Anderson, at [20]. Specifically, it was submitted “the lack of any evidence of loss had the inevitable result of subjecting the Ibrahim Defendants to complex proceedings (run expeditiously) that were bound to fail”.

The argument of the Ibrahim defendants is as follows:

The Chaudhry defendants endorsed and adopted the submissions of the Ibrahim defendants to the extent they applied to the Chaudhry defendants.

The submissions of the Chaudhry defendants are that the court should exercise its costs discretion to order that the plaintiffs pay the Chaudhry defendants’ costs of the whole proceedings on an indemnity basis, for the following reasons:

As an extension of their primary position, the Chaudhry defendants also seek to vary the costs orders made on an interlocutory basis in these proceedings. Specifically, the Chaudhry defendants seek an order for their costs on the indemnity basis in relation to the following reserved costs orders:

The plaintiffs oppose any costs order on an indemnity basis in favour of the defendants for the following reasons:

In my view, applying the factors summarised in Cappello, this is not a case in which I can conclude that the plaintiffs’ conduct had some special or unusual feature which would justify an order that the plaintiffs pay the defendants’ costs on an indemnity basis from the commencement of the proceedings.

In particular, this is not a case that could be properly described as the plaintiffs’ persisting in a hopeless case or unduly prolonging the case with groundless contentions. Nor is it a case in which the plaintiffs acted unreasonably or with delinquency.

Applying the principles recited in Ghougassian at [53]–[57], the mere abandonment of the joint venture case during the course of the trial is not sufficient to warrant an order for indemnity costs and there must be other factors present to justify such an order.

In this case, on or around 27 March 2023, the plaintiffs became aware that the Engadine Practice has ceased to operate at the Engadine Premises and that Mr Ibrahim was operating a new radiology practice (Focus Radiology Engadine) out of the Focus Engadine Premises (approximately 100 metres from the Engadine Premises). Over the course of the next week, the plaintiffs conducted their investigations in an effort to determine what had taken place. On 27 April 2023, just on a month after the new radiology practice began to operate, the proceedings were commenced.

Until the defendants provided a basis on which they proposed to defend the proceedings by filing their defences in August 2023 and their evidence in October 2023, the plaintiffs were still in the dark as to what exactly had taken place with respect to the Engadine Practice and Focus Radiology Engadine. I consider that none of the conduct of the plaintiffs up until the defences and evidence were provided could properly be described as falling within the categories stated in Cappello as supporting an order for indemnity costs.

While it is true that the plaintiffs knew they had to overcome the operation of the releases in the Deed of Settlement to maintain their claims against the Ibrahim defendants, they had an arguable basis for doing so in the form of the alleged representations made by Dr Kyatt and the alleged reliance on those representations by Dr Kyatt. Although I found that the plaintiffs’ claims failed, I consider that they were arguable claims and could not be regarded as without any merit or classified as groundless. In my assessment, the plaintiffs’ failure was based on my assessment of the evidence before me at the hearing, not because of any unreasonable conduct on the part of the plaintiffs in maintaining the claims.

In relation to the defendants’ argument concerning the finding in the Principal Judgment at [426] that the plaintiffs failed to demonstrate by admissible evidence any loss to support their claims, in my view this is not a case of the type dealt with in Ingot at [65] and Anderson at [20] where the failure could be described as a delinquency such as to justify an award of indemnity costs. In this case, claims for relief by way of constructive trust as well as monetary relief were present from the outset and were pressed by the plaintiffs at the final hearing. The finding that I made in the Principal Judgment at [426] was that the material before me could not prove any loss. However, in light of the constructive trust claim that the plaintiffs maintained, it was not inevitable that the plaintiffs would be without remedy against the defendants if I had found that the plaintiffs’ claims should succeed.

I do not agree with the defendant’s argument that the plaintiffs could not succeed in their constructive trust relief if they were unable to prove loss to the plaintiffs. The claims for damages required the plaintiffs to show that they had suffered loss themselves from the alleged breaches by Mr Ibrahim and Mr Chaudhry. The claim for a constructive trust required the plaintiffs to show that the Competing Business run by Engadine Medical Imaging had earned monies from the alleged breaches by Mr Ibrahim and Mr Chaudhry. The issues of damages and constructive trust are therefore directed to entirely different financial outcomes, respectively being the financial impact of the conduct on the plaintiffs and the financial impact of the conduct on Engadine Medical Imaging. Where the plaintiffs persisted in their claim for a constructive trust in the proceedings, it could not be said that their claims were bound to fail due to a lack of admissible evidence of loss.

The third issue I am required to decide is whether an award of indemnity costs should be made in favour of the defendants on the basis that they made the Calderbank offer to the plaintiffs.

The principles relating to the awarding of indemnity costs based on the failure of a party to accept an offer of compromise contained in a Calderbank letter were set out in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, in which Giles JA at [37] stated:

In Commonwealth of Australia v Gretton [2008] NSWCA 117, Beazley JA (with whom Mason P agreed and Hodgson JA substantially agreed) at [44]–[45] indicated that there are two general requirements to justify making an order for costs on an indemnity basis following a Calderbank offer, stating:

In Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188, Barrett JA (with whom Beazley P and McColl JA agreed) at [57]–[60], in making additional remarks to the reasons of Bathurst CJ, considered several matters relevant to the determination of whether an offer took effect as a Calderbank offer, noting that it is crucial to determine the manifested objective intention of the offeror, stating:

In Dream Developments, Bathurst CJ (with whom Beazley P and McColl JA agreed) at [42] concluded that the essence of a Calderbank offer is an intention that the offer (or the circumstances in which it was conveyed) indicated that it would be relied on in relation to costs, should a verdict more favourable than the offer be achieved, stating:

In Abdi v Abdi (No 2) [2022] NSWSC 582, Ward P at [27]–[30] provided a statement of the principles relating to an award of indemnity costs following the rejection of a Calderbank offer as follows:

As an alternative to their argument for indemnity costs of the proceedings, the Ibrahim defendants submitted that they are entitled to an order for indemnity costs from 21 November 2023 for the following reasons:

Also as an alternative position, the Chaudhry defendants submit that they are entitled to an order for indemnity costs from 21 November 2023 because the plaintiffs’ failure to accept the Calderbank offer was not reasonable in the circumstances. The balance of factors that are said to weigh firmly in favour of this conclusion include:

While it was not a matter canvassed in their written or oral submissions, it is noted that the Chaudhry defendants also seek their costs of this application on an indemnity basis, presumably in reliance on the terms of their letter dated 13 November 2024.

The plaintiffs’ submissions with respect to the Calderbank offer can be summarised in the following way:

Weighing all of the circumstances of this case in the manner set out below, in the application of the principles in SMEC Testing, Gretton and Dream Developments outlined above, in my view I should exercise my discretion to order the plaintiffs to pay the costs of the defendants on an indemnity basis on and from 21 November 2023 based on the plaintiffs’ failure to accept the offer made in the Calderbank letter.

The Calderbank offer was made after the plaintiffs had served all of their evidence in chief, the defendants had served their defences, and the defendants had served all of their evidence in response to that of the plaintiffs. As a result, the plaintiffs were in a position to assess the prospects of their claim by the time the offer contained in the Calderbank letter was received by them.

The Calderbank offer was also made after the plaintiffs were ordered to provide security for the defendants’ costs such that the plaintiffs had within their contemplation the potential financial expense, and risk, posed by proceeding to hearing.

I do not consider that it was necessary for all of the discovery to be completed and the hearing to be conducted before the plaintiffs were in a position to give a proper assessment of their likelihood of success in the proceedings. Although I made numerous findings regarding the credibility and reliability of the evidence of Dr Kyatt, those matters were not essential to the central assessment of the various claims. In particular, one of the matters I identified as a reason for the failure of the plaintiffs’ misleading or deceptive conduct claim involved an acceptance of Dr Kyatt’s evidence that the whole of his reliance for the entry into the Deed of Settlement was what was said to him by his lawyers, not anything represented to him by Mr Ibrahim.

The Calderbank letter expressly detailed the defendants’ views of the deficiencies in the plaintiffs’ claims and their evidence in the proceedings, concluding that it would “not support a finding by the Court in favour of your clients in respect of any of the claims they have advanced against the Defendants”. In light of the conclusions I reached in the Principal Judgment, as summarised above, this statement was prescient. But it was also soundly based on an analysis of the material that the plaintiffs had provided to that time and did not depend in any way on whether the credibility and reliability of Dr Kyatt’s evidence would survive cross-examination at trial over 6 months later.

I specifically reject the notion that a Calderbank letter in advance of the trial cannot operate to cause the discretion to be exercised in favour of an award of indemnity costs because the outcome of the cross-examination of the principal witness for the plaintiffs was not known. It would be an extraordinarily rare case in which such a factor would have such weight, and this case is certainly not one within that category. At the time the Calderbank letter was received by the plaintiffs, they had marshalled all of their evidence in chief, served it and knew the defendants’ evidence in response. They could make a fully informed assessment on their prospects of success.

In my opinion, the offer made in the Calderbank letter for the defendants to pay a total of $100,000 in full and final settlement of the plaintiffs’ claims with mutual releases was genuine and entirely reasonable, as was the period of 13 days that the plaintiffs were given to provide their response. The offer also explicitly stated that it was made “without prejudice, save as to costs” in accordance with the principles in Calderbank and would be relied upon by the defendants to seek an order for costs on an indemnity basis if the defendants achieved a better result at the hearing. The objective manifest intention of the defendants was that they would rely on the offer contained in the Calderbank letter to make an application for indemnity costs if the plaintiffs did not accept the offer within the time stipulated and the defendants went on to achieve a better result at the hearing.

The defendants received a significantly better result at the hearing (dismissal of the plaintiffs’ claims) than the offer in the Calderbank letter.

In all the circumstances, it was unreasonable for the plaintiffs not to accept the Calderbank offer within the period in which it was open for acceptance, which was by 5pm on 20 November 2023.

As a result, I consider that I should make orders varying the costs order I made on 6 November 2024, so that the plaintiffs pay the defendants’ costs on the ordinary basis up to and including 20 November 2023 and on an indemnity basis after that time. In addition, the costs to be paid on an indemnity basis will include the costs of this application.

Given the above, I will also make orders that the plaintiffs are to pay the costs of the defendants that were reserved on 2 May 2023 and 21 June 2023. In circumstances where these costs pre-date the Calderbank offer, they are costs in the cause and are to be paid on the ordinary basis.

For the reasons set out above, I propose to make the following orders: