Vakiloroaya v Norri (No 2)

1. [1]

   This is a judgment on costs. It follows my judgment on 26 June 2025, dismissing the appeal against the decision of Magistrate Brender dated 11 July 2024. As Norri indicated she was seeking a costs order based on a Calderbank offer, I vacated the costs order that I made when I handed down my judgment.

2. [2]

   For convenience, and without intending any disrespect, I will refer to the parties by name as I did in my judgment dated 26 June 2025. Both parties have filed and relied upon their written submissions.

3. [3]

   Norri seeks that the Court order Vakiloroaya to pay her costs on an indemnity basis and as a gross sum of $29,700.00. She relies on the affidavit of David Leamey (Mr Leamey), her solicitor, sworn 2 July 2025.

4. [4]

   Vakiloroaya opposes Norri’s proposal seeking costs on an indemnity basis and in a gross sum on the basis that he did not accept Norri’s offer to ‘walk away with each party bearing their own costs’. Vakiloroaya submitted that Norri has not established a legal basis for the Court to depart from the general rule, and that Norri’s costs should be as agreed or assessed on an ordinary basis.

The law

1. [5]

   The starting point in relation to costs is s 98 of the Civil Procedure Act 2005 (NSW) (CPA), which relevantly reads:

2. [6]

   Uniform Civil Procedure Rules 2005 (NSW) (UCPR) rr 42.1 and 42.15A relevantly state:

Offer of compromise

1. [7]

   Norri’s offer was not expressed to be an offer of compromise pursuant to r 42.15A UCPR. But does it constitute a Calderbank offer (Calderbank v Calderbank [1975] All ER 331 (Calderbank))?

2. [8]

   Norri’s solicitor forwarded a “Calderbank” letter to Vakiloroaya’s solicitor dated 10 February 2025, in the following terms:

3. [9]

   The offer does not state “without prejudice save as to costs”, nor is it expressed to be an offer made pursuant to Calderbank v Calderbank [1975] All ER 333.

4. [10]

   This offer was not accepted.

Indemnity costs

1. [11]

   An offer of compromise can be a genuine compromise in the circumstances, because the plaintiff would not have to bear the costs already incurred by the defendant and it could not be doubted, given the procedural history of the proceedings and its complexity up and to that date, that those would be considerable: see Melchior v Sydney Adventist Hospital Ltd (No 2) [2009] NSWSC 65 at [17] per Hoeben J.

2. [12]

   Vakiloroaya has not addressed the issue that unless the Court otherwise orders, Norri is entitled to an order that Vakiloroaya pay her costs on an indemnity basis. There is a prima facie entitlement to the successful defendant to a special order for costs and it is a matter for the unsuccessful plaintiff to displace that entitlement: Hollier v Sutcliffe (No 2) [2010] NSWSC 433 at [6] per R A Hulme J (‘Hollier’). Norri further submitted that it is a matter for the unsuccessful party to show there are exceptional circumstances warranting an exercise of the discretion not to order costs on an indemnity basis: Hollier at [6].

3. [13]

   In relation to the effect of the words ‘order otherwise’, in Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [46]-[48] McColl JA (with whom Gleeson JA and Sackville AJA agreed), stated:

4. [14]

   Norri submitted that the application for indemnity costs is justified because Vakiloroaya did not accept the Calderbank offer to walk away on the basis that each party bears their own costs. The matter proceeded to hearing and Norri successfully defended the appeal.

5. [15]

   The court has discretion to award indemnity costs where a Calderbank offer was unreasonably rejected (Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 (‘Miwa’)). Some relevant factors include the timing and clarity of the offer; whether it involved a genuine compromise, the offeree’s prospects at the time, and whether the offer foreshadowed an indemnity costs application (Miwa).

6. [16]

   Finally, Norri submitted that the offer was made early in the proceedings and represented a clearly articulated, genuine compromise; and that Vakiloroaya unreasonably rejected the offer, in circumstances where his appeal was ultimately unsuccessful. She should not be penalised by being deprived of being awarded the full costs incurred due to Vakiloroaya’s failure to accept a reasonable offer. If the offer was accepted only minimal costs were incurred and those costs would be allowed in full on an ordinary basis in any event.

7. [17]

   Vakiloroaya submitted that because Norri seeks to punish him, the Court should not depart from the general rule regarding the awarding of indemnity costs. Vakiloroaya submitted that the court’s discretion to award indemnity costs must be exercised judicially (Mead v Watson as Liquidator for Hypec Electronics (2005) 23 ACLC 718; [2005] NSWCA 133 at [8]), and with caution (Leichhardt Municipal Council v Green [2004] NSWCA 341 at [47] (‘Leichhardt’)). It is further submitted that indemnity costs are compensatory, not punitive; and that if the court considers departing from this usual rule, regard should be had to the purpose, rationale and principles of fairness (Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121] (‘Gretton’)).

8. [18]

   For a court to justify the ordering of indemnity costs, Vakiloroaya submitted that it must find a claim to be “without substance”, “groundless”, “fanciful or hopeless”, so weak as to be futile; or that there is some special or unusual feature like unreasonable delay or wasting of time: Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (No 2) [2009] NSWCA 12 at [4] (‘Baulderstone’).

9. [19]

   Notwithstanding that the Court dismissed Vakiloroaya’s appeal, none of the above features were present in his appeal nor did Norri suggest that any such features were present to justify the awarding of indemnity costs in this case.

10. [20]

    Mr Leamey’s letter dated 10 February 2025, was not a Calderbank offer. It does not contain the necessary indicia to make it a Calderbank letter, for example, it is not marked “without prejudice except as to costs”, it does not indicate that it will be relied upon in support of a claim for costs, nor does it comment on the grounds of appeal and provide any reason why the appeal would fail and Vakiloroaya should accept the offer in the letter.

11. [21]

    Vakiloroaya referred to Gretton at [43] and said that the making of a Calderbank offer that is better than the result ultimately obtained does not automatically lead to the making of an indemnity costs order. He stated that unlike a formal offer of compromise, a Calderbank letter does not have the equivalent presumptive effect but rather is a relevant consideration in the exercise of the court’s discretion. One reason for this is that a party seeking to take advantage of such an offer for the purposes of costs should be expected to comply with the rules of the court.

12. [22]

    The purpose of an offer of settlement or compromise is to encourage the recipient to seriously consider the risks involved in proceeding with the matter. Mr Leamey’s letter did not articulate any such risks and encourage Vakiloroaya to give serious consideration to continuing nor did it give any reason why he should accept the offer. The offer was derisory because it is an invitation to surrender rather than an offer to commercially compromise the appeal (Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at 30] (‘Regency Media’)). Such an offer, without more, will not trigger the indemnity costs mechanism (Regency Media at [31]). The offer must contain some real benefit, more than total capitulation, to Vakiloroaya. An offer that merely seeks to trigger any costs sanctions will not be considered an offer of compromise (Leichhardt at [23]).

13. [23]

    The offer must involve a genuine attempt to reach a negotiated settlement (Baulderstone at [19]).

14. [24]

    Determining whether rejection of an offer was unreasonable requires consideration of the facts and circumstances specific to the case (see Baulderstone at [22]). Vakiloroaya then referred to East West Airlines Ltd v Turner (No 2) [2010] NSWCA 159, where the Court concluded that it was not unreasonable for the appellant to refuse a settlement offer on the basis that the appeal be withdrawn with each party bearing their own costs.

Resolution

1. [25]

   Norri’s offer in terms of a “walk away offer” constitutes a genuine offer of compromise: Byrne v Turner Freeman Lawyers (No 2) [2025] NSWCA 158 at [13] (citing Schepis v Commonwealth of Australia [2013] NSWCA 354 at [33] and Taheri v Vitek (No 2) [2014] NSWCA 354 at [8]). Is it critical that the letter did specifically set out that it was a Calderbank offer save as to costs? In the exercise of my discretion, I do not think it is fatal. Vakiloroaya’s case was, at best, weak and any offer should have been taken seriously by him and his legal advisors. In the circumstances, it is my view that I should otherwise order. Therefore, Vakiloroaya is to Norri’s costs on an indemnity basis.

Gross sum costs order

1. [26]

   The next issue is whether Vakiloroaya should be rto pay Norri’s costs as a gross sum.

2. [27]

   Below, I reproduce [7]-[14] of my judgment in Quach v Horvath (No 2) [2022] NSWSC 55, where I summarised the legal principles applicable.

3. [28]

   Norri seeks that this Court order Vakiloroaya pay her costs as a specified gross sum in the amount of $29,700.00.

4. [29]

   The circumstances of this case warrant the exercise of the power in s 98(4)(c) of the CPA. Vakiloroaya’s prosecution of this claim and the history of his dispute with her and her husband, suggests that he is unlikely to approach any cost assessment in a manner that facilitates the just, quick and cheap resolution of the process. Additionally, the costs sought in the appeal approximate Vakiloroaya’s debt claim of $30,000.00. Meanwhile, Norri’s costs in the Court below total $113,866.00 and remain unpaid.

5. [30]

   By reference to Mr Leamey’s affidavit, which provides evidence of the costs incurred by Norri, the Court can be confident in arriving at the appropriate sum. Mr Leamey attached invoices of his legal fees and counsel’s fees to his affidavit. The solicitor’s fees for acting for Norri are $10,972.50 and counsel’s fees are in the sum of $13,667.50. The invoices record the work performed with respect to those costs. Although the costs are not insignificant, when compared to the usual costs incurred when defending an appeal in the Supreme Court, Norri submitted that the solicitors’ costs are modest, and counsel’s costs are reasonable.

6. [31]

   Mr Leamey estimated that a cost assessment process would likely result in Vakiloroaya paying 100% of his fees and 100% of disbursements including counsel’s fees. The quantum of $29,700.00 is based on experience and is commensurate with percentages ordered by the courts in gross-sum costs orders like, for example, In the matter of Aquaqueen International Pty Ltd [2015] NSWSC 500 at [30] (‘Aquaqueen’).

7. [32]

   Vakiloroaya submitted that this appeal was straightforward, quick and ordinary. Norri has not articulated anything that would justify the awarding of a gross costs sum, nor has she provided any evidence as to the complexity or cost of the proceeding in an assessment of her costs, such that the Court could be persuaded to exercise its discretion and order a gross sum of costs.

8. [33]

   Norri’s reference to unrelated and irrelevant proceedings against her and her husband, as well as an unassessed amount of costs in the Local Court, are not factors that can persuade the Court to exercise its discretion and order a gross sum of costs.

9. [34]

   Vakiloroaya also referred to Harrison v Schipp [2002] NSWCA 213 at [22] (Giles JA citing Clarke JA in Wentworth v Wentworth (Court of Appeal, 21 February 1996, unreported)), and submitted that the court’s power to make a lump sum costs order “should only be exercised when the court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the material available”.

10. [35]

    Vakiloroaya rejected Mr Leamey’s opinion as to the appropriateness of his own costs and counsel’s fees; and submitted that the Court could not be satisfied of the reasonableness of the amount claimed nor that it is a proper basis for a lump sum costs order. The Court could not confidently order a gross sum in that amount.

11. [36]

    Vakiloroaya submitted that in assessing the amount of a lump sum cost order, courts apply a discount to the costs claimed, because even on an assessment on an indemnity basis, a successful party invariably recovers less than their actual costs (see Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23 at [13]; Zepinic v Chateau Constructions (Aust) Ltd (No 2) [2014] NSWCA 99 at [38]). He further submitted that the sum ordered would include costs that would not be recovered on assessment, account for the time and costs saved in applying for an assessment (see Aquaqueen at [18]), and the contingencies that would be relevant in any formal cost assessment (Hamod v State of New South Wales [2011] NSWCA 375 at [820]). As such, if the Court is minded to make a gross sum of costs order, a discount of 50% of Norri’s costs should be applied.

Resolution

1. [37]

   Vakiloroaya has not provided any evidence that he can pay Norri’s costs. Norri’s costs of the Local Court proceedings are in the sum of $113,866.00. Vakiloroaya was ordered to pay them. They remain unpaid. I have carefully examined the invoices by both Norri’s counsel and solicitor in the appeal. I have formed the view that these costs are reasonable. On this basis, I make an order that Vakiloroaya is to pay Norri’s costs assessed as a gross sum in the sum of $29,700.00.

Result

1. [38]

   Vakiloroaya is to pay Norri’s costs of the appeal on an indemnity basis and in the gross sum of $29,700.00.

Costs

1. [39]

   Costs follow the event. Vakiloroaya is to pay Norri’s costs of this costs application on an ordinary basis.

   1. (1)

      The plaintiff is to pay the defendant’s costs of the appeal on an indemnity basis and in the gross sum of $29,700.00.

   2. (2)

      The plaintiff is to pay the defendant’s costs of this costs application on an ordinary basis.