Wassell v Ken Carr Bobcat & Tipper Hire Pty Ltd (No 2)

The Court published its principal judgment in these proceedings on 3 November 2021: Wassell v Ken Carr Bobcat & Tipper Hire Pty Ltd [2021] NSWSC 1415.

The Court dismissed the plaintiffs’ claim and directed the parties to provide appropriate short minutes of order to give effect to the reasons in the principal judgment.

Orders were made on 11 November 2021 in accordance with short minutes of order agreed between the parties. By order 9, the Court ordered the plaintiffs to pay the defendant’s costs of the proceeding including its cross claim as agreed or assessed. By order 10, directions were made in respect of the defendant’s application for the plaintiffs to pay its costs of the proceeding on an indemnity basis.

In accordance with the directions, the defendant filed submissions on 17 November 2021 and the plaintiffs replied on 26 November 2021.

The basis of the application that the costs payable by the plaintiffs be assessed on the indemnity basis was the failure by the plaintiffs to accept a Calderbank offer made in a letter dated 11 June 2021 by the defendant’s solicitors to the plaintiffs’ solicitors.

Paragraph 2 of the letter drew the plaintiffs’ attention to the decision of the Court of Appeal in CEG Direct Securities Pty Ltd v Wang [2021] NSWCA 76 (CEG Direct Securities). The letter observed: “Given this decision, we consider our client will succeed in the current proceedings.”

CEG Direct Securities was considered at [42]-[56] and [189], [190] and [225] of the principal judgment.

The defendant’s solicitors made the following offer in par 3 of their letter:

The plaintiffs did not accept the defendant’s Calderbank offer.

The only element of compromise in this offer was that the defendant would pay its own costs. The letter advised that the defendant’s legal costs exceeded $60,000 including GST.

I accept the defendant’s submission made in support of its application that, as identified by Basten JA in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344, there are two questions relevant to whether a party who does not accept a Calderbank offer should be ordered to pay the other party’s costs on the indemnity basis, if that party achieves a better result in the proceedings than what was offered. Those questions are (a) whether there was a genuine offer of compromise, and (b) whether it was unreasonable for the offeree not to accept it.

In acknowledgement that the Calderbank offer was what is sometimes called a ‘walk away’ offer, the defendant relied upon the following authorities as to when such an offer involves a real and genuine compromise: Taheri v Vitek (No 2) [2014] NSWCA 344; Fabre v Lui (No 2) [2015] NSWCA 312; and South Western Sydney Local Health District v Gould (No 2) [2018] NSWCA 160.

It will be sufficient to set out the following extract from the judgment of the Court of Appeal in the first of those decisions:

The Calderbank offer was made after all of the evidence in the proceedings had been served. Consequently, the plaintiffs should have been apprised of all of the forensic issues in the matter. It is likely that the defendant would have been allowed a substantial proportion of the $60,000 in costs that it was said to have incurred on an assessment.

An offer by a defendant in these circumstances to forego an amount of costs in the order of $60,000, when the amount of the plaintiffs’ claim was for little more than $185,000, is capable of being a genuine offer of compromise. However, where the Calderbank offer is a ‘walk away’ offer, it is difficult to separate a consideration of the strength of the defendant’s case from the issue of whether a real compromise was offered.

It may therefore be more realistic to deal with the defendant’s application first from the perspective of whether or not it was reasonable for the plaintiffs to have rejected the offer.

I consider that, in the circumstances of this case, it was reasonable for the plaintiffs to have rejected the defendant’s offer, and that the plaintiff’s prospects of success were sufficiently great that a real or genuine compromise would have required that the defendant offer to pay the plaintiffs a relatively considerable proportion of the amount of their claim. In short, by reason of the relationship between the strength of the plaintiffs’ case and the need for there to be a real compromise, I do not accept that this is a case where the plaintiffs’ failure to accept a ‘walk away’ offer is a justification for ordering them to pay the defendant’s costs on the indemnity basis.

As a general matter, I consider that this case raised genuinely contestable issues on both sides and that the likely outcome was reasonably evenly balanced. I think that appears reasonably obvious from the process of reasoning contained in the judgment.

I do not accept that the plaintiffs’ case was doomed to fail by the reasoning in CEG Direct Securities. As appears from [225] of the principal judgment, there was a proper argument available to the plaintiffs that the loan agreement contained terms that overcame the effect of the conclusion reached by the Court of Appeal that although the mortgage was indefeasible it secured nothing. The fact that I did not ultimately accept the plaintiffs’ submission does not have the retrospective effect that it was never reasonably arguable.

More significantly, however, I consider that this is a case where the plaintiffs were always entitled to test the evidence of the defendant’s principals in cross-examination. This is a case where all parties were innocent, and every person involved succumbed to the deceit of the fraudster. It is clear that the defendant’s principals were naive and relatively easily persuaded by the fraudster. It was ultimately crucial to the defendant’s success that I accepted the principals’ evidence, even though more sophisticated persons would have been unlikely to be deceived by the fraudster’s relatively conspicuous machinations. If I had found that the principals had been aware of or turned a blind eye to the fraudster’s conduct, the plaintiffs’ case may well have succeeded.

Consequently, the order of the Court is: The costs of the defendant that the plaintiffs were ordered to pay by order 9 made on 11 November 2021 are to be assessed on the ordinary basis.