Supreme Court New South Wales

• Medium Neutral Citation: Suzanne Marie Ryan and Mary Agnes Briggs as executrices of the estate of the late Patrick Joseph Donoghue & Anor v Prenitha Srimath Wikramanayake & Anor (No 2) [2013] NSWSC 1171
• Hearing dates: 6 & 7 December 2012
• Decision date: 27 August 2013
• Jurisdiction: Equity Division
• Before: Slattery J

Decision

Order the plaintiffs to pay the defendants' costs of these proceedings on the ordinary basis prior to 23 November 2012. Order the plaintiffs to pay the defendants' costs of the proceedings on the indemnity basis from 23 November 2012.

• Catchwords: PROCEDURE - costs - indemnity costs - Calderbank letter served - whether plaintiffs should pay the defendants' costs on the indemnity basis after the Calderbank letter - plaintiffs and defendants have both suffered loss at the hands of a third party - plaintiffs bring proceedings as a matter of principle - whether a costs order should be made in the defendants favour for legal costs incurred prior to the Calderbank letter.
• Legislation Cited: Uniform Civil Procedure Rules 2005
• Cases Cited: Illawarra Hotel Co Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211; Commonwealth of Australia v Gretton [2008] NSWCA 117; Leichhardt Municipal Council v Green [2004] NSWCA 341; Oshlack v Richmond River Council (1998) 193 CLR 72; Ohn v Walton (1995) 36 NSWLR 77 McIlraith v Ilkin [2008] NSWCA 11
• Category: Costs
• Parties: First Plaintiff:- Suzanne Marie Ryan and Mary Agnes Briggs as executrices of the estate of the late Patrick Joseph Donoghue; Second Plaintiff:- Suzanne Marie Ryan and Mary Agnes Briggs as executrices of the estate of the late Marie Josephine Donoghue; First Defendant: Prenitha Srimath Wikramanayake; Second Defendant: Margaret Anne Wikramanayake
• Representation: Counsel: First & Second Plaintiff:- J. Van Aalst; First & Second Defendant:- P. Bolster; Solicitors: First & Second Plaintiff: Ian Geddes, Cater & Blumer; First & Second Defendant: Robert Tassell, Pikes and Verekers Lawyers
• File Number(s): 2009/337417
• Publication restriction: No

Judgment

1 This is my second judgment in these proceedings. In my principal judgment the plaintiffs' claims were dismissed and directions were made for submissions on costs: Suzanne Marie Ryan and Mary Agnes Briggs as executrices of the estate of the late Patrick Joseph Donoghue & Anor v Prenitha Srimath Wikramanayake & Anor [2013] NSWSC 1150. Persons, matters and things are referred to in this judgment in the same way as they are in my principal judgment.

2 The defendants apply for an order for indemnity costs supported by a Calderbank letter. The Calderbank letter was dated 9 November 2012 and was open for acceptance until 23 November 2012. In substance it would have allowed the plaintiffs to receive $20,000, and have a further $20,000 towards payment of their own costs of the proceedings, and have existing costs orders against them vacated. The relevant part of the November 2012 offer of compromise was the following:

We are instructed to make the following offer to settle these proceedings:

1. The first and second defendants to pay the plaintiffs the sum of $20,000.

2. The first and second defendants to pay the plaintiffs a further sum of $20,000 an account of costs.

This offer is open for acceptance until 5.00pm on 23 November 2012.

In respect of costs, we note our clients have a number of costs orders in their favour, which we anticipate would assess at approximately $14,000. The costs offer above is intended to be net of those orders, i.e. our clients' rights to have the costs orders in their favour assessed would not be pursued.

3 The principles that apply to making of the orders for indemnity costs in such circumstances may be shortly stated. The Court's power is discretionary and the general rule is that costs follow the event and are assessed on the ordinary basis. But where a Calderbank letter has been served public policy objectives of encouraging an early end to litigation and discouraging wasteful and unreasonable behaviour by litigants underpins the making of favourable costs orders. The making of a Calderbank letter of offer does not automatically result in an indemnity costs order notwithstanding that judgment is more favourable to the party making the offer than the terms of the offer. Two guides have been developed as to how the discretion may appropriately be exercised when a Calderbank offer has been made: first, that the offer is a genuine offer of compromise; and, second, whether it was unreasonable for the offeree not to have accepted the offer. The question of unreasonableness in this assessment is to be approached objectively in the circumstances known (or which could reasonably have been anticipated) by both parties at the time the offer was made. The discretion is exercised having regard to all the relevant circumstances of the case. The onus lies on the party making the Calderbank offer to satisfy the Court that it should exercise the costs discretion in its favour. These principles have been conveniently summarised in the recent authorities, on appeal, and at first instance: Illawarra Hotel Co Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211 at [17], Commonwealth of Australia v Gretton [2008] NSWCA 117 at [38].

4 The plaintiffs accept that the offer of compromise of 9 November 2012 creates a dividing line in the way that the Court should assess costs issues. First, after 9 November 2012 the plaintiffs submit that they are not in a position to challenge that offer "in respect of the consequential cost order". It is not entirely clear whether the plaintiffs are conceding that indemnity costs or costs on ordinary basis would be appropriate after 9 November. But in my view the appropriate order is that the plaintiffs pay the defendants costs after 23 November 2012 on the indemnity basis. The indemnity costs should be assessed from the expiry of the Calderbank offer.

5 The defendants' offer was plainly more favourable than the outcome to the plaintiffs. And it offered a genuine compromise. It did not seek costs from the plaintiff. Had the plaintiffs accepted the 9 November offer they would have had a contribution of $20,000 to a verdict, and a further contribution of $20,000 to their own costs, and would not have an order for costs against them. The offer was open for a reasonable time and was made at a time, very shortly before the hearing, where the nature of the contest between the parties was reasonably apparent on the filed evidence. In these circumstances the defendants have demonstrated that the plaintiffs' rejection of the offer was unreasonable in all the circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19].

6 But the plaintiffs submit that there should be a different order for costs prior to 9 November 2012. The plaintiffs submit that they should only be ordered to pay "a percentage of the defendants' costs incurred up to that date". The basis for that contention is said to be: that although the potential for an adverse costs order has the ordinary effect of discouraging parties from pursuing claims in Court which are not successful; but this case differs from the normal case, in that the plaintiffs' role was that as executrices, and the children of the late Mr and Mrs Donoghue, attempting to recover their parents' accommodation bonds which they were seeking to pursue as a matter of principle. And the plaintiffs point out that they were innocent parties and non-participants in a commercial process, which led to a misapplication of those bonds. The plaintiffs say that those circumstances should allow the Court to exercise its costs discretion to alleviate the normal costs burden on the plaintiffs, but nevertheless to give the defendants some compensation to meet their costs. The plaintiffs are inviting the result that the defendants only get a percentage of their costs before the Calderbank letter.

7 The defendants seek to meet that argument by saying that there is no evidence as to the motivation of the executrices in commencing these proceedings. The defendants say that even if the matter was pursued as a matter of principle that the plaintiffs' conduct nevertheless had the unfortunate result that the defendants, who are also innocent parties, were forced to incur significant legal costs in defending claims that were ultimately unsuccessful. The defendants also point out - as the litigation has disclosed - that their assets were already significantly depleted by reason of the conduct of Messrs Smith, James and Plus 55. In summary the defendants say that there is no reason why costs should not follow the event.

8 I do not accept the defendants' argument that plaintiffs were not pursuing these proceedings as a matter of principle. It was perfectly evident in my view, from the excellent and highly credible evidence given by Mrs Briggs and Mrs Ryan that they were motivated by principle and by acting honourably in the memory of their parents. Their evidence was persuasive and they were in my view motivated precisely in the way that they claim. But the difficulty is that despite their motivation, they still lost these proceedings and the defendants were still put to the expense and trouble of defending them, which they have now done successfully. The costs discretion must be exercised judicially, and fairness dictates that the unsuccessful party typically will bear liability for costs: Oshlack v Richmond River Council (1998) 193 CLR 72 at [67]. Although the plaintiffs are undoubtedly well motivated, their lack of success in my view attracts the ordinary rule that costs follow the event: Uniform Civil Procedure Rules 2005 r 42.1 ("UCPR").

9 Nor is the plaintiffs' second argument any more persuasive. The plaintiffs say that they, like the defendants, are the innocent victims of the actions of third parties, which actions have led to the loss of their accommodation bonds. That can be accepted; so much flows from the Court's findings in the principal judgment. But the Court is required to act judicially in dealing with the issues of costs. It was open to the plaintiffs to accept before litigation commenced that they and the defendants were innocent victims of a third party, not to commence risky litigation, but to allow the loss to lie were it fell. They chose not to do this and instead to pursue this litigation, and have now been unsuccessful.

10 It seems to me in those circumstances that the Court should make the usual order that costs follow the event. And I see no basis to make any other order prior to the Calderbank letter. The general rule that costs follow the event under UCPR r 42.1 is based upon the principle that costs are compensatory: Ohn v Walton (1995) 36 NSWLR 77 at 79 and McIlraith v Ilkin [2008] NSWCA 11 at [13]. In my view fairness requires the ordinary rule to be given effect and the defendants to be compensated in the litigation that the plaintiffs had the option not to pursue.

11 In the result therefore the Court's orders will be as follows:

(1) Order the plaintiffs to pay the defendants' costs of these proceedings on the ordinary basis prior to 23 November 2012;

(2) Order the plaintiffs to pay the defendants costs of the proceedings on the indemnity basis from 23 November 2012.

Decision last updated: 27 August 2013