Don't bank on the Calderbank

The decision of the Supreme Court of Western Australia in Currie v Currie [No 3]¹ is an important reminder of the high bar to be met before a court will make indemnity costs orders.

Background

The first defendant, Mr Graeme Currie, farmed in partnership with his wife at Bruce Rock (Currie Farm).  Mr and Mrs Currie have four children including Andrew and Bruce.

Bruce commenced proceedings against Graeme and Andrew, claiming that Graeme was obliged to assign or transfer ownership to Bruce of a part of the Currie Farm (called the Glenayr Farms) on the principles of proprietary estoppel (2013 Proceedings).

Graeme subsequently commenced proceedings against Bruce, claiming that Bruce was indebted to him in the sum of $1,198,700.00 as a debt pursuant to a right of subrogation.  The sum was paid from the proceeds of sale of part of the Glenayr Farms properties to pay back part of a debt Bruce owed to a bank that was guaranteed by Graeme (2015 Proceedings).

The Court held that Bruce’s claim was made out.  Declarations were made to the effect that Graeme held the remaining Glenayr Farms on constructive trust for Bruce.  Bruce was ordered to pay Graeme $100,000 and cause any guarantee by Graeme over the Glenayr Farms properties to be discharged. 

Graeme’s action against Bruce was dismissed.

The parties then made conflicting applications for costs.

The costs application

While the parties agreed that Graeme should pay Bruce’s costs of both actions, there was disagreement as to how Bruce’s costs should be assessed, and also whether Bruce should pay Andrew’s costs of the 2013 Proceedings.

Bruce applied for an order that Graeme pay his costs on an indemnity basis, alternatively that special costs orders be made in his favour, namely that the cost recovery limits imposed by the applicable Legal Profession (Supreme Court) (Contentious Business) Determination (Scale) be raised.  Graeme opposed any indemnity costs orders.  In relation to special costs orders sought, he agreed that the Scale limits should be raised for some, but not all, items, and did not agree that the hourly rate limits should be raised.

Andrew sought an order that Bruce pay his costs of the 2013 action.  Bruce opposed this order.

Indemnity costs

Bruce sought an indemnity costs order on three bases, namely that:

• Graeme unreasonably rejected a Calderbank offer, and Bruce obtained judgment on terms more favourable to him than the terms of the offer.
• Graeme defended the action in circumstances where, properly advised, he should have known that he had no chance of success.
• Graeme’s conduct in the course of defending the case was improper or unreasonable.

The Calderbank Offer

Justice Le Miere highlighted that a Calderbank offer will not justify an award of indemnity costs unless its rejection was unreasonable.²  In deciding whether the rejection of a Calderbank offer was unreasonable, Justice Le Miere had regard to:

• The stage of the proceeding at which the offer was received.
• The time the defendant was given to consider the offer.
• The extent of the compromise offered.
• The defendant’s prospects of success assessed at the date of the offer.
• The clarity with which the terms of the offer were expressed.
• Whether the offer foreshadowed an application for indemnity costs in the event of the defendant rejecting it.

The Calderbank offer in this case was made a month before the commencement of trial.  Graeme was aware of the legal basis of Bruce’s claim and the evidence he would adduce in support of his claim at the time the offer was made.

However, Justice Le Miere stated that “it cannot be assumed that rejection of a reasonable offer of itself amounts to an unreasonable rejection.”  His Honour found that the rejection of the Calderbank offer in this case did not amount to an unreasonable rejection.  This was because:

• The offer required Graeme to yield at a late stage of the proceeding.  Whilst the offer was a genuine compromise, it required Graeme to surrender the subject matter of the proceedings, being the Glenayr farms.
• Graeme and his legal advisors considered the legal basis of Bruce’s claim and the evidence relevant to it, and concluded that Graeme was likely to be successful.  Justice Le Miere was not satisfied that a reasonable person in Graeme’s position should have assessed his prospects of success to be so low that it was unreasonable to reject the offer.

Hopeless defence

Justice Le Miere acknowledged that an indemnity costs order might be made against a party who persists in a defence that he knows, or ought to have known if he had competent legal advice, to be hopeless and who, in doing so, thereby causes unnecessary expense and cost to the plaintiff. 

However, although Justice Le Miere substantially determined the factual and legal issues in favour of Bruce, he held that it did not follow that Graeme’s case was so hopeless in the sense that no reasonable person properly advised would reasonably have persisted with his defence.

Misconduct

Justice Le Miere noted that an indemnity costs order may be appropriate against a defendant who engages in misconduct in connection with the litigation.  Bruce alleged there were two aspects of Graeme’s conduct which amounted to misconduct justifying an order for indemnity costs:

• Graeme failed to discover important documents during the trial.
• The entirety of Graeme’s case was based on evidence which was found not to be credible.

In Justice Le Miere’s judgment in the 2013 Proceedings, he found that Graeme likely did not discover an important document because it was inconsistent with the evidence given in his witness statement and adverse to his case.  His Honour held that this was misconduct in connection with the litigation.  However, his Honour was not satisfied that Graeme’s failure to discover this document caused Bruce to incur substantial costs that he would not otherwise have incurred.

In relation to the lack of credible evidence from Graeme, Justice Le Miere noted that a finding that a party’s evidence is not credible or reliable or that a party has fabricated evidence does not automatically justify an indemnity costs order.  As his Honour did not find that this case involved a concerted effort by witnesses to present a false defence, his Honour was not satisfied that the conduct of Graeme and the witnesses took the case so far outside the ordinary range of cases so as to justify an award of indemnity costs.

Special costs order

Justice Le Miere was satisfied that the amount of costs allowable in respect of the matter under the relevant cost determination was inadequate because of its unusual difficulty, complexity and importance, as required by section 280(2) of the Legal Profession Act.³  His Honour ordered that Bruce’s costs be taxed without regard to the limit on costs fixed in the relevant determinations, and that the hourly rates for some practitioners (but not all) be removed.

Andrew’s costs

Andrew was joined as a defendant to the proceedings.  He was represented by the same solicitors as Graeme, chose to align his interests with Graeme, and gave evidence on behalf of Graeme.  Justice Le Miere found that Andrew was not a reliable witness, and coloured his evidence to support Graeme’s case, which added to the length of trial and the costs incurred by Bruce.  Justice Le Miere held that Andrew should recover his costs insofar as he incurred costs separately from Graeme, but limited to the costs of entering a memorandum of appearance, filing and serving his defence and giving discovery.

Lavan comment

This decision demonstrates the obtacles that often stand in the way of a grant of indemnity costs orders. Even where a defendant has rejected a Calderbank offer and lost the case, who was found not to be a credible witness and who was found to have engaged in misconduct in connection with the litigation, the Court in the circumstances of this case was not persuaded to  make a special costs order.

It is also an important reminder of the need for practitioners to ensure Calderbank offers are made reasonably, or that the client can point to reasonable grounds for rejecting such an offer.

Practitioners should bare the question of costs in mind at all stages of the proceedings. Documenting the process of considering the offer to show that there was careful consideration of the evidence and all of the circumstances will be important if the rejection of a Calderbank offer is scrutinised on a costs application.