D & M Pelle Holdings Pty Ltd v Cottrell Pty Ltd (No 2) [2005] ACTSC 82 (29 August 2005)

Last Updated: 14 September 2005

D & M PELLE HOLDINGS PTY LTD v COTTRELL PTY LTD (No 2)

[2005] ACTSC 82 (29 August 2005)

PRACTICE AND PROCEDURE - Costs - indemnity costs - effect of Calderbank letter - rejection of offer of compromise.

Calderbank v Calderbank [1975] 3 WLR 586

Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721

Quirk v Bawden (1992) 112 ACTR 1

Mutual Community Ltd v Lorden Holdings Pty Ltd (No 10561 of 1990)

No SC 47 of 2003

Judge: Connolly J

Supreme Court of the ACT

Date: 29 August 2005

IN THE SUPREME COURT OF THE )

) No SC 47 of 2003

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: D & M PELLE HOLDINGS PTY LTD (No 2) ACN 073 624 790

Plaintiff

AND: COTTRELL PTY LTD

ACN 062 400 837

Defendant

ORDER

Judge: Connolly J

Date: 29 August 2005

Place: Canberra

THE COURT ORDERS THAT:

1. The defendant is to pay the plaintiff's costs in the action on the ordinary basis up until 10 am on 20 June 1995 and thereafter on an indemnity basis.

1. This is an application concerning the appropriate form of costs order to flow from the decision in the substantive action delivered on 5 August 2005 (ACTSC 67), which ordered judgment for the plaintiff in the sum of $799,656. The substantive action was a claim for damages flowing from the breach of a lease of commercial premises in the Kaleen Village Shopping Centre in the Australian Capital Territory. The plaintiff company held a lease on a serviced delicatessen operation from the defendant landlord. There was a condition in the lease that the landlord would not permit any other serviced delicatessen to operate in the centre. It was common ground at the trial that, in breach of this condition, the defendant permitted a major supermarket tenant to operate a serviced delicatessen. Breach was admitted, and the matter proceeded on an assessment of damages.

2. When judgment was delivered it was in the form of judgment for the damages sum plus costs. The plaintiff sought to be heard on the question of costs, and I allowed the parties to make written submissions in relation to costs.

3. The plaintiff seeks costs on the ordinary party party basis up to and including the commencement of the hearing at 10 am on 20 June 2005, and thereafter on an indemnity basis. The plaintiff relies on what has become known as a "Calderbank Offer" made on 17 June 2005 in which the solicitors for the plaintiff indicated that they would accept a settlement in the sum of $600,000 plus costs.

4. It is now well established in this jurisdiction that a party that unreasonably rejects an offer of settlement may be subject to a less favourable costs sanction. The English practice, from Calderbank v Calderbank [1975] 3 WLR 586 has been expressly incorporated in the rules of court in some jurisdictions (Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721), but has not been incorporated in our Rules. Rather, it has been accepted since the decision of the Full Court in Quirk v Bawden (1992) 112 ACTR 1 that a costs sanction may follow from an unreasonable rejection of a settlement offer. In that case Higgins J (as he then was) said (at 6) -

There is much to be said for encouraging, at an early stage in the litigation, the serious consideration of offers of settlement. ...

Accordingly, I believe that this court should apply an appropriate costs sanction where a party has declined to accept or to make, as the case may be, a reasonable offer of settlement. It may, in some cases, be sufficient to deprive an otherwise successful party of all or part of the costs that otherwise would follow the event. In other cases, it may be appropriate to award some or all costs of an action on a more favourable than usual basis to a party who has been put to the expense of continuing litigation that ought reasonably to have been earlier settled.

5. In this case I found that the plaintiff company had warned the defendant landlord of the presence of the exclusivity clause on a number of occasions when it believed that the supermarket was going to expand. I noted in my judgment that this was a case that was capable of a commercial settlement at an early stage, and that the appropriate course would have been for the landlord to in effect buy out the plaintiff as it was determined to permit the supermarket to establish a fully serviced delicatessen.

6. At the hearing, extensive evidence was lead by the defendant to show that it was possible for a delicatessen to compete with a supermarket at a major town centre shopping centre, and also that there had been a general decline in the market for fully serviced delicatessens. As I pointed out in my decision, this was not particularly relevant here, where the plaintiff company had been trading profitably for many years and enjoyed an exclusivity clause, which was wilfully breached.

7. As Higgins J said in Quirk v Bawden (at 5) -

It is plain enough that if a defendant unreasonably rejects an offer of settlement from the plaintiff, the only sanction to encourage serious consideration of such an offer, moral exhortations aside, is an award of costs on a more favourable than usual basis. The most favourable basis is indemnity costs.

8. The defendant in its submissions acknowledges that it is appropriate for the plaintiff to have their costs and that, as a consequence of the Calderbank offer, it would be appropriate for the costs of the hearing itself to be on a more favourable basis being, it is said, party and party costs.

9. I note that the defendants themselves made an offer of $300,000 on 10 June 2005, which was expressed to be a Calderbank offer. In its letter to the plaintiff, the defendant asserted that, should the plaintiff recover a lesser sum, the defendant would seek its costs on an indemnity basis. Given that the defendant asserted (by reference to Calderbank v Calderbank and an unreported decision of Byrne J in the Victorian Supreme Court of Mutual Community Ltd v Lorden Holdings Pty Ltd (No 10561 of 1990)) on entitlement to indemnity costs, I do not see why that consequence should not flow in the opposite direction.

10. It seems to me that, in the circumstances of this case, the appropriate form of costs order is that the plaintiff should have its costs on the ordinary basis until the commencement of proceedings, and on an indemnity basis from 10 am on the opening day of the hearing on 20 June 2005. I note that an indemnity costs order is not an open cheque, as noted by Higgins J in Quirk v Bawden at 6.

11. It seems to me that the plaintiff should have its costs on this basis, including the costs thrown away by the adjournment granted on 13 September 2004 on the defendant's application.

12. The defendant submitted that it should have one month to pay the judgment sum. I do not see why any special order should be made, and the plaintiff is entitled to its judgment with interest to accrue in the ordinary way if it is not paid promptly.

I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Connolly.

Associate:

Date: 29 August 2005

Solicitor for the plaintiff: Tetlow Tigwell Watch

Solicitor for the defendant: Deacons

Date written submissions received from the plaintiff: 12 August 2005

Date written submissions received from the defendant: 12 August 2005

Date of judgment: 29 August 2005