On 10 April 2019 his Honour Dicker handed down a decision as to the question of costs in the matter of Zhang -v- Harmstorf. The substantive matter was in relation to a breach of contract between the parties. The contract was that, upon payment from the Plaintiff to the Defendant of 1,000,000.00 RMB (approximately $197,000.00 AUD), the Defendant would set up a business and offices in Mainland China. In breach of the contract, it was found that the Defendant had failed to fulfil his obligations under the contract and had not properly set up any offices of the business in mainland China. Accordingly, the Plaintiff was wholly successful in the matter and judgment was entered in favour of the Plaintiff. The matter then came before his Honour again in relation to an argument for indemnity costs.

The Plaintiff made a Calderbank offer to the Defendant on 7 February 2019. In this offer, the Plaintiff was prepared to accept the sum of $125,000.00 in full and final settlement of the matter. There was no response to the offer and the matter proceeded to hearing on 13 February 2019. The Plaintiff made an application for indemnity costs from 8 February 2019 onwards as they had clearly obtained a judgment which was more favourable to them than the offer.

The Defendant made a number of arguments in opposition to the order for indemnity costs which can be briefly stated as follows:

  • The offer was not open for a long enough period of time;
  • The offer was not a genuine attempt to compromise, but rather was a “knee jerk” reaction to an offer made by the Defendant; and
  • The rejection of the offer was not unreasonable.

Ultimately, his Honour was satisfied that he should make an indemnity costs order. His Honour considered the applicable case law in the matter, and in particular the case of Miwa Pty Ltd -v- Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 and considered the relevant factors set out in that case by his Honour Basten JA. His Honour Basten JA formed the view that when making a determination as to a Calderbank offer and the merits of an order for indemnity costs, the Court should consider the following factors:

1. Was the offer a genuine offer of compromise? That is, did the offer involve a “real and genuine element of compromise”
2. Was the refusal of the offer unreasonable? In considering this question, the Court should consider the timing of the offer and other relevant factors such as the stage of the proceedings at the time of the offer, the extent of the compromise, the time allowed for consideration of the offer, the clarity of the offer and whether the offer foreshadowed an application for indemnity costs.

His Honour Dicker considered the factors set out above and ultimately formed the view that, in this matter, there was a very real and genuine element of compromise in the Plaintiff’s offer. His Honour rejected the Defendant’s submission that the offer was simply a “knee jerk reaction” to the Defendant’s offer as the offer made by the Plaintiff’s was considerably more than the offer made by the Defendant. Further, his Honour did not consider the Plaintiff’s offer to be vague and considered it to be a very real compromise on the Plaintiff’s position, noting they were ultimately awarded a judgment in excess of $195,000.00. Further, his Honour considered it important that the offer was made less than a week prior to the hearing and at a time when the Defendant would have had all the relevant material before him in order to properly consider his prospects of success. The Defendant was also aware that he had failed to comply with a Notice to Produce issued to him by the Plaintiff, and that failure to comply might have an adverse effect on the outcome of the hearing.

His Honour also considered it relevant that the Defendant had competent counsel at all times leading up to and during the hearing, and was in fact a solicitor himself and was therefore a sophisticated party who was able to properly assess the prospects of his case. His Honour further found that the offer was open for a reasonable period of time, given that the offer was made less than a week before the commencement of the hearing and noting that, if the matter did not resolve, the parties would need time to prepare their case prior to the hearing. Having considered the matter and offer as well as the relevant precedents, his Honour was satisfied that the making of an indemnity costs order was appropriate in this instance.

A review of this case highlights the difficulties faced by parties seeking costs orders which are outside of the ordinary orders made by the Court. It also reiterates the importance of ensuring that offers are made reasonably and throughout a matter and that clients must carefully consider both the merits of an offer and the possible risks of rejection.