Claimant Ordered to Pay Indemnity Costs for Rejecting Offer

FEDERAL COURT OF AUSTRALIA

[NAME] ([APPELLANT]) v The Official Trustee in [APPELLANT], in the matter of [NAME] ([APPELLANT]) (No 2) [2012] FCA 66 Citation: [NAME] ([APPELLANT]) v The Official Trustee in [APPELLANT], in the matter of [NAME] ([APPELLANT]) (No 2) [2012] FCA 66

Parties: [APPELLANT]) v THE OFFICIAL TRUSTEE IN [APPELLANT]) and [NAME] [APPELLANT] [COMPANY] (ACN [PHONE])

File number: QUD 221 of [APPELLANT]

Judge: LOGAN J

Date of judgment: 9 February 2012

Catchwords: COSTS – loan contract – valid equitable charge in favour of [APPELLANT] – application of contra proferentum rule – order for costs – whether applicant should be ordered to pay costs on a party and party basis or indemnity basis – construction of contractual arrangement – clause insufficiently explicit to require costs be paid on indemnity basis COSTS – imprudent or unreasonable refusal of an offer of compromise by applicant – whether indemnity costs to be ordered – indemnity costs ordered to be paid from date of expiry of reasonable offer of compromise

Legislation: [APPELLANT] 1966 (Cth) s 116 Federal Court of Australia Act 1976 (Cth) s 43 National Consumer Credit Protection Act 2009 (Cth) Sch 1 Federal [APPELLANT] (Cth) r 40.01 Credit (Commonwealth Powers) Act 2010 (Qld) s 11 Consumer Credit Act 1994 (Qld)

Cases cited: [COMPANY] v [COMPANY] (1993) 46 FCR 225 applied [COMPANY] v [COMPANY] (1988) 20 FCR 164 considered [COMPANY] (UK) [COMPANY] v [COMPANY] (No 2) [1993] Ch 171 considered [NAME] ([APPELLANT]) v The Official Trustee in [APPELLANT], in the matter of [NAME] ([APPELLANT]) [[APPELLANT]] FCA 1242 cited In re [COMPANY]) Ld; [COMPANY] Ld v [COMPANY]) Ld [1953] 1 WLR 955 applied Jackson v Richards [2005] NSWSC 630 considered [NAME] (1992) [COMPANY] v [COMPANY] (no 2) (1996) 70 FCR 236 followed [NAME] [COMPANY] v [NAME] (2004) 1 BFRA 130; 2004 SASC 58 considered Re Solicitor's Bill of Costs; Re [COUNSEL] (1941) 58 WN (NSW) 132 considered [NAME] v [NAME] (No 2) (2001) 115 FCR 229 cited

Date of hearing: 17 [APPELLANT] of last submissions filed by the [APPELLANT]: [[APPELLANT]]

Date of last submissions filed by the Applicant: [redacted]

Category: Catchwords

Number of paragraphs: 51

Counsel for the Applicant: [redacted]

Solicitor for the Applicant: [redacted]

Counsel for the [APPELLANT]: [[APPELLANT]] [APPELLANT] did not appear

Counsel for the [APPELLANT]: [[APPELLANT]]

Solicitor for the [APPELLANT]: [[APPELLANT]]

IN THE FEDERAL COURT OF AUSTRALIA [APPELLANT] 221 of [APPELLANT]

IN THE MATTER OF [APPELLANT])

BETWEEN: [APPELLANT])

Applicant

AND: THE OFFICIAL TRUSTEE IN [APPELLANT])

[APPELLANT])

[APPELLANT] OF ORDER: 9 FEBRUARY 2012 [APPELLANT]

THE COURT ORDERS THAT:

1. Subject to this order, the Applicant pay the [APPELLANT]'s costs of and incidental to this proceeding to be taxed as follows: (a) prior to 26 [APPELLANT], on a party and party basis; and (b) on and from 26 [APPELLANT], on an indemnity basis.

2. In respect of the written submissions in respect of costs made after 17 [APPELLANT], any affidavit filed in support of any such submission and the attendance at judgment today, there be no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal [APPELLANT]

IN THE MATTER OF [APPELLANT])

BETWEEN: [APPELLANT])

Applicant

AND: THE OFFICIAL TRUSTEE IN [APPELLANT])

[APPELLANT]

[NAME] [APPELLANT] [COMPANY] (ACN [PHONE])

[APPELLANT]

JUDGE: LOGAN J DATE: 9 FEBRUARY 2012 PLACE: [APPELLANT] FOR

JUDGMENT 1 On 17 [APPELLANT] I heard and, save in respect of costs, determined an application concerning whether the third [APPELLANT], [NAME] [APPELLANT] [COMPANY] ([NAME] [APPELLANT]), was entitled to be paid the sum of $77,259.62 out of settlement proceeds held in the account of a solicitor's [APPELLANT] on behalf of the applicant: [redacted] 2 I delivered the [APPELLANT] judgment ex tempore. That I was able so to do was, in no small measure, due to the helpful submissions which were made that day on behalf of each of the active parties. 3 Upon my delivering judgment I invited submissions as to costs from the parties. It transpired that a special order as to costs was to be sought, ie something other than an outcome which is that costs follow the event and that they would be taxed on a party and party basis. It transpired that neither party was then in a position to make submissions in respect of such an application, apparently because it was assumed that judgment would not be delivered ex tempore. 4 To make such an assumption in respect of a short cause is unwarranted. Where a party to such a cause considers that, if successful, a special order as to costs is warranted a necessary part of that party's preparation for the hearing of that cause must be preparing to meet the contingency that judgment will be delivered forthwith. That means having immediately available the evidence upon which that party proposes to rely in relation to costs as well as any pertinent authority. In many, if not most, cases it ought also to be apparent to a [APPELLANT] to such an application, having regard to the receipt of prior "without prejudice" correspondence or a formal offer to settle, that there is a contingency that, if the application is successful, a special order as to costs might be sought against that [APPELLANT]. Once again, in such circumstances a necessary part of the [APPELLANT]'s preparation must be being in a position to resist any such costs application, if there is any reasonable prospect of its resistance, immediately upon judgment in respect of the substantive issue being delivered (and the converse contingency of success by a [APPELLANT] may give rise to like considerations). 5 In the result, it proved necessary to give directions for the later filing and service of evidence and related submissions in respect of costs. That it was not possible immediately upon delivery of the [APPELLANT] judgment to resolve the question of costs is regrettable. It has not been possible to determine that costs question before now. 6 Unsurprisingly, [NAME] [APPELLANT] submits that costs should follow the event. The special order as to costs it seeks, which is resisted, is that it be ordered that Mr [NAME] pay its costs taxed on an indemnity, rather than a party and party, basis. It advances two reasons why costs should be ordered on an indemnity basis: (a) contractual provision; and (b) imprudent or unreasonable rejection by Mr [NAME] of one or more prior offers of compromise made by it.

Contractual provision? 7 Subject to qualifications which are not presently material, s 43 of the Federal Court of Australia Act 1976 (Cth) confers upon the Court a broad discretionary power with respect to the ordering of costs. Though that section has nothing at all to say about any contractual provision in respect of litigation costs, neither, materially, does it state that it is irrelevant to take into account any such provision. Indeed, it is customary to take any such provision into account in the exercise of the costs discretion and ordinarily to exercise that discretion in accordance with any such provision: [COMPANY] (UK) [COMPANY] v [COMPANY] (No 2) [1993] Ch 171 at 194 ([NAME]). However, costs will only be awarded on other than a party and party basis if, upon the proper construction of the contractual provision, it has been agreed that litigation costs be awarded on some other basis: [NAME] [COMPANY] v [NAME] (2004) 1 BFRA 130; [2004] SASC 58 at [21] per [NAME] ([COMPANY] v [NAME]), with whom on this point [NAME] and [NAME] each agreed. That position, in turn, is subject to any statutory provision which modifies what would otherwise flow from taking the contractual position into account. 8 [NAME] [APPELLANT] made two loans to Mr [APPELLANT] but the agreements are in a standard form; hence the use hereafter of the singular. Under the loan agreement (clause 1.1), the "Loan" is defined to mean "the unpaid amount of the Loan Account owing from time to time plus any other monies owing under this Credit contract including … enforcement expenses" (emphasis added). By clause 10.6 of the loan agreement Mr [APPELLANT] agreed to pay to [NAME] [APPELLANT] "all enforcement expenses in the event of a breach of the Credit Contract being the reasonable amount reasonably incurred or expended by [[NAME] [APPELLANT]] in the exercise of any right consequent upon any default …"(emphasis added). A failure to repay "the Loan" when it is due is an event of default under the loan agreement. 9 At the time when the loan agreement was entered into in 2007, the Consumer Credit Code (the Queensland Code) being the Appendix to the Consumer Credit Act 1994 (Qld) (since repealed) was in force. That Act was repealed by the Credit (Commonwealth Powers) Act 2010 (Qld) (s 11) as part of a national scheme which resulted in the adoption of the National Credit Code found in Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth), as amended. It is the Queensland Code which is applicable to this loan agreement, given the date when the agreement was made. Materially, s 45 of the Queensland Code rendered void any mortgage "to the extent that it secures an amount, in relation to any credit contract which it secures, that exceeds the sum of the amount of the liabilities of the debtor under the credit contract and the reasonable enforcement expenses of enforcing the mortgage" (emphasis added). The term "enforcement expenses" was defined in an inclusive way by the Queensland Code (Schedule 1). 10 The provisions, set out above, in the loan agreement in respect of enforcement expenses are not inconsistent with what may constitute "enforcement expenses" for the purposes of the Queensland Code. That being so, there is no basis holding that the provision in respect of those expenses is to any extent rendered void by reason of the application and operation of s 45 of the Queensland Code. No submission to the contrary was made on behalf of Mr [NAME]. 11 In [COMPANY] v [NAME] the mortgage security agreement in respect of the loan contract materially provided (clause 7.2): 7.2 You must pay the Mortgagee all reasonable enforcement expenses the Mortgagee reasonably incurs or expends in exercising its rights under the Mortgage. In the case of [RESPONDENT] fees and disbursements, these are payable on the higher of a full indemnity basis or a solicitor and own client basis. [Emphasis added] On the basis of this explicit provision and in accordance with the usual position where there is contractual provision in respect of costs, [NAME[NAME] (at [42]), with whom on this point also [NAME] and [NAME] agreed, held that the successful party in that case was entitled to its costs on an indemnity or solicitor and own client basis. 12 [NAME] [APPELLANT] submitted that the provision in the loan agreement is not materially distinguishable from clause 7.2 of the mortgage security agreement considered in [APPELLANT] v [NAME]. In so doing, [NAME] [APPELLANT] set out only [RESPONDENT] and not the second sentence of clause 7.2 in its submission. This is apt to mislead. As will be apparent from the terms of the second sentence of that clause, it is in that sentence that the explicit provision in respect of other than party and party costs is to be found. 13 It does not necessarily follow from this absence of express reference to litigation costs on other than a party and party scale that this basis of [NAME] [APPELLANT]'s claim for a special costs order fails. The question which remains is what is the meaning of the provisions in this loan agreement? As to this, the position is as stated by [NAME[NAME] in [COMPANY] v [NAME] at [22]: The effect of clauses bestowing such rights on mortgagees will depend upon their interpretation in each case and they will not be given effect so as to place mortgagors in a less favourable position than would otherwise be the case unless they are unambiguously expressed. 14 The ordinary way in which the costs discretion would be exercised is that costs would follow the event and, per force of r 40.01 of the Federal [APPELLANT] (Cth), that such costs would fall to be taxed on a party and party basis. Thus, absent express contractual provision to the contrary or some other consideration intruding, Mr [NAME] was entitled to expect that, if the application were decided adversely to him, costs would follow the event but would be [COMPANY] to such of [NAME] [APPELLANT]'s litigation costs as were allowable on a party and party taxation. Should he be placed in a less favourable position than this? 15 As has already been demonstrated in relation to clause 7.2 of the agreement considered in [COMPANY] v [NAME], the utility, other than in respect of matters of general principle, of other authorities is necessarily dependent upon the language of the contractual term under consideration in those authorities. 16 The clause which fell for consideration in Re Solicitor's Bill of Costs; Re [COUNSEL] (1941) 58 WN (NSW) 132 at 135 ([NAME]) was in these terms: Sixthly, that in addition to all costs and expenses which the mortgagor may be liable at law or in equity to pay in respect of this security or otherwise in relation thereto, the mortgagor will upon demand pay all costs and expenses incurred by the mortgagee in consequence or on account of any default on the part of the mortgagor hereunder or incurred by the mortgagee for the preservation of or in any manner in reference to this security, all of which costs and expenses shall, from the time of payment or expenditure thereof respectively until repaid to the mortgagee by the mortgagor be deemed [APPELLANT] moneys covered by this security, and shall carry interest accordingly. The absence of any explicit reference in the clause to solicitor and own client or indemnity costs will be noted. The following observation was made by [NAME] of that clause in [NAME] (at 136): The terms of that clause are of the widest possible nature. It imposes upon the mortgagors an obligation to pay something in addition to those costs and expenses which they would be liable at law or in equity to pay, and would appear to be designed to impose upon the mortgagors a higher obligation than would be imposed upon them by the rule as stated in the cases to which I have referred. They are bound to pay on demand all costs and expenses which the mortgagees might not ordinarily be entitled to recover from the mortgagors at law or in equity, if those costs and expenses were incurred on account of any default on the part of the mortgagor, or for the preservation of the security, or if they were incurred in any manner in reference to the security. It is difficult to think of words of a more general application in themselves, and the intention of the parties to extend the rights of the mortgagees in respect of their costs is clear beyond doubt when it is seen that those words refer specifically to costs additional to the costs ordinarily payable at law. In effect, the mortgagors appear to have undertaken to indemnify the mortgagees in respect of any expenditure they may incur in their capacity as mortgagees and in relation to the secured debt. These observations were quoted with approval by [NAME] and [NAME] in [COMPANY] v [COMPANY] (1988) 20 FCR 164 at 172 ([NAME]). Immediately after this and in a passage not set out in [NAME], [NAME] had further observed in [NAME] (at 136): In my view, this agreement imposes upon the mortgagors an obligation to pay all costs which would be payable by the mortgagees to their own solicitor, and such costs, if properly payable on a "solicitor and his own client" taxation, must be paid by the mortgagor. I do not think that costs which had been unjustifiably or vexatiously incurred by the mortgagees so as to impose an unwarrantable burden on the mortgagors would fall under this clause, and the taxing officer might in some cases be justified in disallowing such costs, even though they might be payable by the mortgagees to their solicitors but speaking in broad terms I think the mortgagees are entitled to be paid all those costs which they are bound to pay to their solicitor, and that the effect of this clause is to require the taxation to be held on that footing. His Honour gave directions to the court's taxing officer accordingly. 17 The clause under consideration in [NAME] was described by [NAME] and [NAME] (at 172) as "closely similar" to that considered by [NAME] in [NAME]. However, with respect, that clause (see [NAME] at 166) provided, after "all costs and expenses", "including costs as between solicitor and client incurred by the mortgagee …" (emphasis added). The clause in [NAME] made explicit what [NAME] is to be taken as having regarded as implicit in the clause considered in [NAME] by virtue of its breadth of language. Because of the explicit contractual provision which existed in the clause under consideration in [NAME], it was not necessary in [NAME] for the [ADDRESS] to consider what might have been the effect of that clause absent such provision. That [NAME] did not consider it necessary to add to the passage from [NAME] the further passage which I have quoted underscores this. I do not therefore consider that [NAME] binds me to hold that a generally worded clause but one which makes no explicit reference to a liability to pay enforcement litigation costs assessed on other than a party and party basis nonetheless entitles a person in the position of [NAME] [APPELLANT] to an order that court costs be taxed on some other, more generous basis. 18 The authorities are not uniform as to whether breadth of language alone is sufficient to entitle a mortgagee to other than party and party costs. A clause materially in these terms fell for consideration by [NAME[NAME] in In re [COMPANY]) Ld; [COMPANY] Ld v [COMPANY]) Ld [1953] 1 WLR 955 ([NAME]): … all costs charges and expense incurred or paid by the [COMPANY] in relation to the negotiation for and preparation completion realisation and enforcement of this security. 19 On the basis of that clause, the [COMPANY] in that case claimed that it was entitled to its costs not on a party and party basis but rather on an indemnity basis or a solicitor and own client basis (which [COUNSEL[NAME], at 957, stated "comes to much the same thing") or at any rate as between solicitor and client. That claim was rejected. As to the claim and with respect to the clause, His Lordship stated (at 960): These are certainly wide and comprehensive words, and it is argued with some force that they cover more than the "full costs" (the meaning of which I have already explained) and amount either to a complete unlimited and unqualified indemnity, or at any rate to such a measure of indemnity as would be ascertained on a taxation as between solicitor and client. I cannot so construe the words. As to "full costs", His Lordship had earlier stated (at 958): It must always be remembered that when costs are referred to they are understood to be party and party costs, and not solicitor and client costs, and it is difficult to see in principle why a mortgagor should be called on to reimburse a mortgagee for anything beyond his necessary expenditure. I think that a mortgagee is entitled, as against a mortgagor and against the mortgaged property, to his "full costs", but that expression means ordinary party and party costs, and not costs as between solicitor and client: see [NAME] v [NAME], following [NAME] v [NAME], apart, of course, from some special bargain. His Lordship concluded that the [COMPANY]'s costs ought to be taxed on a party and party basis which, as with this Court: [NAME] v [NAME] (No 2) (2001) 115 FCR 229 at 234, is the default position. The reason why in [NAME[NAME] did not construe the clause as one entitling the [COMPANY] to solicitor and client costs was the rule of construction, applicable in the circumstances, which told against construing general words in a contract in favour of a lender or mortgagee so as to subject a borrower or mortgagor to a special or unusual liability, ie an example of the contra proferentum rule. His Lordship put the matter this way (at 960): I thought at one time that Malvern Urban District Council v [NAME] gave support to the claim of the [COMPANY], and certainly the words which were under consideration in that case are very similar indeed to those which I am considering in the present case, but the document in which they appear is of a very different character, viz, a contract of sale and purchase, and not one, like the present, to which a well-established rule normally applies, and it seems to me that, if parties desire to depart from such a rule, they must express themselves in plain and unequivocal language. I read the words as indicative of nothing more than an assertion or reminder of the [COMPANY]'s ordinary right, on realising or enforcing its security, to recover its costs, charges and expenses as well as the [APPELLANT] money and interest. Of course the words do confer additional rights in regard to the costs of negotiating, preparing and completing the security, which are matters occurring before the relationship of mortgagor and mortgagee arose. I need not express any definite view as to how the amount of those particular costs ought to have been ascertained. [Footnote reference omitted] 20 A submission grounded in the contra proferentum rule was neither put to [NAME] in [NAME] nor, which is not unrelated, did his Honour advert to that rule when construing the agreement. I prefer the reasoning of [NAME[NAME] in [NAME]. [NAME] and, for that matter, [NAME] were each referred to by the Court of Appeal in [NAME] but the reference to [NAME] was in the different context of an issue as to the interaction between a contractual right to the costs of litigation and the court's general discretion with respect to costs whereas, of the several references made to [NAME], in that (at 185-186) concerning the construction of these types of clause, the Court of Appeal made no criticism of the approach adopted by [NAME[NAME]. The order made in [NAME] directed taxation on an indemnity basis but the language of the clauses under consideration was much more explicit than the provisions of the loan agreement in this case, materially, "on a full indemnity basis" and "whether or not such costs charges and expenses and moneys or part thereof would be allowable on a party and party or solicitor and own client taxation by this court". 21 Generality of language which admits as a matter of construction of doing nothing more than describing the usual or default position as to costs which would prevail in the event that a lender or mortgagee takes enforcement proceedings is not sufficient to subject a borrower or mortgagee to a special liability as to the costs of such proceedings. Explicit language, a "special bargain", is required. The language of cl 10.6 of the loan agreement, "being the reasonable amount reasonably incurred or expended by [[NAME] [APPELLANT]] in the exercise of any right consequent upon any default …" is not materially distinguishable from that regarded by [NAME[NAME] in [NAME] as "indicative of nothing more than an assertion or reminder of the [COMPANY]'s ordinary right, on realising or enforcing its security, to recover its costs, charges and expenses as well as the [APPELLANT] money and interest" and that ordinary right in respect of costs is to party and party costs, absent an exercise of the costs discretion in favour of taxation on a more generous scale. 22 The provisions of this loan agreement are not, in my view, by force of language alone, sufficient to entitle [NAME] [APPELLANT] to a special order as to costs against Mr [APPELLANT]. It follows that I reject this basis upon which [NAME] [APPELLANT] sought an order that its costs be taxed on an indemnity basis.

Imprudent or unreasonable refusal of an offer of compromise? 23 The circumstances of a particular case can warrant, in the exercise of the general discretion as to costs, a departure from the usual, party and party basis upon which costs are ordered to be taxed: [COMPANY] v [COMPANY] (1993) 46 FCR 225 at 233 ([NAME]). In [NAME], while highlighting that the circumstances in which a departure from the usual order as to costs are not closed, [NAME[NAME] summarises (at 233) a number of circumstances in which the awarding of costs on an indemnity basis has occurred. One of these is an imprudent refusal of an offer of compromise. 24 Via correspondence between solicitors, [NAME] [APPELLANT] made three offers to Mr [APPELLANT], each without prejudice save as to costs (a type often termed, by reference to a case of that name in which their availability and utility is discussed, "[NAME]" letters). [RESPONDENT] of these was made by letter between the respective solicitors dated 18 [APPELLANT]. It sought the payment of $45,000 by Mr [APPELLANT] within seven days in return for compromising all claims which [NAME] [APPELLANT] may have against either [NAME] or his [APPELLANT] estate. Another term of the offer was that each side would bear its own costs. The offer was open for acceptance until 5:00 pm on 25 [APPELLANT]. It was not accepted. 25 This offer was renewed on 11 [APPELLANT] with the fresh acceptance time being specified as 5:00 pm on 25 [APPELLANT]. This offer, too, was not accepted. Proceedings were instituted in this Court on 19 [APPELLANT]. A final offer was made on 7 [APPELLANT]. Under the terms of this offer Mr [APPELLANT] was called upon to pay the sum of $50,000 in return for [NAME] [APPELLANT]'s abandoning any claim which it had on the remaining balance of funds held in his solicitor's trust account and in return for like compromising by [NAME] [APPELLANT] of all claims which it have against either him of his [APPELLANT] estate. Other terms of the offer were the discontinuance of the present proceeding with no order as to costs and otherwise each party bearing its own costs. This offer was open for acceptance until 5:00 pm on 12 [APPELLANT]. Once again, that offer was not accepted. The hearing of the application which determined the remaining controversy in the matter did not occur until 17 [APPELLANT]. 26 These offers must be viewed against the background of what had occurred in relation to Mr [APPELLANT] personal injuries claim since he became [APPELLANT] in September 2010. In or about [APPELLANT] he settled his personal injuries claim. Pursuant to that settlement and on behalf of the defendant to his personal injuries proceeding, the sum of $333,098.80 was paid into the trust account of [NAME] on 13 [APPELLANT]. [NAME] had been acing for Mr [APPELLANT] in that personal injuries proceeding in succession to [NAME] upon acquiring the practice of the latter [APPELLANT]. From the sum paid into their trust account, [NAME] deducted no less than $116,169.53, presumably in respect of professional costs and related outlays in relation to the personal injuries proceeding. High though that proportion of the settlement sum may be, it is unnecessary in this proceeding to resolve whether and to what extent those costs and outlays were reasonable. 27 On or about 23 [APPELLANT] [NAME] transferred the balance of the settlement monies, $216,929.27, into the trust account of [NAME], [NAME]'s present solicitors. In light of [NAME]'s supervening [APPELLANT], controversy attended what was the fate of that balance. Was it his or did it pass to his trustee in [APPELLANT] and, in any event, was it subject to an equitable charge in favour of [NAME] [APPELLANT]? 28 The offer made on 18 [APPELLANT] was accompanied by and intended to be read in conjunction with an open letter also sent that day by [NAME] [APPELLANT]'s solicitors to those acting on behalf of Mr [APPELLANT]. It made reference to the advances totalling $20,000 which [NAME] [APPELLANT] had made to [NAME] in 2007. It was stated that the then payout figure under those contracts was $57,122.31. It is evident that, after the receipt of the balance of the settlement monies by [APPELLANT], some earlier dealing between that [APPELLANT] and [RESPONDENT], [NAME] [APPELLANT]'s solicitors, had preceded this letter for reference is made in it to a request having been made of [NAME] [APPELLANT] for the release to Mr [APPELLANT] of the "undisputed portion" of those settlement monies. Mr [NAME] evidence was that this earlier request had been by way of a telephone call from [NAME] whereby the release of $60,000 to Mr [NAME] was sought in respect of a "business opportunity". 29 [NAME] [APPELLANT]'s open letter put its entitlement to be paid the payout figure on the basis of a charge. It alleged that the charge was created by what was described as the "credit contracts" (what I have termed the loan agreements in the [APPELLANT] judgment) and irrevocable instructions given by Mr [NAME] to [NAME]. In his submission in respect of costs, Mr [APPELLANT] contended that what [NAME] [APPELLANT] came to put forward at trial as the foundation for its claim was different. It is true that the irrevocable instructions came not to be relied upon but [NAME] [APPELLANT]'s position remained that it was entitled to a charge in its favour. It was that position which was vindicated by litigation. 30 Also put in this open letter was a willingness on the part of [NAME] [APPELLANT] to consider a release of part of the balance of the settlement monies to Mr [APPELLANT]. This was subject to the qualification that [NAME] [APPELLANT] would "need to be satisfied that a sufficient component has been retained to cover the current debt and the interest and enforcement expenses which will fall due under the credit contracts during the enforcement process. What will amount to sufficient cover will depend upon the ambit of the dispute (including the possibility of appeal) and the time it is likely to take for the dispute to be resolved." [NAME] [APPELLANT] sought from Mr [APPELLANT] particulars of his claim as to the balance of the settlement monies. 31 By his solicitor's response of 20 [APPELLANT] [NAME] denied that [NAME] [APPELLANT] had in law any charge over the net settlement monies. He proposed that $100,000 of the net settlement monies be held in an interest bearing deposit to abide the order of the court in the event of litigation with the remainder being released to him immediately. This proposal was open for acceptance until 2:00 pm on 22 [APPELLANT]. It was not, in terms, an offer of compromise, only a proposal as to the disposition of the net settlement monies pending the outcome of litigation. In any event, it was not taken up by [NAME] [APPELLANT]. 32 Apart from the further offers which [NAME] [APPELLANT] made, referred to already, there was further correspondence between the parties concerning whether some lesser amount might be released to Mr [COUNSEL] than that proposed in his solicitor's letter of 20 [APPELLANT] so as to meet medical treatment expenses. Imprecision as to how the amount sought was derived proved to be the sticking point so far as [NAME] [APPELLANT] was concerned. It was not unreasonable for [NAME] [APPELLANT] to seek to obtain further precision from Mr [APPELLANT] as to the expenses he expected to encounter in order to measure this against a considered estimate as to the likely extent, given various litigation contingencies, of how much of the net settlement proceeds might be subject to its claimed charge. [NAME]'s supervening [APPELLANT] gave a singular importance to [NAME] [APPELLANT] to the charge claimed by it over the settlement monies. 33 In his submissions as to costs Mr [NAME] contended that agreement to the release of a portion of the net settlement monies would have obviated the need for proceedings to be instituted. I disagree. It would doubtless have obviated the perceived need for this litigation to have been instituted when it was, but it would not have resolved the question as to whether [NAME] [APPELLANT] had an equitable charge, only postponed the final resolution of that controversy. Only compromise or determination by final judgment would have resolved the controversy as between [NAME] and [NAME] [APPELLANT]. 34 Yet further, any such compromise would have removed one impediment to the release of a portion of the net settlement proceeds but that release would still have required at least the assent of [NAME]'s trustee in [APPELLANT]. In the proceedings which came to be issued, the trustee was also named as a party. I infer from this that, before 19 [APPELLANT], a formal admission by the trustee that the net settlement fund did not form part of the "property of the [APPELLANT]" for the purposes of the [APPELLANT] 1966 (Cth) ([APPELLANT]) had not been received by Mr [APPELLANT] from the trustee. [NAME] was also named as a [APPELLANT] in the proceeding even though it had deducted its costs and outlays from the settlement monies before forwarding the net amount to [NAME]. It may be that the joinder of this [APPELLANT] was out of an abundance of caution. 35 Whatever the reason for the joinder of [NAME], it was not until 9 [APPELLANT] when the [APPELLANT] trustee informed the Court that he had no interest in the net settlement sum that this aspect of the matter was resolved. On that day, Greenwood J consequentially determined as a separate question that, by operation of s 116(2)(g) of the [APPELLANT], the net settlement sum did not form part of [NAME]'s property divisible amongst his creditors. His Honour further ordered that [NAME]'s solicitors be released to the extent of $75,000.00 from an undertaking by which they had undertaken not to pay out any part of the net settlement monies to [NAME]. His Honour then gave directions for the further conduct of the proceeding, which amounted by then to the resolution of a controversy as to whether [NAME] [APPELLANT] had a charge over the net settlement monies to the extent of the amount of "the Loan" as defined (On 17 [APPELLANT] [NAME] was given leave to discontinue the proceedings as against [NAME] with no order as to costs). His Honour further ordered that the disposition of the balance of the net settlement monies was to abide the order of the Court. 36 The outcome of the litigation in respect of Mr [APPELLANT] claim against [NAME] [APPELLANT] was less favourable to him than any of the offers made to him by that company. At least so far as offers made by "[NAME]" correspondence are concerned, it does not follow that, just because, after judgment has been delivered, such an offer can be seen to have been more favourable to its recipient than the judgment, that some special order as to costs must be made. There is no presumption that the recipient of the more favourable offer must be visited with a special order as to costs: [NAME] (1992) [COMPANY] v [COMPANY] (No 2) (1996) 70 FCR 236 at 239. The making of such an order is always a matter for the exercise of a judicial discretion. In the exercise of that discretion, the unreasonableness or imprudence of rejecting such an offer by its recipient is to be judged by the circumstances prevailing as at the time when the offer was open for acceptance, not the wisdom of hindsight. 37 By the time when each of these offers was made, Mr [NAME] had already seen a little more than a third of the gross settlement monies paid out to [NAME]. That experience doubtless underscored why it was in his interest to maximise the sum he would ultimately receive from the net settlement monies but it ought also to have underscored the desirability, if at all reasonably possible, of not further diminishing his settlement monies by [RESPONDENT] costs, be they his own or those he might be called upon to pay in the event of an adverse outcome in litigation. 38 It was always tolerably clear, given their character, that these settlement monies did not form part of his [APPELLANT] estate. It is not the wisdom of hindsight to hold that the real question was always whether [NAME] [APPELLANT] had an equitable charge over them or whether it was just one of his unsecured creditors. If the latter, then it had no claim on the net settlement monies, its right being to prove in his [APPELLANT]. That was the position not just in respect of the [APPELLANT] of the loans to Mr [APPELLANT] and interest thereon but also in respect of any enforcement expenses which by then formed part of "the Loan" as contractually defined. 39 In the [APPELLANT] judgment, at [16], I gave emphasis to an observation made by [NAME] in Jackson v Richards [2005] NSWSC 630 at [20] as to the prospect of very slight differences of language in the instrument said to create a charge producing different [RESPONDENT] outcomes. As is apparent from the [APPELLANT] judgment, the position in this case on the documents relied upon by [NAME] [APPELLANT] was not straight forward. For all that, none of the offers successively made by [NAME] [APPELLANT] in substance put to Mr [APPELLANT] that he should just concede the whole of what that company claimed was a secured debt which remained owing to it notwithstanding his [APPELLANT]. The discount in these offers from the amount claimed by [NAME] [APPELLANT] was not derisory. 40 Also to be taken into account when considering [RESPONDENT] offer was the possibility that, in the event of litigation and were [NAME] [APPELLANT] to succeed in respect of its claim to a charge, its "enforcement expenses" in terms of the loan agreements, forming part of "the Loan" as defined, might be held not only to extend to its party and party costs of the litigation but might also be held to extend to its solicitor and client costs. As I have stated above, even absent an express contractual reference to such costs, there was a difference of authority as to whether the width and generality of language employed was sufficient in any event to ground an expectation that the costs discretion would be exercised in favour of awarding other than party and party costs. That was another factor to be taken into account by Mr [NAME] in assessing the risks of litigation. 41 During the time when the second offer remained open for acceptance the possibility of litigation had, at Mr [NAME] initiative, become an actuality. Ever thereafter during the times when both the second and the third offers were open for acceptance, that litigation was on foot gave additional attraction to offers by [NAME] [APPELLANT] to [NAME] because they were additionally on terms that each side bear its own costs in relation to this proceeding. The benefit potentially present was much greater by the time of the third and final offer in [APPELLANT], having regard to the interlocutory steps taken by that stage. By the time this offer came to be made Mr [NAME] and those advising him had the benefit of Mr [APPELLANT] affidavit affirmed on 3 [APPELLANT] and filed the following day, in which he attested that the total then owed under the two loans was $76,178.10 and to which he annexed detailed loan statements together with copies of each loan agreement and related documentation. Once again, the discount, even measured against the total attested loan liability, was far from derisory, to say nothing of the worth of the repetition of a no order as to costs outcome in respect of these proceedings. 42 Mr [NAME] pointed in his submissions to examples of cases where even quite dramatic differences between a [NAME] offer and the outcome of litigation had not resulted in the making of a special order as to costs. Such results are however inherently a reflection of the circumstances of those cases rather than indicative of any principle of general application to costs applications other than those which I have already mentioned. For this reason it is unnecessary to refer to these cases. 43 Yet another contingency which loomed for Mr [RESPONDENT] was that any success at [RESPONDENT] instance by him in relation to whether the documentation was sufficient to create an equitable charge might be met with an appeal by [NAME] [APPELLANT]. That company's solicitors had already expressed the opinion that "enforcement expenses" extended to the costs of any appeal. 44 The interests of [NAME] and [NAME] [APPELLANT] in relation to the question of whether an equitable charge had been created by the documents were not congruent. These were standard form documents. [NAME] [APPELLANT] had a strategic interest in vindicating their efficacy; Mr [NAME] did not. When weighing up these offers, the prospect that [NAME] [APPELLANT] might appeal in the event it failed in the original jurisdiction was greater than the prospect that Mr [NAME] might appeal if he was the party who failed. 45 While the subject is one on which reasonable minds might reasonably differ, I do not see that Mr [NAME] was either imprudent or unreasonable to reject [NAME] [APPELLANT]'s initial offer. There was then no litigation on foot to add a court costs element to "enforcement expenses". At that early stage he was entitled to take the view that a better settlement might be able to be negotiated. In the result, those acting for him seem to have focussed attention on securing the release of a portion of the net settlement proceeds to him, admittedly important, rather than additionally putting to [NAME] [APPELLANT] a settlement offer keener than that originally made by that company. 46 So far as the third offer by [NAME] [APPELLANT] is concerned, I am firmly of the opinion that, even taking into account the fine questions which might attend whether there was an equitable charge created and the other contingencies I have mentioned, it was imprudent or unreasonable not to have accepted this offer. It was for Mr [NAME] to take his own advice as to his prospects on the alleged charge and various costs contingencies. It was not incumbent upon [NAME] [APPELLANT] yet further to detail its case. It had already by that stage given detail in pleadings and affidavits beyond that given in earlier correspondence. At the time when this third offer was open for acceptance, it was a very reasonable one, taking into account the risks of litigation and the certainty and finality of outcome a compromise would bring. Mr [NAME] was perfectly entitled to have his day in court, but there comes a point when the exercise of that right in the face of a reasonable offer of compromise comes at the price of a special order as to costs in the event of lack of forensic success. The public interest in the resolution of disputes according to law by the exercise of judicial power is complemented by a related public interest in the encouragement of reasonable compromise and the prevention of unnecessary litigation. 47 At the very least and subject to particular provision I intend to make in respect of the costs application, [NAME] [APPELLANT] should have its costs after the expiry of that offer, ie on and from 13 [APPELLANT], on an indemnity basis. Should though that period be extended back to the period from the expiry of the second offer, ie on and from 26 [APPELLANT]? 48 When these proceedings having been commenced, the initial offer was repeated, it was a very considerable step for a [APPELLANT] to risk denuding by more, perhaps much more, than $45,000, a capital sum that did not form part of his [APPELLANT] estate. Especially that was so in circumstances where, in the time which had elapsed since [RESPONDENT] offer had expired, opportunity had not been taken to make to [NAME] [APPELLANT] on behalf of Mr [APPELLANT] an "all up" counter offer of some lesser capital sum. This was a wasted opportunity. The repetition of the original offer by [NAME] [APPELLANT] was unsolicited. It was something of a last chance for Mr [NAME] to avoid what could only be anticipated to be a dramatic increase in the "enforcement expense" component of what may prove to be an indebtedness secured by an equitable charge over his net settlement monies, to say nothing of avoiding the interest expense which would continue to accrue, were he unsuccessful in the litigation. The offer was, in my opinion, a very reasonable one. It was, even at the time, for a man in Mt [NAME]'s position, a reckless gamble not to have accepted it. To continue in the face of such an offer was not proportionate to the adverse risks entailed. [NAME] [APPELLANT]'s indemnity costs will therefore date from the expiry of this second offer.

Enforcement Expenses 49 Mr [NAME] also put that the sum specified in the order made on 17 [APPELLANT] already included "enforcement expenses" and that these included some at leadt of [NAME] [APPELLANT]'s costs of this litigation such that it ought not to be doubly compensated. He submitted that this was established by the oral evidence at trial of [NAME] [APPELLANT]'s [NAME]. It is true that Mr [APPELLANT] acknowledged in cross-examination that the loan balance included enforcement expenses. The loan statements record as much. However, the cross-examination did not descend to particularity in relation to whether enforcement expenses included costs referable to this proceeding. The further evidence filed in relation to the costs application makes it plain that they do not.

Costs of this application 50 As I have observed, the parties should have been prepared to deal with the question of whether a special order as to costs should be made at the time when judgment was delivered. It follows from this that there should be no order as to costs in respect of the separate, later submissions, any related affidavit and the attendance on the publication of these reasons for judgment. 51 There will be orders accordingly. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.

Associate: Dated: 8 February 2012