Federal Court of Australia

Jang v Trustees of the Property of Lee (bankrupt) (No 2) [2022] FCA 941

ORDERS

THE COURT ORDERS THAT:

1.    Order 2 made on 16 February 2022 be varied as follows:

(a)    the applicant is to pay the respondents’ costs of the proceeding:

(i)    until 25 February 2020 on a party and party basis; and

(ii)    from 26 February 2020 on an indemnity basis.

2.    The respondents’ costs of the proceeding are to be calculated on a lump sum basis.

3.    The proceeding be referred to a Registrar of the Court to undertake the process of quantification of the respondents’ costs pursuant to Orders 1 and 2 above.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 16 February 2022 I made an order dismissing the amended originating application and the amended statement of claim filed by the applicant, Soon Ja Jang (16 February Orders). The respondents to the proceeding are the trustees of the bankrupt estate of Sarah Eunju Lee (Trustees). Relevantly, the 16 February Orders contained an order requiring Mrs Jang to pay the Trustees’ costs of the proceeding (Costs Order) subject to a further order entitling any party wishing to vary that order to file and serve an application setting out the orders that party sought together with submissions on or before 2 March 2022. In the event such an application was made, the other party had until 16 March 2022 to file and serve any submissions in reply: see Jang v Trustees of the Property of Lee (bankrupt) [2022] FCA 99.

2    In accordance with the 16 February Orders on 2 March 2022 the Trustees filed an interlocutory application in which they sought the following orders in relation to the Costs Order:

1.    Order 2 made by Justice Markovic on 16 February 2022 be varied such that the Applicant is ordered to pay the Respondents’ costs of this proceeding on an indemnity basis.

2.    The applicant to this interlocutory application (hereafter referred to as the Costs Applicant) file and serve any affidavits in support of a lump-sum costs order within four weeks of the determination of Order 1 above (the Costs Summary).

3.    The respondent to this interlocutory application (hereafter referred to as the Costs Respondent) file and serve any affidavits in response within four weeks of the Costs Applicant filing and serving the Costs Summary (the Costs Response).

4.    The application for the lump sum costs order be listed for hearing on the first available date convenient to the Court and the parties.

3    In support of their interlocutory application the Trustees also filed an affidavit affirmed by Sarah Frances Hendry, a solicitor in the employ of the Trustees’ solicitors, McInnes Wilson Lawyers, on 2 March 2022 and submissions. Mrs Jang did not file any submissions in response in accordance with the 16 February Orders.

4    On 17 March 2022 the proceeding was listed before me for case management hearing. As at that time Mrs Jang had still not filed any submissions in response to the Trustees’ application to vary the Costs Order. Accordingly, I made orders by consent (17 March Orders) including, relevantly, in relation to the question of costs of the proceeding that:

(1)    by 24 March 2022 the Trustees file and serve their submissions, not exceeding three pages in length, in relation to the question of whether costs should be ordered in a lump sum. I pause to note that this order was required because the Trustees’ submissions filed on 2 March 2022 addressed only the question of whether the Costs Order should be varied by ordering Mrs Jang to pay the costs of the proceeding on an indemnity basis;

(2)    by 21 April 2022 Mrs Jang file and serve her submissions, not exceeding 10 pages in length, in response to the Trustees’ application for variation of the Costs Order and on the question of payment of the Trustees’ costs in a lump sum;

(3)    by 5 May 2022 the Trustees file and serve their submissions in reply, not exceeding three pages in length; and

(4)    the questions of the variation of the Costs Order and whether costs should be ordered to be paid in a lump sum are to be determined on the papers.

5    It was also agreed as between the parties at that case management hearing that the question of whether costs should be awarded in a lump sum would be determined in two stages. First, the determination of whether, as a matter of principal, an order for lump sum costs should be made. Secondly, if so, the quantification of those costs. It was envisaged that latter question, if it arose for determination, would be referred to a Registrar of the Court for determination.

6    In accordance with the 17 March Orders, the Trustees filed further submissions on the question of quantification of their costs in a lump sum. However, Mrs Jang has failed to file any submissions. Nor has she sought to vary the 17 March Orders by seeking an extension of time to do so.

7    In the circumstances, given the time that has passed, I am satisfied that Mrs Jang, who has been represented by solicitors throughout the proceeding, has had sufficient opportunity to file submissions. Accordingly, I will proceed to determine the Trustees’ application for variation of the Costs Order and for payment of their costs on a lump sum basis based on the material which has been filed by the Trustees alone.

background

8    This proceeding was originally commenced in the Supreme Court of the Australian Capital Territory (ACT Supreme Court) on 5 April 2019. According to Ms Hendry it was listed for hearing in that Court commencing on 28 April 2020.

9    On 17 July 2020 the ACT Supreme Court made orders vacating the hearing of the proceeding (which at the time was listed on 20 July 2020) transferring the proceeding to this Court and for costs of the proceeding as at that date to be costs in the cause.

Offers made by the Trustees

10    On 25 February 2020, prior to the scheduled hearing date in the ACT Supreme Court, the Trustees’ solicitors sent a letter (25 February Letter) to the solicitors who were then acting for Mrs Jang, Chang Legal, which contained an outline of the claim made by Mrs Jang, the Trustees’ view of the merits of the claim and an offer from the Trustees (Calderbank Offer) to resolve the proceeding on the following terms:

(a)    the proceedings be dismissed;

(b)    the plaintiff immediately withdraw caveat 2107211;

(c)    the parties enter into a deed of release in relation to any and all actions arising from or in relation to the Property; and

(d)    the parties bear their own costs.

The Calderbank Offer was expressed to remain open for acceptance until 5.00 pm on 17 March 2020.

11    In the 25 February Letter the Trustees noted that their legal costs as at that date were approximately $75,000, that their offer thus “represent[ed] a significant compromise” on their part and that the offer was made pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333. The letter concluded as follows:

If this offer is not accepted and your client obtains a judgment that is the same or worse than this offer of settlement this letter will be tendered in support of an application for indemnity costs against your client from the date of expiration of the offer.

12    By letter dated 2 March 2020 the Trustees served an offer of compromise made pursuant to Pt 2.10 of the Court Procedure Rules 2006 (ACT) (CP Rules (ACT)) on Mrs Jang (Offer of Compromise). By the Offer of Compromise, which was also open for acceptance until 5.00 pm on 17 March 2020, the Trustees offered to settle the proceeding on the following basis:

1.    The proceedings be dismissed;

2.    The plaintiff immediately withdraw caveat 2107211; and

3.    The parties bear their own costs.

13    On 13 March 2020, in response to a request made on behalf of Mrs Jang, the Trustees agreed to extend the deadline for acceptance of the Calderbank Offer and the Offer of Compromise to 5.00 pm on 20 March 2020.

14    By email sent on 20 March 2020 at 8.04 pm by Necia Wearne of Falcon Legal, the agent for Mrs Jang’s solicitors, to Ms Hendry, Mrs Jang requested that the deadline to respond to the Calderbank Offer be extended to 5.00 pm on 25 March 2020.

15    By email dated 23 March 2020 Ms Hendry informed Ms Wearne that the Calderbank Offer had expired on 20 March 2020 at 5.00 pm and that as Mrs Jang’s request for an extension of time had not been received until after its expiration “there [was] no standing offer for which [their] clients [could] extend the time for acceptance”. Despite that being the case, Ms Hendry noted that the Trustees’ would consider any counter offer that Mrs Jang may wish to make.

Should the costs order be varied?

Statutory framework and relevant principles

16    The Orders of the ACT Supreme Court do not specify the basis on which the proceeding was transferred to this Court. It is open to infer that the parties were concerned about the jurisdiction of the ACT Supreme Court to determine the dispute, which concerned the share of a property registered in the bankrupt’s name which had vested in the Trustees by reason of her bankruptcy: see s 27 of the Bankruptcy Act 1966 (Cth).

17    Putting that to one side, to the extent it may be relevant, s 11(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (Cross-vesting Act) provides:

Where a proceeding is transferred or removed to a court (in this subsection referred to as the transferee court) from another court (in this subsection referred to as the transferor court), the transferee court shall deal with the proceeding as if, subject to any order of the transferee court, the steps that had been taken for the purposes of the proceeding in the transferor court (including the making of an order), or similar steps, had been taken in the transferee court.

18    Further, s 12 of the Cross-vesting Act relevantly provides that where a proceeding is transferred to a court, that court can make an order as to costs relating to the conduct of the proceeding before the transfer if those costs have not already been dealt with by another court. As set out above, at the time of its transfer no order was made about the costs of the proceeding by the ACT Supreme Court.

19    The Court’s power to award costs in a proceeding is discretionary: see s 43 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act). That power is to be exercised judicially, not arbitrarily or capriciously or on grounds unconnected with the litigation, having regard to the relevant principle and to the justice of the case in all the circumstances: see Summers v Repatriation Commission (No 2) [2015] FCAFC 64 at [14]. Section 43(3)(g) of the Federal Court Act provides that the Court can order that costs awarded against a party be assessed on an indemnity basis or otherwise.

20    As set out above, the Offer of Compromise was made under Pt 2.10 of the CP Rules (ACT).

21    Rule 1002 of those Rules prescribes the content of an offer made under Pt 2.10. It relevantly provides:

(2)    An offer under this rule must—

(a)    identify—

(i)    the claim or part of the claim to which it relates; and

(ii)    the proposed orders for disposal of the claim or part of the claim including, if a monetary judgment is proposed, the amount of the judgment; and

…

(c)    not include an amount for costs or state that it is inclusive of costs; and

(d)    state that the offer has been made in accordance with this part; and

(e)    state the period of acceptance.

(3)    An offer under this rule may propose—

(a)    a judgment in favour of the defendant—

(i)    with no order as to costs; or

…

(5)    The end of a period of acceptance for an offer—

(a)    for an offer made 2 months or more before the date set down for the start of the trial—must be not less than 28 days after the day the offer is made; and

(b)    in any other case—must be after a period that is reasonable in the circumstances.

…

22    Rule 1012 of the CP Rules (ACT) applies if an offer is made under those Rules by a defendant but not accepted by the plaintiff and the defendant obtains an order or judgment on the claim no less favourable to it than the terms of the offer. In those circumstances:

(2)    Unless the court orders otherwise—

(a)    the defendant is entitled to an order against the plaintiff for the defendant's costs in relation to the claim, to be assessed on a party and party basis, up to the time when the defendant is entitled to costs under paragraph (b); and

(b)    the defendant is entitled to an order against the plaintiff for the defendant's costs in relation to the claim, assessed on a solicitor and client basis—

(i)    if the offer was made before the first day of the trial—on and from the day after the offer was made; and

(ii)    if the offer was made on or after the first day of the trial—at and from 11 am on the day after the offer was made.

23    In Alpine Hardwood (Aust) Pty Limited v Hardys Pty Ltd (No 2) (2002) 190 ALR 121; [2002] FCA 224 at [18] Weinberg J, referring to a previous version of the rules of this Court, observed that:

The fact that O 23 provides a detailed regime governing offers of compromise does not mean that it constitutes a code which prevents parties from being able to rely upon the principles developed at common law in relation to what are known as “Calderbank letters”: Calderbank v Calderbank [1975] 3 All ER 333. A Calderbank letter (offering an amount which exceeds that ultimately awarded) can be considered by the Court in deciding whether to make an order displacing the usual order that costs follow the event, even though the mechanism under O 23 has not been followed: Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97. A party is entitled to rely upon a Calderbank letter even though it has not complied with the form required by O 23 r 3.

24    Insofar as an offer made pursuant to the principles in Calderbank v Calderbank is concerned, in Brosnan v Katke [2016] FCAFC 156 at [6] Gleeson J (with whom Dowsett and Edelman JJ agreed) said:

Costs will usually be assessed on a party/party basis in the absence of an unusual feature warranting a different approach. In this case, the unusual feature relied upon by the respondents was the rejection of the Calderbank offer. Rejection of a Calderbank offer does not per se warrant an order for indemnity costs: it is necessary to consider whether the offeree’s rejection of the offer was unreasonable in the circumstances in which the rejection occurred: Black v Lipovic [1998] FCA 699; (1998) 217 ALR 386 at [217]-[218]; Szencorp Pty Ltd v Clean Energy Council Limited (No 2) [2009] FCA 196 at [7]; Carey v Freehills [2013] FCA 1258 at [16]; Veda Advantage Limited v Malouf Group Enterprises Pty Limited (No 2) [2016] FCA 470; 118 IPR 156 at [31].

25    In Veda Advantage Limited v Malouf Group Enterprises Pty Limited (No 2) [2016] FCA 470; 118 IPR 156 at [31] Katzmann J noted that, in contrast to an offer of compromise made under the relevant rules of the court, refusal to accept an offer not made in compliance with the rules, i.e. a Calderbank offer, does not give rise to any presumption in favour of the offeror. Rather the offeror needs to show that there was “a genuine offer of compromise, and that it was unreasonable for the offeree not to accept it”. Her Honour observed that in deciding whether it is unreasonable for an offer to be rejected the following matters should ordinarily be considered:

•    the stage of the proceeding when the offer was made;

•    the time afforded to the offeree to consider the offer;

•    the extent of compromise involved;

•    the offeree’s prospects of success, assessed as 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 refusal.

Consideration

26    The Trustees made both the Calderbank Offer and the Offer of Compromise. There was only five days between the time of making the Calderbank Offer and the Offer of Compromise. That is:

(1)    the Trustees made the Calderbank Offer on 25 February 2020. It remained open for acceptance until 5.00 pm on 20 March 2020, a date which was proximate to the then date of commencement of the hearing of the proceeding in the ACT Supreme Court; and

(2)    on 2 March 2020, prior to the expiration of the Calderbank Offer, the Trustees made the Offer of Compromise in accordance with the CP Rules (ACT). The Offer of Compromise also remained open for acceptance until 5.00 pm on 20 March 2020.

27    The Calderbank Offer and the Offer of Compromise were in substantially the same terms save for the omission of the requirement of a deed in the Offer of Compromise. Further, the Calderbank Offer set out the Trustees’ case in considerable detail and explained the reasons why, in the Trustees’ view, Mrs Jang would fail in the proceeding. In fact, that it what occurred.

28    Other than referring to the (incorrect) rule governing the Offer of Compromise, as far as I could discern, the Trustees made no substantive submissions about the effect of Mrs Jang’s failure to accept it in relation to the costs of this proceeding. They did however make submissions about the Calderbank Offer and whether Mrs Jang’s implicit rejection of it was reasonable in the circumstances. I will therefore proceed to determine the application on the basis of the Calderbank Offer first which, in any event, was made earlier in time.

29    As submitted by the Trustees the only aspect of the Calderbank Offer which did not come to pass was the removal of a caveat lodged by Mrs Jang on the title of the property the subject of the proceeding. However, ultimately, the 17 March Orders required the Registrar-General to remove the caveat.

30    Having regard to the Calderbank Offer I am satisfied that:

(1)    it was a genuine offer of compromise, particularly given the significant compromise made by the Trustees’ in relation to the costs that they had incurred as at the date of the offer and their ongoing costs;

(2)    it was made at a time proximate to the date on which the proceeding was first listed for hearing;

(3)    Mrs Jang was given just over three weeks to consider it;

(4)    it comprehensively set out the Trustees’ view of the merits of Mrs Jang’s claim and their view of her prospects of success as assessed at the time it was made, which assessment was proved to be correct; and

(5)    it foreshadowed an application for indemnity costs in the event of its refusal.

31    By her silence, Mrs Jang implicitly rejected the Calderbank Offer. Despite having ample time to do so, she has not explained why that is so nor made any submission as to the reasonableness or otherwise of its rejection. This was not a claim for a liquidated or quantifiable sum. Mrs Jang sought transfer of a 50% share of the property in question to her. The Trustees’ offer to settle must be viewed in that light. In the circumstances as they were at the time of the making of the offers, with the parties it seems working towards an imminent hearing, I am satisfied that it was unreasonable for Mrs Jang to reject the Calderbank Offer.

32    Accordingly, I will vary the Costs Order and order that Mrs Jang pay the Trustees’ costs of the proceeding on an indemnity basis from the day after the Calderbank Offer was made, that is, on and from 26 February 2020.

33    Given the conclusion I have reached above it is not necessary for me to consider the effect of the Offer of Compromise. However, for completeness, I note that there is no evidence or submissions relied on by Mrs Jang which would lead me to conclude that a different order should be made to that prescribed by r 1012 of the CP Rules (ACT). That is especially so in circumstances where an order for solicitor and client costs is the default position under that rule.

should the trustees’ costs be quantified in a lump sum?

34    As set out above, the Trustees also seek an order that their costs be quantified in a lump sum.

35    Section 43(3)(d) of the Federal Court Act provides that the Court may award costs in a specified sum. Rule 40.02(b) of the Federal Court Rules 2011 (Cth) provides that a person entitled to costs may apply to the Court for an order that the costs be paid in a lump sum, instead of, or in addition to, any taxed costs.

36    The Court’s Costs Practice Note (GPN-COSTS) (Costs PN) provides at [3.3] that “[f]or those costs issues that are unable to be resolved by negotiation and require the involvement of the Court, the Court's preference is to avoid, where possible, the making of costs orders that lead to potentially expensive and lengthy taxation of costs hearings” and that “the Court will seek to adopt, and will encourage parties to utilise, the appropriate use of sophisticated costs orders and procedures, including lump-sum costs orders”. It also provides that the taxation process should be the exception.

37    In Pt 4, the Costs PN sets out the procedure to be followed where a lump sum procedure is adopted by the parties and/or ordered by the Court. It reiterates in that part that the Court’s preference, wherever practicable and appropriate, is to make a lump sum costs order.

38    The purpose of making a lump sum costs order is “to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation”: see Coshott v Prentice (No 2) [2018] FCAFC 221 (Kerr, Farrell and Gleeson JJ) at [4].

39    In Coshott at [5] the Full Court observed:

However, a lump sum costs order is not mandated in all cases. Rather, it is a matter for the Court to exercises its discretion as appropriate: Paciocco v Australia and New Zealand Banking Group Limited (No 2) [2017] FCAFC 146; 253 FCR 403 (Paciocco) at [19] citing Hudson v Sigalla (No 2) [2017] FCA 339 at [18]-[19]. In Paciocco, the Full Court (Allsop CJ, Besanko and Middleton JJ) noted (at [20]):

There is no particular characteristic that a case must possess for it to be suitable for the making of a lump sum costs order. Particular circumstances that may make a lump sum order especially appropriate include where in a large and complex commercial matter it would save the time, trouble, expense and aggravation of a taxation; where a taxation would require the parties to consume additional time and incur additional expenditure prolonging already protracted litigation; and generally to avoid an ongoing, counter-productive dispute as to costs, in the interests of achieving finality.

40    In my view it is appropriate that an order be made that costs be quantified in a lump sum. To proceed in this manner will avoid the expense and delay of a taxation and allow the parties to adopt the simpler and less formal procedures associated with the calculation of costs on a lump sum. This is particularly apt in the present case where the Trustees’ role is to administer the bankrupt’s estate for the benefit of creditors without undue delay and as efficiently as possible and where this litigation has been on foot since 2019.

41    I will make an order that the Trustees’ costs be quantified in a lump sum and will refer the proceeding to a Registrar of the Court for the purpose of quantifying the lump sum in accordance with the procedure set out in the Costs PN.

conclusion

42    For those reasons I will make an order varying the Costs Order such that Mrs Jang is to pay the Trustees’ costs of the proceeding on an indemnity basis from 26 February 2020, and prior to that time on a party party basis, and an order that the Trustees’ costs be paid in a lump sum. I will also refer the proceeding to a Registrar of the Court to undertake the process of quantification of the Trustees’ costs on a lump sum.

Associate:

Dated:    16 August 2022