Federal Court of Australia

Amirbeaggi as trustee of the bankrupt estate of Hanna v Hanna (No 4) [2024] FCA 1347

ORDERS

THE COURT ORDERS THAT:

1.    Judgment for the cross-claimant against the first cross-respondent in the sum of $149,500, plus interest calculated from 6 June 2017 in the sum of $63,138.04, being a total of $212,638.04.

2.    The first cross-respondent pay the cross-claimant’s costs of the second further amended notice of cross-claim as agreed or taxed.

3.    The second further amended notice of cross-claim be otherwise dismissed.

4.    The cross-claimant pay the second cross-respondent’s costs of the second further amended notice of cross-claim as agreed or taxed.

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

REASONS FOR JUDGMENT

GOODMAN J

1    On 11 October 2024, I published my reasons for judgment in this proceeding and in proceeding NSD 1722 of 2019: Amirbeaggi as trustee of the bankrupt estate of Hanna v Hanna (No 3) [2024] FCA 1171 (Amirbeaggi (No 3)). Some familiarity with those reasons for judgment is assumed in what follows.

2    I also made orders providing the parties in each proceeding an opportunity to provide proposed orders and submissions concerning the relief to give effect to the reasons for judgment in Amirbeaggi (No 3). In this proceeding, proposed orders and submissions were received from the legal representatives for the cross-claimant (Mr Abdalla), and submissions were received from the legal representatives for the second cross-respondent (Ms Shonoda). No orders or submissions were received from, or on behalf of, the first respondent (Andrew Hanna).

3    Mr Abdalla seeks orders to the following effect:

1.    Judgment for [Mr Abdalla], against [Andrew Hanna] in the sum of $149,500.

2.    Judgment for [Mr Abdalla] against Andrew Hanna for interest calculated from 6 June 2017…

3.    Andrew Hanna is to pay [Mr Abdalla’s] costs as agreed or assessed.

4.    The further amended cross-claim is otherwise dismissed.

5.    [Mr Abdalla] is to pay [Ms Shonoda’s] costs of the further amended cross-claim as agreed or assessed.

4    Proposed orders 1 to 4 reflect the reasons for judgment in Amirbeaggi (No 3) and should be made. No opposition to those orders has been expressed.

5    Proposed orders 4 and 5 reflect an agreed position, as between Mr Abdalla and Ms Shonoda, that costs follow the event. However, instead of the usual party and party costs order reflected in proposed order 5, Ms Shonoda seeks an order that Mr Abdalla pay part of her costs on an indemnity basis.

6    The primary relief sought by Ms Shonoda is:

[Mr Abdalla] is to pay [Ms Shonoda’s] costs on a party/party basis up to 11.00am on 10 February 2023 and on indemnity basis thereafter, as agreed or taxed.

7    In the alternative, Ms Shonoda seeks an order that:

[Mr Abdalla] is to pay [Ms Shonoda’s] costs on a party/party basis up to 2 March 2023 and on indemnity basis thereafter, as agreed or taxed.

8    In support of her application for this proposed order, Ms Shonoda relies upon an offer of compromise made pursuant to r 25.01 of the Federal Court Rules 2011 (Cth) dated 8 February 2023 in the following form:

To the Cross-Claimant, Hedra Fayez Nashed Abdalla

The Third Respondent, Eman Shonoda offers to compromise the Further Amended Statement of Second Cross-Claim.

The Third Respondent, Eman Shonoda offers to compromise the whole of the Further Amended Statement of Second Cross-Claim filed 14 December 2022 as against the Third Respondent, Eman Shonoda on the following basis:

1.    The parties to sign consent orders in the following terms and to submit such orders to the Court by 7 March 2023:

a.    The Further Amended Statement of Second Cross-Claim filed 14 December 2022 as against the Third Respondent, Eman Shonoda be dismissed.

b.    No order as to costs.

2.    The Cross-Claimant, Hedra Fayez Nashed Abdalla, on the one part, and the Third Respondent, Eman Shonoda, on the other part, mutually release each other from and against all claims and liabilities howsoever arising from, relating to, referred to in, and associated with the pleadings in the Further Amended Statement of Second Cross-Claim dated 14 December 2022.

This offer is inclusive of costs.

This offer of compromise is open to be accepted for 14 days after service of this offer of compromise.

This offer is made without prejudice.

(emphasis in original)

9    Ms Shonoda also relies upon the covering letter pursuant to which the offer of compromise was served by her solicitors upon Mr Abdalla’s solicitors (8 February 2023 letter) and which was expressed in the following terms:

1.    We refer to the Further Amended Statement of Second Cross-Claim filed 14 December 2022 (the Second Cross-Claim).

2.    In the interest of resolving your client’s claims as against our client in the Second Cross-Claim, we are instructed to make the offer contained in this letter.

Calderbank Offer

3.    In all the circumstances, and in the interest of resolving this matter for commercial reasons, we are instructed to make the following offer on behalf of our client (the Offer):

(a)    The Second Cross-Claim as against our client, be dismissed with no order as to costs.

(b)    Our clients mutually release each other from and against all claims and liabilities howsoever arising from, relating to, referred to in, and associated with the document titled “Equitable Mortgage” between John Mhanna, Hedra Fayez Nashed Abdalla, Eman Kamel Shonoda and Andrew Joseph Hanna and against all claims of liabilities any of them may have against the other arising from or relating to any matters pleaded in the Proceedings.

(c)    Within 7 days of acceptance of the Offer the parties are to file consent orders to dismiss the Second Cross-Claim as against our client with no order as to costs.

4.    The Offer is made in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333 and will remain open for acceptance until 5pm on 22 February 2023, when it will lapse and no longer be available for acceptance.

Offer of Compromise

5.    We enclose, by way of service, an offer of compromise pursuant to rule 25.01 of the Federal Court Rules 2011 (Cth) dated 8 February 2023 (the Offer of Compromise).

6.    In the event that the Offer or the Offer of Compromise is not accepted, we intend to rely on this letter on the issue of costs.

7.    For the avoidance of any doubt, the Offer and Offer of Compromise have been made with a view to resolving the dispute between our clients, provided acceptable terms can be reached by the parties.

8.    We look forward to your response.

(emphasis in original)

10    In support of her application for her alternative proposed order, Ms Shonoda relies upon a letter from her solicitors to Mr Abdalla’s solicitors dated 2 March 2023 (2 March 2023 letter), expressed in the following terms:

1.    We refer to the Further Amended Statement of Second Cross-Claim filed 14 December 2022 (the Second Cross-Claim).

2.    In the interest of resolving your client’s claims as against our client in the Second Cross-Claim, we are instructed to make the offer contained in this letter.

Calderbank Offer

3.    In all the circumstances, and in the interest of resolving this matter for commercial reasons, we are instructed to make the following offer on behalf of our client (the Offer):

(a)    Our client agrees to pay your client the amount of $40,000 (the Settlement Sum) in full and final settlement of all claims your client may have against our client.

(b)    The Settlement Sum is to be paid within 28 days from the date of acceptance of the Offer

(c)    As soon as reasonably possible after the acceptance of the Offer, the parties are to file consent orders to dismiss the Second Cross-Claim as against our client, with no order as to costs.

(d)    Our clients mutually release each other from and against all claims and liabilities howsoever arising from, relating to, referred to in, and associated with:

(i)    the document titled “Equitable Mortgage” dated 4 April 2017; and

(ii)    any and all claims of liabilities any of them may have against the other arising from or relating to any matters pleaded in the Proceedings.

(e)    Within 7 days of payment of the Settlement Sum your client is to cause the caveats registered by him over the [Kellyville properties] to be withdrawn.

4.    In our view the Offer is more than reasonable having regard to the following circumstances:

(a)    Put simply, your client’s claims against our client comprise the following:

(i)    The balance of the amount said to be owed by our client to your client pursuant to the Equitable Mortgage; and

(ii)    A claim for damages arising out of your client’s agreement (the Agreement) to pay the Trustee $800,000 (the Damages Claim).

(b)    With respect, our client’s position in relation to the Damages Claim is as follows:

(i)    Your client entered into the Agreement in circumstances where your client took the view that the transfers to him of the property the subject of these proceedings were defeasible as against the Trustee;

(ii)    Further, your client alleges that our client was involved in negotiating and causing the agreement/s that resulted in the allegedly defeasible transfers to him;

(iii)    With respect, our client was not involved in any such negotiations with your client and, in our client’s view, your client has not adduced evidence sufficient to found a cause of action in respect of the Damages Claim;

(iv)    In addition, our client can not be held liable for your client’s obligations under the Agreement, being an agreement entered into by your client of its own volition; and

(v)    In the above circumstances, our client is confident that she will be wholly successful in defending the Damages Claim and, should your client continue to pursue this claim, will be awarded costs in her favour.

(c)    Accordingly, the Offer is made having regard to our client’s view of the maximum possible liability the Court may find our client is liable to your client for.

(d)    Our client has incurred costs and disbursements in excess of $50,000 to date. In all the circumstances, the Settlement Sum represents a significant compromise of the amount of costs our client is likely to receive should she be successful in defending your client’s claims against her.

5.    The Offer is made in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333 and will remain open for acceptance until 4pm on Monday 6 March 2023, when it will lapse and no longer be available for acceptance.

6.    We look forward to your response.

(emphasis in original)

11    None of the above-mentioned offers were accepted.

12    I turn now to consider whether Mr Abdalla’s non-acceptance of the offer of compromise has costs consequences.

13    Rule 25.14(2) of the Rules, upon which Ms Shonoda relies, provides:

25.14  Costs where offer not accepted

...

(2)     If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:

(a)     before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b)     after the time mentioned in paragraph (a)—on an indemnity basis.

14    I note that the expressions “applicant” and “respondent” are defined in the Dictionary in Schedule 1 to the Rules in terms which specifically exclude cross-claimants and cross-respondents. Nevertheless, the Court’s costs discretion is broad and it may have regard to the operation of r 25.14 as part of the general exercise of that discretion: see, e.g., Brooke and Mackenzie Pty Ltd (ACN 084 285 736) v El-Gra Engineering Pty Ltd (ACN 097 406 105) [2015] FCA 1495; (2015) 331 ALR 535 at 546 ([50] to [51]) (Middleton J); Apotex Pty Ltd v Warner-Lambert Company LLC (No 3) [2017] FCA 94; (2017) 123 IPR 30 at 40 to 41 ([52] to [54]) (Nicholas J). I note also that counsel for Mr Abdalla did not contend to the contrary.

15    The cross-claim will be dismissed as against Ms Shonoda. Thus, the question for determination is whether Mr Abdalla unreasonably failed to accept the offer contained in the offer of compromise.

16    In Nitin Pandey Pty Ltd v Curtin Chambers Pty Ltd, in the matter of Curtin Chambers Pty Ltd (No 2) [2023] FCA 1286 at [18] to [23], albeit in the context of a Calderbank offer but nevertheless in circumstances where the issue for determination was whether the non-acceptance of an offer was unreasonable, I noted the following relevant matters of principle:

18.    Section 43 of the Federal Court of Australia Act 1976 (Cth) confers a broad discretion on the Court to award costs in a proceeding, including that costs be assessed on an indemnity basis.

19.    The non-acceptance of an offer made in accordance with the principles in Calderbank v Calderbank [1976] Fam 93 may provide a basis for the making of an order that costs be assessed on an indemnity basis, where the conduct of the offeree in failing to accept the offer was unreasonable: Black v Lipovac [1998] FCA 699; (1998) 217 ALR 386 at 432 [217] (Miles, Heerey and Madgwick JJ); CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75] (Moore, Finn and Jessup JJ). The conduct of the offeree is assessed by reference to the circumstances which existed at the time at which the offer was capable of acceptance: Black at 432 [218]; CGU at [75]. Such circumstances include the status of the proceeding and the relative strengths and weaknesses of the parties’ positions. The circumstances may also include the extent to which the offeror has explained why the offer is a result that the offeree will not likely better at trial, however, there is no inflexible rule that such an explanation must be given: Hardingham v RP Data Pty Ltd (No 2) [2021] FCAFC 175 at [22] (Greenwood, Rares and Jackson JJ).

20.    The Full Court of this Court has described the ultimate question in respect of an application for indemnity costs following the non-acceptance of a Calderbank offer to be whether the failure to accept the offer in all of the circumstances warrants departure from the ordinary rules as to costs: Willis v Chief Executive Officer of the Australian Skills Quality Authority (Costs) [2022] FCAFC 43 at [22] (Logan, Griffiths and Perry JJ). The question of whether the refusal of an offer was “unreasonable” when viewed in light of the circumstances existing at the time the offer was rejected has been identified as “key” to the analysis of the consequences of a party’s failure to accept a Calderbank offer: Hood v Down Under Enterprises International Pty Limited (No 2) [2022] FCAFC 106 at [24] (Yates, Moshinsky and Rofe JJ). See also Anchorage Capital Partners Pty Limited v ACPA Pty Limited (No 2) [2018] FCAFC 112 at [5] to [8] (Nicholas, Yates and Beach JJ).

21.    In considering whether a party acted unreasonably in not accepting a Calderbank offer it is relevant to compare: (1) the position of the offeree if the offer had been accepted; and (2) the potential outcomes that were available to be achieved in the proceeding: see Centor Australia Pty Ltd v RMD Industries Pty Ltd (No 2) [2013] FCA 1407 at [9] (Dowsett J); Merial, Inc v Intervet International BV (No 4) [2017] FCA 223; (2017) 124 IPR 1 at 20 [54] (Moshinsky J); Energy Beverages LLC v Cantarella Bros Pty Ltd (No 2) [2022] FCA 394 at [55] to [56] (Halley J); Firstmac Ltd v Zip Co Ltd (No 2) [2023] FCA 1074 at [39] to [40] (Markovic J).

22.    The task of assessing whether the non-acceptance of a Calderbank offer amounted to unreasonable conduct by an offeree is considerably easier where the subject matter of the unaccepted offer and the outcomes available in the proceeding are largely commensurate. To take a simple example, where the relief sought is payment of damages and the unaccepted offer is to pay a particular amount of money to the offeree, an assessment of the reasonableness of the offeree in not accepting that offer is likely to be relatively straightforward. In contrast, where the unaccepted offer bears little correspondence to the relief available in the proceeding the task of assessing whether the non-acceptance of the offer was unreasonable may be “difficult, if not impossible” (to adopt the expression used by Moshinsky J in Merial at 20 [54]).

23.    Centor, Merial and Firstmac are examples of cases in which an application for indemnity costs failed because the divergence between the offer and the potentially available outcomes rendered difficult, if not impossible, the task of assessing whether a failure to accept a Calderbank offer was unreasonable.

(emphasis in original)

17    The offer in the offer of compromise was in essence an offer that Mr Abdalla and Ms Shonoda “walk away” from the cross-claim with no order as to costs and with mutual releases.

18    I am not satisfied that Mr Abdalla’s failure to accept the offer was unreasonable, in circumstances where: (1) the offer required the proffering and acceptance of mutual releases with respect to “all claims and liabilities howsoever arising from, relating to, referred to in, and associated with the pleadings in the Further Amended Statement of the Second Cross-Claim dated 14 December 2022”; and (2) there is no evidence as to the extent of such claims or liabilities, much less their worth. No draft releases were proffered and the expression “howsoever ... relating to ... associated with the pleadings” suggests a potential operation well beyond the matters the subject of the proceeding or which might be the subject of a Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 estoppel, such that the result sought by Ms Shonoda in the offer of compromise went beyond what she might have achieved in the proceeding.

19    I note, for completeness, that the same result would have obtained if Ms Shonoda had relied upon r 25.14(1), because an assessment of the criterion in that sub-rule, namely the obtaining by Mr Abdalla of “a judgment that is less favourable than the terms of the offer”, would also have been incapable of any meaningful assessment because the extent and the worth of the underlying claims or liabilities and thus of the releases is unknown.

20    I turn now to consider the Calderbank offers made in the 8 February 2023 letter and the 2 March 2023 letter.

21    The principles set out at [16] above are again relevant.

22    At the heart of an award for costs on the basis of a Calderbank offer is unreasonable conduct in failing to accept that offer.

23    The requirement in each of the Calderbank offers that there be a proffering and acceptance of mutual releases in terms which go beyond the result that might have been achieved in the proceeding and the absence of any evidence as to the extent of any underlying claims or liabilities or their worth again has the result that I cannot be satisfied that the non-acceptance of the Calderbank offers (or either of them) was unreasonable.

24    Finally, I have considered the affidavit of Ms Metry sworn 21 November 2024 and accept that interest should accrue from 6 June 2017 on the amount of $149,500: see Amirbeaggi (No 3) at [54], [112], [115] and [120]. I have adjusted Ms Metry’s calculation such that the end date of the calculation is 25 November 2024 with the result that the pre-judgment interest payable is $63,138.04.

25    Orders to the effect of the orders sought by Mr Abdalla should be made, taking into account the adjustment of the interest calculation. I will make orders accordingly.

Associate:     

Dated:    25 November 2024