Federal Court of Australia

Xu v Salter Brothers Asset Management Pty Ltd (No 2) [2025] FCA 379

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff pay the costs of the first, second, fourth, fifth and sixth defendants as between party and party.

2.    The costs payable to the first, second, fourth, fifth and sixth defendants pursuant to Order 1 be awarded as a lump sum pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth).

3.    It is directed that a Registrar of the Court is to determine the amount of the defendants’ costs in such manner as the Registrar deems fit, and shall then make an order fixing the amount of those costs, which are to be payable within 28 days of such orders.

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

ORDERS

THE COURT ORDERS THAT:

4.    The plaintiff pay the costs of the defendant as between party and party.

5.    The costs payable to the defendant pursuant to Order 1 be awarded as a lump sum pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth).

6.    It is directed that a Registrar of the Court is to determine the amount of the defendant’s costs in such manner as the Registrar deems fit, and shall then make an order fixing the amount of those costs, which are to be payable within 28 days of such orders.

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

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff pay the costs of the defendant as between party and party.

2.    The costs payable to the defendant pursuant to Order 1 be awarded as a lump sum pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth).

3.    It is directed that a Registrar of the Court is to determine the amount of the defendant’s costs in such manner as the Registrar deems fit, and shall then make an order fixing the amount of those costs, which are to be payable within 28 days of such orders.

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

REASONS FOR JUDGMENT

MCELWAINE J:

1    For the reasons published on 19 February 2025, I dismissed three separate proceedings brought by Li Xu, Jingyi Li and Zheng Xu against corporations in and individuals associated with the Salter Brothers Group: Xu v Salter Brothers Asset Management Pty Ltd [2025] FCA 89 (primary reasons). I made consequential orders for the determination of costs applications on the papers. I have received primary and reply submissions from the Salter Brothers Parties in each proceeding together with an affidavit made by their solicitor, Mr Ben Dodgshun on 6 March 2025. The Salter Brothers Parties seek indemnity costs orders in each proceeding in reliance on Calderbank correspondence (Calderbank v Calderbank [1976] Fam 93).

2    No submissions have been received from Li Xu. Roberts Gray Lawyers remain the solicitors on the record for her, despite Li Xu informing my chambers on 12 February 2025 that they no longer act for her. From that time, Li Xu has corresponded directly with my chambers.

3    Submissions have been made on behalf of Jingyi Li and Zheng Xu, supported by their solicitors’ affidavit made by Mr Matthew Critchley on 20 March 2025.

4    For present purposes, familiarity is assumed with the primary reasons as well as the nomenclature employed therein. The background to each proceeding, the issues, the assessment of the evidence and the outcome is central to the exercise of the costs discretion.

5    The territory of dispute in the Jingyi Li and Zheng Xu proceedings is relatively narrow. It is agreed that a costs order should be made in favour of the Salter Brothers Parties and on a lump sum basis. What remains in dispute is whether any discount, on an issue basis, should be applied and, more contentiously, whether costs should be ordered on an indemnity basis.

6    It does not follow from the failure of Li Xu to respond to the costs applications that orders should be made as proposed by the Salter Brothers Parties. I must be independently satisfied that the discretion to make the proposed costs orders should be exercised first in favour of the Salter Brothers Parties and on the basis contended.

7    I have decided that this is not an occasion to make an indemnity costs order. This was hard fought, factually dense and, in part, legally complex litigation. Substantial damages and other forms of relief were claimed. All parties were represented by very experienced counsel and instructing solicitors. A vast amount of evidence was adduced and tested over many days by often tense probing cross-examination. The trial proceeded over 21 non-consecutive days. The primary reasons comprise 1293 paragraphs over 387 pages. The Salter Brothers Parties put two identical Calderbank settlement proposals in each proceeding. The first on the Friday evening preceding the commencement of the trial on the following Monday. The second, during a hiatus at approximately the mid-point of the trial. Each offer asserted that each claim would fail, consistently with the written opening submissions of the Salter Brothers Parties and later repetition of that position.

8    I am simply not satisfied that the Salter Brothers Parties have established that any of the plaintiffs unreasonably rejected (or did not respond to) the Calderbank proposals. It has not been demonstrated that when each offer was made, any of the plaintiffs in the circumstances as they were then known, should have known or ought to have known that their respective cases were bound to fail, likely to fail or that the risk of failure was such that it compelled acceptance of the offers. In this case, as my primary reasons demonstrate, each claim overall was reasonably arguable until the conclusion of the proceedings. Although there were some aspects of some contentions that were not, that is no basis to make an indemnity costs order. In those circumstances a defendant/respondent should have no expectation that, by making a Calderbank settlement offer that does not include a payment to a plaintiff/applicant or a concession that some other type of relief should be enjoyed, a costs advantage will later be secured by the exercise of the costs discretion.

9    Those reasons are of themselves sufficient to refuse the indemnity costs applications. However, in deference to the careful arguments of the Salter Brothers Parties, I provide the following more detailed explanation.

Generally relevant matters

10    The affidavit of Mr Dodgshun conveniently sets out the relevant procedural history, which is not in dispute and which I adopt and summarise as follows. Each proceeding was heard concurrently. The trial commenced on 3 June 2024 and concluded on 6 August 2024. The sitting days were 3 – 7, 11 – 14, 17 – 18 and 25 – 28 June, 24 – 26 July and 5 – 6 August 2024. By 14 May 2024, the parties in the Jingyi Li and Zheng Xu proceedings had filed all of their lay evidence. By 25 May 2024, the parties in the Li Xu proceeding had filed all of their lay evidence. On 24 May 2024, the parties attended a confidential conference before a judicial registrar and resolved in each proceeding a statement of agreed facts, an agreed list of issues and an agreed chronology. On 27 May 2024, Jingyi Li and Zheng Xu each filed their written outline of opening submissions. On 28 May 2024, Li Xu filed her written outline of opening submissions. On 31 May 2024, the Salter Brothers Parties filed their written outline of opening submissions in each proceeding.

11    By 14 June 2024, each witness in Li Xu’s proceeding had completed giving evidence and her case was closed. On 17 and 18 June 2024, each witness in the Jingyi Li and Zheng Xu proceedings had completed giving evidence. On 25 June 2024, counsel closed the respective cases for Jingyi Li and Zheng Xu. Evidence was thereafter adduced from witnesses for the Salter Brothers Parties.

12    At approximately 6:20 pm on 31 May 2024, Calderbank correspondence was sent to the solicitor for Li Xu. The correspondence referenced the written opening submissions of the Salter Brothers Parties served earlier that day. The following was stated:

For the reasons articulated in those opening submissions and our clients' Defence to the Further Amended Statement of Claim dated 3 May 2024, your client's case against our clients in the Proceeding is bound to fail.

As at 31 May 2024, our clients' costs attributable to this Proceeding are approximately $1.35 million exclusive of GST.

We are instructed that our clients are willing to settle the Proceeding on the basis that the Proceeding is dismissed and each party bears their own costs of the proceeding incurred to date.

As your client will appreciate, the additional costs to be incurred if the Proceeding proceeds to trial will be significant.

If the offer contained in this letter is not accepted and our clients obtain an order in the Proceeding no less favourable than the terms of this offer, our clients intend to rely on this letter to seek the payment of their costs of the Proceeding on an indemnity basis in accordance with the principles applied in Calderbank v Calderbank [1976] Fam 93 and subsequently in Hazeldene's Chicken Farm Pty Limited v VWA (No. 2) [2005] VSCA 298 and Settlement Group Pty Limited v Purcell Partners (No. 2) [2014] VSCA 68.

The offer contained in this letter will remain open until 9 am on Monday, 3 June 2024.

13    This offer was not accepted by Li Xu.

14    Virtually identical Calderbank correspondence was also sent to the common solicitor for Jingyi Li and Zheng Xu on 31 May 2024. No response was received from the solicitors for Jingyi Li, and the offer in her proceeding lapsed. Zheng Xu did not accept the offer.

15    I will refer to these offers compendiously as the “first Calderbank offer”.

16    The Salter Brothers Parties put a further settlement offer in each proceeding on 22 July 2024. The offer in the Li Xu proceeding stated:

We refer to the Proceeding.

As we pointed out to you a number of times before the trial commenced, your client's case against our client is misconceived and bound to fail. That position has become more apparent during the trial. We are instructed that our client is willing to settle the Proceeding on the following terms:

(a)    the Proceeding is dismissed;

(b)    you client will retain her interest in the units she holds in Fund K;

(c)    your client makes a contribution towards our client's costs incurred in the proceeding in the amount of $1.3 million, such payment to be made within 14 days of your client accepting this offer; and

(d)    your client releases SBAM and its related bodies corporate from any and all claims arising from, or relating to, the subject matter of the proceeding and any other claim arising from or relating to her investment in Fund A, B, and E (sic).

The reasons why your client should accept this offer are obvious: the problems with your client's claim have previously been pointed out. Further, given our earlier offers of settlement, our client will recover its costs:

(a)    for at least the duration of the trial, on an indemnity basis; and

(b)    on the standard basis until the above point in time.

The above offer therefore puts your client in a better position in that our client's recoverable costs of the proceeding are substantially higher than $1.3 million.

If the offer contained in this letter is not accepted and SBAM obtains an order in the proceeding no less favourable than the terms of this offer, SBAM intends to rely on this letter to seek the payment of its costs of the proceeding on an indemnity basis in accordance with the principles applied in Calderbank v Calderbank [1976] Fam 93 and subsequently in Hazeldene’s Chicken Farm Pty Limited v VWA (No. 2) [2005] VSCA 298 and Settlement Group Pty Limited v Purcell Partners (No. 2) [2014] VSCA 68.

The offer contained in this letter will remain open until 9 am on Wednesday, 24 July 2024.

17    This offer was not accepted by Li Xu. Identically worded offers were also made on 22 July 2024 in the Jingyi Li and Zheng Xu proceedings. Jingyi Li did not accept the offer made to her. Zheng Xu did not accept the offer made to her. I will refer to these offers as the “second Calderbank offer”.

18    Mr Dodgshun estimates that the costs incurred by the Salter Brothers Parties were as follows:

(a)    As at 31 May 2024, approximately $4,042,590 inclusive of GST; and

(b)    As at 22 July 2024, approximately $5,782,829 inclusive of GST.

19    I infer that each amount represents the total of solicitor/client costs and disbursements. The Court Book in the trial is replete with references to the ABN of the corporate defendants as registered for GST and I infer that status did not alter during the proceedings, that costs and disbursements were a taxable supply and they were entitled to and did claim the benefit of the input tax credits. As such, the estimates overstate the amount that the corporate defendants are entitled to pursuant to any costs order: Goods and Services Tax Ruling (GSTR 2001/4) at [148]-[149], [153]-[155]; Federal Court of Australia, Costs Practice Note (GPN-COSTS) at [6]. That said, the amounts of $1.35 and $1.3 million referred to in the offers were expressed as exclusive of GST.

Principles

20    This is not the occasion to embark on a detailed exposition of the costs discretion principles (including as to indemnity costs and issues based orders). See generally the Full Court decisions in Caporaso Pty Ltd v Mercato Centrale Australia Pty Ltd (Costs) [2025] FCAFC 29, Katzmann, Wheelahan and Hespe JJ; Anchorage Capital Partners Pty Ltd v Acpa Pty Ltd (No 2) [2018] FCAFC 112 at [6]-[8] (where a Calderbank offer is unreasonably refused). The principles are well understood. For present purposes, I emphasise the following. Although each plaintiff ultimately failed for multiple reasons, “hindsight bias” must be avoided: Caporaso at [21]. The onus is on the Salter Brothers Parties to positively establish an entitlement to an indemnity order: NMFM Pty Ltd v Citibank Ltd (No 11) [2001] FCA 480; (2001) 109 FCR 77 at [82], Lindgren J. A “walk away and bear own costs offer” may amount to a genuine attempt at compromise: Caporaso at [35]; Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [130] – [132], Besanko, Perram and Katzmann JJ.

21    Where a case is reasonably arguable, it may be reasonable to reject a capitulation offer made at a late stage: Caporaso at [35]. More so if objectively such an offer is employed as a tactical weapon: “a disruptive stratagem”: De Groot v Nominal Defendant [2005] NSWCA 61 at [261], Bryson JA; Stillwater Pastoral Company Pty Ltd v Stanwell Corporation Ltd (No 2) [2025] FCA 316 at [25], SC Derrington J.

22    The rejection of a Calderbank offer does not give rise to any presumptive entitlement to indemnity costs. Ultimately, the exercise of the costs discretion is informed by the particular facts. The offeror must establish that in all of the circumstances the offeree unreasonably refused or did not respond to the offer and one usually references as a guide the list of factors identified in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25], Warren CJ, Maxwell P and Harper AJA. Unreasonableness is a matter of judgment and impression: Secretary, Department of Transport v Provan’s Timber Pty Ltd (No 2) [2020] VSCA 258 at [25], Tate, Kyrou and McLeish JJA.

23    There is no reason why costs should not follow the event in the Li Xu proceeding and as noted, there is no issue as to that in the Jingyi Li or Zheng Xu proceeding.

Should indemnity costs be ordered?

Submissions

24    The Salter Brothers Parties, in each proceeding, commence by submitting that an indemnity costs order should be made from 1 June 2024, being the day after the making of the first Calderbank offer. Acknowledging that the “critical question” is whether rejection of the offer was “unreasonable in the circumstances existing at the time of the offer”, the submission proceeds as follows. First, each offer was accompanied by a detailed explanation of the difficulties then faced, as explained in the written outline of opening submissions in each proceeding. Acting reasonably at the time, those difficulties ought to have been acknowledged and the offer to settle by dismissal of each proceeding with no order as to costs ought to have been accepted.

25    Second, when the offers were made each of Li Xu, Jingyi Li and Zheng Xu were “in a very good position to assess the force of the contentions advanced”. All of the evidence had been exchanged in the form of filed affidavits, the parties had agreed on a large number of documents for the purposes of the trial, the issues in dispute had been refined by attendance before a judicial registrar and the proceedings were at a very advanced stage. The plaintiffs were well placed to make an informed assessment, in conjunction with advice from their lawyers, that in all likelihood their claims would fail at trial.

26    Third, and relatedly, the period of time of approximately three days to consider the offers was sufficient because of the clarity in the definition of the issues at that time and the advanced stage of preparation of each case.

27    Fourth, the proposal that each proceeding be dismissed and that each party bear their own costs was a genuine offer of compromise in that the Salter Brothers Parties were then prepared to absorb approximately $1.3 million in costs and disbursements per proceeding.

28    Fifth, each offer was clearly expressed and foreshadowed an application for indemnity costs if not accepted.

29    In opposition to the indemnity costs application based on the first Calderbank offer, the submissions for Jingyi Li and Zheng Xu are as follows. First, there was insufficient time to “assess and properly consider” the offer. It was served on the evening of the Friday before the commencement of the trial the following Monday. Second, the offer was not accompanied by clear and detailed exposition of the substantial difficulties faced by Jingyi Li and Zheng Xu. Each proceeding was lengthy and complex. At that late stage of the proceeding, there remained disagreement between the parties as to whether the Salter Brothers Parties could withdraw certain admissions by filing an amended version of their defences.

30    Third, as Jingyi Li and Zheng Xu were not fluent in English, each would require a translation of the written submissions of the Salter Brothers Parties and of the first Calderbank offer in order to properly consider it. No translation service was available during the weekend preceding the commencement of the trial and at that time Jingyi Li and Zheng Xu, together with their respective lawyers, were focused on final preparation.

31    The Salter Brothers Parties reply as follows. First, the time limit to consider the first Calderbank offer is context specific: the offer was made at a point in time when the issues were well defined, the legal representatives well understood the complexities of the respective cases and were well placed to make a proper, although time constrained, assessment of the likelihood of success. There can be no suggestion that the lawyers for Jingyi Li and Zheng Xu, were not competent and experienced. As such, the lawyers were in the best position to make an objective and informed assessment about the prospects of success. The fact that time was running over the course of the weekend is of no moment: it is very common for solicitors and barristers to work long hours on a weekend which precedes the commencement of a Monday trial.

32    Second, there is no merit in the translation submission. It was not necessary for written opening submissions or the offer to be translated. All that was required was an assessment by the lawyers for Jingyi Li and Zheng Xu, combined with an oral explanation of the prospects of success and the consequences that may follow if the offer were to be rejected, if the claims failed at trial. In any event, at the time, Jingyi Li and Zheng Xu had been residents of Australia for a number of years and there is no supporting evidence in the affidavit of Mr Critchley that supports the translation necessity submission.

33    Dealing next with the second Calderbank offer, the Salter Brothers Parties submit that they should have their costs on an indemnity basis from 23 July 2024, the day after the making of the offer, for the following reasons. First, at the time of the offer, the trial had occupied 15 sitting days and each of Jingyi Li and Zheng Xu had concluded their evidence. The difficulties in their respective cases, as set out in the written opening submissions, ought then to have been more starkly evident to a reasonable person in their respective positions.

34    Second, a period of two days was sufficient to consider the offer, made during a hiatus in the trial and when the proceedings were well advanced. Third, each offer represented a genuine compromise in that the Salter Brothers Parties were prepared to absorb “a substantial portion of their costs” being those incurred since the date of the first Calderbank offer.

Consideration

The claim against Li Xu

35    Dealing first with the case of Li Xu, it is necessary to focus on the written opening submissions of the Salter Brothers Parties as containing the detailed explanation why the claim would likely fail. The submissions commenced with detailed observations as to the difficulties of succeeding in a case of misleading or deceptive conduct by oral representations made many years before the commencement of a proceeding. The representations relied on commenced in 2014 and extended to March 2017. Li Xu could not point to any documentary evidence in support of her oral representations case. Her essential contention was that she had been informed by six individuals over a period of four years that she had been assured of the return of her investment money after a period of four years. That contention, on its face, was implausible.

36    Her case against the individual defendants faced the difficulty that she failed to articulate (in her pleadings or in her evidence) how each had engaged in conduct “on behalf of” a relevant body corporate within the meaning of s 12GH(2) of the Australian Securities and Investments Commission Act 2001 (ASIC Act). Moreover, Jeanetta Jin (the eighth defendant) was never an employee or agent of the relevant Salter Brothers companies.

37    Her case failed to grapple with the fact that from the outset she engaged Austar Suzhou to act as her agent in the SIV visa application process and, for an additional fee, could have engaged that company to provide for her document translation services. There was no economic or practical reason why she could not have obtained those services in order to have translated for her the critical investment documents that she signed and which contained numerous statements contrary to the oral representations that she contended had been made to her.

38    Her breach of contract case was without merit from the outset because none of the representations were promissory in nature and each, if made, was contrary to the express terms of the investment documentation and which formed the basis of the contract, when she made an application to invest funds.

39    Her causation claim was without merit for the reason that her counterfactual relied on the making of similar investments with the Moelis property funds and where the investment documentation identified the same or similar risks that she complained of in the proceedings against the Salter Brothers Parties.

40    Her contention that her investment units were of no present value was not supported by any expert evidence. In contrast, Salter Brothers Parties relied on extensive expert evidence to establish the value of the units, based on alternative assumptions as to the likely future redemption dates.

41    Even if Li Xu had succeeded with an order for damages in her favour, she then faced the defences of a failure to take reasonable care and statutory apportionment.

42    Balanced against these submissions are the matters formulated for Li Xu in the form of her written opening submissions filed on 28 May 2024. Li Xu engaged very experienced and competent senior and junior counsel. Their submissions contended forcefully for the acceptance of her case based on six oral representations that she contended were made to her and supported by the evidence contained in her affidavits. In a number of respects, the claims enjoyed the advantage that if the representations were made, they were partly as to future matters and where the Salter Brothers Parties carried the statutory onus of adducing evidence as to having reasonable grounds for their making. The evidence of the Salter Brothers Parties did not attempt to do so.

43    A primary submission formulated for Li Xu was that it was more likely that the oral representations had been made to her because they were central to her decision-making, and in circumstances where she had a clear choice of investing with the Moelis property funds in the event that she had not been assured of redemption of her investments after complying with the initial four year term requirement.

44    The breach of contract claim was reasonably arguable, in that some of the representations were in the nature of contractual warranties. The representations were each misleading or deceptive or likely to mislead or deceive (to the extent that they were statements as to existing matters of fact) because they were contrary to the discretionary ability of the fund trustee to not meet redemption requests following the expiry of the four year investment period.

45    Causation was established by the evidence of Li Xu that, but for the making of the representations, she would not have invested part of her funds with Salter Brothers, evidenced by the fact that she made concurrent complying investments with Moelis.

46    Whilst Li Xu maintained her primary contention that the investments with Salter Brothers had nil value at the time of the trial, she was entitled to test the expert evidence of the Salter Brothers Parties to the contrary and, in any event, she maintained a claim to a refund of her investment amount pursuant to s 12GM of the ASIC Act, which remedy did not turn on establishing her nil value proposition.

47    The contributory negligence defence, even if made out on the facts, could not avail the Salter Brothers Parties to the extent that her claims were brought pursuant to s 12DB of the ASIC Act.

48    In my view, the Salter Brothers Parties have not demonstrated an entitlement to an indemnity costs order by reason of Li Xu’s rejection of the first Calderbank offer. Whilst it is true that when made, the proceeding was at a very advanced stage which permitted an informed assessment of the litigation risk of proceeding, I do not consider that the content of the written submissions of the Salter Brothers Parties was such that it required Li Xu to give serious consideration to abandoning the claim at the time. What was then known is that Li Xu contended that she had suffered very substantial damages by the loss of her investment amount of $2.5 million (subject to certain adjustments as set out in her particulars), which case was supported by her detailed affidavit evidence and the forceful outline of her case in her written submissions. Whilst certain of the individual defendants had made affidavits denying the making of some of the oral representations, that was not universally so. Two of the defendants did not provide any affidavits in response to Li Xu’s evidence. I do not consider that the Salter Brothers Parties have established that there was little or no merit in the claims made by Li Xu such that she should have appreciated over the course of the weekend preceding the commencement of the trial that her case had insufficient prospects of success and that in consequence she should then abandon it. Her claims were arguable, as set out in her submissions.

49    The making of the walk away offer two days before the commencement of the trial, then listed for 11 days, requiring total capitulation with the threat of an application for indemnity costs, in my view is properly characterised as a tactical manoeuvre designed to apply pressure rather than a genuine attempt at that very late stage to compromise the claim on reasonable terms. The offer necessarily required Li Xu to cast aside the very considerable efforts that had been applied to preparation of her claim and its advancement since the filing of her proceeding in April 2024 and to write off the considerable costs and disbursements that she had incurred. In my view the offer was made at a stage which was too late in the proceeding in the form that it was. This was complex, time consuming and expensive litigation - the making of a very late, “eleventh hour” walk away offer must be balanced against what were then the entrenched positions of the parties, the resources devoted to the proceeding and the attendant cost: Mischel (as Executor of the Estate of Mischel) v Mischel Holdings Pty Ltd (in liq) (No 2) [2012] VSC 421 at [28] – [29].

50    The next relevant consideration is the extent of the compromise offered by the Salter Brothers Parties on 31 May 2024. The considerations identified by Greenwood J in Uniline Australia Ltd v SBriggs Pty Ltd (No 2) [2009] FCA 920; (2009) 232 FCR 136 at [38] are relevant. Whilst it is true that the Salter Brothers Parties offered to give up something of value by inviting dismissal of the proceeding and absorption of the incurred costs, the offer did not distinguish between solicitor/client costs and party/party costs. It could only be the latter that was then relevantly claimable. The extent of the compromise was not revealed. Nor was there an explanation as to how the sum of $1.35 million had been calculated and apportioned. These matters should have been addressed. However, the failure to do so does not detract from the inference, which I draw, that by making the offer the Salter Brothers Parties were prepared to give up a significant potential claim for accrued costs at that stage.

51    There is no question that the offer was clearly expressed, was supported with detailed reasons in the form of the written opening submissions and warned Li Xu that if it was not accepted, and her case failed, she would face a claim for indemnity costs.

52    I have assessed and balanced each of these considerations. Overall, the Salter Brothers Parties have not established that Li Xu unreasonably rejected the first Calderbank offer.

53    I next address the second Calderbank offer made to Li Xu on 22 July 2024. Li Xu closed her case on 14 June 2024. Some witnesses for the Salter Brothers Parties had by then been cross-examined (at least in part) by counsel for Zheng Xu: Kevin Fan, Hannah Zhu and Paul Salter. The cross-examination of Hannah Zhu and Paul Salter had not completed upon resumption of the trial on 24 July 2024. Evidence had not yet been adduced from Natalie Liao, Robert Salter, Peter Hamilton or Dawna Wright.

54    The second sentence in the offer is problematic. I have not received evidence as to what was “pointed out” on a number of occasions to the solicitors for Li Xu before commencement of the trial and why it was then said that her case was “misconceived and bound to fail”. All that I have is what is expressed in the written outline of opening submissions, which as I have explained does not make good that assertion when viewed in the context of everything that was known at the time. Nor is there any explanation in support of the assertion that it had become “more apparent during the trial”. That is no more than a subjective contention.

55    A term of the offer required Li Xu to contribute towards the costs of the Salter Brothers Parties in the amount of $1.3 million, to be paid within 14 days of acceptance. The extent of the compromise then offered was not revealed. Li Xu’s solicitor was not then told that the total costs of the Salter Brothers Parties in each proceeding as at 22 July 2024 were approximately $5,782,829 inclusive of GST. No attempt was made in the offer to explain how the contribution had been calculated and apportioned to Li Xu’s proceeding on a party/party basis. No explanation was offered as to how it was said that the “recoverable costs” of the proceeding brought by Li Xu were “substantially higher” than $1.3 million.

56    Thus, the offer failed to reveal the extent of the compromise offered and lacked clarity in that respect.

57    The offer was made two days before resumption of the 16th hearing day. Objectively at that point, Li Xu was in a good position to make an informed assessment of her prospects of success. What was then known is that her senior counsel had conducted an extensive, probing and detailed cross-examination of Hannah Zhu, Paul Salter and Kevin Fan. Their evidence as to whether they had made the contended oral representations was challenged with some force and their credit was put in issue. A number of witnesses for the Salter Brothers Parties were yet to give evidence; particularly the accounting expert Dawna Wright on the question of damages. I am unpersuaded that the circumstances then known were such that acting reasonably, Li Xu ought to have appreciated that her case was likely to fail and that the offer then made was advantageous to her.

58    The period for acceptance of the offer (two days until 9 am on 24 July 2024) was in my view reasonable because of the advanced stage of the proceedings and the volume of evidence that had been adduced and tested.

59    Apart from the lack of clarity in disclosing the extent of the compromise, the offer was otherwise clearly expressed and capable of acceptance. And, once again, the offer foreshadowed an application for indemnity costs in the event of non-acceptance.

60    Overall, I am not satisfied that the Salter Brothers Parties have established an entitlement to indemnity costs founded in the second Calderbank offer. The disclosed reasons for concluding that Li Xu ought to have understood that her claim was likely to fail are limited to what is set out in the written opening submissions and which I have concluded do not in establish the entitlement. The offer simply made a number of conclusionary assertions as to why, in the assessment of the solicitor for the Salter Brothers Parties, Li Xu’s proceeding was bound to fail. The offer failed to reveal what matters, additional to opening submissions of the Salter Brothers Parties, then informed the assessment of the relative prospect of success on the claim.

61    The offer did not reveal the extent of the compromise that was then on offer. It failed to distinguish between solicitor/client costs and party/party costs and failed to explain the basis on which the apportionment for Li Xu’s proceeding had been calculated. As with the first Calderbank offer, in my view it was deployed as a tactical manoeuvre designed to apply pressure to Li Xu and without regard to the complexities of the proceeding and the considerable costs which she had incurred to that time in the pursuit of her claims.

The claim against Jingyi Li

62    There were three components to Jingyi Li’s claim: (1) the written IM representations; (2) the WeChat representations; and (3) statutory unconscionable conduct.

63    Broadly the written opening submissions of the Salter Brothers Parties contended that each claim would fail for the following reasons. As to the IM representations, they would not have been understood by an ordinary and reasonable member of the relevant class as conveying any of the five pleaded representations when read in the context of the entirety of the 1 September 2015 Information Memorandum. Further, even if any of the representations were made, they were not objectively misleading or deceptive or likely to mislead or deceive when read with the entirety of the Information Memorandum. Detailed reference was made, in each respect, to other statements contained in the document.

64    As to the WeChat representations, each was made to Jun Chen who at the time was an experienced and relatively sophisticated investor who had studied the investment options in some detail and in that context the individual statements relied upon were not misleading or deceptive or likely to mislead or deceive a reasonable person in his position and with his known characteristics at the time.

65    As to the unconscionable conduct case, Jingyi Li was not subject to any special disadvantage at the time by reason of her pleaded lack of comprehension of the English language and was not therefore vulnerable.

66    Jingyi Li’s causation claim was fatally defective in that, on her own evidence, she did not rely on the IM representations. As to the WeChat representations, it was Jun Chen (not her) who was engaged in the conversation (with the consequence that she did not rely) and, in any event, the relevant investment decision was not made until five months later, which fact “tends strongly against a finding of reliance”. Further, according to Jun Chen’s evidence, he was disabused of any misapprehension about the ability to access the relevant funds at the conclusion of the four year initial investment term at a subsequent meeting 2019.

67    On the damages question, although Jingyi Li alleged that the current value of her units was nil, she adduced no expert evidence in support even when faced with the contrary expert evidence from the Salter Brothers Parties.

Consideration

68    I commence with the first Calderbank offer. As at 31 May 2024, Jingyi Li had a reasonably arguable case that, on the construction question, the Information Memorandum conveyed all or some of the five representations to make good a component of her IM representation case. Ultimately, she made out the conflict representation. At that time, Jingyi Li had an arguable case that all or some of the IM representations were objectively misleading or deceptive or likely to mislead or deceive. However, what ought to have been appreciated was that this component of her case suffered from a fatal defect: on her own affidavit evidence she did not rely on the IM representations when she made the decision to make her investments with the Salter Brothers complying funds. Acting reasonably at the time, Jingyi Li should have appreciated that this claim would fail.

69    As to the WeChat representations case, objectively it was reasonably arguable as at 31 May 2024 in that the representations contended to have been made were and they were subsequently relied upon when Jun Chen (who acted as the proxy for Jingyi Li) made relevant decisions to switch Jingyi Li’s investment into property funds maintained by Salter Brothers. The benefit then enjoyed by Jingyi Li is that the representations were in writing.

70    As to the statutory unconscionable conduct case brought pursuant to s 12CB of the ASIC Act, it was also reasonably arguable as at 31 May 2024 in that Jingyi Li was not fluent in the English language, Salter Brothers was aware of that fact but despite it chose to provide the majority of the investment documentation only in the English language and did not take positive steps to explain the documentation to her.

71    On the damages aspect of her claim, Jingyi Li ought to have appreciated that, absent supporting expert evidence, her nil value contention for her units would not be made out when faced with competing expert evidence from Dawna Wright for the Salter Brothers Parties. However, as I explained in my primary reasons, the expert report of Dawna Wright contained within it calculations from which one could derive a damages figure if Jingyi Li’s case had otherwise been accepted on liability.

72    As to contributory negligence, that is not a matter that went to the prospect of success and recovering some amount of compensation; more so when Jingyi Li claimed as an alternative remedy a refund of her investments pursuant to s 12GM of the ASIC Act.

73    Accordingly, despite that Jingyi Li ought to have understood as at 31 May 2024 that her case based on the IM representations would likely fail, the Salter Brothers Parties have not demonstrated that Jingyi Li’s prospects of success on the balance of the claims was such that she unreasonably rejected the first Calderbank offer when made.

74    As to the other relevant factors, the stage of the proceeding when the offer was made, the time allowed for consideration, the extent of the compromise offered, the clarity of the offer terms and whether an indemnity cost application was foreshadowed, I adopt my reasoning in considering the application against Li Xu.

75    Overall, I am unpersuaded that rejection of the offer was unreasonable. In that assessment I give significant weight to the objectively assessed prospects of success on the WeChat and unconscionable conduct claims. Further, in favour of Jingyi Li (for the reasons given in considering the claim against Li Xu), the extent of the compromise was not revealed, the offer was a tactical manoeuvre made at a very late stage designed to pressure Jingyi Li into a settlement despite the considerable legal costs which she must by then have incurred in the prosecution of her claims in litigation that was complex and where no explanation was offered as to how the amount of $1.35 million had been calculated and apportioned to her proceeding. The balance considerations, which favour the Salter Brothers Parties, do not displace these considerations.

76    Dealing next with the second Calderbank offer, I also adopt in part my reasoning in assessing that claim against Li Xu: the problematic wording of the second sentence, the failure to reveal and explain why it was said as at 22 July 2024 that the case was “misconceived and bound to fail”, the failure to reveal the extent of the compromise then offered and the absence of explanation as to the calculation of the contribution required, or how it had been apportioned across each of the proceedings. Additionally, and more importantly, I am not persuaded that the Salter Brothers Parties have established that Jingyi Li ought to have appreciated as at 22 July 2024 that her claims based on the WeChat representations and statutory unconscionable conduct were likely to fail. At that point in the trial each was very much alive and objectively arguable.

77    Finally, as to the submission made for Jingyi Li that any costs order made against her should be apportioned because she succeeded in making out the conflict representation and that it was misleading or deceptive or likely to mislead or deceive, I am not satisfied that this is an occasion for apportionment. Generally speaking, issue by issue costs orders should not be made unless success or failure on a particular issue is clearly identifiable, discrete, severable and the attendant costs incurred were significant: Koolan Iron Ore Pty Ltd v Infrassure Ltd (No 4) [2024] FCA 894 at [7(4),(5)]. That is not the case here. The conflict representation was one of five misleading representations said to be conveyed by the Information Memorandum. It was not distinct and severable, and in any event, all of these claims failed on the causation issue. Its pursuit added to the cost of the proceeding.

The claim against Zheng Xu

78    This claim may be shortly dealt with. Her central claims mirrored the IM representations and statutory unconscionable claims of Jingyi Li. When the first Calderbank offer was made, for the reasons that I had given in the application brought against Jingyi Li, Zheng Xu acting reasonably ought to have known that this case would likely fail because she could not establish that she relied on any of the five IM representations. However, she also maintained a claim of statutory unconscionable conduct by reason of her special disadvantage because she was not at relevant times fluent in the English language, that fact was known to Salter Brothers and despite it, it chose to provide the majority of the important documents only in English and otherwise took no steps to explain the important documents to her. That claim was then clearly arguable. It was not unreasonable for Zheng Xu to refuse to then capitulate and give up the considerable legal costs which she had incurred to 31 May 2024.

79    As to the other relevant factors, I adopt and apply my reasoning for rejecting the application made against Jingyi Li. On balance, this is not a case for the making of an indemnity costs order from 1 June 2024.

80    That leaves the second Calderbank offer of 22 July 2024. This claim fails the same reasons that I have given in the Jingyi Li proceeding.

Should a lump sum costs order be made?

81    These proceedings involved very significant case management, pre-trial steps, many witnesses, thousands of documents and required 21 hearing days. These were hard fought complex commercial cases. A lump sum costs order is clearly appropriate.

Conclusion

82    The Salter Brothers Parties have failed to establish that this is an appropriate case for the making of any indemnity costs orders. The usual costs order will be made in each proceeding on a lump sum basis.

Associate:

Dated:    22 April 2025

Schedule

No: VID 122 of 2022

Federal Court of Australia

District Registry: Victoria Registry Division: General

Fifth Defendant    FUYIN FAN

Sixth Defendant    HANNAH ZHU