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Commercial Litigation & Insolvency News Alert: An indemnity costs win in the matter of Central Cleaning Supplies v Anthony Wayne Elkerton

News Alert 08 May 2014

Central Cleaning Supplies (Aust) Pty Ltd v Anthony Wayne Elkerton (in his capacity as liquidator of Swan Services Pty Ltd (in liquidation)) [2014] VSC 61

The general rule in litigation is that costs follow the event – that is, that the successful party will be awarded costs in their favour, usually in the form of ‘standard’ or ‘party/party’ costs. Indemnity costs, which as the name suggests are intended to indemnify the successful party, are in the discretion of the Court and ordered in particular circumstances. The making of a Calderbank offer or an offer that is expressed to be “without prejudice save as to costs” does not automatically lead to an order for indemnity costs if the offer is rejected and the party who refused the offer does not obtain a more favourable result at trial. As this decision highlights, the decision to award costs on an indemnity basis is an exercise of the court’s general discretion as to costs.

On 2 May 2014, Her Honour Justice Ferguson of the Supreme Court of Victoria awarded costs on an indemnity basis in favour of our client, Anthony Elkerton (in his capacity as liquidator of Swan Services Pty Ltd (in liquidation)) as and from 13 January 2014, being the date on which a second Calderbank offer had been made, ordering that the plaintiff (“Central”) pay our client’s costs of the proceeding on a standard basis up to and including 12 January 2014 and on an indemnity basis from 13 January 2014.

Two Calderbank offers had been made on behalf of our client. The first offer was dated 22 July 2013 (made shortly after the proceeding had commenced) and offered payment of $5,000 in full and final satisfaction of Central’s claim. The second offer was dated 13 January 2014 and offered to split the net proceeds from the sale of the four items of equipment our client had in its possession equally, that Central pay 60% of our client’s costs and further, that our client would agree not to pursue a preference claim against Central.

Her Honour found that it was not unreasonable for Central to refuse to accept the first offer as the proceeding was at an early stage at the time; not all of the relevant evidence had been filed, facts had not been agreed, the issues were not clearly defined and in all the circumstances, the strength of the case against Central was uncertain. However, Her Honour found that by the time of the second offer the position had changed – there was an agreed statement of facts, outlines of submissions had been exchanged and the issues were more clearly defined. Her Honour also rejected the novelty of law argument made as part of Central’s costs submissions noting that by the time of the second offer, it was apparent that the initial question to be determined by the Court would be one of contract and incorporation of terms into contracts and that the law in that regard was “settled”. All of these factors made it unreasonable, in Her Honour’s view, not to have accepted the second Calderbank offer. In Her Honour’s view “....the offer was one of real compromise...”.

This decision highlights the Court’s discretion when it comes to awarding indemnity costs and reinforces some of the following matters which you need to bear in mind when making a Calderbank offer:

  1. The stage of the litigation at which a Calderbank offer is made – is it made at a time when the parties are aware of the relevant facts and issues and the party receiving the offer is in a position to assess the prospects of success?
  2. Whether the offer represents a genuine or real compromise of the claim;
  3. Whether the offer is clear and open for acceptance for a reasonable period of time;
  4. Whether the offer foreshadows an application for indemnity costs in the event of the offer being rejected.

Her Honour’s decision of 7 March 2014 regarding the substantive issues determined in this proceeding is currently the subject of an appeal by Central to the Court of Appeal.


Maria Kerhoulas, Partner
Melbourne

News Alert 08 May 2014
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