Indemnity costs when a case is doomed from the beginning
In the matter of Ahmed & Associates (Aust) Pty Ltd [2021] NSWSC 631 (3 June 2021) Justice Black orders liquidators and a company in liquidation to pay indemnity costs.
In an earlier judgment Justice Black dismissed a claim by the liquidators of Ahmed & Associates (Aust) Pty Ltd (AAA) and AAA alleging that a transfer of plant and medical equipment to the defendants was a voidable transaction under the Corporations Act 2001 (Cth). The claim was dependent on establishing that AAA was the owner of the plant and equipment, which was not established.
The liquidators were aware prior to commencing proceedings that an agreement on which they relied to establish ownership of the plant and equipment was executed before AAA’s incorporation and so did not name AAA.
The defendants claimed that the liquidators and AAA should pay their costs on an indemnity basis (that is, on a higher basis than the usual party/party basis):
first, because of three “Calderbank” offers that they had made (two sent prior to the commencement of proceedings, and one sent during the proceedings); and
secondly, because the case against them was “without substance”, “groundless” or “fanciful or hopeless” or so weak as to be futile.
His Honour referred to the cases that explained that a Court’s discretion to order indemnity costs because of a “Calderbank” offer is enlivened when:
the party that made the offer achieves a better result than the amount offered;
the offer was a genuine offer of compromise; and
it was unreasonable of the offeree not to accept.
The liquidators claimed that it was reasonable to reject the first offer because it didn’t contain evidence to assist them in determining whether it was reasonable. His Honour rejected this submission, saying that if the liquidators could not establish ownership their claim would fail and any offer of compromise would have been reasonable.
His Honour held that indemnity costs were warranted both on the basis that rejection of the first offer was unreasonable and because the claim was futile.
This case reminds plaintiffs that if a case is ultimately futile, indemnity costs may be ordered in respect of the entire proceedings, not merely from the date of a particular “Calderbank” offer.
