IN THE COUNTY COURT OF VICTORIA
AT Melbourne
COMMERCIAL DIVISION	Revised
Not Restricted
Suitable for Publication	
General List

Case No. CI-20-02185

Julie Angela Matusik in her capacity as Executrix of the estate of Norman Eric Suckling	Plaintiff	
		
V		
		
Maher Farms Pty Ltd (ACN 615 818 436) & Ors (according to the Schedule attached)	First defendant	

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JUDGE:	HER HONOUR JUDGE A RYAN	
WHERE HELD:	Melbourne	
DATE OF HEARING:	On the papers, written submissions filed 4 May 2022, reply submissions filed 10 and 11 May 2022 
	
DATE OF RULING:	20 May 2022	
CASE MAY BE CITED AS:	Matusik v Maher Farms Pty Ltd & Ors (No 2)	
MEDIUM NEUTRAL CITATION:	[2022] VCC 671		

RULING
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Subject:	PRACTICE AND PROCEDURE – COSTS

Catchwords: 	Whether indemnity costs order should be made following rejection of plaintiff’s Calderbank offer
	
Cases Cited:	Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65; BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; Meldov Pty Ltd v Bank of Queensland (No 2) [2015] NSWSC 740

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APPEARANCES:
	Counsel	Solicitors	
For the Plaintiff	Dr P Bender	Coulter Roache	
			
For the First and Second Defendants	Mr P Duggan	Harwood Andrews	
			
For the Third Defendant	No appearance		

HER HONOUR:

1	On 11 April 2022, I delivered reasons for judgment in this matter (“the principal reasons”).  The plaintiff succeeded in her claim for adverse possession.  These reasons assume familiarity with the principal reasons and adopt the same terminology. 
2	The parties were directed to confer and file a minute of proposed orders or, failing agreement, to file and serve submissions regarding the orders to be made, including costs.  
3	The plaintiff filed a minute of proposed final orders on 4 May 2022. The form of final orders was agreed save as to costs. 
4	Both parties filed submissions dealing with costs on 4 May 2022. In addition, the plaintiff filed and served an affidavit of Jessica Eagles, solicitor, affirmed 4 May 2022 which exhibited various correspondence and a valuation report.
5	Reply submissions were received from the plaintiff on 10 May 2022 and from the first and second defendants on 11 May 2022. 
6	The third defendant, the Registrar of Titles, played no active part in the litigation. No costs orders were sought by or against the third defendant. 
7	The plaintiff seeks costs on a standard basis up to 1 April 2021 and thereafter on an indemnity basis based on a Calderbank offer made on 25 March 2021 (“the Calderbank offer”).
8	The defendants accept that they should pay costs on a standard basis but dispute the plaintiff’s claim for indemnity costs. They contend their failure to accept the Calderbank offer was not unreasonable. Additionally, if the Court finds that the plaintiff is not entitled to costs an indemnity basis, the defendants seek an order that the costs of their costs submissions be paid by the plaintiff on a standard basis.
Legal principles
9	In support of the application for indemnity costs, the plaintiff referred to the well-known principles contained in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).  The defendant also referred to Hazeldene, particularly emphasising the Court of Appeal’s finding that
“In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as “manifestly” or “plainly” unreasonable.”
10	As Nettle JA noted in Berrigan Shire Council v Ballerini (No 2); 
“The rejection of a Calderbank offer not later bettered by judgment does not lead automatically to an indemnity costs order in favour of the offeror.  The question in each case is whether the offer was a reasonable offer of compromise, and whether the rejection of the offer was unreasonable, and the answer to that question turns in each case on all the circumstances of the case.” 
The question of whether rejection of an offer was unreasonable should be considered without the benefit of hindsight and without adducing additional evidence. The party seeking to rely on a Calderbank offer bears the onus of convincing the Court to make the advantageous costs order. The determination of whether the rejection is unreasonable involves matters of judgment and impression.  Various matters which a court should ordinarily have regard to include:
“(a)	the stage of the proceedings at which the offer was received;
(b)	the time allowed to the offeree to consider the offer; 
(c)	the extent of the compromise offered;
(d)	the offeree’s prospects of success, assessed as at the date of the offer;
(e)	the clarity with which the terms of the offer were expressed; and
(f)	whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.” 
The plaintiff’s Calderbank offer
11	The Calderbank offer contained two alternative offers as follows:
(a)	the plaintiff would pay the defendants $110,000 as consideration for the transfer of the disputed land to the plaintiff (“offer 1”); 
(b)	alternatively, the plaintiff would sell the plaintiff’s land adjacent to the disputed land (including the water licence in respect of the dam and permanent fixtures including the underground pipes and concrete pivot pads) to the defendants for $1,600,000 (“offer 2”). 
12	Both offers were open for a period of 7 days from the date of the letter and there was a statement in the offer letter that indemnity costs would be sought from the date of expiry of the offer. Accordingly, the plaintiff is seeking indemnity costs from 1 April 2021 (being 7 days after the date the offer was made on 25 March 2021, including the date of the offer). 
13	On 29 March 2021, the first and second defendants rejected the plaintiff’s offer. Four alternative counter offers were made:
(a)	An offer to discontinue the proceedings and pay part of the first and second defendants’ costs; or 
(b)	An offer that the first and second defendants would purchase the plaintiff’s Mollongghip Land (which excluded the disputed land) for $1,175,000; or 
(c)	An offer that the first defendant would sell the disputed land to the plaintiff for an amount of $400,000; or 
(d)	An offer that the first defendant would sell the disputed land and the remainder of its land at Dean-Mollongghip Road to the plaintiff for $800,000. 
14	The plaintiff did not accept any of the four counter offers. 
Whether the plaintiff has bettered her offers at trial
15	The plaintiff contends she bettered her offers at trial as she will now acquire the disputed land at no cost; she is not required to sell the plaintiff’s land to the defendants, and does not need to pay the offered consideration of $110,000. 
16	The defendants concede the plaintiff has bettered her offer 1 at trial as they will no longer receive payment in return for the disputed land.  
17	The defendants submit, however, that the plaintiff has failed to adduce valuation evidence as to the market value of the plaintiff’s land, and there is therefore no identifiable basis for the Court to conclude that offer 2 involved any sort of compromise by the plaintiff. They note further that the offers had expired by the time when a valuation report was produced privately for the plaintiff, and that the valuation report in question was only produced to the Court and to the defendants as an exhibit to the affidavit of Jessica Eagles dated 4 May 2022.  It is submitted that this is far too late for such evidence to be adduced, and that the Court should disregard offer 2 for current Calderbank purposes.
18	The plaintiff submits that it did not lead valuation evidence at trial because the value of the plaintiff’s own land was not relevant to the issues to be determined. The plaintiff suggests that evidence of that value, along with evidence of the value of the disputed land in respect of the plaintiff’s offer to pay $110,000 to the defendants, is now before the Court because those values are relevant to the costs dispute. 
Whether the defendant’s rejection of the plaintiff’s Calderbank offer was unreasonable
19	The plaintiff’s Calderbank letter of offer foreshadowed an application for indemnity costs if the offer were to be rejected. The parties made submissions on the remainder of the matters identified in Hazeldeneas follows.
Stage of the proceedings at which the offer was received 
20	The plaintiff submits that because the offers were made on 25 March 2021, almost a month before the trial date on 19 April 2021, it was unreasonable for the defendants to reject them.
21	The defendants submit that the Court must consider the proposed payment of $110,000 in light of the offer being made less than a month before trial after considerable resources had already been expended. 
22	In reply, the plaintiff notes that there was almost a month until trial when the offers were made, and that further costs were still to be incurred in preparation for and attendance at the trial.
Time allowed for the offeree to consider the offer
23	The plaintiff submits that a reasonable time period was given for the defendants to consider the offer, being one week.  
24	The defendants reject this submission, contending that the seven day offer period was inadequate in duration, suggesting that the yardstick for such offer is (at least by analogy) the 14-day minimum period contemplated for offers of compromise under rule 26.03(3) of the County Court Civil Procedure Rules 2018. 
25	In response, the plaintiff contends that this analogy is incorrect, and that there is no so much minimum period. The plaintiff cites Meldov Pty Ltd v Bank of Queensland (No 2) [2015] NSWSC 740 at [11] as an example of where the Court found that a Calderbank offer that was left open for 12 days had been left open for a reasonable period. She asserts that the 7-day period that the offers were open for acceptance was clearly reasonable in circumstances where the defendants replied within four days, with four counteroffers of their own in their Calderbank letter dated 29 March 2021.
Extent of the compromise offered
26	The plaintiff submits that the offers constituted a significant compromise, contending that:
(a)	Offer 1 was to buy the disputed land for $110,000, which was more than the market value of the disputed land (which was about $92,700 as per a valuation obtained by the plaintiff - albeit not adduced as evidence at trial -  excluding the water rights, which belonged to the plaintiff not to the first defendant). Further, as the plaintiff has now acquired the land for no cost, she submits that it was unreasonable of the defendants to reject an offer that would have provided significant funds and more than the market value of the disputed land when the ultimate result was an acquisition by the plaintiff at no cost.
(b)	Offer 2 was to sell the plaintiff’s land to the defendants for $1,600,000. Even with the water entitlements, that land was only valued at $1,500,000 so purchase at a price of $1,600,000 would have resulted in a significant windfall gain to the defendants.
(c)	Both offers were within the serious contemplation of the defendants because their counter offers contemplated both the sale of the disputed land and the purchase of the plaintiff’s land.
27	The defendants submit that as there was no valuation evidence led at trial as to the market value of the plaintiff’s property adjacent to the disputed land, there is no identifiable basis for the Court to conclude that offer 2 (namely to sell that adjacent land to the defendants for $1.6 million) involved any sort of compromise by the plaintiff at all. 
28	The defendants further submit that the extent of the compromise in terms of offer 1 was unclear at the time the offers were made. They note that the offers had already expired when the valuation report, produced privately for the plaintiff by Mr Alan Hives, was produced to them. They suggest that during costs submissions is far too late for the valuation report to be submitted as evidence to the Court, given the defendants were not aware of it at the time the offers were open for acceptance, that it postdates the Calderbank letter, and that it was produced by an expert who was never called at trial. The defendants note that the onus is on the plaintiff to persuade the Court that the offers were reasonable, and submit there is insufficient evidence before the Court to assess in monetary terms how reasonable the offers were. 
29	The defendants also submit that there is no evidence before the Court for it to assess how reasonable (or otherwise) offer 1 was in monetary terms. They submit that the true commercial value of the disputed land (itself and in isolation) at the time of the offer, the likely accretion to value to the plaintiff’s adjacent land if offer 1 had been accepted, and the likely diminution in value to the defendants’ adjacent land if offer 1 had been accepted have not been proved. As a result, the Court simply cannot know the answer to any of these questions on the evidence that was led. In the absence of such evidence, the Court can only guess as to whether offer 1 was in commercial terms an extremely generous offer, a demeaning demand for capitulation or something in between. It cannot assess the offer as reasonable or unreasonable accordingly. The defendants suggest that the plaintiff has therefore failed to discharge her onus to persuade this Court that offer 1 was a reasonable offer which the defendants unreasonably failed to accept.
Offeree’s prospects of success, assessed as at the date of the offer
30	The plaintiff submits the merits of the defence were never strong and rely upon the following facts as indicative of their good prospects of success as at the date of the offer: 
(a)	The only possible prospect of a successful defence was based on the existence of the lease; 
(b)	There was never any notification of the lease, or an intention to retake possession, to Mr May (or the deceased after he took possession of the disputed land); 
(c)	The alleged acts of possession during the lease were fleeting, not notified to Mr May, and were not sufficient enough to constitute the retaking of possession; 
(d)	There were never any acts of possession at all on the southern portion of the disputed land during the lease. There was never any possibility at all of the defendants being able to show that possession of that southern portion of the land had been retaken; 
(e)	The northern portion of the disputed land was mainly made up of part of the dam. There were never any substantive acts of possession in respect of that dam which could have demonstrated the retaking of possession (eg organising for the cancellation of the water entitlement as occurred after the period of adverse possession had ceased). The only acts in respect of the dam were of a very minor nature (for example, occasional fishing) that were not notified to Mr May and that would never have demonstrated the retaking of possession; 
(f)	After the dispute had arisen, the second defendant engaged in many acts on both the disputed land and the plaintiff’s own land that were disruptive to farming operations and were intended to show possession by the defendants, despite the period of adverse possession already having run. Those acts are set out in the affidavit material filed by the plaintiff. Those acts necessitated the joining of the second defendant to the proceeding and culminated in an interlocutory injunction being granted by consent (and the plaintiff’s trespass claim was also resolved by consent). Whilst the parties have now agreed for the interlocutory injunction to be lifted after the appeal period has passed, that in no way diminishes the need for such relief to have been in place during the period given the type of disruptive and reckless acts that the second defendant was carrying out on both the disputed land and the plaintiff’s land(for example, the building of a fence that spanned both the disputed land and the plaintiff’s land amongst other acts). 
31	The defendants submit that it was not unreasonable for them to expect that the evidence proposed to be adduced at trial (including that of independent witnesses being Ms Kelly, Mr Kelly and Mr Nagle) would be accepted by the Court.  The defendants note that their Precision lease defence was reasonable, and partially vindicated by the finding at paragraph 172 of the principal reasons that the first Precision lease was in fact a lease. They submit that their failure to surrender the defence of their paper title for consideration which was unlikely to have far exceeded their legal costs in this litigation to that point was not unreasonable in all the circumstances. 
32	The plaintiff submits in reply that the Precision Lease argument only arose during trial due to evidence adduced in cross-examination of the defendants’ witnesses, noting the time for the evaluation of the offer is when the offer was made, or a reasonably short time after it. The plaintiff argues that an argument that was not even raised at the time the offer was made cannot have any bearing on the reasonableness of rejecting that offer.
Clarity with which the terms of the offer were expressed
33	The plaintiff submits the terms of the offers were clear.
34	The defendants argue that while offer 1 appears clear in its contents, it is actually opaque by reason of its omissions, noting that it attempts no reasoning at all as to why the Precision lease is not fatal to the plaintiff’s claim. The defendants submit that the Calderbank offer contained no reasoned analysis as to why their defence of the adverse possession claim would not succeed, despite the fact that they explicitly invited the plaintiff to offer any reasoned analysis in support of the Calderbank offers in their response letter. 
35	In reply, the plaintiff says there was no need for her to set out such analyses in her offers, particularly as the offers were made shortly after a mediation held 19 March 2022. Citing BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414, the plaintiff says there is no general rule that a Calderbank offer must set out with specificity the basis for the offeror’s contention that the offeree should accept the compromise.
Analysis and Conclusion
36	I am satisfied that the terms of the Calderbank offer were clear. It did foreshadow an application for indemnity costs being made if the ultimate outcome was less favourable. I also consider that there was sufficient time allowed for the defendants to consider the offer which is borne out by the fact they responded with counter offers some four days later. By the time the offer was made, the parties had participated in a mediation and a trial was looming such that the defendants were in my view sufficiently aware of the issues in dispute and therefore well able to evaluate the terms of the Calderbank offer. 
37	The remaining issues then are the extent of the compromise offered and the defendants’ prospects of success at trial. These matters must be considered at the time the offer is made. The valuation report now relied upon by the plaintiff was not available at the time the Calderbank offer was made. Given this, I accept the defendants’ argument that it should be disregarded when considering the reasonableness or otherwise of the defendants’ conduct.
38	In relation to offer 1, while the plaintiff acquired the disputed land for no cost as a result of the judgment, the offer to buy the land from the defendants was made less than a month before trial when both sides had undoubtedly already incurred significant legal costs. It may well have been the case that a substantial amount of the offer of $110,000 would have been already spent by the defendants on costs, such that there may have been little left over. In these circumstances, I do not consider that offer 1 was a compromise which should have been accepted by the defendants. 
39	Offer 2 relates to the offer by the plaintiff to sell her land adjacent to the disputed land to the defendants for $1,600,000. Whilst such a proposal may well have been commercially sound as a practical way of resolving the dispute, the adjacent land was not the subject of any claim in the proceeding. Given offer 2 was outside the scope of the pleaded action, I am not persuaded that this offer represented a compromise which the defendants should have accepted. Further, no information was provided as to how this figure was calculated or any basis put as to why this was an appropriate sum to value the plaintiff’s land. As has been seen, the valuation evidence only emerged during the course of the costs submissions. 
40	While the plaintiff submits that the only possible prospect of a successful defence was based on the existence of the first Precision lease, and that the defendants could not demonstrate factual repossession, as the defendants noted in the 29 March 2021 letter there was no clear authority proffered by either party to support the proposition that adverse possession against a tenant can be used to extinguish the title of the tenant’s landlord as registered proprietor.  The defendants say the plaintiff did not offer any reasoned analysis in support of their Calderbank letter in reply, instead simply rejecting each of the defendants’ counteroffers. 
41	Whilst it may be accepted that the plaintiff’s claim appeared strong and the defendants would have difficulty establishing factual repossession at the time the Calderbank offer was made, the resolution of these issues was largely dependent upon the viva voce evidence given at trial. It could not be said that it was so obvious the defendants would fail at the time the Calderbank offer was made. They were, in my view, entitled to test the evidence in circumstances where they stood to lose their land.  The Precision lease point was a legal argument which raised what appeared to be a novel point and potentially one upon which there was a dearth of authority. I consider it was reasonable for the defendants to run this argument and again it was by no means clear at the time the Calderbank offer was made that the point would be unsuccessful.
42	Having considered the competing submissions, I am of the view that the defendants did not act unreasonably in rejecting either of the two offers in the Calderbank offer. Accordingly, I am not satisfied that the plaintiff is entitled to costs on an indemnity basis and will order the defendants pay the plaintiff’s costs of the proceeding on a standard basis.
Defendant’s application for costs associated with costs submissions
43	The defendants sought their costs associated with the costs submissions if the plaintiff’s application for indemnity costs was unsuccessful. Despite the application failing, I consider it was reasonable for the plaintiff to make such a request given the fact that offer 1 was bettered by the judgment and there was an arguable basis for seeking indemnity costs. In all the circumstances, I consider it is appropriate that there should be no order as to costs in relation to the submissions on costs.
Conclusion
44	I will make the following declarations and orders:
1.	There be judgment for the plaintiff on her claim for the following declarations:
(a)	The plaintiff has established her claim of title by adverse possession to the whole of the land coloured red and marked B on the Plan of Survey annexed to these orders and dated 22 August 2017, being part of lots 10-14 on Title Plan 567616G and being part of the land described in Certificate of Title Volume 11936 Folio 475 (‘the disputed land’).
(b)	The first defendant’s title to the disputed land is extinguished pursuant to section 18 of the Limitation of Actions Act 1958.
(c)	The plaintiff is the beneficial owner in fee simple of the disputed land and is entitled to be registered as the proprietor of the disputed land.
2.	The Court directs the third defendant, the Registrar of Titles, to do any act or make any amendments to the Register that are necessary to give effect to these orders.
3.	The interlocutory injunctions granted in orders 1 to 8 of the orders of Her Honour Judge Marks made on 17 August 2020 are dissolved.
4.	The first and second defendants pay the plaintiff’s costs of and incidental to the proceeding (excluding the costs of and incidental to the parties’ submissions on final orders including the issue of costs) on a standard basis to be taxed in default of agreement. 
5.	There is otherwise no order as to costs.
6.	Orders 1 to 5 of these orders are stayed until 4.00pm on 1 July 2022.
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Certificate
I certify that these 13 pages are a true copy of the Reasons for Ruling of Her Honour Judge A Ryan delivered on 20 May 2022.
Dated:  20 May 2022
Associate to Her Honour Judge A Ryan