Background
This decision followed an earlier judgment where the plaintiff, Ms. Sun, had unsuccessfully sued the second defendant, Ms. Yu, over a property transfer. The court had dismissed Ms. Sun’s claim in its entirety. Ms. Yu had also brought a cross-claim against the first defendant, Mr. Chen, which was dismissed as it was contingent on Ms. Sun’s claim succeeding.
Following that substantive outcome, the court had to decide two remaining issues: the allocation of legal costs and whether to discharge a freezing order that prevented Ms. Yu from dealing with the property in question. Ms. Yu sought to have her costs paid by Ms. Sun, arguing for a portion to be on the higher “indemnity” basis because Ms. Sun had unreasonably rejected an early settlement offer. Ms. Sun countered that since Ms. Yu’s cross-claim was dismissed, it was a “mixed result” and each party should bear their own costs. Ms. Sun also argued to keep the freezing order in place because she intended to appeal the main decision.
The Court’s Holding
The Supreme Court ordered Ms. Sun to pay Ms. Yu’s costs of the entire proceedings. Justice Muston rejected Ms. Sun’s argument that the dismissal of Ms. Yu’s defensive cross-claim created a “mixed outcome.” The court found that Ms. Yu was, in a practical sense, wholly successful because she had defeated the entire claim brought against her. The cross-claim was purely defensive and did not materially increase the costs of the litigation, so the standard rule that “costs follow the event” applied in Ms. Yu’s favour.
Furthermore, the court ordered Ms. Sun to pay costs on the ordinary basis up until the date of a settlement offer made by Ms. Yu, and on the more punitive indemnity basis thereafter. The judge found that Ms. Sun’s rejection of this early offer (a Calderbank offer) was unreasonable, as the information available at the time was sufficient for her to have made a proper assessment of her weak prospects of success. The court also discharged the freezing orders on the property, noting that Ms. Sun had not identified any potential error in the primary judgment that would justify keeping the asset frozen pending a potential appeal.
Key Takeaways
- A defendant who is wholly successful in defending a claim is generally entitled to their costs, even if their own purely defensive cross-claim is dismissed.
- Unreasonably rejecting a genuine and early settlement offer (a Calderbank offer) can expose a litigant to a punitive indemnity costs order from the date of the rejection.
- To persuade a court to maintain an injunction or freezing order pending an appeal, a party must demonstrate a “serious question to be tried” on appeal, which requires more than simply filing a notice of intent; it typically involves identifying a potential error in the original judgment.
Why It Matters
This decision serves as a stark reminder of the serious financial risks involved in rejecting a reasonable settlement offer. Australian courts use their discretion on costs to encourage sensible conduct and penalize parties who unnecessarily prolong litigation. By awarding indemnity costs, the court signals that a litigant’s failure to realistically assess their case and accept a viable compromise will not be tolerated. This judgment reinforces the power of Calderbank offers as a tool to pressure opponents into settlement and protects successful parties from bearing the full financial burden of a case that should have ended much earlier.