Abstract

This article analyses a Supreme Court case in which Burns & Associates Solicitors acted for a defendant who successfully obtained an order for indemnity costs in a property boundary dispute. In Birkett v Pearn, Burns & Associates acted for Pearn. Pearn made a Calderbank offer to settle early in the proceeding, which was rejected by Birkett. When Birkett tried to discontinue the proceeding, Pearn successfully claimed that Birkett should pay Pearn’s legal costs on the indemnity basis. Legal costs are significant. As a general rule of thumb, it is said that, if costs are awarded on the usual standard basis, a successful party will only recoup about 50–60% of the costs they incurred in the proceeding. However, if indemnity costs are awarded, that party will recoup about 90–100% of their costs. Although it is difficult to obtain indemnity costs, the making of a Calderbank offer is often a critical requirement for an indemnity costs order being made.

Key points

1. Normally, a party desiring to discontinue proceedings will be held liable to pay the other party’s costs.
2. If a reasonable Calderbank settlement offer is made and a party unreasonably rejects that offer, then the rejecting party may be liable to pay the other party’s costs, to be assessed on the indemnity basis.
3. Calderbank offers can be successful even if made prior to a defence being filed.
4. To increase the prospects of the court awarding indemnity costs due to the making of a Calderbank offer, the offeror should be as generous as possible and establish that there are sufficient objective facts showing that the offeree was in a reasonable position to assess its prospects and assess the value of the offer.

The facts

1. Pearn and Birkett owned adjacent acreage properties at Roma.
2. At the time Pearn and Birkett purchased their respective properties, a fence existed, separating their properties. Unknown to Pearn and Birkett, the fence was not constructed on the actual boundary line. Instead, it was constructed well within Pearn’s property.
3. At the time that Pearn and Birkett purchased their properties, a small shed appeared to be entirely upon Birkett’s land. In fact, all but a small part of the shed was actually located on Pearn’s property.
4. In addition, Birkett used a driveway which adjoined the incorrectly positioned fence. This driveway was largely situated on Pearn’s land.
5. Many years later, Birkett discovered that the fence and the shed were wrongly positioned.
6. Negotiations between Birkett and Pearn were undertaken, but unsuccessful.
7. On 2 June 2010, Birkett commenced proceedings against Pearn seeking a court order that all of Pearn’s land situated on Birkett’s side of the wrongly situated existing fence be conveyed to Birkett.
8. Birkett made this claim on two grounds:
   1. That they were entitled to that land as an adverse possessor of the land for a continuous period of 12 years.
   2. Alternatively, the court should order that they were entitled to the land due to the encroachment.
9. Birkett’s claim for adverse possession was doomed to fail because a party cannot claim part of a lot for adverse possession. The claim must be for the entire lot.
10. Birkett’s remedial conveyance claim based on the Property Law Act 1974 encroachment provisions had poor prospects. This is because only the land under the encroachment could be conveyed. Hence, Birkett could not possibly obtain the conveyance of the substantial area of Pearn’s land lying on Birkett’s side of the fence.
11. On 24 June 2010, Pearn, by their solicitors, made a Calderbank offer before Pearn had been served.
12. In this Calderbank offer, Pearn offered to:
    1. at their expense, remove the boundary fence and reconstruct it on the true boundary;
    2. construct a new shed on Birkett’s property at Pearn’s expense of a comparable nature and quality to the current shed; or
    3. take down the existing shed and re-erect it on a new slab on Birkett’s property, again at Pearn’s expense.
    4. Upon completion of the above works, Birkett would discontinue the proceeding and each party would bear their own costs.
13. Birkett did not accept the Calderbank offer and insisted that they were prepared to proceed to trial.
14. Later in the proceeding, Birkett decided to discontinue their proceeding, but Birkett was not prepared to pay Pearn’s costs of the proceeding.
15. Birkett made an application to the Court seeking leave to discontinue the proceeding.
16. Birkett submitted that the Court make no order as to costs upon leave being granted to discontinue the proceeding.
17. Pearn sought costs of the proceeding on the indemnity basis.

The decision

1. The Court ordered Birkett to pay Pearn’s costs of the proceeding, to be assessed on the indemnity basis.
2. The Court observed that, where a party seeks to discontinue the proceeding, the normal consequence is that the discontinuing party pays the costs of the other party.
3. However, under rule 307(2) UCPR, if the party discontinues with the court’s leave, the court may make any order for costs it considers appropriate.
4. The Court ordered that Birkett pay Pearn’s costs, to be assessed on the indemnity basis, for the following reasons.
5. First, Birkett had very poor prospects of success. The Court formed this view, following Tallom v The Proprietors of Metropolitan Towers Building Units Number 5157 (1997) 1 Qd R 102. Tallom’s case decided that parties seeking relief under sections 182, 184 and 185 of the Property Law Act 1974 were not entitled to the conveyance of land, except the land over which an encroachment existed.
6. Second, the correspondence between solicitors prior to the commencement of the proceedings showed that Pearn’s solicitors pointed out the legal obstacles to  Birkett’s claim.
7. Third, the Calderbank offer was a reasonable offer because Pearn had agreed to carry out the works at its own expense. Such an offer was more favourable than any judgment which Birkett could have obtained.
8. Fourth, although the Calderbank offer was made before the claim was served, Birkett was in a position to assess its prospects. Birkett possessed a survey plan which showed that the shed only marginally encroached upon their land. Birkett was aware of all the facts which, if properly analysed, would have informed them of their poor prospects. Thus, Birkett’s submission that it was unreasonable for Birkett to make a decision on the Calderbank offer before the defence was filed and disclosure made was not sustainable.
9. Finally, based on the objective evidence, Birkett unreasonably rejected the reasonable Calderbank offer made.

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