123 259 932 Pty Ltd v Cessnock City Council

The procedural background

1. The proceedings were commenced by statement of claim on 29 September 2017. The defence (denying breach of contract) was filed on 20 June 2018. The plaintiff served almost all of its lay evidence in chief by the extended time of 20 March 2019. Although the defendant was directed to serve its lay evidence by 26 July 2019, this date was extended to 8 November 2019. The defendant's lay evidence was served prior to 6 December 2019. Further directions regarding lay and expert evidence were made. The plaintiff agreed to provide security for costs. Pursuant to consent orders made on 9 November 2018, 12 November 2020 and 18 May 2021, the plaintiff has paid $240,000 into Court as security for the defendant's costs.
2. On 4 September 2020, the matter was listed for hearing on 5 October 2021 with an estimate of five days. It was heard at that time and was concluded within the estimate.

Offers made by the defendant

1. The defendant made the following offers to resolve the proceedings, none of which was accepted. 1. On 29 October 2019, the defendant served an offer of compromise which was expressed to have been made pursuant to Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 20.26 and was open for acceptance for 28 days. The terms of the offer were that there would be judgment for the plaintiff in the sum of $200,000 and that each party would bear its own costs (the First Offer). 2. On 1 September 2021, the defendant served a further offer of compromise which was expressed to have been made pursuant to UCPR, r 20.26 and was open for acceptance for 14 days. The terms of the offer were that there would be judgment for the plaintiff in the sum of $1,600,000 and that each party would bear its own costs (the Second Offer). 3. On 21 September 2021, the defendant made a Calderbank offer which was expressed to be open for a period of 7 days. The terms of the offer were that there would be judgment for the plaintiff in the sum of $1,700,000, which would be paid within 28 days and that there would be no order as to costs (the Third Offer). 4. On 27 September 2021, the defendant made a further Calderbank offer which was expressed to be open for acceptance until 5pm on 4 October 2021. The terms of the offer were that there would be judgment for the plaintiff in the sum of $1,800,000, which would be paid within 28 days and that there would be no order as to costs (the Fourth Offer).

Consideration

1. The plaintiff submitted that, as it had been partially successful, the appropriate order was that each party bear its own costs of the proceedings.
2. The general rule is that costs follow the event: UCPR, r 42.1. However, as McHugh J explained in Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (Oshlack) at [70], where a plaintiff obtains a judgment for nominal damages only, the Court may order the plaintiff to pay the defendant's costs of the proceedings because, in reality, the "successful party [the plaintiff] lost the litigation and the unsuccessful party [the defendant] won."
3. While the plaintiff was successful in establishing that the defendant had breached the contract between them, the award of nominal damages followed from the fact that the plaintiff could not establish that it had suffered any compensable loss as a consequence of the defendant's breach. Further, the plaintiff was wholly unsuccessful in establishing that the defendant's conduct was unconscionable.
4. In these circumstances I am not persuaded that it would be appropriate to make the order sought by the plaintiff.
5. It is, accordingly, necessary to consider the effect of the offers set out above on the order for costs in light of UCPR, r 42.15 which provides: "42.15 Where offer not accepted and judgment no more favourable to plaintiff (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim no more favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise - (a) the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis - (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."
6. The defendant submitted that the plaintiff's failure to accept the First Offer entitled it to obtain an order for costs on the ordinary basis up to the date of the offer and on an indemnity basis from the date of the First Offer. I propose to consider the offers in turn.

The First Offer

1. At the time the First Offer was made, the plaintiff had served almost all of its evidence in chief. The plaintiff's evidence included an affidavit of Peter Gogarty, who had been the defendant's Corporate and Community Services Manager at the time of the initial discussions between the defendant and James Johnston, the plaintiff's principal. The plaintiff knew by the time of the First Offer that none of the businesses it had sought to conduct on the property was profitable. It had defaulted on the licence fee payments for some years. It had spent considerable funds on the construction of a hangar on the property which could not be recouped. Its right to remain on the property had been extinguished by the termination of the licence agreement by the defendant on 18 September 2015, shortly after the deregistration of the plaintiff by the Australian Securities and Investments Commission. The plaintiff was reinstated in 2017 for the purpose of commencing these proceedings.
2. The First Offer complied with the formal requirements of UCPR, r 20.26. I consider that it contained a sufficient level of compromise to warrant being described as such.
3. Although the defendant had not yet served its evidence, the plaintiff was in a position to adjudge that it had reasonable prospects of establishing breach (which was, in any event, reflected in the terms of the offer), but that its prospects of obtaining more than nominal damages were at least uncertain, if not speculative. From an objective standpoint, the First Offer would have given the plaintiff damages which were more than nominal and recompense for the costs it had incurred in bringing the proceedings. While the amount offered was substantially less than the amount the plaintiff had expended on the hangar, the plaintiff ought to have appreciated that its prospect of recouping its expenditure was remote; it had neither brought a claim in restitution, nor a claim for damages in reliance on a representation.
4. In its submissions in opposition to the making of an order that the plaintiff pay the defendant's costs on an indemnity basis from the date of the offer, the plaintiff contended that it was not clear whether the entry of judgment would address any potential cross-claim which the defendant had against it for non-payment of licence fees. As the amount of outstanding licence fees was in excess of $150,000, the plaintiff submitted that there was a real possibility that the amount in the First Offer would be obliterated by licence fees and interest.
5. If judgment were entered in favour of the plaintiff following acceptance of the First Offer, the principles of estoppel established by Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45 would apply and the defendant would be estopped from claiming unpaid licence fees. Thus, the plaintiff would not only have had the benefit of the judgment sum of $200,000 but it would also have extinguished its liability for outstanding licence fees.
6. For different reasons, each party contended that UCPR, r 42.15 did not apply in terms in respect of the First Offer.
7. As to the First Offer, the plaintiff submitted that it could not be concluded that the judgment which it obtained was "no more favourable" than what was offered in the First Offer. The basis of this submission was that the covering email for the First Offer said that the amount of $200,000 would be paid "without admission." The plaintiff contended that the judgment which I ordered had no such qualification and therefore could not be regarded as being "no more favourable" than the First Offer. I reject this submission. Had the First Offer been accepted, the orders of the Court would have been as follows: 1. Judgment for the plaintiff in the sum of $200,000. 2. Each party to bear its own costs.
8. Whatever caveat about the payment being "without admission" in the covering email was irrelevant to the orders which would have been made by the Court had the offer been accepted. I am satisfied that the judgment which was ordered at the conclusion of the proceedings was "no more favourable" (and indeed, a lot less favourable) than the First Offer. Moreover, the First Offer involved a very substantial element of compromise since the defendant's case was that even if there had been a breach, the plaintiff had suffered no loss.
9. The defendant submitted that the consequences for which UCPR, r 42.15 provides would, in the circumstances of the present case, be unjust since it would be required to pay the plaintiff's costs until the date of the offer and the plaintiff would be required to pay the defendant's costs on an indemnity basis thereafter. The defendant submitted, in reliance on what McHugh J said in Oshlack (referred to and extracted above) that a judgment for nominal damages may be regarded as a failure rather than a victory and that the plaintiff ought not be "rewarded" by an order for costs in its favour. While there is much to be said for the defendant's submission, it cannot have the benefit of UCPR, r 42.15 while resisting its consequences. Further, had the defendant admitted breach but contested contractual damages and the unconscionable conduct claim, it would have been wholly successful.
10. Most of the evidence at the hearing pertained to breach. Although some of this evidence was also germane to the unconscionable conduct claim, the vast bulk of it pertained to breach. I am not persuaded that the date of the First Offer ought be the occasion for an order for indemnity costs against the plaintiff since if such an order were made, the plaintiff would be required to pay for the costs of preparation of the evidence on breach, an issue on which it was successful.

The Second Offer

1. Many of the submissions referred to above were also made in respect of the Second Offer.
2. In addition, the plaintiff submitted that there were features of the defendant's case which emerged in the course of the hearing which had not been pleaded. It submitted that the email accompanying the Second Offer had not fully explained why the defendant contended that there was no causal connection between the defendant's breach and the loss suffered by the plaintiff. Further, the plaintiff alleged that the point taken by the defendant at the hearing, that the defendant had, in effect, offered the equivalent of a 25-year lease (as offered by the defendant in its letter to the plaintiff dated 13 September 2011) had not been articulated in advance of the hearing. In substance, the plaintiff submitted that there was insufficient articulation of the defendant's case to permit the plaintiff to make a proper assessment of the Second Offer and therefore it was not unreasonable of it not to accept it.
3. By the time the Second Offer was made, the hearing was a mere five weeks away. The evidence, which included substantial documentary exhibits, had been served. Although the opening submissions had not yet been exchanged, it was clear from the pleadings and the evidence what matters were in dispute. The proceedings were commercial proceedings brought by a company, the principal of which was commercially aware. The plaintiff was legally represented throughout. It is a matter of common experience that an oral hearing tends to expose, in an efficient and effective way, the strength and weakness of the parties' cases. However, the purpose of the parts of the UCPR which provide for Offers of Compromise is to save the time and costs of litigation and reserve the resources of the courts for matters which cannot otherwise be resolved. I reject the plaintiff's contention that the strength of the defendant's defence to its claim for substantial damages could not adequately be assessed at the time of the Second Offer.
4. In the covering email for the Second Offer, the defendant's solicitors informed the plaintiff's solicitors that the letter and attached offer also operated as an offer in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333, including (but not limited to) if it did not comply with the rules.
5. In all the circumstances, I consider that the appropriate course is to treat the Second Offer as a without prejudice Calderbank offer as it was expressly foreshadowed by the defendant's solicitors: Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [27]-[28] (Ipp JA, Mason P and McColl JA agreeing). The usual discretion as to costs pursuant to s 98 of the Civil Procedure Act 2005 (NSW) applies. I also take into account the usual rule in UCPR, r 42.1, that costs follow the event and note its particular application where a plaintiff has sued for substantial damages and been awarded only nominal damages.
6. In all the circumstances, I consider that the appropriate order is that the parties bear their own costs up to 1 September 2021 and that the plaintiff pay the defendant's costs on an indemnity basis thereafter. This order reflects the circumstance that the plaintiff succeeded on breach (a matter about which there was substantial evidence) but that its success was a hollow one because it could not prove that it had suffered more than nominal damages. Its failure to accept the Second Offer was, in all the circumstances, wholly unreasonable.

Payment out of security

1. The defendant submitted that the money paid by way of security for costs ought be released to the defendant in reduction of the plaintiff's liability for costs.
2. The evidence of Bede Haines, the solicitor on the record for the defendant, establishes the costs incurred by the defendant for various periods, calculated on different bases (with a reduction on the total figure depending whether the basis is the ordinary basis or the indemnity basis). There would appear to be a real prospect that the amount of the defendant's costs on an indemnity basis from 2 September 2021 would exceed the sum of $240,000. Further, the evidence adduced in the principal proceedings would indicate that the plaintiff has otherwise no assets. The just, quick and cheap resolution of the remaining issues in the proceedings would favour an order being made that the funds held on account of security be released to the defendant. However, in the absence of evidence to establish the quantum of the defendant's costs on an indemnity basis from 2 September 2021, it would not be appropriate to make that order. Accordingly, I invite the parties to provide short minutes of order if agreement can be reached as to the release of that sum. Otherwise, I will grant liberty to apply to restore the matter for mention and provide for a further mention date.

Orders

1. For the reasons given above, I make the following orders: 1. Order that each party bear its own costs of the proceedings up to and including 1 September 2021. 2. Order the plaintiff to pay the defendant's costs of the proceedings on an indemnity basis thereafter. 3. Grant liberty to apply on the question of release of the amount held by way of security for costs. 4. List the matter for mention before me on 18 November 2021 in order that the question of release of security for costs can be determined.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 November 2021