123 259 932 Pty Ltd v Cessnock City Council

Indemnity Costs

1. It is as well to begin with the proposition that when a court makes a party-party costs order, such order is generally on the "ordinary" basis, and that an order on the "indemnity" basis is an exceptional order. On the other hand, indemnity orders play an important role in promoting a reasonable approach to litigation (or perhaps more accurately disincentivising an unreasonable approach), and in promoting settlement. Nonetheless, generally speaking, it requires unreasonable conduct on behalf of a party to attract an indemnity order. That includes unreasonable persistence in litigation when a reasonable offer of settlement has been made.
2. Further, by the process of offer of compromise provided for in the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 20.26, a party may obtain the benefit of a presumption that its costs should be assessed on an indemnity basis if the other party does not "better the offer". Whereas a Calderbank offer does not create any presumption that the other party should pay costs on an indemnity basis from the date of the offer, [2] a compliant offer under UCPR r 20.26 does have such a presumptive effect. UCPR r 42.14 provides as follows: "42.14 Where offer not accepted and judgment no less favourable to plaintiff (1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim - (a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and (b) 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."
3. Where the rules provide a mechanism for making offers of compromise with costs consequences in that way, the Court should not too readily reward parties who choose not to invoke that procedure but to circumvent it by a Calderbank offer, by giving them substantially the same benefits would have attended compliance with the rules. [3]
4. Cutty Sark's claim for indemnity costs was founded on: 1. A Calderbank letter dated 12 July 2018; 2. An offer of compromise dated 17 February 2021; and 3. A further Calderbank offer made on 2 October 2021.

Calderbank letter of 12 July 2018

1. By letter dated 12 July 2018, Cutty Sark's solicitors offered to settle upon terms that the Council pay Cutty Sark $3,476,720, that the proceedings be discontinued, and that each side bear its own costs. The Council did not respond to the letter.
2. I accept that the offer was a genuine offer of compromise and involved a significant discount on Cutty Sark's claim (as appears from the amount of the final judgment given by this Court). However, although supported by specification of the amounts expended by Cutty Sark on constructing the hangar, it was made at an early stage of the proceedings, prior to the service of evidence.
3. I am unpersuaded that the Council properly advised ought to have appreciated that its case was so weak as Cutty Sark maintains. In this, it is not without significance that the Council prevailed before the primary judge.
4. In my opinion, the Council's persistence in litigation rather than accepting the 12 July 2018 offer was not so unreasonable as to warrant an indemnity costs order.

Offer of compromise of 17 February 2021

1. On 17 February 2021, Cutty Sark's solicitors served an offer of compromise said to be made in accordance with UCPR r 20.26, which stipulated: "(1) Judgment for the plaintiff in the sum of $2,150,000. (2) The defendant to pay the plaintiff's costs in the sum of $250,000."
2. The Council submits that by reason of the inclusion of a stipulated amount for costs, this was not a compliant offer of compromise. UCPR r 20.26 relevantly provides as follows: "(2) An offer under this rule - (a) must identify - (i) the claim or part of the claim to which it relates, and (ii) the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and … (c) must not include an amount for costs and must not be expressed to be inclusive of costs, and (d) must bear a statement to the effect that the offer is made in accordance with these rules, and (e) if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to that interim payment, and (f) must specify the period of time within which the offer is open for acceptance. (3) An offer under this rule may propose - (a) a judgment in favour of the defendant - (i) with no order as to costs, or (ii) despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or (b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or (c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer."
3. The Council submits that the effect of that rule is that an offer of compromise can validly include a term that the defendant pay the plaintiff a specified sum in respect of its costs only where the offer is one that proposes that there be a judgment in favour of the defendant. Otherwise, an offer of compromise "must not include an amount for costs". Cutty Sark submits that offers that are "plus costs" do not offend UCPR, r 20.26 as they are not offers that are inclusive of costs. Reference is made to Curtis v Harden Shire Council (No 2) [4] and Duffin v Mount Arthur Coal Pty Ltd (No 2). [5] In the first of those cases, the offer stipulated "verdict for the appellant, with damages to be assessed but reduced by 10%, plus costs as agreed or assessed". The Court said: [6] "The appellant's offers neither contained an amount for costs nor were they expressed to be inclusive of costs. The offers were therefore compliant with UCPR, r 20.26."
4. Likewise, in the second matter, the offer was for $1,365,000 plus costs as agreed or assessed". Harrison AsJ said: [7] "In my view, the plaintiff's offer, which was expressed to be "plus costs", did not offend that provision."
5. In my opinion, it is clear that the offer in the present case was non-compliant. It stipulated an amount for costs. Acceptance of the offer would have involved agreeing to pay the stipulated amount for costs. That defeats the purpose of excluding any provision in respect of costs from an offer except in limited circumstances, which is to enable the offer to be compared readily with the ultimate outcome, with the costs consequences specified by the rules to follow. Amongst other things, it would exclude the effect of UCPR, r 42.13A(2), by denying the offeree the right to have costs assessed.
6. In my opinion the offer of compromise was not compliant, and therefore did not engage UCPR, r 42.14.
7. The letter serving the offer simply stated: "Please find enclosed, by way of service, offer of compromise."
8. There was no indication of any intention to rely upon it other than as an offer of compromise. In those circumstances, it does not have effect as a Calderbank offer. [8]

Calderbank letter of 24 September 2021

1. On 20 September 2021, Cutty Sark offered to settle the proceedings for $2,900,000 plus costs. On 21 September 2021, the Council responded with an offer of $1,700,000.
2. On 24 September 2021, Cutty Sark made a Calderbank offer to settle the proceedings for $2,780,000, with no order as to costs. This offer was made shortly prior to commencement of the trial (on 5 October 2021) and Cutty Sark's additional evidence on quantum had been served, including invoices relating to construction of the hangar, and the updated expenditure schedule. The offer was undoubtedly a genuine offer of compromise and represented a very substantial discount on Cutty Sark's claim as it ultimately eventuated.
3. On 27 September 2021, the Council increased its offer to $1,800,000.
4. In the light of the eventual outcome in this Court, Cutty Sark could realistically have done no more to settle the litigation and avoid a trial. On the other hand, the Council was not intransigently refusing to negotiate at all. It made offers which though, as it transpired, fell far short of the mark, were not other than genuine. The issues were not straightforward, as the differences between the primary judge and this Court illustrate. While the question is finely balanced, I am unpersuaded that the Council acted unreasonably in rejecting the offer and persisting in the litigation.

Costs of the appeal

1. Cutty Sark submitted that its pre-trial offers were relevant in the exercise of the Court's discretion in respect of the costs of the appeal, and so much may be accepted. [9] However, none of the offers was renewed prior to the appeal, and in those circumstances the Court will not usually make a special costs order in respect of the appeal. [10] As I have concluded, above, that none of the offers was such as to warrant an indemnity costs order at first instance, there is all the more reason why they should not dictate such a result in respect of the appeal.

Conclusion

1. It follows that in my opinion Cutty Sark's application for its costs to be assessed on the indemnity basis, either at first instance or on the appeal, fails.

Interest on costs

1. It was not in dispute that Cutty Sark was entitled to interest on its costs, both at first instance and on appeal. Cutty Sark proposed orders of the kind that were made in Lahoud v Lahoud [11] and in Drummond & Rosen Pty Ltd v Easey (No 2). [12] The Council proposed an order in the form made in Robb Evans v European Bank Ltd (No 2). [13]
2. The submissions of both parties proceeded on the basis that some order was necessary. However, Civil Procedure Act 2005 (NSW), s 101, provides, in respect of judgments given after 24 November 2015, as follows: "(4) Unless the court orders otherwise, interest is payable on an amount payable under an order for the payment of costs. (5) Interest on an amount payable under an order for the payment of costs is to be calculated, at the prescribed rate or at any other rate that the court orders, as from the date the order was made or any other date that the court orders."
3. These provisions were introduced as a result of a recommendation of the Chief Justice's Review of the Costs Assessment Scheme ("Chief Justice's Review"), in order to avoid the need to make an application for interest on costs, and to avoid the complex calculations required by the formulae used in the cases to which reference has been made. Such interest is included and calculated in the costs assessment process, and a costs assessor's certificate is required to include any interest payable under Civil Procedure Act, s 101. [14] No order is necessary, unless it is sought that the Court "orders otherwise" under subrule (4), or fixes a different rate or date under subrule (5). There may be cases in which it is appropriate to order, under s 101(5) that interest run from some date other than the date of the costs order (in this case, 16 March 2023 and 10 November 2021 in respect of the first instance proceedings). However, the Chief Justice's Review selected the date of the order as a prima facie compromise between the date of the certificate of assessment, and the date when the costs were incurred. No evidence or argument was addressed as to why there should be a departure from the default position provided by s 101(5), and in the absence of any reason to do so, such a course would not be appropriate.
4. By email on 3 May 2023, the Court sent an email to the parties, relevantly as follows: "Their Honours have asked me to draw to the parties' attention that, while the submissions of the parties appear to proceed on the basis that some order for interest on costs should be made, this is no longer necessary. Civil Procedure Act 2005 (NSW), s 101, provides, in respect of judgments given after 24 November 2015, as follows: "(4) Unless the court orders otherwise, interest is payable on an amount payable under an order for the payment of costs. (5) Interest on an amount payable under an order for the payment of costs is to be calculated, at the prescribed rate or at any other rate that the court orders, as from the date the order was made or any other date that the court orders." Such interest is payable by operation of the Act without any order, and is included and calculated in the costs assessment process, and a costs assessor's certificate is required to include any interest payable under Civil Procedure Act, s 101: see Legal Profession Uniform Law Application Act 2014 (NSW), s 70(1)(c)(ii). An order is only necessary if the Court "orders otherwise" under subrule (4), or fixes a different rate or date under subrule (5). In the absence of any evidence or argument as to why there should be a departure from the default position provided by s 101(5), and in the absence of any apparent reason to do so, the Court is presently inclined to make no order for interest on costs, noting that interest is payable pursuant to s 101(4) and (5) and will be included in the assessed costs pursuant to LPULAA, s 70(1)(c)(ii) without any order being required. Should either party wish to advance argument or adduce evidence to the contrary, would you please provide any submissions and/or affidavits by Monday 8 May 2023."
5. As at Friday 12 May 2023, no response had been received.
6. In those circumstances, no order for interest on costs should be made, noting that interest is payable pursuant to Civil Procedure Act, s 101(4) and (5), and will be included in the assessed costs pursuant to Legal Profession Uniform Law Application Act, s 70(1)(c)(ii) without any order being required.

Interest on deposited amount

1. It is now common ground that the Council should pay interest, in the amount of $12,740.81, on the sum of $200,000 referred to in order 5 of the orders made on 16 March 2023.

Conclusion

1. For the foregoing reasons, in my opinion the only orders that should be made are: 1. Order that the Respondent pay the appellant $12,740.81 (being interest on the sum of $200,000 referred to in order 5 of the orders made on 16 March 2023). 2. Note that interest on costs payable under the order made on 16 March 2023 is payable pursuant to Civil Procedure Act, s 101(4) and (5) and will be included in the assessed costs pursuant to Legal Profession Uniform Law Application Act, s 70(1)(c)(ii).
2. MITCHELMORE JA: I agree with Brereton JA.

Endnotes

1. 123 259 932 Pty Ltd v Cessnock City Council [2023] NSWCA 21.
2. Jones v Bradley (No 2) [2003] NSWCA 258 at [5]-[9]; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] (Giles JA; Priestley JA agreeing, Rolfe AJA dissenting).
3. Cf Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 3) [2023] NSWCA 63 at [2] (Brereton JA; Simpson AJA agreeing).
4. [2015] NSWCA 45 at [19], [23]-[25] (The Court (Bathurst CJ, Beazley P, Basten JA)) ("Curtis").
5. [2020] NSWSC 790 at [31] (Harrison AsJ) ("Duffin").
6. Curtis at [25].
7. Duffin at [31].
8. Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 at [43] (Bathurst CJ; Beazley P, McColl, Barrett and Emmett JJA agreeing).
9. See UCPR r 51.49.
10. Bathurst Regional Council v Thompson (No 2) [2012] NSWCA 420 at [16] (Hoeben JA; Meagher JA and Tobias AJA agreeing); Grace v Thomas Street Café Pty Ltd (No 2) [2008] NSWCA 72 at [33] (The Court (Spigelman CJ, Beazley JA, McClennan CJ at CL)); Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [22] (Basten JA; McColl and Campbell JJA agreeing)); Diamond v Simpson (No 2) [2003] NSWCA 78 at [15] (Ipp JA), [19] (Young CJ in Eq).
11. [2006] NSWSC 126 at [91] (Order 3) (Campbell J).
12. [2009] NSWCA 331 at [6], [55(10)] (Handley AJA; Tobias and Macfarlan JJA agreeing).
13. [2009] NSWCA 170 at [48(1)] (Basten JA; Campbell JA agreeing).
14. Legal Profession Uniform Law Application Act 2014 (NSW), s 70(1)(c)(ii). 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: 17 May 2023