Beech v Squire

The parties' submissions

1. Mr Glissan submitted: 1. The Offer satisfied the formal requirements under UCPR Part 20 r 20.26. In particular, it did not offend r 20.26(2)(c) which requires that an offer "must not include an amount for costs and must not be expressed to be inclusive of costs". Nor did not it make an offer in relation to costs of the kind contemplated by r 20.26(3) which provides: "20.26 MAKING OF OFFER … 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." 1. Corinne had obtained an order or judgment on the claim no less favourable to her than the terms of the Offer, because the summons would be dismissed and she would now be entitled to her costs for the entirety of the proceedings. That result engaged UCPR Part 42 r 42.15A, which provides: "42.15A WHERE OFFER NOT ACCEPTED AND JUDGMENT NO LESS FAVOURABLE TO DEFENDANT (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant'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." 1. It followed that Corinne was now "entitled" to orders of the kind referred to in r 42.15A(2), including that her costs of the proceedings on and from 6 October 2016 should be paid on the indemnity basis. 2. The plaintiffs had comprehensively failed, including with findings being made that there had been inadequate disclosure of her financial circumstances by Claire. Had the plaintiffs accepted the Offer, then all of the costs of the proceedings from that date would have been avoided. 3. In response to my question, Mr Glissan confirmed that if, for whatever reason, the Court came to the conclusion that the Offer was not an offer of compromise for the purposes of r 42.15A, he did not rely on the Offer as an offer made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333.
2. Mr A G Martin of Counsel, who appeared for the plaintiffs, submitted: 1. The Offer was not an offer of compromise for the purposes of r 20.26 because it did not contain any element of compromise, but was an invitation to his clients to capitulate. 2. Furthermore, the Offer was not an offer for the purposes of r 20.26 because r 20.26(3) represented the totality of what kind of offer could be made in relation to costs. While the Offer did not include an amount for costs, nor did it make an offer in accordance with the possibilities identified in r 20.26(3). 3. Even if the Offer complied with the rules so as to give rise to an entitlement of the kind referred to in r 42.15A(2), then the Court should order otherwise under that rule because the Offer did not contain an element of compromise.

The law

1. As to the relevant legal principles, I respectfully adopt what was said by McColl JA (with whom Gleeson JJA and Sackville AJA agreed) in Leach v Nominal (QBE Insurance (Australia) Ltd) (No 2) (2014) NSWCA 391 ("Leach") (emphases added): "8. Costs are in the discretion of the Court which has full power to determine by whom, to whom and to what extent costs are to be paid (whether on the ordinary basis or on an indemnity basis), subject to, inter alia, rules of court: s 98(1), Civil Procedure Act 2005 (NSW). 9. Subject to the provisions of UCPR Part 42, if the court makes any order as to costs, it is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs: UCPR 42.1. Unless the court orders otherwise or the rules otherwise provide, costs payable by court order or under the rules are to be assessed on the ordinary basis: UCPR 42.2. The "ordinary basis" means the basis of assessing costs in s 364(1) and (2) of the Legal Profession Act 2004 (NSW): s 3(1) Civil Procedure Act. 10. UCPR Part 51, Division 8, Subdivision 1 deals with "Offers of compromise" in the Court of Appeal. In Subdivision 1, "'opposite party' means a prospective respondent, respondent or cross-respondent (as the case may be)": UCPR 51.46 11. UCPR 51.47(1) enables any party "by notice in writing, [to] make an offer to any other party to compromise any claim in the proceedings, in whole or in part, on specified terms". The provisions of UCPR Part 20, Division 4 "apply to any offer of compromise made under subrule (1)", subject to modifications which reflected the parties' and the proceedings' status in the Court of Appeal: UCPR 51.47. Three of those modifications are presently relevant. First, UCPR 51.47(2)(c) provides that "a reference to a plaintiff is a reference to an initiating party in the Court." Secondly, UCPR 51.47(2)(d) which provides that "a reference to a defendant is a reference to an opposite party in the Court" and thirdly, UCPR 51.47(2)(f) which provides that "a reference to a verdict for the defendant is a reference to a judgment for the opposite party". 12. UCPR 51.48 (Application of Division 3 of Part 42 to offers of compromise made in proceedings in Court) has the effect that if an offer of compromise is made under UCPR 51.47, then Division 3 of Part 42 applies, subject to matters not presently relevant, but, again, with certain modifications. First, UCPR rule 42.13 "is to be read as if it provided that the Division applies where an offer of compromise ... is made as provided by rule 51.47 with respect to a plaintiff's claim ... ": UCPR 51.48(1)(a). Secondly, "a reference to a verdict for the defendant is a reference to a judgment for the defendant": UCPR 51.48 (1)(g). 13. UCPR 42.15A, which appears in Division 3 of Part 42, must be taken into account for the purposes of UCPR 42.1 and UCPR 51.48: 42.15A Where offer not accepted and judgment no less favourable to defendant (cf SCR Part 52A, rule 22; DCR Part 39A, rule 25; LCR Part 31A, rule 20) (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant'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."" … 40. The consequence is that a prima facie entitlement arose in favour of the respondent to have costs awarded in accordance with UCPR 42.15A: New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 (at 102) per Gleeson CJ (Clarke and Cripps JJA agreeing); Leichhardt Municipal Council v Green [2004] NSWCA 341 (at [19]) per Santow JA (Stein JA agreeing). This is because, from "the time of non-acceptance 'notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise'": Morgan v Johnson [1998] NSWSC 367; (1998) 44 NSWLR 578 (at 581 - 582) per Mason P (Sheller JA agreeing). 41. However, in order for an offer of compromise made under the UCPR to attract an indemnity costs order, it must involve a "genuine offer of compromise" and not merely be made so as to trigger the costs consequences under the rules: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 (at [16]) (Spigelman CJ; Beazley and McColl JJA). 42. Whether there was a real element of compromise is determined objectively according to the circumstances of the particular case at the time the Offer was made rather than with the benefit of hindsight: Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 (at [17]); Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 ("Miwa") (at [11]). It is also determined by reference to the rule pursuant to which the offer was made: Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 (at [22]) per Basten JA (Campbell JA agreeing). … 45. Accordingly, the question is whether, as the appellant submits, the Court should "order otherwise": UCPR 42.15A(2). The onus is on the appellant to demonstrate why the Court should depart from the consequence of his rejection of the Offer: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 (at [35]) per McColl JA (Mason P and McClellan CJ at CL agreeing); Miwa (at [16]). … 50. A walk-away offer is one "where the offeror expresses its willingness to settle on the ground that each party bears its own costs" (G E Dal Pont, Law of Costs (3rd ed 2013, LexisNexis at [13.9]). As will be apparent, both UCPR 20.26(3)(a)(i), and former rule UCPR 20.26(2), enable a walk-away offer to be made in an offer of compromise: Schepis v Commonwealth of Australia [2013] NSWCA 354 (at [33]) per Leeming JA (Beazley P agreeing); see also Taheri v Vitek (No 2) [2014] NSWCA 344 (at [8]) where the court (Bathurst CJ, Emmett and Leeming JJA) observed that "it has long been open for a defendant (or respondent to appeal) to engage the rules by an offer that there be a verdict in its favour with no order as to costs." 51. A walk-away offer can successfully trigger the indemnity costs mechanisms under the rules, however "the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case": Regency Media Pty Ltd v AAV Australia Pty Ltd (at [31]) per Spigelman CJ; Beazley and McColl JJA."

Resolution

1. I accept Mr Martin's submission that the Offer does not contain sufficient (or any) element of compromise. It invites capitulation. As McColl JA observed in Leach, there may be some cases where, for example, even a walk away offer may contain the requisite element of compromise. The Offer is even less favourable than a walk way offer, because it postulates that the plaintiffs should pay Corinne's costs. Nevertheless, there may be cases (for example, a case which at the time of the making of the offer should have been recognised as utterly hopeless) where even an offer of complete capitulation may be sufficiently a compromise to engage the operation of the rules in relation to offers of compromise. This is not such a case.
2. As is noted in paragraph [42] of Leach, the offer must be considered at the time it was made and not with the benefit of hindsight. I reject Mr Glissan's submission recorded in paragraph [13(4)] above because it relied on hindsight. While the Court has ultimately found against the plaintiffs, their respective claims could not, at the date the Offer was made, have been described as frivolous, vexatious or hopeless. An offer of even a relatively small payment in satisfaction of the plaintiffs' claims would have demonstrated a sufficient element of compromise. An invitation to capitulation does not.
3. The conclusions I have just expressed may be given juridical significance in two ways. First, it could be said that an offer of compromise which does not contain the requisite element of compromise is not, on the proper construction r 20.26, an offer falling within that rule. That is because it is not "an offer…to compromise" within the meaning of r 20.26(1) that "In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings…on specified terms". On that analysis, no entitlement under r 42.15A would even have arisen. This is how I understood Mr Martin to be putting his first submission (see paragraph [14(1)] above) and I accept it as correct.
4. Alternatively, if I am wrong in that conclusion and r 20.26 is to be construed as being concerned only with the form of the offer (i.e. does the offer in its terms satisfy the requirements of r 20.26?), then the lack of an element of compromise becomes the basis on which the Court should otherwise order pursuant to r 42.15A. This approach engages the principles discussed in Leach, which I proceed to apply.
5. This was not an all or nothing case. Because it invited complete capitulation, the Offer was less favourable to the plaintiffs than even a walk away offer which might engage the indemnity costs provisions if the proceedings were frivolous or vexatious. The plaintiffs' claims were not frivolous, vexatious or hopeless, notwithstanding that they were ultimately unsuccessful. In those circumstances, I am satisfied that the Offer did not serve the public policy of encouraging settlement because it did not contain any element of compromise. Based on that conclusion, and assuming that the Offer was an offer under r 20.26, the Court would "order otherwise" to confine Corinne, as the successful defendant, to her costs being paid on the ordinary basis. Accordingly, in the alternative, Mr Martin's submission recorded in paragraph [14(3)] above succeeds.
6. On either analysis, Corinne's application for indemnity costs must be dismissed.
7. Finally, I should record that because either analysis gives the same result, it is not necessary for me to consider Mr Martin's submission in paragraph [14(2)] above and I respectfully refrain from doing so.

Conclusion

1. The Court's orders are: 1. Summons dismissed. 2. The defendant is entitled to an indemnity out of the estate for her costs of the proceedings on the indemnity basis. 3. The defendant's application for indemnity costs on and from 6 October 2016 is dismissed. 4. The plaintiffs are to pay the defendant's costs of the proceedings on the ordinary basis. 5. Direct that the exhibits be returned to the parties to be held by them in accordance with paragraph 28 of Supreme Court Practice Note SC Gen 18. 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: 07 May 2018