On 18 October I delivered my judgment on the claims in these proceedings: Bradcorp Wilton Park Pty Ltd v Country Garden Wilton West Pty Ltd [2019] NSWSC 1407. The first and second defendants (to which I will refer collectively as "CG") succeeded in the litigation, and now seek an indemnity costs order in their favour. These reasons assume familiarity with, and abbreviations used in, my earlier reasons for judgment.
In my judgment I concluded that the claims by the plaintiff (Bradcorp) failed for two independent reasons. First I considered that one of the conditions precedent for the exercise of the option by Bradcorp was not satisfied, and accordingly CG was not in breach by refusing to go on with the contract. Secondly, I concluded that even if CG was in breach, its conduct was not repudiatory. I therefore ordered that Bradcorp's claim be dismissed.
CG also succeeded on its cross-claim concerning the option fees. I concluded that CG was entitled to judgment in the amount of the fees, together with interest from 24 April, which was to be calculated by the parties. Orders have now been made which the parties agree give effect to my decision on the cross-claim.
In my earlier judgment, I ordered that Bradcorp pay CG's costs of Bradcorp's claim on the ordinary basis. I had not heard any argument on costs and noted that, should any party wish to have my order varied, an application to do so could be made under the Rules. The costs order to be made on the cross-claim was to be the subject of further argument if it could not be agreed between the parties.
The parties agree that Bradcorp should pay CG's costs of both Bradcorp's claim and CG's cross-claim at least on the ordinary basis. But CG seeks an order for indemnity costs for the period from 26 June 2019 onwards. CG has made a formal application to vary the costs order I made concerning the costs of Bradcorp's claim, and seeks to have equivalent provision made in the orders dealing with the costs of the cross-claim.
CG's application is based on an offer of compromise contained in a letter from its solicitors to the solicitors for Bradcorp of 25 June. The terms of the offer were relevantly:
Country Garden offers to settle the proceeding, in full and final settlement of all issues in dispute between our clients, on the basis that:
1. Your client return to Country Garden the T1 Call Option Fee and the T2 Call Option Fee (as those expressions are defined in the Amended Commercial List Statement) within 14 days of the date of acceptance of this offer.
2. Your client retain any interest earned on the T1 and T2 Call Option Fees.
3. The proceeding (including our client's Cross-Summons) be otherwise dismissed with no order as to costs.
The letter stated that the offer was made under the Uniform Civil Procedure Rules ("UCPR"), r 20.26. Alternatively, CG relied on the principles applicable to informal settlement offers. As will be seen, I have concluded that CG is entitled to succeed under the Rules. It is therefore unnecessary to consider the principles which apply to informal offers.
The parties treated the application as raising a single question about the costs of the proceedings as a whole. But actually two different rules are involved. The costs of Bradcorp's claim are governed by r 42.15A, which relevantly provides:
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.
The costs of CG's cross-claim are governed by r 42.14 ("plaintiff" includes a cross-claimant on a cross-claim: UCPR, Dictionary; Civil Procedure Act 2005 (NSW), s 3(1)). The Rule relevantly provides:
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.
Each rule provides that, where it is applicable and unless the court otherwise orders, the successful party is entitled to an order for costs on an indemnity basis from 11.00 am on the day following the day on which the offer was made (if it was not accepted): see, rr 42.14(2)(b)(ii); 42.15A(2)(b)(ii).
The offer in the present case was not expressed in the language of orders which would be made by the Court. But that is not necessarily fatal. In Boateng v Dharamdas [2019] NSWCA 233 White JA said at [84]:
An offer of compromise is not invalid because it includes terms that could not be the subject of an order of the Court (Timms v Clift [1998] 2 Qd R 100 at 107, 108; Sharp v Maritime Super Pty Ltd [2013] NSWSC 389 at [73]-[74] (per Ward JA). The fact that an order has no direct monetary value does not of itself necessarily make it impossible to engage in the comparison called for by rr 42.14-42.15A between the order made and the terms of the offer. But if the offer of compromise includes non-monetary relief or contains conditions such that it is not possible to determine whether the order or judgment was more or less favourable to the recipient of the offer than the offer, then the offer of compromise, although not invalid, would not be effective. It may be necessary in such a case for the party relying upon the offer of compromise to adduce evidence to establish that the offer, if accepted, would have been more favourable to the offeree than the orders made.
In the present case, Bradcorp's claim was dismissed. CG, as defendant, obtained a judgment no less favourable to the provision in the offer; UCPR r 42.15A clearly applies.
So far as the cross-claim was concerned, the offer spoke of "returning" the option fees. Those fees totalled $29.7 million. That sum was made up of $9 million paid by CG and released to Bradcorp, and $20.7 million paid by CG and held by HWL Ebsworth as stakeholder under the put and call option deeds which were the subject of the proceedings (see my earlier judgment at [2]-[4]).
In the proceedings, CG did claim a contractual entitlement to repayment of the option fees. But this claim did not succeed. Instead CG successfully claimed an equivalent sum by way of damages for repudiation by Bradcorp. Strictly speaking, this meant that CG had no entitlement to the monies held by HWL Ebsworth. But the parties agreed, sensibly, that those monies should be paid out to CG and credited against the damages awarded by the Court.
The result of this is that Bradcorp will receive the benefit of the interest which is accrued on the monies held by HWL Ebsworth. Of itself, that means that the judgment on the cross-claim was "no less favourable" than the offer. But in fact, the outcome is more favourable to CG than this. Under the offer, no interest was payable if the option fees were repaid within 14 days of the offer being accepted. In fact, CG has obtained the benefit of interest at Court rates on the judgment sum from 24 April. Ignoring the period of time after the date of the offer (UCPR, r 42.16(1)), CG has obtained judgment for approximately two months' interest, which is worth about $400,000, and which it would not have received if the offer had been accepted.
Counsel for Bradcorp took three points. The first two concerned whether the offer satisfied the requirements of UCPR 20.26. First, under sub-rule (5)(b), the offer was not valid unless it was left open for "such time as is reasonable in the circumstances". Counsel submitted that the time allowed was not reasonable.
Counsel next submitted that r 20.26 did not apply because the offer did not involve any substantial degree of compromise. Counsel's third contention was that, if, contrary to their earlier arguments, the offer satisfied the requirements of r 20.26, the Court should, in the circumstance of the case, order otherwise under rr 42.15A and 42.14.
[2]
Whether offer open for a reasonable time
As mentioned in my earlier judgment, the proceedings were begun by Bradcorp as plaintiff in December 2018. The offer was made on 25 June 2019. By then, the proceedings had been fixed for hearing. That happened on 9 May, when Hammerschlag J fixed the trial to begin on 29 July. The offer was thus made approximately five weeks before the trial was due to begin.
The letter containing the offer stated that it would remain open for a period of two weeks. But on 9 July the solicitors for CG wrote to Bradcorp offering to extend the period of the offer. There was no response from Bradcorp.
It was Bradcorp's choice, when it began the proceedings, to enter them in the Commercial List so as to take advantage of the expedited procedures available in the List. At the time the offer was made, the proceedings would have been well advanced towards trial. Bradcorp was represented by skilled and experienced solicitors and counsel. They would have been well aware of the issues in the proceedings. In my view, fourteen days was an ample period for Bradcorp to make a proper assessment of whether to accept the offer. There was no evidence from Bradcorp that it experienced any difficulty in doing so.
I am satisfied that the 14 days allowed in CG's letter of offer was reasonable in the circumstances of the case. I think my conclusion is reinforced by the fact that an extension was offered and not accepted. I therefore conclude that the offer complied with r 20.26(5)(b).
[3]
Whether offer involved sufficient degree of compromise
CG's offer to Bradcorp did not involve any payment on account of Bradcorp's claims. The only advantage offered to Bradcorp was that CG would give up its entitlement to costs in the event that it was successful in the proceedings. Similarly, on the cross-claim, CG did not discount its claim to the option fees; it only offered to give up the entitlement to costs and interest it would have had if the claim succeeded. Bradcorp's contention that there was no real element of compromise thus applies to both elements of the offer.
An offer of the type made by CG on Bradcorp's claim is often described as a "walk-away" offer. The cross-claim offer involved a reciprocal degree of compromise (or non-compromise, as counsel for Bradcorp would have it).
I was referred to numerous decisions on such offers, including many from the Court of Appeal. Two lines of authority can be discerned.
The first line can be traced back to two commercial cases, Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 (Rogers CJ Com D) and Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 (Giles J). Both cases concerned offers made by successful plaintiffs under the then Supreme Court Rules 1970 (NSW), Part 52, r 17(4). In Tickell, the plaintiff's offer had been to accept payment of the full amount claimed. In Hobartville, the plaintiff had offered to discount its claim by $1. Both plaintiffs had succeeded in full, and therefore achieved judgments not less favourable than their offers. But in each case, an order for indemnity costs was refused. In Hobartville, Giles J said:
… the scheme for offers of compromise and their costs consequences was intended to promote compromise - what Gleeson CJ in Baltic Shipping Co v Dillon "The Mikhail Lermontov" (1991) 22 NSWLR 1 at 9 called the "… particular policy of the law to encourage resolution of litigation by settlement …". Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so.
This reasoning was subsequently accepted in a number of decisions of the Court of Appeal. In The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706 at 708 [8], the Court said:
It is well established that an offer which does not involve a real and genuine element of compromise, will not be taken into account in relation to costs, either under the general law principles established by Calderbank v Calderbank, or under rules of Court.
In Robb Evans v European Bank Ltd (No 2) [2009] NSWCA 170 the defendant offered USD 2,000 to settle the plaintiff's claim, which was for more than USD 800,000. It was an "all or nothing" claim. The defendant succeeded on appeal and sought an order for indemnity costs on the basis of the offer. That order was refused by the Court of Appeal, constituted by two justices. Basten JA, with whom Campbell JA agreed, said (at [20]):
… The offer of less than $2,000 in respect of a claim of $800,000, even if the claim had limited prospects of success, cannot be treated as a genuine offer of compromise. If the offer were based on a legal assessment of the likelihood of success in an amount in excess of $800,000, the claim should have been struck out as frivolous and vexatious. It ultimately failed in this Court, but could not, on any view, be so categorized. It is implausible that the appellant so categorized it in quantifying his offer.
In Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 the plaintiff was claiming $600,000. The defendant made an offer of $10,000 at an early stage of the proceedings (before the defence had been filed). The plaintiff succeeded at trial, but the defendant succeeded on appeal and sought indemnity costs on the basis of the offer. The application was refused. The Court saw the offer as derisory and considered that the approach in Robb Evans should be adopted (see at [30]). The Court continued (at [31]):
An offer which is in substance an invitation to surrender can result in the successful triggering of the indemnity costs mechanisms under the rules. However, as Basten JA suggests in Robb Evans supra at [20], the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case. If it were otherwise, the public policy to encourage settlement would rarely be served, in an all or nothing case. These proceedings were not of that character, as indicated by the success which the respondent had at first instance.
This passage was cited with approval in the later Court of Appeal decision of Leach v The Nominal Defendant (No 2) [2014] NSWCA 391 (at [50]). That case concerned a "walk-away" offer by the respondent to the appeal. The appeal failed but the Court declined to award indemnity costs.
It is notable that in Anderson Group the proposition that an offer needs to involve a significant element of compromise before indemnity costs will be awarded was stated as applying both to offers made under the Rules and to Calderbank offers. In the latter class of case, an offer is not effective unless its refusal is unreasonable. It seems to me that in an "all-or-nothing" case where the plaintiff, if successful, will recover a large judgment, and where the claim is an arguable one, refusal of a "walk-away" offer would rarely, if ever, be unreasonable. Similarly, where there are arguable grounds for defence, it would rarely, if ever, be unreasonable for a defendant to refuse an offer of compromise from the plaintiff which involved paying the whole of the claim.
Certainly I do not think that, in the present case, Bradcorp's refusal of CG's offer was unreasonable. Although Bradcorp's claims were ultimately unsuccessful, it was never suggested that they were unarguable, and the amount Bradcorp stood to gain if successful in the proceedings was in the tens of millions of dollars.
But it is not an element of the scheme under the Rules (at least expressly) that refusal of the offer must be unreasonable. All the Rules require for a presumptive entitlement to indemnity costs to arise is that the plaintiff or defendant achieves a result which is equal to or better than an offer which complies with the Rules. And the fact is that the Rules expressly contemplate that an offer may be made by a defendant on a "walk-away" basis: see r 20.26(3). How then does the language and structure of the Rules fit with the proposition that unless an offer involves giving something away it will not attract an award of indemnity costs?
In Tickell, Justice Rogers accepted that the rule applied in its literal terms to the offer in question, but determined to "otherwise order" (see 25 NSWLR at 354F, 356G). It might be argued however that the requirement of some sort of discount (in the case of a plaintiff) or payment (in the case of the defendant) is built into the phrase "offer of compromise". Such an argument, based on the dictionary definition of "compromise", was put to Giles J in Hobartville (see 25 NSWLR at 367B-C). But his Honour did not find it necessary to decide the question, and was content to rest his decision on the exercise of the discretion to "otherwise order" (at 368F).
In Robb Evans, Basten JA did expressly put his decision to refuse indemnity costs on the basis that the offer did not satisfy the requirements of a "compromise" under the Rules (see [2009] NSWCA 170 at [23]). But his Honour relied in the alternative on the discretion to "otherwise order" (at [24]). In Regency, referring to Robb Evans, the Court accepted that there may be offers which do not "answer the description" of an offer of compromise under the rules (see [2009] NSWCA 368 at [27]). But the Court was content to rest its decision on its discretion, without deciding whether the Rules in terms applied (at [28]).
Considered on their own, these decisions appear to support the proposition that a "walk-away" offer by a defendant (or a no-discount offer by a plaintiff) where the claim (or defence, in the case of an offer by the plaintiff) is arguable, will not entitle the offeror to indemnity costs under the Rules even if the claim fails (or succeeds to its full extent, in the case of an offer by the plaintiff), although there might be room for argument about whether the proposition is based on non-compliance of such offers with the Rules or the exercise of discretion. But as I have indicated, there are other cases in which the Court of Appeal has awarded indemnity costs under the Rules, or declined to interfere with the award of indemnity costs at first instance, where the compromise involved in the successful offer, apart from costs, was minimal.
Some cases which exemplify this different approach are Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 and Manly Council v Byrne (No 2) [2004] NSWCA 227. Each of these cases involved a personal injury claim in which a plaintiff who had succeeded at first instance and held the judgment on appeal obtained an order for indemnity costs of the appeal despite having offered only a slight discount.
In Anderson Group (67 NSWLR at 708 [9]), the Court suggested that these decisions did not necessarily apply to commercial litigation. But there are instances of "walk-away" offers succeeding outside the personal injury context.
One such case is Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Ltd (No 2) [2009] NSWCA 336. The ultimately successful defendant made a "walk-away" offer after the hearing began. The Court accepted that the costs incurred up to the point at which the offer was made, which included the costs of preparing for the trial and four days of hearing, involved a substantial degree of compromise. Indemnity costs were awarded under the Rules.
The Refrigerated Roadways decision was applied by the Court (constituted by two Justices) in Schepis v Commonwealth of Australia [2013] NSWCA 354. The Court in that case refused an application for leave to appeal against the costs decision at first instance which was based on a "walk-away" offer made seven days before the trial had been due to commence.
The decision in Taheri v Vitek (No 2) [2014] NSWCA 344 is a further example. In that case, three "walk-away" offers were made by the ultimately successful respondent to an appeal. The first two were made only shortly after the appeal proceedings were commenced. The Court held that these should not attract indemnity costs. However, the third offer was made after written submissions had been exchanged. It was claimed that by then the costs incurred by the respondent in the appeal exceeded $120,000. The Court considered that amount to be extraordinarily high, but nevertheless accepted that the costs would have been substantial by that point. The Court held that the offer involved a significant element of compromise and awarded indemnity costs.
The decisions in Schepis and Taheri were referred to in the later Court of Appeal decision in Leach (see [2014] NSWCA 391 at [50]). The Court recounted the facts and decision in Taheri, apparently accepting the decision to award costs based on the third "walk-away" offer because of the costs compromise involved (see at [52]).
In Curtis v Harden Shire Council (No 2) [2015] NSWCA 45 the ultimately successful defendant sought indemnity costs of the basis of a "walk-away" offer. The Court of Appeal found that the offer in question was not expressed so as to be a valid offer under the Rules. Nor did it bring Calderbank principles into play. This made it unnecessary to consider the other submissions made about the offer by the plaintiff. But the Court expressly rejected the plaintiff's submission that a "walk-away" offer made by the defendant was not a proper offer of compromise under the Rules because it did not involve any element of compromise. The Court pointed out that the Rules specifically contemplate such an offer (see at [16]). The Court accepted that a "walk-away" offer made when only minimal costs had been incurred might not be a "genuine compromise" but noted that the defendant's offer had been made four years after the proceedings were commenced (see at [17]-[18]).
On one view, the award of indemnity costs based on a "walk-away" offer in cases such as Taheri is difficult to reconcile with the proposition from Regency that a claim or defence would have to be frivolous or vexatious for a "walk-away" offer to successfully trigger indemnity costs. But the Court did not perceive any conflict in Leach. Indeed, the Court in Leach expressly accepted the award of indemnity costs in Taheri on the ground that the "walk-away" offer involved a significant concession on the costs accrued by the defendant. The subsequent observations in Curtis are to the same effect (and see also Prospect Resources Ltd v Molyneux [2015] NSWCA 171 at [93]-[95]). I think that I should proceed on the basis that any requirement for an offer to involve a significant compromise can be satisfied by a substantial concession on costs.
In the present case, CG's offer was made at a time when the proceedings were well advanced toward hearing. At that stage, CG's costs would have run into the hundreds of thousands of dollars. Although a small amount relative to the total amount claimed by Bradcorp, the amount is nevertheless substantial in absolute terms. Also, so far as the offer on the cross-claim was concerned, CG gave up any entitlement to costs. On the Court's ultimate finding that CG is entitled to $400,000 in interest between April and June, again the amount foregone was significant. Indeed, CG might have done better: had its claim succeeded, it would have been entitled to interest from December the previous year.
For these reasons, I consider that, if it is a requirement of the Rules that the offer involved a significant degree of compromise, CG's offer satisfied that requirement. It therefore triggered a prima facie entitlement to indemnity costs under rr 42.14 and 42.14A.
[4]
Exercise of discretion to "otherwise order"
For the same reasons, if it is legitimate to "otherwise order" in cases where there is no significant degree of compromise, this is not such a case. But this leaves one further factor which, so counsel for Bradcorp argued, was a justification for the Court to "otherwise order".
Counsel for Bradcorp pointed out that the claim for damages which succeeded on the cross-claim was only propounded by way of pleading after the hearing: see [10]-[11] of my primary judgment. Counsel contended that the shape of the case had been altered after the hearing took place, and this was a reason why the offer should not carry the prima facie consequence of indemnity costs.
It is true that CG did alter the basis of its cross-claim, and that, on my findings, CG's cross-claim as originally formulated would not have succeeded. However, this issue only emerged at the trial and, I think it is fair to say, in part as a result of dialogue between the Court and counsel for the parties. At the time the offer was made, Bradcorp's position, as stated by senior counsel at the directions hearing before Hammerschlag J on 9 May, was that, should Bradcorp fail to establish that all three conditions precedent was satisfied, its claim would fail and the option fees would be refundable. It was only because Bradcorp resiled from that position that CG's amendments became necessary.
Counsel for Bradcorp referred to the pleadings on CG's cross-claim which were filed after 9 May and submitted that by the time CG filed its cross-claim it was clear that Bradcorp intended to resile. But even if that is so, CG's alternative claim for damages had very little practical effect on the conduct of the trial. The additional evidence and submissions solely referable to the claim were minimal. I do not regard the introduction of the claim as having been of sufficient significance to displace CG's prima facie entitlement created under the Rules. I decline to "otherwise order".
[5]
Orders
The orders of the Court are:
Order 2 made on 18 October 2019 be varied so as to provide:
1.1 Order that the plaintiff pay the defendant's costs of the proceedings on the ordinary basis up until 25 June 2019 and thereafter on the indemnity basis.
Order that the cross-defendant pay the cross-claimant's costs on the cross-claim on the ordinary basis up to 25 June 2019 and thereafter on the indemnity basis.
[6]
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Decision last updated: 22 November 2019