Solicitors:
Slater and Gordon Ltd (Plaintiff)
Hicksons (Defendant)
File Number(s): 2016/151274
[2]
Judgment
On 30 August 2019, I ordered that there be verdict and judgment for the defendant in this matter: Davies v Whitehaven Coal Mining Ltd [2019] NSWSC 1125. The hearing had taken place over four days, 27, 28, 29 and 30 May 2019.
The plaintiff did not oppose an order that the plaintiff pay the defendant's costs.
The defendant, however, sought an indemnity costs order from 14 May 2019, on the basis of a letter dated 14 May 2019 served on the plaintiff on or shortly after 14 May 2019. That letter was headed "Without prejudice save as to costs" and was relevantly in the following terms:
"We are instructed to make an offer in full and final settlement of your client's claim on the following basis:
1. $400,000 inclusive of costs and clear of payments made.
We consider this offer represents a genuine compromise on behalf of the defendant. This offer is made in accordance with the principles of Calderbank v Calderbank [1975] 333 All ER 3 and remained open until 4 pm on Tuesday, 24 May 2019. In the event that:
(a) this offer is not accepted; and
(b) your client fails to obtain an outcome at hearing more favourable to them than the offer made above,
We will tender this correspondence at the hearing in support of an application for an order as to costs made in favour of our client and in opposition to any order as to costs being made in your favour.
…"
The defendant submitted that:
1. the offer contained in the letter involved a genuine and reasonable compromise of the particularised claim;
2. as at 14 May 2019 the parameters of the dispute were clear; and
3. the period of acceptance of the offer was reasonable and the parties, at the time, had a clear perception as to strengths and weaknesses of their positions.
In those circumstances, and as the plaintiff did not accept the offer and failed to obtain an outcome at hearing more favourable to him, the defendant submitted that an order for the plaintiff to pay the defendant's costs on an indemnity basis from 14 May 2009 should be made.
In opposing an order for indemnity costs, the plaintiff principally relied upon the absence of any warning in the letter of 14 May 2019 that, in the event that the offer was not accepted and the plaintiff failed to achieve a more favourable result, the defendant would seek an order for costs on an indemnity basis. It was noted that in the 14 May 2019 letter, there was no reference to indemnity costs at all and that the only reference was to the letter being tendered "in support of an application for an order as to costs made in favour of [the defendant]". The plaintiff relied upon Brymount Pty Ltd t/a Watson Toyota v Cummins (No 2) [2005] NSWCA 69 at [14] and Penrith Rugby League Club Ltd Trading As Cardiff Panthers v Elliot (No 2) [2009] NSWCA 356 at [13]. In addition, the plaintiff did not accept that his refusal of the offer was unreasonable in the light of findings made in the principal judgment.
In my view, an indemnity costs order is not appropriate in the present case.
The principles in relation to the awarding of indemnity costs are well established and have been helpfully summarised by Black J in In the Matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 at [8] as follows:
"… Section 98(1)(c) of the Civil Procedure Act 2005 (NSW) permits the Court to order costs on an ordinary or indemnity basis. Rule 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) provides that, unless the Court otherwise orders or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. Rule 42.5 of the Uniform Civil Procedure Rules deals with an order for costs on an indemnity basis. Costs are awarded on the ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful party for persisting with a case that fails, but to compensate a successful party fully for costs incurred, when the Court takes the view that it was unreasonable for the other party to have subjected the successful party to the expenditure of costs: Hamod v New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20]. Whether an indemnity costs order should be made depends, at least in part, on whether there was a relevant delinquency on the part of the unsuccessful party: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6]. That is to be determined by reference to the conduct of the proceedings, not the conduct that is the subject of the substantive dispute."
The question whether refusal of an offer of compromise in the form of a Calderbank letter may justify a departure from costs being awarded on the ordinary basis ultimately turns on whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] (Giles JA). A departure will not be justified unless in all the circumstances it was unreasonable for the offeree not to accept the offer: Hunter v Roberts (No 2) [2019] NSWCA 235 at [6] (Meagher and Brereton JJA and Simpson AJA).
Relevant factors concerning whether it was unreasonable not to accept a Calderbank offer in the circumstances include:
1. the stage of the proceedings at which the offer was received;
2. the extent of the compromise offered;
3. the time frame within which the offeree had to consider the offer;
4. the offeree's prospects of success, assessed at the time of the offer; and
5. whether the letter of compromise explicitly stated that the offer was made in Calderbank terms and clearly specified the consequences of refusal by foreshadowing an application for indemnity costs in the event of the offeree's rejecting it,
see Hunter v Roberts (No 2) [2019] NSWCA 235 at [7] (Meagher and Brereton JJA and Simpson AJA) and the authorities there cited; Penrith Rugby League Club Ltd Trading As Cardiff Panthers v Elliot (No 2) [2009] NSWCA 356 at [11] (Ipp, Basten and Sackville JJA).
In applying these principles, it is helpful to bear in mind the rationale for the ordering of costs on an indemnity basis as explained by the High Court in Oshlack v Richmond River Council (1988) 193 CLR 72; [1998] HCA 11. Gaudron and Gummow JJ said at [44]:
"It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a "solicitor and client" basis or on an indemnity basis. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part." (footnotes omitted)
In the present case, the letter of 14 May 2019 did not explicitly identify a consequence of refusal as being that the defendant would seek an order for indemnity costs. Thus, the plaintiff was not put on notice that his refusal of the offer could have the consequence now sought. Although there was a substantial element of compromise on the defendant's part in making the offer, the plaintiff's prospects of success, judged at that time, were not poor. In these circumstances, I am not satisfied that it was unreasonable for the plaintiff to refuse the offer.
In addition, I do not think that there was a "relevant delinquency" on the part of the plaintiff such as to attract an order for costs to be paid on an indemnity basis from the date of the offer being made, especially as there was no indication in the letter that indemnity costs would be sought in the event of refusal.
Accordingly, the Court orders that the plaintiff is to pay the defendant's costs, as agreed or assessed. By operation of r 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) together with that order, if costs are to be assessed, they will be assessed on the ordinary basis and not on an indemnity basis.
[3]
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Decision last updated: 26 September 2019