Dobrohotoff v Bennic

Land and Environment Court (NSW)|2013-08-20|Before: Pepper J, Mr J

The Parties Seek Their Costs On An Indemnity Basis 1In Dobrohotoff v Bennic [2013] NSWLEC 61, Dr John Dobrohotoff and Mrs Rosemary Dobrohotoff ("the Dobrohotoffs"), the applicants in the proceedings, were, with the exception of their application for leave to amend the summons, successful in obtaining the relief they sought against the respondent, Ms Rhonda Bennic. Accordingly, in addition to the Court granting declaratory and injunctive relief, the Court ordered Ms Bennic to pay the Dobrohotoffs' costs of the proceedings unless some other form of costs order was sought by way of notice of motion (at [100]). 2Both parties have now sought a different form of costs order, relying principally on written offers to settle the proceedings served prior to the two day hearing commencing on 23 April 2013. 3Having regard to the applicable legal principles and the terms of the various offers served by the parties, in my opinion the appropriate costs order is that Ms Bennic must pay the Dobrohotoffs' costs of the proceedings on a party-party, or ordinary, basis with no order as to the costs of the parties' respective notices of motion.

The Parties Serve Offers of Settlement on Each Other 8The affidavits of Mr Michael McHugh, affirmed 15 May 2013, on behalf of Ms Bennic, and Ms Abby Jordan, sworn 21 May 2013, on behalf of the Dobrohotoffs, contain the following settlement history (Mr McHugh and Ms Jordan were the solicitors for Ms Bennic and the Dobrohotoffs respectively): (a) on 9 March 2012 the Dobrohotoffs put Ms Bennic on notice that she was using the property the subject of the proceedings unlawfully; (b) on 26 October 2012 a letter to similar effect was forwarded from the Dobrohotoffs to Ms Bennic; (c) likewise, on 6 November 2012 another letter was sent by the Dobrohotoffs to Ms Bennic; (d) on 19 April 2013 Ms Bennic served an offer to settle made in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333 at approximately 5pm. The letter contained the following offer to settle the matter:

That the Respondent by her servants and agents do not use the dwelling-house at 24 Charles Kay Drive Terrigal NSW for the provision of temporary or short-term accommodation. For the purpose of this order "temporary or short-term accommodation" is defined as any period up to 3 months.
Each party pay their own costs. The offer expired at 10am on 22 April 2013; (e) on 22 April 2013 the Dobrohotoffs made a counter-offer to Ms Bennic to settle the matter. In the letter it formally rejected Ms Bennic's offer of settlement, explaining in the process that Ms Bennic was put on notice of the Dobrohotoffs' position prior to the proceedings being commenced and that Ms Bennic was asked on several occasions to cease using the property as short term holiday rental accommodation but had declined to do so. Moreover, because of the need for the Dobrohotoffs to commence proceedings in the Court they had incurred significant costs. Nevertheless, the letter went on to state that the Dobrohotoffs were prepared to compromise their claim for costs in the interests of resolving the matter on the following basis:
It is declared that use of the dwelling at 24 Charles Kay Drive, Terrigal NSW ("the Property") as short-term accommodation is in breach of section 76B of the Environmental Planning and Assessment Act 1979 (NSW).
That the Respondent by her servants and agents shall not use the Property for the provision of temporary or short-term accommodation. For the purpose of this Order, "temporary or short-term accommodation" is defined as any period up to 3 months.
That the Respondent must advise any potential purchasers of the Property of these Orders in writing prior to the entering into a Contract for Sale of Land for the Property.
The Respondent shall pay to the Applicants the sum of $14,000.00 by way of costs.
The proceedings otherwise be dismissed. This offer was stated to expire at 4.00pm that day. (f) while not formally rejecting the offer, on 22 April 2013 at 1.11pm, Ms Bennic served the following counter-offer, stated to be in accordance with the principles set out in Calderbank v Calderbank. The offer expired at 4pm that day. Its terms were:
That the Respondent by her servants and agents do not use the dwelling-house at 24 Charles Kay Drive Terrigal NSW for the provision of temporary or short-term accommodation. For the purpose of this order "temporary or short-term accommodation" is defined as any period up to 3 months.
The Respondent pays the Applicants [sic] costs in the sum of $7,000.00. (g) it was rejected by the Dobrohotoffs later that day and in a further and final attempt to settle the matter the following counter-offer was made by them, expiring at 9am on 23 April 2013:
The Respondent by her servants and agents shall not use the dwelling at 24 Charles Kay Drive, Terrigal NSW ("the Property") for the provision of temporary or short-term accommodation. For the purpose of this Order, "temporary or short-term accommodation" is defined as any period up to 3 months.
The Respondent pays the Applicants [sic] costs in the sum of $10,000.00.
The proceedings otherwise be dismissed. 9The Dobrohotoffs therefore seek, by notice of motion filed 22 May 2013, an order that Ms Bennic pay their costs on an ordinary basis from 9 March 2012 to 22 April 2013, and on an indemnity basis thereafter. 10By contrast, Ms Bennic seeks an order, by notice of motion filed 16 May 2013, that she pay the Dobrohotoffs' costs on an ordinary basis up to and including 19 April 2013, but thereafter the Dobrohotoffs pay her costs on an indemnity basis, or alternatively, the Dobrohotoffs pay her costs from 20 April 2013 on an ordinary basis.

Applicable Legal Principles 11The making of an order for costs in Class 4 proceedings is in the discretion of the Court subject to the rules of the Court (s 98 of the Civil Procedure Act 2005). The usual order in Class 4 proceedings in this Court is that costs follow the event (r 42.1 of the Uniform Civil Procedure Rules 2005 ("UCPR")). This is subject to the proviso "unless it appears to the court that some other order should be made". These costs are usually payable on an ordinary basis (r 42.2 of the UCPR). 12The parties respectively submit that "some other order should be made", namely, that any costs are payable on an indemnity basis, by reason of the various offers of settlement made by them as described above. 13In A&M Green Investments Pty Ltd v Albury City Council (No 2) [2012] NSWLEC 164; (2012) 189 LGERA 217 the Court outlined some of the applicable legal principles with respect to Calderbank offers as follows (at [67]-[69]. See also Al Amanah College Inc v Minister for Education and Training (No 4) [2012] NSWLEC 26 at [14]-[16] and Craig J in Davies v Sydney Water Corporation (No 2) [2012] NSWLEC 150; (2012) 188 LGERA 451 at [46]): 67 ... in Old v McInnes [2011] NSWCA 410 the Court of Appeal described a Calderbank offer as follows at [22] and [29]-[33]: As this Court (Meagher, Beazley and Santow JJA) stated in Jones v Bradley (No 2) [2003] NSWCA 258 at [5], a Calderbank offer is a well recognised means of making an offer of settlement where the party making the offer ultimately seeks to obtain a costs advantage if the offer is not accepted: see Calderbank v Calderbank (1975) 3 WLR 586. When a Calderbank offer has been made, the rules of court governing offers of compromise do not apply. Rather, the court is asked to exercise its discretion as to the costs order that it considers ought to be made. ... In Computer Machinery Co Ltd v Drescher [1983] 1 WLR 1379; [1983] 3 All ER 153, Megarry VC stated at 1383: Whether an offer is made "without prejudice" or "without prejudice save as to costs," the courts ought to enforce the terms on which the offer is made so as to encourage compromises and shorten litigation. The latter form of offer has the added advantage of preventing the offer from being inadmissible on costs, thereby assisting the court towards justice in making the order as to costs. This approach has been judicially endorsed by this Court on innumerable occasions. In Leichhardt Municipal Council v Green [2004] NSWCA 341 in referring to Calderbank offers, Santow JA stated, at [17]: ... the practice of Calderbank letters is allowed because it is thought to facilitate the public policy objective of providing an incentive for the disputants to end their litigation as soon as possible. Furthermore, however, it can be seen as also influenced by the related public policy of discouraging wasteful and unreasonable behaviour by litigants. See also South Eastern Sydney Area Health Service v King [2006] NSWCA 2 where Hunt AJA (Mason P and McColl JA agreeing) stated, at [83], that the purpose of offers of compromise was: ... to encourage the proper compromise of litigation, in the private interests of the litigants and in the public interest of the prompt and economical disposal of litigation. See also Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 373; Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15. The significance of a Calderbank offer is that it provides a readily recognizable basis for the court to exercise its costs discretion in a form which may result in a more favourable costs outcome than would have been the case had UCPR, r 42.1 applied: see SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Jones v Bradley (No 2); Commonwealth of Australia v Gretton [2008] NSWCA 117 at [40]; [114]. However, the Court's discretion is not confined to cases which are "strictly" characterised or expressly stated to be Calderbank offers. In Commonwealth of Australia v Gretton Hodgson JA stated, at [121]: In my opinion, underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. Costs follow the event generally because, if a plaintiff wins, the incurring of costs was the defendant's responsibility because the plaintiff was caused to incur costs by the defendant's failure otherwise to accord to the plaintiff that to which the plaintiff was entitled; while if a defendant wins, the defendant was caused to incur costs in resisting a claim for something to which the plaintiff was not entitled: cf Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. Departures from the general rule that costs follow the event are broadly based on a similar approach. (Emphasis added) 68 In Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 Basten JA (with whom McColl JA at [1] and Campbell JA at [26] agreed) noted that the approach is to ask two questions: first, was there a genuine offer of compromise; and second, was it unreasonable for the offeree not to accept (at [8]). 69 As a matter of principle, it is the offeror who must persuade the court that the rejection of the offer was unreasonable (Miwa at [16]). Having said this, it "is not intended to suggest that an application for indemnity costs be turned into a mini-trial" (at [16]). 14As to the genuineness of any informal offer of compromise such as a Calderbank offer, Basten JA stated in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 that (at [9]): There is authority for the proposition that both an offer of compromise under the rules and an informal offer must involve "a real and genuine element of compromise": The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; 67 NSWLR 706 at [8]. While this terminology is not entirely apposite, it has been described as "serviceable": Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [25] (Spigelman CJ, Beazley and McColl JJA). To characterise an offer by reference to epithets such as "real" or "genuine" adds little to the requirement of compromise, and may imply (wrongly) that the appropriate inquiry is as to the subjective intentions of the offeror: Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 at [23] (Ipp, McColl and Basten JJA); Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 at [17]-[18]. As explained by Giles J in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368: "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." 15In this context, in SWM Financial Services Pty Ltd v Lloyd (No 2) [2012] NSWSC 202, Ball J held that an offer of compromise made by successful defendants on the basis that there would be a verdict in their favour and that each party should pay their own costs of the proceedings did not justify an order for indemnity costs. His Honour stated (at [13]-[14]): 13 In Leichhardt Municipal Council v Green [2004] NSWCA 341 at [23] Santow JA (with whom Bryson JA and Stein JA agreed) said: It is clear that an offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise. Thus an offer by a plaintiff demanding the full amount claimed was held not to be an offer of compromise attracting costs penalties: Tickell v Trifleska Pty Ltd (1991) 25 NSWLR 353. Leichhardt Municipal Council v Green was applied in Baresic v Slingshot Holdings Pty Ltd (No 2) [2005] NSWCA 160 at [13] and was cited with approval by Hodgson JA (with whom McColl JA agreed) in The Uniting Church v Takacs (No 2) [2008] NSWCA 172 at [14] and by Basten JA in the same case at [22]. In that case, Hodgson JA referring to the offer said (at [14]): I do not make any adverse findings as to the bona fides of the Trust; but the offer in this case does have the appearance more of a procedural move to trigger costs consequences than of a genuine attempt to reach a negotiated settlement ... Basten JA took a similar approach, although his Honour stated that the question was not the purpose for which the offer was made, but whether, in the circumstances of the case, it can be regarded as a genuine offer of compromise. Similarly, in Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176 at [57], Beazley, Hodgson and McColl JJA said: In Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 the Court referred to the authorities that established there must be a genuine offer of compromise which would be unreasonable for the appellant not to accept in order to trigger the favourable exercise of the costs discretion and noted (at [5]) that: "The general approach adopted in this Court is that where an offer involves "no real element of compromise" but merely "invites capitulation by the appellant" it will not result in a variation of the usual costs order: see, eg, Townsend v Townsend (No 2) [2001] NSWCA 145 (Giles JA) at [5]." 14 In my opinion, the offers made by the first and second defendants in this case were not genuine offers of compromise. They sought a verdict in favour of the defendants. It is true that the defendants agreed to give up their claim for costs. However, the first and second defendants concede that their assessed costs would have been small at that stage. The offer, in effect, invited capitulation. That is not a genuine offer of compromise; and if the first and second defendants are to recover costs on an indemnity basis in those circumstances, they must establish that the claim was so obviously hopeless that it was unreasonable of the plaintiffs to bring it. 16As Basten JA observed in Miwa, most cases turn on the second element, namely, whether there has been an unreasonable refusal by the offeree (at [10]). His Honour also noted that the response of the offeree must be assessed at the time it was made and not with the benefit of hindsight resulting from a known outcome (at [11]). 17The factors relevant to determining whether the rejection of an offer was unreasonable include the following (Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25] cited in Miwa at [12]): (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; and (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it. 18The Court in Hazeldene's (at [26]-[27]) rejected the suggestion that an offer needs to set out with specificity the bases upon which it is said that the offeree should accept the compromise. In Miwa, Basten JA accepted this proposition (at [13]) and emphasised the importance of factor (c) insofar as the amount offered to compromise the claim should not be trivial, derisory or contemptuous (at [14]-[15]). This approach, binding on this Court, may be contrasted with the more rigorous position of the Federal Court of Australia in Technology Leasing Ltd v Lennmar Pty Ltd (No 2) [2012] FCA 1216 (at [24]).

Ms Bennic's Offer Dated 19 April 2013 19Applying the principles referred to above, Ms Bennic's offer of 19 April 2013 does not, in my opinion, have the effect that the Dobrohotoffs should pay her costs from 20 April 2013 onwards on an indemnity basis, or at all, for the following reasons: (a) first, the Dobrohotoffs achieved a better result than the offer made by Ms Bennic on that date. They were successful in obtaining declaratory and injunctive relief from the Court, rather than a mere contractual offer by Ms Bennic, not framed as an undertaking or as a proposed court order, to not use the property for the provision of short term holiday rental accommodation. Ms Bennic did not consent, as she could have done, to the making of the declaration. Although, as Ms Bennic noted, the granting of declaratory relief is always at the discretion of the Court, her consent to the making of the declaration would nevertheless have carried considerable weight in the exercise of the Court's discretion, and would, moreover, have saved the parties significant hearing time and attendant legal costs. In addition, the Dobrohotoffs achieved, at the very least, a prima facie entitlement to a costs order, whereas the offer involved each party paying their own costs. Thus the offer was not, contrary to the submission made by Ms Bennic, an "almost full capitulation to the demands of the Applicants" as contained in the summons; (b) second, the fact that the Court ordered a temporary stay of the injunction did not mean that the Dobrohotoffs did not get a better result at the hearing, as submitted by Ms Bennic. The injunctive relief sought was ultimately obtained by them; (c) third, given that the Dobrohotoffs had incurred approximately $28,000 in costs as at that date, and in light of their express desire to have a formal declaration made by the Court due to the foreshadowed sale of the property by Ms Bennic, it was not unreasonable for the Dobrohotoffs to reject the offer; and (d) fourth, the offer was made after close of business on Friday 19 April 2013 and was expressed to be open until 10am on Monday 22 April 2013. Given this period incorporated the weekend, I do not consider that the time allowed for the Dobrohotoffs to consider the offer was, in all the circumstances, reasonable.

The Dobrohotoffs' First Offer Dated 22 April 2013 20I accept the Dobrohotoffs' submission that the fact that their offer was not expressed to have been a Calderbank offer is of no moment. I readily infer that Ms Bennic was aware that the offer was intended to have costs consequences in the event of a failure to accept it, particularly given the terms of Ms Bennic's offers both before and after the first offer made by the Dobrohotoffs on 22 April 2013. 21However, in my view, the offer cannot be regarded as a genuine offer of compromise sufficient to warrant the imposition of indemnity costs consequent upon its rejection by Ms Bennic. This is because the offer effectively invited Ms Bennic to, subject to costs, wholly capitulate to the Dobrohotoffs' demands. In fact, had Ms Bennic agreed to the first three terms of the offer, she would have been in a worse position than that in which she found herself after judgment. This is because, first, she was successful in obtaining a stay of the injunctive relief, and second, the Court refused to make the notification order. 22When further regard is had to the fact that, with the exception of correspondence from the Dobrohotoffs' legal representatives, by reason of the conduct of the relevant council Ms Bennic had no reason to believe that her use of the property was unlawful, her refusal of the offer made on 22 April 2013 was not unreasonable. 23In expressing this view I am mindful of the compromise made by the Dobrohotoffs in respect of their costs, namely, a reduction by 50% of their estimated costs. Although this amounted to a not insignificant discount on any potential unfavourable costs order made against Ms Bennic, this of itself is not sufficient to render unreasonable, in all the circumstances, the refusal by Ms Bennic to accept the terms of the offer (see, for example, SWM Financial Services, where a complete forbearance of costs by the offeror was insufficient to warrant an indemnity costs order).

Ms Bennic's Offer Dated 22 April 2013 24The costs position of the parties remained unchanged by reason of Ms Bennic's offer of 22 April 2013, largely for the same reasons given above in respect of Ms Bennic's first offer dated 19 April 2013. 25Having said this, I reject the submission of the Dobrohotoffs that insufficient time was given to them to consider the offer. Although it was objectively arguable that three hours was an insufficient period of time for the Dobrohotoffs to consider the offer, the fact that they were able to respond to it and make their second offer later that day invites the irresistible inference to be drawn that ample time was given to them to consider the terms of the offer and respond appropriately.

The Dobrohotoffs' Second Offer Dated 22 April 2013 26Likewise, for largely the same reasons given above in respect of the first offer of settlement made by the Dobrohotoffs on 22 April 2013, I do not accept that Ms Bennic's rejection of this offer was unreasonable in all the circumstances.

Conclusion On the Effect of the Offers of Settlement 27Applying the above analysis, it follows that, in my opinion, none of the offers of settlement served by the parties were sufficient to displace the tentative order made by the Court on 2 May 2013, namely, that Ms Bennic should pay the costs of the Dobrohotoffs on an ordinary basis.

Costs of the Amendment Application 28Ms Bennic further submits that the Dobrohotoffs should pay her costs of defending the application for leave to amend the summons. 29I do not agree. Although she is correct to state that the application was successfully defended by her, the hearing of the application was not a discrete and severable claim, but was argued and determined as part of the overall claim by the Dobrohotoffs for relief and was consequential upon the granting of the declaratory and injunctive relief. The application therefore resulted in minimal additional court time and expense. The proceedings would have, even in its absence, occupied two days of hearing. 30In my view, the costs of the application for leave to amend the summons should be costs in the cause.

Costs of the Notices of Motion 31Each of the Dobrohotoffs and Ms Bennic have been unsuccessful in their respective quests for indemnity costs. It is therefore appropriate that in respect of each notice of motion each party should bear their own costs.

Orders 32In conformity with the reasons given above, the orders of the Court are as follows: (1) the applicants' notice of motion filed 22 May 2013 is dismissed with no order as to costs; (2) the respondent's notice of motion filed 16 May 2013 is dismissed with no order as to costs; (3) the respondent is to pay the applicants' costs of the proceedings up to and including 2 May 2013 on an ordinary basis; and (4) the exhibits are to be returned.

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: 22 August 2013

(2012) 189 LGERA 217

(2012) 188 LGERA 451

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