Dream Developments Pty Limited v Samuel Whitney

Judgment Introduction 1This an application for leave to appeal from a decision of the Local Court in respect of costs. The issue arose out of proceedings commenced by Dream Developments Pty Limited (the plaintiff) against Mr Samuel Whitney (the defendant) for money owing for the provision of goods and services under a building contract. The plaintiff had issued a final progress invoice for $30,000 of which the defendant paid half and disputed the balance. The plaintiff commenced proceedings in the Local Court for $15,000 plus interest and costs. The defendant admitted that he had not paid the balance of the invoice except for $1,000 (this was not controversial) but claimed that the plaintiff had "failed to perform certain works and services and/or supply goods in accordance with the contract", that the invoice "contained items for work not carried out" and items that had "either not been supplied" or have been supplied but "overcharged". These matters were also contained in a set-off claim of $14,881.59. The defendant cross-claimed for $9,276.59 (comprising $8,395 for repairs and rectification work undertaken by the defendant which should have been done by the plaintiff under the building contract, plus $881.59 representing the addition of the amounts he claimed in his defence less the sum claimed by the plaintiff) plus interests and costs. 2Offers to compromise had been made by the plaintiff to the defendant on 15 April and 9 September 2010 but had not been accepted. The matter was set down for trial in the Local Court on 17 September 2010. At the commencement of the hearing the defendant abandoned his cross-claim and conceded the defects clause did not apply. Judgment was delivered on 15 November 2010 in favour of the plaintiff for $14,000 less $1,000 and, on the cross-claim, "for such sum as is necessary to replace the hearthstone of $1,000, whichever is the lesser". The Magistrate concluded that the offers did not comply with Rule 20.26 of the Uniform Civil Procedure Rules 2005 and were not Calderbank offers, thus ordering the defendant to pay costs of $3,500 rather than indemnity costs. 3This appeal concerns the Magistrate's findings as to the plaintiff's written offers to settle. The plaintiff's offers 4On 15 April 2010 the plaintiff made an offer of compromise as follows - This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005. The Defendant [plainly a typographical error for "Plaintiff"] offers to settle the Plaintiff's claim against the Defendant on the following basis: (a). The Defendant to pay the Plaintiff $12,000 within days of written acceptance of this offer. (b). The Defendant to pay the Plaintiff's costs as agreed or assessed. (c). These proceedings be dismissed. This offer is open for acceptance until 5.00pm Friday 14 May 2010, being at least 28 days from the making of this offer of compromise after which it will lapse. 5On 9 September 2010 the plaintiff's solicitors made a further offer described as a "final offer of compromise" in the following terms - This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005. The Defendant [again an error for "Plaintiff"] offers to settle the Plaintiff's claim against the Defendant on the following basis: (a). Judgment for the Plaintiff. (b). The Defendant to pay the Plaintiff $14,000 within 28 days of written acceptance of this offer. (c). The Defendant to pay the Plaintiff's costs as assessed or agreed. This offer is open for acceptance until 5.00pm Tuesday 14 September 2010 which, given the matter is listed for hearing on Friday 17 September 2010, is a reasonable time from the making of this offer of compromise, after which it will lapse. 6The defendant did not accept either offer but it is common ground that, on or about 16 September 2009, his solicitors informed the plaintiff's solicitors that he would concede judgment against him for $14,000. When the hearing commenced, counsel for the defendant informed the court that "there would be no contest" about the balance of the plaintiff's claim for $14,000 and offered to consent to judgment in that sum plus $14,000 costs. As to the cross-claim, he offered to accept judgment in the defendant's favour for $2,500 with no order as to costs. These offers not being accepted, that left the counterclaim and the effect of the plaintiff's offers to be determined. The proceedings were stood over part heard to 8 October 2010, in the meantime the plaintiff providing certain documents. On 8 October 2010 the Local Court reserved its decision and written submissions were made by the parties on the effect of the two offers of compromise and the meaning of the term "defect". On 15 November 2010 the Local Court gave judgment as mentioned above. Making an offer under UCPR 7The relevant part of the Rules is as follows - 20.26 Making of offer (cf SCR Part 22, rules 1A, 2, 3 and 4; DCR Part 19A, rules 1, 2, 2A, 3 and 4; LCR Part 17A, rules 2 and 5) (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs. (3) A notice of offer: (a) must bear a statement to the effect that the offer is made in accordance with these rules, and (b) 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 the payment so made or ordered. (4) Despite subrule (1), a plaintiff may not make an offer unless the defendant has been given such particulars of the plaintiff's claim, and copies or originals of such documents available to the plaintiff, as are necessary to enable the defendant to fully consider the offer. (5) If a plaintiff makes an offer, no order may be made in favour of the defendant on the ground that the plaintiff has not supplied particulars or documents, or has not supplied sufficient particulars or documents, unless: (a) the defendant has informed the plaintiff in writing of that ground within 14 days after receiving the offer, or (b) the court orders otherwise. (6) An offer may be expressed to be limited as to the time it is open for acceptance. (7) The following provisions apply if an offer is limited as to the time it is open for acceptance: (a) the closing date for acceptance of the offer must not be less than 28 days after the date on which the offer is made, in the case of an offer made 2 months or more before the date set down for commencement of the trial, (b) the offer must be left open for such time as is reasonable in the circumstances, in the case of an offer made less than 2 months before the date set down for commencement of the trial. (8) ... (9) ... (10) ... (11) ... (12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division. 42.14 Where offer not accepted and judgment no less favourable to plaintiff (cf SCR Part 52A, rule 22; DCR Part 39A, rule 25) (1) This rule applies if the offer concerned is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim concerned 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. Were the offers "exclusive of costs"? 8Uninstructed by authority, it would be my view that both offers were exclusive of costs. To my mind, the phrase limits the nature of the compromise so that it is not to involve any compromise on the question of costs. Had it been intended that the letter of offer should not mention costs, this would have been easy to say so. The rule reflects a longstanding mode of communicating offers which indicate either that costs is included or excluded. The fundamental point, as I read the Rule, is that changing the usual order as to costs is not a part of the proposed settlement. It may well be thought to be necessary to mention the matter of costs, however, since otherwise the silence might be thought to propose no order as to costs, which is a common expression connoting that each party is to pay its own costs. In the present case, each offer stipulated, in substance, that the plaintiff was not compromising on the question of costs, which were to be paid as assessed or agreed, a reflection of the usual order as to costs to be made in the event of the plaintiff's obtaining judgment in its favour. Of course, the only circumstance in which the offer, if not accepted, would come to be considered is that situation, with the concomitant costs order. The use of the word "agreed" adds nothing, of course, since the parties are always able to agree rather that have costs assessed. If anything, its inclusion makes it clear that the offer does not include a proposed agreement as to costs. 9I am gratified to find that McDougall J, dealing with a not relevantly dissimilar offer, though in somewhat different language, concluded that it, also, was exclusive of costs: Mid-City Skin Cancer & Laser Centre Pty Ltd v Zahedi-Anarak & Ors [2006] NSWSC 684. There, the offer of compromise, expressly made pursuant to Part 20 Rule 26 of the UCPR, contained an offer by the defendants to pay the sum of $10,000 "plus costs as agreed or assessed" in full satisfaction of any claim the plaintiff had against the defendants. The issue was whether the offer was still open at a particular time. If it complied with UCPR 20.26, sub-rule (7) gave a reasonable time for acceptance. McDougall J stated - "[19] It will be observed from r 20.26(2) that in the present case (the offer not being one for a verdict for the defendants) the offer must be exclusive of costs. That I take to mean that the amount of the offer must be exclusive, and not in any way inclusive, of costs. [20] In the present case, the settlement amount offered was in my view $10,000. Paragraph 1 made it clear that that sum did not include, or was not to be taken to include, costs. That is because it said that the sum of $10,000 was "plus costs as agreed or assessed". [21] It was not necessary for the offer to refer to costs. The statement that the offer was made in accordance with "Pt 20 r 20.26" (quoting from para 2) makes it plain that r 20.26(2) applies; and in circumstances where, as I have said, the offer was not one of a verdict for the defendants, that makes it plain that the offer was exclusive of costs. [22] Nonetheless, it does not follow that because the offer made plain (or sought to make plain) that which was in any event the fact, it was thereby converted from being what it was intended to be - an offer made pursuant to the rules - into something else - an offer not made pursuant to the rules." Amongst other things, it had been submitted that, the reference to costs in the offer introduced an ambiguity, because it was not clear whether the costs referred to were up until the date of the offer or up until the date of acceptance and, accordingly, the offer was outside the Rules. McDougall J considered firstly that, the offer being "exclusive of costs" it complied with the requirements of Rule 20.26(2) and "if the reference to costs introduced an element of ambiguity as to the extent of those costs, this would not detract from the position that the offer was intended to be, as in my view it is, one exclusive of costs.... [and the] only debate would be as to the extent of costs recoverable." His Honour held that the purported ambiguity could be resolved by construction so that, as the offer twice asserted that it was made pursuant to the Rule, the proper construction of the reference to costs "is that it means costs in accordance with the rules". It followed that the period for acceptance was governed by Rule 20.25 and thus, expired before the purported acceptance. 10However, the rule has been considered in other cases, to which I now turn (noting that it is an indictment of drafting where the language chosen has led to extensive litigation). 11In Trustee for the Salvation Army (NSW) Property Trust v Becker (No.2) [2007] NSWCA 194 two offers of compromise had been made by the plaintiff/ first cross-defendants of "the whole of the proceedings" by consenting to orders as to the grant of probate, the costs of the plaintiff/ first cross-defendant on an indemnity basis be paid out of the estate and that the costs of the second and third defendants/ first and second cross-claimants agreed in a sum of $100,000, be paid out of the estate with interest at UCPR rates to run on so much as the costs as remained unpaid for more than four months after the making of the orders. This offer was expressed to have been made in accordance with the rule in Calderbank v Calderbank [1975] 3 WLR 586. 12Having regard to the early date of the offer and its consequential early acceptance period, Ipp JA (with whom Mason P and McColl JA agreed) held that it could play no part in the exercise of the discretion to order indemnity costs. A second offer, intending to be a formal offer of compromise made in accordance with Part 20 Division 4 of the UCPR, concerned the proceedings in the Court of Appeal. The first respondent offered to compromise the whole of the proceedings by consenting to the following orders -