Judgment was given in this matter on 30 March 2021. The orders made by the Court included a declaration that an Agreement for Lease dated 20 February 2008 entered into by the plaintiff (Gazcorp) and the defendant (Woolworths), whether as varied in September 2008 or otherwise, was no longer on foot. An order was also made that Woolworths withdraw a caveat it had lodged on the title to the land the subject of the agreement. In addition, directions were made for the parties to file evidence and submissions on the question of costs, with a view to that matter being dealt with on the papers. This judgment deals with that question.
In that regard, Gazcorp relies upon the affidavit of Jennifer Hold, solicitor, sworn on 12 April 2021, and written submissions of Counsel dated 12 April 2021 and 3 May 2021. Woolworths relies upon an affidavit of Heloise Woodside, solicitor, affirmed on 26 April 2021, and written submissions of Counsel dated 26 April 2021 and 10 May 2021. Both parties indicated that they were content for the question of costs to be dealt with on the papers. The dispute as to costs involves both the costs of the main proceedings brought by Gazcorp against Woolworths, and the costs of the Cross-Claim brought by Woolworths against Gazcorp and a director of Gazcorp, Mr Nicholas Gazal.
The main proceedings were finally determined, favourably to Gazcorp, in the manner described above. The Cross-Claim was discontinued on the first day of the hearing (22 February 2021) as a result of the abandonment by Gazcorp of certain aspects of its claim. The Court granted leave to Woolworths to discontinue the Cross-Claim, with the question of costs of the Cross-Claim reserved.
The dispute in relation to the costs of the main proceedings is relatively narrow in scope. Woolworths accepts that it would be appropriate to order it to pay Gazcorp's costs of the main proceedings on the ordinary basis, but it resists the order sought by Gazcorp that those costs be paid from 15 January 2021 on an indemnity basis. That order sought by Gazcorp is grounded upon the failure of Woolworths to accept an offer of compromise made by Gazcorp on 15 January 2021.
The dispute in relation to the costs of the Cross-Claim is broader. Gazcorp and Mr Gazal seek their costs of the Cross-Claim. Again, an order is sought that those costs be paid from 15 January 2021 on an indemnity basis on the ground that Woolworths failed to accept an offer of compromise made by Gazcorp and Mr Gazal on that day. Woolworths resists those orders. Instead, it seeks orders that Gazcorp pay its costs of the Cross-Claim and that there be no order as to Mr Gazal's costs, or alternatively that there be no order as to the costs of the Cross-Claim generally.
Before dealing with the competing contentions of the parties, it is necessary to say something more about the offers of compromise and the circumstances in which the Cross-Claim was discontinued.
The offer of compromise in relation to the main proceedings (referred to as Offer 1) was expressed as follows:
1. The plaintiff offers to compromise the whole of the plaintiff's claim in the proceeding (the Statement of Claim) on the following terms:
(a) The Court declares that the agreement entitled "Agreement for Lease - Green Square" and dated 20 February 2008 between the plaintiff and the defendant with respect to a Woolworths Supermarket on the land referred to in Folio Identifiers 1/544953 and 1/708087 and located at 296-298 Botany Road and at 284 Wyndham Street, Alexandria, New South Wales (including any variation of that agreement) has been terminated and is no longer in force.
(b) No order as to costs of the proceedings on the Statement of Claim.
(c) The defendant take all necessary steps to withdraw caveat AM129767 from the land registry.
The offer was expressed to be made in accordance with Uniform Civil Procedure Rules 2005 ("UCPR") r 20.26, and was open for acceptance for 21 days. It was also expressed to be conditional upon Woolworths accepting the offer of compromise in relation to the Cross-Claim (referred to as Offer 2).
Offer 2 was expressed as follows:
1. The cross-defendants offer to compromise the whole of the cross-claimant's claim in the proceeding (the Cross-Claim) on the following terms:
(a) Judgment for the cross-defendants.
(b) No order as to costs of the proceedings on the Cross-Claim.
The offer was expressed to be made in accordance with UCPR r 20.26, and was open for acceptance for 21 days. This offer was also expressed to be conditional upon Woolworths accepting Offer 1.
The covering letter accompanying the offers stated that if for any reason the offers or either of them were not valid offers of compromise under the UCPR, the offers were also made in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333.
At the time the offers were made the proceedings were listed for final hearing to commence on 22 February 2021.
As I have said, the Cross-Claim was discontinued as a result of the abandonment by Gazcorp of certain aspects of its claim. The central issue on that claim was whether the Agreement for Lease (whether as varied or otherwise) was no longer on foot. Gazcorp contended that the agreement was no longer on foot. This contention rested upon various grounds, in particular:
1. that Woolworths' failure in April 2009 to give any notice under cl 14.2 of the Agreement for Lease gave rise to an estoppel or waiver which precluded Woolworths from insisting upon further performance by Gazcorp;
2. that the varied Agreement for Lease was terminated by frustration or alternatively was mutually abandoned by the parties; and
3. that even if the Agreement for Lease was not varied, it was terminated by frustration or alternatively was mutually abandoned by the parties.
Woolworths took issue with each of those grounds in its Defence. The cl 14.2 ground was met by paragraphs 31 and 32 of the Defence. Gazcorp answered paragraph 31 by paragraph 1 of its Reply.
On the evening prior to the commencement of the hearing, Counsel for Gazcorp informed Counsel for Woolworths by email that they had instructions not to press certain prayers for relief, certain allegations in the Statement of Claim (including the allegations concerning cl 14.2), and paragraph 1 of the Reply. The email concluded with the following:
Consistent with paragraph 7 of Woolworths' written opening submissions dated 17 February 2021, it follows that the Cross-Claim no longer arises.
At the commencement of the hearing, Senior Counsel for Gazcorp informed the Court of the narrowing of its case. He stated that the decision not to press the identified allegations should not be understood as a concession that the allegations were not reasonably arguable. Senior Counsel stated that it was simply his judgement that those allegations did not need to be pressed. Leave was granted to file an Amended Statement of Claim, which merely deleted some of the prayers for relief and certain allegations, on the condition that Gazcorp pay Woolworths' costs thrown away by reason of the amendments.
Following a short adjournment, Counsel for Woolworths handed up proposed Short Minutes of Order which in essence confirmed that if Gazcorp's case was to be narrowed as stated then Woolworths would seek to discontinue its Cross-Claim. Leave was granted to Woolworths to discontinue the Cross-Claim, with the question of costs of the Cross-Claim reserved.
Gazcorp succeeded on its claim that the Agreement for Lease (whether as varied or otherwise) was no longer on foot. The Court found that the agreement, as varied in September 2008, was terminated by frustration on 20 March 2009. The Court further found, in case that conclusion was wrong, that the agreement was terminated by mutual abandonment no later than about the beginning of 2014 or, if that was wrong, was terminated by frustration on 17 February 2014.
It is clear in my view that Gazcorp should have its costs in respect of the main proceedings. That seems to be accepted by Woolworths, although I note the suggestion made in its submissions that Gazcorp's late decision to abandon parts of its claim caused costs (including on the main proceedings) to be unnecessarily incurred by all parties. Inherent in that suggestion is the proposition that the abandoned planks of Gazcorp's claim ought to have been jettisoned much sooner or perhaps not been made at all. However, there is no basis to contend that those parts of Gazcorp's claim lacked merit or were not reasonably arguable. In fact, Woolworths' action in deciding to pursue a Cross-Claim, which would only arise if Gazcorp's argument based on cl 14.2 succeeded, suggests that at least that part of the abandoned claims was reasonably arguable. Further, the costs of the abandoned parts of the claim are not plainly separable from the costs of the parts that were pressed. In my view, the only real question in relation to the costs of the main proceedings is whether the failure of Woolworths to accept Offer 1 justifies an award of indemnity costs in respect of the period after 15 January 2021.
In this regard, Gazcorp relies upon UCPR r 42.14. It submitted that the rule applies to the offer, which was not accepted by Woolworths, and that Gazcorp obtained an order or judgment on its claim no less favourable to it than the terms of the offer. Woolworths submitted that because Offers 1 and 2 were inter-conditional, Part 42 of the UCPR did not apply to them. It was further submitted that the offers constituted a "joint offer" such that it would not be proper to consider them separately.
Division 3 of Part 42 of the UCPR applies to proceedings in respect of which an offer of compromise is made under UCPR r 20.26 with respect to a plaintiff's claim. It seems to me that both Offers 1 and 2 are offers that comply with UCPR r 20.26. Offer 1 is an offer to Woolworths to compromise the whole of Gazcorp's claim in the main proceedings on specified terms. Offer 2 is an offer to Woolworths to compromise the whole of Woolworths' claim on the Cross-Claim on specified terms. The other formal requirements of UCPR r 20.26 appear to be met. I do not think that the term in each offer that it is conditional upon acceptance of the other offer results in the offers falling outside UCPR r 20.26, although any terms of an offer of compromise may be germane to the question whether an order or judgment has been obtained on the relevant claim that is no less favourable than the terms of the offer.
In my view, Gazcorp obtained orders on its claim that are no less favourable to it than the terms of the offer (which include the condition concerning acceptance of Offer 2). Offer 2 does not contain terms that bear upon Gazcorp's claim. It is concerned with Woolworths' claim on the Cross-Claim. There is no element of the orders made on Gazcorp's claim that are less favourable to Gazcorp than the terms of Offer 1. Accordingly, UCPR r 42.14 operates so that unless the Court orders otherwise, Gazcorp is entitled to costs assessed on the ordinary basis up to 15 January 2021 and on an indemnity basis from 16 January 2021.
I do not think there is any good reason to order otherwise. The fact that Gazcorp later amended its case, by narrowing it, does not provide such a reason. It is not a situation where an offeror achieves a better result than its offer due to the success of a case that was not present when the offer was made. Moreover, the fact that Gazcorp was ordered to pay costs thrown away by reason of the amendments to its Statements of Claim does not provide such a reason. In circumstances where those amendments consisted only of deletions, and Woolworths did not need to file a further Defence, it is difficult to see that any substantial costs could be considered to be thrown away by reason of the amendments, aside from some costs attributable to the short time spent dealing with the amendments. The costs of the Cross-Claim, which were separately ordered to be reserved, do not in my view fall within the category of costs thrown away by reason of the amendments. Those costs were incurred in pursuit of a claim that was brought to counter Gazcorp's cl 14.2 case. When that case was abandoned, the essential rationale for the Cross-Claim fell away. It is the abandonment of that case, rather than the amendments (deletions) to the pleading, that truly brought about that situation. The amendments were merely a formal expression of the narrowing of Gazcorp's case as outlined to the Court by its Senior Counsel. In truth, there was probably no need for the amendments to be made.
Whilst the offer effectively invited Woolworths to succumb to Gazcorp's claim, the offer involved Gazcorp forsaking any order for costs in respect of its claim. At the time the offer was made, Gazcorp's costs would have been very substantial indeed, and there is evidence that they were in excess of $400,000. There was thus a genuine element of compromise inherent in the offer. In my opinion it is appropriate in the circumstances to make an order that Woolworths pay Gazcorp's costs of the main proceedings on the ordinary basis up to 15 January 2021 and on an indemnity basis thereafter.
The position seems to me to be different in relation to Offer 2. Here, Gazcorp and Mr Gazal rely upon UCPR r 42.15A. That rule would apply to the offer if Gazcorp and Mr Gazal obtained an order or judgment on Woolworths' Cross-Claim no less favourable to them than the terms of the offer. Offer 2 contained a term that there be a judgment for the cross-defendants on the Cross-Claim. However, the only order that may be said to have been "obtained" by Gazcorp and Mr Gazal on the Cross-Claim was the order granting leave for the discontinuance of the Cross-Claim. In my opinion that order is less favourable to Gazcorp and Mr Gazal than a judgment in their favour on the Cross-Claim. Accordingly, I do not think that UCPR r 42.15A applies so as to provide a basis for an order for indemnity costs against Woolworths in relation to the costs of the Cross-Claim. Similarly, I do not think that the principles that apply to Calderbank offers would provide any basis for such an order. Any order for costs in respect of the Cross-Claim will be for costs assessed on the ordinary basis.
Woolworths submitted that it should have its costs of the Cross-Claim. Its principal argument in favour of such an order is that Gazcorp caused costs to be unnecessarily incurred "by not having notified its intention to discontinue earlier"; that is to say, by not earlier abandoning those parts of its case it abandoned at the commencement of the hearing. Significantly, the abandoned parts included Gazcorp's case based on cl 14.2. It was that case which prompted Woolworths to pursue its Cross-Claim in the first place, and its abandonment removed any need to further prosecute the Cross-Claim. Woolworths submitted that it would be grossly unfair for it to have to pay Gazcorp's and Mr Gazal's costs of the Cross-Claim.
Gazcorp submitted that the timing of its decision to abandon parts of its claim was irrelevant to the costs of the Cross-Claim. It was submitted that the Cross-Claim, which was narrowly focused and defensive to Gazcorp's cl 14.2 case, was doomed to fail if the Court found (as it did) that the agreement had been terminated by frustration or mutual abandonment. Gazcorp submitted that Woolworths bore the risk of that outcome when it decided to file the Cross-Claim. It was put that, as it turned out, abandoning the cl 14.2 case saved time and costs. It was also pointed out that even after the abandonment, and the discontinuance of the Cross-Claim, Woolworths read all of its evidence apart from an affidavit that went solely to the quantum of its damages.
In reply, Woolworths submitted that the factual ambit of the Cross-Claim was in some respects wider than the ambit of Gazcorp's case on mutual abandonment. It was pointed out, for example, that the misleading or deceptive conduct case would have required the determination of different factual issues, and it was submitted that the Court's findings on frustration and mutual abandonment are not determinative of the factual issues raised by the Cross-Claim.
That may be so, but it seems to me that the conclusions of the Court as to termination by frustration or mutual abandonment would preclude Woolworths from obtaining the substantive relief it was claiming on the Cross-Claim. Those conclusions would plainly stand in the way of the declaration that the agreement was on foot and provided Woolworths with an equitable interest in the land. That is so even if Woolworths' construction of cl 14.2 was correct. The conclusions would also render superfluous the relief sought under the Australian Consumer Law to the effect that cl 14.2 be amended, or alternatively that cl 14.2 not be enforced. The same can be said for the implied term or variation relief, the estoppel relief (which is confined to preventing Gazcorp from relying on cl 14.2), and the affirmation and waiver relief. The claim under the Australian Consumer Law for monetary relief would be precluded because the damage alleged (in paragraphs 83 and 84 of the Cross-Claim) is predicated upon the success of Gazcorp's cl 14.2 case (see paragraphs 81 and 82 of the Cross-Claim). In the absence of damage being established the Court would be most unlikely to make orders (in the nature of declarations) that Gazcorp had contravened the Australian Consumer Law or that Mr Gazal was involved in such contravention. For these reasons I accept that the Court's conclusions concerning frustration and abandonment mean that had the Cross-Claim continued, it would have failed.
Woolworths wasted costs argument needs to be considered in that light. It is true that had Gazcorp abandoned its cl 14.2 case earlier (or not brought it at all) the costs expended in relation to the Cross-Claim could have been reduced (or not incurred at all). However, any costs incurred in relation to the Cross-Claim over and above the costs of defending the cl 14.2 case are in reality the product of Woolworths' decision, made a considerable time after it filed its Defence, to pursue the Cross-Claim against both Gazcorp and Mr Gazal. Moreover, it must have been appreciated that the Cross-Claim was in essence a response to Gazcorp's cl 14.2 case, which was itself but one aspect of Gazcorp's claim that the agreement was no longer on foot. There was thus always a risk that the basis of the Cross-Claim might fall away, whether because of decisions taken by Gazcorp in the proceedings, or the manner in which the central issue in the proceedings was determined by the Court.
The submissions of Woolworths contain some criticism of Gazcorp for "waiting until the night before the hearing to discontinue a not insignificant part of its claim". Gazcorp is also criticised for not providing an explanation for this conduct. It was suggested that the Court should infer that at least part of the reason was to negate the exposure of Gazcorp and Mr Gazal to Woolworths' substantial damages claim (which I note was quantified in written submissions at about $346 million, subject to a minimal reduction for contingencies).
I do not think that Gazcorp should be so criticised. I was informed by Senior Counsel, and I accept, that a decision was taken to abandon parts of the case because in Senior Counsel's judgement it was not necessary to press those parts of the case. It is not surprising that a decision of that nature is made close to the hearing when the case has been fully prepared and considered. The client's acceptance of such a decision may well have involved all manner of tactical, strategic and commercial considerations. No further explanation of such matters is required in the circumstances. To require such would come into conflict with the right to client legal privilege. Moreover, I think that the abandonment of what were essentially alternative grounds for the principal relief sought, so that the litigation would proceed in a more focused manner, is conduct that should be encouraged. It is entirely consistent with the overriding purpose referred to in s 56 of the Civil Procedure Act 2005 (NSW), and in this case led to a shortening of the hearing and a more efficient resolution of the dispute.
Taking into account all of the circumstances, it is my view that it would be appropriate to order that the costs of the Cross-Claim be paid by Woolworths. I do not think that such an order is unfair to Woolworths. The costs of the Cross-Claim, being the costs of work related to the claim over and above the work required in relation to the main proceedings (see, for example, Ms Woodside's affidavit at paragraphs 11 and 12), were essentially incurred due to Woolworths' decision to pursue the Cross-Claim in the circumstances described earlier. It can be accepted that the Cross-Claim was itself reasonably arguable. However, it was not successful, and it would not have succeeded had it not been discontinued. To the extent that Gazcorp and Mr Gazal incurred costs on the Cross-Claim they ought be compensated by an order in their favour, albeit on the ordinary basis only.
This result conforms to the usual position that applies when a party discontinues proceedings (see UCPR r 42.19). I note, however, that the rule might not apply here due to the manner in which the discontinuance was effected (see Warwick Green Building Pty Ltd v Woodward [2021] NSWSC 362 at [10]-[11]). I note further that neither party referred to UCPR r 42.19 in submissions. If the rule did apply, it would tend to reinforce the conclusion that the appropriate order is that Woolworths pay the costs of the Cross-Claim.
Finally, I think that Woolworths should also pay the costs of this application, which concerns both the main proceedings and the Cross-Claim, on the ordinary basis. Gazcorp and Mr Gazal may be considered to be the successful parties on the application.
For the above reasons the Court will order:
1. that the defendant pay the plaintiff's costs of the proceedings on the plaintiff's claim on the ordinary basis up to and including 15 January 2021 and on the indemnity basis thereafter;
2. that the cross-claimant pay the cross-defendants' costs of the proceedings on the Cross-Claim on the ordinary basis; and
3. that the defendant/cross-claimant pay the costs of the plaintiff/first cross-defendant and the second cross-defendant of the application for costs on the ordinary basis.
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Decision last updated: 18 May 2021