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Judgment

1. THE COURT: On 28 May 2015, this Court allowed an appeal, set aside a declaration that a particular property in Mosman "has the benefit of existing use rights as two flats in a house", and in lieu thereof declared that the property "has the benefit of existing use rights as a building containing flats". Substantially in accordance with a timetable put in place on that day, the parties have exchanged submissions on the outstanding issues, which relate to costs, and which were directed to be dealt with on the papers.
2. The respondent Council accepts that it should pay the costs of the successful appellant both on appeal and at first instance. The issue that arises is whether some part of those costs should be paid on an indemnity basis. Jojeni relies upon a series of offers of compromise, purporting to be under the rules, and Calderbank letters, sent both at first instance and on appeal, in support of special costs orders in its favour.
3. At first instance, by letter dated 12 November 2013, Jojeni's solicitors proposed an offer in these terms: "1. Verdict in favour of the Applicant. 2. A declaration that property known as 7 Arbutus Street, Mosman has the benefit of existing use rights as a residential flat building. 3. Each party pay its own costs of the proceedings."
4. The letter was expressed to be an open offer, issued in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333. It also enclosed a document purporting to be an offer of compromise in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW), in identical terms. The letter stated that if the offer were not a valid offer of compromise under the rules, it was intended to take effect as an offer in accordance with Calderbank. The offers were open for a period of 28 days. The letter addressed, relatively briefly, the Council's defence and explained why, in the author's view, it was doomed to fail. The letter also advised that Jojeni's costs were, at that stage, approaching $50,000, and for that reason the offer amounted to a genuine compromise.
5. By letter dated 10 December 2013, Council rejected all offers, maintained both limbs of its defence, and further noted the following: "Setting aside whose analysis is correct, for the time being, it is important to note that the Court has no obligation to make declarations to which parties have consented and frequently expresses discomfort at the notion of doing so. Rather, and in the circumstances in this particular matter, because a declaration as to existing use rights has the same force as a declaration of proprietary rights and is good against the whole world, the Court should not make such a declaration unless persuaded. The declaration sought is in the fiscal interests of the applicant and, without being in any way critical of the applicant, there is no obligation on the applicant to provide any counterarguments. Therefore it is in the public interest that there be a contravener and that is the function that the Council performs in the circumstances of this case. Council will raise the arguments foreshadowed in the exercise of its duty to ensure that a decision, which will operate in rem is not based on a partial or flawed understanding of the facts or law and whatever amount of money the applicant might offer by way of purported compromise could not induce the Council to fail to perform its statutory duties. It is not appropriate that Council be deflected by a reward, whether the purported compromise is intended as a reward or not, from performing its function of ensuring that private rights are not created contrary to the public interest."
6. There was further correspondence at first instance, involving a reiteration of views, which took the matter no further.
7. Jojeni failed at first instance, and costs were ordered against it. Shortly after commencing its appeal (which was ultimately successful) in this Court, Jojeni made a further, and more generous, offer of settlement, in the following terms: "1. Verdict in favour of the Appellant. 2. A declaration that 'Property known as 7 Arbutus Street, Mosman (Land) has the benefit of existing use rights as a residential flat building'. 3. In the alternative to [2], a declaration that 'the Land has the benefit of existing use rights as flats'. 4. Each party pay its own costs of these proceedings. 5. The Appellant pay the Council's costs of the proceedings in the Court below as agreed or assessed."
8. It will be sufficient to pass over the alternative declarations identified in paragraphs 2 and 3 of the offer, for it has not been submitted that, in the circumstances of this case, there was any uncertainty such that the offer was incapable of acceptance. Once again, the letter was expressed to be made in accordance with Calderbank v Calderbank, and it enclosed an offer of compromise purporting to have been made in accordance with r 20.26 of the Uniform Civil Procedure Rules. It also provided that if it were not a valid offer of compromise under the rules, it was intended to take effect as an offer in accordance with Calderbank v Calderbank. The offers were open for acceptance for a period of 28 days. The letter stated that Jojeni's costs were now approaching $150,000 and noted that it was prepared to forego that cost entitlement and also to pay Council's reasonable costs at first instance. This offer was expressed to be without prejudice save as to costs. It was not accepted by Council.
9. The first question is whether either offer of compromise complies with the rules. If so, subject to a residual discretion discussed in decisions such as Barakat v Bazdarova [2012] NSWCA 140 at [48] and Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [46]-[48], r 42.14 provides a default position that costs incurred after the offer be assessed on an indemnity basis if the order or judgment on the claim is "no less favourable" than the terms of the offer.
10. All of Jojeni's offers involved each party bearing its own costs of the proceedings. Council submitted that an offer that each party pay its own costs was in substance the same as an offer which is inclusive of costs. It relied on what was said by Emmett JA in Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; 84 NSWLR 311 at [72], "Where an offer is made inclusive of costs, a figure is proposed under which the plaintiff will receive that figure and will also pay its costs out of that figure". On that basis, Council submitted that the offers did not comply with r 20.26(2)(c), which provides that an offer under that rule "must not be expressed to be inclusive of costs".
11. Council's submission must be rejected. First, Jojeni's offers were not expressed to be inclusive of costs. Council's submission turns upon giving an expansive construction to the prohibition in r 20.26(2)(c), so that it extends to offers which, so it is said, amount in substance to offers where the successful party ends up bearing its own costs. However, the purpose of the rule is clear. It is directed to the mischief of a monetary offer in a lump sum which does not differentiate between a plaintiff's claim (which will regularly have been the subject of pleadings, particulars and evidence) and the plaintiff's costs (as to which the other party will have no basis for making an informed decision to compromise). Further, an offer expressed to be inclusive of costs is not capable of ready comparison with a judgment obtained by the party in the event that the offer is not accepted and the matter proceeds to a final hearing. For example, to take a case where a plaintiff is seeking a money judgment, is an offer that a defendant pay $400,000 inclusive of costs "no less favourable" than a judgment in the plaintiff's favour in the amount of $300,000 and an order that the defendant pay the plaintiff's costs? The prohibition in r 20.26(2)(c) avoids the difficulty that it may not be possible to determine whether the default position of indemnity cost applies until the costs have been assessed.
12. It is clear from the above that the prohibition in r 20.26(2)(c) was not directed to offers such as those made by Jojeni.
13. Secondly, Council's submission would create an anomaly. Rule 20.26(3)(a)(i) provides that a defendant may make a "walk-away" offer of judgment in its favour with no order as to costs, and yet comply with the rule. The same applies to a respondent in respect of an appeal: r 51.47, see Taheri v Vitek (No 2) [2014] NSWCA 344 at [8]. This confirms that the regime extends to offers which leave each party to bear its own costs.
14. Thirdly, Council's submission is inconsistent with authority. It is inconsistent with the result in Botany Bay City Council v Latham (No 2) [2013] NSWCA 450, although as was expressly noted at [6] the point was not there taken. In Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 a comparable offer was held to comply with the rules, although the rules at that time were differently formulated, requiring that "an offer must be exclusive of costs". The current rule is expressed in the negative and is narrower still.
15. For those reasons, there is no difference between an offer containing a term that each party bear its own costs, and an offer which is silent as to costs. Such an offer does not contravene r 20.26(2)(c).
16. Council made other submissions which need not for present purposes be summarised or resolved. It is sufficient to proceed on the basis that either or both of the offers of compromise were "no less favourable" than the orders ultimately made, such that the default position in r 42.14 applies.
17. Even where an appellant is entitled to an order against a respondent for the appellant's costs in respect of the claim under r 42.14, the court retains a discretion to "order otherwise". In the circumstances of this case, this discretion should be exercised in favour of the Council. The Council, as a public authority, was the only appropriate contradictor to the appellant's claim. Moreover, the litigation involved generally applicable questions of public law. Even had the Council consented to any of the declarations proposed by Jojeni, it would have remained necessary for the Court to be satisfied that the relief was appropriate: see KJD York Management Services Pty Ltd v City of Sydney Council [2006] NSWLEC 218; 148 LGERA 117 at [22]-[25] and Cutcliff v Lithgow City Council [2006] NSWLEC 463; 147 LGERA 330 at [18]-[20]. Further, it would be inappropriate to encourage the Council, through the provision of a financial incentive, to consent to orders that should properly be determined by a court with the benefit of argument.
18. It is not necessary to determine whether a court's discretion to "order otherwise" under r 42.14 is confined to "exceptional circumstances" (see Barakat v Bazdarova at [48], Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) at [46]-[48] and Sydney Attractions Group Pty Ltd v Schulman (No 3) [2013] NSWSC 1544 at [19]-[31]). To the extent that such circumstances are required, they are present here for the reasons given above.
19. Finally, turning to whether the principles in Calderbank v Calderbank entitle Jojeni to the special costs orders which it seeks, it is necessary for it to be shown that the Council acted unreasonably in refusing either offer: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]. In circumstances where the subject matter of the proceeding was declaratory relief, where the point was of general importance, where acceptance of the offer would have deprived the Court of the benefit of argument on both sides and where the Council was the only appropriate contradictor, the considerations to which Council pointed, which are elaborated above, have force. The Council is not shown to have behaved unreasonably.
20. Accordingly, Jojeni is not entitled to the special costs orders for which it has applied. At all times, Council has been willing to pay costs on the ordinary basis. The appropriate orders to resolve the remaining issues in this appeal are as follows: 1. The costs orders made in the Land and Environment Court in proceeding 40512 of 2013 on 28 October 2014 are set aside. 2. Subject to 3 below, the respondent is to pay the appellant's costs, both at first instance and on appeal, on the ordinary basis. 3. The appellant is to pay the respondent's costs of the costs application on the ordinary basis.