Plaintiff v Defendant

Practice and procedure - Costs - Offer of compromise - Offer included lower costs than entitlement under rules - Whether offer valid - Costs thrown away by abandoned claims - Whether abandonment costs should be paid on indemnity basis - Relevant principles for special costs order - Supreme Court (General Civil Proceedings) Rules 2005 order 26

1 On 8 April 2009, I determined that the plaintiff, Peet, was entitled to recover certain amounts from the defendant, Mrs Richmond, by way of quantum meruit. I allowed the sum of $359,782.68 in respect of expenses paid by Peet to third parties ("the third party award"), and a further sum of $468,672.75 for work performed by Peet's own employees ("the internal award").[1]

2 My earlier reasons for decision[2] set out the history of the relationship between the parties, and the way in which Peet's claim changed over time. In particular, I explained how Peet had, on the first day of trial, abandoned its primary claim for specific performance of an alleged contract or damages in excess of $63 million for breach of that contract, as well as its alternative claims in estoppel and unjust enrichment ("the abandoned claims"). The trial proceeded on Peet's quantum meruit claim only. At no stage during the proceeding had Mrs Richmond disputed that Peet was entitled to recover on a quantum meruit basis; the only issue was as to the appropriate quantum.

3 The matter was adjourned to a date to be fixed, for further argument on interest, GST, costs and the form of orders. As the parties agreed that my decisions in relation to interest and GST might impact on the question of costs, separate hearings were held.

4 On 16 June 2009, the parties made submissions in relation to interest. At the conclusion of that argument, I indicated that I would order Mrs Richmond to pay interest at the penalty interest rate under s 60 of the Supreme Court Act 1986, from 16 November 2007 until judgment.

5 On 30 July 2009, I heard argument in relation to GST, at the end of which I indicated that Mrs Richmond should be liable for any GST which Peet might have to pay on the judgment sum.

6 In relation to both interest and GST, I indicated that I would publish reasons later; those reasons form part of these reasons for decision.

7 On 11 and 12 August 2009, I heard argument in relation to costs. I reserved my decision in relation to costs.

8 Peet argues that it should receive interest prior to the commencement of the proceeding in January 2007:

(a) At penalty rates, alternatively, commercial rates;[3]

(c) In relation to each individual payment contained in the third party award, generally from the date of payment of that amount;[4] and

(d) In relation to the internal award, on some form of aggregated monthly basis.[5]

9 In respect of the period since the commencement of the proceeding, Peet seeks interest either on the same basis as pre-litigation interest, or pursuant to s 60 of the Supreme Court Act 1986, at the rate from time to time set under s 2 of the Penalty Interest Rates Act 1983 ("the penalty rate").

10 Mrs Richmond opposes the awarding of any interest, for various reasons which will be considered shortly.

11 Peet's claim to pre-litigation interest is based on restitutionary principles, as part of its claim to recover on a quantum meruit basis. There is no dispute that the court has power to order pre-litigation interest on that basis; the dispute is as to whether that power should be exercised here.

12 The current pre-litigation interest claim differs somewhat from that in the pleadings. The last formal pleading, being further and better particulars filed on 20 October 2008 (the first day of the trial), merely sought "pre-litigation interest and interest pursuant to statute in the amounts as determined by the court." Prior to that pleading, there had been no claim to pre-litigation interest on a quantum meruit basis.

13 However, during the course of the trial, Peet's counsel handed up a document headed "Particularised paragraphs of statement of claim relied upon at trial", which purported simply to show those paragraphs which were no longer relied upon as a result of the abandonment of the abandoned claims. In fact, in the relevant part of the particulars to para [13] of the statement of claim, after listing the total amounts sought by way of quantum meruit in respect of the third party claim and the internal claim, the following additional text had been inserted:

plus interest on these disbursements, running for each from the date of payment of each consultants invoice, totalling $207,566.70 (to 20 October 2008), and as detailed on the schedule attached, and interest pursuant to statute on the sum of $815,965 [which was the amount sought by Peet in respect of internal costs], or such sum as is awarded by the court.

14 The schedule was contained in a folder marked "interest calculations", which contained a series of calculations of simple (not compound) interest at the penalty rate, calculated from either the date of payment of the relevant invoice, or the date of the invoice, until the first day of trial. The schedule totalled $208,593.66 (GST inclusive) or $186,485.72 (GST exclusive). The schedule only sought interest on items which formed part of the third party claim. There has never been a pleaded or particularised claim for pre-litigation interest in respect of the internal claim.

15 Peet argues that it should be compensated for being kept out of its money, both for amounts it paid to third parties, and for its own time. It argues that Mrs Richmond has had the benefit of not having to pay for the services at the time they were provided, and has been able to use the money in the meantime. Unless she pays interest, Peet says she will have been unjustly enriched. Peet says that the final award will not be fair and reasonable, unless it takes these matters into account by including pre-litigation interest.

16 I am not persuaded that Peet should recover pre-litigation interest, given the history between the parties. Any enrichment to Mrs Richmond would not be unjust, having regard to the particular - and rather unusual - circumstances of this case.

17 In para [13] of the earlier reasons, I noted that Mrs Richmond had, at least since 2005, indicated a willingness to pay Peet for its actual work and expenses on a quantum meruit basis. For the purpose of determining interest and costs, it is necessary to consider in more detail some of the communications since 2004 concerning payment.

18 In the earlier reasons, particularly in paras [148] to [197], I set out the history of negotiations between the parties from 2002 until early 2006, in which they attempted to reach agreement as to the terms on which the Richmond land would be developed, once it had been included in the urban growth boundary ("UGB") and rezoned. It is against that background that the correspondence to which the parties took me in the course of argument needs to be considered.

19 In early February 2005, Mrs Richmond's solicitor asked Peet to provide "the details of the costs that have been incurred by Peets to date." The email did not contain any offer to pay anything. Peet responded with a spreadsheet which showed payments to third parties totalling approximately $232,000. That correspondence appears to be related to the allocation of expenses under the memorandum of understanding ("MOU"), under which Peet was to pay all third party expenses up to $250,000, Mrs Richmond and Peet were to share such expenses between $250,000 and $650,000, and Peet was to pay all expenses beyond $650,000.

20 In late November 2005, Peet provided Mrs Richmond's son, Colin Richmond, with a further spreadsheet, showing third party payments made to date. The spreadsheet indicated that Peet had paid the first $250,000, and that thereafter Peet and Mrs Richmond were splitting expenses in accordance with the MOU.

21 The above correspondence appears to have nothing to do with any offer by Mrs Richmond to pay expenses on a quantum meruit basis. It seems that the parties were honouring the spirit of the cost allocation contained in the MOU, even though the MOU was non-binding. Presumably they were doing so because they were still hopeful of concluding some sort of satisfactory joint venture arrangement.

22 In September 2005, Mrs Richmond's solicitor wrote to Peet about the unsatisfactory state of negotiations about the proposed development project. The email said that Mrs Richmond was considering her options, and wanted to know Peet's preferred course. It said that if Peet was not interested in progressing along a particular path:

then the most appropriate way forward would be to assess an appropriate strategy for finalising the present arrangement. As discussed in our meeting in September 2004, the Richmond Family will seek to come to a satisfactory arrangement to both themselves and Peet in relation to reimbursing Peet for costs incurred that are of benefit to the land.[6]

That is a clear indication of a general intention by Mrs Richmond to ensure that Peet would not be out of pocket if the proposed joint venture did not go ahead.

23 The land was included in the UGB in November 2005. Further negotiations failed to result in any binding agreement and, by 13 January 2006, Peet had been instructed to do no further work in relation to the Richmond land.

24 The parties communicated during 2006, setting out their respective views as to the current state of their relationship. In general terms, Peet alleged that there was an existing joint venture agreement, under which it was entitled to proceed with the rezoning and then the development of the land. Peet complained that it had already spent more than $250,000 in relation to the inclusion of the land in the UGB, and that it had done so in accordance with the joint venture agreement. The Richmonds continued to deny that there was any binding agreement, but invited Peet to put forward a fresh proposal for the rezoning of the land. A letter from Colin Richmond, dated 30 March 2006, concluded "[i]f that process is unsuccessful or you do not wish to submit a proposal, you should forward details of your costs to date for our review."

The Richmonds have always advised that in the event a deal was not concluded, that we would pay all appropriate costs that had been incurred to date. In the absence of a concluded agreement, I suggest that you forward to us details of the costs for our consideration.

26 Mrs Richmond's solicitor followed up the 2 May letter, with a letter to Peet's solicitors dated 7 July 2006, in which she said "as has been advised on numerous occasions, our client is prepared to compensate your client for all work undertaken in relation to our client's property."

27 The response from Peet's solicitor, dated 27 July 2006, re-asserted that there was a concluded agreement in existence. As to the offer to pay Peet compensation, the response was that "[t]o pay Peet for its work to date, as if it had merely been hired to act as a Richmond contractor, rather than as a co-principal, does not adequately address Peet's interests."

28 Further "without prejudice" negotiations later in 2006 failed to resolve the dispute. On 15 January 2007, Peet's solicitors informed Mrs Richmond's solicitors that they would shortly be issuing a writ. Mrs Richmond's solicitor replied the next day, in the following terms:

Over the past two years, we have requested, on numerous occasions, from Peets and your firm, details of the agreement that Peets asserts is in existence. In addition, details of what your client seeks as monies owed to it have also been requested.

No details from Peets have been forthcoming. In the circumstances, we find it extraordinary that your client is choosing to litigate prior to articulating its demands.

We invite you to provide us with a copy of the statement of claim for our client's review, prior to the proceedings being issued. Our client has, at all times, maintained the position that it owes your client money in relation to the work it has undertaken. For this reason, numerous requests have been made for details of these amounts. Our client remains ready to compensate your client properly for the work undertaken by it on behalf of our client.

Accordingly, we again invite you to provide this information to us. It is our view that the appropriate method would be to provide us with such details prior to issuing proceedings. However, if your client wishes to withhold this information until after proceedings are issued, we trust your client accepts the consequences of such a divisive step.

29 Peet did not provide the information requested by Mrs Richmond; it simply went ahead and issued this proceeding on 16 January 2007. The writ contained no quantification of the quantum meruit claim. I will consider later in these reasons the subsequent attempts by Mrs Richmond to obtain details of the amount which Peet was seeking on the quantum meruit. It was not until the first Dwyer report, filed in November 2007, that Peet gave any indication of the size of its quantum meruit claim.

30 In summary, when it was becoming apparent to Mrs Richmond that she and Peet were unlikely to be able to reach any agreement beyond the inclusion of the Richmond land in the UGB, Mrs Richmond offered to pay Peet's actual costs for the work done in relation to UGB inclusion. Over a period of several years, she repeatedly sought details of the amount of those costs.

31 Peet steadfastly refused to provide those details, arguing instead that there was a binding joint venture agreement for the development of the land. Peet said it did not want to be paid for its actual costs, because it was a joint venturer and should be entitled to proceed on that basis. Indeed, it was not until the first day of the trial that Peet finally abandoned its primary contention that there was such a binding contract. Importantly, Peet never demanded payment of any sum prior to the commencement of this proceeding, despite all the correspondence between the parties about costs.

32 In submissions, Peet argued that it was not clear from Mrs Richmond's letters whether she was offering to pay Peet's internal costs or only third party expenses, therefore I should not be satisfied that Mrs Richmond's offer went far enough. I reject that argument. On its face, the offers in the correspondence seem to be wide enough to cover both internal and external costs. Furthermore, Peet's argument might have had some validity had Peet shown the slightest interest in accepting payment, and (unsuccessfully) sought clarification as to the extent of Mrs Richmond's offer.

33 In these rather unusual circumstances, I am not persuaded that it would be fair and reasonable to award Peet interest (at any rate or on any basis) in respect of money that it was not claiming - indeed, was rejecting offers of payment of - prior to the commencement of the proceeding. In so far as Mrs Richmond has received the benefit of having the use of the money, between the times when the work was done and the commencement of the proceeding, there is no unjust enrichment in her retaining that benefit. She made reasonable offers, and took reasonable steps to obtain sufficient information to enable her, to pay Peet for what it had done for her benefit, even though she was under no contractual obligation to do so.

34 For these reasons, I reject Peet's claim to interest prior to the commencement of the proceeding.

Interest from the commencement of the proceeding

35 Additionally, Peet seeks interest from the date of commencement of the proceeding to judgment, either on the same quantum meruit basis as the pre-litigation interest, or under s 60 of the Supreme Court Act 1986.

36 Section 60 relevantly provides:

(1) The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.

37 Nothing in s 60 authorises the granting of compound interest.[7]

38 Section 60 applies to proceedings for the recovery of a debt or damages. Mrs Richmond accepts that a claim for a quantum meruit falls within the type of proceeding to which s 60 applies. She makes that concession because Byrne J so held in Brenner v First Artists' Management Pty Ltd.[8] I proceed on the basis of that concession, as a matter of judicial comity and in the absence of any contrary argument being advanced.

39 In Clarke v Foodland Stores Pty Ltd,[9] the Full Court held that the expression "good cause to the contrary" in s 58(1) of the Supreme Court Act 1986[10] means:

no more and no less than good reason, according to the justice of the case, for not allowing interest at all or, if interest is to be allowed, then for not allowing interest for the whole of the period marked out by the section.

What is "good cause" in any given case will therefore depend upon the particular facts and circumstances and it would be unwise to attempt to put any gloss on the expression.[11]

40 The Full Court also held that because the provision empowered the court to allow interest "at a rate not exceeding" the penalty rate, it always had a discretion to award a lesser rate, without good cause to the contrary needing to be shown.[12]

41 The Full Court explained that the purpose of statutory interest is to compensate plaintiffs for being kept out of their money, although not because they have on that account lost the opportunity to invest it, but because they have thereby been deprived of its use.[13] It is not ordered simply to penalise defendants for not having paid earlier, although an award of interest may have that effect.[14]

42 Those observations apply equally to the awarding of interest under s 60.[15]

43 Peet says that Mrs Richmond has not demonstrated "good cause" why it should not recover statutory interest from the date of commencement of the proceeding.

44 Mrs Richmond says that the parties' conduct amounts to good cause why she should not pay any statutory interest. Alternatively, if any interest is to be paid, it should only be paid from the time when Peet finally provided quantification of its quantum meruit claim.

45 I have mentioned the correspondence between the parties prior to the commencement of the proceeding. It is now necessary to consider subsequent attempts by Mrs Richmond to obtain details of Peet's claim, and Peet's continued resistance to the provision of such details.

46 The proceeding was commenced in mid January 2007. On 29 January 2007, Mrs Richmond's solicitors made yet another written request for information as to "the amounts owing to your client for the work performed." Peet's solicitors "responded" in the following terms:

Our client is neither obliged nor inclined to provide your client with the documents sought at this time. The documents sought are not insubstantial in terms of volume and will be produced, along with the remainder of discovery ...

47 Mrs Richmond's solicitors pointed out in their reply that they had not sought documents, merely information as to the quantum of Peet's claim.

48 Peet's solicitors' rather rude and unhelpful response was:

We invite you to read or re-read our client's statement of claim. The primary relief sought by our client is specific performance of an agreement which has been part performed, as such there is no need to quantify this aspect of [the] claim. In terms of the alternative relief sought, we concede that it will ultimately be necessary for our client to quantify its claim, but this will be done after completion of discovery and obtaining expert evidence.

49 On 28 February 2007, Mrs Richmond filed her defence. She denied the existence of a binding contract, and the pleaded claims in estoppel and unjust enrichment. As to the alternative quantum merit claim, she admitted that Peet was entitled to payment for work done and expenses incurred, and pleaded some of her past attempts to obtain information as to the quantum of Peet's claim. Throughout this proceeding, Mrs Richmond has never changed that position.

50 Mrs Richmond sought the entry of the proceeding into the Commercial List. One of the grounds on which Peet opposed that course was that expert evidence in relation to quantum meruit and land valuation had not yet been obtained, and would be difficult and time-consuming to obtain.

51 The matter was entered into the Commercial List. At a directions hearing before Hargrave J on 20 July 2007, Peet's counsel described the quantum meruit claim as "the fallback", after the contractual and other claims. On that occasion, Mrs Richmond's solicitor complained that until particulars of quantum were provided "we're in a very difficult position because in the event our client wanted to make an offer, it could only make one by picking a number out of the air."

52 That complaint was repeated in a letter dated 3 September 2007, which noted that particulars of quantum had still not been provided, and said:

We note that legal fees are continuing to be incurred in relation to this matter. Our client remains ready to make an offer in relation to the quantum meruit claim but cannot do so without further information. Your client's failure to provide details of its quantum meruit claim is causing our client an on-going prejudice.

At some stage your client will have to provide this information and our client will make an offer. If your client ultimately recovers less than the amount in the offer, our client will seek indemnity costs in relation to the period from the date of issue of proceedings until the date of provision of the details of the claim.

We again request this information be supplied as a matter of urgency.

[Peet's] position, is and remains, that a claim for quantum meruit is indeed its fall back position. It is one of a number of claims made against your client that are clearly articulated in the statement of claim. Your assertion that the failure to provide the quantum of this claim is putting your client at a serious disadvantage simply cannot be supported. So there is no misunderstanding, you have [Peet's] discovery and you are in a position to make any offer you deem appropriate. On this basis what is the serious disadvantage and ongoing prejudice that your client claims to be suffering?

If it is and remains your client's intention to make any proposal then they should do so. My client's position is abundantly clear from the pleadings and the previous correspondence on this issue.

54 In the context of this case, the suggestion that Mrs Richmond's lawyers could have quantified Peet's quantum meruit claim for themselves, by trawling through Peet's discovery, is bordering on the absurd. True it is that they could have worked out approximately how much Peet had paid to third party consultants, by looking at invoices, payment records and the like. But there is simply no way they could have sensibly calculated how much Peet was likely to claim in respect of its internal costs, in a situation where Peet kept no time sheets and had no hourly billable rates for its staff, and where Mrs Richmond had no access to Peet's employees to ask them the sorts of questions which Peet's expert did in order to prepare his report. Furthermore, the suggestion that Peet's claim in this regard was "abundantly clear" from its pleadings was simply not true.

55 Peet did not comply with the timetable for filing its witness statements. At a directions hearing on 26 October 2007, Peet's counsel explained that the task of preparing expert evidence on the quantum meruit claim was an enormous one, which had been commenced months before and was still not complete. Mrs Richmond's solicitor complained again that her client could not make any offer until there was some quantification of the claim. Hargrave J asked Peet's counsel why Peet should not at least provide particulars of quantum within a short time, even if it needed more time for its expert evidence. Peet's counsel responded that no particulars could be provided until after the expert evidence was prepared.

56 In a letter dated 8 November 2007, Mrs Richmond's solicitors pointed out the clear inconsistency between what Peet's counsel had told the court on 26 October, and its earlier assertion that quantum was a simple matter which Mrs Richmond should be able to work out for herself. Peet's solicitors' response to that letter was argumentative and inaccurate.

57 It is agreed that Peet served the first Dwyer report on 16 November 2007. That is the first document served by Peet which contained any indication of the amount it was seeking in respect of the third party and internal claims (a total of approximately $1.16 million). The second Dwyer report, dated 26 August 2008, claimed substantial additional amounts on the internal claim. It was not until September 2008 (the month before trial), after court order and further chasing up by Mrs Richmond's solicitors, that Peet finally filed any particulars of quantum.

58 Mrs Richmond's primary position is that Peet should not recover any statutory interest, because, even after the litigation was commenced, Mrs Richmond continued to request particulars of the quantum meruit claim, and continued to receive unhelpful replies from Peet's solicitors.

59 In response, Peet says that Mrs Richmond's complaint about the late particularisation of the claim goes only to the question of costs, not interest.

60 Although the conduct of the parties discussed above may well be relevant to costs - and will be considered in that context shortly - it does not follow that it may not also be relevant to interest.

61 I have already found that, up until the time of commencement of the proceeding, Peet was not seeking payment on a quantum meruit basis, indeed, was actively refusing offers to be paid on that basis. Once the proceeding was commenced, a quantum meruit claim was made in the alternative, albeit that it was always described by Peet as the fallback claim. Mrs Richmond never denied liability to pay on a quantum meruit basis, and continued to seek details of the amount claimed, so she could assess the claim and make an offer. Her requests were met by delay, obfuscation and, on occasion, rudeness.

62 I find that the parties' conduct in this regard constitutes "good cause" why statutory interest should not be payable from the commencement of the proceeding. The question which then arises is what, if any, statutory interest should be paid.

63 The court has a general discretion to depart from the terms of s 60. But the starting point must be that s 60 assumes that a successful plaintiff will be entitled to statutory interest unless, for good reason, the court is satisfied that some other and lesser course should be followed. I do not regard Peet's conduct as bad enough to disentitle it from receiving any statutory interest at all.

64 I propose to order interest commencing from when Peet served the first Dwyer report, on 16 November 2007, as that was the first time that it gave any indication as to the amount of its quantum meruit claim, and how it was calculated. In coming to that conclusion, I am not meaning to suggest that the provision of particulars of quantum will always be an appropriate time to start interest payments under s 60. In the particular circumstances of this case, the unreasonableness of Peet's past behaviour was ameliorated by the provision of the long-requested information, sufficiently to justify the commencement of statutory interest.

65 I do not accept Mrs Richmond's argument that she should not have to pay any interest because, until the date of judgment, she did not know precisely how much she was obliged to pay Peet. Until judgment, a defendant rarely knows the precise amount it will have to pay by way of damages (or quantum meruit). If Mrs Richmond's argument were correct, and that fact constituted "good cause" to vary the rule in s 60, then s 60 interest would rarely, if ever, be awarded.

66 Nor do I accept Mrs Richmond's argument that interest should not begin to run until all lay and expert witness statements had been provided, at which point she was in a position to assess whether Peet's claim could be made out. Section 60 assumes that interest will generally be calculated from the date of commencement of the proceeding, at which time the parties will ordinarily have only the plaintiff's claim, and perhaps some of their own evidence, to consider. Once again, if Mrs Richmond's argument were correct, s 60 interest would rarely, if ever, be awarded.

67 There was no real attempt by Mrs Richmond to persuade me that any statutory interest that I was minded to order should be paid at less than the penalty rate.

68 Accordingly, I concluded that interest should be ordered pursuant to s 60, from 16 November 2007 until the date of judgment, at the penalty rate from time to time.

69 In so far as Peet claims interest from the date of commencement of the proceeding on a restitutionary basis, I rejected that claim for substantially the same reasons as I rejected it for pre-litigation interest. That is to say, any enrichment to Mrs Richmond, by reason of her having the benefit of not paying Peet, is not unjust in the circumstances of this case.

70 At trial, there was a dispute as to whether the amount allowed on the third party claim should be GST inclusive or exclusive. In the earlier reasons, I concluded at [144] that the third party award should be GST exclusive.

71 That decision did not address any GST consequences of the payment which is to be made pursuant to the judgment.

72 At the separate hearing on GST, Peet sought an order grossing up the total amount allowed by way of quantum meruit by 10%, to allow for GST. Alternatively, Peet sought an order that Mrs Richmond indemnify it in respect of any GST which it may be found liable to pay on the judgment sum. Mrs Richmond opposed either course.

73 Peet seeks such an order as part of its quantum meruit claim. It says that unless the judgment takes into account its liability to pay GST, its award will be diminished and it will receive 1/11th less than the court intended. It says that it would thereby not receive fair and reasonable remuneration.

74 Mrs Richmond points out, quite correctly, that no such claim was pleaded or particularised. However, given that it is a narrow legal issue, involving no evidence, and Mrs Richmond has had ample opportunity to address the matter, I would not preclude Peet from raising the GST claim as a matter of fairness. Although I have published reasons for decision, I have not yet pronounced judgment; that makes this case distinguishable from the situation in Interchase Corporation Limited v ACN 010 087 573 P/L.[16]

75 Liability to pay GST is governed by A New Tax System (Goods and Services Tax) Act 1999 (Cth). GST is payable on a "taxable supply", as defined by s 9-5, which includes a supply of services. Relevantly, there must be a "supply for consideration."

76 The GST consequences of court orders are dealt with in Public Ruling GSTR 2001/4, according to which, payment made under a court order can constitute consideration for an "earlier supply". Whether there is a sufficient nexus for a court order to constitute consideration for the earlier supply is a question of fact in each case. The fact that payment is made by compulsion under a court order rather than in the ordinary course of commercial dealings does not affect the liability to GST.

77 I agree with Peet[17] that because the very nature of a quantum meruit award is payment for services rendered at an earlier point in time, it is probable that orders made by this court will constitute consideration for an "earlier supply" and so are likely to give rise to a GST liability.

78 Mrs Richmond objects to an order grossing up the judgment sum, because Peet's liability to pay GST will not arise until Mrs Richmond pays the judgment sum. She says she should not be ordered to pay any such amount until that tax liability in fact arises. Mrs Richmond says that the court cannot be satisfied in advance of that time that there will be any such liability.

79 Indeed, based on some authorities to which Mrs Richmond took me, she argued that I should conclude that it was unlikely that any GST liability would ever arise.[18] But each of those authorities is distinguishable on the facts. On the other hand, Peet referred me to several cases in which liability to pay GST on a quantum meruit judgment sum was clearly recognised by the court.[19]

80 Obviously, this court is not being asked to determine, as between Peet and the Commissioner of Taxation, whether there is in fact a GST liability. It is being asked to make an award which fairly and reasonably reflects a liability which is expected to arise upon payment of the judgment sum.

81 During the course of discussion, the possibility of ordering Mrs Richmond to provide an indemnity in respect of any liability which may be assessed was canvassed. It was common ground that such a route would not achieve any practical result, unless it was coupled with the obtaining of a private ruling to determine the nature and extent of any GST liability. Discussion then ensued as to who would have to pay for such a private ruling and whether the cost of obtaining one would be worthwhile, given the amount in dispute.

82 At the end of the day, I have determined that the fairest and most efficient way of dealing with GST is in the following manner. Peet will provide a tax invoice to Mrs Richmond upon request by her. Mrs Richmond will pay 1/10th of the quantum meruit sum to Peet within 30 days of receiving such a tax invoice from Peet, in respect of Peet's GSTliability. Within 30 days of remitting the relevant GST to the Commissioner, Peet will provide to Mrs Richmond documentary proof of the amount of GST it has remitted. Peet will refund to Mrs Richmond the balance, if any, remaining after it has remitted the GST. I will hear from the parties as to the precise formulation of the orders, including as to appropriate time periods.

83 The parties put forward detailed costs arguments, addressing a number of different matters.

84 Peet accepts that it is appropriate that it pay the costs thrown away by reason of its abandonment of most of its claims on the first day of the trial ("the abandonment costs"). However, it says that it should only pay those costs on the usual party-party basis. Mrs Richmond says that Peet should pay the abandonment costs on an indemnity basis, because the abandoned claims were commenced and continued in circumstances where Peet, properly advised, should have known that those claims had no chance of success.

85 Also in relation to the abandoned claims, Mrs Richmond disputes Peet's entitlement to recover in respect of senior counsel's fees, and says that Peet should pay her senior counsel's fees on an indemnity basis. In essence, she says that senior counsel would never have been briefed had the proceeding simply concerned the quantum meruit claim. Peet rejects this argument.

86 Apart from the abandonment costs, Peet says that it was successful in its quantum meruit claim and Mrs Richmond should therefore pay its costs of the proceeding on a party-party basis.

87 Mrs Richmond does not oppose paying Peet's costs on a party-party basis up to 13 March 2008. However, she says that Peet should pay all her costs thereafter, because she made an offer of compromise and a Calderbank offer on that date, neither of which Peet bettered. Furthermore, she says Peet should pay those costs on an indemnity basis.

88 There are then various arguments about who should pay for the costs of the separate hearings concerning interest, GST and costs.

89 The abandoned claims were of the following nature:

(a) Contract: Peet alleged the existence of a binding contract with Mrs Richmond, whereby it would carry out work to have the Richmond land included in the UGB, rezoned and developed, and share the profits of sale of each of the sub-divided lots. The contract was said to be partly constituted by discussions between Colin Richmond and Anthony Lennon, a director of Peet, on 19 September 2003 ("the September meeting"), and partly implied by conduct. Peet claimed that Mrs Richmond had repudiated the contract, and it sought specific performance or damages in lieu;

(b) Estoppel: Alternatively, Peet alleged that Mrs Richmond was estopped from denying that she was bound by the terms of the contract, because she had stood by while Peet performed the contract, believing that it was bound by it. In proposed amended statements of claim, which were circulated in September and early October 2008, Peet proposed to amend to plead that Mrs Richmond knew that Peet acted in the belief that the parties would enter into a formal contract containing the terms of the alleged contract (as an alternative to her knowing that Peet believed it was in fact bound by the contract); the proposed amendments were never formally made; and

(c) Unjust enrichment: Alternatively, Peet alleged that, by reason of its actions, the value of the Richmond land had been greatly increased by its inclusion in the UGB and it would be unjust for Mrs Richmond to retain that benefit. It sought an amount equal to the entire increase in value of the land.

90 Peet's counsel announced to the court on the first day of the trial, a Monday, that Peet was abandoning the abandoned claims. Apparently that had been foreshadowed in communications between counsel on the previous Saturday. Peet offered no explanation to the court for the abandonment, either on the first day of trial, or subsequently. The affidavit of Peet's solicitor, filed in relation to costs, did not seek to explain when or why Peet had decided to abandon the claims, even though it was filed a week after Mrs Richmond's outline on costs.

91 Peet argues that the usual costs rule should prevail, and it should only pay costs thrown away on a party-party basis.[20] Mrs Richmond argues that the abandonment costs should be paid on an indemnity basis.

92 There is no dispute that Mrs Richmond bears the onus of establishing the existence of special or unusual features warranting a special costs order in respect of the abandonment costs.

93 The court has a very wide discretion with respect to ordering costs.[21] It is a discretion which must be exercised judicially, that is to say, taking into account all relevant matters and making a decision which is fair and just to the parties. The court is entitled to examine the realities of the case and should attempt to do "substantial justice" as between the parties on matter of costs.[22] The courts have laid down certain principles to guide them in the exercise of that discretion in cases such as these, but they are merely guidelines and do not fetter the court's discretion.

94 One of the situations in which it is appropriate to consider making a special costs order is:

whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established laws.[23]

95 In such a case, the court "must measure the litigant's conduct against the facts then known or which ought to have been known, the inquiries the litigant ought reasonably to have made and the legal advice which the litigant ought reasonably to have obtained."[24]

96 If the litigant did not in fact recognise that its case was without merit, a court may be disinclined to make a special costs order.[25]

97 The mere fact that a party has chosen to reduce its case as it proceeds, by abandoning issues, does not establish that there were allegations which ought never to have been made, or that the case was prolonged by groundless contentions.[26] Everything depends on the circumstances of the individual case, including the nature of the allegations and any explanation offered for the abandonment.

98 Most of the cases to which the parties referred me were cases in which there had been a trial, and the court was able to determine whether a case had, and ought to have been reasonably assessed as having, no chance of success. Courts are traditionally reluctant to determine what the outcome would have been for a claim which was not pursued to trial. So, in Australian Securities Commission v Aust-Home Investments Ltd,[27] Hill J noted that:

It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial ... This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.

99 That principle has been applied in many subsequent cases, where a matter has settled prior to trial.[28]

100 But where one party has effectively surrendered to the other party prior to trial, the court will usually order that the surrendering party pay the other party's costs, even though the court has not heard evidence in relation to the proceeding.[29] Although a different point to the present question (which is whether indemnity costs should be awarded), this demonstrates that the court's attitude to predicting the outcome of an untried case may be different, depending on whether or not there has been an effective surrender.

101 In this case, not only is there the unexplained surrender, but the court is in the unusual position of being able to assess the strength of the abandoned claims. That is because the usual Commercial List orders had been made, namely, that evidence-in-chief be by witness statement, with no additional evidence to be led in chief without leave of the court, and all documents sought to be relied upon be included in the court book. Peet's witness statements and almost all of the court book were put in evidence before me, for the purpose of determining quantum meruit.

102 Peet's primary contention was that the evidence in its witness statements was sufficient to negate the suggestion that it should have known that its case on the abandoned claims was hopeless. Peet's counsel did not seek to identify any further evidence which Peet might have sought leave to adduce, in order to fill in any gaps.

103 At one point, Peet's counsel suggested that, if there were any gaps in its evidence, Mrs Richmond's counsel might have cross-examined Peet's witnesses in such a way as to make out the abandoned claims. I seriously doubt that counsel as experienced as Mrs Richmond's would have been so foolish. It is also rather odd to try to defeat an argument that your own client's case was doomed to fail, by the suggestion that your opponent might have made out a case for your client which you had not done yourself.

104 I agree with Mrs Richmond's submission that Peet's own witness statements did not swear up to the pleaded case on the abandoned claims, for reasons I will discuss shortly. Nor did the court book documents fill in the gaps. There was also a legal flaw with the pleaded estoppel claim. A reasonable plaintiff, properly advised, examining the evidence and the law, ought to have known that they had no chance of success on the abandoned claims.

105 Peet took me to a number of cases dealing with the circumstances in which a court may infer a contract from conduct, even where it is not easy to point to a specific offer and acceptance, and where some of the terms are not resolved at a particular point in time.[30] Those principles are not contentious.

106 The problem is that Peet was never contending for a wholly implied contract in this case. In para [3] of its statement of claim, Peet pleaded the existence and scope of the alleged contract. The particulars of the contract were that it was partly oral and partly to be implied. It was said that in so far as it was oral it was "constituted by discussions between Colin Richmond ... and Anthony Lennon ... [at the September meeting], the material content of which is set out in a letter from [Peet] to [Mrs Richmond's solicitor] dated 7 October 2003." There are then a number of matters relied upon as part of the implied contract case.

107 Requested to provide further and better particulars of the various terms of the contract, Peet pleaded that terms (a), (c) and (f) in para [3] of the statement of claim were partly oral and constituted by the September meeting. Term (a) was brief and related to Mrs Richmond supplying the land and co-operating with Peet to achieve the matters pleaded in para [3]. Term (c) dealt with the rezoning of the land after the completion of the UGB inclusion process. Term (f) was lengthy and dealt with the proposed development project, to be undertaken after the completion of rezoning; it dealt in some detail with the structure, funding and profit sharing arrangements for the development project.

108 Mr Lennon's primary witness statement, dated 27 August 2008, did not swear up to the matters pleaded in para [3] or the further particulars thereof. The totality of his evidence as to his meetings on 19 September with Colin Richmond was as follows:

138. On 19 September 2003 a project team meeting took place at Peet's offices at 9am. It was attended by Colin [Richmond], Nicol, McInnes, Tilleard and myself and minuted by Mulder (document 358).

139. It was not uncommon for Colin Richmond and me to talk before or after these meetings, when we would discuss between ourselves where the project was at. At all times he was reassuring to me about the continuing involvement of Peet in the rezoning and development of the land, expressing no disapproval of Peet, nor did he say anything about another party doing Peet's work after the land was included in the UGB.

109 The September meeting is apparently the one referred to in para [139] of the witness statement, as the pleading and particulars make no mention of any other person being present at that meeting (which seems to rule out the meeting in para [138]). Para [139] seems to suggest that one of these "not uncommon" meetings occurred or may have occurred before or after the project meeting on 19 September 2003, but its contents fall a long way short of the alleged oral terms of the contract. Mr Richmond did not even try to summarise the meeting, by saying something to the effect that the 7 October 2003 letter from Peet to Mrs Richmond's solicitor contained an accurate summary of the September meeting.

110 Mr Lennon's supplementary witness statement, dated 25 September 2008, only related to the quantification of the damages claim for breach of contract, and was not tendered at trial. In any event, it said nothing about the September meeting.

111 Mrs Richmond's written outline on costs refers at some length to various documents in the court book, which she says establish not only that Peet's contract claim was hopeless, but that it actually knew the claim to be hopeless. It is not necessary to consider the various documents, for two reasons. First, I propose to decide this case on the principle that Peet, properly advised, should have known that it had no chance of success, rather than on some higher basis of Peet's actual knowledge. Secondly, given my finding that Mr Lennon's failure to swear up to the oral part of the alleged contract was fatal, it is unnecessary to analyse the correspondence in any detail.

112 In coming to the conclusion that Peet's evidence did not establish the contract claim, I accept that the question of whether or not a contract has come into existence is to be determined objectively, not by reference to what the parties themselves might have thought. But it is to be determined objectively from what the parties said and did. Here, Mr Lennon simply did not swear up to anybody having said the things which are critical to the alleged oral terms.

113 I turn to consider the estoppel claim. Paragraph {7] of the statement of claim was premised on the assertion that Mrs Richmond had at all material times known that Peet understood the parties to be bound by the contract, and was acting on that premise. Her knowledge was said to have arisen, or was to be inferred, from the receipt by Colin Richmond on her behalf of agendas for and minutes of project meetings, and his attendance at project meetings. Nothing was identified as having been said or done at or in relation to those project meetings, which was supposed to have alerted Mrs Richmond to the basis on which Peet was acting.

114 In para [8] of the statement of claim, there was what was described as an alternative pleading, namely, that at all times until September 2005, Mrs Richmond acquiesced in the continuing performance of the contract and was now estopped from denying she was bound by its terms. The particulars referred to Mrs Richmond's silence in relation to Peet's continuing performance of the contract until September 2005.

115 Paragraph [9] then pleaded that by reason of either paras [7] or [8], Mrs Richmond thereby became estopped from denying that she was bound by the contract.

116 As pleaded, the estoppel claim was doomed to failure, for the reasons discussed by the NSW Court of Appeal in Austotel Pty Ltd v Franklins Selfserve Pty Ltd.[31]

117 In order to have succeeded, Peet would have needed to plead and prove the creation or encouragement by Mrs Richmond in Peet of an assumption that a contract would come into existence, and reliance on that by Peet in circumstances where departure from that assumption by Mrs Richmond would be unconscionable.[32] No doubt whoever drafted the proposed amendments to para [7] was aware of this problem, and was seeking to rectify it by the proposed amended statements of claim, which were circulating in the six weeks or so prior to trial. But those amendments were never formally made, and the estoppel case as pleaded was doomed to failure.

118 In any event, Peet's witness statements do not explicitly or adequately address the question of reliance.

119 The unjust enrichment claim was even briefer in its pleading. Peet alleged that by reason of Peet's work, the value of the land had been greatly increased. That was a benefit which had been conferred by Peet and accepted by Mrs Richmond. Paragraph [12] pleaded that to permit Mrs Richmond to retain that benefit, where she now repudiated the contract, would be unjustly to enrich her. That is to say, the unjust enrichment claim was also premised on the existence and repudiation of the contract. It must have failed for the same reason as the contract claim must have failed.

120 Even if the abandoned claims were futile (which it denies), Peet says that it should not face a special costs order because Mrs Richmond never tried to strike out the abandoned claims, and never drew to Peet's attention her assertion that those claims were futile.

121 As a matter of principle, if one party has drawn the futility of the case to the attention of the losing litigant, and the losing litigant has wilfully ignored that, those may be circumstances supporting a special costs order.[33] But it is does not follow that a special costs order can only be made if the successful party has drawn the futility to the other side's attention.

122 The suggestion that Mrs Richmond should have sought to strike out the abandoned claims is misconceived, for the most part. In particular, the pleadings as to contract and unjust enrichment were in acceptable form and disclosed arguable claims, which would not have been amenable to strike out on a pleading summons.

123 Mrs Richmond repeatedly denied the existence of any binding contract at numerous stages, both prior to and during the proceeding, and challenged Peet to explain its case. She offered to pay Peet for the work it had done for her benefit. It is really not clear what more she should reasonably have done to make her position clear.

124 Mrs Richmond refers to a couple of other matters which she says bolster her claim to indemnity costs.

125 First, she says the court should have regard to the effect of the abandoned claims prior to their abandonment. Hargrave J had recognised that whilst there was a claim for specific performance, it operated as a de facto restraint on Mrs Richmond dealing with the land. This was put as some sort of aggravating feature of the institution and maintenance of the abandoned claims. There is some force in that observation.

126 Secondly, Mrs Richmond complains that the inclusion of the abandoned claims caused additional cost and inconvenience, which would not have existed had the claims not been made. The cost and inconvenience is said to arise from the fact that a few weeks before the trial, Peet's solicitors queried whether Mrs Richmond's solicitors, Corrs Chambers, could continue to act, given that Janet Whiting, a partner of that firm, would be giving evidence in relation to the abandoned claims. This is said to have led to the need to bring in another partner and caused considerable inconvenience so close to the trial.

127 Mrs Richmond did not seek to recover a specific amount in respect of any additional costs thereby incurred; this was merely relied upon as part of the overall discretion to award indemnity costs, as part of Peet's unreasonableness in bringing and maintaining the abandoned claims.

128 I would not give any weight to the Whiting issue, for the following reasons. First, Mrs Richmond does not suggest that Peet deliberately raised the issue when it did, intending to disrupt her trial preparation. Secondly, Mrs Richmond concedes that there was always the likelihood that Ms Whiting would need to give evidence in respect of the contract and estoppel claims. Whilst it is unfortunate that this issue arose when it did, I would not hold Peet responsible for that, given that it had only received the Whiting witness statement on 30 September 2008, some three weeks before trial.

129 Most of Peet's lay witness statements, including Mr Lennon's, were filed in August 2008. Further statements were filed in September 2008. Although these statements may be the first time that any of the witnesses "signed up" to their account of events, it seems inconceivable that the witnesses had not been spoken to earlier about their accounts. If they were not, they should have been.

130 Mr Lennon is a director of Peet, based in Melbourne. He is specifically mentioned in the pleadings as being present at the September meeting, which is critical to the entire contract claim (and therefore also the unjust enrichment claim). He should have been spoken to before the relevant pleadings which mention him were drawn.

131 For a long time prior to the commencement of the proceeding, Mrs Richmond had been denying the existence of any contract and requesting Peet to provide details of the alleged contract, something which Peet steadfastly refused to do until the writ. The particulars in the statement of claim endorsed on the writ were brief, and further and better particulars were sought and provided. Knowing that there was a dispute about the existence of any contract, Peet and its lawyers should have taken all reasonable steps to obtain the information necessary to plead Peet's claims and provide further particulars.

132 Reasonable legal advice would have been that the estoppel claim, as pleaded, was doomed to failure. It would also have been that Peet's pleaded contract claim (and therefore also it unjust enrichment claim), was not supported by the evidence.

133 Peet could have explained to the court why it chose to abandon the claims - for example, that there had been a change in legal advice, or a witness had changed his earlier evidence. By the time its solicitor swore his affidavit in relation to costs, Peet was well aware from Mrs Richmond's outline that one of the grounds on which she would be arguing for indemnity costs related to the abandonment costs. Peet chose to offer no explanation for the abandonment.

134 Given that the damages sought in respect of the contract claim exceeded $60 million, and that all the evidence in relation to the abandoned claims had already been prepared and included in the witness statements and court book, one might have expected the contract claim to be run if Peet thought it was even arguable.

135 For the reasons given earlier, I am satisfied that Peet, if properly advised, should have known that it had no chance of success in respect of the abandoned claims. In that case, the proceeding must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established laws.

136 In coming to that conclusion, I have had regard to the risk of a judge viewing events and conduct through the prism of hindsight.

137 I am satisfied that it is appropriate to order that the abandonment costs be paid on an indemnity basis.

138 Mrs Richmond sought to have me identify with some precision certain items which do or do not form part of the abandonment costs. I propose to make some observations for the assistance of the taxing officer, without making specific orders in this regard.

139 Peet's witness statements: Although these statements had clearly been prepared primarily with the contract claim in mind, they were nevertheless tendered at trial in relation to the quantum meruit claim, as they showed the nature and extent of the work done by Peet. Mrs Richmond's counsel cross-examined the deponents of most of them. I would not regard the costs associated with them as costs thrown away.

140 Mrs Richmond's witness statements: These were prepared solely for the abandoned claims. Once it was clear that those claims were not being pursued, Mrs Richmond chose to call no witnesses. It is true that her counsel briefly contemplated calling one of the witnesses, Julie Katz, after the abandonment had been announced, but he ultimately chose not to do so. It is also the case that Peet had a number of objections to Mrs Richmond's witness statements, which it was not necessary for me to resolve after the abandonment. None of that detracts from the fact that the costs of and incidental to Mrs Richmond's witness statements were wholly thrown away by reason of the abandonment.

141 Documents: Mrs Richmond urged me to conclude that most of the discovered documents (particularly her discovered documents) and the court book were referable to the abandoned claims and should be regarded as thrown away.

142 I am not in a position to express a view in relation to the amount of discovery that should be regarded as thrown away; I shall leave that for the taxing officer to determine.

143 However, as far as the court book was concerned, it was tendered almost in its entirety in support of the quantum meruit claim. Whilst there may be some costs of the court book thrown away by reason of the abandonment, in my opinion, they would not represent a substantial proportion of the total costs of the court book.

144 As a separate but related point, Mrs Richmond disputes Peet's entitlement to recover in respect of its senior counsel's fees, and says that Peet should pay her senior counsel's fees on an indemnity basis. That is because she says that senior counsel would never have been briefed by either side, had Peet not brought the abandoned claims, or had it abandoned them sooner than it did.

145 I am not persuaded by Mrs Richmond's arguments, for the following reasons.

146 Mrs Richmond seeks to rely on some assertions in paras [72] to [74] of the affidavit of her solicitor, Christiana McCudden, sworn on 3 August 2009. I would give no weight to Ms McCudden's opinion as to what Peet - who was not her client - would have done by way of legal representation, had the abandoned claims not been brought or pursued. That is a matter for the court to determine.

147 As far as her own client, Mrs Richmond, is concerned, Ms McCudden's affidavit does not depose to what Mrs Richmond would have done. At its highest, para [72] of the affidavit says that "I am able to say that Corrs would not have recommended that senior counsel be briefed for a matter that concerned only the quantification of quantum meruit." Accepting that that would have been Corrs' advice, there is no evidence as to whether or not Mrs Richmond would have accepted that advice, or whether she would have wanted senior counsel anyway.

148 The first particulars of the quantum meruit claim, which were provided in September 2008, sought to have quantum meruit calculated on the following possible bases:

(a) $15.7 million, being the whole of the difference on the value of the land;

(b) Alternatively, $3.51 million, including the 20% claim which I rejected in the earlier reasons;

(c) Alternatively, $1.28 million, being the basic quantum meruit claim.

149 On the first day of the trial, Peet abandoned its claim to $15.7 million on a quantum meruit basis, but persisted with the claims in (b) and (c) above. The 20% claim involved conceptual complexity above and beyond a simple calculation of work performed and hourly rates.

150 Even after the abandonment of the abandoned claims, senior counsel for both sides nevertheless stayed and played an active part in the trial of the quantum meruit claim; they did not simply leave their juniors to run the quantum meruit issues. Indeed, after I published my earlier reasons, the initial delay in fixing the interest and GST arguments for hearing was due to the fact that both sides were adamant that they wanted to be represented at those hearings by their senior counsel, both of whom had limited availability for some months.[34]

151 In these circumstances, I am not satisfied that it was unreasonable for Peet to have briefed senior counsel. Nor am I satisfied that Mrs Richmond would not have briefed senior counsel if the abandoned claims had not been brought, or had been abandoned earlier.

152 I express no view as to the amount which ought to be allowed in respect of senior counsels' fees; that is a matter for the taxing officer to determine.

153 On 13 March 2008, Mrs Richmond's solicitors served on Peet's solicitors a document headed "offer of compromise pursuant to order 26" ("the offer of compromise"), which contained the following terms:

1. [Mrs Richmond] makes to [Peet] an offer of compromise to pay to [Peet] the sum of $1,000,000.00 plus interest fixed at the applicable rate of interest fixed pursuant to the Penalty Interest Rate Act 1983 (Vic) and costs on a party-party basis from the date of issue until the date of acceptance of this offer.
2. This offer of compromise is open to be accepted for 14 days after is it [sic] served on [Peet].
3. This offer of compromise is served in accordance with Part 2 of Order 26 of the Supreme Court (General Civil Procedure) Rules 2005.

154 Mrs Richmond also made a "Calderbank" offer in similar terms, on the same date.

155 Peet did not seek to clarify the terms of the offer of compromise or the Calderbank letter, or ask for further information about the offers. Instead, by letter sent the following day to Mrs Richmond's solicitors, Peet's solicitors said:

Your Calderbank letter of 13 March and Offer of Compromise of 13 March are acknowledged as received. The offers are rejected.[35]

156 Mrs Richmond contends that the offer of compromise was valid under the rules, and that the prescribed costs consequences should follow. Peet disputes the validity of the offer of compromise.

157 Offers of compromise are dealt with in order 26 of the rules. There is no dispute that the offer of compromise complies with the requirements that it be in writing and contain a statement that it is served in accordance with order 26.[36] There is also no dispute that it was served at a permissible time,[37] and remained open for acceptance for the required minimum period, namely, not less than 14 days after service.[38]

158 If the party on whom an offer of compromise is served accepts it, r 26.03(7) applies:

Upon the acceptance of an offer of compromise in accordance with paragraph (4), unless the Court otherwise orders, the defendant shall pay the costs of the plaintiff in respect of the claim up to and including the day the offer was served.

159 A further important rule is r 26.03(8), which provides:

If an offer of compromise contains a term which purports to negative or limit the operation of paragraph (7), that term shall be of no effect for any purpose under this Part.

160 The gist of Peet's attack on the validity of the offer of compromise is this. The offer of compromise offered to pay "costs on a party-party basis from the date of issue until the date of the acceptance of this offer". Peet says that is a less favourable costs offer than it would have been entitled to under the rules. That is because r 26.03(7) is not limited to costs commencing with the issue of the proceeding, but is broad enough to include pre-litigation costs "in respect of the claim". Peet says that the inclusion of a non-compliant costs offer invalidates the entire offer of compromise.

161 Peet's argument ignores the clear wording of r 26.03(8). In so far as the offer of compromise offers less than the costs entitlement under r 26.03(7), "that term" shall be of no effect for any purpose under the Act. The rule does not suggest that the offer shall be of no effect, which is how Peet wishes me to read it. Rule 26.03(8) simply means that an offeror cannot negative or limit the effect of the costs regime in r 26.03(7).

162 I was referred by Mrs Richmond to some cases concerning offers of compromise under order 26, which contained an offer "plus costs".[39] The general tenor of those authorities is that, whilst it would be preferable that an offer of compromise not contain the words "plus costs" (because costs are already provided for under the rule), their inclusion does not take the offer outside the rule.[40] In Simonovski v Bendigo Bank (No 2),[41] the offer was "plus costs to be taxed on scale D as between solicitor and client or as between party and party as the court may order." Ashley J (as he then was) said that the reference to costs was probably otiose, but it was benign, as all it did was draw attention to the court's discretion in relation to costs and at least impliedly warn that solicitor client costs may be sought.[42]

163 I agree with Peet that none of those cases is directly on point, as none of them involved an offer which purported to limit the costs which would be payable under the rules. But r 26.03(8) is clear in its operation: in so far as the offer of compromise offered less than the costs entitlement under r 26.03(7), that part of the offer is to be ignored.

164 I therefore conclude that the offer of compromise was a valid offer under order 26.

165 Rule 26.08 sets out the costs consequences of failure to accept a valid offer of compromise. Where the offer was made by the plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment no less favourable than the offer, the plaintiff is entitled to its costs on an indemnity basis, unless the court otherwise orders.[43] Where, as here, the offer was made by the defendant, r 26.08(3) applies:

Where an offer of compromise is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains a judgment on the claim to which the offer relates not more favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders -

(a) the plaintiff shall be entitled to an order against the defendant for the plaintiff's costs in respect of the claim up to and including the day the offer was served taxed on a party and party basis; and

(b) the defendant shall be entitled to an order against the plaintiff for the defendant's costs in respect of the claim thereafter taxed on a party and party basis.

166 There is no dispute that Peet has obtained a judgment on the claim which is not more favourable to Peet than the terms of the offer of compromise. Both the principal sum and interest in the offer of compromise are more favourable than the amounts that Peet has recovered at trial. The rule is therefore engaged.

167 The next dispute is as to whether Mrs Richmond should receive her costs after the date of the offer on a party-party basis, or whether the court should "otherwise order" indemnity costs. I have already ordered indemnity costs in respect of the abandonment costs. Here, I am effectively being asked to order indemnity costs in respect of the quantum meruit claim after the date of the offer of compromise.

168 The starting point in r 26.08(3) is that the defendant receives costs after the offer on a party-party basis, because the plaintiff has not bettered the defendant's offer. The court should only "otherwise order" if there is some reason to take the case outside the ordinary. Merely failing to better the defendant's offer cannot be a reason for "otherwise ordering", otherwise the general rule would have little operation.

169 Litigation is "inescapably chancy", and the purpose of the rule is to put a premium on realistic assessment of cases, not to demand perfect foresight.[44]

170 However, an imprudent refusal of an offer of compromise may be sufficient to justify an award of costs on a special basis.[45] The question must always be whether the particular facts and circumstances of the case, as they existed at the time the offer was refused, justify an award other than on a party-party basis.

171 At the time of the offer of compromise, Peet's quantum meruit claim had been quantified by Mr Dwyer at approximately $1.16 million. The alternative quantum meruit claims, based on the entire increase in the value of the land or the 20% claim, had not yet been formulated. There is no evidence as to whether those alternative claims were even in contemplation as at 13 March 2008, or whether Mr Dwyer had been asked to prepare a second report claiming increased internal costs. Although the abandoned claims remained on foot, for the reasons given earlier, they ought to have been known to be hopeless. That said, I am not able to conclude on the evidence that Peet in fact knew that they were hopeless as at the date of the offer of compromise.

172 Given that Peet kept no internal time records and had no billable hourly rates, there must have been an element of considerable uncertainty as to whether it would be able to recover all that it sought for its internal costs. On the other hand, Mr Dwyer gave evidence that he thought that the way he had calculated costs may have been conservative rather than generous.

173 The offer of compromise was for $1 million, that is to say, almost the entire amount then sought by way of quantum meruit. Peet dismissed it, out of hand, within a day.

174 Judged with the benefit of hindsight, the offer of compromise was a very reasonable one which ought to have been accepted, or at least given more serious consideration. But it does not follow that Peet's failure to accept it was so unreasonable as to attract an award of costs on an indemnity basis.

175 Mrs Richmond places great weight on the fact that she had, since 2005, been offering to pay costs on a quantum meruit basis. I have already found that Peet acted unreasonably in refusing to provide sufficient details to enable her to make an offer of compromise earlier. I accept that it is likely that she would have made the offer much earlier, closer to the start of the proceeding, if Peet had quantified its claim at the time. Had that occurred, then the commencement date for the costs order in her favour would have been earlier. But it does not follow that she should therefore receive indemnity costs for all work done after March 2008. Furthermore, Peet's unreasonable conduct in relation to the provision of information has been visited with a denial of interest during the relevant periods.

176 Having regard to the purpose of the rule, I am not persuaded that the particular facts and circumstances of the case, as they existed at the time the offer of compromise was refused, justify an award other than on a party-party basis.

177 Because I am satisfied that the offer of compromise was valid and should be given effect to in accordance with the rules, there is no need for me to consider the alternative arguments about the Calderbank letter. It was not suggested that the Calderbank letter might entitle Mrs Richmond to costs additional to those which I determined to order by reason of the offer of compromise.

178 Both sides had some successes and some losses in relation to interest. Peet was unsuccessful in claiming pre-litigation interest and statutory interest prior to November 2007. Mrs Richmond was unsuccessful in seeking to resist the payment of any interest.

179 The costs of and incidental to the hearing in relation to interest should be costs in the cause.

180 Peet sought the inclusion of GST; Mrs Richmond opposed any order in relation to it. I determined that Mrs Richmond should pay GST.

181 It was originally envisaged that interest and GST would be argued on the same day. Unfortunately, due to time constraints, that was unable to be achieved, and there was a separate hearing in relation to GST. Had the two matters proceeded on the same day, I might have taken a holistic approach and simply made the costs of the GST hearing costs in the cause. But, because a separate day was required, in relation to a matter in which Mrs Richmond was wholly unsuccessful, there should be a costs order which reflects that fact.

182 Both parties have had some wins and some losses in relation to costs. I propose to order that the costs of and incidental to the hearing in relation to costs be costs in the cause.

183 Obviously, because Peet is to pay Mrs Richmond's costs after 14 March 2008, the practical effect of my orders in relation to the costs of the interest and costs hearings is that Peet will be paying Mrs Richmond's costs.

(a) $828,455.43 in respect of its quantum meruit claim;

(b) $82,845.54 in respect of the GST payable by the plaintiff on the sum of $828,455.43;

(c) Interest from 16 November 2007 until 17 December 2009 [in a sum to be fixed on 17 December 2009 if not agreed].

(2) The amounts payable under orders 1(a) and (c) are payable forthwith.

(3) The plaintiff provide a tax invoice for $828,455.43 plus GST to the defendant upon request by her.

(4) The amount payable under order 1(b) is payable within 30 days after the defendant receives a tax invoice pursuant to order (3).

(5) Within 30 days of paying to the Commissioner of Taxation GST in respect of the amount payable under order 1(a), the plaintiff provide to the defendant written proof of that payment, including as to the amount of that payment.

(6) In the event that the plaintiff pays to the Commissioner of Taxation GST in an amount less than $82,845.54, the plaintiff forthwith repay to the defendant the difference between the amount paid for GST and $82,845.54.

(7) The plaintiff pay the defendant's costs thrown away by reason of the abandonment on the first day of the trial of its claims in contract, estoppel and unjust enrichment, such costs to be paid on an indemnity basis.

(8) Subject to order (7), the defendant pay the plaintiff's costs of and incidental to the proceeding up to and including 13 March 2008, on a party-party basis.

(9) The defendant pay the plaintiff's costs of and incidental to the hearing on 30 July 2009, on a party-party basis.

(10) Subject to orders (7) and (9), the plaintiff pay the defendant's costs of and incidental to the proceeding from 14 March 2008, on a party-party basis.

185 I will hear from the parties as to the precise form of the orders.

[1] The award will be represented by a single judgment sum.

[2] Peet v Richmond (No 1) [2009] VSC 130 ("the earlier reasons").

[3] Although no evidence was led as to commercial rates during the relevant period.

[4] With a different commencement date where the date of payment or invoice was not known.

[5] In respect of the internal award, it proposes that the work be aggregated by month, and interest be paid from the end of the month in which the work was completed.

[6] No oral evidence was led as to what was said at the September 2004 meeting about this matter, but Peet does not seem to have disputed in any correspondence the accuracy of that summary of what was said at the meeting.

[7] Section 60(2)(a) provides "nothing in this section... authorises the granting of interest on interest".

[8] [1993] VicRp 71; [1993] 2 VR 221.

[9] [1993] VicRp 81; [1993] 2 VR 382.

[10] Section 58 is the statutory interest provision applying to proceedings for "a debt or sum certain". Its contents are relevantly similar to s 60, save that interest under s 58 is payable either from a contractually specified date or the time of demand for payment, unless good cause is shown to the contrary.

[15] See for example: Foxeden Pty Ltd v IOOF Building Society Limited [No 3] [2006] VSC 207; Kalenik v Apostilides [2009] VSC 410; Walker v Hamm [2009] VSC 290.

[17] Substantially for the reasons set out in Peet's outline of submissions.

[18] Interchase; Walter Construction Group Ltd v Walker Corp Ltd [2001] NSWSC 283; (2001) 47 ATR 48; Moraghan v Cospak Pty Ltd [2007] VSC 483; Shaw v Director of Housing State of Tasmania (No 2) [2001] TASSC 2; (2001) 159 FLR 322.

[19] Adamson v Ede [2008] NSWSC 767 at [62]- [63], [67]-[68]; Sandtara Pty Ltd v Longreach Group Ltd [2008] NSWSC 373 at [101], [103]. I also find Peet's cases more persuasive than the private ruling authorisation No 36568, to which Mrs Richmond took me, and which has no binding effect here.

[21] Supreme Court Act 1986 s 24(1); order 63.

[22] Chen v Chan [2009] VSCA 233 at [10].

[23] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397 at 401. That passage has been cited with approval in many subsequent decisions, including by French J (as he then was) in J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers Western Australia (unreported FCA, 9 February 1993), and in this court in Murdaca v Maisano [2004] VSCA 123 at [40]; Aljade and MKIC v OCBC [2004] VSC 351 ("Aljade"); and Macedon Ranges Shire Council v Thompson [2009] VSCA 209 at [15] ("Macedon").

[24] NMFN Property Pty Ltd v Citibank Ltd [2001] FCA 480; (2001) 109 FCR 77; cited with approval in Aljade at [34]; and Macedon at [15].

[25] Hurstville Municipal Council v Connor (1991) 24 NSWLR 724; Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 at [18]; Clarke v Deputy Commissioner of Taxation [2002] FCA 75; (2002) 50 ATR 173; Macedon at [15].

[26] Ragata Developments Pty Ltd v Westpac Banking Corporation (Unreported, FCA, Davies J, 5 February 1993, BC 9304555); GT Corporation Pty Ltd v Amare Safety Pty Ltd (No 3) [2008] VSC 296.

[27] [1993] FCA 585; (1993) 44 FCR 194 at 201.

[28] See for example: Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622; WST Resources Pty Ltd v Go-Tell Nominees Pty Ltd (unreported, SC (Vic), Mandie J, 30 May 1997); Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 282 at 287; Acacia Resources Ltd v Delta Gold NL (Nos 1 and 2) (1999) 33 ACSR 144 at 159; Champagne View Pty Ltd v Shearwater Resort Management Pty Ltd [2000] VSC 214 at [47].

[29] See for example: One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548; Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 765.

[30] Including: Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110; Vroon BV v Foster's Brewing Group Ltd [1994] VicRp 53; [1994] 2 VR 32; Lewarne v Momentum Productions Pty Ltd [2007] FCA 1136; Thompson v White [2006] NSWCA 350;

[31] (1989) 16 NSWLR 582 ("Austotel") at 584 per Kirby P, at 602 per Priestley JA and at 617 per Rogers A-JA, following Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 per Mason CJ and Wilson J.

[32] Austotel at 585 per Kirby P and at 610 and 612 per Priestley JA.

[33] See for example: Williams v Minister for Environment & Heritage [2004] FCAFC 58; Aljade.

[34] Having fixed on that basis, both parties were eventually represented by junior counsel only for the arguments on interest, GST and costs.

[35] Peet was required, pursuant to r 26.03(3.1), to acknowledge service of the offer of compromise within three days of service.

[37] Namely, any time before judgment or verdict: r 26.03(1).

[39] In Enerka Apex Belting Pty Ltd v Vickers Systems Pty Ltd (No 2) [2002] VSC 409 ("Enerka") the offer was "plus costs"; in Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak & Ors [2006] NSWSC 684 ("Mid-City") the offer was "plus costs as agreed or assessed"; in Dover Beach Pty Ltd v Geftine Pty Ltd [2008] VSCA 248 ("Dover") the offer was for "such costs, if any, as may be agreed between the parties or, in default of agreement, as may be fixed"; and in Griffiths & Beerens Pty Ltd v Duggan (No 3) [2008] VSC 462 the offer was "plus costs".

[40] Enerka at [5]; Mid-City at [25]-[26]; Dover at [124].

[41] [2003] VSC 139.

[44] Maitland Hospital v Fisher (No 2) ("Maitland") (1992) 27 NSWLR 721 at 725.

[45] Maitland; Colgate-Palmolive & Co v Cussons [1993] FCA 536; (1993) 118 ALR 248 at 257; Hartford Holdings Pty Ltd v CP (Adelaide) Pty Ltd [2004] SASC 161.