Port Stephens Shire Council & Anor v Tellamist Pty Ltd

CITATION : Port Stephens Shire Council & Anor v Tellamist Pty Ltd (No 2) [2004] NSWCA 415 HEARING DATE(S) : 18, 19 February 2004 JUDGMENT DATE : 16 November 2004

JUDGMENT OF : Giles JA at 1; Santow J at 31; Ipp JA at 32 DECISION : (1) Appeal allowed; (2) Set aside the judgment and orders of Bergin J and in lieu thereof order: (a) judgment for the plaintiff against the defendants in the sum of $1,000; (b) subject to (c), defendants pay the plaintiff's costs of the proceedings up to and including 6 December 2002 and plaintiff to pay the defendants' costs of the proceedings from 6 December 2002 on a party and party basis; (c) confirm the order of Bergin J as to costs thrown away by the abandonment of defences and the first defendant's cross-claim on 21 February 2003; (3) Cross-claim dismissed; (4) Respondent pay the appellants by way of restitutionary interest the sum of $64,026.76; (5) Respondent pay the appellant's costs of the appeal and have a certificate under the Suitors Fund Act if otherwise qualified.

CATCHWORDS : Costs - offer of compromise - whether effective under Rules - whether to order otherwise - whether also had effect as Calderbank offer - whether unreasonably rejected. D Assaf v Skalkos [2000] NSWSC 935; Beregold v Mitsopoulos (Cole J, 5 November 1992, unreported); Diamond v Simpson (No 2) [2003] NSWCA 78; Ettingshausen v Australian Consolidated Press (1995) 28 NSWLR 404; Fisher v McDonald (CA, 20 November 1998, unreported); Fotheringham v Fotheringham (No 2) (1999) 46 NSWLR 194; Hetherington v Mirvac Pty Ltd [1999] NSWSC 515; Houatchanthara v Dednarczyk (CA, 14 October 1996, unreported); Jones v Bradley (No 2) [2003] NSWCA 258; CASES CITED : Leichhardt Municipal Council v Green [2004] NSWCA 341; Morgan v Johnson (1998) 44 NSWLR 578; Multiplex Constructions Pty Ltd v HSH Hotels (Australia) Pty Ltd [2003] NSWSC 1069; New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 102; Patrick Stevedores (No 1) Pty Ltd v Vaughan [2002] NSWCA 422; Port Stephens Shire Council v Tellamist Pty Ltd [2004] NSWCA 353; Rolls Royce Industrial Power (Pacific) Ltd v James Hardie (2001) 53 NSWLR 626; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; South Sydney Council v Morris (No 3) [2001] NSWCA 200; State Authorities Superannuation Board v Property Estates (Qld) Pty Ltd (1981) 11 BCL 28; TCN Channel 9 Pty Ltd v Antoniadis (No 2) (1999) 48 NSWLR 381. Port Stephens Shire Council - First Appellant PARTIES : Daracon Engineering Pty Ltd - Second Appellant Tellamist Pty Ltd - Respondent FILE NUMBER(S) : CA 40395/03 COUNSEL : G Inatey SC & A A Henskens - Appellants R J Ellicott QC & J S Drummond - Respondent SOLICITORS : Cantle Carmichael - Appellants Hartmann & Associates - Respondent

LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT SC 2067/93 FILE NUMBER(S) : LOWER COURT Bergin J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40395/03 ED 2067/93

GILES JA SANTOW JA IPP JA

Tuesday 16 November 2004 PORT STEPHENS SHIRE COUNCIL v TELLAMIST PTY LTD (No 2) Judgment 1 GILES JA: Judgment in this appeal and cross-appeal was given on 27 September 2004 (Port Stephens Shire Council v Tellamist Pty Ltd [2004] NSWCA 353). Directions were given for written submissions as to the substantive orders to be made and as to costs. 2 The trial judge awarded Tellamist compensatory damages of $365,000 for trespass payable by the Council and Daracon and exemplary damages of $25,000 payable by the Council. With interest, there were judgments for $686,942 against the Council and $661,962 against Daracon. Her Honour ordered the appellants to pay Tellamist's costs on a party/party basis, save for costs thrown away by the abandonment of defences and the Council's cross-claim on 21 February 2003 which were to be paid on an indemnity basis. 3 The reasons published on 27 September 2004 focussed, as had the parties' submissions in the appeal and cross-appeal, on the position of the Council. Ipp JA and I were of the view that Tellamist was entitled to nominal damages but was not entitled to compensatory damages or exemplary damages. Santow JA was of a different view. In their written submissions the parties implicitly accepted that the entitlement to nominal damages in place of compensatory damages extended also to the position of Daracon.

Orders other than as to costs 4 The appellants submitted that the nominal damages should not carry interest as they were not compensatory. Tellamist agreed. 5 The appellants had paid the $686,942 to Tellamist on 13 May 2003. Tellamist had repaid the money on 25 May 2004. We do not know the circumstances in which that occurred. The appellants submitted that they were entitled to interest for the period for which Tellamist held the money, see TCN Channel 9 Pty Ltd v Antoniadis (No 2) (1999) 48 NSWLR 381. They calculated the sum of $64,026.76, presumably on $686,942 less $1,000. Tellamist agreed that the interest was to be paid. 6 Putting aside questions of costs, it was common ground that the appeal should be allowed, the cross-appeal should be dismissed, and the orders of the trial judge should be set aside and replaced by judgments for $1,000, and that Tellamist should pay the interest of $64,026.76. The parties proposed that the $1,000 should be offset against the $64,026.76, so that Tellamist should be ordered to pay the appellants $63,026.76. No doubt an offset will occur in practice, but in my opinion there should be the separate orders for damages in the substantive proceedings and for restitutionary interest as a result of the appeal being upheld.

Costs of the trial 7 The proceedings were commenced on 5 April 1993. They came on for trial on 17 February 2003; I do not tarry over the regrettable delay. On 6 December 2002 the appellants made an offer of compromise under Pt 22 of the Rules. It read - "The First and Second Defendants offer to compromise the entire action in the following manner: 1. By paying to the plaintiff the total sum of two hundred and fifty thousand dollars ($250,000.00) plus costs as agreed or assessed.

2. This offer shall only be open for a period of 28 days after it is made and will then expire." 8 The appellants submitted that they should receive their costs for the period prior to the offer of compromise on a party/party basis, because they admitted the trespass on the pleadings and nominal damages flowed automatically; alternatively, because Tellamist recovered less than $10,000. They submitted that they should receive their costs for the period after the offer of compromise on a party/party basis, and more, on an indemnity basis, by virtue of the offer of compromise. They made no mention of the trial judge's order as to costs thrown away. 9 It is not accurate to say that the appellants admitted the trespass on the pleadings. They admitted entry on the land, but maintained that by virtue of a number of statutory provisions they were entitled to enter on the land. The Council cross-claimed for a declaration that it was entitled to enter on the land, an injunction against interfering with its activities on the land, and an order that Tellamist have the land dedicated as a public reserve. The basis for this last order was not clear from the cross-claim, but presumably was the 1990 land swap. These were the defences and cross-claim abandoned on 21 February 2003. 10 Accordingly, at least until 21 February 2003 entitlement even to nominal damages was in issue. There was no admission which might make it appropriate to order Tellamist to pay the appellant's costs for the period prior to the offer of compromise. 11 The recovery of less than $10,000 could have effect through Pt 52A r 33 of the Rules, by which Tellamist was not entitled to payment of its costs of the proceedings unless it appeared to the Court that it "had sufficient reason for commencing or continuing proceedings in the Court". The effect would not be that Tellamist paid the appellant's costs, but that Tellamist could not recover its costs from the appellants. In my opinion, Tellamist had sufficient reason to commence and continue its proceedings in the Court. It had an arguable case for a substantial sum of money, as is shown by its success at the trial and the dissent of Santow JA. 12 The offer of compromise could entitle the appellants, by the operation of Pt 52A r 22(6) of the Rules, to an order for party/party costs against Tellamist from the date of the offer. The appellants submitted that the offer of compromise should have the further effect, as a Calderbank offer, of bringing costs on an indemnity basis. 13 Tellamist submitted that the offer of compromise was ineffective under the Rules because, contrary to the requirement in Pt 22 r 9 in the case of multiple defendants alleged to be jointly or jointly and severally liable between which rights of indemnity appeared to exist, the Council and Daracon were not jointly or jointly and severally liable "by the terms of the offer" for the whole of the amount of the offer. Tellamist alleged that Daracon was the agent of the Council and claimed against them both. The Council and Daracon were jointly represented. It is not necessary to decide whether rights of indemnity appeared to exist between them. In my opinion, it was clear that the Council and Daracon were jointly or jointly and severally liable for the amount of the offer. It was not necessary that the offer of compromise state expressly joint or joint and several liability. 14 Tellamist also submitted that the offer of compromise was ineffective under the Rules because at the time of the offer there was on foot the Council's cross-claim. Tellamist said that the words "entire action" in the offer of compromise could not include the cross-claim, and that because the policy of the rules was to bring the whole of the proceedings to an end the offer could not be accepted by Tellamist because acceptance would not do so. I do not agree. By Pt 22 r 2 an offer may be made to compromise "any claim in the proceedings". Although it was regrettably less than explicit, the preferable view is that the words "the entire action" in the circumstances extended the offer to the Council's cross-claim as well as Tellamist's claims. The emphatic words were meant to take the offer beyond Tellamist's claims, and by late 2002 enforcement of dedication of the land was ancient history which would readily be taken to be abandoned. (In fact, although not to be taken into account in construing the offer of compromise, the Council abandoned it in February 2003.) I see no reason why the Council as defendant should not have offered to compromise its claim as cross-claimant by abandonment of the cross-claim as part of an overall offer. Tellamist could accept that offer, and the whole of the proceedings would come to an end. 15 Tellamist then submitted that the Court should "otherwise order" as provided in Pt 52A r 22(6). It noted that in New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 102 and Morgan v Johnson (1998) 44 NSWLR 578 it was said that the costs consequences under the rules were not displaced simply because the offeree acted reasonably, and that in Morgan v Johnson it had been said, with reference to Houatchanthara v Dednarczyk (CA ,14 October 1996, unreported) that an order otherwise would generally not be made in other than an exceptional case. It said that the courts had nonetheless appeared to apply the test of whether or not the offeree had acted reasonably, referring to Rolls Royce Industrial Power (Pacific) Ltd v James Hardie (2001) 53 NSWLR 626 at [98]; Multiplex Constructions Pty Ltd v HSH Hotels (Australia) Pty Ltd [2003] NSWSC 1069 at [172]; and Leichhardt Municipal Council v Green [2004] NSWCA 341 at [55]-[56]. On either approach, it said, an order otherwise should be made. 16 The approach under Pt 52A r 22 should not be moderated, and it is not sufficient if Tellamist acted reasonably in not accepting the offer of compromise. Rolls Royce Industrial Power (Pacific) Ltd v James Hardie did not adopt a test of acting reasonably, although it recognised that success on a different case from that at the time of the offer could be significant. Multiplex Constructions Pty Ltd v HSH Hotels (Australia) Pty Ltd appears to adopt that test, and in that respect was in my view incorrect. The offer in Leichhardt Municipal Council v Green was a Calderbank offer, not an offer of compromise under the Rules. 17 Tellamist submitted that at the time of the offer the appellant's case was that the Council had a statutory right to enter onto the relevant land, fell the trees and construct the drain. It said that as at that time there had not been raised the matter on which the appellants ultimately succeeded in this Court, which it said was that a hypothetical purchaser would have been informed by the Council of the planned works. Where the appellants succeeded on a different case from that advanced at the time of the offer, it said, there should be an order otherwise. Tellamist further supported the reasonableness of its conduct or the existence of exceptional circumstances by the submissions that, the Council having cross-claimed, acceptance of the offer would not necessarily have brought an end to the proceedings, and that the trial judge and Santow JA had found substance in its claims to compensatory and exemplary damages. 18 For the reasons I have given, the offer of compromise extended to the Council's cross-claim, and its acceptance would have brought an end to the proceedings. The offer was not explicit in this respect, but there was no evidence that Tellamist took it as leaving the cross-claim outstanding or was confused or in doubt, and Tellamist could easily have asked for clarification if it had seen fit to pay regard to what on any view was an offer of a substantial sum. 19 Tellamist had to prove that it had suffered loss by reason of the trespasses, and in the circumstances detailed in the reasons of 27 September 2004 it should have been obvious that one issue would be whether the value of its development would have been the same whether or not the trespasses occurred. The trial judge and Santow JA took a different view of the facts from that which I have taken, but that is an unexceptional risk of litigation which the rules as to offers of compromise require offerees to take into account and against which the rules operate unless it be appropriate to order otherwise. At all times Tellamist was put to proof of its loss. I do not agree that the appellants succeeded on a different case from that in play at the time of the offer of compromise. 20 As I have said the offer was of a substantial sum. It called for the most careful consideration, and exposed Tellamist to the effect of Pt 52A r 22(6). I do not think that an order otherwise should be made. In my opinion, the appellants are entitled to the costs of the trial on a party/party basis from 6 December 2002. 21 Turning to the offer of compromise as a Calderbank offer, the appellants submitted that in a number of cases indemnity costs had been founded on an offer of compromise and that the costs from 6 December 2002 should be on that basis. The cases to which they referred gave only qualified support for the submission. In State Authorities Superannuation Board v Property Estates (Qld) Pty Ltd (1981) 11 BCL 28 Cole J gave solicitor/client costs because of an offer of compromise, although it seems without argument as to the offer being under the Rules rather than a Calderbank offer. In Beregold v Mitsopoulos (Cole J, 20 November 1992, unreported) the offer was a Calderbank offer, not an offer of compromise under the rules. In Fisher v McDonald (CA, 5 November 1998, unreported) the offer was a Calderbank offer. In SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 it was assumed, without decision, that an offer of compromise defective under the Rules could be regarded as a Calderbank offer, with the comment (at [45]) that it could be argued that a party receiving a defective offer of compromise was justified in putting it aside. It could also be argued that a plaintiff receiving an effective offer of compromise was justified in seeing it as going to party/party costs against the plaintiff in accordance with the Rules, and no further. In Heatherington v Mirvac Pty Ltd [1999] NSWSC 515 the offers appear to have been Calderbank offers, but in any event the present question was not raised. In Assaf v Skalkos [2000] NSWSC 935 the offer was a Calderbank offer. 22 The matter was not fully argued, and I leave open whether or not an offer of compromise under the Rules can also have effect as a Calderbank offer. In South Sydney Council v Morris (No 3) [2001] NSWCA 200 the interrelationship between the Court's inherent jurisdiction as to costs and the rules as to costs was raised but not decided, see at [13]-[14], in part because of insufficient attention in argument. 23 If an offer of compromise can also have effect as a Calderbank offer, it was said in SMEC Testing Services Pty Ltd v Campbelltown City Council at [37] that failure to accept a more favourable offer than the result does not automatically bring a more adverse order for costs, and - "All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: see for example, John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FLR 201; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FLR 235." 24 This was endorsed as the correct approach in Jones v Bradley (No 2) [2003] NSWCA 258 at [13]. 25 The adverse costs consequences of an offer of compromise under the Rules come from the prescriptive effect of the Rules. If the prescriptive effect be put aside, I do not think Tellamist should be found to have acted in a manner warranting payment of indemnity costs. While there were not the circumstances of an exceptional case leading to an order otherwise, Tellamist did not continue with the proceedings in the face of sure defeat. The trial judge and Santow JA considered that it should recover damages well in excess of the amount offered, and while in the view I have taken it should have foreseen difficulty in making out its loss the task was not one in which it should have been able to persist only at risk of indemnity costs. 26 Notwithstanding the foregoing, I see no reason to disturb the trial judge's order as to costs thrown away.

Costs of the appeal 27 The appellants submitted that it was "appropriate" that it receive indemnity costs of the appeal. Other than a reference to Fisher v McDonald, it did not elaborate. Tellamist accepted that an offer made before trial could have costs consequences for an appeal (see Ettingshausen v Australian Consolidated Press (1995) 28 NSWLR 404; Fotheringham v Fotheringham (No 2) (1999) 46 NSWLR 194; Patrick Stevedores (No 1) Pty Ltd v Vaughan [2002] NSWCA 422; Diamond v Simpson (No 2) [2003] NSWCA 78), but only as an element in the Court's general discretion. It correctly submitted that both sides in the appeal and cross-appeal contended that the trial judge had assessed the compensatory damages on an incorrect basis, and it said that it was not unreasonable for the appellants for their part and Tellamist itself to seek appellate review. It said that there should be no order for the costs of the appeal, alternatively that it should pay the appellants' costs on a party/party basis and have a certificate under the Suitors Fund Act if otherwise qualified. 28 Nominal damages were not what divided the parties: the dispute was over substantial compensatory damages and exemplary damages. In my opinion, putting aside the offer of compromise the appellants wholly succeeded in the appeal and Tellamist wholly failed in the cross-appeal and Tellamist should pay the appellants' costs of the appeal. 29 Taking account of the offer of compromise, Tellamist had the support of the trial judge's result in its favour, for an amount in excess of the offer of compromise, and in the opinion of Santow JA should have received increased compensatory damages. It is no doubt correct that there would have been no appeal if the litigation had been brought to an end by acceptance of the offer of compromise in December 2002, but Tellamist succeeded at the trial and having done so could not reasonably be expected to surrender to an appeal because of the earlier offer. That a pre-trial offer of compromise may not have effect for an appeal is demonstrated by South Sydney Council v Morris (No 3). In the present case, I do not think that the costs of the appeal should be paid on an indemnity basis.

Orders 30 In my opinion the following orders should be made -

2. Set aside the judgment and orders of Bergin J and in lieu thereof order - (a) judgment for the plaintiff against the defendants in the sum of $1,000;

(b) subject to (c), defendants pay the plaintiff's costs of the proceedings up to and including 6 December 2002 and plaintiff pay the defendants' costs of the proceedings from 6 December 2002 on a party and party basis;

(c) confirm the order of Bergin J as to costs thrown away by the abandonment of defences and the first defendant's cross-claim on 21 February 2003.

4. Respondent pay the appellants by way of restitutionary interest the sum of $64,026.76.

5. Respondent pay the appellant's costs of the appeal and have a certificate under the Suitor's Fund Act if otherwise qualified. 31 SANTOW JA: I agree with Giles JA 32 IPP JA: I agree with Giles JA. **********

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