defendant. Order varied: plaintiff to pay defendant's costs of the proceedings up to and including 3 October 2018 on the ordinary basis; and plaintiff to pay defendant's costs from 4 October 2018 to 8 April...
Key principles
Where a respondent (offeror) makes Offers of Compromise under UCPR r 20.26 and subsequently obtains a judgment on the claimant's claim no less favourable than the terms of the...
That prima facie entitlement is subject to the Court's residual discretion; the Court may nonetheless decline to order indemnity costs in appropriate circumstances (see [18]).
Offers of Compromise under r 20.26 must involve a real and genuine element of compromise; they should not be mere demands for capitulation (see [18], [19]).
In the circumstances of this case the defendant's offers did involve a real and genuine element of compromise, having regard to the stage of the proceedings, significant legal...
Issues before the court
Whether the defendant was entitled to indemnity costs for the period from 4 October 2018 to 8 April 2019 because it had made Offers of Compromise...
Whether the Offers of Compromise involved a real and genuine element of compromise (or whether they were demands for capitulation without genuine...
Plain English Summary
The defendant served offers of compromise under the NSW UCPR on 3 October 2018 which the plaintiff did not accept. The defendant later obtained judgment that was at least as favourable as its offer. Under UCPR r 42.15A that gave the defendant a prima facie right to indemnity costs for the period after the offer. The Court held the offers involved a genuine element of compromise, saw no reason to exercise its discretion against indemnity costs, and ordered the plaintiff to pay the defendant's costs on an indemnity basis from 4 October 2018 to 8 April 2019 (and the costs of the defendant's motion).
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Deep Dive
1,873 words · generated 22/06/2026
What happened
This judgment resolves a contest about costs following the trial judgment in which Darke J found that a binding sub-lease existed between the parties. The factual and procedural skeleton is:
Whether the Court should exercise its discretion to refuse indemnity costs despite the prima facie entitlement under r 42.15A.
Cited legislation
1 cited instrument linked from this judgment.
The plaintiff, Realm Resources Ltd, commenced proceedings by Summons filed 18 December 2017 seeking a declaration that it had not entered into a binding sub-lease with the defendant, Aurora Place Investments Pty Ltd [2].
The defendant counter-claimed by Cross Summons seeking a declaration that the parties had entered into a binding sub-lease [2].
On 3 October 2018 the defendant served two Offers of Compromise under UCPR r 20.26: Offer 1 to compromise the plaintiff's Summons on terms that judgment be entered for the defendant with no order as to costs; Offer 2 to compromise the defendant's Cross Summons by a declaration of a valid sub-lease and costs each to bear their own, each offer being conditional on acceptance of the other [10]-[12].
The offers were not accepted within the 28 day period [16]. Correspondence exchanged on 30 October 2018 revealed dispute as to whether acceptance would bar later claims for debt or damages, a point the parties disagreed about and which the plaintiff said implicated UBS AG v Tyne [2018] HCA 45 in submissions between solicitors [13]-[15].
The Summons was heard and judgment delivered on 8 April 2019, in which Darke J determined a binding sub-lease existed (the substantive outcome) [4].
The defendant sought to vary the costs order so that the plaintiff pay defendant's costs on ordinary basis up to 3 October 2018 and on an indemnity basis from 4 October 2018 to 8 April 2019, relying on r 42.15A and the unaccepted offers [5], [8]-[9].
The Court concluded r 42.15A was engaged and, on the facts (stage of proceedings, costs already incurred by defendant, and the clarity of issues in dispute), the offers involved a real and genuine element of compromise; the Court varied the costs order to award indemnity costs for the period from 4 October 2018 to 8 April 2019 and costs of the Notice of Motion [19], [22]-[23].
Why the court decided this way
The analytical pathway is statutory engagement, evidentiary assessment, and discretionary exercise:
Statutory engagement: The Court accepted that where an offer made under r 20.26 is not accepted and the offeror obtains a judgment no less favourable than its offer, UCPR r 42.15A operates to give the offeror a prima facie entitlement to indemnity costs. Darke J expressly stated that r 42.15A was engaged on these facts [18].
Discretion preserved: The Court acknowledged authorities which establish the Court retains a residual discretion to refuse indemnity costs in appropriate cases (citing Toyota Finance Australia Ltd v Gardiner (No 2) [2016] NSWCA 181 and Mega-Top Cargo v Moneytech Services Pty Ltd [2016] NSWCA 3) [18]. This means a prima facie entitlement may be displaced by equitable or other considerations.
Substance of the offers: The Court applied the established principle that offers of compromise must involve a real and genuine element of compromise and not be mere demands for capitulation (citing Fabre v Lui (No 2) [2015] NSWCA 312 and Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344) [18]. On the facts Darke J found the offers met that standard. Key factual reasons included:
Proceedings had run for more than nine months and were set down for hearing, so both parties had invested materially in costs and were in a position to assess prospects [19]-[20].
The defendant had incurred almost $230,000 in costs when the offers were made; persuading it to forgo a substantial costs order (if it accepted the offer) indicated an element of compromise rather than mere capitulation [19].
The offers addressed the only claims then in suit, the question of whether a valid sub-lease existed, and were sufficiently clear for sensible assessment [20].
Competing arguments about future claims: The plaintiff argued that acceptance would have left the defendant free to pursue claims for debt and damages later, and so the offers were not genuine compromises. The defendant said it had not intended the offers to compromise such claims. The Court treated that dispute as one which both parties could and should have protected by procedural steps if necessary, and did not regard the dispute as sufficient to deny indemnity costs on the facts [21].
Outcome: Having weighed these matters the Court concluded there was no adequate basis to displace the prima facie entitlement; indemnity costs were awarded for the period after the offers were made [22]-[23].
Before and after state of the law
Before: The authorities the Court relied on established two relevant propositions:
Offers made under procedural rules (Calderbank-type offers) will attract special costs consequences if statutory criteria are met, but courts retain a discretion to order otherwise (see Toyota Finance and Mega-Top citations in this judgment) [18].
Offers must involve a real and genuine element of compromise (Fabre; Miwa) [18].
After: This judgment applies those settled principles to the facts at hand and records application of UCPR r 42.15A in an ordinary commercial context. It affirms that:
When the procedural and factual elements align (offers compliant with r 20.26; no acceptance; judgment no less favourable), an offeror will usually be entitled to indemnity costs absent compelling reasons not to order them [18], [22].
The Court will scrutinise the substance of offers; if an offer requires a party simply to surrender and has no genuine compromise element, the Court may refuse indemnity costs [18]-[19].
Thus the decision is consistent with the post-Gardiner costs regime: statute creates a prima facie rule; equitable considerations and policy about fairness preserve judicial discretion.
Key passages with plain-English translation
Selected passages with short translations:
Passage: "In these circumstances, UCPR r 42.15A is engaged such that the offeror has a prima facie entitlement to indemnity costs." ([18])
Plain English: If you make a valid offer under r 20.26, the other side does not accept it, and you then win at least as well as the offer, you will generally get indemnity costs unless the court orders otherwise.
Passage: "Accordingly, it is well established that such offers must involve a real and genuine element of compromise." ([18])
Plain English: The offers must be bona fide attempts to settle; they cannot be sham offers that simply demand the other side give up everything.
Passage: "By the time the offers were made, the proceedings had been on foot for more than 9 months ... the defendant had in fact incurred almost $230,000 in costs by the time the offers were made." ([19])
Plain English: The case was well advanced; the offeror had spent a lot on lawyers; so stepping back from a large costs claim in exchange for settlement was a real concession and not a trivial offer.
Passage: "Viewing the circumstances overall, I am not persuaded that there is a sufficient basis to warrant the making of a costs order that departs from the prima facie position embodied within UCPR r 42.15A." ([22])
Plain English: Looking at all the facts, the judge saw no fair reason to deny the usual legal consequence of the unaccepted offers, indemnity costs.
What fact patterns trigger this precedent
This decision will be directly relevant where the following factual pattern exists or could exist:
An offeror serves formal Offers of Compromise compliant with UCPR r 20.26 and states they are open for acceptance for the statutory period (here 28 days) [10]-[12].
The offeree does not accept the offers within that period [16].
The offeror subsequently obtains final judgment on the relevant claim that is no less favourable than the terms of its offer (as to the claim the offer addressed) [18], [4].
The offers genuinely sought to settle the live issues before the Court rather than being shams; indicia of genuineness include: a mature stage of proceedings, significant costs already incurred by the offeror, and clarity about the issues the offer resolves [19]-[20].
No overriding equitable reasons exist that ought to lead the Court to exercise its discretion against indemnity costs; disputes about related future claims may not be sufficient if they were matters the parties could address procedurally [21].
If those ingredients are satisfied, this judgment supports a costs order granting indemnity costs for the relevant post-offer period.
How later courts have treated it
The present judgment itself does not record any subsequent judicial treatment. This decision applies established NSW authorities to the facts and will stand as a source for parties and courts dealing with indemnity costs under UCPR r 42.15A in New South Wales. Practitioners should search case databases for subsequent appeals or citations to see how later courts have cited or developed these points; the judgment does not provide such later treatment within its text.
Still-open questions
While the Court resolved the matter on the facts before it, there remain recurring questions of practical and doctrinal importance that this judgment does not fully close:
The precise contours of what will amount to a "real and genuine element of compromise" in different commercial contexts. The Court relied on stage of proceedings and the offeror's incurred costs [19], but there will be borderline cases where offers are made earlier or where costs exposure is limited.
How the potential for subsequent claims (claims not pleaded at the time of the offer) should be treated. In this case correspondence showed divergence on whether acceptance would preclude later claims and the Court treated that as manageable between parties rather than a decisive reason to refuse indemnity costs [13]-[15], [21]. Future cases may require more granular rules about whether and when an offer must expressly address the reservation or waiver of future claims to be treated as a genuine compromise.
The extent to which offers that are conditional upon reciprocal acceptance (as these offers were conditioned on acceptance of the other offer) affect the operation of r 42.15A. The Court handled the particular bilateral structure here, but other fact patterns with staggered or asymmetrical offers may raise further issues.
Interaction with Federal or other State procedural rules: this decision applies NSW UCPR r 20.26 and r 42.15A. Practitioners should be attentive to any jurisdictional differences and to future appellate authority that may refine national principles.
Quantification and timing of indemnity costs: the judgment orders indemnity costs for a specified period; questions can arise about precise calculation, what work falls within that period, and how to treat overlapping offers. This decision does not engage in detailed quantification, which will be litigated in future costs assessments.
Practical takeaway: where an offeror makes an offer under r 20.26 that is a genuine compromise on the live issues, does not have it accepted, and then obtains judgment as good as the offer, the offeror will ordinarily obtain indemnity costs for the relevant period unless there are strong reasons to depart from that statutory rule; counsel should draft offers and surrounding correspondence to make clear the scope of compromise, and should record any intended reservation or waiver of future claims explicitly to avoid post-offer disputes about effect.
Judgment (2 paragraphs)
[1]
Judgment
This judgment addresses the issue of costs of the proceedings up to 8 April 2019.
The proceedings were concerned with part of Level 16 of the Aurora Place building in Phillip Street, Sydney. By its Summons, filed on 18 December 2017, the plaintiff sought a declaration that it did not enter into a binding sub-lease of the property as sub-lessee with the defendant as sub-lessor. On 3 September 2018, the defendant filed a Cross Summons seeking a declaration that the parties had entered into a binding sub-lease in respect of the property.
On 19 February 2019, the Court made orders by consent granting leave to the defendant to file an Amended Cross Summons in which the defendant removed the claim for declaratory relief and inserted a new claim to recover the amount of approximately $735,000 (plus interest) in unpaid rent under the alleged sub-lease, as well as a claim for damages. The Court also made orders pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") that the issues arising on the Summons be determined before all other questions in the proceedings.
The Summons came on for hearing on 25 March 2019. On 8 April 2019, the Court delivered judgment (Realm Resources Ltd v Aurora Place Investments Pty Ltd [2019] NSWSC 379). The Court determined that a binding sub-lease came into existence between the parties in August 2017. The Court dismissed the Summons and made an order that the defendant pay the plaintiff's costs of the proceedings to date. The order requiring the successful defendant to pay the unsuccessful plaintiff's costs was plainly made in error. An order was made on 24 May 2019 pursuant to UCPR r 36.17 correcting the error.
On 18 April 2019, the defendant filed a Notice of Motion seeking to vary the costs order. The motion sought orders that the plaintiff pay the defendant's costs of the proceedings up to and including 3 October 2018 on the ordinary basis, and from 4 October 2018 until 8 April 2019 on an indemnity basis.
On 24 May 2019, the Court made orders by consent standing the defendant's Notice of Motion over to a date to be fixed. Directions were also made for the filing and service of evidence in respect of the Amended Cross Summons, with the matter fixed for hearing on 16 December 2019.
Shortly before the hearing, the parties informed the Court that the issues arising on the Amended Cross Summons had been resolved. By consent, the Court entered judgment for the defendant in the sum of $1,150,000 and ordered that the plaintiff pay the defendant's costs of the Amended Cross Summons up to 2 December 2019 on the ordinary basis. The Court also made directions that the parties serve and provide written submissions in respect of the Notice of Motion filed on 18 April 2019, with a view to that matter being determined on the papers.
The defendant's application is to vary the costs order made on 8 April 2019, as corrected on 24 May 2019, so as to obtain indemnity costs in the period from 4 October 2018 to 8 April 2019. The basis of the application is the failure of the plaintiff to accept an Offer of Compromise that had been made on 3 October 2018 pursuant to UCPR r 20.26.
The defendant contends that it obtained a judgment on the plaintiff's claim no less favourable to it than the terms of the offer such that UCPR r 42.15A applied, with the consequence that the defendant is entitled to indemnity costs from 4 October 2018 unless the Court orders otherwise. The defendant submitted that the Court would not order otherwise as the offer was a genuine compromise in circumstances where the defendant's costs were more than $200,000 when the offer was made.
The defendant in fact served two Offers of Compromise on 3 October 2018. The first of these offers (styled "Offer 1") offered to compromise the whole of the plaintiff's claim (the Summons) on terms that judgment be entered for the defendant, with no order as to costs. The offer was expressed to be made in accordance with UCPR r 20.26 and was expressed to be open for acceptance for 28 days from the date of the offer.
The second offer (styled "Offer 2") offered to compromise the whole of the defendant's cross-claim (the Cross Summons) in the proceedings on terms that the Court grant a declaration to the effect that the parties entered into a valid and binding sublease in respect of the property in August 2017, and that each party bear its own costs of the Cross Summons. The offer was expressed to be made in accordance with UCPR r 20.26 and was expressed to be open for acceptance for 28 days from the date of the offer.
Each offer was also expressed to be conditional upon acceptance by the plaintiff of the other offer, such that the plaintiff was required to accept both offers for the compromise to be effective.
On 30 October 2018, the parties exchanged correspondence in relation to the two Offers of Compromise. In the first email sent at around 10:30am, the plaintiff's solicitor observed that the monetary effect of accepting the offers appeared to be that the defendant would retain and call upon a bank guarantee (of about $280,000) and retain an initial deposit (of about $40,000). It was stated that this would constitute a damages payment in the sum of nearly $320,000. It was stated that there was no such claim for damages in the Cross Claim formulated at that time, and that if the offers were accepted and the defendant subsequently decided to bring such claims, this would constitute an abuse of process. The plaintiff's solicitor sought confirmation that if the offers were accepted the defendant would not bring any further claim against the plaintiff in relation to the sublease. A response was requested by 4:00pm that day.
The defendant's solicitor responded by email at around 5:15pm. It was stated that neither offer was intended to compromise any claim for damages or debt. The defendant's solicitor went on to state that if the Court granted a declaration to the effect that the sublease was valid and binding, the defendant intended to pursue claims for debt or damages at a later stage. The defendant's solicitor denied that any such proceedings would constitute an abuse of process.
The plaintiff's solicitor replied to this email at around 5:40pm. The solicitor referred the defendant's solicitor to the High Court's then recent decision in UBS AG v Tyne [2018] HCA 45. The email stated that had the plaintiff accepted the offers to compromise the proceedings (in which a claim for damages or debt could have been brought), the plaintiff could obtain a permanent stay of any later proceedings brought by the defendant.
The Offers of Compromise were not accepted within the 28 day period allowed.
The plaintiff contends that the offers did not involve any genuine compromise because, had they been accepted, the defendant would not only have completely succeeded on the claims then made in the proceedings, it would have been able to retain an amount of about $320,000. It was pointed out that the defendant considered that it would retain the right to bring proceedings for debt and damages at a later stage. The plaintiff submitted that the offers really called for a total capitulation on the plaintiff's part, yet its claim was clearly not frivolous or vexatious. The plaintiff further submitted that the full parameters of the dispute were uncertain at the time the offers were open, and it was not until February 2019 that the defendant amended its claim to include claims for unpaid rent and damages.
There was no suggestion that the Offers of Compromise did not meet the requirements of UCPR r 20.26. Neither was it disputed that the defendant obtained a judgment on the plaintiff's claim no less favourable to it than the terms of "Offer 1". In these circumstances, UCPR r 42.15A is engaged such that the offeror has a prima facie entitlement to indemnity costs. However, the Court retains a discretion to decline to order indemnity costs (see Toyata Finance Australia Ltd v Gardiner (No 2) [2016] NSWCA 181 at [14]; Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3 at [5]). In this context, principles similar to those that apply in respect of Calderbank offers have developed in relation to Offers of Compromise made under the relevant rules of Court (see Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [5]-[8]). Accordingly, it is well established that such offers must involve a real and genuine element of compromise (see Fabre v Lui (No 2) [2015] NSWCA 312 at [6]).
In my opinion, the offers made by the defendant did involve a real and genuine element of compromise. By the time the offers were made, the proceedings had been on foot for more than 9 months and had recently been set down for hearing. It would be expected that both parties would have expended significant amounts in legal costs up to that time. There is evidence that the defendant had in fact incurred almost $230,000 in costs by the time the offers were made. Acceptance of the offers would thus have entailed the defendant foregoing the possibility of obtaining a substantial costs order against the plaintiff. In these circumstances, I do not think that the offers involved only a trivial or derisory element of compromise, or should be regarded merely as demands for capitulation. That seems to me to be the case even if acceptance of the offers may have had economic consequences beyond the immediate ambit of the proceedings as then constituted.
The offers were made in relation to the only claims then being made in the proceedings, namely, the respective claims as to whether a valid and binding sub-lease had been entered into. There was no lack of clarity about the question, even if its resolution involved some complexity. When the offers were made, each party was, or ought to have been, in a position to make a considered assessment of its prospects of success on that question, and make decisions as to compromise on that question accordingly.
I have taken into account the fact that the defendant asserted that it was open to it to pursue debt and damages claims at a later stage, but against that, the plaintiff asserted that if it accepted the offers, the defendant would be precluded from taking that course. Both sides were well equipped to protect their own interests in relation to the litigation.
Viewing the circumstances overall, I am not persuaded that there is a sufficient basis to warrant the making of a costs order that departs from the prima facie position embodied within UCPR r 42.15A.
Accordingly, the Court will vary the existing costs order made on 8 April 2019, as corrected on 24 May 2019, so that it becomes an order in the following terms:
Order that the plaintiff pay the defendant's costs of the proceedings:
(a) up to and including 3 October 2018 on the ordinary basis; and
(b) from 4 October 2018 to 8 April 2019 on an indemnity basis.
The Court will further order that the plaintiff pay the defendant's costs of the Notice of Motion filed on 18 April 2019.
[2]
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Decision last updated: 27 February 2020
Order varied: plaintiff to pay defendant's costs of the proceedings up to and including 3 October 2018 on the ordinary basis; and plaintiff to pay defendant's costs from 4 October 2018 to 8 April 2019 on an indemnity basis. Plaintiff to pay defendant's costs of the Notice of Motion filed 18 April 2019 (see [23]).