SEMF Pty Ltd v Renown Corporation Pty Ltd [2022] NSWSC 95 | Case summary

Supreme Court of NSW|2022-02-11|Before: Ball J

Introduction

On 1 December 2021, I delivered judgment in this matter (see SEMF Pty Ltd v Renown Corporation Pty Ltd [2021] NSWSC 1547). The only outstanding question is costs. This judgment is concerned with that question. It assumes familiarity with my earlier judgment and uses the same abbreviations as those used in that judgment.

Background

In late 2012 and early 2013, the plaintiff approached the first defendant about upgrading its software systems based on a product provided by Microsoft known as Dynamic SL 2011. The plaintiff eventually decided to proceed with the system proposed by the first defendant. In about August 2014, the first defendant was acquired by the second defendant.
The case involved claims by the plaintiff for losses consequent on problems with the system provided by the defendants (the main proceeding). The second defendant filed a cross-claim against the plaintiff seeking to recover $51,315 in respect of unpaid invoices (the cross-claim).
I accepted that, as a result of the problems, the system did not comply with what was contractually promised and that the plaintiff suffered losses as a consequence of those breaches of contract. However, I did not accept that the plaintiff was entitled to recover all the losses it claimed.

The issues

The plaintiff seeks an order that the defendants pay its costs of the main proceeding on an indemnity basis. In the alternative, it seeks costs on the ordinary basis to 21 September 2021, and on an indemnity basis thereafter.
In each case, the plaintiff relies on an offer of compromise. The first offer, which was an informal offer of compromise made in accordance with the principles stated in Calderbank v Calderbank [1975] 3 AII ER 333, was made on 8 December 2017, prior to the commencement of proceedings. The offer was to resolve the dispute in exchange for the payment to it of the sum of $660,000 inclusive of costs. The offer was open for acceptance for fourteen days. It attached a schedule of damages that estimated the plaintiff's loss at $1,395,690.96. That amount was said to include lost productivity and internal employee costs of $325,018.17, employee travel of $5,103.84, costs of additional work by third parties of $200,132.59, the costs of upgrading the plaintiff's Citrix hardware and software of $562,000, interest of $177,226.53 and legal costs of $126,209.83. The second offer was made in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) on 21 September 2021. It was for an amount of $220,056.
The defendants accept that the plaintiff did better than its offer of compromise dated 21 September 2021 and that therefore the plaintiff is entitled to its costs on an indemnity basis from that date. However, they dispute that the plaintiff is entitled to indemnity costs before 21 September 2021. The second defendant also seeks an order for costs on the ordinary basis in relation to its cross-claim.
Accordingly, the two outstanding questions are (1) whether the plaintiff is entitled to recover its costs on an indemnity basis prior to 21 September 2021, and (2) whether a separate order for costs should be made in favour of the second defendant in relation to the cross-claim.

Indemnity costs

Rejection of a Calderbank offer does not automatically entitle the offeror to indemnity costs: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (SMEC); Jones v Bradley (No 2) [2003] NSWCA 258 at [8]-[9]. Rather, 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 …" (SMEC [37] per Giles JA, citations omitted). It may be appropriate to make a special order for costs "if the plaintiff obtains a sum in excess of the offer …": Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322 per Basten JA at [145]. But whether it will be appropriate generally turns on two matters. The first is whether the offer was a genuine offer of compromise. The second is whether it was unreasonable in all the circumstances for the offeree to refuse to accept the offer: see Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] per Basten JA (with whom McColl and Campbell JJA agreed). In considering the question of reasonableness, the Court will take into account the following matters, among others: (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it: See Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12] per Basten JA, quoting Warren CJ, Maxwell P and Harper AJA in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298.
The defendants appear to accept that the plaintiff's offer of 8 December 2017 was a genuine offer of compromise. However, they resist the plaintiff's claim for indemnity costs on the basis that they acted reasonably in not accepting the offer.
I accept the defendants' submissions on this point. As they point out, the offer was made before proceedings were commenced. The case that was ultimately pleaded and that succeeded was very different from the case on which the offer of compromise was based. In particular, most of the heads of damage set out in the schedule of loss accompanying the offer were either abandoned or failed at the hearing. It was reasonable for the defendants to assess the offer by reference to what was claimed. Assessed in that way, it was reasonable for them to reject the offer.

Costs of the cross-claim

The basic rule is that costs follow the event: UCPR r 42.1. The second defendant submits that it was "wholly successful in its cross-claim against SEMF", and that it is therefore entitled to its costs of the cross-claim on the ordinary basis.
I accept that submission. The principal reasons the plaintiff advances against an order for costs in relation to the cross-claim are that those costs were small and the cross-claim simply diminished the damages recoverable by the plaintiff. However, the plaintiffs did advance specific defences in relation to the invoices that were the subject of the cross-claim. Those defences were effectively abandoned other than the defence of set-off. To the extent that the second defendant incurred costs in dealing with those defences, there is no reason why it should not recover them.

Orders

Accordingly, the orders of the Court are: 1. The defendants pay the plaintiffs' costs of the proceeding (other than the cross-claim): 1. On the ordinary basis up until 21 September 2021 2. On the indemnity basis from 22 September 2021. 1. The plaintiff pay the second defendant's costs of the cross-claim on the ordinary basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 February 2022

SEMF Pty Ltd v Renown Corporation Pty Ltd

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