The Owners - Strata Plan No 90189 v Parkview Constructions Pty Ltd

'Walk away' offers

1. The principles in determining whether a special costs order should be made on the basis of a Calderbank offer were recently considered by Ward CJ in Eq (as her Honour then was) in In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) (No 2) [2021] NSWSC 1161 at [93]-[99], whose summary I gratefully adopt.
2. The defendant submitted that, where the offer was a "walk away offer", the motion would have had to "approach something of the character of being frivolous or vexatious" before such an order would be made: Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [50]-[51] (per McColl and Gleeson JJA, Sackville AJA), citing Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [31] (per Spigelman CJ, Beazley and McColl JJA). The defendant submitted that no one could run difficult motions without being virtually certain of facing an indemnity costs order if "walk away" offers resulted in such orders without there being a fairly demanding test applied. The fact that the motion was a difficult one, and that it failed for reasons articulated by the plaintiff in the Calderbank letter, did not mean it was unreasonable not to have accepted the offer. The Court was able to depart from Stevenson J's reasoning in The Owners - Strata Plan No 90018 v Parkview Constructions Pty Ltd, and the outcome of the motion was not inevitable.
3. The cases relied upon by the defendant are illustrative. In Leichhardt Municipal Council v Green [2004] NSWCA 341, the plaintiff sued the Council for personal injury. The Council made a "walk away" offer, which was not accepted. At trial, the plaintiff was awarded damages of $173,354 but, on appeal, judgment was set aside and a verdict was entered in favour of the Council with costs. The plaintiff's non-acceptance of the offer, however, was not unreasonable. As Bryson JA observed, when agreeing with Santow JA, at [59]: … The application for an order for costs to be assessed on the indemnity basis raises a discretionary question the answer to which is not in my view susceptible of much detailed exposition. … The respondent's case did not succeed, but it was not a case which could not reasonably be argued and it succeeded at first instance. The only element of compromise in the offer was as to costs: otherwise it was a call on the respondent to capitulate and give up: the element of compromise was slight, and the respondent's ultimate lack of success does not to my mind demonstrate that the reasonable course for the respondent was to capitulate, nor does anything show that the respondent was delinquent in going on with the trial or in resisting the appeal.
4. Perhaps closer to the case at hand, Regency Media concerned the interpretation of a contract. If the plaintiff's construction of the contract was correct, then it was entitled to some $600,000 but, if not, it was entitled to nothing. As such, the Court observed, "this was an all or nothing case … [where] Either one party or the other party was correct": at [29]. Shortly after the commencement of the proceedings by the plaintiff, and before a defence had been filed, the defendant offered to settle the proceedings for $10,000. The Court regarded this as "an invitation to surrender, rather than any form of commercial compromise … The offer can be accurately described as derisory": at [30]. Further, at [31]-[32]: 31 An offer which is in substance an invitation to surrender can result in the successful triggering of the indemnity costs mechanisms under the rules. (See r 20.26(2); Leichhardt Municipal Council supra at [36]-[37], [40].) However, as Basten JA suggests in Robb Evans supra at [20], the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case. (See also Hancock v Arnold supra at [17].) If it were otherwise, the public policy to encourage settlement would rarely be served, in an all or nothing case. These proceedings were not of that character, as indicated by the success which the respondent had at first instance. 32 The normal order for costs, even in a clear case, is that each party bears its own costs without full indemnity. If a derisory offer, of the kind made in these proceedings, could result in an order for indemnity costs, then it is likely that many, perhaps most, contract interpretation disputes would result in an indemnity costs order, if the formality of an offer in accordance with the rules had been made at an early stage. If the appellant were to succeed in the present case, it is quite likely that such an offer would accompany most statements of claim as a matter of commercial practice. The purpose of the special order - to encourage settlement - would no longer be served. An order for indemnity costs could, in our opinion, become the normal order in many commercial disputes.
5. Whilst the defendant was ultimately successful on appeal, the Court considered that the plaintiff's contentions "did not have the degree of hopelessness, nor did they have any element of frivolity or vexation, of a character that would support an invitation to surrender being accepted as a real and genuine offer of compromise": at [34]. The Court followed Bryson JA's observations in Leichhardt Municipal Council and declined to award indemnity costs.
6. Regency Media was followed in Leach v The Nominal Defendant, where the plaintiff had sought substantial damages for serious injuries sustained following a shooting, following which the plaintiff spent 54 days in intensive care and suffered, at least, a brain injury: at [54]. McColl JA, with whom Gleeson JA and Sackville AJA agreed, considered that the liability case could not be said to have been frivolous or vexatious. "It was difficult and, to a certain extent, novel … Thus at the time the offer was made … the outcome on liability was 'far from a foregone conclusion'": at [53]. It was apparent that the plaintiff had suffered serious injuries and sought substantial damages; whilst the offer involved an element of compromise, it was only on costs and did not offer the plaintiff anything by way of damages on account of his injuries and "did not serve the public policy of encouraging settlement": at [54]-[55]. In the circumstances, it was not unreasonable for the plaintiff not to accept the offer.

Conclusion

1. An indemnity costs orders based on non-acceptance of a "walk away" offer is, unsurprisingly, more difficult to obtain than where a party has offered to pay 'real money' to resolve the proceedings. Authorities considering "walk away" offers tend to focus on whether the offer involved an element of compromise or was simply an invitation to capitulate. It was not suggested here that the plaintiff's offer was derisory. Rather, as the plaintiff submitted, its offer to bear its own costs was all that it could offer to resolve the motion. The plaintiff could not offer, for example, to pay the defendant's costs or agree to exclude some of its expert evidence or bring an application to amend.
2. The key question in this case is whether it was unreasonable for the defendant not to accept the "walk away" offer: Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd [2013] NSWSC 1165 at [15] (per Sackar J). Whilst bearing in the mind the authorities on which the defendant relies, the general position remains that the Court's discretion to order indemnity costs is one that has to be exercised having regard to all the circumstances of the case.
3. In this case, the Calderbank offer was made after the plaintiff's solicitors had already sent two comprehensive letters seeking to dissuade the defendant from filing the motion. As the plaintiff observed, the reasons why it suggested that the motion would fail proved to be correct. In particular, the application was inconsistent with Hammerschlag J's orders for case management and brought in the face of a procedural history known to both parties.
4. The defendant's motion faced two major problems. First, whilst the motion ostensibly sought an advanced ruling under section 192A of the Evidence Act, in reality it was a pleadings dispute, requiring the Court to review both the pleadings and the procedural history of the matter, which gave context to how and why the parties had proceeded as they did. As such, the application fell outside the mainstream of cases where an advance ruling may be made. The application was, in truth, a strike out application in an effort to compel the plaintiff to bring an application for leave to amend its pleading, which the defendant would then resist on the grounds of prejudice.
5. Second, the defendant's application critically relied on a submission that The Owners - Strata Plan No 90018 v Parkview Constructions Pty Ltd should not be followed, in circumstances where the Court could not depart from that decision unless it was plainly wrong. I do not think the defendant had any real prospect of persuading the Court - on a motion for an advance ruling under section 192A of the Evidence Act - that The Owners - Strata Plan No 90018 v Parkview Constructions Pty Ltd was wrong, in particular, where that judgment concerned a different subject entirely and is the subject of an appeal. It is one thing to consider the admissibility of evidence; it is quite another to consider whether the Onerati principle applies in a case such as this, in the face of the recent learned judgment confirming that it does.
6. Further, as the plaintiff submitted, there was an advantage to the defendant in accepting the offer as the motion would not be determined on its merits and the defendant's position would be preserved. It would still be open to the defendant to bring such a motion if its appeal from Stevenson J's decision in The Owners-Strata Plan No 90018 v Parkview Constructions Pty Ltd was successful. Knowing all of this, it may be considered unreasonable for the defendant to persist in the application and refuse the plaintiff's offer.
7. Having regard to the repeated and reasoned requests by the plaintiff, both before and after the filing of the motion, to abandon an application which was more strange than novel, I consider that the defendant's rejection of the plaintiff's "walk away" offer was unreasonable having regard to all the circumstances of this case. Where the plaintiff did all that it could to persuade the defendant to abandon the motion, the plaintiff should be indemnified for its costs incurred in being effectively forced to continue to participate in it.
8. For these reasons I make the following orders: 1. Order the first defendant to pay the plaintiff's costs of the amended motion dated 15 August 2022 on a party and party basis until 25 August 2022 and on an indemnity basis from 26 August 2022.

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