TX Australia Pty Limited v Broadcast Australia Pty Limited

Judgment 1On 16 January 2012, following a hearing on 23 and 24 November 2011, I dismissed with costs the summons filed by the plaintiff TX Australia Pty Limited ("TXA"), whereby it sought a declaration that an expert determination about fees payable by the defendant Broadcast Australia Pty Limited ("BA") to TXA for access to and use of certain broadcast transmission towers owned by TXA, which enabled BA to provide standby digital television transmission services to the Australian Broadcasting Corporation ("ABC"), contained manifest errors or errors of law and was not final and binding on TXA and BA. I granted leave to the parties to make written submissions in connection with an application for a special costs order. By written submission filed on 3 February 2012, BA seeks an order that it costs be paid on the indemnity basis from 13 October 2011 pursuant to UCPR r 42.15A. 2The substantive proceedings were commenced by summons filed on 14 June 2011. BA filed a Notice of Appearance on 20 June 2011, and appeared at Commercial List directions hearings on 24 June, 5 August and 26 August 2011. It filed a Commercial List Response on 8 July 2011. It served a Notice to Produce for inspection on 13 July 2011, and a Notice to Admit Facts on 13 September 2011. It produced documents in response to a Notice to Produce issued by TXA. 3On 12 October 2011, BA served on TXA a Notice of Offer of Compromise, to the effect that the proceedings be dismissed with each party to bear their own costs. It is not in issue that the offer was made in accordance with UCPR r 20.26, and was open for a period of 28 days, nor that TXA did not respond to it, as a result of which it was taken to have been rejected on 9 November 2011. As, on 16 January 2012, the proceedings were dismissed with costs, the outcome was less favourable to TXA than the terms of the offer, which would have seen the proceedings dismissed, but with no costs order adverse to it. In those circumstances, pursuant to UCPR r 42.15A, unless the court otherwise orders, BA is prima facie entitled to an order against TXA for its costs in respect of the claim assessed on an indemnity basis "if the offer was made before the first day of trial, as from the beginning of the day following the day on which the offer was made ...". However, TXA submits that no order for indemnity costs should be made on two alternative bases: namely, first, that the offer did not involve a "genuine offer of compromise" and therefore did not engage r 42.15A, and alternatively, that if r 42.15A was engaged, then the court should nonetheless "otherwise order". 4In Regency Media Pty Limited v AAV Australia Pty Limited [2009] NSWCA 368, the court observed (at [27]-[28]): [27] There will be situations in which a purported offer does not answer the description of "an offer of compromise" referred to in r 42.13, being "an offer ... to compromise any claim in the proceedings" within r 20.26. A two judge bench of this court determined that that was the situation in Robb Evans [Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170] at [23]. Justice Basten went on, however, at [24] to determine, in the alternative, that if the rule was engaged, then the proper exercise of the court's discretion would be to "otherwise order", in accordance with r 42.15. [28] It will rarely be the case that a decision needs to be made as to whether or not an "offer" answers the description of an "offer of compromise" within the rules. To the extent that the element of compromise is absent, the court will be more likely to "otherwise order". In the present case, we are content to proceed on the basis of exercising the discretion to "otherwise order". 5Likewise, in the present case, the matter can be dealt with by considering the discretion to "otherwise order". In that regard, the Court of Appeal in Regency Media observed (at [15]): The relevant provisions of these rules do not specify that exceptional circumstances or the avoidance of substantial injustice must be established before the court will make a different order to the prima facie order for which the rules provide and, in our opinion, the rule should not be so construed. Rather, the discretion is one that has to be exercised having regard to all the circumstances of the case. 6Accordingly, previous decisions, which insisted on exceptional circumstances to warrant an "otherwise order" [Morgan v Johnson (1998) 44 NSWLR 578, 581-2 (Mason P); Hilllier v Sheather (1995) 36 NSWLR 414, 422-3; Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109, [35]-[37] (Basten JA); Melchior v Sydney Adventist Hospital Ltd (No 2) [2009] NSWSC 65], are no longer authoritative. 7I accept that an offer of a judgment for the defendant with each party to bear its own costs - a so-called "walkaway" offer - can be a relevant offer of compromise for the purposes of r 42.15A. This view is supported by the terms of r 20.26(2), which provides that an offer must be exclusive of costs "except where it states that it is a verdict for the defendant and that the parties are to bear their own costs", and by the judgment of Ward J in Ying v Song [2011] NSWSC 618 (at [25]), where her Honour, with reference to r 20.26(2), concluded that the rule contemplated that a defendant may make a "walk away" offer. The fact that such an offer may, in terms, fall within r 42.15A, however, is not conclusive. The question is whether, notwithstanding that it might fall within the strict terms of the rule, the prima facie consequence should not follow. 8The purpose of r 42.15A, in conjunction with r 20.26, is to encourage the settlement of litigation by providing an incentive to accept reasonable offers, and a reward for making reasonable offers. It was not the purpose of these rules to establish a regime that would have the practical effect of conferring on a successful party an entitlement to indemnity costs if it made an offer containing but a slight concession that did not involve an objectively realistic endeavour to bring about a compromise of the proceedings. 9BA's offer in this case must be viewed in the context of a substantive dispute involving millions of dollars, and a commercial relationship extending ten years into the future. It was essentially an "all or nothing" case, of the type referred to by the Court of Appeal in Regency Media (at [29]): [29] As is usually the case in proceedings turning on an issue of contractual interpretation, this was an all or nothing case. The claims did not involve a process of evaluation or assessment in which the end result could vary over a range. Either one party or the other party was correct. Whilst a marginal difference between the offer and the result may constitute a real and genuine offer of compromise in a personal injury context, that is not generally true in an all or nothing case. ... [30] The offer of $10,000 made at an early stage of these proceedings - indeed, before a defence had been filed - was an invitation to surrender, rather than any form of commercial compromise. Clearly, the offer reflected the strength of the appellant's belief in its interpretation of the contract. This belief has been fully vindicated in this court. Nevertheless, it is difficult to characterise the offer as one of "compromise". Any such element of compromise was, at best, "of limited significance". ... The offer can be accurately described as derisory. The court should adopt the approach in Robb Evans. [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. ... 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. 10BA legitimately emphasises that in this case, the offer was made not at an early stage, but after the issues had been refined and the evidence exchanged; and also that, whereas Regency Media was a claim for monetary relief turning on contractual construction where the amount in issue was either payable in full or not at all, in the present case the claim was one for declaratory relief, in which there was no intermediate position open to be put by compromise. However, as to the first, the timing of the offer is far from determinative; the real question is whether the offer was one that involved a sufficient measure of compromise that it can objectively be seen to have been calculated to resolve the matter. As to the second, that does no more than illustrate that there may be some types of dispute in which it is difficult to formulate an offer that would trigger the rules. As the Court of Appeal pointed out in Regency Media, indemnity costs are the exception not the rule, and that the entitlement to them might be difficult to trigger in a particular type of case is not a serious objection. Moreover, it is not difficult to think of ways in which a real measure of compromise could have been introduced: for example, an offer of a payment of a sum of money to TXA in return for dismissal of its claim. 11While it is true that there was an element of compromise in BA's offer to "walk away" without a costs order, in substance the offer called for TXA's capitulation, but offered not to press for a costs order. As it turns out, this would have been more favourable to TXA than the result. But the offer did not involve any substantial measure of compromise in BA's position to justify its being rewarded by a special costs order. To do so would be to use the relevant rules to reward a party who made an offer, admittedly more favourable to the other than the outcome, but not objectively calculated to achieve a compromise. 12In my view the offer in this case was not such as to justify BA being compensated for the difference between its ordinary party/party and indemnity costs. 13My orders are: (1)Order that, notwithstanding the offer of compromise made on 12 October 2011 and UCPR r 42.15A, the costs payable by TXA to BA be assessed on the ordinary and not on the indemnity basis. (2)Order that BA pay TXA's costs of the application for an indemnity costs order.