WARKWORTH MINING COMPANY PTY LIMITED v O'CONNOR

The Respondent makes an Offer of Compromise in the proceedings on the following basis: Appeal dismissed. Each party to pay its and their own costs. These terms not to be disclosed.

This Offer of Compromise is made pursuant to Pt 22 of the Supreme Court Rules."'The offer of compromise was not accepted.

By Notice of Discontinuance filed on 5 June 1995 the appellant discontinued the appeal.

The costs rules relevant to the respondent's application for indemnity costs are contained in Pt 52A of the Supreme Court Rules. Part 52A replaced Pt 52, for most purposes including those of the present application, from | July 1994.

The subrule particularly relevant to the respondent's application is Pt 52A r 22(4), which reads as follows:

Where an offer is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall, subject to rule 33, be entitled to an order against the defendant for the plaintiff's costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to his costs incurred before and on that day, assessed on a party and party basis.

This subrule is in almost identical terms to Pt 52 r 17(4) which was interpreted by this court in Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 as applying to appeals in the Court of Appeal. In the Maitland Hospital case it was also held that the references in subr (4) to 'plaintiff and 'defendant' should be read, when the subrule applied to an appeal in the Court of Appeal, in their ordinary meaning, that is, in terms of the present case the reference in the subrule to a plaintiff would be a reference to the respondent and the reference to the defendant a reference to the appellant.

I think I should treat the Maitland Hospital decision as authoritative just as much in regard to Pt 52A r 22(4) as to Pt 52 r 17(4).

The appellant's opposition to the respondent's application is based upon Pt 52A r 22(1) and (2), which are in the following terms:

(1) Upon the acceptance of an offer of compromise in accordance with Part 22 tule 3(5), the defendant shall, unless the Court otherwise orders, pay the costs in respect of the claim by the plaintiff against the defendant up to and including the day the offer was accepted.

(2) If a notice of offer contains a term which purports to negative or limit the operation of subrule (1), that offer shall be of no effect for any purpose under Part 22 or this rule.

For the appellant it is submitted that par (2) in the respondent's Offer of Compromise negatived or limited the operation of subr (1). As far as I can see, the only operation of subr (1) is to prescribe that the defendant shall pay the plaintiff's costs, upon acceptance of an offer, to the day of acceptance of the offer.

Paragraph (2) of the respondent's offer seems to be a plain alteration to what subr (1) requires. In fact, it would, if the offer were accepted, mean that no costs would be paid for the period in respect of which subr (1) says the defendant is to pay the costs, unless the court otherwise orders. This seems to me to be a negativing, or at the very least, a limitation of the operation of subr (1).

When the appellant made the foregoing submission, I felt reluctant to accept it, mainly because I could not understand why it should be that a party would be restricted in this way in the form of offer it could make.

I was then referred to Pt 22 r 10. That rule, even though it is limited to the situation where the defendant makes an offer to the plaintiff and arguably has nothing to say to the situation where a plaintiff makes an offer to a defendant, may cast a little light on Pt 52A r 22(1). It distinguishes between an offer to compromise a claim on the one hand and an offer to compromise an entitlement to costs in respect of a claim on the other.

The distinction and the restricted operation of Pt 22 r 10 suggest that, for some reason not presently clear to me, it was thought desirable that a plaintiffs offer of compromise should be in respect of the cause of action,and that only the costs orders stated in subr 22(1) would be allowed in the event of acceptance.

Whether or not Pt 22 r 10 provides any help in understanding the operation of Pt 52A r 22 (1) and (2), there seems little doubt that the meaning of subr (2) is quite plain: if a different costs order is part of the offer, then the offer has no effect for the purpose inter alia of founding an application for indemnity costs under subr 22(4).

That this is both the meaning and intention of the subrule is supported by its history. Until 1993, its predecessor, Pt 52 r 17(2), was in slightly different form as follows:

(2) If a notice of offer contains a term which purports to negative or limit the operation of subrule (1), that term shall be of no effect for any purpose under Part 22 or this rule.

This version of the subrule was considered by Giles J in Associated Confectionery (Australia) Limited v Mineral & Chemical Traders Pty Limited (1991) 25 NSWLR 349. In that case the offer had been made inclusive of costs. Giles J discussed the possibility that the term about costs could be treated as inoperative but the rest of the offer might still be effective for the purposes of Pt 52 r 17; however, he concluded that the whole offer was ineffective for the purposes of the rule. (There was a difficulty in that case additional to that in the present one.)

URJ WARKWORTH MINING COMPANY PTY LIMITED v O'CONNOR (Priestley JA) 3

It appears that to make the subrule clearer it was changed in 1993 by substituting 'offer' for 'term'. This seems to me to make it quite plain that the subrules are meant to have the effect their wording indicates (whatever the policy behind them may be) so that in a case such as the present, a paragraph such as par 2 prevents the whole offer having any effect for the purposes of Pt 52A r 22.

However, Pt 52A r 22 is not the only basis for the respondent's application. I am asked also to consider the position with which Badgery-ParkerJ dealt in Rouse v Shepherd [No 2] (1994) 35 NSWLR 277, that is an award of indemnity costs in the court's inherent jurisdiction. In that decision Badgery-Parker J reviewed the relevant authorities in a way which I respectfully agree with and adopt.

Using the approach described by Badgery-Parker J in Rouse [No 2] I need to consider the circumstances surrounding what happened in a formal sense, in this appeal. There is virtually no evidence beyond what I have already set out. There is no explanation from the appellant of why the appeal was discontinued. There is nothing to suggest that the appellant considered, before discontinuing, what costs order would follow from discontinuance, or was in any way, in regard to costs, relying on the respondent's letter of 20 January 1994 being of no effect for any purpose under Pt 22 or the relevant costs rule. In any event, the appellant's lawyers should be taken to be aware of the court's inherent jurisdiction. The letter should have alerted the appellant to the respondent's intention to seek indemnity costs if the appeal failed.

In these circumstances, where all this court knows is that the appellant kept an appeal on foot for eighteen months and then discontinued it without explanation, I think I should exercise my discretion in favour of the respondent's application.

I therefore order that the appellant pay the respondent's costs of the appeal on a party and party basis until a week after the date of the offer of compromise, that is, until 27 January 1994, and thereafter on an indemnity basis.

The appellant is also to pay the respondent's costs of this application.