Woollahra Municipal Council v Secure Parking Pty Ltd

Supreme Court of NSW|2015-04-14|Before: Ball J

Introduction

By a notice of motion filed on 1 April 2015, the plaintiff seeks to vary a costs order I made when delivering judgment in this matter on 20 March 2015 (Woollahra Municipal Council v Secure Parking Pty Ltd [2015] NSWSC 257). At that time, I gave judgment for the plaintiff in the sum of $6,940,811.41, dismissed the defendant's cross claim and ordered that the defendant pay the plaintiff's costs.
The plaintiff seeks to vary the costs order in two respects. First, it seeks indemnity costs from 3 February 2015 on the basis of an offer of compromise it made by email that was sent at 5.59 pm on Thursday, 29 January 2015. The offer was in the following terms: • Payment of $1.75m to Woollahra • Proceedings and cross claims dismissed with no order as to costs • Mutual releases. The offer was expressed to be made in accordance with the principles stated in Calderbank v Calderbank [1975] 3 All ER 333 and to be open until 5.00 pm on Monday, 2 February 2015. The offer was made in response to an offer from the defendant made by letter dated 4 December 2014 to pay the plaintiff the sum of $50,000 on the basis that the plaintiff discontinue its claim against the defendant and the defendant discontinue its cross claim.
Second, the plaintiff seeks an order for interest on its costs.

Relevant legal principles

The relevant legal principles are not in doubt. In exercising its costs discretion to make a more favourable costs order than normal in favour of a party who does better than an offer of compromise made by the party, the Court will have regard to two matters. The first is whether the offer was a genuine offer of compromise. The second is whether it was unreasonable for the offeree not to accept it: see Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 per Basten JA at [8] (with whom McColl and Campbell JJA agreed); Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 at [10] per Bathurst CJ (with whom Allsop P and Beazley JA agreed).
In determining whether it was unreasonable for the offeree not to accept the offer, it will be relevant for the Court to consider, among other things, the stage of the proceedings at which the offer was received, the time allowed to the offeree to consider the offer, the extent of the compromise offered, the offeree's prospects of success assessed as at the date of the offer, the clarity with which the terms of the offer were expressed and whether the offer foreshadowed an application for indemnity costs in the event that it was rejected: see Miwa at [12] per Basten JA.
The offeror bears the onus of proving that the offeree acted unreasonably in rejecting the offer: Miwa at [16] per Basten JA.

The issues

In the present case, it is plain that the offer was a reasonable offer of compromise. The defendant, however, submits that the plaintiff has not established that it was unreasonable of the defendant not to accept it. It says that that is so for four reasons.
First and foremost, the defendant submits that it was not given a sufficient time in which to consider the offer. In making that submission, it points out that the offer was open for 4 days, only 2 of which were business days. Moreover, when making the offer, the plaintiff gave as a reason for why its contract claim should succeed the following: According to Young J, in the Supreme Court of NSW, there is no material difference between a performance bond and a guarantee.
By email sent at 6.24 pm on Thursday, 29 January 2015, the defendant asked for a citation to that decision. The plaintiff replied at 9.24 am on Friday, 30 January 2015, giving a reference to Hortico and also a reference to the definition of "performance bond" in K M Shanahan, Australian Dictionary of Banking and Finance, (1997) LBC Information Services. The defendant says that it was not in a position to consider the offer until it was provided with that reference. A search of the case indicates that it has been referred to in approximately 30 other cases. The defendant submits that in order for its legal advisors to give advice on the offer it was necessary for them to consider those cases. It was unreasonable to expect that to be done within the available time.
Second, the defendant submits that the offer was a costs inclusive one. Referring to the comments of Beazley JA in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [5], the defendant accepts that it is possible to make a costs inclusive offer in accordance with the principles in Calderbank v Calderbank. However, it submits that offers of that type are more difficult to evaluate, that the benefits they provide are less clear than cost exclusive offers and that that is a matter that needs to be considered particularly in light of the limited time for which the offer was open.
Third, the defendant submits that the plaintiff elected not to make a formal offer of compromise under the Uniform Civil Procedure Rules 2005 (NSW).
Fourth, the plaintiff gave two reasons for why the defendant should accept the offer. One was based on the decision of Young J in Hortico. The other was that, even if the plaintiff's contractual claim failed, it would succeed in its misleading and deceptive conduct claim and its damages in that event would be in the order of the amount of the offer. The plaintiff did not succeed on either of those two reasons.
In response to these submissions, the plaintiff sought to rely on an affidavit of Mr Glass, the plaintiff's solicitor, who gave evidence that the dispute was the subject of a mediation on 3 September 2013 before the Honourable Michael McHugh QC. Mr Glass gave evidence that during the course of his opening statement at the mediation he referred to the Hortico decision and read out the material quoted above.
The defendant objects to that evidence relying on s 30(4) of the Civil Procedure Act 2005 (NSW), which provides: Subject to section 29 (2): (a) evidence of anything said or of any admission made in a mediation session is not admissible in any proceedings before any court or other body, and (b) a document prepared for the purposes of, or in the course of, or as a result of, a mediation session, or any copy of such a document, is not admissible in evidence in any proceedings before any court or other body. Section 29(2) creates an exception where the evidence is led for the purpose of establishing that an agreement or arrangement was reached at the mediation or the substance of the agreement or arrangement.
I provisionally admitted the evidence given by Mr Glass on the basis that the admissibility of the evidence would be dealt with in this judgment. Consequently, two issues arise for determination. The first is whether the evidence given by Mr Glass is admissible. The second is whether the plaintiff has established that the defendant acted unreasonably in refusing to accept its offer.

Should the evidence of Mr Glass be admitted?

The plaintiff submitted that, unless the Court received evidence concerning what occurred at the mediation the Court would be misled, since the email sent at 6.24pm on 29 January 2015 suggests that the defendant had not previously been referred to the decision of Hortico, whereas it is plain from Mr Glass's evidence that the decision was drawn to the defendant's attention during the course of the mediation. It submitted that the evidence therefore fell within the exception set out in s 131(2)(g) of the Evidence Act 1995 (NSW). Section 131(1)(a) of that Act provides that evidence is not to be adduced of "a communication that is made between persons in dispute … in connection with an attempt to negotiate a settlement of the dispute". Section 131(2)(g) provides that subsection (1) does not apply if: [E]vidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication … is adduced to contradict or to qualify that evidence …
The defendant, on the other hand, submits that the Evidence Act has no application. The admissibility of communications that occur during the course of a mediation is governed by s 30 of the Civil Procedure Act, not the Evidence Act. Section 30 only creates an exception to the prohibition against admission of anything said at a mediation session in the circumstances set out in s 29(2). In making that submission, it relied on the decision of Palmer J in Rajski v Tectran Corporation Pty Limited [2003] NSWSC 476 at [16] per Palmer J, which was followed by Brereton J in Tony Azzi (Automobiles) Pty Ltd v Volvo Car Australia Pty Ltd [2007] NSWSC 375; (2007) 71 NSWLR 140 at [19]. In the former case, Palmer J, commenting on Part 7B of the Supreme Court Act 1970 (NSW), the predecessor to s 30, said: Pt 7B contains its own Rules as the evidentiary use which may be made of what is said and done in and for the purpose of settlement negotiations in a mediation under that Part and, in my view, those Rules override the general provisions of s 131 of the Evidence Act.
The defendant did not rule out the possibility that some common law exceptions also apply. One such exception was stated in these terms by Robert Walker LJ (with whom Wilson J and Simon Brown LJ agreed) in Unilever plc v Procter & Gamble Company [1999] EWCA Civ 3027 at [23]; [2001] All ER 783: … one party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other 'unambiguous impropriety' … But this court has, in Forster v Friedland and Fazil-Alizadeh v Nikbin [1993] CAT 205, warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion. However, the exception stated in those terms is narrower than the exception contained in s 131(2)(g) of the Evidence Act and clearly does not apply in this case.
Moreover, the defendant submits that the Court would not be misled in this case. The proposition for which the defendant contends is that it did not know the name or citation of the case on which the plaintiff relied. The evidence given by Mr Glass does not suggest that that information was given during the course of the mediation, or at least is unclear on that question.
I accept that the exception created by s 131(2)(g) of the Evidence Act cannot apply to the prohibition created by s 30(4) of the Civil Procedure Act. Section 131(2) provides exceptions to the exclusionary rules stated in s 131(1). Section 30(4) creates an additional exclusionary rule in the case of a subset of communications caught by s 131(1) of the Evidence Act - namely, communications that occur during the course of a mediation session. It contains its own exception to that exclusionary rule. The rule created by s 30(4) and the exception that it creates operate independently of the Evidence Act.
There is a question whether the parties can agree not to be bound by the exclusionary rule contained in s 30(4) of the Civil Procedure Act and whether principles of waiver and estoppel apply to the privilege it creates. The answer to those questions depends on the correct construction of the statute and whether the policy of the provision would be undermined in that event: see Westfield Management Ltd v AMP Capital Property Nominees Ltd [2012] HCA 54; (2012) 247 CLR 129 at [46] per French CJ, Kiefel, Crennan and Bell JJ; Qantas Airways v Gubbins (1992) 28 NSWLR 26 at 31 per Gleeson CJ and Handley JA.
In my opinion, s 30(4) of the Civil Procedure Act does not prevent the admission of evidence by agreement or as a result of a waiver arising from the conduct of one of the parties. The purpose of the provision is to protect confidential communications that occur during the course of a mediation in order to encourage full and frank settlement discussions: see Jireh International Pty Ltd v Western Export Services Inc (No 2) [2011] NSWCA 294 at [44]-[47] per Macfarlan JA (with whom Young JA and Tobias AJA agreed). That policy is not undermined if the parties agree between themselves that the evidence may be admitted. Nor do I think it is undermined if the privilege is lost as a consequence of waiver. In each case, disclosure of the information arises from the conduct of the party resisting disclosure - in the former case, as a result of that party's express agreement and, in the latter case, because the party has chosen to engage in conduct which is inconsistent with the maintenance of the privilege: cf Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 in relation to waiver in the context of legal professional privilege. A policy of promoting frankness in negotiations is not undermined if disclosure of what occurred during the negotiations is in the hands of those who participated in them.
However, I do not think that it is inconsistent with the maintenance of the privilege for the defendant to rely on the request for the plaintiff to identify the case to which it referred in its offer. That case was not identified and it was reasonable for the defendant to ask the plaintiff to do so, whether the plaintiff had referred to the case previously or not. In addition, it was open to the defendant to submit that, once the case was identified, it needed time to consider it. The force of that submission (or otherwise) depended on the significance of the case, not on whether the case had previously been drawn to the defendant's attention in the context of a mediation. The position may have been different if the defendant contended that it needed time to consider the decision and evidence was available to show that the defendant had already done so. However, Mr Glass's evidence did not go so far.
It follows that Mr Glass's evidence of what occurred at the mediation should be rejected. However, his evidence that a mediation occurred is not excluded by s 30(4), and that evidence should be admitted.

Did the defendant act unreasonably in refusing the offer?

In my opinion, it did.
On the face of it, the plaintiff's offer was a reasonable one. At the time the offer was made, the defendant faced a claim of approximately $7 million. The plaintiff had served detailed expert evidence justifying its quantification of the claim. If the claim succeeded, the defendant was also liable to pay the plaintiff's costs. There was a real question whether the parties had agreed on the terms of the contract. However, the conditions of tender stated that a contract was to come into effect on the terms set out in the tender on acceptance of the tender. The regulatory framework placed limits on the extent to which the plaintiff could depart from those conditions of tender. Consequently, there was a substantial risk that the defendant would fail. In that context, an offer in which the plaintiff agreed to accept $1.75 million and bear its own costs was reasonable.
None of the considerations advanced by the defendant change the position.
Nothing follows from the fact that the plaintiff did not make a formal offer of compromise in accordance with the Uniform Civil Procedure Rules. It is well established that parties may make informal offers.
Nor do I think any weight should be attached to the fact that the offer was a costs inclusive one, assuming that that is an accurate description of it. A costs inclusive offer is normally made by a defendant. It is an offer to settle a claim for a fixed amount inclusive of costs. Consequently, the amount of the offer covers both the defendant's liability in respect of the amount claimed and the defendant's liability to pay the plaintiff's costs in the event that the plaintiff is successful. The difficulty with offers of that type is that the actual amount offered to settle the plaintiff's claim can only be ascertained by deducting the plaintiff's costs from the amount of the offer. The amount of the plaintiff's recoverable costs may not be known. More significantly, the deduction is likely to reveal that the offer is not nearly as generous as it appears to be. In some cases, the true effect of the offer may be that the plaintiff obtains nothing in respect of its claim and may have to bear some of its own recoverable costs. Here, however, the offer was made by the plaintiff. The offer was to accept $1.75 million in respect of its claim. In the normal course of events, costs would have followed the event, with the result that the defendant would have been liable for the plaintiff's costs as well. However, the plaintiff also offered to bear those costs itself. It was plain that the offer was more beneficial to the defendant than a simple compromise of the plaintiff's claim of approximately $7 million for $1.75 million. To put the point another way, a costs inclusive offer is beneficial to a defendant, since it caps the defendant's liability. It is less attractive to a plaintiff because the amount offered must cover the plaintiff's loss and the plaintiff's claim for costs. It would be odd in those circumstances if a plaintiff were penalised for making a costs inclusive offer.
As to the other two points made by the defendant, in my opinion, the offer was open for a reasonable period of time. I was taken to a number of cases where the court found that a period of 4 days or 2 business days gave the offeree inadequate time to consider an offer: see, eg, Strahinja Pandurevic v Southern Cross Constructions (NSW) Pty Limited (No 3) [2012] NSWSC 1601; Echin v Southern Tablelands Gliding Club (No 2) [2013] NSWSC 744.
The cases to which I was referred provide helpful illustrations of how the relevant principles are to be applied. However, in the end, each case must turn on its own facts.
In the present case, the offer was made 4 days and 2 business days before the hearing was due to commence. The dispute was a commercial dispute between sophisticated litigants who were well represented. The parties had participated in a mediation which was unsuccessful and the defendant itself had made an offer of compromise on 4 December 2014. In light of those matters, it is to be expected that, at the time the plaintiff's offer was received, the defendant would already have considered its position carefully and obtained legal advice on its prospects of success. At the time, the issues in the case had been clearly identified and the evidence including expert evidence had been served by the parties.
In those circumstances, little significance can be attached to the explanation the plaintiff gave in its offer for why the defendant should accept it. The defendant must have understood the issues in the case and been in a position to make its own assessment of the competing arguments in light of the pleadings and the evidence that had been served.
The plaintiff placed some significance in its offer on the decision of Young J in Hortico. In my opinion, the point the plaintiff sought to make was a simple one. The plaintiff's contention appeared to be that because Young J had commented that a performance bond was the same as a bank guarantee, when the defendant referred to a performance bond in negotiations relating to the tender it must be understood as referring to the bank guarantee referred to in the contractual terms that formed part of the tender. In my opinion, that was not a difficult argument to evaluate. The important question in this case, as the defendant no doubt recognised, was what was meant objectively by the defendant when it referred to a performance bond in the context in which it did. In the end, the answer to that question depended on a variety of matters specific to this case that it is to be expected the defendant would have considered in making the offer it did on 4 December 2014 and in assessing its prospects of success. It did not depend on what Young J said in an entirely different context.

Orders

It follows that the defendant should pay the plaintiff's costs on an indemnity basis from 3 February 2015.
No reason was advanced for why the plaintiff should not have interest on its costs.
Consequently, the orders of the Court are: 1. Pursuant to UCPR r 36.16(1) order 3 of the judgment of Ball J dated 20 March 2015 be varied as follows: 3. The defendant to pay the plaintiff's costs on an ordinary basis up to and including 2 February 2015, and on an indemnity basis from 3 February 2015. 3A. In this order: X equals the total amount of costs and disbursements paid or liable to be paid to the plaintiff's legal advisers in connection with the proceedings; Y equals the total amount of costs and disbursements allowed on assessment to the plaintiff in connection with these proceedings; and The Allowed Percentage equals (Y/X x 100)%. Defendant to pay to the plaintiff interest on costs and disbursements, at the rates set out in UCPR r 36.7, on the Allowed Percentage of each amount for or on account of costs and disbursements actually paid to its legal advisers by or on behalf of the plaintiff, from the date of payment of each such amount until the first to occur of: 1. such time as the defendant has paid the costs due to the plaintiff under order 3A; or 2. any further order relating to interest on costs in these proceedings; 3B. Reserve liberty to apply on 7 days' notice for any further order pursuant to order 3A(b).

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: 24 April 2015

Evidence Act 1995(NSW)s 131(2)(g)

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