Bluth v Boyded Industries Pty Ltd (No 2)

[2024] NSWCA 194

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Bluth v Boyded Industries Pty Ltd (No 2) [2024] NSWCA 194

Hearing dates:

On the papers

Date of orders:

16 August 2024

Decision date:

16 August 2024

Before:

Bell CJ
Gleeson JA
Harrison JA

Decision:

(1) Dispense with the requirement in Uniform Civil Procedure Rules 2005 (NSW), r 18.2(1) for the filing of a notice of motion by the appellant / cross-respondent (HWLE) in respect of its application under r 36.16(3A) to vary the costs orders made on 4 April 2024.

(2)  In relation to the proceedings below, order that order (2) made in this Court on 4 April 2024 be varied so that the costs ordered to be paid be payable on the ordinary basis up to 16 August 2022 and on the indemnity basis thereafter.

(3)  Order that the costs of this application be costs in the appeal.

Catchwords:

COSTS – party/party – offers of compromise – where the appellants seek variations to the costs orders made on appeal – where appellants issued offers of compromise to the respondent prior to the commencement of the appeal proceedings – where no notice of motion to vary the costs orders was filed within 14 days of the orders being entered as required by r 36.16(3A) UCPR – whether a letter sent between the parties can be characterised as an application or an intention to make an application to vary a costs order – requirement for a notice of motion dispensed with pursuant to s 14 Civil Procedure Act 2005 (NSW) – where the appellants obtained a judgment that was no less favourable to them than the terms of the offers issued to the respondent – where offers of compromise not renewed between the trial and the appeal

Legislation Cited:

Civil Procedure Act 2005 (NSW) ss 14, 98

Uniform Civil Procedure Rules rr 1.12, 18.2, 20.26, 36.16, 42.15A

Cases Cited:

Aukuso v Tahan (No 2) [2018] NSWCA 302

Bathurst Regional Council v Thompson (No 2) [2012] NSWCA 420

Bluth v Boyded Industries Pty Ltd [2024] NSWCA 67

Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109

Coastwide Fabrication and Erection Pty Ltd v Honeysett (No 2) [2009] NSWCA 291

Croghan v Blacktown City Council (2019) 100 NSWLR 757; [2019] NSWCA 248

Deputy Commissioner of Taxation v Meredith (No 2) (2008) 75 NSWLR 462; [2008] NSWCA 133

Eliezer v The Council of St Andrew’s Cathedral School (No 2) [2021] NSWCA 227

Grace v Grace (No 9) [2014] NSWSC 1239

Kable v State of New South Wales (No 2) [2012] NSWCA 361

Livers v Legal Services Commissioner (No 2) [2021] NSWCA 164

Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344

Moore v Woodforth (No 2) [2003] NSWCA 46

Morgan v Johnson (1998) 44 NSWLR 578

Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368

Short v Crawley (No 45) [2013] NSWSC 1541

Category:

Costs

Parties:

Dennis Bluth & the 274 others named in Schedule 1 trading as HWL Ebsworth Lawyers (Appellants/Cross-Respondents)
Boyded Industries Pty Limited (Respondent/Cross-Appellant)

Representation:

Counsel:
M Jones SC with G Marsden (Appellants/Cross-Respondents)
J Giles SC with E Ball (Respondent/Cross-Appellant)

Solicitors:
Gilchrist Connell (Appellants/Cross-Respondents)
Norton Rose Fulbright (Respondent/Cross-Appellant)

File Number(s):

2023/277802

Publication restriction:

Nil

JUDGMENT

1. THE COURT: On 4 April 2024, the Court made the following orders:

1. Allow the appeal.

2. Set aside orders 1 and 2 made on 11 August 2023 and, in lieu thereof, dismiss the amended statement of claim with costs.

3. Dismiss the cross-appeal.

4. Order the respondent/cross-appellant to pay the appellant/cross-respondent’s costs of the appeal and of the cross-appeal.

See Bluth v Boyded Industries Pty Ltd [2024] NSWCA 67.

2. The appellants (“HWLE”) now seek a variation of the Court’s orders by way of an order that the costs ordered to be paid in (2) above be payable on the ordinary basis up to 16 August 2022 and on the indemnity basis thereafter, and that the costs ordered to be paid in (4) above be paid on the indemnity basis. Those orders are opposed by the respondent (“Boyded”).

3. These reasons assume a familiarity with the judgments of the trial judge and of this Court on appeal.

Background

4. On 16 August 2022, HWLE made an offer of compromise in accordance with UCPR 20.26 in the following relevant terms:

1. Judgment in favour of Boyded in the sum of $1,000,000;

2. HWLE to pay Boyded’s costs of the proceedings as agreed or assessed up to the time of this offer;

3. This offer is open for acceptance until 8:00pm on 13 September 2022; and

4. This offer is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).

5. On 6 July 2023, HWLE made a further offer of compromise in accordance with UCPR 20.26 in the following relevant terms:

1. Judgment in favour of Boyded in the sum of $1,350,000;

2. HWLE to pay Boyded’s costs of the proceedings as agreed or assessed up to the time of this offer;

3. This offer is open for acceptance until 8:00pm on 13 July 2023; and

4. This offer is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).

6. Neither offer was accepted.

A threshold issue

7. Since that letter was sent, and in the context of the current contest, Boyded has raised the preliminary question of whether HWLE’s application to vary the original costs orders has been made within the time prescribed by the rules. It is convenient to deal with that issue before proceeding further.

8. UCPR 36.16 provides relevantly as follows:

36.16 Further power to set aside or vary judgment or order

(1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order.

(2) The court may set aside or vary a judgment or order after it has been entered if --

(a) it is a default judgment (other than a default judgment given in open court), or

(b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or

(c) in the case of proceedings for possession of land, it has been given or made in the absence of a person whom the court has ordered to be added as a defendant, whether or not the absent person had notice of the relevant hearing or of the application for the judgment or order.

(3) In addition to its powers under subrules (1) and (2), the court may set aside or vary any judgment or order except so far as it--

(a) determines any claim for relief, or determines any question (whether of fact or law or both) arising on any claim for relief, or

(b) dismisses proceedings, or dismisses proceedings so far as concerns the whole or any part of any claim for relief.

(3A) If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered.

(3B) Within 14 days after a judgment or order is entered, the court may of its own motion set aside or vary the judgment or order as if the judgment or order had not been entered.

(3C) Despite rule 1.12, the court may not extend the time limited by subrule (3A) or (3B).

(4) Nothing in this rule affects any other power of the court to set aside or vary a judgment or order.

9. The following matters should be noted.

10. On 11 April 2024, HWLE’s solicitors wrote to Boyded’s solicitors stating their intention to seek a variation of the Court’s costs orders made on 4 April 2024 and to approach the Court jointly for that purpose. On 16 April 2024, Boyded’s solicitors replied that they were seeking instructions and anticipated being in a position to respond the next day. On 17 April 2024, Boyded’s solicitors responded to HWLE’s letter, stating that Boyded did not agree to the parties approaching this Court jointly as to costs. On 26 April 2024, HWLE’s solicitors wrote to Boyded’s solicitors, indicating that they would take steps to file an application seeking to vary the Court’s costs orders. HWLE’s solicitors subsequently contacted Harrison CJ at CL’s Associate by email noting HWLE’s intention to seek a variation and enquiring whether a notice of motion would be required.

11. On 29 April 2024, Boyded’s solicitors wrote to HWLE’s solicitors, referring to HWLE’s solicitors’ email of 26 April 2024 to his Honour’s Associate, indicating that the time for seeking to vary the Court’s costs orders had expired before that correspondence had been sent. Boyded’s solicitors also invited HWLE’s solicitors to withdraw their request to vary the Court’s costs orders.

12. Also on 29 April 2024, his Honour’s Associate wrote to the parties advising that a notice of motion would not be necessary and inviting the parties to agree upon a timetable for the exchange of submissions so that the issue might be determined on the papers.

13. Boyded now draws attention to the fact that, even if HWLE’s letter of 26 April 2024 is treated as the relevant “motion” to vary the costs orders, it was the first communication to the Court about that, and it was some 22 days after the orders in question had been made.

Boyded’s submissions – threshold issue

14. On the question of whether or not the Court has the power to dispense with the 14-day time limit in UCPR 36.16(3A), Boyded offered the following submissions.

15. The Court's power to dispense with this time bar was considered by Basten JA in Deputy Commissioner of Taxation v Meredith (No 2) (2008) 75 NSWLR 462; [2008] NSWCA 133, a case concerning an application to vary costs orders following a successful appeal. The Court concluded that it had "no power" to entertain the application.

16. His Honour said at [15], "[t]he clear purpose of [UCPR 36.16] is to allow a window of 14 days after entry of judgment, in courts where entry takes place automatically and largely contemporaneously with the delivery of judgment" for a party to apply to set aside or vary the judgment or order in question. Further, also at [15], "[t]he removal of the power to extend the 14-day period makes it sufficiently clear that the intention is that the period is not variable, but reflects the need for judgments and orders to be final and certain as to their operation". Moreover, at [16], "[i]t is not open to this Court to arrogate to itself some inherent power, absent statutory authority, which is denied by the judgments of the High Court.”

17. This Court's decision in Coastwide Fabrication and Erection Pty Ltd v Honeysett (No 2) [2009] NSWCA 291, is to similar effect. In that case, McDougall J examined Meredith and descriqbed Basten JA's reasoning as "fatal to Coastwide's application". According to Boyded, HWLE's application suffers from the same infirmity: it was not made within 14 days of entry of the orders made on 4 April 2024. UCPR 36.16(3A) refers expressly to the need to file a "notice of motion", short of the Court "of its own motion" setting aside or varying a judgment or order within 14 days of entry (UCPR 36.16(3B)). Even if the requirement for a formal motion can in effect be dispensed with, in circumstances where HWLE contacted the Court eight days after the expiration of the 14-day time period, it cannot be suggested (nor does it appear to be) that HWLE approached the Court within time. Nor can it be suggested that the inter partes correspondence on 11 April 2024 meant that HWLE's later application was made within time. As stated by Allsop P in Kable v State of New South Wales (No 2) [2012] NSWCA 361 at [2]:

“Rules 36.15, 36.16, 36.17 and 36.18 deal with important questions concerning variation of orders of the court. Rule 36.16 is particularly important. It deals with the fundamentally important question of finality of litigation: see in particular subrules (3A), (3B) and (3C). Parties should not think that they can, at their choice, avoid the operation of the Rules by less formal communication.”

18. Boyded submitted that HWLE makes no reference to UCPR 36.16, nor has it questioned the correctness or applicability of Meredith or Coastwide or pointed to some residual discretion to vary the Court's orders outside the 14-day time period. Furthermore, UCPR 36.16(3C) precludes the operation of UCPR 1.12 which might have allowed the Court to extend the time to seek a variation. Finally, at no point during the hearing did HWLE inform the Court that, depending on the outcome of the appeal, HWLE would wish to be heard as to the costs orders made by the trial judge.

HWLE’s submissions – threshold issue

19. HWLE provided a lengthy response to Boyded’s submissions on the threshold issue. In summary, HWLE submitted that:

1. HWLE’s application invokes UCPR 36.16(3) or (4) or involves the making of a supplemental order for the purpose of dealing with working out orders (2) and (4);

2. alternatively, the application invokes UCPR 36.16(3A), the relevant time period for which, by operation of s 14 of the Civil Procedure Act and HWLE’s formal notice of its application to Boyded within 14 days of the judgment, has been satisfied; or

3. in the further alternative, the application invokes s 98(3) of the Civil Procedure Act as it does not involve impugning an operative or substantive part of the judgment.

20. It is not necessary to summarise the detailed argument advanced in support of the first or third submissions as the second submission is dispositive of the threshold issue for the reasons given below.

UCPR 36.16(3A)

21. HWLE’s second submission is that the informal application notified by HWLE to Boyded within 14 days of judgment satisfies UCPR 36.16(3A).

22. HWLE accepts that no application or statement of intention to make an application was made to the Court within 14 days following the judgment. The question is whether notice of a proposed application given to the respondent, but not to the Court, within 14 days is adequate “notice” for the purposes of UCPR 36.16(3A), where s 14 of the Civil Procedure Act operates otherwise to dispense with the requirement in UCPR 18.2(1) for the filing of a notice of motion.

23. The terms of the letter sent by the Associate to Harrison CJ at CL on 29 April 2024 should be noted:

“…after consultation with the other members of the Court, it will not be necessary for a notice of motion to be filed. The judges are content for the parties to provide an agreed timetable for the exchange of submissions and evidence, in the form of affidavits, on the question of any different costs order(s) that are sought by either party. Unless there is some particular reason to proceed otherwise, the Court proposes thereafter to consider the issue on the papers.”

24. HWLE took the position that, accepting that it is important to put the Court on notice of a proposed application by filing a notice of motion, another important purpose is to give notice to the proposed respondent that an application is to be made. In the present case, that notice was given seven days after judgment. The Court was approached 15 days later.

25. Section 14 of the Civil Procedure Act operates to dispense with a requirement imposed by the rules if the Court is satisfied that it is appropriate to do so in the particular circumstances of the case.

Consideration

26. Section 14 of the Civil Procedure Act provides as follows:

14 Court may dispense with rules in particular cases

In relation to particular civil proceedings, the court may, by order, dispense with any requirement of rules of court if satisfied that it is appropriate to do so in the circumstances of the case.

27. UCPR 18.2(1) is in these terms:

18.2 Requirement for notice

(1) A person may not move the court to make any order unless notice of motion has been filed and served on each person affected by the proposed order.

(2) Despite subrule (1), a person may move the court to make an order without notice of motion having been filed or served on a person if—

…

(c) the court dispenses with the requirement for such notice to be filed or served, or

(d) …

28. HWLE has argued that it is appropriate in the circumstances of this case to dispense with the UCPR 36.16(3A) requirement to file and serve a notice of motion upon the basis that informal notice was in any event given to Boyded by solicitor’s letter within 14 days, even if a notice of motion was not and that Boyded suffered no procedural or other prejudice or disadvantage as a result. Moreover, the giving of notice to the Court by the filing of a formal application is either a presently irrelevant or neutral consideration. The burden of this submission is, in effect, that any different approach would amount to a triumph of form over substance in circumstances where nothing, such as some actual prejudice to Boyded, has been identified clearly suggesting that a departure from the literal terms of the notice requirement should not be permitted.

29. HWLE has acknowledged that there does not appear to be any authority directly on point, in which the informal notice of an application to vary a costs order has only been given to the other party but not also to the Court. However, in our view, this should not amount to a fundamental difficulty when the underlying purpose of the requirement in UCPR 18.2(1) for the filing of a notice of motion is to give written notice to the party who is to be affected by the relief sought.

30. The issue is whether the 11 April 2024 letter can or should be characterised as an “application” to vary the costs order or simply notice of an intention to make such an application. In Aukuso v Tahan (No 2) [2018] NSWCA 302, Simpson AJA (Macfarlan JA agreeing) considered at [44]-[49] that there is no rigid distinction between an “application” and “notice of intention to make an application”:

“[44] The difference, as I understand it, between the approach taken above and that taken by Meagher JA is narrow, but not insignificant. Meagher JA would deny jurisdiction to vary an order unless an application (which may be made informally) to do so is made within the 14 day period. Notice of intention to make such an application is insufficient. His Honour does not construe the letter of 8 June to Ms Tahan’s solicitors, nor the email to the Registrar seeking leave to file an application, as an application. On that approach, jurisdiction depends upon whether the party seeking variation adequately formulates an ‘application’ as distinct from giving notice of intention to make an application.

[45] On my reading of the authorities discussed above, notice, even if informal, has been held to be sufficient to enliven the s 14 discretion to dispense with the requirement of filing a notice of motion within the 14 day period. The judgments do not always identify with specificity what was put to the court by way of ‘application’ within time. In Hancock it was ‘leave to make submissions on a special order for costs’. In Kable, ‘a request to be heard on costs’ was made well within time. In each case, this Court treated the submission or request as sufficient to found dispensation with the requirement of filing a notice of motion.

[46] These decisions are not suggestive of a rigid distinction between an ‘application’ and notice of intention to make an application, a distinction which might, in some cases, prove difficult to make. As the cases show, such issues often emerge at the time, or shortly after, judgment is delivered, and are not always clearly formulated.

[47] What remains outstanding is whether s 14 permits dispensation with the time limit. That question will not be resolved by this decision. That is because, within the 14 day period, Mr Aukuso by the email communication to the Registrar, copied to Ms Tahan’s solicitors - gave adequate notice in writing of his intention to seek variation of the costs orders. That should be seen as the equivalent of the oral notice given in Hancock, and the letter in Kable.

[48] In the above circumstances, to which may be added the fact that the notice of motion was filed only five days later, there can be no prejudice occasioned to Ms Tahan. No attempt was made to demonstrate that there was.

[49] I am therefore satisfied that it is appropriate to exercise the discretion conferred by s 14 to dispense with the requirement of r 36.16(3A) that a notice of motion be filed (within the 14 day period), and treat the correspondence as adequate notice. Since that notice was given within 14 days, it is unnecessary to consider the more difficult question of the interaction between s 14 and subrr 36.16(3A) and (3C).”

31. The decision of Meagher JA to which her Honour referred appears at [5] of the judgment:

“[5] In the present case neither of the written communications relied on by Mr Aukuso made any application to the Court to vary the costs order within time. The first, the letter of 8 June 2018 to Ms Tahan’s solicitors, gave notice that such an application was to be made. The second, the email to the Court of 15 June 2018, sought leave to file an application to vary the costs order. In doing so, it made clear that a formal application to vary the costs order was to be made. In these circumstances, dispensing with the requirements in UCPR r 36.16 (3A) for the filing of a notice of motion for the varying of the costs order does not assist Mr Aukuso because the condition for the exercise of the power conferred by that rule remains unsatisfied, no application to vary the costs order having been made to the Court within 14 days of that order being entered.”

32. In the present case, the relevant terms of the 11 April 2024 letter should be noted in full:

“We refer to our previous correspondence in relation to the Proceedings and the recent judgment in the Proceedings of Bluth v Boyded Industries Pty Ltd [2024] NSWCA 67 (Judgment).

As you will be aware, in the Judgment, the Court of Appeal:

1. allowed our clients’ appeal;

2. set aside orders 1 and 2 made on 11 August 2023 by Justice Chen in Supreme Court of New South Wales proceedings No. 2021/00180823 (underlying proceedings) and, in lieu thereof, dismissed your client’s Amended Statement of Claim with costs;

3. dismissed your client’s cross-appeal; and

4. ordered your client to pay our clients’ costs of the appeal and of the cross-appeal.

…

OUR CLIENTS’ COSTS

On 16 August 2022, our clients made an Offer of Compromise in the underlying proceedings in which they offered to compromise the whole of your client’s claim made against them on terms which included judgment in favour of your client in the sum of $1,000,000 and payment of your client’s costs as agreed or assessed up to the time of the offer.

In light of this, and consisted [sic] with Uniform Civil Procedure Rules 2005 (NSW) Rule 42.15A, we ask that you indicate by 5pm on 16 April 2024 whether your client agrees to a joint approach to his Honour Harrison JA seeking to amending [sic] orders (2) and (4) of the Judgment to read as follows:

(2) Set aside orders 1 and 2 made on 11 August 2023 and, in lieu thereof, dismiss the Amended Statement of Claim with costs payable on the ordinary basis to 16 August 2022, and on the indemnity basis thereafter.

(4) Order the respondent/cross-claimant to pay the appellant/cross-respondent’s costs of the appeal and of the cross-appeal on an indemnity basis.

In the absence of such an indication, we put your client on notice that our clients will file an application seeking such orders, and will seek the costs of that application from your client, on an indemnity basis.

We await your response.”

33. It is evident from the terms of that letter that it contained all of the information that Boyded could have expected would be contained in a formal notice of motion filed in court. This Court’s orders were made on 4 April 2024. The letter asked for a response within 12 days of that date. The response to that letter was sent at 2:41pm on 16 April 2024 but did not express or convey any attitude to the request. Instead, the letter merely said this:

“We refer to your below correspondence which sought a response by 5pm today. We are seeking instructions and expect to be able to respond by 1pm tomorrow.”

34. The response foreshadowed in that letter is reproduced below at [39].

35. Neither in that letter nor in Boyded’s submissions filed in opposition to HWLE’s contentions is there any express or implied reference to some prejudice or other specified disadvantage that Boyded might sustain if the formalities concerning the filing and service of a notice of motion within 14 days of 4 April 2024 were not followed. In our view, the 11 April 2024 letter gives sufficient, if not in fact complete, notice of the relief that HWLE seeks. It follows that it is appropriate in the circumstances of this case that this Court dispense with the requirement in UCPR 18.2(1) for the filing of a notice of motion in respect of HWLE’s application under UCPR 36.16(3A) to vary the costs orders made on 4 April 2024.

Special costs order

36. HWLE’s letters dated 16 August 2022 and 6 July 2023 contained detailed arguments in support of the professed reasonableness of the offers of compromise to which they respectively refer. Having regard to the basis upon which HWLE’s appeal was allowed, relating to Boyded’s inability at trial to establish loss by reason of the financial positions of Mr Fayad and the companies in the Dyldam Group, it is sufficient for present purposes to record only the following extracts from these letters.

37. The 16 August 2022 letter contained the following:

“Relevantly, in 2016, your client agreed to sell the land to Gateway, being two special purpose vehicles part of the Dyldam group of companies operated by Sam Fayad (Dyldam Group). Your client was significantly remunerated for that sale.

It was otherwise well-publicised in 2016 and 2017 that both the Dyldam Group and Mr Fayad had questionable business practices, including, but not limited to, not paying subcontractors and not meeting contractual obligations, and had been party to a number of claims for damages and other relief. No doubt, your client undertook adequate due diligence in relation to its sale of the land and its later sale of the surrounding parcels of land to associated companies in the Dyldam Group.

That is to say, it would have been obvious to your client when it entered into the Option Deed in 2017, if not shortly thereafter, that there was no guarantee that either the Car Show Room (or the proposed development of which it was to be a part) would be built by the Option Expiry Date (or at all) or that Gateway or Mr Fayad would be able to pay any part of the liquidated amount of $3.5M, if the Rescission Right was exercised. The various transactions entered into by your client with Gateway or their associated entities always carried with them a high degree of risk for your client.

In such circumstances, to suggest that any loss of rights or opportunity to exercise rights under the Option Deed caused by our client sounds in ‘full value’ damages does not bear any scrutiny. At all material times, including at the commencement of the Option Deed, there was a real risk that your client would obtain only a limited amount, or nothing, in respect of its rights under the Option Deed. It was a commercial decision of your client to enter into relationships with Dyldam Group, Mr Fayad and Gateway. That those relationships would never have borne fruit is not the fault of our clients.

…

Here, the objective facts are that:

• The proposed development was not constructed by the Option Expiry Date or has not been to date (despite it being more beneficial for Gateway to have done so in the absence of any requirement to build and transfer the Car Show Room to your client). Indeed, construction has not even commenced and the land (and its surrounding parcels of land) are currently on the market, if not already under contract;

• Gateway’s financial position was that they were at all material times in significant debt, and unable to pay any part of a $3.5M debt; and

• Mr Fayad is facing bankruptcy proceedings for a judgment sum of approximately $10 million for a loan agreement he guaranteed some two years prior to the commencement of Option Deed, but in respect of which he did not repay any of the principal sum of $4 million before the final repayment date of 15 December 2018 (being 18 months prior to the Option Expiry Date).

What we understand to be your client’s counter-arguments to these objective facts are that, had it exercised the Rescission Right at some point in time, Gateway would have been in a position to pay your client $3.5M as they would have:

• Borrowed the money to do so; or

• Instead sold the land, and that such a sale would have provided them with sufficient proceeds to pay a $3.5M debt.

As outlined in our client’s expert forensic accountant’s report, Gateway was at all relevant times in significant debt.

It cannot otherwise be inferred that Gateway could or would have sold the land to raise funds to pay any amount owning [sic] to your client, particularly as they did not own the surrounding parcels of land that also comprised the development site, or that, even if such a sale took place, it would have generated sufficient net proceeds to pay any amount owning [sic] to your client, or any net proceeds at all.

No evidence has been served or suggested by your client that supports a contrary view.”

38. The 6 July 2023 letter was shorter but included the following assertions to a similar effect:

“The position stated in our letter position [sic] can be summarised as being that, even if our clients are found to have breached their obligations to your client in relation to the caveat lodged over 63 Church Street, Parramatta, your client faces significant issues in demonstrating that any such breach was causative of any loss. Our clients have since admitted breach, which means that the position as outlined in our letter is unaffected. That position remains our clients’ position, as should be clear from our clients’ recently circulated submissions. Indeed, that position has been strengthened by the recent inevitable collapse of the ‘Gateway Two Companies’.

Your client has otherwise now abandoned the ‘Car Show Room’ claim, which we previously identified to you was a hopeless case, but your client’s assessed value of that claim formed the basis of its previous negotiating position, which far exceeds its own valuation of its remaining claim.”

39. Although Boyded did not engage with HWLE’s contentions in these letters at the time, it did so more recently in response to the present application by way of its solicitors’ letter to HWLE's solicitors dated 17 April 2024 as follows:

"5. We consider that the Court will exercise its discretion in r 42.15A(2) of the Uniform Civil Procedure Rules 2005 (NSW) to refuse to make an indemnity costs order and '[order] otherwise'.

6. In particular, we note that your clients only conveyed to our client that they 'admit[ted] breach of duty of care as set out in paragraphs 30 and 36 of the Amended Statement of Claim dated 7 July 2021', by way of an email from your office on 20 June 2023 at 4:12pm. After significant correspondence from our office seeking to understand the scope of the matters being belatedly admitted, an Amended Defence was only filed on 7 July 2023. As you know, the trial commenced on 17 July 2023.

7. In circumstances where the parties incurred significant, unnecessary costs, on issues that your client ultimately admitted shortly before the trial, the Court will consider that those costs were attributable to your clients' unreasonable conduct and, accordingly, the Court will order otherwise: see, for example, EDPI Pty Ltd v Rapdocs Pty Ltd [2007] NSWSC 195 at [76]-[85] per Brereton J.

8. Moreover, we consider that it was not unreasonable for our client to reject the offer of 16 August 2022, noting in particular that many significant factual matters were not then known and subsequently came to light, including but not limited to:

(a) The Church Street properties being sold by the Gateway entities for substantially less than they were purchased [sic, for] in 2015-2016; and

(b) The Gateway entities being placed into liquidation.

9. We note that exercise of the discretion to order otherwise does not require exceptional circumstances: see Leach v Nominal Defendant (QBE Insurance (Aust) Ltd) (No 2) [2014] NSWCA 391 at [46]-[48] per McColl JA; Barakat v Bazdarova [2012] NSWCA 140; at [42]-[49] per Tobias AJA (Bathurst CJ and Whealy JA agreeing).

10. Moreover, in circumstances where the offer of 16 August 2022 was not renewed between the trial and the appeal, the Court will not order that your clients' costs of the appeal and the cross-appeal be paid on an indemnity basis: see, for example, Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd (No 2) [2006] NSWCA 379 at [8]-[12] per Beazley, Ipp and Tobias JJA."

HWLE’s submissions

40. UCPR 42.15A is in these terms:

42.15A Where offer not accepted and judgment no less favourable to defendant

(1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer.

(2) Unless the court orders otherwise--

(a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and

(b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis--

(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.

41. HWLE submitted that by operation of that rule it is entitled to an order against Boyded for its costs in respect of the claim on the ordinary basis up to 16 August 2022 and on an indemnity basis thereafter. In support of that submission it relied upon the following authorities which it is convenient to record.

42. The principles that apply to the exercise of the discretion to “order otherwise” are stated by Mason P in Morgan v Johnson (1998) 44 NSWLR 578 at 581-582:

“(1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital (at 725-726); Hillier (at 421, 431).

(2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital (at 724).

(3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: NSW Insurance Ministerial Corporation v Reeve (at 102); Hillier (at 422). This is because, from the time of non-acceptance ‘notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise’: Maitland Hospital (at 724); see also Hillier (at 420).

(4) Lying behind the rule is the common knowledge that ‘litigation is inescapably chancy’: Maitland Hospital (at 725). For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve (at 102-103). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102)…

…

(5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital (at 725-726). Reasons must be given for ‘otherwise ordering’: Hillier (at 419); Quach.”

43. In Croghan v Blacktown City Council (2019) 100 NSWLR 757; [2019] NSWCA 248 at [20]-[21]:

“[20] The exercise of the power to displace the application of r 42.15(2) directs attention to the circumstances in which the offer of compromise was not accepted and whether it is just and fair that the offeree who rejected an offer, later taken by the Court’s judgment to have been reasonable, should pay the costs of the proceedings from the date of that offer, and on an indemnity basis: Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Kirby P, Mahoney JA and Samuels AJA); Morgan v Johnson at 581-582…

[21] With respect to the time when the offer is made, this Court also emphasised in Maitland Hospital (at 725):

‘The rule does no more than oblige litigants, and those advising them, to consider realistically, upon the best information available to them, the prospects of success and the likely outcome of the litigation...The purpose of the rule is to put a premium on realistic assessment of cases. It is not to demand perfect foresight which is denied even to the judges. That is why a discretion is retained, under the rules, for the Court to order otherwise than as the rule provides. But the ordinary provision is expected to apply in the ordinary case’.”

44. Boyded bears the onus of demonstrating why the court should not order otherwise: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109. HWLE submitted that it is “just and fair” that the rule be applied having regard to the circumstances in which the August 2022 offer was not accepted more than 12 months into the proceedings and four days after a mediation. The legal and factual arguments set out in the letter enclosing that offer were ultimately accepted by the Court on appeal. In the alternative, for cognate reasons, HWLE claims indemnity costs from 6 July 2023 in accordance with the terms of the further offer of compromise made on that date.

Boyded’s submissions

45. Boyded submitted that it was not unreasonable to refuse either of the offers.

46. First, in respect of the August 2022 offer, HWLE had, critically, not admitted the issue of breach by August 2022, and the mediation which had just taken place occurred in circumstances in which breach was and would be in issue at the final hearing. Also in issue was whether Mr Turner would have taken competent advice and not caused a caveat to be lodged. Further, HWLE had served (but did not eventually read) the lay affidavits of HWLE partners, Mr Bluth (affirmed 16 February 2022), and Mr Webeck (sworn 22 February 2022), apparently going to breach. Boyded accepts that most of Mr Turner’s 19 November 2021 affidavit was necessary to establish Boyded’s case on causation and damages, as well as breach, but the same cannot be said for his second affidavit dated 14 October 2022, which largely responded to the affidavits of Mr Bluth and Mr Webeck on breach. Moreover, the financial position of the Gateway entities and Mr Fayad that emerged at trial was not known until well after August 2022, when administrators were appointed to those entities and they were placed into liquidation in April and May 2023.

47. Secondly, in respect of the July 2023 offer, while HWLE later bettered their original offer, the way in which HWLE conducted the litigation is evidence enough to discharge Boyded’s burden of proving that a costs order other than indemnity costs should be made. For example, breach was only admitted by HWLE days before the trial and reliance was only abandoned as an issue at or very shortly before trial. In addition, HWLE served but did not tender the expert report of Ashley McPhee (forensic accountant) going to the ability of the Gateway companies and Mr Fayad to pay the $3.5 million at relevant times: HWLE challenged Boyded’s case on valuation up to the second day of trial but ultimately backed down and did not call their expert, and only after a lengthy cross-examination of the expert called by Boyded. Boyded wasted substantial costs as a result. Finally, HWLE were not successful on all issues at trial or on appeal.

48. Neither the August 2022 offer nor the July 2023 offer was specifically refreshed between the trial and the appeal.

Disposition

49. The inspiration for the offers of compromise was in each case the uncertain financial position of the Gateway entities and Mr Fayad. If the contract had not been rescinded by the vendor, it was those entities to whom Boyded would have had to look for its money. HWLE were at pains to emphasize that Boyded’s prospects of establishing that their negligence had caused Boyded to sustain a loss of $3.5M, or any loss at all, was directly related to the financial viability of the entities who would have been responsible for paying it. HWLE’s emphasis upon these matters was vindicated by the outcome in this Court.

49. It is evident from publicity at the time Boyded entered into the agreement for the sale of land that the companies and Mr Fayad were encountering financial problems. It is timely to repeat what HWLE wrote in support of the first offer:

“It was otherwise well-publicised in 2016 and 2017 that both the Dyldam Group and Mr Fayad had questionable business practices, including, but not limited to, not paying subcontractors and not meeting contractual obligations, and had been party to a number of claims for damages and other relief. No doubt, your client undertook adequate due diligence in relation to its sale of the land and its later sale of the surrounding parcels of land to associated companies in the Dyldam Group.

That is to say, it would have been obvious to your client when it entered into the Option Deed in 2017, if not shortly thereafter, that there was no guarantee that either the Car Show Room (or the proposed development of which it was to be a part) would be built by the Option Expiry Date (or at all) or that Gateway or Mr Fayad would be able to pay any part of the liquidated amount of $3.5M, if the Rescission Right was exercised. The various transactions entered into by your client with Gateway or their associated entities always carried with them a high degree of risk for your client.”

51. HWLE did not assert that they had not been negligent as something supporting the force of their offers. In that context, Boyded’s concern that HWLE’s late admission of breach of duty ought somehow to inform the reasonableness of the offers is completely beside the point. Proof that an alleged or admitted breach of duty has caused loss in professional negligence litigation is a commonly reoccurring issue in such cases warranting close consideration by plaintiffs. HWLE drew attention to this issue and supported their concerns by a fairly comprehensive reference to factors that were on one view notorious at the time but which Boyded were equally capable of investigating. It is to be observed that Boyded’s solicitors did not suggest in correspondence that HWLE’s contentions, that the financial standing of the entities who would have been responsible to pay Boyded if the contract had not been rescinded, were questionable or uncertain or unreliable. Indeed, as the 6 July 2023 letter pointed out, the “Gateway Two companies” had recently “collapsed” prior to the hearing before Chen J.

52. Nor does “the way in which HWLE conducted the litigation” assist an assessment of whether Boyded has discharged the burden of proving that an indemnity costs order should not be made. The fact that HWLE only admitted breach of duty days before the trial, or that reliance was only abandoned as an issue at or very shortly beforehand, were forensic decisions that HWLE were entitled to make in the course of adversary litigation. Neither of these decisions detracted from the force of the offers and were in any event made after, and in the case of the first offer, well after, the offers had expired. HWLE conducted, and were entitled to conduct, the litigation in those circumstances upon the (correct) assumption that the proceedings would not resolve.

53. Finally, Boyded’s submission, that the parties incurred significant, unnecessary costs on issues that HWLE ultimately admitted shortly before the trial, and that this Court would consider that those costs were attributable to HWLE’s unreasonable conduct and order otherwise, entirely overlooks the fact that acceptance of either of the offers of compromise would have meant that no such costs would have been incurred at all. In that sense, Boyded is the author of the outcome about which it complains.

54. It is accepted that the offers were not renewed between the trial and the appeal. In Moore v Woodforth (No 2) [2003] NSWCA 46 at [15] the Court observed:

“[15] In the present case the pre-trial offer of compromise is relevant, but so too is the absence of any renewal or variation of that offer during the pendency of the proceedings in this Court.”

55. The Court in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [40]-[43] said this:

“[40] One of the reasons underlying the practice of the Court referred to in Grace v Thomas Street Café is that on appeal, parties are in a different position from that which they were in prior to or at trial. Prior to trial, the facts are still to be determined. There may be questions as to the credibility of witnesses or as to the weight of evidence that are in issue. By the time of the appeal, facts have been found, credibility issues resolved and the weight of evidence determined. Although there may be a challenge to such findings, the parties are nonetheless in a different position from that prior to trial and should assess their cases accordingly, if they intend to seek indemnity costs based upon an offer of compromise.

[41] Furthermore, the presumptive quality of the rule, leading to a situation in which the Court has to ‘otherwise order’, does not apply in a case in which no offer of compromise has been made in this Court. The original offer was not open to be accepted at any time after judgment below.

[42] The respondent was successful at first instance. It was reasonable to support the reasoning of the trial judge. (See Takacs supra at [16].) The discretion to make special costs orders will not generally be exercised in favour of a successful party who has not invoked Div 8 of Pt 51. (Grace v Thomas Street Café supra at [33].) The public policy to encourage settlement is equally applicable in this Court. The fact that one party has won at first instance does not mean that efforts to compromise should cease.

[43] Something special is required to vary the usual order as to costs in this Court. We can see no basis for making a special order for the costs of the appeal.”

56. In Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344, Basten JA said this at [21]-[22]:

“[21] There has been discussion in the cases as to the status of an offer of settlement made prior to the trial judgment, in respect of an appeal. Although sometimes relied on in the context of informal offers, cases dealing with offers under rules of court may raise different issues: Fotheringham v Fotheringham [No 2] [1999] NSWCA 21; 46 NSWLR 194. In Trustee for the Salvation Army, at [6], the Court appears to have accepted that a Calderbank offer ‘remains relevant’ to costs orders on appeal, citing Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404. The Court also relied on Brymount Pty Ltd v Cummins (No 2) [2005] NSWCA 69, where Beazley JA (Ipp and McColl JJA agreeing) while noting, at [24], that Ettingshausen was not directly relevant in respect of an informal offer, nevertheless considered the principles applicable with respect to a pre-trial informal offer. The fact that it was not unreasonable for the offeree to refuse the offer made in the trial court appears to have been treated as a significant, but not necessarily decisive, factor: see also Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd (No 2) [2006] NSWCA 379 (Beazley, Ipp and Tobias JJA).

[22] This Court was not referred to any case where an informal offer, made prior to the judgment under appeal and reasonably rejected by the successful party in the trial court, has been successfully relied upon by the offeror in respect of the costs of its successful appeal to obtain indemnity costs. There are three significant reasons why that is not surprising. First, where the offer has expired and not been renewed, the offeree is entitled to say that its success at trial would be a significant event, rendering reasonable the hypothetical rejection of a renewed offer. Secondly, the failure of the offeror to renew the offer prevents that possibility being tested. Thirdly, the offer in the court below to settle ‘the proceedings’ may reasonably be treated as referring to the proceedings then on foot, and not to the possibility of an appeal.”

57. In Bathurst Regional Council v Thompson (No 2) [2012] NSWCA 420, Hoeben JA said this at [16]:

“[16] While it is true that r 51.49 permits the Court of Appeal to have regard to any offer of compromise made in the court below, the usual position is that appeal costs should primarily be determined by the issues in and the outcome of the appeal proceedings themselves: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [37] ff. As the appellant submitted, that was also the approach followed in Uniting Church in Australia Property Trust (NSW) v Takacs (No 2).”

58. Having regard to these observations, and in particular to the passages quoted above from Regency Media, we see no basis to vary order (4) made in this Court on 4 April 2024.

59. In the present case, HWLE obtained a judgment on Boyded’s claim following the appeal to this Court that was no less favourable to HWLE than the terms of the offers. Boyded has not established that this Court should order otherwise. Accordingly, the Court makes the following orders:

1. Dispense with the requirement in Uniform Civil Procedure Rules 2005 (NSW), r 18.2(1) for the filing of a notice of motion by the appellant / cross-respondent (HWLE) in respect of its application under r 36.16(3A) to vary the costs orders made on 4 April 2024.

2. In relation to the proceedings below, order that order (2) made in this Court on 4 April 2024 be varied so that the costs ordered to be paid be payable on the ordinary basis up to 16 August 2022 and on the indemnity basis thereafter.

3. Order that the costs of this application be costs in the appeal.

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Decision last updated: 16 August 2024