Hearse v Staunton
[2011] NSWSC 1065
•12 September 2011
Supreme Court
New South Wales
Medium Neutral Citation: HEARSE & ANOR v STAUNTON & ORS [2011] NSWSC 1065 Hearing dates: On the papers Decision date: 12 September 2011 Jurisdiction: Common Law Before: Hall J Decision: On the application of the third, fourth and fifth defendants, order the plaintiffs to pay the costs of third, fourth and fifth defendants on the ordinary basis (UCPR 42.2) up until 7 April 2010 and thereafter are to pay the costs of those defendants on an indemnity basis (UCPR 42.15A)
Catchwords: COSTS - application for indemnity costs - Offer of Compromise (Rule 20 UCPR) - Calderbank offers - whether offer contained real and genuine element of compromise - defendant offer - whether "walk away" offer a valid offer Cases Cited: Calderbank v Calderbank [1975] All ER 333
Hearse & Anor v Staunton & Ors [2010] NSWSC 954
Hobartville Stud Pty Limited v Union Insurance Co Limited (1991) 25 NSWLR 358
Macquarie Radio Network Pty Limited v Arthur Dent (No 2) [2007] NSWCA 339
Melchior & Ors v Sydney Adventist Hospital Limited & Anor (No 2) [2009] NSWSC 65
The Anderson Group Pty Limited v Tynan Motors Pty Limited (No 2) [2006] NSWCA 120
Tickell v Trifleska Pty Limited (1990) 25 NSWLR 353Category: Costs Parties: Phillip Baden HEARSE & ANOR v Dennis Michael STAUNTON & ORS Representation: P: R W Tregenza
3-5D: G Curtin SC
P: Lander & Lander
3-5D: Henry Davis York
File Number(s): 2006/262913
Judgment
(On application for costs by the third, fourth and fifth defendants)
The plaintiffs in proceedings against the third, fourth and fifth defendants (Staunton & Thompson) claimed damages for breach of warranty of authority. The plaintiffs failed in those proceedings: Hearse & Anor v Staunton & Ors [2010] NSWSC 954. In that judgment, I granted leave to the parties make submissions on the question of costs.
The plaintiffs conceded that the appropriate order as to costs was an order that costs follow the event pursuant to Rule 42.4 of the Uniform Civil Procedure Rules (UCPR). Accordingly, on that basis, the form of the order would be that the plaintiffs pay the costs of the third, fourth and fifth defendants (Staunton & Thompson) on the ordinary basis: Plaintiff's Written Submissions dated 15 March 2011 at [1].
The application of the third, fourth and fifth defendants as the successful parties, is that the plaintiffs be ordered to pay their costs on an indemnity basis from 7 April 2010. The foundation for the application was the service by the third, fourth and fifth defendants of an Offer of Compromise served on the plaintiffs dated 6 April 2010. In that respect, those defendants rely upon Rule 42.15A of the UCPR, it being contended, that the Offer of Compromise was a valid offer in accordance with that Rule.
The alternative submission made on their behalf is that the plaintiffs be ordered to pay the costs of the third, fourth and fifth defendants on an indemnity basis by way of the service of a Calderbank offer also dated 6 April 2010.
In support of the application for indemnity costs, the third, fourth and fifth defendants rely upon the affidavit of Rebecca Whittle sworn 26 November 2010. Ms Whittle's evidence is that on 6 April 2010, she sent a letter to the solicitors for the plaintiffs containing a Calderbank offer to the effect that the plaintiffs' claim against her clients be dismissed with no order as to costs.
On the same date, a Notice of Offer of Compromise was sent in identical terms.
The terms of the offer were:-
"(1)The plaintiffs' claim against the third, fourth and fifth defendants be dismissed; and
(2)No order as to costs."
The offers remained open for acceptance until close of business on 4 May 2010. The Calderbank letter was stated to be made in accordance with the principles in Calderbank v Calderbank [1975] All ER 333.
On 18 May 2010, Lander & Lander, solicitors, on a without prejudice basis, save as to costs, wrote to the solicitors for the third, fourth and fifth defendants rejecting the offer in both the Notice and the Calderbank letter. The solicitors for the plaintiffs then made an offer on their behalf which remained open until close of business on Monday 21 June 2010.
Submissions for the plaintiffs
The plaintiffs relied upon written submissions dated 11 February 2011. It was argued on their behalf that, in substance, there was no compromise offer by the defendants. It was submitted that there must be a real and genuine element of compromise in order to attract indemnity costs rather than a demand which, in effect, called for the capitulation of the plaintiffs. Reliance was placed upon the observations of Basten JA (with whom Santow JA and Young CJ in Eq (as his Honour then was) agreed) in The Anderson Group Pty Limited v Tynan Motors Pty Limited (No 2) [2006] NSWCA 120 at [8] as follows:-
"It is well established that an offer which does not involve a real and genuine element of compromise, will not be taken into account in relation to costs, either under the general law principles established by Calderbank v Calderbank ... or under rules of Court: see eg, Leichhardt Municipal Council v Green [2004] NSWCA 341; Manly Council v Byrne (No 2) [2004] NSWCA 227 at Herning v GWS Machinery Pty Limited (No 2) [2005] NSWCA 375."
It was, accordingly, submitted that the Offer of Compromise was not genuine and the discretion should be exercised so as to refuse the application for indemnity costs.
Consideration
The provisions of UCPR Part 20 Rule 26 are concerned with written offers by a party to another to compromise any claim in the proceedings either in whole or in part on specified terms: Rule 20.26(1). 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: Rule 20.26(2).
In order to be a valid offer under Part 20 of the UCPR, the offer must be a valid offer, that is, the form and terms of the offer must be in accordance with the Rules. There is no issue in these proceedings as to the form and terms of the offer, other than the question as to whether it constituted a genuine Offer of Compromise. The commentary in the UCPR [20.26.10] states that the Offer of Compromise procedure is not intended to be utilised simply as a statutory demand whose rejection would automatically entail the payment of costs on an indemnity basis. To be an Offer of Compromise under the Rule, some real element of compromise must be involved in the offer: Tickell v Trifleska Pty Limited (1990) 25 NSWLR 353; Hobartville Stud Pty Limited v Union Insurance Co Limited (1991) 25 NSWLR 358 (both cases concerned offers of compromise made by the plaintiffs).
Judgments favouring defendants
The provisions of UCPR Part 42 Division 3 are concerned with the consequences of Offers of Compromise. Rule 42.15A provides for a situation where an offer is not accepted and judgment as or more favourable to the defendant arises. Rule 42.15A provides:-
"(1)This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim concerned as favourable to the defendant or more 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
..."
The claim by the defendants for an indemnity costs order in the present proceedings is one to be made having regard to the nature of the proceedings, the terms of the Offer of Compromise and the provisions of Part 42.15A. In other words, by virtue of the Offer of Compromise and the success of the defendants, prima facie, the defendants are entitled to indemnity costs from the date of the Offer of Compromise. The discretion, however, exists in the Court to make some other order, but in order for that discretion to be exercised, there would need to be exceptional circumstances established.
In Macquarie Radio Network Pty Limited v Arthur Dent (No 2) [2007] NSWCA 339, the Court, in considering the provisions of Rule 42.14 of the UCPR stated that a Court would only deviate from the general rule provided by such a provision if it finds that there are exceptional circumstances for doing so. As I have stated, there would need, in my opinion, for there to be circumstances of that kind which would justify a departure from the general rule as to indemnity costs.
The plaintiffs' claim against the defendant solicitors in the present proceedings was based upon the contention that the defendant solicitors had made a representation or warranty that they were authorised to bind Mrs Pallister as a contracting party. The issue of breach would, of course, not arise if no such representation or warranty was given (as was determined to have been the case).
In Melchior & Ors v Sydney Adventist Hospital Limited & Anor (No 2) [2009] NSWSC 65, an Offer of Compromise was made by the second defendant in those proceedings (described as a "walk away" offer) which was not accepted by the plaintiff. The question in that case was whether exceptional circumstances had been established by the offerees.
Hoeben J noted that the second defendant had served an Offer of Compromise in similar terms to that made in the present case, namely:-
"The second defendant offers to compromise the plaintiffs' claim in the following manner:-
1.Verdict for the second defendant; and
2.each party to bear their own costs of the proceedings.
..."
The offer was not accepted by any of the plaintiffs. The second defendant relied upon the provisions of Part 42, UCPR, including in particular, 42.15A.
The proceedings in Melchior (supra) had been on foot for some time. The second defendant submitted that by the date of the Offer of Compromise, the inherent weaknesses of the plaintiffs' case had been clearly exposed by the expert opinions that had been served on behalf of the second defendant.
His Honour set out the relevant statements of principle in relation to equivalent rules of the UCPR, including the following statement:-
"15.A Court will only deviate from the general rule provided for by rule 42.14 of the UCPR and make a different order if it finds that there are exceptional circumstances for doing so ..."
Hoeben J noted that:-
"17.It is always difficult to evaluate the genuineness of a 'walk away' offer. As the second defendant submitted, there was a real benefit for the plaintiffs contained in the offer, ie, they would if the offer were accepted have no liability for the second defendant's costs ..."
His Honour noted at that time that the costs, as at the relevant date, had already been substantial. The conclusion was reached that, in the circumstances of the case, the second defendant's Offer of Compromise was genuine.
Although there may have been said to have been a triable issue arising in respect of the issue of warranty or representation based on the letter written by Staunton & Thompson to Lander & Lander dated 19 January 2005, there were, as noted in the judgment delivered on 1 September 2010, significant inconsistencies in the terms of the letter which would have indicated that the contention that a warranty or representation had been made was, at the least, a doubtful one. There was no other evidence relied upon to support the alleged warranty or representation of authority. The judgment refers to the particular matters that pointed against the contentions made by the plaintiffs.
It may be accepted that the costs incurred by the time the offer was made on 7 April 2010 would not have been insubstantial. Had the offer been accepted, there would have been a real benefit to the plaintiffs having regard to the costs incurred. In other words, the Offer of Compromise made on behalf of the third, fourth and fifth defendants was not one made on the basis of a capitulation with no real benefit to the plaintiffs. There are no "exceptional circumstances" , as discussed above, that would operate against making the order sought. In my assessment, the defendants are entitled to an indemnity costs order from the date specified for acceptance of the Offer.
Accordingly, I order that the plaintiffs are to pay the costs of third, fourth and fifth defendants on the ordinary basis pursuant to UCPR 42.2 up until 7 April 2010 and thereafter are to pay the costs of those defendants on an indemnity basis, pursuant to UCPR 42.15A.
The costs of the present application would normally be dealt with on a costs follow the event basis. The parties are to confer in this respect and, if there is any outstanding issue as to the costs of the application, then leave to apply is reserved to either party.
Decision last updated: 13 September 2011
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