James v Royal Bank of Scotland; McKeith v Royal Bank of Scotland (No 2) - [2015] NSWSC 970

Supreme Court

New South Wales

Medium Neutral Citation: James v Royal Bank of Scotland; McKeith v Royal Bank of Scotland (No.2) [2015] NSWSC 970
Hearing dates: On the papers
Decision date: 22 July 2015
Jurisdiction: Equity Division - Commercial List
Before: McDougall J
Decision:
See at [182], [183].

Catchwords:
COSTS – varied success – where one plaintiff succeeded and one failed against a common defendant – consequence that defendant was successful in one action and unsuccessful in the other – whether common costs of plaintiffs recoverable in full by successful plaintiff, or only a proportion – whether common costs of defendants payable in full by unsuccessful plaintiff, or only a proportion – application of the ‘rule of thumb’ – successful plaintiff’s other, unsuccessful, claim – notice to admit – costs consequences of failing to admit facts later proved – assessment of costs – ‘broad-brush justice’ – whether appropriate to award an overall percentage of costs to plaintiff in order to minimise scope for further dispute
COSTS – unsuccessful plaintiff’s abandonment of one claim – where failure of that claim was inevitable – remaining claim – where offer of compromise not accepted – assessment of both claims on the indemnity basis – carve-out for costs that would have been incurred regardless in defending successful plaintiff’s claim
Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited: Beaumont v Senior [1903] 1 KB 282
Bennette v Cohen (No 2) [2009] NSWCA 162
Chen v Chan (No 2) [2009] VSCA 233
Currabubula and Paola v State Bank of New South
Wales [2000] NSWSC 232
Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373
Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567
Fitzpatrick v Cheal [2012] NSWSC 932
Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84
Keen v Towler (1924) 41 TLR 86
King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204
Korner v H Korner and Co Limited [1951] 1 Ch 15
Latoudis v Casey (1990) 170 CLR 534
Leichhardt Municipal Council v Green [2004] NSWCA 341
LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (No 2) [2002] NSWSC 72
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705
Mobile Innovations Ltd v Vodafone Pacific Ltd [2003] NSWSC 423
New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100
Orion Pet Products Pty Ltd v Royal Society for the Prevention of Cruelty to Animals (Vic) Inc (No 2) [2002] FCA 967
Oshlack v Richmond River Council (1998) 193 CLR 72
Port Kembla Coal Terminal v Braverus Maritime Inc (No 2) (2004) 212 ALR 281
Rasch Nominees Pty Ltd v Bartholomaeus (No 3) [2013] SASC 14
Re Colquhoun (1854) 5 De G M & G 35; 43 ER 781
Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306
Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213
Visscher v Teekay Shipping (Australia) Pty Ltd (No 5) [2013] FCA 28
Waterman v Gerling Australia Insurance Co Pty Ltd (No 2) [2005] NSWSC 1111
Ziliotto v Hakim [2013] NSWCA 359
Texts Cited: Dal Pont, Law of Costs (3rd ed, LexisNexis, 2013)
Orkin, Law of Costs (2nd ed, Canada Law Book, 1987)
Category: Costs
Parties:
James v RBS:
Angus Gordon Charnock James (Plaintiff)
Royal Bank of Scotland Group plc and others (Defendants)
McKeith v RBS:
Colin McKeith (Plaintiff)
Royal Bank of Scotland Group plc and others (Defendants)
Representation:
Counsel:
J N West QC / M J Steele SC (plaintiffs)
J C Sheahan QC / T Saunders (defendants)
Solicitors:
Harmers Workplace Lawyers (plaintiffs)
Allens (defendants)

File Number(s): 2011/320618; 2011/320637

Judgment

HIS HONOUR: Over 9 days between 24 November and 10 December 2014, I heard claims brought by two employees (in separate proceedings, heard together) against their former employers. I gave judgment on 19 March 2015, holding that the plaintiff Mr James was entitled to judgment in his favour (although not for the whole amount sought), but that the plaintiff Mr McKeith failed. Judgment was entered on 27 March 2015, with costs reserved.
The parties have made detailed written submissions, and accept that I should deal with the question of costs “on the papers”.

Nature of the case

The nature of the case is explained, sufficiently for present purposes, in [1] to [7] of my first judgment ([2015]) NSWSC 243):

[1]   HIS HONOUR:   The plaintiffs, Mr Angus James and Mr Colin McKeith, worked for ABN AMRO Australia Holdings Limited (AAAH) up until 2008. They held very senior positions. Mr James was the chief executive officer, and a director of the company. Mr McKeith was the head of global markets, and also a director.
[2] Following the world-wide takeover of the ABN AMRO Group (AA Group) by a consortium (I set out the membership of the consortium at [9] below), the operations of AAAH were merged with the Australian operations of one of the consortium’s members, Royal Bank of Scotland plc (RBS).
[3]   As a result of that merger, the employment of Messrs James and McKeith finished. In the euphemistic language used to describe such events, they were made, or their positions became, redundant.
[4]   Mr James and Mr McKeith say that, upon redundancy, they should have been paid substantial amounts of money in accordance with the redundancy policy of AAAH. Mr James claims almost $3 million for severance pay and an “ex gratia” payment on account of bonus. Mr McKeith seeks in total almost $4.4 million under the same headings.
[5]   In addition, Mr James claims that he had a right under policies announced by the consortium, to be considered as head of the merged Australian operations of AAAH and RBS. That right is said to arise from a promise of “a fair appointment process based on merit and competencies”, to be applied regardless of whether the candidate was a former AAAH employee or a former RBS employee. Mr James claims that the appointment process did not meet the description that I have given. He claims almost $11.4 million in lost remuneration.
[6]   The claims are put in various ways. Messrs James and McKeith say:
(i)   that the redundancy policy was part of their respective contracts of employment (although the ways in which, it is said, the policy became incorporated into their respective contracts is different);
(ii)   alternatively, that the relevant entities are estopped (on various bases) from denying that the redundancy policy formed part of their contracts of employment;
(iii)   in Mr James’ case, that there was a contract between him and the relevant RBS entities guaranteeing him a fair appointment process based on merit and competencies; and
(iv)   alternatively, in Mr James’ case, that the relevant RBS entities are estopped from denying that he was entitled to such an appointment process.
[7]   That very broad outline of the disputes has given rise to a number of detailed agreed issues. To enable those issues to be understood, it is desirable, before setting them out, to state some, essentially non-contentious, matters of background.

The parties provided detailed written submissions setting out the costs orders that they sought and the reasons why those orders should be made. They agreed that I could deal with the question of costs “on the papers”. Having considered the submissions and the evidence relied upon in support of them, I propose to do so. I do not think that it is necessary to require the parties to provide further (written or oral) submissions.
Before moving to the orders sought and the submissions in respect of them, I note that, as to the “very broad outline of the disputes” set out at [6] of my first judgment:

I concluded that the redundancy policy was part of Mr James’ contract of employment, but not part of Mr McKeith’s;

it was unnecessary to consider the question of estoppel in relation to the redundancy policy as to Mr James; and as to Mr McKeith, I concluded that the relevant entities were not estopped from denying that the policy formed part of his contract of employment.

I concluded that there was no contract between Mr James and the relevant entities guaranteeing him a fair appointment process; and

those entities were not estopped from denying that he was entitled to such a process.

Broad outline of the costs issues

Mr James seeks an order that the defendants pay his costs, on the ordinary basis. He submits that no discount or deduction should be made “on the ground that particular costs were incurred for work which advanced or was referable to the case of Mr McKeith as well as” his own case.
Mr James relies on UCPR r 42.1. As to the qualification or rider relating to costs that advanced the case of Mr McKeith as well as that of Mr James, Mr James relied on the proposition that, where there were multiple plaintiffs who had common representation but mixed success (citing Dal Pont, Law of Costs (3rd ed, LexisNexis, 2013) at [11.8]):

[A] successful plaintiff may recover all his or her costs from the defendant, whereas unsuccessful plaintiffs must pay the defendants’ costs as occasioned by their having been joined unless the court otherwise orders.

Mr McKeith submits that, in accordance with the proposition that I have just set out, he should be ordered to pay the defendants’ costs “only to the extent that those costs were increased by his case over and above the costs that would have been incurred by the defendants in defending Mr James’ case”.
As to Mr James, the defendants seek orders that:

they pay 30% of his costs on the ordinary basis; and

he pay their costs, on the indemnity basis, “incurred in proving that Mr James did not suffer any loss in connection with his Appointment Promise Case” (I shall explain this concept in a moment).

I should note that although Mr James succeeded against one only of the defendants, they appear to accept that any costs order to be made in his favour should be made against all of them. Further, the successful defendants did not submit that Mr James should pay their costs, simply by reason of their success, in accordance with r 42.1.
Unstated in the defendants’ draft orders, but apparent from their submissions, is a qualification on the concept of Mr James’ recoverable costs. The defendants submit that he should recover (subject to the orders) only 50% of common costs: that is to say, costs that were referable to issues common to Mr McKeith’s case as well as his.
As to Mr McKeith, the defendants seek orders that:

he pay their costs, on the indemnity basis, incurred in defending his Appointment Promise Case;

subject to (1), that he pay their costs on the ordinary basis up until and including 26 April 2012; and

from 26 April 2012, that he pay their costs on the indemnity basis.

Again unstated in the defendants’ draft orders, but appearing from their submissions, there is a qualification. It is that under the second and third orders sought, the defendants should recover from Mr McKeith 50% of their common costs: that is to say, costs referable to their defence of both cases on common issues.
The reference to Mr James’ Appointment Promise Case is a reference to the claim “pleaded” by him at [55] to [61] of his Commercial List Statement. In brief outline, Mr James said that the relevant defendants had made promises to employees of ABN Amro worldwide that they would be considered for positions in the newly merged organisation through a “fair appointment process based on merit and competencies”. Mr James said that he was not afforded such a process when he was considered for the position of chief executive officer of the merged Australian operations, and that he had suffered loss as a consequence.
That Appointment Promise Case was based on the broad outline of the dispute referred to at [6(3),(4)] of my first judgment. As I have noted, that case failed.
Mr McKeith’s Appointment Promise Case was pleaded at [53] to [58] of his Commercial List Statement. Mr McKeith relied on the same promise as did Mr James, said to have effect either contractually or by way of estoppel. He said that he was not considered for a position in the merged organisation.
Unlike Mr James, Mr McKeith did not take his Appointment Promise Case to trial. It was withdrawn, and the defendants were notified of this, a week before the commencement of the hearing.
As to the claim against Mr McKeith for indemnity costs after 26 April 2012, the defendants rely on an Offer of Compromise served on that date.
The defendants rely alternatively on further offers of compromise served on 6 February 2013 and 28 August 2014.

Common costs and the “rule of thumb”

There is an issue of principle which is central to the costs disputes. It arises because, although there were two separate proceedings, they were heard together, on the basis that evidence in one would, to the extent relevant, be evidence in the other. There were very significant overlapping or common “issues”. (In this context, I use the word “issues” to mean issues of fact or law, rather than issues defined by the “pleadings”.)
The question that arises in those circumstances is how costs incurred in relation to issues (in the sense that I have just explained) relevant to both the James proceedings and the McKeith proceedings should be treated. That question arises both in relation to both the plaintiffs’ costs and the defence costs.
Mr James relied on the proposition that I have set out at [7]. He relies on Currabubula and Paola v State Bank of New South Wales [2000] NSWSC 232 at [104]. Einstein J there cited with approval a proposition taken from Orkin, Law of Costs (2nd ed, Canada Law Book, 1987) in similar terms to the quotation at [7]. Mr James submitted that the approach was one of general application.
The defendants submitted that the decision in Currabubula depended very heavily on its particular facts, and that the facts of this case were readily and relevantly distinguishable. They submitted, too, that the approach taken in Currabubula should be limited to ordinary and straightforward cases, where it was clear that the joinder of an additional plaintiff was unlikely to have increased (at least, in any significant way) the costs incurred by the defendant.
The defendants relied on what they said was a recognised “rule of thumb” for dealing with the apportionment of costs between parties who were successful and parties who were not. The rule of thumb for which the defendants contended was that where parties had the same representation, each successful party should have only its proportion of the costs incurred on behalf of all, together with any costs incurred exclusively on its behalf.
In Chen v Chan (No 2) [2009] VSCA 233, the Court of Appeal of the Supreme Court of Victoria (Maxwell P, Redlich JA and Forrest AJA) had to deal with a number of costs issues, including two (partial success / partial failure, and “common costs”) that arise for consideration in this case. Their Honours summarised the principles at [10] (I omit citations):

The contentions of the parties raise a number of questions relevant to costs
orders on appeal. The principles relevant to these questions can be
summarised as follows:
(1)   The general rule is that costs should follow the event. Absent disqualifying conduct, the successful party should recover its costs even where it has not succeeded on all heads of claim.
(2)    The Rules of Court permit significant flexibility in determining questions of costs. In particular, the Court is entitled to examine the realities of the case and will attempt to do ‘substantial justice’ as between the parties on matters of costs.
(3)    Where there is a multiplicity of issues and mixed success has been enjoyed by the parties, a Court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount.
(4)    A Court may, when fixing costs in a claim where there has been mixed success, take into account complications which it considers will arise in the taxation of costs, as part of its consideration of the overall interests of justice.
(5)    Where a Court determines to make an order apportioning costs, then it does so primarily as ‘a matter of impression and evaluation,’ rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made, as well as any other relevant matter.
(6)    Where a number of parties have had the same representation, there is a ‘rule of thumb’ as to the apportionment of costs, namely that, where some of those parties have been successful and others have not, each successful party is only entitled to his or her proportion of the costs incurred on behalf of all, plus the costs, if any, incurred exclusively on his or her behalf. The primary issue for determination in such a case is that of fairness as between the parties, having regard to the manner in which the trial, or appeal, has been conducted.
(7)    Usually, an order for costs will be made on a party/party basis. But an order for costs on a solicitor/client or indemnity basis may be made where special or unusual circumstances have been demonstrated, for example, by establishing misconduct in the proceeding, that the proceeding was brought for an ulterior purpose, or that it was patently unreasonable to institute, or maintain, the proceeding. Special circumstances may also include the making of an allegation of fraud which is not proved.

In my view, the principles that their Honours stated are applicable (to the extent that they are relevant) in this State.
In the sixth of the principles stated by their Honours, they referred to a “rule of thumb”. They gave Currabubula as the reference for this. In Currabubula, Einstein J discussed the rule of thumb at [89] to [106].
The rule of thumb, as Young JA stated it in King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [25], was:

…that a successful jointly represented defendant recovers a proportionate share of the “common” costs which are referrable to claims pressed against each of the defendants.

It will be noted that Young JA stated the rule of thumb as applicable to successful jointly represented defendants. By contrast, in Chen at [10(6)], the Court of Appeal expressed the rule more generally.
Young JA’s formulation of the rule of thumb appears to reflect its origins in Chancery practice. That practice is exemplified in the decision in Re Colquhoun (1854) 5 De G M & G 35; 43 ER 781. The question was to what extent the assignees of a bankrupt solicitor, Colquhoun, could recover from one of four unsuccessful defendants, Dr Ford, the costs of an action in which Colquhoun acted for all those defendants. Stuart VC held that Dr Ford was liable only for one-fourth of the costs of the defence. His Lordship reached that view, having consulted the Taxing Master as to the practice on taxation of costs in Chancery (although it appears that the Taxing Master was of the view that the practice applied also in the courts of common law).
On appeal, Knight-Bruce and Turner LJJ affirmed the decision of Stuart VC.
In Beaumont v Senior [1903] 1 KB 282, Lord Alverstone CJ (with whom Wills and Channell JJ agreed) held that, in the absence of any special agreement, each of two defendants was liable to their (jointly retained) solicitor for half the costs payable to that solicitor. Thus, his Lordship concluded, where one defendant succeeded and the other did not, the successful defendant could only recover half the “general costs” of the defence (as I understand it, the costs that were common to the defences of both defendants).
There are other decisions to similar effect. They were traced by Einstein J in Currabubula from [93] to [97]. I will not seek to cover all the same ground. However, three cases do require mention.

The first case is the decision of the Court of Appeal in Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567. In that case, the plaintiff sued two defendants. It succeeded against one but not against the other. The defendants had common representation. The successful defendant agreed to pay the costs incurred on behalf of the unsuccessful defendant. The Court held, following Colquhoun and Beaumont, that the successful defendant was entitled to one-half only of common costs.
The judgment of the Court (Bankes, Scrutton and Atkin LJJ) was prepared by Scrutton LJ and read by Atkin LJ. His Lordship said at 569 that if the retainer were joint, each client was liable for the whole costs; but if the retainer were several, each would be liable for his own portion of the costs. His Lordship stated further, that if the retainers were several, the joint conduct of the defence would not make the liability for costs joint.
His Lordship then said:

As the principle of allowance of costs is that the successful party is to be recompensed the liability he has reasonably incurred in defending himself, if he is only liable to his solicitor for half of certain joint items he cannot be allowed the whole of them, even though by some separate agreement he has made himself liable for the other half, primarily the liability of another and unsuccessful defendant.

The second case is the decision of Lord Darling, sitting as a judge of the Kings Bench Division, in Keen v Towler (1924) 41 TLR 86. In that case there were four plaintiffs joined in the one action. One only of them succeeded. His Lordship held that the “rule of thumb” applied, with the result that the successful plaintiff was entitled to recover only one-fourth of the common costs from the defendant.
Lord Darling’s decision appears to be based on the following reasoning (at 87):

One must assume, in the absence of evidence to the contrary, that all these four plaintiffs are solvent, and that no special arrangement was made between them as to their liability to their solicitor for costs. On this assumption, although each of the four plaintiffs may be liable to the solicitor for the whole of the costs common to all of them, still, as between themselves, each is liable to contribute one-fourth. From this it follows that ultimately each of the plaintiffs is only liable to pay one-fourth of the common costs, and that, therefore, as costs are given as an indemnity only, one-fourth is all that the defendant should be called upon to pay to one plaintiff. To order the defendant to pay to the successful plaintiff more than that one-fourth would be to order him to pay an amount in relief of the amount that the unsuccessful plaintiffs ought to pay.

It appears from the following paragraph that his Lordship’s reasoning was based by analogy on the decision in Beaumont.
The third case that I wish to mention is the decision of the Court of Appeal in Korner v H Korner and Co Limited [1951] 1 Ch 15 (affirming the decision of Wynn-Parry J at [1951] 1 Ch 10). In that case, the plaintiff succeeded against one only of some eight defendants. The unsuccessful defendant was ordered to pay the plaintiff’s costs of his claim against that defendant (with some irrelevant limitations), and the plaintiff was ordered to pay the costs of the successful defendants of his claims against them (again with some irrelevant limitations). The successful defendants contended, based on the rule of thumb, that each of them was entitled to one-eighth of the common costs, or general costs, of the defence.
Singleton LJ (with whom Jenkins LJ agreed) stated the rule of thumb at 17. His Lordship said that the rule, though “no doubt convenient in an ordinary case”, was not one that “must be applied in every case”. His Lordship said that “[r]egard must be had to the nature of the case and to the nature of the defences raised to the same claim”.
At [17]-[18], his Lordship said, omitting citations:

I do not know of any authority which compels the Court to follow the rule which I have mentioned in every class of case, and even if to follow it would result in injustice. To do so would be to fly in the teeth of the generally accepted principle… “that the successful party is to be recompensed the liability he has reasonably incurred in defending himself”. … [T]he rule ought not to be extended. I regard it as something convenient to be applied in an ordinary or straightforward case. I do not think it apt in any degree for application to this case, having regard to the different defences which were raised and to the fact that the plaintiff succeeded on the main issue, an issue in which only one of the defendants was involved.

In Currabubula at [103], Einstein J said, of the decision of Lord Darling in Keen:

This passage requires some analysis. It contains at least three propositions of doubtful validity. First, Lord Darling accepts that the principle in Re Colquhoun does not apply qua plaintiffs, that principle being the premise upon which the ‘rule of thumb’ operates, yet applies the rule of thumb notwithstanding. Secondly, his Lordship does so upon the ground that each plaintiff could look to the other three for a contribution if their solicitor (as the solicitor attempted unsuccessfully in Re Colquhoun), sought to recover the whole amount from them. This gives rise to the not unlikely possibility that a successful plaintiff, not the partially unsuccessful defendant, will be forced to incur the expense and the risk of further litigation against his or her unsuccessful co-plaintiffs to seek that contribution. Thirdly, as the rule of thumb applies to joint costs only, those costs the successful plaintiff will be forced to seek from his unsuccessful co-plaintiffs will be costs which would have been incurred even if the action had been brought by the successful plaintiff alone. The defendant, having been found to be in the wrong, will be partially immunised against the proper costs of the successful plaintiff by the unmeritorious circumstance that the action was simultaneously brought by other, unsuccessful, plaintiffs.

At [104], Einstein J said:

There is authority for the proposition that the rule of thumb is not to be extended: Korner v H Korner & Co Ltd (supra). The premise upon which the rule of thumb operates is, as has been shown, one which applies only in the case of defendants. To apply it to plaintiffs, as was done in Keen v Towler (supra), is, to my mind, to extend the rule beyond its principled and authoritative basis and to achieve a result which is not self-evidently just. There is no logical reason why a defendant who is sued by several plaintiffs who are variously successful and unsuccessful should be in a more advantageous position qua joint costs (ie., those costs not referable to any one plaintiff but necessary for the cases of all the plaintiffs), than would be an unsuccessful defendant sued by one successful plaintiff alone. Intuitively, justice would seem to require that a defendant, found to be in the wrong, should bear all the costs which the successful plaintiff would have to incur in bringing the action and should be spared only those costs occasioned by the joining of the unsuccessful plaintiffs. To my mind, this is the correct legal position, as is stated by Mr Mark Orkin QC in Law of Costs (2nd ed, Canada Law Book, 1987), paragraph 208.1 as follows:
‘Where several plaintiffs sue by the same solicitor, and one succeeds while the others fail, the successful plaintiff will be entitled to recover the whole of his costs from the defendant and not merely a proportion. The unsuccessful plaintiffs will be obliged to pay the defendant’s costs as occasioned by their having been joined unless the Court otherwise orders.’

At [106], Einstein J said that:

… The purpose of the rule of thumb, applied to the case of multiple, variously successful and unsuccessful defendants, is to prevent a plaintiff, who has only been partially successful, from being unjustly enriched and to prevent successful defendants from being unfairly burdened by the thrusting onto them of the whole of the plaintiff’s costs, not referable to the action against one or other defendants.

In Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84, Edmonds J (with whom Lindgren J, although giving short separate reasons, agreed) said at [70] that the rule of thumb, to the extent that it can be applied:

… is only to be applied in ordinary and straightforward cases. It is a convenient guide, rather than a rigid device to be applied irrespective of the individual circumstances. Mechanical application of the “rule” without careful consideration of the individual circumstances could bring about the very injustice the rule is designed to remedy.

Kourakis CJ considered Currabubula and the rule of thumb in Rasch Nominees Pty Ltd v Bartholomaeus (No 3) [2013] SASC 14. His Honour referred at [12] to what Einstein J said in Currabubula at [104], and added:

I respectfully agree with his Honour’s conclusions and with his criticism [in Currabubula at [103]] of the decision in Keen v Towler.

Kourakis CJ offered some criticisms of the rule of thumb at [13]:

It is not obvious to me why, if the rule is based on the nature of the retainer, it does not give way when a special retainer, by which defendants are jointly and severally liable, has been agreed. I also find it difficult to distinguish between one side of the record and the other in terms of the “intuitively” just result. The “rule of thumb” founded, as it is, in the practice in Chancery is problematic in its application to multiple parties and claims properly joined in one action in accordance with the Judicature Act reforms. My preference is to approach the costs discretion from the starting point that costs should reflect the way in which the common issues in the joint trial were decided and the reasonableness of the respective claims and defences of the parties.

I should note that Young JA referred to Currabubula in King Network Group at [34] and commented at [35]:

[34] The respondents’ submission spends considerable time on the “rule of thumb” in citing the decision of Einstein J in Currabubula v State Bank of NSW [2000] NSWSC 232 seemingly, mainly, for the purpose of having this Court overrule it.
[35] Currabubula does seem inconsistent with mainstream authority, but I decline to take up the invitation to be more condemnatory, as there is no real need to do so in this case.

If I may say so with respect, I do not think that the decision in Currabubula ought be regarded as “inconsistent with mainstream authority” unless it is to be read as stating a rule of general application in the case of multiple plaintiffs with common representation, some of whom succeeded and some of whom did not. If that is what Einstein J were intending to say then I would respectfully agree with Young JA that this goes beyond “mainstream authority”.
However, in my view, Einstein J was seeking to do no more than make the point that the rule of thumb as articulated was one to be considered where there were multiple defendants, some successful and some not, with common representation, and that different considerations might apply in the case of plaintiffs. I do not read what Einstein J said as stating a new “rule of thumb” for application in all cases involving multiple plaintiffs with common representation, some of whom succeeded and some of whom did not.
It is clear, including from the decision in Korner, that “mainstream authority” accommodates the proposition that the rule of thumb is not to be applied, without thought, in all cases. It is equally clear from the decision in Howards Storage World that the rule of thumb is generally appropriate only to ordinary and straightforward cases.
In my respectful view, Einstein J was correct to recognise that in all cases, the search is for the way in which, on the facts of the particular case, the costs discretion is to be exercised so as best to conform with the interests of justice as between the parties.
To my mind, the authorities are of limited utility, particularly since the exercise of the costs discretion is fact–dependent. The earlier English cases appear to have been decided on the basis of “practices” that were thought to have been established for too long to be susceptible of change. That is not the contemporary approach to the exercise of a discretion which is fettered only by the requirement that it be exercised judicially. By contrast, the more recent Australian authorities make it clear that to the extent that there may be “rules of thumb” or “general rules”, they should not be applied mechanically. In all cases, the discretion is to be exercised in accordance with the requirements of justice in the particular case.
I have dealt with the authorities at length, because of the competing submissions based on them. But in the end, they yield no clear principle, capable of general application. I add that the only case close to the present, in its facts, is Currabubula; and even that case is readily and relevantly distinguishable for the reasons given at [115] to [117] below.
In short, both the Currabubula approach and the rule of thumb may be used in some “ordinary and straightforward cases” as a safe guide to the exercise of the costs discretion. However, neither should be used mechanically, as a substitute for that exercise.

Resolution of the costs issues: Mr James

The dispute as to the costs orders that should be made as between Mr James and the defendants was not complicated by the service of offers of compromise. Accordingly, as the parties appeared to accept, the starting point is to be found in UCPR r 42.1:

42.1 General rule that costs follow the event
Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.

The parties’ submissions referred to many cases setting out what each side contended to be the appropriate principles that have been stated from time to time in relation to the Court’s discretion as to costs under r 42.1. I accept, of course, that statements of principle, coming from authoritative sources, as to considerations that bear on the exercise of the discretion, ought be given serious consideration. However, the discretion given by the rule (to make “some other order”) is not expressly constrained. The only constraint upon the exercise of the discretion is that it is a judicial discretion.
The characteristics of the exercise of a judicial discretion were explained by McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72 at [65]. Although his Honour dissented in the outcome of that case, I do not regard what he said at [65] as being in any way controversial. His Honour said:

Although the statutory discretion is broadly stated, it is not unqualified. It
clearly cannot be exercised capriciously. Importantly, the discretion must be
exercised judicially in accordance with established principle and factors
directly connected with the litigation. In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous considerations which, if taken into account, will cause the exercise of the discretion to miscarry. Consistent with the aim of justice, the law could not have developed otherwise. …

At [66], McHugh J described what he saw as “[b]y far the most important factor which Courts have viewed as guiding the exercise of the costs discretion”. That was, his Honour said, “the result of the litigation. A successful litigant is generally entitled to an award of costs”.
McHugh J explained at [67] the policy underlying “the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour”. That principle, his Honour said:

… is grounded in reasons of fairness and policy and operates whether the unsuccessful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party… . If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.

Apportionment of costs

The defendants relied on the fact that Mr James had failed on his Appointment Promise Case. They submitted in substance that this was a significant and sufficiently severable part of his case overall.
Mr James submitted that the discretion to apportion costs was one which should only be exercised “in the most exceptional of circumstances” (Trade Practices Commission v Nicholas EnterprisesPty Ltd (No 3) (1979) 42 FLR 213). Further, he submitted, that order would be appropriate (at least “ordinarily”) only “where a clearly definable and severable issue, on which the otherwise successful party failed, has occupied a significant part of the trial” (Waterman v GerlingAustralia Insurance Co Pty Ltd (No 2) [2005] NSWSC 1111). Mr James submitted that the real question was whether the claims “were so separate and disassociated” that “they should be treated, for costs purposes, as if they had been the subject of separate trials” (LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd(No 2) [2002] NSWSC 72).
I do not think that the discretion conferred by r 42.1 can be limited by the requirement that there should exist “the most exceptional of circumstances” before an order is made, that departs from the primary position established by that rule, to reflect success and failure on individual issues. In each case, as I have endeavoured to say, the exercise of the discretion is to be informed by the interests of justice considered with reference to the facts of the particular case. That approach seems to me to be supported by decisions of the Court of Appeal including Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 and Elite Protective Personnel Pty Ltdv Salmon (No 2) [2007] NSWCA 373 at [6], [7].
I take from those cases (and, indeed, from many of the other cases to which I was referred) the propositions that:

the starting point is that, generally a successful party is entitled to costs;

it may be appropriate to order that a successful party be deprived of (some or all) costs in respect of unsuccessful issues that took up a significant part of the trial;

ordinarily, that would not be done unless those issues were clearly dominant or separable (Elite at [7]); and

in all cases, the exercise of the discretion is to be informed by the interests of justice based upon the facts of the particular case.

The third of those propositions is frequently invoked as a reason why costs should not be apportioned. However, it cannot be elevated to the status of an universal fetter on the discretion conferred by r 42.1.
Young JA said (although in a different context) in King Network Group at [8] that “in the area of costs, so much depends upon the facts and circumstances of each case that reference to authority does not have as much value as it has in other areas of the law”. His Honour’s statement is an important reminder of the need to read the statements of principle in decided cases by reference to the facts on which they were decided.
However, as Mason CJ said in Latoudis v Casey (1990) 170 CLR 534 at 541, not every “attempt to formulate a principle or a guideline according to which the [costs] discretion should be exercised would constitute a fetter upon the discretion…”. His Honour added that the failure to formulate principles or guidelines “can only lead to exercises of discretion which are seen to be inconsistent”: not a matter to be regarded “with any degree of equanimity”. Dawson J expressed himself to similar effect at 558.

I accept that if costs are to be apportioned according to success and failure on different issues, the issues in respect of which apportionment is sought should be substantial and distinct, and not closely interlinked with other issues at trial. Of course, unless those issues consumed significant litigious effort, the exercise of apportionment of costs would lack real utility.
As to Mr James’ case against the defendants: it might be correct to say that the Appointment Promise Case did not rise to the level of significance indicated by the “clearly dominant or separable” test. At the same time, it is obvious that the Appointment Promise Case was a substantial and distinct claim – in effect, one of the two claims that Mr James brought against the defendants. Further, it is clear that there was a substantial and distinct body of evidence devoted wholly or substantially to it.
In the majority of cases, the proper exercise of the costs discretion requires that the primary position established by r 42.1 be adopted, and that no allowance be made for costs of individual issues. This is not such a case. In my view, bearing in mind the particular circumstances of this litigation and the nature of the claims that were advanced, this is an appropriate case in which success or failure on individual issues should be reflected in some way in a costs order. It is quite different to a situation where (for example) a plaintiff advances a number of causes of action, each directed towards the same head of damages, and succeeds on one or some but not on all.
Mr James propounded two distinct claims. One related to his entitlements on termination. The other was the Appointment Promise Case. Although, for obvious reasons, both were heard together, the simple fact is that they were distinct causes of action (more accurately, distinct claims for distinct amounts of money, supported by distinct causes of action). They were cumulative claims, rather than alternative claims aimed at recovering the one amount of damages.
The claims were not entirely separate and distinct, because some of the evidence was capable of application to both. Nonetheless, in my view, this case stands outside the ordinary run of cases. I do not think that anything further is needed to trigger consideration of what, in the facts of this case, the interests of justice require by way of costs order.
I turn to the evidence dealing with the mechanics of apportionment, and the parties’ submissions based on it.
At the level of fact, the parties’ submissions diverged widely in their estimates of the significance, in terms of time and evidence, of Mr James’ Appointment Promise Case. Each of them referred to various indicia: the number of affidavits; the time taken in cross-examination; the number of agreed issues; and so forth. They disagreed as to the significance of those indicia. They disagreed even as to the arithmetic underlying their differing approaches. The Court is entitled to expect that it will gain greater assistance, on such matters of detail, than the parties’ submissions offered.
Thus, I do not propose to recount those submissions in any detail, or to deal with them according to the detail that was put. To do so with any pretence of precision would require me to revisit at length and in detail the evidence given in the trial. Although I have no doubt that the amount of costs at stake is large, I do not think that a resolution of this particular dispute should require the Court to undertake a detailed and lengthy re-examination of the extensive written and oral evidence, nor of the extremely voluminous documentary evidence, that was relied upon at trial, nor of the detailed and lengthy written and oral submissions put at trial.
In my view, it would be unjust to permit Mr James to have his costs of his Appointment Promise Case. In terms of r 42.1, not to make some other order as to some part of those costs would be unjust to the defendants. It would require them to pay Mr James’ costs (whilst bearing their own costs) of a significant issue, to which much evidence and detailed submissions were devoted, on every element of which he failed.
There are in substance two reasons for expressing that view. The first is that there was a substantial amount of discrete evidence relating only to Mr James’ Appointment Promise Case. Although the parties disagreed in their assessment of some of the evidence, it is self-evident that the labours of the respective experts – Dr Ferrier and Mr Potter – would have been significantly less if the Appointment Promise Case had not been pleaded or, having been pleaded, had been abandoned. I accept, of course, that the experts opined also on Mr McKeith’s damages under his Appointment Promise Case. Nonetheless, if Mr James had not pleaded, or had abandoned early on, his Appointment Promise Case, the work required to be done by the experts would have been diminished very significantly.
Although, ultimately, the experts were not called, their reports were detailed and voluminous, as to Mr James (and separately as to Mr McKeith). It does not require any illegitimate application of judicial notice to conclude that the costs of preparation of those reports (in relation to Mr James) must have been very substantial; likewise, the costs of the experts’ conclave and joint report.
In relation to the non-expert evidence, it is relevantly uncontroversial that there was evidence from some witnesses that was relevant only to the Appointment Promise Case. That evidence includes the bulk of one affidavit made by Mr James (22 November 2012) and the entirety of two others (23 May and 18 August 2014); and the affidavits of two outside witnesses, Messrs Drost and Jiskoot.
Further, in my view, the bulk (and I mean the very substantial bulk) of two of the principal affidavits on which the defendants relied – of Messrs Workman and McCormick – related only to Mr James’ Appointment Promise Case.
The defendants submitted that if Mr James had dropped his Appointment Promise Case, it would not have called those last two witnesses. I am not sure that this is correct. However, had the case been dropped, it is clear that their oral evidence would have been substantially less (and had it not been pleaded, the same applies, a fortiori, in respect of their affidavits).
On my view of the evidence overall, it is plain that Mr James must have incurred substantial cost in propounding his Appointment Promise Case, and equally plain that the defendants must have incurred substantial cost in resisting it. Given that the case failed, considerations of justice suggest very strongly that Mr James should not have his costs relating to that case, and that the defendants should have theirs.
I turn to the second reason. It is cumulative rather than alternative to the first. On 19 June 2014 (some five months before the trial commenced), the defendants served on Mr James a Notice to Admit Facts. That notice required him to admit that he had suffered no damage as a result of the loss of opportunity to be appointed to the position of chief executive officer in the merged entity. Put in the terms that I have used so far, the notice required Mr James to admit that he had suffered no loss in respect of his Appointment Promise Case. On 18 July 2014, Mr James served a Notice Disputing Facts, which disputed the fact, the admission of which was sought.
In relation to the question of loss, I concluded that even if the pleaded promise had been made (or the defendants were estopped from denying that it had been made) and accepted, and had been broken, Mr James had not proved that he suffered any loss as a result. I concluded, further, that any loss that (hypothetically) might have been proved should be reduced to reflect the net present value to Mr James, at the date of assessment, of his interest in a highly successful business that he and Mr McKeith had established, utilising the time unexpectedly freed up by the termination of their respective employment agreements.
Thus, leaving aside for the moment another substantial area of dispute between the parties – whether Mr James should have all the costs of the common issues between him and Mr McKeith – it is to my mind plain that the interests of justice, informing as they must the discretion conferred by r 42.1, require that Mr James should not have all his costs.
There are two ways in which the necessary apportionment exercise (for want of a better term) could be performed. One way would be to specify by reference to issues or topics the costs that Mr James should have and should not have, and the costs that the defendants should have (including, in relation to the non-admission, the basis on which the defendants’ costs should be assessed), and to order that those costs once agreed or assessed be set off. If that were done, then in default of agreement some unfortunate assessor would be left with the task of ploughing through mountains of evidence to make sense of what will no doubt will be voluminous submissions from the parties, advancing their competing views as to what costs go to whom in respect of what aspects of the case.
The other way to approach the issue would be to attempt to arrive at some proportion of the costs to be allowed to Mr James which takes into account both his failure and the defendants’ success on his Appointment Promise Case. This approach has the apparent advantages of simplicity and the avoidance of further dispute and wasteful expense of costs.
The first approach might be thought to have the advantage of precision. However, as Weinberg J observed in Orion Pet Products Pty Ltd v Royal Society for the Prevention of Cruelty to Animals (Vic)Inc(No 2) [2002] FCA 967 at [11], that approach “would create a degree of artificiality, and would impose an extraordinarily difficult task upon any Registrar faced with the need to tax costs, in default of agreement.”
His Honour’s views apply, making appropriate allowance for the differing regimes for assessment of costs, to proceedings in this Court: see Mobile Innovations Ltd v Vodafone Pacific Ltd [2003] NSWSC 423 at [4]. (I acknowledge that, in this paragraph, Einstein J was referring to the submissions of Mobile Innovations; but as his Honour noted, there was substantial agreement as to the principles, and Vodafone accepted what Mobile Innovations had said. It is apparent that his Honour in turn agreed with the “agreed” statements of principle.)
At a level of extreme and unhelpful generality, my impression, refreshed principally through rereading my reasons for judgment, is that Mr James’ Appointment Promise Case occupied, in broad terms, about 30% of the overall “effort” expended by the parties in his own case. It was a very substantial issue. In monetary terms, it dwarfed the other part of Mr James’ case. The claim for breach of the Appointment Promise was for about $11.4 million, compared to the claim of about $3 million for severance pay and an ex gratia payment on account of bonus.
The defendants relied on an affidavit sworn by Mr Light, a solicitor in the employee of their lawyers. Mr Light said, and I accept, that he had had the day to day conduct of the defence of the James and McKeith proceedings under the supervision of a partner in the firm.
Mr Light identified what he said was evidence in the proceedings unrelated to the “termination payments aspect” of the litigation. As he rightly pointed out, that included the expert evidence (Dr Ferrier for Mr James, and Mr Potter for the defendants).
In addition, Mr Light said that in his view “the bulk of the contents of the affidavits of [Mr McCormick]” was directed to the Appointment Promise Case; likewise, for the affidavits of Mr Workman.
I accept this aspect of Mr Light’s evidence. However, I am of the view that the defendants would have been likely to call those two witnesses even if the Appointment Promise Case had not been run, and that they would have been required for cross-examination. It may be noted, among other things, that some of their evidence was relevant to Mr McKeith’s claim.
There was another witness called, Mr Place. Mr Light said, and I agree, that his evidence was related entirely to the Appointment Promise Case. I do not think that Mr Place gave evidence relevant to Mr McKeith’s proceedings.
Mr Light estimated that had the Appointment Promise Case not been run, the trial would not have lasted more than three to four days. He gave no reasons for, or supporting, this conclusion, except (by inference) that it might have followed from his view as to the limited role that Messrs McCormick and Workman would have played had the Appointment Promise Case not been run. In any event, I do not agree with Mr Light’s estimate in this respect. To my mind, even if the Appointment Promise Case had not been run (and bearing in mind that in the event, Dr Ferrier and Mr Potter were not required to give oral evidence), at the most, some two days of hearing would have been saved. And even this is a doubtful proposition, since it is based on a counterfactual assumption and inherently incapable of being tested.
Mr Light said, further, that he had been involved in settling the invoices issued to the defendants. He said that:

As a result of that and based on my involvement in the conduct of the proceedings, I estimate that at least 65% of the total costs incurred by RBS in the defence of the James Proceedings specifically concern the Appointment Promise Case.

Whilst I have no doubt that this was Mr Light’s honest view, I am not prepared to accept it as reliable evidence. He gave no basis for arriving at the percentage figure that he nominated. The “invoices” in question were not in evidence. Nor were the detailed costs records underlying those invoices in evidence. There was no way in which the Court (or, for that matter, Mr James and his legal advisers) could test the accuracy of Mr Light’s estimate.
In short, this aspect of Mr Light’s opinion evidence was not supported by any criteria enabling evaluation of the validity of the opinion. Although this was not a case of independent expert evidence, nonetheless, in my view, for the evidence to have any utility, it is necessary that it should be capable of validation: compare the observations of Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at [59], [71], [85].
In my view, Mr Light’s estimate of the proportion of costs devoted to the Appointment Promise Case has no probative force.
Returning to my impressionistic view of the effort involved in the Appointment Promise Case (see at [91] above), I note that one factor undermining the validity of the impression is that this was not one hearing devoted to one set of proceedings between one plaintiff and one defendant (more accurately, group of defendants). For obvious reasons, the James proceedings were heard together with the McKeith proceedings, and on the basis that, so far as it was relevant, evidence in one should be evidence in the other.
Thus, any attempt to attribute a proportion or percentage to the litigious effort associated with the particular issue is complicated by the fact that whatever the overall significance may have been in respect of the particular litigation (the James proceedings), that litigation was conducted in a slightly different context to “normal” or run of the mill cases, because it was heard together with the McKeith proceedings.
In addition, in relation to the costs incurred by the defendants, there is the complicating factor that, at least prima facie, they are entitled to have some part of those costs assessed on the indemnity basis, because they were put to the expense of proving the fact that Mr James had not admitted.
I turn to that dispute. Mr James submitted that the Notice to Admit had been given in a different context, and for a different purpose, on the premise that he would be unable to prove loss because from February 2012 the role of chief executive officer of the merged entity became much less important (to the extent where Mr Williams, the person appointed to that role in preference to Mr James, was himself then retrenched). The purpose of the notice, Mr James submitted, was to obviate the need for the defendants to prove that the earnings that Mr James would have made after February 2012 as chief executive officer would have been substantially less than the amounts in fact derived from his successful business venture.
I should note that Mr James did not submit that the fact of which admission was sought was not suitable to be dealt with by the device of Notice to Admit.
I do not accept Mr James’ submissions on this point. It was the defendants’ case that Mr James had done much better out of his successful business venture (with Mr McKeith) than he would have done had he continued in employment with the defendants. That aspect of the defendants’ case was not limited to the period after February 2012. The letter under cover of which the Notice to Admit Facts was served made it clear (as did the terms of the admission sought) that the admission was general, and not temporally limited. In this context, I add that one of the matters I relied upon to conclude that Mr James had not proved that he had suffered loss by reason of any hypothetical breach of the Appointment Promise was that he had done better out of his consulting business than he would have done had he remained in the employ of the defendants. There is no reason shown to displace the operation of r 42.8(2): that is to say, no reason for the Court to “order otherwise”.
In those circumstances, simply to order that Mr James receive only a stated percentage of his costs would not do complete justice to the defendants. First, it would not compensate them for their own outlay on this part of the case. Second, it would not reflect that they had succeeded on the very question of fact that Mr James had declined to admit. Thus, in my view, one way of doing substantial justice, but doing it by way of apportionment rather than assessment, would be to give Mr James significantly less than that stated percentage of his overall costs.
Another way to deal with this question would be to order the defendants to pay a stated percentage of Mr James’ costs, and him to pay a stated percentage of theirs, with costs to be set off. That would require assessment (in default of agreement) of both sides’ costs.
In the ordinary way, I would seek to fashion a costs order in such a way as to minimise the requirement for (or at least, the complexity of) assessment in default of agreement. I take that general approach in the interests of resolving the issues so that as little as possible needs to be expended in time and costs on pursuing what remains unresolved. One way of doing this, hoping to achieve what might be called “broad-brush justice”, is to order that a generally successful party should have only a percentage of its costs, where there has been substantial success overall, but also substantial failure on a separate and distinct issue. Where that is done, the disallowed percentage is in effect a proxy for both that party’s costs of the separate and distinct issue (which in justice the losing party ought not pay) and for the losing party’s costs of that issue (which in justice it ought have).
However, having reflected on the matter, I have concluded, with very substantial regret, that it is not possible to take that approach in this case. The reasons why that is so include the following:

I have not received much assistance from the parties’ submissions. On the contrary, those submissions diverge so widely in their approaches to the apportionment of time and effort that I gained the very strong impression, reading them, that the parties were talking about two different pieces of litigation.

Thus, as I have said at [76] above, any attempt to deal with those submissions would require detailed revisiting of the evidence and the submissions at trial. There may be cases where it is appropriate for a judge to do this. I do not regard this as such a case.

Although I expressed a tentative view at [91] above as to the amount of “litigious effort” devoted to Mr James’ Appointment Promise Case, I do not have any confidence in the validity of that impression. Thus, to apportion costs on the basis of that impression might do very real injustice to one side or the other.

The difficulty (in truth, near impossibility) of arriving at a percentage figure which does justice to both sides is reinforced in this case because the defendants should have their costs relating to the question of the loss suffered by Mr James assessed on the indemnity basis from February 2012 (by reason of the Notice to Admit Facts and Mr James’ disputation of the fact, admission of which was sought).

Finally, any attempt to fashion a percentage would have to accommodate, somehow or other, the conclusion that I reach in relation to the “common costs” issue, as well as the matters referred to at [102], [103] above.

I have concluded that:

it would be unjust to permit Mr James to have his costs of the Appointment Promise Case;

the interests of justice go further, and require that the defendants should have their costs of that issue; and

part of the defendants’ costs on the Appointment Promise Case should be assessed on the indemnity basis.

Unfortunately (as it seems to me), the only way of giving practical effect to those conclusions is to leave it to the parties to attempt to work out what the consequences are, on the basis that if they cannot agree, the question can be dealt with by a costs assessor. I acknowledge that this is unsatisfactory. But I am not sufficiently certain that an order of a more broad-brush kind, capable of simpler and less costly application, can be fashioned to do substantial costs justice in the particular circumstances of this case.

The “common costs” issue

I turn to the question of what it is that should be the subject of the costs order in Mr James’ favour. In effect, that involves analysis of the competing submissions in relation to the “common costs” issue. That analysis, and the resolution of the competing submissions, must pay proper regard to the policy reasons underlying an order for costs in favour of a successful litigant, as explained by McHugh J in Oshlack at [67].
Currabubula was a relatively straightforward case (at least, so far as concerns the question of costs). The unsuccessful plaintiff had been added to address problems of standing. It was reasonably clear that very little if any additional costs would have been incurred in respect of the unsuccessful plaintiff’s claim. Thus, to order that the defendants should pay the bulk of the successful plaintiff’s costs (including on “common” issues), and that they should have their costs from the unsuccessful plaintiff to the extent that they incurred additional costs defending its claim, could readily be seen to work substantial justice on the facts of that case. The facts before me are very different.
There was not one piece of litigation, with several plaintiffs pursuing the one claim. Nor was there a single piece of litigation with several plaintiffs pursuing different but related claims. There were two distinct proceedings. Although they raised common issues of fact and law, those issues had to be decided (and were decided) on the basis of the facts peculiar to each plaintiff. For example, Mr James succeeded on his severance entitlements claim because of the particular terms of his contract of employment. Mr McKeith failed on his severance entitlements claim because the terms of his contract were substantially different.
Mr McKeith’s role in the litigation was not subsidiary to that of Mr James. Thus, one factor identified by Einstein J in Currabubula at [106], as (among others) justifying the particular order made in that case, is noticeably absent in the present case:

To apply the rule of thumb in this circumstance is to require Paola Holdings to immunise the bank against half the joint costs incurred by Currabubula in pursuing an action in which [Currabubula] was essentially successful. Not only would those costs have been incurred in any event had Paola Holdings not been joined but, a fortiori, the majority of the costs were substantially concerned with the pursuit of Currabubula’s claim, Paola Holdings’ role in the litigation being subsidiary to Currabubula’s. (The italics are his Honour’s; the emphasis is mine.)

The plaintiffs’ respective costs agreements with their lawyers have not been put into evidence. Thus, the Court does not know whether (for example) each plaintiff was to bear only some agreed proportion of the overall costs; or whether each was to have joint and several liability for the whole of those costs; or indeed whether there was some other agreed position in relation to sharing the burden of costs.
One way to deal with that position was suggested by Lord Darling in Keen. The Court could assume, since those who could prove the contrary have not done so, that Messrs James and McKeith are solvent, and either that there is no special arrangement between them as to their liability for costs, or that they have agreed to be equally liable. There may be an exception, in respect of costs that are clearly referable to the case of one plaintiff but not the other. However, for reasons I shall indicate, this exception is unlikely to be relevant.
In the alternative, I suppose, the matter could be adjourned (yet again) so that Messrs James and McKeith, should they choose to do so, could put on evidence of the retainer of their legal advisers, and thus of their several contributory liabilities towards costs. In the circumstances of this case, and acknowledging once again that it is likely that the amount of costs at issue will be substantial, I do not think that further delay is warranted.
The order sought by Mr James would mean that the defendants paid the whole of his costs (with the exception, which he did not acknowledge but I conclude should be allowed, of costs relating to the Appointment Promise Case), including on the common issues. However, the defendants succeeded entirely in resisting Mr McKeith’s claim. Why, then, should they pay, via Mr James, for work done towards Mr McKeith’s failed claims? The costs order for which the plaintiffs argue would not vindicate the success that the defendants enjoyed against Mr McKeith.
Further, the assumption set out at [119] should in my view be made, since the plaintiffs, who could do so, have not troubled to prove some other state of affairs. On that assumption, the basic principle of indemnity suggests very strongly that Mr James should recover only 50% of the common costs.
To my mind, to give Mr James the whole of the costs on the common issues would throw an unfair burden on the defendants. It would do so because it would require them to pay costs incurred for the benefit of Mr McKeith in the unsuccessful prosecution of his case on those common issues. In effect, Mr McKeith would be given a free ride, at the defendants’ expense, by reason of Mr James’ success on at least some of the common issues.
In my view, the costs order to be made in favour of Mr James needs to be fashioned in such a way that, so far as possible, this “free ride” effect is avoided. As just indicated I proceed on the basis of the assumption that, in respect of costs other than those relating to the Appointments Promise Case, and to the extent that those costs relate to work which was done for the benefit of both Mr James and McKeith, Mr James and Mr McKeith were liable to contribute equally. In addition, of course, to the extent that there are separate costs referable to the case of Mr James only, those will be accommodated in the order that I propose to make.
To my mind, the interests of justice applied to the assumed state of affairs require that, to the extent that Mr James is entitled to recover costs by reason of his success, some limitation should be imposed on the recoverable costs where those costs were incurred also for the common benefit of Mr McKeith. The practical effect, if some such limitation were not imposed, would be that the plaintiffs would be entitled to all their costs on the common issues despite the fact that one succeeded and one failed, and that the successful plaintiff would be “over-indemnified”.
How, then, can this be resolved? In my view, it is to be achieved by making an order to the effect sought by the defendants (as summarised at [11] above). As between Mr James and the defendants, the costs payable by the defendants to Mr James (that is, excluding costs referable to his Appointment Promise Case) are to be those costs incurred by Mr James that are solely referable to his case, and in addition 50% of the common costs.

Resolution of the costs issues: Mr McKeith

In essence, the issues between Mr McKeith and the defendants are:

Should Mr McKeith be ordered to pay the costs of his Appointment Promise Case on the indemnity basis?

Should Mr McKeith be ordered to pay costs on the indemnity basis following his non-acceptance of one or other of the offers of compromise served on him (see at [18], [19] above)?

Should Mr McKeith be ordered to pay some proportion of the defendants’ common costs?

Costs of Mr McKeith’s Appointment Promise Case

The defendants rely upon the fact that Mr McKeith’s Appointment Promise Case was pleaded and maintained at all times up until a week before the commencement of the trial. As I have recounted, the defendants were then notified that the Appointment Promise Case would not be pressed. There was no explanation offered (then or now) as to why it was not being pressed, or as to why it had taken Mr McKeith so long to decide not to press it.
The defendants submit that Mr McKeith’s Appointment Promise Case was, and should always have been seen to be, hopeless. They point out, correctly, that Mr McKeith was offered a senior position in the merged business, with a guaranteed bonus of $3 million over and above a substantial salary. He did not accept that offer. Why, the defendants submit, should the Court conclude that he would have taken the less remunerative position that (he says) should have been offered to him?
Further, the defendants submit (and again correctly), Mr McKeith had pleaded no material facts, nor given any particulars, in support of his claim that he had not been accorded a fair appointment process based on merits and competencies. That deficiency was reflected in his affidavit evidence, which did not support the proposition that there had been a failure to accord him such an appointment process. This aspect of Mr McKeith’s case may be compared (adversely, from Mr McKeith’s perspective) to Mr James’ evidence on his Appointment Promise Case.
Allied to these matters, a Notice to Admit Facts (similar to that served on Mr James) was served on Mr McKeith on 19 June 2014. That notice required Mr McKeith to admit that he had suffered no loss in connection with his Appointment Promise Case.
Mr McKeith served a Notice Disputing Facts. The letter forwarding it said that he “intend[s] to have this matter brought before the Court in the proceedings as the facts remain in dispute”. As will be apparent from the chronology I have given, that intention apparently changed four months later, on 17 November 2014. There is no explanation of the change in position.
Mr McKeith submitted that it had not been shown that his claim was unreasonable as, he submitted, it was necessary to show. He referred to the decision of Santow JA in Leichhardt Municipal Council v Green [2004] NSWCA 341 at [57], and relied on his Honour’s observation that (leaving aside offers of compromise and Calderbank offers), indemnity costs orders should be reserved for the “most unreasonable” cases.
Mr McKeith relied also on what Ward J said in Fitzpatrick v Cheal [2012] NSWSC 932 at [186], again in respect of indemnity costs sought on the basis of general delinquency. Her Honour said in substance that such an order should be made “only where the conduct of the party against whom the order is sought is ‘plainly unreasonable’”.
The defendants submitted that Mr McKeith’s conduct, in respect of his Appointment Promise Case, could be characterised in the manner suggested by Ward J. They relied on the matters that I have summarised briefly.
In my view, the defendants’ submissions should be accepted. I will explain, but briefly, why this is so.
The deficiencies in the pleading and particularisation of this aspect of Mr McKeith’s case, coupled with the failure to adduce any evidence whatsoever of a want of a fair appointment process, made it inevitable that the Appointment Promise Case must fail. It is true that Dr Ferrier attempted some assessment of loss. However, that went nowhere, because the evidence was not capable of proving breach of contract (assuming, of course, contrary to my findings in each instance, that the relevant promise had been made to and accepted by Mr McKeith, and that Mr McKeith had given consideration). I do not understand why it took so long for Mr McKeith and his legal advisers to realise (as apparently they did, although belatedly, a week before the trial) that, absent proof of breach, this aspect of his case was hopeless.
However, as will be seen, I have come to the view that the defendants should have their costs (to the extent that I shall explain) on the indemnity basis from the date of service of the first offer of compromise. It is by no means clear to me that the defendants had incurred substantial costs, in respect of the Appointment Promise Case, between the date when Mr McKeith’s summons and Commercial List Statement were filed 7 October 2011 and the date when the offer was made. The costs consequences of the “Notice to Admit dispute” are likely to be minimal. In those circumstances, I do not propose to say more.

The first offer of compromise

That offer was served on 26 April 2012. Omitting formal parts, it read as follows:

1.   Without any admission of liability, the First, Second and Third Defendants (Defendants) jointly offer to pay the Plaintiff in full and final settlement of all the Plaintiff’s claims against the Defendants the sum of $488,939.14 (exclusive of costs), comprising:
(a)   $375,961.54 in respect of the Severance Payment, as defined in the Commercial List Statement; and
(b) $112,977.60 in respect of interest on the Severance Payment, calculated in accordance with section 100 of the Civil Procedure Act 2005 (NSW) from 5 December 2008 until the date of this offer.
2.   This offer is open for a period of 28 days only.

The offer was made pursuant to UCPR r 20.26. At the time the offer was made, that read:

20.26 Making of offer
(cf SCR Part 22, rules 1A, 2, 3 and 4; DCR Part 19A, rules 1, 2, 2A, 3 and 4; LCR Part 17A, rules 2 and 5)
(1)   In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms.
(2)    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.
(3)    A notice of offer:
(a)    must bear a statement to the effect that the offer is made in accordance with these rules, and
(b)    if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to the payment so made or ordered.
(4)    Despite subrule (1), a plaintiff may not make an offer unless the defendant has been given such particulars of the plaintiff’s claim, and copies or originals of such documents available to the plaintiff, as are necessary to enable the defendant to fully consider the offer.
(5)   If a plaintiff makes an offer, no order may be made in favour of the defendant on the ground that the plaintiff has not supplied particulars or documents, or has not supplied sufficient particulars or documents, unless:
(a)    the defendant has informed the plaintiff in writing of that ground within 14 days after receiving the offer, or
(b)    the court orders otherwise.
(6)    An offer may be expressed to be limited as to the time it is open for acceptance.
(7)    The following provisions apply if an offer is limited as to the time it is open for acceptance:
(a)    the closing date for acceptance of the offer must not be less than 28 days after the date on which the offer is made, in the case of an offer made 2 months or more before the date set down for commencement of the trial,
(b)    the offer must be left open for such time as is reasonable in the circumstances, in the case of an offer made less than 2 months before the date set down for commencement of the trial.
(8)    Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer.
(9)    An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides.
(10)    A party may make more than one offer in relation to the same claim.
(11)    Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer.
(12)    A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division.

Mr McKeith submitted that the offer was not effective under r 20.26. He advanced three reasons:

properly construed, the offer was one to settle all his claims against the defendants (whatever they might be), not merely those pleaded, and was thus not an offer, in accordance with r 20.26(1), “to compromise any claim in the proceedings”.

Rule 20.26(1) did not authorise an offer to be made jointly by several parties (or a group of parties).

It was “at least ambiguous” as to whether the offer intended to include any liability for costs.

Mr McKeith submitted, in the alternative, that if the offer were valid, it was reasonable for him to reject it, so that the Court should “otherwise order”. He referred to the fact that, at the time the offer had been given, discovery had been ordered but had not been given (and in fact, was overdue).
The defendants submitted that offers of compromise should not be construed in an overly technical fashion, so as to undermine the purpose that they were intended to serve (citing Ziliotto v Hakim [2013] NSWCA 359 at [11], [12]).
Approaching the offer in that fashion, the defendants submitted that, read as a whole and in context, it was plainly intended to offer settlement of Mr McKeith’s claims in the proceedings, and not to require settlement of any other, unpleaded, claims.
As to the fact that it was a joint offer, the defendants submitted that:

Mr McKeith could not have been under any misunderstanding as to what was being offered to him, and by whom; and

In any event, acceptance of the offer would have been advantageous to him, as he could have enforced the resultant judgment and costs claim against any or all of the defendants.

The defendants submitted that the offer was not ambiguous as to costs. First, they submitted, it was expressly said to be “exclusive of costs” (compare r 20.26(2) as it then stood).
As to the alternative proposition advanced by Mr McKeith – that the Court should otherwise order, because it had not been unreasonable for him to reject the offer – the defendants submitted that reasonableness of itself was not a sufficient reason to displace the prima facie consequences of non-acceptance.
Further, the defendants noted:

an offer of compromise could be served at any time (with irrelevant limitations); and

it could not be reasonable for a litigant not to accept an offer simply because he had not seen all of the other side’s evidence, or had not had the benefit of discovery.

In my view, the offer of compromise was valid, and was one authorised by r 20.26 as it then stood. I accept that the Court should not risk undermining the purposes that offers of compromise are intended to serve by treating the requirements in an overly technical way. Basten JA made that point in Ziliotto at [11], [12]:

[11] It used to be that the facility to make a "without prejudice" offer to settle proceedings, with the incentive of a costs sanction in the event of refusal of a reasonable offer, was accepted as an important element in discouraging litigation. Thus, in Tickel v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 354 Rogers CJ Comm D stated:
"It is the primary aim of any judicial system to attempt to bring the parties to a point where, with fairness to themselves, they are able to dispose of the dispute between them by compromise. It is only in the last resort that a dispute should proceed to trial and to determination. That is for any number of reasons. It is in the interests of the community that scarce resources, such as the court, should not be over-taxed. It is in the interests of the community and of the parties themselves that they should not engage in the rancour which a dispute in court necessarily entails. It is in the interests of the parties themselves to save themselves the expenditure of time and energy necessarily entailed in participation in contested court proceedings."

[12] To treat the rules governing offers of compromise in an overly technical fashion is to undermine these enduring values. Further, it is to risk subverting the statutory mandate to give effect to the overriding purpose of the Civil Procedure Act and the rules of court, which is "to facilitate the just, quick and cheap resolution of the real issues in the proceedings": s 56(1) and (2). These principles provide the framework for a purposive construction of the rules.

His Honour’s conclusion as to costs did not represent the majority view (the majority being Macfarlan JA and Tobias AJA, with whom Macfarlan JA agreed). However, as I perceive it, the difference between Basten JA and the majority related to the way in which Basten JA said that costs of the trial should be treated. I do not think that anything in what Basten JA said at [11], [12] is inconsistent with the reasoning of Tobias AJA.
Of course, there is a limit beyond which a non-technical approach to offers of compromise and the rules authorising them cannot be taken. I do not think that the approach for which defendants contend goes anywhere near that ill-defined (or, perhaps, undefinable) limit.
To my mind, Mr McKeith’s objections to the formal validity of the offer of compromise cannot be sustained. First, when the offer is read as a whole and in context (the context being provided by the litigation then current), I do not think that it can be read as anything other than an offer to settle the claims that Mr McKeith advanced against the defendants in his proceedings. There is no evidence that there were (or could have been) any other claims. The offer was made on the appropriate form, and was said to be made in accordance with r 20.26. As I have noted, that rule applies to “an offer to any other party to compromise any claim in the proceedings”.
Again, and as the defendants submitted, the sum that was offered was particularised by reference to a particular claim pleaded by Mr McKeith in the proceedings, and to interest.
Finally, and again as the defendants submitted, Mr McKeith’s response to the offer of compromise was a formal rejection, in a letter dated 23 May 2012. That letter gave reasons why Mr McKeith rejected the offer: principally, that he did not have enough information to assess it. None of the reasons advanced refer to any additional or, real or potential, claim that Mr McKeith wished to preserve, that (on his construction of the offer) would have been unavailable to him had he accepted the offer.
I turn to the next ground of objection: namely, whether an offer can be made by more than one party (or a group of parties) to another party. In my view, there is no reason why the rule, as it stood at the time, should be read in the restrictive way that Mr McKeith asserts.
As a general principle of construction, a statute or statutory rule is to be construed on the basis that, unless the context otherwise requires, singular references include the plural. I see no reason why the rule should be read in any different way. It is commonplace that litigation often involves, on one side or the other, multiple parties having a common interest. To interpret the rule as requiring in all circumstances that all parties having a common interest must make individual offers of compromise, seems to me to elevate form over substance without any consequent increase in utility.
Mr McKeith pointed to consequences that might have arisen had he succeeded against some defendants but not against others. To my mind, if those consequences did arise (and of course, they have not), they could and should be dealt with under the power reserved to the Court to “otherwise order” (r 42.15A(2)).
Finally, and as the defendants submitted, reading the offer of compromise sensibly, Mr McKeith could have been under no doubt that it was made by all the defendants, and that on acceptance he would be entitled to enforce his monetary entitlements (including an order for costs, assuming one were made) against any or all of them.
I turn to the third submission: that the offer was ambiguous as to costs. That presumably was intended to call up UCPR r 20.26(2).
The offer was expressly said to be exclusive of costs. I do not agree that it is an available, let alone a reasonable, construction of the offer that the words “(exclusive of costs)” qualified only the sum of money which immediately preceded them. In my view, those words specify the basis on which the offer (which had just been quantified at $488,939.14) was made. They made it clear that the offer was “exclusive of costs”, in accordance with subrule (2) as it then stood. The natural reading of the offer is that the sum offered was that to which I have referred, which was offered on a basis that it excluded, or did not include any allowance for, costs.
Should the Court otherwise order? The defendants submitted that this question should be considered in accordance with the general principles summarised by the Court of Appeal in Bennette v Cohen (No 2) [2009] NSWCA 162 at [25], [26]:

[25]  The respondent submits that in the circumstances of the present case the Court should “otherwise order” thus depriving the appellant of his prima facie entitlement to indemnity costs under the rule. The relevant rationale for the rules relating to offers of compromise were authoritatively stated by Mason P, with whom Sheller JA agreed, in Morgan v Johnson [1998] NSWSC 367; (1998) 44 NSWLR 578 at 581–582 when the learned President stated the following propositions (omitting citations):
“(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; Hillier.
(2)    The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital .
(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; Hillier. 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; see also Hillier .
(4)    Lying behind the rule is the common knowledge that ‘litigation is inescapably chancy’: Maitland Hospital. For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve. As Clarke JA expressed it in Houatchanthara:
‘The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case.
It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk.’

(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 . Reasons must be given for ‘otherwise ordering’: Hillier; Quach.”

[26] This Court has applied these principles on many occasions since they were first articulated. Thus in Caine, McColl JA stated (at [34]) the principles articulated in Morgan and then continued (at [35]) (omitting citations):
“The onus is on the respondent to demonstrate why the Court should not order the respondent to pay the appellants’ costs on an indemnity basis. In particular, the respondent must establish that it had given serious thought to the risks involved in not accepting the offer, had assessed the appellants’ case properly and in the context of the relevant rules and the achievement of their purpose as outlined in Morgan . Generally, exceptional circumstances are required to justify such an order denying the appellants’ entitlement: South Eastern Sydney Area Health Service v King .”

I accept without hesitation the need to pay attention to those general principles. Of course, the discretion is not relevantly confined except by the obvious proposition that it is a judicial discretion. It is therefore to be exercised rationally, taking into account relevant matters, and with due regard to the purposes that the rules relating to offers of compromise (and the consequences of non-acceptance) are intended to serve.
An offer of compromise may be served at any time (with presently irrelevant limitations as to offers served within a short time prior to the hearing). There can be no general principle that it is reasonable to reject an offer served relatively soon after the commencement of proceedings, in the hope that something may turn up later which supports the claim, in respect of which the offer was made. There is an obvious public interest in the early compromise of litigation, so that wasteful expense on costs is avoided. Whenever an offer is made, it must be considered.
Speaking of the equivalent Federal Court Rule, Hely J said in Port Kembla Coal Terminal v Braverus Maritime Inc(No 2) (2004) 212 ALR 281 at [22]:

Under the Rules, an offer of compromise may be made at any time prior to the giving of a decision in the matter, but the time in which the offer is open to be accepted must be not less than 14 days beginning on the day after the offer is made. There is nothing in the Rules which requires that the proceedings should have reached any particular stage of development before an offer of compromise may be made which will attract the costs consequences for which the Rules provide. For example, there is no reason why an offer of compromise may not be made with the filing of the Statement of Claim, and there is every reason for encouraging offers of compromise to be made as early as the circumstances reasonably permit.

I respectfully agree.
Katzmann J made a similar point in Visscher v Teekay Shipping (Australia) Pty Ltd (No 5) [2013] FCA 28 at [31]:

[I]t cannot be reasonable for a litigant not to accept an offer simply because he or she has not seen all of the other side’s evidence.

There may be circumstances in which her Honour’s proposition overstates the case somewhat. However, it recognises that, as the Court of Appeal said in Bennette, “litigation is inescapably chancy”, and that a litigant who takes (in this case) his chances, by proceeding until the other side’s evidence (and in this case discovery) are before him, runs the risk that the chance will mature adversely to his interests.
More fundamentally, as Hely J observed in Port Kembla Coal Terminal at [18] even acting reasonably in rejecting an offer of compromise, based on the litigant’s view of the strength of its pleaded case, does not of itself displace the presumptive entitlement to indemnity costs that follows from non-acceptance of an offer of compromise.
His Honour relied on what Gleeson CJ (speaking with the concurrence of Clarke and Cripps JJA) had said in New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102:

It is impossible exhaustively to state the circumstances in which a discretion to contrary effect might be exercised, and it would be imprudent to attempt any such exhaustive statement. However, I do not read Maitland Hospital v Fisher (No 2) as authority for the proposition that discretion should be exercised against making an order for indemnity costs in any case in which it was reasonable for the defendant to take the view that it had a good chance of successfully defending the action. The prima facie consequence, which will apply in the ordinary case, is that in the circumstances postulated by the rule an order for indemnity costs will be made.

Although Hely J was talking of the position of a respondent (and Gleeson CJ was talking of the position of a defendant), I see no reason why the same considerations are not applicable where the offeree is a plaintiff. To my mind, the underlying policy considerations are the same, regardless of by whom and to whom a particular offer is made.
In my view, the fact that Mr McKeith hoped to obtain some evidence to support his case, from whatever documents the defendants might discover, does not of itself amount to circumstances sufficient to displace the operation of the rules. And this is so even taking into account the matters of context to which Mr McKeith pointed: namely:

the defendants had been ordered to give general discovery;

the date by which they were to give that discovery had passed well before the offer of compromise was made; and

around the time the offer of compromise was made, Mr McKeith was led to understand that the defendants’ discovery would be provided “imminently”; and

in some way which I do not presently understand, the reasonableness of Mr McKeith’s conduct, in rejecting the offer, has to be considered against the circumstance that, ultimately, the order for general discovery was revoked.

What costs should be the subject of the orders against Mr McKeith?

In my view, the starting point is to be found not in the rule of thumb, or for that matter, in some alternative purported general principle, but in the proposition that costs orders are intended to indemnify the successful party for some part at least of costs incurred by it of its successful prosecution or defence (as the case may be) of the case brought by or against it. That proposition was articulated by McHugh J in Oshlack (see at [61]) above) and by Singleton LJ in Korner (see at [42] above).
In the context of this litigation, the application of the principle of indemnity, as I see it, required that (leaving aside his Appointment Promise Case) Mr James should have only one-half of the common costs incurred in the prosecution of the claim on which he succeeded. That followed, in my view, from the assumed fact that he and Mr McKeith were liable to contribute equally to those common costs.
To my mind, the principle is capable of application in the case of defence costs, but with a markedly different outcome. The question is: what costs have the defendants incurred in their successful costs of Mr McKeith’s claim?
That question can be answered by saying that the defendants have incurred:

their costs in respect of issues that were peculiar to Mr McKeith’s claim; and

their costs in relation to common issues.

Analysed in terms of the principle with which I started, there can be no doubt that the defendants should have their costs in the first category. Mr McKeith did not contend otherwise. On the contrary, that was the order (and the only order) that he contended should be made.
In respect of costs in the second category, the position in my view is different. The defendants did not incur those costs only because they were forced to defend themselves, successfully, against Mr McKeith’s claim. They incurred them (by definition equally) because they sought to defend themselves (unsuccessfully, save as to the Appointment Promise Case) against Mr James’ claims.
Thus, in respect of those second category, or common, costs, the defendants would have incurred them in any event, even if Mr McKeith had never commenced proceedings. There is no basis for thinking that the defendants would have defended Mr James’ case in any different manner, or with any less vigour, had it been the only claim made against them. The defendants’ submissions did not suggest that this might have been so.
If the order sought by the defendants is made against Mr McKeith, the consequence will be, among other things, that the defendants will recover from Mr McKeith one half the costs that they would have incurred in any event in defending, unsuccessfully, Mr James’ case (save for his Appointment Promise Case). I do not see why the interests of justice require that Mr McKeith should subsidise the defendants in their unsuccessful defence of the relevant part of Mr James’ case.
In my view, application of the basic principle of indemnity to the reality of this litigation leads to the conclusion, which in my view the interests of justice require to be reflected in the present case, that the defendants should recover from Mr McKeith only first category costs. Although, as Young JA pointed out in King Network Group (see at [67] above), decided cases are of less significance in this area of the law, the result that I have reached seems to me to be consistent at the level of basic principle with the policy underlying the views expressed by Einstein J in Currabubula, and with the views expressed by Singleton LJ in Korner.
I conclude that Mr McKeith should be liable, on the ordinary basis to 26 April 2012, and on the indemnity basis thereafter, only for the costs that were peculiar to his own litigation. To my mind, that is a sufficient application of the indemnity principle to the defendants’ success, in the particular circumstances of this litigation.

Orders

In proceedings 2011/320618 I make the following further orders:

Order the plaintiff to pay the defendants’ costs of and incidental to the claim pleaded at [55] to [61] of the plaintiff’s Commercial List Statement (the Appointment Promise Case).

The costs payable pursuant to order (1) are to be assessed:

on the indemnity basis, as to costs in respect of the question of the amount of loss and damage said to have been suffered; and

otherwise, on the ordinary basis.

Subject to order (4), order the defendants to pay the plaintiff’s costs except for those of and incidental to the Appointment Promise Case, such costs to be assessed on the ordinary basis.

The costs payable by the defendants to the plaintiff in accordance with order (2) are to comprise only:

50% of the plaintiff’s costs of and incidental to issues of fact or law that were common between the plaintiff’s case in these proceedings and the plaintiff’s case in proceedings 2011/320637; and

otherwise, such other costs as were incurred by the plaintiff of and incidental to issues of fact or law that were peculiar to his case in these proceedings.

Costs are to be set off.

Reserve liberty to apply on seven days’ notice in respect of the implementation of these orders.

Order that the exhibits be handed out.

In proceedings 2011/320637 I make the following further orders:

Subject to order (2), order the plaintiff to pay such costs as were incurred by the defendants of and incidental to their defence of issues of fact or law that were peculiar to the plaintiff’s case in these proceedings.

Order that such costs be assessed on the ordinary basis up until 26 April 2012 and on the indemnity basis thereafter.

Reserve liberty to apply on seven days’ notice in respect of the implementation of these orders.

Order that the exhibits be handed out.

**********

Decision last updated: 22 July 2015

Medium Neutral Citation:	James v Royal Bank of Scotland; McKeith v Royal Bank of Scotland (No.2) [2015] NSWSC 970
Hearing dates:	On the papers
Decision date:	22 July 2015
Jurisdiction:	Equity Division - Commercial List
Before:	McDougall J
Decision:	See at [182], [183].
Catchwords:	COSTS – varied success – where one plaintiff succeeded and one failed against a common defendant – consequence that defendant was successful in one action and unsuccessful in the other – whether common costs of plaintiffs recoverable in full by successful plaintiff, or only a proportion – whether common costs of defendants payable in full by unsuccessful plaintiff, or only a proportion – application of the ‘rule of thumb’ – successful plaintiff’s other, unsuccessful, claim – notice to admit – costs consequences of failing to admit facts later proved – assessment of costs – ‘broad-brush justice’ – whether appropriate to award an overall percentage of costs to plaintiff in order to minimise scope for further dispute COSTS – unsuccessful plaintiff’s abandonment of one claim – where failure of that claim was inevitable – remaining claim – where offer of compromise not accepted – assessment of both claims on the indemnity basis – carve-out for costs that would have been incurred regardless in defending successful plaintiff’s claim
Legislation Cited:	Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Beaumont v Senior [1903] 1 KB 282 Bennette v Cohen (No 2) [2009] NSWCA 162 Chen v Chan (No 2) [2009] VSCA 233 Currabubula and Paola v State Bank of New South Wales [2000] NSWSC 232 Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567 Fitzpatrick v Cheal [2012] NSWSC 932 Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84 Keen v Towler (1924) 41 TLR 86 King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 Korner v H Korner and Co Limited [1951] 1 Ch 15 Latoudis v Casey (1990) 170 CLR 534 Leichhardt Municipal Council v Green [2004] NSWCA 341 LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (No 2) [2002] NSWSC 72 Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Mobile Innovations Ltd v Vodafone Pacific Ltd [2003] NSWSC 423 New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 Orion Pet Products Pty Ltd v Royal Society for the Prevention of Cruelty to Animals (Vic) Inc (No 2) [2002] FCA 967 Oshlack v Richmond River Council (1998) 193 CLR 72 Port Kembla Coal Terminal v Braverus Maritime Inc (No 2) (2004) 212 ALR 281 Rasch Nominees Pty Ltd v Bartholomaeus (No 3) [2013] SASC 14 Re Colquhoun (1854) 5 De G M & G 35; 43 ER 781 Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 Visscher v Teekay Shipping (Australia) Pty Ltd (No 5) [2013] FCA 28 Waterman v Gerling Australia Insurance Co Pty Ltd (No 2) [2005] NSWSC 1111 Ziliotto v Hakim [2013] NSWCA 359
Texts Cited:	Dal Pont, Law of Costs (3rd ed, LexisNexis, 2013) Orkin, Law of Costs (2nd ed, Canada Law Book, 1987)
Category:	Costs
Parties:	James v RBS: Angus Gordon Charnock James (Plaintiff) Royal Bank of Scotland Group plc and others (Defendants) McKeith v RBS: Colin McKeith (Plaintiff) Royal Bank of Scotland Group plc and others (Defendants)
Representation:	Counsel: J N West QC / M J Steele SC (plaintiffs) J C Sheahan QC / T Saunders (defendants) Solicitors: Harmers Workplace Lawyers (plaintiffs) Allens (defendants)
File Number(s):	2011/320618; 2011/320637