McGlen-McLeod v Galloway (No. 2)

[2012] NSWDC 11

District Court

New South Wales

Medium Neutral Citation:

McGlen-McLeod v Galloway (No. 2) [2012] NSWDC 11

Hearing dates:

31 January and 20 February 2012

Decision date:

20 February 2012

Jurisdiction:

Civil

Before:

Gibson DCJ

Decision:

(1) Defendants' application for indemnity costs dismissed.

(2) Defendants' application pursuant to UCPR Part 42 r 42.35 (for no orders as to costs) dismissed.

(3) Defendants pay the costs of this application.

Catchwords:

COSTS - indemnity costs - offer of compromise "plus costs" - whether offer invalid under the UCPR as not exclusive of costs (r 20.26(2)) - whether defendants should be ordered to pay any costs where the judgment sum was below the threshold (r 42.35) - whether proceedings commenced and continued in the "appropriate court"

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 56
Uniform Civil Procedure Rules 2005 (NSW), rr 20.26 and 42.35

Cases Cited:

Agricultural & Rural Finance Pty Ltd v Atkinson [2010] NSWSC 1396
Brakikki Pty Limited v Gofur (No 2) [2011] NSWDC 199
Calderbank v Calderbank [1975] 3 All ER 333
Channel Seven Sydney Pty Ltd v Mahommed (No 2) (2011) 278 ALR 129, [2011] NSWCA 6
Dean v Stockland Property Management Pty Ltd (No 2) [2011] NSWCA141
Edwards v Devine (No 2) [2011] NSWDC 3
Grbavac v Hart [1997] 1 VR 154
Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435
Insurance Australia Ltd t/as NRMA Insurance v Checchia [2011] NSWCA 101
Jones v Sutton (No 2) [2005] NSWCA 203
Macquarie Radio Network Pty Ltd v Arthur Dent (No 2) [2007] NSWCA 33
Morgan v Johnson (1998) 44 NSWLR 578
Nominal Defendant v Hawkins [2011] NSWCA 93
Old v McInnes [2011] NSWCA 410
Pacanowski v Simon Wakeman & Associates (No 2) [2010] NSWCA 40
Pritchard v Trius Constructions Pty Ltd (No 2) [2011] NSWSC 1114
Rosebanner Pty Ltd v EnergyAustralia (No 2) [2011] NSWCA 150
Separovich v Ferrao (No 2) [2011] NSWCA 346
Smart Distribution Services Pty Ltd v General Wholesale Pty Ltd (No 3) (2010) 11 DCLR (NSW) 38; [2010] NSWDC 108
South Eastern Sydney Area Health Service v King [2006] NSWCA 2
Stevanovic v Mcindoe (Costs) [2011] NSWDC 43
Tasevska v Tasevska [2011] NSWSC 411
Taylor v Port Macquarie-Hastings Council [2010] NSWLEC 153
Tuheta Pty Ltd v Ehrenfeld [2010] NSWSC 799
Wako Kwikform v Jabbour [2011] NSWSC 1328
Ying v Song [2011] NSWSC 618

Texts Cited:

-

Category:

Costs

Parties:

Plaintiff: Anne McGlen-McLeod First Defendant: Nathan David Galloway
Second Defendant: Daniel Eli Galloway

Representation:

Plaintiff: Mr A P Quinlivan Defendants: Mr S E Torrington (31 January 2012) / Ms A Kmetyk (solicitor) (20 February 2012)
Plaintiff: CMC Lawyers Defendants: McCabe Terrill Lawyers

File Number(s):

2009/00338654

Publication restriction:

None

Judgment

1. These are proceedings for personal injury which proceeded by way of assessment of damages. After a hearing on 10 and 11 October 2011, I made orders on 14 October 2011 as follows:

(1)   Judgment for the plaintiff for $700.

(2)   Defendants pay plaintiff's costs.

(3)   Liberty to restore in relation to costs.

(4)   Exhibits retained for 28 days.

1. An application for costs has now been brought by the defendants pursuant to the liberty to restore granted by me. This application is brought on two bases. The first is that two offers of compromise were served as follows:

(a)   On 20 July 2010, an offer of compromise was served offering to compromise the plaintiff's claim in the following manner:

"By making payment of the sum of $4,000 plus costs in answer to the cause of action on which the plaintiff claims [sic]."

(b)   On 10 January 2011, an offer of compromise was served as follows:

"By making payment of the sum of $20,000 plus costs in answer to the cause of action on which the plaintiff claims [sic]."

1. In the alternative, in the event that I am not disposed to make a costs order in accordance with r 20.26 Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), an application is made that the plaintiff should not be entitled to any costs by reason of the amount of damages falling below the prescribed limit in Part 42 r 42.35 UCPR.

1. The plaintiff submits that the offers of compromise do not comply with the UCPR, and that the plaintiff should not be deprived of costs following the event by reason of the size of the verdict falling below the prescribed limit.

The defendant's application for indemnity costs

1. The principal argument of the defendants related to the first application, namely the application for the plaintiff to pay the defendants' costs on an indemnity basis from 20 July 2010.

1. Part 20 r 20.26 UCPR provides as follows:

" 20.26 Making of offer

(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."

1. This argument was first listed on 18 November 2011 but could not proceed because the defendants had not briefed counsel and were not ready to meet the plaintiff's arguments based on Dean v Stockland Property Management Pty Ltd (No 2) [2011] NSWCA141 (17 June 2010) (" Dean" ). I made the following orders:

(1)   Upon the application of the defendants for an adjournment of this special fixture to consider costs of these proceedings, that application is granted on the following basis:

(a)   The defendants are to pay the plaintiff's counsel fees of today in the sum of $2,000 56 days from today; and

(b)   This order is self-executing in nature, and failure to pay this sum will result in the dismissal of any application to vary the costs order made by me in order 2 of Gibson DCJ's judgment of 14 October 2011.

(2)   Matter stood over for argument as a special fixture (half an hour) on Tuesday 31 January 2012 at 9:00am.

1. A copy of Dean was handed to the defendants' solicitor by counsel for the plaintiff. I stood the matter over to 31 January 2012 so that the defendants could have the chance to consider Dean and to brief the counsel who had appeared in the trial.

1. When the matter next came before me for argument, on 31 January 2012, Mr Torrington of counsel (who had appeared at the trial) told me he thought the Dean objection was that the offers of compromise did not say costs were "as agreed or assessed".

1. However, this is not the problem identified by the Court of Appeal in Dean . The problem identified by Dean is that any reference to costs, including references of the kind made in the offers under consideration here (i.e. offers "plus costs" or "exclusive of costs"), with the one exception referred to in the Rule, fatally taints the offer of compromise.

1. Mr Quinlivan, for the plaintiff, informed me that a search of the database had not revealed any other cases considering or applying Dean, or discussing this point. As I was aware of a number of such cases, some of which were consistent with the position contended for by the defendants, it was necessary for me to adjourn the argument until today and to give both counsel a list of the cases which have considered, applied or distinguished this decision, and to examine carefully those of the judgments by judges of this court and of the Supreme Court where orders of the kind urged upon me by Mr Quinlivan have not been made. Since the cases are inconsistent, it is necessary to set out the relevant extracts from each case, in chronological order. I shall start by noting the principles set out in Dean.

The principles set out in Dean

1. The relevant principles to apply when considering offers of compromise which contained a reference to costs orders are set out by the Court of Appeal in Dean as follows (at [22]-[29]):

" [22] The continued reasoning of inconsistency between an offer and the provisions of the UCPR with respect to costs has been recognised in Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) [2007] NSWCA 194 at [23] and Atkinson v Zey [2008] NSWCA 30 at [7].

[23] The exception in r 20.26(2), from the reference to a verdict, appears to be restricted to common law proceedings for money sums. If there is a verdict for the defendant there is no money sum, and so no complication from an unknown amount of the defendant's costs. Although the appellant did not so submit, it could be argued that r 20.26(2) means that an offer involving payment of a money sum must not be inclusive of costs.

[24] On that argument, the requirement that the offer of compromise be exclusive of costs suggests that the costs are ancillary to a substantive offer from the rationale perceived in Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd , the substantive offer must be one involving the payment of a money sum. The exception might support the argument. And a party in the position of the appellant, and others in a similar position such as a plaintiff claiming relief not involving payment of a money sum, should not be excluded from ability to make an offer of compromise under the UCPR in which the element of compromise is costs.

[25] However, there are also arguments for the meaning that an offer of compromise can not involve costs at all.

[26] The governing reasoning is inconsistency between an offer of compromise and the provisions of the rules with respect to costs. An offer of compromise involving costs will not necessarily be of no effect by force of r 20.26(12), because the costs will not necessarily be inconsistent with a plaintiff's (or defendant's) entitlement to an order for costs. But even in cases not involving payment of a money sum, such as the present case, there will be the inconsistency. And the language of the rule does not confine exclusivity to only some kinds of offers of compromise. The phrase "exclusive of" means "excluding, not compromising of"; "that excludes"; or "so as to exclude" ( Colonial Mutual Life Assurance Society Ltd v Australian and Overseas Telecommunications Corporation Ltd (1993) ANZ Conv R 347). On a natural reading, the requirement that an offer of compromise be exclusive of costs means that it may not involve costs at all.

[27] As r 20.26(2) has been applied, the rationale has not governed its reach. It has been held that an offer of a money sum and an identified sum for costs falls foul of r 20.26(2): Penrith Rugby League Club Ltd Trading as Cardiff Panthers v Elliot (No 2) [2009] NSWCA 356; Tarabay v Fifty Property Investments Pty Ltd [2009] NSWSC 951. And it has been held that a non-monetary offer also involving costs falls foul of it.

[28] In Frisbo Holdings Pty Ltd v Austin Australia Pty Ltd (No 2) [2010] NSWSC 298 Hislop J held that a defendant's offer of a verdict and judgment for the defendant with the plaintiff to pay 50% of its costs offended the rule. In Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) Ipp JA, with whom Mason P and McColl JA agreed, said at [24]-[25] that r 20.26(2) reflected the law as stated in Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd . It was held that an offer of compromise of dismissal of the appeal and an order that the costs be paid out of the estate of the deceased had no effect under the Rules because, applying the approach there stated, no effect could be given to it because it "was inclusive of the costs of the proceedings".

[29] Rule 20.26(2) may have a broader operation than either inconsistency between an offer of compromise and the provisions of the rules with respect to costs, or the rationale to which we have referred, would justify. However, in the absence of submissions in opposition to the second respondent's reliance on r 20.26(2), we consider that we should follow Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) . The offer was of no effect for the purposes of the offer of compromise regime under the UCPR. "

1. Prior to Dean, the Court of Appeal had, in Pacanowski v Simon Wakeman & Associates (No 2) [2010] NSWCA 40 (10 March 2010) at [4], noted only as "doubtful" (at [4]) the question of whether or not reference to costs in an offer of compromise invalidated the offer, and went on to deal with the "real question", namely whether these offers constituted a "compromise":

"[3] The terms of each offer were the same: they consented to the appeal being allowed and the orders of the Judicial Registrar being set aside, but then required that judgment be entered for the defendants in the District Court. Each party was to bear its own costs of the proceedings in the District Court and in this court.

[4] Whether the first offer constituted an offer for the purposes of Pt 20, Div 4 of the Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR") is doubtful: it did not bear a statement to the effect that the offer was made in accordance with the rules: r 20.26(3)(a). Further, it attempted to provide for the costs of the appeal inconsistently with the terms of r 20.26(2). It is, however, not necessary to determine those questions.

[5] The real question is whether these offers constituted a "compromise"..."

1. Thus, until Dean, the question of whether a reference to costs invalidated the offer was "doubtful". The question since Dean has been how to interpret the caveat, at [26] of Dean, that an offer of compromise will not necessarily be "of no effect". Does this mean that offers containing references to costs are still capable of being valid?

Cases subsequent to Dean

1. The apparent change of direction by the Court of Appeal in Dean is only the beginning of the problem. Dean has been followed (e.g. Pritchard v Trius Constructions Pty Ltd (No 2) [2011] NSWSC 1114; Agricultural & Rural Finance Pty Ltd v Atkinson [2010] NSWSC 1396); but it has also been restrictively interpreted (to the point of not being followed) in others (e.g. Smart Distribution Services Pty Ltd v General Wholesale Pty Ltd (No 3) (2010) 11 DCLR (NSW) 38; [2010] NSWDC 108; Taylor v Port Macquarie-Hastings Council [2010] NSWLEC 153); in addition, in some cases where indemnity costs are sought for offers asserted to be invalid, Dean has not been referred to at all (e.g. Stevanovic v Mcindoe (Costs) [2011] NSWDC 43).

Decisions in which Dean is distinguished or not followed

1. I shall first start with the decision of Bozic SC DCJ in this court: Smart Distribution Services Pty Ltd v General Wholesale Pty Ltd (No 3) (2010) 11 DCLR (NSW) 38; [2010] NSWDC 108 (23 June 2010). This judgment, handed down within days after Dean, was considered an important practice decision and reported in the District Court Reports. Bozic SC DCJ at [8]-[13] considered the Court of Appeal's comments in Dean at [26] that offers of compromise referring to costs could still permit the awarding of indemnity costs, giving the following explanation:

" [8] The defendant relied upon the decision of the court of Appeal in Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker & Anor (No 2) [2007] NSWCA 194. In my view the decision does not assist in resolving the issue in the present case. The relevant offer in Becker included terms that the costs of the appellant be paid out of the deceased's estate on a party/party basis and the costs of the first respondent be paid out of the estate of the deceased on an indemnity basis. The offer was held to be an offer inclusive of costs and accordingly no effect could be given to it under the Uniform Civil Procedure Rules . An offer that costs be paid out of an estate is in fundamentally different terms to the offer contained in the present case.

[9] A case which more directly considered the question is Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak & Ors [2006] NSWSC. In that case McDougall J considered whether an offer of compromise was an offer within the Uniform Civil Procedure Rules when stated in the following terms:

1. Pursuant to Pt 20 r 20.26 of the Uniform Civil Procedure Rules 2005, the defendants offer to the plaintiff the sum of $10,000 plus costs as agreed or assessed, in full satisfaction of any claim the plaintiff may have against the defendants.

2. This offer is made without prejudice and in accordance with Pt 20 r 20.26 of the Uniform Civil Procedure Rules 2005.

[10] In Mid-City the plaintiff argued that the reference to costs in para 1 of the offer introduced ambiguity because it was not clear whether the costs referred to were up until the date of the offer (in accordance with r 42.13A(2)) or up until the date of acceptance (in accordance with the general law). It was argued that the ambiguity took the offer outside the rules. His Honour dealt with the question of whether such an offer was "exclusive of costs" in the course of his reasons. At paras 24 to 27 his Honour said:

24 The plaintiff submitted that the reference to costs in para 1 of the offer introduced ambiguity, because it was not clear whether the costs referred to were up until the date of the offer (in accordance with r 42.13A(2)) or up until the date of acceptance (in accordance with the general law). Thus, it was submitted, the introduction of an element of ambiguity took the offer outside the rules.

25 I think that there are two answers to this submission, each of which is fatal. The first is that the question of application of the rules turns on whether the offer is one "exclusive of costs". If the offer is "exclusive of costs" then it may be an offer under the rules, because it would then comply with the requirements of r 20.26(2). Even if the reference to costs introduced an element of ambiguity as to the extent of those costs, this would not detract from the position that the offer was intended to be, as in my view it is, one exclusive of costs. The only debate would be as to the extent of costs recoverable.

26 The second answer is that, in any event, the purported ambiguity may be resolved by a process of construction. In circumstances where the offer asserts twice that it is made pursuant to r 20.26, the proper construction of the reference to costs (in the absence of some specified basis on which the costs were to be paid) is that it means costs in accordance with the rules. In other words, I think, as a matter of construction, the reference to "plus costs as agreed or assessed" should be construed as a reference to such costs in accordance with the provisions of r 42.13A(2). "

[11] The effect of the his Honour's reasons is that an offer for a specified amount "plus costs agreed or assessed" is an offer exclusive of costs within the meaning of r 20.26(2). It is exclusive of costs notwithstanding that by the combination of rules 20.26 and 42.13A it is unnecessary, when making an offer of a specified amount, to specify as part of the offer that the costs are to be agreed or assessed since this simply mirrors the rules.

[12] An offer of compromise involving costs will not necessarily be of no effect by virtue of r 20.26(12), because the costs will not necessarily be inconsistent with the plaintiff's entitlement to an order for costs: Dean v Stockland Property Management Pty Ltd & Anor (No 2) [2010] NSWCA 141 at para 26.

[13] In the present case the offer of compromise was exclusive of costs within the meaning of r 20.26(2). First, the offer was expressly stated to be pursuant to r 20.26(2) ("an offer must be exclusive of costs"). Secondly, para 2 contained an offer as to costs which did no more than reflect the costs entitlement under the rules."

1. Johnstone DCJ took the same approach as Bozic SC DCJ in Stevanovic v Mcindoe (Costs) [2011] NSWDC 43 at [9]-[12] (" Stevanovic "), where his Honour found that an offer of compromise for a sum "plus costs on a full and final basis" (at [10]) was a valid offer which complied with Part 20 r 20.26 UCPR for the following reasons:

" [9] Written submissions were made on behalf of the plaintiff, in which the application was opposed on two bases: firstly, the defendant's offer was not a proper offer of compromise within the meaning of r 20.26; and secondly, in the alternative, there are exceptional circumstances for not making the order sought.

[10] In support of the first submission, the plaintiff pointed to the wording of the offer of compromise and contended that it was not an offer made " exclusive of costs " as required by r 20.26. The offer, which was expressed to be " plus costs on a full and final basis", did not detail how costs would be determined and on what basis costs might be further dealt with. It did not advert in the usual sense to the practice that costs could be later agreed or assessed. The offer made was inclusive of an additional amount for costs but did not specify either that amount or how that amount would be determined or calculated.

[11] In my view, the offer made was self - evidently exclusive of costs. The rules do not require that the offer detail how the costs were to be determined and on what basis. Those were matters that the plaintiff, properly advised by competent lawyers, would be aware of, having regard to the relevant principles and the relevant rules, such as r 42.2.

[12] In my view the offer of compromise complied with r 20.26 and was a valid offer."

1. Johnstone DCJ does not refer to Dean or to the decision of Bozic SC DCJ. Bozic SC DCJ's earlier decision was, however, not only published on CaseLaw but included in the District Court Reports. Stevanovic therefore tends to confirm that the consistent approach taken in the District Court has been that offers of compromise "plus costs" are valid offers (see also Edwards v Devine (No 2) [2011] NSWDC 3).

1. This is, however, not the approach taken by Barrett J in Tuheta Pty Ltd v Ehrenfeld [2010] NSWSC 799 (16 July 2010), in relation to an offer of compromise for a sum of money "plus costs until today as agreed or assessed". In Tuheta Pty Ltd v Ehrenfeld , Barrett J at [15]-[19] noted:

" [15] The plaintiff also relies on an offer of compromise purportedly made under the rules of court and dated 13 July 2010, that was expressed to be open until 4 pm the next day, 14 July. The terms of the offer appear in its paras 1-4:

1. by the payment to you (the Defendant) of the sum of $183,000.00 plus costs until today as agreed or assessed;

2. judgment in these proceedings be entered for the Plaintiff;

3. the balance of the amount claimed by you (in the Statutory Demand which is the subject of these proceedings) in the sum of $240,000.00 remain in dispute and the dispute be determined by the Court in proceedings number 2010/155871;

4. this offer of compromise remains open for acceptance until 4.00 pm on 14 July 2010.

[16] There are then two concluding paragraphs:

This offer is made in accordance with the Uniform Civil Procedure Rules 2005 ("the Rules").

If for any reason this offer is not validly made under the Rules then the same offer is made without prejudice save as to costs (in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333; [1976] Fam 93) and this document may be tendered to the Court on the question of costs of the proceedings.

[17] The defendant says that this was not an offer of compromise under r 20.26 of the Uniform Civil Procedure Rules 2005 because it was not, as required by r 20.26.2, "exclusive of costs". Mr O'Brien referred in this respect to the recent decision of the Court of Appeal in Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141.

[18] I accept that the offer to settle by payment of $183,000 "plus costs until today as agreed or assessed" was not an offer "exclusive of costs" and that the offer of 13 July 2010 therefore did not have effect as an offer of compromise under r 20.26.

[19] As the concluding paragraph of the offer document made clear, however, the offer was intended to be a Calderbank offer if for any reason it was not validly made under the rules. Such a fallback provision clearly stated so as to convey the offeror's alternative position will be effective. It was so held in Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194, a case decision approved in the Dean case, to which I have referred."

1. Practitioners seeking guidance from decisions on what words should be used would observe that there appears to be a conflict of authority as to how Dean should be interpreted. Judges confronted with the problem have on occasion taken an approach similar to that of White J in Wako Kwikform v Jabbour [2011] NSWSC 1328 at [56], namely to note the problem but to treat the offer as a "Calderbank" ( Calderbank v Calderbank [1975] 3 All ER 333 ) offer, notwithstanding the warnings of the Court of Appeal about such an approach ( Dean at [19]). I note that conformably with Dean at [19], the defendants in these proceedings do not ask me to treat their offers as Calderbank offers. If such a submission had been made, as Mr Quinlivan noted in oral submission, it would have had to be rejected conformably with Dean at [19].

1. The next case, chronologically speaking, to consider Dean is a decision in another court, namely the Land and Environment Court: Taylor v Port Macquarie-Hastings Council [2010] NSWLEC 153 (13 August 2010). In considering whether to make indemnity costs orders following an offer "plus costs", Biscoe J at [31]-[34] reasoned as follows:

" [31] An offer of compromise purporting to be pursuant to the rules which is expressed to be for $x "plus costs" is an offer made pursuant to the rules because it merely makes plain that which was in any event the fact under UCPR 42.13A: Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak [2006] NSWSC 684; Smart Distribution Services Pty Ltd v General Wholesale Ltd (No 3) [2010] NSWDC 108.

[32] An offer of compromise for a specified amount "inclusive of costs" cannot be given effect to under the rules of court because it is impossible to determine whether or not the result of the proceedings is more or less favourable than the offer: Associated Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349. In that case Giles J held that a defendant's offer of compromise of a money sum inclusive of costs was ineffective under the SCR because (a) it conflicted with an SCR provision that upon acceptance the plaintiff was entitled to tax its costs and (b) it purported to negative or limit the operation of an SCR provision that upon acceptance the plaintiff was entitled to costs on the ordinary basis. Those SCR provisions were similar to the later SCR 52A.22(1) and (2). UCPR 20.26(2) ("an offer must be exclusive of costs") reflects the law as stated in Associated Confectionary : Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194; Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 at [28]. Those cases (see Dean at [23]) recognised that the governing reasoning is inconsistency between an offer of compromise and the provisions of the rules with respect to costs.

[33] In Trustee for the Salvation Army the Court of Appeal held that an offer of compromise which included a term that the offeror's costs be paid "out of the estate of the deceased on the indemnity basis" was inclusive of the costs of the proceedings and accordingly no effect could be given to it under the UCPR: at [10]-[25]. The court of Appeal did not say whether this costs term offended the rules because of its requirement that costs be paid out of the estate or whether it also offended the rules because it required the costs to be paid on the indemnity basis. If the latter, then the decision is in point.

[34] SCR 52A.22(1) provides that upon acceptance of an offer of compromise under the rules "the defendant shall, unless the court otherwise orders, pay the costs in respect of the claim by the plaintiff against the defendant up to and including the day the offer was accepted". That means costs on the ordinary basis (formerly called the party and party basis). The applicants' 2005 offer of compromise conflicts with that rule because it required the respondent to pay the applicants' costs on the indemnity basis. The governing reasoning in this area is inconsistency between an offer and the provisions of the rules relating to costs. That term of the offer may be regarded as purporting to negative or limit the operation of SCR 52A.22(1) within the meaning of SCR 52A.22(2). Accordingly, the 2005 offer of compromise in my opinion was ineffective as an offer of compromise under the SCR."

1. The next case in chronological order is the careful and thoughtful review of the law by Hoeben J in Pritchard v Trius Constructions Pty Ltd (No 2) [2011] NSWSC 1114 (19 September 2011), which took a different view to that of Barrett J of the same court:

"[27] Oceanic submitted that the document did not comply with Part 20 Rule 20.26 UCPR in that it was not an offer "exclusive of costs". Oceanic also submitted that in its form the document was obscure and did not make clear exactly what offer was being made.

...

[30] I have concluded that the offer is not so obscure as to be ineffective. As I read the document, the offer was to settle all of the claims by Oceanic for $85,000. In relation to costs, Trius proposed that it pay the costs incurred by Oceanic in pursuing its contribution claim but would pay nothing towards the costs of Oceanic's claim for breach of contract.

[31] The rationale behind Part 20 Rule 20.26(2) was set out in Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker & Anor (No 2) [2007] NSWCA 194 at [22] (Ipp JA with whom Mason P and McColl JA agreed):

"22 Part 20 r 20.26(2) reflects the law as stated by Giles J (as his Honour then was) in Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349. In that case, the plaintiff offered to compromise the proceedings by paying the defendant $135,000 "inclusive of costs". Giles J, in adopting the approach of Rogers CJ Comm D in Thiess Contractors Pty Ltd v SCI Operations Pty Ltd (unreported, Supreme Court of New South Wales, 21 September 1990), said (at 350 to 351):

"Part 52, r 17(1), provides that on the acceptance of an offer of compromise, the plaintiff may unless the court otherwise orders tax his costs in respect of the claim against the defendant up to and including the day the offer was accepted. It goes on to provide that if the costs are not paid within four days after the signing of a certificate of taxation the plaintiff may enter judgment against the defendant for the taxed costs. Those words are apt to bring about the result that if the plaintiff had accepted the defendant's offer by the offer of compromise of 29 November 1990 then unless the court otherwise ordered the plaintiff would be entitled to tax its costs. There is immediately a conflict with the fact that the offer was made for a sum inclusive of costs.

Part 52, r 17(2) provides:

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

If this subrule be given the effect which its words seem to require the difficulty would be resolved by treating the making of the offer as an offer inclusive of costs as of no effect, and it should be noted of no effect not only for the purpose of Pt 52, r 17(1), but for any purpose under Pt 52, r 17."

Giles J did not go on to consider whether the offer so made took effect as a Calderbank offer."

...

24 Applying the reasoning in Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd by analogy to Pt 20 r 20.26(2), no effect, in accordance with the Uniform Civil Procedure Rules , can be given to an offer of compromise expressed to be inclusive of the costs of the proceedings. The fact that an offer does not comply with Pt 20 r 20.26(2) does not render it invalid; it merely has no effect under the Uniform Civil Procedure Rules ."

[32] The reasoning in Becker is equally applicable to an offer which was not inclusive of costs, but specified an amount of costs. This was the effect of the decisions in Penrith Rugby League Club Ltd t/as Cardiff Panthers v Elliot (No 2) [2009] NSWCA 356 and Tarabay v Fifty Property Investments Pty Ltd [2009] NSWSC 951.

[33] In Dean v Stockland Property Management Pty Ltd & Anor (No 2) [2010] NSWCA 141 the Court (Giles JA; Handley AJA and Whealy J) set out at [21] - [29] the alternative approaches to the interpretation of the words "exclusive of costs" as used in Part 20 Rule 20.26(2). The competing approaches were summarised in the following parts of that judgment:

"24 On that argument, the requirement that the offer of compromise be exclusive of costs suggests that the costs are ancillary to a substantive offer from the rationale perceived in Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd , the substantive offer must be one involving the payment of a money sum. The exception might support the argument. And a party in the position of the appellant, and others in a similar position such as a plaintiff claiming relief not involving payment of a money sum, should not be excluded from ability to make an offer of compromise under the UCPR in which the element of compromise is costs.

25 However, there are also arguments for the meaning that an offer of compromise cannot involve costs at all.

26 The governing reasoning is inconsistency between an offer of compromise and the provisions of the rules with respect to costs. An offer of compromise involving costs will not necessarily be of no effect by force of r 20.26(12), because the costs will not necessarily be inconsistent with a plaintiff's (or defendant's) entitlement to an order for costs. But even in cases not involving payment of a money sum, such as the present case, there will be the inconsistency. And the language of the rule does not confine exclusivity to only some kinds of offers of compromise. The phrase "exclusive of" means "excluding, not comprising of"; "that excludes"; or "so as to exclude" ( Colonial Mutual Life Assurance Society Ltd v Australian and Overseas Telecommunications Corporation Ltd (1993) ANZ Conv R 347). On a natural reading, the requirement that an offer of compromise be exclusive of costs means that it may not involve costs at all."

[34] If the interpretation in [26] of Dean is correct, then clearly the offer did not comply with Pt 20 r 20.26(2) UCPR. In that regard, it should be noted that in Frisbo Holdings Pty Ltd v Austin Australia Pty Ltd (No 2) [2010] NSWSC 298 Hislop J held that a defendant's offer of a verdict and judgment for the defendant with the plaintiff to pay 50 percent of its costs offended the rule.

[35] As the Court recognized in Dean , such an interpretation of Pt 20 r 20.26(2) "may have a broader operation than either inconsistency between an offer of compromise and the provisions of the rules with respect to costs, or the rationale to which we have referred, would justify". In the absence of full argument on the point, the Court in Dean declined to decide the issue. That appears to be the present state of the law. The facts of this case, of course, squarely raise the issue.

[36] In the absence of further guidance from the Court of Appeal, I am reluctant to impose such a significant restriction on the interpretation of Pt 20 r 20.26(2). It would, in my opinion, significantly reduce the effectiveness of the rule which is designed to facilitate settlements.

[37] In this case there was no inconsistency between the costs assessment rules and the offer to pay part of Oceanic's costs. There was nothing to stop Oceanic in due course having its costs of the cross-claim assessed. The only restriction was that the costs so assessed would be restricted to those associated with the contribution claim. Such an approach is consistent with the rationale behind the rule as explained in Becker .

[38] Accordingly I have concluded that the document does operate as an offer of compromise in accordance with Pt 20 r 20.26 UCPR. It follows that the offer not having been accepted by Oceanic and Oceanic not having achieved a result which was better than the offer, Oceanic should pay the costs of Trius on an indemnity basis from 10 May 2011."

Cases not referring to Dean

1. In addition, in a series of decision throughout 2010 and 2011, the New South Wales Court of Appeal has heard argument about indemnity costs in relation to offers which clearly, in contravention of Part 20 r 20.26, referred to costs by using words such as "plus costs", "exclusive of costs", or specified the costs to be the subject of the offer of compromise: see the terms of the offers of compromise in Rosebanner Pty Ltd v EnergyAustralia (No 2) [2011] NSWCA 150 at [4], Insurance Australia Ltd t/as NRMA Insurance v Checchia [2011] NSWCA 101 at [191]-[192], Channel Seven Sydney Pty Ltd v Mahommed (No 2) (2011) 278 ALR 129, [2011] NSWCA 6 at [50], Pacanowski v Simon Wakerman & Associates (No 2) [2010] NSWCA 40 at [3]-[4], Separovich v Ferrao (No 2) [2011] NSWCA 346 at [30] and Nominal Defendant v Hawkins [2011] NSWCA 93 at [84].

1. Similarly, in Supreme Court decisions such as Ying v Song [2011] NSWSC 618 at [19] (where the offer of compromise sought an order that the plaintiff pay "a percentage of the defendant's costs") and Tasevska v Tasevska [2011] NSWSC 411 at [7] ("$50,000 plus costs as agreed or assessed") entitlement to indemnity costs was determined without reference to Dean or to any invalidity of offers of compromise containing invalidating provisions such as "plus costs", "percentage of costs" or other offers referring to costs.

1. As noted above, in the District Court, Johnstone DCJ in Stevanovic, supra, rejected a submission that an offer of compromise "plus costs on a full and final basis" was invalid, without referring to Dean.

1. This brings me to a consideration of the recent decision of Old v McInnes [2011] NSWCA 410, handed down by the Court of Appeal on 22 December 2011, after the costs argument in these proceedings had been adjourned. It is the sole decision referred to in the submissions of the defendants, who rely upon the dissenting judgment of Beazley JA.

The decision of Old v McInnes [2011] NSWCA 410

1. In Old v McInnes [2011] NSWCA 410 (22 December 2011), Meagher JA, referring to Dean , with Giles JA concurring, said the following:

" [105] Mr McInnes relies upon the Offers of Compromise as offers in accordance with UCPR r 20.26 and alternatively as informal offers relevant to the exercise of the discretion as to costs: see Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) at [7], [27]; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [7]-[8]. UCPR r 20.6(2) provides:

(2)

(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.

Neither of the offers made on behalf of Mr McInnes was "exclusive" of costs or within the exception in r 20.6(2). Each provided that Mr McInnes should pay Mr Old's costs "as agreed or assessed". For that reason, neither was an offer in fact "made under rule 20.26" for the purposes of UCPR r 42.13 and accordingly each was of no effect for the purposes of the Offer of Compromise regime under the UCPR: Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) at [22]-[24]; Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 at [16]-[29].

[106] Whether either offer could operate as a Calderbank offer depends upon the intention of the offeror, Mr McInnes, as revealed by the terms of the offer: Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) at [27]; Dean v Stockland Property Management Pty Ltd (No 2) at [31]. Each offer was stated as being made pursuant to the UCPR. Neither contained any statement that it was to operate as a Calderbank offer: cf Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) at [11]. In the circumstances, neither could be relied upon on that basis.

[107] Finally, and faintly, Mr Old submitted that the court could exercise the power under s 14 of the Civil Procedure Act 2005 to dispense with the requirement in r 20.26(2). It is not appropriate to exercise that power in the circumstances of this case. It is not in the interests of justice that the power be exercised after the event and where the parties were entitled to proceed, and no doubt have proceeded, upon the basis that their rights and obligations with respect to the offers were defined by the express provisions of the UCPR. As is stated in Dean v Stockland Property Management Pty Ltd (No 2) at [34]:

A party receiving an offer of compromise apparently made under the rules should be entitled to decide whether or not to accept it according to the offer of compromise regime in the rules, including deciding whether or not it is an effective offer of compromise.

If the position was otherwise, the whole purpose of having such a regime would be defeated.

[108] It follows that the order that there be no order as to costs in the premium proceedings should be set aside and that an order should be made that the appellant pay the first respondent's costs of those proceedings. "

1. The plaintiff relies upon this decision as confirming the correctness of Dean. The passage relied upon by the defendants comes from the dissenting judgment of Beazley JA:

"[6] Litigation is not a process for the faint hearted. It is a costly and time-consuming process and usually productive of stress, all of which, of their nature, have adverse effects upon those involved in the process. In some, if not most, cases that come before the courts, it is a necessary evil. However, the court processes are designed to encourage parties to engage in the litigation efficiently and with an eye to ensuring costs bear an appropriate relationship with the matter in dispute. Thus, the statutory injunction in the Civil Procedure Act 2005, s 56, which is binding on the court, the legal practitioners and the parties alike, looks to the "just, quick and cheap" resolution of disputes.

...

[18] The offer did not conform to UCPR, r 20.26, because it included an offer that Mr McInnes pay Mr Old's costs. However, the practical effect of Mr McInnes' offer of compromise was that, had it been accepted according to its terms, Mr Old would have received a sum of money together with his costs up until acceptance of the offer. The almost certain result of Mr McInnes's offer of compromise, had it conformed with the rules, would have been that by operation of the UCPR, Mr Old would have received a sum of money and his costs up until the acceptance of the offer.

[19] I say "almost certain result" had the rules been complied with because UCPR, r 42.13A is subject to the court ordering otherwise, as I have indicated above. A court might make a different order, in favour of either party. However, there were no circumstances apparent from the facts in this case as they emerged in the proceedings that indicated that the court would have made some other order.

[20] Mr McInnes submitted that as the offer did not strictly comply with the UCPR, the Offer should nonetheless be treated as a Calderbank offer. Meagher JA has concluded that that submission should not be acceded to, because, as I understand his Honour's reasons, it did not contain a statement that if the offer failed as an offer of compromise under the UCPR, the offer was to operate as a Calderbank offer: cf Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194.

[21] I have a different view of the matter from his Honour. "

1. Counsel for the plaintiff told me from the bar table (and this appears to be agreed by counsel for the defendants) that, until the Court of Appeal handed down its decision in Dean , it was standard practice for parties making offers of compromise to include the words "plus costs" or "plus costs as agreed or assessed", in order to make it clear that the amount that was offered was not an amount which referred to costs. Mr Torrington submitted that otherwise there was a risk of ambiguity, in that unless it was made clear, that this sum did not include costs, it might be thought that the sum was offering to settle the whole of the proceedings, including costs, whatever the provisions of the UCPR.

1. In relying upon the dissenting judgment of Beazley JA, Mr Torrington submits that I should give effect to the provisions of s 56 Civil Procedure Act 2005 (NSW) which provides as follows:

" 56 Overriding purpose

(1) The overriding purpose of this Act and of rules of court, in their application to a civil dispute or civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings.

(2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule.

(3) A party to civil proceedings is under a duty to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court.

(3A) A party to a civil dispute or civil proceedings is under a duty to take reasonable steps to resolve or narrow the issues in dispute in accordance with the provisions of Part 2A (if any) that are applicable to the dispute or proceedings in a way that is consistent with the overriding purpose.

(4) Each of the following persons must not, by their conduct, cause a party to a civil dispute or civil proceedings to be put in breach of a duty identified in subsection (3) or (3A):

(a) any solicitor or barrister representing the party in the dispute or proceedings,

(b) any person with a relevant interest in the proceedings commenced by the party.

(5) The court may take into account any failure to comply with subsection (3), (3A) or (4) in exercising a discretion with respect to costs.

(6) For the purposes of this section, a person has a "relevant interest" in civil proceedings if the person:

(a) provides financial assistance or other assistance to any party to the proceedings, and

(b) exercises any direct or indirect control, or any influence, over the conduct of the proceedings or the conduct of a party in respect of the proceedings.

(7) In this section:

"party" to a civil dispute means a person who is involved in the dispute."

1. Although the legal representatives for the defendants have not referred to any other cases, and did not seek to take the argument further this morning, I apprehend that I have been asked to adopt an approach consistent with that taken by Bozic SC DCJ in Smart Distribution Services Pty Ltd v General Wholesale Pty Ltd (No 3) and by Hoeben J in Pritchard v Trius Constructions Pty Ltd (No 2) . However, Hoeben J notes at [36] in Pritchard v Trius Constructions Pty Ltd (No 2) that in the absence of further guidance from the Court of Appeal, his Honour was "reluctant to impose such a significant restriction on the interpretation of Pt 20 r 20.26(2)" as this would "significantly reduce the effectiveness of the rule which is designed to facilitate settlements." The Court of Appeal's decision in Old v McInnes now provides this guidance and the careful reasoning of Hoeben J, although attractive, should not be followed.

1. Similarly, the cogent and well-reasoned arguments of Beazley JA are in dissent, and it would not be appropriate for me to follow it in preference to the majority judgment of the Court of Appeal.

1. Accordingly, consistent with the Court of Appeal's decisions in Dean and (by majority) in Old v McInnes, and consistent with its application by Barrett J in Tuheta Pty Ltd v Ehrenfeld [2010] NSWSC 799 (where "plus costs" was used) I dismiss the application by the defendants for indemnity costs based on their offers of compromise.

Application by the defendants for no costs to be payable to the plaintiff pursuant to UCPR Part 42 r 42.35

1. The amount of damages awarded is $700. This represented two weeks leave of absence from the plaintiff's part time employment and some medical costs. The defendants submit that these proceedings should have been brought in the Local Court and that due to the plaintiff's failure to do so, no costs should be awarded.

1. UCPR Part 42 r 42.35 provides:

" 42.35 Costs order not to be made in proceedings in District Court unless Court satisfied proceedings in appropriate court

(1) This rule applies if:

(a) in proceedings in the District Court, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $40,000, and

(b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants.

(2) An order for costs may be made, but will not ordinarily be made, unless the District Court is satisfied the commencement and continuation of the proceedings in the District Court, rather than the Local Court, was warranted."

1. The judgment sum in these proceedings is well below the threshold set out by this provision.

1. However, the plaintiff's medical evidence as set out in Exhibit A was evidence which, if accepted, indicated significant disabilities giving rise to a claim above the jurisdictional limit. In addition, the defendants elected not to serve any orthopaedic reports, including the report of the orthopaedic surgeon retained by the defendants to examine the plaintiff. While the plaintiff was vigorously cross-examined about the extent of her injuries, it was not put to her that she had brought a false claim, or that her exaggerations of her injuries were brought to mislead the court.

1. Counsel for the defendants does not dispute this, but submits that the surveillance film evidence shows that the plaintiff enjoyed a much better state of health than that revealed by the medical evidence. However, that surveillance evidence was only seen by the plaintiff shortly before the trial, by which time it was unrealistic to expect that these proceedings, having been brought in this court, should be transferred to the Local Court.

1. Neither counsel referred me to any judicial consideration of this Rule. In Brakikki Pty Limited v Gofur (No 2) [2011] NSWDC 199 at [24] - [25] a judge of this court dealt with such an application and dismissed it, in brief terms, for reasons similar to my reasons for doing so in these proceedings.

1. These were proceedings in which liability was not admitted until some time after the pleadings were filed, and where the evidence on quantum, if accepted, indicated a claim over the threshold. Where the facts of the accident are disputed, and medical evidence indicates a likelihood that the plaintiff's injuries could exceed the threshold, it is appropriate for these proceedings to have been commenced in the District Court. The combination of the failure of the defendants to serve medical evidence, and to serve surveillance evidence on the eve of the trial are also contributing factors.

1. Accordingly, I reject the defendants' submissions that the plaintiff should be deprived of costs by reason of the sum awarded falling below the threshold set out in UCPR Part 42 r 42.35.

Costs of this application

1. This brings me to the issue of the costs of this application. It was necessary for me to adjourn the hearing of this application twice, first because the defendants were not ready (a special costs order was made in relation to that hearing date) and, secondly, because neither counsel were able to put before me any of the decisions subsequent to Dean . It was necessary for my associate to provide counsel with a list of the relevant authorities and for the matter to be adjourned a second time. The defendants have not been ready on two occasions. The costs of this application should be borne by the defendants.

Concluding remarks

1. The essential role played by offers of compromise in the UCPR to ensure that litigation is just, cheap and quick was foreseen by Hayne JA in Grbavac v Hart [1997] 1 VR 154 at 164 - 5 as follows:

"There can be no doubt that it is in the public interest that litigation be compromised rather than fought out. Equally, there is no doubt that the objectives of rules such as those found in O. 26 are, as the Court of Appeal in New South Wales said, of broadly similar but not identical rules in that State:

"(1) To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its "bottom line" will be revealed to the court;

(2) To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and

(3) To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances that party should ordinarily bear the costs of litigation." ( Maitland Hospital v Fisher (No. 2) (1992) 27 N.S.W.L.R. 721 at 724.)

Not only do such objects underlie rules such as O. 26, they are objects to which the courts must pay appropriate regard in exercising the discretion about who should bear the costs of litigation. Especially is that so in times such as these where demands upon the system of justice have increased at a greater rate than any increase of the resources made available to it: cf. State Pollution Control Comm. v Australian Iron & Steel Pty. Ltd. (1992) 29 N.S.W.L.R. 487 at 493-4 per Gleeson C.J."

1. While this judgment was in dissent, it has been referred to favourably by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at [21]. These statements of principle are just as compelling now as they were then.

1. Costs issues are also considered important by members of the legal profession. Both counsel said, from the bar table, that there was some confusion amongst members of the legal profession about the correct wording necessary for an offer of compromise to be valid. In addition, there may be loopholes in the Rules in relation to claims where the amount awarded is likely to be nominal. A plaintiff who makes an offer of compromise for, say, $1,000 is entitled to full costs if that plaintiff recovers, say, $5,000, unless there are very unusual circumstances: Morgan v Johnson (1998) 44 NSWLR 578 at pp 581 - 2; Jones v Sutton (No 2) [2005] NSWCA 203 (where a plaintiff did make an offer of $1,000, lost at first instance on a defence of triviality, and on appeal was awarded $5,000); South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [83]; Macquarie Radio Network Pty Ltd v Arthur Dent (No 2) [2007] NSWCA 33 at [15].

1. In addition, UCPR Part 42 r 42.35, which was brought in to prevent small claims being brought in this court, may give rise to inconsistency concerning costs in settlement offers, as parties making offers of compromise may not refer to costs, which gives such parties the windfall of full costs if an offer of compromise is made or accepted. The terms of this Rule, which appear to prevent any order being made until the court has heard argument and made a finding, may in fact add to the costs burden, although there are many cases, such as the present, where no request is made to the trial judge during the trial to make orders other than that costs follow the event, or where there is real doubt as to whether the claim will or will not fall below the jurisdictional limit.

1. Perhaps consideration could be given, in consultation with members of the profession, to whether the costs rules, as currently drafted, conform with the general practice and custom of the lawyers who endeavour to make use of them.

Orders

(1)   Defendants' application for indemnity costs dismissed.

(2) Defendants' application pursuant to UCPR Part 42 r 42.35 (for no orders as to costs) dismissed.

(3)   Defendants pay the costs of this application.

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