Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Della Franca v Lorenzato; Burwood Council v Lorenzato (No 2) [2022] NSWCA 53 Hearing dates: On the papers Date of orders: 7 April 2022 Decision date: 07 April 2022 Before: Basten JA at [1]; Macfarlan JA at [2]; Brereton JA at [28]. Decision: In the Burwood Council appeal (1) Set aside order (4) made on 16 December 2021 and in lieu thereof: (a) Order Ms Lorenzato to pay Burwood Council's costs of the appeal, including of the Council's notice of motion filed on 22 December 2021; (b) Pursuant to UCPR r 42.15, order that the Council pay Ms Lorenzato's costs on the ordinary basis of the proceedings at first instance up to 29 May 2020, and that Ms Lorenzato pay the Council's costs on the indemnity basis of the proceedings at first instance thereafter. In the Della Franca appeal (2) Dismiss Mr Della Franca's notice of motion filed on 23 December 2021, with costs. Catchwords: CIVIL PROCEDURE — Court of Appeal — variation of costs order — whether non-acceptance at first instance of an Offer of Compromise and Calderbank offers warranted departure from ordinary cost consequences — whether the Court should "order otherwise" for the purposes of UCPR r 42.15(2) Legislation Cited: Environmental Planning and Assessment Act 1979 (NSW), s 149 Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 42.13, 42.13A(2), 42.13A(3), 42.15, 42.15A Cases Cited: Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 583 Brymount Pty Ltd v Cummins (No 2) [2005] NSWCA 69 Calderbank v Calderbank [1975] 3 All ER 333 Curtis v Harden Shire Council (No 2) [2015] NSWCA 45 Donald Campbell & Co Ltd v Pollak [1927] AC 732 Elite Protection Personnel Pty Ltd v Salmon [2007] NSWCA 322 Herbert (bht Meehan) v Tamworth City Council (No 4) (2004) 60 NSWLR 476; [2004] NSWSC 394 Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 Houatchnathara v Bednarczyk [1996] NSWSC 486 Johnston v Johnston [2016] NSWCA 52 Jones v Bradley (No 2) [2003] NSWCA 258 Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 Leichhardt Municipal Council v Green [2004] NSWCA 341 Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 Morgan v Johnson (1998) 44 NSWLR 578; [1998] NSWSC 367 Penrith Rugby League Club Ltd trading as Cardiff Panthers v Elliot (No 2) [2009] NSWCA 356 Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97; 114 ALR 568 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 South Eastern Area Health Service v King [2006] NSWCA 2 Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 Valuer-General (NSW) v Pyntoe Pty Ltd [2013] NSWCA 346 Walker v Harwood [2017] NSWCA 228 Whitehouse Properties Pty Ltd v Bond Brewing (NSW) Ltd (1992) 28 NSWLR 17 Category: Costs Parties: Matter 2020/339522: Michael Lewis Della Franca (Appellant) Elisa Lorenzato (Respondent) Matter 2020/351426: Burwood Council (Appellant) Elisa Lorenzato (First Respondent) Michael Lewis Della Franca (Second Respondent) Representation: Matter 2020/339522: Counsel: S White SC / J A Trebeck / N J Condylis (Appellant) J E Sexton SC / R Carey (Respondent) Solicitors: Scarfone & Co (Appellant) Fraser Clancy (Respondent) Matter 2020/351426: Counsel: M L Wright SC / D Robertson (Appellant) J E Sexton SC / R Carey (First Respondent) S White SC / J A Trebeck / N J Condylis (Second Respondent) Solicitors: Matthews Folbigg (Appellant) Fraser Clancy Lawyers (First Respondent) Scarfone & Co (Second Respondent) File Number(s): 2020/339522; 2020/351426 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Common Law Citation: [2020] NSWSC 1659 Date of Decision: 23 November 2020 Before: Fagan J File Number(s): 2017/83223 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. BASTEN JA: I agree with the orders proposed by Brereton JA and with his reasons, and therefore with Macfarlan JA except in relation to the Council's application. 2. MACFARLAN JA: This Court's judgment of 16 December 2021 ([2021] NSWCA 321) addressed two appeals. 3. First, Burwood Council appealed against a judgment given in the Common Law Division against it in favour of Ms Lorenzato for $2,000,171.06, inclusive of interest. The judgment was based in part on findings that the Council had made negligent misstatements in a certificate it issued to Ms Lorenzato under s 149 of the Environmental Planning and Assessment Act 1979 (NSW). This Court made the following orders on the appeal: 1. Allow the appeal. 2. Set aside the orders made at first instance on 23 November 2020. 3. Judgment for Ms Lorenzato against Burwood Council in the sum of $83,846.44 to take effect from 23 November 2020. 4. Order Ms Lorenzato to pay Burwood Council's costs on appeal and 50% of the Council's costs at first instance. 1. The second appeal was brought by Mr Della Franca against a judgment for $1,916,324.62 against him in favour of Ms Lorenzato pursuant to the same Common Law Division judgment. This Court made the following orders on the appeal: 1. Reject the applications of Mr Della Franca to adduce further evidence on appeal. 2. Allow the appeal. 3. Set aside the orders made at first instance on 23 November 2020. 4. Judgment for Mr Della Franca on Ms Lorenzato's claim against him. 5. Order Ms Lorenzato to pay Mr Della Franca's costs at first instance and on appeal. 1. By notices of motion filed within 14 days of this Court's judgment, the appellants seek variations to the Court's costs orders in light of an Offer of Compromise (in the case of Burwood Council) and Calderbank offers (in the case of both appellants) which have now been put before the Court. THE BURWOOD COUNCIL APPEAL 1. Ms Lorenzato had two claims that she ultimately pressed against the Council at first instance. First, she claimed damages for nuisance in respect of which the primary judge awarded her $55,000 plus interest of $28,846.44. This part of the judgment was not challenged on appeal. Secondly, Ms Lorenzato claimed damages for negligent misstatement by the Council in the s 149 Certificate that it issued to her. The primary judge awarded her $1,219,000 together with interest of $697,324.62, in relation to this claim. That award was set aside by this Court on appeal. 2. In making a costs order in respect of the proceedings at first instance, this Court took into account Ms Lorenzato's success at first instance on the nuisance claim and the Council's success on appeal on the negligent misstatement claim, ordering the Council to pay 25% of Ms Lorenzato's overall costs at first instance with Ms Lorenzato to pay 75% of the Council's costs at first instance, resulting in an order on a net basis that she pay 50% of the Council's costs (see [2021] NSWCA 321 at [126]). 3. On 28 May 2020, well prior to the commencement of the hearing at first instance on 10 August 2020, the Council made to Ms Lorenzato a formal Offer of Compromise, pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), to settle the proceedings by the Council paying to Ms Lorenzato $150,000 in respect of the nuisance claim and $450,000 in respect of the negligent misstatement claim. Dismissal of "all of the other claims and relief sought" by Ms Lorenzato against the Council was a term of the offer. The offer was not accepted, nor was the Council's subsequent Calderbank offer of 3 August 2020 to settle the proceedings by the Council paying to Ms Lorenzato $500,000 inclusive of costs and interest. 4. As the outcome of the proceeding was less favourable to Ms Lorenzato, even though she obtained a judgment in her favour, prima facie Ms Lorenzato is entitled to have her costs of the proceedings at first instance paid on the ordinary basis up to 28 May 2020 and the Council is entitled to its costs incurred thereafter on an indemnity basis (see r 42.15 of the UCPR). That prima facie position is subject to the Court ordering otherwise. Ms Lorenzato seeks, on four bases as follows, that the Court so order in respect of costs incurred from 28 May 2020. 5. First, Ms Lorenzato contends that the Court should take that course because, so she alleges, the Council failed to comply with recommendations contained in the NSW Government's 2001 NSW Floodplain Management Manual and in its 2005 Floodplain Development Manual. The Council denies that there were relevant recommendations with which it did not comply but submits that in any event the Court's focus should be on the failed s 149 Certificate claim brought by Ms Lorenzato. 6. I accept that submission. Ms Lorenzato chose to base her complaint in the Common Law Division on the s 149 Certificate. The Council should not be deprived of its costs because of an alleged failure of the Council to comply not with a legal obligation, but simply with recommendations that were not made the basis of any claim against the Council (although they were referred to in the unsuccessful s 149 Certificate claim that Ms Lorenzato pursued). 7. Moreover, for this Court to embark on consideration of the terms and effect of the recommendations would effectively involve it in trying a hypothetical action between the parties that Ms Lorenzato could not, or at least chose not, to bring. As McHugh J said in a different but somewhat analogous context in Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624; [1997] HCA 6, "the court cannot try a hypothetical action between the parties". His Honour was speaking in that case of proceedings that had been settled without a determination of the case on its merits and with the question of costs unresolved. His Honour said that to "try a hypothetical action between the parties… would burden the parties with the costs of a litigated action which by settlement or by extra-curial action they had avoided". 8. Secondly, Ms Lorenzato submitted that the Court should "otherwise order" because "the conduct of [the Council] in failing to rectify the drainage caused the litigation". It is apparent from the Council's response to this submission, and Ms Lorenzato's reply, that the submission gives rise to significant disagreement between the parties over factual issues. The Court is not in a position to embark upon their determination for the first time on appeal and in my view should not attempt to do so in circumstances where it is apparent that Ms Lorenzato either does not allege that the Council's conduct of which she complains gave rise to any legal remedy or, if it arguably did, chose not to pursue it. In these circumstances, the matter Ms Lorenzato relies on is not a "reason connected with the case" in the sense referred to in Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 811-812 (Viscount Cave LC), Latoudis v Casey (1990) 170 CLR 534 at 557 (Dawson J) and 568-569 (McHugh J); [1990] HCA 59 and Valuer-General (NSW) v Pyntoe Pty Ltd [2013] NSWCA 346 at [18]. As I stated in Pyntoe at [18], with the concurrence of Gleeson JA at [37] and Tobias AJA at [38], "at least in general, the discretion to award costs ought not be exercised 'except for some reason connected with the case'". 9. Thirdly, Ms Lorenzato complains of certain aspects of the Council's conduct of the proceedings at first instance – principally a failure to make appropriate admissions on the nuisance claim and the making of "false allegations" in relation to Ms Lorenzato's grant of access to the property to facilitate investigation and repair. Even if made good, these allegations would not in my view justify ordering otherwise in respect of the Offer of Compromise. Nor would the fact relied on by Ms Lorenzato that the Council unsuccessfully alleged at first instance that Ms Lorenzato failed to mitigate her loss. 10. Fourthly, Ms Lorenzato contended that it was reasonable for her not to accept the Offer of Compromise because an element of it (as noted to in [8] above) was that: "All of the other claims and relief sought by the plaintiff [Ms Lorenzato] against the first defendant [the Council] in the SFASOC be dismissed." 1. The expression "other claims and relief" referred to a claim by Ms Lorenzato for declaratory relief that the Council did not own the subject drainage pipe or associated infrastructure installed in her property, and also to claims for injunctive and other relief, additional to damages, in respect of the nuisance claim. These claims were ultimately abandoned by Ms Lorenzato but were extant at the time of the Offer of Compromise (and the Calderbank offer). 2. A consequence of Ms Lorenzato accepting the Offer of Compromise would have been that Ms Lorenzato would have been entitled to her costs on the nuisance and s 149 Certificate claims assessed on the ordinary basis up to the time when the Offer was made, because the Offer provided for judgment to be entered in her favour on those claims. As to the "other claims and relief" that were to be "dismissed", there would, for the reasons given by Brereton JA in his judgment, have been some uncertainty as to the costs position. The outcome might well have been a costs order against Ms Lorenzato which required her to pay an uncertain, and possibly substantial, sum. 3. This matter is in my view sufficient to render Ms Lorenzato's non-acceptance of the offer reasonable and to warrant the Court ordering otherwise in respect of it, such that, notwithstanding the making of the Offer of Compromise and its non-acceptance, this Court's costs orders should be as they were made on 16 December 2021. 4. I turn then to the Calderbank offer. The Council accepted that it bore the onus of satisfying the Court that an order for indemnity costs should be made on the basis of the service and non-acceptance of the offer, referring to Elite Protection Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [96]-[99] and [133]-[141]. It submitted, correctly, that the question is whether, in all the circumstances, the failure to accept the offer warrants departure from the ordinary rules as to costs. The Council referred to relevant factors in this regard including the stage of the proceedings at which the offer was made, the time allowed for response, the extent of the compromise offered, the offeree's prospects of success, the clarity with which the offer is expressed and whether the offer foreshadowed an application for indemnity costs were the offeree to reject it. 5. I do not consider that the Council has discharged its onus. Even if costs are disregarded, the amount it offered was only in the order of 25% of the amount that the primary judge awarded to Ms Lorenzato. Moreover, although Ms Lorenzato's claim was ultimately rejected, it was in my view strongly arguable and the firm findings of the primary judge in Ms Lorenzato's favour provide support for this being the case. Further, the offer was inclusive of costs and, at the late stage at which it was made, Ms Lorenzato had undoubtedly incurred very significant costs. 6. In these circumstances, I do not consider that it was unreasonable for Ms Lorenzato not to accept the Council's offer. The offer and its non-acceptance by Ms Lorenzato do not therefore warrant any variation in the costs orders made by this Court. THE DELLA FRANCA APPEAL 1. Mr Della Franca seeks variation of this Court's order concerning costs at first instance to provide that Ms Lorenzato pay his costs on the ordinary basis up to and including 1 July 2020 and on the indemnity basis thereafter. His application is founded on an unaccepted Calderbank offer made by a letter dated 1 July 2020 in which Mr Della Franca offered to settle the proceedings upon the basis that he pay Ms Lorenzato $150,000 inclusive of costs. 2. As noted above (see [19]), the offeror, in this case Mr Della Franca, bears the onus of showing that the non-acceptance of a Calderbank offer should result in a departure from ordinary costs consequences. 3. Mr Della Franca did not in my view establish that it was unreasonable for Ms Lorenzato not to accept his offer and did not therefore discharge that onus. The factors of particular relevance in this regard are as follows. 4. First, the claim was in my view strongly arguable, as again evidenced by the firm findings of the primary judge in Ms Lorenzato's favour. Secondly, that the claim was one that was reasonably arguable was emphasised by the fact that it ultimately foundered on a point raised for the first time in oral argument on appeal. Thirdly, the amount of the offer was only a very small portion (less than 10%) of the amount subsequently awarded at first instance. 5. In these circumstances, the making and non-acceptance of the Calderbank offer does not warrant departure from the ordinary consequences as to costs which are reflected in this Court's orders of 16 December 2021. ORDERS 1. For the reasons given above, I propose the following orders. In the Burwood Council appeal 1. Pursuant to UCPR r 42.15(2), "order otherwise" and confirm the order made by this Court on 16 December 2021 concerning the costs of the proceedings at first instance. 2. Dismiss Burwood Council's notice of motion filed on 22 December 2021, with costs. In the Della Franca appeal 1. Dismiss Mr Della Franca's notice of motion filed on 23 December 2021, with costs. 1. BRERETON JA: On 16 December 2021, the Court allowed the appeals of Burwood Council and Mr Della Franca against judgments against them in favour of Ms Lorenzato. [1] In the Council's appeal, the Court ordered Ms Lorenzato to pay the Council's costs on appeal, and 50% of the Council's costs at first instance; this reflected that some of the costs at first instance were attributable to Ms Lorenzato's claim for damages for nuisance, in respect of which the judgment in her favour for $83,846.44 was not disturbed. In Mr Della Franca's appeal, the Court ordered Ms Lorenzato to pay Mr Della Franca's costs at first instance and on appeal. By the present motions, filed within 14 days after this Court's judgment, each appellant seeks a special costs order in respect of the proceedings at first instance, based on offers of settlement made during those proceedings which were more favourable to Ms Lorenzato than the ultimate outcome. No variation is sought of the costs orders in respect of the appeal proceedings. THE BURWOOD COUNCIL APPEAL 1. The Council made a formal offer, under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 20.26, on 28 May 2020, to compromise "all of the claims made against it by the plaintiff, Eliza Lorenzato, in the Second Further Amended Statement of Claim, upon the following terms": a. Judgment for the plaintiff against the first defendant in respect of the Nuisance Claim … in the sum of $150,000; b. Judgment for the plaintiff against the first defendant in respect of the Negligent Misstatement Claim … in the sum of $450,000; and c. All of the other claims and relief sought by the plaintiff against the first defendant … be dismissed. 1. The offer was expressed to be open until 26 June 2020. It was not accepted. 2. Subsequently, on 3 August 2020, the Council made an offer to Ms Lorenzato "Without prejudice save as to costs" to settle the proceedings by payment of $500,000 inclusive of costs and interests, with the proceedings to be dismissed with no order as to costs. This offer was expressed to be open until 5 August 2020, and to be made in accordance with the principles in Calderbank v Calderbank, [2] to be relied on with respect to costs, including indemnity costs. It too was not accepted. 3. The hearing at first instance commenced on 10 August 2020. As a result of this Court's judgment of 16 December 2021 allowing the Council's appeal, the outcome of the proceedings was that Ms Lorenzato recovered a judgment against Burwood Council for (only) $83,846.44 (on her nuisance claim), but was ordered to pay 50% of the Council's costs by reason that she failed on the predominant part of the issues at trial. 4. The Council invoked UCPR r 42.15A as prima facie entitling it to its costs of the proceedings at first instance on the ordinary basis up to 28 May 2020 and thereafter on the indemnity basis, subject to the Court ordering otherwise. However, in my opinion, it is UCPR r 42.15 – not r 42.15A – which is engaged, because the result was a judgment for the plaintiff, not a judgment for the defendant. The consequence is that, unless the Court otherwise orders, Ms Lorenzato is entitled to an order for costs against the Council on the ordinary basis up to the day after the offer was made (being 29 May 2020), and the Council is entitled to costs on the indemnity basis thereafter. The rule promotes the compromise of litigation by requiring an offeree to give proper consideration to an offer at the risk of the adverse consequences of rejecting it. [3] It reflects the principle that the party responsible for litigation should bear its costs: so long as a plaintiff has to prosecute a claim to obtain a judgment, it is entitled to costs; but once it is offered a sum which it does not ultimately better, the defendant has done all it reasonably can to avoid further litigation, the continuation of which is attributable to the plaintiff's pursuit of a better result to which it is not entitled; thus, the plaintiff ought to bear the defendant's costs from that point on, and on the indemnity basis. 5. The party seeking an "otherwise order" bears the burden of establishing a basis for depriving the offeror of its prima facie entitlement to costs. [4] Although it is not necessary to show that the circumstances are exceptional before attracting an "otherwise order", the prima facie position should not readily be departed from. [5] One reason for this is that too readily departing from the rule will undermine its purpose and effect; associated with this, if parties who make reasonable offers of compromise are not usually afforded the benefit of the rule, they will be disincentivised from using the procedure. 6. I respectfully agree with Macfarlan JA, whose reasons I have had the benefit of reading in draft, that the contentions on behalf of Ms Lorenzato that the Council caused or contributed to the litigation by not complying with recommendations contained in the NSW Government's 2001 NSW Floodplain Management Manual and in its 2005 Floodplain Development Manual to provide relevant information under Environmental Planning and Assessment Act 1979 (NSW), s 149(5), and/or by failing to rectify the known drainage problem, and that it increased the costs by various aspects of its conduct of the proceedings (including by failing to make appropriate admissions on the nuisance claim and making "false allegations" in relation to Ms Lorenzato's grant of access to the property to facilitate investigation and repair, and alleging that Ms Lorenzato failed to mitigate her loss), even if sustained, would not warrant an "otherwise order". 7. That leaves the contention that the offer of compromise sought capitulation in respect of the pipe and other claims which were to be dismissed, and that it was not unreasonable to reject the offer where acceptance would have left Ms Lorenzato with an uncertain exposure to costs in respect of those claims. 8. As set out above, the offer proposed judgments in favour of Ms Lorenzato totalling $600,000, and dismissal of the remainder of her claims. To describe that as an invitation to capitulate is entirely unrealistic. It involved a very substantial compromise indeed. 9. The offer made no provision in respect of costs. It did not provide, as it could have done for clarity, that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror. [6] 10. In those circumstances, UCPR r 42.13A provides as follows: 42.13A Where offer accepted and no provision for costs (1) This rule applies if the offer: (a) is accepted by the offeree, and (b) does not make provision for costs in respect of the claim. (2) If the offer proposed a judgment in favour of the plaintiff in respect of the claim, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made. (3) If the offer proposed a judgment in favour of the defendant in respect of the claim (including a dismissal of a summons or a statement of claim), the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made. 1. By r 42.13, r 42.13A applies to proceedings in respect of which an offer of compromise is made under r 20.26 with respect to "a plaintiff's claim". Under r 20.26, a party may make an offer to another "to compromise any claim in the proceedings, either in whole or in part" on specified terms, and the offer must identify "the claim or part of the claim to which it relates". It must not include an amount for costs nor be expressed to be inclusive of costs, though it may provide that the defendant will pay the plaintiff's costs as agreed or assessed. It therefore appears that an offer may be made in respect of divisible claims within proceedings. [7] 2. However, in this case, as set out above, the offer was to compromise "all of the claims made … in the Second Further Amended Statement of Claim". It could be accepted only in respect of the whole of the proceedings. If accepted, the result would have been a substantial judgment in favour of the plaintiff, albeit that the remainder of her claims would have been dismissed. It did not propose any judgment in favour of the defendant; nor did it propose dismissal of the statement of claim, but only dismissal of some of the claims in it. In those circumstances it is at least arguable that the proper application of r 42.13A would be to treat the offer as proposing (only) a judgment in favour of the plaintiff and engaging r 42.13A(2), and not engaging r 42.13A(3) at all. If that be correct, the plaintiff would have been entitled to her costs upon accepting the offer. 3. However, it is unnecessary to resolve that question because, if that view not be correct, and the offer enlivened both sub-r (2) and (3), then it was a "mixed offer", and the rule does not apply at all. In Johnston v Johnston, [8] Ward JA (as her Honour then was, with whom Leeming JA and Simpson JA agreed) said: [39] I consider that the better construction of r 42.13A is that where there is a "mixed offer" of the kind in the present case (i.e., an offer that proposes both judgment for the plaintiff and judgment for the defendant in respect of the plaintiff's claim), the rule does not apply. That is because the rule contemplates two mutually exclusive situations. One is therefore left with the general discretion as to costs (informed as it would be in the present case by the particular context of this being litigation in the probate list). [40] The consequence of that conclusion is not, as the applicants' draft notice of appeal seems to contemplate, that there should necessarily be no order as to costs. Rather, it leads to the need for the exercise of the costs discretion. … 1. Generally the rules limit offers of compromise to the substantive claims and, although there are some exceptions, they are not permitted to make provision in respect of costs; this is essentially so that an unaccepted offer is directly comparable with the ultimate judgment. There is always some potential uncertainty about the costs implications of accepting an offer, because of the power of the Court to otherwise order. In my view, in principle, the circumstance that the costs consequences are not certain is not a satisfactory reason for declining to accept an offer of compromise. In this case, whether upon acceptance the plaintiff would have been prima facie entitled to costs under r 42.13A(2), or the costs discretion would have been at large (in circumstances where, by reason of acceptance of the offer, there would be a substantial judgment in her favour and prima facie the "event" would have been in her favour), this provided no sufficient ground for not visiting the usual costs consequences upon her rejection of an offer which was very substantially more favourable to her than the ultimate judgment. To depart from the rule in this case would undermine the purpose and rationale of the rule. 2. While I am conscious that the Court's initial position was that Ms Lorenzato should pay 50% of the Council's costs, that was in ignorance of the offer of compromise. In circumstances where acceptance of the offer would have avoided the entire trial, the prima facie position under the rule achieves substantial justice: the Council should pay Ms Lorenzato's costs up to the day following the offer, and Ms Lorenzato should pay the Council's costs of the proceedings at first instance, on the indemnity basis, thereafter. THE DELLA FRANCA APPEAL 1. Mr Della Franca made an offer by letter dated 1 July 2020 "without prejudice save as to costs" to settle the proceedings upon the basis that he pay Ms Lorenzato $150,000 inclusive of costs. It contained some additional terms beneficial to the plaintiff concerning construction works of the proposed easement, disconnection of the pipe, and payment for compensation for the easement. It was expressed to be open until 16 July 2020, and to be made pursuant to the principles in Calderbank, to be relied on with respect to costs. However, it did not refer expressly to indemnity costs. It was not accepted. 2. As a result of this Court's judgment allowing his appeal, the outcome of the proceedings was that there was judgment for Mr Della Franca on Ms Lorenzato's claim against him, with costs. On the basis of the offer of 1 July 2020, Mr Della Franca contends that Ms Lorenzato should pay his costs on the ordinary basis up to and including 1 July 2020 and on the indemnity basis thereafter. 3. An unaccepted Calderbank offer is merely a relevant consideration in the exercise of the costs discretion. Unlike a formal offer of compromise under the rules, it does not have any presumptive effect as to the costs position if the offeree does not better it. [9] One reason for this is that those who seek to take advantage of an offer for the purposes of costs ought to be encouraged to comply with the procedures and safeguards provided by the rules of court in respect of offers of compromise, and they ought not be rewarded for avoiding those requirements by resorting to an informal Calderbank offer. Nonetheless, as a matter of discretion, a Calderbank offer may justify a special order for costs, including an order for costs on an indemnity basis, if the final judgment is no more favourable than the offer, its rejection was unreasonable, and the offer sufficiently foreshadowed its use to support a special costs order. [10] A party who seeks to rely on a Calderbank offer for costs purposes bears the onus of showing that an order for indemnity costs should be made on the basis of the offer. [11] 4. It is undoubtedly significant that the offer, if accepted, would have been much more beneficial for Ms Lorenzato than the ultimate outcome of the proceedings. However, while significant, that of itself does not entitle Mr Della Franca to an indemnity costs order (although it may well have been a powerful reason for depriving Ms Lorenzato of a costs order in her favour had she obtained a judgment for a lesser sum). While clearly, with the benefit of hindsight, it involved a substantial element of compromise on the part of Mr Della Franca, in terms of quantum it unlikely exceeded the quantum of costs which Ms Lorenzato had by then incurred. 5. Notably, while it referred to Calderbank, it did not foreshadow that it would be used to support an application for an indemnity order. If Mr Della Franca wished to engage an entitlement to an indemnity order, the rules provided the means for him to do so through a formal offer of compromise, which is attended by certain conditions and consequences. In particular, he could not under the rules have made an offer of compromise inclusive of costs. [12] There are two good reasons for that, namely that it can be difficult to compare an offer inclusive of costs with the ultimate judgment to determine whether the judgment is no less favourable than the unaccepted offer; and it can be difficult for the offeree to assess the real value of an offer inclusive of costs. [13] 6. Mr Della Franca chose not to invoke that procedure, and instead to make an offer in a form which it would not have permitted. In those circumstances, I am unpersuaded that his Calderbank offer provides sufficient reason to make a special costs order. I would not vary the Court's earlier order in his appeal. ORDERS 1. In my opinion, the following orders should be made: Burwood Council appeal 1. Set aside order (4) made on 16 December 2021 and in lieu thereof 1. Order Ms Lorenzato to pay Burwood Council's costs of the appeal, including of the Council's notice of motion filed on 22 December 2021; 2. Pursuant to UCPR r 42.15, order that the Council pay Ms Lorenzato's costs on the ordinary basis of the proceedings at first instance up to 29 May 2020, and that Ms Lorenzato pay the Council's costs on the indemnity basis of the proceedings at first instance thereafter. Della Franca appeal 1. Dismiss Mr Della Franca's notice of motion filed on 23 December 2021, with costs. ********** Endnotes 1. [2021] NSWCA 321. 2. [1975] 3 All ER 333. 3. Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724-726; Morgan v Johnson (1998) 44 NSWLR 578 at 581-582; [1998] NSWSC 367. 4. Curtis v Harden Shire Council (No 2) [2015] NSWCA 45; South Eastern Area Health Service v King [2006] NSWCA 2 at [83] (Hunt AJA; Mason P and McColl JA agreeing). 5. Houatchnathara v Bednarczyk [1996] NSWSC 486 at [2]-[3]; Walker v Harwood [2017] NSWCA 228 at [15]-[20]. 6. UCPR r 20.26(3)(b). 7. See also Herbert (bht Meehan) v Tamworth City Council (No 4) (2004) 60 NSWLR 476; [2004] NSWSC 394; Whitehouse Properties Pty Ltd v Bond Brewing (NSW) Ltd (1992) 28 NSWLR 17. 8. [2016] NSWCA 52. 9. Jones v Bradley (No 2) [2003] NSWCA 258; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Brymount Pty Ltd v Cummins (No 2) [2005] NSWCA 69 at [13]. 10. SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Brymount Pty Ltd v Cummins (No 2) [2005] NSWCA 69 at [14]; Penrith Rugby League Club Ltd trading as Cardiff Panthers v Elliot (No 2) [2009] NSWCA 356. 11. Elite Protection Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [96]-[99] and [133]-[141]. 12. UCPR r 20.26(2)(c). 13. Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349; Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102; 114 ALR 568; Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 583 at [40]; Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [5]–[7] (Mason P), [144]–[145], [150] (Basten JA). DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 April 2022