New South Wales District Court CITATION: Smart Distribution Services Pty Ltd v General Wholesale Pty Ltd (No 3) [2010] NSWDC 108 HEARING DATE(S): 10/6/10 JUDGMENT DATE: 23 June 2010 JURISDICTION: Civil JUDGMENT OF: Bozic SC DCJ DECISION: 1.The defendant pay the plaintiff's costs of proceedings up to and including 30 June 2009 on the ordinary basis as agreed or assessed; and 2.The defendant pay the plaintiff's costs of proceedings from 1 July 2009 on an indemnity basis as agreed or assessed. CATCHWORDS: COSTS - whether offer of a sum together with "the defendant to pay the plaintiff's costs and disbursements as agreed or assessed" is an offer of compromise "exclusive of costs" pursuant to UCPR rule 20.26(2) LEGISLATION CITED: Uniform Civil Procedure Rules 2005 Dean v Stockland Property Management Pty Ltd & Anor (No 2) [2010] NSWCA 141 CASES CITED: Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak & Ors [2006] NSWSC Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker & Anor (No 2) [2007] NSWCA 194 PARTIES: Smart Distribution Services Pty Ltd (plaintiff) General Wholesale Pty Ltd (defendant) FILE NUMBER(S): 4244/08 COUNSEL: Mr N Chen (plaintiff) Mr S Bell (defendant) SOLICITORS: ClarkeKann Lawyers (plaintiff) Dawes & Vary Lawyers (defendant) JUDGMENT 1 The plaintiff has obtained judgment against the defendant for $181,544.88 and now seeks the following orders in relation to costs: "(i) that the defendant pay the plaintiff's costs of proceedings up to and including 30 June 2009 on the ordinary basis as agreed or assessed; and (ii) that the defendant pay the plaintiff's costs of proceedings from 30 June 2009 on an indemnity basis as agreed or assessed." 2 The plaintiff relies on an offer of compromise dated and served on 30 June 2009. The offer of compromise was in the following terms: "1. Judgment for the Plaintiff against the Defendant in the sum of $150,000 inclusive of interest. 2. The Defendant to pay the Plaintiff's costs and disbursements as agreed or assessed. 3. This offer is made pursuant to the Uniform Civil Procedure Rules 2005 Part 20 Division 4 Rule 20.26. 4. This offer is open for acceptance for 28 days from the date of this offer of compromise." 3 The plaintiff submits that since the judgment of the Court is no less favourable to the plaintiff than the offer, the plaintiff is entitled to the order sought for indemnity costs: see UCPR rule 42.14. 4 The defendant opposes any order for indemnity costs on the following grounds. First, the offer of compromise does not comply with rule 20.26(2) in that it is not an offer exclusive of costs. Secondly, assuming the offer does not comply with the Uniform Civil Procedure Rules, the offer does not disclose a general intention to make an offer and does not, therefore, constitute a Calderbank offer. Thirdly, if the offer is a Calderbank offer, it was not unreasonable to refuse the offer. Does the offer constitute an offer of compromise under the Uniform Civil Procedure Rules? 5 Uniform Civil Procedure rule 20.26 states: "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: 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. ……………………… (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. … 6 Rule 42.13A states: "42.13A Where offer accepted (1) This rule applies if the offer concerned: (a) is made by the plaintiff and accepted by the defendant, or (b) is made by the defendant and accepted by the plaintiff. (2) 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, unless: (a) the offer states that it is a verdict for the defendant and the parties are to bear their own costs, or (b) the court orders otherwise." 7 The defendant submits that the offer of compromise was not exclusive of costs because in paragraph 2 of the offer there was an offer made in relation to costs. According to the defendant, rule 20.26(2) prohibits any reference to costs being made in an offer of compromise other than the one expressly mentioned in the rule, namely, a verdict for the defendant and each party to pay their own costs. It is said that no reference to costs is required, or indeed permitted, because any offer exclusive of costs is subject to rule 42.13A which entitles the plaintiff to an order for costs on an ordinary basis up to the time when the offer was made unless the court orders otherwise. 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 Part 20 rule 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 Part 20 rule 20.26 of the Uniform Civil Procedure Rules 2005." 10 In Mid-City the plaintiff argued that the reference to costs in paragraph 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 paragraphs 24 to 27 his Honour said: 24 The plaintiff submitted that the reference to costs in paragraph 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 rule 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 rule 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 rule 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 rule 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 rule 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 rule 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 paragraph 26. 13 In the present case the offer of compromise was exclusive of costs within the meaning of rule 20.26(2). First, the offer was expressly stated to be pursuant to rule 20.26(2) ("an offer must be exclusive of costs"). Secondly, paragraph 2 contained an offer as to costs which did no more than reflect the costs entitlement under the rules. 14 Under rule 42.14 (2)(b)(i) unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim assessed on an indemnity basis from the beginning of the day following the day on which the offer was made. The defendant did not argue that if the offer of compromise was made pursuant to the rules that an order for indemnity costs should not be made. I propose therefore to order that the defendant pay the plaintiff's costs on an indemnity basis from the day following the date the offer was made. 15 In view of my decision it is unnecessary to deal with the defendant's submissions in relation to whether the offer constituted a Calderbank offer and, if so, whether it was not unreasonable to refuse the offer. Orders 1. The defendant pay the plaintiff's costs of proceedings up to and including 30 June 2009 on the ordinary basis as agreed or assessed; and 2. The defendant pay the plaintiff's costs of proceedings from 1 July 2009 on an indemnity basis as agreed or assessed. 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.