New South Wales Court of Appeal CITATION: Stuart Pty Limited v Condor Commercial Insulation Pty Limited (No 2) [2006] NSWCA 379 HEARING DATE(S): On written submissions JUDGMENT DATE: 20 December 2006 JUDGMENT OF: Beazley JA at 1; Ipp JA at 1; Tobias JA at 1 DECISION: The parties are to bring in short minutes of order to accord with these reasons and with the reasons in Stuart Pty Limited v Condor Commercial Insulation Pty Limited [2006] NSWCA 334, to be filed in the Registry by 22 January 2007. CATCHWORDS: COSTS – application by respondent for indemnity costs – whether some good cause to depart from ordinary rule of costs following the event – offer of compromise made by respondent prior to trial but not later renewed – appellant abandoned certain arguments on appeal District Court Rules 1973 (NSW) Pt 19A, Pt 39A LEGISLATION CITED: Supreme Court Rules 1970 (NSW) Pt 52A r 11 Uniform Civil Procedure Rules 2005 (NSW) r 42.1 Baresic v Slingshot Holdings Pty Limited & Anor (No 2) [2005] NSWCA 160 Brymount Pty Limited t/as Watson Toyota v Cummins & Anor (No 2) [2005] NSWCA 69 Fotheringham v Fotheringham [No 2] (1999) 46 NSWLR 194; [1999] NSWCA 21 CASES CITED: Hadley v Baxendale (1854) 9 Ex 341 Moore v Woodforth (No 2) [2003] NSWCA 46 Oshlack v Richmond River Council (1998) 193 CLR 72 South Sydney Council v Morris (No 3) [2001] NSWCA 200 PARTIES: Stuart Pty Limited (Appellant) Condor Commercial Insulation Pty Limited (Respondent) FILE NUMBER(S): CA 40455/05 COUNSEL: J West QC; J Stephenson (Appellant) B Coles QC; P Barham (Respondent) SOLICITORS: Watson Mangioni (Appellant) Turnbull Bowles (Respondent) LOWER COURT JURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC 7817/1999 LOWER COURT JUDICIAL OFFICER: Murrell DCJ LOWER COURT DATE OF DECISION: 6 May 2005 - 5 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40455/05 BEAZLEY JA IPP JA TOBIAS JA 20 December 2006 STUART PTY LIMITED v CONDOR COMMERCIAL INSULATION PTY LIMITED (No 2) Judgment 1 THE COURT: The Court delivered judgment in this matter on 28 November 2006, in which it made an order dismissing the appeal. Prior to the delivery of judgment, the Court was requested by the solicitors for the respondent not to make an order for costs without the parties having an opportunity of making submissions in relation to costs. The Court thus directed the parties to file written submissions in relation to costs. The parties have now provided those written submissions. Relevantly, the respondent seeks an order for indemnity costs. 2 The appellant concedes that as it was unsuccessful on the appeal, costs should follow the event and that it should pay the respondent's costs of the appeal other than costs relating to the Notice of Contention. 3 The respondent, for its part, concedes that in the usual course, some adjustment to any costs order would need to take account of the fact that it did not proceed with its Notice of Contention. It contends, however, that it otherwise should have an indemnity costs order, as it made offers of compromise during the course of the proceedings at first instance. In addition, it relies on the fact that the appellant advanced only one aspect of the appeal and otherwise abandoned its argument on the remaining grounds of appeal, save for an adjustment of the award of damages that the respondent conceded had to be made. 4 The respondent annexed to its submissions an offer of compromise made on 10 December 2002, as well as two Calderbank offers dated March 3 2005, served following a direction made by the trial judge. One Calderbank offer was made inclusive of interest plus costs, the other was made inclusive of interest and costs. The respondent contends that on either Calderbank offer, the respondent "handsomely beat all of the offers that it made". It submitted that had any of these offers been accepted, the District Court proceedings would have been put to an end and there would have been no appeal. 5 Unfortunately, the respondent's legal representatives did not annex a letter dated 4 August 2006 that they wrote to the appellant's solicitors. This is referred to later in these reasons. 6 The respondent relies upon the decision of Fotheringham v Fotheringham [No 2] (1999) 46 NSWLR 194; [1999] NSWCA 21 in support of its submission that an offer of compromise made at first instance is a relevant factor to consider on the question of costs on the appeal. 7 Since Fotheringham v Fotheringham there has been considerable judicial development of the circumstances in which an order for indemnity costs will be made on an appeal, particularly in circumstances where an offer of compromise was made prior to trial but was not renewed or revived between the trial and the appeal. This issue was discussed by this Court in, amongst other decisions, Brymount Pty Limited t/as Watson Toyota v Cummins & Anor (No 2) [2005] NSWCA 69. 8 As is apparent from Brymount, the normal costs rule on an appeal is that which appears in r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (formerly Pt 52A r 11 of the Supreme Court Rules 1970 (NSW)), being that costs follow the event. 9 As Beazley JA remarked in Brymount, the Supreme Court rule is conventionally applied on the basis that a costs order is made on a party/party basis unless there is some good cause for an order to be made on some other basis. 10 In Baresic v Slingshot Holdings Pty Limited & Anor (No 2) [2005] NSWCA 160, consideration was again given to the circumstance where an offer of compromise had been made prior to trial but not renewed between the trial and the appeal. In Baresic, the offer of compromise had been made under the formal procedures provided for in the District Court Rules 1973 (NSW) (the District Court Rules): Pt 19A, Pt 39A. An offer of compromise made under the District Court Rules did not bind the Court of Appeal in relation to any costs order, as they ceased to have effect once the matter left the jurisdiction of the District Court: see South Sydney Council v Morris (No 3) [2001] NSWCA 200 at [10]. However, Heydon JA in that case considered that such offers of compromise remained relevant to the Court's general discretion as to the award of costs. 11 Rule 42.1 of the Uniform Civil Procedure Rules provides that costs are ordinarily awarded on a party/party basis. In order for the Court to make some other order and in particular, on an indemnity basis, it is necessary that "there be some unreasonable or delinquent conduct on the part of the party against whom the order is made, including the failure to accept an offer of compromise": Baresic at [20], citing Oshlack v Richmond River Council (1998) 193 CLR 72 at 89. 12 It has also been held in this Court that the failure to make any fresh offer of compromise prior to an appeal is relevant to the Court's exercise of its general discretion in the award of costs: see Moore v Woodforth (No 2) [2003] NSWCA 46 at [15]; Brymount at [29]. 13 In this case, the respondent relies upon the offers of compromise made in the court below but it made no fresh offers of compromise prior to the appeal. The respondent also relies upon the fact that the appellant had raised four essential issues on the appeal, encapsulated in 13 separate grounds of appeal. One of those matters, namely, the need to reduce the verdict sum by $13,500, was at all times conceded by the respondent. Of the other three issues, the appellant only advanced one, namely, that it was entitled to succeed under the second limb of Hadley v Baxendale (1854) 9 Ex 341. It was submitted that the respondent was required, however, to prepare fully on all issues (other than the issue relating to the sum of $13,500) and this was another factor that supported its application for indemnity costs. 14 The fact that certain arguments were abandoned on the appeal is not sufficient of itself to compel the making of an order for indemnity costs. The respondent will be entitled to the costs of the preparation of those issues, as it would have been had they been agitated on the appeal. The Court encourages parties not to advance matters that do not have any prospect of success. A party ought not to be penalised by an order for indemnity costs if that is the only relevant circumstance. 15 Accordingly, notwithstanding there had been offers of compromise made in the court below, and notwithstanding that some of the grounds of appeal were not argued before this Court, the usual order for costs ought to apply. No delinquent or unreasonable conduct by the appellant has been established. 16 That leaves the letter of 4 August 2006. The appellant attached that letter to its submissions in reply. That letter stated, relevantly: "We refer to your letter dated 30 June 2006. We note that both parties abandoned issues on the appeal. Your client abandoned its entire argument concerning tort and our client abandoned its entire argument concerning the notice of contention. We note that although the draft orders made allowance in relation to the abandonment of the notice of contention, they do not make any allowance in relation to your client's abandonment of its argument concerning tort. There will also be considerable difficulty in separating out the costs. Given that there were no offers of compromise in relation to the appeal, so that issues of indemnity costs do not arise in relation to the appeal, we therefore suggest that appropriate orders would be that the successful party, whoever that may be, recover three quarters of its costs of the appeal. So far as your client's appeal succeeding in part in relation to the $13,500, we note that that was never contested by our client. We also note that the draft orders do not make any allowance for a suitor's fund certificate to the respondent should your client succeed." 17 Given the contents of this letter, which represents an understanding of the jurisprudence in the Court on the costs issue raised in this case, it is unclear why this Court has been bothered with this costs application. It should not have been made. It has taken up the time of the Court for no purpose. The respondent should pay the costs of the application. 18 As indicated in the Court's judgment in this matter, the respondent should not have costs relating to the Notice of Contention and there should be an adjustment to the usual order in that regard. The appropriate orders are that the appellant pay the respondent's costs of the appeal other than costs relating to the Notice of Contention and that the respondent pay the appellant's costs of the appeal insofar as those costs relate to the Notice of Contention. 19 As the trial judge's order needs to be varied under the slip rule, the parties are to bring in short minutes of order to finally dispose of the appeal, which has been dismissed, the claim and cross-claim and the costs order in this Court in the terms stated in this judgment. ORDERS: 1. The parties are to bring in short minutes of order to accord with these reasons and with the reasons in Stuart Pty Limited v Condor Commercial Insulation Pty Limited [2006] NSWCA 334, to be filed in the Registry by 22 January 2007. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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