New South Wales Court of Appeal CITATION: Dean v Stockland Property Management Pty Ltd & Anor (No 2) [2010] NSWCA 141 HEARING DATE(S): (On written submissions) JUDGMENT DATE: 17 June 2010 JUDGMENT OF: Giles JA; Handley AJA; Whealy J DECISION: We decline to vary the costs order previously made. The appellant must pay the respondents' costs of the costs application. CATCHWORDS: COSTS - indemnity costs - offer to compromise appeal on terms: (1) new trial and (2) each party to pay own costs of appeal - offer rejected - whether offer a true compromise - on facts, a true compromise - whether offer invalid under the rules as not exclusive of costs (r 20.26(2)) - offer not exclusive of costs and invalid under UCPR - consideration of rationale of r 20.26(2) - whether offer operated as Calderbank offer - intention must be manifested - intention not shown - whether first respondent entitled to ignore offer due to contractual indemnity from second respondent - entitlement to indemnity not yet established and irrelevant to costs order as between appellant and first respondent - whether second respondent unable to accept offer because Court's finding under r 51.53 required - consent to new trial admits substantial wrong or miscarriage - able to accept offer - whether general discretion enlivened because respondents' positions untenable - positions not untenable. CATEGORY: Consequential orders The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120, (2006) 67 NSWLR 706; Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349; Atkinson v Zey [2008] NSWCA 30; Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runnoff Ltd (formerly GIO Insurance Ltd) & Ors [2006] NSWSC 583; Re Bond Corp Holdings Ltd (1990) 1 WAR 465; Colonial Mutual Life Assurance Society Ltd v Australian and Overseas Telecommunications Corporation Ltd (1993) ANZ Conv R 347; Dean-Wilcocks (as liq of SJP Formwork (NSW) Pty Ltd (In Liq)) v Commissioner of Taxation (No 2) [2004] NSWSC 286; (2004) 49 ACSR 325; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; CASES CITED: Frisbo Holdings Pty Ltd v Austin Australia Pty Ltd (No 2) [2010] NSWSC 298; Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Jones v Bradley (No 2) [2003] NSWCA 258; Leichhardt Municipal Council v Green [2004] NSWCA 341; Optus v Leighton [2002] NSWSC 450; 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; Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353; Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) [2007] NSWCA 194; Ugly Tribe Co Pty Ltd v Sikiola [2001] VSC 189 Warkworth Mininng Co Pty Ltd v O'Connor [1996] NSWCA 546. Kathleen Anne Dean - Appellant PARTIES: Stockland Property Management Pty Ltd - First Respondent Reflections Cleaning Pty Ltd - Second Respondent FILE NUMBER(S): CA 2009/298324 C T Barry QC & P Beale - Appellant COUNSEL: R A Cavanagh - First Respondent S Campbell SC & A Hourigan - Second Respondent CMC Lawyers - Appellant SOLICITORS: Curwood Lawyers - First Respondent/Cross-Appellant In House Counsel - Second Respondent/Cross Respondent LOWER COURT JURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC 783/08 LOWER COURT JUDICIAL OFFICER: Hughes DCJ LOWER COURT DATE OF DECISION: 20 March 2009 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 2009/298324 DC 783/08 GILES JA HANDLEY AJA WHEALY J Thursday 17 June 2010 DEAN v STOCKLAND PROPERTY MANAGEMENT PTY LTD & ANOR (NO 2) Judgment 1 THE COURT: We gave judgment in the appeal on 13 April 2010: Dean v Stockland Property Management Pty Ltd [2010] NSWCA 66. The appellant applied orally for a special order for the costs of the appeal, namely, costs on the ordinary basis up to and including 23 July 2009 and thereafter on the indemnity basis ("the costs order"). Written submissions were directed, and were received. The appeal 2 The appellant brought proceedings in negligence in the District Court. She was injured when she slipped and fell while in the Jesmond Mall shopping centre on 1 July 2007. The first respondent was the owner of the shopping centre. The second respondent was the cleaning company engaged to attend to the shopping centre. On the appellant's case, had the respondents properly carried out their system of supervision, inspection and cleaning, the spillage on which she slipped would have been cleaned up and she would not have fallen. 3 Hughes DCJ gave judgment in favour of the respondents. The appellant appealed on the ground, amongst others, that his Honour had failed to give adequate reasons for his decision. 4 We upheld the appeal on that ground. We set aside the orders of the trial judge and remitted the proceedings to the District Court for a new trial on all issues. We ordered that the costs of the first trial abide the event of the second trial. Subject to the application, we ordered that the respondents pay the appellant's costs of the appeal and have a certificate under the Suitors Fund Act 1951. The offer 5 The trial judge gave judgment on 20 March 2009. The appellant filed a notice of intention to appeal on 23 March 2009 and a notice of appeal on 19 June 2009. She made an offer of compromise on 23 July 2009 ("the offer"). 6 The offer was - "To the Respondents: - The Appellant offers to compromise this matter on the following bases: - 1. Appeal allowed; 2. Verdict and judgment in the Court below set aside; 3. Proceedings remitted to the District Court for retrial; 4. Each party to pay its own costs of the appeal; 5. Costs of the first trial to follow the event of the second trial. This offer is open for twenty-eight (28) days and thereafter is withdrawn. If this offer is not accepted in the manner prescribed by the Rules of Court and Judgment on this claim ultimately is not less favourable than this offer the Plaintiff shall seek an Order against the Defendant for costs from the date of this offer on an indemnity basis This offer is made in accordance with Part 20 Rule 26 of the Uniform Civil Procedure Rules" 7 The offer was under cover of a letter dated 23 July 2009, relevantly reading - "Please find enclosed, by way of service, Plaintiff's Offer of Compromise dated 21 July 2009. We advise this Offer is open for a period of 28 days only , and will expire on 19 August 2009 . We have received advice from Queen's Counsel that this appeal will succeed and, accordingly, in order to avoid incurring further and unnecessary costs we propose that the appeal be settled in accordance with the abovementioned Offer of Compromise. If you do not agree to this proposal and the appeal proceeds and is successful, we will rely upon this letter and the enclosed Offer of Compromise in support of an application that the successful Appellant's costs be paid on an indemnity basis." (bold in original) 8 The letter was not marked without prejudice, or without prejudice except as to costs. The application 9 The appellant submitted that she was entitled to the costs order pursuant to r 42.14 of the Uniform Civil Procedure Rules ("the UCPR"), because our substantive orders were in accordance with the offer but she had offered to pay her own costs of the appeal. She further submitted that the Court should in any event exercise its discretion to award costs on the indemnity basis. In her submissions in chief this was because the respondents were put on notice that their positions on appeal were untenable, and she should not have been put to the additional costs of having to prepare for and argue the appeal. In her submissions in reply she added that the offer also operated as a Calderbank offer. 10 The first respondent resisted the costs order on the bases, first, that the offer was not a true compromise; and secondly, that it was not unreasonable for it not to accept the offer because it "may have been" disinterested in the outcome. It was unclear whether the second basis sought an order otherwise under r 42.14(2), or was intended to respond to the appellant's further submission. 11 The second respondent resisted the costs order on the bases, first, that r 42.14 was not triggered because the offer was not exclusive of costs as required by r 20.26(2) and so was not a valid offer of compromise; and secondly, that it was not open for it to accept the offer because of the operation of r 51.53. 12 Both respondents also contended that their positions on appeal were not untenable. Was the offer a true compromise? 13 The first respondent submitted that the offer was not a true compromise because it reflected the best result the appellant could achieve. It was said that it was an offer requiring the respondents to capitulate, not to compromise. 14 An offer of compromise will only justify costs on an indemnity basis if it has a real element of compromise (Leichhardt Municipal Council v Green [2004] NSWCA 341; Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375). An offer which does not involve a real and genuine element of compromise will not be taken into account in relation to costs under the Rules (The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120, (2006) 67 NSWLR 706). It has been said that indemnity costs will not be granted where the offer of compromise is designed simply to trigger the entitlement: for example, Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355 per Rogers CJ Comm D. An offer of compromise will always be intended to trigger the entitlement. The force of "simply" is the need for a real element of compromise. 15 We do not accept that the offer had no real element of compromise. The appellant did not ask for a verdict in her favour. She accepted that there should be a new trial, at which the conflict and confusion in the evidence, referred to in our reasons would be resolved, and that the costs of the first trial should follow the event of the new trial. She may not have succeeded at the new trial. The appellant could not realistically ask for anything less. Having asked for a new trial, she had nothing to compromise except her entitlement to costs if she succeeded on appeal. That was of financial substance. Did the offer offend r 20.26(2)? 16 Rule 20.26.2 of the UCPR provides - "(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." 17 The sub-rule is part of an offer of compromise regime first found in the Supreme Court Rules 1970 (NSW). It can be seen as reflecting the judicial interpretation of Pts 22 and 52 of those Rules. 18 In Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349 at 350-351 it was held that a defendant's offer of compromise of a money sum inclusive of costs was ineffective, because it conflicted with r 52.17(1) (plaintiff's entitlement to tax costs if the offer was accepted) and by r 52.17(2) a term negating or limiting the operation of r 52.17(1) was of no effect. The perceived rationale was that, without a taxation of costs, it could not be determined whether the offer of compromise was more or less favourable than the result, because it was not known how much of the money sum should be attributed to costs. 19 Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd was followed in later decisions on slightly amended rules, for example Warkworth Mining Co Pty Ltd v O'Connor [1996] NSWCA 546 (Priestley JA); Optus v Leighton [2002] NSWSC 450 (Hunter J). In the context of Calderbank offers, it has also been held that an offer inclusive of costs placed the offeree in a position of not being able to determine the appropriate amount to attribute to the substantive claim and the costs in incurring it, which bore upon its operation (see Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runnoff Ltd (formerly GIO Insurance Ltd) and Ors [2006] NSWSC 583 at [40] and cases cited). 20 It should be appreciated that Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd turned upon r 52.17(1) and (2), and the inconsistency between the offer and the provisions of the rules with respect to costs. In many cases it can readily be determined, without an assessment of costs, whether the offer of compromise is more or less favourable than the result. It might be self-evident from the figures. There might be evidence of estimated costs – particularly since lawyers have been required to provide costs estimates to clients. Under the Supreme Court Rules, the perceived rationale did not operate of itself. 21 The UCPR regime differs in some respects from that of the Supreme Court Rules. Broad equivalents to r 52.17(2) and (2) are found in rr 42.13A and 20.26(12). But the position of an offer which is not exclusive of costs is now specifically governed by r 20.26(2). 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 per cent of its costs offended the rule. In Trustee for the Salvation Army (NSW) Property Trust & Anor 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. 30 We note the appellant's submission that r 51.47(2)(h) modified the application of r 20.26(2) in the Court of Appeal. Rule 51.47 provides that Div 4 of Pt 20 applies to an offer of compromise made in the Court of Appeal. It adjusts references to parties and other procedural matters, concluding with "(h) such other modifications as are necessary". The appellant did not suggest how the application of r 20.26(2) should be modified. We do not think that r 51.47(h) enables modification to overcome the conclusion in the preceding paragraph. The offer as a Calderbank offer 31 An offer that does not comply with the rules relating to the making of offers of compromise can operate and be taken into account as a Calderbank offer (for example, Jones v Bradley (No 2) [2003] NSWCA 258 at [5]; Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) at [26]-[27]). Whether it operates as a Calderbank offer depends on the intention of the offeror as revealed by the terms of the offer (Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) at [27]). 32 The letter of 23 July 2009 said that the appellant "will rely upon this letter and the enclosed Offer of Compromise". The appellant submitted that this sufficiently showed that the offer was intended to operate as a Calderbank offer in the event it did not fall within the UCPR. 33 We do not agree. The offer was explicitly an offer of compromise under r 20.26. Unlike the offer considered in Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2), it was not said that it was intended to operate as a Calderbank offer if it was ineffective under the rules. The statement that the letter that the offer would be relied on in support of an application for indemnity costs did not go beyond affirming that costs would be claimed under the offer of compromise regime in the rules. 34 The intention must be made clear. It would be unfair for a party to be subject to the consequences of a Calderbank offer if it was not made clear that the offer should be treated as such. 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. The first respondent's disinterest 35 The first respondent submitted that it "may have been" disinterested in the outcome because either the appeal would not succeed or, if the appeal succeeded, it would obtain an indemnity from the second respondent. The indemnity was said to arise from the fact that the central issue in the proceedings was whether the cleaners were properly performing their duty, and left no basis on which the second respondent could have avoided indemnifying the first respondent if the appellant was successful. 36 There has been no finding as to whether the second respondent would be liable to indemnify the first respondent should the appellant succeed at trial, and for that reason alone the first respondent's submission should not be accepted. 37 Assuming for present purposes that the first respondent would be entitled to indemnity, that did not entitle it to ignore the offer. Indemnification was a matter between the first respondent and the second respondent, with which the appellant was not concerned. The first respondent was a party to the proceedings. It had participated at trial. It participated on appeal. An entitlement to be indemnified through an arrangement with the second respondent did not alter its exposure to the appellant's costs, or remove the need for it to respond to the offer of compromise. The second respondent's inability to accept the offer 38 Rule 51.53 relevantly provides - "(1) The Court must not order a new trial on any of the following grounds: … (d) on any other ground unless it appears to the Court that some substantial wrong or miscarriage has been thereby occasioned." 39 The second respondent submitted that the rule required the Court to consider the evidence and arguments below by application of a normative standard, and satisfy itself that some substantial wrong or miscarriage had occurred. It submitted that its consent to a new trial would have been insufficient, and that it was thus unable to accept the offer. 40 We do not agree. Such an application of the rule would mean that parties could never compromise with a consent order for a new trial. It is not a correct application. The parties' consent to an order for a new trial admits that a substantial wrong or miscarriage has been occasioned, and the Court can act upon the admission. 41 As Austin J said in Dean-Willcocks (as liq of SJP Formwork (NSW) Pty Ltd (in liq)) v Commissioner of Taxation (No. 2) [2004] NSWSC 286; (2004) 49 ACSR 325, in the context of section 588FF of the Corporations Act 2001 (C'th) - "[27] In my opinion there is no general principle preventing a court from being "satisfied" of the matters that it is required by statute to address before making orders, where there is an admission between parties; nor is there any principle requiring a court in those circumstances to undertake its own factual inquiry when the parties invite it to do no more than act upon their consent." Were the respondents' positions untenable? 42 In the exercise of the general discretion, costs on the indemnity basis may be ordered if it appears that proceedings have been commenced or continued in circumstances where a party should have known that there was no real prospect of success (see, for example, Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400-1; Re Bond Corp Holdings Ltd (1990) 1 WAR 465 at 478, (1990) 1 ACSR 350 at 363-4). This applies to a party resisting an appeal. 43 Care must be taken, however, lest parties be unduly deterred from bringing or defending proceedings for fear that they will retrospectively be found to have not been justified in doing so. Uncertainty in outcome is not enough, and what appears certain at the time of judgment does not necessarily have that character at an earlier time. Factual dispute may remain alive on appeal, although in a different guise from trial. As Harper J said in Ugly Tribe Co Pty Ltd v Sikiola [2001] VSC 189 at [11], speaking of a compromise (in the sense of balancing) of the interests of successful and unsuccessful litigants, it - " … is perhaps justifiable on the basis that potential litigants must not be unnecessarily discouraged from bringing their disputes to the courts. After all success can seldom be guaranteed, if only because - where the facts are in dispute, as they generally are - it is seldom possible to predict with certainty what findings of fact will be made. In these circumstances, an honest plaintiff or defendant might be discouraged from bringing or defending a claim were an adverse result to be followed by an order that the losing party indemnify, or go close to providing an indemnity to, the successful party against the latter's costs." 44 The appellant submitted that the appeal was not a borderline one, and that there had been "an obvious failure to carry out one of the most fundamental of judicial obligations to analyse and evaluate all of the evidence". The first respondent did not develop its submission, but the second respondent submitted that the Court's reasons, particularly at [61]-[64], showed that it was "not guilty of the relevant delinquency in contesting the appeal". 45 We do not repeat these paragraphs of the reasons. They canvassed a number of arguments by the second respondent in support of the trial judge's finding that the area where the appellant slipped had been inspected by Ms Newton shortly prior to the appellant's fall, and the spillage was not present. The reasons recognised that many of the arguments were "not without force". But it was said that they "simply reflect[ed] the lack of analysis carried out by the trial judge in his reasons". 46 We do not think that the paragraphs provide much assistance to the second respondent's submission. The relevant inquiry was not whether the trial judge's finding was correct, or was supportable. It was whether the trial judge complied with his judicial duty to give adequate reasons for his decision. The present question is whether resistance to the ground of failure to give adequate reasons was without real prospects of success. 47 We do not think that, on a proper appreciation of their positions, the respondents' resistance to the appeal was so untenable that indemnity costs should be ordered. The trial judge had come to his finding by acceptance of the evidence of Ms Newton. We held that he had done so without the requisite analysis of the competing evidence. The respondents were able to submit, however, that Ms Newton had not been cross-examined to suggest that she had not inspected the relevant area shortly before the fall. They were also able to submit that, in connection with damages, the trial judge had found that the appellant had exaggerated her injuries; albeit that it was in connection with damages, they submitted that this went also to acceptance of her evidence of the circumstances surrounding her fall. Those and the respondents' other submissions did not carry the day. But there was an arguable basis for supporting the trial judge's process of reasoning. Conclusion 48 We decline to vary the costs order previously made. The appellant must pay the respondents' costs of the costs application. ********** 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.