(ix) the defendants shall pay interest on any amount paid by the plaintiff as costs provided that: (a) the costs, upon which interest is payable, are agreed or allowed on assessment; (b) interest is calculated from the date of payment of the said costs by the plaintiff and continues only until such time as payment by the defendants of said costs and interest has occurred but not beyond the date of judgment.""> New South Wales Supreme Court CITATION : Levy v Bergseng (No 2) [2008] NSWSC 958 HEARING DATE(S) : 24 April 2008 and subsequent written submissions JUDGMENT DATE : 17 September 2008 JURISDICTION : Common Law JUDGMENT OF : Rothman J (i) the application for indemnity costs is dismissed; (ii) the orders of 4 April 2008 in this matter be varied by adding two new orders: DECISION : "(viii) the defendants pay the plaintiff's costs of the preparation of the submission in reply before the Costs Review Panel; (ix) the defendants shall pay interest on any amount paid by the plaintiff as costs provided that: (a) the costs, upon which interest is payable, are agreed or allowed on assessment; (b) interest is calculated from the date of payment of the said costs by the plaintiff and continues only until such time as payment by the defendants of said costs and interest has occurred but not beyond the date of judgment." CATCHWORDS : COSTS – appeal – offer made – indemnity costs sought – offer involved each party bearing own costs – not comply with Rules – not intended to have effect otherwise than in accordance with rules – no indemnity costs – order for reasonable costs below – order for interest on costs paid. Legal Profession Act 1987 LEGISLATION CITED : Legal Profession Act 2004 Suitors' Fund Act 1951 CATEGORY : Consequential orders Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349 CASES CITED : Levy v Bergseng [2008] NSWSC 294 Theiss Contractors Pty Ltd v SCI Operations Pty Ltd (Supreme Court of New South Wales, Rogers CJ in Comm D, 21 September 1990, unreported) Trustee for Salvation Army v Becker (No 2) [2007] NSWCA 194 Leonard Ari LEVY (Plaintiff, Cross-Defendant) PARTIES : Karin Elizabeth BERGSENG (First Defendant, First Cross-Plaintiff) Peter Edward McCROHON (Second Defendant, Second Cross-Plaintiff) Christine Louise PERRY (Third Defendant, Third Cross-Plaintiff) FILE NUMBER(S) : SC 10245/2007 COUNSEL : M Castle (Plaintiff, Cross-Defendant) J Sharpe (Defendants, Cross-Plaintiffs) SOLICITORS : DG Thompson (Plaintiff, Cross-Defendant) Strategy Legal (Defendants, Cross-Plaintiffs) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ROTHMAN J 17 SEPTEMBER 2008 10245/07 Leonard Ari LEVY v Karin Elizabeth BERGSENG & Ors (No 2) JUDGMENT 1 HIS HONOUR: On 4 April 2008, the Court issued substantive orders in this appeal: Levy v Bergseng [2008] NSWSC 294 ("the earlier judgment"). The appellant (Mr Levy) was successful in an appeal against the decision of a Costs Review Panel, made under the Legal Profession Act 2004, in which the Costs Review Panel substantially varied the determination of the Costs Assessor. This judgment should be read in conjunction with the earlier judgment. 2 The earlier judgment of 4 April 2008 ordered that the defendants pay the plaintiff's costs of the proceedings in this Court and granted liberty to all parties to apply for any special or different order for costs in these proceedings and for any order for the costs of the proceedings before the Review Panel. 3 Pursuant to the foregoing leave, Mr Levy applied for indemnity costs for work performed from 22 June 2007, the costs before the Review Panel and interest on the costs (including a declaration that interest continues to run on unpaid costs up to the date of judgment). This application proceeded by written submissions. Indemnity Costs 4 On 21 June 2007, Mr Levy (the appellant) offered ("the Offer") to settle the appeal by the defendants paying an additional amount and each party bear its own costs. The additional amount that would have been payable under that Offer was less than the value of the judgment of the Court on 4 April 2008. 5 The defendants do not agree that the Offer complied with the rules nor was it a true compromise. Further, the defendants maintain that acceptance of the Offer would not have dealt with the appeal or the extant Costs Review Panel Determination. I will deal with each of these in reverse order. 6 The appeal (and the judgment below) raised questions of general import, including the applicability of the Legal Profession Act 1987 to cancellation fees. The mere fact that a compromise does not finally deal with questions of law raised does not vitiate or qualify the compromise otherwise proposed, its capacity to comply with the rules or the procedural requirements for a Calderbank Offer. A purpose of a compromise includes parties avoiding (in whole or in part) fighting about "principle" and arriving at a "commercially" acceptable result. 7 The Offer of Compromise of 21 June 2007 was accompanied by a letter which purported to explain its intent. It proposed an order that the appeal be allowed. It is difficult to envisage an order that more expressly "dealt with the appeal" in the formal sense. 8 The Costs Review Panel Determination (leaving aside the order for costs) reduced the fees payable, in accordance with the determination of the Costs Assessor, by $230,816.76. Mr Levy, in his appeal against the Review Panel Determination, sought restoration of the Costs Assessor's Determination. He offered to settle that appeal by a payment of a further $137,000. Such an offer was approximately 60% of the amount in dispute and was a true compromise of the parties' positions. 9 While it is true that the Offer, once made, may have had the practical effect of causing the defendants to "fear … incurring a costs order if ultimately unsuccessful", so does every offer of compromise or Calderbank letter. A purpose of the Rules and principles is to provide parties with an incentive to reach a compromise and to provide a disincentive to dismissing an offer peremptorily (or an incentive to consider all offers reasonably). 10 Further, even if the terms of the Offer may have had the effect of reinstating the Costs Assessor's Determination, that Determination could not have been enforced beyond the additional amount ($137,000) that would have been subject to agreement (and/or order), if the Offer had been accepted. 11 The defendants submit that error of law by the Review Panel, rather than error or conduct of the defendants, was the cause of the appeal (and the costs thereof). That this may be the situation does not affect the right to indemnity costs for a variety of reasons, the two most obvious of which follow. 12 First, the appeal to this Court seeks to reverse a determination overturning a Costs Assessor's Determination. The appeal to this Court reinstated the first assessment. The application to the Review Panel was instigated by the defendants. All costs thereafter are, in that sense, caused by the defendants. 13 Second, indemnity costs payable as a result of an offer refused (the amount of which was surpassed by the judgment) does not, in the sense the defendants here use it, depend upon fault. Appeals usually depend upon error below. The lack of "fault" by the defendants is a reason that the Court issued an indemnity certificate under the Suitors' Fund Act 1951. It is not a basis, in these proceedings, for refusal of the costs order. 14 Lastly, on the issue of indemnity costs, the Court is requested to deal with whether the Offer complies with the Rules. 15 The defendants submit that the Offer fails because it is inclusive of costs. The $137,000 Offer did not include costs. The Offer as a whole proposed that "each party bear its own costs". The general principle (and Uniform Civil Procedure Rule 20.26(2)) requires that an offer of compromise must be exclusive of costs. Further, no offer that purports to modify the operation of the "indemnity costs" rules is effective as an offer of compromise under the Rules: see Trustee for Salvation Army v Becker (No 2) [2007] NSWCA 194; Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349; Theiss Contractors Pty Ltd v SCI Operations Pty Ltd (Supreme Court of New South Wales, Rogers CJ in Comm D, 21 September 1990, unreported). 16 Notwithstanding that the amount to be paid under the Offer did not include costs, the Offer, as a whole, did include them. It proposed an amount and, in a separate order, proposed that each party bear its own costs. As such, the overall effect of the Offer is that the $137,000 is not exclusive of costs. 17 The Uniform Civil Procedure Rules discriminate, in this area, between verdicts for plaintiffs and defendants. Uniform Civil Procedure Rule 20.26(2) clearly implies that an order that the parties "bear their own costs", if not made in conjunction with a verdict for the defendant, would not be an offer "exclusive of costs". 18 The Offer was not for a verdict for the defendant. As such, a proposal that "the parties [or each party] bear their own costs" renders the Offer ineffective for the purposes of Part 20. 19 Nevertheless, the Offer may be a Calderbank letter i.e. an offer that does not comply with the relevant rules of the Court: see Trustees for the Salvation Army, supra, at [27]. The covering letter to the Offer does not suggest that, absent its effect under the Rules, it should be treated as a Calderbank letter. Further, the terms of the Offer refer to it only as an offer made in accordance with the Rules, which it is not. There seems to be no inference that the Offer was intended to have effect otherwise than as an offer under the Rules and the Offer ought not be treated as a Calderbank letter. 20 One other matter bears comment. It seems that the rule that an offer be exclusive of costs requires some consideration. There seems to be a significant difference between an offer that, if accepted, requires a payment (or other order) in favour of the offeror and one requiring payment (or other order) in favour of the offeree. In the former case, the costs would be known and, presumably, taken into account in the Offer. Further, if offered in the form of this Offer (i.e. each party to bear its own costs), any resulting agreement would not detract from the operation of Part 42. Costs of the Review Panel 21 The Review Panel received the application for review, including "grounds" of appeal, the true categorisation of which is that the grounds were submissions: see [63]-[68] of the earlier judgment of 4 April 2008. The provisions of s 208KC(2) of the Legal Profession Act 1987 precluded, in the absence of a determination otherwise, the receipt of submissions. As such, the costs of the preparation and filing of the "grounds" and the response by Mr Levy are not costs contemplated by the Act. 22 Nevertheless, Mr Levy acted reasonably in responding to the submissions of the defendants. His action would have been unnecessary had the defendants acted consistently with the procedure contemplated by the Act. It is reasonable and appropriate that Mr Levy's costs in drafting the response be paid. Interest on Costs 23 The precise circumstances in which this order is sought are not clear. Interest may have accrued in two different ways. First, to the extent that legal fees remain unpaid and interest has accrued in accordance with the costs agreement and/or s 321 of the Legal Profession Act 2004, interest would be payable by Mr Levy and be assessed under the Act. These interest costs do not require special order because they are assessed as the costs of the provision of legal costs by a costs assessor. 24 Second, to the extent that a bill of costs has been rendered and paid, Mr Levy would be "out of pocket" by the said amount from the date of its payment. It is generally fair, reasonable and appropriate for the latter to be subject to an order for interest thereon, provided that the amount paid is a cost that the defendants are otherwise required to bear. Conclusion 25 For the foregoing reasons, I reject the claim for indemnity costs, allow costs in relation to the Review Panel (confined, however, to the preparation of the submission) and allow interest on costs paid from the date of payment thereof. As a matter of abundant caution, I make it clear that the costs of this application for special orders are costs in the cause and included in the orders made and now varied. 26 The Court makes the following orders: (i) the application for indemnity costs is dismissed; (ii) the orders of 4 April 2008 in this matter be varied by adding two new orders: "(viii) the defendants pay the plaintiff's costs of the preparation of the submission in reply before the Costs Review Panel; (ix) the defendants shall pay interest on any amount paid by the plaintiff as costs provided that: (a) the costs, upon which interest is payable, are agreed or allowed on assessment; (b) interest is calculated from the date of payment of the said costs by the plaintiff and continues only until such time as payment by the defendants of said costs and interest has occurred but not beyond the date of judgment." ********** 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.