New South Wales Supreme Court CITATION : Edmund James Bateman v Face Accountants Pty Limited [2010] NSWSC 1448 HEARING DATE(S) : 6 & 14 December 2010 JUDGMENT DATE : 14 December 2010 JUDGMENT OF : Hammerschlag J DECISION : Plaintiff to pay 75 per cent of the defendants' costs, which are to be assessed on the ordinary basis until 2 June 2010 and on the indemnity basis thereafter. The costs thrown away by the plaintiff's amendment made during the course of the hearing to be borne on the ordinary basis. CATCHWORDS : COSTS – where defendants successful on the basis that the plaintiff did not establish that their conduct caused him loss although they admitted, during the hearing that their conduct was misleading or deceptive or negligent – where the defendants made two offers of compromise, the first offering verdict for them and with them paying the plaintiff's costs and the second, offering $200,000 plus costs – HELD – that there should be an allowance in favour of the plaintiff because the defendants should have made the admission earlier but that the second offer of compromise was effective to give the plaintiff indemnity costs after adjusting for the allowance – the plaintiff ordered to pay 75 per cent of the defendants' costs on the ordinary basis up until the second offer of compromise and on the indemnity basis thereafter Uniform Civil Procedure Rules 2005 LEGISLATION CITED : Civil Procedure Act 2005 (NSW) Civil Liability Act 2002 (NSW) CATEGORY : Consequential orders Oshlack v Richmond River Council (1998) 193 CLR 72 Ingot Capital Investment & Ors v Macquarie Equity Capital Markets & Ors [No. 7] [2008] NSWSC 199 CASES CITED : Colgate-Palmolive & Anor v Cussons Pty Ltd (1993) 46 FCR 225 J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) [No 2] (1993) 46 IR 301 Leichhardt Municipal Council v Green [2004] NSWCA 341 Edmund James Bateman - Plaintiff PARTIES : Face Accountants Pty Limited - First Defendant Michelle Pearce - Second Defendant FILE NUMBER(S) : SC 2009/298655 COUNSEL : R.R.I. Harper SC [Plaintiff] M.J. Windsor SC [Defendant] SOLICITORS : Turner Freeman [Plaintiff] Kennedys (Australia) Pty Ltd - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST HAMMERSCHLAG J 14 December 2010 2009/298655 EDMUND JAMES BATEMAN -V- FACE ACCOUNTANTS PTY LTD EX TEMPORE JUDGMENT 1 HIS HONOUR: On 1 December 2010 I gave judgment dismissing the plaintiff's claim. I gave the parties the opportunity to be heard on costs. I made directions for written submissions. The parties availed themselves of the opportunity, although the plaintiff's written submissions were late. 2 As the judgment records [par 26], during final submissions the defendants admitted that if by their conduct in not advising the plaintiff of the tax liability, he suffered damage, he was entitled at common law and under statute to recover it from them. 3 On 12 March 2010, the defendants made an offer of compromise to the plaintiff on terms that there be verdict and judgment for them, with them to pay the plaintiff's costs ("the first offer"). 4 On 2 June 2010, the defendants made a further offer of compromise of $200,000 plus costs with a release by the plaintiff of the defendants from all claims ("the second offer"). Although the second offer was made in accordance with r 42 of the Uniform Civil Procedure Rules 2005 ("UCPR") (which is referred to below) it was accompanied by a letter from the defendants' solicitors to the plaintiff's then solicitors which articulated the basis upon which the second offer was made by identifying eleven reasons why the plaintiff would fail. It is not necessary for present purposes to recount all eleven. Nine of them bear no relationship to the reasons why the plaintiff ultimately failed. The tenth and eleventh reasons were articulated as follows: 10 Bateman will not succeed in proving Pearce and Face caused Bateman's alleged loss by reason of the elements of section 5D of the Civil Liability Act 2002; 11 Bateman will not succeed in proving he lost the benefit of a commercial opportunity by reason of the principles set out in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332). 5 The defendants submit that they have been successful and that the plaintiff has fared worse than both the first offer and the second offer. On this footing they seek an order that the plaintiff pay their costs on an ordinary basis up to and including 12 March 2010 (the date of the first offer) and indemnity costs thereafter, alternatively, that the plaintiff pay their costs on an ordinary basis up to and including 1 June 2010 (the date of the second offer) and indemnity costs thereafter. 6 The plaintiff puts that the defendants "failed in respect of liability", that the issues relating to liability were distinct and separable from those relating to damages and that it was unreasonable of the defendants to maintain their defence to liability. They put that the plaintiff and the defendants should bear his/their own costs. 7 The plaintiff further puts that it was not unreasonable for him not to accept either the first or the second offer because both reflected an outcome "hardly better than capitulation by the plaintiff, in circumstances where the plaintiff's claim was in excess of $2,000,000". Moreover, with regard to the second offer it is put that the eleven articulated bases of failure have been shown to have been unsound providing further justification for the plaintiff's non-acceptance of it. 8 UCPR r 42.1 provides that: Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. 9 UCPR r 42.2 provides as follows: Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis. 10 Sections 98(1) and (2) of the Civil Procedure Act 2005 (NSW) provide as follows: (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. 11 UCPR r 20.26 (1) and (2) provide as follows: (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. 12 UCPR r 42.13 provides as follows: This Division applies to proceedings in respect of which an offer of compromise (the offer concerned ) is made under rule 20.26 with respect to a plaintiff's claim (the claim concerned ). 13 UCPR r 42.15A provides as follows: (1) This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim concerned as favourable to the defendant, or more favourable to the defendant, than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made. 14 The normal rule and practice is thus that the successful party obtains an award for the payment of its costs on the party and party basis. However, the Court has a wide discretion to order costs on the indemnity basis. Every case must be considered on its own facts and the discretion exercised accordingly. 15 Some well-known considerations relevant to the exercise of the discretion affirmatively, include where: a the outcome for the unsuccessful party is no better than a prior settlement offer by the other party; b the unsuccessful party's non-acceptance of a settlement offer was imprudent or unreasonable; and c there was undue prolongation of a case by groundless contentions. See for example: Oshlack v Richmond River Council (1998) 193 CLR 72; Ingot Capital Investment & Ors v Macquarie Equity Capital Markets & Ors [No. 7] [2008] NSWSC 199; Colgate-Palmolive & Anor v Cussons Pty Ltd (1993) 46 FCR 225 ; J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) [No 2] (1993) 46 IR 301. 16 An offer of compromise, whether under the UCPR or at general law, needs to involve a real and genuine element of compromise before its non acceptance can have the effect of warranting an award of indemnity costs: Leichhardt Municipal Council v Green [2004] NSWCA 341. 17 Whilst the defendants have been successful and costs would ordinarily follow the event on the party and party basis, I consider that adjustment is warranted on two bases, one in favour of each party. 18 In favour of the plaintiff is the fact that the defendants admitted that their conduct bore the quality complained of together with the fact that their putting this in issue bordered on the indefensible and should undoubtedly have been made earlier. 19 Whether their conduct was negligent or misleading or deceptive was an issue theoretically delineable from whether the plaintiff suffered any loss, and from quantum, although, experience shows that facts and evidence relevant to the quality of the conduct are often relevant also to whether damage has been suffered, and if so, what damage. In my view, the issue is sufficiently discrete to warrant an adjustment in favour of the plaintiff. Contrary to a submission put by the defendants, in my view a not insignificant amount of time and cost would have been saved had the defendants made the admission earlier. 20 I do not consider that the defendants' persistence in keeping alive their denial that their conduct was of the quality complained of warrants an adjustment in the nature of them having to pay the plaintiff's costs related to the issue (either on an indemnity or the ordinary basis), but it does warrant them being denied a portion of their costs. 21 The first offer did not reflect a real and genuine element of compromise. It called in effect for a capitulation. Additionally, I think that in offering a verdict for the defendants the plaintiff reasonably rejected it given that the defendants' conduct undoubtedly bore the quality complained of. 22 However, in my view the second offer reflected a real and genuine element of compromise and the plaintiff fared significantly worse. Section 5D of the Civil Liability Act 2002 (NSW) reflects the general principles for determination that negligence caused particular harm. It includes reference to established principles of factual causation of harm. Both the tenth and eleventh reasons articulated in the 2 June 2010 letter bear a close relationship with the reasons for the actual ultimate outcome of the proceedings. In my view, there is no good reason for displacing the usual consequence "in relation to the remaining issues" which follows when defendants achieve a more favourable outcome than that offered to the plaintiff by way of offer of compromise. 23 Taking all relevant considerations into account, I consider that the plaintiff should pay 75 per cent of the defendants' costs, which are to be assessed on the ordinary basis until 2 June 2010 and on the indemnity basis thereafter. 24 During the course of the hearing, the plaintiff amended its pleadings and an order was made in favour of the defendants for the costs thrown away by the amendment. It seems to me that this is roughly equivalent to 75 per cent of those costs on an indemnity basis so that the order already made (which was on the ordinary basis) will stand with respect to the costs thrown away by the amendment. ********** 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.