Supreme Court New South Wales Medium Neutral Citation: North Sydney Leagues Club Ltd v Synergy Protection Agency Pty Ltd [2011] NSWSC 804 Hearing dates: 19 July 2011 Decision date: 22 July 2011 Jurisdiction: Equity Division - Commercial List Before: Einstein J Decision: (1)Judgment for the cross-claimant on the cross-Summons in the sum of $334,547.51, together with interest up to and including 19 July 2011 in the sum of $141,564.99 (2)The plaintiff/cross defendant is to pay the defendant/cross claimant's costs of the proceedings on a party/party basis, as agreed or assessed, excluding the costs detailed below: (a)The preparation and hearing of the defendant/cross claimant's Notice of Motion filed 10 March 2008, part heard on 28 March 2008 and dismissed on 11 April 2008, in relation to s 50 of the Evidence Act 1995 (NSW); (b)The preparation and hearing of the defendant/cross claimant's application to adduce expert evidence heard on 10 March 2011; (c)The plaintiff/cross defendant's Notice to Produce dated 21 June 2011 and the defendant/cross claimant's Notice of Motion filed 27 June 2011 which was dismissed on 8 July 2011 (3)The defendant/cross claimant is to pay the plaintiff/cross defendant's costs detailed at paragraphs 2(a) and 2(b) above, as agreed or assessed. (4)The plaintiff/cross-defendant is to pay the defendant/cross-claimant interest on the defendant/cross-claimant's costs and disbursements of the proceedings as assessed or agreed: (a)at the rate from time to time applicable set out in UCPR r 36.7; (b)on the Allowed Percentage of each amount of costs and disbursements actually paid by the defendant/cross-claimant in respect of these proceedings; and (c)from the date of payment by the defendant/cross-claimant of each such amount of costs and disbursements until such time as costs due to the defendant/cross-claimant under these orders have been paid. (5) In respect of Order 4, grant liberty to either party to restore upon 3 days' notice. Catchwords: Costs - Restatement of principles of awarding costs - Indemnity costs - Apportionment- Interest on costs - Ordinary rule as to costs- UCPR r42- Caldberbank letter - Consequences of rejecting a calderbank letter - Reasonableness of rejection of offer - Reasonableness to be assessed at the time the offer was rejected and in light of the factual circumstances Legislation Cited: Civil Procedure Act 2005 (NSW) Evidence Act 1995 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Arnott v Choy (No 2) [2010] NSWCA 336 Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 100 ALR 568 Berkeley Administration Inc v McClelland [1990] FSR 565 Brymount Pty Limited t/a Watson Toyota v Cummins (No 2) [2005] NSWCA 69 Calderbank v Calderbank [1975] 3 All ER 333 Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 Darryl Cullen v ZLB Behring LLC [2006] NSWSC 359 Drummond and Rosen Pty Ltd v Easey and Ors (No 2) [2009] NSWCA 331 DSE (Holdings) Pty Limited v InterTAN Inc [2004] FCA 1251 Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373 Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 Fowdh v Fowdh (unreported, Supreme Court of New South Wales Court of Appeal, Full Court, 4 November 1993, BC 9302200) Gray v Gray [2005] NSWCA 129 Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Pty Ltd) [1998] FCA1429 (BC9805973) Hurstville Municipal Council v Connor (1991) 24 NSWLR 724 InterTAN Inc v DSE (Holdings) Pty Limited [2005] FCAFC 54 Jones v Bradley (No 2) [2003] NSWCA 258 Laguillo v Haden Engineering [1978] 1 NSWLR 306. Lahoud v Lahoud [2006] NSWSC 126 Leda Pty Limited v Weerden and Anor (No2) [2007] NSWCA 283 Leichhardt Municipal Council v Green [2004] NSWCA 341 LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (No 2) [2002] NSWSC 72 Marks, Kinross, McCullagh & Williamson v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128 MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 Ng v Chong [2005] NSWSC 385 North Sydney Leagues' Club Ltd v Synergy Protection Agency Pty Ltd [2010] NSWSC 52 Oshlack v Richmond River Council (1998) 193 CLR 72, Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2005] NSWSC 481 Robb Evans of Robb Evans and Associates v European Bank Ltd (No 2) [2009] NSWCA 170 Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626 Rosniak v Government Insurance Office (1997) 41 NSWLR 608 Rosser v Maritime Services Board of New South Wales (No 3) (unreported, Supreme Court of New South Wales, 25 November 1997, Young J, BC9706221) Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Smith, Re; ex parte Rundell (No 2) (1991) 6 WAR 299 South Eastern Sydney Area Health Service v King [2006] NSWCA 2 Stockland (Constructors) Pty Ltd v Darryl I Coombs Pty Ltd [2005] NSWSC 252 Van Doore by his tutor the Protective Commissioner v Mendez (No 2) (unreported, Supreme Court of New South Wales, Dunford J, 30 June 1997, BC9702746) Wakeford v Ellis (unreported, Supreme Court of New South Wales, McLaughlin M, 7 May 1998, BC9804384) Waters v PC Henderson (Aust) Pty Ltd (unreported, Supreme Court of New South Wales Court of Appeal, Kirby P, Mahoney JA, Priestley JA, 6 July 1994, BC 9404952) Ying v Song [2011] NSWSC 618 Category: Costs Parties: North Sydney Leagues Club Limited (Plaintiff) Synergy Protection Agency Pty Ltd (formerly Joseph Merhi Industries Pty Ltd) t/as Synergy Protection Agency (Defendant) Representation: Counsel Mr Bromwich SC (Plaintiff) Mr Smark SC, Mr J Mitchell (Defendant) Solicitors Lander & Rogers (Plaintiff/Cross Defendant) Carroll O'Dea (Defendant/Cross Claimant) File Number(s): 2006/00268578 Judgment The matters before the Court 1On 14 April 2011, the Court dealt with Synergy's entitlement to damages arising out of Norths' breach of contract [the damages judgment] . This judgment dealt with the final substantive matters in dispute between the parties . There now remain some outstanding issues, which require determination. Some of these issues are the subject of agreement, while others remain in dispute. 2Both parties have addressed close submissions on these issues. Before turning to the detailed submissions it is appropriate to begin by referring to the relevant principle's guiding the Court's exercise of discretion. The principles The usual approach to costs 3The usual order is that costs follow the event (although there is no absolute rule to that effect): Oshlack v Richmond River Council (1998) 193 CLR 72, per McHugh J at [63]-[67]. The position will be otherwise if it appears to the Court that some other order ought be made as to the whole or any part of the costs: Laguillo v Haden Engineering [1978] 1 NSWLR 306. Apportionment 4The effect of UCPR Pt 42 r 42.1 is that an unsuccessful party may be ordered to pay the entirety of the costs of a successful party, even though the successful party did not succeed on all issues. Special circumstances are generally required to justify some other order being made. 5Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those in which it failed: Waters v PC Henderson (Aust) Pty Ltd (unreported, Supreme Court of New South Wales Court of Appeal, Kirby P, Mahoney JA, Priestley JA, 6 July 1994, BC 9404952). 6Whilst the general principle is that an ultimately successful party ought not be put at risk as to costs merely by having relied upon additional issues upon which it did not succeed (on the basis that the ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case), a successful party may only get a proportion of its costs if the unsuccessful party is able to identify clearly dominant or separable issues lost by the successful party Indemnity costs 7The Court has power to award indemnity costs under s 98(1)(c) of the Act. 8The principles on which an indemnity costs order will be made, are well settled and are set out by Sheppard J in Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233. 9Notable applications of those principles in this Court are Lahoud v Lahoud [2006] NSWSC 126, Campbell J; Stockland (Constructors) Pty Ltd v Darryl I Coombs Pty Ltd [2005] NSWSC 252 , and by the Court of Appeal in Gray v Gray [2005] NSWCA 129 para 18. 10The High Court in Oshlack at 89-90 (Gaudron and Gummow JJ) recorded that indemnity costs were appropriate where the case involved "some relevant delinquency on the part of the unsuccessful party": See the observations quoted by those Justices from the judgment of Malcolm CJ's in S mith, Re; ex parte Rundell (No 2) (1991) 6 WAR 299. 11The following factors include those listed by Sheppard J in Colgate Palmolive v Cussons (1993) 118 ALR 248 , as accepted by the Court of Appeal in Leichhardt Municipal Council v Green [2004] NSWCA 341 at [48], as of relevance to the present application: "Evidence of particular misconduct that causes loss of time to the Court and the other parties ... The fact that the proceedings were commenced in wilful disregard of known facts ...; The making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions; [It is to be noted that CGU has submitted, that for the purposes of Sheppard J's para (a), an allegation of bad faith may have a similar effect to an allegation of fraud]. 12Section 56(5) of the Civil Procedure Act expands the circumstances in which an indemnity costs order may be made. 13In order to establish a basis for an indemnity costs order, it is necessary to establish by evidence relevant delinquency, abuse of process, ulterior purpose or unreasonableness on the part of Norths. Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 per Mason P. 14The difficulty or otherwise of the litigation cannot itself be the basis for the award of costs on a special basis, as the Courts are constantly engaged in complex litigation, and the fact that a particular piece of litigation raises difficult questions of law necessitating elaborate preparation is not a novelty: cf, Marks, Kinross, McCullagh & Williamson v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128 at 141. 15The mere fact that a party fights the proceedings fiercely and that no stone is left unturned is not a ground for a special costs order: cf, Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 100 ALR 568 at 570; Berkeley Administration Inc v McClelland [1990] FSR 565 at 569-570. 16The mere fact that a case has been found to lack merit cannot be a basis for a special costs order, for in most litigation that comes to a concluded hearing, the claim of one of the parties will have been found lacking in merit: cf, Hurstville Municipal Council v Connor (1991) 24 NSWLR 724 at 735. [See the practical application of the above principles by Allsop J in DSE (Holdings) Pty Limited v InterTan Inc [2004] FCA 1251 and on appeal InterTan Inc v DSE (Holdings) Pty Limited [2005] FCAFC 54 ]. Interest on costs 17Section 101(4) of the Civil Procedure Act 2005 (NSW) provides: The Court may order that interest is to be paid on any amount payable under an order for the payment of costs . 18The Court has recognised that it is appropriate that an order for costs compensate a successful party for the fact that it has been out of pocket by reason of incurring legal costs: Lahoud v Lahoud [2006] NSWSC 126 at [82]-[83] per Campbell J; applied in Drummond and Rosen Pty Ltd v Easey and Ors (No 2) [2009] NSWCA 331 at [4]-[5] per Macfarlan JA, Tobias JA agreeing; applied in Leda Pty Limited v Weerden and Anor (No2) [2007] NSWCA 283 per Hodgson, McColl JJA and Handley AJA at [8] and [9]; applied in Evans of Robb Evans and Associates v European Bank Ltd (No 2) [2009] NSWCA 170 per Basten and Campbell JJA. See, for a recent application, Ying v Song [2011] NSWSC 618, per Ward J, at [99]-[111]. 19It is not necessary for the precise details of the costs in question to be proved before the Court, given the form of the orders made in such matters (see, for example, Lahoud , Ying ). What is necessary is that the Court have evidence that the relevant party paid costs prior to the orders being made, with the details of such payments being taken into account as part of the assessment process. 20In the absence of any countervailing discretionary factor, it is appropriate that an order for interest on costs be made to compensate a party who is out of pocket in respect of relevant costs which it has paid: Drummond at [5]. Calderbank offers 21The principles which the Court should apply to decide whether an award of indemnity costs should be made in favour of a defendant who has made a Calderbank offer which is rejected by the plaintiff are as set out in Leichhardt Municipal Council v Green [2004] NSWCA 341 and Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2005] NSWSC 481 per McDougall J. 22An award of indemnity costs may be appropriate where a party has unreasonably failed to accept an offer of settlement of the proceedings. The relevant question of whether the failure of the party to accept a settlement offer was unreasonable is to be assessed in all of the circumstances: Jones v Bradley (No 2) [2003] NSWCA 258 at [5]-[8]. 23Merely refusing a Calderbank offer does not automatically lead to an order for indemnity costs [ Ng v Chong [2005] NSWSC 385 at [13] and see also the authorities conveniently identified at Ritchie's [42.13.26]]. 24A Calderbank letter raises no prima facie presumption in favour of indemnity costs [ SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]; Ng v Chong [2005] NSWSC 385 at [13]]. 25A Court may also refuse indemnity costs where a party succeeds at trial on a case that significantly changed after the offer was made ( Wakeford v Ellis (unreported, Supreme Court of New South Wales, McLaughlin M, 7 May 1998, BC9804384); Fowdh v Fowdh (unreported, Supreme Court of New South Wales Court of Appeal, Full Court, 4 November 1993, BC 9302200) at [6] per Mahoney JA: It is one thing for a plaintiff to present her evidence, make an offer of compromise, and to succeed at the trial on that evidence. In such a case, indemnity costs may be warranted. It is another thing for the plaintiff to present a case and make an offer of settlement, and then to succeed at the trial upon a relevantly different case. A plaintiff who has done that may not readily receive indemnity costs. I do not mean by this that minor differences between the case at offer and the case at trial will be of significance or that, if the difference be significant, a discretionary judgment for indemnity costs may not be given. But where the difference between the position at offer and the position at trial be as the Master assessed it to be, a decision to refuse indemnity costs may readily be understood. [cf: Van Doore by his tutor the Protective Cmr v Mendez (No 2) (unreported, Supreme Court of New South Wales, Dunford J, 30 June 1997, BC9702746); South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [90] per Hunt AJA, McColl JA and Mason P agreeing: The discretion to award indemnity costs following a Calderbank letter must be considered having regard to all of the circumstances of the case, including the relevant strengths and weaknesses of each party's case as they may have been apparent to the parties at the time the offer was made.] 26This must be evaluated in the context of the circumstances when the offer was rejected, including the relevant strengths and weaknesses of each party's case as they may have been apparent to the parties at the time the offer was made: Darryl Cullen v ZLB Behring LLC [2006] NSWSC 359 at [15] citing Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626 at [95]-[99]; South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [90]. 27The fact that the offer proves to have been more favourable than the ultimate judgment does not, of itself, prove unreasonable conduct in rejecting the offer. 28A difficult and complex case, hard-fought by large commercial parties may lead to the conclusion that it was reasonable to reject a Calderbank offer: LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (No 2) [2002] NSWSC 72 at [53]-[55]. 29Discretionary factors include the complexity of the issues (MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236; Ng v Chong [2005] NSWSC 385 at [14]) and the period allowed for acceptance ( Ng v Chong [2005] NSWSC 385 at [14]). 30A further relevant factor is the form of the Calderbank letter, and the manner in which the offer treats with costs. 31It has been held that a Calderbank letter which is expressed to be "inclusive of costs", is insufficiently precise to qualify as a Calderbank offer, for the reason that the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim and the costs incurred in advancing it: Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102; Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Pty Ltd) [1998] 1429 FCA 11, BC9805993 ( Smallacombe Pty Ltd v Lockyer Investments Co Pty Ltd was referred to by Young J in Rosser v Maritime Services Board of New South Wales (No 3) (unreported, Supreme Court of New South Wales, 25 November 1997, Young J, BC9706221). 32These authorities recognise the importance of isolating the costs component in such a way, which is clear and capable of proper assessment independently of the principal claim, as part of a Calderbank letter. The relevant background 33These proceedings were commenced by a summons filed by Norths on 8 December 2006. Synergy filed a cross summons on 2 March 2007. 34There were a significant number of occasions when the proceedings were heard at first instance and then heard on appeal. 35A convenient short description was prepared by Synergy as an outline and it is appropriately set out as follows : 08.12.06 Commencement of proceedings. 28.04.08,29.04.08, 05.05.08 Trial hearing. 09.05.08,14.05.08 Trial judgment. 14.08.08 Commencement of first appeal. 07.10.08 Synergy files appeal submissions 20.10.08 Synergy will accept $200,000 plus costs. 13.03.09 Synergy will "walk away". 23.04.09 Appeal hearing (liability) 09.06.09 Appeal judgment (liability) 08.09.09 Norths will pay $70,000, and costs of its Summons and of the appeal, but parties otherwise to bear own costs. 04.02.10 Further hearing. 12.02.10 Delivery of first separate determination judgment. 24.02.10 Synergy will accept $420,000 (including interest), plus costs. 01.04.10 Further hearing. 07.04.10 Delivery of second separate determination judgment. 05.11.10 Application for leave to appeal (per Amended Summary of Argument) 11.03.10 Norths will pay $200,000 (including interest), costs of Norths' summons and of the appeal, but parties otherwise to bear own costs. 20.04.10 Synergy advises Norths of appeal. 21.04.10 Synergy will accept $250,000 (including interest) with Norths to pay party/part costs. 18.05.10 Norths will pay $100,000 (including interest) but seeks indemnity costs from Synergy on basis of Norths 8/9/09 offer. 23.02.11 Hearing of second appeal; matter remitted. 07.04.11 Final hearing. 14.04.11 Delivery of final judgment. 19.07.11 Argument as to orders. 36As indicated in the chronology above, on 14 April 2011 the Court made findings in favour of Synergy in relation to damages [2011] NSWSC 286. The Court directed the parties to formulate proposed orders to reflect the findings made in the judgment handed down on that day. 37Synergies proposed the following orders in its final proposed short minutes of order : (1)Judgment for the cross-claimant on the cross-summons in the sum of $334,547.51, together with interest up to and including 19 July 2011 in the sum of $141,564.99. (2)The plaintiff/cross-defendant is to pay the defendant/cross-claimant's costs of the proceedings on a party/party basis up to and including 20 October 2008 as assessed or agreed, and thereafter on an indemnity basis as assessed or agreed, excluding the costs detailed below: (a)The preparation and hearing of the defendant/cross claimant's Notice of Motion filed 10 March 2008, part heard on 28 March 2008 and dismissed on 11 April 2008, in relation to s 50 of the Evidence Act 1995 (NSW) ; (b)The preparation and hearing of the defendant/cross claimant's application to adduce expert evidence heard on 10 March 2011; and (c)The plaintiff/Cross defendant's Notice to Produce dated 21 June 2011 and the defendant/cross claimant's Notice of Motion filed 27 June 2011 which was dismissed on 8 July 2011. (3)The defendant/cross claimant is to pay the plaintiff/cross defendant's costs detailed at paragraph 2(b) above, as agreed or assessed. (4)The plaintiff/cross-defendant is to pay the defendant/cross-claimant interest on the defendant/cross-claimant's costs and disbursements of the proceedings as assessed or agreed: (a)at the rate from time to time applicable set out in UCPR r 36.7; (b)on the Allowed Percentage of each amount of costs and disbursements actually paid by the defendant/cross-claimant in respect of these proceedings; and (c)from the date of payment by the defendant/cross-claimant of each such amount of costs and disbursements until such time as costs due to the defendant/cross-claimant under these orders have been paid. Note: The Allowed Percentage equals ((y/x) x 100)% X - equals the total amount of costs and disbursements which the defendant/cross-claimant has paid or is liable to pay in connection with these proceedings. Y - equals the total amount of costs and disbursements allowed to the defendant/cross-claimant in connection with these proceedings as agreed or assessed. (5)In respect of Order 4, grant liberty to either party to restore u pon 3 days' notice 38North's final proposed short minutes of order were somewhat similar, but differed in respect of the four remaining issues of dispute. They were: (1)Judgment for the defendant/cross claimant on the cross summons in the sum of $ 334,547.51. (2)Pre-judgment Interest for the defendant/cross claimant up to and including 19 July 2011 pursuant to section 100 Civil Procedure Act, 2005 (NSW) in the sum of $141,564.99. (3)The plaintiff/cross defendant is to pay the defendant/cross claimant's costs of the proceedings on a party/party basis, as agreed or assessed, excluding the costs detailed below: (a)The preparation and hearing of the defendant/cross claimant's Notice of Motion filed 10 March 2008, part heard on 28 March 2008 and dismissed on 11 April 2008, in relation to s 50 of the Evidence Act 1995 (NSW) ; (b)The costs incurred during the period 4 February 2010 to 7 April 2010 associated with the Third Separate Question on damages; (c)The preparation and hearing of the defendant/cross claimant's application to adduce expert evidence heard on 10 March 2011; and (d)The plaintiff/cross defendant's Notice to Produce dated 21 June 2011 and the defendant/ cross claimant's Notice of Motion filed 27 June 2011 which was dismissed on 8 July 2011. (4)The defendant/cross claimant is to pay the plaintiff/cross defendant's costs detailed at paragraphs 3(a) and 3(c) above, as agreed or assessed . Issue 1: Indemnity costs 39The indemnity costs issue centred on whether Norths should pay Synergy's costs on an indemnity basis from the time that Norths received an offer from Synergy more favourable than the judgment. North's submissions as to indemnity costs 40North began by setting out a number of authorities which in general terms were unexceptional and reflected settled case law. These authorities set out the following propositions : (1)The need for the final judgment to be better than the settlement offered is necessary, but not sufficient, for the award of indemnity costs: MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 at 329 per Lindgren J at p239; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [3] per Giles JA; Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] per Santow JA (with whom Bryson and Stein JJA agreed) . Merely doing better than an offer that was refused will not, without more, suffice. (2)It is settled law in NSW that a Calderbank -type offer will not justify an indemnity costs order unless its rejection was unreasonable in all the circumstances: Jones v Bradley (No 2) [2003] NSWCA 258 at [6]-[8] . (3)The onus is on the party seeking an indemnity costs order to show that the rejection of an offer was, in all the circumstances, unreasonable: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [46], per Santow JA with whom Bryson JA and Stein AJA concurred; see also Evans Shire Council v Richardson (No 2) [2006] NSWCA 61, wherein Giles, Ipp and Tobias JJA at [26] referred to the onus being upon the applicant for the order for indemnity costs consequent upon an unaccepted Calderbank offer " to establish to the Court's satisfaction " that in all the circumstances the failure to accept the offer was " unreasonable " . (4)In Brymount Pty Limited t/a Watson Toyota v Cummins (No 2) [2005] NSWCA 69 , Beazley JA (with whom IPP and McColl JJA agreed), said at [14]: "[14] In SMEC Testing Services Pty Ltd, Giles JA considered that the following factors were relevant to determining whether costs should be awarded on an indemnity basis where a Calderbank offer had been made: (a)Whether the rejection of the compromise offer was reasonable in the circumstances: Giles JA at [37] held that, while the rationale of Calderbank offers was to promote settlement of disputes, "an offeree can reasonably fail to accept an offer without suffering in cost". (b)The time frame in which the offeree had to consider the offer. This factor is relevant as it usually accords with a party's legal advisers being given sufficient time to weigh up the prospects of a case and the potential value of any damages sought, as against the likely costs should the claim fail. (c)Whether the letter of compromise explicitly stated that the offer was made in Calderbank terms, the exact conditions of the offer, and whether indemnity costs would be pursued if the offer was rejected ." [ emphasis added ] 41In Brymount , Beazley JA further observed at [10] that the policy of the Courts is to encourage early settlement of proceedings. Her Honour observed that offers had been made significantly before trial by both defendants ([15]) and in circumstances in which the case was not at all borderline ([19]). In those circumstances, rejection of the offers was unreasonable. In Norths submission, the circumstances in this case are very different. 42It is fair to say that Norths placed considerable emphasis on the fact that Synergy's first settlement offer occurred five months after judgment against Synergy and 20 months after process was served. Its proposition was that in those circumstances Synergy stood in a different position to that which would have obtained had Synergy sought before the commencement of the hearing to send a Calderbank letter to Norths. Synergy's submissions as to indemnity costs 43Synergy's overriding contention was that Norths acted unreasonably by rejecting no less than four offers which were more favourable than the judgment. Their submissions may be summarised as follows: (1)By letter dated 20 October 2008 (second affidavit, p.14) Synergy made an offer (the " First Offer ") in the following terms: "Our client offers to settle the whole proceedings on the basis that the Respondent pay Synergy the sum of $200,000, together with its party and party costs of the proceedings below, with each party to bear its own costs of the appeal. If such terms were acceptable to your client, appropriate orders would need to be made dismissing the appeal, with no order as to costs. This offer is made in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 and is open for acceptance 28 days from the date of this letter, being 17 November 2008." There was no response to this offer from North. (2)By reason of the judgment recently given in this matter, damages payable in the proceedings are in an amount of $334,547.51 plus pre judgment interest. By Synergy's calculations the interest (putatively pre-judgment interest), as at 20 October 2008, equates to $65,575.54: See affidavit A O'Dea sworn 8 June 2011 at [5]. Accordingly, the sum of damages and interest, as at the date of Synergy's offer would have been $400,123.05, double the amount of the offer. (3)As this offer was made after the first hearing, Norths were fully apprised of the case that Synergy sought to make in relation to damages, including the detailed schedules of damages which had formed part of Synergy's case. It was accordingly well placed to consider the offer being made. (4)Synergy's offer, open for 28 days, was genuine and unreasonably ignored when considered in light of the amount of $400,123.05 that would have been payable if orders, consistent with those now agreed upon by the parties, had been made on the date of the offer: Arnott v Choy (No 2) [ 2010] NSWCA 336 at [10] per Basten and McColl JJA . An incident of that offer was that each party pay their own costs of the appeal. Again, this offer was both genuine and unreasonably ignored when considered in light of the fact that Synergy was successful on that appeal and Norths was ordered to pay Synergy's costs of the appeal. (5)If a further offer be needed, then by its letter dated 13 March 2009 (second affidavit, 15), Synergy offered to settle the proceedings on a "walk away" basis (the " Second Offer "). That entailed each party paying their own costs and there being no relief sought from the Court. This offer was open for 10 days and was also unreasonably rejected. North's response to the Second Offer, on 23 March 2009 (second affidavit, 16), was as follows: "Your client's offer for a "walk away settlement" is rejected outright. ... Our client has invited your client on numerous occasions to put forth an acceptable offer to avoid the incurrence of further costs in these proceedings. Our client has also invited your client, prior to filing its application of review of the cost determination, to advise if there are any prospects of settlement of this matter by negotiation. To date, your client has failed, refused or neglected to attempt to settle these proceedings sensibly. In the event your client is serious about settling, we recommend that your client put forth a sensible offer for our client's consideration which takes into account the decision of the Supreme Court, the orders made by the Supreme Court and our client's costs associated with the filing of a review application of the cost determination." (6)These remarks are said to point up the unreasonableness of North's approach to settlement of the proceedings. The fact that the First Offer was ignored by Norths and the Second Offer was refused with such vehemence supports that contention. Norths has now been found liable to pay damages and interest well in excess of $400,000 when they could have settled for $200,000 plus costs in October 2008 or for nothing in March 2009. These offers suggest that Synergy had not "failed, refused or neglected to attempt to settle these proceedings sensibly" in making the First Offer or Second Offer. Those offers were sensible and constituted an offer by Synergy of a genuine compromise . They were unreasonably refused by North. (7)If these offers fail to persuade the Court, Synergy relied on a series of further offers. On 8 September 2009, North's offered (second affidavit, pp.18-21) to pay Synergy $70,000 (for damages and interest) with Norths to pay Synergy's costs of the summons dated 8 December 2006 (already dismissed by the Court of Appeal) and each party paying their own costs in relation to the cross summons dated 29 March 2007. North's offered to pay Synergy's costs of appeal, notwithstanding that the Court of Appeal had already made an order to that effect. Again, the quantum of that offer further highlights the unreasonableness of Norths conduct in settlement negotiations. (8)Here again if a further alternative to the second of be needed, then by its letter dated 24 February 2010 Synergy offered to settle the proceedings on the basis that Norths pay Synergy damages of $333,000 plus $97,000 in interest (less a discount of $10,000) and costs (the " Third Offer "). This offer was open for 21 days and was, again, rejected. (9)On 11 March 2010 Norths made a counter offer of $200,000 (inclusive of interest) plus costs of the summons in an amount of $40,000 plus costs of the appeal in the amount of $60,000 plus each party to pay their own costs of the cross summons dated 29 March 2007. The counter offer was open for 5 days. As Synergy was the effective plaintiff in the case, the costs of the cross-summons, were likely to be the lion's share of the costs of the trial, and so the costs offer of $40,000 in relation to the trial was clearly less favourable than a party-party order for the costs of the trial. (10)Finally and if an alternative to the third Offer be needed, then by its letter dated 21 April 2010 Synergy offered to settle proceedings for $250,000 plus party / party costs of the proceedings (the " Fourth Offer "). That offer was open for 21 days and was rejected on 18 May 2010. On that day Norths made a counter offer of $100,000 (including interest) plus Synergy's costs of the appeal (already ordered by the Court of Appeal) provided Synergy paid Norths costs on an indemnity basis from 8 September 2009 and each party pay their own costs of the remainder of the proceedings. Conclusion as to indemnity costs 44Having set out the broad detail of the manner in which these proceedings were dealt with, there are a number of special features which should be carefully chronicled. I proceed accordingly: (1)The first trial hearing was uneventful leading to the first trial judgment in favour of Norths. (2)The first appeal to the Court of Appeal led to success for Synergy. (3)While the appeal submissions awaited hearing Synergy took a number of steps, these being : (a)An offer that synergy would accept 200,000 plus costs; (b)a later offer that Synergy would walk away. (4)Then followed the appeal hearing on liability followed by the Court of Appeal judgement in favour of synergy. (5)Then followed Norths offer to pay $70,000 and costs of its summons and of the appeal but the parties were to otherwise bear their own costs. (6)Then followed a further hearing followed by the delivery of the first separate determination judgment [It is important to note that the original judgment on the 3 separate questions was followed by an application by Synergy to vary the judgment on question 3. For reasons which are were given the Court set aside the 2.10 10 judgment in relation to separate question 3. This ruling followed by reason of an ambiguity in the dealing by the court with separate question 3. In effect the matter was reopened]. 45The further hearing before me on separate question 3 resulted in a replacement judgment on separate question 3. 46This outlines serves to highlight the unusual and complex environment in which this trial took place. This environment must be considered when weighing the reasonableness or unreasonableness of Norths' rejection of Synergy's settlement offers. In this context, Mr Bromwich SC's oral submission was persuasive: "When you strip Synergy's submissions of some of the language surrounding it the core of their submission is a wisdom with hindsight submission . It takes the end result, it looks at the offer, it's said we did better and says that it was unreasonable not to accept it because we did better than the offer. When you look through the submissions you can't find any basis for it being said to be unreasonable, other than some references in correspondence, exchanges back and forward. But in terms of the rejection of the offer at the time it doesn't appear to be that there's substance to the suggestion it's unreasonable, other than as to outcome. And although outcome is, of course, important it's not enough and as we say in our submissions it's necessary but it's not sufficient. And there has to that extra factor." 47As indicated above, neither party cavilled with the proposition that rejecting a Calderbank offer and achieving a worse result is, as of itself, insufficient for the award of indemnity costs. What is required is a reasonable offer and unreasonableness in rejecting this offer. See Santow JA in Leichardt Muncipal Council v Green [2004] NSWCA 341 at [44]. 48The question for the Court is therefore not: Could Norths have achieved a better result had they accepted the offer, but rather: Was Norths' rejection of a settlement offer, after receiving a judgment in its favour, unreasonable? 49In the unusual circumstances which faced both parties, and especially the many steps they took to put forward their respective cases, the principled exercise of the material discretion is not to accede to Synergies contention that it has made good an entitlement to have an award of indemnity costs made in its favour. Costs should be payable on an ordinary basis only. Issue 2: interest on costs 50The proceedings were commenced on 8 December 2006 and final orders are due to be made in late July 2011. 51The Court accepts that during the course of the proceedings Synergy has incurred legal costs and disbursements in defending the summons and prosecuting the cross summons. Consequently, it has been denied the use of funds spent on the legal costs and disbursements from the time of their payment. 52The Court has recognised that it is appropriate that an order for costs compensate a successful party for the fact that it has been out of pocket by reason of incurring legal costs: Lahoud v Lahoud [2006] NSWSC 126 at [82]-[83] per Campbell J; applied in Drummond and Rosen Pty Ltd v Easey and Ors (No 2) [ 2009] NSWCA 331 at [4]-[5] per Macfarlan JA, Tobias JA agreeing; applied in Leda Pty Limited v Weerden and Anor (No2) [2007] NSWCA 283 per Hodgson, McColl JJA and Handley AJA at [8] and [9]; applied in Evans of Robb Evans and Associates v European Bank Ltd (No 2) [2009] NSWCA 170 per Basten and Campbell JJA. See, for a recent application, Ying v Song [2011] NSWSC 618, per Ward J, at [99]-[111]. 53As Synergy has contended, it is not necessary (or desirable) for the precise details of the costs in question to be proved before the Court, given the form of the orders made in such matters (see, for example, Lahoud , Ying ). What is necessary is that the Court have evidence that the relevant party paid costs prior to the orders being made, with the details of such payments being taken into account as part of the assessment process. 54In the absence of any countervailing discretionary factor (and I accept that there is none in the present case) it is appropriate that an order for interest on costs be made to compensate Synergy for being out of pocket in respect of relevant costs which it has paid: Drummond at [5]. This is particularly so in circumstances where the proceedings were commenced four and a half years ago and costs were incurred from an early stage in proceedings. Issue 3: No differential costs orders appropriate 55Synergy has been substantially successful on the issue of damages. On that basis, the ordinary rule that costs follow the event should apply to that issue. 56The earlier separate question on damages was part of the process of resolving the dispute on that issue. The preparation for, and argument of, the separate question meant that later submissions on the topic could be shorter and hearing time attenuated. 57In those circumstances, it is not appropriate to try to dissect the issue of damages, particularly when Synergy has succeeded on that issue as a whole (and comprehensively). Costs referable to the issue of damages were only incurred by Synergy because Norths contested and were ultimately unsuccessful on that issue. 58Further, part of the costs in the separate question part of the proceedings related to evidential issues, which were resolved in Synergy's favour: see [2010] NSWSC 52. In those circumstances it is not appropriate for the Court to not dissect the issue of damages from other issues that arose at the same time in the proceedings and were dealt with concurrently. While there is a recognised discretion not to award costs in respect of issues which are clearly severable (see for example Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373), that is not the present case as the separate questions were part of the process of quantifying Synergy's claim for contractual damages. 59The position may be compared with the issue before the Court of Appeal recently where the question of the appropriateness of the statement of a separate question was the only issue ultimately before that Court. In contrast, the issues before this Court at the various times between February 2010 and April 2010 were all substantially directed to resolving questions concerning contractual damages and only incidentally to the appropriateness of stating separate questions. Issue 4: Costs of the March/April 2008 interlocutory matter 60Prior to the hearing, Synergy had failed on a notice of motion for orders under s 50 of the Evidence Act 1995 (NSW) filed on 10 March 2008, part heard with evidence taken on 28 March 2008 and dismissed on 11 April 2008. That motion was the subject of a costs order formerly made after the trial in 2008. That costs order was set aside as part and parcel of the outcome of the appeal on liability to the Court of Appeal. The list judge had reserved Norths costs. Having had an opportunity to follow the events concerning the subject notice of motion it seems to me appropriate that Norths should have its costs, as the motion was doomed to failure. Orders 61The Court makes the following orders: (1)Judgment for the cross-claimant on the cross-Summons in the sum of $334,547.51, together with interest up to and including 19 July 2011 in the sum of $141,564.99 (2)The plaintiff/cross defendant is to pay the defendant/cross claimant's costs of the proceedings on a party/party basis, as agreed or assessed, excluding the costs detailed below: (a)The preparation and hearing of the defendant/cross claimant's Notice of Motion filed 10 March 2008, part heard on 28 March 2008 and dismissed on 11 April 2008, in relation to s 50 of the Evidence Act 1995 (NSW); (b)The preparation and hearing of the defendant/cross claimant's application to adduce expert evidence heard on 10 March 2011; (c)The plaintiff/cross defendant's Notice to Produce dated 21 June 2011 and the defendant/cross claimant's Notice of Motion filed 27 June 2011 which was dismissed on 8 July 2011 (3)The defendant/cross claimant is to pay the plaintiff/cross defendant's costs detailed at paragraphs 2(a) and 2(b) above, as agreed or assessed. (4)The plaintiff/cross-defendant is to pay the defendant/cross-claimant interest on the defendant/cross-claimant's costs and disbursements of the proceedings as assessed or agreed: (a)at the rate from time to time applicable set out in UCPR r 36.7; (b)on the Allowed Percentage of each amount of costs and disbursements actually paid by the defendant/cross-claimant in respect of these proceedings; and (c)from the date of payment by the defendant/cross-claimant of each such amount of costs and disbursements until such time as costs due to the defendant/cross-claimant under these orders have been paid. Note: The Allowed Percentage equals ((y/x) x 100)% X - equals the total amount of costs and disbursements which the defendant/cross-claimant has paid or is liable to pay in connection with these proceedings. Y - equals the total amount of costs and disbursements allowed to the defendant/cross-claimant in connection with these proceedings as agreed or assessed. (5)In respect of Order 4, grant liberty to either party to restore upon 3 days' notice. ********** 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. Decision last updated: 28 July 2011