Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Hearing dates: On the papers Decision date: 10 November 2011 Before: McColl JA at 1; Basten JA at 2; Campbell JA at 26 Decision: (1) Dismiss the appellant's motion dated 22 September 2011. (2) Order the appellant to pay the first respondent's costs of the motion. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: COSTS - appeal costs - Calderbank offer made pre-trial and open for a limited time - failure of the offerer to renew offer - reasonable inference that offer did not refer to possibility of appeal - whether offer significant with respect to discretion to award costs of appeal - need to discourage futile applications based on pre-trial offers COSTS - exception to general rule that costs follow the event - indemnity costs - offer of compromise - Calderbank letter - offer not in accordance with the Uniform Civil Procedure Rules 2005 (NSW) r 20.26 - construction of offer where no express reference to costs - inference that each party to pay its own costs - offer involved capitulation without the obligation to pay the costs of the proceedings up to that point when the offer was made - not unreasonable to refuse offer - positive prospects of success in defending the proceedings - order for payment of costs below on the usual basis Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 42.1, 42.2, 42.14 Cases Cited: Amaca Pty Ltd v Novek [2009] NSWCA 50 Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; 67 NSWLR 719 Associates Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349 Black v Lipovac [1998] FCA 699; 217 ALR 386 Brymount Pty Ltd v Cummins (No 2) [2005] NSWCA 69 Calderbank v Calderbank [1976] Fam 93 Cutts v Head [1984] Ch 290 CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404 Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 Fotheringham v Fotheringham [No 2] [1999] NSWCA 21; 46 NSWLR 194 Grace v Thomas Street Cafe Pty Ltd (No 2) [2008] NSWCA 72 Grbavac v Hart [1997] 1 VR 154 Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 Jones v Bradley (No 2) [2003] NSWCA 258 Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 Leichhardt Municipal Council v Green [2004] NSWCA 341 Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 Messiter v Hutchinson (1987) 10 NSWLR 525 Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 Monie v Commonwealth (No 2) [2008] NSWCA 15 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd (No 2) [2006] NSWCA 379 The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; 67 NSWLR 706 Trustee for Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 Category: Procedural and other rulings Parties: Miwa Pty Ltd - Applicant Siantan Properties Pte Ltd - First Respondent Macquarie Bank Ltd - Second Respondent Representation: Counsel: Mr P T Taylor SC - Applicant Mr P Newton - First Respondent Solicitors: Swaab Attorneys - Applicant Heidtman & Co - First Respondent File Number(s): CA 2010/112909 Decision under appeal Citation: Miwa Pty Ltd v Siantan Properties Pte Ltd [2010] NSWSC 1203 Date of Decision: 2010-10-21 00:00:00 Before: Windeyer AJ File Number(s): SC 2010/112909 Judgment 1McCOLL JA : I agree with Basten JA's reasons and the orders his Honour proposes. 2BASTEN JA : The appellant was for a number of years a lessee of office premises in Sydney: the respondent was the lessor. The lease provided an amount of $45,000 for fitout costs; it also required that the lessee provide a bank guarantee in the same amount. Before the lease terminated, the lessee exercised an option to renew on the terms of the old lease. A dispute arose as to whether a further payment for fitout costs was required on renewal. The lessor refused to pay and the lessee deducted the amount from payments of rent. 3More than six years after the term of the renewed lease ended, the respondent sought to call on the bank guarantee; the lessee instituted proceedings to recover the bank guarantee on the basis that it had no outstanding legal liability to the respondent. The appellant was unsuccessful in obtaining relief in the Equity Division, but was successful in this Court: Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297. Amongst the orders made on 16 June 2011 was an order that the appellant have its costs in this Court and in the Court below. The appellant now seeks a variation of that order to provide that its costs be assessed from 17 September 2010 on an indemnity basis. The reason for the proposed variation was that on 17 September 2010 the appellant offered to settle the proceedings on the basis of a payment of $1,000 in return for delivery up of the bank guarantee, the offer being expressed to be made pursuant to Calderbank v Calderbank [1976] Fam 93, with the intention that it would be relied on to support an order for indemnity costs if the appellant were successful. 4The proceedings in the Equity Division were commenced on 6 May 2010, on which day the appellant obtained an interlocutory injunction. The matter was heard on 29 September 2010, judgment being delivered on 21 October 2010: Miwa Pty Ltd v Siantan Properties Pte Ltd [2010] NSWSC 1203 (Windeyer AJ). Accordingly, the only offer now relied upon was made six clear working days prior to the hearing in the Court below. No further offer was made after delivery of the judgment below. Offers of compromise: relevant principles 5This is a case in which the amount at issue was $45,000: the appellant was either liable for that amount (via the call on the bank guarantee) or it was not; there was no intermediate position. 6The appellant did not make an offer in accordance with the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 20.26, which would have carried with it a presumptive entitlement to indemnity costs if a judgment were obtained no less favourable than the terms of the offer: r 42.14. In Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 this Court (Kirby P, Mahoney JA and Samuels AJA) identified the objects of the Court rules then in force as including: "1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its 'bottom line' will be revealed to the court; 2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and 3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation." 7These objects have been accepted as relevant to informal offers of compromise: Grbavac v Hart [1997] 1 VR 154 at 165 (Hayne JA). The informal offer must, in the present case, operate against the background of the Court's discretion with respect to the award of costs which is to be exercised, presumptively, in favour of an order that "the costs follow the event": Civil Procedure Act 2005 (NSW), s 98 and UCPR, r 42.1. One way to view an offer of compromise is to treat it as a basis for the court otherwise ordering; an alternative view is that it changes the proper characterisation of "the event" or outcome: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 at [13]. On the latter view, the party who fails to accept the offer and obtains no better result in the judgment is, from the date of the offer, treated as the unsuccessful party. 8The willingness of the courts to take account of a "without prejudice" offer of settlement in disposing of costs was originally tempered by the view that the practice should only be adopted where the alternative of a payment into court was unavailable: Cutts v Head [1984] Ch 290. The practice was, however, adopted in this jurisdiction without the restriction: Messiter v Hutchinson (1987) 10 NSWLR 525 (Rogers J); SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [45] (Giles JA). The expansion of formal rules providing for offers of compromise has not diminished the willingness of the courts to act upon informal offers, rather the contrary. However, there is no presumption that an offeree who does not accept an offer and does not obtain a judgment more favourable than the offer will necessarily pay indemnity costs from the date of the offer: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] (Santow JA, Stein AJA agreeing); Jones v Bradley (No 2) [2003] NSWCA 258 at [6]-[9]; Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; 67 NSWLR 719 at [18]. The approach frequently adopted in this jurisdiction has been to ask two questions, namely whether - (a) there was a genuine offer of compromise, and (b) it was unreasonable for the offeree not to accept it. Genuine offer of compromise 9There is authority for the proposition that both an offer of compromise under the rules and an informal offer must involve "a real and genuine element of compromise": The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; 67 NSWLR 706 at [8]. While this terminology is not entirely apposite, it has been described as "serviceable": Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [25] (Spigelman CJ, Beazley and McColl JJA). To characterise an offer by reference to epithets such as "real" or "genuine" adds little to the requirement of compromise, and may imply (wrongly) that the appropriate inquiry is as to the subjective intentions of the offeror: Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 at [23] (Ipp, McColl and Basten JJA); Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 at [17]-[18]. As explained by Giles J in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368: "Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so." Unreasonable refusal 10Most cases will turn on the second element, namely whether there has been an unreasonable refusal by the offeree. This in turn involves a number of considerations. (a) timing 11It is not in doubt that the response of the offeree must be assessed at the time it was made, and not with the benefit of hindsight resulting from a known outcome, recorded in a judgment: Regency Media at [33]. However, that factor should not entail a detailed investigation into the state of preparation or knowledge of the offeree as at the date of the offer. The expense and use of resources which settlement is intended to avoid include those involved in the assessment and preparation of a case. (b) relevant factors 12In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 the Court of Appeal (Warren CJ, Maxwell P and Harper AJA) identified the factors relevant to determining whether the rejection of an offer was unreasonable as including the following: "(a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it." 13The Court rejected the suggestion that an offer need set out with specificity the bases upon which it was said that the offeree should accept the compromise proffered. The relevance of such material would depend upon the extent to which the issues had already been canvassed, for example by way of pre-litigation correspondence, and whether there were circumstances with which the offeror might reasonably expect the offeree not to be conversant. In some circumstances greater leniency may be accorded to a defendant offeree at an early stage of proceedings, than to a plaintiff offeree. 14The extent of the compromise offered will always be a relevant factor in determining the reasonableness of the offeree's rejection. In Robb Evans & Associates an offer in compliance with the UCPR, r 20.26, involved an effective amount (after deducting a sum as to which there was no dispute) of less than $2,000 to settle a claim in excess of $800,000. The Court stated: "[20] ... If the offer were based on a legal assessment of the likelihood of success in an amount in excess of $800,000, the claim should have been struck out as frivolous and vexatious. It ultimately failed in this Court, but could not, on any view, be so categorized. It is implausible that the appellant so categorized it in quantifying his offer. [21] If the appellant had carried out a commercial evaluation, rather than a pure legal assessment of the likelihood of success, he would undoubtedly have concluded that, even if ultimately successful, he would be unlikely to recover many thousands of dollars of costs incurred if the litigation proceeded. A commercially based offer would have taken that matter into account. This offer clearly did not. ... [23] ... The amount offered, beyond that amount which was not in dispute, is properly characterized as trivial or contemptuous. It does not engage the costs consequences provided by r 42.15." 15A similar approach was applied in Regency Media, where an offer of $10,000 was made in response to a claim of approximately $600,000: at [16]. The Court noted at [32]: "If a derisory offer, of the kind made in these proceedings, could result in an order for indemnity costs, then it is likely that many, perhaps most, contract interpretation disputes would result in an indemnity costs order, if the formality of an offer in accordance with the rules had been made at an early stage. If the appellant were to succeed in the present case, it is quite likely that such an offer would accompany most statements of claim as a matter of commercial practice. The purpose of the special order - to encourage settlement - would no longer be served. An order for indemnity costs could, in our opinion, become the normal order in many commercial disputes." (c) onus of proof 16The general rule is that costs payable under an order of the court are to be assessed on the ordinary basis: UCPR, r 42.2. The court may otherwise order, but the burden of persuading the court will lie with the offeror: Black v Lipovac [1998] FCA 699; 217 ALR 386 at [217] (Miles, Heerey and Madgwick JJ), which has been regularly followed in the Full Court - see, eg, CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75] (Moore, Finn and Jessup JJ). Again, however, the reference to onus of proof is not intended to suggest that an application for indemnity costs be turned into a mini-trial. Generally, such applications are dealt with on the papers, a practice which should be maintained. It is nevertheless correct, as a matter of principle, to say that it is the offeror which must persuade the court that the rejection of the offer was, in the circumstances at the relevant time, unreasonable. Application of principles 17The offer presently relied on was small in amount, in both actual and relative senses, and made no express reference to costs. However, it may be inferred from the reference to settling "the proceedings" that each party was to bear its own costs. (The inference would be different under the rules, which permit an offer only in respect of a "claim": see Robb Evans & Associates at [22].) Thus, although the payment for success was nominal, the offer to forego costs up to that stage was financially significant. Indeed, the reason why the offer was not made under the rules was presumably because such an offer could not include the costs of the proceedings: UCPR, r 20.26(2), adopting the approach of Giles J in Associates Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349; Trustee for Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [22] (Ipp JA, Mason P and McColl JA agreeing). 18The offer did not state a period within which it was to remain open, but by implication must have been a reasonable period. As there were six clear working days before the hearing, it may be inferred that both parties were by that stage fully conversant with the merits and weaknesses of their positions. There was no major factual issue in dispute and the period for consideration was not, in the circumstances, unreasonable: cf Kooee Communications at [15]. 19There are, nevertheless, two factors which warrant the conclusion that the respondent's failure to accept the offer was not unreasonable. First, given the nominal payment proffered, the offer involved capitulation by the respondent, without the obligation to pay the costs of the proceedings to that point. It would have been unreasonable to refuse such an offer if its prospects of success in defending the proceedings were slight. However, they could not be so described. That conclusion does not require revisiting the arguments at trial or on appeal; it is sufficient to note that the respondent was successful before the primary judge, in respect of issues involving some legal complexity. Its ultimate failure in this Court did not demonstrate that its prospects of success, as assessed at the date of the offer, were other than reasonable. 20In these circumstances, the respondent's failure to accept the offer was not unreasonable. The order for payment of costs below (on the usual basis) should stand. Costs of appeal 21There has been discussion in the cases as to the status of an offer of settlement made prior to the trial judgment, in respect of an appeal. Although sometimes relied on in the context of informal offers, cases dealing with offers under rules of court may raise different issues: Fotheringham v Fotheringham [No 2] [1999] NSWCA 21; 46 NSWLR 194. In Trustee for the Salvation Army , at [6], the Court appears to have accepted that a Calderbank offer "remains relevant" to costs orders on appeal, citing Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404. The Court also relied on Brymount Pty Ltd v Cummins (No 2) [2005] NSWCA 69, where Beazley JA (Ipp and McColl JJA agreeing) while noting, at [24], that Ettingshausen was not directly relevant in respect of an informal offer, nevertheless considered the principles applicable with respect to a pre-trial informal offer. The fact that it was not unreasonable for the offeree to refuse the offer made in the trial court appears to have been treated as a significant, but not necessarily decisive, factor: see also Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd (No 2) [2006] NSWCA 379 (Beazley, Ipp and Tobias JJA). 22This Court was not referred to any case where an informal offer, made prior to the judgment under appeal and reasonably rejected by the successful party in the trial court, has been successfully relied upon by the offeror in respect of the costs of its successful appeal to obtain indemnity costs. There are three significant reasons why that is not surprising. First, where the offer has expired and not been renewed, the offeree is entitled to say that its success at trial would be a significant event, rendering reasonable the hypothetical rejection of a renewed offer. Secondly, the failure of the offeror to renew the offer prevents that possibility being tested. Thirdly, the offer in the court below to settle "the proceedings" may reasonably be treated as referring to the proceedings then on foot, and not to the possibility of an appeal. 23The substance of settlement negotiations undertaken at any time on a 'without prejudice except as to costs' basis may be relevant to the exercise of the discretion to award costs of an appeal: Grace v Thomas Street Cafe Pty Ltd (No 2) [2008] NSWCA 72 at [33] (Spigelman CJ, Beazley JA and McClellan CJ at CL). However, an offer made pre-trial and open for a limited time will rarely carry significant weight: Monie v Commonwealth (No 2) [2008] NSWCA 15 at [4] (Beazley JA, Mason P agreeing); Amaca Pty Ltd v Novek [2009] NSWCA 50 at [107]-[108] (Campbell JA). To continue to refer to a pre-trial offer as generally "relevant" to the exercise of discretion in respect of the costs of the appeal is apt to encourage futile applications. (Different considerations may apply in respect of offers under the rules, which are made in relation to "claims", which remain on foot until finally determined.) 24The application with respect to the costs of the appeal should also be rejected. Conclusions 25The appellant's motion seeking indemnity costs at trial and on appeal should be dismissed with costs. Accordingly, I propose the following orders: (1) Dismiss the appellant's motion dated 22 September 2011. (2) Order the appellant to pay the first respondent's costs of the motion. 26CAMPBELL JA : I agree with Basten JA. ********** 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: 14 November 2011