Supreme Court New South Wales Medium Neutral Citation: MM Constructions (Aust) Pty Limited and Anor v Port Stephens Council (No. 7) [2012] NSWSC 250 Hearing dates: On written submissions Decision date: 23 March 2012 Jurisdiction: Common Law Before: Johnson J Decision: The costs order at [358](b) of Johnson J's judgment of 22 December 2011 is varied. The Plaintiffs are to pay the Defendant's costs of the proceedings in this Court: (a)on the ordinary basis up to 17 August 2010; and (b)on an indemnity basis from 18 August 2010 onwards. Catchwords: PRACTICE AND PROCEDURE - costs - claim by successful Defendant for indemnity costs - offers of compromise - Calderbank offer - whether genuine element of compromise - order for indemnity costs made by reference to third offer of compromise made by Defendant Legislation Cited: Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005 Cases Cited: MM Constructions (Aust) Pty Limited and Anor v Port Stephens Council (No. 1) [2010] NSWSC 241 MM Constructions (Aust) Pty Limited v Port Stephens Council (No. 2) [2010] NSWSC 242 MM Constructions (Aust) Pty Limited and Anor v Port Stephens Council (No. 3) [2010] NSWSC 243 MM Constructions (Aust) Pty Limited and Anor v Port Stephens Council (No. 6) [2011] NSWSC 1613 Calderbank v Calderbank [1974] All ER 333 George v Webb [2012] NSWSC 86 Texts Cited: --- Category: Costs Parties: MM Constructions (Aust) Pty Limited (First Plaintiff) Milan Maruncic (Second Plaintiff) Port Stephens Council (Defendant) Representation: Mr BMJ Toomey QC; Mr EG Romaniuk (Plaintiffs) Mr MJ Joseph SC; Mr S Glascott (Defendant) Creagh & Creagh (Plaintiffs) DLA Piper Australia (Defendant) File Number(s): 2008/289298 Publication restriction: --- Judgment 1JOHNSON J: On 22 December 2011, I returned a verdict and gave judgment for the Defendant in these proceedings: MM Constructions (Aust) Pty Limited and Anor v Port Stephens Council (No. 6) [2011] NSWSC 1613. 2Included in the orders made on that day, I ordered the Plaintiffs to pay the Defendant's costs of the proceedings, but included a direction that, if any party sought a different costs order, written application was to be made in that regard no later than 17 February 2012. 3On 17 February 2012, the Defendant made written application to vary the costs order, seeking an order more favourable to the Defendant. Written submissions were made by the parties on this issue. 4The parties were informed of my intention to give judgment on the costs application by reference to the written submissions and affidavits relied upon for that purpose. The Defendant's Application 5The Defendant reads the affidavit of Samantha Louise Kelly sworn 17 February 2012 in support of the costs application. 6Relying upon that affidavit, pursuant to Rule 42.15A Uniform Civil Procedure Rules 2005 ("UCPR"), the Defendant applies to the Court to vary the costs order made on 22 December 2011, so that the Plaintiffs are ordered to pay the Defendant's costs of the proceedings in this Court: (a)on a party-party basis up to 27 November 2009; and (b)on an indemnity basis from 28 November 2009 onwards. 7Alternatively, the Defendant seeks an indemnity costs order from one or other of the two later dates, 1 April 2010 or 17 August 2010, the significance of which will be explained shortly in this judgment. 8The Plaintiffs resist the making of any order for indemnity costs, contending that the order made on 22 December 2011 should stand. 9The proceedings were commenced on 23 May 2008 by the filing of the Statement of Claim in this Court. 10The proceedings were initially listed for hearing in November 2009. On 27 November 2009, the Defendant served an Offer of Compromise in the proceedings, by which it offered to settle the proceedings on the following terms: (a)verdict and judgment for the Plaintiffs in the sum of $25,000.00; and (b)Defendant to pay the Plaintiffs' costs as agreed in the sum of $25,000.00. 11This Offer of Compromise was expressed to be open for acceptance until 2 December 2009. The Plaintiffs did not respond to this Offer of Compromise. 12On 22 March 2010, the hearing of the proceedings (optimistically scheduled for five days) commenced before me. The hearing continued until 26 March 2010, and was adjourned part-heard. A number of interlocutory aspects were considered on 31 March 2010, 4 and 21 May 2010 and 25 June 2010, before the substantive part-heard hearing resumed on 13 September 2010. That hearing continued until 23 September 2010, with final submissions being made on 6 and 7 December 2010. 13On 1 April 2010, the Defendant wrote to the Plaintiffs in accordance with the principles in Calderbank v Calderbank [1974] All ER 333, offering to settle the proceedings on the following terms: (a)verdict for the Defendant; and (b)each party to bear its own costs. 14This Calderbank offer was open for acceptance until 16 April 2010. The Plaintiffs did not respond to the Calderbank offer. 15On 1 April 2010, at the same time as serving the Calderbank offer, the Defendant also served an Offer of Compromise in the proceedings, by which it offered to settle the proceedings on the following terms: (a)verdict and judgment for the Defendant; and (b)each party to bear its own costs of the proceedings. 16This Offer of Compromise was expressed to be open for acceptance until 16 April 2010. Once again, the Plaintiffs did not respond to this Offer of Compromise. 17On 17 August 2010, the Defendant served a further Offer of Compromise in the proceedings, by which it offered to settle the proceedings on the following terms: (a)verdict and judgment for the Defendant; and (b)each party to bear its own costs of the proceedings. 18This Offer of Compromise was expressed to be open for acceptance until 26 August 2010. Once again, the Plaintiffs did not respond to this Offer of Compromise. Submissions on the Costs Application The Defendant's Submissions 19The Defendant submits that the offers were a mix of Offers of Compromise pursuant to Rule 42 UCPR and a Calderbank offer. The Court was invited to rely upon the helpful summary of relevant principles expressed by Ward J in George v Webb [2012] NSWSC 86 and I gratefully do so. 20The Defendant points to the Plaintiffs' case being one for misfeasance in public office, with the negligence claim being secondary in nature. The Defendant submits that, at no stage when the various offers were made, did the Plaintiffs have any cogent evidence adversely implicating the conduct of Ms Gale, the relevant officer of the Defendant. It was submitted that the fact that the claim for damages exceeded $2 million should not be used as a starting point in assessing the reasonableness of the Defendant's offers. The offers were not derisory given the state of the evidence upon which the Plaintiffs relied. 21The Defendant contends that the Plaintiffs' case was without merit and that a party in the position of the Defendant should not be obliged to make a substantial offer of settlement. The relevant level of compromise, it was submitted, must be related in some fashion to the merit, if any, of the claim. 22The Defendant submits that the first Offer of Compromise was made some 18 months after the commencement of proceedings. By that stage, the Defendant submits, the Plaintiffs were in possession of the evidence that would be called during the hearing, which was insufficient to prove misfeasance in public office and negligence on the part of the Defendant, so that the Plaintiffs were in a position to reasonably assess that Offer of Compromise. 23The Defendant submits that the second Offer of Compromise, served in conjunction with the Calderbank offer on 1 April 2010, outlined the bases on which the Defendant considered that it would be successful in the proceedings, having regard to the manner in which the hearing was unfolding before me. The Defendant submits that the Calderbank offer, and the accompanying Offer of Compromise, provided the Plaintiffs with a reasonable evidential basis to objectively consider the offer. 24It is said that the final Offer of Compromise made on 17 August 2010, was made at an advanced stage of the proceedings where the Plaintiffs were in a position to objectively assess the offer. 25The Defendant submits that the various offers and, in particular, the third offer made on 17 August 2010, were made at advanced stages of the proceedings, by which time the Defendant had incurred significant costs. 26The Defendant submits that it was prepared to contribute $25,000.00 to the Plaintiffs' costs in the first Offer of Compromise, and maintained an offer that each party bear its own costs in the second and third offers, by which time the Defendant assessed that the proceedings were likely to be determined in its favour. 27The Defendant submits that the offers constituted genuine attempts on its part to compromise its defence of the proceedings, and to achieve a resolution with the Plaintiffs. 28The Defendant points to the failure of the Plaintiffs to respond to any of the offers, or to articulate any explanation as to why the offers (or any of them) were not accepted. The Defendant submits that it was unreasonable for the Plaintiffs to have not accepted the offers, when the Plaintiffs were aware of the evidence, and the bases on which the Defendant considered the proceedings would be determined in its favour. 29Upon these bases, the Defendant seeks a costs order in the terms set out at [6] above or, alternatively, from a subsequent date or dates when offers were made. The Plaintiffs' Submissions 30The Plaintiffs submit that the approach of the Defendant on this application involves a hindsight assessment, relying on the ultimate findings set out in the judgment of 22 December 2011. 31Reference was made to my judgment of 26 March 2010, MM Constructions (Aust) Pty Limited v Port Stephens Council (No. 2) [2010] NSWSC 242, where I said at [15]: "In circumstances where this litigation has a long way to travel, and where there are issues of the type which I have raised, including uncertainty as to outcome, the prospect of findings concerning credibility and reliability of a number of persons and uncertainty as to costs outcome (let alone the ability to recover costs), it seems to me that the matter is ripe for mediation, as I suspect it was a long time before the hearing commenced last Monday." 32It was pointed out that counsel for the Plaintiffs indicated both consent and willingness to mediate but that, on 31 March 2010, counsel for the Defendant opposed mediation. 33The Plaintiffs point to the history of the matter from that time, when a ruling favourable to the Plaintiffs was made concerning the evidence of Mr Warnes (MM Constructions (Aust) Pty Limited and Anor v Port Stephens Council (No. 3) [2010] NSWSC 243), and directions were given for the service of further evidence, including planning and valuation evidence. 34The Plaintiffs submit that the first and second offers made on 27 November 2009 and 1 April 2010, viewed in the context of the state of the evidence and the live issues in the proceedings at that time, were not of a nature that either required a response or had due regard for the state of the case. 35With respect to the third offer made on 17 August 2010, the Plaintiffs submit that it should not lead to an order for indemnity costs. It was submitted that, in the exercise of discretion, the Court should not make any costs order less favourable to the Plaintiffs than the order made on 22 December 2011. Defendant's Submissions in Reply 36In reply, the Defendant submits that events which occurred after the making of the various offers do not assist the Plaintiffs, nor does the Plaintiffs' preparedness to mediate. It was submitted that, if the Defendant was prepared to make Offers of Compromise and yet there was no response at all by the Plaintiffs, mediation would be academic. 37The Defendant submits that the relevant time for testing the reasonableness or otherwise of the Offers of Compromise was at the time of the making of the offers. It was submitted that the Plaintiffs had informal discovery and the expert report of Mr Warnes by early August 2009, prior to the first Offer of Compromise, and that this evidence was adjudged in my judgment of 22 December 2011 (at [253]) to fall "far short" of demonstrating that Ms Gale, in some way, suppressed information from the councillors of the Defendant (at 253). 38Whilst acknowledging that the Court has a discretion in the matter, and that it is necessary for the Court to be satisfied that the offers were reasonable, the Defendant submitted that the Court should make the variation of orders sought. Determination of Application 39It is well recognised that an offer of compromise must involve a real and genuine element of compromise. The reasonableness of the offer is to be assessed at the time when the offer was made, although given the discretionary nature of the determination, the Court is entitled to have regard to other pertinent features of the litigation. 40At all times, there were significant challenges for the Plaintiffs in seeking to establish a cause of action based on misfeasance in public office with respect to a planning decision such as this. So much was acknowledged by me on 23 March 2010 in MM Constructions (Aust) Pty Limited and Anor v Port Stephens Council (No. 1) [2010] NSWSC 241 at [18]. 41There was a measure of complexity in the proceedings, and a substantial hearing was required ultimately to determine the proceedings. 42The first offer made on 27 November 2009 involved the offer of a relatively modest payment to the Plaintiffs by way of verdict ($25,000.00) and costs ($25,000.00). Given the complexity of the issues in the litigation, and the unfolding body of documentary material and other evidence, I am not persuaded that this offer is one which should attract an order for indemnity costs from that date. A substantial claim was being made by the Plaintiffs so that an offer of this dimension, at that time, was not one which should activate the Rule. 43By the time of the second Offer of Compromise and the Calderbank offer on 1 April 2010, the hearing had commenced and some evidence had been given. The Plaintiffs had achieved a measure of success on an interlocutory issue concerning the admissibility of the evidence of Mr Warnes, and other steps were being taken for the purpose of the ongoing hearing. The Defendant's offers of 1 April 2010 were less favourable offers for the Plaintiffs than the first offer made on 27 November 2009. No payment was to be made under these offers, with the element of compromise to be reflected in the willingness to resolve the matter upon the basis that each party pay its own costs. 44By this time, the Plaintiffs had been reminded of the challenge that lay ahead of them in seeking to establish a cause of action for misfeasance in public office. Nevertheless, factual and legal issues remained to be litigated in the proceedings, so that I am not satisfied that any order for indemnity costs should operate from this date. Although there was an element of compromise in the Defendant's Offer of Compromise and Calderbank offer, a varied costs order should not operate from that date. 45The third and final offer was made by the Defendant on 17 August 2010. By this time, the parties were in possession of the evidence which was to be relied upon at the resumed hearing scheduled for 13 September 2010. Once again, the offer did not involve an offer of payment of any sum to the Plaintiffs, with the element of compromise reflected in the Defendant's willingness to accept that each party bear its own costs of the proceedings. By this stage, the costs component was more substantial than it had been at the time of earlier offers. 46The evidentiary and forensic battle lines were clearly drawn at this time with, in my view, significant problems being present for the Plaintiffs in establishing liability against the Defendant. 47I am satisfied that, by 17 August 2010, the Defendant's Offer of Compromise constituted a real and genuine element of compromise given the state of the proceedings at that time. The Plaintiffs did not respond at all to this offer or, indeed, to earlier offers. 48I do not consider that the discussion in open Court with respect to mediation greatly assists the Plaintiffs on this application, nor does it harm the Defendant. There is force in the Defendant's submission that a failure on the part of the Plaintiffs to even reply to any of the Offers of Compromise, or the Calderbank offer, does not instil confidence that the process of mediation would have served any real purpose. 49I have the impression that, in the absence of some very substantial offer, the Plaintiffs wished to have their claims determined to finality by the Court, so that any attempts by the Defendant to compromise the matter on a more modest basis were ignored. 50The present application relates to Offers of Compromise, and a Calderbank offer, in relation to which the Plaintiffs did not respond at all. By the time of the third offer on 17 August 2010, I consider that it was unreasonable for the Plaintiffs not to reply at all. In my view, this factor is relevant to the discretionary question whether an indemnity costs order ought be made. 51In all the circumstances, I am satisfied that the Court should exercise discretion to make a costs order that the Plaintiffs pay the Defendant's costs on the ordinary basis up to 17 August 2010, and on an indemnity basis from 18 August 2010: s.98(1)(c) Civil Procedure Act 2005; Rule 42.15A UCPR. 52As the Defendant has succeeded in obtaining a more favourable costs order than that made on 22 December 2011, the costs of this application should be included in the costs order which I shall shortly make. Orders 53I vary the costs order at [358](b) of my judgment of 22 December 2011, and order that the Plaintiffs pay the Defendant's costs of the proceedings in this Court: (a)on the ordinary basis up to 17 August 2010; and (b)on an indemnity basis from 18 August 2010 onwards. 54In accordance with Practice Note SC Gen 18 (paragraphs 19-21), I order that the exhibits be returned to the parties and the subpoenaed material to be returned to the producing parties. The exhibits are to be dealt with by the parties in accordance with paragraph 22 of the Practice Note. ********** 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: 23 March 2012