Supreme Court New South Wales Medium Neutral Citation: Dee-Tech Pty Limited & Anor v Neddam Holdings Pty Limited (No. 2) [2012] NSWSC 517 Hearing dates: 2 May 2012 Decision date: 18 May 2012 Jurisdiction: Equity Division Before: White J Decision: Refer to paras [63] and [82] of judgment. Catchwords: LANDLORD AND TENANT - leases - no express term as to when contribution to outgoings became due - contribution to be paid within reasonable time - reasonable time was within 30 days of delivery of invoices - no evidence of variation of lease with respect to payment of interest COSTS - exceptions to the general rule that costs follow the event - multiple issues - partial success - success or failure on each type of charge had separate monetary consequence - costs significantly increased by separate issues raised by late amendments - lessee ordered to pay two-thirds of costs of account COSTS - exceptions to the general rule that costs follow the event - where offer of compromise or Calderbank letter - no reference to claim for interest in offer - failure to accept offer not unreasonable - offer ambiguous - acceptance of offer would not have resolved underlying dispute - non-acceptance of offer not affect appropriate costs order made COSTS - application for indemnity costs to give effect to terms of lease - lease did not require payment of costs on indemnity basis LANDLORD AND TENANT - leases - forfeiture of lease - relief against forfeiture - whether relief against forfeiture should be made conditional upon compliance with earlier orders of the court - conditions of relief under Conveyancing Act 1919, s 133F - inclusion of condition with aim to avoid future litigation LANDLORD AND TENANT - leases - forfeiture of lease - relief against forfeiture - whether "general rule that the lessee seeking relief against forfeiture should pay costs" - court to have regard to all circumstances in deciding just costs order - resistance to claim went beyond what was reasonable - issues unsuccessfully pursued - significant time spent on issues in which breaches not established - order that lessor pay half of lessee's costs COSTS - indemnity costs for application concerning subpoena - order sought against director appearing for plaintiff company on motion - defendant substantially successful on notice of motion - failure of plaintiff to comply with court order - delinquency in conduct of litigant warrants order for indemnity costs including order against director Legislation Cited: Civil Procedure Act 2005 Retail Leases Act 1994 Legal Profession Act 2004 Conveyancing Act 1919 Cases Cited: Dee-Tech Pty Ltd & Anor v Neddam Holdings Pty Limited [2012] NSWSC 251 Reid v Moreland Timber Co Pty Limited (1946) 73 CLR 1 Ballas v Theophilos (No. 2) (1957) 98 CLR 193 Ellmore (Maitland) Pty Ltd v Tull (1995) 7 BPR 14,305 Dee-Tech Pty Ltd v Neddam Holdings Pty Limited [2010] NSWCA 290 Reid, Hewitt & Company v Josephs [1918] AC 717 Cretazzo v Lombardi (1975) 13 SASR 4 Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338; (1994) 254 ALR 28 Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304 Permanent Trustee Australia Limited v FAI General Insurance Co Limited (Supreme Court of New South Wales, Hodgson CJ in Eq, 3 June 1998, unreported, BC9802305) Short v Crawley (No. 40) [2008] NSWSC 1302 Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 Bowen Investments Pty Ltd v Tabcorp Holdings Limited (No. 2) [2008] FCAFC 107 Gomba Holdings UK Limited & Ors v Minories Finance Limited & Ors (No. 2) [1993] Ch 171 Kyabram Property Investments Pty Ltd & Anor v Murray & Anor [2005] NSWCA 87 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No. 2) [2011] NSWCA 171 Earl of Mexborough v Whitwood Urban Council [1897] 2 QB 111 Seddon v Commercial Salt Company Limited [1925] Ch 187 Langley v Foster (1909) 10 SR (NSW) 54 Belgravia Insurance Co Limited v Meah [1964] 1 QB 436 Abbey National Building Society v Maybeach Limited [1985] 1 Ch 190 Croft v The London & County Banking Co (1885) 14 QBD 347 Jam Factory v Sunny Paradise Pty Ltd [1989] VR 584 Watervale Holdings Pty Ltd v St Martins Properties (Australia) Pty Ltd (Supreme Court of Western Australia, 31 July 1990, Wallwork J, unreported, BC9001199) Category: Costs Parties: Dee-Tech Pty Ltd (Plaintiff) Neddam Holdings Pty Ltd (Defendant) Representation: Counsel: M Sahade (Plaintiffs) M Moir (Defendant) Solicitors: Oliveri Law (Plaintiffs) McDonald Johnson Lawyers (Defendant) File Number(s): 2007/254642 2010/393169 Judgment 1HIS HONOUR: This judgment concerns the orders made to give effect to my reasons published on 22 March 2012 (Dee-Tech Pty Ltd & Anor v Neddam Holdings Pty Limited [2012] NSWSC 251). It also deals with questions of costs. 2On 3 May 2012 I made the following orders in proceedings 2007/254642 and in 2010/393169. In the 2007 proceedings I ordered: 1. Give judgment for the cross-claimant against the first cross-defendant in respect of outgoings and interest payable up to and including 30 April 2012 under the renewals of lease no. 639942Q dated 23 November 1999 as varied by variation of lease dated 28 May 2002 (after deduction of $4,000 payable by the cross-claimant to the first defendant pursuant to the orders of 9 June 2005 and interest thereon at the prescribed rates), in the sum of $51,912.09. 2. Order that the first cross-defendant pay two-thirds of the cross-claimant's costs of the account ordered by Gzell J on 17 December 2009 on the ordinary basis. 3. Order that all moneys held in the escrow account of LJ Hooker Commercial Central Coast in respect of the payment of outgoings, including any interest earned thereon, be paid to the cross-claimant. 4. Order that except as has been otherwise ordered, the plaintiff's claims for relief in its Statement of Claim and the cross-claimant's claims for relief in its Amended Cross-Claim be dismissed. 3In the 2010 proceedings I made the following orders, except as to costs: 1. Order that subject to order 5, the first plaintiff be relieved against the effect of its having been in breach of the lease of premises at Shop 3/217 The Entrance Road, Erina when it purportedly exercised its option of renewal of the lease from 1 February 2011 to 31 January 2014, and thereafter. 2. Declare that upon compliance with the conditions in order 5 the first plaintiff is to be taken to have validly exercised the option of renewal of the lease of the said premises for the period 1 February 2011 to 21 January 2014. 3. Subject to order 5, order that the defendant execute all such documents and do all such things as are necessary on its part to ensure that the plaintiff is entitled to be registered as lessee of the premises for the said term on the terms of the renewed lease. 4. Order that if the defendant fails to comply with order 3, the plaintiff have leave to apply for orders empowering the Registrar to execute all such documents and do all such things in the name of the defendant as may be necessary in order to comply with order 3. 5. Order that the relief granted in the preceding orders and declaration is conditional upon the first plaintiff, or the first and second plaintiffs, by 31 May 2012: (a) paying the sum of $51,912.09 to the defendant or as it might in writing direct by cash or bank cheque or transfer to the defendant's bank account of cleared funds, or in such other manner that the defendant in writing might direct; and (b) providing to the defendant or its solicitor a copy of the business insurance policy no. 15T7383036 referred to in the certificates of currency issued by CGU Insurance Limited dated 16 March 2012 which are part of Annexure B to the affidavit of Bruce Graham Madden sworn 27 April 2012. 6. Reserve the proceedings for further consideration and give liberty to apply on reasonable notice and liberty to restore by arrangement with my associate. 7. Without limiting the scope of the liberty reserved by order 6, note that the plaintiff may exercise liberty to apply for the variation or discharge of the conditions in order 5(b) if it wishes to adduce evidence that there is no document satisfying the description of the business insurance policy in that order other than the certificates of currency and the standard CGU policy wording a copy of which was exhibit TRJ-2 to the affidavit of Troy Michael Jasinski sworn 30 July 2010, or may exercise the liberty to apply if the plaintiff is unable, through no delay or other fault on its part, to procure a copy of the policy. 8. Without limiting the scope of the liberty reserved in order 6, note that the defendant may exercise the liberty to apply for the variation of the conditions in order 5(b) if the plaintiff is in default in making payments of rent or other moneys said to be due in May 2012. 9. If the liberty reserved is to be exercised by the plaintiff for either of the reasons referred to in order 7, or by the defendant for reasons referred to in order 8, such liberty must be exercised within a reasonable time before 31 May 2012 so that any such application can be heard and determined before that date. That should be done by arrangement with my Associate. 4These are my reasons for those orders. I also deal with the costs orders to be made in the 2010 proceedings. 2007 Proceedings: The account for outgoings 5The parties agreed on the amount of outgoings payable by Dee-Tech in accordance with my reasons of 22 March 2012. As at 1 May 2012 the outstanding amount was $41,593.61. The reason the sum was as high as that figure was that Dee-Tech had made no payment towards outgoings since 18 May 2011. 6The parties were also agreed on the rates of interest payable pursuant to clause 4.10.1 of the lease and the balances of outstanding outgoings from time to time on which interest might be calculated. 7The lease makes no express provision for the payment of outgoings. After the variation of lease it was necessarily implied that the lessee pay its contributions to outgoings. On 17 December 2009 Gzell J declared that the following clause be implied into the lease: "PART NINETEEN: OUTGOINGS 19.1 The lessee must pay the Outgoings Percentage of all reasonable outgoings in association with the premises as specified in item 7." 8Clause 4.10 of the lease provides: "4.10 The Lessee must pay on demand to the Lessor or as the Lessor directs: 4.10.1 interest on any money due to the Lessor under this Lease if it is not paid on time at a rate of 2% per annum above the rate applied by the Lessor's bank account on unsecured overdraft accommodation of $100,000.00 calculated on a daily basis." 9There is no express term as to when the lessee's contribution to outgoings becomes due. It is to be implied that the lessee is to pay its contribution to outgoings within a reasonable time, there being no indication to the contrary (Reid v Moreland Timber Co Pty Limited (1946) 73 CLR 1 at 13; Ballas v Theophilos (No. 2) (1957) 98 CLR 193 at 197, 199; Ellmore (Maitland) Pty Ltd v Tull (1995) 7 BPR 14,305 at 14,307). 10Neddam Holdings submitted that a reasonable time was within 30 days of the submission by it or its agent of an invoice for outgoings. I agree that such a period is a reasonable time, provided the invoices or any accompanying documents provided sufficient information to the lessee from which it could determine whether the contributions claimed by the lessor were in accordance with the lease. 11Although the invoices submitted by Neddam Holdings and its agent claimed more than I have found to be due, they provided the necessary information from which Dee-Tech could determine the amounts due on what I have found to be the proper construction of the lease. 12The most contentious issue was as to Dee-Tech's liability to contribute to water usage and sewerage charges. The invoices specified the amount of water supplied to the premises through both the separate meters and the common meter. It specified the rates of charge and the amount of the charge separately for water usage and sewerage discharge. Dee-Tech did not contend that the details of the invoices provided did not enable it to calculate what it contended to be the proper amount to be contributed. Nor did Dee-Tech contend that the details in the invoices did not match the underlying invoices received by Neddam Holdings from the council. 13Neddam Holdings rendered separate invoices in respect of contributions for council rates and in respect of the claimed contributions for insurance, backflow prevention testing and the other items dealt with in my earlier reasons. 14I conclude that the reasonable time by which Dee-Tech's required contributions to outgoings became payable was within 30 days of delivery of the invoices. 15Dee-Tech submitted that it was unfair that it should be required to pay interest. That is neither true nor relevant. It is not true because Neddam Holdings has been out of pocket for the sums I have found Dee-Tech was liable to contribute. It is fair that Neddam Holdings be compensated by the award of interest on sums for which it has been out of pocket. It is, in any event, irrelevant because the lease requires the payment of interest on moneys due. 16Dee-Tech also submitted that it was not liable to pay interest by reason of an agreement made between the parties as recorded in a judgment of Allsop P on 1 November 2010 (Dee-Tech Pty Ltd v Neddam Holdings Pty Limited [2010] NSWCA 290). His Honour was dealing with an application for the lifting of the stay granted by Tobias JA of orders made by Gzell J. The appeal from the orders of Gzell J was listed for hearing on 1 December 2010. Allsop P recorded (at [6]) that the parties had been asked to reach an appropriate commercial accommodation of the terms of a revised stay. A large measure of agreement was reached. His Honour recorded that the only debate was whether or not Dee-Tech should pay a sum immediately. His Honour continued: "[6] ... I need to explain the structure of the agreement of the parties before coming to the resolution of the matter that is in dispute. [7] The parties are broadly agreed that a reasonable assessment of the claim of the respondents for outgoings is in the order of $1500 per month. The parties are agreed that an appropriate division between that which is accepted as likely to be due as outgoings and that which is disputed is $1000 and $500 respectively. ..." 17Dee-Tech submitted that the agreement reached on 1 November 2010 superseded the interest provisions of the lease in respect of any prior claim to interest on outgoings. I reject that submission. The application to Allsop P for the lifting of the stay, or the revision of the terms of the stay, was an interim application pending determination of the appeal. The account of what was due for outgoings was undetermined. Had the parties intended to vary the lease, or had they reached a compromise of their claims as to what was owing on the taking of the account, that would have been expressly provided for. There is nothing in the reasons of Allsop P, nor any other evidence that the parties agreed, either expressly or impliedly, to vary the provisions of the lease in relation to the payment of interest on what might be found to be due. 18Neddam Holdings' calculation of the interest due has been made on the principal sums of outgoings exclusive of GST. That is to say, it has not claimed interest on the amounts of GST for which Dee-Tech has admitted liability. That is appropriate, there being no evidence that Neddam Holdings is out of pocket in respect of the GST. 19$7,000 was placed into an escrow account with LJ Hooker Commercial. The statement of account gives credit to Dee-Tech in respect of the payments made into the escrow account as from the date those payments were made. In other words, the statement of account treats those payments in the same way as it treats payments made to Neddam Holdings directly. The balances upon which interest is calculated are the balances outstanding after payments into the escrow account. Neddam Holdings is entitled to payment out of the escrow account and is entitled to any interest that has been earned on the moneys, whilst they were in the escrow account, without further adjustment to the calculation of interest payable. 20For these reasons I accept Neddam Holdings' submission as to the amount of interest payable. The result is that as at 1 May 2012 Dee-Tech was liable to pay its contribution to outgoings in the sum of $41,593.61 and was liable to pay interest of $17,007.21. 21The judgment debt obtained by Dee-Tech against Neddam Holdings in 2005 together with interest at the prescribed rates pursuant to s 101 of the Civil Procedure Act 2005 was set off against those amounts in accordance with my earlier reasons (see para [98]). Costs 22When allowance is made for the unpaid outgoings since May 2011, the amount for which I have found Dee-Tech liable is substantially less than the amount of outgoings claimed by Neddam Holdings. In the first s 133E notice dated 26 October 2010 Neddam Holdings asserted that Dee-Tech was liable to pay $62,190.56 on account of outgoings as at 2 September 2010. This was the claim maintained before me. The sum claimed did not include interest. On the basis of my findings the amount Dee-Tech owed for outgoings as at 2 September 2010 was $26,891.29. That is, less than half the amount claimed. 23Neddam Holdings submitted that because it was successful in obtaining part of the amounts claimed, costs should follow the event. It also claimed those costs on the indemnity basis. The claim for costs on the indemnity basis was based in part upon a Calderbank offer made on 19 October 2010 and in part on the terms of clause 4.10.2 or 4.10.3 of the lease. 24Dee-Tech submitted that there should be no order as to the costs of the account. 25I will first deal with the question of costs of the account without regard to the terms of the offer of 19 October 2010 or the terms of the lease. 26Neddam Holdings submitted that although it had not obtained all that it sought on the account, it had been substantially successful. It submitted that the issues on which it failed were not "clearly dominant" and in any event, relatively minimal costs were incurred in respect of such items. It submitted that the dominant issue on the taking of the account was whether Dee-Tech was obliged to pay 44.6 per cent of the water charges for water supplied through the common meter. It succeeded on this question. It complained that Dee-Tech had withdrawn an earlier concession on this issue. Neddam Holdings also submitted that the position taken by Dee-Tech at different times that it was not liable to make any payments for outgoings showed a lack of commerciality. It noted that Dee-Tech had disputed any present liability to pay outgoings by reason of its arguments based on the Retail Leases Act 1994, but failed in respect of that issue. 27It is true that the issues on the taking of the account on which Neddam Holdings failed were not "clearly dominant". They were nonetheless separate from the other issues on the taking of the account. There was a separate issue in respect of each type of charge. Success or failure on each type of charge had its own separate monetary consequence. Under s 98 of the Civil Procedure Act subject to rules of Court, costs are in the discretion of the court. Rule 42.1 of the Uniform Civil Procedure Rules 2005 provides: "42.1 General rule that costs follow the event 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." 28In Reid, Hewitt & Company v Josephs [1918] AC 717, Lord Finlay LC, with whom Lord Parmoor agreed, said (at 733) that: "... [T]he words 'the costs shall follow the event' mean that the costs are to be distributed according to the results of the several issues, while the party who is successful on the whole gets the general costs." 29However, later cases have adopted a more flexible approach to determining what is "the event". In Cretazzo v Lombardi (1975) 13 SASR 4, Jacobs J said (at 16): "... I would wish to sound a note of cautious disapproval of applications, which are being made with increasing frequency, to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of a trial. ... But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues." 30In Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338; (1994) 254 ALR 28 Mahoney JA (at 330-331) approved of a statement in Ritchie that: "Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless unless 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 on which it failed." (see now Ritchie at [42.1.15]). 31In that case, Priestley JA with whom in this respect Kirby P agreed, indicated a greater willingness to evaluate the outcome of distinct issues in making a costs order. His Honour said (at 331): "... I thought there was considerable force in the submissions for the appellant that it would have been not a particularly difficult task to make a quick evaluation of distinct issues that were before the referee and to make a somewhat more particular costs order than the trial judge thought appropriate." Nonetheless, there was no error of principle in the judge taking a global view that the successful party was entitled to costs, although it failed on particular issues. 32In Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304 the Court of Appeal (Beazley, Ipp and Basten JJA) said (at [38]): "[38] The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this court in Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373. Those principles may be summarised as follows: Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless 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 on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal. If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 at [27]. Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed). A separable issue can relate to 'any disputed question of fact or law' before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34]. Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272." 33A costs order in favour of a successful party can be moderated to reflect its failure on particular issues, even if the successful party did not act unreasonably in raising or defending those issues (Permanent Trustee Australia Limited v FAI General Insurance Co Limited (Supreme Court of New South Wales, Hodgson CJ in Eq, 3 June 1998, unreported, BC9802305) at [10-[11]; Short v Crawley (No. 40) [2008] NSWSC 1302 at [32]; Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 at [25]-[32]). 34In Bowen Investments Pty Ltd v Tabcorp Holdings Limited (No. 2) [2008] FCAFC 107 Finkelstein and Gordon JJ observed that fairness dictates how the discretion as to costs should be exercised. If an issue by issue approach will produce a result that is fairer than giving the successful party all of his or her costs, notwithstanding his or her failure on particular issues, then the issue by issue approach should be applied. 35I do not accept that the dominant issue on the taking of the account was whether Dee-Tech was obliged to pay 44.6 per cent of the water charges for water supplied through the common meter. That was only one of the issues. It involved only questions of construction of the lease. It was not more or less dominant than any other issue, for example, whether Dee-Tech was liable for 100 per cent of sewerage charges in respect of water supplied through the separate meters. 36The fact that Neddam Holdings failed on many of the issues should be taken into account in exercising the discretion as to costs. This is not a case such as one referred to by Jacobs J in Cretazzo v Lombardi in the passage quoted above where a party has been wholly or substantially successful, notwithstanding that it failed along the way on particular issues. The lack of success on issues is reflected in Neddam Holdings' having been only partially successful in its claim as to what was due. 37It does not follow that there should be no order as to costs. Dee-Tech effectively forced Neddam Holdings to sue for outstanding outgoings by denying liability to make any payment in respect of outgoings in 2005 and denying liability on the other issues on which it failed. Its failure to pay any contribution to outgoings since May 2011 demonstrates an intransigence which is evident in its earlier dealings. Its conduct of the account was dilatory. It took objections to Neddam Holdings' statement of account that the Registrar rightly characterised as merely technical. If these were the only considerations involved, the appropriate order would be that Dee-Tech pay half of Neddam Holdings' costs. But the costs were significantly increased by the separate issue raised by a late amendment by Dee-Tech in which it relied on the Retail Leases Act. That significantly increased costs in terms of research and legal argument, both written and oral. There was also a need for additional evidence relating to which usage of the premises was dominant. Dee-Tech's failure on that issue should have costs consequences. Accordingly I concluded that subject to the effect of the Calderbank offer of 19 October 2010 and the terms of the lease, the appropriate costs order is that Dee-Tech pay two-thirds of Neddam Holdings' costs of the taking of the account. 38The offer of 19 October 2010 was in the following terms: "We refer to the directions made by Associate Judge Hallen last week for the parties to confer with a view to reaching agreement to resolve this dispute. Our client has calculated that it is owed at least $60,000.00 by your client as tenant for outgoings from 1 January 2005. In the spirit of compromise, and in order to avoid substantial legal costs which will be incurred if the Associate Judge is required to take accounts, our client as landlord is prepared to accept the sum of $40,000.00 inclusive of any GST in full and final satisfaction of any obligation owed by your client for the payment of outgoings up to and including 30 September 2010. The offer contained in this letter is made in accordance with the principles established in the decision of Calderbank v Calderbank. Our client reserves the right to tender this letter to support a request for the payment of indemnity costs in the event that this offer is rejected and our client obtains a better result in Court. This offer remains open for acceptance up to 11:00am Wednesday 20 October 2010." 39The offer made no reference to Neddam Holdings' claim for interest. Probably the solicitors had given no thought to the question of interest, otherwise it would have been expressly dealt with. On my findings, at the time the offer was made, Dee-Tech owed $30,312.89 by way of contribution to outgoings, and $10,355.20 for interest. If the offer is to be construed as including a compromise of Neddam Holdings' claim for interest, then Neddam Holdings has done slightly better than the offer. If the offer does not include a compromise of Neddam Holdings' claim to interest, it has not done better than the offer. 40Dee-Tech's failure to accept the offer was not unreasonable. The first reason is that the offer was ambiguous. It is unclear whether the claim for interest would also have been compromised had the offer been accepted. Secondly, even if the offer is to be properly construed as including such a compromise, acceptance of the offer would not have avoided the need for a hearing on the matters in issue between the parties as to what amounts Dee-Tech was liable to pay towards outgoings. The offer was made in anticipation of a hearing then expected to take place before Hallen AsJ. His Honour had ordered the parties to meet to see if they could negotiate a resolution of their dispute. The underlying dispute would not have been resolved by acceptance of the offer. Neddam Holdings would have continued to claim more than I have found it was entitled to be paid and Dee-Tech would have continued to claim that it was liable to pay less than I have found it is liable to pay. Whilst the costs of the then imminent hearing would have been averted, costs of another hearing on the same matters would have been incurred, unless there was some further resolution. The only way in which future costs would have been avoided would have been by the parties settling their points of difference. The offer did not address those points of difference. 41The non-acceptance of the offer does not affect my conclusion as to the appropriate costs order to be made. 42Clauses 4.10.2 and 4.10.3 of the lease provide: "4.10 The Lessee must pay on demand to the Lessor or as the Lessor directs: ... 4.10.2 the reasonable costs payable or incurred by the Lessor for remedying a default by the Lessee; 4.10.3 the Lessor's reasonable legal costs relating to a default by the Lessee." 43Clause 4.10.2 is not relevant. Neddam Holdings did not remedy Dee-Tech's default. But Neddam Holdings is entitled by clause 4.10.3 to its reasonable legal costs relating to Dee-Tech's default in paying the moneys due for outgoings, GST on outgoings, and interest. 44Clause 4.10.3 does not justify the making of a costs order on the indemnity basis. Where parties have contracted that costs be paid on a particular basis, it will usually be proper that the statutory discretion as to costs be exercised so as to approximate as closely as possible the parties' contract (Gomba Holdings UK Limited & Ors v Minories Finance Limited & Ors (No. 2) [1993] Ch 171 at 194; Kyabram Property Investments Pty Ltd & Anor v Murray & Anor [2005] NSWCA 87 at [12]; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No. 2) [2011] NSWCA 171 at [36]). Under the current legislation (s 98 of the Civil Procedure Act and Pt 42 of the Uniform Civil Procedure Rules) costs the subject of an order under s 98 are to be assessed on one of two bases, either the ordinary basis or the indemnity basis. 45If costs are assessed on the ordinary basis, a costs assessor is to determine whether or not it was reasonable to carry out the work to which the costs relate, whether or not the work was carried out in a reasonable manner, and what is a fair and reasonable amount of costs for the work concerned (Legal Profession Act 2004, s 364(1)). That is what would be required in a determination of what reasonable legal costs were incurred by the lessor relating to a default by the lessee. 46If costs were ordered to be assessed on the indemnity basis, the lessor would be entitled to all its costs, other than those that appeared to have been unreasonably incurred, or appeared to be of unreasonable amount (r 42.5(b)). If costs were ordered on the indemnity basis and the costs assessor was in doubt as to whether a particular item of charge was reasonable, he or she would be obliged to allow it. However, under clause 4.10.3 of the lease, the lessor would be entitled only to those costs which were reasonable, not those costs which might be reasonable. It would not be in accordance with the lease to cast on the lessee the burden of proving that a charge was unreasonable. In other words, whilst contractual provisions may have the effect that costs should be ordered on the indemnity basis rather than the ordinary basis, whether that is so depends upon the terms of the particular contract. In the case of the present lease, an order for costs on the ordinary basis is in accordance with the contractual term. 47Counsel for Neddam Holdings referred to Macquarie International Health Clinic Pty Ltd v South Sydney West Area Health Service (No. 2) where the lease required the tenant to pay reasonable costs, but costs were ordered on the indemnity basis. However, in that case the lease went on to say that the costs were to be paid on a solicitor and own client basis. It was for this reason that the Court of Appeal ordered costs on the indemnity basis. Those words are not present in this case. 48Nor does clause 4.10.3 require any modification to my assessment of the proportion of costs that Dee-Tech should pay. Under that clause Neddam Holdings is entitled to its reasonable costs relating to Dee-Tech's default. The costs incurred on the taking of the account related not only to Dee-Tech's default, but also to its claim that Dee-Tech was liable for other amounts for which I have found Dee-Tech was not liable. In my assessment, only two-thirds of Neddam Holdings' costs of the taking of the account related to Dee-Tech's default. 49A further minor issue of costs arose from the order of the Court of Appeal that the balance of the claims for relief in the statement of claim be remitted to the Equity Division. Such claims included claims for mesne profits or damages. None of the claims was pressed. It is unlikely that any costs were incurred. The merits of the unpursued claims were never investigated. There should be no other order as to costs. 50It was for these reasons that I ordered Dee-Tech to pay two-thirds of the costs of the account on the ordinary basis. 2010 proceedings Conditions on relief against forfeiture 51The appropriate form of orders 1-4 made in these proceedings was settled in the course of argument. They were not ultimately in dispute. These reasons address orders 5-8. The dispute was whether relief against forfeiture should be made conditional not only on Dee-Tech's paying the amount of outgoings and interest for which I found it to be liable, but also on Dee-Tech's providing Neddam Holdings with a copy of its business insurance policy expiring on 28 February 2013, on its providing evidence that the invoice for that policy had been paid and when, and on its paying the costs of the account in the 2007 proceedings. 52Clause 5.4 of the lease provides: "5.4 On each anniversary of the Commencing Day, the Lessee must give the Lessor a copy of each insurance policy required by clause 5.1 and a certificate of currency for each such policy." 53Dee-Tech was required to provide a copy of its insurance policy and a certificate of currency on 1 February 2012. On 21 March 2012 the solicitors for Neddam Holdings, referred to an earlier request for copies of the current insurance policies taken out by Dee-Tech and certificates of currency. They said that if evidence of insurance were not provided they expected Neddam Holdings would instruct them to issue a s 129 notice. On that day the solicitor for Dee-Tech sent by email to the solicitor for Neddam Holdings two certificates of currency both described as certificates of currency of a policy of business insurance. One certificate of currency named Neddam Holdings as an interested party and stated that there was cover of $20 million for public and products liability under a policy number 15T7383036. The other certificate named the Commonwealth Bank as an interested party and set out details of cover for other categories of cover, namely Property, Business Interruption, Theft and Money, and Glass as well as Public and Product Liability. 54Neddam Holdings complains that it has not been provided with copies of the insurance policies as required by clause 5.4. The certificates stated that: "This is to certify cover has been granted in terms of the Company's Standard Policy, a copy of which is available on request. This certificate is not a substitute for the Policy of Insurance issued to you. The Policy, not this certificate, details your rights and obligations and the extent of your insurance cover." The policy number was given. The certificate also stated: "The policy referred to is current as at the date of issue of this certificate and whilst an expiry date has been indicated it should be noted that the policy may be cancelled in the future. Accordingly, reliance should not be placed on the expiry date." The expiry date stated was 28 February 2013. 55Neddam Holdings says that there was a further breach of the lease by Dee-Tech's not providing the insurance policy and the certificate of currency on the anniversary day and that breach has still not been remedied because the insurance policy has not been provided. It submitted that provision of the insurance policies and proof of payment should be made conditions of the relief under s 133F. Counsel said: "The Court has wide discretionary powers available under s 133F(2), and it is appropriate that the Court's findings about Dee-Tech's 'serious breach' of clause 5.4 are respected and given due recognition in the Court's final orders." 56Neddam Holdings also sought evidence of payment of the insurance and the time of payment. I understood counsel to submit that it might be inferred from the fact that the certificate of currency was not provided until 21 March 2012 (the day before judgment was to be handed down) that Neddam Holdings apprehended that Dee-Tech might not have renewed its policy of insurance in time, or not have renewed the policy for a full 12 months. 57Counsel for Dee-Tech submitted that Dee-Tech had not been given adequate notice of the contention and that it was not in a position to deal with the claim at the hearing on 2 May 2012. Apparently it only received notice of this contention when it received the written submission of Neddam Holdings, or possibly when it received Mr Madden's affidavit of 27 April 2012. 58I understood from what counsel said were his instructions that Dee-Tech says that it has no document other than the certificates of currency themselves and the standard policy wording that constitutes the policy of insurance referred to in the certificate. The standard wording is said to be an exhibit to the affidavit of Mr Jasinski that was tendered at the hearing. There is no evidence that this is the position, but Dee-Tech may be able to establish that this is the position by calling evidence from CGU that there is no separate document that describes the policy of insurance on its certificates of currency other than the standard policy wording. It would be surprising if this were so, because the certificate of currency states that it is the policy of insurance, and not the certificate that details the insured's rights and obligations and the extent of insurance cover. The certificate also refers to the policy of insurance as having been issued to the insured and does so in terms that suggests that that is a document separate from the company's standard policy. 59If this issue is not resolved there is likely to be further litigation. It is on the cards that Dee-Tech would not provide further information. The result would probably be that Neddam Holdings gave notice under s 129 of the Conveyancing Act 1919, which could lead to new proceedings in which it would be asserted that the renewed lease had been terminated, and in which Dee-Tech would again seek relief against forfeiture. That should be avoided. Having regard to its previous failures to provide evidence of its insurance cover, referred to in my earlier judgment and the judgment of Gzell J, it is appropriate to specify as a further condition of relief against forfeiture that the insurance policy be provided. I infer from the terms of the certificates of currency that there is a separate policy of insurance other than the standard policy terms that can be provided. I assume that Dee-Tech does not have such a document. However, there is time for Dee-Tech to obtain it and provide it to Neddam Holdings. 60I provided liberty to apply and for the matter to be restored so that Dee-Tech would have the opportunity to adduce evidence on these matters before 31 May 2012. Likewise, if Dee-Tech is unable to obtain a copy of the policy of insurance through no fault of its own by 31 May, it can exercise the liberty to restore and to apply for a variation of the conditions prior to 31 May 2012. On the other hand, if Dee-Tech, for whatever reason best known to itself, simply refuses to provide the copy of the policy of insurance, notwithstanding its contractual obligation to do so, in the light of its previous breaches, it should not have relief against forfeiture. 61It was not appropriate that the relief also be conditional upon Dee-Tech's providing evidence of its payment of the premium for the current policy. It is clear from the certificate of currency that the policy is on foot. The policy of insurance should itself specify the period of cover. Neddam Holdings does not have the contractual right to be given evidence of payment of the premium. Whilst conditions could be imposed on the grant of relief that went beyond Dee-Tech's contractual obligations, I do not consider it appropriate to impose this condition. The purpose from Neddam Holdings' point of view of the condition may well be to investigate whether there was a prior breach by Dee-Tech by its not having renewed the cover as at the anniversary date. Whereas I have included the provision of the insurance policy as a condition of relief, I have done so in the hope of avoiding future litigation. The further condition seems rather to have as its purpose the possibility of Neddam Holdings finding a new ground of complaint that might lead to further litigation. At common law a lessee can claim privilege against being required to give discovery of documents where discovery is sought for the purpose of obtaining forfeiture of an interest in land (Earl of Mexborough v Whitwood Urban Council [1897] 2 QB 111 at 117; Seddon v Commercial Salt Company Limited [1925] Ch 187). It would not have been a proper exercise of the discretion to impose conditions of relief against forfeiture of the option, to require discovery of documents for the apparent purpose of assisting the lessor to discover whether there were grounds for forfeiture of the renewed lease. 62Nor did I consider it appropriate to order that the payment of costs be a condition of relief against forfeiture. There could be delays in the assessment of costs and the possibility of appeals from the assessment that would delay the determination of whether the condition has been satisfied. Moreover, for reasons which follow, I consider that Neddam Holdings should pay a proportion of Dee-Tech's costs of the 2010 proceedings. It is uncertain whether a net balance will be payable by Dee-Tech to Neddam Holdings or vice versa. 63These were the reasons for the orders made on 3 May 2012. The remaining question is what order for costs should be made in the 2010 proceedings. Costs in 2010 proceedings 64Dee-Tech submitted that it was the successful party in having obtained an order for relief against forfeiture and Neddam Holdings ought to be ordered to pay its costs. Neddam Holdings submitted that Dee-Tech ought to be ordered to pay 80 per cent of its costs of the 2010 proceedings. In support of the latter submission, counsel for Neddam Holdings submitted that in exercising its discretion, the court should take into account what was called "the general rule that the lessee seeking relief against forfeiture should pay the costs (Langley v Foster (1909) 10 SR (NSW) 54 at 62; Wynsix Hotels Oxford Street Pty Ltd v Twomey [2004] NSWSC 236 at [89]; Constantine v Sanders [2007] NSWSC 250 at [43])". 65This is an overstatement of the so-called principle. Expressed in those terms the principle would not sit readily with r 42.1 that costs follow the event, unless the court considers that a different costs order should be made. 66In Langley v Foster Simpson CJ in Eq said (at 62): "Prima facie one of the terms imposed should be the payment of all costs, for the plaintiff's own breach of his agreement has given rise to the litigation. This has accordingly been made a term in Quilter v. Mapleson (9 Q.B.D. 672); Mitchison v. Thompson (1 Cab. & E. 72); Bond v. Freke ([1884] W.N. 47); and Bridge v. Quick (67 L.T. 54). On the other hand this is not a hard and fast rule, for, if it were, a lessor might always oppose relief being granted knowing he would always get his costs from the lessee. If the Court thinks the lessor ought not to have opposed in toto the grant of relief from forfeiture, the Court may make the lessor pay the costs so far as they have been increased by the lessor resisting the claim to relief on any terms: Howard v. Fanshawe ([1895] 2 Ch. 581, 592); Humphreys v. Morten ([1905] 1 Ch. 739). But the Court may make, and has in one case at any rate made, the lessee pay all the costs, notwithstanding the lessor contested his claim to relief at all: Quilter v. Mapleson (supra). It is a question for the Court's discretion in each case." 67In neither Howard v Fanshawe nor Humphreys v Morten, where the lessor was ordered to pay the costs so far as they were increased by the lessor's resistance, was there a finding that the lessor had acted unreasonably in opposing the claim for relief against forfeiture. Similarly, in Belgravia Insurance Co Limited v Meah [1964] 1 QB 436 the order was that the plaintiff pay all of the costs of the application for relief, except in so far as they had been incurred by the lessor's resistance to the claim for relief, and that the landlords pay the increased costs. There was no finding that the landlord was acting unreasonably in resisting the claim. The same is true of Abbey National Building Society v Maybeach Limited [1985] 1 Ch 190 at 206. 68The court must have regard to all relevant circumstances in deciding what costs order is just. Because the application for relief against forfeiture only arises because the plaintiff has lost the forfeited property owing to its breach and needs the court's order to restore its estate, there is good reason for the plaintiff's being required to pay the costs of the originating process and supporting affidavits, and the costs that would be occasioned by the defendant's considering its claim and appearing to indicate its consent or non-opposition. In Croft v The London & County Banking Co (1885) 14 QBD 347 the plaintiff was required to pay only the costs of the summons. Undoubtedly however, there are many cases in which a successful plaintiff has been ordered to pay all the lessor's costs, sometimes on an indemnity or solicitor and client basis (e.g. Jam Factory v Sunny Paradise Pty Ltd [1989] VR 584 at 592; Watervale Holdings Pty Ltd v St Martins Properties (Australia) Pty Ltd (Supreme Court of Western Australia, 31 July 1990, Wallwork J, unreported, BC9001199); Constantine v Sanders). 69The fact that Dee-Tech was in breach of the lease and was not entitled to exercise its option of renewal, except for a favourable exercise of discretion under s 133F, is a reason why costs need not follow the event. On the other hand, the fact I found it entitled to conditional relief against forfeiture is a reason why it should have at least a proportion of its costs, reflecting the extent to which costs were increased by Neddam Holdings' resistance to its claim. 70There are other factors to be considered. Neddam Holdings' resistance to the claim went beyond what was reasonable. It took an unreasonable position in respect of a number of the notices issued under s 129 or s 133E, or otherwise asserted in correspondence. It pursued those issues unsuccessfully. I do not accept the submission of counsel for Neddam Holdings that the issues of breach on which Neddam Holdings succeeded were the predominant issues litigated and occupied a more prominent role than the remaining issues on which Dee-Tech was held not to be in breach of the lease. A significant amount of the hearing time and of preparation was incurred in respect of the claims that Dee-Tech was in breach of the lease by not keeping a current liquid trade waste approval, and by not having had a backflow prevention device tested since 19 November 2008. Some time was spent in relation to the third notice given under s 133E. Less time was spent on a number of the other issues in which I found that breaches had not been established. Nonetheless, the time spent on those matters was not insignificant. Neddam Holdings was looking for breaches of which it was unaware (at [168]). It acted unreasonably in not signing the application for trade waste approval in order to seek to contend that Dee-Tech was in breach by not having such approval (at [131]). Although some breaches were established, many were not and I found that those which were established should not result in forfeiture of the option. 71Considering the matter only from the perspective of the parties' success or failure on particular issues, the appropriate order would be that Neddam Holdings pay a substantial proportion of Dee-Tech's costs owing to its resistance to the claim for relief against forfeiture. 72Counsel for Neddam Holdings made the additional submission that Dee-Tech's conduct of the litigation increased costs by its failure to observe time limits and breaches of other procedural orders. I have had regard to those complaints in relation to the 2007 proceeding in the order for costs made in that proceeding. There were also delays in the 2010 proceedings. For example, there were repeated extensions of time for the plaintiffs to serve their evidence, and in relation to the service of an Amended Summons that was ultimately filed without leave. On a number of occasions separate costs orders were not made as a result of those delays. 73I take account of all these matters in making what is necessarily an impressionistic assessment of what is a just costs order. I take account of the extent to which Neddam Holdings was successful in establishing breaches that were alleged in notices given under s 133E, and of the extent to which it was successful in establishing other breaches that were not the subject of notices validly given under s 133E, but which I found should be taken into account nonetheless in deciding whether or not the discretion should be exercised under s 133F in Dee-Tech's favour. 74Weighing all of these matters, I consider that the appropriate order is that Neddam Holdings pay half Dee-Tech's costs of the 2010 proceedings. Costs of hearing before Bergin CJ in Eq on 12 May 2011 75Neddam Holdings made a separate application in respect of the costs of the hearing before Bergin CJ in Eq on 12 May 2011. Neddam Holdings had sought to set aside a subpoena issued by Dee-Tech to LJ Hooker Commercial. It contended that the documents sought by the subpoena were not relevant to any matter in issue. Dee-Tech sought access to documents relating to the payment of outgoings by other tenants. On that occasion Dee-Tech was represented by Mrs Slattery as its director. She did not file an affidavit in accordance with r 7.2 of the Uniform Civil Procedure Rules. However, I do not think that is relevant to the question of costs. Mrs Slattery was allowed to appear for the plaintiff. Neddam Holdings sought an order that Mrs Slattery personally and Dee-Tech pay the costs of the motion on the indemnity basis. These orders were sought in order, so it was said, to reflect the court's disapproval of Mrs Slattery's conduct. 76Dee-Tech was granted access only to documents concerning its premises. Dee-Tech was ordered to pay LJ Hooker Commercial $500 on account of its fee said to be $1,519 as its costs for producing the documents the subject of the subpoena. 77Dee-Tech did not pay the $500 as ordered. Nonetheless, it obtained access to the subpoenaed documents to the extent allowed by Bergin CJ in Eq's orders. It was not successful in obtaining an order that it have access to documents produced by LJ Hooker Commercial other than those relating to its own premises. 78As Neddam Holdings was successful in relation to the application, save in respect of certain documents to which access was given to Dee-Tech, but on conditions that were not satisfied, I think Neddam Holdings is entitled to its costs of the motion. Although Dee-Tech obtained access to documents, it does not appear that it made any use of the documents in the hearing. 79LJ Hooker Commercial remains entitled to seek to recover the sum of $500 the subject of Bergin CJ in Eq's order of 12 May 2011. It remains entitled to pursue its claim for the balance of what are said to be its costs of complying with the subpoena. Mrs Slattery's position was that she was to pay $500 into court (rather than to LJ Hooker) and could contest the entirety of the claim. That was not the effect of the orders. The orders required payment to LJ Hooker Commercial, not payment into court. It is clear from her Honour's orders that Mrs Slattery had indicated that she consented to payment of that amount (a matter which Mrs Slattery now denies). 80In short, Neddam Holdings was substantially successful on the Notice of Motion. Dee-Tech obtained access to a limited amount of the documents produced, but did so in defiance of the condition imposed by the Chief Judge in Equity that was not satisfied. At the time Mrs Slattery was acting for Dee-Tech. I infer that she did not intend to pay the moneys to LJ Hooker Commercial as ordered by the Chief Judge in Equity, but did not say so. Having regard to the orders made, had Mrs Slattery made her position clear, no access would have been given. Had a legal representative for Dee-Tech procured the orders and then procured access to the documents produced so far as they related to Dee-Tech's premises, knowing that the condition of access was not satisfied and would not be satisfied, a personal costs order against the legal representative would be warranted. The same applies in relation to Mrs Slattery. This was a delinquency in the conduct of Dee-Tech as litigant that warrants an order for indemnity costs. 81I will order that Dee-Tech and Mrs Slattery pay the costs of Neddam Holdings' notice of motion filed on 6 May 2011 on the indemnity basis. 82For these reasons, I make the following further orders: 1.Order that the plaintiffs and Mrs Rhonda Slattery pay the defendant's costs of the notice of motion filed on 6 May 2011 on the indemnity basis. 2.Subject to order 1, order that the defendant pay half the plaintiffs' costs of proceedings 2010/393169. 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: 18 May 2012