Supreme Court New South Wales Medium Neutral Citation: Lescap Group Pty Ltd v Pacific Resort Holding Pty Ltd (No. 2) [2012] NSWSC 704 Hearing dates: 7 June 2012 Decision date: 07 June 2012 Jurisdiction: Equity Division Before: White J Decision: Refer to paras [29] and [30] of judgment. Catchwords: COSTS - application for costs on indemnity basis - offer of compromise - offer of compromise conditional on acceptance by all parties - valid offer of compromise conforms with rules and exclusive of costs - refusal of offer - entitlement for costs to be assessed on indemnity basis after date of offer, Civil Procedure Rules r 42.14(2) - whether extent of success of plaintiff on particular issues warrants any variation to the costs orders - held issues not dominant nor wholly severable - insubstantial success having no effect on costs order - costs ordered on ordinary basis until date of offer and on indemnity basis thereafter PRACTICE AND PROCEDURE - costs - offer of compromise brought by company - offer of compromise signed by director on behalf of company - whether offer of compromise invalid - non-compliance with Civil Procedure Rules, r 7.2 - held non-compliance did not invalidate offer COSTS - orders - Sanderson order - alternative claims against cross-defendants - whether joinder of parties reasonable and proper - held all parties necessarily joined to avoid separate litigation - whether conduct of unsuccessful defendant makes it fair to impose liability of successful defendant - conduct as cause of joinder of cross-defendants and raising of additional issues - consideration of relevant factors in the overall discretion under Civil Procedure Act 2005 s 100 - held costs of successful cross-defendants to be paid by unsuccessful defendant Legislation Cited: Civil Procedure Act 2005 Cases Cited: Sanderson v Blyth Theatre Co [1903] 2 KB 533 Oxlade v Gosbridge Pty Ltd & Ors (No. 2) [1999] NSWCA 165 JSBG Developments Pty Ltd v Kozlowski [2009] NSWSC 1128; 75 NSWLR 745 Gould v Vaggelas (1985) 157 CLR 215 Category: Costs Parties: Lescap Group Pty Ltd (Plaintiff and 2nd Cross-Defendant) Pacific Resort Holding Pty Ltd (Defendant and Cross-Claimant) Lescap Group Operations Pty Ltd (1st Cross-Defendant) Benjamin Saul Caplan (3rd Cross-Defendant) Representation: Counsel: J Kay Hoyle (Plaintiff) A Ogborne (Defendant) I Griscti (2nd & 3rd Cross-Defendants) Solicitors: Somerset Ryckmans (Plaintiff and Cross-Defendants) CFC Lawyers (Defendant and Cross-Claimant) File Number(s): 2008/280794 Judgment 1HIS HONOUR: The parties are agreed upon the appropriate orders to be made to give effect to my reasons save on certain questions of costs. 2Pacific Resort seeks an order that Lescap Group pay its costs of the claim assessed on the ordinary basis up to 11am on 28 July 2011, and on the indemnity basis thereafter. It also seeks the same order in respect of its cross-claim against Lescap Group. 3Lescap Group resists the submission that it pay part of Pacific Resort's costs on the indemnity basis. It also submits that because of its success on some of the issues there should be a reduction of the costs payable to Pacific Resort. That is the first area of disagreement. 4The second concerns the costs of Lescap Operations and Mr Caplan. They seek an order that Pacific Resort, which brought the cross-claim against them, pay their costs of the cross-claim on the ordinary basis up to 15 August 2011 and on the indemnity basis thereafter. Pacific Resort resists that order. It contends that Lescap Group should pay Lescap Operations' and Mr Caplan's costs of the cross-claim; an order commonly known as a Sanderson order (see Sanderson v Blyth Theatre Co [1903] 2 KB 533). That is opposed by both Lescap Group, Lescap Operations and Mr Caplan. Costs between Pacific Resort and Lescap Group 5I deal first with the costs of the claim by and the cross-claim against Lescap Group. On 27 July 2011 the solicitors for Pacific Resort served an offer of compromise on the solicitor acting for Lescap Group and on the barrister acting for Lescap Operations and Mr Caplan. The reason for the latter course was that on 28 April 2011 Lescap Operations and Mr Caplan terminated the retainer of the solicitor who had acted until then for all three parties. Thereafter Lescap Operations and Mr Caplan retained counsel directly. 6The offer of compromise was conditional on its being accepted by each of Lescap Group, Lescap Operations and Mr Caplan. The offer of compromise is not invalid for that reason (Oxlade v Gosbridge Pty Ltd & Ors (No. 2) [1999] NSWCA 165 [at 7]). 7The offer of compromise offered verdict for the defendant, Pacific Resort, on the plaintiff, Lescap Group's claim, with each party to bear its own costs. That was in accordance with r 20.26(2). On the cross-claim, Pacific Resort offered that there be judgment in the amount of $1 million and an order that Lescap Group and Pacific Resort authorise and direct the stakeholder, Colin Biggers and Paisley, to pay the deposit and interest accrued thereon to Pacific Resort, with it to be noted that that payment would not constitute a reduction of the judgment debt for $1 million. 8Pacific Resort substantially bettered that outcome. I will shortly give judgment for approximately $2.8 million, as well as authorise payment of the deposit and accrued interest to it. 9Otherwise the offer of compromise provided for a verdict for what were described as the second cross-claimant and the third cross-claimant, an evident typographical mistake for second cross-defendant and third cross-defendant, who are identified as Lescap Operations and Mr Caplan. There will be verdicts accordingly. 10The offers on the cross-claim were exclusive of costs. The offer conforms with the requirements of the rules. The offer was not accepted. 11On the defence of Lescap Group's claim against it and on its cross-claim against Lescap Group, Pacific Resort is entitled to have its costs assessed on the indemnity basis as from 11am on the day following the day on which the offer was made pursuant to r 42.14(2), unless the court otherwise orders. I do not think that there is anything to warrant the making of an order otherwise. 12The only matters which might be advanced for that purpose are those raised by counsel for Lescap Group concerning the success of that party on some of the issues in the case. Those matters are also relied upon in support of the submission that the costs to be assessed on the ordinary basis should not include the whole of the costs, but only a proportion of them. 13Lescap Group succeeded in establishing that a comparatively small number of items said not to have been located at the hotel at the relevant time were indeed not located there. It had asserted and adduced evidence, and there was contest at the trial, that there were more items that were not located at the premises than those which were ultimately the subject of argument. These issues occupied substantial time at the hearing. I can infer from the extent of the affidavit evidence concerning them that they would have taken up a substantial amount of time in preparation. 14Whilst Lescap Group succeeded in establishing its claim that some of the items were not at the hotel, I would not regard it as having had substantial success on those general issues, having regard to the number of claims it made which were not established. Otherwise it succeeded on the issue of election and conventional estoppel. It succeeded in obtaining some reduction of the plaintiff's claim as to quantum, but not wholly as to quantum, as many of the matters it advanced through Mr Foley-Jennings were not accepted. I do not consider that the extent of its success on particular issues warrants any variation to the costs orders. The issues on which it succeeded were not dominant issues, nor, I think, were they wholly severable. 15Accordingly, Pacific Resort is entitled to the costs orders sought as against Lescap Group. Costs between Pacific Resort and Lescap Operations and Mr Caplan 16Lescap Operations and Mr Caplan based their claim that part of their costs be paid on the indemnity basis on an offer of compromise that was served by Mr Caplan on 15 August 2011. The only basis upon which Pacific Resort denied that that offer of compromise conformed with the rules was that it was signed by Mr Caplan on behalf of himself and Lescap Operations, that is, as the director of Lescap Operations. 17Mr Caplan did not make the affidavit required by Uniform Civil Procedure Rules r 7.2 where a company carries on proceedings through its director. No issue was taken about that non-compliance with the rules during the course of the proceeding. Non-compliance with rule 7.2 did not invalidate the proceedings undertaken on behalf of Lescap Operations and Mr Caplan (JSBG Developments Pty Ltd v Kozlowski [2009] NSWSC 1128; 75 NSWLR 745.) 18The major question is whether or not a Sanderson order should be made. 19Lescap Group, Lescap Operations and Mr Caplan were all in the same camp. Mr Caplan was the sole director of both Lescap Group and Lescap Operations. The cross-claim brought by Pacific Resort against Lescap Operations and Mr Caplan was an alternative to its cross-claim against Lescap Group for damages for failing to complete the Sale Contract. 20I dealt with the merits of the cross-claim against Lescap Operations and Mr Caplan in case I am wrong in my conclusion that Pacific Resort is entitled to damages against Lescap Group. I found that the claim against Lescap Operations and Mr Caplan would fail, essentially on the ground that Pacific Resort had not relied upon the recital in the Licence Deed, or perhaps more accurately, that following the cross-examination of Mrs Lloyd, its evidence did not establish reliance. 21It was common ground that the relevant considerations as to whether or not the Sanderson order should be made are: "1. It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant. 2. The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other. 3. While it is essential to find that the plaintiff has acted reasonably and properly that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion. 4. Finally, in considering whether to make such an order, the court should, in the exercise of its discretion balance overall two considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; secondly, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful." (Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176 at [16] citing Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179; Lakersteen v Jones (No 2) (1988) 93 FLR 442.) 22I accept the submission of Mr Ogborne for Pacific Resort that the question whether it was reasonable and proper for Pacific Resort to have sued Lescap Operations and Mr Caplan is not to be determined with the benefit of hindsight. I would not conclude that the joinder of those parties was unreasonable or improper because I have found that the claim would have failed even if the claim against Lescap Group had also failed. 23I am satisfied that the joinder of those parties was reasonable and proper. In that respect, it is relevant that I found that the recital to the licence deed did convey a misleading representation. I also accept Mr Ogborne's submission that the claim has been found to have failed essentially by reason of the cross-examination of Mrs Lloyd. I do not think that there is any question but that the claims against Lescap Group on the one hand and Lescap Operations and Mr Caplan on the other were substantially connected and interdependent. 24The question then is whether there was something in the conduct of Lescap Group which makes it a proper exercise of discretion to make the order sought, and whether or not there are policy considerations which affect the decision. 25The proceedings were brought by Lescap Group asserting primarily that it was entitled to the return of the deposit because of the breach of warranties that it alleged. It contended that those warranties were not qualified by the words "subject to the Licence Deed" in any relevant respect. It was that contention which I made it reasonable and proper for Pacific Resort to have also joined Lescap Operations and Mr Caplan to a claim based upon misrepresentation through the recitals to the Licence Deed. Had those parties not been joined and had Lescap Group succeeded on its argument, in all probability, there would have been separate litigation. 26Looking at the matter perhaps more broadly, in the terms endorsed by Gibb CJ in Gould v Vaggelas (1985) 157 CLR 215 at 230, the question is whether there is conduct on the part of the unsuccessful defendant that makes it fair to impose liability on it for the costs of the successful defendants. The answer I think is yes, in that it is the conduct of Lescap Group in seeking to take advantage of the alleged breaches of warranty that has caused the joinder of Lescap Operations and Mr Caplan and the raising of the additional issues in the claims against them. 27The fact that Lescap Group, Lescap Operations and Mr Caplan were all in the same camp is also, I think, relevant in the overall exercise of the discretion under s 100 of the Civil Procedure Act 2005. 28In my view, Pacific Resort is entitled to the orders that it seeks that the costs of the successful cross-defendants be paid not by it, but by Lescap Group. In those circumstances, it is accepted that costs would be ordered on the ordinary basis. This is a reason for making an "otherwise order" under r 42.15(a). For these reasons, I will make the orders as sought by counsel for Pacific Resort. 29I direct verdicts and make orders in accordance with the document entitled "Judgment" handed up by the defendant's counsel which I initial and date today. 30The exhibits may be returned and are to be dealt with in accordance with 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: 26 June 2012