Virginia Nemeth (by her tutor) v Australian Litigation Funders Pty Ltd and Ors (No 2) [2013] NSWSC 679

Supreme Court New South Wales

Medium Neutral Citation: Virginia Nemeth (by her tutor) v Australian Litigation Funders Pty Ltd and Ors (No 2) [2013] NSWSC 679 Hearing dates: 24 May 2013 Decision date: 31 May 2013 Jurisdiction: Equity Division Before: Sackar J Decision: The defendants are not entitled to an order for indemnity costs. Catchwords: COSTS - whether offer of compromise complies with r 20.26. Legislation Cited: Uniform Civil Procedure Rules 2005 Cases Cited: Old v McInnes and Hodgkinson [2011] NSWCA 410 Orcher v Bowcliff Pty Ltd [2012] NSWSC 1429 Vieira v O'Shea (No 2) [2012] NSWCA 121 Virginia Nemeth (by her tutor) v Australian Litigation Funders Pty Ltd and Ors [2013] NSWSC 529 Category: Costs Parties: Virginia Diroy Nemeth (by her tutor Salwa Elias) (Plaintiff) Australian Litigation Funders Pty Ltd (First Defendant) Australian Corporate Restructuring Services Pty Ltd (Second Defendant) James Byrnes (Third Defendant) Representation: Counsel: J Muir (Plaintiff) A Horvath (Defendants) Solicitors: Coleman Greig Lawyers (Plaintiff) HWL Ebsworth Lawyers (Defendants) File Number(s): 2011/44884

Judgment 1In the principal judgment handed down in this matter on 9 May 2013 I invited the parties to prepare short minutes giving effect to my reasons and to be heard on costs (Virginia Nemeth (by her tutor) v Australian Litigation Funders Pty Ltd and Ors [2013] NSWSC 529 at [328]). When the parties appeared before me on 24 May 2013, counsel for the defendants handed up draft short minutes of order in the following terms: 1. Judgment for the cross-claimants against the cross-defendant in the amount of $2,250,000.00. 2. The cross-defendant pay the cross-claimants GST on the judgment, in the amount of $225,000.00. 3. Interest on the judgment amount of $2,250,000.00, from 21 December 2011 to Friday 24 May 2013 in the amount of $245,696.91. 4. Second Further Amended Statement of Claim dismissed. 5. The plaintiff / cross-defendant to pay the defendants' / cross-claimants' costs on an ordinary basis for the period up to and including 28 May 2012. 6. The plaintiff / cross-defendant to pay the defendants' / cross-claimants' costs on an indemnity basis for the period 29 May 2012 to 24 May 2013 inclusive. 2The plaintiff opposes the defendants' proposed orders 2 and 6. The dispute as to proposed order 2 arose from a disagreement between the parties as to whether the sum awarded of $2,250,000.00 attracted GST. During discussions before me, the parties agreed that they would consult the Australian Taxation Office to determine the appropriate GST treatment of that payment, and then seek to have orders made accordingly. Therefore the only remaining point of contention is whether the defendants are entitled to have their costs paid on an indemnity basis for the period 29 May 2012 to 24 May 2013 inclusive. The defendants base their entitlement on what they allege was an offer of compromise they made to the plaintiff in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005 (UCPR). 3Attached to an email sent from the defendants' solicitors to the plaintiff's solicitors on 28 May 2012 was a document entitled "Offer of Compromise". The covering page of the offer specified the usual details of the proceedings on "Form 1", which is the "General Form" to be used under the UCPR where there is no relevant approved form. The offer included the following terms: The First, Second, and Third Defendants and the First and Second Cross-Claimants offer to compromise this claim on the following terms: 1. The plaintiff/cross-defendant to pay the cross-claimants the sum of $1,800,000.00 in full and final settlement of the plaintiff's claim and the cross-claim. 2. The plaintiff/cross-defendant to pay the defendants'/cross-claimants' costs. 3. This offer of compromise is open for a period of 28 days from the date of this offer. 4. This offer of compromise is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005. 4The precise issue between the parties is whether or the offer, by reason of the stipulation as to costs in paragraph 2, violates the "exclusive of costs" requirement under r 20.26(2): 20.26 Making of offer ... (2) An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs. ... 5In written submissions, the plaintiff identified potentially conflicting Court of Appeal decisions on this issue. The apparent point of conflict has been argued before the Court of Appeal in mid-March 2013 before a bench of five, including the Chief Justice and the President, and the judgment is presently reserved. It is appropriate, however, that I decide the present question of costs without the benefit of that decision. 6In Old v McInnes and Hodgkinson [2011] NSWCA 410, the court, comprising Beazley, Giles and Meagher JJA, considered whether an offer by a defendant to a plaintiff which included a term that the "first defendant to pay the plaintiff's costs as agreed or assessed" was an offer of compromise within the offer of compromise regime under the UCPR. Meagher JA (with whom Giles JA agreed) held that such an offer was not exclusive of costs or within the exception in r 20.26(2), and was therefore ultimately of no effect for the purposes of the offer of compromise regime under the UCPR. 7In Vieira v O'Shea (No 2) [2012] NSWCA 121, comprising Basten, Meagher and Handley AJA, considered whether an offer by a plaintiff to defendants which included a term that the defendants pay the plaintiff's costs was an offer of compromise within the UCPR. In that case, the offeror conceded before the Court of Appeal that the offer did not comply with the UCPR because it was not "exclusive of costs". In a joint judgment, the Court of Appeal said (at [7], citations omitted): The UCPR are to be construed by reference to their apparent purpose. A mere reference to costs in an offer otherwise compliant with Part 20, Div 4 will not take the offer outside the rules unless the reference operates inconsistently with the relevant costs rule. The offer, if accepted, entitled the offeror to his costs: the offer did not seek to vary the effect of UCPR r 42.13A. 8The Court of Appeal therefore held that the inclusion in an offer of compromise a term as to payment of costs would place the offer outside the offer of compromise regime if the stipulation as to costs was inconsistent with r 42.13A. That rule is located in Part 42 of the UCPR which deals with costs, and more specifically, Division 3, which deals with offers of compromise. Rules 42.13 and 42.13A provide: 42.13 Application This Division applies to proceedings in respect of which an offer of compromise (the offer concerned) is made under rule 20.26 with respect to a plaintiff's claim (the claim concerned). 42.13A Where offer accepted (1) This rule applies if the offer concerned: (a) is made by the plaintiff and accepted by the defendant, or (b) is made by the defendant and accepted by the plaintiff. (2) The plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made, unless: (a) the offer states that it is a verdict for the defendant and the parties are to bear their own costs, or (b) the court orders otherwise. 9In the present case, the offer was made by the defendants to the plaintiff, and included a term that the plaintiff pays the defendants' costs. For the reasons which follow, I do not consider the offer to be an offer of compromise within Part 20, Division 4 of the UCPR. 10An application of the more strict approach taken in Old v McInnes and Hodgkinson to the offer in the present case would plainly lead to the conclusion that the offer, by including a stipulation as to payment of costs, was not "exclusive of costs" and therefore not within the offer of compromise regime under the UCPR. 11On the specific facts of the present case, the same conclusion would be reached by applying the approach taken in Vieira v O'Shea (No 2). The Court of Appeal in that case indicated that a mere reference to costs was not fatal to the classification of an offer under the offer of compromise regime. However, if the reference operates inconsistently with r 42.13A, the offer will not be treated as an offer of compromise within the UCPR regime. In the present case, if the defendants' offer had been accepted by the plaintiff, it would have required, contrary to 42.13A, that the plaintiff pays the defendant's costs. The offer would therefore operate inconsistency with the relevant rule under the UCPR, and is therefore outside the rules. 12I also note that the offer does not take effect as a Calderbank offer as it is not expressed to do so (Orcher v Bowcliff Pty Ltd [2012] NSWSC 1429). 13The defendants are therefore not entitled to order 6 in their proposed short minutes of order. I would invite the parties to prepare further short minutes of order accordingly.