Industrial Relations Commission New South Wales Medium Neutral Citation: SW & JD Reilly & Sons Pty Limited (ACN 001 792 829) v Australian Co-Operative Foods Limited (ABN 010 308 068) (No 2) [2014] NSWIRComm 11 Hearing dates: Written submissions 24 January 2014; 31 January 2014; 7 February 2014 Decision date: 25 March 2014 Jurisdiction: Industrial Court of NSW Before: Backman J Decision: The Court makes the following Order: 1. The applicant is to pay the respondent's costs of the proceedings on an ordinary basis in an amount as agreed or as assessed. In this order "costs" shall be taken to include all costs in the cause including reserved costs (but does not include costs relating to proceedings identified in paragraph 3 of the principal judgment in Reilly in which costs orders have already been made). The applicant shall be entitled to a credit for the costs of the proceedings before the Court of Appeal (assessed on an ordinary basis). Catchwords: Costs - s 106 unfair contract proceedings - respondent's application for costs - orders sought against non-party and applicant - indemnity costs sought - whether applicant engaged in delinquent conduct - Calderbank type offers considered - gross sum order sought - whether interest on costs awarded to a respondent permissible - apportionment of costs considered - order Legislation Cited: Civil Procedure Act 2005 Industrial Relations Act 1996 Supreme Court Act 1970 Cases Cited: Calderbank v Calderbank [1975] 3 All ER 333 Cretney v Director General, New South Wales Department of Education and Training (No 4) [2010] NSWIRComm 17 Deng v Lieu (No 2) [2009] NSWIRComm 85 Gough & Gilmore Holdings Pty Ltd v Caterpillar of Australia Ltd (No 18) [2011] NSWIRComm 87 Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 McWilliam Wines Pty Ltd v Liaweena (NSW) Pty Ltd (formerly Jones Steains and Waller (NSW) Pty Ltd) (1993) 32 NSWLR 190 SW & JD Reilly & Sons Pty Limited v Australian Co-Operative Foods Limited [2013] NSWIRComm 103 Tuholi Pty Ltd v Caltex Australia Petroleum Pty Limited [2001] NSWIRComm 7 Wheelahan v North Coast Area Health Service (No 2) [2008] NSWIRComm 244 Category: Costs Parties: SW & JD Reilly & Sons Pty Limited (ACN 001 792 829) (Applicant) Australian Co-Operative Foods Limited (ABN 010 308 068) (Respondent) Representation: Mr A Britt of counsel (Applicant) Mr P Kite, SC with Ms S Piedade of counsel (Respondent) W.H. Parsons & Associates (Applicant) Addisons (Respondent) File Number(s): IRC 2463 of 2002 Judgment 1Before the Court is an application for costs brought by the respondent, Australian Co-Operative Foods Limited (referred to throughout the proceedings as "Dairy Farmers"). The application follows the dismissal by me of a Further Amended Summons for Relief (FAS) brought by the applicant (SW & JD Reilly & Sons Pty Limited) under s106 of the Industrial Relations Act 1996 (the IR Act): SW & JD Reilly & Sons Pty Limited v Australian Co-Operative Foods Limited [2013] NSWIRComm 103. 2In written submissions the respondent seeks the following orders: 1. An order that the Applicant and Mr Stephen Reilly, jointly and severally, pay the costs of the Respondent in the gross sum, determined on an indemnity basis, of (as assessed by the Court in light of the evidence of Ms Hayne). 2. In the alternative, an order that the Applicant and Mr Stephen Reilly, jointly and severally, pay the costs of the Respondent in the gross sum, determined on the ordinary basis, of (as assessed by the Court in light of the evidence of Ms Hayne). 3. Further in the alternative, an order that the Applicant and Stephen Reilly, jointly and severally, pay the costs of the Respondent assessed on an indemnity basis. 4. Further in the alternative, an order that the Applicant and Stephen Reilly, jointly and severally, pay the costs of the Respondent assessed on the ordinary basis. 5. An order that the Applicant and Mr Stephen Reilly jointly and severally shall pay to the Respondent interest in the amount of (as assessed by the Court in light of the evidence of Ms Hayne). In these orders "costs" shall be taken to include all costs in the cause including reserved costs (but does not include costs relating to proceedings identified in paragraph 3 of the judgment in which costs orders have already been made). The Applicant shall be entitled to a credit for the costs of the proceedings before the Court of Appeal (assessed on an ordinary basis). 3The reference to "paragraph 3 of the judgment" in the passage extracted above from the respondent's written submissions is a reference to two applications brought by the respondent to the Full Bench of this Court and to the Court of Appeal challenging the Court's jurisdiction pursuant to s 106 of the IR Act. Both applications were unsuccessful. 4The matter has had a long history. The file was transferred to me in June 2012, and the applicant's application, constituted by the FAS, was heard by me during the period from 12 November 2012 until 26 April 2013. A broad overview of the history of the proceedings is set out in my judgment at [2] to [5]. For convenience those passages are reproduced below: The application is constituted by a Further Amended Summons for Relief (FAS) filed on 2 March 2012. The proceedings were originally commenced by the applicant on 1 May 2002 by way of Summons for Relief for orders pursuant to s 106 of the Act. The application was filed with a supporting affidavit of Stephen William Reilly sworn 30 April 2002. The applicant subsequently sought to amend the proceedings, but was unsuccessful: SW & JD Reilly & Sons Pty Ltd v Australian Co-Operative Foods Limited [2005] NSWIRComm 113. A further application to amend was subsequently brought resulting in the filing of an Amended Summons on 18 April 2006. In 2009, after all of the applicant's evidence was filed, the respondent brought an application to challenge the Court's jurisdiction pursuant to s 106 of the Act. The respondent's challenge is the subject of the following decisions of the Full Bench of this Court and of the Court of Appeal of NSW respectively: SW & JD Reilly & Sons Pty Limited v Australian Co-operative Foods Limited [2009] NSWIRComm 176, Australian Co-operative Foods Limited v SW & JD Reilly & Sons Pty Limited [2010] NSWIRComm 110 and Australian Co-operative Foods Ltd v SW & JD Reilly & Sons Pty Ltd (2011) 80 NSWLR 575; (2011) 209 IR 192; [2011] NSWCA 148. Subsequent to the decision of the Court of Appeal, the applicant again sought to amend the proceedings and to file further evidence. That application was the subject of the decision of his Honour Justice Marks in SW & JD Reilly & Sons Pty Ltd v Australian Co-operative Foods Limited (No 3) [2012] NSWIRComm 3. The applicant was permitted to file the FAS and further affidavit evidence on the basis of guillotine style orders. The respondent filed a Reply to the FAS for Relief on 4 May 2012. The applicant filed a Response to the Reply on 18 June 2012. The FAS seeks to impugn the Supermarket Delivery Contract (SDC) entered into between the parties on 9 June 1998 under s 106 of the Act. 5Some factual background is set out in my judgment in Reilly at [6] to [35]. 6The applicant opposes the respondent's application for costs. 7The respondent in pursuing its costs application relied on the following matters: (1) The Court has power to award costs under s 98 of the Civil Procedure Act 2005 (CPA). (2) Costs are in the discretion of the Court. (3) The Court has full power to determine by whom and to what extent costs are to be paid. (4) The Court has power to order that costs be awarded on an ordinary or an indemnity basis. (5) The Court has power to order a specified gross sum instead of assessed costs. (6) The Court has power to order that interest be paid on any amount payable under a costs order. 8According to the applicant the Court's power to award costs resides in s 181 of the IR Act. However, the applicant appeared to concede that the Court also has power pursuant to s 98 of the Civil Procedure Act 2005 (the CP Act). 9I intend to approach the present application by adopting the approach taken by Boland J in Gough & Gilmore Holdings Pty Ltd v Caterpillar of Australia Ltd (No 18) [2011] NSWIRComm 87. His Honour, after considering the relevant legislation and a number of authorities said (at [49] to [51]): In the present case, the starting point in respect of costs is that costs are in the discretion of the court: s 181 of the IR Act. Here, unlike the position in Oshlack , there is a qualification (albeit limited) on the discretion in the form of r 42.1, but it is a qualification consistent with the common law rule that a wholly successful party should receive costs unless good reason is shown to the contrary. Pursuant to r 42.1 of the UCPR, costs follow the event, unless it appears to the court that some other order ought to be made: see Dunstan v Rickwood (No 2) [2007] NSWCA 266; (2007) 38 Fam LR 491 at [40] per McColl JA, Beazley and Ipp JJA agreeing; Baker v Towle [2008] NSWCA 73; (2008) 39 Fam LR 323 at [3]-[6]. The rule reflects the general law position that a successful party has a "reasonable expectation" of being awarded costs against the unsuccessful party: Oshlack at [67] and [134]. The purpose of an order for costs is to compensate the person in whose favour it is made and not to punish the person against whom the order is made: Oshlack at [67] per McHugh J; Allplastics Engineering Pty Ltd v Dornoch Ltd [2006] NSWCA 33 at [34], referring to Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. The discretion to award costs must be exercised judicially: Oshlack at [65]-[66] per McHugh J; Overton Investments Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 [2001] NSWCA 137 at [61]. Thus, the presumption is that 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. 10Boland J also adverted to the making of costs orders which depart from the general rule that costs follow the event. At [61] to [62] his Honour said, on that particular issue: 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: Cretney at [8] and the cases cited therein, namely: Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 , citing State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed); Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]; Bonic v Pacific General Securities Ltd [2009] NSWSC 1221 at [12]. In most cases, the costs order will almost invariably depend upon the exercise of the discretion: Baker v Towle at [20]-[22]. 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: Elite Protective Personnel at [6], citing Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). 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: Elite Protective Personnel at [9], citing James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 (at [34]). See also Sydney Ferries v Morton (No 2) [2010] NSWCA 238 at [10]-[12]. It may also be appropriate, where each party has had substantial success, to order that there be no order as to costs: Hogan v Trustees of the Roman Catholic Church (No 2) [2006] NSWSC 74 at [40]. 11I also draw guidance from Boland J's summary of the principles governing the award of costs by this Court in Gough & Gilmore Holdings (No. 18) at [71]: (1) the Court has a wide discretion under s 181 of the IR Act to award costs and may determine by whom and to what extent costs are to be paid; (2) rule 42.1 of the UCPR places a limited proscription on the wide discretion to award costs in that 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; (3) rule 42.1 of the UCPR reflects the general law position that a successful party has a "reasonable expectation" of being awarded costs against the unsuccessful party. Thus, the presumption is that 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. The qualification, however, means there is no absolute or automatic rule that, in the absence of disentitling conduct, a successful party is to be compensated by the unsuccessful party; (4) the purpose of an order for costs is to compensate the person in whose favour it is made and not to punish the person against whom the order is made; (5) the discretion to award costs must be exercised judicially. The discretion cannot be exercised arbitrarily or capriciously and it cannot be exercised on grounds unconnected with the litigation or the circumstances leading to the litigation; (6) although the ordinary rule is that costs follow the event, the "event" extends to any disputed question of fact or law and is not limited to "issues" in the technical sense; (7) it is not necessary to first find in terms or to the effect that it is a most exceptional case, or a strong or exceptional case, before ordering a successful party to pay costs of an unsuccessful party, but there must be a proper basis to do so consistent with r 42.1 of the UCPR; (8) 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; (9) 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; (10) 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; (11) it may be appropriate, where each party has had substantial success, to order that there be no order as to costs; (12)the exercise of the discretion to award costs is underpinned by notions of fairness; fairness should dictate how that discretion is to be exercised. So, if an issue by issue approach will produce a result that is fairer than the usual rule, it should be applied; (13) 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; (14) 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; (15) a successful party may, in appropriate circumstances, be ordered to pay the costs of an unsuccessful party where the Court finds disentitling conduct, or misconduct, on the part of the successful party such as to warrant a costs order against it; (16) the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute; (17) in determining whether the successful party is guilty of misconduct (or disentitling conduct), the conduct must relate either or both to the litigation and/or the circumstances leading up to the litigation; and (18) disentitling conduct does not necessarily need to amount to misconduct. 12The respondent in its written submissions developed its arguments by reference to several discrete topics, which are set out below (not necessarily in the same order): (a) Non-Parties - Mr Stephen Reilly (b) Indemnity costs (c) Gross sum order (d) Interest on costs (e) Apportionment Non-Parties - Mr Stephen Reilly 13As earlier noted the respondent seeks orders for costs against both the applicant and Stephen Reilly (Mr Reilly), a non-party to the proceedings. Mr Reilly, together with his wife, June Reilly, were the directors of the applicant. Mr Reilly was also a shareholder of the applicant. The applicant was the trustee of the Reilly Family Settlement Trust. The Trust did not trade in its own right: Reilly at [1] and [79]. 14The respondent's submission on this issue is that Mr Reilly was the controlling mind of the applicant. Various transcript references are relied upon in support of the contention. The respondent also referred to Mr Reilly's numerous affidavits in which he interchanges himself and the applicant in support of the contention. In addition the respondent relied upon "much of the correspondence" about the Supermarket Delivery Contract (SDC), the impugned contract in the s 106 proceedings, and the dealings between the applicant and the respondent, in which Mr Reilly is described as the client, to demonstrate that in every relevant respect he was the client. According to the respondent Mr Reilly was closely involved in, and had all the powers of a party to these proceedings, and, if the applicant is capable of meeting the costs order, he will be protected by the fact that the orders sought are joint and several. The respondent argues that it should not be deprived of the compensation costs orders by reason of the inability of the applicant corporation to meet those orders. The respondent says that it is clear the case was run principally for the benefit of Mr Reilly. He largely did the work the subject of the SDC and in normal circumstances one would have expected him to be the applicant but he was not a party to the SDC. He was not a party, the respondent contends, because he chose, long before the SDC came into existence, to conduct his business through the applicant. In reply submissions the respondent characterised the applicant as Mr Reilly's "alter ego". 15The applicant in submissions complained that the respondent had not given it prior notice that costs orders would be sought against Mr Reilly. The respondent's failure to do this according to the applicant constitutes a denial of natural justice. 16In my view this matter may be disposed of by the following brief observations. First, the respondent has not made available to the Court any material by which it bases its assertion that it may be deprived of "compensation costs" because of some inability on the part of the applicant to meet any costs orders awarded against it. Accordingly no proper basis has been demonstrated which might have allowed the Court to consider this particular assertion. Secondly, it is not at all apparent that the case was run principally for the benefit of Mr Reilly. Thirdly, the fact that Mr Reilly could not be a party to the proceedings because he was not a party to the SDC is not the point. There can be no valid complaint directed towards the fact that Mr Reilly was not a party to the proceedings because he may have chosen for whatever reason long before the SDC came into existence to conduct his business through the applicant. Fourthly, this Court has made no finding that Mr Reilly was the alter ego of the applicant, or that Mr Reilly was the controlling mind of the applicant. In Reilly at [146] the applicant's functions under the SDC were described in the following way: Although the applicant is not a "one person" company, it may be described as a small family company, owned and operated primarily by one person, Mr Reilly, with the assistance of his wife and co-director, Mrs Reilly, and some part-time employees employed during various periods, not always at the same time, to assist in the supermarket deliveries effectively as Operators under the terms of the SDC (and the Manual). The accounting records (and other evidence) confirm that the number of workers employed and engaged by the applicant at any one time were small and their wages modest at best, representative of their part-time status. 17No proper basis has been demonstrated by the respondent to justify or warrant a grant of costs orders, joint and several, against the applicant and Mr Reilly. Indemnity costs 18The respondent seeks an order for costs on an indemnity basis. In doing so it has placed reliance primarily on two contentions: first, the applicant has been delinquent because it failed to comply with its obligation to assist in the "just quick and cheap resolution of the real issues" in the case and, secondly, because of its unreasonable refusal to accept any offers that were made to settle the proceedings in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333. 19A third basis relied upon by the respondent in support of a grant of costs on an indemnity basis is said to be the "cumulative effect of the first two bases". 20I propose to deal first with the second contention. 21A relevant statement of the principles to be applied (and which I intend to apply here) when assessing whether a respondent should be awarded a payment of costs on an indemnity basis following the rejection by the applicant of an offer of compromise made in accordance with the principles of a Calderbank offer is found in Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [3] to [5]: As a separate matter, the Second Respondent sought payment of its costs on an indemnity basis. Support for such an order was said to rest on a letter sent by the solicitors for the Second Respondent on 11 January 2005 offering to settle the appeal on the basis that each party bear his or its own costs of the proceedings. The offer was said to be open for acceptance until the close of business on 7 February 2005. The Second Respondent reserved its right to rely upon the letter in relation to the issue of costs, pursuant to the principles stated by Cairns LJ in Calderbank v Calderbank [1975] 3 All ER 333. According to the well-established authorities, reviewed by Santow JA in Leichhardt Municipal Council v Green [2004] NSWCA 341, such a letter will only justify an order for costs on an indemnity basis, rather than the usual basis, if it constitutes a genuine offer of compromise, which it was unreasonable for the appellant not to accept. The general approach adopted in this Court is that where an offer involves "no real element of compromise" but merely "invites capitulation by the appellant" it will not result in a variation of the usual costs order: see, eg, Townsend v Townsend (No 2) [2001] NSWCA 145 (Giles JA) at [5]. Whilst the Second Respondent had no doubt incurred some costs by 11 January 2005, it is difficult to know whether the sum would have been significant in relation to the costs of the litigation as a whole, or in relation to any possible judgment which the Appellant might obtain, if successful. Either the Appellant's case against the Second Respondent was hopeless and should not have been pursued at all, or it was not. The "Calderbank letter" does not, by itself, justify any variation from the usual order. 22In Wheelahan v North Coast Area Health Service (No 2) [2008] NSWIRComm 244, Boland J reviewed authorities on Calderbank offers and indemnity costs. At [46] and [47] of the judgment his Honour observed: It is clear from the authorities that an offer and subsequent rejection of a Calderbank offer will not automatically result in indemnity costs in favour of the offeror: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Leichhardt Municipal Council v Green [2004] NSWCA 341; Chint Australasia Pty Limited v Cosmoluce Pty Limited [2008] NSWSC 768. The award of indemnity costs based upon a Calderbank offer involves the exercise of the Court's discretion: Monie v Commonwealth of Australia (No. 2) [2008] NSWCA 15 at [11]. In Leichhardt Municipal Council at [47] the Court of Appeal said that: It is preferable to consider applications for indemnity costs following unaccepted offers of compromise by defendants as being applications for a favourable exercise of the Court's general discretion to award indemnity costs. As far as Calderbank offers go there is very little difference, the costs consequences of these lying entirely within the Court's general inherent discretion on costs. The Court of Appeal recently considered Calderbank letters and indemnity costs in County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) [2008] NSWCA 273. In that case, the Court outlined the discretionary nature of awarding indemnity costs and held that the person making the application for indemnity costs bears the onus of proving that indemnity costs should be awarded. The Court further said: [32] An offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise. Whether or not an offer is a genuine offer of compromise or merely a demand to capitulate depends upon an assessment of all the circumstances of the case at the time: Leichhardt Municipal Council v Green (at [21], [27]) per Santow JA (with whom Stein JA agreed); see also Herning v GWS Machinery Pty Ltd (No. 2) [2005] NSWCA 375 (at [4]); Gretton (at [44]) per Beazley JA (Mason P agreeing); cf Hodgson JA (Mason P also agreeing) (at [115]). [33] Other principles governing Calderbank offers were set out in Elite as follows: [98] The general principles concerning Calderbank offers were set out in Jones v Bradley (No 2) where the Court approved Giles JA's statement in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (at [37]) that: 'The making of an offer of compromise in the form of a Calderbank letter ... where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the Court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure ...' [99] In Leichhardt Municipal Council v Green [2004] NSWCA 341 (at [46]) Santow JA (with whom Stein JA agreed) reviewed the authorities concerning Calderbank letters. His review demonstrated that such a letter would only justify an order for costs on an indemnity basis, rather than the ordinary basis, if it constituted a genuine offer of compromise, which it was unreasonable for the appellant not to accept: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 (at [4]) per Handley, Beazley and Basten JJA. Among the issues germane to the question of the reasonableness of the offeree's conduct will be whether the offeree had an 'appropriate opportunity ... to consider and deal with the offer': Donnelly v Edelsten (1994) 49 FCR 384 (at 396) (Full Court of the Federal Court, Neaves, Ryan and Lee JJ)." 23The respondent relies upon five offers it says were made by it to the applicant to settle the proceedings, following the commencement of the proceedings on 1 May 2002. Karen Anne Hayne, a partner of Addisons, the solicitors acting for the respondent, sets out in her affidavit a summary of the offers made and relevant information which she says is based on her own knowledge and on her review of Addison's records. 24The first offer, according to Ms Hayne, was made at a conciliation conference on 18 March 2003. Based on material in Addison's file, Ms Hayne deposes that she "verily believes": (a) an offer was made on behalf of the Respondent during the conciliation conference, that the proceedings be resolved on the basis that each party pay their own costs and that the proceedings otherwise be discontinued; and (b) this offer was rejected by the Applicant. 25The applicant submits that this first offer fails to satisfy the definition of a Calderbank offer but does not say why. Nevertheless, in the absence of the source document being made available to the Court I cannot give serious consideration to the offer in the form it has been available, namely a summary of what it purportedly offered, based on Ms Hayne's belief. Of more significance perhaps is the fact that an offer that the proceedings be resolved on the basis that each party pay their own costs does not reflect a true compromise and it was not, in my view, unreasonable for the applicant to reject it. 26The second offer was said to have taken place during a settlement conference on 13 November 2007. According to Ms Hayne, again based on her review of Addison's records, she "verily believes" that during the conference an offer was made in the following terms: (a) the Respondent made an offer to the Applicant that each party walk away from the proceedings (so the proceedings be discontinued) and that each party bear their own respective costs; and (b) this offer was not accepted by the Applicant. 27For the same reasons I have stated in relation to the first offer, this second offer cannot be given serious consideration. It does not reflect a true compromise and it was not unreasonable for the applicant to reject it. 28The third offer is set out in a letter, dated 8 October 2008, annexed to Ms Hayne's affidavit. It is headed "Without Prejudice Save as to Costs" and reads: We are instructed that our client is prepared to settle this matter on the following terms: 1. Without admission of liability, our client will pay your client the amount of $50,000 (inclusive of any applicable GST), within 28 days of the date that your client accepts the offer contained in this letter (subject to execution within that time of the deed referred to below in paragraph 5 and the other terms set out below). 2. The parties bear their own respective costs of and incidental to the dispute and the proceedings. 3. The parties will seek orders by consent for the dismissal of the proceedings with no order as to costs within 7 days of our client making the payment referred to in paragraph 1 above. 4. The parties agree to the mutual termination of the Supermarket Delivery Contract with immediate effect upon the execution of the Deed of Settlement and Release (referred to in paragraph 5 below). For abundant clarity and without limiting the rights and obligations of the parties pursuant to the Supermarket Delivery Contract, it is agreed that upon termination of the Supermarket Delivery Contract the Applicant will cease to have the right to deliver Dairy Farmers Products to the Designated Customers and the right to deliver Dairy Farmers Products to the Designated Customers shall vest immediately with Dairy Farmers. 5. The parties will execute a Deed of Settlement and Release reflecting the above terms and containing mutual releases including an appropriate release by your client in our client's favour and other standard terms such as a confidentiality clause. Our client is prepared to settle the matter in order to avoid both parties incurring significant further costs and time in pursuing the litigation which, as you are aware, was commenced in 2002 and has suffered considerable delay over the past 6 years. Our client's offer will remain open for acceptance until 5.00 pm on 22 October 2008. The offer is made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and our client reserves the right to rely on this letter in support of an application for indemnity costs at the appropriate time should the offer not be accepted. 29According to the applicant this third offer is not a Calderbank offer because it requires the applicant to terminate its existing contract with the respondent as part of the proposed settlement. The respondent replies that this is of no consequence because the pleadings sought, at least in the alternative, avoidance of the SDC, and, by the time of the hearing the SDC had been terminated, and further, by the time of the offer the SDC was terminable on a month's notice. 30The letter clearly states that it was made in accordance with the principles of a Calderbank offer, and that the respondent reserved the right to rely on its contents in support of an application for indemnity costs. However, I do not consider that an offer from the respondent to pay $50,000 (as to which see Herning in the passage extracted above (last paragraph)) with an attendant condition that the SDC, on foot at the time of the offer, be terminated by agreement constitutes a true or genuine compromise. At the stage of the proceedings when the third offer was made both parties had incurred considerable costs well in excess of the amount proffered by the respondent. Accordingly, it was not unreasonable for the applicant to reject it. 31The fourth offer is set out in a letter dated 11 June 2009, annexed to Ms Hayne's affidavit. It is also expressed to be made in accordance with the principles in Calderbank and is headed "Without Prejudice Save as to Costs". The offer of settlement is made in the second half of the letter and reads: In a final effort to avoid further unnecessary time and costs being spent, our client is prepared to offer to settle these proceedings now on the following basis, that: 1. The parties will seek orders by consent for the dismissal of the proceedings, with no order as to costs, within 7 days of your client's acceptance of this offer and the execution of the Deed of Release (referred to in paragraph 5 below); 2. The parties bear their own costs of and incidental to the dispute and the proceedings; 3. The Respondent will agree not to enforce any outstanding order for costs made against the Applicant; 4. The parties agree to the mutual termination of the Supermarket Delivery Contract with immediate effect upon the execution of the Deed of Settlement and Release (referred to in paragraph 5 below). For abundant clarity and without limiting the rights and obligations of the parties pursuant to the Supermarket Delivery Contract the Applicant will cease to have the right to deliver Dairy Farmers Products to the Designated Customers and the right to deliver Dairy Farmers Products to the Designated Customers shall vest immediately with Dairy Farmers; and 5. The parties execute a Deed of Settlement and Release reflecting the above terms and containing mutual releases including an appropriate release by your client in our client's favour and other standard terms such as a confidentiality clause. This offer will remain open until the close of business on 25 June 2009. After that time, the Respondent will proceed to file the Notice of Motion to dismiss the proceedings without further notice to you. The Respondent will seek an order for indemnity costs against the Applicant in relation to that Motion and in relation to the proceedings generally. That offer is made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and our client reserves the right to rely on this letter in support of an application for indemnity costs at the appropriate time should the offer not be accepted. 32The fourth offer offers to settle the proceedings on the bases that the proceedings be dismissed with no order as to costs and that each party bear their own costs. No allowance is made for payment of some of the costs of the applicant. In addition it is expressed to be conditional upon termination of the SDC by agreement. For these reasons it does not reflect a genuine compromise on the part of the respondent, and for the reasons I expressed in relation to the third offer it was not unreasonable for the applicant to reject it. 33The fifth offer was apparently made informally during private negotiations between the parties in May 2012. Ms Hayne deposes that she was informed by Addison's in-house Counsel that "without prejudice" discussions had occurred between Mr Shliapnikoff, a representative of the respondent, and Mr Reilly in person during which Ms Hayne "verily believes" the following exchange took place: (a) Mr Shliapnikoff spoke with Mr Reilly on 25 May 2012, and made an offer to resolve the proceedings on behalf of the Respondent on the basis that the Respondent would pay the Applicant the sum of $400,000 and that each party bear their own costs and that the proceedings would otherwise be discontinued; and (b) That Mr Reilly rejected this offer on behalf of the Applicant. 34For the reasons I expressed in relation to the first and second offers this informal fifth offer cannot be given serious consideration as a true compromise and its rejection (by Mr Reilly, not the applicant's legal representative) was not unreasonable. 35Returning to the respondent's first contention I am not satisfied on the material presented before me that the applicant's conduct throughout the proceedings constituted "delinquent" conduct which might otherwise justify an award of indemnity costs to the respondent. According to the respondent the applicant's "delinquency" is not only confined to the circumstances that led to interlocutory costs against the applicant but extended to such matters as the constant re-pleading of its case and its "scattergun approach" to the real issues in the case. 36As the applicant points out the grant of indemnity costs is to be seen as an unusual and exceptional course and would only occur where there is some special or unusual feature of the case to justify the Court in departing from the usual practice: Tuholi Pty Ltd v Caltex Australia Petroleum Pty Limited [2001] NSWIRComm 7 per Wright J. Here the conduct (said to constitute delinquent conduct) has already been the subject of existing orders by the Court and does not warrant any revisiting. The applicant's applications to amend its pleadings were largely successful. Any "delay" in the proceedings (about which there can be no criticism) at least from 2009 arose, in large measure, as a result of the respondent's decision to pursue the jurisdictional issue first in this Court (before Marks J) then before a Full Bench and finally in the Court of Appeal. 37For all those reasons I decline to exercise my discretion to grant the respondent's application for indemnity costs. Costs therefore fall to be awarded on the ordinary basis. Given my findings it is unnecessary to consider the respondent's third contention, or basis, advanced in support of its application for indemnity costs. Gross sum order 38The respondent seeks a gross sum order for costs. In doing so it relies on the proposition that the power to order a gross sum may be exercised appropriately where the assessment of costs would be protracted and expensive, and/or aggravating, and involves complex cases. It is submitted that the history of the proceedings reveals the complexity and potential costs of an assessment process where the parties have already incurred very substantial costs. According to the respondent, specification of the gross sum is not the result of a process of taxation and assessment of costs. The power contemplates that a much broader brush be applied than would be applied on a taxation of costs. The applicant in its submission agrees with the respondent, "that it would be appropriate in the circumstances to assess the costs". 39I do not propose, nor do I think it at all appropriate, that this Court acts effectively as a tax assessor and determines a gross sum order. Ms Hayne's affidavit sets out in great detail a breakdown of all the respondent's costs said to have been incurred during the course of the proceedings. Numerous documentation detailing the contents of invoices, trust account statements and other material is annexed to the affidavit. Nevertheless, I do not consider that I have been provided with a proper basis to undertake such an exercise nor am I in a position to do so given that the order I propose to make will not reflect any of the respondent's proposed orders. I intend to award costs on the usual basis, that is, as agreed or as assessed. Interest on costs 40The respondent seeks an award of interest on costs, submitting that this Court has the power to make the order under s 181 of the IR Act. In support of the submission the respondent called in aid the decision in McWilliam Wines Pty Ltd v Liaweena (NSW) Pty Ltd (formerly Jones Steains and Waller (NSW) Pty Ltd) (1993) 32 NSWLR 190. In that decision Rogers CJ Comm D held that s 76 of the Supreme Court Act 1970 conferred power to award interest to be paid to the plaintiff in the amount of taxed costs payable. In doing so his Honour relied on the wide definition of costs contained in s 76. Justice Rogers observed that s 76 provided that subject to the Act and the Rules, costs shall be in the discretion of the Court and the Court shall have full power to determine by whom and to what extent costs are to be paid. His Honour remarked that s 76, "self-evidently intends to give the Court the widest possible power and discretion in the allocation of costs" (at p 192D). According to the respondent s 181, particularly sub-sections (1) and (4) closely follow s 76 given that this Court has the power to award interest on costs under s 181. 41The applicant submitted that the Court has no power to order interest on costs and although a power to award interest on costs exists in the CP Act the provision does not apply since it would be prejudicial to the applicant. This latter submission relies on observations of Boland J in Gough & Gilmore (No 18) at [243]. 42In my view it is unnecessary to delve further into the basis upon which the applicant advances its latter submission. In any event the applicant has chosen not to develop its submissions on this issue, in relation to whether an award of interest on costs is permissible. In Deng v Lieu (No 2) [2009] NSWIRComm 85 a Full Bench held that s 101(4) of the CP Act (which confers power on "the Court" to order that interest be paid on any amount payable under an order for the payment of costs) has no application to this Court: at [26]. The respondent placed no reliance on s 101(4) of the CP Act to support its application for an award of interest on costs. Instead, it placed reliance on s 181 of the IR Act. Apart from those matters, the Court has not been provided with any authority to the effect that s 181, however wide its terms, confers a power to award interest on costs. Moreover, this Court is not aware of orders having been made in this jurisdiction in favour of a respondent (or a defendant) awarding interest on costs following an applicant's unsuccessful application and no authorities on this matter have been directed to my attention. In the absence of any authorities or proper legal basis having been demonstrated, I do not consider it appropriate to grant an award of interest on costs to the respondent and I decline to do so. Apportionment 43The applicant seeks a 35 per cent discount for its success on the jurisdictional issue. According to the applicant the respondent "strongly asserted" that the contract was not a contract caught by s 106 of the Act, and, the issue took up a considerable amount of Court time, as well as the parties' energies, both prior to the final hearing and during the final hearing. The applicant says that the issue was clearly dominant and took up a significant part of the proceedings by way of both evidence (especially cross-examination of Mr Reilly) and argument. The applicant conceded that any assessment of a discount for this factor will be a matter of discretion by the Court. 44In opposing the applicant's contentions on this issue, the respondent submits that unless extraordinary circumstances can be identified, and here there are none, the Court should not depart from the general rule. Further, the respondent submits that it cannot be said that it was unreasonable to pursue the point. Cross-examination of Mr Reilly was directed to the issue but the same material was relevant to the issue of the Court's adjudication on the issue of unfairness raised by the applicant. For example, cross-examination as to the size and complexity of the applicant's business(es) and the advice taken from accountants and lawyers was relevant to the question of equality of bargaining power, and the cross-examination as to the numbers of employees (of the applicant), the customers of Mr Reilly and others was relevant to the burdens alleged to have been imposed on the applicant and the unfairness of commission rates. The respondent contends that it is not possible, or appropriate, to describe traversing those issues as relating solely to the issue of jurisdiction. 45In a Full Bench decision of Cretney v Director General, New South Wales Department of Education and Training (No 4) [2010] NSWIRComm 17, the following relevant considerations were identified when assessing an application to apportion costs (at [8]): (h) 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: Elite Protective Personnel, citing Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported) (see also Bostik and Bonic). However, in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 Finkelstein and Gordon JJ stated that: Costs are in the court's discretion. Fairness should dictate how that discretion is to be exercised. So, if an issue by issue approach will produce a result that is fairer than the traditional rule, it should be applied. See also Hodge v TCN Channel Nine (No 2) [2006] NSWSC 1272 and Standard Commodities Pty Ltd v Societe Socinter Department Centragel [2005] NSWSC 493; (2005) 54 ACSR 496. (i) 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: Elite Protective Personnel citing James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34] (see also Bostik and Bonic).(j) 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: Elite Protective Personnel, citing Sabah Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24] (see also Bostik and Bonic). (k) 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: Elite Protective Personnel, citing Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 at [27] (see also Bostik and Bonic). (l) 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: Elite Protective Personnel citing James v Surf Road Nominees Pty Ltd (No 2), which in turn cited Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd [1993] FCA 259; (1993) 26 IPR 261 at 272 (see also Bostik and Bonic). 46Rule 42.1 of the Uniform Civil Procedure Rules 2005 provides: 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. 47The commentary to the Rule makes clear that although the general rule is that costs are not apportioned a discretion nevertheless resides in the Court to make separate costs orders. 48Moreover, as was discussed in Cretney (No 2), the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends on matters of impression and evaluation. The issue of jurisdiction occupied a not insignificant part of the proceedings. It was dealt with in Reilly at [67] to [147]. It was ventilated in this Court for the third time and on each occasion the respondent was unsuccessful. No criticism can be directed to the respondent for pursuing the point. It was also a discrete issue upon which the respondent did not succeed in this Court. Despite these considerations it cannot be said that the respondent unreasonably pursued the issue, or that it was the dominant issue in the case. The issue of jurisdiction was clearly arguable. The mere fact that it was a discrete issue which occupied a not insignificant part of the proceedings is not sufficient in my view to displace the ordinary rule that costs follow the event. According I decline to apportion the costs. Order 49The Court makes the following Order: 1. The applicant is to pay the respondent's costs of the proceedings on an ordinary basis in an amount as agreed or as assessed. In this order "costs" shall be taken to include all costs in the cause including reserved costs (but does not include costs relating to proceedings identified in paragraph 3 of the principal judgment in Reilly in which costs orders have already been made). The applicant shall be entitled to a credit for the costs of the proceedings before the Court of Appeal (assessed on an ordinary basis). ********** Amendments 31 March 2014 - typographical error, line 2 -'provision' changed to 'precision' Amended paragraphs: 48 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: 31 March 2014