Supreme Court New South Wales Medium Neutral Citation: Craigcare Group Pty Ltd v Superkite Pty Ltd (No 2) [2014] NSWSC 467 Hearing dates: 10 April 2014 Decision date: 28 April 2014 Jurisdiction: Equity Division Before: Hallen J Decision: Direct the Plaintiff to deliver to Chambers, within 7 days, Short Minutes of Order reflecting the amount of the judgment, with interest calculated up to the date of the Orders, and the costs order referred to in Paragraph 90 of these reasons. Catchwords: COSTS - Offer of Compromise to one Defendant - Whether Offer was one compliant with UCPR rule 20.26 - Whether a compromise - If so, whether court should otherwise order Legislation Cited: Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: AAI Ltd v Josipovic (No 2) [2013] NSWSC 1577 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586 Craigcare Group Pty Ltd v Superkite Pty Ltd [2014] NSWSC 326 Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 Equity 8 Pty Ltd v Shaw Stockbroking Ltd [2007] NSWSC 503 Grincelis v House [2000] HCA 42; (2000) 201 CLR 321 Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 Herbert v Tamworth City Council (No 4) [2004] NSWSC 394; (2004) 60 NSWLR 476 Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 King Network Group Pty Ltd v Club of Clubs Pty Ltd (No 2) [2009] NSWCA 204 Manly Council v Bryne (No 2) [2004] NSWCA 227 MBP (SA) Pty Ltd v Gogic [1991] HCA 3; (1991) 171 CLR 657 Mohamed v State of Victoria [2007] VSC 538 Old v McInnes and Hodgkinson [2011] NSWCA 410 Potts v Frost (No 2) [2012] TASSC 32 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 South Eastern Sydney Area Health Service v King [2006] NSWCA 2 State of New South Wales v UXC Ltd (No 2) [2011] NSWSC 685 Visscher v Teekay Shipping (Australia) Pty Ltd (No 2) [2011] FCA 278 Walsh v Walsh (No 2) [2013] NSWSC 1281 West v Wake Price & Co v Ching [1956] 3 All ER 821; [1957] 1 WLR 45 Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 Category: Costs Parties: Craigcare Group Pty Ltd (Plaintiff) Superkite Pty Ltd (first Defendant) Alfred John Stammers (second Defendant) File Number(s): 2012/ 376897 Judgment The Background 1HIS HONOUR: In this matter, I delivered principal reasons for judgment on 26 March 2014, the medium neutral citation of which is Craigcare Group Pty Ltd v Superkite Pty Ltd [2014] NSWSC 326 ("the principal judgment"). I determined that Craigcare's claim for repayment of money by Superkite should succeed, and that it should be paid $65,129.50, plus interest, by Superkite. 2During the hearing, submissions were made dealing with the how the costs of the proceedings should be borne. I dealt with the submissions on costs and the relevant principles at [271] - [291] of the principal judgment. 3Neither party, during the hearing, submitted that I should delay the consideration of the costs issue until after the delivery of the principal judgment. Craigcare's senior counsel, at the hearing, did not indicate that it would wish to be heard further on costs if it were successful. Nor did either party suggest that there may be other matters, such as the service of an offer of compromise or Calderbank offer (see, Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586), that might be relevant on the issue of costs. 4That this was so is demonstrated by what I wrote at [277] of the principal judgment: "Of course, details of any 'without prejudice' negotiations have not been disclosed. However, what is more significant, is that neither party submitted that costs may be affected, depending upon the result, on an offer of compromise, or Calderbank offer, having been made." 5Following the principal judgment being published, the matter was adjourned so that the parties could provide, within 14 days, Short Minutes of Order that reflected the conclusions reached as to the amount to be paid to Craigcare by Superkite, including interest, and costs. I stated that, if agreement were reached on the form of orders, the orders would be made and entered in Chambers. Otherwise, I indicated that the matter would be listed for further argument. 6Then, I was informed, for the first time, that Craigcare wished to rely upon an Offer of Compromise served upon Superkite on 23 August 2013. When I enquired why the matter was being raised for the first time, Craigcare's junior counsel said that details of the service of an Offer of Compromise could not be made during the hearing. No other explanation was then provided. 7However, in its written submissions on the question of costs, Craigcare submitted that to mention an offer of compromise would have breached Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") rule 20.30(2), which, relevantly, provides: "(2) If an offer is not accepted, no communication with respect to the offer may be made to the court at the trial..." 8Reference was not made to UCPR rule 20.30(3) which relevantly provides: "(3) Despite subrule (2), an offer may be disclosed to the court ...: (a) if a notice of offer provides that the offer is not made without prejudice, or (b) to the extent necessary to enable the offer to be taken into account for the purpose of determining an amount of interest up to judgment, or (c) after all questions of liability and relief have been determined, to the extent necessary to determine questions as to costs..." 9In my view, the rule referred to by Craigcare prohibits communication or disclosure of the terms of the offer of compromise, rather than the fact that an offer of compromise has been made. As has been written by Katzmann J, in Visscher v Teekay Shipping (Australia) Pty Ltd (No 2) [2011] FCA 278, at [15], speaking of a similar Federal Court rule: "The plain purpose of the rule is to quarantine the decision-maker from the communication in case it might affect his or her decision." 10I cannot see that being informed, during submissions, that an offer has been made, without disclosing its terms and, perhaps, by which party it was made, as well as a statement that the offer may be relevant to the determination of the costs question, could affect the decision of the trial Judge, other than to prevent the trial Judge making a decision on costs until after all questions of liability and relief have been determined. 11Even if my view is wrong and there is a complete prohibition on disclosing that an offer of compromise has been served, one, or both, of the parties, by its, or their counsel, during the submissions at the hearing, should have requested the court to delay the consideration of the question of costs upon the basis that there were, or might be, other facts relevant to the determination of that issue. Without communicating, directly, the fact of the service of an offer of compromise, the position would have been clear to the court. Neither party, then, would have made submissions at the hearing on costs, and judicial time would not have been wasted considering, and dealing with, the issue in the principal reasons for judgment. 12To suggest otherwise might result in the court making a costs order without knowledge of the existence, and terms, of any offer of compromise, and, in this way, could act in ignorance of a fact that may well be critical to the exercise of its discretion concerning the burden of the costs of the proceedings. 13As has occurred in this case, the parties have had to make additional submissions on costs and the court has had to reconsider the determination of how the burden of costs should be borne. 14Superkite, on the hearing of the application, did not submit that that there had been ample opportunity for Craigcare to have foreshadowed that it wished to be make an application, in due course, for a special costs order; that it had not done so; and that it was too late to do so following the principal judgment. 15In all the circumstances of this case, I am satisfied that the fact that no application was foreshadowed at any time during the hearing is not a matter that should determine whether there should be a departure from what I said about costs in the principal judgment. Further Background Facts 16Craigcare, in its pleading, sought pre-judgment interest. That was part of its claim against both Superkite and Mr Stammers. 17Following the principal reasons for judgment, Craigcare's solicitors calculated the interest payable on the amount ordered ($65,129.50), at the applicable rates, for the purposes of s 100 of the Civil Procedure Act 2005 (NSW), from and including 21 January 2012, up to and including 23 August 2013, to be $7,758.46. It submitted, then, that the total amount payable by Superkite, as at 23 August 2013, taking into account the reasons for judgment, was $72,887.96. 18Superkite did not submit that these calculations were incorrect. 19In the principal reasons for judgment, I found: (a) On 22 December 2011, Mr Mitry, on behalf of Craigcare, sent an email to Mr Stammers in the following terms: "My client is aware of the email copied by you and is prepared to pay your reasonable costs as agreed or assessed." (b) Mr Stammers responded by email dated 22 December 2011, in the following terms: "I will be writing to you in more detail shortly but the monies were to be used to cover all of Superkite's costs and expenses not just this Firm's legal fees." (c) Mr Mitry responded a short time later, by email, in the following terms: "My client is aware that Superkite's reasonable costs and expenses are to be paid, however, he has instructed me that no money is to be released without his specific authority after he has considered the costs and expenses submitted through you." (d) After 23 December 2011, neither Craigcare nor Mr Mitry received any further communications from Holman Webb until the Defence, which did not specifically identify how the Money had been expended. Craigcare was not then provided with a trust account statement from Holman Webb. (e) Mr Stammers gave evidence that Mr Bleyer specifically instructed him not to provide a copy of the Invoices to Craigcare. His evidence was that "We were instructed to make no contact to [sic] either [Craigcare or Mr Mitry]". 20In the submissions on behalf of Craigcare, the following passage occurs: "On 5 July 2012 MacGillivrays Solicitors on behalf of the Plaintiff sent a letter to John Stammers at Holman Webb Lawyers requesting production of a Trust Account Statement. It was not provided until a Subpoena to Produce documents was issued on Holman Webb Lawyers by the Plaintiff and returned to the Supreme Court Registry on or about 22 March 2013. Only from that date was the Plaintiff in a position to assess what proportion of the sum of $100,000 had been applied for any particular purpose." 21It was not submitted by Superkite that the facts asserted in the above passage were incorrect. Thus, it would appear that, Craigcare, shortly after 22 March 2013, was in a position to assess what proportion of the Money had been applied. By then, it would also have been able to calculate the amount deducted, legitimately, from the Money "to cover Superkite's legal and administrative costs with respect to the preparation of the Joint Venture Agreement and the loan agreement, due diligence and incidental costs associated with the initial processing of the Transaction". 22However, at no time until its written submissions, did Craigcare advise Superkite, or Mr Stammers, of the amounts in the relevant Tax Invoices that were accepted as being for the purposes that I have identified. Craigcare maintained its claim for all of the Money. When it did reduce its claim against the Defendants, the articulation of the quantum of its case changed. 23Of course, none of these matters mean that Superkite, itself, was not in a position, at any early stage of the litigation, to have identified, what proportion of the Money had been applied for the particular purposes that were agreed. It would have known, in late 2011, or early 2012, which Tax Invoices related to the subject transaction and which did not. After all, it authorised Holman Webb to use the Money to pay Tax Invoices which, at the hearing, it was submitted were "unrelated legal fees owed by Superkite to Holman Webb". 24Superkite would also have known, at an early stage of the litigation, whether it could establish that it had used its own funds to pay invoices relating to the transaction which it then asked Holman Webb to reimburse by directing it to pay the unrelated invoices. 25The following paragraphs [244] - [247] of the principal judgment should be repeated: "It is unnecessary for me to make any finding of dishonesty in Superkite's reliance upon the Masud & Company pro forma Invoice. I am simply not satisfied, on the balance of probabilities, that the work referred to in that Invoice was done. In this regard, the onus to establish that the work was done, and that it fell within the purposes referred to, is upon the Defendants. They have not discharged the onus in this regard. The documents produced are of limited value in this regard. The claimed cost of the draft Letter of Intent is a little more difficult, since that document is in evidence that suggests some work was done. Yet, as stated, there is no invoice for the work done, and nothing, otherwise, to establish, objectively, that the payment of $10,000 was for the preparation of the draft Letter of Intent. In this regard, similarly, the other document relied upon is of limited value. Mr Bleyer, on behalf of Superkite, could have obtained the evidence from Mr Bacik. Alternatively, a copy of any such invoice from Mr Bacik, one might think, could have been obtained, or if it was not, then any reasons for not having it available could have been provided. The only evidence is from Mr Bleyer about the cost of the preparation of the draft Letter of Intent. Again, I am not satisfied, on the balance of probabilities, that the amount of $10,000 was for work done by Mr Bacik. The Defendants have not discharged the onus in this regard either." 26On 23 August 2013, Craigcare served, on the then solicitors for Superkite, Messrs Colin Biggers & Paisley, an Offer of Compromise in the following terms: "1. Craigcare offers to compromise the whole of its claim against the First Defendant for a judgment against the First Defendant for the sum of $65,000; 2. This Offer of Compromise is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005; 3. This offer shall be open for acceptance of a period of 28 days only." 27The Offer of Compromise served upon Superkite referred only to the "whole of [Craigcare's] claim against [it]". 28There is no evidence of any Offer of Compromise having been served on Mr Stammers. Accordingly, it may be inferred that Craigcare's claim against him was not to be abandoned but pursued. 29The service of the Offer of Compromise suggested a substantial compromise (i.e. the acceptance of $65,000, in lieu of $100,000 plus interest). As identified during the further submissions on costs, the real compromise was the acceptance of $65,000, in lieu of $69,024.50 (the amount of the real claim), plus interest. 30Craigcare sent the Offer of Compromise more than 8 months after the commencement of the proceedings. However, by that date, although the pleadings had closed, the parties had not filed, and served, all of the evidence in chief intended to be relied upon at the hearing. 31Even so, each of the parties, by then, would have had sufficient time to obtain, and give reasonable consideration to, advice from its, or his, legal representatives on how it would establish its case, or how it, or he, would defend the proceedings as well as the prospects of success of doing so. The Submissions 32Craigcare submitted that the offer to accept $65,000 made in the Offer of Compromise was bettered by an amount of $129.50 and that since the offer did not seek payment of any pre-judgment interest, the interest accrued from 21 January 2012 to the date of the offer (23 August 2013) should be included for the purposes of determining the consequences as to costs (UCPR rule 42.16). 33Taking into account the interest component as calculated, Craigcare subsequently will obtain a monetary judgment ($65,129.50), plus interest ($7,758.46), which amounts, together, will exceed the amount of the offer of $65,000, by about 12%. It was submitted that this is of sufficient discount to amount to a genuine compromise. 34Accordingly, Craigcare submitted that it was entitled to an order for ordinary costs up to the date of the offer, and costs on the indemnity basis from the beginning of the day following the day on which the offer was made, being 24 August 2013 (UCPR rule 42.14). 35Craigcare also submitted: "Craigcare reduced its claim at the commencement of the Hearing to $69,024.50, plus interest. Interest on this amount from 21 January 2012 to 23 August 2013 is $8,222.43. The offer to accept $65,000 without interest is a true compromise because it is an offer to accept 84 percent of the reduced claim including interest. It is submitted there are no exceptional or other circumstances in this case which warrant the court to order otherwise than indemnity costs (see Barakat & Ors v Bazdarova [2012] NSWCA 140 (18 May 2012) at [42] - [52]). Had the First Defendant accepted the Offer of Compromise, not only would the First Defendant have done significantly better than at trial, but: (a) the proceedings would never have been listed for hearing (Registrar Musgrave listed the proceedings for Hearing on 11 October 2013); (b) none of the Defendants would have had to serve any evidence; and (c) none of the parties would have had to prepare for the hearing, as no hearing date would have been set. The onus is on the First Defendant to demonstrate why the Court should not order the First Defendant to pay Craigcare's costs on an indemnity basis. In particular, it is submitted that the proposed order (at [289] of the Judgement) limiting Craigcare's costs to 65% for proportionality reasons, should be vacated. The Plaintiff was prepared to accept a result of 84 percent of its total claim (and interest) on 23 August 2013. The First Defendant knew how it spent the Money and still chose to put the Plaintiff to the cost and expense of preparing and running a hearing, rather than accepting the offer. It was unreasonable for the First Defendant to reject the offer in circumstances where it knew how the Money was spent and the purposes for which it could be spent." 36Superkite accepted that it received the Offer of Compromise from Craigcare. However, it submitted: "... [Craigcare] argues both at common law and by statute the claim for indemnity can be supported. But the claim is fallacious for the simple reason that the Offer was not made to both defendants but just to one, Superkite: '[Craigcare] offers to compromise the whole of its claim against the First Defendant for the sum of $65,000.00.' The second defendant, Mr Stammers was not referred to in the Offer of Compromise and to all intents and purposes the claim against him was to (and did) proceed on a different plank namely, that he was a trustee and acted in breach of the trust or was complicit in a breach of trust committed by his firm. ... [Craigcare's] Offer of Compromise failed to comply [with rule 20.26 of the UCPR] in that it did not identify the claim or part of the claim to which it related. It also failed to comply by leaving open the question as whether the remaining part of the claim (in the present case, the claim for breach of trust or complicity in the breach of trust by a director of Superkite) would, upon acceptance of the Offer, be abandoned or pursued." 37Superkite relied upon UCPR rule 20.26(2)(b), to which I shall refer. 38Neither party referred to UCPR rule 42.34 which provides as follows: "42.34 Costs order not to be made in proceedings in Supreme Court unless Court satisfied proceedings in appropriate court (1) This rule applies if: (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted." 39I assume that the Defendant did not refer to the rule because it considered, in view of the nature of the proceedings, that the court would be satisfied that the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted. Accordingly, I shall say no more about it. Determination 40In Old v McInnes and Hodgkinson [2011] NSWCA 410, Beazley JA (dissenting in the result on the costs appeals there before the court) noted, at [6], that: "Litigation is not a process for the faint hearted. It is a costly and time-consuming process and usually productive of stress, all of which, of their nature, have adverse effects upon those involved in the process. In some, if not most, cases that come before the courts, it is a necessary evil. However, the court processes are designed to encourage parties to engage in the litigation efficiently and with an eye to ensuring costs bear an appropriate relationship with the matter in dispute. Thus, the statutory injunction in the Civil Procedure Act 2005, s 56, which is binding on the court, the legal practitioners and the parties alike, looks to the 'just, quick and cheap' resolution of disputes." 41In Walsh v Walsh (No 2) [2013] NSWSC 1281, I set out some general principles about costs that cannot be the subject of any dispute, namely: "The Civil Procedure Act 2005, s 98(1), provides that subject to the rules of Court, and that, or any other, Act, costs are in the discretion of the Court. The discretion is broad but not unconfined. It is a judicial discretion to be exercised on a principled basis. Section 98(4) of the Civil Procedure Act provides: 'In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount.' The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. The UCPR rule 42.1 provides 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 rule provides that the discretion to award costs, ordinarily, will require an order that the successful party's costs will be paid by the unsuccessful party. The power to 'make any order as to costs' enables the Court, in an appropriate case, to depart from the general rule if it would be unjust to apply it. Thus, there is flexibility in determining questions of costs. Again, the rule extends to the costs in any proceedings. There is no suggestion that the UCPR does not apply to proceedings for a family provision order. The UCPR rule 42.2 provides: 'Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis.' In Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd [2010] FCAFC 5; (2010) 182 FCR 84, Gray J in the Full Court said: '[17] The overriding principle that costs are in the discretion of the Court can also be expressed in terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the question where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding.' 42UCPR rule 20.26 provides: "(1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer under this rule: (a) must identify: (i) the claim or part of the claim to which it relates, and (ii) the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and (b) if the offer relates only to part of a claim in the proceedings, must include a statement: (i) in the case of an offer by the plaintiff, as to whether the balance of the proceedings is to be abandoned or pursued, or (ii) in the case of an offer by a defendant, as to whether the balance of the proceedings will be defended or conceded, and (c) must not include an amount for costs and must not be expressed to be inclusive of costs, and (d) must bear a statement to the effect that the offer is made in accordance with these rules, and (e) if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to that interim payment, and (f) must specify the period of time within which the offer is open for acceptance. (3) An offer under this rule may propose: (a) a judgment in favour of the defendant: (i) with no order as to costs, or (ii) despite subrule (2) (c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or (b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or (c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer. (4) If the offeror makes an offer before the offeree has been given such particulars of the offeror's claim, and copies or originals of such documents available to the offeror, as are necessary to enable the offeree to fully consider the offer, the offeree may, within 14 days of receiving the offer, give notice to the offeror that: (a) the offeree is unable to assess the reasonableness of the offer because of the lack of particulars or documents, and (b) in the event that rule 42.14 applies to the proceedings, the offeree will seek an order of the court under rule 42.14 (2). (5) The closing date for acceptance of an offer: (a) in the case of an offer made two months or more before the date set down for commencement of the trial-is to be no less than 28 days after the date on which the offer is made, and (b) in any other case-is to be such date as is reasonable in the circumstances. (8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer. (9) An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides. (10) A party may make more than one offer in relation to the same claim. (11) Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer. (12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division." 43UCPR rule 42.14 provides: "(1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim: (a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and (b) assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made." 44In Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311, at [50] - [52], Barrett JA, with whose reasons Beazley P and McColl JA agreed, considered the scheme of the rules relating to offers of compromise. His Honour wrote: "Division 3 of Part 42 of the rules (containing rr 42.13 to 42.17) prescribes various outcomes, in terms of costs, of 'proceedings in respect of which an offer of compromise . . . is made under rule 20.26 with respect to a plaintiff's claim . . .' (these are the words in r 42.13). In such a case, several alternative outcomes as to costs are specified according to certain variables: which party made the offer, whether the offer was accepted and, if it was not, a comparison of the outcome in the proceedings with the terms of the unaccepted offer. The rules operate on the clear basis that, if an offer is made under r 20.26, it is the provisions within Division 3 (including aspects of those rules that envisage modification by order of the court) - and those provisions alone - that will determine the position as to costs; and that this will be so both where the offer is accepted (r 42.13A) and where it is not accepted (rr 42.14, 42.15 and 42.15A). An essential characteristic of any r 20.26 offer, therefore, is that it accommodate and abide by the regime with respect to costs laid down by Division 3...." 45In Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368, Spigelman CJ, Beazley and McColl JJA, wrote, at [15]: "... Rules 42.14, 42.15 and 42.15A... provide that, when the relevant costs rule is engaged, a party is entitled to indemnity costs from a specified time (usually one day after an offer of compromise is made), 'unless the court orders otherwise'...." 46In addition to the matters identified in UCPR rule 20.26, in Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141, at [14], the Court of Appeal summarised the authorities concerning the question of "genuine compromise" so far as they apply to offers of compromise: "An offer of compromise will only justify costs on an indemnity basis if it has a real element of compromise (Leichhardt Municipal Council v Green [2004] NSWCA 341; Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375). An offer which does not involve a real and genuine element of compromise will not be taken into account in relation to costs under the Rules (The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120 ; (2006) 67 NSWLR 706). It has been said that indemnity costs will not be granted where the offer of compromise is designed simply to trigger the entitlement: for example, Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355 per Rogers CJ Comm D. An offer of compromise will always be intended to trigger the entitlement. The force of 'simply' is the need for a real element of compromise." 47In Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358, Giles J said, at 368: "Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar but it does not in any real sense give anything away and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so." 48In Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19, the Court of Appeal said, at [23] - [24]: "What is required to trigger the costs consequences is an offer of 'compromise'. It is sometimes said that the offer must be 'genuine', but this epithet probably adds little to the concept of compromise. Indeed, it may be distracting if it suggests that some assessment is required of the subjective intentions of the offeror. Whether there is an offer of compromise must be capable of objective determination by reference to the circumstances at the time the offer was made... The purpose of the cost rules is to encourage the making of offers of compromise. If the offer is designed to attract the rules, the rules are presumably having their intended effect...The incentive to settlement will be diminished to the extent that persons receiving offers believe they can ignore them with impunity as to costs consequences". 49From the authorities, it appears the question for determination involves a two-stage process. The first stage is to enquire whether the offer made is an "offer of compromise" at all, within the meaning of the UCPR. This will depend, in part, on whether it satisfies the formal requirements laid down by UCPR rule 20.26. It also depends, in part, on whether the offer made is one that can truly be called a "compromise". 50If the court concludes that the offer which is made is an "offer of compromise" within the meaning of the Rules, and that the offer made is one that can truly be called a compromise, then UCPR rule 42.14 operates to establish a "default" position, relevantly that, if the plaintiff obtains a judgment no less favourable than that which the plaintiff had offered to accept, then indemnity costs would follow. It is then that the second stage of the process arises, in that the court can "otherwise order". The court will "otherwise order" if it is persuaded that is appropriate, in the interests of justice, that the "default" position ought not apply: Manly Council v Bryne (No 2) [2004] NSWCA 227, per Campbell JA, at [10]. 51In the present case, in relation to the first stage, the Offer of Compromise made by Craigcare was a notice in writing, making an offer to Superkite, the first Defendant, to compromise its claim in the proceedings, against Superkite for the amount of $65,000. No other terms were specified (UCPR rule 20.26(1)). 52Craigcare's offer stated, specifically, that it related to the "whole of its claim" against Superkite (UCPR rule 20.26(a)(i)). 53UCPR rule 20.26(2)(a)(ii), as stated above, provides, inter alia, that an offer "must identify ... the proposed orders for disposal of the claim" to which it relates, including, if a monetary judgment is proposed, the amount of that monetary judgment". However, this stipulation should be read with UCPR rule 20.27(3), which provides that after acceptance of an offer by the offeree in writing, "any party to the compromise [may] apply for judgment to be entered accordingly": AAI Ltd v Josipovic (No 2) [2013] NSWSC 1577, at [28]. 54In any event, Superkite could not have been in any doubt as to the substance of the offer. 55In my view, the Offer of Compromise did identify and specify the amount of the monetary judgment. That amount was $65,000. 56It is clear that the Offer of Compromise did not include an amount for costs and was not expressed to be inclusive of costs: UCPR rule 20.26(c). 57The Offer of Compromise specifically stated that it was made in accordance with UCPR rule 20.26: UCPR rule 20.26(2)(d). 58I am also satisfied that the Offer of Compromise specified the period of time within which the offer was open for acceptance: UCPR rule 20.26(2)(f). As the offer was made two months or more before the date set down for commencement of the trial, the closing date for acceptance of the offer was to be no less than 28 days after the date on which the offer was made: UCPR rule 20.26(5). In this case, the period allowed for the acceptance of the offer in the Offer of Compromise was 28 days. 59There was no submission by Superkite that it was not given such particulars of Craigcare's claim, and copies, or originals, of such documents available to Craigcare, as were necessary to enable Superkite to fully consider the offer. In any event, Superkite gave no notice to Craigcare that it was unable to assess the reasonableness of the offer because of the lack of particulars or documents and, in the event that UCPR rule 42.14 applied to the proceedings, that Superkite would seek an order of the court under rule 42.14(2): UCPR rule 20.26(4). 60The offer was not withdrawn during the period of acceptance: UCPR rule 20.26(11). 61As the Offer of Compromise did not provide otherwise, and whilst it did provide for the payment of money, it was taken to provide for the payment of that money within 28 days after acceptance of the offer: UCPR rule 20.26(8). 62The Offer of Compromise, relevantly, did not seek to exclude, modify or restrict the operation of UCPR rule 42.14 or rule 42.15: UCPR rule 26.20(12). 63In this case, at the first stage, the question for determination is whether the Offer of Compromise was one that related only to "part of any claim in the proceedings". If it did, it is clear that there was no statement included "as to whether the balance of the proceedings was to be abandoned or pursued": UCPR rule 20.26(2)(b). 64"Claim" is not defined in the UCPR. In the Civil Procedure Act, it is defined by reference to "claim for relief": s 3. There is then set out in the section, various types of claim, one of which is "a claim for the recovery of damages or other money"; another is "any other claim (whether legal, equitable or otherwise) that is justiciable in the court". Broadly, the word refers to a remedy sought, or right asserted, in the proceedings: West v Wake Price & Co v Ching [1956] 3 All ER 821; [1957] 1 WLR 45 per Lord Devlin, at 829. 65There may be one claim based on several causes of action, or several claims based on one, or more, causes of action. Under the rule, the offer may be directed to one claim of several: Herbert v Tamworth City Council (No 4) [2004] NSWSC 394; (2004) 60 NSWLR 476. In this case, there were several claims based on one, or more, causes of action. As stated, there were two Defendants against which, or whom, different claims were made. 66It is important to note that UCPR rule 20.26(1) relates to an offer to another party, the first Defendant, to compromise any claim in the proceedings, either in whole or in part. What was the subject of the offer in this case, was the whole of Craigcare's claim against Superkite. The offer did not relate to the other claim that Craigcare had against Mr Stammers. But this was a different claim, and not part of the claim made against Superkite that Craigcare offered to settle. The offer entitled Superkite alone to accept. It did not require both Defendants to accept it. 67It will be appreciated that UCPR rule 20.26(2)(b)(i) states that what must be included, if the offer relates only to part of a claim in the proceedings, is a statement as to whether the balance of the proceedings is to be abandoned or pursued. The reference to the phrase "the balance of the proceedings", in my view, relates to the balance of the proceedings so far as it relates to claims against the party to which, or to whom, the offer is made. 68It follows that the offer made to Superkite did not relate "only to part of a claim in the proceedings". The offer related to the whole of Craigcare's claim against Superkite. 69In my view, the offer made to Superkite, since it was to compromise the whole of the claim made against it, did not need to include a statement as to whether the balance of the proceedings was to be abandoned or pursued. In the circumstances, the Offer of Compromise was compliant with UCPR rule 20.26. 70I turn then to the question whether there was a compromise. Section 100(1) of the Civil Procedure Act provides that "in proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit, on the whole or any part of the money, and for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect". 71In MBP (SA) Pty Ltd v Gogic [1991] HCA 3; (1991) 171 CLR 657, the High Court wrote, at 663: "The function of an award of interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period." 72The majority of the High Court in Grincelis v House [2000] HCA 42; (2000) 201 CLR 321, at [16], wrote: "There is no doubt that this is a very important purpose of statutory provisions providing for the award of interest on the amount of a debt or damages in respect of the period between the cause of action accruing ... and the date of judgment." 73In my view, pre-judgment interest does fall within the term "a claim". 74There was no reference to "interest" in the Offer of Compromise but, since there was a reference to settling "the whole of the claim against the first Defendant" and since Craigcare had claimed interest in the Statement of Claim, the Offer of Compromise must be taken to have included the claim for interest so far as it related to Superkite. 75It has been held that an offer of compromise that involves a waiver of interest that would otherwise be payable may constitute an appropriate offer and result in an order for indemnity costs: Manly Council v Byrne (No 2), at [17]; State of New South Wales v UXC Ltd (No 2) [2011] NSWSC 685, per Ball J, at [8]. 76There was no submission, at the hearing, that Craigcare was not entitled to interest on such amount as was ordered to be paid if it succeeded. There may have been a question about the date from which interest was to be calculated but I determined that issue, in the principle judgment, at [269], namely, that it be calculated from 21 January 2012. Accepting the calculation by Craigcare's solicitor, the pre-judgment interest, calculated on the amount to be paid, would have been $7,758.46. (As I have previously noted, there was no dispute about the amount calculated for interest in the submissions made by Superkite.) 77Nor was there any suggestion that Superkite found the offer, on this aspect, ambiguous. I, too, am not able to see any ambiguity or lack of clarity. In any event, any ambiguity, or lack of clarity perceived and which may have impacted on Superkite's ability to assess the offer, was one which could have been readily cured by an inquiry: Mohamed v State of Victoria [2007] VSC 538, at [37]; Potts v Frost (No 2) [2012] TASSC 32, at [17]. 78I am of the view that the Offer of Compromise to settle the whole of its claim against Superkite, the first Defendant, was made on the basis that Craigcare would give up its claim for interest. In my view, this did involve a compromise and was not derisory or no more than an offer to surrender. 79I turn, then, to the second stage, namely whether the court should "otherwise order". 80In answering this question, I note that the relevant provision of the UCPR does not specify that "exceptional circumstances" or "the avoidance of substantial injustice" must be established before the court will make a different order to the prima facie order for which the rules provide. The discretion is one that should be exercised having regard to all the circumstances of the case: Regency Media Pty Ltd v AAV Australia Pty Ltd, at [15]. 81There was no evidence that Superkite responded to the Offer of Compromise, or that it served any offer of compromise or Calderbank offer itself. Nor is there any evidence that it enquired about the terms of the Offer of Compromise that had been served and whether, if accepted, Craigcare intended to proceed against Mr Stammers. 82By the time of the Offer of Compromise, the proceedings had already taken up some time and, if the matter was not settled, the hearing was likely to take two days. In fact, it took nearly three days. However, at the time of the making of the Offer of Compromise, the evidence upon which each party intended to rely had not been served. 83I also take into account the change in Craigcare's case to which I have referred. An Offer of Compromise may reasonably be rejected where the full parameters of the dispute were still uncertain at the time of the offer: Equity 8 Pty Ltd v Shaw Stockbroking Ltd [2007] NSWSC 503, at [42]; or where the offeror's case changes after the offer: South Eastern Sydney Area Health Service v King [2006] NSWCA 2, at [85]. 84This determination is an evaluative judgment requiring a consideration of the facts and circumstance specific to the case: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12, at [19]; King Network Group Pty Ltd v Club of Clubs Pty Ltd (No 2) [2009] NSWCA 204, at [11]. 85However, I am satisfied that, by the date of receipt of the Offer of Compromise, Superkite ought to have been in the position to assess it and to compare the terms of the offer made with the assessment of the likely result of the proceedings in the event that the proceedings were litigated to conclusion. 86The offer, even on first impression, should have been seen as an attractive one. If Craigcare's claim was for $100,000 (as it was at the date of the Offer of Compromise), then the terms of the Offer of Compromise demonstrated a substantial compromise. If the claim was truly for $69,120 (which it ought to have been following the inspection of the trust account records of Holman Webb), then, bearing in mind the foregoing of interest, which had been claimed, it still involved compromise. 87There is simply nothing to demonstrate Superkite's process of reasoning for allowing the Offer of Compromise to lapse. No evidence was led, or submissions made, explaining the reasoning process behind its failure to accept Craigcare's offer. 88I have regard also to the fact that Superkite was in a position to evaluate the strengths and weaknesses of its own case, when the offer was made. It failed to establish the two amounts it claimed to have paid which would have reduced the amount to be raid to a very small amount. By the date of the service of the Offer of Compromise, it should have been able to determine whether it would be able to establish that those payments had been made. 89In this regard, I refer to what I said at [120] - [121] and [155] of the principal judgment. 90Furthermore, an inference may be drawn that experienced legal practitioners, acting for Superkite, would have explained the risks as to costs if the Offer of Compromise was not accepted, or it lapsed, and if a less favourable result was achieved. It appears that Superkite was prepared to take those risks. It was entitled to do so, but that should not result in it being able to escape the consequences of doing so with impunity, secure in the belief that it would not have to pay the additional costs incurred by Craigcare after the date of the Offer of Compromise. 91Whilst a party should not, necessarily, be discouraged from having the court determine the dispute, the ever-increasing costs of litigation, particularly where a relatively small amount is involved, and the necessary public costs in the Supreme Court hearing an application of this kind, are of great concern to this, and to other, courts. The policy of the court is to encourage litigating parties to engage, diligently, in genuine settlement negotiations. The policy is designed to operate in the interests of the parties by reducing costs and in the interests of proper judicial administration by freeing the court from the time and resources taken by proceedings that are prolonged unnecessarily. 92Superkite should have appreciated that additional legal costs would be incurred, on both sides, by the continuation of the proceedings and in the preparation for the trial. The likely amount of those additional costs should have been considered. In this regard, proportionality should have played a part in Superkite's decision to allow the offer to lapse. It should have considered, amongst other things, the proportionate relationship between the amount that Craigcare had offered to settle the proceedings and the costs that it would incur in defending the case. 93There is one further matter that I have also considered on the determination of this question. If the offer made to Superkite had been accepted, there remained, in the proceedings, another claim made by Craigcare against Mr Stammers. The Offer of Compromise did not relate to that claim. It left open the question whether Craigcare would continue to pursue Mr Stammers, or whether it would abandon its claim against him. This would be an important matter to Superkite because, in the event that Craigcare pursued Mr Stammers, Superkite might have been required to indemnify him in respect of any judgment entered against him. 94However, there is no evidence that this was the reason why the offer made to Superkite was not accepted. Nor is there evidence that it was even relevant to Superkite in making its decision to allow the offer made to lapse. 95In all the circumstances, I am of the opinion that there is no sufficient reason for the court to "otherwise order". Superkite should pay Craigcare's costs, calculated on the ordinary basis, up to and including 23 August 2013. Thereafter, it should pay the whole of Craigcare's costs, calculated on the indemnity basis, other than the costs of the application to reconsider the costs question. In respect of that application, each party should bear its own costs. I order accordingly. 96I direct the Plaintiff to deliver to my Chambers, within 7 days, Short Minutes of Order reflecting the amount of the judgment, with interest calculated up to the date of the Orders, and the costs order referred to above. I shall then make the orders in Chambers. ********** 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: 28 April 2014