Supreme Court New South Wales Medium Neutral Citation: Hart Security Australia Pty Ltd v Boucousis & Ors (No.2) [2014] NSWSC 1815 Hearing dates: In Chambers Decision date: 18 December 2014 Jurisdiction: Equity Division Before: Darke J Decision: Order for indemnity costs made in respect of costs incurred after making of second offer of compromise. Catchwords: COSTS - indemnity costs - offers of compromise not accepted by unsuccessful plaintiff - prima facie entitlement of defendant to indemnity costs - whether Court should order otherwise - whether genuine offer of compromise - whether unreasonable to not accept offer Legislation Cited: Civil Procedure Act 2005 (NSW) s 56 Uniform Civil Procedure Rules rr 20.26, 29.10, 42.15A Cases Cited: Hart Security Australia Pty Ltd v Boucousis & Ors [2014] NSWSC 1654 Leach v The Nominal Defendant (No.2) [2014] NSWCA 391 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Category: Costs Parties: Hart Security Australia (plaintiff) Christian Patrick Boucousis (first defendant) Juan Jose Martinez t/as HWL Ebsworth Lawyers (second defendant) Ian Charles Awford (third defendant) John Henry Bartrop (fourth defendant) John Cunningham Bell (fifth defendant) Bryan Robert Belling (sixth defendant) Dennis Raymond Bluth (seventh defendant) Michael Anthony Bowyer (eighth defendant) Christopher Bruce Brierley (ninth defendant) Seamus John Burke (tenth defendant) Steven Robert Burns (eleventh defendant) Duncan McKellar Campbell (twelvth defendant) Kerrie Therese Chambers (thirteenth defendant) David Leslie Steven Clarke (fourteenth defendant) John Alexander Cole (fifteenth defendant) Sancia Catherine de Jersey (sixteenth defendant) Alice Mary Deboos (seventeenth defendant) Mary Elizabeth Digiglio (eighteenth defendant) Martin Murray Kivell Downing (nineteenth defendant) Robert Charles Gardini (twentieth defendant) Peter James Garrett (twenty first defendant) Kirston Marie Gerathy (twenty second defendant) Richard Kenneth Graham (twenty third defendant) Richard Courtney Gration (twenty fourth defendant) Lawrence John Graves (twenty fifth defendant) Timothy Martin Griffiths (twenty sixth defendant) Julie Clarie Hamblin (twenty seventh defendant) Matthew Carter Harding (twenty eighth defendant) Mark Alfred Killen Harrowell (twenty ninth defendant) Jane Elizabeth Hewitt (thirtieth defendant) Anthony John Highfield (thirty first defendant) Ashley William Holland (thirty second defendant) Grant William Hummel (thirty third defendant) Joseph Alan Hurley (thirty fourth defendant) Robert Guy Johnston (thirty fifth defendant) Peter Ewan Kennedy (thirty sixth defendant) Sonya Anne Maree Kroon (thirty seventh defendant) Simon Francis Liddy (thirty eighth defendant) Norman Douglas Lyall (thirty ninth defendant) Peter Eric Mackenzie (fortieth defendant) Nicholas John Matkovich (forty first defendant) Julian Patrick McGrath (forty second defendant) Robert Macpherson McGregor (forty third defendant) Michael James Neylan (forty fourth defendant) Grant William O'Grady (forty fifth defendant) Brian Stuart Olliver (forty sixth defendant) Lachlan Robert Paterson (forty seventh defendant) Madeleine Mary Perrignon (forty eighth defendant) Elisabeth Mary Frances Ritchie (forty ninth defendant) Robert Bruce Henry Schneider (fiftieth defendant) Penelope Jane Snyman (fifty first defendant) Elias Vasil Stephen (fifty second defendant) Paul James Stephenson (fifty third defendant) Lani Carol Sutherland (fifty fourth defendant) Thomas Matthew Suttie (fifty fifth defendant) Jonathan Clemenet Tapp (fifty sixth defendant) Brian James Thomas (fifty seventh defendant) David Michael Vaughan (fifty eighth defendant) William Alexander Doug Vorbach (fifty ninth defendant) Damien Gregory Ward (sixtieth defendant) Mark James Webeck (sixty first defendant) Danella Ann Wilmshurst (sixty second defendant) Jury Ivan Wowk (sixty third defendant) Representation: Counsel: S Duggan (plaintiff) R A Parsons (first defendant) T M Faulkner SC (second to sixty third defendants) Solicitors: Bartier Perry (plaintiff) CLS Legal (first defendant) Gilchrist Connell (second to sixty third defendants) File Number(s): 2013/24851 Publication restriction: Nil. Judgment Introduction 1On 21 November 2014, the Court published reasons for judgment and ordered that the plaintiff's Amended Statement of Claim be dismissed with costs (see Hart Security Australia Pty Ltd v Boucousis & Ors [2014] NSWSC 1654). On the same day, after being informed that the defendants may wish to apply for indemnity costs orders, the Court made orders by consent, granting leave for any such application to be made by 28 November 2014, and directing the plaintiff to respond to any such application by 5 December 2014. The parties were informed that it was the Court's preference that any application be dealt with on the papers following the making of submissions in writing, unless any party indicated that oral submissions were absolutely necessary. No party suggested such necessity. 2On 28 November 2014, the second to sixty third defendants ("HWL") applied for orders that the plaintiff pay its costs of the proceedings (save for the costs of HWL's unsuccessful application under Uniform Civil Procedure Rules r 29.10) on an ordinary basis up to 7 June 2013 and thereafter on an indemnity basis, or alternatively on an ordinary basis up to 6 June 2014 and thereafter on an indemnity basis. 3The first defendant made no application for indemnity costs. However, clarification was sought by the first defendant concerning the intended order for costs in relation to the costs incurred by the first defendant whilst HWL's application for judgment under UCPR r 29.10 was heard. It is convenient to deal with that matter first. 4On 9 October 2014, the eighth day of the hearing, I made an order dismissing HWL's application for judgment under UCPR r 29.10. I further ordered that HWL pay the costs of the application. It was intended that such order would include the costs incurred by the first defendant whilst that application was being heard. The first defendant took no active role in relation to the application. Nevertheless, the application was argued over about a day and a half, commencing part way through the sixth day of the hearing and extending throughout the seventh day of the hearing, taking somewhat more hearing time than had been foreshadowed by the parties. It could not be fairly suggested that it was unreasonable for the first defendant or his lawyers to remain in court during the application, and it seemed to me that HWL, being unsuccessful, should bear the costs incurred by the first defendant whilst the application was being heard. Such costs should be treated as forming part of the costs of the application for the purposes of the costs order made against HWL on 9 October 2014. As the plaintiff successfully resisted HWL's application, I do not think that the plaintiff should bear any of the costs incurred by the first defendant whilst that application was being heard. 5HWL's application for indemnity costs rests upon offers of compromise it made under UCPR r 20.26 on 7 June 2013 and 6 June 2014. Neither offer was accepted by the plaintiff. HWL relied upon the affidavit sworn by Alexander Haslam on 27 November 2014 in support of its application. In accordance with the directions made by the Court, the parties made submissions in writing. 6The first offer (7 June 2013) was to compromise the plaintiff's claims on terms that there be a verdict for HWL, with the plaintiff and HWL to bear their own costs of the proceedings. Mr Haslam estimates that at the time the offer was made, HWL had incurred approximately $15,000 in legal costs. The offer was made shortly prior to the filing by HWL of its defence. The offer was accompanied by a letter from HWL's solicitors setting out reasons why the plaintiff's claim "is without merit and doomed to fail". 7The second offer (6 June 2014) was to compromise the plaintiff's claims on terms that HWL pay $30,000 to the plaintiff, and pay the plaintiff's costs, as agreed or as assessed, up to the date of the offer. Mr Haslam states that at the time the offer was made, very substantial legal costs had been incurred in defence of the proceedings. The offer was made about six weeks before the hearing was due to commence. 8The judgment ultimately obtained by HWL was no less favourable to it than the terms of the first offer (7 June 2013). HWL is therefore entitled to indemnity costs after 7 June 2013 unless the Court "orders otherwise" under UCPR r 42.15A. HWL pointed out that the plaintiff bears the onus of persuading the Court that it should do so. 9HWL submitted that there was no basis to "order otherwise" as the offer was a reasonable compromise involving an offer to give up significant legal costs, and it was made at an early stage of the proceedings. HWL further submitted that the plaintiff's case against HWL was a difficult one, and the plaintiff had sufficient information to assess the offer, including the contents of the letter that accompanied the offer. Finally, it was submitted that to "order otherwise" would be contrary to the public interest in the encouragement of settlement of litigation, and inconsistent with the overriding purpose identified in s 56 of the Civil Procedure Act 2005 (NSW). 10The plaintiff submitted that whilst a walk-away offer can be regarded as a genuine offer of compromise so as to trigger the indemnity costs mechanisms under the rules, for that to be so, the claim or defence would have to approach something of the character of being frivolous or vexatious (see Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [31], cited recently by McColl JA, with whom Gleeson JA and Sackville AJA agreed, in Leach v The Nominal Defendant (No.2) [2014] NSWCA 391 at [51]). It was submitted that the plaintiff's case could hardly be put into that category, and this was demonstrated by the failure of HWL's application for judgment under UCPR r 29.10. The plaintiff further submitted that the offer could not properly be regarded as an offer of compromise of a kind which was likely to encourage early settlement. 11In my opinion, insofar as the offer of 7 June 2013 is concerned, this is an appropriate case for the Court to "order otherwise" under UCPR r 42.15A. The submissions made by the plaintiff on this aspect are generally accepted. The offer involved only a very minor element of compromise. In my view it provided for a settlement that was tantamount to a surrender on the part of the plaintiff, in circumstances where the plaintiff was advancing a case that was difficult but by no means hopeless, frivolous or vexatious. I agree that it was not an offer of a kind likely to encourage early settlement. The Court therefore declines to make an order that the plaintiff pay HWL's costs after 7 June 2013 on an indemnity basis. 12As the judgment ultimately obtained by HWL was no less favourable to it than the terms of the second offer (6 June 2014), HWL is entitled to indemnity costs after 6 June 2014 unless the Court "orders otherwise" under UCPR r 42.15A. The plaintiff submitted that the Court should "order otherwise" in relation to the second offer essentially because, in the context of the plaintiff's loss (assessed by the Court at $2 million), an offer to pay only $30,000 was not a significant compromise. It was further submitted that it was not unreasonable of the plaintiff to fail to accept the offer. It was put that this was demonstrated by the Court's conclusion on the eighth day of the hearing that, taking the evidence as it then existed at its highest for the plaintiff, a jury could, without error, have found that HWL was liable to pay equitable compensation to the plaintiff. 13HWL submitted that there was no basis to "order otherwise" as the offer was a reasonable compromise that would have given three benefits to the plaintiff, namely: (1)$30,000; (2)payment of its very significant costs incurred up to 6 June 2014; and (3)relief from potential liability to pay HWL's very significant costs. 14I am not persuaded that, insofar as the offer of 6 June 2014 is concerned, it is appropriate for the Court to "order otherwise" under UCPR r 42.15A. In my opinion, the offer involved a significant element of compromise. Undoubtedly, the plaintiff's costs up to 6 June 2014 attributable to the case it was bringing against HWL would have been considerable. Moreover, the offer was made at a time when the plaintiff was in a position to properly assess it against its prospects of success. It is true that the Court later concluded that, taking certain evidence at its highest for the plaintiff, a jury could, without error, find that HWL was liable. However, this in itself does not demonstrate that it was not unreasonable to fail to accept the offer. It cannot be ignored that, having heard all of the evidence, the Court ultimately rejected the plaintiff's primary claims against the first defendant, and hence the plaintiff's claims against HWL. In my view, it was unreasonable in the circumstances for the plaintiff to reject the offer of 6 June 2014. 15The Court will make the following orders: (1)Vacate order 1 made on 21 November 2014 insofar as it concerns costs. (2)Order that the plaintiff pay the first defendant's costs of the proceedings, save for the costs of HWL's unsuccessful application under UCPR r 29.10 (which costs have been ordered to be paid by HWL). (3)Order that the plaintiff pay the second to sixty third defendants' costs of the proceedings, save for the costs of HWL's unsuccessful application under UCPR r 29.10: (a)on an ordinary basis up to 6 June 2014; and (b)on an indemnity basis thereafter. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 December 2014