Supreme Court New South Wales Medium Neutral Citation: Stealth Enterprises Pty Limited trading as The Gentleman's Club v Calliden Insurance Limited (No 2) [2015] NSWSC 1691 Hearing dates: Written submissions Date of orders: 12 November 2015 Decision date: 12 November 2015 Jurisdiction: Common Law Before: Schmidt J Decision: 1. Order that the Plaintiff is to pay the Defendant's costs of the proceedings other than as to costs orders already made in its favour and the costs of calling Ms Shepherd to give evidence: (a) to be assessed on the ordinary basis, up to and including 28 October 2015 pursuant to UCPR 42.15A (2)(a) unless otherwise agreed; and (b) on the indemnity costs on and from 29 October 2014, pursuant to UCPR 42.15A (2)(b) unless otherwise agreed. 2. The Plaintiff to pay to the Defendant, interest on costs and disbursements, at the rates set out in Schedule 5 of the Uniform Civil Procedure Rules, on the Allowed Percentage of each amount for or on account of costs and disbursements actually paid to its legal advisers by or on behalf of the defendant, from the date of payment of each such amount until the first to occur of: (a) Such time as the plaintiff has paid the costs due to the defendant under order 1 above, or (b) Any further order relating to interest on costs in these proceedings. In this order: X equals the total amount of costs and disbursements paid or liable to be paid to the defendant's legal advisers in connection with these proceedings. Y equals the total amount of costs and disbursements allowed on assessment to the defendant in connection with these proceedings; and The Allowed Percentage equals ((Y/X) x 100%) 3. The Plaintiff pay the Defendants costs of this application for costs as agreed or assessed. 4. The defendants to pay the plaintiff's costs thrown away by the calling of Ms Shepherd to give evidence, as agreed or assessed. Catchwords: PROCEDURE – costs – departing from the general rule – offer of compromise made and not accepted and judgment no less favourable to the defendant is later obtained – orders made Legislation Cited: Civil Procedure Act 2005 (NSW) Prostitution Act 1992 (ACT) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 Curtis v Harden Shire Council (No 2) [2015] NSWCA 45 Fabre v Lui (No 2) [2015] NSWCA 312 Lahoud v Lahoud [2006] NSWSC 126 Leach v The Nominal Defendant (No 2) [2014] NSWCA 391 Leichhardt Municipal Council v Green [2004] NSWCA 341 Seven Network Ltd v News Ltd [2007] FCA 1489; (2007) 244 ALR 374 Stealth Enterprises Australia Pty Ltd v Calliden Insurance Limited [2013] NSWSC 825 Stealth Enterprises Pty Limited trading as The Gentleman's Club v Calliden Insurance Limited [2015] NSWSC 1270 The Uniting Church v Takacs (No 2) [2008] NSWCA 172 Category: Costs Parties: Stealth Enterprises Australia Pty Limited trading as The Gentlemen's Club (ACN 135 290 10) (Plaintiff) Calliden Insurance Limited (ACN 004 125 268) (Defendant) Representation: Counsel: Mr R Cavanagh SC with Mr S Maybury (Plaintiff) Mr J Sexton SC with Mr M Heath (Defendant) Solicitors: MCK Lawyers (Plaintiff) Turks Legal (Defendant) File Number(s): 2012/324562 Publication restriction: None Judgment 1. Judgment was given in this matter for Calliden, the defendant, in September 2015 (see Stealth Enterprises Pty Limited trading as The Gentleman's Club v Calliden Insurance Limited [2015] NSWSC 1270). The parties were not, however, agreed as to the appropriate costs order. 2. The usual order as to costs under the Uniform Civil Procedure Rules 2005 (NSW) is that costs follow the event. That would be an order in favour of Calliden in this case. It sought a departure from that order, relying on an offer of compromise made under r 20.26 on 28 October 2014, with the result, it claimed, that the Court would make an indemnity costs order in its favour. Its application was supported by an affidavit sworn by its solicitor, Mr Angus, in September 2015, explaining the costs and disbursements it had incurred in the proceedings. 3. The letter serving the offer noted that the parties had served their evidence and that the offer involved a significant compromise, given that at that point Calliden had incurred costs in excess of $100,000. The offer proposed judgment in favour of Calliden, with no order being made as to costs. It was open for 28 days. 4. Rule 42.15A provides that where an offer of compromise under the Rules is made and not accepted and judgment no less favourable to the defendant is later obtained, unless the Court orders otherwise: "(a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, 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." 1. Here the trial proceeded in June 2015. The judgment given was no less favourable to the defendant than the offer and accordingly, Calliden claimed that r 42.15A is engaged. It also sought an order for interest on costs in accordance with s 101(4) of the Civil Procedure Act 2005 (NSW), in terms considered by Campbell J, as he then was, in Lahoud v Lahoud [2006] NSWSC 126 at [82] - [87]. 2. Stealth Enterprises did not oppose an order for interest, but opposed the order for indemnity costs. Its position was that the offer of compromise did not reflect a genuine compromise in the circumstances, involving as it did only the element of Calliden's costs, in a case where its claim under the insurance policy was for $500,000. 3. What was said in the 28 October letter as to the costs which Calliden had incurred, it was submitted, was a mere assertion unsupported by any other material. That assertion, it was argued, is not admissible as to the truth of the matter asserted and was further of no real utility because: "(i) It appears to be a reference to all costs incurred, not the party and party costs that would have been foregone by the Defendant at that time; (ii) There was a costs order against the Defendant made by Campbell J on an application where he summarily dismissed the Defendant's Cross Claim, struck out part of the Defence and set aside a subpoena issued by the Defendant. That had the effect of disentitling the Defendant to various costs that would have been incurred on the application and the steps taken which were effectively undone by the orders of the Court, as well as entitling the Plaintiff to a set off of its costs incurred. [footnotes omitted]" 1. In the result, any compromise involved in the offer must, it was argued, have been scant. It was accordingly not unreasonable for Stealth to have refused the offer, particularly given that Campbell J had already dismissed Calliden's cross claim with a costs order in its favour (see Stealth Enterprises Australia Pty Ltd v Calliden Insurance Limited [2013] NSWSC 825). 2. It was also agreed to be relevant that Calliden's case changed "drastically" at trial. At the time of the offer the only underwriting evidence served was from Mr Tuitavuki, unsupported by contemporaneous documents. His evidence proved to be inaccurate in material respects, with the result that the defendant required leave at the hearing to lead evidence from another witness, as well as documents not served at the time of the offer, to prove its case. 3. In those circumstances, it was submitted not to have been unreasonable for Stealth to have rejected the offer, the defendant's case not having been fully then disclosed, as it ought to have been. 4. For its part, Calliden disputed that its offer had not involved a genuine compromise, relying on Leichhardt Municipal Council v Green [2004] NSWCA 341, where it was found that a "walk away" offer such as that which it had made in October 2014, could involve a genuine offer of compromise. 5. It also argued that the costs order made by Campbell J in relation to its cross-claim, of which Stealth already had the benefit, was not relevant, given that Stealth retained the benefit of that order, when the offer was made. Accordingly, that order did not involve any disentitling factor, in respect of the offer of compromise it had made. 6. Further, Stealth had been given sufficient time to consider the offer, and had adequate information to enable it to consider the offer, which had no attached conditions. The offer was valid and involved more than a minimal compromise. 7. That it later transpired at trial that there was a need to call evidence from a further witness did not disentitle Calliden to the order sought, it argued, given that its case was not thereby altered and that there was no substantial lengthening of the trial. It was also argued to be relevant that while disputing liability, it had agreed on the quantum of Stealth's claim and that the case had been prepared on the basis that both Mr Baris and Mr Fidel Tukel would give evidence and be cross-examined, but they were not called at trial. 8. Costs are in the discretion of the Court. Under s 98(1) of the Civil Procedure Act, it has power to determine by whom, to whom and to what extent costs are to be paid, whether on an ordinary or indemnity basis, subject to the provisions made in the Uniform Civil Procedure Rules. 9. At the time that it received the offer of compromise in October 2014, Stealth already had the benefit of the orders made by Campbell J in June 2013 in relation to the motions his Honour had dealt with, which included an order that "the defendant is to pay the plaintiff's costs of each application and of the cross-claim after they have been agreed or assessed." It was thus not at risk of any order to pay Calliden's costs of those applications, at the time that the offer of compromise was made. Otherwise, at trial it was at risk of a substantial costs order being made against it, if its case failed, given what had already transpired in the proceedings and what any hearing would involve. 10. The difficulties which emerged at the hearing in relation to the documents then called for by Stealth and the then discovery that it was Ms Shepherd, not Mr Tuitavuki, who had dealt with its application for renewal of the policy, which resulted in the late application for leave to call evidence from her, was discussed at [44] to [68] of the September judgment. Leave to call Ms Shepherd was granted on the basis that a costs thrown away order would have to be made against Calliden, who I found was responsible for having failed to earlier identify that it was she, not Mr Tuitavuki, who had dealt with Stealth's renewal application, as it ought to have. 11. Contrary to Stealth' submissions, that leave did not alter Calliden's case. Further, it was an error which would have been earlier revealed, had Stealth earlier sought production, as it ought to have done, of documents which had not been attached to Mr Tuitavuki's affidavit. It only called for them at the hearing. It follows that there were deficiencies in both parties preparation of the matter for trial. 12. The question is whether, in all of those circumstances, the September judgment was no less favourable than the terms of the offer of compromise made in October 2014. While Stealth has the benefit of the costs thrown away order in relation to Ms Shepherd's evidence, it failed entirely in the case which it advanced against Calliden. It follows that it must be concluded that the September judgment was no less favourable to Stealth than the terms of the offer of compromise, which enabled Stealth to walk away from the proceedings, bearing none of the costs Calliden had incurred to that point. 13. In the result, r 42.15A applies to the offer and Calliden is entitled to the order that its seeks "unless the court orders otherwise". The onus is on Stealth to demonstrate why the Court should depart from the consequence of its rejection of the offer (see Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 at [35]). 14. The fact that the offer of comprise was a walk away offer, is not of itself a reason for so ordering. As discussed in Fabre v Lui (No 2) [2015] NSWCA 312 at [7], a defendant's offer to bear its own costs can constitute a compromise. That will not be so where no significant costs have been incurred (see Curtis v Harden Shire Council (No 2) [2015] NSWCA 45 at [17]). That must be determined by assessing, as at the date of the offer, whether the defendant is offering to forego something of substance (see Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [42]). 15. This is a case similar to Leach, where it was said: "43 The opportunity to offer any compromise for the respondent was limited. The substantive issue on appeal was an all or nothing determination on the liability issue. There was no range of verdicts as in the case of a challenge to an award of damages or to an assessment of contributory negligence or contribution between tortfeasors: cf Leichhardt Municipal v Green (at [22] - [26]); Regency Media Pty Ltd v AAV Australia Pty Ltd (at [29]). Thus the only room for compromise was in relation to costs..." 1. Calliden's offer was made at a time when the parties had put on their evidence, after, as I explained in the September judgment (at [5] – [6]) considerable interlocutory activity, including not only the proceedings before Campbell J where Stealth succeeded, but also the proceedings before Barr AJ in November 2013, where leave was granted to Calliden to administer interrogatories. That was necessary because Stealth had declined to admit both Mr Fidel and Mr Baris Tukel's membership in the Commancheros. That was finally not in issue at the trial. Nor was that the brothel the subject of the insurance policy was not registered under the Prostitution Act 1992 (ACT) at the time of the renewal of the insurance. These were the two matters on which Calliden successfully advanced its case. 2. In the result, given what had transpired in the proceedings before Stealth received offer in October 2014, with advice that Calliden had already incurred costs of over $100,000, there can be no question that Stealth must have appreciated that what it was then offering involved a real compromise on Calliden's part. There can be no question that it was thereby agreeing to forgo something of substance. That was a matter of plain common-sense in the circumstances, not requiring proof of the costs which had actually been incurred, or any assessment of those costs on a party/party basis. 3. Even in a case where it is reasonable for a litigant to take the view that he or she did in rejecting an offer of compromise, that is not enough to displace the effect of the rule (see Morgan v Johnson (1998) 44 NSWLR 578 at 582). But reasonableness of the rejection is not an irrelevant consideration (see Seven Network Ltd v News Ltd [2007] FCA 1489; (2007) 244 ALR 374 at [64] - [67] and The Uniting Church v Takacs (No 2) [2008] NSWCA 172 at [15] per Hodgson JA (McColl JA agreeing); cf Basten JA at [32] - [33]). 4. The risk which Stealth took under the Rules, by refusing the offer of compromise, was that it would be ordered to pay Calliden's costs on an indemnity basis, if it failed to establish its case. Given what was here in issue between the parties, that there was a real risk in Stealth pursuing its claim, must certainly have by then been apparent, particularly given the views already expressed by Barr AJ in November 2013. 5. Here, the difficulty is that not only was the case which Stealth sought to advance plainly a difficult one, it could not overlook what more it risked in pursuing its claim, including as that did an estimated 4 day hearing and further no doubt considerable preparation costs. 6. In the result, unlike the outcome in Leach, it must be concluded in this case that there is no basis on which the Court can justly order otherwise. I am satisfied that apart from the costs thrown away order in relation to Ms Shepherd's evidence, Calliden is entitled to the cost order which it seeks. Orders 1. Accordingly, I now make the following orders: 1. Order that the Plaintiff is to pay the Defendant's costs of the proceedings other than as to costs orders already made in its favour and the costs of calling Ms Shepherd to give evidence: (a) to be assessed on the ordinary basis, up to and including 28 October 2015 pursuant to UCPR 42.15A (2)(a) unless otherwise agreed; and (b) on the indemnity costs on and from 29 October 2014, pursuant to UCPR 42.15A (2)(b) unless otherwise agreed. 2. The Plaintiff to pay to the Defendant, interest on costs and disbursements, at the rates set out in Schedule 5 of the Uniform Civil Procedure Rules, on the Allowed Percentage of each amount for or on account of costs and disbursements actually paid to its legal advisers by or on behalf of the defendant, from the date of payment of each such amount until the first to occur of: (a) Such time as the plaintiff has paid the costs due to the defendant under order 1 above, or (b) Any further order relating to interest on costs in these proceedings. In this order: X equals the total amount of costs and disbursements paid or liable to be paid to the defendant's legal advisers in connection with these proceedings. Y equals the total amount of costs and disbursements allowed on assessment to the defendant in connection with these proceedings; and The Allowed Percentage equals ((Y/X) x 100%) 3. The Plaintiff pay the Defendants costs of this application for costs as agreed or assessed. 4. The defendants to pay the plaintiff's costs thrown away by the calling of Ms Shepherd to give evidence, as agreed or assessed. ********** 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: 12 November 2015