Dunphy v Russell (No 2) [2018] NSWSC 1053

Supreme Court New South Wales

Medium Neutral Citation: Dunphy v Russell (No 2) [2018] NSWSC 1053 Hearing dates: On the papers Decision date: 12 July 2018 Jurisdiction: Equity Before: Sackville AJA Decision: 1. Dismiss the Plaintiff's application for indemnity costs. 2. Each party bear his or her costs of the Plaintiff's application. Catchwords: COSTS – application for indemnity costs – whether the Plaintiff's offers were genuine offers of compromise Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 42.1, 42.13, 42.13A, 42.14 Cases Cited: Cunningham v Guardian Royal Financial Services Pty Ltd [2017] NSWSC 1057 Dunphy v Russell [2018] NSWSC 721 Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 Category: Costs Parties: Brian Patrick Dunphy (Plaintiff) Michelle Catherine Russell (nee Murphy) Defendant Representation: Counsel: Ms E Peden / Ms J Mee (Plaintiff) Ms A Power (Defendant)

Solicitors: McLean & Associates Solicitors (Plaintiff) Lorne Havenstein Lawyers (Defendant) File Number(s): 2017/307368

Judgment 1. SACKVILLE AJA: In a judgment in this matter delivered on 24 May 2018 I made the following orders: [1] "1. Declare that the Defendant holds the proceeds of sale of the Property referred to in the Summons on trust for the Plaintiff as to a one third share. 2. Order that the Defendant pay from the proceeds of sale of the Property the sum of $379,000, being one third of the proceeds of sale. 3. Direct that the moneys held in the controlled moneys account referred to in the orders made by Darke J on 27 October 2017 be paid to the Plaintiff or at his direction. 4. Order that the Defendant pay the Plaintiff's costs of the proceedings. 5. Note that Orders 1-4 are subject to Orders 6-8. 6. Direct that any written submissions proposing amendments to Orders 1-4 be filed and served within 14 days. 7. Direct that if one party files written submissions within 14 days, the other party should file a reply within a further seven days. 8. If no written submissions are received within 14 days, Orders 1-4 will become final at the expiration of 14 days." 1. The Plaintiff has filed written submissions seeking orders that the Defendant pay the Plaintiff's costs of the proceedings: (a) on the ordinary basis until 25 October 2017 or, alternatively, 29 March 2018; and (b) on an indemnity basis thereafter. 1. Section 98 of the Civil Procedure Act 2005 (NSW) provided that subject to the rules, the Civil Procedure Act or any other Act: "(a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." 1. Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1 states the general rule 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. UCPR r 20.26(1) provides that a party may make an offer to another party to compromise a claim in the proceedings. The requirements for an offer under the rule are specified in r 20.26(2). UCPR r 20.26(2)(c) states that an offer under the rule must not include an amount for costs and must not be expressed to be inclusive of costs. Rule 20.26(2)(c) is subject to certain exceptions specified in r 20.26(3), none of which is presently relevant. 2. UCPR r 42.13 provides that Part 42 Div 3 (including rr 42.13A and 42.14) applies to proceedings in respect of which an offer of compromise is made under r 20.26 with respect to a plaintiff's claim. 3. UCPR r 42.13A provides as follows: "42.13A Where offer accepted and no provision for costs (1) This rule applies if the offer: (a) is accepted by the offeree, and (b) does not make provision for costs in respect of the claim. (2) If the offer proposed a judgment in favour of the plaintiff in respect of the claim, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made. …" 1. UCPR r 42.14 applies if an offer made by the plaintiff is 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: r 42.14(1). In such cases, unless the Court orders otherwise, the Plaintiff is entitled to an order for indemnity costs as from the day following the date of the offer: r 42.14(2). 2. The Plaintiff relies on two offers, neither of which was accepted. The first was a "Calderbank" offer on 20 October 2017 (the Calderbank Offer). The Calderbank Offer valued the Plaintiff's interest in the Property at $379,000 and included the following offer to compromise the proceedings: "1. Your client pay our client an amount of $370,000.00 in full and final settlement of this matter (the 'Settlement Sum'); 2. On receipt of the Settlement Sum and at settlement of the sale of the Property, our client will hand over a withdrawal of caveat; 3. The proceedings numbered 2017/00307368 between the parties be dismissed; 4. Our client will not seek costs in relation to proceedings numbered 2017/00307368; and 5. The parties are barred from bringing any further proceedings against each in [sic] other in relation to their interest in the Property. With regard to numbered paragraph 4 above, we confirm that our client's legal costs are presently estimated to be in the vicinity of $19,000.00 which, in itself, constitutes a significant compromise." The offer was expressed to be open for acceptance until 4.00 pm on 24 October 2017. 1. The second offer was made on 26 March 2018 in an offer of compromise pursuant to UCPR r 20.26(1) (the Offer of Compromise). By this stage the Property had been sold and the sum of $379,000 was held in a controlled moneys account. [2] The Offer of Compromise was as follows: "1 The Plaintiff offers to compromise the whole of these proceedings on the basis that: a. Judgment be entered in favour of the Plaintiff in the amount of $370,00.00 [sic]; and b. The amount of $370,000.00 be released from the Macquarie Bank controlled monies account, account number xxxx-x1174, BSB 182-222 (Controlled Monies Account) within 5 business days from the date this offer is accepted; c. Any surplus funds held in the Controlled Monies Account be released to the Defendant within 5 business days from the date this offer is accepted. 2 Within 2 business days from acceptance of this offer, the Defendant is to provide a written authority and direction releasing the funds held in the Controlled Monies Account to the Plaintiff. 3 This offer is open for acceptance until 4:00 pm on Thursday, 29 March 2018. 4 This Offer of Compromise is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005. It will be seen that the Offer of Compromise makes no provision for the costs of the proceedings. 1. The Plaintiff submits that the Calderbank Offer was a genuine offer of compromise and that it was unreasonable for the Defendant not to accept the offer. [3] Alternatively the Plaintiff submits that the Offer of Compromise under UCPR r 20.26(1) involved a real element of compromise in that the sum offered was less than that awarded and acceptance would have saved the parties the costs of preparation and of the hearing (which took place on 3 and 4 April 2018). The Plaintiff contends that the dispute was always a simple factual dispute and that the Defendant was aware of all the relevant facts, including her admission in the email of 6 February 2014 to Westpac that she owed the Plaintiff $225,000 for her share of the Property. [4] 2. The Defendant says that neither offer involved a genuine element of compromise. Rather, each was essentially an offer to capitulate. The Defendant also contends that the Calderbank Offer was made only nine days after proceedings were commenced, at a time when the Defendant was not fully apprised of the Plaintiff's case. It was only after an expert retrieved material to recover documents from back-up tapes that the Plaintiff's case became clearer. 3. I do not consider that the Calderbank Offer was a genuine offer of compromise. It offered only a discount of $9,000 on the Plaintiff's claim to be entitled to an interest in the Property valued at $379,000. Although the offer also proposed to forego a potential claim to a modest amount of costs, it can be fairly described as an offer to capitulate at a time when much of the evidence ultimately adduced had not been made available to the Defendant. There is also force in the Defendant's submission that the offer allowed insufficient time for her to consider whether it should be accepted. While this is not necessarily a basis of itself for rejecting the Plaintiff's application based on the Calderbank Offer, [5] it is a factor to take into account in determining whether the Defendant's failure to accept the offer was reasonable. 4. The Plaintiff submitted that the Defendant's non-acceptance of the offer under UCPR r 20.26(1) and his success in the proceedings meant that he was entitled to an order for indemnity costs unless the Defendant could establish "exceptional circumstances". The onus is on the Defendant to show why she should not pay indemnity costs in accordance with r 42.14(2)(b), but it is not necessary for her to demonstrate exceptional circumstances. As was said in Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2), [6] it is impossible to state exhaustively the circumstances in which the Court's discretion to "order otherwise" might be exercised. 5. The Offer of Compromise was actually less favourable to the Defendant than the Calderbank Offer. Had the Offer of Compromise been accepted, the Defendant would have been liable under UCPR r 42.13A to pay the costs of the proceedings, assessed on the ordinary basis up to the time when the Offer of Compromise was made. Thus the only benefit to the Defendant in accepting the Offer of Compromise by 29 March 2018 would have been a reduction of $9,000 in the judgment sum awarded to the Plaintiff. Acceptance of the Offer of Compromise would have relieved the Defendant of the obligation to pay the costs incurred by the Plaintiff after the date of the offer if, as in fact has occurred, the Plaintiff succeeded in his claim. However, there was no evidence as to the costs that would have been avoided if the Offer of Compromise had been accepted. By 29 March 2018, preparations for the hearing were presumably well advanced and (so I infer) counsel had been briefed. For these reasons, I do not consider the Offer of Compromise to have been a genuine offer to compromise of the Plaintiff's claim. 6. There are two other factors militating against the Plaintiff's application for indemnity costs. First, the Plaintiff's affidavit of 15 March 2018, filed just over two weeks before the hearing, contained a good deal of material that should have been revealed to the Defendant's representatives earlier. As noted in the Principal Judgment, the affidavit also contained passages that created a false impression as to the means by which certain documents had been retrieved. [7] Secondly, as a consequence of the belated revelations by the Plaintiff as to the manner in which documents had been retrieved, the Defendant's representatives were only able to inspect those documents during the trial itself. 7. It is true that the outcome of the case depended on an assessment of the reliability of the evidence given by the Plaintiff and the Defendant. It is also true that there was documentation available to the Defendant or that should have been known to her that was difficult to reconcile with her version of events. Had the difficulties confronting the Defendant been clearly laid out at the time the Offer of Compromise was made, the Plaintiff's case for an indemnity costs order perhaps might have been stronger (although still facing obstacles). But this course was not adopted. 8. The Plaintiff's application for indemnity costs fails. Each party should bear his or her own costs of the Plaintiff's application.