Supreme Court New South Wales Medium Neutral Citation: Loulach Developments Pty Ltd v Roads and Maritime Services (No 2) [2019] NSWSC 601 Hearing dates: On the papers Decision date: 23 May 2019 Jurisdiction: Common Law Before: Leeming JA Decision: 1. The plaintiff pay the defendant's costs of the proceedings up to 26 July 2018 on the ordinary basis. 2. The plaintiff pay the defendant's costs of the proceedings from 27 July 2018 on an indemnity basis. Catchwords: COSTS – offer of compromise – defendant offered to pay plaintiff $100,000 in settlement of its claim – defendant ultimately successful after trial - whether genuine offer of compromise – whether presumptive entitlement to special costs order made out – whether Court should otherwise order – special costs order in favour of defendant ordered Legislation Cited: Uniform Civil Procedure Rules, rr 20.26, 42.15A Cases Cited: Botany Bay City Council v Latham (No 2) [2013] NSWCA 450 Gold & Copper Resources Pty Ltd v Hon Chris Hartcher, Minister for Resources and Energy (No 2) [2015] NSWCA 163 Loulach Developments Pty Ltd v Roads and Maritime Services [2018] NSWSC 1402 Loulach Developments Pty Ltd v Roads and Maritime Services [2019] NSWSC 438 Miwa Pty Ltd v Siantan Properties Lte Ltd (No 2) [2011] NSWCA 344 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Category: Costs Parties: Loulach Developments Pty Ltd (Plaintiff) Roads and Maritime Services (Defendant) Representation: Counsel: NJ Kidd SC (Defendant) Solicitors: Madison Marcus (Plaintiff) Makinson d'Apice (Defendant) File Number(s): 2015/167414 Publication restriction: None Judgment 1. HIS HONOUR: On 18 April 2019, I caused judgment to be entered in favour of the defendant, RMS, following the failure of both causes of action for negligent misrepresentation advanced by the plaintiff, Loulach: Loulach Developments Pty Ltd v Roads and Maritime Services [2019] NSWSC 438. The dispositive reasoning was summarised at [266] as follows: "For those reasons I find RMS breached a duty it owed to Loulach to take reasonable care in making the first representation, but that the breach did not cause Loulach any loss, that Loulach's claim is statute-barred, and in any event Loulach has not made out its case for damages. I find that RMS did not owe a duty to Loulach to take reasonable care when making the second representation. If I am wrong about that, I would conclude that that duty was likewise breached, but that likewise it did not cause any loss, and that Loulach has not made out its case for damages." 1. Orders were made permitting an exchange of submissions going to costs. That has occurred, by submissions dated 2, 16 and 20 May 2019. It is common ground that on 26 July 2018 (some three months before the trial) RMS served what purported to be an offer of compromise under UCPR r 20.26, and a Calderbank offer, both of which proposed a compromise of the whole of the Loulach's claim on terms that judgment be entered in favour of RMS with RMS paying Loulach $100,000. 2. RMS submitted that UCPR r 42.15A — titled "Where offer not accepted and judgment no less favourable to defendant" — was engaged, that there were no circumstances which would justify the Court to "order otherwise", with the result that it is entitled to indemnity costs for the period from 27 July 2018 to date. It submitted that its offer involved a significant element of compromise, since it had offered to bear its own legal costs, which uncontroversial evidence establishes totalled some $260,000 at the time (which was stated in its correspondence) as well as offering to pay $100,000 towards the costs of Loulach. RMS submitted that its offer: " … involved an even greater element of compromise than 'walk away' offers made after substantial costs have been incurred, which have been held to involve a significant element of compromise to justify the Court refusing to 'order otherwise' under the relevant rule: see for example, Botany Bay City Council v Latham (No 2) [2013] NSWCA 450 at [13]; Gold & Copper Resources Pty Ltd v Hon Chris Hartcher, Minister for Resources and Energy (No 2) [2015] NSWCA 163 at [7]". 1. Loulach noted that although the parties' evidence had been served, there remained in July 2018 some uncertainty about RMS's defences. The limitation defence, which in part succeeded, was only added in September 2018: Loulach Developments Pty Ltd v Roads and Maritime Services [2018] NSWSC 1402. 2. Loulach submitted that an offer compromise must be "a real and genuine offer to resolve the contest", and maintained that there was no sufficient element of compromise in RMS's offer. It sought to rely upon what had been said in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8], to the effect that the approach is to ask two questions: (a) whether there was a genuine offer of compromise and (b) whether it was unreasonable for the offeree not to accept it. Loulach also submitted that a "walk away" offer would "generally not amount to a compromise unless the offeree's claim or defence was something of the character of being frivolous or vexatious", citing Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [30]-[31]. Loulach characterised RMS's offer as "derisory", in light of the fact that RMS must be taken to have assumed that Loulach's costs were substantially greater than the $100,000 offered. It submitted that RMS's offer was tantamount to a "walk away offer", while Loulach's claim could not be said to have anything of the character of being frivolous or vexatious. 3. Loulach also submitted that it was relevant that the correspondence accompanying the offers drew attention to factual matters which were said to raise serious doubts that Loulach would succeed at hearing, on most of which Loulach succeeded. Loulach also noted that, for the most part, the correspondence failed to draw attention to the matters in relation to which Loulach's claim ultimately failed. 4. Loulach submitted that RMS's offer did not involve a sufficient element of compromise to constitute an offer of compromise under the rules, and that Loulach's conduct was not unreasonable in not accepting the offer. It further submitted that if the Court found that the offer was relevantly an offer of compromise, the Court would "otherwise order" for the same reasons. 5. In its submission in reply, RMS reiterated the significant element of compromise on its part, which was made at a time when all the parties' evidence had been served. It submitted that the principles stated in Miwa were inapt as inapplicable to offers made under the UCPR. It maintained that there were no circumstances which would justify the Court to "otherwise order" under r 42.15A. Consideration 1. If Loulach had accepted RMS's offer, then while the proceedings would still have been dismissed, not only would Loulach have received $100,000, but it would also have no obligation to pay the costs of RMS. The compromise reflected in the offer is not merely $100,000, it is the sum of $100,000 and the recoverable costs of RMS. 2. The reason that "walk away" offers, at least when made at a late stage in the preparation of a matter for trial, have been held to engage the rules, is that a defendant which foregoes the possibility of a favourable cost order is thereby foregoing a valuable entitlement and making a genuine offer of compromise. That is what occurred in Botany Bay City Council v Latham (No 2) [2013] NSWCA 450 and Gold & Copper Resources Pty Ltd v Hon Chris Hartcher, Minister for Resources and Energy (No 2) [2015] NSWCA 163, both of which were cited in RMS's submissions in chief, to which Loulach made no response. Both those decisions are a fortiori to the present case. 3. It is true that, as Loulach submits, there is authority that for a walk-away offer to successfully trigger the indemnity costs mechanisms under the rules, "the claim or defence would have approach something of the character of being frivolous or vexatious for that to be the case": Regency Media Pty Ltd v AAV Australia Pty Ltd at [31]. But that was a case where an offer of $10,000 was made at an early stage of the proceedings – indeed, before a defence had been filed: see at [30]. It is a world away from the substantial compromise offered by RMS, being not merely $100,000 but also its entitlement to a favourable costs order after some $260,000 of costs had actually been incurred. 4. Contrary to Loulach's submission, but in accordance with RMS's submission in reply, what was said in Miwa is presently inapplicable. Miwa addressed a different situation, namely, where a litigant failed to invoke the mechanisms under the rules. In that class of case it is not sufficient merely to conclude that the litigant who rejected an offer ended up with a less favourable result. The Court in Miwa was evidently conscious of the distinction. Basten JA stated (with the agreement of McColl and Campbell JJA) at [6], "The appellant did not make an offer in accordance with [UCPR] r 20.26, which would have carried with it a presumptive entitlement to indemnity costs if a judgment were obtained no less favourable than the terms of the offer." 5. RMS made an offer of compromise in accordance with the rules, engaging r 42.15A. It is entitled to indemnity costs on and from 27 July 2018, unless the Court orders otherwise. No basis has been made out to otherwise order. In particular, although some of the factual matters to which RMS pointed in its correspondence were not ultimately made out, causation (on which Loulach failed) was raised in the correspondence. 6. It follows that the appropriate exercise of the discretion as to costs is: 1. The plaintiff pay the defendant's costs of the proceedings up to 26 July 2018 on the ordinary basis. 2. The plaintiff pay the defendant's costs of the proceedings from 27 July 2018 on an indemnity basis. No separate order is required for the costs of the present application, which fall within order 2 above. ********** 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: 23 May 2019