Supreme Court New South Wales Medium Neutral Citation: Ackerman v Morgan [2019] NSWSC 1250 Hearing dates: 5 November 2018 Date of orders: 20 September 2019 Decision date: 20 September 2019 Jurisdiction: Common Law Before: Walton J Decision: The Court makes the following orders and directions: (1) Leave to appeal refused with respect to grounds 1, 3 and 5. (2) Leave to appeal granted with respect to grounds 2, 4 and 6. (3) Appeal upheld with respect to grounds 2, 4 and 6. (4) Order number 2 of the court below be set aside. (5) The defendant to pay the costs of the plaintiff (defendant in the Court below) on: (a) an ordinary basis up to 22 May 2017; and (b) an indemnity basis from 23 May 2017. (6) Costs reserved as to the costs of the appeal. (7) The plaintiff is to file and serve written submissions, together with any evidence, with respect to costs within 14 days of the publication of this judgment. (8) The defendant is to file and serve written submissions in reply, together with any evidence, with respect to costs within 14 days of the receipt of the plaintiff's submissions. (9) Any application for oral hearing should be included within the written submissions provided in accordance with (7) and (8) above. (10) If costs of the appeal are settled then the plaintiff should bring in short minutes of order reflecting the same, which shall be dealt with administratively in Chambers. Catchwords: APPEAL – appeal from Local Court – s 40(2)(c) of the Local Court Act 2007 (NSW) – amended grounds of appeal – whether her Honour erred in failing to apply the principles applicable to offers to settle and offers made pursuant to the principles set out in Calderbank v Calderbank – whether her Honour erred in failing to apply the Uniform Civil Procedure Rules 2005 and the principles applicable to offers of compromise – principles applicable to Calderbank offers – offer of compromise – compliance with r 20.26 – presumptive entitlement to indemnity costs in r 42.15A – relevant principles as to appeal against costs orders – rules in relation to offers of compromise operate differently to the principles which apply to Calderbank offers – questions of leave – appeal upheld – orders and directions Legislation Cited: Civil Procedure Act 2005 (NSW) Legal Profession Act 2004 (NSW) Local Court Act 2007 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Ada Evans Chambers P/L v Santisi [2014] NSWSC 538 Ashi Pty Ltd v Karasco Investments Pty Ltd [2009] NSWSC 780 Be Financial Pty Ltd v Das [2012] NSWCA 164 Black v Lipovac [1998] FCA 699 Bogle v Kasan [2013] NSWSC 295 Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 Carolan v AMF Bowling Pty Ltd t/as Bennetts Green Bowl [1995] NSWCA 69 Chapmans Ltd v Yandell [1999] NSWCA 361 Collins v The Queen (1975) 133 CLR 120; [1975] HCA 60 Commonwealth v Gretton [2000] NSWCA 118 Coulter v The Queen (1988) 164 CLR 350; [1988] HCA 3 De Armas v Peters [2015] NSWSC 1050 Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 House v The King (1936) 55 CLR 499; [1936] HCA 40 Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 104 FCR 564; [2000] FCA 1572 Jones v Bradley (No 2) [2003] NSWCA 258 Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 Leichhardt Municipal Council v Green [2004] NSWCA 341 Manly Council v Byrne (No 2) [2004] NSWCA 227 Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3 Meldov Pty Ltd v Bank of Queensland (No 2) [2015] NSWSC 740 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 Picos v Western Pacific Automotive [2018] NSWSC 536 Pratten v Johns [2010] NSWSC 327 Real Estate Property Management Pty Ltd v Watercorp Investments Pty Ltd [2018] NSWCA 194 Rose v Tunstall [2018] NSWCA 241 South Eastern Sydney Area Health Service v King [2006] NSWCA 2 Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706; [2006] NSWCA 120 The State of NSW v UXC Limited (No 2) [2011] NSWSC 685 Vagg v McPhee (No 2) [2012] NSWSC 187 Zelden v Sewell Henamast Pty Ltd [2011] NSWCA 56 Texts Cited: Local Court Practice Note Civ 1 Category: Principal judgment Parties: Deborah Ackerman (Plaintiff) Jane Morgan (Defendant) Representation: Counsel: J Rafferty (Plaintiff) M Daniels (Defendant) Solicitors: RK Litigation (Defendant) File Number(s): 2018/107979 Decision under appeal Court or tribunal: Local Court of New South Wales Jurisdiction: Civil Date of Decision: 09 March 2018 Before: Boulos LCM File Number(s): 2016/226393 judgment 1. ​HIS HONOUR: By an amended summons seeking leave to appeal filed on 6 November 2018, Ms Deborah Ackermann ("the plaintiff") sought leave to appeal from a decision of Boulos LCM in relation to costs, delivered by way of an ex tempore judgment on 9 March 2018 ("the judgment"). By that decision, Boulos LCM refused the plaintiff's application to vary an ordinary costs order in favour of a costs order on an indemnity basis, which application was expressed in a primary and alternative form ("the variation application"). 2. The appeal was brought against the judgment pursuant to s 40(2)(c) of the Local Court Act 2007 (NSW). That provision provides that a party dissatisfied with, inter alia, a judgment of the Local Court sitting in its General Division (there was no dispute that Boulos LCM gave the judgment whilst sitting in that Division) may appeal to this Court, but only by leave. 3. The appeal was opposed by Ms Jane Morgan ("the defendant"). BACKGROUND TO THE APPEAL 1. By a statement of claim filed 27 July 2016, the defendant brought proceedings against the plaintiff in the court below. The defendant was a principal of the law firm Morgan Lawyers for the period 3 July 2006 to 18 October 2010 (at which time the firm ceased to operate). 2. The defendant claimed that she was retained by the plaintiff to provide legal services in relation to two sets of personal injury proceedings against Amarina Investments Pty Ltd and WorkCover Queensland in the District Court of Queensland for the period 11 December 2007 to 18 May 2012 ("the period of engagement"). 3. In the absence of an agreed statement of facts, Boulos LCM provided a summary of the background to the matter: Jane Morgan was the principal of Morgan Lawyers between 9 September 2003 to 18 October 2010. Deborah Ackerman agrees that Jane Morgan was her solicitor from 11 December 2007 to 18 October 2010 to provide legal services. On or about 1 October 2008 Deborah Ackerman signed a costs agreement with Morgan Lawyers. Jane Morgan became bankrupt on 3 March 2010. Jane Morgan did not engage as a legal practitioner during the period 19 October 2010 and 15 December 2010. Jane Morgan was then employed as a non-principal solicitor by Casula and Kelso from 16/12/10 to 2 April 2011. Jane Morgan was then employed as a non-principal solicitor with Mark Gallego Lawyers from 2 April 2011. In May 2014 Deborah Ackerman retained Zoe Bojanac from Somerset Ryckman Solicitors to settle two claims and the defendant received the net settlement monies of $110,210 in September 2013. On 21 June 2014 Jane Morgan sent a letter under the letterhead of Mark Gallego Lawyers to Zoe Bojanac attaching the statement of costs and this is what the defendant Deborah Ackerman was provided with at the conclusion of the proceedings. There was an exchange of emails dated 22 August 2013 and 23 August 2013 that substantiate an agreement between Mark Gallego Lawyers and Deborah Ackerman. Deborah Ackerman claims that Jane Morgan falsely represented to the defendant that Jane Morgan Lawyers incorporated with Mark Gallego and therefore Deborah Ackerman excused from compliance note regarding the agreement to pay. 1. The defendant alleged that by an exchange of emails between herself and Ms Bojanac, on behalf of the plaintiff, on 22 and 23 August 2013, the parties entered into "an unconditional written agreement" by which the plaintiff agreed to pay $14,515 (inclusive of GST) for professional costs of the defendant incurred during the period of engagement ("the unconditional agreement"). That sum was not paid to the defendant. The defendant pleaded that the plaintiff was in default of the unconditional agreement and therefore was in breach of contract. 2. During the period of engagement, the plaintiff pleaded the following events occurred: 1. the defendant became bankrupt on or about 3 March 2010; 2. Morgan Lawyers was "disposed" of on or about 18 October 2010 (i.e. ceased operation) and was not incorporated into Mark Gallego Lawyers; 3. the defendant did not continuously hold a local practicing certificate entitling her to engage in legal practice and to charge for legal services. In particular, the defendant was not entitled to engage in legal practice or to charge for services during the following periods: 1. 11 October and 15 December 2010; and 2. 1-19 July 2011; 1. the defendant was employed as a non-principal solicitor by the law firm Casula & Kelso between 16 December 2010 and 30 June 2011 (a matter which was not disclosed to the plaintiff and the plaintiff did not enter into a costs agreement with Casula & Kelso); and 2. the plaintiff's matter was not transferred to Mark Gallego Lawyers until or about 20 July 2011, when the defendant was employed as a non-principal solicitor by that law firm. 1. Whilst the plaintiff accepted that the email exchange vis-à-vis the unconditional agreement occurred, the plaintiff pleaded, inter alia: 1. the defendant's conduct was misleading and/or deceptive and in breach of s 18 of the Australian Consumer Law; and 2. but for the defendant's misleading and/or deceptive conduct the plaintiff would not have agreed to pay Mark Gallego's professional costs in the sum of $14,515. 1. The plaintiff relied upon the following false representations in the proceedings in the Local Court: 1. at all times during the period of engagement, the defendant was an Australian lawyer holding a local practicing certificate entitling her to engage in legal practice and to charge for legal services; 2. the defendant's former firm, Morgan Lawyers, was incorporated into Mark Gallego Lawyers; 3. there was uninterrupted continuity of legal services provided to the defendant between the plaintiff's former firm, Morgan Lawyers, and Mark Gallego Lawyers; 4. Mark Gallego of Mark Gallego Lawyers was entitled to charge the defendant for legal services for the period of engagement; and 5. that Mark Gallego had a right to payment from the plaintiff for legal services for the continuous period, namely, the entirety of the period of engagement. 1. Thus, the plaintiff submitted that during the period of engagement, the defendant had not produced any costs agreement that complied with the Legal Profession Act 2004 (NSW). 2. On 17 November 2017, Boulos LCM dismissed the defendant's statement of claim. In dismissing the statement of claim, her Honour made the following, inter alia, findings: 1. The defendant was not a credible witness and was not truthful in her evidence: She was evasive and unwilling to make the obvious concessions. In each of the conditional costs agreement the Casula and Kelso, Mark Gallego Lawyers contract failed to comply with the Legal Profession Act and are void. 1. In relation to the conditional costs agreement between plaintiff and Morgan Lawyers, in relation to the cooling off period and the failure to include a statement regarding independent advice, that was also in breach of s 324 of the Legal Profession Act. It was conceded by the defendant, in relation to each of the conditional costs agreement, that a law practice must not enter into a conditional costs agreement in relation to a claim for damages that provides for the payment of an uplift fee on a successful outcome of the claim to which a fee relates pursuant to s 324(1) of the Legal Profession Act. 2. In each of the conditional costs agreements from Casula & Kelso and Mark Gallego Lawyers "failed to comply with the Legal Profession Act and [were] void". 3. On 1 October 2008, the plaintiff signed a conditional costs agreement with Morgan Lawyers. The conditional costs agreement between the plaintiff and Morgan Lawyers was in breach of s 324 of the Legal Profession Act. 4. There was no costs agreement between the defendant as an individual and the plaintiff: Deborah Ackerman did not engage Jane Morgan as an individual. Jane Morgan became bankrupt on 3 March 2010. Jane Morgan failed to advise the defendant Deborah Ackerman that Morgan Lawyers was disposed of on 18 October 2010. Morgan Lawyers ceased operation on 30 June 2010. Jane Morgan continued to act after 18 October 2010 as though Morgan Lawyers had not been disposed of. Jane Morgan failed to advise the defendant that Jane Morgan was for a period of time not employed by any law firm after Morgan Lawyers was disposed of. 1. The conditional costs agreement between Morgan Lawyers was in contravention of s 324 of the Legal Profession Act, therefore the representation that she was entitled to those fees pursuant to the conditional costs agreement was false. 2. The letter dated 21 June 2013 provided undercover of the Mark Gallego Lawyers incorporating Morgan Lawyers was a false representation. 3. the agreement was between the plaintiff and Mark Gallego Lawyers and not between the plaintiff and the defendant, therefore, in accordance with s 243 of the Australian Consumer Law, the contract is void 1. Her Honour also made an order requiring the defendant to "pay the costs of the [plaintiff] on an ordinary basis as agreed or assessed and subject to [Local Court] Practice Note [Civ 1] clause 36.2" ("the costs order"). 2. Clause 36.2, as it was at the time, is extracted below: 36.2 Unless the court otherwise order, the following orders are taken to have been made when the defence is filed in the proceedings: • If the plaintiff is successful and the claim is for an amount between $10,000 and $20,000, then the maximum costs that can be awarded to the plaintiff is 25% of the amount awarded by the court plus any amount that might be allowed in relation to costs incurred up to the filing of the first defence in the proceedings. • If the defendant is successful and the claim is for an amount between $10,000 and $20,000, then the maximum costs that can be awarded to the defendant is 25% of the amount claimed by the plaintiff. • Where the proceedings were transferred from the Small Claims Division to the General Division, then the maximum costs that can be awarded to the successful party is $2,500. 1. Following judgment, the plaintiff sought to be heard on the question of costs, in order to seek costs on an indemnity basis. In making that application, the plaintiff contended that cl 36.2 did not apply. Her Honour, in light of the issues raised, made provision for the filing of further written submissions. 2. On 4 December 2017, in accordance with those directions, the plaintiff filed written submissions and sought a variation of the costs order made by her Honour on 17 November 2017, in following terms: 1. the plaintiff's costs be paid on an indemnity basis throughout the entire of the proceedings ("the first indemnity order"); or in the alternative, 2. the defendant pay the plaintiff's costs: 1. on an ordinary basis up to 22 May 2017; and 2. on an indemnity basis from 23 May 2017 ("the alternative indemnity order"). 1. In addition to the variation application, the plaintiff also sought an order that "Mark Gallego Lawyers indemnify [the plaintiff] against the whole of the costs payable by her to her legal representatives associated with the proceedings commenced and maintained by [the defendant]" ("the further order"), pursuant to s 99 of the Civil Procedure Act 2005 (NSW). It may be noted that application in not pressed before the Court as presently constituted. 2. On 9 March 2018, the matter returned before Boulos LCM and her Honour delivered an ex tempore judgment. There was no appearance entered on behalf of the defendant. Her Honour noted that on 17 November 2017 the defendant had indicated, "that they were adhering and agreed to the costs orders that I made on 17 November 2017". Boulos LCM declined to make the orders sought on the variation application. I will return to her Honour's reasons below. THE VARIATION APPLICATION BEFORE BOULOS LCM 1. Prior to turning to the reasons for decision in the Court below, it is useful to set out the two letters of offer relied upon by the plaintiff in support of the variation application (which are also relied upon in the proceedings before this Court), namely: 1. an offer to settle made on 10 March 2014 ("the first letter"); and 2. an offer of compromise made on 22 May 2017 ("the second letter"). Both letters were authored by the plaintiff's solicitor, Ms Zoe Bojanic. The First Letter: the March 2014 Offer 1. The first letter was relied upon with respect to the first indemnity order. That letter included a "proposal", which is extracted below: Our client's proposal is as follows: 1. Our client will pay the sum of $11,000 (inclusive of GST) to Jane Morgan. 2. The settlement to be documented by way of Deed of Release to be executed by all parties, including our client, our firm, Jane Morgan, Mark Gallego and the principles of Casula & Kelso with mutual releases between the parties. The above offer is open to be accepted until 5 pm on 21 March 2014. 1. That proposal shall hereinafter be referred to as "the March 2014 offer". 2. It was conceded that the March 2014 offer was made several years prior to the commencement of any legal proceedings. Nonetheless, the plaintiff contended, in the Court below, that the March 2014 offer provided a basis for an order of indemnity costs for the entire proceedings based on that offer to settle. The Second Letter: the May 2017 Offer 1. The second letter was relied upon with respect to the alternative indemnity order. 2. The second letter enclosed an "Offer of Compromise", which was in the following terms: OFFER OF COMPROMISE The [plaintiff] offers to compromise the whole of these proceedings on the following basis: 1. Judgment for the [plaintiff] with no order as to costs. 2. The closing date for acceptance of this offer is 5 pm on 1 June 2017; and 3. This offer of compromise is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005. 1. That offer of compromise shall hereinafter be referred to as "the May 2017 offer". 2. By the May 2017 offer, it was contended, the plaintiff offered to settle the whole of the proceedings by way of a judgment for the plaintiff with no order as to costs, which, it was contended, was no less favourable than the terms of the judgment ultimately obtained by the plaintiff. 3. The second letter included the following proviso, in the event the May 2017 offer was found not to operate in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"): "…the defendant also relies on the Offer on the same terms as having been made pursuant to the principles stated in Calderbank v Calderbank (1975) 3 WLR 586". 4. Boulos LCM accepted that the May 2017 offer was compliant with UCPR r 20.26. Reasons for Decision 1. Prior to setting out Boulos LCM's reasons, her Honour made the following general observations as to costs, at the outset of her remarks, which are extracted below: The objects of a costs order is to compensate the successful party for having to pursue or defend their rights in court. The defendant was successful in this matter. The Court's discretion to determine costs is unfettered. That is pursuant to s 98 subs (1) of the Civil Procedure Act 2005. However, the Uniform Civil Procedure Rules provides that: "The Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to whole or any part of the costs, that is UCPR 42.1. Further, unless the Court orders otherwise costs payable to a person under an order of the Court and to be assessed on the ordinary basis UCPR 42.2" The power to award indemnity cost is also found in r 42.5 of the New South Wales Civil Procedure Handbook. The discretion, although absolute must be exercised judicially and be subject of careful reasoning. Courts should exercise caution in making such an award. 1. Boulos LCM ultimately rejected each indemnity order sought by the plaintiff. Her Honour's reasons, in that respect, were brief and are set out seriatim, in summary form, below. The first indemnity order 1. As to the first indemnity order, Boulos LCM noted the plaintiff's reliance upon Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 ("Hazeldene's Chicken Farm"), but held the authority to be "not on point" and "irrelevant". Her Honour held: THE COURT HAS NOT BEEN REFERRED TO ANY OTHER AUTHORITY OR STATUTORY REGIME THAT AUTHORISES THE COURT TO MAKE SUCH AN [ORDER] AND IN THE ABSENCE OF ANY SUCH AUTHORITY TO SUPPORT THE PROPOSITION BY THE DEFENDANT. I DECLINE TO MAKE THAT ORDER. 1. Her Honour declined to make first indemnity order sought. The alternative indemnity order 1. As to the alternative indemnity order, her Honour set out and relied upon the following principles: 1. the purpose of an offer of compromise is to encourage the proposed compromise of litigation in the private interests of the litigants and in the public interest of the prompt, economical disposal of litigation: South Eastern Sydney Area Health Service v King [2006] NSWCA 2; 2. the offer must contain a real and genuine element of compromise: The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706; [2006] NSWCA 120; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 ("Miwa"); 3. a "token or nominal" amount does not amount to a "real compromise": Manly Council v Byrne (No 2) [2004] NSWCA 227 ("Byrne"); The State of NSW v UXC Limited (No 2) [2011] NSWSC 685 ("UXC Ltd"); 4. the onus of proving that indemnity costs ought to be awarded following the making of a Calderbank offer falls upon the plaintiff (the defendant in the court below); 5. the following two considerations of the Court of Appeal in Miwa were identified as relevant: 1. whether there was a genuine offer of compromise; and 2. whether it was unreasonable for the offeree not to accept the offer; and 1. as to the considerations relevant to the determination of "an unreasonable offer", Boulos LCM accepted the authority of Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 ("Perisher Blue") (at [60], citing Hazeldene's Chicken Farm at [25]) per Gleeson JA and Tobias AJA. 1. Further, as to the operation of Local Court Practice Note Civ 1, her Honour applied the authority of Adamson J in Ada Evans Chambers P/L v Santisi [2014] NSWSC 538 at [19] (as cited by the plaintiff): [19] The first two grounds of appeal rest, in my view, on a false premise. A Practice Note applies, but only subject to the orders of the Court. It does not have a higher status than the Civil Procedure Act or the Uniform Civil Procedure Rules. It provides for a procedure to be followed in circumstances where a party wants to obtain protection in advance from maximum costs orders. It is not, however, capable of fettering the Magistrate's discretion on costs, which is required to be exercised following judgment on the principal claim and derives from s 98 of the Civil Procedure Act. 1. Prior to making a ruling, in that respect, Boulos LCM noted the plaintiff's reliance upon "the offer [being] made at the time when the issues were properly defined, the pleadings had been closed… [and] that the [defendant] knew or ought to have known the deficiencies of her claim and that the offer was a real and genuine offer". However, her Honour also noted, "the offer of compromise [did] not nominate any nominal figure or amount". (That latter remark related to the form of May 2017 offer, which was, as earlier extracted, in the following terms: "Judgment for the [plaintiff] with no order as to costs"). 2. In light of the authorities referred to in her Honour's ex tempore judgment, Boulos LCM ultimately held: THE AUTHORITIES HAVE MADE IT CLEAR AND HAVE ESTABLISHED THAT THERE HAS BE A SUFFICIENT ELEMENT OF COMPROMISE AND IN THIS MATTER I AM NOT SATISFIED THERE IS A SUFFICIENT ELEMENT OF COMPROMISE AND ACCORDINGLY I DECLINE TO EXERCISE MY DISCRETION [IN THAT RESPECT]. The further order 1. For completeness, as to the further order sought (which is not the subject of the appeal before this Court), Boulos LCM observed such an order "can only be made in exceptional circumstances" and held "[t]here [were] no proper grounds demonstrated on any of the material before me, nor on any evidence before me to justify such an order". 2. Thus, the plaintiff's application for a variation of the costs order of 17 November 2017 was dismissed. THE APPEAL 1. On 5 November 2018, when the appeal was heard before this Court, the plaintiff sought leave to file an amended summons. Following the provision of leave, the amended summons was filed on 6 November 2018 ("the appeal"). (It may be noted that the defendant was granted liberty to apply within 24 hours of receipt of the amended summons, no application was made in that respect). 2. By the appeal, the plaintiff sought the following orders: 1. Leave to appeal from the part of the decision below in relation to costs. 2. Appeal allowed. 3. Order number 2 of the court below be set aside. 4. The Defendant (Plaintiff in the Court below) to pay the Plaintiff's (Defendant in the Court below) costs on an indemnity basis. 5. In the alternative to the preceding paragraph, the Defendant (Plaintiff in the court below) to pay the costs of the Plaintiff (Defendant in the Court below) on: a. an ordinary basis up to 22 May 2017; and b. an indemnity basis from 23 May 2017. 6. Defendant in this Court to pay the costs of the Plaintiff on an indemnity basis. 1. The orders sought at paras 4 and 5 reflect part of the orders sought and rejected by Boulos LCM. 2. The grounds of the appeal were as follows: 1. Her Honour erred in finding that the Plaintiff's (Defendant in the Court below) offer to settle dated 10 March 2014 did not involve a genuine compromise. 2. Her Honour erred in finding that the Plaintiff's (Defendant in the Court below) Offer of Compromise dated 22 May 2017 did not involve a genuine compromise. 3. Her Honour erred in failing to award the Plaintiff (Defendant in the Court below) costs on an indemnity basis. 4. Her Honour erred in failing to award the Plaintiff (Defendant in the Court below) costs on an indemnity basis from 23 May 2017. 5. Her Honour erred in failing to apply the principles applicable to offers to settle and offers made pursuant to the principles set out in Calderbank v Calderbank [1975] 3 All ER 333 when determining the Plaintiff's (Defendant in the Court below) application for indemnity costs following an offer to settle made on 10 March 2014. 6. Her Honour erred in failing to apply the Uniform Civil Procedure Rules 2005 and the principles applicable to Offers of Compromise when determining the Plaintiff's (Defendant in the Court below) application for indemnity costs following an Offer of Compromise made on 22 May 2017. RELEVANT LEGISLATION Leave to Appeal 1. Section 40(2) is in the following terms: 40 Appeals requiring leave … (2) A party to proceedings before the Court sitting in its General Division who is dissatisfied with any of the following judgments or orders of the Court may appeal to the Supreme Court, but only by leave of the Supreme Court: (a) an interlocutory judgment or order, (b) a judgment or order made with the consent of the parties, (c) an order as to costs. 1. Pursuant to s 41(1) of the Local Court Act, the Supreme Court may determine an appeal made under s 40: (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal. 1. The question of leave to appeal is also addressed in Pt 50 Div 4 of the UCPR. Rule 50.12 is extracted below: 50.12 Leave to appeal (1) A summons seeking leave to appeal must be filed: (a) within 28 days after the material date, or (b) if the appeal relates to the decision of a judicial officer, within such further time as the judicial officer may allow so long as the application for such further time is filed within 28 days after the material date, or (c) within such further time as the higher court may allow. (2) An application for an extension of time under subrule (1) (c) must form part of the summons seeking leave to appeal. (3) The summons must be in the approved form and must contain a statement as to: (a) whether the appeal relates to the whole or part only, and what part, of the decision of the court below, and (b) what decision the plaintiff seeks in place of the decision of the court below. (4) The summons must also contain a statement of: (a) the nature of the case, and (b) the reasons why leave should be given, and (c) if applicable, the reasons why time to apply for leave should be extended, setting out briefly but specifically the grounds relied on in support of the appeal including, in particular, any grounds on which it is contended that there is an error of law in the decision of the court below. (5) This rule does not apply to an appeal under section 39 of the Victims Support and Rehabilitation Act 1996. Note. See instead rule 50.23. Costs 1. The powers of the Court as to costs are set out in s 98 of the Civil Procedure Act 2005 (NSW) in the following terms: 98 Courts powers as to costs (1) Subject to rules of court and to this 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. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. (4) 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. 1. Part 42 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") sets out the rules with respect to costs. Rule 42.1 is extracted below: 42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the 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. 1. Rule 42.15A is as follows: 42.15A Where offer not accepted and judgment no less favourable to defendant (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) 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. GENERAL PRINCIPLES The Question of Leave 1. The principles to be considered in deciding whether leave to appeal should be granted have been the subject of enunciation in a number of cases in the Court of Appeal: Zelden v Sewell Henamast Pty Ltd [2011] NSWCA 56 ("Zeldon") at [22] per Campbell JA (with Young JA agreeing); Be Financial Pty Ltd v Das [2012] NSWCA 164 ("Be Financial") at [32]–[36] per Basten JA (Tobias AJA agreeing); Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 ("Jaycar") at [46] per Campbell JA (with Young and Meagher JJA agreeing); Carolan v AMF Bowling Pty Ltd t/as Bennetts Green Bowl [1995] NSWCA 69 ("Carolan") (per Sheller and Cole JJA). 2. In Be Financial, Basten JA set out the principles relevant to leave applications (at [32]-[39]). That summary is extracted below: [32] The principles governing cases such as these have recently been restated in Zelden v Sewell; Henamast Pty Ltd v Sewell [2011] NSWCA 56. As Campbell JA noted (with the agreement of Young JA) at [22]: "It is of some importance to reiterate the principles that were stated in Carolan v AMF Bowling Pty Limited [1995] NSWCA 69, where Sheller JA said that an applicant for leave must demonstrate something more than that the trial judge was arguably wrong in the conclusion arrived at. Cole JA relied on a principle that where small claims are involved, it is important that there be early finality in determination of litigation, otherwise the costs that will be involved are likely to swamp the money sum involved in the dispute." [33] In Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Campbell JA, with the agreement of Young and Meagher JJA, expanded on his summary of Carolan, noting that Kirby P had recognised "that ordinarily it was appropriate to grant leave to appeal only concerning matters that involve issues of principle, questions of general public importance or an injustice which is reasonably clear, in the sense of going beyond [what is] merely arguable": at [46]. [34] Kirby P in Carolan set out a number of reasons for the constraint on rights of appeal in such cases. Not all of them have been repeated in later cases. Not all are universally relevant. Thus, the delay in obtaining a hearing in this Court appears to have been greater at that time than is the case presently, although an overly liberal approach to leave applications might well result in an increase in the period between filing and hearing. [35] In Coulter v The Queen [1988] HCA 3; 164 CLR 350, dealing with a challenge to a refusal of the South Australian Full Court to grant leave to appeal in a criminal matter, the majority noted that a leave requirement was a preliminary procedure "recognised by the legislature as a means of enabling the court to control in some measure the volume of appellate work requiring its attention": at 356 (Mason CJ, Wilson and Brennan JJ). That statement is clearly applicable to civil, as well as criminal, appellate jurisdiction. [36] As the High Court has noted, an application for leave is not a proceeding in the ordinary course of litigation but a preliminary procedure: Collins v The Queen [1975] HCA 60; 133 CLR 120 at 122; Coulter at 356. On the other hand, there is no reason to doubt that s 58 of the Civil Procedure Act 2005 (NSW), requiring a court to act in accordance with "the dictates of justice" when making an order or direction "for the management of proceedings", applies in respect of a leave application. One of the factors to be taken into account pursuant to s 58 is "the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction": s 58(2)(b)(vi). That provision, like s 56, identifying the overriding purpose of the Civil Procedure Act as being to facilitate the just, quick and cheap resolution of the real issues in the dispute, recognises that questions of injustice are relative. Similarly, the requirement that this Court not order a new trial unless it appears that "some substantial wrong or miscarriage" has been occasioned, also reflects a principle of parsimony in requiring that the parties be put to the expense of a second trial: UCPR, r 51.53. [37] The idea that injustice may be measured on a scale reflects a number of underlying considerations. First, the ability to assess the existence of an injustice in a preliminary proceeding, such as a leave application, is limited. In assessing the merit of a proposed appeal, the Court may well apply a vague criterion, such as whether the judgment below is attended by "sufficient doubt". Secondly, injustice involves a balancing exercise. The delay and cost of further litigation will constitute a form of injustice to the successful party below, whatever the outcome of the appellate process. Thirdly, the entitlement of the parties to justice is not unconditional, but is dependent upon the resources of the court made available by the government and the appropriate allocation of resources by the parties, which may depend upon their individual assessments of the importance of the issues in dispute. The parties may well make disparate assessments in a particular case. [38] The last point is reflected in the terms of s 60 of the Civil Procedure Act: "60 Proportionality of costs In any proceedings, the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute." [39] This direction has an important operation in respect of leave applications involving amounts below the statutory threshold. Where, as in the present case, the costs of the trial are disproportionate to the amount in dispute, the incurring of additional costs, for a potentially uncertain return, will be a factor weighing heavily against a grant of leave. Particularly is that so where there is a real prospect that, if successful, an appeal will not resolve the matter but will require a new trial. 1. In Chapmans Ltd v Yandell [1999] NSWCA 361 ("Chapmans"), Fitzgerald JA (with whom Mason P and Davies AJA agreed) said: [11] On the other hand, it is important to keep in mind the purpose of a requirement of leave to appeal. It is intended to act as a filter to ensure that unsuitable appellant proceedings which are not able to be brought with the demands which that places upon the resources of the Court and the burden which it places upon other parties and the delays which it causes to other litigants. See for example Coulter v Regina (1988) 166 CLR 350 about 359. [12] It is also in my opinion important to keep in mind that s 208M must be considered in the context of s 208L, which restricts an appeal as of right to matters of law. In considering whether or not leave to appeal is granted, it must be decided whether or not, there not being a matter of law arising in the proceeding and there being an appeal as of right only as to a matter of law, there is some other matter which in justice requires that leave to appeal be granted to allow that matter to be relitigated. The party seeking leave to appeal obviously bears the burden of establishing that justice does require that leave to appeal be granted. Further, the master when considering whether to grant leave to appeal obviously has a very wide discretion: see CDJ v VAJ [1998] HCA 67 per McHugh, Gummow and Callinan, JJ. 1. The High Court in Coulter v The Queen (1988) 164 CLR 350; [1988] HCA 3 ("Coulter"), Deane and Gaudron JJ said (at 359): The requirement that leave or special leave be obtained before an appeal will lie is a necessary control device in certain areas of the administration of justice (e.g. appeals to a second appellate court) in this country. As a filter of the work which comes before some appellate courts, it promotes the availability, the speed and the efficiency of justice in those appeals which are, in all the circumstances, appropriate to proceed to a full hearing before the particular court. It also represents a constraint upon the overall cost of litigation by protecting parties, particularly respondents, from the costs of a full hearing of appeals which should not properly be entertained by the relevant court either because they are hopeless or, in the case of a civil appeal to a second appellate court, because they do not possess special features which outweigh the prima facie validity of the ordinary perception that the availability of cumulative appellate processes can, of itself, constitute a source of injustice. 1. The relevant principles may be summarised as follows: 1. An applicant for leave must demonstrate something more than that the trial judge was arguably wrong in the conclusion arrived at, and that where small claims are involved, it is important that there be early finality in determination of litigation, otherwise the costs that will be involved are likely to swamp the money sum involved in the dispute: Carolan. 2. Ordinarily it is appropriate to grant leave to appeal only concerning matters that involve issues of principle, questions of general public importance or an injustice which is reasonably clear, in the sense of going beyond what is merely arguable: Jaycar at [46]. 3. The leave requirement is a preliminary procedure "recognised by the legislature as a means of enabling the Court to control in some measure the volume of appellate work requiring its attention": Coulter at 356 (Mason CJ, Wilson and Brennan JJ). Whilst that was a criminal matter, the statement is clearly applicable to civil, as well as criminal, appellate jurisdiction: Be Financial at [32]-[36] (per Basten JA, with Tobias AJA agreeing). 4. A requirement of leave to appeal is intended to act as a filter to ensure that unsuitable appellant proceedings are not able to be brought, with the demands they place upon the resources of the Court and the burden they place upon other parties and the delays which they cause to other litigants: Chapmans at [11] per Fitzgerald JA (with whom Mason P and Davies AJA agreed). 5. An application for leave is not a proceeding in the ordinary course of litigation but a preliminary procedure: Collins v The Queen (1975) 133 CLR 120 at 122; [1975] HCA 60. 6. Section 58 of the Civil Procedure Act applies and requires the Court to consider "the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction": s 58(2)(b)(vi). Leave should be granted only where there are substantial reasons to allow an appellate review (Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 104 FCR 564; [2000] FCA 1572, such as where there is an error of principle which, if uncorrected, will result in substantial injustice. 1. Where there is no question of principle, leave to appeal will usually be refused (see example, Jaycar; Zelden; Be Financial at [32]–[36] (per Basten J, with Tobias AJA agreeing); De Armas v Peters [2015] NSWSC 1050 per Wilson J (which matter concerned an application for leave to appeal against a Local Court interlocutory judgment under s 40(2), no injustice and no question of wider importance, leave refused); Rose v Tunstall [2018] NSWCA 241 at [33]-[34]. 2. Additionally, it may be noted, that both parties relied upon the principles from House v The King (1936) 55 CLR 499; [1936] HCA 40, which will be set out within the later summary of the parties' submissions, respectively. Appeal Against Costs Orders – s 40(2)(c) 1. Under s 40(2)(c), leave is required to bring an appeal against an order for costs. The principles that apply to applications for leave, generally, also apply with respect to appeals against cost orders. 2. In Ashi Pty Ltd v Karasco Investments Pty Ltd [2009] NSWSC 780 ("Ashi"), which concerned an application to appeal a costs decision of her Honour Magistrate Giles in the Local Court, Davies J applied the authority of Coulter and Chapmans and, whilst his Honour granted leave, he emphasised that such leave was granted so that the Magistrate's orders could be varied to include an order that the parties believed had already been made (Ashi at [58]). Apart from that "technical success", in all other respects, the party seeking leave under s 40(2)(c) was unsuccessful. 3. The following observations of Davies J, in that respect, may be noted (at [34]-[37] and [40]): [34] … in my opinion, that the party seeking leave to appeal needs to point to some other matter which in justice requires that leave to appeal be granted. [35] Ashi was not able to identify any additional matter over and above the error of principle or law which the Magistrate was said to have made, apart from an assertion that it had suffered a detriment. In my opinion, it could reasonably be expected that any party appealing or seeking leave to appeal had suffered a detriment. That in itself cannot be an additional matter that justice requires leave to be granted. [36] Ashi conceded that if the correct order was made, namely, that Ashi pay Dr Farmer's costs, the net difference between that and the order currently made was about $15,000. By way of contrast, s 101(2)(r) Supreme Court Act 1970 requires leave to appeal to the Court of Appeal from a final judgment of this Court where the matter at issue is less than $100,000. Further, s 101(2)(c) (like s 40 Local Court Act 2007) requires leave to appeal to the Court of Appeal from an order as to costs only. [37] Whilst a direct comparison cannot be made between s 101(2)(r) which is concerned with an appeal to the Court of Appeal, and the appeal that can be made with leave to this Court from the Local Court under s 40, those two provisions suggest that where the matter, in the first instance, is concerned only with a costs order and, in the second instance, only concerns approximately $15,000, there would need to be some significant further factor to justify leave being granted. … [40] Ashi's main submission why leave should be granted was because the Magistrate, it was argued, had made an error of principle resulting in Ashi having to pay more costs than it properly should have done. I shall now deal with Ashi's submissions in this regard and return to the question of leave later in this judgment. 1. Davies J considered that, as to the question of leave under s 40(2)(c), the party seeking leave to appeal needs to point to an "additional matter" or "some significant further factor" other than "a detriment", to justify leave being granted (Ashi at [35] and [37]). 2. In Pratten v Johns [2010] NSWSC 327, an appeal that involved a question of mixed law and fact requiring leave pursuant to s 40, the respondent opposing the grant of leave relied upon Ashi (at [24]-[25]): [24] Mr Hyde referred to the decision of Ashi Pty Limited v Karasco Investments Pty Limited [2009] NSWSC 780 in which Davies J dealt with an application for leave pursuant to s 40. His Honour referred to Coulter v R (1987) 164 CLR 350 and Chapmans Ltd v Yandell [1999] NSWCA 361 before concluding that for leave to be granted an applicant needs to point to some matter over and above the suffering of detriment as a result of the decision in the court below. [25] Mr Hyde submitted that notwithstanding the factual differences between Ashi and the present case, the principles outlined by Davies J are relevant in that this case is concerned with a relatively small sum of money and the applicant has failed to identify some significant factor in addition to having suffered detriment by the orders made in the Local Court to justify leave being granted. When confronted with this question, Ms Ramensky's response was, "it would be (a) travesty of justice if my client was ordered to pay yet more money to Mr Johns when he has already been overpaid and has received significantly more money than he was owed by the company". This is not a factor over and above the detriment flowing from the adverse decision of the court below. I have examined the merits of the applicant's case nonetheless. 1. R A Hulme J ultimately refused leave to appeal, finding "none of the points sought to be raised on appeal have merit" (at [54]). 2. With respect, I accept and will apply their Honours' observations, noting of course, that consideration of leave will depend upon the factors relied upon by the applicant for leave in the context of the particular appeal under consideration. Costs 1. The general principles with respect to costs were not a matter of controversy in this matter and will be considered within the subsequent discussion of the parties' submissions, respectively. However, in light of the grounds of appeal, and in addition to those principles, it is useful to briefly set out additional authority relevant to the distinction between offers of compromise and Calderbank offers. 2. The rules in relation to offers of compromise operate differently to the principles which apply to Calderbank offers. Schmidt J sets out this distinction, in the context of UCPR r 42.15A, in Vagg v McPhee (No 2) [2012] NSWSC 187 at [16]-[23]. Her Honour observed: [16] When the plaintiffs' did not succeed, having rejected the offer of compromise made under the Rules, under r 42.15A an onus fell upon them to establish that the Court should depart from the consequences of the Rule, the defendants having obtained a judgment at least as favourable to them as the terms of their offer. That onus has not been met. [17] The defendants relied on Leichhardt Municipal Council v Green where Bryson JA observed at [59]: "I agree with the conclusions reached by Santow JA. The application for an order for costs to be assessed on the indemnity basis raises a discretionary question the answer to which is not in my view susceptible of much detailed exposition. The settlement offer was made before trial and was no longer available while the appeal was pending. The respondent's case did not succeed, but it was not a case which could not reasonably be argued and it succeeded at first instance. The only element of compromise in the offer was as to costs: otherwise it was a call on the respondent to capitulate and give up: the element of compromise was slight, and the respondent's ultimate lack of success does not to my mind demonstrate that the reasonable course for the respondent was to capitulate, nor does anything show that the respondent was delinquent in going on with the trial or in resisting the appeal." [18] That was a case concerned with a Calderbank offer, as was Miwa Pty Ltd v Siantam Properties Pty Ltd (No 2), on which reliance was also placed. The Rules in relation to offers of compromise operate differently to the principles which apply to Calderbank offers. In the case of a Calderbank offer an onus falls on the offeror to convince the Court that it should exercise its discretion in the offeror's favour, the offeree having acted unreasonably in rejecting the offer (see Jones v Bradley (No 2) [2003] NSWCA 258; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 per Giles, Ipp and Tobias JJA at [26]. ) The offeror must also show that the offer was a genuine compromise (see Leichhardt Municipal Council v Green, at [21] - [24], [36] per Santow JA (Stein JA agreeing) and Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4] - [5] per Handley, Beazley and Basten JJA). In considering a Calderbank offer, the Court strives to achieve fairness in the result (see the discussion in Commonwealth v Gretton [2000] NSWCA 118). [19] The provisions of Rule 42.15A operate quite differently, even though it should be noted, that even in the case of a Calderbank offer a "walk-away" offer can be a "genuine offer of compromise" (see Leichhardt Municipal Council v Green [2004] NSWCA 341 at [36]; and GIO General Ltd v ABB Installation and Service Pty Ltd [2000] NSWCA 118 at [36];) [20] Having refused the defendants' offer the plaintiffs had to establish circumstances which, as a matter of justice, warrant a departure from what the Rule contemplates will be the usual result of refusal of the offer. The defendants are entitled to an order in accordance with the Rule, unless the plaintiffs establish that the Court should order otherwise. [21] The exercise of that discretion in favour of the plaintiffs requires that they establish that 'exceptional circumstances' exist, as discussed in South Eastern Sydney Area Health Service v King [2006] NSWCA 2 per Hunt AJA (Mason P and McColl JA agreeing): "83 Part 52 rule 22 provides that, where a plaintiff who has made an offer of compromise in accordance with Part 22 (Division I) which is not accepted by the defendant, and where the plaintiff obtains a judgment no less favourable than the terms of the offer, then, unless the Court otherwise orders, the plaintiff will be entitled to an order against the defendant for costs on an indemnity basis in relation to his costs incurred from the day after the offer was made. The onus is on the defendant to persuade the Court that indemnity costs should not be ordered. He must demonstrate the basis on which an order should be made denying the plaintiff's entitlement to indemnity costs. He must establish that he had given serious thought to the risk involved in non-acceptance of the offer, and that he had assessed the plaintiff's case properly and in the context of the rule and the achievement of its purpose - to encourage the proper compromise of litigation, in the private interests of the litigants and in the public interest of the prompt and economical disposal of litigation. Generally, exceptional circumstances are required to justify such an order denying the plaintiff's entitlement. See, generally, Fowdl v Fowdl , Court of Appeal, 4 November 1993, unreported, per Kirby P at 12, 16; Hillier v Sheather (1995) 36 NSWLR 414 at 422-423; Morgan v Johnson (1998) 44 NSWLR 578 at 581-582. 84 Although the Court may take into account the particular features of a case and the difficulty of putting an accurate estimate on its value in advance of the litigation, those considerations do not provide a basis by themselves for denying the party making the offer an order for indemnity costs: Hillier v Sheather (at 423). In Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 725, it was said that a miscalculation in a case with large imponderables, where the course taken by the party to whom the offer was made may have been perfectly reasonable, would provide a basis for denying an order, but the subsequent decision in Hillier v Sheather suggests that, whilst "large" imponderables may be a relevant factor in the particular case in denying an order for indemnity costs, in the general case a party's reasonable belief as to his own chances of success does not alone provide a basis for denying an order for indemnity costs." [22] In Hillier v Sheather (1995) 36 NSWLR 414 it was also observed (at 423) that: "Secondly, it might be thought that the rule operates rather unfairly upon plaintiffs. They may be subjected to risk by early offers which are judged to be unrealistic. Plaintiffs may not be able to afford the risks of litigation with the added risk as to costs. The transference of the risk of costs to them (even if they succeed generally) imposes upon ordinary plaintiffs a burden which few can afford to bear. It is important that the courts should not approach the exercise of the discretion to "otherwise order" in a mechanical way: cf, Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 725. Even skilled legal representatives do not have the gift of prophecy. Calculating damages verdicts is inescapably inexact because of the many imponderables which must be taken into account. The present is a case in point. So much depended upon the view which would be taken concerning the significance (if any) of pre-injury spinal and neck pain. In exercising the discretion, courts will not overlook the particular features of a case and the difficulty of putting an accurate estimate on its value in advance of the litigation. Yet the general considerations of chance and risk would have been known to the rule-maker when Pt 19A, r 9 of the District Court Rules was introduced into the District Court Rules . Without more, they could not provide a basis for ordering otherwise than as the rule will ordinarily provide. If this puts plaintiffs' legal representatives in an impossible position and, in practice, forces the settlement of cases for sums less than they are worth because the costs of litigation cannot be wagered against their risks, the complaint must be against the terms of the rules and the apparently narrow provision for exempting orders. The complaint cannot be against a court which merely gives effect to the purpose of the rule as expressed in its plain language." [23] In this case, there was no evidence led or explanation given for the plaintiffs, as to why the offer wasn't accepted. Exceptional circumstances warranting a departure from the effects of r 42.15A have not been established. 1. With respect, I accept and adopt her Honour's reasoning. 2. Given the contentions advanced by the plaintiff with respect to the Boulos LCM's application of Hazeldene's Chicken, the relevant passage dealing with "factors relevant to assessing reasonableness", in the context of a Calderbank letter, is extracted below (at [25]-[29]): Factors relevant to assessing reasonableness [25] The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters: (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree's rejecting it. [26] It has been argued on occasion that the maker of a Calderbank offer should not be entitled to costs unless the offer sets out, with some reasonable specificity, the basis for the offeror's contention that the offeree should accept the compromise — for example, because the offeree's case was hopeless or because the offeree had no reasonable prospects of doing better in the proceeding than was being offered in advance. [27] Once again, we think it neither necessary nor desirable to lay down any general rule in this regard. We agree with what Redlich J said in Aljade, as follows: Any attempt to prescribe the reasoning which must accompany [a Calderbank] offer should be resisted. Whether there is a need for the offeror to descend to specificity as to why the offer should be accepted must depend upon a consideration of all of the circumstances existing at the time of the offer. The extent to which the weakness of a party's position is exposed through the pleadings, affidavits and the various communications between the parties during the course of the litigation may bear upon the significance of the absence of specificity in the informal offer. [28] As we said at the outset, the unreasonable refusal of an offer of compromise is, by itself, a proper ground for the award of indemnity costs or — in the present case — the award of solicitor-client costs. It follows that it is not necessary for the applicant for such an order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Once again we would adopt what Redlich J said in Aljade, as follows: It is not necessary to establish misconduct by the offeree before the rejection of the offer can be viewed as unreasonable. Lack of merit in the way a party has conducted its case is not a pre-requisite for the making of an indemnity costs order [on this ground]. [29] Nor is it necessary for the applicant offeror to show that the offeree acted with "wilful disregard of known facts or clearly established law", or that it acted with "high-handed presumption". We agree with Redlich J that such conduct is not a prerequisite for a finding that the rejection of a Calderbank offer was unreasonable. [Footnotes omitted.] SUBMISSIONS OF THE PARTIES The Question of Leave 1. As to the question of whether leave should be granted, the plaintiff relied upon the authority in Be Financial at [32] (per Basten JA) and House v The King at 505 (per Dixon, Evatt and McTiernan JJ). 2. In light of those authorities, the plaintiff contended that Boulos LCM, erred in the following ways: 1. in consideration of defendant's application for costs pursuant to an offer to resolve the dispute (namely, the March 2014 offer), her Honour found that Hazeldene's Chicken Farm "was not on point and [was] irrelevant and does not support the proposition by the defendant"; and 2. in finding that plaintiff bore the onus of proving indemnity costs ought to be awarded and that an offer to resolve the proceedings on the basis that there be a judgment for the plaintiff with no order as to costs (namely, the May 2017 offer) was not a genuine compromise. 1. In support of leave, the plaintiff also relied upon the merits of the appeal, which will be considered below in the summary of the plaintiff's submissions with respect to the grounds of appeal. 2. During the course of oral submissions, the plaintiff also contended that the defendant's prior misconduct, as earlier found by Boulos LCM, is relevant to the Court's assessment of whether it was unreasonable for the defendant to have rejected the March 2014 and May 2017 offers. 3. Further, as to the legal foundation to bring such an application, in light of the Local Court Practice Note Civ 1, during oral submissions, reference was made to the judgment of Adamson J in Ada Evans Chambers v Santisi, as to the effect of Local Court Practice Note Civ 1 upon the Court's discretion. In that matter, the applicant contended that the Magistrate "erred in making an order contrary to cl.36.2" in circumstances where both parties accepted the application of the practice note (ground 1) and where the defendant had not complied with cll 36.3, 36.4 and 36.5 of the Practice Note (ground 2). Her Honours observations, in that respect, appeared at [19] (and are extracted above, earlier in this judgment). (It may be noted that Boulos LCM applied that authority in her ex tempore judgment as to the variation application). 4. In light of that authority, it was submitted that "costs are in the discretion of the Court and, in circumstances where an offer of compromise is made, the practice note cannot bind the magistrate in the awarding of costs". Reference, in this respect, was also made to s 98 of the Civil Procedure Act. 5. In summary, the defendant's submissions on leave were as follows: 1. By reliance on Be Financial (at [37]-[38]) and s 60 of the Civil Procedure Act, the defendant submitted that the amount in dispute In the Local Court was the sum of $14,515 (inclusive of GST). It was not appropriate that leave should be granted to appeal the failure to award indemnity costs to the plaintiff in those circumstances. Leave ought not be granted as the plaintiff already has the benefit of a costs order, particularly in circumstances where the amount claimed by the defendant in the Court below was the sum of $14,515 (inclusive of GST). 2. As to the principles in House v King, whilst it is accepted that they apply, the defendant contended that the plaintiff has not shown that a substantial wrong has occurred in the judgment of Boulos LCM. 3. Reliance was also placed on the following authorities: 1. In Real Estate Property Management Pty Ltd v Watercorp Investments Pty Ltd [2018] NSWCA 194, White JA stated (at [5]): "[l]eave is required to appeal from a judgment or order 'as to costs only' because in many cases it is contrary to the public interest and creates an injustice to the parties for costs to be incurred in arguments about costs". 2. In Picos v Western Pacific Automotive [2018] NSWSC 536, dealing with the question of granting leave to appeal from a decision of a Local Court Magistrate, albeit on an interlocutory decision, Harrison AJ stated (at [31]): "It is important to bear in mind that the requirement that an appellant seeking leave to appeal is intended to act as a filter to ensure that unsuitable appellate proceedings are not permitted to run where it would place an undue burden on the other parties, delays to other litigants and disproportionate demands on the resources of the court." 1. Finally, as to the two errors identified by the plaintiff, the defendant submitted that the contentions of the plaintiff were misconceived for the following reasons: 1. Hazeldene's Chicken was in relation to the plaintiff's proposition that an offer made years prior to the commencement of proceedings could support an application for indemnity costs of the whole proceedings. 2. As to the plaintiff's contentions vis-à-vis onus, Boulos LCM's ultimate finding that the offer was not a sufficient compromise was consistent with authority that an offer must contain a genuine offer of compromise to create costs consequences under the rules. 1. During oral submissions, the defendant further submitted that the matter should be disposed at the leave stage of these proceedings for the following reasons: 1. There is a real risk of disproportionate costs. Reference, in that respect, was made to the value of the claim in the Court below, being around $14,000, and the value of the indemnity costs below, being around $20,000 to $25,000. 2. The appeal concerns a House v King type error, which this Court, it was submitted, might not ordinarily entertain from the Local Court. Reference, in this respect, was made to the mechanism provided at cl 36.5 of the Local Court Practice Note Civ 1. It was submitted that provision permits a party to put on a notice of motion and seek to vary the maximum costs order. The plaintiff did not avail herself in the Local Court. Notwithstanding that submission, the defendant confirmed that no issue was taken with the way in which the matter proceeded before Boulos LCM, it was within her Honour's discretion to hear the matter. 3. As to grounds 1 and 2, it was contended that the reference to "Her Honour erred in finding that the Plaintiff's (Defendant in the Court below) offer… did not involve a genuine compromise" – is in essence a finding of fact. It is not a question of law. 1. In reply to the contentions raised by the defendant, the plaintiff submitted the appeal is brought upon the basis that her Honour erred in matters of law and thereby conformed with the principles stated in House v King. Grounds 1, 3 and 5 – the March 2014 offer 1. Grounds 1, 3 and 5 relate to the March 2014 offer and are extracted below: 1. Her Honour erred in finding that the Plaintiff's (Defendant in the Court below) offer to settle dated 10 March 2014 did not involve a genuine compromise. 3. Her Honour erred in failing to award the Plaintiff (Defendant in the Court below) costs on an indemnity basis. 5. Her Honour erred in failing to apply the principles applicable to offers to settle and offers made pursuant to the principles set out in Calderbank v Calderbank [1975] 3 All ER 333 when determining the Plaintiff's (Defendant in the Court below) application for indemnity costs following an offer to settle made on 10 March 2014. 1. The plaintiff's submissions, in this respect, in part, repeated submissions earlier advanced in support of a grant of leave. 2. First, it was submitted that Boulos LCM erred in finding that the Hazeldene's Chicken Farm was "not on point and... irrelevant". That contention was supported with reference to Basten JA's judgment in Miwa, whereby his Honour cited the principles of Hazeldene's Chicken Farm at [60]. As her Honour erred in applying the relevant principles with respect to the March 2014 offer, it was submitted that this Court ought to reconsider the plaintiff's application for indemnity costs. 3. Reliance, in this respect, was placed upon the judgment of Button J in Bogle v Kasan [2013] NSWSC 295 ("Bogle"), as follows: 1. It was noted that, in that case, an offer was made prior to the commencement of proceedings (see at [17] and [18]): [17] On 30 November 2011, an informal settlement conference took place. As I have indicated above, that was also the date of the letter of the defendant that offered $500,000 plus costs and is the centrepiece of the dispute. [18] On 15 December 2011, the plaintiff filed a statement of claim. 1. It was submitted that Bogle "is authority for the proposition that when offers are made prior to the commencement of litigation the Court may consider that offer in determining whether indemnity costs ought to be awarded to a party". 2. In Bogle, his Honour accepted the two-step approach to the determination of costs at [51], as set out in Miwa at [8], which formulation was applied with approval by Bathurst CJ (with whom Allsop P and Beazley JA agreed) in Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 at [10] as follows: [10] The principles on which indemnity costs will be ordered as a consequence of non-acceptance of a Calderbank offer have been considered on many occasions by this Court. The authorities were summarised in the judgment of Basten JA in Miwa Pty Limited v Siantan Properties Pte Ltd (No 2) supra. His Honour stated (at [8]) that the approach frequently adopted is to ask two questions: (a) Whether there was a genuine offer of compromise. (b) Whether it was unreasonable for the offeree to accept it. 1. During oral submissions, it was contended, in light of the approach of Button J in Bogle, it was incorrect to conclude that in the circumstances of an offer made prior to the commencement of proceedings that Hazeldene's Chicken Farm does not apply. Further, in the event the Court was minded to find Boulos LCM proceeded upon an incorrect legal basis, it was submitted that this Court ought to "re-exercise the discretion, consider the offer which was made and make a determination as to whether [the plaintiff] ought to be entitled to indemnity costs for the entire proceedings". 2. The plaintiff accepted that she had not raised Bogle in the proceedings below. In that respect, she made the following submission: [O]ne of the difficulties in this case [in the Court below] was that written submissions were put on and whether a Calderbank offer made prior to the commencement of proceedings could be a valid offer or not was not a question that I did address or consider would be particularly in issue. So it wasn't a case where the parties were before her Honour and her Honour asked the question, Is there any authority for the proposition that an offer prior to proceedings can be a valid offer resulting in indemnity costs 1. It was confirmed that whether there was a valid offer prior to the commencement of proceedings was not a matter which was addressed by either party in the Court below. 2. Second, in light of the principles set out in Miwa (at [8]), it was contended that the March 2014 offer was a genuine offer of compromise and it was unreasonable for the defendant not to accept it. The following submissions were advanced as to the satisfaction of the two-limb test in Miwa: 1. As to the first limb, it was submitted that the Court should primarily look at what offer was made compared to what was the ultimate result. The March 2014 offer was made to resolve the dispute on the basis that the plaintiff pay the defendant $11,000 (inclusive of GST) (which, it was noted, was "quite close" in value to the original agreed sum of $14,515 per the "unconditional agreement"). There was a requirement that all potential parties to the dispute execute a Deed of Release. Given the ultimate proceedings were dismissed the settlement offered, it was contended, by the March 2014 offer was a genuine compromise. 2. As to the second limb, the first letter clearly detailed the reasons why the defendant's claim would likely fail. Those reasons were as follows: a) Ms Morgan failed to disclose the periods that she was not employed by any law firm and was unable to practice in her own right; b) Ms Morgan had been made bankrupt during the period which she had charged Ms Ackerman for providing services; c) Ms Morgan failed to disclose to Ms Ackerman that the file had been transferred to Casula & Kelso; d) Ms Ackerman had never given instructions to Casula & Kelso to act on her behalf and she did not enter into a costs agreement with that firm; e) the costs for the period 11 October 2010 to 19 July 2012 were arguably unrecoverable; and f) Ms Morgan represented that Morgan Lawyers was incorporated into Mark Gallego Lawyers. 1. The closeness of the March 2014 offer to that the original agreed sum (per the unconditional agreement), it was submitted, is also relevant to whether it was unreasonable for the defendant to not accept the offer. 1. Thus, in the circumstances, it was unreasonable for the defendant to have rejected the March 2014 offer and, it was submitted, an order ought to be made that the defendant pay the plaintiff's costs of the Court below on an indemnity basis. 2. The plaintiff also addressed two further issues in this respect. First, the March 2014 offer was only open for a period of 11 days, and, secondly, the first letter did not foreshadow an application for indemnity costs. In answer to those questions, the plaintiff noted the March 2014 offer was made "without prejudice, save as to costs". Further, it was submitted, that the defendant, as a solicitor, "would be aware that in circumstances where offers are made, that if they are not accepted or if they are unreasonably rejected, it could ultimately result in an order for indemnity costs". The plaintiff submitted that the resolution of such issues, however, remained at the discretion of the Court. 3. The defendant advanced the following submissions in that respect: 1. The March 2014 offer was neither a formal offer of compromise, nor did it refer to the principles set out in Calderbank v Calderbank. It was merely an informal letter of offer. 2. Reliance was placed on the timing of the March 2014 offer, which, it was submitted, was sent "well before the Statement of Claim in the Local Court was filed, which was not until 27 July 2016" and the fact the offer "was only open for a period of 11 days". It was submitted: Given the costs consequences sought by Ms Ackerman in reliance of this letter, 11 days does not appear to be a reasonable time for which to consider the offer. The stage of the proceeding at which the offer was received and the time allowed to the offeree is one of the factors to be applied in determining whether to award indemnity costs: Miwa Pty Ltd v Siantan Properties Re Ltd (No 2) [2011] NSWCA 344 (Miwa) at [12]. 1. Boulos LCM was correct to find that an offer made several years prior to the commencement of legal proceedings could not support an award of indemnity costs for the entire proceedings. Reference, in this respect, was made to the legal principles cited by Slattery J in Meldov Pty Ltd v Bank of Queensland (No 2) [2015] NSWSC 740 at [6]: [6] The principles of law applicable to the exercise of the Court's discretion on this issue are well known. The Bank as offeror bears the onus of showing Meldov's failure to accept the offer was unreasonable and that the Court should exercise its discretion to award costs other than on the standard basis:Sural SpA v Downer EDI Rail Pty Ltd [2007] NSWSC 1292. There is no presumption in favour of the ordering of costs on the indemnity basis arising from the bare facts that a Calderbank offer was made and rejected, before the offeror achieved a prima facie better result than what was offered: Jones v Bradley (No 2) [2003] NSWCA 258 at [5]–[8]. The alleged unreasonableness of the offeree not taking up the offeror's offer is to be assessed by reference to the situation at the time the offer was made having close regard to the terms of offer and without resort to the benefit of hindsight: Crump v Equine Nutrition Systems Pty Ltd t/a Horsepower (No 2) [2007] NSWSC 25 at [41]. 1. It was also contended: "[i]t is clear from the authorities that Calderbank offers do not have the same effect as an offer of compromise in creating a presumption in favour of the offeror as to indemnity costs even where the party making the offer receives a result more favourable than that offered". That submission was supported with reference to Jones v Bradley (No 2) [2003] NSWCA 258 [7]-[9] and Miwa at [8]. 2. Turning to the second consideration in Miwa, given that the March 2014 offer was made at a time before proceedings had been commenced and it was open only for a limited period, it was not unreasonable for the defendant to have refused the offer. 3. The defendant contended it is not appropriate that the defendant pay the costs of the Court below on an indemnity basis following the March 2014 offer and submitted that it is clear that no costs presumption flows from the making of that offer. 1. During oral submissions, the defendant further submitted: 1. It should be noted that Boulos LCM's decision was ex tempore and made against the background of a busy Local Court list. It was submitted that "Local Court judgments should not be gone over with a fine tooth comb". 2. Her Honour's decision was not "plainly wrong" within the meaning of House v King. That submission was supported with reference to the following circumstances of the March 2014 offer: 1. the offer did not foreshadow that it would be used for any special costs or indemnity costs order; and 2. it did not refer to the principles of Calderbank offers (usually such an indication is essential, it was submitted, in relying on a Calderbank offer) 1. Further, in any event, a finding that the defendant should have accepted this offer would rely upon an unacceptable degree of hindsight. Grounds 2, 4 and 6 – the May 2017 offer 1. Grounds 2, 4 and 6 relate to the May 2017 offer and are extracted below: 2. Her Honour erred in finding that the Plaintiff's (Defendant in the Court below) Offer of Compromise dated 22 May 2017 did not involve a genuine compromise. 4. Her Honour erred in failing to award the Plaintiff (Defendant in the Court below) costs on an indemnity basis from 23 May 2017. 6. Her Honour erred in failing to apply the Uniform Civil Procedure Rules 2005 and the principles applicable to Offers of Compromise when determining the Plaintiff's (Defendant in the Court below) application for indemnity costs following an Offer of Compromise made on 22 May 2017. 1. As the plaintiff obtained a judgment on the claim, in the Court below, which was no less favourable to the plaintiff than the terms of the May 2017 offer, the plaintiff submitted that r 42.15A of the UCPR was engaged. This, it was submitted, provided for an entitlement – "unless the court orders otherwise" – to costs on an indemnity basis (see r 42.15A(2)(b)). 2. Boulos LCM erred in her approach to the question of indemnity costs arising out of the May 2017 offer by treating it as a Calderbank offer. That was erroneous. The second letter provided a proviso that, in the event the May 2017 offer was not found not compliant with r 20.26 of the UCPR, that the offer would be relied upon as a "Calderbank offer". 3. The plaintiff submitted, in this respect, that Boulos LCM conflated the principles with respect to offers or compromise and Calderbank offers. Whilst it is correct, that in circumstances in a Calderbank offer the person who made the offer bears the onus of proof that indemnity costs ought to be awarded, the application before Boulos LCM was in respect of an offer of compromise made in accordance with r 20.26 of the UCPR. This erroneously led to Boulos LCM determining that the onus to establish a case for indemnity costs rested with the plaintiff. Her Honour did not make reference to the presumptive entitlement in r 42.15A. 4. In the circumstances of the May 2017 offer, an offer of compromise, the plaintiff contended that the defendant bore the onus to demonstrate why the Court should depart from the consequence of the rejection of the offer. The contention was supported with reference to the following authorities: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 at [35] and Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 ("Leach") at [45]. 5. The defendant failed to meet that onus. The plaintiff submitted: Ms Morgan did not provide any evidence or submissions in respect of costs. It ought to follow that she failed to demonstrate why the Court should depart from the presumption that she pay Ms Ackerman's costs to be assessed on the ordinary basis up to the date the offer was made and then on an indemnity basis thereafter. 1. The conflation of principles concerning offers of compromise and Calderbank offers, was further exhibited by Boulos LCM's reference to Perisher Blue and Hazeldene's Chicken Farm. Those authorities were relevant to Calderbank offers and not offers of compromise made in accordance with the UCPR. 2. The plaintiff also contended that Boulos LCM erred in finding that the plaintiff was required to offer a monetary sum. That finding, it was submitted, was inferred from her Honour's observation prior to her ruling (see extracted below), which suggested that in order for the plaintiff to make an offer with a sufficient element of compromise the plaintiff was required "nominate [a] nominal figure or amount". 3. In light of that submission advanced by the plaintiff, it is useful to extract her Honour's ruling, together with the preceding observations, in that respect: The defendant submits that the offers made at the time when the issues were properly defined, the pleadings had been closed, that the plaintiff knew or ought to have known the deficiencies of her claim and that the offer was a real and genuine offer. I do note however that the offer of compromise does not nominate any nominal figure or amount. THE AUTHORITIES HAVE MADE IT CLEAR AND HAVE ESTABLISHED THAT THERE HAS BE A SUFFICIENT ELEMENT OF COMPROMISE AND IN THIS MATTER I AM NOT SATISFIED THERE IS A SUFFICIENT ELEMENT OF COMPROMISE AND ACCORDINGLY I DECLINE TO EXERCISE MY DISCRETION [IN THAT RESPECT]. [Emphasis added.] 1. The plaintiff's contention, in that respect, was supported with reference to r 20.26(3) of the UCPR, which concerns offers of compromise and provides: (3) An offer under this rule may propose: (a) a judgment in favour of the defendant: (i) with no order as to costs 1. Under that rule, it was submitted, there is no requirement that an offer of compromise include a monetary sum. 2. Notwithstanding the absence of a "nominal figure or amount", it was submitted that there was a sufficient element of compromise and that the May 2017 offer was a genuine compromise. Reference in this respect was made to the defence filed on 21 November 2016, which was six pages long, such a document supports the inference, it was contended, that "there had been no insubstantial costs incurred by [the plaintiff] [at that stage] and by agreeing with an offer that judgment for the defendant [in the court below], each pay their own costs, your Honour would be satisfied there is a genuine compromise". 3. As to the authorities referred to by Boulos LCM (which were not referred to by the parties in the proceedings below), namely, Byrne and UXC Ltd, the plaintiff contended "both of those authorities are not directly on point because this is a circumstance where a defendant [in the Court below] has offered to forgo costs rather than interest, as these two cases appeared to be related in respect of". 4. It was put to the plaintiff, whether Boulos LCM's finding vis-à-vis an absence of a sufficient element of compromise, was a matter of principle law or evidence. The plaintiff answered as follows: RAFTERY: In my submission, it has to be read with the earlier paragraph where her Honour says does not nominate any nominal figure or amount, and that is important because her Honour doesn't say, for instance, an offer of compromise was made after the filing of the defence and I find that the costs incurred by Ms Ackerman in those circumstances or the costs which she is willing to forgo in those circumstances to not be a sufficient element of compromise. Her Honour goes straight from HIS HONOUR: That's precisely what I'm raising with you as to the effect of that capitalised section of the judgment. RAFTERY: No, because in my submission, her Honour didn't go that far. Her Honour says that there hasn't been a sufficient element of compromise. That has to be read, in my submission, with the earlier line where she notes there has been no nominal figure or amount. HIS HONOUR: It might mean no more than that. I am not sure what the sum of costs is that is going to be foregone and therefore I don't form the view that it's a sufficiency of compromise. RAFTERY: If her Honour had said that, then my position would fall back to whether House v King, whether she erred in her exercise of the discretion. 1. In light of those errors, the plaintiff submitted, the order made by the Court below ought to be set aside and this Court ought to re-exercise the discretion as to costs. 2. The defendant advanced the following submissions, in that respect: 1. The defendant accepted that the May 2017 offer was served on 22 May 2017 and that it was an offer of compromise that complied with the UCPR. However, it was contended that "[t]he mere fact that an offer of compromise complying with r 20.26 was made and rejected is not sufficient to attract an indemnity costs order". The offer must involve a genuine offer of compromise and not be made to merely trigger costs consequences under the rules: Leach at [41]. 2. Whilst the defendant noted that "there is presumptive entitlement to indemnity costs if a judgment were obtained no less favourable to the terms of an offer made in compliance with the Uniform Civil Procedure Rules r 20.26", it was submitted that "both an offer of compromise under the rules and an informal offer must involve "a real and genuine element of compromise": Miwa at [9]. 3. The question of whether there is a real element of compromise is determined objectively and according to the circumstances of the particular case at the time that the offer was made, and is not to be assessed with hindsight: Leach at [42]. 4. If the May 2017 offer were to be treated as an informal Calderbank offer, then the burden of persuading the Court to make an order for costs other than on the ordinary basis, it was submitted, lies with the offeror: Miwa at [16], following Black v Lipovac [1998] FCA 699 at [217] (per Miles, Heerey and Madgwick JJ). 5. The defendant did not bear the onus to demonstrate why the Court should depart from the consequence of the rejection of the offer, as Boulos LCM found that there was not a genuine element of compromise in the offer of compromise. Hence, it was submitted, the May 2017 offer did not attract the presumption under r 42.15A of the UCPR. The defendant only bore the onus, it was submitted, of displacing the presumption if the offer of compromise, being the May 2017 offer, "contained a genuine element of compromise". Boulos LCM found that the offer was not a genuine compromise. 6. Whilst it is true that r 20.26 of the UCPR provides that an offer of compromise may propose a judgment in favour of the defendant with no order as to costs and there is no requirement for a nominal figure to be offered by a defendant, the defendant contended that "making an offer on the terms that each party "walk away" from the litigation may not be a sufficient compromise to trigger the indemnity costs mechanism: Leach at [52]. 7. The finding of Boulos LCM with respect to the May 2017 offer was open to the magistrate taking into consideration the circumstances at the time that the May 2017 offer was made and the terms of that offer. 1. During oral submissions, the defendant accepted that there appeared to be, in the decision below, "some confusion whether the offer is relied on as an offer of compromise or as a Calderbank offer". Notwithstanding that confusion, it was submitted that it did not follow that Boulos LCM erred in the exercise of the discretion. The defendant submitted: She certainly was alive to the issue whether or not there was an element of compromise and that's certainly a consideration for her Honour. Both under the rules and an informal offer, they must have a genuine element of real compromise. That's independent of where the onus lies; whether justification where a special costs order lies and this certainly was a relevant factor for her Honour to consider. 1. The defendant also accepted that Boulos LCM's approach as to the question of onus appears to be incorrect: "It appears she confused whether what was being relied on for a Calderbank offer or the principles under the rules". However, despite this confusion, the defendant submitted that both types of offer required the Court to consider the genuineness of the kind of offer involved. 2. Further, and in any event, the defendant submitted that even if Boulos LCM was wrong about the issue of onus, the ultimate disposition of the matter was right. It was also noted that there was no material put before her Honour as to the quantum of costs incurred by the defendant below and that her Honour did not have anything to judge the value of the offer being put before her. It was submitted, therefore, leave should be refused. 3. The defendant contended that, at its highest, it was an offer for capitulation. In the circumstances, it was submitted, it was certainly open for Boulos LCM to find there was no sufficient element of compromise. 4. In the result, the defendant proposed the following orders: 1. Leave be refused. 2. Appeal dismissed. 3. The plaintiff pay the defendant's costs of the appeal. 1. In reply to the contentions raised by the defendant, in that respect, the plaintiff submitted: 1. As to the absence of a specific quantum of costs incurred at the time of the May 2017 offer, which followed the filing of the defence, the plaintiff pressed its submission, without cavilling with that fact, the Court can infer from reviewing the defence that there were not insubstantial costs incurred at that date. 2. As to the contention that the offer was one of capitulation and may not be a genuine compromise, "on my review of the authorities, that is primarily in respect of circumstances where offers of compromise are made primarily in appeals where offers are made prior to the respondent serving or filing their submissions". Reference was made to the Court of Appeal decision in Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3. In that matter, an offer was made by the respondent prior to the filing of submissions and in those circumstances the Court held that there was not a genuine element of compromise because it was unlikely that they would have incurred any costs at that time. CONSIDERATION The March 2014 offer – grounds 1, 3 and 5 1. Whilst the amended grounds of appeal do not precisely correspond to the development of the plaintiff's case on this appeal, the grounds of appeal which relate to the March 2014 offer may be distilled into two contentions: 1. Boulos LCM erred in determining that an offer made substantially before the commencement of proceedings did not provide a basis for an order of indemnity costs for the entire proceedings based upon that offer. 2. Boulos LCM erred in finding that Hazeldene's Chicken Farm was "not on point and... irrelevant" and that the March 2014 offer did not involve a genuine compromise. 1. Both contentions misunderstand the decision below: 1. As to the first contention, Boulos LCM held that she had not been "referred" to any authority that would authorise such an order. Her Honour did not make a finding that no such authority existed. Further, the authority of Bogle, put before the Court as presently constituted with respect to the issues, was not before Boulos LCM. Thus, the relevant authority was not given to Boulos LCM. 2. As to the second contention, Boulos LCM held that Hazeldene's Chicken Farm was "not on point and... irrelevant" as to the issue of the court's authority to "authorise" such an order. It was in the absence of being referred to such authority that her Honour declined to make the indemnity costs order sought by the plaintiff. Following that determination, a finding was not required to be made as whether the March 2014 offer included a genuine compromise or as to the reasonableness of the plaintiff's rejection of the March 2014 offer. 1. For completeness, if I had been required to apply the test from Miwa, I would find no proper basis to award indemnity costs based upon the unreasonableness of the March 2014 offer. I accept the submissions advanced by the defendant, in this respect. First, the offer did not identify itself as a Calderbank offer or foreshadow an application for indemnity costs (save for noting the offer was made "without prejudice save as to costs"). Secondly, the offer was made two years before proceedings had commenced and was open for a very limited time, namely, 11 days. I do not consider the fact it was sent to the defendant's lawyer cures those deficiencies. 2. Further, it follows, there is no utility in granting leave, in that respect, to bring the appeal. In the result, I refuse leave with respect to grounds 1, 3 and 5. The May 2017 offer – grounds 2, 4 and 6 1. Turning to the remaining grounds, whilst the amened grounds of appeal do not precisely conform to the errors for which the plaintiff contended, there was no issue raised in that respect by the defendant. 2. In short summary, the plaintiff contended that Boulos LCM erred in her decision with respect to the May 2017 offer as follows: 1. Her Honour erroneously treated the May 2017 offer as a Calderbank offer. The offer was an offer of compromise for the purposes of r 20.26 of the UCPR. 2. Her Honour failed to apply r 42.15A of the UCPR. The May 2017 offer was made in accordance with r 20.26 and, following the defendant's rejection of the May 2017 offer, the plaintiff obtained a judgment in the Court below that was in no less favourable terms than the May 2017 offer. Hence, presumptively an order for indemnity costs may be made: r 42.15A of the UCPR. 3. By virtue of the failures in (1) and (2) above, her Honour erroneously found that the onus fell on the plaintiff to establish a basis for an award of indemnity costs. 1. There was little contest, with good reason, as to those propositions. 2. It is plain that her Honour approached the application for costs with respect to the May 2017 offer as if considering a Calderbank offer. Whilst the letter annexing the offer referred to an alternative proposition – namely, that in the event the May 2017 offer was not found to be compliant with r 20.26 of the UCPR, the offer would be relied upon as a "Calderbank offer" – the primary or, in the circumstances, operative component of the offer was that of an offer of compromise. 3. As discussed in Vagg v McPhee (No 2) at [18] (per Schmidt J), the rules in relation to offers of compromise operate differently to the principles which apply to Calderbank offers. In the case of a Calderbank offer an onus falls on the offeror to convince the Court that it should exercise its discretion in the offeror's favour, the offeree having acted unreasonably in rejecting the offer (see Jones v Bradley (No 2) [2003] NSWCA 258 and Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] (per Giles, Ipp and Tobias JJA)). The offeror must also show that the offer was a genuine compromise (see Leichhardt Municipal Council v Green [2004] NSWCA 341 at [21]-[24], [36] (per Santow JA, with Stein JA agreeing) and Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4]-[5] (per Handley, Beazley and Basten JJA)). In considering a Calderbank offer, the Court strives to achieve fairness in the result (see the discussion in Commonwealth v Gretton [2000] NSWCA 118). 4. The May 2017 offer was an offer of compromise and was an offer made in accordance with UCPR r 20.26. It was rejected by the defendant. The judgment in the Court below was in no less favourable terms than the May 2017 offer, as the defendant was ultimately unsuccessful in her claim and costs were awarded in favour of the plaintiff. The May 2017 offer proposed "judgment for the defendant (in the court below) with no order as to costs". It follows there was a presumptive entitlement to indemnity costs: Miwa at [6]. 5. Putting aside particular issues going to leave, the central contest, in this respect, was whether the offer contained a real and genuine element of compromise. I accept the submission of the defendant that this issue must be determined objectively at the time that the offer was made, and is not to be assessed with hindsight: Leach at [42]. 6. However, I do not accept that any contention as to that matter advanced by the defendant shifted the onus under UCPR r 42.15A to the plaintiff. There remained an onus upon the defendant at all times to rebut the presumption operating under the rule insofar as the rule applied (as it did). The plaintiff is entitled to an order in accordance with the rule, unless the defendant establishes that the Court should order otherwise: Vagg v McPhee (No 2) at [16]-[23] (per Schmidt J). 7. The exercise of that discretion in favour of the defendant, required that she establish that "exceptional circumstances" exist, as discussed in South Eastern Sydney Area Health Service v King [2006] NSWCA 2 per Hunt AJA (with Mason P and McColl JA agreeing) (at [83]-[84]): [83] Part 52 rule 22 provides that, where a plaintiff who has made an offer of compromise in accordance with Part 22 (Division I) which is not accepted by the defendant, and where the plaintiff obtains a judgment no less favourable than the terms of the offer, then, unless the Court otherwise orders, the plaintiff will be entitled to an order against the defendant for costs on an indemnity basis in relation to his costs incurred from the day after the offer was made. The onus is on the defendant to persuade the Court that indemnity costs should not be ordered. He must demonstrate the basis on which an order should be made denying the plaintiff's entitlement to indemnity costs. He must establish that he had given serious thought to the risk involved in non-acceptance of the offer, and that he had assessed the plaintiff's case properly and in the context of the rule and the achievement of its purpose - to encourage the proper compromise of litigation, in the private interests of the litigants and in the public interest of the prompt and economical disposal of litigation. Generally, exceptional circumstances are required to justify such an order denying the plaintiff's entitlement. See, generally, Fowdl v Fowdl , Court of Appeal, 4 November 1993, unreported, per Kirby P at 12, 16; Hillier v Sheather (1995) 36 NSWLR 414 at 422-423; Morgan v Johnson (1998) 44 NSWLR 578 at 581-582. [84] Although the Court may take into account the particular features of a case and the difficulty of putting an accurate estimate on its value in advance of the litigation, those considerations do not provide a basis by themselves for denying the party making the offer an order for indemnity costs: Hillier v Sheather (at 423). In Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 725, it was said that a miscalculation in a case with large imponderables, where the course taken by the party to whom the offer was made may have been perfectly reasonable, would provide a basis for denying an order, but the subsequent decision inHillier v Sheather suggests that, whilst "large" imponderables may be a relevant factor in the particular case in denying an order for indemnity costs, in the general case a party's reasonable belief as to his own chances of success does not alone provide a basis for denying an order for indemnity costs." 1. The defendant did not seek to establish exceptional circumstances, but relied upon the absence of genuine compromise and contended that the offer was one of capitulation. Even aside from the factor establishing exceptional circumstances, I do not accept that characterisation of the offer, as one of complete capitulation, because clearly there were not insignificant costs incurred by the plaintiff at the time of the May 2017 offer. The May 2017 offer was made after the pleadings had closed, at which time the defendant knew or ought to have known the problems with her claim; particularly given those issues were also articulated in the six page defence filed by the plaintiff on 21 November 2016 as well as repeated in the second letter annexing the May 2017 offer. Both of those documents raised real and significant difficulties with the defendant's case in the Court below and warrant a conclusion that the offer was of genuine compromise. 2. Further, as to the absence of a specific quantum of costs incurred at the time of the May 2017 offer, which followed the filing of the defence, the plaintiff submitted that the Court can infer from reviewing the defence that there were not insubstantial costs incurred at that date. I accept that submission. 3. It follows that the judgment below was possessed of errors of law and principle. Further, there was no proper basis to conclude the offer did not contain a sufficient element of compromise (using the words from her Honour's ruling) or a genuine element of compromise. 4. Rule 20.26(3) of the UCPR provides that an offer may propose a judgment in favour of the defendant with no order as to costs. There is no requirement that a nominal figure or amount be offered by a defendant. 5. Those conclusions and the discussion of principles in them warrant the grant of leave in the interest of justice. The legal errors, in this respect, were substantial and ultimately led to a misunderstanding by Boulos LCM, by which the form of offer was mischaracterised and an award of indemnity costs was not made, in circumstances in which the offeree had not established exceptional circumstances (or for that matter any circumstances) that warranted a departure from r 42.15A. Leave should be granted to correct those errors in the interest of justice. 6. In the result, I uphold grounds 2, 4 and 6 of the appeal. 7. The plaintiff submitted that, in the event the appeal should be upheld, this Court should re-exercise the discretion and consider the merits of the case, namely, consider the May 2017 offer which was made and rejected, and make a determination as to whether the plaintiff ought to be entitled to indemnity costs for the proceedings from 23 May 2017. 8. By s 41 of the Local Court Act, the Court may determine an appeal made under s 40 by: (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal. 1. The Court should, in my view, correct the error of law in the judgment below by varying the terms of the judgment. CONCLUSION 1. I have determined to refuse leave to appeal with respect to grounds 1, 3 and 5. Leave to appeal is granted with respect to grounds 2, 4 and 6. The appeal is upheld with respect to grounds 2, 4 and 6. 2. The Court will make orders as to costs on an indemnity basis having regard to the offer of compromise of 22 May 2017. In other words, the alternative relief on the appeal is granted. 3. Whilst the plaintiff has not been successful on all grounds or upon the primary orders sought, the appeal has substantially been resolved in favour of the plaintiff. This would suggest a costs order should be made in favour of the plaintiff for the appeal, but I will provide the parties an opportunity to be heard as to that question. ORDERS 1. The Court makes the following orders and directions: 1. Leave to appeal refused with respect to grounds 1, 3 and 5. 2. Leave to appeal granted with respect to grounds 2, 4 and 6. 3. Appeal upheld with respect to grounds 2, 4 and 6. 4. Order number 2 of the court below be set aside. 5. The defendant to pay the costs of the plaintiff (defendant in the Court below) on: 1. an ordinary basis up to 22 May 2017; and 2. an indemnity basis from 23 May 2017. 1. Costs reserved as to the costs of the appeal. 2. The plaintiff is to file and serve written submissions, together with any evidence, with respect to costs within 14 days of the publication of this judgment. 3. The defendant is to file and serve written submissions in reply, together with any evidence, with respect to costs within 14 days of the receipt of the plaintiff's submissions. 4. Any application for oral hearing should be included within the written submissions provided in accordance with (7) and (8) above. 5. If costs of the appeal are settled then the plaintiff should bring in short minutes of order reflecting the same, which shall be dealt with administratively 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: 15 October 2019