Unreasonable Rejection of Offer Leads to Indemnity Costs Award

The claimant rejected a genuine offer of compromise, which was found to be unreasonable. As a result, the court ordered the claimant to pay the defendant's costs on an indemnity basis from the date of the offer.

Supreme Court New South Wales

Medium Neutral Citation: [NAME] v [NAME] [2022] NSWSC 598 Hearing dates: 6 April 2022 (last submissions as to costs 9 May 2022) Date of orders: 16 May 2022 Decision date: 16 May 2022 Jurisdiction: Equity - Real Property List Before: Black J Decision: The Plaintiff to pay the Defendant's costs on an indemnity basis from specified date. Catchwords: COSTS — Party/Party — Exceptions to general rule that costs follow the event — Offers of compromise/[NAME] offers – Whether unreasonable not to have accepted [NAME] offer Cases Cited: - [NAME] v [NAME] [1975] 3 All ER 333 - [COMPANY] v [NAME] (aka [NAME]) [2012] NSWSC 816 - [NAME] v [NAME] (No 2) [2008] NSWCA 242 - Re [COMPANY] atf [COMPANY] (in liq) [2016] NSWSC 575 Category: Costs Parties: [NAME] (Plaintiff/Cross-Defendant) [NAME] (First Defendant/Cross-Claimant) [COMPANY] (Second Defendant) Representation: Counsel: [redacted] [NAME]/[NAME] (First Defendant/Cross-Claimant)

Solicitors: [redacted] [NAME] (First Defendant/Cross-Claimant) File Number(s): 2020/310749

Judgment

Nature of the application and background 1. By my judgment delivered on 12 April 2022 ([2022] NSWSC 431), I dismissed a claim brought by the Plaintiff, [NAME], seeking a declaration that the First Defendant, [NAME], was not entitled to terminate the contract for the sale of a property situated at Point Piper and associated orders, and held that [NAME] succeeded in his Cross-Claim for payment of the unpaid balance of the deposit and interest. I noted that, in those circumstances, it would follow that [NAME] must pay the costs of the proceedings as agreed or as assessed. At the parties' request, I made subsequent orders which provided, inter alia, an opportunity for written submissions as to costs, with the question of costs to be determined on the papers.

2. By his submissions made on 28 April 2022, [NAME] seeks an order that [NAME] pay his costs of the proceedings, as agreed or as assessed on the ordinary basis up to and including 19 March 2021 or alternatively 29 July 2021, and thereafter on an indemnity basis. [NAME] relies on settlement offers made by him on 19 March 2021 and 29 July 2021, each of which was expressed to be made in accordance with the principles in [NAME] v [NAME] [1975] 3 All ER 333 ("[NAME]").

3. By the first offer dated 19 March 2021, [NAME] contended (as I have found) that [NAME]'s termination of the contract was invalid, and offered to resolve the proceedings on the basis that [NAME] receive $318,750, representing half of the deposit already paid, and the parties' respective claims otherwise be dismissed with no order as to costs. [NAME]'s solicitor drew attention to the basis on which [NAME] ultimately succeeded, observing that: "Hence, even if the Contract was not effectively terminated by [[NAME]'s] notice of termination dated 24 August 2020, it was brought to an end on 5 November 2020 when [[NAME]] served a notice of termination for [[NAME]'s] failure to comply with the notice to complete dated 15 October 2020. That being so, your client's claims in the [Amended Statement of Claim] would likely fail and our client will be held entitled on the cross-claim which he brings to retain the 5% deposit already paid and to recover from your client the further unpaid deposit of 5%, together with any loss of bargain damages."

1. This offer was substantially more favourable to [NAME] than the result that she achieved in the proceedings. She did not respond to that offer. 2. [NAME]'s second offer made on 29 July 2021 also relied on the second termination of the contract by [NAME], as sustained in my judgment. [NAME], with whom [NAME] appears for [NAME], submits that, at the time that offer was made, the pleadings had closed and the issues in dispute were clear. [NAME] also points out that the case did not depend on contested evidence of the parties and none of the witnesses were cross-examined, so the evidence that would be relevant to an assessment of its prospects was available from the documents and, to a lesser extent, the parties' affidavits.

3. By her submissions in response dated 5 May 2022, [NAME] points to authority that, to raise the possibility of indemnity costs, a [NAME] offer must involve a genuine offer of compromise and its refusal must have been unreasonable. [NAME] fairly accepts that [NAME]'s offers involved a genuine compromise, but submits that her rejection of the offers was not unreasonable. She submits that [NAME]'s success in the proceedings was on issues "not raised" in the pleadings. I do not accept that submission, because the propositions that [NAME] had repudiated the contract, by terminating it in response to [NAME]'s failure to complete it, and that she was entitled to terminate the contract, were essential to her case. [NAME] failed to establish those matters, where I found that, although [NAME] had not validly terminated the contact on 24 August 2020, because he had not then delivered a land tax certificate, that termination was not a repudiation of the contract, and his subsequent delivery of a land tax certificate, issue of a notice to complete and termination of the contract then brought the contract to an end. [NAME] also submits that I found against [NAME] as to several matters; however, obviously enough, none of those matters were necessary to [NAME]'s success, and none of those findings brought [NAME] closer to success in the proceedings. [NAME] responded to these matters by submissions in reply, which I need not address any further to determine this application.

The applicable principles and determination 1. The principles in [NAME], to which [NAME]'s solicitor referred in his letters, were summarised by [NAME] (as the President then was) in [COMPANY] v [NAME] (aka [NAME]) [2012] NSWSC 816 at [9]–[15] and I summarised them in Re [COMPANY] atf [COMPANY] (in liq) [2016] NSWSC 575 at [8], as follows: "[T]he fact that a party ultimately achieves a worse result than he or she would have achieved if he or she had accepted a [NAME] offer does not itself establish that the other party should be awarded indemnity costs, unless it can be said that it was unreasonable for the first party not to accept that offer, so as to warrant a departure from the general rule as to costs: [COMPANY] v [NAME] (aka [NAME]) [above] at [9]–[15]; [COMPANY] v [NAME] (No 2) [2015] NSWCA 268 at [14], [16]. In [NAME] v [NAME]; Gunner v Lawrence [2015] NSWSC 1229 at [26], Stevenson J observed that: 'If a [NAME] offer is made, but not accepted, the court's discretion to make a special order is enlivened. The court's discretion is an open one, but is commonly enlivened if (a) the party that made the offer achieves a better result than the amount offered, (b) the offer was a genuine offer of compromise, and (c) it was unreasonable of the offeree not to accept: for example [COMPANY] v [COMPANY] (No 2) [2011] NSWCA 344 at [7]–[8].'"

1. I recognise that a [NAME] offer will not justify an indemnity costs order unless its rejection was unreasonable: [NAME] v [NAME] (No 2) [2008] NSWCA 242 at [20]. I am comfortably satisfied that it was unreasonable for [NAME] to reject the offer made by [NAME] on 19 March 2021, given the very favourable character of that offer to her, and the analysis of the legal issues which could then have been performed from the matters known to her. On that basis, the Court should award costs on an indemnity basis in [NAME]'s favour from that date.

2.

Accordingly, I order that [NAME] pay [NAME]'s costs of the proceedings, as agreed or as assessed, on the ordinary basis up to and including 19 March 2021 and thereafter on an indemnity basis.

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