The Owners Corporation Strata Plan No 74667; 74670 and 74662 v Auburn City Council

1. [1]

   Each of the three plaintiffs brought separate proceedings against the defendants in respect of what the plaintiffs claimed were negligent certifications of each of three buildings of which the plaintiffs are respectively the owners corporation. The matter was fixed for ten days to commence on 3 February. As at 1 February the plaintiffs had each, by their executive committees, accepted an offer of compromise made by the defendants, but the acceptance was expressed to be subject to the confirmation of the general meeting of the owners corporation each of which general meetings had been called for Thursday 5 February (the earliest time at which the meeting could be held). The general meeting of each owners corporation approved the settlement.

2. [2]

   On Friday 6 February the parties agreed that judgment could be entered in favour of the plaintiff in each of the three matters for the amount specified in the offers. There was however disagreement about the costs order. The parties sought, and I granted, a short time within which to put forward evidence in relation to the dispute over the costs consequences. It was agreed by all parties in all matters that a binding settlement had been reached by the acceptance of the offers of compromise. It is accepted by all parties that the offer was one made in accordance with the rules.

3. [3]

   The dispute between the parties can be expressed thus: the plaintiffs contend that they are entitled to costs up to the time that they communicated acceptance of the offers by the executive committees, ie 1 February 2015. The defendants contend that the plaintiffs are entitled to costs only up to the date of the offers of compromise, ie 22 January 2015.

4. [4]

   I have had the benefit of helpful written and oral submissions from Mr Miller SC with Ms Byrne for the plaintiffs, Mr White SC for the Council (the first defendant) and Mr Neal of counsel for the second defendant.

5. [5]

   Each of the offers contained the following (the terms below are taken from the offer made in matter 2012/365188):

6. [6]

   Reference has been made to rule 20.26, 20.27 and 42.13A of the Uniform Civil Procedure Rules 2005 which are in the following terms:

7. [7]

   The plaintiffs contend that the defendants in making an offer under the rules had open to them three options in relation to the topic of costs:

   1. (1)

      to offer to pay costs “as agreed or assessed up to the time the offer was made”

   2. (2)

      to make no reference to the costs in the offer of compromise with the consequence that by reason of the rule 42.13A the costs to be paid would be costs up to the time the offer was made (as agreed or assessed)

   3. (3)

      to offer to pay costs (as agreed or assessed) up to the time that the offer was accepted

8. [8]

   The plaintiffs claim that since the words used in the offer were not qualified the defendants should be taken to have adopted alternative (3).

9. [9]

   Mr Miller drew attention to the fact that changes were made to the rules relating to offers of compromise whereby the prohibition on reference to costs was removed from rule 20.26. The changes were made in June 2013. Attention was drawn to Whitney v Dream Developments Pty Ltd [2013] NSWCA 188, a decision on the rules prior to the amendments, and in which it was held, applying Old v McInnes and Hodgkinson [2011] NSWCA 410, that a reference to the costs outcome in an offer made it noncompliant with the rules, whereas with the changes effected that is no longer so.

10. [10]

    An important part of Mr Miller’s argument is the contention that 20.26(2)(a) permits an offer in relation to costs that is different to what is found in 2(b) and (3)(b) and (c) ((2)(b) and (3)(c) not being relevant in this case). The plaintiffs claim that the use of the word ‘may’ in rule 20.26(3)(b) indicates permission to use that wording but does not preclude some other offer concerning costs being made.

11. [11]

    The plaintiffs point out that rule 42.13A has no work to do because each of the offers did contain a provision for costs. The offer having dealt with costs and having been accepted each plaintiff can seek judgment in accordance with rule 20.27(3). Mr Miller also contended that the defendant’s argument involves reading into the rule something that is not there and hence infringes the approach to statutory construction required and explained by the High Court in Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross [2012] HCA 56, 87 ALJR 131.

12. [12]

    The defendants place emphasis on the following matters:

    1. (1)

       that the offer has been accepted by all to be an offer under rule 20.26.

    2. (2)

       the offer was expressed to be one made in accordance with rule 20.26 of the rules.

    3. (3)

       there is no reference in rule 20.26 or rule 42.13A to a requirement to pay costs up to the date of acceptance of the offer and no rule or case has been identified in which that time has been applied as the time to which costs are payable.

    4. (4)

       context is very important here- that is that it is not a matter of interpreting the words “defendants to pay the costs of the plaintiff as agreed or assessed” on a stand alone basis rather they must be interpreted in a context of an offer made in accordance with rule 26.

    5. (5)

       (26)(2)(a) is not dealing with costs orders at all- it is dealing with disposal of the substantive claim. Sub rule (3) in using “may” is permissive but indicative of the only offer that can be made in accordance with the rules, other than one under (2)(b).

    6. (6)

       the rules relating to offers which are not accepted permit indemnity cost orders from the time the offer was made not from the time that the offer was open to be accepted. See rule 42.15(2) and rule 42.15A, in the same wording that is used in (26)(3)(b).

13. [13]

    In relation to [12](3) Mr White did quite properly draw my attention to [25] of Whitney per Bathurst CJ and [74] per Emmett JA in which there is passing reference to costs being payable up to the date of acceptance. I do not read these references as laying down any principle of how the rules are to be read and Mr Miller does not rely on these passages to support his argument.

14. [14]

    I accept the defendant’s contentions. In my view for an offer to comply with the rules under rule 20.26 the offer to pay costs must be one in terms of 26(3)(b), that is to pay costs up to the time the offer was made. Since it is agreed that the offer made did comply with the rule the consequence is that the offer should be taken to be that the costs up to the date (or more precisely the time) of the offer would be paid. This is reinforced by the fact that the offer is stated to be intended to be in accordance with rule 20.26. I do not accept that sub rule 20.26(2) is dealing with, and hence permits, costs orders- that sub rule is dealing with the disposition of the substantive case. I do not accept the contention that ‘may’ in sub rule 20.26(3)(b) means that other costs options are open to be made. As Mr Neal pointed out there would be no need for sub rule (3) if rule 20.26(2) were to carry the meaning contended by the plaintiffs, ie that any offer can be made so long as it does not infringe (2)(c) and I read sub rule (3)(b) as implicitly proceeding on the basis that offers of compromise should not deal with costs unless one of the three specifically mentioned alternatives are adopted. If 3(a)(i) and (ii) or (c) are not applicable (and they are not) then 3(b) is the applicable costs offer if one is to be made. I do not think that such an interpretation infringes the approach mandated by the High Court. In the passage cited by Mr Miler there is recognition that the context of the words, and the purpose of the statute, inter alia, may even require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning.

15. [15]

    I think that there are some practical reasons why an offer need only be one to pay costs up to the date of the offer. The offer is made at a particular date when in theory the costs incurred are known or capable of being known. It is true that the recipient of the offer can choose to wait the entire period for which the offer is open (28 days if the offer is made early) before acceptance but there is no reason why the offer could not be accepted immediately if otherwise attractive. The recipient of the offer should be encouraged not to expend money on the case if the offer is otherwise attractive. Since the encouragement of settlement is the purpose of the rule (see [39] Whitney per Bathurst CJ with whom Beazley P, McColl JA, Barrett JA and Emmett JA agreed) the offeree should be encouraged not to expend money on the case from the date of the offer (if the offer is realistic and at least has reasonable prospects of acceptance), and the fact that costs will be paid only to the time of the offer assists that purpose.

16. [16]

    I accept that in the facts of this case the offers were made late in the piece and specified a relatively short amount of time for acceptance and I also accept that the plaintiffs, in the circumstances in which they found themselves ie having to call a meeting of the executive committee and then a general meeting of the owners corporation were not free to cease work in preparation of the case but the rules are intended to have wide application and the offers were not rejected on the basis that an unreasonably short time had been allowed (they were actually extended at the request of the owners corporation to allow time for the requisite meetings) and were in fact accepted. There is no reason why the plaintiffs may not have had in place, in advance of any offers, authority to accept such offers as those instructing the plaintiffs solicitors saw fit to accept. In saying this I am not intending any criticism of the plaintiffs for not having done so but only to make the point that it was not a ‘given’ in the context of the offer process that the plaintiffs could not accept the offers immediately.

17. [17]

    The defendant also put an alternate submission on construction as follows- that if the proposal does not comply fully with rule 20.26(3)(b) then the offer should be treated as one not dealing with costs and rule 42.13A(2) will apply to produce the result that the costs up to the time of the offer are to be paid. Once it is accepted that the offer was one made in accordance with the rules I think it is diffifcult to accept that it was ambiguous, since an offer that is ambiguous can reasonably be refused: see Lahoud v Lahoud [2011] NSWSC 1186 [21] per Campbell JA, and it was not refused here, however I do not need to address this point further in view of my earlier conclusion.

18. [18]

    In my view the offer made in all the circumstances must be taken to be one that the costs to the time of the offer would be paid, and not beyond.

19. [19]

    The plaintiffs contended that if I were to decide that the offer that was accepted was one to pay the costs to the time of the offer, then the Court has a discretion pursuant to s 98 of the Civil Procedure Act 2005. Reference was made to [25] of Whitney as a confirmation of the availability of s 98 in this context but Bathurst CJ was there referring to the provision of the previous rule 42.13A.

20. [20]

    S 98 of the Act provides:

21. [21]

    Whilst I accept that the Court does have an inherent power in relation to costs of wide scope, to impose a costs obligation on an offeror different to that which the offeree has accepted by a process of offers of compromise pursuant to rule 26 and the consequential rule 20.27 (or rule 42.13A if that were applicable), would be a surprising outcome and I think it would only be in exceptional circumstances that the Court would exercise that power (Mr Miller accepted that it would require exceptional circumstances see T24.15). It should be noted that the residual discretion of the Court to make a contrary order to that specified in the rules (old rule 42.13A(2)(b)) was removed in June 2013. Neither the fact that the offer was made at a late stage nor the fact that those instructing the plaintiffs solicitors needed to obtain approval of their executive committee and the general meetings of the owners corporation in my view constitute circumstances sufficient to warrant the overriding of the established procedure for offers of compromise. The offers had to be made allowing a reasonable period (see rule 20.26(5)(b)) and were, it must be inferred, by the extension of time sought and granted and acceptance of the offers, reasonable. As Mr White pointed out whilst it is true that the plaintiffs have incurred costs up to the date of acceptance because of the imminence of the trial date so did the defendants.

22. [22]

    In relation to the now repealed rule 42.13A(2)(b) there appear to have been few cases in which an alternative costs order has been made- one such case is McWilliam v Integral Energy Australia [2010] NSWSC 254 per Hoeben J in which the offeror complained that the offeree had incurred substantial costs in preparing unhelpful schedules. I can see that an offeror may have a legitimate case that he should not be burdened by unnecessary expenditure on the part of the offeree and I would not want to exclude the possibility that such a matter could be ventilated but it is not the offeror here who seeks the exercise of the Court’s discretion and no issue of this kind arises here.

Conclusion

1. [23]

   I conclude that the defendants are required to pay the plaintiffs costs up to the time of the offer on 22 January 2015 and not beyond that time.