Dunphy v Russell (No 2)

SACKVILLE AJA: In a judgment in this matter delivered on 24 May 2018 I made the following orders: [1]

The Plaintiff has filed written submissions seeking orders that the Defendant pay the Plaintiff’s costs of the proceedings:

Section 98 of the Civil Procedure Act 2005 (NSW) provided that subject to the rules, the Civil Procedure Act or any other Act:

Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1 states the general rule that the court is to order that the costs follow the event unless it appears to the court that some other order should be made. UCPR r 20.26(1) provides that a party may make an offer to another party to compromise a claim in the proceedings. The requirements for an offer under the rule are specified in r 20.26(2). UCPR r 20.26(2)(c) states that an offer under the rule must not include an amount for costs and must not be expressed to be inclusive of costs. Rule 20.26(2)(c) is subject to certain exceptions specified in r 20.26(3), none of which is presently relevant.

UCPR r 42.13 provides that Part 42 Div 3 (including rr 42.13A and 42.14) applies to proceedings in respect of which an offer of compromise is made under r 20.26 with respect to a plaintiff’s claim.

UCPR r 42.13A provides as follows:

UCPR r 42.14 applies if an offer made by the plaintiff is not accepted by the defendant and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer: r 42.14(1). In such cases, unless the Court orders otherwise, the Plaintiff is entitled to an order for indemnity costs as from the day following the date of the offer: r 42.14(2).

The Plaintiff relies on two offers, neither of which was accepted. The first was a “Calderbank” offer on 20 October 2017 (the Calderbank Offer). The Calderbank Offer valued the Plaintiff’s interest in the Property at $379,000 and included the following offer to compromise the proceedings:

The second offer was made on 26 March 2018 in an offer of compromise pursuant to UCPR r 20.26(1) (the Offer of Compromise). By this stage the Property had been sold and the sum of $379,000 was held in a controlled moneys account. [2] The Offer of Compromise was as follows:

The Plaintiff submits that the Calderbank Offer was a genuine offer of compromise and that it was unreasonable for the Defendant not to accept the offer. [3] Alternatively the Plaintiff submits that the Offer of Compromise under UCPR r 20.26(1) involved a real element of compromise in that the sum offered was less than that awarded and acceptance would have saved the parties the costs of preparation and of the hearing (which took place on 3 and 4 April 2018). The Plaintiff contends that the dispute was always a simple factual dispute and that the Defendant was aware of all the relevant facts, including her admission in the email of 6 February 2014 to Westpac that she owed the Plaintiff $225,000 for her share of the Property. [4]

The Defendant says that neither offer involved a genuine element of compromise. Rather, each was essentially an offer to capitulate. The Defendant also contends that the Calderbank Offer was made only nine days after proceedings were commenced, at a time when the Defendant was not fully apprised of the Plaintiff’s case. It was only after an expert retrieved material to recover documents from back-up tapes that the Plaintiff’s case became clearer.

I do not consider that the Calderbank Offer was a genuine offer of compromise. It offered only a discount of $9,000 on the Plaintiff’s claim to be entitled to an interest in the Property valued at $379,000. Although the offer also proposed to forego a potential claim to a modest amount of costs, it can be fairly described as an offer to capitulate at a time when much of the evidence ultimately adduced had not been made available to the Defendant. There is also force in the Defendant’s submission that the offer allowed insufficient time for her to consider whether it should be accepted. While this is not necessarily a basis of itself for rejecting the Plaintiff’s application based on the Calderbank Offer, [5] it is a factor to take into account in determining whether the Defendant’s failure to accept the offer was reasonable.

The Plaintiff submitted that the Defendant’s non-acceptance of the offer under UCPR r 20.26(1) and his success in the proceedings meant that he was entitled to an order for indemnity costs unless the Defendant could establish “exceptional circumstances”. The onus is on the Defendant to show why she should not pay indemnity costs in accordance with r 42.14(2)(b), but it is not necessary for her to demonstrate exceptional circumstances. As was said in Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2), [6] it is impossible to state exhaustively the circumstances in which the Court’s discretion to “order otherwise” might be exercised.

The Offer of Compromise was actually less favourable to the Defendant than the Calderbank Offer. Had the Offer of Compromise been accepted, the Defendant would have been liable under UCPR r 42.13A to pay the costs of the proceedings, assessed on the ordinary basis up to the time when the Offer of Compromise was made. Thus the only benefit to the Defendant in accepting the Offer of Compromise by 29 March 2018 would have been a reduction of $9,000 in the judgment sum awarded to the Plaintiff. Acceptance of the Offer of Compromise would have relieved the Defendant of the obligation to pay the costs incurred by the Plaintiff after the date of the offer if, as in fact has occurred, the Plaintiff succeeded in his claim. However, there was no evidence as to the costs that would have been avoided if the Offer of Compromise had been accepted. By 29 March 2018, preparations for the hearing were presumably well advanced and (so I infer) counsel had been briefed. For these reasons, I do not consider the Offer of Compromise to have been a genuine offer to compromise of the Plaintiff’s claim.

There are two other factors militating against the Plaintiff’s application for indemnity costs. First, the Plaintiff’s affidavit of 15 March 2018, filed just over two weeks before the hearing, contained a good deal of material that should have been revealed to the Defendant’s representatives earlier. As noted in the Principal Judgment, the affidavit also contained passages that created a false impression as to the means by which certain documents had been retrieved. [7] Secondly, as a consequence of the belated revelations by the Plaintiff as to the manner in which documents had been retrieved, the Defendant’s representatives were only able to inspect those documents during the trial itself.

It is true that the outcome of the case depended on an assessment of the reliability of the evidence given by the Plaintiff and the Defendant. It is also true that there was documentation available to the Defendant or that should have been known to her that was difficult to reconcile with her version of events. Had the difficulties confronting the Defendant been clearly laid out at the time the Offer of Compromise was made, the Plaintiff’s case for an indemnity costs order perhaps might have been stronger (although still facing obstacles). But this course was not adopted.

The Plaintiff’s application for indemnity costs fails. Each party should bear his or her own costs of the Plaintiff’s application.