85 Princess Pty Ltd v Fleming

I delivered judgment in these proceedings on 30 April 2025: see 85 Princess Pty Ltd v Fleming [2025] NSWSC 407. The substantive result was that the plaintiff (85 Princess) established that the defendant (Mr Fleming) was in breach of contract but that it was only entitled to nominal damages, which were assessed at $100.

These reasons concern the question of costs.

On 6 June 2024, the defendant served a notice of offer of compromise on the plaintiff, made pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW). This offer was for judgment against the defendant in the amount of $125,000, inclusive of interest but exclusive of costs. There is no dispute that the offer was a valid offer made pursuant to r 20.26. The plaintiff did not accept the offer.

UCPR r 42.15 provides:

Mr Fleming submitted that the ordinary consequence of this rule is that 85 Princess should pay his costs assessed on an indemnity basis from the day following the day on which the offer was made (7 June 2024). 85 Princess accepts that the rule applies and that there should be an order that it pay Mr Fleming’s costs on an indemnity basis from 7 June 2024.

The ordinary consequence of r 42.15 is that 85 Princess is entitled to an order for costs to be assessed on the ordinary basis up to 6 June 2024. That is what 85 Princess contends to be the appropriate order. Mr Fleming contends that the Court should ‘order otherwise’ by ordering that 85 Princess pay his costs on the ordinary basis up to 6 June 2024.

There is a suggestion in the submissions for 85 Princess that the discretion to ‘otherwise order’ afforded by r 42.15 should only ever be exercised in favour of an offeree. It was submitted that it is novel for an offeror to invoke the discretion to achieve an outcome that is more favourable to it than what is provided for by the rule. It is true that the common circumstance where an application is made to ‘order otherwise’ is where an offeree contends that there should not be an order for indemnity costs notwithstanding the offer of compromise. However, there is no reason to suppose that the Court can only ‘otherwise order’ if it is in favour of the offeree. If there is good reason to ‘otherwise order’ on an application by the offeror, the Court can do so. This is such a case.

In Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11, McHugh J (who was in dissent but not relating to this point) noted (at [67]) that the principle that a successful party is entitled to an order for costs is grounded in reasons of fairness and policy. His Honour observed (at [70]) that the Court may award costs in favour of a defendant where the plaintiff has obtained only nominal damages because, “in reality, the successful party lost the litigation and the unsuccessful party won”.

In Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65 (S), after citing the reasons of McHugh J in Oshlack v Richmond River Council, the Court observed:

Had the proceedings been dismissed (with the consequence that the successful party won the litigation) then r 42.15A would have applied. That rule provides:

Given that 85 Princess won only nominal damages, there is a strong basis to treat it, for costs purposes, as the unsuccessful party, with the consequence that it should pay the costs of the successful party, Mr Fleming, in respect of the period before the offer was made.

85 Princess contends that Mr Fleming’s reliance on the discretionary outcome reverses the incentives in r 42.15 and distorts the policy behind the regime. I disagree. The policy is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: see Morgan v Johnson (1998) 44 NSWLR 578 at 581. The issuing of offers of compromise encourages compromise. Mr Fleming’s reliance on the discretionary outcome does not distort the policy behind the regime. The opposite is true. That is because where a defendant is in a position where it may be the successful party but lose the litigation (to continue to use the description made by McHugh J), it will be discouraged from serving an offer of compromise if the result of success is that it will have to pay the plaintiff’s costs for the period up to the date the offer is made. That is because in the absence of an offer of compromise, that defendant would ordinarily reasonably anticipate a favourable costs order for the whole of the proceedings. The offer of compromise regime is most likely to achieve its policy goal if it provides the prospect of a costs advantage to the successful party. The position advanced by 85 Princess would do the opposite – it would penalise the successful party and discourage a defendant from making an offer of compromise. It is correct that Mr Fleming will do better than what would flow from the ordinary operation of r 42.15, but that is in the unusual circumstances where he lost the litigation but was nonetheless the successful party.

85 Princess contends that there are various grounds why the Court (assuming the discretion can be exercised in favour of an offeror) should not exercise any discretion in favour of Mr Fleming.

85 Princess submitted that it won its case on liability and thus was successful on the issue that was most heavily contested and took up the most time required for oral evidence. This is true only to a point. The position taken by Mr Fleming was that there was no breach of contract but that if there was a breach, it was not the breach that was advanced by 85 Princess. Its case, which succeeded, was that if there was a breach there was no evidence of damages for that breach. Much of the hearing was taken up with exploring the issue of the cause of the cracking and on that subject, Mr Fleming was essentially successful.

85 Princess also points out that Mr Fleming did not file any evidence on damages. I do not understand how that could affect the exercise of discretion. Mr Fleming was entitled to choose not to file any evidence on damages. That decision was likely to have shortened the hearing. It does not weigh against Mr Fleming’s application.

Nor do I think the defendant can be criticised for what was said to be “its failure to put on a timely offer of compromise”. Whether and when to make an offer of compromise was a matter for Mr Fleming. The incentive to make an early offer is that the offer, if rejected, will provide better cost protection for a successful defendant. UCPR r 42.15 expressly contemplates that an offer of compromise may be made even after a trial has commenced.

No other reasons were advanced that weigh against the exercise of discretion to award Mr Fleming, who was the successful party in substance, his costs for the period before the offer was made. If Mr Fleming had not made the offer, he would have been entitled to his costs on the ordinary basis, because as a general rule, costs follow the event (see r 42.1). Nothing put for 85 Princess would have been sufficient to cause a departure from the general rule.

The orders of the Court are: