Citation: Newlinx Pty Ltd v John R Keith (NSW) Pty Ltd (No 2) [2015] NSWLC 19
Court: Local Court of NSW
Date: 2 February 2015
Judge(s): O'Brien DCM
Background
This decision dealt solely with costs following a substantive judgment delivered on 15 December 2014. In the underlying proceedings, a plaintiff pursued a claim against a defendant contractor, but the court found the plaintiff's payment claim did not satisfy the requirements of the Building and Construction Industry Security of Payment Act 1999, rendering the claim fundamentally flawed.
After the substantive judgment, the defendant filed written submissions seeking indemnity costs. The plaintiff did not file any submissions in response, and the court proceeded to determine the costs question on the defendant's submissions alone.
The defendant had made two separate offers before judgment: a formal offer of compromise under rule 20.26 of the Uniform Civil Procedure Rules (UCPR) dated 14 August 2014, and a subsequent Calderbank letter dated 28 October 2014. Neither offer was accepted by the plaintiff.
Legal Issues
- Whether the defendant was entitled to indemnity costs following the plaintiff's non-acceptance of a UCPR offer of compromise that proved more favourable than the final outcome
- Whether, alternatively, the defendant was entitled to indemnity costs based on the plaintiff's non-acceptance of a Calderbank offer
- Whether any circumstances existed to displace the prima facie entitlement to indemnity costs arising from the rejected UCPR offer
Decision
Issue 1: Offer of Compromise under the UCPR
The court confirmed that failure to accept a UCPR offer of compromise that is better than the result ultimately obtained creates a prima facie entitlement to indemnity costs, which the offeree must displace by establishing a basis for some other order (at [12]). That entitlement can be displaced where rejection of the offer was reasonable, particularly where the full parameters of the dispute were still uncertain or the offeror's case changed after the offer was made (at [12]).
The court found that the central issue on which the defendant succeeded had been pleaded in the defence and was well known to both parties before the offer was made (at [15]). The offer of 14 August 2014 constituted a genuine compromise, included a term that each party bear its own costs, was exclusive of costs, and was left open for a reasonable period (at [15]). The plaintiff made no submissions to displace the prima facie entitlement, which the court noted was a relevant consideration (at [16]).
Issue 2: Calderbank Offer
The court acknowledged that a Calderbank offer does not automatically create a prima facie entitlement to indemnity costs in the same way as a UCPR offer of compromise (at [14]). The court's discretion is merely enlivened when the final result is less favourable than the Calderbank offer. Given the court's findings on the UCPR offer, it was unnecessary to determine the costs order on the Calderbank basis alone.
Issue 3: Disposition
The court was satisfied that this was an appropriate case to exercise its exceptional power to award indemnity costs for part of the proceedings (at [17]). Ordinary costs applied up to and including the date of the offer of compromise, with indemnity costs applying from that date forward.
Orders Made
- The plaintiff is to pay the defendant's costs on the ordinary basis up to and including 14 August 2014, and on an indemnity basis thereafter, excepting any costs already the subject of prior orders in the proceedings.
Key Takeaways
- Under the UCPR, non-acceptance of an offer of compromise that proves more favourable than the final outcome generates a prima facie entitlement to indemnity costs, which falls to the offeree to displace (at [12]).
- A UCPR offer of compromise must be genuine, contain a real element of compromise, be left open for a reasonable period, and be expressed exclusive of costs (at [13]).
- A Calderbank offer operates differently: its rejection merely enlivens the court's discretion to award indemnity costs and does not of itself create a prima facie entitlement (at [14]).
- Where the issue on which a party ultimately succeeds was clearly pleaded and known to both parties well before an offer was made, rejection of that offer is less likely to be treated as reasonable (at [15]).
- An offeree's failure to file any submissions in response to an indemnity costs application is a relevant consideration and may weigh in favour of making the order sought (at [16]).
Legislation and Cases Referenced
Legislation
- Building and Construction Industry Security of Payments Act 1999
- Civil Procedure Act 2005, s 98
Cases
- Caine v Lumley General Insurance Limited (No 2) [2008] NSWCA 109
- Calderbank v Calderbank [1975] 3 All ER 333