Amaca Pty Ltd v Werfel (No 2) - [2021] SASCFC 26

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
AMACA PTY LTD v WERFEL (No 2)
[2021] SASCFC 26
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, the Honourable Justice Nicholson and the Honourable Justice Livesey)
25 May 2021

APPEAL AND NEW TRIAL - PROCEDURE - SOUTH AUSTRALIA - POWERS OF COURT - COSTS
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS
Following the Court’s decision to allow the appellant’s appeal to the extent of reducing the total damages awarded to the respondent from $3,077,187.00 to $2,228,478.00, the parties made written submissions on the costs of the appeal.
The appellants contended that, although the respondent ultimately succeeded in his negligence claim, the appellants succeeded on most of the issues contested on the appeal. In addition they referred to the effect of s 8(4) of the Dust Diseases Act 2005 (SA) and emphasised the importance of setting aside the findings made by the trial Judge, failing which they may have been used in other litigation. Consequently, they sought an order that the respondent pay half of the appellant’s party and party costs of the appeal.
The respondent contended that he won the appeal and should be awarded his party and party costs of the appeal. The respondent relied on his appeal offer of $2.2 million filed on 18 September 2019 to submit that, because he ultimately bettered that offer, he should be awarded indemnity costs from 3 October 2019. In reply, the appellant contended that the respondent’s formal offer did not comply with the rules of court.
Held, (the Court) awarding the respondent 85 per cent of his costs of the appeal on a party/party or standard basis until 10 October 2019 and, thereafter, 85 per cent of his costs on solicitor/client basis:
1.      The respondent’s appeal offer complied with the rules of court. A failure to specify whether         an appeal will be allowed or dismissed does not invalidate a formal offer.
2.      In any event the appellant’s failure to serve a formal response meant that the offer was taken        to be a complying offer under r 188A(5).
3.      Under r 188H, r 188J does not apply and there are differences in the wording and operation of these rules in the event that a party obtains an order no less favourable than the offer made.      The requirements of rr 188H(5) and (6) discussed.
4.      In the circumstances the starting point is that the respondent should recover his costs and that       from 14 days after the offer was made they should be on a solicitor/client basis. In this case however the respondent determined to litigate all issues and failed in eight of the nine issues     contested, adding to the time and cost of the appeal. A party is not free to litigate all issues      without risk on costs simply because of a formal offer.
5.      Whilst the number of unsuccessful issues is relevant, the exercise of discretion must recognise that the respondent succeeded in recovering a judgment in negligence and      considerable weight must be given to his appeal offer.
6.      The appellant's interest in the issues raised on appeal transcend this particular case. The     precedent set by this case was important to the appellant but of less importance to the    respondent. As well, the history of the offers made by the respondent, to which the appellant    made little or no substantive response, demonstrated that the appellant had determined to     pursue the litigation to judgment because of concerns about so-called ‘third wave’ claimants.          That undermines significantly any claim the respondent might otherwise have to be relieved        of an adverse costs order.
Dust Diseases Act 2005 (SA) s 8(4), s 9(2), s 9(3); Uniform Civil Rules 2020 (SA) r 1.4, r 131.10(3)(c)(ii), r 193.1, r 194.3, r 194.6; District Court Civil Rules 2006 (SA) r 187, r 188G, r 188(1), r 188A, r 188H, referred to.
A, DC v Prince Alfred College Inc (No 2) [2016] SASCFC 27; Cretazzo v Lombardi (1975) 13 SASR 4; CSR Ltd v Eddy (2005) 226 CLR 1; Ewins v BHP Billiton Ltd (No 2) [2005] SASC 164, discussed.
Abel v Amaca Pty Ltd [2010] SADC 98; Allen v Chadwick (No 2) [2014] SASCFC 130; Amaca Pty Ltd v Hannell (2007) 24 WAR 109; Amaca Pty Ltd v Werfel [2020] SASCFC 125; Australian Education Union (SA) v Grieve [2000] SASC 430; Basbuild Pty Ltd v Hall [2014] SASC 44; Blake v Leondiou (No 2) [2011] SASC 152; Bonitto v Fuerst Brothers & Co Ltd [1944] AC 75; Brown v Unique Building Pty Ltd (No 2) [2009] SADC 18; Davies v Chicago Boot Co Pty Ltd (No 2) [2011] SASC 197; GT Corp Pty Ltd v Amare Safety Pty Ltd [2008] VSC 296; Hall v Basbuild Pty Ltd [2013] SADC 132; Hughes v Western Australian Cricket Association Inc (1986) 19 FCR 10; Jackson v Abram (No 2) [2016] SASCFC 36; Jones v Associated Newspapers Ltd [2008] 1 All ER 240; Latz v Amaca Pty Ltd [2017] SADC 56; Mandreick v Doan & Pham (No 3) [2007] SADC 18; Mason v Mason [1965] 3 All ER 492; Mickelberg v State of Western Australia [2007] WASC 140; Monier Ltd v Metalwork Tiling Co of Australia Ltd (No 2) (1987) 43 SASR 588; Oshlack v Richmond River Council (1998) 193 CLR 72; Ramsey v Annesley College (No 2) [2013] SASC 145; Re Elgindata Ltd (No 2) (1993) 1 All ER 232; Re Madden (as Official Liquidator of Aquanaut Construction Pty Ltd) (In Liq) [2001] NSWSC 1051; Ruddock v Vadarlis (No 2) (2001) 115 FCR 229; Sanders v Snell (No 2) (2000) 174 ALR 53; Shaw v Jarldorn (1999) 76 SASR 28; Spartalis v BMD Constructions Pty Ltd (No 2) [2015] SASCFC 28; Thornton v Swan Hunter (Shipbuilders) Ltd [1971] 3 All ER 1248; Victoria v Master Builders Association Victoria (Victorian Court of Appeal, Ormiston JA, 15 December 1994), considered.

AMACA PTY LTD v WERFEL (No 2)
[2021] SASCFC 26

Full Court: Kourakis CJ, Nicholson and Livesey JJ

THE COURT: On 21 December 2020, this Court allowed the appeal to the extent of reducing the total damages award from $3,077,187.00 (inclusive of interest) to $2,228,478.00 (inclusive of interest) (the Full Court judgment). The Court must now address the costs of the appeal.[1]
[1] No application was made regarding the costs of the trial.
In substance, the appellant (James Hardie) contends that, although the respondent (Mr Werfel) ultimately succeeded in negligence, it succeeded on most of the issues contested on the appeal and so it seeks an order that Mr Werfel pay half of its party and party costs of the appeal.[2]
[2] The term “party and party costs” is the same as costs on “a standard basis” under the applicable rules of court.
Mr Werfel, by contrast, contends that he won the appeal because he recovered a judgment and so he should get his party and party costs of the appeal. He goes further. He relies on his formal offer of $2.2 million dated 18 September 2019, and says that because he bettered that offer he should have indemnity costs from 3 October 2019.
The Court received written submissions and evidence from the parties on these costs questions during February 2021.
James Hardie’s submissions
James Hardie starts with the proposition that damages were reduced by an amount of $850,000.00, or 35 per cent of the original judgment, and it also submits that if the matter is assessed on an “issue by issue” basis it was “overwhelmingly successful”. James Hardie contends that there were nine discrete issues and it succeeded on all save issue (b)(iii) below. Those nine issues were:
(a)The status of the trial court judgment (namely, whether the reasons were adequate);
(b)The three liability issues which were:
(i)The removal of asbestos from products from the late 1960s;
(ii)The attachment of permanent warnings to asbestos-cement products;
(iii)The mass media campaign.
(c)The five damages issues which were:
(i)General damages;
(ii)Loss of life expectancy damages;
(iii)Griffiths v Kerkemeyer damages;
(iv)Sullivan v Gordon damages pursuant to s 9(3) of the Dust Diseases Act 2005 (SA) (the Act);
(v)Exemplary damages pursuant to s 9(2) of the Act.
Whilst James Hardie accepts that Mr Werfel achieved a slightly better outcome than his $2.2 million offer, it contends that the offer was “not framed so as to comply with the rules” and, in any event, James Hardie was “left in a position more favourable … for having challenged all the issues on the appeal”.
Alternatively, James Hardie submits that even if Mr Werfel’s offer complies with the rules, any prima facie entitlement to indemnity costs from 14 days after the offer is displaced for five reasons:
1.   The overwhelming nature of the success enjoyed by James Hardie on appeal;
2.   Because the outcome was “very close to the offer” that suggests that there was “very little genuine compromise involved” and this is said to be emphasised by the fact that Mr Werfel resisted every ground of appeal, including as to the assessment of damages on which he failed;
3.   Although Mr Werfel’s offer meant that the appeal had to be allowed, the appeal offer still required James Hardie to pay his costs. It is said that this meant that the offer did not comply with the rules;
4.   The form of the offer did not acknowledge that there was any error in the decision made by the trial Judge, so that there still remained “the precedential effect of the trial court judgment”. Because this judgment was overturned, James Hardie submits that the practical effect of the decision of the Full Court means that it achieved a result “far more favourable” to it than the terms of the offer, see r 132.10(3)(c)(ii) of the Uniform Civil Rules 2020 (SA);[3]
5.   The importance for James Hardie of the challenge to the decision made by the trial Judge.
[3]     Rule 132.10(3)(c)(ii), (d) and (e) provide that, when “the applicant obtains judgment that is less favourable to the applicant than the terms of the offer” the “costs incurred in respect of the action up to 14 days after service of the formal offer are unaffected by the making of the formal offer” and “subject to the overriding discretion of the Court the respondent is entitled to an order against the applicant for the respondent’s costs of the action to which the relevant offer relates thereafter on an indemnity basis”.
In support of the third of these suggested reasons, James Hardie relies upon the affidavit of Caroline Mary Knight sworn 5 February 2021. By that affidavit, the formal offer made by Mr Werfel was put into evidence. That offer was expressed to be made pursuant to r 187 of the Supreme Court Civil Rules 2006 (SA), was dated 18 September 2019 and in the following terms:
FORMAL OFFER
The respondent, Mathew Harrison Werfel, OFFERS pursuant to rule 187 to settle the proceeding as follows:
1. The appellant pay to the respondent the sum of $2,200,000 plus the respondent’s costs as agreed or taxed on a party/party basis.
Ms Knight explains that she interpreted the offer to indicate that Mr Werfel was willing to accept a judgment for $2.2 million in addition to costs. As she put it:
This would have meant that even though the appeal would have been successful the appellant would have had to pay the respondent’s costs … it will be noted that the form of the offer did not include an order that the appeal be allowed.
I was concerned that if the offer made by the respondent was accepted it would leave in place the trial court decision, and the adverse effect of the trial court decision as a precedent would continue.
Ms Knight goes on to explain that the two liability issues on which James Hardie succeeded on appeal, but not at trial, have featured in at least 120 matters in which she has acted for James Hardie since August 2018 alone. She points out that South Australian claims account for around 10 percent of the claims made against James Hardie in any given year.
So far as the damages issues were concerned, she says that her matters for James Hardie always feature claims for general damages, gratuitous services and exemplary damages pursuant to s 9(2) of the Act. She says that in a “high percentage” of matters, claims for loss of life expectancy and Sullivan v Gordon‑type damages pursuant to s 9(3) of the Act are also made.
The burden of this evidence is to the effect that the importance of the decision made by the trial Judge in this case was more wide-ranging than simply the dollar amount in issue between these two parties.
Reliance is also placed upon s 8(4) of the Act which has the effect of making factual findings made in dust diseases actions relevant and admissible in other actions:
8—Evidentiary presumptions and special rules of evidence and procedure
(4)If—
(a) a finding of fact has been made in a dust disease action by a court of this State, or a court or tribunal of the Commonwealth or another State or Territory; and
(b) the finding is, in the District Court's or SAET's opinion, of relevance to an action before it under this Act,
the District Court or SAET (as the case may be) may admit the finding in evidence and indicate to the parties that it proposes to make a corresponding finding in the case presently before it unless the party who would be adversely affected satisfies the District Court or SAET (as the case may be) that such a finding is inappropriate to the circumstances of the present case.
James Hardie emphasises that the adverse precedential effect of the trial decision in this case flowed from “the wholesale adoption” of the written submissions made by Mr Werfel at trial; that is to say, the “decision of the trial court created a precedent favourable to claimants, drawn up by a claimant”.
It is in this context that James Hardie submits that it had “little choice” but to press on with the appeal so as to challenge the decision made by the trial Judge. Having done so, it now emphasises its relative success and says that this must be reflected in any order for costs.
Mr Werfel’s submissions
Mr Werfel points to the fact that the appeal was commenced on 23 August 2019 and that his offer was made as early as 18 September 2019, long before any significant costs were incurred in connection with the appeal.
Mr Werfel contends that his offer was made before the Uniform Civil Rules 2020 (SA) came into effect on 18 May 2020, so that the Supreme Court Civil Rules 2006 (SA) continue to apply to that “step” in these proceedings.[4]
[4] See r 1.4(1) of the Uniform Civil Rules 2020 (SA).
Mr Werfel says that the offer was a formal “appeal offer” pursuant to r 188H. As no time limit was specified in the offer, by r 188(1) the offer was taken to have lapsed seven calendar days before the hearing of the appeal on 6 February 2020. Mr Werfel contends that, because James Hardie did not file any “formal response” to what it now claims was a defective offer, this was a breach of r 188A and, absent “exceptional circumstances”, James Hardie cannot now contend that the offer did not comply with r 187.[5]
[5] See rr 188A(5) of the Supreme Court Civil Rules 2006 (SA).
In these circumstances Mr Werfel seeks orders that James Hardie pay his costs of the appeal on a standard costs basis until 3 October 2019 and, thereafter, on an indemnity basis, relying upon rules 188H(5) and (6) of the Supreme Court Civil Rules 2006 (SA), together with the Court’s broad general costs discretion pursuant to rules 193.1(4), 194.3 and 194.6 of the Uniform Civil Rules 2020 (SA). By the latter rules, in particular, the Court may have regard to the failure to make an offer to resolve the proceeding and the Court may also consider the “non‑acceptance of an offer”.
Mr Werfel relies upon the decision of Allen v Chadwick (No 2):[6]
The purpose of rules of this nature is to encourage the acceptance of reasonable offers and to allow for the prompt and economic disposition of litigation.
[6] Allen v Chadwick (No 2) [2014] SASCFC 130, [33] (Gray and Nicholson JJ).
Mr Werfel adds that “modern principles of the administration of justice in civil disputes” now encourage parties to consider, at an early stage, the significant costs associated with the preparation and hearing of an appeal, together with the inherent risks or vicissitudes associated with appellate litigation. To this end, the rules of court promote the making of reasonable efforts to compromise, so as to avoid the costs and risks of an appeal and so as to save the court time:
No doubt, for a party such as [James Hardie], the vicissitudes of litigation would include any precedential value that might attach to a judgment against it, particularly if the judgment is upheld on appeal. The precedential value of a case is not a relevant consideration to an individual litigant such as Mr Werfel who simply sought damages for harm suffered by him alone.
Having submitted that there was no “formal response” to his offer, Mr Werfel points to his repeated attempts at genuine compromise made prior to and during the trial, all of which were rebuffed by James Hardie:
1.On 10 December 2018, Mr Werfel filed a “formal offer” pursuant to r 187 of the Supreme Court Civil Rules 2006 (SA) in the sum of $2.2 million in addition to costs and disbursements to be agreed or taxed on a party/party basis. There was no response to that offer by James Hardie.
2.On 15 May 2019, Mr Werfel made another offer of settlement in the sum of $1.2 million in addition to costs to be agreed or taxed on a party/party basis which was open for acceptance until 1pm on 20 May 2019. On 20 May 2019, James Hardie responded, stating that the offer was rejected and that there would be no counter offer. The solicitor for James Hardie questioned whether it was necessary to attend a settlement conference because to do so appeared “pointless”.
3.On 20 May 2019, following a court-appointed settlement conference presided over by Gilchrist DCJ, Mr Werfel made yet a further offer in the sum of $500,000.00, in addition to costs to be agreed or taxed on a party and party basis. That offer was open for acceptance until 8:30am on 21 May 2019. Again, James Hardie did not respond to this offer.
Mr Werfel submits that it can be deduced from these exchanges that James Hardie took the view that it would simply run Mr Werfel’s case because it was regarded as “a test case”. It argued that the decision of the Court of Appeal of Western Australia in Hannell v Amaca Pty Ltd was correct,[7] notwithstanding that this Court found there were significant differences.[8]
[7] Amaca Pty Ltd v Hannell (2007) 34 WAR 109. Hannell was the subject of an unsuccessful application for special leave to the High Court of Australia: Moss and Hannell v Amaca Pty Ltd [2007] HCATrans 626.
[8] Amaca Pty Ltd v Werfel [2020] SASCFC 125, [302]-[305] (Kourakis CJ, Nicholson and Livesey JJ).
Mr Werfel submits that the evidence from Ms Knight requires clarification. In so far as she attests to cases involving a failure to warn, it is emphasised that James Hardie has been found liable on that account in many other cases.[9] Indeed, Mr Werfel says that, for him, “this was not a test case”. His claim for compensation was about his reasonable need for future medical treatment, care and “some measure of financial security for his wife and three young daughters”.
[9] For example, see Abel v Amaca Pty Ltd [2010] SADC 98 and Latz v Amaca Pty Ltd [2017] SADC 56, [4].
Mr Werfel then refers to the well-known observations in Cretazzo v Lombardi against the making of “issues-based” orders for costs:[10]
The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.
[10] Cretazzo v Lombardi (1975) 13 SASR 4, 16 (Jacobs J).

Mr Werfel cites a number of authorities where courts have been reluctant to make orders for costs on particular issues or, more generally, to penalise an ultimately successful party “for not winning every argument”.[11] Mr Werfel goes so far as to suggest that to require that a successful party pay the other parties’ costs on specific issues usually requires a finding that these were raised “improperly or unreasonably”.[12]
[11] Sanders v Snell (No 2) (2000) 174 ALR 53, 57 (Kirby J: “unless there are good and exceptional reasons in a particular case to do so”. See also Re Madden (as Official Liquidator of Aquanaut Construction Pty Ltd) (In Liq) [2001] NSWSC 1051, [4] (Hamilton J).
[12] Re Elgindata Ltd (No 2) (1993) 1 All ER 232, 277.
In support of the submission that it would be contrary to the interests of justice to require that Mr Werfel pay any part of James Hardie’s costs, or to deprive him of a proportion of his own costs, the following matters are raised:
1.The history of Mr Werfel’s offers and the absence of any meaningful negotiation from James Hardie “militates against penalising Mr Werfel and rewarding [James Hardie] in this way”.
2.Mr Werfel says the vast majority of the costs incurred by both parties on appeal were incurred on liability. Mr Werfel suggests that James Hardie’s identification of issues “impermissibly” truncates (to three) the liability issues, giving a misleading impression of the amount of time spent on the various other issues in the case.
3.Mr Werfel suggests that his arguments about duty of care and breach concerning the duty to remove asbestos or to place permanent warnings on its products were “a minor and peripheral part of his case”. They were said to occupy little time at trial or on appeal.
4.Mr Werfel says that “success” in connection with damages “is misplaced … where the total award of damages exceeded Mr Werfel’s Formal Offer”. Mr Werfel also submits that this represented a genuine compromise.
5.Mr Werfel contends that James Hardie did not “wholly succeed” in its damages appeal because the order ultimately made by the Full Court exceeded the sum suggested in argument by James Hardie.
6.Mr Werfel identifies that a significant factor in the outcome of the appeal was the need for a re-hearing on liability and damages given the inadequacy of the trial Judge’s reasons for which Mr Werfel “bears no responsibility”.
7.Mr Werfel submits that it is inaccurate to identify issues or calculate specific costs by reference to the particular issues in circumstances where a number of these involved “significant overlap of the evidence and arguments”. The example given is of the evidence and submissions concerning exemplary damages and foreseeability.
In short, Mr Werfel emphasises that he won his case at trial and on appeal, recovering more than he had previously offered to accept on a number of occasions. That James Hardie was determined to pursue the litigation “come what may” is demonstrated, it is submitted, by the fact that James Hardie has applied for special leave to appeal to the High Court following the decision of the Full Court in this matter.
James Hardie’s reply submissions
In reply, James Hardie emphasises that an analysis of the comparative success of the parties in respect of differing issues has been discussed and accepted in a number of decisions in this Court.[13]
[13] A, DC v Prince Alfred College Inc (No 2) [2016] SASCFC 27, [5]-[13] and Jackson v Abram (No 2) [2016] SASCFC 36, [3].
James Hardie submits that the “formal offer” made by Mr Werfel “did not seek any formal court orders” and sought only the payment of a specific sum, together with costs.
As to whether a “test case” was being conducted, James Hardie rejects the assertion that it was conducting a test case and says that that was being conducted by Mr Werfel. James Hardie says that the trial Judge was told on at least four occasions by counsel that the case was a “test case” because “there’s never been a successful claim brought in a respect of this kind of in situ asbestos … [it’s] a very important case, it’s a test case”.[14]
[14] Trial transcript 72-73, 91.
James Hardie says that this conclusion is reinforced by statements made by Mr Werfel and his lawyers following the decision of the Full Court and reference is made to an article published by ABC News following what was said to be an interview with Mr Werfel and his lawyers on 22 December 2020. In that article Mr Werfel is quoted as saying that “[t]this case was never about me. From day one we were fighting on behalf of everyone across Australia who continues to be unknowingly exposed to James Hardie’s deadly asbestos products in their homes, workplaces and schools”. Reference was made to what was said to be a “third wave of asbestos victims” and that the decision of the Full Court had “extended James Hardie’s legal liability” and set a “precedent”.
Whether the “formal offer” complied with the rules of court
The first issue is whether Mr Werfel’s “formal offer” complied with the rules of court. The offer was filed in the Supreme Court, where the appeal was instituted. Because the offer was made at the time the Supreme Court Civil Rules 2006 (SA) were in operation, it must be assessed according to those rules.
The rules recognise that a “formal offer” may be either a “judgment offer” or a “contract offer”.[15] As the offer in this case reflected the terms of the judgment that Mr Werfel was prepared to accept, and contained no additional terms (such as a confidentiality term or other matters that cannot be reflected in a judgment) it was a “judgment offer”.
[15] Within the meaning of r 187(2).
As the offer was made in connection with an appeal, r 188H applies. By that rule, the “ordinary” provisions relating to offers generally apply, apart from r 188F.[16]
[16] By r 188H(3) rules 187, 188 and 188A-188E apply “mutatis mutandis” to an appeal offer.
A “formal offer” must be made in accordance with the approved form.[17] That was done. Moreover, as the offer was not expressed to be “an open offer” it is taken to be made “without prejudice save as to costs”.[18]
[17] District Court Civil Rules 2006 (SA), r 187(3)(a).
[18] District Court Civil Rules 2006 (SA), r 187(6)(a). See Bonitto v Fuerst Brothers & Co Ltd [1944] AC 75, cf Mason v Mason [1965] 3 All ER 492 and Thornton v Swan Hunter (Shipbuilders) Ltd [1971] 3 All ER 1248.
The offer was expressed to be “plus the respondent’s costs”. It had been held under former rules of court that the failure to specify an amount for costs does not invalidate the offer because it is sufficient to state the legal effect of acceptance.[19] It had also been held that the failure to specify whether the offer of principal relief can be accepted without also accepting the costs offer does not render the offer a nullity.[20] On the face of it, the offer to accept a specified sum for damages “plus the respondent’s costs …” complies with r 187(6)(b).
[19] Brown v Unique Building Pty Ltd (No 2) [2009] SADC 18.
[20] Basbuild Pty Ltd v Hall [2014] SASC 44 (Blue J), upholding Hall v Basbuild Pty Ltd [2013] SADC 132, [122]-[130] (Beazley DCJ).
Although an offer may be expressed to lapse after the expiration of a stipulated period (being not less than 14 days after service of the offer), that is not essential and, in the case of silence on this point, the rules provide that the offer cannot be accepted after 7 clear calendar days before the date fixed for the appeal to commence.[21]
[21] See rr 188H(3) and 188(1) of the District Court Civil Rules 2006 (SA).
James Hardie complains that the offer did not stipulate that the appeal would be “allowed” if the offer was accepted. However, that is not a requirement under the rules. The failure to specify that the appeal would be allowed did not invalidate the offer, rendering it “void” within r 187(3). For example, under former rules of court, offers were recognised as valid even where, if accepted, they resulted in a payment to a plaintiff, despite the defendant including a denial of liability.[22] The rules of court contain the minimum requirements for an offer and specifying the formal effect of an outcome by which a plaintiff receives less than the award made at trial is not one of these requirements. The addition of a term that the “appeal be allowed” was probably implicit anyway and, if thought important, could have been specified as part of any “contract offer”, or perhaps in a counter-offer, from James Hardie so as to reflect the terms of any “judgment offer” it was willing to accept within the meaning of r 187(2). That was not done.
[22] Blake v Leondiou (No 2) [2011] SASC 152 (Lunn J), Mandreick v Doan & Pham (No 3) [2007] SADC 18 (Rice J).
The absence of a “formal response”
An important issue in this case, however, is that in so far as James Hardie now asserts that the offer did not comply with the rules of court, it failed to make any “formal response” as was required by r 188A(1)(c). By that rule, within 14 days of service James Hardie was obliged to explain why it contended that the offer did not comply with r 187. In that event, by r 188A(5):
Unless the Court otherwise orders in exceptional circumstances, an offeree is not entitled on an application for costs … to contend that an offer does not comply with rule 187 or did not give the offeree a reasonable time to decide whether to accept the offer other than on any grounds identified in a formal response served in compliance with subrule (1).
James Hardie has not suggested that there are “exceptional circumstances” within the meaning of r 188A(5).
In these circumstances, it is now too late for James Hardie to make any complaint about the form of the offer. By r 188A(5) Mr Werfel’s “formal offer” must be taken to be a complying offer which was not accepted.
The outcome was “no less favourable” than the offer, r 188F
As mentioned, r 188F is not one of the rules to be applied to appeal offers under r 188H. Nonetheless, it is helpful to consider the operation of r 188F for the purposes of comparing it with the potential operation of r 188H.
Under r 188F(3), the ordinary rule regarding the costs consequences of not accepting a complying offer starts with an award of indemnity costs after 14 days following service of the offer as follows:
(3) When a complying offer is made by a plaintiff and not accepted by a defendant and the plaintiff obtains judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer—
(a)the costs incurred in respect of the claim up to 14 days after service of the formal offer are unaffected by the making of the formal offer;
(b)the plaintiff is entitled to an order against the defendant for the plaintiff's costs of action in respect of the claim to which the complying offer relates thereafter on an indemnity basis.
This ordinary rule, however, is rendered subject to the “overriding discretion of the Court”, r 188F(2).
Authorities under the former rules emphasised the importance of obtaining any relief other than simply the amount of damages recovered,[23] and it had been doubted whether one could include the interest accruing on past loss after the date of the offer.[24]
[23] Ramsey v Annesley College (No 2) [2013] SASC 145, [50]-[55] (Blue J).
[24] Davies v Chicago Boot Co Pty Ltd (No 2) [2011] SASC 197, [30]-[33] (Sulan J), Spartalis v BMD Constructions Pty Ltd (No 2) [2015] SASCFC 28, [13]-[14].
Speaking generally, however, where the claim is a damages claim, the critical question is usually whether the plaintiff recovers the same as, or more than, the plaintiff was prepared to accept.[25] Rules such as these focus on what was known at the time of the offer, although one may have some regard to what the parties might be expected to have anticipated.[26] This case does not raise the vexed question of separate “liability” and “damages” offers, and the consequences of bettering the “liability” offer, but not the “damages” offer.[27]
[25]   Even if the offer could be said to have been “realistic”, Australian Education Union (SA) v Grieve [2000] SASC 430, [3] (Williams J), or “sensible and realistic”, Ewins v BHP Billiton Ltd (No 2) [2005] SASC 164, [26] (Doyle CJ).
[26]   Jones v Associated Newspapers Ltd [2008] 1 All ER 240, Ewins v BHP Billiton Ltd (No 2) [2005] SASC 164, [27] (Doyle CJ).
[27]   Allen v Chadwick (No 2) [2014] SASCFC 130, [30]-[34] (Gray and Nicholson JJ), cf [3]-[4] (Kourakis CJ).
Under the former r 188(6), the test was whether the Court’s determination was “no more favourable” to the offering party, rather than the present test under r 188F(3) of a “no less favourable” outcome. The difference is a subtle one, but tends to benefit the offeror because it requires an assessment of the result from the perspective of whether it can be said to be no less favourable rather than no more favourable. Any doubt would, one might think, tend to work to the advantage of the offeror.
The operation of r 188H – appeal offers
In so far as is relevant, r 188H is as follows:
(3)The provisions of rules 187, 188 and 188A to 188E apply mutatis mutandis to an appeal offer as if it were a formal offer in a proceeding at first instance.
(4)An appeal offer may be on terms that take into account any cross-appeal.
(5)Where on an appeal—
(a)     a party has made an appeal offer;
(b)     the offer was not accepted; and
(c)     the offeror obtains an order on the appeal no less favourable to that party than the terms of the offer—
the Court is to take those matters, and also the stage of the appeal at which the offer was made, into account in determining what order for costs to make in respect of the appeal or in respect of the appeal and the proceeding more generally.
(6)Without affecting the generality of the discretion of the Court, in exercising its discretion under subrule (5), the Court may order that the offeree pay the costs of the offeror on a solicitor/client basis or a party and party basis or not recover that party’s costs from the time the offer was served or from any other time that the Court thinks fit.
The wording and potential operation of r 188H are quite different to r 188F in a number of respects, although both share the same test of “no less favourable”, see r 188H(5)(c), cf r 188F(3).
As for the differences, first, r 188H does not refer to a “complying offer”, cf r 188F(1). Whilst a curious difference, apparently nothing turns on it because r 188H explicitly picks up the rules relating to a “formal response”, and the presumption that an offer does comply with r 187 if no formal response is made, see r 188A(5).
Secondly, and most importantly, r 188H does not utilise the ordinary rule under r 188F(3), namely, that the costs consequences of not accepting an offer that is “no less favourable” start with an award of indemnity costs after 14 days following service of the offer.
Thirdly, though r 188H does not explicitly use the language regarding the “overriding discretion of the Court” found in r 188F(2), the operation of r 188H depends upon an exercise of discretion. Whilst that might be thought implicit in r 188H(5), it is made clear by the reference in r 188H(6) to “the generality of the discretion of the Court, in exercising its discretion under subrule (5)”.
Fourthly, the operation of r 188H(5) requires that the circumstances specified in that subrule which “the Court is to take … into account” be considered when determining what order for costs is to be made. The breadth of that discretion is not constrained by the potential orders specified by subrule (6), though it is noteworthy that these refer to costs “on a solicitor/client basis or a party and party basis” rather than the indemnity basis referred to in r 188F(3).
The Court’s assessment of an appeal offer for the purposes of the exercise of discretion under r 188H(5) starts with the matters specified, namely, whether the outcome was “no less favourable” than the appeal offer, and the stage of the appeal at which the offer was made.
Next, the potential range of consequences in the exercise of discretion outlined by r 188H(6) are merely suggested consequences, with the rule emphasising the “generality of the discretion of the Court”. Those potential consequences include that the Court may order costs on a solicitor and client basis or on a party and party basis, or that costs not be recovered at all from the time the appeal offer was served, or that costs not be recovered at all from some other time.
The terms of r 188H suggest that the exercise of discretion on an appeal offer anticipates a somewhat broader potential range of outcomes, compared at least with the starting point of the ordinary rule under r 188F(3).
The exercise of discretion of the Court
The Court’s very wide costs discretion is sometimes said to be unfettered, although it must be exercised judicially:[28]
… the general discretion is absolute and unfettered, except it must be exercised judicially, not arbitrarily or capriciously, and it cannot be exercised on grounds unconnected with the litigation.
[28] Cretazzo v Lombardi (1975) 13 SASR 4, 11 (Bray CJ).
That discretion, obviously enough, must be exercised having regard to the evident purpose of encouraging parties to make realistic and genuine offers of settlement so as to endeavour to resolve litigation without the need for a hearing, and thereby to avoid, or at least minimise, the time, trouble and cost associated with a hearing. As r 188H demonstrates, that evident purpose is no less important in connection with appeal offers and the hearing of appeals.
Cases on earlier rules recognise that the reasonableness of the parties’ overall conduct in the proceeding, whether a party succeeded on an issue raised only late, or whether there was some form of material non-disclosure, were all factors which may be relevant to the exercise of the discretion.[29]
[29] Shaw v Jarldorn (1999) 76 SASR 28, [35], [37]-[38] (Perry J, with whom Doyle CJ and Mullighan J agreed).
Whilst it is true that there are authorities deprecating the practice of ordering costs on an “issue by issue” basis,[30] the jurisdiction to order a successful party to pay costs, or at least to deprive a successful party of costs, on issues on which that party has failed is not in doubt.[31]
[30] Cretazzo v Lombardi (1975) 13 SASR 4, 12 (Jacobs J), Duke Group Ltd (In Liq) v Pilmer (No 8) [1998] SASC 6699 and Robinson v Australian Association of Social Workers Ltd [2000] SASC 239.
[31] Hughes v Western Australian Cricket Association Inc (1986) 19 FCR 10.
Indeed, it has been said in recent times that courts are more readily prepared to modify the general approach, and to make orders having regard to “issues”, because the interests of justice sometimes require a reduction in the costs that might otherwise be awarded to a successful party where that party has failed on particular, disputed questions of fact or law.[32] That approach is at times more readily apparent in cases where the issues which have been raised, and on which the successful party has failed, can be said to have unduly extended the time and expense of the litigation.[33] That will be particularly so if there is, in addition, some sort of misconduct relating to the issue or the litigation more generally.[34]
[32] Cretazzo v Lombardi (1975) 13 SASR 4, 12 (Bray CJ); GT Corp Pty Ltd v Amare Safety Pty Ltd [2008] VSC 296, [31] (Robson J).
[33] Victoria v Master Builders Association Victoria (Victorian Court of Appeal, Ormiston JA, 15 December 1994); Mickelberg v State of Western Australia [2007] WASC 140, [30]-[35] (Newnes J) and A, DC v Prince Alfred College Inc (No 2) [2016] SASCFC 27, [11]-[13] (Kourakis CJ, Gray and Peek JJ).
[34] Oshlack v Richmond River Council (1998) 193 CLR 72, [69] (McHugh J), Monier Ltd v Metalwork Tiling Co of Australia Ltd (No 2) (1987) 43 SASR 588, 590; Ruddock v Vadarlis (No 2) (2001) 115 FCR 229, [11] (Black CJ and French J).

Turning to r 188H, one must start with the matters specified in r 188H(5). On any view, Mr Werfel has obtained “an order on the appeal no less favourable … than the terms of the offer” he made to James Hardie. In addition, his appeal offer was filed on 26 September 2019, relatively soon after the appeal was filed on 23 August and judgment was delivered on 6 August 2019.
When one turns to the potential orders under r 188H(6), Mr Werfel would ordinarily start from the position that he succeeded on appeal. That suggests that he ought recover his costs. Mr Werfel has, in addition, bettered his appeal offer. There can be no suggestion that this did not involve a compromise. Plainly he offered to accept less than the trial judgment and the award ultimately made by this Court. That suggests that his costs should be recovered on a solicitor/client basis from a reasonable period after the offer was served, say from 14 days after the offer was served.
The main reason to depart from a starting position such as this is that Mr Werfel lost eight out of the nine issues he contested.
Before addressing the significance of the issues contested, James Hardie contends that it was reasonable to contest the appeal rather than settle without proceeding to a hearing because of the precedential effect of the trial Judge’s decision, particularly bearing in mind the operation of s 8(4) of the Act.
Whilst that might well be so, it is difficult to regard the operation of s 8(4) as a reason to deny Mr Werfel the benefit of his result and offer. In a different context, it has been recognised that the interests of a party may transcend the particular case before the Court with the result that the other party ought not be put to costs. For example, in CSR v Eddy, where Sullivan v Gordon was overruled in accordance with the submissions made by the successful appellants, the following considerations were outlined:[35]
The appellants challenge Sullivan v Gordon below, applied for special leave to appeal, and prosecuted the appeals, in order to vindicate their long term commercial interests, for success will unquestionably tend to reduce the quantum of damages payable by them in asbestos-related litigation, of which, unfortunately, there appears likely to be a large quantity in future years.
In contrast, the plaintiff had no interest in the legal position beyond this particular litigation. … It was entirely reasonable for the plaintiff to seek an award of Sullivan v Gordon damages in the Dust Diseases Tribunal of New South Wales, since that court was bound by the decision of a five-judge Court of Appeal in that case … It is common in this Court in cases where the resolution of a point is desirable from the point of view of a large and recurrent litigant, whether corporate (for example, an insurance company) or governmental (for example, the Commissioner of Taxation or the Australian Competition and Consumer Commission), but the other party to the litigation is not a recurrent litigant and is not well‑positioned to meet adverse costs orders on the point being tested, for the grant of special leave to be made conditional on appellants paying the other side’s costs in any event and on appellants not seeking to disturb costs orders in the court below which were favourable to the other side.
[35] CSR Ltd v Eddy (2005) 226 CLR 1, [80]-[81] (Gleeson CJ, Gummow and Heydon JJ).
In that case it was ordered that the appellants must pay the respondent’s costs notwithstanding the respondent’s failure on appeal.
It has often been said that even where the costs at stake are substantial, a common feature of litigation in this Court, “questions of costs are usually, although not always, best dealt with on a broad basis”.[36]
[36] Ewins v BHP Billiton Ltd (No 2) [2005] SASC 164, [29] (Doyle CJ).
In the circumstances, this is a case where Mr Werfel ultimately succeeded in negligence and obtained a substantial award, higher than he was prepared to accept before the hearing of the appeal. That said, James Hardie has substantially, but not wholly, vindicated its position in relation to a number of liability contentions as well as a number of contentions on damages. Whilst James Hardie did not obtain an award as low as that for which it contended, it very largely succeeded on its damages arguments.
Whilst the offers made before the appeal process commenced are of some relevance, little weight should be given to the statements attributed to Mr Werfel and his advisors after the appeal.[37] It may readily be accepted that each side regarded the stakes as high, and each side recognised that there was some degree of novelty associated with the negligence evidence and arguments, and that the decision of the Western Australian Court of Appeal in Amaca v Hannell had an important bearing on the issue of negligence.[38]
[37] See Ewins v BHP Billiton Ltd (No 2) [2005] SASC 164, [31]-[34] where Doyle CJ declined to act on a newspaper report where what the plaintiff’s lawyers are alleged to have said was not formally proved.
[38] Amaca Pty Ltd v Hannell (2007) 34 WAR 109.
Though the starting point is that Mr Werfel would usually recover his party and party costs until 14 days after the offer, and then solicitor/costs thereafter, he put into issue and litigated all of the nine issues which have been identified by James Hardie. He did not accept any error in the reasoning of the trial Judge or in the liability and damages decisions she made. He defended them all. That inevitably extended the time required for the hearing of this three-day appeal. These considerations are relevant to the exercise of discretion. A party is not free to litigate all issues without any risk on costs simply because it is protected by a formal offer.
However, any degree of departure from the starting position earlier outlined must recognise that Mr Werfel obtained substantial overall success and considerable weight must be given to the fact that that he bettered his appeal offer,[39] to which James Hardie made no formal response. Mr Werfel had made repeated attempts to compromise the litigation on terms that must now be seen as generous to James Hardie. It is apparent that James Hardie was intent on litigating to the finish because of its concern about the precedential value that might result for so‑called “third wave” claimants.
[39] Allen v Chadwick (No 2) [2014] SASCFC 130, [33] (Gray and Nicholson JJ), citing Whitehead v Maas (1991) 56 SASR 362, 367 and Hillier v Sheather (1995) 36 NSWLR 414, 422.
The very large difference between the damages award at trial and the award following the appeal is, in a sense, the product of what Mr Werfel claimed at trial. However, in reality, the inflated damages award following the trial was the result of the trial Judge’s failure to have proper regard to the submissions of James Hardie and her Honour’s lack of rigorous analysis of fact and law. That was not the fault of Mr Werfel. Further, it can be inferred that Mr Werfel recognised the ‘windfall element’ in his award when he decided to make his appeal offer soon after the appeal commenced in an amount just short of the correct award (as determined on appeal).
The fact is that James Hardie had no wish to settle on reasonable terms, for reasons important to it, but of little concern to Mr Werfel. This undermines significantly any claim James Hardie might otherwise have to be relieved of an adverse costs order, or an award of costs on a solicitor/client basis.
Conclusion
Having regard to the competing considerations, it is appropriate to order that Mr Werfel recover 85 per cent of his costs of the appeal on a standard basis until 10 October 2019 and, thereafter, 85 per cent of his costs on a solicitor/client basis.