Brown v Owners Corporation SP021532U (Ruling No. 2)

[2013] VSC 127

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

S CI 2012 00405

COLIN KEITH BROWN	Plaintiff
v
OWNERS CORPORATION SP021532U AND BENSIA THIRTEEN PTY LTD	Defendants

---

JUDGE:	DIXON J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	18 MARCH 2013
DATE OF RULING:	21 MARCH 2013
CASE MAY BE CITED AS:	BROWN v OWNERS CORPORATION SP021532U AND ANOR (Ruling No. 2)
MEDIUM NEUTRAL CITATION:	[2013] VSC 127

---

COSTS – Plaintiff’s offer of compromise in a claim for damages for personal injury served during the trial – Plaintiff receives a more favourable verdict when offer still open – Whether plaintiff’s costs to be taxed on an indemnity basis – Exercise of discretion to ‘otherwise order’ – relevant considerations - Supreme Court(General Civil Procedure) Rules 2005 rule 26.02(a)

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr N Murdoch SC with Mr D Seeman	Robinson Gill Lawyers
For the Defendants	Mr R Gillies QC with Ms M Tsikaris	Norton Rose Australia

HIS HONOUR:

1. On the sixth day of a trial before a jury that would run 10 days, the plaintiff served an offer of compromise. At that stage of the trial the plaintiff had closed his case and the defendants, who had opened their case, were about to commence evidence.

1. The plaintiff offered to compromise his claim for $260,000. This offer was less favourable to the plaintiff than the verdict that the jury returned. The plaintiff’s offer, having been served in accordance with Order 26 of the Supreme Court (General Civil Procedure) Rules 2005 was open to be accepted until the moment of verdict.

1. The plaintiff now seeks an order that his costs of the proceeding, including reserved costs, be taxed on an indemnity basis. The defendants resist that application, contending that the plaintiff’s costs should be taxed on a party party basis to the time of service of the offer of compromise on 7 March 2013 and only thereafter on an indemnity basis.

1. The costs consequences of a failure to accept an offer of compromise that is served by a plaintiff in accordance with Order 26 of the Rules are set out in r 26.08(2) which reads:

(2)Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled—

(a)if the claim of the plaintiff is for damages for or arising out of death or bodily injury, to an order against the defendant for the plaintiff's costs in respect of the claim taxed on an indemnity basis;

(b)in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff's costs in respect of the claim up to and including the day the offer was served taxed on a party and party basis and for the plaintiff's costs thereafter taxed on an indemnity basis.

1. This proceeding concerns a claim by the plaintiff for damages for bodily injury and the rule provides that the plaintiff, as he contends, shall be entitled to costs taxed on an indemnity basis, unless the court otherwise orders. The defendants submit that the court should ‘otherwise order’ principally because the court should find that the plaintiff’s offer was not a serious attempt to resolve the proceeding. The offer was calculated to provide the foundation for the application for indemnity costs, which if ordered would essentially be punitive. The defendants contend that plaintiffs should be encouraged to make early offers of compromise because late offers, such as this one, cannot, in practical terms, be accepted. This consequence is said to arise from the disparity between the costs bill that accumulates on running a trial and the quantum of the damages risk that the defendants face. It is contended that this disparity results in defendants not being amenable to settling on a costs plus basis a week or so into the trial. Late offers, the defendants contend, cause court time and therefore public resources to be wasted and, as such, late offers are not consistent with modern case management principles.

1. I disagree. I do not consider that any reasonable basis has been demonstrated for the court to otherwise order that the plaintiff’s costs be taxed other than on an indemnity basis. I will firstly explain what considerations relevantly inform the discretion to ‘otherwise order’.

1. In Connolly v Skratulja[1] McDonald J stated the purpose of r 26.08(2). He said:

The purpose of rule 26.08(2) is to give a plaintiff, in an action for damages, arising out of death or bodily injury, some position of standing or strength in any negotiations for settlement of his or her claim against the defendant, which in the majority of cases has a corporate body whether statutory or otherwise standing behind it … The rule enables a plaintiff and a defendant in such proceedings to have some degree of equality in their bargaining or negotiating position when endeavouring to resolve the proceedings by settlement. It also has the effect of encouraging a defendant and those who may stand behind a defendant in such proceedings as the present to not ignore a reasonable offer of compromise made by a plaintiff which may be made even during the course of the trial.

[1]Unreported, Supreme Court of Victoria (McDonald J) 2 March 1993.

1. In Broomhall v National Roads and Motoring Association Insurance Ltd (No 2)[2] Smith J, when ruling on a like application to that before me, agreed with the views expressed in Connolly by McDonald J concerning the purpose of the rule.

   [2][2004] VSC 366 (29 September 2004).

1. This purpose is evident from the structure of the rule. It is only in personal injury cases that a plaintiff receiving a verdict more favourable than the offer of compromise, is entitled to taxation on an indemnity basis. I agree, with respect with McDonald J in Connolly that the purpose identified plainly emerges from the structure of the rule. Apart from the terms of sub rule (2), it is clear from sub-rules (1) and (4) and r 26.03, that the rule applies at any time prior to verdict and it is not subject on its express terms to any limitation of the kind that the defendant’s contend for.

1. It is not to the point that the costs burden for a defendant is less if an offer is made at an earlier point in time, for the cost burden incurred on acceptance of an offer can readily be estimated. Further information can be sought from the offeror. Nor is it to the point when exercising this discretion to contemplate whether the timing of the plaintiff’s offer is reasonable. The fact that the defendant may be faced with a higher costs burden should the offer not be accepted is a matter that can and ought to be taken into account by those advising a defendant when an offer is made during trial. The relevant decision is not whether substantial costs have now been incurred, but whether it is reasonable for the defendant to accept what is, for it, a more favourable offer not just in respect of damages but also costs. The costs payable on acceptance of  an offer of compromise are taxed on the usual basis. The costs payable under r 26.08(2)(a) are taxed on the more favourable indemnity basis (for the plaintiff). These are matters of judgment for a defendant.

1. Because it is, in part, the purpose of the rule that it exerts some pressure on a defendant to give proper consideration to an offer made by a plaintiff, even one made at a late stage during the trial, there is no merit in the defendant’s submission that unless the court otherwise orders, late offers of compromise will not be appropriately discouraged.

1. In Parish v Wu (No 2)[3] J. Forrest J, when ruling on a similar application by a defendant, but concerning r 26.03, held that there is no reason in principal to distinguish between an offer of compromise made in the course of the running of a trial as opposed to one given prior to a trial. In each case the exercise of the court’s discretion in making such an order turns upon the facts relevant to the offer and its acceptance. With respect, I agree. I do not think that the timing of the offer, that it was made after the trial commenced, is a consideration that should influence this court to ‘otherwise order’.

   [3][2010] VSC 64 (12 March 2010).

1. The defendants relied on Shaw v Transport Accident Commission[4] where the Court of Appeal refused leave to appeal against a costs order where the primary judge had ‘otherwise ordered’, awarding the plaintiff costs on a party party basis up to the date of the offer of compromise and thereafter on an indemnity basis. In the circumstances of that case the Court of Appeal was satisfied that the applicant had failed to show that the primary judge’s exercise of discretion was wrong or attended with sufficient doubt to justify the grant of leave to appeal. All that Shaw indicates is that there are circumstances where it is appropriate for a court to otherwise order and that if the discretion is properly exercised by the primary judge, it is not amenable to appeal.

   [4]Unreported, Supreme Court of Victoria, Court of Appeal, (Mandie JA and Hollingworth AJA), 27 November 2009.

1. The opposite result obtained in State of Victoria v McIver & Ors.[5] The primary judge otherwise ordered that costs be taxed on an indemnity basis from the service of the offer. The plaintiff at the trial submitted that r 26.08(2)(a) entitled him to his costs of the entire proceeding on an indemnity basis unless the judge otherwise ordered and that that prima facie rule should apply. There was a particular issue of relevance in exercising the discretion in that substantial costs were incurred in relation to an issue on which the plaintiff failed. Callaway JA, with the other members of the court agreeing, held that even if the plaintiff’s loss on that issue was an appropriate basis for moderating the effect of r 26.08(2)(a), there was no logical reason to do so by reference to the date of service of the offer of compromise. There is no logical connection between the two events, which supported the conclusion that the primary judge’s discretion had miscarried, exercised by reference to a factor that was irrelevant. In the result, the rule was applied, with the plaintiff’s entire costs being taxed on an indemnity basis.

   [5](2005) 11 VR 458, [2005] VSCA 50 (17 March 2005).

1. In the different, but related, context of Calderbank offers, in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2),[6] the Court of Appeal identified the reasonableness of the recipient’s conduct when rejecting an offer as the touchstone for the exercise of the costs discretion, noting that the unreasonable refusal of an offer of compromise is, by itself, a proper ground for the award of indemnity costs. Accordingly it is not necessary for an applicant to establish matters which might be relevant to other, well recognised, grounds for indemnity costs.[7] Some of the considerations that the court identified when considering the rejection of a Calderbank offer are apposite when contemplating whether to ‘otherwise order’ under r 26.08(2). The court stated:

   [6](2005) 13 VR 435; [2005] VSCA 298.

   [7]Ibid, 442 [28].

The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations.[8]  It is neither possible nor desirable to give an exhaustive list of relevant circumstances.  At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

[8]See House v R (1936) 55 CLR 499 at 505.

(a)       the stage of the proceeding at which the offer was received;

(b)       the time allowed to the offeree to consider the offer;

(c)       the extent of the compromise offered;

(d)      the offeree’s prospects of success, assessed as at the date of the offer;

(e)       the clarity with which the terms of the offer were expressed;

(f)whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.

However, it is necessary to bear in mind when considering such matters the precise terms and structure of the rule, which importantly is distinct from a confidential offer.

1. The plaintiff’s offer was served during the trial. When it was received, the defendants were well placed to consider it, the plaintiff’s case having just been completed. The defendant’s legal team were actively involved in considering and presenting the defence. The defendants had ample opportunity to consider the offer, which remained open to be accepted for the remainder of the trial. The defendants did not respond to the plaintiff about the offer after it was served, allowing the plaintiff to complete the trial under the shadow of an open offer.

1. The plaintiff offered a significant compromise. The damages claimed before the jury exceeded $750,000 and the jury’s award, before contributory negligence, was $599,260. There had been prior offers of compromise. On 30 January 2013, the defendants served an offer to compromise the plaintiff’s claim for $250,000. On 6 February 2013, the plaintiff served an offer to compromise his claim for $500,000.

1. By 7 March 2013, when the subject offer of compromise was served, circumstances had changed significantly. The plaintiff had closed his case. It is a reasonable inference that the plaintiff was less optimistic about his prospects of success than he had been before the trial commenced. Significant additional legal costs had been incurred on both sides and each party’s legal representatives had enjoyed the opportunity to carefully monitor the jury reception of the plaintiff’s case and the nature in which it had been challenged.

1. In my view, the plaintiff’s offer can properly be seen as a realistic reassessment by him of his risks in the litigation and cannot be properly characterised as a foundation for an application for indemnity costs, rather than a genuine offer to settle. That is because the plaintiff would not have any basis to apply for indemnity costs unless, and until, he received a more favourable verdict from the jury than his offer. That may have never happened. During the remainder of the trial, he was at risk that if the defendant perceived the prospect of a more favourable verdict for the plaintiff than the offer, the offer of compromise could be accepted.

1. There is no question about formal compliance with the requirements of Order 26 and thus no issue about the clarity of the terms of the offer. Finally, the consequence of an order for indemnity costs followed on the prima facie operation of the rule, unless the court otherwise ordered. The circumstances by reference to which the court might be persuaded to otherwise order would be known to the defendants as they would make that application and bear the onus.

1. The rejection of the offer exposed the defendants to a greater judgment sum and a greater costs liability than they would have been exposed to had the offer been accepted. The defendant’s also incurred additional costs in running the trial to its conclusion and those additional costs are consequent on the refusal of the offer by the defendants, not on the timing of the plaintiff’s offer.

1. In these circumstances, the rejection by the defendants of the offer of compromise was plainly unreasonable and there is no basis at all to otherwise order. I will order that the defendants pay the plaintiff’s costs of the proceeding, including reserved costs, to be taxed on an indemnity basis in default of agreement.

---