BUNNEY v HOLT (No 2) - [2019] SADC 160

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
BUNNEY v HOLT (No 2)
[2019] SADC 160
Decision of His Honour Judge O'Sullivan
30 October 2019
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - INDEMNITY COSTS - RELEVANT CONSIDERATIONS GENERALLY
On 2 October 2019 the plaintiff received judgment on his claim. Prior to proceedings commencing a number of offers pursuant to DCR 33 had been made by the plaintiff. A formal offer pursuant to DCR 187 was made by the plaintiff after proceedings had been commenced. The plaintiff received a judgment no less favourable than his offer filed pursuant to DCR 187.
Held:
1. Plaintiff to receive its costs on a party party basis for the period from commencement of the action to 20 January 2018.
2. Plaintiff to receive its costs on an indemnity basis for the period commencing 21 January 2018.
District Court Rule (2006) ss 33, 187, 188, 263, 264, referred to.
Messagemate Australia Pty Ltd v NCI (No 2) [2002] SASC 377; Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353, 354; Prepi v Sahara Tours Pty Ltd (No 2) (2008) 22 NTLR 228; ITFC Broking Services Ltd & Anor v Federal Commissioner of Taxation & Anor (2010) 268 ALR [9]-[12]; Dighton v The Nominal Defendant (No 4) [2012] SADC 24, considered.

BUNNEY v HOLT (No 2)
[2019] SADC 160
Introduction

On 2 October 2019 I delivered judgment in this matter in which I ordered:
1That there be judgment for the Plaintiff in the sum of $145,583.94 including interest to the date of judgment;
2That the Defendant permit the Plaintiff to collect the Plaintiff’s Triumph motorcycle from the Defendant’s premises within 28 days of 2 October 2019; and
3I will hear the parties on the question of costs.
On 18 October 2019 I heard argument on the question of costs.
Orders Sought
The Plaintiff seeks indemnity costs from the commencement of the action on 26 June 2017. It bases its application on two grounds:
1First, there were a number of offers made by the Plaintiff prior to and after the commencement of the proceedings; which the Plaintiff bettered (‘informal offers’[1]);
2Second, a formal offer was made and served by the Plaintiff on 5 January 2018, which the Plaintiff bettered.
[1] In these reasons I use the term ‘informal offers’ to differentiate between offers made under DCR 187, which are referred to in the rule as ‘formal offers’ and other offers.
Informal Offers
The informal offers comprised;
i.Two letters before action pursuant to District Court Rule (‘DCR’) 33 one dated 7 October 2015 and one dated 1 April 2016. In those letters, the Plaintiff offered to accept the sum of $104,999, such sum being the full amount of the claim, plus interest at 4.2%. The Defendant did not accept either offer.
ii.A letter dated 17 January 2017 by which the Plaintiff made an offer to resolve the matter prior to action pursuant to DCR 33, in the sum of $100,000. The offer made no mention of interest, nor costs and I proceed on the basis that the offer was all inclusive. The Defendant did not accept this offer.
iii.A letter dated 3 October 2018, after the trial had begun, by which the Plaintiff made an offer which postulated a number of different scenarios. The Defendant did not accept this offer.
iv.A letter dated 18 October 2019, after the hearing of this matter had been adjourned part-heard, and in which a further offer was made. The Defendant did not accept this offer.
Formal Offer
On 5 January 2018, the Plaintiff filed and served a formal offer pursuant to DCR 187, by which the Plaintiff offered to accept the sum of $100,000, inclusive of interest. The offer was silent on the question of costs such that pursuant to DCR 187(6)(b), the offer is made in addition to costs on a party-party basis up to the time of acceptance. The Defendant did not accept that offer nor did it respond to the offer in any way in accordance with DCR 188A(1). There is no issue between the parties as to whether the offer was a conforming offer.
Rules
DCR 263(1) provides that as a general rule, costs follow the event. However, that general rule is subject to specific rules to the contrary.[2]
[2] See DCR 263(2).
DCR 264 concerns the basis for awarding costs and provides in part as follows:
(1)The Court may, in the exercise of its discretion as to costs, award costs on any basis the Court considers appropriate.
(2)As a general rule, however, costs are awarded as between party and party (that is, on the basis that the party entitled to the costs will be reimbursed for costs reasonably incurred by the party in the conduct of the litigation to an extent determined by reference to the scale of costs in force, under these Rules or the old rules, when the costs were incurred).
…
(5)     In exercising its general discretion as to costs, the Court may—
(a)     award costs as between solicitor and client (that is, on the basis that the party will be fully reimbursed for costs incurred by the party in the conduct of the litigation to the extent that the party entitled to the costs shows them to have been reasonably incurred); or
(b)     award costs on the basis of an indemnity (that is, on the basis that the party will be fully reimbursed for costs incurred by the party in the conduct of the litigation except to the extent that the party liable for the costs shows them to have been unreasonably incurred); or
It is apparent from DCR 264 that the Court retains a wide discretion as to the basis upon which it might award costs.
DCR 33
DCR 33 deals with offers before settlement. Specifically, DCR 33(7) provides:
(7)In awarding costs of the action, the Court may take into account—
(a) whether the parties have complied with their obligations under this rule; and
(b) the terms of any offer or counter-offer, or of any response to an offer or counter-offer, made under this rule and the extent to which it was reasonable or unreasonable in the circumstances.
DCR 33 is silent on the consequences of the Defendant not accepting an offer before action, other than DCR 33(7) which provides that the Court may take into account the matters set out in that sub-rule.
DCR 187
DCR 187 concerns formal offers. It provides as follows:
(1)A party (the offeror) may, by notice in writing, make an offer to any other party (the offeree) to compromise any claim in the proceeding, either in whole or in part, on specified terms (a formal offer).
(2)A formal offer is to be expressed—
(a)     in terms of a judgment to be entered upon acceptance (a judgment offer); or
(b)     in terms of a contract to come into existence upon acceptance including terms for the disposition of the claim the subject of the offer (by discontinuance, judgment or otherwise) (a contract offer).
(3)A formal offer that does not comply with subrule (2) is incapable of acceptance for the purposes of this Part and is void for the purposes of this Part.
(4)A formal offer is to—
(a)     be in an approved form;
(b)     state that it is made in accordance with this rule;
(c)     if there is more than one action in the proceeding, state the action to which it relates; and
(d)     if it relates to some, but not all, claims in the action to which it relates – state to which claims it relates.
(5)A formal offer is to be—
(a)     filed at Court in an envelope marked “formal offer – not to be opened except in accordance with an order of a Judge or Master” unless it is expressed to be an open offer in which case it is to be filed in the usual way; and
(b)     served on all other parties to the proceeding immediately upon being filed.
(6)A formal offer—
(a)     may be expressed to be an open offer but if silent will be taken to be made on the basis that it is without prejudice save as to costs;
(b)     may include any terms as to costs (including that the offer is inclusive of costs or that the parties will submit to any order the Court may make in the exercise of its discretion) but if silent will be taken to include a term that the defendant to the relevant claim is to pay the plaintiff’s costs of the relevant claim on a party and party basis up to the time of acceptance;
(c)     may be expressed to lapse after the expiration of a stipulated time, being not less than 14 days after service of the offer, but if silent will be taken to remain open until it lapses or is withdrawn in accordance with rule 188;
(d)     if a contract offer involving payment of money, may stipulate time for payment but if silent will be taken to include a term that payment be made within 28 days of acceptance;
(e)     may include any terms as to principal relief whether or not sought or obtainable in the proceeding;
(f)    may annex reasons why it would be unreasonable for the offer not to be accepted.
If a complying offer is made pursuant to DCR 187 and not accepted, DCR 188F applies. In the circumstances of this matter, the relevant sub-rules are DCR 188F(2) and (3), which are in the following terms:
(2)The provisions of this rule are subject to the overriding discretion of the Court.
(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.
Plaintiff’s Submissions
The Plaintiff submits that I should take the informal offers into account, and in the exercise of my discretion award indemnity costs for the period from the commencement of the proceedings to a date 14 days after the service of the formal offer. I deal with that submission below but insofar as the informal offers which were made on 3 October 2018 and 18 October 2019, for reasons which I set out below, in the particular circumstances of this case I do not need to consider them.
Insofar as the formal offer is concerned, the Plaintiff submits that as he received a judgment no less favourable than the terms of the offer, DCR 188F(3)(b) provides that after a period of up to 14 days after service of the offer, the Plaintiff is entitled to its costs on an indemnity basis.
It is common ground that the formal offer was served on 5 January 2018. I proceed on the basis that the 14 day period commences on the day after the offer was served and finishes on the 14^th day thereafter, meaning that the period which is unaffected pursuant to DCR 188F(3)(a) finishes at midnight on 20 January 2018.
The Plaintiff submits that on a clear reading of DCR 188F(3), he is entitled to his costs on an indemnity basis from 21 January 2018. That said, the Plaintiff accepts that pursuant to DCR 188F(2), the Court retains an overriding discretion on the question of costs.
Defendant’s Submissions
The Defendant opposes an order for indemnity costs from either the commencement of proceedings or from the period commencing 14 days after the service of the formal offer.
Informal Offers
Insofar as the two informal offers made by letter dated 7 October 2015 and 1 April 2016, the Defendant submits that those letters provided no offer of compromise but simply restated the Plaintiff’s claim.
As to the question of costs between the date the proceedings were commenced and 21 January 2018, the Defendant makes the same submission that in reality the informal offer made on 17 January 2017 offered a figure little different from the Plaintiff’s entire claim in that he offered $100,000 but without interest or costs.
Formal Offer
In relation to the formal offer, the Defendant submits that the Plaintiff was unsuccessful on the question of the Plaintiff’s mental capacity to enter into a contract, and points to Dr Champion’s evidence which I found addressed the wrong question.
It is submitted that issue took approximately 20% of the trial time and as a result, the cost for this issue should not be visited on the Defendant on an indemnity basis. Further, the Defendant submits the Plaintiff spent some time cross-examining on the unpleaded claim of illegality, which the Defendant submits took some 1-2 hours.
Still further, the Defendant says the Plaintiff introduced the issue of mistake in its final submissions, another matter that had not been pleaded. As to that point, I dealt with this contention in the Reasons for Judgment delivered 2 October 2019 at [243]-[248], where I held that the issue of mistake necessarily arose out of the evidence and as a consequence of my findings.
Consideration
Informal Offers
As I have noted, the two informal offers made before the action pursuant to DCR 33, dated 7 October 2015 and 1 April 2016, offered to accept the total amount of the Plaintiff’s claim plus interest at 4.2%. The Plaintiff submits that the offer contained in these two letters involved an element of compromise in relation to the interest component. The Defendant submits the letters did not comprise a genuine offer of compromise.
In Messagemate Australia Pty Ltd v NCI (No.2),[3] Williams J observed that an offer by a Plaintiff to accept the whole of its claim for the principal debt together with interest was not an offer within the meaning of the Rules as they then existed, holding that the rules ‘probably contemplated some degree of compromise in a case such as the present’.
[3] [2002] SASC 377.
There have been a number of decisions where the Court has considered whether offers made have involved an element of compromise and so could properly be considered as an offer attracting the application of the Court’s discretion on the question of costs. Typically, those decisions address an offer whereby a party either accepts the entirety of its claim or alternatively offers to accept a discontinuance with no order as to costs.
In relation to the two letters dated 7 October 2015 and 1 April 2016, two questions arise. The first is whether the two letters comprise a genuine offer of compromise, and the second is that if the answer to the first question is yes, do the provisions of DCR 33 operate such that the Court, in considering the question of costs, should consider the reasonableness or unreasonableness of the offers as the case may be. DCR 33 is silent as to the contents of any offer and is expressed in general terms.
In Tickell v Trifleska Pty Ltd,[4] Rogers CJ in Comm D of the New South Wales Supreme Court considered an offer by the Plaintiff in which the Plaintiff had offered to settle for the whole of the amount claimed together with interest. Having considered whether the terms of the offer complied with the then Supreme Court Rules, his Honour noted that the concepts which underlie the whole theory of compromise and offers of compromise were directed at compromise. His Honour noted that in that case, a demand for payment to the Plaintiff of everything to which it may possibly be entitled, did not fall into the category of compromise.[5]
[4] (1990) 25 NSWLR 353, 354.
[5] Ibid p353.
In my view, the two letters dated 7 October 205 and 1 April 2016 offer little if anything by way of compromise and I do not consider they represented a genuine offer of compromise at that time.
Although the second question does not arise in view of my finding that the offers did not represent a genuine offer of compromise, this matter involved complex questions of law and fact and it is fair to say that the matter was finely balanced.
I note that DCR 33(7) provides that the Court may take into account, amongst other things, the terms of any offer made under DCR 33, or of any response, and whether the extent to which it was reasonable or unreasonable in the circumstances.
The Defendant, by his solicitors, responded to the 7 October 2015 letter on 18 December 2015, in which he denied any indebtedness to the Plaintiff.
In all the circumstances I consider that response to have been reasonable at that time.
Accordingly, in the exercise of my discretion on the question of costs, I decline to make an order for indemnity costs based upon either of those two letters.
Letter 17 January 2017
This letter also falls into the category of an offer made prior to action. That letter offered the sum of $100,000 but without interest or costs. Again, it is a figure little different from the entire claim, however no interest is claimed. I am prepared to accept that in this case, the letter was a genuine offer of compromise.
The issue then becomes whether in exercising my discretion, I consider it was reasonable or unreasonable for the Defendant not to accept the offer.
For the reasons set out above, I consider it was reasonable for the Defendant not to accept the offer.
DCR 187 – Formal Offer
On 5 January 2018, the Defendant filed a formal offer, the effect of which is that the Plaintiff offered to accept the offer of $100,000 inclusive of costs and interest together with other orders in relation to the Triumph motorcycle. The Defendant did not accept the offer.
Unlike DCR 33, DCR 188F(3) provides a prima facie entitlement on the part of the Plaintiff to an order against the Defendant for the Plaintiff’s costs of action on an indemnity basis, as from 14 days after service of the formal offer, in circumstances in which the Plaintiff obtains judgment on the claim to which the offer relates no less favourable to the Plaintiff than the terms of the offer.
That has occurred in this case.
No question of reasonableness or unreasonableness arises on the face of the rule, although I note that although DCR 188F(3) provides for an entitlement, DCR 188F(2) provides that the provisions of the rule are subject to the overriding discretion of the Court.
In my view, that overriding discretion requires the reasonableness of the offer and the reasonableness of the rejection to be taken into account as one of the factors to be considered as part of the exercise of the discretion.
The Plaintiff submits that to be relieved of the operation of the offer, there must be something exceptional.[6] It further submits that the discretion should only be exercised against the prima facie entitlement in exceptional cases and the reasonableness of the litigant in rejecting an offer is not a reason to exercise the discretion.[7] The Plaintiff also refers to the decision of His Honour Judge Tilmouth in Dighton v The Nominal Defendant (No.4.).[8] That was a case under which His Honour considered an award of costs pursuant to DCR 188. That rule has now been repealed but His Honour observed the following:
It is abundantly clear that the dual purpose lying behind Rule 6R 188 is to encourage parties to make and accept reasonable offers, the wider objective being the prompt and economic disposal of litigation and hence a reduction in the number of cases proceeding to trial: Maitland Hospital v Fisher (No 2), Shaw v Jarldorn. Judge Lunn observed in Miller v Hannagan:
It is in the interests of the administration of justice that wherever possible the resources of the court should be made available to resolve those matters where there can be no proper settlement. To achieve this end the Rules now encourage such settlements wherever possible. If the prospect of paying solicitor and client rather than party and party costs will induce defendants to take a more realistic approach to settlements well before trial, then r88 should, so far as proper, be interpreted to promote such settlement.
[6] See Prepi v Sahara Tours Pty Ltd (No. 2) (2008) 22 NTLR 228, [7]-[9] and the cases referred to therein.
[7] IFTC Broking Services Ltd & Anor v Federal Commissioner of Taxation & Anor. (2010) 268 ALR [9]-[12].
[8] [2012] SADC 24 (2 March 2012).

In that matter the Plaintiff obtained a judgment which all but doubled the amount of an offer that had been filed in accordance with DCR 187. After considering the authorities, His Honour determined that there was no sufficient basis upon which to deprive the Plaintiff of the prima facie position provided by the then DCR 188. His Honour observed that in not providing solicitor-client costs under those circumstances, it was such that:[9]
The rule would have little utility in point of its objectives if not invoked in these circumstances.
[9] Ibid at [26].
In IFTC Broking Services Ltd & Anor v Federal Commissioner of Taxation & Anor,[10] the Full Court of the Federal Court of Australia considered the provisions of Order 23, Rule 11(6) of the then Federal Court Rules. That rule was in the following terms:
(6)     If –
(a)     an offer is made by a respondent and not accepted by the applicant; and
(b)     the respondent obtains an order or judgment on the claim to which the offer relates as favourable to the respondent, or more favourable to the respondent, than that terms of the offer;
Then, unless the Court otherwise orders:
(a)    the respondent is entitled to an order that the applicant pay the respondent’s costs in respect of the claim incurred up to 11am on the day after the day the offer was made, taxed on a party-party basis; and
(b)    the respondent is entitled to an order that the applicant pay the respondent’s costs in respect of the claim incurred and after that time, taxed on an indemnity basis.
[10] Ibid.
In that matter the Appellants were unsuccessful such that the Respondent obtained a judgment on the appeal to which the offer related more favourable to the Respondent than the terms of the offer. In considering the provisions of Order 23 rule 11(6) the Full Court of the Federal Court of Australia observed that the prima facie position established by the rules may be departed from. Pausing there, that is also the case in relation to DCR 188F(3) as the rule is subject to the overriding discretion of the Court on the question of costs.[11]
[11] DCR 188F(2).
The Full Court of the Federal Court of Australia then set out a number of principles which were able to be gleaned from the authorities namely:
1.If Order 23 rule 11(6) is engaged, it was for the applicant to satisfy the Court that the prima facia position should be departed from – Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd.[12] The question of reasonableness in rejecting an offer of compromise was not sufficient to displace that presumption - Futuretronics[13]
2.Properly understood the rule creates a presumption in favour of indemnity costs which the unsuccessful party must rebut. A Court will only depart from the presumptive position for proper reasons which generally only arise in an exceptional case – Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No.2).[14]
3.The requirement for proper reasons to depart from the prima facia position reflects the purpose of the rule is intended to encourage the compromise of litigation. – Maitland Hospital v Fisher (No.2).[15]
[12] [2009] FCAFC 40, [12].
[13] Ibid at [11].
[14] (2004) 212 ALR 281, [17].
[15] (1992) 27 NSWLR 721,725.
Although dealing with Order 23, Rule 11(6) of the then Federal Court Rules, nonetheless in my view the principles set out in IFTC Broking Services are equally applicable to DCR 188F(3) insofar that there is a prima facie entitlement to an order against the Defendant for the Plaintiff’s costs on an indemnity basis, when the pre-conditions in that rule are established. Further, although reasonableness or unreasonableness on the part of the Defendant in this case in rejecting the offer may be considered as part of the exercise of discretion, that factor alone will be insufficient to displace the prima facie entitlement in DCR 188F(3) and there must be proper reasons which generally only arise in an exceptional case.
For the purposes of this matter, there is no relevant difference between solicitor-client costs and indemnity costs insofar as the category of costs is concerned. There is a distinction insofar as to who has the onus on an adjudication but I need not deal with that.
I have found that it was reasonable for the Defendant not to have accepted the offer under DCR 33 made 17 January 2017, prior to the commencement of these proceedings on 26 June 2017. In contrast, the formal offer was filed and served on 5 January 2018, after the Defendant had the opportunity to see a pleaded case against him and had filed a defence.
Notwithstanding that this issue had complex questions of law and fact, by 5 January 2018 the Defendant could see the nature of the Plaintiff’s case against him. Accordingly, I do not consider that this matter is an exceptional case in which there are proper reasons such as to cause me not to award costs on an indemnity basis in accordance with the prima facie position expressed under DCR 188F(3)(b).
Having determined that point, the question is whether or not I should order a reduced percentage of the costs as from 21 January 2018 on the basis that the Plaintiff was unsuccessful in some of the issues to which I have referred above.
In my view, although unsuccessful on some of the issues, the issues of the Plaintiff’s mental state was foremost in the trial and although I have found against the Plaintiff on the question of capacity, I do not consider, in the exercise of my discretion, that I should reduce the costs recoverable by the Plaintiff as a result.
In relation to the alleged illegality, that issue, on the Defendant’s own submissions, took only 1-2 hours in cross-examination. That period of time was trifling in the overall conduct of the trial.
Accordingly, I do not consider that any basis has been shown by the Defendant for the Court to award a lesser percentage of indemnity costs by virtue of the non-success on some aspects of the Plaintiff’s claim.
Conclusion
In all the circumstances, in the exercise of my discretion, I order: -
1.That the Plaintiff receive its costs of an incidental to the action on a party-party basis for the period from commencement of the action to 20 January 2018 and its costs on an indemnity basis for the period commencing 21 January 2018.