Chan v Falls Creek Alpine Resort Management Board
[2014] VSC 314
•30 June 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
COMMON LAW DIVISION
S CI 2011 3986
| CHRISTOPHER CHAN (who sues by his litigation guardian BENJAMIN CHAN) | Plaintiff |
| - and - | |
| FALLS CREEK ALPINE RESORT MANAGEMENT BOARD | First Defendant |
| FALLS CREEK SKI LIFTS PTY LTD | Second Defendant |
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JUDGE: | Lansdowne AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 and 25 June 2014 | |
DATE OF JUDGMENT: | 30 June 2014 | |
CASE MAY BE CITED AS: | Chan v Falls Creek Alpine Resort Management Board and anor | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 314 | |
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APPROVAL OF COMPROMISE – compromise included agreed sum for costs – undesirability of this practice –Sztockman v Taylor [1979] VR 572 applied – compromise modified by agreement to be “all in” sum.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr Gray, solicitor, and subsequently Mr A. Keogh of Senior Counsel | Slater and Gordon Lawyers |
| For the First Defendant | No appearance | |
| For the Second Defendant | No appearance |
HER HONOUR
Introduction
These reasons are an edited version of reasons I previously published only to the plaintiff in the course of my determination of a summons for approval of a compromise. The reasons explain my adjournment of the summons for approval and reluctance to approve the compromise as first put forward. On the adjourned date the plaintiff sought approval of the compromise in the revised form suggested in the reasons, and I granted that approval. As the issue may arise in other proceedings, I thought it may be helpful to make my reasoning more widely available.
By the compromise as first put forward the defendants proposed to pay, and the plaintiff desired to accept, a sum for the benefit of the plaintiff in full settlement of the plaintiff’s claim for damages, together with party/party costs in an agreed sum. I adjourned the approval for further evidence and submission, or renegotiated terms, having regard to the issues identified in Sztockman v Taylor[1]. I now set out the edited substance of the reasons.
[1][1979] VR 572.
Sztockman v Taylor
In Sztockman v Taylor, Brooking J expressed the strong view that it was undesirable in settlement of a claim by a person under disability for the parties to agree on the costs to be paid prior to approval of the compromise. His Honour referred to authority in the United Kingdom and in other states of Australia to the effect that this practice is undesirable because of the potential conflict of interest in which it places the legal advisers of the plaintiff. He noted that in those jurisdictions there are rules of court that prevent the practice. There was at that time, and remains, no rule that prevents agreement of costs prior to approval of the compromise in Victoria but his Honour cited with approval the following statement as to the purpose of the rule in the English courts:
According to the Supreme Court Practice 1979, Pt 1, p1265, the rule was designed to protect a person under disability against the possibility of his solicitor’s being persuaded by the offer of an attractive sum in respect of his own costs to settle the claim for something less than it was really worth.[2]
[2]At p 574.
Brooking J held that in Victoria:
In my view the settlement of a claim by a person under disability on terms requiring payment of an agreed amount of a claim and an agreed amount for costs is, speaking generally, undesirable. I can certainly conceive of cases in which the exigencies of the situation render the negotiation of such a settlement desirable in the interests of the person under disability. But as a general rule, agreement upon the amount of costs should not be reached or sought until after the compromise has been arrived at and approved.[3]
[3]At p 574.
Brooking J distinguished between settlements of claims by persons not under a disability and those where the plaintiff is under disability. He held that compromises where the plaintiff was under a disability fell into a different category on the basis that the Court looks to the legal advisers of a person under disability for their opinion as to whether the compromise is for the plaintiff’s benefit. He held that:
…it is in general undesirable that a solicitor charged with the duty of considering whether a proposed compromise is in the interests of a person under disability should be concerned in attempts to determine at one and the same time the amount to be paid for claim and the amount to be paid for costs; for in general this tends to place the solicitor in a position in which his personal interest conflicts with that of his client.[4]
[4]At p 575
Brooking J also identified a further reason why this practice is undesirable in these terms:
Settlements which determine the amount payable for costs as well as for claim not only may tend to embarrass the plaintiff’s solicitor in the discharge of his duties, but also may tend to embarrass the Court, for, as has been observed in the decisions from New South Wales to which reference has been made, the judge in satisfying himself that the terms of settlement are proper in the interests of the plaintiff must give consideration to the amount agreed upon for costs, but is not equipped to perform the functions of the taxing master.[5]
This case compared to Sztockman v Taylor
[5]At pp 575 – 576.
Brooking J noted that he had consulted the then Senior Master in relation to the practice in relation to costs when applications for approval of compromise came before Masters. Those enquiries revealed that at that time in the great majority of cases the compromise provided for costs to be taxed. My own enquiries confirm that that remains the case today, and the solicitor for the plaintiff has confirmed that that is so in his own considerable experience.
In the case before Brooking J, the amount agreed for costs was of very much smaller amount than the proposed settlement. The proposed settlement was for $215,000 for the plaintiff’s claim and $10,000 for costs. After Brooking J expressed his concerns orally, the parties renegotiated the terms and sought approval for the payment of $215,000 together with costs to be taxed in default of agreement. Approval was given to this compromise.
In the case before me, by contrast, the agreed costs approximate, and after deduction of the required deductions to the Department of Human Services and others, will in fact exceed, the amount received for the benefit of the plaintiff. For this reason alone, in my view, the issues identified in Sztockman v Taylor arise even more starkly in the instant case.
The plaintiff is a young man who was catastrophically injured when he was catapulted into the side of a building at a ski resort following his very quick descent down a ski run. The Terms of Settlement between the parties in this case, which are not exhibited to the affidavits in support of the summons but a copy of which was handed up at the hearing, recite that:
The potential of the Plaintiff’s claim for damages was substantial, and probably in the region of [a very large sum].
The Terms further recite that the defendants deny liability on a number of grounds and that, in the “extremely unlikely event one or both Defendants was found to be liable to the Plaintiff, any liability would be very substantially reduced by reason of the contributory negligence of the Plaintiff”.
The proposed settlement of the claim is very small, having regard to the potential of the damages if liability was established, but that may well be appropriate if the alternative was failure at trial or very substantial reduction of any award by reason of contributory negligence. What is of concern, however, is that there is no evidence before the Court as to how the agreed sum for party/party costs was arrived at, save that it is said it was a term of the offer as put by the defendants. If that offer was solely put at the mediation then it may not be possible to adduce evidence of the basis on which the sum was arrived at. Further, there is no evidence that the solicitors for the plaintiff had undertaken any assessment of the amount recoverable by way of party/party costs at this time.
It is, of course, not unknown that the costs incurred, even properly incurred, and recovered in litigation that results in an award of damages may far exceed the amount of that award. Where the only alternative to an amount offered by way of settlement of the claim is running a trial at considerable risk of being unsuccessful and a consequential substantial adverse costs order, then it may well be reasonable for a litigation guardian to accept the offer and apply from his own resources funds to the benefit of the plaintiff that would otherwise have been consumed by an adverse costs order. But the disparity here between the costs agreed to be paid on a party/party basis, with no evidence as to how that sum was arrived at and without the scrutiny of a taxation, and the sum to be applied to the benefit of the plaintiff, makes the case for scrutiny even greater than in Sztockman v Taylor.
Consideration of the evidence in support of the application for approval of compromise
These concerns are not entirely alleviated by the evidence filed to date.
(In subsequent paragraphs under this and the next heading I discussed the evidence filed in support of the summons for approval of compromise and adverted to submissions made on the first return date of the summons for approval of the compromise. I excise those portions from these published reasons.)
Some of these concerns may be addressed in part by more detailed evidence as to disclosure to the litigation guardian. However, the consent of the litigation guardian is not the end of the matter. The purpose of requiring the Court to approve the compromise is to ensure that a person under disability has the protection of external scrutiny. That external scrutiny is ordinarily provided in relation to party/party costs by the adversarial process of agreement or taxation, and in respect of solicitor/client costs by review within the office of the Senior Master. The current proposal could mean that that scrutiny is limited to a maximum of (the further sum the solicitor and litigation guardian had agreed the solicitor could seek from the funds in Court as solicitor/client costs), as opposed to the whole of the party/party and solicitor/client costs to be paid.
I make it plain that, on reflection, I doubt that it will be sufficient answer to these concerns for the solicitor for the plaintiff to seek to persuade the Court on the adjourned date for approval of the compromise, on the basis of further evidence, that the agreed costs are appropriate. This would require the Court as constituted for the approval of the compromise to in effect conduct a taxation. This is the second objection identified by Brooking J. The Court as so constituted is not constituted to conduct a taxation and should not be required to do so.
In summary, it is not my intention in setting out these concerns to express any view as to whether or not the amount claimed or to be claimed by the solicitors for the plaintiff for their costs is, or is not, appropriate. My intention is to identify the difficulty that is created when agreed costs are presented to the Court as a component of the compromise, particularly when that is sought to be justified by comparison to a broadbrush assessment of solicitor/client costs. The Court simply cannot know, without conducting a taxation, whether or not that agreement is a proper one, and approval of a compromise is not the occasion for a taxation.
Resolution
For all these reasons, the plaintiff may wish to approach the defendants and seek that the terms be renegotiated. The evidence of the solicitor for the plaintiff is that when the defendants put the offer they indicated that they were not prepared to be engaged in any further process, such as would be required by taxation. If this remains their position, a possible approach would be to approve the compromise on the basis that the whole of the sum the defendants have agreed to pay be paid after required deductions to the Senior Master for the benefit of the plaintiff, inclusive of costs. The solicitors for the plaintiff would then apply to the Senior Master for payment of their costs.
Subsequent approval
The previous paragraph concludes the general publication of reasons previously provided in more detail to the solicitors for the plaintiff only.
As noted in the Introduction, the plaintiff did in the period after the first return date approach the defendants who agreed to revise the compromise. The revised compromise provided that the total amount agreed to be paid by them inclusive of costs would be paid to the Senior Master for the benefit of the plaintiff, after required deductions. I approved the revised compromise and made orders noting that the solicitors for the plaintiff would apply to the Senior Master for their costs.
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