Crump v Equine Nutrition Systems Pty Ltd trading as Horsepower (No 2)

[2007] NSWSC 25

CITATION:	Crump & Ors v Equine Nutrition Systems Pty Ltd trading as Horsepower & Anor (No 2) [2007] NSWSC 25
HEARING DATE(S):	01/12/2006
JUDGMENT DATE :	2 February 2007
JUDGMENT OF:	Hoeben J at 1
DECISION:	(1) The plaintiffs are to pay the costs of ENS on a party/party basis as agreed or assessed up to, but not including, 15 September 2005. The plaintiffs are to pay the costs of ENS on an indemnity basis from 15 September 2005; (2) GWF is to pay the costs of the plaintiffs on a party/party basis as agreed or assessed up to, but not including, 25 June 2003; (3) The plaintiffs are to pay the costs of GWF on a party/party basis as agreed or assessed from 25 June 2003 up to, but not including, 15 September 2005. The plaintiffs are to pay the costs of GWF on an indemnity basis from 15 September 2005; (4) The judgment in favour of the plaintiffs against GWF is stayed until the costs ordered in favour of GWF have been agreed or assessed at which time that judgment may be set off against those costs; (5) By way of explanation, the above costs orders in favour of the defendants are in addition to the costs orders already made in their favour and are to include the costs reserved by Greg James J on 10 March, 14 March, 15 March, 16 March, 23 March and 30 March 2005; (6) The plaintiffs are to pay the defendants’ costs of the application before me on 1 December 2006 on a party/party basis as agreed or assessed.
CATCHWORDS:	COSTS - effect of settlement offers - failure to accept offer of compromise - failure to accept Calderbank offer - reasonableness of those offers - relevance of circumstances prevailing at the time when offers made.
LEGISLATION CITED:	Evidence Act 1995 (NSW) Supreme Court Rules 1970 Trade Practices Act 1974 Uniform Civil Procedure Act 2005
CASES CITED:	Altamura v Victorian Railways Commissioners (1974) VR 33 at 35 Brymount Pty Limited trading as Watson Toyota v Cummins and Anor (No 2) [2005] NSWCA 69 at [10] Calderbank v Calderbank (1975) 3 WLR 586 Fennell v Supervision & Engineering Services Holdings Pty Ltd (1988) 47 SASR 6 at 7-8 and 15 GIO General Limited v ABB Installation and Service Pty Limited [2000] NSWCA 118 Gould v Vaggelas (1984) 157 CLR 215 at 247 Herning v GWS Machinery Pty Limited (No 2) [2005] NSWCA 375 at [5] Johnsons Tyne Foundry Pty Ltd v Maffra Corporation (1948) 77 CLR 544 at 556 Jones v Bradley (No 2) [2003] NSWCA 258 Lackersteen v Jones (No 2) (1988) 93 FLR 442 at 449 Leichhardt Municipal Council v Green [2004] NSWCA 341 Morgan v Johnson (1998) 44 NSWLR 578 at 581-2 Nobrega v The Trustees of the Roman Catholic Church (No 2) [1999] NSWCA 133 Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd 1984) 157 CLR 149 at 163 Oshlack v Richmond River Council (1998) 193 CLR 72 at [63]-[67] SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323 at [37] Steppke v National Capital Development Commission (1978) ACTR 23 at 30-31 Sved v Council of the Municipality of Woollahra (1998) NSW Conv R 55-852 at 55,605 Tame v NSW (2002) 211 CLR 317 The Anderson Group Pty Limited v Tynan Motors (No 2) [2006] NSWCA 120 at [8]
PARTIES:	Vanessa Crump - First Plaintiff Bernard Crump - Second Plaintiff Rodney Crump - Third Plaintiff Equine Nutrition Systems Pty Ltd t/as Horsepower - First Defendant George Weston Food Limited t/as Millmaster Feeds - Second Defendant
FILE NUMBER(S):	SC 20670/2001
COUNSEL:	A McQuillen - 1st, 2nd and 3rd Plaintiffs P Garling SC/Ms R Pepper - 1st and 2nd Defendants
SOLICITORS:	GH Healey & Co - 1st, 2nd and 3rd Plaintiffs Phillips Fox - 1st and 2nd Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

HOEBEN J

Friday, 2 February, 2007

20670/01 – Vanessa CRUMP & Ors v EQUINE NUTRITION SYSTEMS PTY LTD t/as HORSEPOWER & Anor (No 2)

JUDGMENT - Costs

1 HIS HONOUR: I gave judgment in these proceedings on 6 July 2006. In that judgment I found in favour of Equine Nutrition Systems Pty Ltd (ENS) against the plaintiffs. I found in favour of the plaintiffs in their property damage claim against George Weston Foods Limited (GWF) in the amount of $71,113. I found in favour of Vanessa Crump (VC) against GWF in her claim for personal injuries in the amount of $9,450. I found in favour of GWF against Rodney Crump (RC) in his claim for personal injuries. I found in favour of Bernard Crump (BC) against GWF in his claim for personal injury, but I reserved the question of the amount of those damages pending an election by BC as to whether he wished to pursue his claim in negligence or under the TPA.

2 In the judgment I reserved the question of costs since I was given to understand that various offers had been made by the defendants which would affect any costs order. Evidence was adduced and written and oral submissions were made on 1 December 2006 as to what costs orders were appropriate. This judgment is in relation to that issue.

Preliminary matters

3 Counsel for the plaintiffs advised that BC elected to bring his claim for personal injuries under s75AD of the TPA rather than in negligence. Accordingly, I enter judgment in favour of BC against GWF in his claim for damages for personal injury in the amount of $18,900.

4 It was agreed by counsel that all previous costs orders should stand but that I should take account in this judgment of any reserved costs orders which had been made.

5 Subject to the outcome of the argument before me, I was asked by the defendants to rule on their application for a stay of the judgment pending the assessment of GWF’s entitlement to costs.

Factual background

6 The contaminated horse feed was consumed in the first week of August 1998. A Statement of Claim was filed on 30 July 2001 against both defendants. On 12 December 2001 ENS filed a defence denying all allegations against it. On 27 March 2003 an Amended Statement of Claim was filed which included an additional claim for nervous shock in respect of each of the plaintiffs. The original Statement of Claim had been limited to damages incurred in relation to the horses.

7 On 25 June 2003 the defendants served an Offer of Compromise in accordance with Part 22 of the SCR. The offer was $150,000 plus costs as agreed or assessed and was open for 28 days. No response was received from the plaintiffs.

8 On 11 September 2003 a proposed Further Amended Statement of Claim was received by the defendants. Another proposed Further Amended Statement of Claim was received by the defendants on 20 February 2004. On 12 March 2004 a “Calderbank” offer was made by the defendants to the plaintiff in the sum of $50,000 plus costs. The offer included a waiver of any costs orders made in favour of the defendants to date. The offer was open for 5 days. No reply was received from the plaintiffs.

9 On 18 March 2004 the matter went to mediation but no settlement was achieved. On 8 April 2004 the defendants made a second Offer of Compromise in accordance with SCR Part 22. The offer was $200,000 plus costs as agreed or taxed and was open for 28 days. The offer expressly waived all previous costs orders made against the plaintiffs.

10 In order to understand the submissions of the plaintiffs in relation to the Offers of Compromise, it is necessary to set out the correspondence between the parties, both before and after this Offer of Compromise.

11 On 24 March 2004 the plaintiffs’ solicitors forwarded a letter to the solicitors for the defendants which relevantly provided:

“We refer to the above matter and to the final Offer made by the defendants at the Mediation on 18 March 2004.
…
Total $200,000
Plus Costs as Agreed or Assessed
Plus Waiver of any outstanding costs
Orders to the value of approximately
$9,000.
The plaintiffs are having trouble attempting to work out what your Offer would mean they receive in the hand.
Would you kindly therefore confirm what Offer you would be prepared to make for costs.”

12 By letter dated 26 March 2004 the defendants’ solicitors responded:

“We refer to your letter dated 24 March 2004. At this stage we do not have instructions to make an offer in respect of costs. However, we would be happy to convey any offer you may wish to make in respect of costs to our client and seek instructions. If we cannot agree on an amount for costs, it will have to proceed to assessment.”

13 The plaintiffs’ solicitors by letter dated 31 March 2004 wrote:

“We refer to your letter dated 26 March 2004 received 29 March 2004.
In light of the contents of your letter, we will prepare a letter assessment of the Costs and submit same to you.
We will not be in a position to do this for a period of approximately 10 days.
Accordingly we would ask that you maintain your Offer until we have submitted our letter assessment of costs and thereafter we would ask that you:

· Re-submit your Offer in respect of the Plaintiffs’ claim; and

· Submit an Offer in respect of the plaintiffs’ Costs.

We trust you appreciate that our clients wish to seriously consider our Offer but we cannot provide sensible advice to our clients, as to the net sum to them from any settlement until the party/party costs issue is also quantified/clarified.”

14 The Offer of Compromise of 8 April 2004 was then served, accompanied by the following letter dated 8 April 2004 from the defendants’ solicitors:

“As you are aware the offer made at the Mediation on 18 March 2004 expired on 1 April 2004, being 14 days after it was made.
We enclose by way of service, Offer of Compromise in the sum of $200,000 plus costs. This offer is made by both the First and Second Defendants in full and final settlement of the proceedings brought by your three clients. The offer includes a waiver of the previous costs orders which the First and Second Defendants have against your clients. The Offer of Compromise is open for a period of 28 days only.
As your clients have made a claim for personal injury, if the offer is accepted the Defendants intend making an advance payment to the Health Insurance Commission. We enclose a notice which outlines the circumstances in which the Health Insurance Commission can retain some or all of the advance payments made to it.
Should the offer not be accepted we will rely upon this letter and the Offer of Compromise if the issue of costs arises.”

15 The plaintiffs’ solicitors by letter dated 20 April 2004 responded:

“We refer to your letter dated 8 April 2004.
We advise that currently we are unsure of the position of your client. Our instructions were that at the Status Conference on 7 April 2004, you were quite adamant that the Offer made at the Mediation had expired.
Yet on 8 April 2004, you purport to enclose an “Offer of Compromise” in precisely the same terms as the Offer that you expressed had expired.
Would you please clarify by return so we can seek instructions from our clients as to where the matter stands at present.”

16 By letter dated 21 April 2004 the solicitors for the defendants replied:

“We refer to your facsimile of 20 April 2004.
We are at a loss to understand what you require us to clarify. At the Mediation on 18 March 2004, Ms Rachel Pepper clearly stated that for the purposes of the Mediation our client would offer your clients the sum of $200,000 plus costs. It was also clearly stated by Ms Pepper that that offer was open for a period of 14 days only following the Mediation. Your clients, Vanessa Crump, Rodney Crump and Bernard Crump were present at the Mediation when the offer was made, along with Mr Healey of your office yourself and Katherine Lawrence from our office. The offer made at the Mediation expired on 1 April 2004.
On 8 April 2004 we received instructions from our client to serve a formal Offer of Compromise. This offer was served on you on 8 April 2004. As you are aware an Offer of Compromise is a new offer. We note that in the period following the Mediation, a further costs order was made against your clients and therefore our offer to waive previous costs orders is now worth more to your clients. Should you need any further clarification as to the effect of an Offer of Compromise, we refer you to Part 52A rule 22(6) of the Supreme Court Rules.
To further assist you, we set out below a chronology…”

17 No further correspondence passed between the parties in relation to the Offer of Compromise before the 28 day period expired.

18 On 16 April 2004 a Further Amended Statement of Claim (filed on 14 April 2004) was served on the defendants. On 22 April 2004 GWF filed its Defence which admitted that the feed was defective (but unknown to GWF at the time), admitted that the feed was not of merchantable quality and admitted that GWF knew the purpose for which the feed was being used.

19 On 11 May 2004 an Amended Defence was filed on behalf of ENS in which paragraph 4 provided:

“4. Admits paragraph 4 only insofar as the second plaintiff entered into a contract with the first defendant with respect to the goods (as defined) in or about July 1998 but otherwise does not admit the allegations contained therein.”

20 On 14 May 2004 Whealy J fixed the matter for hearing on 1 November 2004 with an estimate of five days.

21 By letter dated 27 October 2004 the plaintiffs offered to accept $750,000 plus costs in settlement of their claim. No time limit for acceptance was imposed. By letter dated 28 October 2004 the defendants rejected that offer and responded with an offer of $100,000 inclusive of interest, costs and disbursements, plus a waiver of costs orders made in favour of the defendants to date. The offer was to remain open until 9am Monday, 1 November 2004.

22 On 3 November 2004 the defendants offered to settle the plaintiffs’ claim for $150,000 inclusive of interest, costs and disbursements plus a waiver of costs orders in favour of the defendants to date. The offer was to be open until 9am 4 November 2004.

23 By letter dated 3 November 2004 the plaintiffs rejected the defendants’ offer and offered to accept $600,000 plus costs to be agreed or assessed in settlement of their claim.

24 When the matter came on for hearing on 1 November 2004 before Bergin J the plaintiffs were successful in having the hearing date vacated. On 4 November 2004 her Honour gave directions for the further conduct of the matter. On 16 November 2004 her Honour ordered that the plaintiffs pay the defendants’ costs thrown away by the vacation of the hearing date on an indemnity basis.

25 By letter dated 14 December 2004 the defendants offered to settle the claim on the basis that each party paid its own costs to date and that the defendants waive all costs orders in their favour. The defendants assessed the costs orders in their favour at $131,000. The plaintiffs did not respond to that offer.

26 On 10 March 2005 Hislop J listed the matter for hearing in the week commencing 2 May 2005. Thereafter a number of interlocutory disputes were heard by Greg James J in relation to which his Honour reserved the costs. On 6 May 2005 the matter commenced before me. On that same day the plaintiffs offered to accept $750,000 plus costs as agreed or assessed in settlement of their claim. The offer was to remain open until 10am Monday, 9 May 2005.

27 On 16 May 2005 I gave leave to ENS to withdraw the admission in its Defence of 11 May 2004 that it had supplied horse feed to the plaintiffs in July 1998. That this was in issue between the parties had been foreshadowed in March 2005 and a copy of the proposed Defence was received by the plaintiffs’ legal advisers on 9 May 2005.

28 On 20 May 2005 (day 11 of the hearing) I was sufficiently concerned by what I perceived to be a disparity between the damages likely to be recovered by the plaintiffs and the substantial legal costs being incurred to raise the question of costs specifically with the parties (T.781-783). The hearing was adjourned to 10 October 2005 with an estimate of 10 further hearing days.

29 By letter dated 6 September 2005 the plaintiffs offered to accept $750,000 plus costs agreed or assessed in settlement of their claim.

30 On 12 September 2005 the defendants served on the plaintiffs a Bill of Costs in relation to the costs orders which had been made in their favour up to that time. The Bill of Costs amounted to $134,710.90. The costs orders were as follows:

“1. 23 October 2002 - costs of a Status Conference.
2. 25 March 2003 - costs of two Notices of Motion.
3. 7 April 2004 – costs thrown away by the filing of a second Further Amended Statement of Claim.
4. 14 July 2004 – costs of a Notice of Motion.
5. 14 July 2004 – cancellation fees of 7, 13 and 15 July 2004.
6. 16 November 2004 - costs on an indemnity basis thrown away by the vacation of the trial date.
7. 16 November 2004 – costs of interlocutory hearings on 1, 11 and 16 November 2004.”

31 By letter dated 15 September 2005 the defendants reviewed the state of the proceedings and pointed out a number of difficulties which in their opinion confronted the plaintiffs. The letter concluded with an offer to settle the claim on the basis that both parties paid their own costs. The defendants agreed to waive all previous costs orders. The offer was to remain open until 5pm 30 September 2005.

32 By letter dated 27 September 2005 the plaintiffs rejected the defendants’ offer and agreed to accept $475,000 plus costs in settlement of their claim.

33 The matter continued for another 10 hearing days (10.10.05 - 21.10.05) and was adjourned for further hearing to 5.12.05. On 22 November 2005 the plaintiffs renewed their offer to accept $475,000 plus costs in settlement of their claim. No response was received from the defendants.

34 After another nine hearing days (5.12.05 – 16.12.05), the matter concluded. Judgment was handed down on 6 July 2006 as set out in [1] and [3] hereof.

Relevant Principles

35 The principles are clear. The usual order is that costs follow the event unless some circumstance is identified which should lead to a different result (Oshlack v Richmond River Council (1998) 193 CLR 72 at [63]-[67]).

36 One of those circumstances is where the conduct of the successful party is such that fairness dictates that the successful party should not obtain its costs or all of its costs. In exceptional circumstances the conduct may be such that a costs order would be made in favour of the unsuccessful party.

37 Another circumstance is where an Offer of Compromise is made pursuant to SCR Part 22 but is not accepted and the successful party obtains a result which is not more favourable than the terms of the offer. SCR Part 52A rule 22 set out the costs consequences of non-acceptance of an Offer of Compromise in these circumstances. Rule 22 relevantly provided:

“22(1) Upon the acceptance of an offer of compromise in accordance with Part 22 rule 3(5), the defendant shall, unless the Court otherwise orders, pay the costs in respect of the claim by the plaintiff against the defendant up to and including the day the offer was accepted.
(2) If a notice of offer contains a term which purports to negative or limit the operation of sub-rule (1) that offer shall be of no effect for any purpose under Part 22 or this rule.
(3) Sub-rules (4) – (6) apply to an offer which has not been accepted at the time prescribed by Part 22 rule 3(8).
…
(6) Where an offer is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim to which the offer relates not more favourable to him than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall, subject to rule 33, be entitled 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 made, assessed on a party and party basis, and the defendant shall be entitled to an order against the plaintiff for the defendant’s costs in respect of the claim thereafter assessed on a party and party basis.

…”

38 The qualification in rule 22(6) “unless the Court otherwise orders” has been interpreted to mean that a successful offeror will be entitled to its costs unless exceptional circumstances have been identified by the offeree (Morgan v Johnson (1998) 44 NSWLR 578 at 581-2, Brymount Pty Limited t/as Watson Toyota v Cummins and Anor (No 2) [2005] NSWCA 69 at [10]). The fact that the offeree was unaware of adverse material evidence has been held not to amount to exceptional circumstances (Morgan v Johnson).

39 Another circumstance is where a Calderbank letter is used and the successful party achieves a result which is less favourable than the terms of the offer in the Calderbank letter. In contrast to an Offer of Compromise, failure to accept a Calderbank offer does not create a presumption in favour of the offeror as to costs or indemnity costs, even where the party making the offer receives a result more favourable than that offered (Jones v Bradley (No 2) [2003] NSWCA 258 at [9]). In that circumstance costs remain in the discretion of the Court but the Calderbank offer is a factor to be taken into account as part of the totality of the relevant considerations in the exercise of the Court’s discretion (SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323 at [37]).

40 In SMEC Testing Services Pty Limited Giles JA considered that the following factors were relevant in determining whether costs should be awarded on an indemnity basis where a Calderbank offer had been made:

“(a) Whether the rejection of the compromise offer was reasonable in the circumstances. His Honour noted that while the rationale of Calderbank offers was to promote settlement of disputes “an offeree can reasonably fail to accept an offer without suffering in cost”.

(b) The timeframe in which the offeree had to consider the offer.

(c) Whether the letter of compromise explicitly stated that the offer was made in Calderbank terms, the exact conditions of the offer and whether indemnity costs would be pursued if the offer was rejected.”

41 What that and subsequent decisions made clear was that the reasonableness or otherwise of the refusal to accept the Calderbank offer needed to be considered by reference to the situation at the time when the offer was made and not solely by reference to the ultimate outcome of the proceedings. That kind of hindsight analysis has been expressly rejected. Whilst every case has to be considered and dealt with on its particular facts, it does not follow necessarily from an adverse outcome, that rejection of the offer was relevantly unreasonable.

42 In Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA considered the question whether a “walk away” offer could be a genuine offer of compromise. His Honour concluded that the decision of the Court of Appeal in GIO General Limited v ABB Installation and Service Pty Limited [2000] NSWCA 118 showed that “no error of legal principle exists in holding that a “walk away” offer can in a particular case be a “genuine offer of compromise” and that there is no reason to doubt the correctness of that conclusion” [36].

43 In a “walk away” offer situation what seems to be an essential factor is that the offer contained a real and genuine element of compromise:

“It is well established that an offer which does not involve a real and genuine element of compromise, will not be taken into account in relation to costs, either under the general law principle established by Calderbank v Calderbank (1975) 3 WLR 586 or under rules of Court” ( The Anderson Group Pty Limited v Tynan Motors (No 2) [2006] NSWCA 120 at [8]).

and

“The general approach adopted in this Court is that where an offer involves “no real element of compromise” but merely “invites capitulation by the appellant” it will not result in a variation of the usual costs order.” ( Herning v GWS Machinery Pty Limited (No 2) [2005] NSWCA 375 at [5]).

44 In relation to the form of a Calderbank letter, the following was stated in Jones v Bradley (No 2) [2003] NSWCA 258 at [15]:

“In Nobrega v The Trustees of the Roman Catholic Church (No 2) Powell JA (Priestley JA and Shepherd AJA agreeing) held that the fact that an offer was not in the precise form first suggested by Cairns LJ in Calderbank v Calderbank does not render it admissible or ineffective on any argument on costs. In addition the Evidence Act 1995 (NSW) s131(2)(h) provides that evidence of settlement negotiations may be adduced into evidence if they are relevant to the question of costs. Therefore as a matter of principle, the respondent’s submission is incorrect. But in any event the offer was precise and the letter was clear as to its purpose as it indicated that the offer was a “Calderbank offer” and that it was “without prejudice save as to costs”.

Consideration
Claim against ENS

45 ENS obtained a verdict in its favour. The usual order would be that it should have its costs. The plaintiffs, however, submit that not only should ENS not have its costs but that it should pay the plaintiffs’ costs.

46 The basis for that submission is the Amended Defence filed by ENS on 11 May 2004 where supply to BC by ENS in July 1998 was admitted, but the specific date of such supply was disputed. The withdrawal of that admission on 16 May 2005, it was argued, had significantly prejudiced the conduct of the case against ENS by the plaintiffs. Until that time the plaintiffs had a reasonable expectation that the fact of supply was not in issue only the date. As a result, it was submitted, even though ENS ultimately succeeded on that issue the plaintiffs should still have their costs because of the way in which ENS had conducted that aspect of the case.

47 As I inferred in the principal judgment and which was confirmed in the affidavit of Ms Lawrence of 30 November 2006, ENS had always assumed that it supplied the plaintiffs with contaminated HEP. It was only when its solicitors somewhat belatedly examined its accounting records in early 2005 that it became clear that no such supply had occurred in June, July or August 1998. That was the reason that the withdrawal of the admission was foreshadowed in March 2005 and at the beginning of the trial. The admission was formally withdrawn and a Further Amended Defence was filed on 16 May 2005.

48 The plaintiffs’ submission fails to have regard to two matters. The first is that the original Defence filed by ENS denied all matters in the Statement of Claim. Accordingly supply and the date of supply of the contaminated HEP was always in issue up to the filing of the Amended Defence on 11 May 2004. Any disadvantage suffered by the plaintiffs in reliance upon the admission of supply in that Defence, only existed between May 2004 and the commencement of the proceedings on 6 May 2005.

49 Secondly, in view of the findings which I made as to supply in the principal proceedings, it must have been clear to BC that once supply of the contaminated HEP during July 1998 again became an issue, it was an issue in relation to which the plaintiffs were likely to fail since no such supply to his knowledge had taken place during that month. It is also not without significance that after ENS was allowed to withdraw its admission, the plaintiffs did not avail themselves of the opportunity to administer interrogatories or seek further particulars in relation to the Amended Defence.

50 I am of the opinion that any disadvantage suffered by the plaintiffs as a result of the conduct of ENS in respect of its pleading in respect of the supply issue lasted no longer than 12 months. Absent other considerations I would have been minded to order that ENS not have its costs for the period 11 May 2004 to 6 May 2005 when the trial commenced. In view of the Offers of Compromise of June 2003 and April 2004 it is not necessary to consider that matter further.

51 At the time when the Offers of Compromise of June 2003 and April 2004 were made ENS had not filed its Amended Defence and the question of supply in July 1998 of the contaminated HEP was still at issue. It could not be said that the plaintiffs’ refusal to accept either of those offers was in any way influenced by a belief that the question of supply was not at issue. Similarly it could not be said that at the time the offers were made the admission of supply was an “exceptional circumstance” justifying the non-acceptance of those offers.

52 The plaintiffs accepted that, if the Offers of Compromise of June 2003 and April 2004 were made in accordance with SCR Part 22, ENS was entitled to its costs on a party/party basis from 25 June 2003. It was accepted that both Offers of Compromise contained offers which were more favourable to the plaintiffs had they accepted either of them than was the judgment which they ultimately obtained.

53 The plaintiffs submitted, however, that neither offer was in accordance with SCR Part 22 or Part 52A r 22 because the defendants had not included an offer to pay the costs in respect of the claim as required by Part 22 and Part 52A r 22(2).

54 The plaintiffs put their argument in this way. Because the amounts offered in each Offer of Compromise were below $225,000 (see SCR Part 52A r33(2)) either the plaintiffs had no entitlement to costs under the rules or their entitlement could not be quantified so that the offers were not genuinely “plus costs” as required. It is for this reason, the plaintiffs submitted, that they had made requests for clarification of what “plus costs as agreed or assessed” meant, both before and after the 8 April 2004 offer.

55 This submission should be rejected.

56 In relation to the offer of 25 June 2003 there were no inquiries, either orally or in correspondence, as to what “plus costs as agreed or assessed” meant. I do not accept that in relation to that offer there was any such concern as to the meaning of those words as later emerged in relation to the offer of 8 April 2004. That offer was simply ignored by the plaintiffs.

57 Both offers were expressed to be for a specified monetary amount “plus costs as agreed or assessed”. This fully conformed with the requirement of SCR Part 22. It is true that a difficulty was created for the plaintiffs by SCR Part 52A r 33 which relevantly provided:

“(2) Where: …
(f) In proceedings commenced after 1 October 1997, where a plaintiff recovers: …
(ii) in any other case – a sum not more than $225,000,
the plaintiff shall not be entitled to payment of his or her costs of the proceedings unless, it appearing to the Court that the plaintiff had sufficient reason for commencing or continuing proceedings in the Court, the Court makes an order for payment.
(3) Without limiting the generality of sub-rule (2), it shall be taken to be a sufficient reason if the plaintiff had reasonable grounds at the relevant time for expecting that he would recover an amount in excess of the amount prescribed by that sub-rule.”

58 What that meant was that if the plaintiffs accepted either Offer of Compromise they would have to make an application to the Supreme Court for the purpose of establishing that they had sufficient reason for commencing proceedings in the Court before they would have any entitlement to costs. That is quite a different situation to that which was submitted by the plaintiffs, ie that in effect SCR Part 22 had not been complied with because in reality no offer to pay costs had been made.

59 The situation created by the Offers of Compromise was no different to that which eventuated, ie judgment being entered for a figure less than $225,000. Before the plaintiffs are entitled to any costs in this matter, they have to persuade the Court that they had sufficient reason for commencing proceedings in the Supreme Court. Put another way, if the submission by the plaintiffs were correct, defendants in a Supreme Court action would be precluded from making an Offer of Compromise where the monetary amount nominated was less than $225,000. This is because any offer to pay the costs of a plaintiff could never satisfy SCR Part 22. There is no justification for so interpreting either SCR Part 22 or Part 52A r 22.

60 On behalf of ENS, it was submitted that I should apply Schedule 6 (Savings Transitional and Other Provisions) of the Uniform Civil Procedure Rules (2005) (UCPR) s5 of which provides:

“5(1) Subject to sub-clause (2), this Act and the Uniform Rules apply to proceedings commenced before the commencement of this Act in the same way as they apply to proceedings commenced on or after that commencement.
(2) A Court before which proceedings have been commenced before the commencement of this Act, may make such orders dispensing with the requirements of the Uniform Rules in relation to the proceedings, and such consequential orders (including orders as to costs), as are appropriate in the circumstances.”

61 If the UCPR applied, Part 42 r 42.15 entitles a defendant to costs assessed on an indemnity basis where a plaintiff fails to obtain a judgment which is as favourable or less favourable to the plaintiff than an Offer of Compromise made by a defendant. ENS submitted that the plaintiffs should pay the costs of ENS on an indemnity basis from the date of the first Offer of Compromise, 25 June 2003.

62 Although the transitional provisions of the UCPR allow such an order to be made, in my opinion the circumstances of this case do not justify it. At the time when both Offers of Compromise were made such offers were governed by the provisions of SCR Part 22 and Part 52A r 22. The consequences of a failure to accept Offers of Compromise were clearly set out by those rules. Accordingly, it would be unduly harsh to the plaintiffs to invoke to their disadvantage rules which were not in force at the time when the Offers of Compromise were made and refused.

63 In that regard I note that s10 of Schedule 6 UCPR authorises such an approach.

“10. Subject to this Schedule and the regulations:
(a) anything begun before the commencement of this Act or the Uniform Rules under a provision of the old legislation for which there is a corresponding provision in this Act made be continued and completed under the old legislation as if this Act had not been enacted, and
(b) subject to paragraph (a), anything done under a provision of the old legislation for which there is a corresponding provision in this Act or the Uniform Rules (including anything arising under paragraph (a)) is taken to have been done under the corresponding provision of this Act or the Uniform Rules, as the case requires.”

64 That does not end the matter. After the Offer of Compromise of 8 April 2004, a number of other offers were made. These purported to be Calderbank offers. ENS submits that the refusal to accept any of those offers by the defendants was unreasonable and that consequently it should have its costs paid on an indemnity basis from the date of those offers. It also relies upon the letters accompanying the Offers of Compromise as constituting Calderbank offers.

65 I propose to disregard the offers of 28 October, 3 November and 14 December 2004. The first two offers were made on an inclusive of costs basis which did not enable the plaintiffs to accurately calculate what was being offered to them and I propose to disregard them. I also propose to disregard the offer of 14 December 2004 because at that time the plaintiffs may well have had false expectations as to their chances of success against ENS because of the admission of supply in the Defence filed on 11 May 2004.

66 The letters accompanying the Offers of Compromise did not in terms purport to be separate offers or to be made as Calderbank offers. No reference was made to indemnity costs. They would have been understood by the plaintiffs as being no more than explanatory of the Offers of Compromise. I find that they did not constitute Calderbank offers.

67 The offer of 12 September 2005, however, was effective as a Calderbank offer. Although the letter does not contain a reference to Calderbank v Calderbank and although it does not expressly refer to indemnity costs being claimed if the offer contained in it was not accepted, it still operated as a Calderbank offer. This is because the offer which it contained was made as part of a series of offers and counter offers which were clearly intended by the parties to operate as Calderbank offers. The considerations identified in Nobrega v The Trustees of the Roman Catholic Church (No 2) [1999] NSWCA 133 were clearly made out. The defendants gave to the plaintiffs 15 days within which to accept the offer. In the context of offer and counter-offer that was a sufficient amount of time to allow a considered decision to be made by the plaintiffs.

68 In the 15 September 2005 letter the defendants offered to settle the plaintiffs’ claim on the basis that each party pay their own costs and that the defendants waive the benefit of costs orders which they had in their favour at that time. That offer involved a real compromise on the part of the defendants. A very detailed Bill of Costs had been forwarded to the plaintiffs which calculated the value of the costs orders in favour of the defendants at $134,711. Even allowing for the rejection of some of those amounts, it is clear that the burden of those orders was in excess of $100,000. At that stage 11 days of hearing had already been completed and the matter had been fixed for a further 10 days. The proceedings had been on foot since 2001. If the Offers of Compromise of June 2003 and April 2004 were effective, the defendants were agreeing to give up significant costs.

69 The refusal by the plaintiffs to accept that offer was unreasonable. By that time the plaintiffs must have realised (for the reasons set out in the principal proceedings) that they would not be able to prove supply by ENS of the contaminated HEP. The plaintiffs’ credit had been seriously damaged in cross-examination. I had given clear indications (20 May 2005) of difficulties which they faced in maintaining important parts of their claim. The letter itself identified the costs orders against the plaintiffs, identified difficulties in their property damage claim, referred to the Offers of Compromise and also referred to the problems associated with recovering any costs because of the provisions of SCR Part 52A r 33.

70 The offer contained in the letter was significantly more favourable than the outcome achieved by the plaintiffs from the litigation. In those circumstances ENS is entitled to its costs on an indemnity basis from 15 September 2005.

71 It should also be noted that much of the hearing time was devoted to issues in relation to which the plaintiffs failed. In normal circumstances this would be relevant to costs and would favour the defendants. In view of the conclusions which I have reached it is, however, not necessary to pursue that matter further.

Claim against GWF

72 The plaintiffs were successful against GWF. Subject to SCR Part 52A r 33, they would be entitled to their costs. However, the considerations to which I referred in relation to ENS (absent the Amended Defence) apply equally to GWF. It was a party to the Offers of Compromise of June 2003 and April 2004. It was a party to the Calderbank offer of 15 September 2005. For the reasons which I gave in respect of the claim against ENS it seems to me that GWF ought have its costs against the plaintiffs on a party/party basis from 25 June 2003 and on an indemnity basis from 15 September 2005.

Plaintiffs’ costs

73 Although no application was made to me on behalf of the plaintiffs, for completeness I propose to deal with the question of whether, given the modest verdict which they achieved, the plaintiffs have any entitlement to costs under SCR Part 52A r 33(2). In my opinion they do. At the time when the proceedings were commenced the true position of ENS and GWF, insofar as the TPA was concerned, would not have been apparent. The decision in Tame v NSW (2002) 211 CLR 317 had not been handed down by the High Court. At that time the plaintiffs had reasonable grounds to expect that their claims for nervous shock (albeit novel) had a chance of success. Taking those matters into account, I am of the opinion that when the proceedings were commenced in the Supreme Court the plaintiffs did have reasonable grounds for believing that they would recover damages of more than $225,000. I make it clear that I do not think that they had reasonable grounds for believing that they would recover damages greater than $450,000.

Bullock order

74 The plaintiffs submitted that if ENS obtained a costs order in its favour against the plaintiffs, the plaintiffs should have a Bullock order in their favour requiring GWF to indemnify them in respect of those costs.

75 The current approach to Bullock orders was summarised by Giles CJ Comm D (as his Honour then was) in Sved v Council of the Municipality of Woollahra (1998) NSW Conv R 55-842 at 55,605:

It is not sufficient for the making of a Bullock order that it was reasonable for the plaintiff to bring the proceedings against both defendants, although sometimes the condition for making a Bullock order is stated in that way ( Johnsons Tyne Foundry Pty Ltd v Maffra Corporation (1948) 77 CLR 544 at 556; Altamura v Victorian Railways Commissioners (1974) VR 33 at 35). One statement of principle is that the order may be made where the costs have been reasonably and properly incurred by the plaintiff as between it and the unsuccessful defendant ( Johnsons Tyne Foundry Pty Ltd v Maffra Corporation at 572-3; Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149 at 163; Gould v Vaggelas (1984) 157 CLR 215 at 247, 229); it has also been said that the conduct of the unsuccessful defendant must have been such as to make it fair to impose some liability on it for the costs of the successful defendant, or that the conduct of the unsuccessful defendant must show that the joinder of the successful defendant was reasonable and proper to ensure recovery of the damages sought ( Steppke v National Capital Development Commission (1978) ACTR 23 at 30-31; Gould v Vaggelas at 229; Fennell v Supervision & Engineering Services Holdings Pty Ltd (1988) 47 SASR 6 at 7-8 and 15; Lackersteen v Jones (No 2) (1988) 93 FLR 442 at 449). The difference in formulations is probably more apparent than real, as reasonableness as between the plaintiff and the unsuccessful defendant will normally be demonstrated by some conduct of the unsuccessful defendant which made it proper that the successful defendant be joined or that the unsuccessful defendant should bear the costs of the successful defendant. Such conduct was found in Lackersteen v Jones (No 2) in the unsuccessful defendant denying the authority of its agent whereby the plaintiff joined the agent who became the successful defendant, and more widely has been found in the unsuccessful defendant telling the plaintiff in one way or another that it should look to the successful defendant for its remedy ( Altamura v Victorian Railways Commissioners; Gould v Vaggelas; Fennell v Supervision & Engineering Services Holding Pty Ltd) ”.

76 Applying that statement of principle, the plaintiffs’ submission should be rejected. No basis for making a Bullock order has been established by the plaintiffs. It was not as though the plaintiffs were in any doubt as to the respective parts played by GWF and ENS. The plaintiffs knew that they had a strong case against GWF which was confirmed when it filed its Defence making admissions of breach of duty of care. There was no conduct identified on the part of GWF which in any way persuaded or induced the plaintiffs to bring proceedings against ENS.

77 Moreover for the reasons set out in the principal judgment the plaintiffs and in particular BC, would have been well aware that in fact no such supply of contaminated HEP as was alleged against ENS took place in July or August 1998. Finally, for most of the proceedings the damages to which the plaintiffs were entitled against ENS were the same as those to which they were entitled against GWF. It was not until 27 April 2005 that the plaintiffs amended their Statement of Claim to include a claim for exemplary and aggravated damages against ENS. For the reasons already indicated if supply could not be proved, that amendment was doomed.

Rodney Crump

78 The defendants submitted that no costs should be awarded in favour of RC. It was submitted that RC had no interest in the horses and had failed in his personal injuries claim. The factual basis for that submission is not entirely correct. In the case of the horse “Cracker” I did find that this horse had been loaned to RC by Mr Smith and that the loss of the use of that horse had a value. To that extent therefore RC did have an interest in one of the horses and it could not be said that his claim had failed entirely. I do not think any useful purpose would be served by making a separate costs order against RC.

Stay of Judgment

79 The costs orders which I propose to make in favour of the defendants will far exceed in their amount the judgment which the plaintiffs obtained against GWF. I agree with the defendants that it would be unfair to require GWF to pay to the plaintiffs the judgment awarded against it when in due course after costs have been assessed the plaintiffs will have to pay to GWF a significantly greater amount by way of costs. Accordingly, I accept the submission by GWF that payment of the judgment in favour of the plaintiffs should be stayed pending the assessment of GWF’s costs.

80 The plaintiffs have failed almost entirely in their costs submissions before me. In those circumstances it is appropriate that the defendants should have the costs of this application.

Conclusion

81 The orders which I make are as follows:

(1) The plaintiffs are to pay the costs of ENS on a party/party basis as agreed or assessed up to, but not including, 15 September 2005. The plaintiffs are to pay the costs of ENS on an indemnity basis from 15 September 2005.

(2) GWF is to pay the costs of the plaintiffs on a party/party basis as agreed or assessed up to, but not including, 25 June 2003.

(3) The plaintiffs are to pay the costs of GWF on a party/party basis as agreed or assessed from 25 June 2003 up to, but not including, 15 September 2005. The plaintiffs are to pay the costs of GWF on an indemnity basis from 15 September 2005.

(4) The judgment in favour of the plaintiffs against GWF is stayed until the costs ordered in favour of GWF have been agreed or assessed at which time that judgment may be set off against those costs.

(5) By way of explanation, the above costs orders in favour of the defendants are in addition to the costs orders already made in their favour and are to include the costs reserved by Greg James J on 10 March, 14 March, 15 March, 16 March, 23 March and 30 March 2005.

(6) The plaintiffs are to pay the defendants’ costs of the application before me on 1 December 2006 on a party/party basis as agreed or assessed.

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