D'Arcy v Caltex Australia Limited (No 3)
[2018] ACTSC 307
•9 November 2018
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | D’Arcy v Caltex Australia Limited (No 3) |
Citation: | [2018] ACTSC 307 |
Hearing Date: | 30 August 2018 |
DecisionDate: | 9 November 2018 |
Before: | Burns J |
Decision: | See [22] |
Catchwords: | COSTS – Application for special costs order – Calderbank offer made by defendant to plaintiff prior to trial proceedings – Rules Offer of Compromise made by defendant to plaintiff prior to trial proceedings – offers rejected by plaintiff – Court Procedures Rules 2006 (ACT) r 1012 – whether first defendant is entitled to a special costs order |
Legislation Cited: | Court Procedures Act 2004 (ACT) s 5A Court Procedures Rules 2006 (ACT) rr 1002(5)(b), 1012, 1701, 1721, 1752 |
Cases Cited: | D’Arcy v Caltex Australia Petroleum Pty Ltd [2016] ACTSC 270 D’Arcy v Caltex Australia Limited [2018] ACTSC 206 Forge v Rewers (No 2) [2017] ACTSC 273 |
Parties: | Phillip Raymond D’Arcy (Plaintiff) Caltex Australia Limited (ACN 004 201 307) (First Defendant) |
Representation: | Counsel Mr L Grey (Plaintiff) Mr J Gracie (First Defendant) |
| Solicitors Sneddon Hall and Gallop Lawyers (Plaintiff) Colin Biggers & Paisley Lawyers (First Defendant) | |
File Number: | SC 263 of 2014 |
BURNS J
On 3 August 2018 I published reasons for entering judgment for the first defendant (Caltex) against the plaintiff (D’Arcy v Caltex Australia Limited [2018] ACTSC 206). It subsequently became necessary to revise my orders and reasons, chiefly in regard to the plaintiff’s case against the second defendant (Fuel-Sys). I have today, 9 November 2018, published my revised judgment, including final orders with regard to the plaintiff’s case against both Caltex and Fuel-Sys (D’Arcy v Caltex Australia Limited (No 2) [2018] ACTSC 306).
Caltex seeks an order that the plaintiff is to pay its costs of the proceedings up to and including 21 February 2015 on a party and party basis, and thereafter on an indemnity basis (the primary submission). In the alternative, Caltex seeks an order that the plaintiff pay its costs of the proceedings up to and including 8 April 2017 on a party and party basis and thereafter on an indemnity basis.
The basis of Caltex’s submissions is that on two occasions prior to the trial of the proceedings in April 2017 Caltex made compromise offers to the plaintiff. The first such offer it described as a Calderbank offer, and the second as a Rules Offer of Compromise. The plaintiff did not accept either of the offers, and the judgment for Caltex against the plaintiff, Caltex submitted, was a substantially better result for Caltex than was available in the event the plaintiff had compromised the proceedings by acceptance of either of the offers.
The Calderbank offer
The offer described by Caltex as a Calderbank offer was contained in a letter dated 23 December 2014 from the lawyers for Caltex to the plaintiff’s lawyers. The letter was marked “Without prejudice, save as to costs”. The letter read, relevantly for present purposes:
We are instructed to inform you that, at the relevant time, Caltex was neither the owner nor occupier of the Premises. The Premises were subleased to Caltex pursuant to a Sublease between Evangelista Pty Ltd and Caltex commencing at 1 January 2009 (Sublease). The Premises were the subject of a franchise to Olmos Investments Pty Ltd pursuant to a Star Franchise Agreement dated 6 October 2011 between Caltex and Olmos Investments Pty Ltd (Franchise Agreement).
In these circumstances, Caltex does not see how it might be found liable for the alleged incident.
However, in an effort to save further costs, our client has instructed us that it is prepared to “walk away” and bear its own costs to date if your client will release and indemnify our client from any claim in relation to the injuries, losses and damages he is alleged to have sustained as a result of his accident.
This offer will remain open for a period of 28 days from the date of this letter.
Our client considers this to be a significant compromise on its part given that it has incurred approximately $5,000 in legal costs to date.
In the event that your client reject this offer and continues his proceedings against our client and our client receives an outcome equal to or better than this offer, this letter will be tendered and our client will seek indemnity costs pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333.
The Rules offer
The offer described by Caltex as the Rules offer was conveyed by the lawyers for Caltex to the plaintiff’s lawyers under cover of a letter dated 31 March 2017. In that letter the lawyers for Caltex said:
We informed your client on or about 14 December 2015 that, at the relevant time, Caltex was neither the owner nor occupier of the Premises. The Premises were subleased to Caltex pursuant to a Sublease between Evangelista Pty Ltd and Caltex commencing 1 January 2009 (Sublease). The Premises were the subject of a franchise to Olmos Investments Pty Ltd pursuant to a Star Franchise Agreement dated 6 October 2011 between Caltex and Olmos Investments Pty Ltd (Franchise Agreement).
In these circumstances, our client does not consider that it is liable for the incident and so is not liable for any of your client’s alleged injuries or disabilities.
However, in an effort to save further costs associated with preparing for and attending a 4 day plus hearing in the ACT, our client has instructed to serve the attached Offer of Compromise in the amount of $50,000.
This offer will remain open for a period of 28 days from the date of this letter.
Our client considers this to be a significant compromise on its part given that it has incurred approximately $95,000.00 in legal costs to date.
This offer is open for 7 days noting that the hearing is to commence on 10 April 2017.
The Notice of Offer of Compromise attached to the letter of 31 March 2017 was in the following form:
The first defendant offers to the Plaintiff to compromise the proceedings against the first defendant pursuant to the Court Procedure Rules 2006 Part 2.10, Regulation 1002 on the following terms:
1. Judgment in favour of the plaintiff against the first defendant in the sum of $50,000.00; and
2. The first defendant to pay the costs of the plaintiff and reasonable disbursements up to the time this offer was made.
3. This offer is open for acceptance for 7 days from the date of this offer.
Relevant provisions and principles
Section 5A of the Court Procedures Act 2004 (ACT) sets out the main purpose of civil procedure provisions, including the provisions of the Court Procedures Rules 2006 (ACT) (the Rules):
5A Main purpose of civil procedure provisions
(1) The main purpose of the civil procedure provisions is to facilitate the just resolution of disputes—
(a) according to law; and
(b) as quickly, inexpensively and efficiently as possible.
(2) Without limiting subsection (1), the main purpose includes the following objectives:
(a) the just resolution of the real issues in civil proceedings;
(b) the efficient use of the judicial and administrative resources available for the purposes of the court;
(c) the efficient disposal of a court’s overall caseload;
(d) the timely disposal of civil proceedings;
(e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.
(3) The civil procedure provisions must be interpreted and applied, and any power or duty imposed by them (including the power to make rules) must be exercised or carried out, in the way that best promotes the main purpose.
(4) The parties to a civil proceeding must help the court to achieve the objectives.
(5) In this section:
civil procedure provisions means—
(a) the rules made under section 7, in their application to civil proceedings; and
(b) any provision of this Act in relation to the practice and procedure of a court in civil proceedings.
court includes a tribunal that is a prescribed tribunal under section 6.
The relevant provisions of the Rules are:
1012 Offer not accepted and judgment no less favourable to defendant
(1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer.
(2) Unless the court orders otherwise—
(a) the defendant is entitled to an order against the plaintiff for the defendant’s costs in relation to the claim, to be assessed on a party and party basis, up to the time when the defendant is entitled to costs under paragraph (b); and
(b) the defendant is entitled to an order against the plaintiff for the defendant’s costs in relation to the claim, assessed on a solicitor and client basis—
(i) if the offer was made before the first day of the trial—on and from the day after the offer was made; and
(ii) if the offer was made on or after the first day of the trial— at and from 11 am on the day after the offer was made.
…
1701 Costs—general provisions
(1) The costs that the court may award—
(a) may be awarded at any stage of a proceeding or after the proceeding ends; and
(b) must be assessed in accordance with this part.
(2) If the court awards the costs of an application in a proceeding, it may order that the costs not be assessed until the proceeding ends.
…
1721 Costs—general rule
(1) The costs of a proceeding or of an application in a proceeding are in the discretion of the court.
(2) The costs of the proceeding include the costs of an application in the proceeding, unless the court otherwise orders.
…
1752 Costs—assessed on solicitor and client etc basis
(1) The court may order costs to be assessed—
(a) on a solicitor and client basis; or
(b) on an indemnity basis; or
(c) on any other basis it considers appropriate.
Consideration – the Calderbank offer
The plaintiff submitted that no special costs order should be made in favour of Caltex, and that he should simply be required to pay its costs on a party and party basis. With regard to the Calderbank offer, the plaintiff noted that it was made approximately six months after the commencement of the proceedings, at which time documentation relating to liability in the possession of the plaintiff was rudimentary. I will observe at this point that this was accepted by counsel for Caltex. This offer was ultimately extended for acceptance until 21 February 2015. By approximately 15 January 2015 the plaintiff had access to the sublease between Evangelista and Caltex which demonstrated that Caltex was an occupier of the service station site, and showed that contractual responsibility for repairs and maintenance of the underground fuel tanks lay solely with Caltex. The sublease, the plaintiff said, clearly demonstrated that Caltex’s statement in its letter of 23 December 2014 that it was not an occupier of the service station site was incorrect. Subsequent perusal of the Star Franchise Agreement, which was obtained later in 2015, did not provide any basis for altering the plaintiff’s view that Caltex was an occupier of the service station premises. The plaintiff submitted that it only became aware in late 2015 that Caltex was alleging that Evangelista had been responsible for actually appointing Fuel-Sys to do the work on the underground fuel tanks. It was this allegation, the plaintiff said, that prompted an application to join Evangelista as a party. This application was heard by Mossop AsJ (as his Honour then was) and refused on 16 September 2016: D’Arcy v Caltex Australia Petroleum Pty Ltd [2016] ACTSC 270. In the course of his reasons Mossop AsJ said that WorkSafe documents produced to the plaintiff on 9 February 2015 provided a substantial amount of evidence that Evangelista was the party that contracted with Fuel-Sys for the tank relining work. His Honour set out a list of documents referred to in the WorkSafe report which provided an evidentiary basis for the proposition that Evangelista had contracted with Fuel‑Sys to undertake the relining work.
10. The plaintiff submitted that the letter containing the Calderbank offer did not provide the plaintiff with any information which would suggest that Caltex was not an appropriate defendant to the claim as particularised. Nor did the letter otherwise allow the plaintiff to evaluate whether the prospects of success against Caltex were so low as to justify abandoning the claim. In addition, the plaintiff submitted that the offer made by Caltex, that it would “walk away” and bear its own costs to date if the plaintiff would release and indemnify Caltex from any claim in relation to the injuries, losses and damages alleged to have been sustained as a result of the accident, contained no compromise at all on either liability or damages. The second difficulty identified by the plaintiff with the terms of the Calderbank offer was that it required the plaintiff to “indemnify” Caltex from “any claim” in relation to the damages arising from the accident. The plaintiff submitted that this would potentially put him at risk if, for example, a claim for contribution was brought by Fuel-Sys against Caltex. The plaintiff submitted that there was no rational basis upon which he could agree to such a proposition.
In my opinion, no special costs order should be made in favour of Caltex based upon the Calderbank offer. While the plaintiff had information, as identified by Mossop AsJ, by 9 February 2015 found within the WorkSafe documents that suggested that Evangelista had contracted with Fuel-Sys to undertake the relining of the underground tanks, it also had other, apparently contradictory, information in terms of the sublease which clearly made Caltex responsible for maintenance and repair of the underground fuel tanks. One may, perhaps, be critical of the plaintiff’s lawyers for failing to take timely steps to join Evangelista after they became aware of the WorkSafe documents, but I do not believe that in the circumstances one can be critical of their decision not to release Caltex from the proceedings in the light of its apparent contractual obligations set out in the sublease. One might speculate that Caltex was unwilling to engage with the plaintiff’s lawyers regarding its obligations under the sublease to repair the tanks, in case Evangelista then realised its mistake and sought to recover the costs of the relining work from Caltex. However, as I have said, this is simply speculation. The simple fact is that there was an apparent contradiction between the WorkSafe documents, suggesting that Evangelista had contracted with Fuel-Sys to do the relining work, and the terms of the sublease which provided that Caltex was responsible for repair and maintenance to the underground tanks. In addition, it was not unreasonable on the part of the plaintiff to decline the Calderbank offer on the basis that it required him to indemnify Caltex against any claim that may be brought against Caltex arising out of the plaintiff’s injuries. I should add at this point, for the sake of completeness, that I do not accept the submission that the letter of 23 December 2014 did not in effect contain an offer of compromise.
Consideration – the Rules Offer
12. With regard to the Rules Offer, Caltex submitted that by 31 March 2017 the plaintiff was in possession of ample material to raise considerable doubt as to how and why Caltex should be found liable to him. From 9 February 2015 the plaintiff was able to review the WorkSafe documents suggesting that Evangelista was the contracting party to Fuel-Sys, and the judgment of Mossop AsJ. The Rules Offer involved the payment of a substantial sum to the plaintiff, payment of the plaintiff’s costs up to the time when the offer was made, and Caltex would forego any opportunity to recover its substantial costs, estimated at that time to be $95,000. Caltex submitted that this was a very valuable offer, and the failure of the plaintiff to accept that offer should result in a special costs order in its favour.
13. The plaintiff accepted that the Rules Offer was made on Friday, 31 March 2017. At that time the trial was due to commence on Monday, 10 April 2017. The plaintiff submitted that there was some confusion concerning the period for acceptance of the offer. The offer in the formal document titled Notice of Offer of Compromise provided for the offer to be open for acceptance for a period of 7 days, expiring on Friday, 7 April 2017. The covering letter, however, provided for two different periods during which the offer would be open for acceptance, being 7 days and 28 days. The plaintiff submitted that as the offer was made less than two months before the start of the trial, the requirement under the Rules is that the end period of acceptance “must be after a period that is reasonable in the circumstances”: r 1002(5)(b). In his written submissions, the plaintiff said:
It is not suggested that, at that late stage, the Plaintiff lacked particulars or documents that meant he would not be in a position to deal with the offer within a “reasonable” period. However, the real issue is the size of the offer, compared with the potential award of damages, and the period of 7 days allowed for consideration of the offer by the Plaintiff at such a late stage of the proceedings, when attention was heavily focused on final preparation.
14. The plaintiff observed that the provisions of r 1012 operate “unless the court orders otherwise”. In that regard he drew my attention to the decision of Mossop J in Forge v Rewers (No 2) [2017] ACTSC 273 (Forge v Rewers (No 2)) where his Honour considered a case where offers of compromise were made by a plaintiff on the Tuesday and Friday before the commencement of the hearing on the matter the following Monday. The plaintiff’s first offer of compromise on the Tuesday before the hearing was $225,000 plus costs, which was rejected by the defendants. The second offer of compromise made by the plaintiff on the Friday was $200,000 plus costs, open for acceptance until 10 am on the following Monday morning. On the Monday at 9:18 am an offer by the defendant of $225,000 inclusive of costs on a without prejudice basis was communicated, apparently verbally, to the plaintiff’s solicitor. The plaintiff was subsequently awarded $231,618 plus costs and sought an order for solicitor/client costs on the strength of the two offers of compromise made in the previous week. Mossop J considered whether it was necessary to find that there were “exceptional circumstances” to depart from the default position in r 1012. After reviewing a number of New South Wales authorities with regard to cognate provisions in that state, his Honour accepted that the use of an expression such as “exceptional circumstances” was not an impermissible gloss on the language of the provision, but rather a “practical explanation of the predicament facing the offeree in the light of the obvious purpose of the Rules to encourage settlement of the proceedings and their structure insofar as they provide a default position which cannot be ignored when exercising that discretion”.
15. I do not disagree with this statement by Mossop J, but, with respect, for my part I would avoid the use of descriptors such as “exceptional circumstances”. Rule 1012 provides a default position which applies where the requirements of the provision have been satisfied. It also provides a broad discretion permitting the court to depart from the default position and to make some different order. There must, however, be demonstrated some good reason to depart from the default position. In that regard, the discretion granted by r 1012 is not entirely at large.
16. In Forge v Rewers (No 2), Mossop J considered that the offer made by the plaintiff had been open for a reasonable time. He noted that the case was at a stage where both parties were reasonably expected to have a clear perception of the strengths and weaknesses of their positions so as to enable an assessment of the offer. He also considered that the lack of complexity in that case, in which liability had been admitted, and the institutional nature of the relevant defendant (an insurer) were factors that meant that the “time in which the offer was open was sufficient to permit advice to be given and instructions to be obtained without a significant distraction from final preparation for the hearing”.
17. The plaintiff pointed to several factors which it submitted distinguished the present case from that in Forge v Rewers(No 2):
(a)in the present case there were two defendants, each subject to significantly different regimes for assessment of damages;
(b)the issue of liability was heavily contested and complicated, but it appeared that neither defendant was proposing to call any witnesses to give oral evidence;
(c)the documentary evidence clearly indicated that Caltex had sole responsibility for repair and maintenance of the underground fuel tanks, yet it alleged that it had nothing to do with the tank relining work, nor any responsibility for it;
(d)there was an email indicating that a manager of Caltex (John Merritt) had been directed to “oversee the safety and permitting” of the tank relining work being carried out by Fuel-Sys; and
(e)no expert or other evidence had been served by either defendant addressing the statutory counts and whether or not the obligations contained in them fell on Caltex.
18. In addition, the plaintiff submitted that there were significant matters going to the offer itself relevant to the question of any special costs orders:
(f)the offer was for a sum which was a small fraction of the potential value in damages of the claim against Caltex;
(g)the potential value of the case reflected the undeniable fact that the plaintiff had suffered serious injuries which would affect him for the rest of his life and seriously compromise his capacity to earn a living;
(h)through no fault of the plaintiff, he had been caught in a workers compensation scheme where insurance was arranged in New South Wales, and as a result of the conjunction of New South Wales and ACT law, he was denied compensation from his employer for pain and suffering and other heads of damage outside economic loss that would have been available to him if his employer had been a company with insurance arranged in the ACT.
19. The Notice of Offer of Compromise allowed a period of seven days during which the offer would remain open for acceptance. Notwithstanding the confusion caused by the covering letter, I am satisfied that the period of seven days as contained in the Notice itself was the period during which Caltex intended to keep the offer open for acceptance. I am satisfied that this was a period which was reasonable in the circumstances, as at that time the plaintiff was in possession of all relevant information and the period during which the offer was open for acceptance was sufficient to permit advice to be given to the plaintiff and for instructions to be taken, notwithstanding the concurrent need for final preparation of the case for hearing.
20. The essential issue is whether there are good reasons to exercise my discretion to depart from the default position on costs found in r 1012. Certainly, after receiving the WorkSafe documents in February 2015 the plaintiff would have been aware that it was probable that Evangelista had contracted with Fuel-Sys to complete the tank relining work, but that did not inform him of the relationship between Evangelista and Caltex regarding the completion of those works. It is also relevant that in the proceedings before Mossop AsJ, Fuel-Sys read an affidavit sworn by Mr Hale in which he deposed to Fuel-Sys being engaged by Caltex to undertake the relevant works. The lack of any formal explanation by Caltex for Evangelista engaging Fuel-Sys to undertake the works, when prima facie contractual responsibility for the works rested with Caltex, meant that any decision by the plaintiff to accept the Rules Offer would be made in ignorance of important facts. This placed the plaintiff in a difficult position, as his claim against Caltex was potentially much more valuable than that against Fuel-Sys, and it could not be said for certain that nothing to his advantage could arise during the trial touching upon the relationship between Evangelista and Caltex regarding the works. It is true that Caltex had no obligation to provide any formal explanation; its commercial interests may have militated otherwise. But this does not mean that the failure to provide an explanation is irrelevant to determining whether I should exercise my discretion not to make a special costs order in favour of Caltex.
21. Taking into consideration all of the circumstances, it was reasonable for the plaintiff to have rejected the Rules Offer and maintained his case against Caltex, albeit that his case against Caltex in the week prior to the hearing was apparently weak. If a formal explanation had been provided at an early time by Caltex to the plaintiff for Evangelista undertaking the works that prima facie Caltex had a contractual obligation to undertake, and if the plaintiff had nevertheless pursued his claim against Caltex, I do not doubt that it would be appropriate for Caltex to have a special costs order of the type it now seeks. The failure of Caltex to provide the plaintiff with this information is in my opinion and in the context of the claim a cogent reason to make a costs order other than that provided as the default position by r 1012.
22. In my opinion the just and appropriate order is that the plaintiff pay the first defendant’s costs of his proceedings against it on a party and party basis.
| I certify that the preceding twenty-two [22] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Burns. Associate: Date: 9 November 2018 |
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