Dailhou v Kelly; State of NSW v Kelly (No 3)

[2014] NSWSC 1220

Supreme Court

New South Wales

Medium Neutral Citation:

Dailhou v Kelly; State of NSW v Kelly (No 3) [2014] NSWSC 1220

Hearing dates:

2 September 2014

Decision date:

03 September 2014

Jurisdiction:

Common Law

Before:

Adamson J

Decision:

Proceedings 2010/158994

(1)Order the plaintiff to pay the defendants' costs on the ordinary basis up to and including 29 November 2013 and on an indemnity basis thereafter.

Proceedings 2011/233293

(2)Order the plaintiff to pay the defendants' costs on the ordinary basis up to and including 3 September 2013 and on an indemnity basis thereafter.

Catchwords:

COSTS - offer of compromise containing an offer that costs be agreed or assessed valid in accordance with newly amended Rule 20.26(3)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) - offer which provided for a judgment for the plaintiff not ambiguous as s 151Z of the Workers Compensation Act 1987 (NSW) operates of its own force - offer of compromise in recovery proceedings that provided for payment upon the later to occur of specified events consistent with Rule 20.26(8) of the UCPR - offer that provided for time of payment by reference to receipt of authority to receive that was "satisfactory to the defendants" consistent with rules

Legislation Cited:

Legal Profession Act 2004 (NSW), s 368
Uniform Civil Procedure Rules 2005 (NSW), r 20.26, r 42.15A
Workers Compensation Act 1987 (NSW), s 151Z

Cases Cited:

Calderbank v Calderbank [1975] 3 All ER 333
Dailhou v Kelly; State of NSW v Kelly (No 2) [2014] NSWSC 1207
Old v McInnes and Hodgkinson [2011] NSWCA 410
Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; 84 NSWLR 311

Category:

Costs

Parties:

Proceedings 2010/158994
Peter Michael Dailhou (Plaintiff)
Maurice Kelly (First Defendant)
Topmill Pty Limited (Second Defendant)

Proceedings 2011/233293
State of NSW (NSW Department of Education & Training (Plaintiff)
Maurice Kelly (First Defendant)
Topmill Pty Limited (Second Defendant)

Representation:

Counsel:
Proceedings 2010/158994
V Tzatzagos (Plaintiff)
CJ Callaway (1st and 2nd Defendants)

Proceedings 2011/233293
A Combe (Plaintiff)
McCabes Lawyers Pty Limited (1st and 2nd Defendants)
Solicitors:
Proceedings 2010/158994
Federation Law Pty Limited (Plaintiff)
McCabes Lawyers Pty Lted (1st and 2nd Defendants)

Proceedings 2011/233293
Rankin Ellison Lawyers (Plaintiff)
McCabes Lawyers Pty Limited (1st and 2nd Defendants)

File Number(s):

2010/158994; 2011/233293

Publication restriction:

Nil

Judgment

Introduction

1. Following the publication of my reasons for judgment in these two matters on 2 September 2014 (Dailhou v Kelly; State of NSW v Kelly (No 2) [2014] NSWSC 1207), Mr Callaway, who appeared for the defendants in both matters, applied for special costs orders against each plaintiff on the basis of offers of compromise served on them. The defendants' applications will be dealt with separately.

Proceedings 2010/158994: Dailhou v Kelly

The relevant offer

1. The defendants' solicitors wrote to Mr Dailhou's solicitors by letter dated 29 November 2013 which said in part:

"We refer to the above matter and attach by way of service offer of compromise dated 29 November 2013.

This offer is open for acceptance for 28 days from the date of the offer.

Should the offer of compromise be held invalid for any reason, the defendants also make this offer in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333.

If the plaintiff does not accept this offer and fails to establish her [sic] claim against the defendants, the defendants will seek an order that the plaintiff pay their costs on an indemnity basis from the date of this letter. The defendants will rely on this letter in any application for costs."

1. The offer of compromise (the Offer) read as follows:

"The defendants offer to compromise the whole of the plaintiff's claim in the following manner:

1. Judgment for the plaintiff against the defendants in the sum of $600,000 plus costs as agreed or assessed.

2. If this offer is accepted, payment in the sum of $600,000 is to be paid within 28 days of the later to occur of the following

(a) Receipt by the defendants' solicitor of a sealed Consent Judgment;

(b) Receipt by the defendants' solicitor of a Medicare Australia notice of judgment or settlement executed by the plaintiff;

(c) Receipt by the defendants' solicitor of a notice under Sections 1177, 1179 or 1182 of the Social Security Act 1991; and

(d) Receipt by the defendants' solicitor of an authority to receive made out to the defendants from the plaintiff satisfactory to the defendants' solicitor.

3. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules.

4. This offer shall be open for a period of 28 days only."

1. I note that the defendants made a further offer to Mr Dailhou dated 16 July 2014 in the form of a Calderbank offer and also attached an offer of compromise in which they offered the plaintiff $500,000 clear of the workers compensation payments plus costs as agreed or assessed (the Second Offer). In light of my conclusions regarding the Offer, it is not necessary for me to consider the effect of the Second Offer.

1. Mr Tzatzagos, who appeared for Mr Dailhou, submitted that the Offer did not comply with the requirements of r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). He submitted that the offer contained an offer regarding costs as agreed or assessed. He relied on Old v McInnes and Hodgkinson [2011] NSWCA 410 in support of the proposition that such an offer did not comply with r 20.26 of the UCPR.

1. The decision of Old v McInnes and Hodgkinson was approved by the Court of Appeal in Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; 84 NSWLR 311 in which a five-judge bench held that offers of compromise containing the term "the defendant to pay the plaintiff's costs as agreed or assessed" did not constitute offers exclusive of costs for the purposes of r 20.26(2) of the UCPR and, accordingly, were not valid offers of compromise under the rules.

1. However, amendments were made to r 20.26 after Old v McInnes and Hodgkinson and the rule that was considered in Whitney v Dream Developments Pty Ltd. The amendments took effect on 7 June 2013. The previous version of the rule, which was considered in those cases, provided in part:

(2) An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs.

1. The new rule, which applied from 7 June 2013, relevantly provides:

(2) An offer under this rule:

. . .

(c) must not include an amount for costs and must not be expressed to be inclusive of costs, and

(d) must bear a statement to the effect that the offer is made in accordance with these rules, and

. . .

(3) An offer under this rule may propose:

. . .

(b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or

. . .

(8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer.

1. In my view the Offer made a proposal in accordance with r 20.26(3)(b).

1. The further basis on which Mr Tzatzagos submitted that a special costs order ought not be made is that the Offer did not specify whether the plaintiff, if he accepted the Offer, would be obliged to repay the workers compensation payments out of the judgment sum of $600,000, or whether the sum of $600,000 was clear of the workers compensation payments. He contended that, in these circumstances, the Offer was uncertain and it was reasonable for the plaintiff not to accept it.

1. It was not clear to me whether Mr Tzatzagos relied on the potential uncertainty of the Offer as a reason why it did not comply with r 20.26 of the UCPR or as a reason why the discretion to make a special costs order under Calderbank v Calderbank [1975] 3 All ER 333 ought not be exercised. However, in fairness to Mr Dailhou, I propose to address the argument first in the context of the rules and then, in the context of the Calderbank discretion only if I find the Offer not to be in accordance with the rules.

1. I am not persuaded that an offer which provides for a judgment of $600,000 is in any way ambiguous. The matter can be tested in the following way. If the plaintiff had succeeded in the proceedings and obtained a judgment for $600,000, I would not have needed to stipulate in the orders of the Court that the amount of the workers compensations payments needed to be deducted from that sum. The reason is that s 151Z of the Workers Compensation Act 1987 (NSW) operates of its own force to oblige:

(1) the plaintiff to repay the compensation paid from the damages awarded: s 151Z(1)(b); and

(2) the defendants to indemnify the person who paid the workers compensation to the plaintiff: s 151Z(1)(d).

1. Section 151Z also provides that if the defendants repay the person who paid the workers compensation to the plaintiff under the indemnity, this payment operates, to the extent of the amount, as satisfaction of the judgment: s 151Z(1)(e1).

1. Therefore, in the hypothetical case set out above, the defendants could satisfy the judgment in favour of the plaintiff in the sum of $600,000 by paying the person who made the workers compensation payments the sum of those payments and then paying the balance ($600,000 less the sum of the payments under the indemnity) to the plaintiff.

1. By reason of the operation of s 151Z of the Workers Compensation Act 1987, the meaning of "judgment for the plaintiff in the sum of $600,000" is unambiguous. Neither the plaintiff, nor his legal advisers, could have been under any illusion that it meant other than that the workers compensation payments would be deducted from the sum of $600,000. This reasoning applies whether the judgment was offered in an offer of compromise in accordance with the rules or as a basis for settlement in accordance with the principles in Calderbank v Calderbank.

Conclusion

1. In my view, the Offer was made in accordance with r 20.26 of the UCPR. The defendants are entitled to the benefit of r 42.15A of the UCPR unless I order otherwise. Mr Tzatzagos did not submit that I should order otherwise, except on the basis of the alleged ambiguity, which I have rejected. I am not satisfied that there is any proper basis to make an order other than the one that would apply under the rules.

1. Accordingly, the defendants are entitled to an order against the plaintiff that their costs be paid on the ordinary basis up to and including 29 November 2013 and on an indemnity basis from 30 November 2013.

1. The defendants foreshadowed reliance on the principles in Calderbank v Calderbank in the letter attaching the Offer. Had I not considered the Offer to be valid and in accordance with the rules, I would have exercised my discretion to order the plaintiff to pay the defendants' costs on an indemnity basis from 30 November 2013 on the basis of the principles in Calderbank v Calderbank.

Proceedings 2011/233293: State of New South Wales v Kelly

The relevant offer

1. The defendants' solicitors wrote to the plaintiff in these proceedings (the recovery proceedings) by letter dated 3 September 2013 which read:

"We attach by way of service offer of compromise dated 3 September 2013."

1. The offer of compromise (the Recovery Offer) read as follows:

"The defendants offer to compromise the plaintiff's claim in the following manner:

1. Judgment for the plaintiff against the defendants in the sum of $160,000 in answer to the cause of action on which the plaintiff claims.

2. The defendants to pay the plaintiff's costs and disbursements as agreed or assessed.

3. If this offer is accepted:

(a) Payment in the sum of $160,000 is to be paid within 28 days of the later to occur of the following:

(i) The date of judgment; and

(ii) Receipt of an authority to receive satisfactory to the defendants.

(b) Payment of the plaintiff's costs and disbursements as agreed or assessed is to be paid within 28 days of the following:

(i) The parties reaching agreement upon the plaintiff's costs and disbursements; or

(ii) The filing of a Certificate of Determination

4. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules.

5. The defendants agree that they are jointly liable to the plaintiff for the whole amount of the offers in paragraphs 1 and 2.

6. This offer shall be open for a period of 28 days only."

1. Mr Combe, who appeared on behalf of the State of New South Wales (the plaintiff in the recovery proceedings), submitted that the Recovery Offer did not comply with the new rule because it made payment conditional upon the satisfaction of the matters listed in [3](a)-(b). He referred to what Bathurst CJ said in Whitney v Dream Developments Pty Ltd. Although Mr Combe did not identify the particular paragraph of the decision, I took him to be relying on [39] of the reasons where Bathurst CJ said:

"So far as the purposive construction is concerned, the purpose of the rule is undoubtedly to encourage settlement. In doing so it has laid down a particular regime for offers of compromise. The purpose of the rule does not provide a basis to extend it beyond that regime."

1. I do not consider that the matters referred to in [3](a)-(b) take the Recovery Offer outside the provisions of r 20.26. Rule 20.26(8) expressly contemplates that an offer made under the UCPR may provide for the payment of money or the doing of any act at a time other than "within 28 days after acceptance of the offer". I am of the view that that is precisely what the conditions in [3](a)-(b) of the Recovery Offer do, and were designed to do.

1. Mr Combe submitted further that condition [3](a) rendered the offer uncertain because it would leave it to the defendants to determine the time of payment because they reserved to themselves the right to decide whether the authority to receive proffered on behalf of the plaintiff was "satisfactory to the defendants".

1. I do not accept this submission. In my view, it is open to an offeror to stipulate that payment will be made within 28 days of receipt of such an authority. The plaintiff in the recovery proceedings is the State of New South Wales. A requirement for the nomination of the person authorised to receive the payment in satisfaction of the judgment in these circumstances is unexceptional. I do not consider that [3](a) is otherwise than consistent with the rules. If the offer provided for payment within 28 days of receipt of an authority to receive, without more, it would be consistent with the rules. The phrase "satisfactory to the defendants" makes the defendants the arbiter of what is satisfactory. However, it is not, in my view, appropriate to read such a document on the assumption that the defendants will act capriciously (and if they did, remedies would be available). I do not consider that the addition of the words "satisfactory to the defendants" renders the Offer other than in compliance with the rules.

1. Mr Combe further contended that [3](b) of the Recovery Offer placed a gloss on the proposal contemplated by r. 20.26(3)(b). He submitted that when something extra is added to what the rules contemplate, an offer is not in accordance with the rules. I reject this submission.

1. In my view, the term "costs and disbursements as agreed" is synonymous with the phrase "the parties reaching agreement upon the plaintiff's costs and disbursements". Indeed, I regard the contrary proposition as untenable.

1. The term "as assessed" in the phrase "costs and disbursements as assessed" is a reference to an assessment of costs conducted by a costs assessor in accordance with the Legal Profession Act 2004 (NSW) (the LPA). When a costs assessor makes a determination of costs he or she is to issue a certificate that sets out the determination: s 368(1) of the LPA (the Certificate of Determination). The defendants are, in my view, entitled to stipulate the filing of the Certificate of Determination as being the time within which the 28 days for payment of the costs as assessed is to run. This provision is in accordance with r 20.26(8), which permits an offeror to make provision for the payment of money other than within a period of 28 days.

Conclusion

1. In my view, the Recovery Offer was made in accordance with r 20.26 of the UCPR. The defendants are entitled to the benefit of r 42.15A of the UCPR unless I order otherwise. I am not satisfied that there is any proper basis to make an order other than the one that would apply under the rules.

1. Accordingly, the defendants are entitled to an order against the plaintiff in the recovery proceedings that their costs be paid on the ordinary basis up to and including 3 September 2013 and on an indemnity basis from 4 September 2013.

Orders

1. I make the following orders:

Proceedings 2010/158994

(1)   Order the plaintiff to pay the defendants' costs on the ordinary basis up to and including 29 November 2013 and on an indemnity basis thereafter.

Proceedings 2011/233293

(2)   Order the plaintiff to pay the defendants' costs on the ordinary basis up to and including 3 September 2013 and on an indemnity basis thereafter.

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Decision last updated: 03 September 2014