Dargan v United Super Pty Ltd (No 2)

[2011] NSWSC 1527

Supreme Court

New South Wales

Medium Neutral Citation:	Dargan v United Super Pty Ltd (No 2) [2011] NSWSC 1527
Hearing dates:	8 November 2011
Decision date:	08 November 2011
Before:	Gzell J
Decision:	Defendants to pay plaintiff's costs on the ordinary basis.
Catchwords:	PROCEDURE - Costs - offer by plaintiff to accept an amount inclusive of interest less than ultimate result - no provision for payment of income tax - whether reasonable to reject offer - whether the Uniform Civil Procedure Rules Pt 42 r 42.14 should apply
Legislation Cited:	Uniform Civil Procedure Rules 2005
Cases Cited:	Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Sayseng v Kellogg Superannuation Pty Ltd & Anor [2007] NSWSC 1009
Texts Cited:	Ritchie, Uniform Civil Procedure NSW, LexisNexis, Sydney, 2005
Category:	Costs
Parties:	John Anthony Dargan (Plaintiff) United Super Pty Ltd (First Defendant) Hannover Life Re of Australasia Ltd (Second Defendant)
Representation:	Matthew Gollan (Plaintiff) Richard Horsley (Defendants) Firths - The Compensation Lawyers (Plaintiff) Turks Legal (Defendant)
File Number(s):	259186/2010
Publication restriction:	No

EX TEMPORE Judgment

1. The issue of costs has been argued before me. The submission on behalf of the plaintiff is that he should have costs on an indemnity basis because an offer of compromise was made under the rules and the rules ought to be followed. The defendants say it was reasonable for them to reject the offer.

1. The Uniform Civil Procedure Rules 2005, Pt 42 r 42.14 is as follows:

"(1) This rule applies if the offer concerned is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim concerned no less favourable to the plaintiff than the terms of the offer.

(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim:

(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and

(b) assessed on an indemnity basis:

(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."

1. The learned authors of Ritchie's Uniform Civil Procedure NSW , LexisNexis, Sydney, 2005 refer to a principle that it requires exceptional circumstances to escape the exercise of discretion under that rule.

1. Reference was made, however, to Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 in which the Court of Appeal at [15] questioned the need for exceptional circumstances to escape the operation of the provision.

"There is a misconception in this submission. Leichhardt Municipal Council involved a Calderbank offer. Nonetheless, Santow JA (Bryson JA and Stein AJA agreeing) considered the guiding rules relating to offers of compromise made under Pt 39A of the District Court Rules 1973. Pt 39A r 25(6) expressly provided that the adverse costs consequences following a failure to accept an offer of settlement applied "[u]nless the Court in an exceptional case and for the avoidance of substantial injustice otherwise [ordered]". Rules 42.14, 42.15 and 42.15A are in different terms. They provide that, when the relevant costs rule is engaged, a party is entitled to indemnity costs from a specified time (usually one day after an offer of compromise is made), "unless the court orders otherwise " (emphasis added). The relevant provisions of these rules do not specify that exceptional circumstances or the avoidance of substantial injustice (sic) must be established before the court will make a different order to the prima facie order for which the rules provide and, in our opinion, the rule should not be so construed. Rather, the discretion is one that has to be exercised having regard to all the circumstances of the case."

1. The court went on to deal with the issue of contractual interpretation, which involves no process of evaluation, or assessment in which an end result can vary over a range. Either one party or the other is correct.

1. In this case it was submitted that the interpretation sought by the defendants was not unreasonably maintained.

1. The other two aspects upon which the defendants relied were the relatively small margin against the actual result that the offer involved and a question of the interpretation of the offer itself. The offer was couched in these words:

"The plaintiff offers to compromise the claim in the following manner:

1. The Second Defendant to pay the sum of $45,000 inclusive of interest excluding legal costs to the First Defendant in trust for the Plaintiff.

2. The First Defendant to pay the above amount upon receipt from the Second Defendant to the Plaintiff.

This offer remains open for 28 days."

1. The difference between that result, which would have borne an income tax liability of $3,870.00, and the end result of $50,000.00 plus interest, attracting income tax in the agreed amount of $4,300.00, is of a relatively small margin. It was submitted that that was a telling consideration that should be borne in mind in the exercise of the general discretion whether or not to allow the rule to prevail.

1. In Sayseng v Kellogg Superannuation Pty Ltd & Anor [2007] NSWSC 1009 Nicholas J upheld the insurer's submission as to the effect of the terms of the offer in that case. His Honour said at [37]:

"I uphold the insurer's submissions to the effect that it was reasonable to conclude that the terms of each offer were based on a misconception of the insurer's obligations under the policy. In my opinion the insurer is not open to criticism for rejecting a proposal whereby it was required to accept a judgment which could not have been obtained by the plaintiff in the proceedings. Accordingly, I find the insurer has demonstrated the existence of circumstances which justify denying the plaintiff entitlement to indemnity costs under the Pt 42 r 42.14."

1. It was submitted here that paragraph 2 of the offer required the second defendant to pay "the above amount". That, it was submitted, meant payment of $45,000.00.00 without deduction of the income tax of $3,870.00.

1. In my view, that interpretation is open. I take the view that, in all the circumstances of this case, there has been a demonstration of reasonableness in the rejection of the offer.

1. Counsel for the plaintiff, after I had published my reasons for rejecting his submission that indemnity costs should be paid under the rule, tendered a letter of 5 September 2011 which rejected an offer by the plaintiff to settle the proceedings in the amount of $30,000.00 all inclusive and contained a counter offer by the defendants in these terms:

"In an effort to resolve the proceedings on a commercial basis, I am instructed to make an offer to settle the proceedings on the following terms:

1. The defendants pay the plaintiff the amount of $8,000.00 all inclusive;

2. The parties enter into an appropriately worded Deed of Release (which we will prepare) releasing the defendants from any further liability; and

3. The plaintiff files a Notice of Discontinuance of the proceedings."

1. Whether or not it was reasonable to reject that offer does not constitute any basis for the claim by the plaintiff that it ought to have its costs on an indemnity basis.

1. I therefore reject the alternative ground. The order of the court will be that the defendants pay the plaintiff's costs on the ordinary basis.

Decision last updated: 12 December 2011