Davies v Nilsen (Costs ruling)

[2016] VSC 572

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

S CI 2014 06259

DIANNE DAVIES	Plaintiff
v
JUDITH NILSEN	Defendant

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JUDGE:	MACAULAY J
WHERE HELD:	Melbourne
DATE OF HEARING:	21 September 2016
DATE OF RULING:	26 September 2016
CASE MAY BE CITED AS:	Davies v Nilsen (Costs ruling)
MEDIUM NEUTRAL CITATION:	[2016] VSC 572

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COSTS — Whether award of personal injury damages to the plaintiff and the costs awarded to the plaintiff should be set off against the costs awarded to the defendant — Amount of damages less than offer of compromise — Costs awarded in favour of the plaintiff and the defendant set off — Personal injury damages for pain and suffering not subject to an order for set-off — Relevant factors in the exercise of the discretion of the court.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A Ingram with Ms M Pilipasidis	Slater + Gordon Lawyers
For the Defendant	Ms R Annesley QC with Ms B Meyers	Solicitor to the Transport Accident Commission

HIS HONOUR:

1. After a trial lasting 18 days in February and March 2016, on 19 September 2016 I gave judgment for Ms Davies in the sum of $125,000.[1]  That sum was to compensate Ms Davies for her pain and suffering arising from a car accident in November 1995, caused by the defendant’s negligence. I found she had sustained an injury that had caused her pain and suffering ever since that accident and will go on causing her pain and suffering for the indefinite future.  However, I rejected her case that the accident had caused other injuries that accounted for her inability to earn income from about that time onwards.

   [1]Davies v Nilsen [2016] VSC 557.

1. The resulting award of damages did not exceed an offer of compromise of $500,000 made by the defendant on 11 December 2015. So, it is not disputed that Ms Davies should be paid her costs to 11 December 2015 (including costs of a successful application under s 23A of the Limitation of Actions Act) and the defendant should be paid her costs from and after 11 December 2015.

1. In short, the parties have agreed on all orders except in relation to a set-off sought by the defendant.  The defendant wanted an order that:

The amount to be paid by the Defendant in accordance with Orders 1 and 2 hereof [the judgment award and the plaintiff’s costs order] is to be set off against the amount to be paid by the Plaintiff in accordance with Order 3 [the defendant’s costs order].

1. Ms Davies resisted that order.  During argument, she announced that she would not resist an order that the two costs orders be set off against one another, but resisted any order that would involve setting off the defendant’s liability to pay damages to Ms Davies against her own liability to pay the defendant’s costs.  Immediately following argument, I announced that I would make an order only offsetting the two costs orders but not extending the set-off to the amount ordered to be paid as damages.  These are my reasons for that decision.

1. Whether the discretion is founded in equity or simply in the court’s inherent jurisdiction to make orders with respect to costs,[2]  it was not disputed that the court has a discretion to order a set-off of costs against costs or damages against costs. So, hypothetically, the potential orders a court may make in the circumstances of this case include:

·a set off of all amounts ordered to paid each way;

·a set off of costs awards only; or

·no set off at all.

[2]See discussion by Kyrou J in Sivritas v Sivritas (2008) 23 VR 349, 388-94 (‘Sivritas’).

1. The considerations applied in the authorities[3] suggest that issues to consider in the exercise of the discretion for setting off a costs award include:

   [3]Sivritas (2008) 23 VR 349; Slaveski v State of Victoria [2013] VSC 76 ; Walker v Aussie Disposals [2016] VSC 255; Taseska v MSS Security Pty Ltd [2016] VSC 433; Lockley v National Blood Transfusion Service [1992] 1 WLR 492, 496-7.

·The arithmetical effect of the different set-off options, if ordered, and considerations of fairness between the parties.

·That not only is there plainly power, but it is usually appropriate, to order a setoff of favourable and unfavourable costs orders in the same or even in connected proceedings.

·That to set off a damages award of compensation for a personal injury caused by a defendant’s negligence against costs ordered to a defendant involves different issues to merely setting off mutual costs orders: that is, damages awards may deserve a greater protection from set-off.[4]

·Whether, if no set-off is ordered, a party is unlikely to recover the costs ordered in their favour.

·If the plaintiff is otherwise impecunious, what caused that impecuniosity.

·The law’s policy of encouraging settlements of actions at an early stage.

·The plaintiff’s conduct in rejecting an offer of compromise.

·Whether there is evidence the plaintiff intends to dissipate assets to frustrate recovery of the defendant’s costs order.

·The general financial and other circumstances of the plaintiff and defendant.

[4]Taseska v MSS SecurityPty Ltd [2016] VSC 433 [38] ff.

1. The defendant tendered evidence that the likely costs to which she will be entitled is in the vicinity of $300,000.  No evidence was given nor any estimate proffered of the likely costs awarded in favour of the plaintiff. The possibility if not probability remains that the costs awarded in favour of the defendant will exceed the costs awarded in favour of Ms Davies. The defendant even argues that the excess in her favour will be even more than the $125,000 awarded to the plaintiff as damages. 

1. The defendant argued I should offset all amounts ordered to paid each way, because:

(a)   Ms Davies has no real estate, receives a disability pension and does not work: in other words, without a comprehensive set-off there is little prospect of her being able to satisfy the costs award owed to the defendant;

(b)   The disability that precludes Ms Davies from earning an income was not caused by the defendant’s negligence;

(c)    It is unjust that the defendant should have to pay money out to Ms Davies when she (the defendant) is likely to be owed an even greater sum of money from Ms Davies that will probably not be fully recovered.

(d)  The defendant acted reasonably by admitting liability and serving a generous offer of compromise, whereas Ms Davies acted unreasonably in not accepting that offer;

(e)   It is in the interests of the efficient administration of justice that parties be encouraged to make and accept reasonable offers of compromise, and refusing to order that the defendant be able to set-off her own costs entitlement against her liability for both costs and damages would be inconsistent with the law’s policy of promoting such efficiency.  

1. It is true that the defendant did not cause Ms Davies’ the injuries that, in law, have caused her to have lost her earning capacity since the November 1995 accident.  But still, the defendant, by her admitted negligence, inflicted an injury upon Ms Davies that has so far has caused pain and suffering for 21 years and will continue to do so for the foreseeable future.  The $125,000 in damages is awarded to compensate her for that injury to the person, and its long-term consequences.  It is also relevant to observe that a significant portion of the award is for pain and suffering actually experienced over a long period of time, a substantial portion of which occurred before the proceeding was instituted or any costs expended.

1. In my view, damages awarded for pain, suffering and loss amenity of life stand in a qualitatively different category from an award to compensate a person for the expense of legal costs.  Although, by necessity, both are measured by courts in merely monetary terms, the loss that is compensated by the first is for something of a profoundly different character than the loss that is compensated by the second. That difference does not mean that a damages award is by definition immune from ever being the subject of set-off; but in my view the nature of this particular damages award means that a stronger case is required for subjecting it to set-off than does an award for legal costs.

1. It is also true that the defendant’s offer of compromise well exceeded the amount of damages I have awarded.  But, there are three matters that ameliorate the apparent unreasonableness of Ms Davies’ refusal to accept that offer.  The first is that the causation issue upon which Ms Davies lost was a very complex and difficult matter as I believe the analysis in my principal reasons reveal. It was not a conclusion that was self-evident or readily ascertainable.  Secondly, Ms Davies was entitled to hold a degree of confidence in a more favourable outcome given that the Court of Appeal had allowed an appeal against an unfavourable ‘serious injury’ application that had been refused on causation grounds.[5]  Thirdly, based upon findings I made in my principal reasons in case I was wrong as to causation, had Ms Davies succeeded she could reasonably have expected to receive an award in the order of three times the amount offered by the defendant.

   [5]Davies v Nilsen & Transport Accident Commission [2014] VSCA 278.

1. Next, I reject the defendant’s contention that, by not ordering a set-off of the damages award against the defendant’s costs award, the court would not be promoting the efficient administration of justice because there would be no incentive to make offers of compromise.  It was also argued that impecunious plaintiffs could consider themselves immune from the costs consequences of refusing reasonable offers of compromise. 

1. This argument ignores the fact that the setting off of the costs orders itself operates both as a benefit to the defendant and a loss to Ms Davies.  To the extent that Ms Davies is denied an indemnity or partial indemnity for her legal costs due to the setting off of the two costs orders, she will (as the defendant herself argues) likely have to fund her own legal costs out of her pain and suffering damages award.  So, the difference between subjecting or not subjecting a damages award (as well as a costs award) to a set-off does not determine whether some prospective benefit or loss exists to weigh up; it simply affects how much prospective benefit or loss each party faces.  In my view, the prospect that, in all likelihood, a court would at least set-off mutual costs awards against each other would of itself act as an effective incentive to parties to make and accept reasonable offers.   

1. I also reject the defendant’s argument — put somewhat faintly — that there was evidence in the trial that Ms Davies intends to dissipate her assets and will thwart recovery of the costs award. The only evidence relied upon was that she had stated on a social media site that if she was awarded damages she would like to do some traveling.    

1. In my view, taking into account all relevant matters, it is just that I order that the costs awarded in favour of the plaintiff and the defendant respectively each be set-off against the other so that the one owing the excess pay that excess to the other.  But the damages for pain and suffering ordered in favour of the plaintiff are not to be subject to any order of set-off.