Gillespie v NSW Self Insurance Corporation

[2008] NSWSC 1111

CITATION:	Gillespie v NSW Self Insurance Corporation [2008] NSWSC 1111
HEARING DATE(S):	20 October 2008
JUDGMENT DATE :	24 October 2008
JURISDICTION:	Common Law
JUDGMENT OF:	Michael Grove J
DECISION:	Indemnity costs refused
CATCHWORDS:	COSTS - Offer of compromise in District Court - Transfer to Supreme Court - Damages agreed fourteen years later - Significant change in ingredients of damage - Claim for indemnity costs
LEGISLATION CITED:	Civil Procedure Act 2005 District Court Rules 1989
CATEGORY:	Consequential orders
CASES CITED:	Hillier v Sheather (1995) 36 NSWLR 414 Houatchanthara v Bednarczyk, CA 14/10/96, unreported Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 Morgan v Johnson (1998) 44 NSWLR 578 NSW Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 Quach v Mustafa, CA 15/6/95, unreported
PARTIES:	Renee Cherie GILLESPIE (nee Gordon) - Plaintiff NSW Self Insurance Corporation (formerly known as NSW Insurance Ministerial Corporation) - Defendant
FILE NUMBER(S):	SC 20277/2005
COUNSEL:	D Wheelahan QC with P Jones - Plaintiff D Higgs SC with J Lonergan - Defendant
SOLICITORS:	Matthews Dooley & Gibson - Plaintiff J M Crestani - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MICHAEL GROVE J

24 October 2008

20277/2005 RENEE CHERIE GILLESPIE (nee GORDON) v NSW SELF INSURANCE CORPORATION (formerly known as NSW INSURANCE MINISTERIAL CORPORATION)

JUDGMENT

1 HIS HONOUR: The issue for determination is whether the amount of costs payable by the defendant to the plaintiff pursuant to a consent judgment should be assessed on an indemnity basis in respect of those costs which have been incurred after the failure of the defendant to accept an offer of compromise by the plaintiff on 12 May 1994.

2 It is necessary to relate the circumstances whereby that issue came to be presented.

3 On 3 May 1986 the plaintiff, then aged 17 years (born 11 June 1969) was injured in a motor vehicle accident. She was riding as a passenger in a car and the nominated defendant bears liability for the negligence of that driver. Negligence has never, in a practical sense, been disputed. Contributory negligence of the plaintiff was raised in terms of an allegation that the driver was affected by alcohol, however, if it were required for present purposes, I would assume that issue in favour of the plaintiff.

4 Action to recover damages was commenced in the District Court on 6 August 1986. A statement of particulars in compliance with the Rules of Court was filed on 1 September 1993. On 12 May 1994 the plaintiff served an offer of compromise indicating willingness to accept $700,000 plus costs, which offer was expressed to remain open until 13 June 1994. The offer was not accepted by the defendant. On 8 December 1994 the defendant offered $350,000 plus costs, which offer was to remain open for 28 days. The plaintiff did not accept this. On 6 August 1997 the defendant made a further offer of $625,000 plus costs which was to remain open for a similar period and again the plaintiff did not accept.

5 On 15 June 2005 the action was transferred to this Court. On 12 April 2006 I rejected an application by the defendant to join certain medical practitioners as cross defendants and on 8 February 2008 Hislop J refused leave to amend the Defence to plead a novus actus interveniens. Neither of these interlocutory rulings is of present significance and thereafter the action was fixed for hearing to commence on 20 October 2008.

6 In advance of that scheduled hearing the parties agreed to participate in a mediation which was to take place on 3 October. As a consequence the parties filed terms of settlement which included:

“By Consent:
1. Without admission of liability, judgment for the plaintiff in a sum of $2,500,000.00 inclusive of out of pocket expenses, plus costs as agreed or assessed.
1A: The basis upon which the defendant is to pay the plaintiff’s costs is to be as agreed between the parties or as ordered by the Court.”

7 It is in the absence of agreement as contemplated in clause 1A just cited that the parties sought that the matter be determined by the Court.

8 On 12 May 1994 when the plaintiff made the offer which is central to the current debate, Part 19A of the District Court Rules (having effect from 28 April 1989) was in force. Relevant provisions were:

“ PART 19A
OFFER OF COMPROMISE
Mode of making offer
1. (1) An offer of compromise is made to a party under this Part by serving a notice of the offer on the party.
(2) A notice of offer shall -
(a) be prepared in accordance with Part 47 rules 1-5; and
(b) bear a statement to the effect that the offer is made in accordance with this Part.
…
Costs
9 ….
(5) Where an offer is made by the plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to him than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled to an order against the defendant for his costs in respect of the claim from the date on which the offer was made, taxed or assessed on an indemnity basis, in addition to his costs in respect of the claim incurred before that date, taxed or assessed on a party and party basis.”

9 It was pointed out that with effect from 1 January 1998 a substituted rule, inter alia, replaced the expression “otherwise orders” with the expansion “unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders”. It was not submitted that this amendment articulated a presently applicable test.

10 It is convenient to interpolate that it was submitted, somewhat faintly I apprehended, that the offer of 12 May 1994 could not found the order sought by the plaintiff by reason of the absence of an express statement as required by Rule 1 (2) (b). For reasons to which I will turn, I am of a view that I cannot exercise the power vested by Part 19A. However, in response to this submission senior counsel for the plaintiff pointed out that the offer was formally documented and entitled “Offer of Compromise”. He stated that this was the first time that such a deficiency had been raised and that the offer had “always” been treated as made pursuant to the District Court Rules. If necessary he invited exercise of power vested by s 63 of the Civil Procedure Act 2005 to treat the alleged deficiency as an irregularity. If it were relevant I would do so.

11 The reference to the offer being “always” treated as made pursuant to Part 19A prompts some further observations. A series of legislative and related activities led to changes in the nomination of the defendant commencing with its title as the Government Insurance Office of New South Wales up to the present NSW Self Insurance Corporation. In the litigation an initial appearance was filed by Mr J. M Crestani as solicitor for the Government Insurance Office and he remained on record until 3 June 1994. It was stated at the hearing, without objection, that during that period Mr Crestani was not personally handling the matter. The offer of 12 May 1994 was addressed to “Solicitor for the GIO” at a Parramatta Document Exchange. The plaintiff’s offer was expressed to remain open until 13 June 1994 but, after 3 June 1994, Mr Norman Conroy of Messrs Moray & Agnew became solicitor on the record and he remained as such until 12 February 2001. The offers earlier referred to by the defendant having been made in December 1994 and August 1997 were conveyed by Mr Conroy’s firm.

12 On 12 February 2001 Mr Crestani, now in private practice as J. M. Crestani & Associates again became solicitor on the record. He has remained so. In the intervening years no reference to the offer in May 1994 appears to have been made by anybody until on 2 October 2008, the eve of scheduled mediation, Mr Sharkey, the plaintiff’s solicitor in a telephone conversation with Mr Crestani mentioned that, subject to the resolution of the plaintiff’s claim for damages, it was his intention to rely upon the non acceptance of an offer of compromise “about ten years ago” to seek costs on an indemnity basis. On 3 October, as I have earlier stated, the issue of damages was agreed and also the provision as to costs with the addendum specified in par 1A of the Terms of Settlement.

13 Subsequent to these agreements, on 7 October 2008 Mr Crestani contacted Mr Sharkey and confirmed that he could not locate the 1994 offer of compromise by reviewing the files. He was supplied with copies. Although I accept, of course, the unchallenged history attested by Mr Crestani I do not conclude that any weight contrary to the interests of the plaintiff should be given to the apparent misplacement of the plaintiff’s offer. That this may have happened is nevertheless readily understandable as the communication appears to have coincided with a change of solicitor.

14 As I have noted, at the hearing attention was directed to Part 19A of the District Court Rules above cited. In response to a remark by myself that it was my general understanding that the Court should not “otherwise order” unless the circumstances were exceptional, senior counsel drew my attention to the fact that the expression “exceptional case” was not introduced until after the plaintiff’s offer, those amendments being in effect from 1 January 1998.

15 I can observe, however, that Kirby P (as he then was) in Hillier v Sheather (1995) 36 NSWLR 414 at 422 in rejecting a submission that to “otherwise order” in terms of Part 19A required “compelling” circumstances said:

“It is enough to say that the case needs in some way to be exceptional. It must be exceptional because the general rule is that provided for in the rule itself. To gain relief, an exceptional exemptive order must be made.”

16 A statement of principles was collated by Mason P in Morgan v Johnson (1998) 44 NSWLR 578 at 581 namely:

“Since Pt 19A, r (9) was not materially different to Pt 39A, r 25 (as it stood before 1998) it is legitimate to apply the case law in respect of the former rule. It is also legitimate to have regard to judicial exegesis of corresponding provisions in the Supreme Court Rules 1970 (Pt 52, r 17(5) and Pt 52A, r 22(6)).
The leading cases on the Supreme Court Rules are Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 and NSW Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100. The leading cases on the corresponding provision in the District Court Rules are Hillier v Sheather (1995) 36 NSWLR 414, Quach v Mustafa (Court of Appeal, 15 June 1995, unreported) and Houatchanthara v Bednarczyk (Court of Appeal, 14 October 1996, unreported). The following principles can be extracted:
(1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital (at 725-726); Hillier (at 421, 431).
(2) The aim is to oblige the offeree to give serious thoughts to the risk involved in non-acceptance: Maitland Hospital (at 724).
(3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: NSW Insurance Ministerial Corporation v Reeve (at 102); Hillier (at 422). This is because, from the time of non-acceptance ‘notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise’: Maitland Hospital (at 724); see also Hillier (at 420).
(4) Lying behind the rule is the common knowledge that ‘litigation is inescapably chancy’: Maitland Hospital (at 725). For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve (at 102-103). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102). As Clarke JA expressed it in Houatchanthara (at 2-3):
‘The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case.
It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk.’
(5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital (at 725-726). Reasons must be given for ‘otherwise ordering’: Hillier (at 419); Quach .”

17 As I shall later record, I do not consider that I am vested with power in terms of the Rules of the District Court (irrespective of whatever version be in force) and it is plain that the 1994 offer of compromise was not made pursuant to any Rules of this Court. I have extracted the collation by Mason P as it provides useful background and some guidance for any exercise of discretion arising in the context of unaccepted offers.

18 A considerable focus of the arguments of the respective parties was directed to the element of compromise in the plaintiff’s offer. Either that there was, having regard to the particulars supplied and the plaintiff’s medical prognosis, and damages could reasonably be assessed at something in the order of $800,000.00 (the plaintiff’s contention) or there was not because the sum of $700,000.00 represented and possibly exceeded a reasonable assessment (the defendant’s contention).

19 This consideration is of marked importance, on the authorities, when dealing with rule provisions of the type such as Part 19A. It also carries some weight when a general costs discretion is to be exercised but it is a factor which can be outweighed by others. In this case, assuming the plaintiff’s contention, I consider that is so for reasons to which I will turn.

20 The arguments proceeded, as exemplified by the skirmish concerning Rule 1 (2)(b), upon a tacit assumption of the continuing relevance of Pt 19A of the District Court Rules. What has been overlooked, including at the time by me, was that the power to “otherwise order” in terms of that rule was reposed in the District Court. Although dealing with the successor rule Heydon JA (as he then was) made the situation clear in South Sydney Council v Morris (No 3) [2001] NSWC 200 at par 10:

“However, Pt 39A r 25(4) cannot apply in terms to the costs of the appeal. It gives power to ‘the Court’ – that is, the District Court. This Court is not the District Court. Pt 52A r 22(4) of the Supreme Court Rules does not apply in terms to the respondent’s offers of compromise either, since they were made under the District Court Rules, not Pt 22 r 3(5) of the Supreme Court Rules.”

21 His Honour was then of course sitting in the Court of Appeal but it can make no difference that the present jurisdiction is being exercised in the Common Law Division as both are parts of the Supreme Court (s 58 Supreme Court Act 1970).

22 There are similar provisions to Pt 19A to be found in UCPR 20.26 and 42.14. Obviously the plaintiff’s offer was not made pursuant to those rules nor to their predecessors in the Supreme Court Rules. As already observed the action has been in this Court since 15 June 2005 and therefore the question arises as to what power I can exercise to resolve the issue raised by clause 1A of the Terms of Settlement. For the reasons adumbrated by Heydon JA, I cannot exercise power vested in the District Court by Pt 19A. I recognize that the final words in clause 1A of the Terms of Settlement might carry an implication that dispute as to costs be resolved in the context of what the parties consider the issue but any available power is judicial not arbitral.

23 Since the repeal of s 76 of the Supreme Court Act (with effect from 15 August 2005) the source of available power is to be found in s 98 of the Civil Procedure Act. To the extent that the issue for determination is being brought before this Court I must draw any power to resolve it from there.

24 Undoubtedly s 98 (1) (a) of the Civil Procedure Act vests a wide discretionary power. I have determined that I should not exercise that power to order that costs be other than what are now described as “ordinary costs”. My reasons will follow and I would add that, even if Pt 19A had been applicable, I would be satisfied for those reasons that the case is exceptional “in some way” as contemplated by Kirby P in Hillier.

25 I find that quality emerges from a combination of factors. Some 14 years have elapsed between the making of the offer and the agreement between the parties as to quantum. As at 1994 the plaintiff had undergone some six surgical procedures to her right tempero mandibular joint (tmj). Although at the time there had been signalled that she was suffering symptoms in the left tmj, surgical intervention on that side was not predicted. Paragraph 11 of Mr Crestani’s affidavit of 14 October 2008 lists the history of symptoms and surgical interventions since May 1994 and I will not repeat what can be read there. In short, it is plain that the case settled in October 2008 was significantly different from that which existed and which could reasonably be predicted in May 1994.

26 There is a powerful indication of the treatment by all concerned of the “1994” case as an obsolete evaluation in a series of successful applications by the plaintiff for interim payment of damages. She applied for and received $150,000 in 1996 (Garling DCJ); $120,000 in 1998 (Blackman A/DCJ); $200,000 in 2000 (Garling DCJ); $25,000 in 2002 (Karpin DCJ); and $50,000 in 2007 (Hislop J). Thus the plaintiff received by way of interim payments a total of $545,000, which may be gauged against what I have categorized as the obsolete $700,000 offer of compromise.

27 That the plaintiff was presenting a significantly changed case was discernible in applications to vacate hearing dates and reluctance to set down for hearing because her condition was unstable and apparently deteriorating. This is not a matter of criticism, in fact it was obviously prudent not to proceed but the circumstances demonstrate that the plaintiff through her representatives was well aware that the case was not the same as that which was the subject of a compromise offer of $700,000. It can be readily deduced that the defendant would also be aware of this.

28 Without the necessity to relate the content, it is further confirmation of the change that no challenge was made to Mr Crestani’s attestation that after May 1994 the plaintiff’s representatives served no less than a further 122 expert reports.

29 I am conscious that a prominent purpose of the existence of the power to order indemnity costs is to encourage and promote genuine attempts by parties to compromise their claims, hence the debate about evaluation abovementioned. As events have turned out, in this case it would have been catastrophic if the plaintiff’s offer had been accepted. I am satisfied, with the benefit of hindsight, that the plaintiff’s representatives would have become aware of this within a relatively short period after the expiry of the offer. On the evidence the next reference to it was made some 14 years later on 2 October 2008.

30 The evidence does not reveal unreasonable conduct by the defendant or any other reason such as would give rise to an exercise of discretion to order payment of indemnity costs.

31 As I am not implementing any specific rule, observations about the consciousness of the rule maker to the possible burdens and risks consequent upon an offer falling one side or another of final assessment are not directly germane. Obviously there will be cases where assessable damage varies between offer and assessment but I consider the magnitude, in particular, of the 14 year lapse and the unpredicted deterioration of the plaintiff’s condition provoke my above stated conclusion.

32 As I indicated at the outset, the issue for determination came before the Court on the scheduled day for hearing without formal motion and accordingly I publish these reasons for declining to order that the costs payable by the defendant to the plaintiff pursuant to clause 1A of the Terms of Settlement be other than ordinary costs.

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