Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2)

[2005] VSCA 298

SUPREME COURT OF VICTORIA

COURT OF APPEAL

No. 3744 of 2004

HAZELDENE'S CHICKEN FARM PTY LTD (ACN 004 381 346)	Appellant
	v.
VICTORIAN WORKCOVER AUTHORITY (No.2)	Respondent

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JUDGES:	WARREN, C.J., MAXWELL, P., HARPER, A.J.A.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	21 July 2005
DATE OF JUDGMENT:	13 December 2005
MEDIUM NEUTRAL CITATION:	[2005] VSCA 298

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COSTS – Unsuccessful appeal against discretionary judgment regarding apportionment of damages – Respondent made Calderbank offer to the Appellant – Offer refused – No presumption in favour of award of indemnity costs – Test is whether refusal of offer was unreasonable in the circumstances – Unintended differences in rules governing trial offers and appeal offers – Rules should be amended.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr D.G. Collins, SC with Mr A.M. Donald	Norris Coates
For the Respondent	Mr J.J. Noonan, SC with Ms D.A. Siemensma	Wisewoulds

WARREN, C.J.:
MAXWELL, P.:
HARPER, A.J.A.:

1. On 21 July 2005, the Court dismissed an appeal by Hazeldene’s Chicken Farm Pty Ltd (“Hazeldene”) against the trial Judge’s apportionment of responsibility for injuries sustained on 14 March 2001 by Ms Martine Wallace.  Ms Wallace was employed as a chicken catcher by a company trading under the name of “D M Walsh”.  She was loading chickens into pallets (together with an employee of Hazeldene’s) when she was struck by a forklift vehicle being operated by Hazeldene in a large poultry shed which it occupied at the time.

1. The trial Judge held that Hazeldene should bear 55 per cent of the responsibility, Ms Wallace 30 per cent and D M Walsh 15 per cent.  His Honour found that Hazeldene was in charge of the operation which, in his Honour’s words, was “being controlled by [Hazeldene’s employee] Mr Drew”.  This finding was not challenged on the appeal.[1]

   [1]See para [4] of the Court’s reasons [2005] VSCA 185.

1. In dismissing the appeal, the Court noted[2] that the case raised:

“... the important issue of the relative responsibilities for workplace safety of a labour hire supplier on the one hand and a host employer on the other.”

The Court continued:[3]

“It is well established that a common law duty of care is owed to an employee such as Ms Wallace both by the labour hire firm (in this case D M Walsh) which employs her, and by the host employer (in this case Hazeldene) which operates the workplace at which she carries out her duties.”

The Court further noted:[4]

“The critical difference between the labour hire firm and the host employer, of course, is that the host controls the workplace and the conduct of the operations which take place there during the work day.”

[2]At para [9].

[3]ibid.

[4]At para [10].

1. The allocation of responsibility between tortfeasors is determined in the exercise of a judicial discretion.[5]  The principles governing appellate intervention in discretionary decisions are conveniently set out by the High Court in House v R.[6]

   [5]Citing Mobilio v Balliotis [1998] 3 VR 833 at 837.

   [6](1936) 55 CLR 499 at 504-5.

1. While there was a causal relationship between Ms Wallace’s injury and D M Walsh’s breach of its duty of care to her, and despite the fact that his Honour did not seek to delineate “as a matter of general principle” the scope of D M Walsh’s duty as a supplier of labour, this Court concluded that his Honour’s reasoning was “in accordance with a proper sense of the scope and limits of what a labour hire employer can and should do[7].”  Accordingly, there was nothing in the judgment below which suggested any miscarriage of judicial discretion;  nor was there any error of law.  The appeal therefore failed.

   [7]See para [15] of the Court’s reasons.

1. When the decision was handed down, senior counsel for the successful respondent applied for an order that the appellant pay the respondent’s costs of the appeal to be taxed on an indemnity basis.  The respondent relies on what has come to be known as a “Calderbank offer”.[8]  The terms of the offer are referred to below.

   [8]See Calderbank v Calderbank [1975] 3 WLR 586.

Trial offers and appeal offers compared

1. Order 26 of the Supreme Court (General Civil Procedure) Rules 1996 provides for the making of offers of compromise. The costs consequences of failure to accept an offer of compromise made in connection with a trial are defined by r.26.08. They vary according to the nature of the case and according to whether the offer was made by the plaintiff or the defendant. Thus, where it is the plaintiff’s offer which is refused, and the plaintiff obtains judgment on terms no less favourable than the terms of the offer, the plaintiff is entitled – subject to any order of the Court to the contrary –

(a)        where the claim is for damages arising out of death or bodily injury -  to an order for costs on an indemnity basis;

(b)        in the case of any other claim - to an order for costs on a party-party basis up to the date of the offer, and thereafter on an indemnity basis.[9]

[9]Rule 26.08(2).

1. Where it is the defendant’s offer which is not accepted, and the plaintiff obtains judgment on terms not more favourable than the terms of the offer, then – again subject to any order of the Court to the contrary –

(a)       the plaintiff is entitled to costs on a party-party basis up to the date of the offer;  and

(b)      the defendant is entitled to costs thereafter on a party-party basis.[10]

[10]Rule 26.08(3).

1. Offers in connection with an appeal are governed by Part 3 of O.26. Under r.26.12(1), a party to an appeal may serve on another party “an offer to compromise the appeal”. The costs consequences of a failure to accept such an offer are set out in r.26.12(3), which provides as follows:

“Where on an appeal –

(a)a party has made an offer in writing to the other party (whether or not expressed to be without prejudice) to compromise the appeal on the terms specified in the offer;

(b)the offer was open to be accepted for a reasonable time, but was not accepted;  and

(c)the party making the offer obtains an order on the appeal no less favourable to that party than the terms of the offer –

the Court of Appeal shall take those matters, and also the stage of the appeal at which the offer was made, into account in determining what order for costs to make in respect of the appeal.”

Under r.26.12(4), the Court of Appeal has power to make an order for costs on a solicitor and client basis.   Such a costs order may be expressed to operate -

“from the commencement of the appeal, from the day the offer was served or from any other time that the Court thinks fit.”

1. There are two small differences between the rules which govern, respectively, trial offers and appeal offers. The first is that the trial offer rules apply only where the offer is an “offer of compromise” as defined, meaning that it complies with the requirements of O.26 as to form, content and timing.[11]  The appeal rules, on the other hand, apply where a party has made “an offer in writing to compromise the appeal.”  The formal requirements for an offer of compromise appear to have no application to an offer to compromise an appeal.  So a Calderbank offer in relation to an appeal – being an offer to compromise – will fall within r.26.12(3) provided that it is “open to be accepted for a reasonable time.” 

   [11]Grbavac v Hart [1997] 1 VR 154; Primus Telecommunications Pty Ltd v CCP Australian Airships Limited [2003] VSC 141 at [6].

1. It is suggested in Williams–Civil Procedure–Victoria that “offer to compromise” was used in Part 3 of O.26 in contradistinction to “offer of compromise” in Part 2.[12]  Whatever may have been the origin of the distinction, it seems to us that, so far as possible, the rules governing appeal offers (and their costs consequences) should be the same as those governing trial offers.  We see no justification for maintaining this distinction.

   [12][26.12.0].

1. The second difference is that, whereas the costs consequences of rejecting a trial offer are defined by reference to indemnity costs, the costs consequences of rejecting an appeal offer are defined by reference to solicitor-client costs.  The difference between the two is as follows.  Where costs are taxed on a solicitor-client basis, the party in whose favour the order is made is able to recover all costs reasonably incurred and of a reasonable amount.[13]  The party recovering its costs must satisfy the Court that the costs claimed are reasonable in the circumstances. Where costs are ordered to be taxed on an indemnity basis, on the other hand, a party is able recover all its costs other than those shown to have been unreasonably incurred or of an unreasonable amount.[14]  It is the unsuccessful party which bears the onus of satisfying the court that the costs claimed are unreasonable.

   [13]Rule 63.30.

   [14]Rule 63.30.1.

1. In providing for an award of solicitor-client costs where an appeal offer has been rejected, r.26.12(4) does not purport to exhaust the options open to the Court of Appeal in the exercise of its costs discretion.[15]  That is, this Court clearly has power to entertain the respondent’s application for indemnity costs.  For the future, however, we can see no justification for maintaining this difference between the rules respectively governing trial offers and appeal offers.   As a matter of history, the difference appears to have been the unintended result of various rule changes.[16]  Consistently with the most recent of those changes, the rules for appeal offers should also be expressed by reference to indemnity costs.

   [15]cf. Supreme Court Act 1986 s.24.

   [16]See Supreme Court (Chapter 1 Amendment No.10) Rules 1999;  Supreme Court (Chapter 1 Amendment No 18) Rules 2001;  Supreme Court (Chapter 1 Amendment No.22) Rules 2002.

The present offer

1. The respondent’s offer in this appeal was set out in a letter dated 1 July 2005.   The appeal was due to be heard on 21 July 2005, less than three weeks later.  The relevant part of the letter was in the following terms:

“We are instructed that our client is prepared to settle this matter by offering to reduce the cap on the future indemnity to $288,016.43 and to pay the appellant’s party-party costs of the appeal.

This offer is only open to be accepted until 4:00 pm on Thursday 14 July after which it will lapse.

We put you on notice that if your client rejects this offer and the matter proceeds to an appeal hearing at which the cap is determined to be an amount not less than $288,016.43 then we will produce this letter on the question of costs with an application being made that the Appellant pays the Respondent’s costs on an indemnity basis from the date of this letter in accordance with the principles set out in Calderbank v Calderbank (1975) 3 All ER 333.”

1. In the event, the terms of the offer were more favourable to the appellant than the result which it achieved in this Court.  The indemnity cap fixed at trial (and upheld on appeal) was $327,031.  The respondent’s offer – if accepted – would have reduced the cap by almost 12 per cent. 

1. The question is whether, in all the circumstances, the Court should exercise its discretion to award costs against the appellant on an indemnity basis. 

Calderbank offers and the award of indemnity costs

1. Calderbank letters and the consequences that flow from them have been considered by the Trial Division of this Court in a number of cases:  see M T Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No.3);[17]  Clarke v ABC;[18] Pearson v Williams;[19]  Nolan v Nolan;[20]  and Aljade & MKIC v OCBC.[21]

   [17][2000] VSC 163 per Gillard, J.

   [18][2001] VSC 274 per Ashley, J.

   [19][2002] VSC 30 per Ashley, J.

   [20][2003] VSC 136 per Dodds-Streeton, J.

   [21][2004] VSC 351 per Redlich, J.

1. One of the seminal contributions to the law on indemnity costs was the judgment of Sheppard, J. in Colgate Palmolive Company v Cussons Pty Ltd.[22]  Amongst the circumstances listed by his Honour as having been thought to warrant the exercise of the discretion to award indemnity costs was –

“an imprudent refusal of an offer to compromise”.[23]

So widely has this been accepted that the proposition has been advanced that a Calderbank offer gives rise to a presumption that the party rejecting the offer should pay the offeror’s costs on an indemnity basis if the offeree receives a less favourable result.[24] 

[22](1993) 46 FCR 225.

[23]At 233.

[24]See, for example, Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425.

1. In Aljade and MKIC v OCBC,[25] however, Redlich, J. rejected the notion of any such presumption, holding that the weight of authority –

“strongly points to an approach that involves no preconceptions about when the rejection of a Calderbank offer should lead to the making of a special costs order.  It will do so where it is concluded that the rejection of the offer was unreasonable.”

We respectfully agree with his Honour’s conclusion.  We note, as did his Honour, that the notion of such a presumption has been decisively rejected by the New South Wales Court of Appeal (most recently in Brymount Pty Ltd v Cummins (No.2)[26]), by the Federal Court and by the Queensland Court of Appeal.

[25][2004] VSC 351 (Redlich, J., 22 September 2004).

[26][2005] NSWCA 69 (17 March 2005).

1. The correct approach, in our view, is to treat the rejection of a Calderbank offer as a matter to which the Court should have regard when considering whether to order indemnity costs.  As Gyles, J.A. stated in SMEC Testing Services Pty Ltd v Campbelltown City Council[27] -

“In the end the question is whether the offeree’s failure to accept the offer, in all the circumstances, warrants departure from the ordinary rules as to costs...”

[27][2000] NSWCA 323 at [37].

Encouraging settlement

1. In Grbavac v Hart,[28]  Hayne, J.A. cited with approval what the New South Wales Court of Appeal had said in Maitland Hospital v Fisher (No.2)[29] about the policy rationale underlying the availability of special orders for costs where offers of compromise are rejected. Like his Honour, we think that what was there said is equally relevant to the exercise of the costs discretion where a Calderbank offer has been made.  The policy objectives were said to be:

“(1)To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff’s real claim which can be placed before its opponent without risk that its ‘bottom line’ will be revealed to the court;

(2)To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant;  and

(3)To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred.  This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances that party should ordinarily bear the costs of litigation.”

[28]At 164-165.

[29](1992) 27 NSWLR 721 at 724, see also M T Associates v Aqua-Max Pty Ltd (No. 3) [2000] VSC 163 at [71].

1. At the same time, as Redlich, J. said in Aljade,[30] there are other competing objectives of equal importance.

“Potential litigants should not be discouraged from bringing their disputes to the Courts.  It is such considerations which underlie the general rule that an order for special costs should only be made in special circumstances.”

[30](supra) at [60].

The test of unreasonable rejection

1. In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness.  The critical question is whether the rejection of the offer was unreasonable in the circumstances.[31]  We see no justification for a more stringent test such as “manifestly” or “plainly” unreasonable.

   [31]See, for example, Brymount (supra) at [16]; Pearson v Williams (supra) at [17];  Aljade (supra) at [68] and the cases there cited.

1. Of course, deciding whether conduct is “reasonable” or “unreasonable”  will always involve matters of judgment and impression.  These are questions about which different judges might properly arrive at different conclusions.  As Gleeson, C.J. said recently, “unreasonableness is a protean concept”.[32]  But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this. 

   [32]ReMinister for Immigration and Multicultural Affairs;  ex parte Applicant S20/2002 (2003) 77 ALJR 1165 at 1170 [20].

Factors relevant to assessing reasonableness

1. The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations.[33]  It is neither possible nor desirable to give an exhaustive list of relevant circumstances.  At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

   [33]See House v R (1936) 55 CLR 499 at 505.

(a)       the stage of the proceeding at which the offer was received;

(b)      the time allowed to the offeree to consider the offer;

(c)       the extent of the compromise offered;

(d)      the offeree’s prospects of success, assessed as at the date of the offer;

(e)       the clarity with which the terms of the offer were expressed;

(f)       whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.

1. It has been argued on occasion that the maker of a Calderbank offer should not be entitled to costs unless the offer sets out, with some reasonable specificity, the basis for the offeror’s contention that the offeree should accept the compromise – for example, because the offeree’s case was hopeless or because the offeree had no reasonable prospects of doing better in the proceeding than was being offered in advance.  

1. Once again, we think it neither necessary nor desirable to lay down any general rule in this regard.  We agree with what Redlich, J. said in Aljade, as follows:

“Any attempt to prescribe the reasoning which must accompany [a Calderbank] offer should be resisted.  Whether there is a need for the offeror to descend to specificity as to why the offer should be accepted must depend upon a consideration of all of the circumstances existing at the time of the offer.  The extent to which the weakness of a party’s position is exposed through the pleadings, affidavits and the various communications between the parties during the course of the litigation may bear upon the significance of the absence of specificity in the informal offer.”[34]

[34]At [87].

1. As we said at the outset, the unreasonable refusal of an offer of compromise is, by itself, a proper ground for the award of indemnity costs or - in the present case - the award of solicitor-client costs.  It follows that it is not necessary for the applicant for such an order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs.  Once again we would adopt what Redlich, J. said in Aljade, as follows:

“It is not necessary to establish misconduct by the offeree before the rejection of the offer can be viewed as unreasonable.  Lack of merit in the way a party has conducted its case is not a pre-requisite for the making of an indemnity costs order [on this ground].”[35]

[35]At [93].

1. Nor is it necessary for the applicant offeror to show that the offeree acted with “wilful disregard of known facts or clearly established law”, or that it acted with “high-handed presumption”.[36]   We agree with Redlich, J. that such conduct is not a prerequisite for a finding that the rejection of a Calderbank offer was unreasonable.[37]

   [36]cf. Colgate Palmolive (supra) loc cit.

   [37]Aljade (supra) at [95].

The rejection in the present case was unreasonable

1. In our view, the rejection by the appellant in this appeal of the respondent’s Calderbank offer was unreasonable, and the respondent is therefore entitled to an order for costs on an indemnity basis.  In reaching this conclusion, we regard as particularly significant the real element of compromise represented by the terms offered, and the lack of prospects of success on the appeal, viewed objectively as at the date of the offer.

1. As was properly conceded by senior counsel for the appellant, an appeal court will only intervene in a trial judge’s decision on apportionment in an exceptional case.[38]  There was, in our view, nothing to suggest that this was such a case.  On the contrary, as senior counsel for the appellant again properly conceded, there was nothing in the trial Judge’s reasons for judgment which suggested any specific error.  Nor was it contended that the Judge had incorrectly enunciated any applicable principle of law. 

   [38]See, for example, A V Jennings Constructions Pty Ltd v Maumill (1956) ALJR 101; Watt v Bretag (1982) 56 ALJR 760 at 761; Mobilio v Balliotis (1983) 3 VR 833 at 837 per Brooking, J.A.; Podrebersek v Australia Iron and Steel Pty Ltd [1985] ALJR 492 at 494 per Gibbs, C.J., Mason, Wilson, Brennan and Deane, JJ.; Moore and Spreadborough v Scolaro’s Concrete Constructions Pty Ltd and Ors [2004] VSCA 152; and Alijade  (supra) at [53] per Redlich, J.

1. The sole ground of the appeal was that the apportionment was so clearly wrong that the exercise of the discretion must have miscarried.  Plainly, this ground was only going to succeed if it could be shown that the (discretionary) conclusion arrived at was so obviously wrong that this Court could infer that the discretion had not been properly exercised at all.[39]  Again, there was, in our view, nothing to suggest that this was such a case.

   [39]House v R (supra) loc cit.

1. Accordingly, the respondent is entitled to an order for costs on an indemnity basis.

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