Jones v Bradley (No 2)

NEW SOUTH WALES COURT OF APPEAL

CITATION: Jones v Bradley (No. 2) [2003] NSWCA 258

FILE NUMBER(S):
41050/01

HEARING DATE(S): Written Submissions

JUDGMENT DATE: 16/09/2003

PARTIES:
Edward John Jones (Appellant)
Emma Ward Bradley (Respondent)

JUDGMENT OF: Meagher JA Beazley JA Santow JA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 2140/99

LOWER COURT JUDICIAL OFFICER: Dent DCJ

COUNSEL:
C Hoeban (Appellant)
Paul S Jones (Respondent)

SOLICITORS:
Connery & Partners (Appellant)
Colin Daley Quinn (Respondent)

CATCHWORDS:
Costs - offer of compromise - Calderbank offer - exercise of discretion - settlement negotiations - reasonableness of offer - time to consider offer - application of Rules of Court

LEGISLATION CITED:
Evidence Act 1995 (NSW) s131(2)(h)

DECISION:
1. The respondent is to pay the appellant's costs from 26 October 2001 to 3 December 2001 on a party/party basis
2. The respondent is to pay the appellant's costs of the appeal until 20 December 2001 on a party/party basis
3. The respondent is to pay the appellant's costs of the appeal from 21 December 2001 on an indemnity basis

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 41050/01
DC 2140/99
MEAGHER JA
BEAZLEY JA
SANTOW JA
16 Sepember 2003

JONES v BRADLEY (No. 2)

Judgment

The Court: The Court delivered Judgment in this matter on 16 April 2003. The appeal was allowed and the verdict in favour of the respondent was reduced by $1,314,844.20, leaving a judgment sum in her favour of $769,854.85.

That left outstanding the question of the costs of the trial and of the appeal. At trial, Dent DCJ ordered the appellant to pay costs on an indemnity basis from 23 October 2001. Given his success on the appeal, the appellant now seeks to set aside that order and seeks an order that the respondent pay his costs on a party/party basis from 26 October 2001, when he made his final offer of settlement, until 3 December 2001, when Dent DCJ made his costs order in the matter. The appellant also seeks an order that the respondent pay indemnity costs of the appeal from 21 December 2001, including the costs of this costs application.
The respondent resists the appellant’s application. She acknowledges that, due to the outcome of the appeal, it is appropriate that Dent DCJ’s costs order be varied and proposes that the appellant pay the respondent’s costs of the trial on a party/party basis. She concedes her liability to pay the appellant’s costs of the appeal but proposes that these be on a party/party basis.
It is necessary to review the history of the litigation in this matter in order to understand the bases upon which each party contends it is entitled to costs:
On 15 October 2001 the proceedings commenced before Dent DCJ;
On 22 October 2001, the appellant made an offer of settlement, in terms purporting to be a Calderbank offer, of $1,000,000 inclusive of out of pocket expenses plus costs. This offer was open until 10.00am on Wednesday 24 October 2001;
On 23 October 2001, the respondent made an offer of settlement, also in terms purporting to be a Calderbank offer, of $1,500,000 inclusive of out of pocket expenses plus costs;
On 26 October 2001, the appellant made a further offer of settlement, in terms purporting to be a Calderbank offer, of $1,200,000 plus costs. This offer was open until 10.15am on Monday, 29 October 2001;
On 2 November 2001, the proceedings concluded before Dent DCJ and, on 30 November 2001, Dent DCJ gave a judgment and verdict in favour of the respondent in the sum of $2,084,699;
On 3 December 2001, Dent DCJ awarded costs against the appellant on a party/party basis up to 23 October 2001 and thereafter on an indemnity basis in favour of the respondent;
The appellant’s notice of appeal was filed on 20 December 2001; and
On 21 December 2001 an offer of settlement, in terms purporting to be a Calderbank offer, was made by the appellant to the respondent in the sum of $1,200,000 exclusive of out of pocket expenses plus costs. This offer was open until 4.00pm on 20 January 2002.
“Calderbank offers” are well recognised means of making offers of settlement in circumstances where the party making the offer ultimately seeks a costs advantage if the offer is not accepted: see Calderbank v Calderbank (1975) 3 WLR 586. Such offers do not comply with the Rules of Court for making offers of compromise. Accordingly the Rules which govern costs in those circumstances do not apply and the matter remains one for the exercise of the Court’s discretion.
There are two lines of authority on the question of what effect a Calderbank offer has on the Court’s discretion in awarding costs. The first is reflected in Rolfe J’s judgment in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 where his Honour stated at 451:
“… the proper approach to take to an offer of compromise … or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of a recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer.”
This line of authority has been followed in: Naomi Marble & Granite Pty Ltd v FAI General Insurance Company Ltd (No 2) [1999] 1 Qd R 518, and Brittain v Commonwealth of Australia [2003] NSWSC 270.
The other line of authority rejects the “prima facie presumption” approach. In MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 Lindgren J said at page 239:
“It is important, however, to appreciate that the mere making of an offer by a Calderbank letter and its non-acceptance followed by a result more favourable will not automatically lead to the making of an order for payment of costs on an indemnity basis.”
His Honour said the manner of exercise of the discretion “depends on all relevant circumstances of that case”. His Honour’s view reflected the jurisprudence in the Federal Court at the time: see WCW Pty Ltd v Charthill Ltd (unreported, Federal Court, Olney J, 7 July 1992); John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201; and has continued to be applied in that Court: see The Sanko Steamship Co Ltd v Sumitomo Australia Ltd (unreported, Federal Court, Sheppard J, 7 February 1996) and NMFM Property v Citibank (2001) 109 FCR 77.
This principle has also been enunciated in this Court. In SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Giles JA stated at para 37:
“The making of an offer of compromise in the form of a Calderbank Letter … where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree’s failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure.”
It appears that Priestley JA, by his Orders in this case, would endorse this approval. But in any event, the principle has been applied in the Supreme Court both at first instance and on appeal: see Enron Australia Finance Pty Limited (in liquidation) v Integral Energy Australia [2002] NSWSC 819; Nobrega v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133; LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74; and Cummings v Sands [2001] NSWSC 706.
It is worth pausing to note that the difference between the two lines of authority may be “more apparent than real” as in either approach the Court must consider all the circumstances of the case: see CBA Investments Limited v Northern Star Limited (No 2) [2002] NSWCA 164. Be that as it may, we consider that the approach taken by the Court in SMEC Testing Services is correct and is the approach which should be consistently applied when dealing with Calderbank offers.
The appellant claimed he is entitled to an order that the respondent pay party/party costs of the trial from 26 October 2001 to 3 December 2001, as the Calderbank offer made on 26 October was “reasonable in the circumstances, and it was unreasonable of the respondent to refuse it”. He submitted that this Court’s reassessment of the damages indicates the reasonableness of the offer. The appellant also submitted that the time that the respondent had to consider the offer was sufficient, as the offer of 26 October was made in response to the respondent’s offer of 23 October, and thus, “it can be inferred that the respondent and her legal advisors had the value of her case under consideration”.
The respondent submitted that as the offer of 26 October was received by facsimile at 2.13pm on Friday and the offer was only open until 10.15am on Monday, it was “open for less than one-half a working day”, which did not provide her with a reasonable time in which to consider the offer. This, she submitted was apparent when it was compared with the procedures set out in the District Court Rules for offers of compromise. Under the District Court Rules an offer of compromise must be open for at least 28 days. The respondent also submitted that it would have been appropriate for the appellant to “lead some evidence explaining why the Offer of Compromise procedure was not availed of”: see De la Blanca v Donohoo (Badgery-Parker J, unreported, NSWSC, 12 August 1997). As it did not do so and as the time in which the offer had to be accepted was limited, she submitted that the appellant was not entitled to an award of costs from the date of the offer.
The weight of authority does not support the proposition that evidence needs to be led to explain the choice of a Calderbank letter over that of the Offer of Compromise procedure provided for in the Rules of Court: see Messiter v Hutchinson (1987) 10 NSWLR 525 at 528; AMEV Finance Ltd v Artes Studios Thoroughbreds Pty Ltd (1998) 13 NSWLR 486; Smallacombe v Lockyer Investment Co Pty Ltd (1993) 114 ALR 568; Wollong Pty Ltd v Shoalhaven City Council (2002) 122 LGERA 331; and Australian Competition and Consumer Commission v Black on White [2002] FCA 1605. Nor, with respect to the respondent’s submission, does De la Blanca stand for the proposition asserted. Badgery-Parker J’s judgment in De la Blanca involves much greater subtlety than this bold assertion. His Honour was considering whether the defendant should get any advantage by making a Calderbank offer. He postulated that there were two possible advantages in the defendant in that case having made that offer rather than an Offer of Compromise under the Rules of Court. One was to exert pressure by having a shortened time in which the offer was to be accepted. The other was to protect itself should there be “some apparent change in the forensic balance”. He noted that the evidence filed by the defendant did not disclose the reasons why it had chosen its course. The circumstances in De La Blanca are quite different to these and his Honour’s comment about the filing of evidence must be seen in the context in which his Honour was considering the exercise of his discretion.
Whilst both parties submitted that it is relevant for the Court to consider the provisions of the various Rules of Court concerning Offers of Compromise when exercising its discretion in awarding costs in a situation where a Calderbank offer has been made, the Court’s discretion is not constrained by those Rules. Accordingly, when considering whether the time in which a Calderbank offer must be accepted is reasonable, it is necessary to look at all the circumstances surrounding the making of the offer.
The respondent also submitted that the offer was “imprecise and vague”, that it did not convey that “in the absence of the [respondent] effectively bettering the Offer” in the proceedings there would be an application for costs and was thus ineffective as a Calderbank offer. It submitted that to be effective as a Calderbank offer, the letter needed to specify that although it was without prejudice as to the issue of damages, the offeror reserved the right to refer to it on the issue of costs: see Calderbank v Calderbank per Cairns LJ at page 596.
In Nobrega v The Trustees of the Roman Catholic Church (No 2), Powell JA (Priestley JA and Sheppard AJA agreeing) held that the fact that an offer was not in the precise form first suggested by Cairns LJ in Calderbank v Calderbank did not render it inadmissible or ineffective on any argument on costs. In addition, the Evidence Act 1995 (NSW) s131(2)(h) provides that evidence of settlement negotiations may be adduced into evidence if they are relevant to the question of costs. Therefore as a matter of principle, the respondent’s submission is incorrect. But in any event, the offer was precise and the letter was clear as to its purpose as it indicated that the offer was a ‘Calderbank offer’ and that it was ‘Without Prejudice Save as to Costs’.

In light of the ultimate verdict on the appeal and the history of the matter leading to the appellant’s offer of 26 October, including the counter offer made the by respondent on 23 October which demonstrated that she had the verdict under active consideration, it was unreasonable for the respondent to reject the appellant’s Calderbank offer of 26 October. The respondent is to pay the appellant’s costs on a party/party basis from 26 October 2001 to 3 December 2001.
Costs of the Appeal
It appears to be common ground between the parties that the costs of the appeal should follow the event and so the respondent should pay the appellant’s costs of the appeal. The issue between the parties is whether the respondent should pay the appellant’s costs on an indemnity basis from 21 December 2001, the date of the appellant’s Calderbank letter offering $1,200,000 exclusive of out of pocket expenses plus costs. The respondent submitted that “for this Court to give the claimed effect to this letter would have the effect of rendering nugatory the specific provisions of the Supreme Court Rules that apply to Offers of Compromise”. This is the same point as that made in respect of the costs of the trial and it relates to the time in which the offer was open for acceptance.
The respondent submitted that the appellant was seeking to gain a tactical advantage by serving the letter on the last day for business for 2001. The letter arrived by facsimile on Friday 21 December 2001, and the offer was open until 4pm Sunday 20 January 2002. The respondent’s solicitors’ practice was closed from 21 December 2001 until 2 January 2002, and the solicitor with carriage of the matter did not return to her office until Monday 14 January 2002. The respondent submitted that she thus had only 5 working days in which to have the benefit of legal advice and to consider the offer. By reference to the NSW Supreme Court Rules time for consideration of offers of compromise did not run for a period of 16 days between 25 December and 9 January inclusive so that, she had about 2 weeks, by having regard to those Rules, in which to consider the offer.
Although the respondent did not articulate this in her submissions, it should be acknowledged that the respondent’s consideration of the offer of 21 December involved more complex considerations than the offer of 26 October. By then, she had a large verdict in her favour. Her consideration of the offer would have involved a consideration of the likelihood of her retaining the whole of that award on the appeal and if not, what parts might be the subject of a successful appeal. This would have involved a careful analysis of the judgment. However, given both the prior history of settlement negotiations in the matter and the fact that the appellant had to meet arguments in the trial in relation to the various aspects of her claim, the period available, although not generous, was adequate. It is not apparent from the evidence before the Court whether the appellant’s solicitors were aware that the respondent’s solicitor was away for the first half of January. To that extent there is no evidence to suggest that they were seeking to take advantage of the absence of the appellant’s solicitor. If the time ultimately available had been insufficient, the respondent could have made a request for additional time to be made available to her to consider the offer. The appellant’s response to any such request would itself have been a relevant matter for the Court to consider.
In our opinion, considering the history of the settlement negotiations in this matter and the amounts in which those offers were made, together with the ultimate verdict awarded by this Court, we consider that the appellant’s Calderbank offer of 21 December was reasonable and that the respondent’s rejection of the offer was unreasonable. We consider therefore that the respondent should pay the appellant’s costs of the appeal from 21 December 2001 on an indemnity basis.
Orders:
1)The respondent is to pay the appellant’s costs from 26 October 2001 to 3 December 2001 on a party/party basis;
2)The respondent is to pay the appellant’s costs of the appeal until 20 December 2001 on a party/party basis;
3)The respondent is to pay the appellant’s costs of the appeal from 21 December 2001 on an indemnity basis.

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LAST UPDATED: 22/09/2003

[2003] NSWCA 258

16 September 2003