K'Mart Australia Ltd v McCann [No 2]

[2004] NSWCA 364

NEW SOUTH WALES COURT OF APPEAL

CITATION:      K'Mart Australia Ltd v McCann [No 2] [2004]  NSWCA 364

FILE NUMBER(S):
41172/03

HEARING DATE(S):               Determined on the papers

JUDGMENT DATE: 11/11/2004

PARTIES:
K'Mart Australia Ltd (Appellant)
Bruce Edward McCann (Respondent)

JUDGMENT OF:       Handley JA Ipp JA Pearlman AJA   

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S):          DC 3171/02

LOWER COURT JUDICIAL OFFICER:     Andrew ADCJ

COUNSEL:
R Cavanagh (Appellant)
A R Lakeman (Respondent)

SOLICITORS:
Hunt & Hunt (Appellant)
Heazlewoods Bushby (Respondent)

CATCHWORDS:
Application for costs on an indemnity basis - offers of compromise - application made pursuant to District Court Rules - Court of Appeal not bound by District Court Rules - relevant considerations

LEGISLATION CITED:
District Court Rules 1973, pt 19A r 2, pt 39A r 25(4)
Supreme Court Rules 1970 pt 52A r 11, pt 52A r 22(4)

DECISION:
Application dismissed.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 41172/03

HANDLEY JA
IPP JA
PEARLMAN AJA

11 NOVEMBER 2004

K-MART AUSTRALIA LTD v BRUCE EDWARD McCANN [No 2]

Judgment

1. HANDLEY JA:  I agree with Pearlman AJA.

2. IPP JA:  I agree with Pearlman AJA.

3. PEARLMAN AJA:  The respondent obtained a verdict in the District Court for damages suffered by him in an accident on the appellant’s premises.  Liability had been admitted, and the only issue had been the assessment of damages.  Andrew ADCJ assessed damages in the sum of $238,541.23.

4. The appellant successfully appealed to this Court on the issues of past and future economic loss and future medical expenses.  This Court allowed the appeal with costs, set aside the judgment in the District Court except as to costs, and substituted a judgment for the respondent in the sum of $95,478.73.

5. Upon judgment being delivered, Mr Lakeman, counsel for the respondent, applied for an award of costs in the District Court and in this Court upon an indemnity basis, relying upon two offers of compromise made by the respondent.  The first, made on 2 April 2003, offered to settle the proceedings for $52,500 (plus party and party costs) and the second, made on 7 August 2003, offered to settle the proceedings for $95,000 (plus party and party costs).

6. In his written submissions, Mr Lakeman stated that the application for an award of indemnity costs was made pursuant to Part 19A rule 2 and Part 39A rule 25(4) of the District Court Rules 1973. However, the Court of Appeal is not bound to apply the District Court Rules in relation to the costs of the appeal. Rather, the discretionary power of the Court of Appeal to award costs is found in Part 52A rule 11 of the Supreme Court Rules 1970: Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 724, 727; Moore v Woodforth [No 2] [2003] NSWCA 46. That distinction is of some significance, because Part 39A rule 25(4) invests the District Court with a limited discretion in the award of costs after an offer of compromise has been made and not accepted. Rule 25(4) stipulates that the plaintiff shall be entitled to costs on a solicitor and client basis in circumstances where the plaintiff obtains an order or judgment no less favourable than the terms of the offer, “… unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders …”.

7. The Court of Appeal’s discretion under Part 52A is not so limited. It is set out in Part 52A rule 11 as follows:

   11If the Court makes any order as to costs, the Court shall, subject to this Part, order that costs follow the event, except where it appears to the Court that some other order should be made as to the whole or any part of the costs.

8. Part 52A rule 22 applies to offers of compromise. Rule 22(4) relevantly provides as follows:

   22(4)Where an offer is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall … be entitled to an order against the defendant for the plaintiff’s costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to his costs incurred before and on that day, assessed on a party and party basis.

9. Rule 22(4) does not require that the respondent should have an order for costs of the appeal, whether on a party/party basis or on an indemnity basis, since the rule contains its own discretion encapsulated in the proviso “… unless the Court otherwise orders”.  That proviso brings with it a need to consider all of the circumstances relevant to the exercise of a discretion as to costs: Fotheringham v Fotheringham [No 2] (1999) 46 NSWLR 194 per Stein JA at 205 – 206. In the consideration of all of the circumstances, the fact that an offer of compromise has been made and not accepted is a factor to take into account: Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404.

10. I turn then to consider all of the relevant circumstances in the present case.  For that purpose, a brief chronology of relevant steps in the proceedings is necessary.  It is as follows:

3 June 1999	Respondent injured;
6 May 2002	District Court proceedings commence;
8 August 2002	Respondent’s solicitors furnish particulars to the appellant’s solicitors, stating that the respondent did not incur any specific economic loss, but claims “… a general diminution in his earning capacity”;
2 October 2002	Dr Bodel furnishes a report to the appellant’s solicitors, noting that the respondent is left with permanent impairment;
11 February 2003	Dr Maniam furnishes his first report to the respondent’s solicitors, stating that “… there will be no loss of earning capacity, now or for the future”;
2 April 2003	First offer of compromise made;
4 April 2003	Amended statement of particulars filed, setting out details of amounts claimed for past and future economic loss;
7 August 2003	Second offer of compromise made;
2 September 2003	Dr Maniam furnishes his second report, noting permanent impairment interfering with the respondent’s “work activity”;
29 October 2003	Trial in District Court commences
17 November 2003	Trial judge rejects claim for indemnity costs.

1. There is one further fact to note.  Although it is not clear from the judgment in the court below, it appears that the claim for indemnity costs made before the trial judge was based on the first offer of compromise.  The trial judge rejected that claim on two bases – first, that economic loss had not been resolved, and, secondly, that there were outstanding medical reports.

2. In this Court, Mr Cavanagh, counsel for the appellant, pointed to five matters by reason of which he contended that the respondent’s claim for indemnity costs should fail.  First, the appellant obtained a substantial reduction of the trial judge’s assessment of damages.  Secondly, the first offer of compromise was served prior to the particularisation of the claim for economic loss or medical evidence to support that claim.  Thirdly, the trial judge’s rejection of the claim for indemnity costs was not the subject of any appeal.  Fourthly, the second offer of compromise was not the subject of an application before the trial judge.  Fifthly, the second offer of compromise was made prior to the service of Dr Maniam’s second report on which, so it is submitted, the trial judge and this Court relied to allow loss of earning capacity.

3. Mr Lakeman submitted that at the time when the offers of compromise were made, the appellant had sufficient particulars to make a reasonable assessment of the respondent’s claim for damages for economic loss.  That submission is correct, so far as concerns the second offer of compromise.  At the time the second offer of compromise was made, Dr Bodel’s report had been furnished, and the more general particulars of economic loss (set out in the respondent’s letter of 8 August 2002) had been replaced by amended (and more detailed) further particulars (filed on 4 April 2003).

4. Furthermore, I do not accept the appellant’s assertion that this Court’s assessment of loss of earning capacity was based entirely upon the changed medical opinion of Dr Maniam in his second report.  Both Dr Bodel and Dr Maniam had concluded that the respondent suffered permanent impairment (see par 61 of the judgment) and there was evidence to show that the respondent had changed his work practice (see pars 57 and 61).

5. However, I have concluded that the appropriate exercise of the discretion in this case, in relation to the costs of the appeal, is that costs should follow the event, and the respondent’s claim for costs on an indemnity basis should be dismissed.  I base that conclusion on the fact that the appellant was significantly successful in the appeal.  The appellant achieved a substantial reduction in the damages to which the respondent was entitled – from $238,541,23 to $95,478.73.  Furthermore, the appellant established significant error in the judgment below in relation to the assessment of economic loss for the second and third periods, namely, for the period when the respondent did not work at all by reason of a supervening and unrelated stress attack (in respect of which no damages for economic loss were awarded), and for the period thereafter when the respondent returned to work (in respect of which a sum by way of buffer for future economic loss was awarded).

6. Finally, I would not disturb the order for costs in the court below.  The trial judge dealt with a claim for indemnity costs, and rejected it.  It is true that he did so upon the basis of the first offer of compromise and not the second offer of compromise, but, nevertheless, the claim was dealt with and it was not the subject of the appeal to this Court.

7. In accordance with the foregoing, I would dismiss the respondent’s application, and confirm the orders of the Court already made.

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LAST UPDATED:               11/11/2004