Kain v Mobbs (No 2)

[2008] NSWSC 599

CITATION:	Kain v Mobbs (No 2) [2008] NSWSC 599
HEARING DATE(S):	12 June 2008
JUDGMENT DATE :	18 June 2008
JUDGMENT OF:	Harrison J
DECISION:	Third and fourth defendants' application for indemnity costs refused.
CATCHWORDS:	COSTS – application for indemnity costs – Offer of Compromise sent by third and fourth defendants to the plaintiff offering settlement in terms "judgment and verdict for [those defendants] with each party to pay their own costs" – whether genuine offer of compromise – whether discretion to award indemnity costs should be exercised - COSTS – Offer of Compromise - offer not bear a statement to the effect that the offer was made in accordance with the rules, contrary to UCPR 20.26(3)(a) - whether offer valid otherwise than as a Calderbank offer
LEGISLATION CITED:	Uniform Civil Procedure Rules 2005
CATEGORY:	Consequential orders
CASES CITED:	Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 Kain v Mobbs [2008] NSWSC 383 Leichhardt Municipal Council v Green [2004] NSWCA 341 Szabo v Battye (No 2) [2006] NSWSC 1392
PARTIES:	Cosmo Joel Kain by his tutor Shirlee Kain (Plaintiff) Janette Mobbs (First defendant) Nicholas Heath Mobbs (Second defendant) Surfside Bus Lines Pty Ltd (Third defendant) Roland Lutz (Fourth defendant)
FILE NUMBER(S):	SC 20077 of 2003
COUNSEL:	I J McGillicuddy (Plaintiff) P J Deakin QC with P J Nolan (First and second defendants) K P Rewell SC (Third and fourth defendants)
SOLICITORS:	Stacks Goudkamp (Plaintiff) Moray & Agnew (First and second defendants) Keddies (Third and fourth defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

HARRISON J

18 June 2008

20077 of 2003 Cosmo Joel Kain by his tutor Shirlee Kain v Janette Mobbs & Ors (No 2)

JUDGMENT

1 HIS HONOUR: I gave judgment in the principal proceedings on 29 April 2008: see Kain v Mobbs [2008] NSWSC 383. I ordered the plaintiff to pay the costs of the third and fourth defendants. Those defendants have now sought an order that those costs be paid on an indemnity basis. That application arises in the following circumstances.

2 On 12 February 2008 the third and fourth defendants served an Offer of Compromise on the plaintiff. It was in the form of a document entitled in the proceedings. At the top of the title page appeared the words "Rules 20.26". The substantive terms of the document were as follows:

"The Third and Fourth Defendants offers (sic) to compromise this action with the Plaintiff pursuant to Part 20 Division 4 of the Uniform Civil Procedure Rules on the following basis: -


(i) Judgment and verdict for the Third and Fourth Defendants with each party to pay their (sic) own costs including disbursements and GST.

(ii) This offer is open to be accepted by the Plaintiff for a period of 15 days after it is made.

(iii) This offer may be accepted in accordance with Part 20 Rule 27".

3 The offer was not accepted. The third and fourth defendants therefore sought indemnity costs from the date of the offer.

4 The third and fourth defendants submitted that the question for determination was whether or not it was reasonable for the plaintiff not to have accepted the offer. They argued that if it was all but inevitable that the plaintiff would fail in his action against them then it was unreasonable for the plaintiff not to have accepted the offer. Conversely, if it was not all but inevitable that the plaintiff would fail in his action against them then rejection of their offer was reasonable.

5 The plaintiff responded in two ways. First, the plaintiff contended that the Offer of Compromise was invalid, as it did not comply with the rules. This was said to be because the offer did not specifically state that it had been made in accordance with Part 20 rule 20.26. In this respect the plaintiff relied upon the decision of Biscoe AJ in Szabo v Battye (No 2) [2006] NSWSC 1392 at par [15] as follows:

"[15] UCPR 42.15 provides for indemnity costs where a defendant's offer of compromise, made in accordance with UCPR 20.26, is not accepted and the plaintiff obtains a judgment or order as or less favourable than the offer. The defendants’ submissions acknowledged that this rule was inapplicable in a case such as the present where the plaintiff has wholly failed. Another reason, I think, why this rule is inapplicable (although not addressed in the parties' submissions) is that Part 22 of the Supreme Court Rules, to which the offer refers, had, as at the date of the offer, been repealed and the offer did not bear a statement to the effect that it was made in accordance with UCPR 20.26, as required by r 20.26(3)(a). . ."

6 Rule 20.26(3)(a) states that a notice of offer, "must bear a statement to the effect that the offer is made in accordance with these rules". It is clear that the offer did not contain a statement that the offer was made in accordance with the rules. The third and fourth defendants contended that the references to "Rules 20.26", "Part 20 Division 4" and "Part 20 Rule 27" operated as, or amounted to, a statement "to the effect" that the offer was made in accordance with the rules. Alternatively, the offer was capable of operating according to its terms as an offer to which the rules did not apply, with like results. For example, the third and fourth defendants presumably relied upon so much of Biscoe AJ's reasoning in Szabo v Battye (No 2) (supra) at par [15] cited above that said:

". . . Nevertheless, an unaccepted and unbettered offer of compromise which is not a formal offer of compromise under the rules - commonly called a Calderbank offer (after Calderbank v Calderbank [1975] 3 WLR 586) – or to which the indemnity costs rules do not apply, may still attract an award of indemnity costs. The question is whether indemnity costs should be ordered because the plaintiff unreasonably failed to accept an offer of compromise: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [52]".

7 For reasons that appear below, I consider that any failure by the third and fourth defendants strictly to comply with rule 20.26(3)(a) is not by itself determinative of the application for indemnity costs. It is important to remind oneself that forms are our servants and not our masters. Even so, the scheme of the rules is such that there ought to be no scope for doubt about the circumstances when a particular offer might provide the foundation for an argument that costs should be payable on an indemnity basis. Although there is a reference to the rules in general, the offer of compromise in this case does not bear a statement to the effect that the offer that it conveys is made in accordance with the rules. It is therefore not in my view an offer to which the rules apply.

8 However, as indicated already, an unaccepted and unbettered offer may still attract an award of indemnity costs. The plaintiff's submissions recognised and accepted this fact. The plaintiff therefore argued, secondly, that he had not unreasonably failed to accept the offer that had been made. The plaintiff emphasised rule 42.15A, which is as follows:

"42.15A Where offer not accepted and judgment as or more favourable to defendant

(1) This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim concerned as favourable to the defendant, or more favourable to the defendant, than the terms of the offer.

(2) Unless the court orders otherwise:


(a) the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and

(b) the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, assessed on an indemnity basis:


(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."

9 There was no contest that the third and fourth defendants had obtained an order or judgment on the plaintiff's claim that was more favourable than the terms of their offer. The plaintiff submitted, however, that I should 'otherwise order', exercise my discretion in his favour, and not award indemnity costs. This was because the offer was not a genuine offer of compromise and it was reasonable for the plaintiff not to accept it.

10 I was referred to the decision of Bryson JA in Leichhardt Municipal Council v Green [2004] NSWCA 341 at par [59] where his Honour said:

"[59] . . .The application for an order for costs to be assessed on the indemnity basis raises a discretionary question the answer to which is not in my view susceptible of much detailed exposition. The settlement offer was made before trial and was no longer available while the appeal was pending. The respondent's case did not succeed, but it was not a case which could not reasonably be argued and it succeeded at first instance. The only element of compromise in the offer was as to costs: otherwise it was a call on the respondent to capitulate and give up: the element of compromise was slight, and the respondent's ultimate lack of success does not to my mind demonstrate that the reasonable course for the respondent was to capitulate, nor does anything show that the respondent was delinquent in going on with the trial or in resisting the appeal.

11 With respect to the question of whether or not the offer was genuine the plaintiff submitted that the offer involved no real compromise but merely invited the plaintiff to capitulate. This concept was discussed by the Court of Appeal in Herning v GWS Machinery Pty Ltd [No. 2] [2005] NSWCA 375 at pars [4] and [5] as follows:

"[4] According to the well-established authorities, reviewed by Santow JA in Leichhardt Municipal Council v Green [2004] NSWCA 341, such a letter will only justify an order for costs on an indemnity basis, rather than the usual basis, if it constitutes a genuine offer of compromise, which it was unreasonable for the appellant not to accept.

[5] The general approach adopted in this Court is that where an offer involves "no real element of compromise" but merely "invites capitulation by the appellant" it will not result in a variation of the usual costs order: see, eg, Townsend v Townsend (No. 2) [2001] NSWCA 145 (Giles JA) at [5]. Whilst the Second Respondent had no doubt incurred some costs by 11 January 2005, it is difficult to know whether the sum would have been significant in relation to the costs of the litigation as a whole, or in relation to any possible judgment which the Appellant might obtain, if successful. Either the Appellant's case against the Second Respondent was hopeless and should not have been pursued at all, or it was not. The " Calderbank letter" does not, by itself, justify any variation from the usual order."

12 Furthermore, Santow JA dealt with this issue in Leichhardt Municipal Council v Green (supra) at pars [22]-[24], [27], [32] and [33] as follows:

"[22] The question here posed is whether an offer by a defendant for judgment to be entered in its favour with each party to pay its own costs could constitute a genuine offer of compromise.

[23] It is clear that an offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise. Thus an offer by a plaintiff demanding the full amount claimed was held not to be an offer of compromise attracting costs penalties: Tickell v Trifleska Pty Ltd (1991) 25 NSWLR 353. Rogers CJ Comm D concluded that the test was:

'… whether in the totality of the circumstances, the offer by the plaintiff represented any element of compromise or whether it was merely, yet another, formally stated demand for payment designed simply to trigger the entitlement to payment of costs on an indemnity basis.' (at 355)

[24] Similarly in Hobartville Stud v Union Insurance Co (1991) 25 NSWLR 358, Giles J commented (at 368):


'The answer to the plaintiff’s questions is, in my view, that the scheme for offers of compromise and their costs consequences was intended to promote compromise – what Gleeson CJ in Baltic Shipping Co v Dillon "The Mikhail Lermontov" (1991) 22 NSWLR 1 at 9 called the ‘… particular policy of the law to encourage resolution of litigation by settlement …'. Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so.

It follows that I respectfully agree with the approach of Rogers CJ Comm D in Tickell v Trifleska Pty Ltd . In particular cases it may be difficult to decide whether or not a purported offer of compromise is truly a compromise …'


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[27] It is trite law that, whether or not an offer is a genuine offer of compromise or merely a demand to capitulate depends upon an assessment of all the circumstances of the case at the time. In this case, as the Council points out, the Calderbank letter was sent at a time after the matter had been to arbitration (presumably unsuccessfully) and set down for trial. Thus significant costs had been incurred by both parties at the time the offer was made. The Council was a defendant which disputed liability and had a firm belief in the strength of its case. It could expect to obtain no more, if the matter proceeded to trial and its beliefs were vindicated, than a verdict in its favour and an award of party and party costs for the whole of proceedings.

*****

[32] In Bishop v State of NSW (Dunford J, 17 December 2000, unreported), the defendant had made a 'walk-away offer' requiring the plaintiff to abandon proceedings and thus avoid the risk of an anticipated order for costs. The plaintiff was wholly unsuccessful and the defendant sought indemnity costs from the date of the offer: Dunford J stated:

'There was not in any real sense an offer to compromise the proceedings, but merely an offer to induce the plaintiff to abandon his claim; and in my view orders for indemnity costs should not be used to deter persons from bringing proceedings which they feel they are entitled to bring, even if those proceedings are ultimately unsuccessful. It is different if there is a compromise involved, such as by offering part of what the plaintiff claims or can reasonably expect to receive if successful.'

[33] The precise terms of the offer in Bishop do not appear from the record. Dunford J reapplied this principle in McKerlie v NSW (No 2) [2000] NSWSC 1159 in a case in which it appears the offer included a release from an already existing costs order as well as an escape from the risk of anticipated future costs orders. Dunford J appears to endorse the view that only a cash settlement offer representing part of the plaintiff’s claim can be a true offer of compromise. With respect, that does not seem to be entirely consistent with the policy of the law in encouraging early settlement of disputes."

13 The plaintiff submitted that his argument was all the more compelling having regard to the fact that the third and fourth defendants had been willing, as revealed by Calderbank letters served by them on the first and second defendants, to offer those defendants a monetary sum, whereas in contrast no such offer had been made to the plaintiff.

14 With respect to the question of whether or not it was reasonable for the plaintiff not to have accepted the offer, counsel for the plaintiff re-emphasised that it was no more than a call upon the plaintiff to capitulate. The plaintiff's ultimate lack of success did not demonstrate that it was unreasonable for him not to accept the offer in that circumstance.

15 The plaintiff also submitted that the liability of the third and fourth defendants was at least to some degree dependant upon evidence within the control of the first and second defendants. For example, the first defendant said in her statement to the police in relation to warning lights on the back of the bus that she knew that the lights were on after the accident but did not recall them being on as she approached it prior to the accident. She said, "[T]hey could have been but I'm not sure". The plaintiff submitted that he did not know what the evidence of the first and second defendants would be at the hearing and he submitted that it was therefore reasonable to assume that there was going to be a contest in relation to whether or not the first and second defendants knew that the bus was in fact a school bus.

16 This last submission, however, does not seem to me to be germane to the issue of the reasonableness or otherwise of the plaintiff’s failure to accept the third and fourth defendants' offer of compromise. The issues joined between the plaintiff and the third and fourth defendants did not include a contest that the bus was a school bus and the strength or weakness of the plaintiff’s case against those defendants was not affected by any doubt about that fact. The fact that the evidence of the first and second defendants was potentially important or even critical to the plaintiff’s likelihood of success against the third and fourth defendants may be relevant to a consideration of the circumstances that led to the joinder of the third and fourth defendants to the proceedings, but does not appear to me to involve an issue that is also or thereby determinative of the strength of the plaintiff’s case against them.

17 The significant question is that identified by counsel for the third and fourth defendants to which I have earlier referred. In my opinion, the case against those defendants was not patently hopeless or bound to fail. Although I came to a different view in the principal proceedings, there was scope in the circumstances of this case for the arguments run at trial by the plaintiff against the third and fourth defendants. The authorities reviewed by me in this respect clearly permitted arguments that the fourth defendant should have checked his rear view mirror and prevented the plaintiff from alighting until such time as the car driven by the second defendant, which he saw approaching from behind, had been allowed to pass. There was a contest about whether or not the flashing lights at the rear of the bus had been activated. There was also a contest about whether or not the fourth defendant had given a warning to the plaintiff before he alighted from the bus and about whether or not he should have been required to do so. That issue was also highlighted by evidence upon which the plaintiff relied, that the circumstances existing within the bus on the day of the accident gave rise to a requirement that extra care be taken for the safety of the plaintiff. These were arguments genuinely and reasonably available to the plaintiff in his claims against the third and fourth defendants.

18 None of these issues was susceptible of only one answer. However, the offer of compromise served by the third and fourth defendants was heavily predicated upon the assumption that only one answer did exist. There was no element of compromise that in any realistic way took account of even the possibility that either of those defendants may have been found liable. There was no element of true compromise in the sense that the third and fourth defendants had nothing to lose by the plaintiff’s acceptance of the offer. The fact that those defendants were prepared to forego an opportunity to recover from the plaintiff the costs that they had expended up until that point in the litigation does not in my opinion derogate from the force of that view. Indeed, it may in truth reflect a studied appreciation of the fact that the plaintiff and his tutor would or may in any event be incapable of satisfying a costs order if the third and fourth defendants were wholly successful in resisting the plaintiff’s claim against them. If that were the reality, or even a possibility, the offer contained no compromise at all. It was not in the circumstances a genuine offer "to compromise" the proceedings but an attempt to have the plaintiff capitulate in return for no benefit. It was in my view no more than a "formally stated [offer] . . . designed simply to trigger the entitlement to payment of costs on an indemnity basis" but without any true or genuine element of compromise.

Decision and order

19 In my opinion, it was reasonable for the plaintiff not to accept the third and fourth defendants' offer of compromise. It follows that the application by those defendants for an order that the plaintiff pay their costs of the proceedings upon an indemnity basis on and after 12 February 2008 is refused.

Miscellaneous

20 There remains the question of costs of this application. I note that I was asked by the first and second defendants to reserve to all parties liberty to apply. This was sought principally for the reason that counsel for the first and second defendants indicated that those defendants had lodged an appeal against my decision in the principal proceedings, including an appeal against my order that the first and second defendants indemnify the plaintiff for any costs payable by him to the third and fourth defendants. I am informed that that costs order, as well as the circumstances in which it was made, are both challenged by the first and second defendants but that an opportunity to resolve that controversy without requiring it to be agitated in the Court of Appeal could arise. In those circumstances, I will grant general liberty to all parties to apply on seven days' notice by prior arrangement with my Associate and invite the parties to address me on the costs of the present application at that time.

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