Karabay v Carr

Case •

[2014] NSWCA 143

•

08 May 2014

Court of Appeal


Supreme Court


New South Wales

  • Amendment notes
Medium Neutral Citation: Karabay v Carr [2014] NSWCA 143
Hearing dates:23 April 2014
Decision date: 08 May 2014
Before: McColl JA at [1];
Gleeson JA at [2];
Sackville AJA at [111]
Decision:

1. Appeal allowed in part.

2. Set aside order 4 made by Hidden J on 27 June 2013 and in lieu thereof order the first defendant to pay the plaintiff's costs of the proceedings on an ordinary basis.

3. Set aside order 6 made by Hidden J on 27 June 2013 and in lieu thereof order the plaintiff to pay the second defendant's costs of the proceedings on an ordinary basis.

4. The appellant pay 90% of the first respondent's costs of the appeal.

5. The appellant pay the second respondent's costs of the appeal.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: COSTS - Where Offer of Compromise made - Uniform Civil Procedure Rules r 20.26 - Offer of Compromise stated to be "plus costs" - Impact of decision in Whitney v Dream Developments Pty Ltd - Offer of Compromise not valid under the rules
COSTS - General Rule - Costs follow the Event - Uniform Civil Procedure Rules r 42.1 - Determining the "event" or an "admission" - Principles considered in Ziliotto v Hakim
DAMAGES - General Principles - Past and Future Economic Loss - Assessment of reasonable prospects of employment at date of notional trial - Assessment of residual earning capacity - Relevance of evidence relating to subsequent events
PROFESSIONAL NEGLIGENCE - Proceedings against two solicitors - Dismissal of District Court proceedings for personal injury - One solicitor found liable
Professional Negligence - Whether Court erred in finding the other solicitor not liable
Legislation Cited: Civil Procedure Act 2005 s 98
District Court Rules 1973 Pt 1 r 7A, Pt 18 r 3
Uniform Civil Procedure Act 2005
Uniform Civil Procedure Rules 2005 r 20.26, r 42.1, r 42.25
Cases Cited: Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37
Coulton v Holcombe [1986] HCA 33; 162 CLR 1
Firth v Sutton [2010] NSWCA 90
Johnson v Perez [1988] HCA 64; 166 CLR 351
Karabay v Malcolm Carr (t/as Forshaws Neill Solicitors) & Anor [2012] NSWSC 1386
Karabay v Malcolm Carr (t/as Forshaws Neill Solicitors) (No 2) [2013] NSWSC 773
Karabay v Torrac Nominees Pty Ltd (DCNSW, Duck DCJ, 22 March 2006, unreported)
Metwally v University of Wollongong (No 2) [1985] HCA 28; 60 ALR 68
Old v McInnes [2011] NSWCA 410
Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418
Torrac Nominees Pty Ltd v Karabay; UWS Macarthur Sports and Recreation Assn Inc v Karabay [2007] NSWCA 96
Vieira v O'Shea (No 2) [2012] NSWCA 121
Water Board v Moustakas [1988] HCA 12; 180 CLR 491
Whitney v Dream Developments Pty Ltd [2013] NSWCA 188
Ziliotto v Hakim [2013] NSWCA 359
Category:Principal judgment
Parties: Sadi Mustafa Karabay (Appellant)
Malcolm Carr (trading as Forshaws Neill Solicitors) (First Respondent)
Ron Egon Kramer (trading as Ron Kramer Associates) (Second Respondent)
Representation: Counsel:
D J Campbell QC with L Stephens (Appellant)
P Braham SC with P O'Dea (Respondents)
Solicitors:
Paul Clough (Appellant)
Yeldham Price O'Brien Lusk (Respondents)
File Number(s):2013/212117
 Decision under appeal 
Jurisdiction:
9111
Citation:
[2012] NSWSC 1386
Date of Decision:
2012-11-07 00:00:00
Before:
Hidden J
File Number(s):
2008/289658

Judgment

  1. McCOLL JA: I agree with Gleeson JA's reasons and the orders his Honour proposes.

  1. GLEESON JA: This appeal concerns a claim against two solicitors for professional negligence. In the Supreme Court the claim by the appellant, Sadi Mustafa Karabay (Mr Karabay), against Malcolm Carr (Mr Carr) (trading as Forshaws Neill) was successful. Mr Karabay's claim against Ron Kramer (Mr Kramer) (trading as Ron Kramer Associates) was unsuccessful: Karabay v Malcolm Carr (t/as Forshaws Neill Solicitors) & Anor [2012] NSWSC 1386. Both claims arose out of their conduct, at different times, regarding an action by Mr Karabay in the District Court for damages for personal injury.

Background facts

  1. Mr Karabay was injured on a basketball court at a tourist park in Alice Springs during a camping safari on 21 July 1999. He suffered a ruptured right achilles tendon after he jumped and landed back on the edge of the concrete court surface, which protruded above the surrounding ground by up to 10cm.

District Court proceedings

  1. Mr Karabay sued the owner and occupier of the tourist park (Torrac Nominees) and the operator of the tour (UWS Macarthur Sports and Recreation Association) alleging that his injury was the result of negligence by both of them. Proceedings were commenced in the District Court on 26 June 2002 by his first solicitor, Mr Carr. Mr Karabay's claim against Torrac Nominees was put on the basis that the basketball court had no run-off area and that there was a drop of about 10cms from the surface of the court to the dirt surrounding it, and that this posed a risk of injury. His claim against the operator of the tour was advanced largely on the basis of a failure to warn of the risk of injury posed by the edge of the concrete basketball court. A claim for economic loss was made on two bases. The first was that Mr Karabay had suffered a diminution of earning capacity on a general basis, taking into account that at the time of the accident Mr Karabay was self-employed as an IT consultant earning gross wages of $1,800 per fortnight. The second was that Mr Karabay was precluded from carrying out certain tasks and was less employable as an airline pilot, and he claimed an allowance by way of a buffer to compensate him for future loss of earning capacity.

  1. In September 2002 directions were made for the preparation of the matter but those directions were not complied with by Mr Karabay. Mr Carr had difficulty obtaining instructions from Mr Karabay concerning his claim, as he had travelled overseas to Turkey in September 2002 to seek employment as a pilot. On 16 January 2003 Mr Karabay was ordered to show cause why the matter should not be dismissed because the timetable had not been adhered to. He failed to do so and on 25 March 2003 Acting Judge Boyd-Boland dismissed the proceedings pursuant to Pt 18 r 3 of the District Court Rules 1973, which was in force at that time.

  1. The order made by Boyd-Boland ADCJ was a "preliminary dismissal order" as defined in Pt 1 r 7A of the former District Court Rules. This rule provided that the District Court may make a preliminary dismissal order dismissing proceedings without there being a trial or hearing on the merits or a formal application to dismiss the proceedings. The Court was empowered to make such an order of its own motion.

  1. At the time the preliminary dismissal order was made, sub-rules (3), (5) and (6) of Pt 1 r 7A provided as follows:

"(3) A preliminary dismissal order does not have effect:
(a) if an application is not made under subrule (5) - until a period of 28 days has elapsed after the making of the order, or
(b) if an application is made under subrule (5) - unless the Court confirms the order under subrule (6) or (7).
(5) Any party to proceedings in respect of which a preliminary dismissal order is made may, within the period of 28 days after the making of the order, apply to the Court to set aside the order.
(6) On any such application, the Court may set aside the preliminary dismissal order or confirm the order as it thinks fit."

  1. No application was made by Mr Carr to set aside the dismissal order within the 28 day period after the making of the order, or for an extension of time in which to make such application (relying on Pt 3 r 2 of the former District Court Rules).

Retainer of Mr Kramer

  1. In April 2005 Mr Karabay retained Mr Kramer to act in place of Mr Carr. Mr Kramer obtained Mr Karabay's file from Mr Carr on 8 June 2005. Prior to this, on 28 April 2005, Mr Carr's firm (Forshaws Neill) had sent Mr Kramer a letter attaching a notice of motion, together with supporting affidavits and a cheque for the filing fee, noting that a notice of motion seeking orders to restore the matter to the list had to be filed and there was "urgency" about the whole matter. The letter from Forshaws Neill went on to state that counsel briefed at that time had advised that the motion should not be filed until all the evidence to be relied upon at the hearing had been served. Reference was also made to the evidence which needed to be obtained in support of the substantial claim for future economic loss that Mr Karabay wished to pursue, but which the author of the letter described as "challenging". Mr Kramer was of the same view. He advised Mr Karabay by letter dated 6 May 2005 that, while a motion to restore the matter to the list should be filed as soon as possible, that should not be done until he was able to inform the Court at the hearing of the motion that the matter was fully prepared and ready to proceed to hearing.

  1. Following receipt of the client's file on 8 June 2005 Mr Kramer had a conference with Mr Karabay on 10 June 2005. Mr Kramer informed him that the claim for future economic loss lacked evidentiary support. He made arrangements for Mr Karabay to meet Mr John Chesterfield, an expert in civil aviation, on 16 June 2005. In his letter to Mr Karabay of 15 June 2005 confirming the arrangements for that conference, Mr Kramer told Mr Karabay that he was going to obtain advice from the counsel he intended to brief in the matter on whether to apply immediately to restore the matter to the list, although it would not be ready to proceed to hearing, or wait to make that application until they were able to inform the Court that Mr Karabay's case was ready to proceed to hearing (Black 594R).

  1. Mr Chesterfield recommended that Mr Karabay renew his aviation licence and obtain the necessary medical certificate. Mr Kramer provided this advice to Mr Karabay during a conference on 24 June 2005.

  1. On 4 July 2005 Mr Kramer spoke to counsel over the telephone, and was advised not to delay filing the motion until the matter was ready for trial (Blue 1147W-1148F). Mr Kramer accepted that advice and made arrangements for Mr Karabay to attend a conference with counsel on 25 July 2005 (Blue 1148F-H). In his letter to Mr Karabay of 19 July 2005 confirming the arrangements for that conference - where counsel intended to finalise his affidavit, and if necessary finalise an affidavit from Mr Karabay's sister - Mr Kramer stated that he wanted to file the application to restore the matter to the Court list "without any further delay" (Blue 605N).

  1. On 21 July 2005 Mr Kramer forwarded a brief to counsel to advise generally and, in particular, to prepare a motion to set aside the order of Boyd-Boland ADCJ and an affidavit in support (Blue 792-795). At the conference with counsel and Mr Karabay on 25 July 2005 counsel stated that he would prepare and forward the notice of motion and an initial draft of the proposed affidavit for Mr Karabay to check and approve (Blue 1148I-K). By 8 September 2005, Mr Kramer had not received the notice of motion and draft affidavit from counsel. On that day, Mr Kramer wrote to counsel asking him to settle the documents as soon as possible (Blue 606). Notwithstanding counsel's advice to Mr Kramer not to delay the filing of the motion, counsel did not provide the draft documents to Mr Kramer until 21 September 2005.

  1. On 20 October 2005 Mr Kramer caused a notice of motion to be filed in the District Court seeking to set aside the order of Boyd-Boland ADCJ. Prior to this date, on 15 August 2005, the Uniform Civil Procedure Act 2005 (NSW) came into force, as did the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), which substantially repealed the District Court Rules.

  1. On 31 March 2006 Judge Duck granted the motion and reinstated the proceedings: Karabay v Torrac Nominees Pty Ltd (DCNSW, Duck DCJ, 22 March 2006, unreported). However an appeal against that order was successful, and on 2 May 2007 this Court set aside the reinstatement order: Torrac Nominees Pty Ltd v Karabay; UWS Macarthur Sports and Recreation Assn Inc v Karabay [2007] NSWCA 96. This Court held that Judge Duck erred in reinstating the proceedings because the transitional provisions to the Uniform Civil Procedure Act did not preserve Pt 1 r 7A of the District Court Rules, which Judge Duck had found permitted orders to be made for reinstatement of proceedings which had been the subject of a preliminary dismissal order, such as that made by Boyd-Boland ADCJ. It was common ground on that appeal that there was no equivalent rule in the UCPR and that there was no other source of power to set aside the preliminary dismissal order made by Boyd-Boland ADCJ on 25 March 2003.

  1. Accordingly, Mr Karabay's District Court proceeding had been brought to an end at that time and could not be revived. By 2007 any fresh proceedings in the District Court would have been statute barred. It was common ground that the applicable limitation period was under the law of the Northern Territory which was the substantive law applicable to Mr Karabay's claim.

Supreme Court proceedings

  1. In 2008 Mr Karabay commenced proceedings in the Common Law Division of the Supreme Court against Mr Carr and Mr Kramer alleging that they had each failed to take timely steps to pursue an application to set aside Boyd-Boland ADCJ's order on 25 March 2003 so as to reinstate the proceedings in the District Court.

  1. On 2 March 2011, Mr Carr's solicitors sent a letter to Mr Karabay's solicitors in which they made limited admissions of breach of duty and liability on Mr Carr's behalf, in particular:

(a)   the failure of Mr Carr to promptly and accurately advise Mr Karabay of the events that transpired at the show cause hearing on 25 March 2003; and

(b)   the failure to advise Mr Karabay to take urgent steps to have the matter restored to the list, following the show cause hearing on 25 March 2003.

Mr Carr also abandoned allegations of contributory negligence and the advocate's immunity defence insofar as those defences related to events occurring after 25 March 2003. The defence of contributory negligence had been raised in relation to Mr Karabay's alleged failure to provide instructions to Mr Carr to allow the District Court proceedings to be prosecuted appropriately.

  1. On or about 8 March 2011 the solicitors for Mr Carr and Mr Kramer served a schedule of damages in respect of the lost cause of action totalling $165,275, exclusive of liability to indemnify Mr Karabay in respect of the costs liabilities of the District Court motion and the Court of Appeal proceedings.

  1. On 2 June 2011 Mr Karabay's solicitors served a summary of heads of damage claiming damages in respect of the lost cause of action of $2,023,298.68, plus an indemnity in respect of the costs liabilities of $203,000.

  1. The proceedings were heard by Hidden J on 22-26 August 2011. On 7 November 2012 his Honour delivered judgment assessing damages against Mr Carr in respect of the lost cause of action in the sum of $154,072.83 (this amount was later varied to $159,402.96 on 27 June 2013), and damages in respect of the costs liabilities of the District Court motion and the Court of Appeal proceedings, which had been agreed in the sum of $118,247.77, less a suitor's fund contribution of $20,000 in respect of costs paid by Mr Karabay to Torrac Nominees and/or UWS Macarthur Sports and Recreation Association. His Honour dismissed the proceedings against Mr Kramer who he found had not been negligent. His Honour invited the parties to make submissions on the question of costs.

  1. On 13 February 2013 Mr Carr and Mr Kramer filed a motion seeking a special costs order. This motion was heard on 15 February 2013 and judgment delivered on 14 June 2013. His Honour ordered Mr Carr to pay Mr Karabay's costs to 5 May 2009 on an ordinary basis and thereafter Mr Karabay to pay Mr Carr's costs on an indemnity basis. His Honour further ordered Mr Karabay to pay Mr Kramer's costs up to 5 May 2009 on an ordinary basis and thereafter on an indemnity basis: Karabay v Malcolm Carr (t/as Forshaws Neill Solicitors) (No 2) [2013] NSWSC 773 (the Costs Judgment).

  1. Mr Karabay appeals against the quantum of the award of damages against Mr Carr, the dismissal of his claim against Mr Kramer, and the costs orders. In particular, Mr Karabay challenges the primary judge's assessment of two components of damages at the notional trial date: $30,000 for past economic loss and a cushion or buffer of $50,000 for future economic loss.

Mr Karabay's case at trial

  1. As against Mr Carr, in view of his admission of liability, the case focused on the claim for damages in respect of the lost cause of action. For this purpose it was common ground that the notional trial date (that is the date the trial would have taken place had Mr Carr not breached his duty of care) was November 2004.

  1. As against Mr Kramer, the case advanced by Mr Karabay at trial was that Mr Kramer had failed to act in accordance with counsel's advice not to delay filing the motion until the matter was ready for trial and had thereby fallen below the standards of a reasonably competent solicitor, according to expert evidence said to have been given by Mr Trainor, a solicitor called in Mr Karabay's case.

  1. In his opening at trial, counsel for Mr Karabay stated that the critical issue was "that Mr Karabay's wasting leg and his injury resulted in him never being able to fly a multi-engine aircraft" (Black 17, lines 11-12). This remained the position during the trial, as appears from the following exchange during closing argument:

"HIS HONOUR: ... You're really saying because of his medical condition he was never going to fly a multiengine aircraft.
STEPHENS: That's true. Exactly." (Black 248, line 49-249, line 3)

  1. Mr Karabay's case was that he lost the ability to further his commercial flying career as an airline pilot due to the injury. He sought to make out a case that, but for the injury, he would have obtained employment flying small aircraft in regional Australia until he was able to achieve the necessary hours for him to be suitably qualified for, and to be employed in, a position of first officer with either Qantas or Virgin Blue by 1 July 2002, with promotion to captain by 1 July 2006. In support of this claim he relied upon expert evidence from Mr Chesterfield, certain medical reports (including reports of Dr Maclarn), and an accounting report from Mr David Williams.

  1. Mr Chesterfield provided a report concerning Mr Karabay's prospects of gaining employment as an airline pilot in the position of first officer with a commercial airline (Blue 708-713). This evidence was later qualified in cross-examination when Mr Karabay's incorrect log-book entry for flying hours in Turkey was drawn to Mr Chesterfield's attention (Black 30, line 13 - 31, line 13). Mr Chesterfield also expressed the opinion that Mr Karabay could possibly gain employment as a commercial pilot in a single engine aeroplane operation. He explained that this was typically restricted to charter organisations offering sightseeing flights and such a pilot could reasonably expect a salary of about $20,000 to $30,000 per year. However, Mr Chesterfield qualified this estimate, noting that many of these operations are seasonal and may not offer full time employment.

  1. Dr Maclarn expressed the opinion in his report of 27 October 2005 that the deterioration in Mr Karabay's right foot since the accident on 21 July 1999 had severely restricted his ability to develop a career in professional aviation flying multi-engine aeroplanes, and that he was fit for single engine operations only (Blue 666.16-666.17). In a subsequent report dated 23 May 2009 (Blue 693-706), Dr Maclarn said that as at the notional trial date of November 2004:

"... Your client at this point in time and at the time of examination [being a reference to his last medical examination in September 2003], was planning to be flying single engine aeroplanes whilst he sought further employment opportunities. Flying a single engine aeroplane does not require the strength in a leg, ankle and foot to maintain directional control in the event of an engine failure.
... Therefore, despite his injury, and based on the above he would have been issued an unrestricted Class 1 medical certificate." (Blue 693T-694E) [emphasis added]

  1. Dr Maclarn contrasted Mr Karabay's fitness to fly single engine aircraft with his fitness to fly multi-engine aircraft. In respect of the latter he said:

"In the case of your client nominating operating aeroplanes of above 5700kg maximum take-off weight, he would be required to hold an Airline Transport Licence for which your client had not reached the prerequisite 1500 hrs of aeronautical experience, at the time of medical. [Nonetheless], the nomination of this class of aeroplane, of which all the common types are multi-engined, would invoke an assessment of his condition with respect to the certification requirements defined in my previous report.
... part of his medical assessment would have been a simulator ride assessing his ability to control an aeroplane which was having a left engine failure. At the notional trial date of November 2004, and based on the evidence presented, your client would fail a Class 1 medical examination for this type of operation. As a result he would be unemployable in the airline environment." (Blue 694J-N) [emphasis added]

  1. Mr Williams provided a report on 28 April 2011 (Blue 1048-1089) in which he assessed Mr Karabay's loss of past and future earning capacity and superannuation benefits under the two scenarios referred to above, which assumed employment as a first officer, and later as captain, with either Qantas (scenario 1) or Virgin Blue (scenario 2). Mr Williams calculated figures for Mr Karabay's past economic loss of $168,412.02 (scenario 1) and $174,922.42 (scenario 2), and future economic loss of $1,567,110.02 (scenario 1) and $1,571,942.14 (scenario 2).

  1. Mr Williams also provided a supplementary report dated 19 August 2011 (Blue 1091-1125) in answer to a report of Mr Ronald Bartsch dated 10 June 2011 which was served on behalf of the defendants. Mr Williams recorded, in [1.4] of his supplementary report, that he had been instructed to review Mr Bartsch's report and prepare further and additional calculations based on the opinions expressed in [29] of Mr Bartsch's report as to what Mr Karabay could have earned in the aviation industry (Blue 1095K-L). This was a reference to Mr Bartsch's opinions in relation to Mr Karabay's residual earning capacity flying single engine aircraft. It seems that Mr Williams' supplementary report was provided to the defendant's counsel on the morning of the first day of trial (Black 27F). In his opening at trial counsel for Mr Karabay explained the relevance of Mr Williams' supplementary report as follows:

"... His supplementary report is based on the residual earning capacity, that is we said that we had very little residual earning capacity. There is evidence that has been put on by my friend which indicates a higher residual earning capacity. Mr Williams has done a calculation reflecting that higher earning capacity to give your Honour an idea of the range between the two. That's the purpose of the supplementary report." (Black 27, lines 38-44) [emphasis added]

  1. Mr Williams' original and supplementary reports were admitted into evidence on the third day of the trial (Black 143, lines 34-35), notwithstanding (in the case of the supplementary report) the successful objection by Mr Karabay to the tender of Mr Bartsch's report (Black 185, lines 30-34).

  1. In oral closing submissions at the trial, counsel for Mr Karabay stated:

"So that your Honour can come safely to the conclusion that the calculation of economic loss should have proceeded on the basis that the injury had precluded him from a multiengine endorsement for his licence, not that he couldn't fly and wasn't flying single-engine aircraft, but that the pathway to being an airline pilot was closed to him. As a consequence, his future economic loss could be calculated as a matter of certainty along the lines of what has been calculated by Mr Williams." (Black 248, lines 23-29) [emphasis added]

This was a reference to Mr Williams' original report, not his supplementary report.

  1. At the conclusion of the trial, the primary judge gave directions for the filing and service of further written submissions. In written submissions dated 5 September 2011 (Black 253-272), Mr Karabay advanced the contention, for the first time, that if his claim that he could become an airline pilot was rejected, it was open to his Honour to accept Mr Williams' supplementary report (based on salary figure estimates provided by Mr Bartsch's report) in relation to the earning capacity of charter or general aviation pilots. (This submission overlooked the fact that the Bartsch report was not in evidence.) It was contended that, but for the injury, Mr Karabay would have been well able to fly charter operations in a single engine aircraft up to 800 hours a year, and earn the sums calculated in Mr Williams' supplementary report (Black 265E-K) or the amount paid to Mr Slater, whose evidence included a salary of $26,000 per annum in 1996 when employed by SB Air (Blue 1045H; Black 265G). Related to this submission was the contention that Mr Karabay was not qualified to fly single engine aircraft at the date of the notional trial (Black 260E and T). This contention was inconsistent with Mr Karabay's position in oral closing submissions as referred to at [34] above.

  1. Perhaps surprisingly, no objection was taken by Mr Carr and Mr Kramer, in their reply submissions dated 8 September 2011 (Black 294-303), to this significant change in Mr Karabay's case. Rather, the submission was made that no use could be made of Mr Williams' supplementary report because the primary material upon which it was expressed to be based was never put into evidence (Black 297R-S).

  1. The above summary of the economic loss case which Mr Karabay advanced at trial is relevant to the question of whether he is impermissibly seeking to run a new case on appeal. This question is addressed below at [74]-[77].

The primary judge's reasoning

Liability of Mr Kramer

  1. The primary judge noted (at [8]) that it was not pleaded against Mr Kramer that he should have been aware that the introduction of the Uniform Civil Procedure legislation would have the effect which this Court found it did in Torrac Nominees Pty Ltd v Karabay.

  1. At [9]-[17] the primary judge set out the chronology of events relating to Mr Kramer receiving instructions from Mr Karabay on 12 April 2005 to take over the matter from Mr Carr and the subsequent filing of the motion and supporting affidavits on 20 October 2005.

  1. The primary judge found (at [11]) that Mr Kramer was of the same view as Mr Carr that, while a motion to restore the matter to the list should be filed as soon as possible, it should not be done until he was able to tell the Court at the hearing of the motion that the matter was fully prepared and ready to proceed to hearing, and that he advised Mr Karabay of that view on 6 May 2005. His Honour noted that Mr Kramer was later advised to the contrary by counsel whom he engaged. His Honour referred to Mr Kramer briefing counsel on "21 June" and noted Mr Kramer's observations in the brief that counsel had recommended to restore the matter to the list without delay rather than wait until the matter was ready for a hearing: at [11]. (The reference by his Honour to "21 June" was an error. Mr Kramer briefed counsel on 21 July 2005: see the chronology of events recorded at [13] above.)

  1. At [14] his Honour referred to the conference with counsel on 25 July 2005, but omitted to refer to the purpose of this conference or counsel's advice given at this conference that he would prepare the motion and the initial draft of Mr Karabay's affidavit. His Honour noted at [16] that Mr Kramer gave evidence that he may have inquired of counsel about the progress of the matter in telephone conversations, and that on 8 September 2005 he wrote to counsel asking him to settle the documents as soon as possible, receiving the draft documents from counsel on 21 September 2005.

  1. The primary judge noted (at [23]) that in large part the criticisms of Mr Kramer's conduct, including the timeliness of his preparation of the matter, were not put to him in cross-examination. His Honour found that although counsel had advised Mr Kramer to file a motion for reinstatement of the proceedings before the matter was prepared for hearing, it was open to Mr Kramer to make his own judgment about that matter and he had not been cross-examined on this issue. (It seems that his Honour overlooked the evidence of Mr Kramer that, following the advice from counsel on 4 July 2005, he instructed counsel to prepare the motion and an affidavit in support of the application to reinstate the matter to the list.) His Honour also considered that it was not unreasonable for Mr Kramer to brief counsel to settle a motion and accompanying affidavits, rather than relying upon the documents forwarded to him by Mr Carr's firm at the end of April 2005: at [23].

  1. In relation to the report from Mr Trainor, a solicitor, his Honour observed that Mr Trainor made no distinction between the conduct of the two solicitors when expressing his "generic" opinion that a motion to restore the matter should have been filed well before October 2005. In particular, the assumptions upon which Mr Trainor's report was given did not include the evidence concerning Mr Kramer's conduct between his receiving instructions in April 2005 and 15 August 2005. His Honour found that Mr Kramer's conduct had been acceptable and that negligence had not been established: at [24].

Economic loss

  1. At [31] the primary judge adopted the approach to the assessment of damages in respect of a lost cause of action as stated by this Court in Firth v Sutton [2010] NSWCA 90 at [159]ff (Allsop P, Macfarlan JA and Young JA agreeing). This involved: (a) arriving at a notional award; (b) applying a discount for the contingency of obtaining a judgment; (c) deducting the cost of obtaining the notional award; (d) deducting receipts such as social security; and (e) adding interest. For present purposes it is only necessary to consider the component of the notional award in respect of economic loss.

  1. The primary judge found that Mr Karabay had a reasonable case on liability in the notional trial, although his claims were not straightforward: at [68]. His Honour considered that the primary focus of any "attack" at the notional trial would have been directed to Mr Karabay's evidence relating to future economic loss: at [70]. His Honour found that Mr Karabay's claim against Torrac Nominees had fairly good prospects of success and that even if contributory negligence was found it would not have reduced the damages award to a marked degree: at [71].

  1. As to past economic loss, his Honour found that so far as the claim was based on loss of income that might have been earned through employment by a passenger airline that claim was untenable: at [81]. His Honour noted that counsel for the defendants had acknowledged a claim for past economic loss based upon Mr Karabay's inability to earn income from his IT work for about three months after the accident. His Honour accepted that an assessment rounded off at $30,000 seemed reasonable and noted that counsel for Mr Karabay put no argument to the contrary: at [82].

  1. As to future economic loss, his Honour found that there was not a reasonable prospect that Mr Karabay would have been able to pursue a career as a airline pilot in the manner predicted in the report of Mr Williams (this was a reference to the two scenarios in which Mr Karabay would have achieved employment as a first officer and later a captain with either Qantas or Virgin Blue). Accordingly his Honour considered that any such prospect which Mr Karabay might have had was properly compensated by a cushion or buffer, which he assessed at $50,000: at [99]. In reaching this conclusion his Honour took into account a number of matters including Mr Chesterfield's evidence (as significantly qualified in cross-examination): at [87]; the fact that the flying hours which Mr Karabay had achieved up to the time of the notional trial were low and did not demonstrate the energy and commitment required from a person aspiring to be an airline pilot: at [97]; the evidence of the other pilots, in particular Mr Slater and Mr Seedsman, which demonstrated a measure of energy and determination over a long period which Mr Karabay could not claim: at [98]; the fact that there was inherent difficulty in Mr Karabay pursuing employment as an airline pilot in a volatile market: at [98]; and the possible effect of the troubling log-book entry concerning flying hours in Turkey on Mr Karabay's career in aviation: at [99].

Issues of appeal

  1. The issues on appeal may be conveniently grouped as follows:

(1)   liability of Mr Kramer (grounds 1 - 7);

(2)   assessment of economic loss (grounds 8 - 29);

(3)   indemnity costs order (ground 30).

Liability of Mr Kramer

  1. By appeal grounds 1 to 3 Mr Karabay contends that the primary judge erred in two respects. First in finding that it was reasonable for Mr Kramer not to file a notice of motion seeking reinstatement of the District Court proceedings until the matter was fully prepared for hearing and secondly, in failing to take into account the expert evidence of Mr Trainor.

  1. By appeal grounds 4 to 7 Mr Karabay contends that the primary judge should have found that a reasonably competent solicitor in the position of Mr Kramer would have filed a notice of motion for reinstatement of the District Court proceedings prior to 15 August 2005, having regard to the pending implementation of the new Uniform Civil Procedure legislation.

Submissions

  1. Mr Karabay submits that a reasonably competent solicitor in Mr Kramer's position would have known about the impending introduction of the UCPR on 15 August 2005 and should have been aware, prior to that date, that the new UCPR would remove Mr Karabay's right to reinstate the proceedings under the former District Court Rules.

  1. Mr Karabay submits that the changes introduced by the new UCPR on 15 August 2005 were well known within the legal profession, and that Mr Kramer's failure to consider the impact of the new rules on any application to reinstate the District Court proceedings constituted a breach of duty.

  1. Mr Kramer complained that this case was not pleaded or run below and that Mr Karabay should not be permitted to raise a new case on appeal: Metwally v University of Wollongong (No 2) [1985] HCA 28; 60 ALR 68 at 71. Complaint was also made that Mr Kramer was not cross-examined about his knowledge of the impending introduction of the UCPR, or his failure to file the notice of motion before 15 August 2005. Mr Kramer submits that there was no evidence on which it could be found that the changes brought about by the UCPR (which operated to the disadvantage of Mr Kramer's client) were well known within the legal profession.

  1. Mr Kramer otherwise seeks to uphold the primary judge's decision that he had not been dilatory or negligent in the preparation of the application for reinstatement of the District Court proceedings. Reliance was placed on Mr Kramer's evidence as to the steps he took in the course of his retainer and his explanation why no application had been filed prior to 15 August 2005. It was also contended that the expert evidence relied upon by Mr Karabay did not directly address the position of Mr Kramer.

Disposition

New negligence case on appeal

  1. Counsel for Mr Karabay accepted in oral argument that he was seeking to advance a new case on appeal (AT 21, lines 5-10). This concession was properly made. The contention that a reasonably competent solicitor in the position of Mr Kramer would have known about the impact of the impending introduction of the UCPR on Mr Karabay's rights was not pleaded nor was it advanced at the trial in Mr Karabay's opening or closing submissions. The matter was not put to Mr Kramer in cross-examination and Mr Trainor, the expert solicitor relied upon by Mr Karabay, did not address the matter in his report.

  1. A party does not have an entitlement to raise a new issue on appeal otherwise than in accordance with the principles discussed in Coulton v Holcombe [1986] HCA 33; 162 CLR 1; Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418 at 438. The authorities were reviewed by Beazley P in Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37 at [2]-[8].

  1. The new point which Mr Karabay sought to raise on appeal involved questions of fact relating to what a reasonably competent solicitor would have appreciated in anticipation of the new UCPR. In particular, whether such a solicitor ought to have appreciated the impact of the introduction of the new UCPR on applications (not yet filed) to reinstate proceedings which had been the subject of a preliminary dismissal order in the District Court, as this Court subsequently decided in Torrac Nominees Pty Ltd v Karabay. If the point had been raised at trial Mr Kramer may have sought to rely upon expert evidence on these questions.

  1. A point cannot be raised for the first time upon appeal when it could possibly have been met by the calling of evidence below: Water Board v Moustakas [1988] HCA 12; 180 CLR 491 at 497. The present is such a case. As the High Court has repeatedly emphasised, it is elementary that a party is bound by the conduct of its case. Thus,

"Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so": Metwally v University of Wollongong (No 2) at 71.

  1. Mr Karabay did not point to any exceptional circumstances existing in the present case.

Mr Kramer's conduct was not dilatory or negligent

  1. So far as Mr Karabay otherwise contends that the primary judge erred in finding that Mr Kramer was not negligent, this contention is predicated upon his Honour's finding (at [11]) that Mr Kramer was of the view that he should defer filing the motion until the matter was fully prepared to proceed to a hearing. However, as noted at [40] above, his Honour was mistaken as to the date on which Mr Kramer briefed counsel, and overlooked Mr Kramer's unchallenged evidence that he accepted the advice given by counsel on 4 July 2005 not to defer the filing of the application. Mr Kramer then took the steps referred to at [12]-[13] above to brief counsel on 21 July 2005 to draft the necessary documents and arranged a conference with counsel on 25 July 2005 for Mr Karabay to provide instructions to enable counsel to prepare the initial draft of his affidavit. Thereafter the delay in the preparation of the motion and supporting affidavit lay with counsel. However Mr Karabay's case at trial did not involve any allegation that Mr Kramer was dilatory in following up counsel between the conference on 25 July 2005 and the introduction of the UCPR on 15 August 2005.

  1. Mr Karabay's contention on appeal that Mr Kramer was negligent because he did not accept or follow counsel's advice not to delay filing the motion was contrary to the unchallenged evidence of Mr Kramer at trial. Furthermore the evidence from Mr Trainor did not address this issue.

  1. The appeal against the dismissal of the proceedings against Mr Karabay must fail.

Assessment of economic loss

  1. It was common ground at trial and on appeal that a notional trial would have taken place in November 2004. By appeal grounds 15-20 Mr Karabay challenges the primary judge's award of past economic loss of $30,000. He contends that his Honour should have found that at the date of the notional trial, but for the injury suffered, there was a reasonable basis for Mr Karabay's prospective employment with a commercial airline or in general aviation.

  1. By appeal grounds 21-29 Mr Karabay challenges the primary judge's award of a buffer of $50,000 for future economic loss. He contends that his Honour should have awarded damages for future economic loss which took into account Mr Karabay's prospects of obtaining employment with a passenger, commercial, or regular public transport airline or, alternatively, as a general aviation charter pilot.

  1. As explained below, Mr Karabay's case on appeal in relation to economic loss was narrowed somewhat in his written submissions and oral argument.

Submissions

  1. Mr Karabay submits that the primary judge erred in the notional award of a buffer for future economic loss because his Honour did not make any distinction between the different types of employment, and consequently different remuneration, which Mr Karabay might have had as a pilot. It was contended that there were three different types of positions available to Mr Karabay. The highest category was said to be with first tier domestic carriers such as Qantas and Virgin. The next category (second tier) was said to be with smaller carriers such as Sunstate or Rex. The third category (third tier) was referred to as involving general aviation as a commercial (non airline) pilot. This was said to include the type of position that Mr Karabay took in 2002 flying a single engine Cessna.

  1. In oral argument, counsel for Mr Karabay confirmed that the case on appeal was advanced only in relation to the loss of opportunity to earn income in what was referred to as the third category - general aviation, flying single engine aircraft (AT 6, line 41- 7, line 7; 44, lines 17-19). This was consistent with Mr Karabay's written submissions that this was a likely scenario (and the subject of the supplementary report of Mr Williams) that the primary judge had failed to take into account.

  1. As the case on appeal was only advanced by reference to the prospect of employment in the third category it is unnecessary to consider the appeal grounds which are directed to challenging the primary judge's finding (at [99]) that Mr Karabay had no reasonable prospect of employment with a passenger airline, that is, in the first or second category referred to above. Accordingly appeal grounds 8-14, 15-17, 19, and 20 may be put aside (except insofar as they relate to employment in general aviation flying single engine aircraft).

  1. Mr Karabay's written submissions did not articulate the factual basis for the claim for past economic loss, beyond his reliance upon the supplementary report of Mr Williams.

  1. As to future economic loss, Mr Karabay submits that the buffer awarded by the primary judge does not appear to take into account the loss of Mr Karabay's ability to work in the third category as a commercial (non airline) pilot in general aviation. It was also contended that the evidence of Dr Maclarn, an aviation medical examiner, which the primary judge referred to at [50], established that, due to the injury, Mr Karabay would not have been fit for "airline employment", meaning employment as a pilot in any capacity, including in the third category.

  1. Mr Carr and Mr Kramer submit that the contention that Mr Karabay lost the capacity to fly single engine aeroplanes in general aviation was never part of Mr Karabay's case at trial, rather this was only relevant to his residual earning capacity. It was also submitted that no reliance could be placed on the supplementary report of Mr Williams because the primary material upon which it is expressed to be based was never put into evidence.

  1. It was further contended that at the notional trial date Mr Karabay remained fit to fly single engine aircraft and also retained a significant earning capacity in the IT industry, and that both these matters were relevant to Mr Karabay's residual earning capacity, which Mr Williams had failed to take into account.

Disposition

  1. Two issues arise for consideration. The first is whether Mr Karabay is impermissibly seeking to run a new case on appeal based on Mr Williams' supplementary report and the contention that he was unfit to fly single engine aircraft at the notional trial date. The second, which only arises if Mr Karabay is entitled to raise such a case on appeal, is the question of Mr Karabay's fitness to fly single engine aircraft and the probative value of Mr Williams' supplementary report.

New economic loss case on appeal

  1. In my view, Mr Karabay is seeking to run a new case on appeal which was not run below. Although Mr Carr and Mr Kramer should have objected in their closing written submissions to the change in the way Mr Karabay sought to rely upon Mr Williams' supplementary report, I do not consider that it can be said that their failure to raise an objection, after the hearing had concluded, meant that they should be taken to have acquiesced in the new way in which Mr Karabay sought to rely upon Mr Williams' supplementary report. Having tendered the supplementary report on a particular basis, namely, that it was relevant to Mr Karabay's residual earning capacity to fly single engine aircraft, and the trial being conducted on the express basis that Mr Karabay was fit to fly single engine aircraft, Mr Karabay could not seek to resile from that position by raising a new case in written submissions filed after the conclusion of the hearing. It would have been necessary for Mr Karabay to apply for leave to re-open his case to raise this issue. He did not do so.

  1. It was not suggested by Mr Karabay that any exceptional circumstances existed which would justify permitting him to raise this new point on appeal.

  1. Accordingly, Mr Karabay's challenge to his Honour's assessment of a notional award of $30,000 for past economic loss and a buffer of $50,000 for future economic loss is not made out.

  1. Having regard to the above conclusion it is not necessary to deal with the second issue I have identified (at [73] above). Nonetheless, I shall briefly consider the arguments advanced by Mr Karabay.

Fitness to fly single engine aircraft

  1. In my view, Mr Karabay's submission that at the notional trial date he was not fit to fly single engine aircraft due to the injury to his right achilles tendon (and thus not capable of employment in the third category of general aviation) must be rejected. The medical evidence is to the contrary.

  1. First, the evidence of Dr Maclarn (see [29]-[30] above) was that he was fit for single engine operations only. Dr Maclarn drew a distinction between Mr Karabay's fitness to fly single engine aircraft and his ability to control a multi-engine aircraft. It was only in relation to the latter type of aircraft that Dr Maclarn expressed the opinion that Mr Karabay would have failed the medical examination and would have been unemployable in the "airline environment" at the notional trial date.

  1. Secondly, although Mr Karabay claimed that he suffered depression and an adjustment disorder following his injury, the medical evidence established that he was fit to work as a pilot at the notional trial date. In a report dated 30 August 2002, Dr Lovric, a consultant psychiatrist, expressed the opinion that:

"I did not see Mr Karabay as being depressed. He certainly reported being depressed secondary to his pain but I do not feel this is a primary diagnosis. I do not feel his depression has the severity or associated symptoms consistent with a diagnosis of Major Depression, nor would he satisfy criteria for a diagnosis of Adjustment Disorder with depressed mood. Mr Karabay reports becoming more irritable and angry since the accident and denies being this way prior. I am unable to confirm as to whether this is the case, although I do note that he had disputes with his employers whilst a pilot in Darwin...I would also wonder whether Mr Karabay has a low tolerance to frustration and sensitivity to pain, as evidenced by his protracted use of Endone after the surgery" (Blue 264G-M).

  1. Moreover, while Dr Mahmoud, a psychologist, noted in a report dated 13 September 2004 that Mr Karabay suffered from chronic adjustment disorder with pain and depressed moods, he also expressed the view that Mr Karabay was fit to work as a pilot (Blue 271). In a subsequent report of 19 March 2005 Dr Mahmoud stated:

"I confirm that Mr Karabay is psychologically fit to work as a pilot" (Blue 1/271.1O).

  1. Although the latter report of Dr Mahmoud was obtained shortly after the date of the notional trial of November 2004, evidence relating to subsequent events such as later medical reports may assist the Court in placing itself in the position of the trial judge at the notional trial in piecing together the case that could, but for the negligence of the solicitor, have been made out in the trial of the earlier action: Johnson v Perez [1988] HCA 64; 166 CLR 351 at 369. In my view, the latter report of Dr Mahmoud may be taken into account in the present case in assessing Mr Karabay's fitness to fly single engine aircraft as at the notional trial date.

Mr Williams' supplementary report

  1. In my view his Honour was correct to observe that the supplementary report could be put aside as it was prepared in response to an accountant's report (prepared on behalf of the defendants) which ultimately was not admitted into evidence: at [94]. There being no suggestion that the primary material, on which the Bartsch report was based, was in evidence there was no error in his Honour discarding the supplementary report of Mr Williams which assessed Mr Karabay's notional future earnings based on opinions set out in the Bartsch report.

  1. There are additional reasons why no reliance could be placed on Mr Williams' supplementary report.

  1. First, the evidentiary difficulty referred to above could not be overcome, as Mr Karabay sought to do on appeal, by contending that the assumed notional annual earnings in Mr Williams' supplementary report were reasonable assumptions when regard was had to other evidence (namely, Mr Chesterfield's evidence that a pilot in general aviation could expect earnings of approximately $20,000 to $30,000 per annum). There are two difficulties with this contention. The first is that the evidence of Mr Chesterfield, concerning the expected earnings of a pilot in general aviation, was significantly qualified. Mr Chesterfield noted that many of the types of single engine operations are seasonal and may not offer full time employment. The second is that Mr Williams' assumption of significant increases in the notional earnings of a charter pilot of single engine aircraft from $30,000 to $50,000 as at June 2002 and the further increase to $70,000 as at July 2004, was not established by the evidence.

  1. Secondly, Mr Williams' assumption that Mr Karabay's residual future earnings, as a result of the injury, were only $12,000 per annum was, in my view, unreasonable and again not justified by the evidence. A number of observations are sufficient to make this point.

  1. The first matter concerns Mr Williams' use of an average figure for Mr Karabay's assumed residual earning capacity. Mr Williams' calculation of the average of Mr Karabay's actual income reported in his tax returns over five years (2000 to 2004) was distorted because two of those years (2003 and 2004) included nil earnings. For most of the period September 2002 to June 2004 Mr Karabay was in Turkey. He spent one month in October 2002 undertaking military service with a view to satisfying a requirement for obtaining dual citizenship in Turkey. Thereafter, except for a short period in September/October 2003 when he returned to Sydney, Mr Karabay said that he tried to find work as a pilot in Turkey but was not successful (Blue 16W-17G). However, the relevant question in relation to assumed residual earnings was Mr Karabay's capacity to obtain earnings, not simply what he actually obtained.

  1. The second matter is that the assumption by Mr Williams regarding actual earnings made no allowance for Mr Karabay's capacity to earn income flying single engine aircraft, as well as his capacity to earn income performing IT consulting work. In this regard there was evidence of Mr Karabay's earnings of $27,773 for the year ending 30 June 2002, which seems to have related to both IT consulting work and flying single engine aircraft (Blue 233-235 and 1080). There was also evidence of significantly higher earnings by Mr Karabay from working as an IT consultant before 2000 of $93,000 for six months contract work (Black 120, lines 17-19).

  1. In my view, the evidence established that Mr Karabay retained a capacity to earn income in excess of $30,000 per annum as at the notional trial date. In these circumstances, and putting aside the question of his fitness to fly single engine aircraft, he did not make out a case that he lost the capacity to obtain earnings of $20,000 to $30,000 per annum as referred to by Mr Chesterfield for flying single engine aircraft.

Costs

  1. Mr Karabay seeks to set aside the costs orders in favour of Mr Carr and Mr Kramer.

  1. The basis for the costs orders made on 14 June 2013 was an offer of compromise sent by the solicitors for Mr Carr and Mr Kramer to Mr Karabay's solicitors on 5 May 2009. The covering letter stated that:

"We enclose by way of service Offer of Compromise in the sum of $400,000 plus costs. The offer is open for a period of 28 days." (Blue 202N)

  1. The offer of compromise was in the following terms:

"1 The defendants jointly and severally offer to compromise the plaintiff's claim in these proceedings by making a payment to the plaintiff in the sum of $400,000 plus costs.
2 This offer is open for acceptance for a period of 28 days from the date of service.
3. This offer is made without prejudice and in accordance with Part 20 Rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW)." (Blue 203)

  1. Before the primary judge Mr Carr and Mr Kramer contended that the offer complied with r 20.26 of the UCPR notwithstanding that it was stated to be "plus costs".

  1. After reviewing the authorities, his Honour noted at [10] of the Costs Judgment that it was difficult to reconcile the reasoning in two decisions of this Court - Old v McInnes [2011] NSWCA 410 and Vieira v O'Shea (No 2) [2012] NSWCA 121, and concluded that the approach of Garling J in Rail Corporation NSW v Vero Insurance Ltd (No 2) [2012] NSWSC 926 was the correct approach. That is a mere reference to costs, in an offer otherwise complying with the rules, will not take the offer outside the rules, unless the reference operates inconsistently with the relevant costs rule. His Honour found that Mr Carr and Mr Kramer's offer of compromise of 5 May 2009 complied with r 20.26 and, accordingly, r 42.15 was engaged: at [16].

  1. Having held that the offer of compromise complied with the rules, his Honour did not consider it necessary to address the question of whether the offer might work in the alternative as a Calderbank offer. This was because the offer was not expressed in the alternative as a Calderbank offer, and counsel for Mr Carr and Mr Kramer did not argue that it should be treated as such: at [17] Costs Judgment.

  1. Mr Carr and Mr Kramer accepted on appeal that in light of the subsequent decision of this Court, constituted by a Bench of five judges, in Whitney v Dream Developments Pty Ltd [2013] NSWCA 188, the costs orders could not be made on the basis of the primary judge's reasoning. In Whitney the Court held that offers of compromise containing the term "the defendant to pay the plaintiff's costs as agreed or assessed" did not constitute offers exclusive of costs for the purpose of the UCPR, r 20.26(2) and, accordingly, were not valid offers of compromise under the rules. At [39(b)] Bathurst CJ (with whom Beazley P, McColl JA and Emmett JA agreed) expressly stated that the decision of the primary judge in the Costs Judgment was incorrect.

  1. All parties agreed that this Court should deal with the question of costs of the proceedings below rather than remit the proceedings.

  1. Counsel for Mr Karabay submitted in oral argument that costs should follow the event.

  1. Counsel for Mr Carr and Mr Kramer did not seek to uphold the order for costs on an indemnity basis, but submitted that:

(1)   an order should be made that Mr Carr pay Mr Karabay's costs of the proceedings up to 2 March 2011, and that Mr Karabay pay Mr Carr's costs of the proceedings on an ordinary basis from 2 March 2011, being the date on which he admitted liability to Mr Karabay;

(2)   Mr Karabay should be ordered to pay Mr Kramer's costs of the proceedings on an ordinary basis.

Disposition

  1. Costs are in the discretion of the Court: see s 98 of the Civil Procedure Act 2005 (NSW). The general rule is that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs: r 42.1 UCPR.

Mr Kramer

  1. In relation to Mr Kramer there is no difficulty in identifying the "event". He succeeded at trial and Mr Karabay's appeal against that decision, in my view, has not been made out. The appropriate costs order in respect of the proceedings at first instance is that Mr Karabay pay Mr Kramer's costs of the proceedings on an ordinary basis.

Mr Carr

  1. In relation to Mr Carr it is submitted on his behalf that the relevant "event" is his admission of liability on 2 March 2011 and his serving of a schedule of damages on 8 March 2011 for $165,275 in respect of the lost cause of action (Blue 1166). Counsel for Mr Carr argued that it was open to Mr Karabay to accept the "offer" set out in the schedule of damages and that, as Mr Karabay had failed to obtain a better result at trial, he should pay Mr Carr's costs from that time (whether 2 March or 8 March 2011 does not greatly matter).

  1. The appeal papers did not include any covering letter under which the schedule of damages was served on Mr Karabay's solicitors. Counsel for Mr Carr correctly acknowledged in oral argument that there was no admission by Mr Carr that he was actually liable to a minimum of $165,275 in respect of the lost cause of action. Nor was it suggested that the figure in the schedule of damages was an offer in any technical sense, or that Mr Carr could not resile from it at any time. Indeed, at the trial, counsel for Mr Carr ultimately contended for a significantly lesser amount of damages in respect of the total notional award for the lost cause of action ($46,874.37) than that stated in the March 2011 schedule of damages (Black 241, line 1 and 293O-P).

  1. Counsel for Mr Carr referred to the decision of this Court in Ziliotto v Hakim [2013] NSWCA 359 as providing support for a costs order in favour of Mr Carr from 2 or 8 March 2011. In Ziliotto v Hakim, there was a difference of opinion between Tobias AJA (Macfarlan JA agreeing) and Basten JA as to what constituted the "event". Basten JA expressed the view at [20] that where an offer of a specified amount of damages is made, the only issue in dispute is the other party's claim for a greater amount than that offered. Thus, on his Honour's view, if a plaintiff does not do better than the offer, the plaintiff is to be treated as having been unsuccessful and costs may be ordered against the plaintiff from the time of refusal of the offer. Tobias AJA disagreed with this approach explaining at [142]:

"My problem with this approach is that the issue of whether to make an order other than that costs should follow the event is to be determined as at the time of judgment. The fact that a genuine offer has been made by a defendant and unreasonably refused and judgment for a lesser amount achieved by the plaintiff is the trigger for the making of such an order. But once the offer is refused, unless an admission is made that the plaintiff is entitled to the amount offered so that the only dispute is whether the plaintiff is entitled to more, then the dispute relates to the total amount of damages to which the plaintiff is entitled."

  1. In oral argument counsel for Mr Carr said that his contentions did not depend upon the approach of Basten JA in Ziliotto v Hakim to what is the "event". He argued that in the present case the serving of the schedule of damages on 8 March 2011 was as good as an "admission" by Mr Carr, and Mr Karabay's failure to accept the amount put forward in that schedule was unreasonable. This makes it unnecessary to express any view in relation to the competing approaches taken in Ziliotto v Hakim to what is meant by the "event".

  1. In the present case, no admission was ever made by Mr Carr that Mr Karabay was entitled to the minimum amount stated in the schedule of damages served on 8 March 2011, so that it could be said that the only dispute was whether Mr Karabay was entitled to more. As noted above, at the trial counsel for Mr Carr ultimately contended for a lesser damages figure of $46,874.37 as damages in respect of a lost cause of action. The judgment obtained by Mr Karabay for damages in respect of the lost cause of action of $159,402.96 represented a better outcome than Mr Carr's ultimate position at trial.

  1. In my view, the appropriate exercise of the discretion in respect of the costs at first instance would be that Mr Carr pay Mr Karabay's costs of the proceedings on an ordinary basis.

Costs of appeal

  1. As against Mr Kramer, Mr Karabay has failed on all grounds and must pay Mr Kramer's costs in this Court.

  1. Mr Carr has been substantially successful on the appeal but there should be a small discount to reflect Mr Karabay's limited success in relation to the indemnity costs order. I consider that Mr Karabay should pay 90% of Mr Carr's costs in this Court.

Orders

  1. I propose the following orders:

(1)   Appeal allowed in part.

(2)   Set aside order 4 made by Hidden J on 27 June 2013 and in lieu thereof order the first defendant to pay the plaintiff's costs of the proceedings on an ordinary basis.

(3)   Set aside order 6 made by Hidden J on 27 June 2013 and in lieu thereof order the plaintiff to pay the second defendant's costs of the proceedings on an ordinary basis.

(4)   The appellant pay 90% of the first respondent's costs of the appeal.

(5)   The appellant pay the second respondent's costs of the appeal.

  1. SACKVILLE AJA: I agree with the orders proposed by Gleeson JA and with his Honour's reasons.

**********

Amendments

08 May 2014 - Replaced "order" to "orders".


Amended paragraphs: 111

Decision last updated: 08 May 2014

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