Kriketos v Eisman

[2007] NSWSC 620

CITATION:	Kriketos v Eisman [2007] NSWSC 620
HEARING DATE(S):	23 & 24 April 2007
JUDGMENT DATE :	31 May 2007
JURISDICTION:	Equity
JUDGMENT OF:	Hamilton J
DECISION:	That the plaintiff must pay the defendants’ costs on the indemnity basis from the date of the defendants’ offer of compromise.
CATCHWORDS:	PROCEDURE [103] – Supreme Court procedure – Procedure under Rules of court – Offer of compromise – Refusal – Entitlement to costs on indemnity basis.
LEGISLATION CITED:	Uniform Civil Procedure Rules 2005 Part 42 Div 3 rr 42.13A, 42.14, 42.15 & 42.15A
CASES CITED:	In re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622 Kriketos v Eisman [2007] NSWSC 496
PARTIES:	Bill Kriketos (P) Marc Richard Eisman (D1) Stephen Morgan Matthews (D2) Gold’s Gym Pty Limited (D3)
FILE NUMBER(S):	SC 4968/05
COUNSEL:	C Roth, Solicitor (P) S Carmichael, Solicitor (Ds)
SOLICITORS:	Charles G Roth & Co Mavrakis & Associates

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

WEDNESDAY, 31 MAY 2007

4968/05 BILL KRIKETOS v MARC RICHARD EISMAN & ORS

JUDGMENT – On Costs

1 HIS HONOUR: This is an application by the defendants for an order that as from 22 October 2005 the plaintiff pay the defendants’ costs on the indemnity basis. The plaintiff opposes this application, though he concedes that he must pay the defendants’ costs of the proceedings on the ordinary basis. On the application for indemnity costs the defendants rely only on an offer of compromise under Division 3 of Part 42 of the Uniform Civil Procedure Rules 2005 (the UCPR).

2 Division 3 of Part 42 of the UCPR, as it originally came into force on 15 August 2005, has proved unsatisfactory and has already been amended on no less than three occasions. These were by the insertion of r 42.13A effective 11 November 2005; by the substitution of a different subr (2) of that rule as of 10 March 2006; and by the insertion of r 42.15A effective 8 December 2006. The offer of compromise the subject of decision in this judgment was made on 21 October 2005, before the insertion of r 42.13A, but expired 28 days later, about eight days after the insertion of that rule.

3 The original substance of r 42.13A did not differ in a material fashion from its present substance, in that the then subr (2) provided that, if the offer were made by the defendant and accepted by the plaintiff, unless the court ordered otherwise, the plaintiff was entitled to an order against the defendant for the plaintiff’s costs in respect of the claim on the ordinary basis up to the time when the offer was made.

4 The offer which was made by the defendants on 21 October 2005 was for the recording of a “verdict for the defendants” without reference to costs. The words “verdict for the defendants” are not very apposite to an equity suit of the type of these proceedings, but, as this terminology has customarily been used in offers of compromise, their use is not surprising. It is not submitted that the use of those words takes the case outside the relevant rules, and I do not think that such a submission would in any event be sound. What happened in this case was that the proceedings were dismissed and that was the result in proceedings of this type equivalent to a verdict for the defendants.

5 Nor are the proceedings taken outside the relevant provisions of the rules by the fact that there was no monetary claim. I do not decide, as it is not necessary for me to decide, whether or not the rules apply in cases where there is no monetary claim at all. In this case, the plaintiff did make a claim for damages or, alternatively, equitable compensation. Although these claims remained at large and unquantified, they were monetary claims which were defeated by the result of the proceedings and would have been defeated by the acceptance of the offer which was made.

6 There was a perception, and possibly an actuality, of lacunae in Division 3 in the absence of rr 42.13A and 42.15A. It has been submitted that both have relevance to this matter as it falls to be decided. The first is r 42.13A, where the consequence as to costs of the acceptance of an offer (as opposed to the non acceptance of the offer dealt with in rr 42.14 and 42.15) was the situation which prevailed. That rule, when enacted, provided a prima facie regime whereby the plaintiff should have its costs up to the acceptance of the offer, even if the offer involved the defeat of the plaintiff’s claim as at that time and from then onwards.

7 Had the plaintiff had, under the rules, the benefit of that prima facie entitlement, then it could be said that the offer in fact made did contain an element of compromise, because it was likely that the rule would give the plaintiff its costs up to the time of that offer, rather than the plaintiff being obliged to pay the whole of the defendants’ costs, which is - and is acknowledged by the plaintiff to be - the necessary consequence, at least on the ordinary basis, of the total failure of the plaintiff’s claim which resulted from my substantive decision in this matter: Kriketos v Eisman [2007] NSWSC 496.

8 However, it is my view that r 42.13A did not apply to the offer in the present case. True it is that everyone is agreed that the offer was made before the rule became effective. On the other hand, true it is that the rule came into effect some eight days before the offer expired and while it was still open for acceptance. In general terms, a rule of this nature, being procedural, has effect immediately in relation to subsisting proceedings. The contrary was not argued before me.

9 However, the relevant words of the rule were, at the time, that the rule applied if the offer concerned was made by the defendant and accepted by the plaintiff. It seems to me that the proper interpretation of this rule as to its application is that it applies to offers that were made by the defendant when the rule subsisted and accepted by the plaintiff when the rule subsisted. The rule did not exist when the offer was made, and in my view r 42.13A in its original form did not apply to it.

10 That being so, the only rules as to prima facie entitlements to costs applying to this offer were rr 42.14 and 42.15, both of which operated only when the offer was not accepted. In those circumstances, in my view the regime which applied was that there was no prima facie entitlement to costs upon an order being made in terms of the offer, and either party could apply to the court for an order for costs.

11 If such an application were made by either party, it would fall to be determined by the court on its merits. However, the principle which would be central to the court’s determination of it is the principle as to costs in settled or abandoned proceedings set out by McHugh J, sitting as a single justice of the High Court, in In re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622.

12 His Honour at 624 drew attention to the fact that the court will not conduct a trial of a hypothetical action between the parties in order to determine the costs. He drew attention to certain exceptions to the general principle, which do not appear to me to apply in the present case. At 624 - 625 his Honour stated the relevant principles as follows:

“In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action Australian Securities Commission v Aust-Home Investments Ltd supra. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd [1971] QWN 13, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission, unreported, Federal Court of Australia, 10 February 1989, where his Honour ordered the respondent to pay 80 per cent of the applicant’s taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. See, eg, Australian Securities Commission v Aust-Home Investments Ltd supra; Seventh Mingcourt Pty Ltd v Lawrence (unreported; Federal Court of Australia; 1 August 1996), per Branson J; Coleman v City of Melville (unreported; Supreme Court of WA; 22 September 1994), per Scott J; Compadres Australia Pty Ltd v Waterfront Place No 2 Pty Ltd (unreported; Supreme Court of Q; 15 August 1995), per MacKenzie J; Inprint Ltd v K & D Media Pty Ltd (unreported; Federal Court of Australia; 22 December 1995), per Einfeld J; Australian Securities Commission v Berona Investments Pty Ltd (1995) 18 ACSR 772.”

13 In my view, this means that, had the defendants’ offer been accepted, the highly likely result would have been that the proceedings would have been brought to an end, but that all parties would have had to bear their own costs. I can say at once that this is a result more favourable to the plaintiff than what must now ensue after the trial. What must now ensue, as the plaintiff himself concedes, is that the plaintiff must pay the defendants’ considerable costs, at least on the ordinary basis.

14 The question of whether or not the Rules prescribe a costs consequence from the non acceptance of the offer of compromise depends upon r 42.15, which the defendants rely on. That rule is as follows:

“42.15 Where offer not accepted and judgment as or less favourable to plaintiff

(cf SCR Part 52A, rule 22; DCR Part 39A, rule 25; LCR Part 31A, rule 20)

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

(2) Unless the court orders otherwise:
(a) the plaintiff is entitled to an order against the defendant for the plaintiff’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.”

15 At the relevant time, as has already been made plain, Division 3 of Part 42 of the UCPR did not contain r 42.15A. That rule, by its terms, 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 as favourable or more favourable to the defendant than the terms of the offer. The plaintiff contended that r 42.15 does not apply and that that fact is demonstrated by the subsequent insertion of r 42.15A. He says that, in the application of the Division, containing as it now does both r 42.15 and r 42.15A, it is certainly correct that the present case would be regulated by r 42.15A rather than by r 42.15. The plaintiff contended that the result of this case could not be regarded under r 42.15 as the Division then stood as an order or judgment obtained by the plaintiff, in view of the fact that the result totally favours the defendants.

16 The defendants contend that, although r 42.15A is now there, as it was not there when the offer was made, r 42.15 must be interpreted for present purposes as if r 42.15A were not in the Division. In my view this is correct.

17 Perhaps on one reading of r 42.15 by itself, it could be suggested that the orders that resulted in this case were not obtained by the plaintiff. It was against the possibility of such a suggestion being made that the Division was clarified by the insertion of r 42.15A. However, it is my view that, viewing r 42.15 alone, the result of the proceedings, unfavourable as it was to the plaintiff, was a result obtained by the plaintiff on the claim. It was as a result of his bringing the claim and the adjudication of it that the orders were made.

18 In those circumstances, in my view, the present orders were obtained by the plaintiff on the claim within the meaning of r 42.15 as the Division stood at the time. In those circumstances, the defendants are entitled pursuant to r 42.15(b) to an order against the plaintiff for the defendants’ costs in respect of the claim assessed on an indemnity basis as from the beginning of the day following the day on which the offer was made.

19 This regime applies in a different fashion from the regime applying to Calderbank letters, in which there is no prima facie entitlement and the court assesses the result which should flow from the Calderbank offer without predisposition. In the case of an offer of compromise the predisposition is, as appears from the rule as set out above, contained in r 42.15(b)(i).

20 It is possible, of course, under r 42.15(b)(ii) for the court to order otherwise. However, it will do so only where there is some factor which indicates that an order otherwise is justified. No such factor has been put before me in the present case and I cannot perceive any.

21 In those circumstances, therefore, the ordinary consequences of r 42.15 should flow and the defendants should have an order for indemnity costs as prescribed in that rule.

22 In respect of the costs of these proceedings the following orders will be made:

(1) Order that the plaintiff pay the defendants’ costs of the proceedings up to and including 21 October 2005 on the ordinary basis.
(2) Order that the plaintiff pay the defendants’ costs of the proceedings as from 22 October 2005 on the indemnity basis.

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