Leslie Gaskin v Matthew Ollerenshaw

[2010] NSWSC 874

CITATION:	Leslie Gaskin v Matthew Ollerenshaw [2010] NSWSC 874
HEARING DATE(S):	In the papers
JUDGMENT DATE :	6 August 2010
JUDGMENT OF:	Garling J
DECISION:	Order for the plaintiff to pay the defendant's costs on an ordinary basis up to and including 29 July 2009, and on an indemnity basis from 30 July 2009.
CATCHWORDS:	COSTS – Offer of compromise – Calderbank letter – Not unreasonable to refuse offer – Offer of compromise under UCPR, r 20.26 – Offer not accepted - Whether any basis for Court to “otherwise order” – Whether exceptional circumstances established by offeree – Order for indemnity costs assessed from date of the offer of compromise under UCPR, r 20.26.
LEGISLATION CITED:	Civil Procedure Act 2005 Evidence Act 1995 Uniform Civil Procedure Rules 2005
CATEGORY:	Consequential orders
CASES CITED:	Commonwealth of Australia v Gretton [2008] NSWCA 117 Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 Gaskin v Ollerenshaw [2010] NSWSC 791 Hillier v Sheather (1995) 36 NSWLR 414 Jones v Bradley (No. 2) [2003] NSWCA 258 Leichhardt Municipal Council v Green [2004] NSWCA 341 Maitland Hospital v Fisher [No.2] (1992) 27 NSWLR 721 Melchior & Ors v Sydney Adventist Hospital & Anor [2009] NSWSC 65 Morgan v Johnson (1998) 44 NSWLR 578 Shellharbour City Council v Johnson [No.2] (2006) 67 NSWLR 308 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Wills v Bigmac Pty Ltd & Anor (Federal Court of Australia, Heerey J, 9 December 1994, unreported)
PARTIES:	Leslie Gaskin (P) Matthew Ollerenshaw (D)
FILE NUMBER(S):	SC 2006/266967
COUNSEL:	M Maxwell and M Gilbert (P) R A Cavanagh (D)
SOLICITORS:	Brydens Law Office (P) Henry Davis York (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

GARLING J

FRIDAY, 6 AUGUST 2010

2006/266967 LESLIE GASKIN v MATTHEW OLLERENSHAW

JUDGMENT – On the Application for Indemnity Costs

1 HIS HONOUR: On 16 July 2010, I delivered judgment in the principal proceedings: Gaskin v Ollerenshaw [2010] NSWSC 791.

2 I ordered that there be judgment for the defendant and that the plaintiff pay the defendant’s costs.

3 I granted leave to the defendant to make any application for an order for costs on any basis other than the ordinary basis, within seven days. I ordered the plaintiff to file and serve any affidavit and submissions in opposition to any application for indemnity costs within a further seven days.

4 On 23 July 2010, the defendant made an application for an order that it have costs on an indemnity basis from 14 January 2008, or in the alternative, from 29 July 2009. In support of this application, the defendant relied on an affidavit of Zara Officer sworn 23 July 2010.

5 The plaintiff led no evidence and made no submissions on the defendant’s application within the time fixed by the Court’s order. A letter of 5 August 2010 from the plaintiff’s solicitors to the Court confirmed that the plaintiff made no submissions.

Calderbank Offer of Settlement

6 By letter dated 14 January 2008, the solicitors for the defendant wrote to the solicitors for the plaintiff the following letter which was expressed to be “without prejudice except as to costs”:

“We refer to previous correspondence.
We consider your client will not succeed in establishing liability on the part of our client.
Our client did not and could not have reasonably known that the roof was unsafe before your client went upon it.
Our client did not owe a duty to your client to check on the roof and ensure that it was safe, especially considering the plaintiff was an expert contractor and skilled in painting roofs and working at heights.
In this regard, our client relies on the expert opinion of Mr Bulgin that a lay person would have viewed the roof and attached skillion and considered it to be structurally adequate. Mr Bulgin considered a lay person would not have been able to identify the concealed deterioration. Furthermore, the pest and building reports were not specific in relation to areas of deterioration and the report suggested the deterioration was not structural.
In the circumstances, for commercial reasons only, we are instructed that our client offers your client in full and final settlement of the proceedings:
1. Verdict for the defendant;
2. Defendant to pay the plaintiff’s costs as agreed or assessed.
This offer is open from 28 days from the date of this letter.
This offer is made in accordance with the principles in Calderbank v Calderbank [1975] 3 ER 333 [sic].
If this offer is not accepted, we give you notice that we will tender this letter at the hearing if necessary in support of an application that your client pays our client’s costs of the proceedings on an indemnity basis.”

7 According to the affidavit of Zara Officer sworn 23 July 2010, the plaintiff did not accept this offer of settlement.

Offer of Compromise

8 On 29 July 2009, the solicitors for the defendant wrote to the solicitors for the plaintiff enclosing an offer of compromise.

9 The offer of compromise, which was made in accordance with the form prescribed by the Uniform Civil Procedure Rules 2005 (“UCPR”), r 20.26, included the following terms:

“1. In accordance with Uniform Civil Procedure Rules 2005 and particularly UCPR 20.26, the defendants offer the plaintiff:
(a) the sum of $500,000 exclusive of costs in full satisfaction of any claim the plaintiff may have against the defendants.
(b) costs as agreed or assessed.
2. The offer remains open for 28 days from the date of this notice in accordance with rule 20.26(7).”

10 Ms Officer in her affidavit sworn 23 July 2010 deposes to the fact that the letter and offer of compromise was sent by facsimile to the plaintiff’s solicitor on 29 July 2009. She also deposes to the fact that the plaintiff did not accept the offer of compromise.

Calderbank Offer – Legal Principles

11 The making of favourable costs orders where a Calderbank offer has been made is underpinned by public policy considerations, including providing an incentive for the disputants to end their litigation as soon as possible, and discouraging wasteful and unreasonable behaviour by litigants: Leichhardt Municipal Council v Green [2004] NSWCA 341 per Santow JA at [14]; Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322; Commonwealth of Australia v Gretton [2008] NSWCA 117 at [41]-[42].

12 The public policy in encouraging settlement also finds statutory encouragement: see Civil Procedure Act 2005, s 56. Section 131 of the Evidence Act 1995 provides a statutory basis for the receipt of Calderbank offers into evidence.

13 The making of a Calderbank offer does not automatically result in a favourable costs order, even if the judgment is more favourable to the party making the offer than the terms of the offer. Rather, it is a question of whether the offeree’s failure to accept the offer, in all of the circumstances, warrants departure from the ordinary rule as to costs, and the mere fact that the offeree ends up worse off, than if the offer had been accepted, does not of itself warrant departure from the ordinary rule: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] per Giles JA; Jones v Bradley (No. 2) [2003] NSWCA 258 at [8].

Calderbank Offer - Discernment

14 The Calderbank offer made by the defendant was only marginally better than the result which ensued because the defendant offered to pay the plaintiff’s party and party costs up to the date of the Calderbank offer.

15 However, the issue posed for determination is not whether this represented a compromise, as clearly it did, but rather whether it was unreasonable for the plaintiff to have refused to accept this offer.

16 I have no specific evidence on this issue from the plaintiff, however, the plaintiff’s claim was, as I have found, a substantial one with respect to the quantum of damages. I have found that had I awarded damages, the plaintiff would have obtained a judgment in the order of $1.3M.

17 Accordingly, the Calderbank offer presented to the plaintiff was one in which he would obtain no damages, but his legal fees would be paid. In other words, he was being called upon to forego an opportunity to recover damages of $1.3M, without receiving any money for himself at all.

18 In January 2008, when the Calderbank offer was made, the defendant in his letter drew attention to, and relied upon an expert report of Mr Bulgin. That expert report was not tendered in evidence in the principal proceedings nor on this application. Accordingly, I do not know with clarity what opinions were expressed by Mr Bulgin.

19 However, to the extent that it is possible to glean the opinion of Mr Bulgin from the correspondence, it does not appear to differ in substance from the view expressed by Mr Nicholson, the expert retained by the plaintiff, in his report of 5 November 2006, which was Ex H in the principal proceedings.

20 As my judgment in the principal proceedings shows, there were a number of complex issues thrown up by the plaintiff’s claim which were far more extensive than the expert’s opinion about whether the structural defect which led to the plaintiff’s accident was observable. Those issues included the nature and extent of the defendant’s skill and experience as a painter and decorator, when and in what circumstances the defendant took possession of the property where the accident happened, what conversations occurred before and after the plaintiff’s accident and what particular knowledge the defendant had of the stability of the front skillion roof.

21 The letter containing the Calderbank offer did not address these issues.

22 Whilst, as I have indicated above, the offer was a compromise, it was one which was well in the defendant’s favour. I would describe it as one which contained little, if any, element in the plaintiff’s personal favour.

23 As well, I do not know what arrangements existed in any costs agreement between the plaintiff and his solicitors. If the costs agreement was one which contained elements of a “no win - no pay” contract, then an offer to pay the plaintiff nothing but to pay his solicitors their costs was of no benefit to him at all.

24 Having regard to all the matters to which I have just referred, I am not persuaded that it was unreasonable for the plaintiff at that time to have rejected the offer.

25 In those circumstances, I do not propose to make an order for indemnity costs from 14 January 2008 based on this Calderbank offer.

Offer of Compromise – Legal Principles

26 The offer of compromise made on 29 July 2009 complied with the UCPR, r 20.26.

27 Accordingly, as provided for by r 42.15A, the defendant is entitled to indemnity costs from that date onwards, unless the Court otherwise orders.

28 Any order for costs is in the discretion of the Court, but if, in the context of the application of r 42.15A, the plaintiff (ie the disappointed offeree) wishes the Court to “… otherwise order …”, then he bears the onus of persuading the Court why that should happen: Shellharbour City Council v Johnson [No.2] (2006) 67 NSWLR 308 at [19] per Hunt AJA.

29 In considering whether to “…otherwise order …” the purpose and intent of the rule ought to be borne in mind: Maitland Hospital v Fisher [No.2] (1992) 27 NSWLR 721 at 725-726. The purpose of the rule is to encourage the proper compromise of litigation in both the private interests of the parties and the public interest in the prompt resolution of litigation.

30 Ordinarily, the successful party has a right, or else a legitimate expectation that it will have the benefit of the costs order provided by the Rule: Hillier v Sheather (1995) 36 NSWLR 414 at 422; Morgan v Johnson (1998) 44 NSWLR 578 at 581F, per Mason P.

31 Authorities dealing with similar costs rules in the Federal Court of Australia and the District Court of NSW have said that “compelling and exceptional” circumstances, or else “exceptional” circumstances must be present before the Court “otherwise orders”: Wills v Bigmac Pty Ltd & Anor (Federal Court of Australia, Heerey J, 9 December 1994, unreported);. Hillier at 422E per Kirby .

32 Whether exceptional circumstances are required as a matter of principle is not finally determined with respect to UCPR, r 42.15A. For my part, I think that the requirement of exceptional circumstances is a valid and legitimate requirement, having regard to the purpose of the rule and the underlying public interests. I agree with the view of Hoeben J that exceptional circumstances are required: Melchior & Ors v Sydney Adventist Hospital & Anor [2009] NSWSC 65 at [15].

Offer of Compromise - Discernment

33 However, in this case, there is no need for me to identify whether such circumstances as exist are exceptional. That is because none of the circumstances of which the Court is aware would justify the exercise of the discretion to “otherwise order”, on any basis at all.

34 The plaintiff was at all relevant times advised by solicitors who were experienced in the type of case which he was bringing. A previous offer, the Calderbank offer of 14 January 2008, had been made, and I infer, considered before being allowed to lapse. The 2009 offer of compromise was for a reasonable sum of damages ($500,000) and, as well, payment of his legal costs.

35 Clearly, the offer of compromise was one which represented a genuine compromise and was considerably more favourable to the plaintiff than the result which he obtained upon judgment.

36 The offer was made at a time before the proceedings were fixed for hearing and about 12 months before the hearing. There was more than adequate time, without the pressure of an imminent hearing, for the offer to be given careful and serious consideration, which its terms required.

37 As well, the absence of any specific facts, matters and circumstances being drawn to my attention by the plaintiff by way of evidence or submissions, enable me to more comfortably conclude that there are no relevant facts or matters, of which the Court is presently unaware, which ought to be taken into consideration.

38 Accordingly, I conclude that there is no basis, within the meaning of r 42.15A for the Court to “… otherwise order …”.

Orders

(1) Vacate order 2 made on 16 July 2010.

(2) Order that the plaintiff pay the defendant’s costs assessed on the ordinary basis up to and including 29 July 2009.

(3) Order that the plaintiff pay the defendant’s costs, including the costs of this application, assessed on an indemnity basis from 30 July 2009.

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