Manly Council v Bryne (No 2)

NEW SOUTH WALES COURT OF APPEAL

CITATION: Manly Council v Bryne and Anor (No. 2) [2004] NSWCA 227

FILE NUMBER(S):
40449/03

HEARING DATE(S): Written submissions in chambers

JUDGMENT DATE: 27/07/2004

PARTIES:
Manly Council - Appellant
Brooke Byrne by her next friend Michael Byrne - First Respondent
Ken Taylor as Representative of the Members and Office Holders of the Manly Water Polo Club - Second Respondent

JUDGMENT OF: Beazley JA Pearlman AJA Campbell J

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): 4307/02

LOWER COURT JUDICIAL OFFICER: Garling DCJ

COUNSEL:
R S Sheldon - Appellant
M L Williams SC, S W Davis - First Respondent
A B Parker - Second Respondent

SOLICITORS:
Phillips Fox - Appellant
McCabe Terrill Lawyers - First Respondent
Curwood & Partners Solicitors - Second Respondent

CATCHWORDS:
PROCEDURE - costs - in proceedings in the Court of Appeal, notice of compromise served offering to accept the same number of dollars as awarded in Court below - effect of offer of compromise is to offer to forego interest - whether indemnity costs to be ordered - manner of operation of Part 52A rule 22(4) Supreme Court Rules - whether the offer involved a real compromise

LEGISLATION CITED:
Supreme Court Rules

DECISION:
Indemnity costs ordered

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40449/03
DC 4307/02
BEAZLEY JA
PEARLMAN AJA
CAMPBELL J
27 JULY 2004

MANLY COUNCIL v BYRNE & ANOR (NO. 2)

Judgment

BEAZLEY JA: I agree with Campbell J.
PEARLMAN AJA: I also agree with Campbell J.
CAMPBELL J: Judgment was given in this matter on 9 June 2004: Manly Council v Byrne & Anor [2004] NSWCA 123. The first respondent, Ms Byrne, had sued Manly Council in the District Court concerning an injury she had sustained at a swimming pool run by the Council. The District Court judge gave judgment on 15 May 2003, in which he held the Council liable for the tort of negligence, assessed damages, and reduced the plaintiff’s damages by 15% by reason of the plaintiff’s contributory negligence. In the result, the plaintiff received a judgment in the District Court for $431,288 plus costs.
The Council’s appeal was wholly unsuccessful, and on 9 June 2004 it was dismissed. At the time of handing down the judgment, the First Respondent indicated her desire to place evidence and submissions before the Court concerning costs. Consequently, no costs orders were made on the day the judgment was handed down.
The First Respondent has now demonstrated that on 3 July 2003 her solicitors sent to the solicitors for the Council an offer of compromise which stated:
“The First Respondent offers to settle this claim on a compromise basis as follows:-
1.Verdict and judgment for the First Respondent in the sum of $431,288 plus costs.
2.The Appellant to pay the First Respondent’s costs as agreed.
3. This offer shall remain open for 28 days.”
That offer was not actually received by the solicitors for the Council until 10 July 2003.
Part 22 rule 1A Supreme Court Rules provides:
“(1)An offer of compromise is made to a party under this Division by serving a notice of the offer on the party.
(2) A notice of offer shall—
(a)be prepared in accordance with Part 65 rules 1–4;
(b)bear a statement to the effect that the offer is made in accordance with this Division; and
(c)where the offeror has made or been ordered to make an interim payment referred to in Division 2 of Part 5 of the Act to the offeree, state whether or not the offer is in addition to the payment so made or ordered.”
Part 65 rules 1-4 are rules which set out the requirements for formatting of any document filed in court proceedings. The undemanding requirements of Part 22 rule 1A(2) are intended to remind the recipient of a notice of offer that it is a formal document under the Court’s Rules, which can have consequences pursuant to those Rules. No submission is made that those formal requirements have not been complied with in the present case.
It would have been clearer if the second clause of the offer of compromise had stated expressly that the appellant pay the First Respondent’s costs of the appeal “as assessed or agreed”, but no complaint is made about that, and in any event the offer should be construed as one to pay the First Respondent’s costs of the appeal as assessed or agreed.
Part 52A Supreme Court Rules deals with the costs consequences of offers of compromise. Part 52A rule 22(4) provides:
“Where an offer is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall, subject to rule 33, be entitled to an order against the defendant for the plaintiff's costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to his costs incurred before and on that day, assessed on a party and party basis.”
In the present case rule 33 has no application.
Part 52A rule 22(4) operates by a two stage process. The first stage involves enquiring whether the offer which has been made is an "offer of compromise" at all, within the meaning of the Rules. This depends in part on whether it satisfies the formal requirements laid down by Part 22 rule 1A(2). It also depends in part on whether the offer which is then made is one which can truly be called a "compromise". If it is decided that the offer which is made is an "offer of compromise" within the meaning of the Rules, then Part 52A rule 22(4) operates to establish a “default” position, that, if the plaintiff obtains a judgment no less favourable than that which the plaintiff had offered to accept, then indemnity costs would follow. It is here that the second stage of the process arises, in that the court can "otherwise order". The court will "otherwise order" when it is persuaded that is appropriate, in the interests of justice, that the "default" position ought not apply.
The court will apply Part 52A rule 22 bearing in the mind that an award of costs on an indemnity basis is compensatory, not penal: Marsland v Andjelic (No 2) (1993) 32 NSWLR 649 at 654.
In Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 this Court held that Part 52 rule 17 of the Rules (which was in terms not materially different to Part 52A rule 22) applied in the Court of Appeal. That case also held that in its application to the Court of Appeal the word “plaintiff” referred to the person who had been the plaintiff in the court below, and “defendant” referred to a person who had been a defendant in the court below. That decision continues to apply in relation to the present Part 52A rule 22.
In Tickell v Trifleska Pty Ltd and Another (1990) 25 NSWLR 353 Rogers CJ Comm D said that the purpose of the then-new Part 22 of the Rules was (at 355) “to make it easier for parties to come to a true compromise of the dispute between them.” His Honour pointed out, unlike the previous procedure of payment into court, the new rules made it possible for a plaintiff to make an offer of compromise. Further, new rules concerning costs gave an,
“added inducement … to a plaintiff to make an appropriate offer of compromise. The plaintiff became entitled, as of right, unless the Court made a contrary order, in circumstances where the plaintiff obtained a result no less favourable than the subject of the offer of compromise, to be paid his or her or its costs on an indemnity basis. It must be clear that the inducement which that basis of costs assessment held out was designed so as to ensure that the actual offers made were fair and reasonable and reflected, not the best result that the plaintiff could hope to obtain if everything fell its way, but, rather, a realistic assessment of what, in the circumstances, represented a fair and proper compromise.
Unless circumstances are wholly exceptional a demand for payment to the plaintiff of everything, to which it may possibly be entitled, hardly falls in the category of the compromise. …
It was never in the minds of the draftsmen of the rule, or the members of the Rule Committee responsible for the passing of this rule, that Pt 22 should be utilised simply as a statutory demand which, other circumstances being equal, will automatically entail the payment of costs on an indemnity basis.”
To similar effect, Giles J in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368 said:
“… the scheme for offers of compromise and their cost consequences was intended to promote compromise … Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so.”
In Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 the Court of Appeal (Kirby P, Mahoney JA and Samuels A-JA) considered a case where a plaintiff in a personal injuries action had been awarded $206,090 plus costs by the trial judge. When the defendant appealed the plaintiff made an offer of compromise to accept $200,000 together with costs of both the trial and the appeal. The appeal was dismissed. The Court made an order for the respondent to receive indemnity costs of the appeal, saying (at 725):
“Although the amount of the deficit [ie the discount of $6,090 which the offer of compromise showed the plaintiff was willing to accept] is small, being only 2.5% of the judgment sum, it is real and not trivial or contemptuous. For a person in the position of the respondent, who was a kitchen maid when injured in the service of the appellant, $6,090 is a real sum. Furthermore, the respondent would have been advised (correctly in the event) that she stood very little chance of losing her judgment in the appeal.”
In Forbes Services Memorial Club Ltd v Hodge (unreported, NSWCA, Kirby P, Priestley and Cole JJA, 8 March 1995,) the Court of Appeal dealt with a personal injuries case where the plaintiff had recovered a verdict of $30,129.24 in the court below. When the defendant appealed the plaintiff made an offer of compromise of $30,000. Kirby P (with whom Priestley and Cole JJA agreed) granted the application of the plaintiff/respondent for indemnity costs. Kirby P said, at 14 that:
“… the amount of a ‘compromise’ that will be relevant to a particular case will depend upon the prospects of a party’s succeeding or failing in the appeal. It would be difficult for this Court to establish a clear principle consistent with the purpose of the rule, which required in every case an exact elucidation by this Court of the prospects of the appeal, viewed before its determination. It would be difficult for the Court to decide whether, in a particular case, the offer was a genuine one or whether it amounted to a “real” compromise or not. In appropriate cases this could be determined, as it was in Tickell. However, for the operation of the rule, it would appear that the principle contemplates that so long as some actual offer of compromise, short of the full amount payable under the order under appeal [is made], the rule will apply.
When I turn to the present case it does not seem to me that the prospect of the respondent’s losing the judgment which she secured by the order of Madgwick DCJ, viewed prospectively without benefit of the determination of this Court, were very large. It was therefore reasonable in the case that the respondent should make an offer of compromise which reflected that assessment, now confirmed. The respondent, as the evidence in the appeal demonstrated, is a woman of modest means. The offer of compromise was doubtless made with a view to ensuring that she would be protected, as the rule now permits, against those costs which are not recoverable on a party and party basis. The making of offers of compromise has, as this Court has said in earlier cases, become part of the prudent conduct of litigation, in contemporary circumstances.
In Connor v Hatgis (No 2) (unreported, NSWCA, Kirby P, Priestley and Powell JJA, 7 December 1995) Kirby P. and Priestley JA said, at 2:
"… it will often be the case that the indemnity cost rule will apply to offers close to the sum eventually recovered. The policy behind the rule is to ensure that parties give full and realistic consideration to offers to compromise litigation. Had the respondent’s offer... been accepted by the appellant a great deal of public and private cost would have been obviated, as events have demonstrated. To refuse the application of the prima facie rule would be to undermine the achievement of the objects of the rule and to send an undesirable signal as to the way in which the rule should be administered."
In the present case the appellant submits that no order for indemnity costs should be made, because there is no real compromise involved in the plaintiff’s offer. To that, the plaintiff says that there was a genuine compromise involved, because the offer involved foregoing interest on the judgment. If the offer had been accepted on 10 August 2003, the First Respondent would have foregone 79 days of interest at the prescribed rate of 9% per annum. This would have amounted to the First Respondent foregoing $8,401.
Whether an offer is really a “compromise” does not depend on whether the offer is to accept a judgment which is a likely, or even a possible, order that the Court could make if the litigation went to finality. This is shown by the fact that even if the appeal had only been as to liability, with no challenge to the percentage of contributory negligence found by the trial judge, it is still possible for there to be a real compromise if a respondent agrees to accept less than the amount awarded by the judgment of the Court below, and the amount the respondent agrees to forego is not token or nominal.
As Maitland Hospital v Fisher (No 2) and Forbes Services Memorial Club Ltd v Hodge both show, the means of the respondent is a relevant matter to take into account in deciding whether a compromise is a real one. In the present case, the First Respondent is either still at school, or has only recently left school, and there is no reason to believe that she has any means of significance. The prospects of success on the appeal, so far as they can be assessed in advance, are also relevant. Viewed prospectively, her prospects of success on the appeal were always fairly good.
The “discount” of $8,401 which the First Respondent would have accepted, had the offer of compromise been accepted on the first possible day when it could have been accepted, itself involves a real compromise. However, the appropriate test is whether the offer of compromise is a real compromise. Under Part 22 rule 3 an offer can be accepted within the time that the offer itself states it is open to be accepted, but that time is not permitted to be less than 28 days after the offer is made. Thus, if the Council had accepted the offer on the last day it was open for acceptance, the amount of the “discount” would have been even greater than $8,401. The offer, having within in it the potential for the First Respondent to give up more than $8,401, is properly characterised as a real compromise.

No submission was made that this is an appropriate case to “otherwise order”.
For these reasons, there should be an order for indemnity costs in favour of the First Respondent, from the date on which the offer was made. The First Respondent accepts (correctly) that an offer is not “made” within the meaning of Part 52A rule 22(4) until it is actually received by the party to whom it is made.
The appeal against the judgment in favour of the Second Respondent was dismissed, but the Second Respondent made no application for any special costs order. The Second Respondent should have his costs of the appeal on the usual basis.
The orders I propose are:
(1)Appellant to pay costs of the First Respondent of the appeal, with those costs from 10 July 2003 assessed on an indemnity basis;
(2)Appellant to pay costs of the Second Respondent of the appeal.

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LAST UPDATED: 28/07/2004

[2004] NSWCA 227

27 July 2004