McEwen & Anor v Morris

[2006] HCATrans 56

[2006] HCATrans 056

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A42 of 2005

B e t w e e n -

PAUL McEWEN

First Applicant

NATSAR INVESTMENTS PTY LTD

Second Applicant

and

ANDREW FRANKLIN MORRIS

Respondent

Application for special leave to appeal

GUMMOW J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

FROM ADELAIDE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 10 FEBRUARY 2006, AT 1.26 PM

Copyright in the High Court of Australia

MR A.R. HARRIS, QC:   If the Court pleases, I appear with my learned friend, MR T.W. COX, for the applicants.  (instructed by Corsers)

MR R.R. SCHROEDER:   If the Court pleases, I appear for the respondent.  (instructed by Cosoff Cudmore Knox)

GUMMOW J:   Why should we get involved in the Calderbank dispute?

MR HARRIS:   Your Honour, Calderbank disputes happen regularly in courts.

GUMMOW J:   I know.

MR HARRIS:   Well, with respect, what we have here is a question of dealing with the interaction between a rules-based framework for offers of compromise and the common law framework by way of Calderbank offers and how they relate to one another.  While it is true to say that procedural rules in each of the jurisdictions in Australia differ in relation to offers of compromise in their specific terms, your Honours, they all operate in the same way and for the same evident purpose.  They have been described as operating as a carrot and stick approach to litigation, the carrot being to encourage litigants who make early and reasonable offers of compromise to the prospect that they will receive ‑ ‑ ‑

GUMMOW J:   What do you say about the point made by Justice Debelle at page 94, line 15, a party who does not observe discovery requirements where there is “a material bearing on the result” cannot benefit from a Calderbank offer?  I know the other judges did not deal with that point.

MR HARRIS:   Well, Justice Besanko did, who was in the dissent, your Honour.  His Honour considered the question of whether or not the discovery issues relevantly disentitled the applicants from reliance on the Calderbank offer and his Honour reasoned to the end that they did not.  Justice White did not deal with it at all and Justice Besanko was of the view that the discovery that was being referred to related to matters of expenditure over one of the projects, some aspects of which must have been known to the respondent, things like the cost of paying the regulatory authorities and stamp duties, et cetera, which he must have known had been paid and for which credit had not been given.  So, whilst there had not been the attainment of perfection in litigation, as was referred to earlier on a reference to discovery, Justice Besanko was of the view that that did not disentitle the applicants in relation to the Calderbank, despite Justice Debelle’s view to the contrary.  So one all, with Justice White not deciding, if your Honour pleases, and we say that Justice Besanko, with respect, was correct.

Justice Debelle, if I might just take up page 94 of the application book, in the last paragraph expressed a view that there was a real question about whether or not:

the time has come for a review of the interaction between a Calderbank letter and rules of court such as Rule 40 –

His Honour expressed a view that it was undesirable to have two differing regimes.

GUMMOW J:   I think they have to sort that out in South Australia.

MR HARRIS:   Your Honour, the issue needs to be sorted out, with respect, across every jurisdiction in Australia because, as I said, although the individual rules of court which produce presumptive entitlements to special costs orders if they are not met and the less formal Calderbank offer procedure being a creature of the common law where it is but one factor in the exercise of general discretion on cost, those two frameworks, if I could describe them that way, are complementary to one another and not in conflict with each other, which is the view expressed by Justice Debelle.  Your Honours, so understood, the complementary operation of a rules‑based offer and a Calderbank offer advances the underlying purpose for the existence of both of them and that is the timely and reasonable disposition of litigation without the need for going to trial and without the attendant cost and demand on public resources.

If I could just ask your Honours to note our summary of argument commences at page 129 and we set out as a footnote to paragraph 26 – and this is on page 136 – a raft of cases to which you will be pleased I do not intend to refer, which simply underscore the fact that the complementary nature of the common law Calderbank framework wrapping around the rules‑based presumptive entitlement in each jurisdiction is well recognised.  And what the Full Court ‑ ‑ ‑

GUMMOW J:   It is said against you at page 152 that there was no argument below as to rule 101.02A, is that right?

MR HARRIS:   There was a reference before the trial judge in the District Court when his Honour made the original order exercising the discretion in favour of the defendant in depriving the plaintiff of costs and ordering them in favour of the applicants, but it was not argued in any detail at first instance and it was not referred to in the Full Court except as their Honours were leaving the bench having delivered judgment.  And I think argument would be overstating it, your Honour.  I raised it and it was not ‑ ‑ ‑

GUMMOW J:   Well, that is what I mean when I say these things have to be sorted out in South Australia on an appropriate occasion in South Australia.

MR HARRIS:   Your Honour, could I just move the rule 102 issue, which is a jurisdictional limit issue, to one side.  The way Calderbank offers and rules‑based offers work around Australia is perhaps best described by the New South Wales Court of Appeal in Jones v Bradley (No 2), which I do want to go to briefly, if I may.  That is case No 3 on our list and, your Honours, if I could just pick up three passages in the judgment of the Court of Appeal commencing at paragraph [8].  Your Honours may recall there has been some debate in the cases in various of the jurisdictions about whether or not Calderbank offers produce presumptive entitlements in the same way as rules‑based offers.  Justice Besanko deals with that in…..case and the Court of Appeal in Jones v Bradley did so as well.

In paragraph [8] the Court refers to a passage in the judgment of Justice of Appeal Giles in SMEC, which I will not read, but their Honours then go on to say that that approach is the approach that should apply in New South Wales, and Justice Besanko, with whom Justice White agreed, was of the same mind, and that is in summary this.  Where there is a rules‑based offer which is made which is not met, there is a presumptive outcome in terms of the special costs order by way of the carrot and stick.  In relation to Calderbank offers, they are but one factor to take into account in the general exercise of the discretion on costs.  The reason why Jones v Bradley is of some importance in this case both as to its facts and also as to the principle to which refers, your Honour, is this.  That was a case where, under the relevant rules of the District Court in New South Wales, the rules offer which needed to be filed had to be kept open for 28 days.  The offer that was actually made both during the trial and then on appeal ‑ ‑ ‑

GUMMOW J:   This was much shorter, was it not?

MR HARRIS:   Very much shorter, your Honour.  In relation to the trial itself, a matter of a couple of days and in relation to the appeal, in practical terms because of the Christmas break, I think five working days.  And what was said was that that is unfair because the plaintiff does not have the opportunity of reflecting adequately and considering his or her position for the purpose of coming to a decision about whether or not to accept it.  Can I just take the Court without reading it - paragraph [11] summarises the effect of the relevant rule.  Paragraph [12] makes reference to a decision of Justice Badgery-Parker called De la Blanca and goes on to say, and I am reading towards the bottom of that paragraph, that his Honour:

postulated that there were two possible advantages in the defendant in that case having made that offer rather than an Offer of Compromise under the Rules of Court.  One was to exert pressure by having a shortened time in which the offer was to be accepted.  The other was to protect itself should there be “some apparent change in the forensic balance”. 

Their Honours then went on in paragraph [13] in Jones to deal directly with the question of a non‑conforming Calderbank letter in the sense of a shorter time pressure being put on the offeree, and their Honours said:

Whilst both parties submitted that it is relevant for the Court to consider the provisions of the various Rules of Court concerning Offers of Compromise when exercising its discretion in awarding costs in a situation where a Calderbank offer has been made, the Court’s discretion is not constrained by those Rules.  Accordingly, when considering whether the time in which a Calderbank offer must be accepted is reasonable, it is necessary to look at all the circumstances surrounding the making of the offer.

And just briefly, at the bottom of the page - as I said, in Jones there were two offers, one at trial and one on appeal.  There is ‑ ‑ ‑

GUMMOW J:   Can I just take you away from that minutiae of another case.  What do you say about the draft notice of contention at 154?

MR HARRIS:   Well, we say, your Honour, that the draft notice ‑ ‑ ‑

GUMMOW J:   One of them at 5 is the discovery point I took up with you.

MR HARRIS:   We say the broad complaint in the notice of contention is that there were at least two grounds of appeal not dealt with by the Full Court.  In the event that, as we hope to demonstrate shortly, the error of the Full Court both in terms of the question of limiting the flexible approach of Calderbank offers by anchoring them to the language of the rule is an error, we submit, of principle and makes this Court and the law in South Australia inconsistent with the law in every other jurisdiction in Australia, as identified by way of example in Jones v Bradley. 

Bearing in mind the Full Court were as interfering in the exercise of discretion by the trial judge on costs, an unusual event in any event, the Full Court, we submit, fell into error by requiring the Calderbank offer to be no more onerous than the language of the rules.  I will come to the passage in Justice White where his Honour held that that was a disentitling feature and an error in the exercise of the discretion by the judge to have regard to a Calderbank offer which had a timeframe which was shorter than that which was provided by the rules.  Now, we submit that that is an error and we identify the other errors in our outline.  Any of the other grounds sought to be agitated in the draft notice of contention should be the subject of a remit to the Full Court to hear and determine the argument, because they have not been the subject of a pronouncement by the Full Court.  So, your Honours, in relation to the notice of contention, that does not, in our submission, make this a less attractive vehicle for the elucidation of the point of principle. 

Could I just take your Honours to Justice White’s judgment which is to be found, the relevant passage of it, at page 114 of the application book.  Justice White referred to an earlier decision of the Full Court in Pirrotta and set out a passage from Pirrotta.  Now, Pirrotta used language of requiring a Calderbank letter to be framed in terms which are consistent with the spirit and intent of rule 41, which is the plaintiffs’ equivalent of an offer of compromise.  But this case went further, and Justice White went further, Justice Debelle agreeing with him.  His Honour said at paragraph 74:

The first matter lends support to the view . . . The second matter suggests that there are some limitations on the circumstances in which it will be appropriate to attach any weight to a Calderbank letter.  It suggests that in order for effect to be given to a Calderbank letter, it should be framed in terms which are consistent with the spirit and intent of Rule 40.  In particular, for effect to be given to a Calderbank letter where an offer in accordance with the Rules of Court could have been lodged, the Calderbank letter should not impose more onerous obligations on the recipient than would an offer filed in accordance with the Rules.

Now, your Honours, the consequence of that is to remove the flexibility in Calderbank offers as they are recognised and were recognised by the New South Wales Court of Appeal in Jones v Bradley and that is that where you have a rules‑based system of presumptive entitlements which is going to cover every case, one must particularly have in mind litigants who might be in unequal bargaining positions in litigation - the individual plaintiff versus the large company.  And one can understand why the rules‑based requirements would then have, as rule 40 does in South Australia, and in varying degrees the other rules around the country, a long lag time in which plaintiffs can reflect on their position and not be put under pressure to decide whether or not they will or will not accept the offer.  All of that is understandable in the rule that has to cover every situation.  But, your Honours, if Calderbank ‑ ‑ ‑

GUMMOW J:   The Calderbank Case itself, does anyone ever read that?

MR HARRIS:   I reflected on that last night, your Honour, having not read it in the last short while, but Calderbank is a Family Court case.

GUMMOW J:   But all I am saying to you is it took place, I think, in the context of the English Rules of the Supreme Court of 1965, did it not?

MR HARRIS:   And relating to payment in and payment out, your Honour, yes.  But the point I was really wanting to come to is this.

GUMMOW J:   It did not sort of spring out of the common law.

MR HARRIS:   No, but, your Honour, what has happened through the course of ‑ ‑ ‑

GUMMOW J:   Unattached to a rule system.

MR HARRIS:   I understand that, but it has a life of its own now recognised in every jurisdiction in the country and for a very good reason.  If you have experienced commercial litigants dealing with one another, not the unequal bargaining position where time pressure or tactical pressure might be inappropriate, there are many cases where, particularly with experienced commercial litigants, one should never make any apology about putting a time pressure on one’s opponent in litigation, and to do that is in no way unreasonable depending on the circumstances of the case.  If that promotes people making a realistic assessment of their options at trial and causing them to, by reason of the carrot and stick, compromise a case that they should have compromised early, that advances the underlying purpose of either rules‑based offers or the Calderbank system. 

The Full Court’s current decision, in our submission, by fettering the discretion that is otherwise available in every jurisdiction in Australia to say that you cannot do anything particularly temporarily by way of time, which is more onerous than the rule, proffers rigidity rather than flexibility, will produce less settlements rather than more settlements and produce the reverse outcome to the underlying purpose for either Calderbank or the rules‑based system.  There are these days interstate litigation conducted every day of the week.  A situation would then apply potentially where one could imagine a solicitor in Sydney conducting a matter in Adelaide, possibly another one in Brisbane and wanting to have regard, perhaps even before proceedings were issued, because they were going to be suffering very substantial expert expenses or investigation costs or simply the cost of the lawyers, to actually want to make an offer early and make an offer by way of Calderbank letter by reason of the fact that no proceedings have been issued.

If the position is that the discretionary considerations which inform the operation of Calderbank letters change from jurisdiction to jurisdiction, more importantly, that in South Australia, unlike the Federal Court and every other State and Territory in Australia, it is elevated to the status of an

error of principle, an error in the exercise of a discretion to have regard to a Calderbank letter which is framed differently than the time requirements of the relevant procedural rule, that, in our submission, is highly undesirable and ought not to be the position that appertains.  That is inimical to efficient conduct of litigation across State boundaries.  Pointing out the remarks of Justice White with which Justice Debelle agreed at paragraph 74 and comparing those to the remarks of the Court of Appeal of New South Wales, identifies the difference.  The difference is that the system that we say operates and appropriately operates to advance the purposes for which both exist is one which promotes flexibility. 

What the Full Court did in this case was to, in effect, remove Calderbank offers from having any use in South Australia and potentially compromising cross-boundary litigation by parties wanting to have regard to the complementary and flexible system of Calderbank offers.  Your Honours, we have set out also in our outline our complaints in relation to the errors of the Full Court and also in relation to the events consequent upon the delivery of judgment and the purported re-exercise of the discretion about which we make complaint in paragraphs 35 and following in our outline, which is to the transcript of the proceedings before the Full Court when judgment was delivered is at page 82 of the application book. 

Shortly stated, the court having held, at paragraph 74, and again identified in Justice White’s judgment, that the Calderbank offer could not be more onerous than the rules‑based offer, the court purported then to exercise a discretion afresh and, with respect, did not.  It proceeded on the basis of the trial judge’s view of the world instead of having - if it was going to exercise the discretion afresh itself, it ought to have had all of the material which it required, which it did not, it ought to have had all of the submissions relevant to that issue, which it did not.  Your Honours, I do not go to it, but we set all of those complaints out commencing at paragraph 34 and – that is my time, if your Honours please.

GUMMOW J:   Thank you.  We do not need to call on you, Mr Schroeder.

We are not satisfied that there are sufficient prospects of success in demonstrating error in the reasoning of the majority of the South Australian Full Court in this matter.  We are further not satisfied that this would be an appropriate occasion, in any event, to consider the alleged questions of principle as to the interrelation between Calderbank offers and specific rules of court regimes.

Accordingly, special leave is refused with costs.

We will adjourn to reconstitute.

AT 1.49 PM THE MATTER WAS CONCLUDED