Morris v McEwen
[2005] SASC 284
•29 July 2005
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
MORRIS v MCEWEN & ANOR
Judgment of The Full Court
(The Honourable Justice Debelle, The Honourable Justice Besanko and The Honourable Justice White)
29 July 2005
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT - COSTS OF WHOLE ACTION - WHERE MONEY PAID INTO COURT OR OFFER OF COMPROMISE MADE - OFFER OF COMPROMISE MADE
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - CONDUCT OF PARTIES - DEMAND, OFFER AND CONSENT
Appeal against orders for costs following a trial in the District Court - judgment sum awarded to successful plaintiff less than amount offered by defendants in a Calderbank letter dated 1 May 2003 which was open for acceptance for seven days only - trial Judge ordered defendants to pay plaintiff's costs of action up to 15 May 2003 and plaintiff ordered to pay defendants' costs of action after 15 May 2003 - whether correct to give the defendants' Calderbank offer the same effect as an offer filed in accordance with Rule 40 - held that regard may be had to a Calderbank offer in the determination of the issue of costs even where a Rule 40 offer could have been lodged - held, by majority, for effect to be given to a Calderbank letter it should be framed in terms consistent with the spirit and intent of Rule 40 - defendants' Calderbank offer was couched in terms significantly different from those required for an offer lodged under Rule 40 - whether a party failing to observe the fundamental obligation of making adequate discovery can have the benefit of a Calderbank offer - the discretion by the trial Judge with respect to costs miscarried - trial Judge's orders for costs set aside - the plaintiff to have his costs of action taxed on the District Court scale - appeal allowed.
District Court Rules 1991 r 39, r 40, r 40.01, r 40.02, r 40.03, r 40.05, r 41, r 41.01, r 41.04, r 48.03(b), referred to.
Shaw v Jarldorn (1999) 76 SASR 28; Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149; Southern Resources Ltd & Ors v Residues Treatment and Trading Co Ltd & Ors (1991) 56 SASR 455; Pirrotta v Citibank Ltd & Ors (1998) 72 SASR 259; Bates v Nelson (1973) 6 SASR 149; Messiter v Hutchinson (1987) 10 NSWLR 525; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236; Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97, applied.
Calderbank v Calderbank [1975] 3 All ER 333; Garner v Cleggs [1983] 2 All ER 398; Fowdh v Fowdh (unreported, NSW Court of Appeal, Mahoney AP, 4 November 1993); Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (No 5) (2000) 19 NSWCCR 7; Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626, discussed.
House v The King (1936) 55 CLR 499; Re Vitch (No 2) (1988) 147 LSJS 279; Callaghan v Callaghan (No 2) (Unreported, Supreme Court of South Australia, Perry J, 3 May 1996, Jdgt S5562); Tsotsis v Khneiger and Khneiger (No 2) [2003] SADC 162, considered.
MORRIS v MCEWEN & ANOR
[2005] SASC 284Full Court: Debelle, Besanko and White JJ
DEBELLE J: I agree with the substance of the reasons of White J and his conclusion that this appeal should be allowed.
There is a further consideration which points to the conclusion that the appeal should be allowed. When the Calderbank offer was made, the plaintiff did not know that the expenses in respect of the Arthur Street property would total $18,105.95. The defendant had not made complete discovery of the documents which demonstrated the claim for those expenses. This information was not fully disclosed until the period between the two hearings. A party who does not observe an obligation as fundamental as making full discovery of documents and the failure to do so has a material bearing on the result cannot, in my view, have the benefits of a Calderbank offer. In this case the defendant was able to better the Calderbank offer only by mounting a case which was materially different from that indicated by the inadequate discovery: cf. Fowdh v Fowdh (unreported, NSW Court of Appeal, Mahoney AP, 4 November 1993); Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd(No 5) (2000) 19 NSWCCR 7. Although the plaintiff must have realised that expenses had been incurred in the development of the Arthur Street property, he did not know the full extent of those expenses. There was, in my view, such a material non‑disclosure that it disqualified the defendant from being able to rely on the Calderbank offer: Shaw v Jarldorn (1999) 76 SASR 28 per Doyle CJ at [8].
The judge below did not have regard to these factors which are relevant to the exercise of discretion as to costs. It is proper, therefore, for this Court to set aside his decision.
There is a real question whether the time has come for a review of the interaction between a Calderbank letter and rules of court such as Rule 40 of the Supreme Court Rules. It is undesirable to have two differing régimes.
I would allow the appeal.
BESANKO J: This is an appeal from orders made by a Judge of the District Court dealing with the costs of an action in that Court. The plaintiff is the appellant and on 14 September 2001 he commenced an action in the District Court against two defendants. The second defendant is a company owned and controlled by the first defendant. For the purposes of this appeal, it is sufficient to refer to the defendants as if there was only one defendant. The defendant filed a defence which included a claim for a set-off and a counterclaim. The claim and counterclaim proceeded to trial, and the effect of the Judge’s conclusions was that the plaintiff was entitled to a certain amount on the claim and the defendant was entitled to a certain amount on the counterclaim. The Judge offset the two amounts and entered judgment for the plaintiff for the sum of $12,837.12 which sum included an allowance for interest of $2,200. I will refer to this as “the balance judgment”. The Judge made an order dismissing the counterclaim of the defendant. The Judge made the following orders as to costs:
The defendants pay the plaintiff’s costs of action up to 15th May 2003 to be taxed on the District Court scale. The plaintiff pay the defendants’ costs of action after 15th May 2003 to be taxed on the District Court scale.
The relevance of the date, 15 May 2003, is that it is 14 days after a letter was sent by the solicitors for the defendant to the solicitors for the plaintiff offering to settle the claim and counterclaim on the basis of a payment to the plaintiff by the defendant of $20,000 in addition to costs on the appropriate scale to be agreed or taxed. The offer also provided that the counterclaim was to be discontinued with each party to bear their own costs.
It is the Judge’s orders as to costs which are the subject of the appeal by the plaintiff. It is convenient to continue to refer to the parties by reference to their status before the Judge.
It is trite to say that this Court is reluctant on appeal to interfere with the exercise of a discretion as to costs. The appeal is against the exercise of a discretion and the appellant must show that the exercise of discretion is so unreasonable or unjust as to require this Court to substitute its own discretionary order (Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149 per Brennan J (as he then was) at 176; Southern Resources Ltd & Ors v Residues Treatment and Trading Co Ltd & Ors (1990) 56 SASR 455 (per Jacobs ACJ, Prior and Mullighan JJ at 480). I need not pause to consider whether this is a more stringent test than that which normally governs an appeal against the exercise of a discretion (see House v The King (1936) 55 CLR 499; Pirrotta v Citibank Ltd (1998) 72 SASR 259) because on either view I am of the opinion that this appeal should be dismissed.
The nature of the plaintiff’s claim and the counterclaim
There was a commercial relationship between the plaintiff and the defendant from about May or June 2000 until April 2001. The precise nature of that relationship was in issue in the action. The commercial relationship involved the purchasing of a number of properties, their renovation and then resale at a profit. In broad terms, the defendant would secure the finance, both the defendant and the plaintiff would be involved in the routine work of redevelopment and the plaintiff would be responsible for selling the redeveloped units. The relationship came to an end in April 2001 and the parties were in dispute as to various matters including the basis upon which the plaintiff would be paid for the work he had performed. The plaintiff alleged that there was a joint venture agreement between himself and the defendant under which he would receive half the profits after the payment of certain expenses. He alleged that the joint venture agreement applied to the properties at the following addresses:
66 Milner Road, Richmond
317 Tapleys Hill Road, Seaton
152 Churchill Road, Prospect
36 Angwin Avenue, Blair Athol
21 Aroona Road, Kilkenny
104 Ledger Road, Woodville South
105 Ledger Road, Beverley
There was an eighth property at Arthur Street, Richmond, South Australia (“the Arthur Street property”) in respect of which the plaintiff alleged that it was agreed that he would develop the property for his own benefit and that the defendant had no rights in relation to the property other than to be paid an agreed sum of $10,000 for arranging finance.
In his Statement of Claim the plaintiff claimed the sum of $113,236.60 after making an allowance for the sum of $10,000, which he accepted he owed the defendant in relation to the development of the Arthur Street property.
In his Defence and Counterclaim the defendant alleged that in relation to the Arthur Street property the plaintiff was entitled to no more than a commission or, in the alternative, if a joint venture existed (which he denied) he was entitled to half the profit made on the sale of the property. The total profit realised on the sale of that property was said to be $120,000.
The Judge rejected the plaintiff’s claim that there was a joint venture and summarised his principal conclusions as follows:
1.In respect of Milner Road, the plaintiff is to be paid any amount outstanding when his fee is calculated at 50% of profits, less expenses, those expenses including advertising fees.
2.The plaintiff is to be paid on the same basis in respect of Angwin Avenue, Tapleys Hill Road and Churchill Road. Any costs for selling Unit 5, Churchill Road are to be charged as expenses of that project.
3.In respect of Aroona Road and 104 and 105 Ledger Road the plaintiff is to be paid a reasonable fee for any work he actually did.
4.In respect of Arthur Street, the plaintiff is to repay any of the money expended by the defendant which has not already been paid back and is to pay a reasonable fee for any work actually done by the defendant.
5. The plaintiff is to give credit for all amounts paid to him by the defendant.
6.The plaintiff is to account and give credit for all amounts paid to him as rent in any of the developments, other than Arthur Street. For the purposes of this calculation, I accept the evidence of the defendant that he has not been paid anything in respect of rent, either directly, or via the plaintiff. Such payments of rent are to be credited to the developments to which they relate. The plaintiff may retain any rent collected from Arthur Street.
The Judge was not impressed by the appellant as a witness. He said the respondent on the other hand “sounded reliable”. He said:
If decisions about whom to believe were to be made solely on the way in which each presented in the witness box, the case would be easy. The plaintiff was dogmatic, verbose, excitable, aggressive and prone to lengthy condemnations of anyone who appeared to have even the potential to disagree with him. As a lay description, he appeared rather paranoid. He was prone to reconstruction of what must have happened to suit his case. Particularly in cross-examination, he tended not to answer the question asked, preferring to give lengthy, self-justifying statements, apparently intended to forestall what he anticipated would be the next question.
The defendant appeared calm and careful. He sounded reliable. On these considerations alone, I would confidently prefer the evidence of the defendant. However, such appearances can be deceptive. Where possible, judgment should be made on a more objective basis.
At one point in his reasons the Judge said that the plaintiff had lied to him about the sequence of events in the course of the development of the property at 66 Milner Road, Richmond.
The Judge’s findings were such that in relation to the Arthur Street property the plaintiff was entitled to keep the profit made on the development subject to an obligation to repay any money expended by the defendant and an obligation to pay a reasonable fee for any work actually done by the defendant.
The Judge delivered his reasons containing his findings and the conclusions set out above referred on 26 March 2004. He said that he did not have sufficient information to calculate the payments necessary to “implement” his judgment. The Judge said:
I shall adjourn further consideration to enable the parties to attempt to do so. I express the hope that relatively broad axe calculations may show that amounts remaining in dispute do not justify the cost of precise proof and calculation. If either party wishes to address me on whether separate or different orders should be made in respect of each defendant, I will hear them.
A chartered accountant, Mr D Crase, was instructed (I think by the defendant but it does not matter for present purposes) to make the relevant calculations and he prepared a report in April 2004. As appears from the Judge’s principal conclusions, in relation to the Arthur Street property, the plaintiff was required to pay to the defendant a reasonable fee for any work actually done by the defendant. That matter could not be agreed between the parties and in late April, early May, 2004 there was a further hearing before the Judge where he heard argument as to that matter and three other matters where the parties could not agree. Ultimately, the Judge held that the defendant was entitled to an agreed fee of $10,000 for his work in respect of the Arthur Street property.
The plaintiff was also required to repay the defendant any monies the defendant had expended in relation to the Arthur Street property. The defendant put forward a claim for $18,105.95 and that was agreed to by the plaintiff without the need for further consideration by the Judge.
The parties then agreed upon a net figure in favour of the plaintiff of $10,637.12 representing, it seems, an allowance on the claim of $38,743.07 and an allowance on the counterclaim of $28,105.95. The sum allowed on the counterclaim is comprised of the two amounts relating to the Arthur Street property, being the agreed fee of $10,000 for work done and the sum of $18,105.95 for monies expended. In entering the balance judgment for the plaintiff for $10,637.12 and interest, the Judge offset the two amounts making it clear that he did so without prejudice to the submissions made by the parties with respect to costs.
The defendant’s offer
The defendant’s offer was set out in the letter from his solicitors to the plaintiff’s solicitors dated 1 May 2003 although it appears that the letter was not received by the plaintiff’s solicitors until 6 May 2003.
The letter is two and a half pages in length and contains a statement that the offer is the defendant’s only offer to finalise the matter. It sets out some views of the defendant’s solicitors as to the merits of claim and counterclaim. Under the heading “Risk and Resolution” the following appears:
4.2Accordingly, based on this analysis, we are instructed to make an offer of $20,000 on your clients (sic) claim in addition to costs on the appropriate scale to be agreed or taxed. The offer is open for 7 days. Our client will discontinue its counterclaim on the basis each party bear their own costs of the counterclaim and this forms part of the offer.
4.3Our client’s offer will not be restated and otherwise we will go to hearing. The offer will be referred to as to costs in accordance with the principles in Calderbank.
In the letter the defendant’s solicitors assert that it would be unlikely, if the Court found that there was a joint venture between the parties, that the Arthur Street would be excluded from its scope.
The plaintiff did not accept the defendant’s offer. Instead, by letter from his solicitors to the defendant’s solicitors dated 7 May 2003, he made a counteroffer to accept the sum of $50,000 with the defendant to pay the costs of both the claim and counterclaim. The plaintiff’s solicitors also made an observation about whether the plaintiff’s offer could have been filed as an offer under the rules of the District Court. The solicitors said:
We would have preferred to have prepared a formal offer to consent to judgment to be filed in the District Court, but there is doubt as to whether such a formal offer comes within the terms of the relevant rules, since it deals with both claim and counterclaim.
In due course, we propose to raise this offer in relation to the question of costs of the action, if appropriate. Save for this, the offer is made without prejudice.
The Judge’s reasons for the costs orders
The Judge’s reasons were delivered shortly after the submission concluded and they appear in the transcript.
It seems that the defendant applied for costs on a solicitor and client basis on the ground that the plaintiff had not bettered his offer of 1 May 2003 and had not succeeded in relation to a number of his claims. Reliance was also placed on the fact that the Judge had disbelieved the plaintiff on certain issues.
The Judge began by saying he had entered judgment for the plaintiff for a net amount and that if he had not proceeded in that way there would have been judgment on the claim for a much larger amount and judgment on the counterclaim for a certain amount. The Judge said that it was not a case in which the merits of the counterclaim were entirely lost and the merits of the claim were entirely established. The Judge noted that the form of the judgment was “without prejudice” to the submissions as to costs. It was clearly open to the Judge to enter judgment for the balance without that fact affecting his discretion as to costs (District Court Rules 1991 (“DCR”) r 48.03(b)).
The Judge noted that if the defendant had filed an offer to consent to judgment under r 40 of the DCR which was not accepted, the plaintiff would receive his costs up to 14 days from the filing of the offer and the defendant would receive his costs thereafter. The defendant’s offer by letter, referred to by the Judge as a Calderbank letter (Calderbank v Calderbank [1975] 3 All ER 333), did not (to use the Judge’s words) create as strong a presumption in the defendant’s favour. The Judge said that it was nevertheless an important matter to be considered in the exercise of the discretion. The Judge noted that a defendant who has filed an offer to consent to judgment under the rules of court will receive costs on a party and party basis, and that a defendant who has made a Calderbank offer should ordinarily be in no better position. The Judge said that it was permissible to consider the conduct of the case and the way in which issues in the case were decided.
The Judge dealt with a submission that no regard should be had to the Calderbank offer. The Judge rejected the submission that the letter was unclear and an offer under the rules of court should have been filed because that would have been clear. The Judge said that while it was true that the offer was only open for a short period of time the answer to that point was that the plaintiff put a counteroffer on 7 May 2003 and made no request for an extension of time within which to consider the defendant’s offer. The Judge referred to the letter from the plaintiff’s solicitors dated 7 May 2003 and then returned to the question of whether an offer to consent to judgment under the rules should have been filed. He referred to the letter from the plaintiff’s solicitors dated 7 May 2003 and said that they were right in saying it would have been difficult to formulate an offer in accordance with the rules of court.
The Judge reached the following conclusion:
As to whether the order should have been cast as a formal rules of court offer, I note that the counteroffer that I have just referred to was also by way of letter, in which there was reference to the difficulty of formulating an offer in strict accordance with the rules. I think that was right. It seems to me that if I am to give effect to the offer, it should be on the basis that absent other considerations, the plaintiff would receive his costs up to, say 14 days after the date of the offer and the defendant would receive his costs thereafter; that would be on a party-party basis. It would be similar to what would have occurred if an ordinary rules of court offer had been filed.
As to the defendant’s submission that not only should they get their costs because of the Calderbank offer but that those costs should be taxed on a solicitor and client basis, the Judge said the lies told by the plaintiff were to be considered in the context of very late discovery by the defendant of quite critical information. In the result he did not think there was anything in the case to cause him to depart from the view that the orders for costs should be made on a party and party basis.
Issues on Appeal
The DCR provide for payment into Court (r 39), the filing and serving of an offer to consent to judgment (r 40) and the filing and serving of an offer by the plaintiff to an action (r 41). Under r 40 if a defendant files an offer to consent to judgment and the plaintiff does not better the offer at trial, then, unless the Court otherwise orders, the defendant is entitled to his costs from 14 days after the filing of the offer. Under r 41, if a plaintiff files an offer and equals or betters it at trial, he is entitled to his costs of action on a solicitor and client basis unless the Court orders otherwise.
The Judge seems to have found that there would be difficulty in formulating an offer in strict accordance with the rules. There was little debate before this Court as to whether that conclusion is correct. That came about because the plaintiff did not argue that the Calderbank offer should be ignored if an offer could have been filed under the rules of court. In other words, the plaintiff did not argue that the Calderbank letter should only be a relevant consideration if it was difficult or impossible to file under the rules of court. I doubt whether the Judge’s conclusion that it would have been difficult to formulate an offer in strict accordance with the rules is correct. I note that under r 40.01 a defendant can file an offer for such relief as he contends is “sufficient to dispose of the whole action” and that in r 41.01(2) there is particular reference to giving credit for a set-off, counterclaim or cross-demand. However, I do not need to finally resolve this question because I am of the opinion that a Calderbank offer is a relevant consideration even if an offer could have been filed under the rules of court. It is true that there are cases where a court has said that the offeror faces a real difficulty in relying on a Calderbank offer in circumstances where an offer could have been filed under the rules of court (Re Vitch (No 2) (1988) 147 LSJS 279; Callaghan v Callaghan (No 2) (unreported, Supreme Court of South Australia, Perry J, 3 May 1996, jdgt S5562); Tsotsis v Khneiger and Khneiger (No 2) [2003] SADC 162). However, I prefer the view that, whether it be a plaintiff’s application for solicitor and client costs or a defendant’s application for costs after a certain date, the sending of a Calderbank letter is a relevant consideration even if an offer could have been filed under the rules of court. The fact that an offer could have been filed under the rules of court is a relevant, but not a disqualifying, factor. The recognition of a Calderbank letter in these circumstances is consistent with the Court’s desire to encourage the parties to settle their differences without the need for litigation. I do not think that this approach will mean that the rules of court will fall into disuse or that offerors will obtain an unfair advantage. A party who chooses a Calderbank offer over one made under the relevant rule of court takes the risk that he might not obtain the order for costs which he seeks for a reason that would not lead the Court to “order otherwise” under rr 40 and 41. While a Calderbank offer is a relevant consideration, it does not create a presumption in favour of the offeror. There is support in the authorities for the approach which I think should be taken (Bates v Nelson (1973) 6 SASR 149 per Mitchell J at 158; Messiter v Hutchinson (1987) 10 NSWLR 525; Pirrotta v Citibank Ltd & Ors (supra) per Debelle J at 262-267; G E Dal Pont, Law of Costs (2003) [13.20] and [13.24]).
The parties made informal offers to each other and they, or at least the plaintiff, believed that it would have been difficult to formulate an offer in strict accordance with the rules. Whether that was so or not, I do not believe that the Judge erred in proceeding on the basis that the Calderbank offer was a relevant consideration in the exercise of his discretion as to costs.
None of what I have said above should be taken as detracting from the proposition that a Calderbank letter should, as far as possible, follow the requirements of the rules of court (Pirrotta v Citibank Ltd & Ors (supra) per Debelle J at 267). In this case the Calderbank offer expired on 8 May 2003 and yet was only received by the offeree on 6 May 2003. In other circumstances that might have been a very good reason for putting no weight on the Calderbank letter. However, I am not persuaded that the Judge was wrong to put little or no weight on the limited time given to the plaintiff in circumstances in which the plaintiff was able to make a counteroffer on 7 May 2003.
I turn now to consider what were in essence the two principal submissions made by the plaintiff on the appeal.
The plaintiff’s first submission was not easy to follow but I think was to the following effect. The Judge should have awarded the plaintiff his costs on the counterclaim and, had he done so, the result at trial would have been better than the Calderbank offer and therefore the offer would have been irrelevant. If the Judge had not decided to enter judgment for the net figure, he would have entered judgment on the claim for $38,743.07 plus interest and judgment on the counterclaim for $28,105.95 plus interest. The plaintiff’s submission was that if the Judge had proceeded in that way and, leaving aside the effect of the Calderbank offer, the plaintiff would have been awarded costs on the claim, but the defendant would not have been awarded costs on the counterclaim. The plaintiff submitted that he was always prepared to give the defendant credit for the sum of $10,000 and that the liability for the sum of $18,105.95 was only discovered during the trial and, once discovered, was not contested by the plaintiff. The plaintiff submitted that the defendant failed on its pleaded counterclaim to the effect that if there was a joint venture the Arthur Street property was part of it and that in those circumstances the plaintiff should have been awarded his costs on the counterclaim. The plaintiff put forward an estimate of his costs on the counterclaim to 1 May 2003 of $15,422. That figure seems rather high but, for reasons I will give, it is not necessary for me to reach a concluded view on this point. The plaintiff then submitted that, had the Judge awarded costs on the counterclaim as he should have, the proper comparison for the purposes of comparing the Calderbank offer with the result at trial was that between the offer and the amount awarded, plus a figure of $15,422, representing costs on the counterclaim. Alternatively, in some way not explained it was said to be appropriate to view the Calderbank offer as one involving the sum stated of $20,000 less the sum of $15,422, being the plaintiff’s costs on the counterclaim.
I reject this submission. It is based on an analysis which is contrary to how the Judge proceeded. The Judge did not make an order for costs on the counterclaim, nor did he indicate the type of order he would have made had he considered it appropriate to make an order for costs on the claim and on the counterclaim. The short answer to the plaintiff’s submission is that I am not at all confident as to what would have been an appropriate order in terms of the costs of the counterclaim. It must be borne in mind that the plaintiff failed on a number of issues, including his allegation of a joint venture, and the Judge might have taken the view that the filing of a counterclaim, based on the assertion that if there was a joint venture (which was denied) then the Arthur Street property was part of it, was a reasonable course to adopt.
The plaintiff’s second submission has more substance. The plaintiff submitted that at the time of the Calderbank offer in May 2003, he did not know about the sum of $18,105.95, which was part of the defendant’s notionally successful counterclaim at trial, nor could he reasonably be expected to have known. The argument was that if the Court notionally excludes that sum and compares the result of the trial with the Calderbank offer, the balance judgment in favour of the plaintiff would have been in the order of $28,000 which is well in excess of the defendant’s offer of $20,000. Although the Judge does not deal with this submission in his reasons, it is clear from the submissions that it was put to him.
To properly consider the submission it is necessary to say a little more about the development of the Arthur Street property. The Arthur Street property was the eighth property and in his pleadings the plaintiff alleged that initially it was part of the joint venture agreement but that position changed and it was agreed that the plaintiff would develop the property and pay $10,000 for the defendant’s services of introducing a financier willing to lend to the plaintiff. As I have said, the plaintiff accepted that $10,000 was owing in respect of the development and he made no claim in relation to the Arthur Street property. The defendant’s defence and counterclaim in relation to the Arthur Street property are not as clear as they might be, but it seems that the defendant pleaded that he was to develop the Arthur Street property and the plaintiff was to be paid a commission and, if a joint venture existed (which was denied), the defendant has a claim against the plaintiff for the profit realised on the sale of the Arthur Street property.
In the course of the action the defendant was required to give discovery and inspection of all relevant documents. It appears that he failed to do so and that cheque butts, bank statements, taxation returns and deposit books of the first defendant, his wife and the second defendant were withheld from inspection upon the mistaken view expressed by the defendant’s solicitors that they could withhold inspection in the absence of an undertaking of confidentiality from the plaintiff. It appears that some or all of these documents were not given to the plaintiff until part way through the trial. The documents withheld from inspection included cheque butts. The payments comprising the sum of $18,105.95 were made by cheque. Details of the payments are as follows:
Date Chq Amount Payee ref 22/01/2001 46 $5,000.00 Ray White Deposit 1 29/01/2001 52 $236.00 DAC 2 20/02/2001 65 $62.50 Lawns 3 06/03/2001 77 $50.00 Lawns 4 23/03/2001 82 $5,000.00 Andrew Morris Premier Homes 5 28/03/2001 86 $6,500.00 Brushcraft Fencing 6 28/03/2001 87 $5,000.00 Andrew Morris Loan 7 06/04/2001 $674.00 Andrew Morris Loan LTO & Premier Homes 9 06/04/2001 $8,100.00 Andrew Morris Loan DAC 10 Total payments re Arthur Street $30,622.50 Less amounts repaid ($12,516.55) 11 & 12 Total owed re Arthur Street $18,105.95
Therefore, it seems that the defendant paid expenses totalling about $30,000 in relation to the Arthur Street property and that before trial a sum of about $12,000 was repaid by the plaintiff to the defendant. It appears from evidence given at the trial that, when the purchase of the property was settled by the plaintiff, the defendant demanded repayment of monies owing in relation to the property and that it was at that point the sum of about $12,000 was repaid. The defendant under cross-examination at trial said:
Q.In the end, you agree that Natsar was paid out the full amount of its entitlement as regarding the contributions it made.
A.That was money that I had paid for some of the development of that project which Mr Morris paid back to me at settlement on my request.
Q.And we have seen an authority addressed to the bank to pay Natsar approximately $16,000. That is the payment you are referring to.
A.Yes, it is, and I don’t know that that includes a deposit that was actually paid. I’ve got a feeling that that might still be floating around somewhere but I couldn’t be 100% sure of that.
Q.Was that the figure that you requested Natsar be paid.
A.That was the figure that I requested Natsar be paid for some development work that I had done on the property.
Q.After that, with Mr Morris having signed the contract and the transfer being to the name of Mr Morris, you would agree that Natsar was at no further risk.
A.No, absolutely.
Q.And Mr Morris did all of the work relating to the improvement and the sale of that property.
A.He did the remainder of the work, yes.
Q.You had no further involvement once the settlement had occurred.
A.No.
Q.And you had no involvement in the selling of the units either.
A.No, as was the case earlier.
Q.So apart from the fact that Natsar had paid some expenses, for which it had been reimbursed, and the question about that deposit that you had raised, you or Natsar made no other contribution to that project.
The defendant did not plead in his counterclaim a claim for expenses in relation to the Arthur Street property. He did not discover or make available for inspection the cheque butts which were evidence of the claim until part way through the trial. He made a claim against the plaintiff on the settlement of the property for amounts he thought were owing, and except as to a query concerning a deposit of $5,000, it seems that he considered that the amount he claimed and received was the full amount owing. It was not until a time between the two hearings before the Judge that his claim for expenses totalling $18,105.95 was clearly articulated.
The Judge did not make a finding as to the plaintiff’s state of mind at the time he received the Calderbank offer regarding his liability for expenses in relation to the Arthur Street property and there are obvious difficulties with this Court making such a finding. I will come back to the question of the plaintiff’s state of mind at the time he received the Calderbank offer. At this stage it is convenient to refer to the authorities.
In broad terms, a Calderbank offer will be relevant to the Judge’s discretion as to costs if, in all the circumstances, the Judge considers that the offeree acted unreasonably in rejecting the offer. It will be relevant to that question that the plaintiff has not exceeded the Calderbank offer because the defendant has introduced into his counterclaim a new claim after the Calderbank offer has been withdrawn or has lapsed or has been refused.
In Fowdh v Fowdh (unreported, NSW Court of Appeal, Mahony AP, 4 November 1993) the Court was dealing with a case where a plaintiff made an offer, then allegedly introduced a relevantly different case upon which he succeeded and claimed indemnity costs. Mahony AP said (at 6):
It is one thing for a plaintiff to present her evidence, make an offer of compromise, and to succeed at the trial on that evidence. In such a case, indemnity costs may be warranted. It is another thing for the plaintiff to present a case and make an offer of settlement, and then to succeed at the trial upon a relevantly different case. A plaintiff who has done that may not readily receive indemnity costs. I do not mean by this that minor differences between the case at offer and the case at trial will be of significance or that, if the difference be significant, a discretionary judgment for indemnity costs may not be given. But where the difference between the position at offer and the position at trial be as the Master assessed it to be, a decision to refuse indemnity costs may readily be understood.
In Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626, the Court of Appeal of New South Wales upheld a trial Judge’s decision to refuse to give effect to a Calderbank offer where after the offer had expired the offeror brought a cross-claim which ultimately succeeded. Stein JA (at [94]) referred to the trial Judge’s conclusion that the offeree did not have an informed opportunity to assess its chances because the cross-claim was brought at a later point in time and said (at [95]):
I can see no error in his Honour’s decision on the failure of the Calderbank offer. The cross-claim by James Hardie was late and was not a circumstance at the time of the offer of 4 June 1999. Surely what must be relevant is the circumstances which exist at the time the offer is made? The cross-claim produced a change of circumstance which, if in existence as at 4 June 1999, would have been likely to have produced a different complexion to the litigation so far as Rolls Royce was concerned.
The issue, although in a different context, was considered by this Court in Shaw v Jarldorn (1999) 76 SASR 28. The plaintiff filed an offer under r 41.01 of the DCR before the trial. The plaintiff obtained a judgment against the defendant in excess of the filed offer and the trial Judge ordered that the defendant pay the plaintiff’s costs of the action on a solicitor and client basis. The trial Judge had a discretion not to make such an order and the appeal by the defendant was that he should have exercised that discretion. The defendant argued that there had been material non-disclosure by the plaintiff and that there had been such a change in circumstances between the offer and the trial that the trial Judge should have otherwise ordered. It is unnecessary to set out the details because for present purposes it is the principles which are relevant.
Doyle CJ said (at [8]):
Ordinarily the Court will assess things as at the time of the offer without regard to what has happened earlier. Likewise, events that occur after the offer is made will be of limited weight, unless they demonstrate that the amount of the judgment that the plaintiff ultimately recovers was materially affected by subsequent events that the defendant could not reasonably have anticipated. And, in that context, I emphasise that both the defendant and the plaintiff will be assumed to anticipate the ordinary risks and vicissitudes of litigation. In deciding not to accept an offer a defendant makes the judgment that it will run the risk of the plaintiff equalling or bettering the offer, in the hope that the plaintiff will recover less than the amount of the offer. A defendant who makes that choice cannot reasonably complain if, as a result of the ordinary risks and vicissitudes of litigation, the defendant’s judgment is proven to be unsound.
Perry J said (at [36):
It seems to me that the rule in its present form is likely to have an even narrower scope than the operation accorded its predecessor in Whitehead v Maas. The circumstances which are most likely to arise and which might justify relieving a defendant from the obligation to pay solicitor and client costs, will be those where there is such a significant change in the manner in which the plaintiff’s case is presented at the trial, or the manner in which the evidence emerges at the trial, that it might fairly be said that the full dimensions of the plaintiff’s entitlement could not possibly have been foreseen before the hearing commenced.
The question in this case is what did the plaintiff know at the time of the Calderbank offer in May 2003? The plaintiff knew that the development of eight properties (including the Arthur Street property) was in issue. As to the first seven properties, the profits made and expenses paid were in issue. Expenses, as is apparent from the plaintiff’s Statement of Claim, included external painting, fencing and fees including stamp duty and bank fees. The circumstances of the development of the Arthur Street property were in issue. It is true that only the fee for work done by the defendant and the profit realised on the Arthur Street property were referred to in the pleadings, but a number of the items comprising the sum of $18,105.95 such as the deposit, expenses for lawns and fencing, were the type of expenses that it would be reasonable to assume a person involved in the development of properties would have been aware of or foreseen or anticipated. After all, it was the plaintiff’s case that he developed the Arthur Street property for his own benefit. Even if it is appropriate to assume that at the time of the Calderbank offer the plaintiff did not have in mind the expenses comprising the sum of $18,105.95, it is difficult to accept that he did not know of them, or at least some of them, prior to that date. In my opinion, the claim for expenses is a claim the plaintiff should have foreseen or anticipated and is not a new claim in the relevant sense.
The plaintiff’s second submission to this Court was a major part of his submissions to the Judge and the Judge made his decision immediately after those submissions. Although he did not refer to the point in his reasons, he must be taken to have considered the submission and rejected it. For the reasons I have given, I am not satisfied that he erred in doing so.
I reject the second submission made by the plaintiff.
Conclusion
In my opinion, the appeal should be dismissed.
WHITE J:
The circumstances giving rise to this appeal are set out in the judgment of Besanko J. I adopt, with respect, his Honour’s statement of those circumstances.
The claims determined by the trial Judge were raised in the plaintiff’s claim and in the defendants’ respective counter-claims. However, as the plaintiff acknowledged on appeal, the matter involved, in effect, a taking of accounts following the breakdown of the commercial relationship which had subsisted between the parties before April 2001. After hearings extending over 17 days, the trial Judge found moneys to be owed to the plaintiff by the defendants and by the plaintiff to the defendants. There was a net balance in favour of the plaintiff. Accordingly, the trial Judge entered a single judgment for the plaintiff against the defendants for the amount of the balance in addition to interest, and dismissed the defendants’ counter-claims. Given the nature of the dispute between the parties, this was a sensible way of giving effect to the Court’s determination of the parties’ dispute. The trial Judge stipulated that the entry of the judgment in that form was to be without prejudice to the position of the parties with respect to costs.
In the submissions to the Judge with respect to the costs, various matters were pressed. It is not necessary to note those matters in detail. The defendants emphasised the trial Judge’s disbelief of the plaintiff on a number of important matters and referred the Judge to the letter of offer of settlement from the defendants’ solicitors dated 1 May 2003. The plaintiff pressed on the Judge the fact that claims of the defendants had been raised by them for the first time during the cross-examination of the first defendant, and further, that the defendants’ pre-trial discovery, which might have revealed the basis for those claims, had been deficient.
It is plain that the defendants’ letter of offer dated 1 May 2003 was the decisive consideration in the order for costs which was made. It is also plain that the trial Judge took the view that the other matters which had been emphasised by the parties did not warrant any adjustment to an order for costs in the plaintiff’s favour. This is apparent from the following passage in the Judge’s reasons:
In my view, based on the large number of cases that I have now heard over the years, there was nothing particularly remarkable in the conduct of either party which would lead me to depart from what I would regard as the fairly routine order for costs that should be made in a case of this nature.
In all of those circumstances, the plaintiff will have costs on a party-party basis up to and including 15 May 2003. The defendant will have costs on the same basis thereafter. Those costs will be on the District Court scale, notwithstanding the fact that the ultimate judgment was for only some $12,500.
Thus, it seems that were it not for the letter of 1 May 2003, the trial Judge would have ordered the defendants to pay the plaintiff’s entire costs of action on the District Court scale.
The letter from the defendants’ solicitors dated 1 May 2003 commenced with the following:
We refer to the failed settlement conference.
We are instructed to put an offer. This is our client’s only offer to finalise and no more offers will be made.
The letter then set out the defendants’ solicitor’s view of the plaintiff’s claim, the defendants’ claims, and some matters which bore upon the prospect of those respective claims being accepted at trial in full or in part. The letter then continued:
4.2Accordingly, based on this analysis, we are instructed to make an offer of $20,000 on your client’s claim in addition to costs on the appropriate scale to be agreed or taxed. The offer is open for 7 days. Our client will discontinue its counter-claim on the basis each party bear their own costs of the counter-claim and this forms part of the offer.
4.3Our client’s offer will not be restated and otherwise we will go to hearing. The offer will be referred to as to costs in accordance with the principles in Re Calderbank.
The letter then went on to speak about other matters before concluding “the offer above is open for 7 days from the date of this letter”.
The trial Judge accepted that the letter of 1 May 2003 was received by the plaintiff’s solicitors on 6 May 2003. The trial Judge also accepted that by letter dated 7 May 2003 the plaintiff had put a counter-offer, also expressed to be in Calderbank terms. The plaintiff’s solicitor’s letter included the following:
We would have preferred to have prepared a formal offer to consent to judgment to be filed in the District Court, but there is doubt as to whether such a formal offer comes within the terms of the relevant Rules, since it deals with both claim and counter-claim.
I agree with Besanko J that regard may be had to a Calderbank offer in the determination of the issue of costs, even where an offer could have been lodged under the Rules of Court. I agree that District Court Rule 40 should not be regarded as stating the only means by which a defendant may make a pre-trial offer of settlement, the non-acceptance of which may have consequences in costs. It was not submitted on the appeal that it was not open to the trial Judge to have any regard at all to the defendants’ solicitor’s letter of 1 May 2003.
In this case, having had regard to the defendants’ letter of offer of 1 May 2003, the trial Judge gave to that offer, and its rejection by the plaintiff, the same effect as would have been given to an offer lodged in accordance with Rule 40. This appeal raises the issue as to whether the Judge was correct in that conclusion.
I commence by noting the régime for lodgement of a defendant’s offer in the Court. Rule 40.01 provides:
(1)A defendant may, at any time up to 21 days prior to trial, lodge with the Registrar and serve upon all other parties a notice offering to consent to judgment in satisfaction or part satisfaction of the plaintiff’s claim:
(a) for a nominated sum of money;
(b) for a proportion of the plaintiff’s claim expressed as a percentage;
(c) for an order giving the plaintiff such relief as the defendant contends is sufficient to dispose of the whole action or of one or more causes of action;
(d) for costs on a particular scale.
(2) …
(3) …
(4)At any time up to 21 days prior to trial and before acceptance of such offer, a defendant may in like manner increase, reduce or withdraw his offer.
(5)…
Rule 40.02 deals with acceptance of an offer which has been lodged. It provides that “the plaintiff may at any time after receipt of an offer to consent to judgment, and up to 7 days prior to trial, file and serve on all other parties a notice of acceptance”.
Rules 40.03 and 40.05 provide for the consequences of acceptance of an offer and the consequences where an offer is not accepted and, after trial, the plaintiff recovers less than the amount offered by the defendant. Those Rules provide:
40.03 Where the offer to consent is for a particular sum, unless the Court otherwise orders:
(a) The plaintiff may:
(i) sign judgment for the amount offered;
(ii)tax his costs against the consenting defendant incurred up to 14 days after the service of the notice on him together with the costs of filing and serving his notice of acceptance and signing judgment;
(iii)proceed to enforce such judgment.
(b) The action shall proceed in respect of any other cause of action or any other defendant but the plaintiff shall not be entitled to recover a second time the money or percentage of claim accepted by him.
(c) Where a plaintiff accepts any offer to consent to judgment later than 14 days after it was served upon him the Court may, on the application of any other party, if it is just so to do, order that the plaintiff pay to that other party his costs of action incurred after the expiration of 14 days, or such other period as the Court may fix, from the service of the offer.
(d) The costs to be taxed under (a)(ii) above are to be on any scale stated in the offer pursuant to Rule 40.01(1)(d) but, if no scale is contained in the offer, then upon the scale which would apply under the Rules to a judgment for that amount in the Court.
40.05Where a plaintiff has not accepted a payment into Court or an offer to consent to judgment and:
(a) the sum recovered, or as the case may be, the proportion of the debt, the damages or the relief recovered by the plaintiff, is no greater than that offered or paid into Court; or
(b) the Court is of the opinion that the amount, percentage or relief offered was adequate the Court, unless it thinks proper to order otherwise shall order:
(i)that the plaintiff recover against the defendant his costs incurred until 14 days after the service of the offer or the notice of the payment into Court;
(ii)that the defendant making such offer, recover against the plaintiff his costs incurred 14 days after the service of the offer, or the notice of the payment into Court.
A number of features of Rule 40 are relevant in the present case. The first is that Rule 40 contains the régime established by the courts to encourage parties to engage in sensible negotiations for settlement of litigation. It provides an incentive for defendants to make reasonable offers and sanctions for plaintiffs who unreasonably refuse or fail to accept a reasonable offer.
Secondly, considerable flexibility is afforded to a defendant as to the form of the offer which may be made. Like Besanko J, I doubt that the defendants in this case could not have formulated an offer in accordance with the requirements of Rule 40.01 which, if accepted, would have resulted in the finalisation of the whole litigation.
Thirdly, with one qualification, Rule 40 does not specify any time limit within which a plaintiff must indicate whether or not an offer which has been lodged is, or is not, accepted. The qualification is that an offer may only be accepted “up to” 7 days before the trial. Apart from that, it is open to a plaintiff to accept an offer which has been lodged (and not withdrawn) at any time. The offer may be accepted even though the plaintiff had previously determined not to accept it, and even though the plaintiff may have previously communicated to the defendant a determination not to accept the offer. Of course, Rule 40.03 provides an incentive for early acceptance. A plaintiff who delays acceptance for longer than 14 days after service of the offer is at risk of being ordered to pay the costs incurred by the defendant after that 14 day period. But nevertheless, an important element of the régime established by the Rules to encourage settlement of litigation is that it is to be open to a plaintiff to accept an offer which has been lodged (and not withdrawn) at any time up to 7 days before the trial. Plaintiffs are thereby enabled to reassess their position as the litigation proceeds in the light of further information which becomes available or in the light of further advice. Defendants are not disadvantaged because, in the event of a belated acceptance by the plaintiff of an offer, the plaintiff is likely to be ordered to bear the defendant’s costs from the date 14 days after the service of the offer.
Fourthly, the Rules do not appear to contemplate the lodgement of an offer which is expressed to be open for a limited period only. Rule 40.01, which contains a description of the kinds of offer which may be lodged, makes no reference to offers which may be open for a limited period only. Rule 40.02 proceeds on the premise that an offer lodged pursuant to Rule 40.01 will be open to be accepted at any time up to 7 days prior to trial. This premise would not be satisfied if it was open to the defendant, by the terms of the offer, to limit the time within which it might be accepted.
In my opinion, Rules 40.01 and 40.02, when read in combination, indicate that an offer once lodged is to remain open for acceptance (subject to withdrawal, increase or reduction) up to and including the date which is 7 days prior to the trial. For the reasons already given, I consider that this view of Rules 40.01 and 40.02 promotes the purpose of the Rule. If an offer which is not accepted remains open, plaintiffs are thereby enabled to re-appraise their position. The plaintiff’s view of his/her prospects may change in the light of new information or new advice. If the defendant does not wish to have the continuing advantage which the offer provides, then the defendant may withdraw the offer (Rule 40.01(4)). The question of whether or not a defendant’s offer lodged pursuant to Rule 40, but later withdrawn, may be relied upon by the defendant if the plaintiff later fails to recover more than the amount offered has not yet been considered by this Court. It was not the subject of any argument on the appeal. It is, therefore, inappropriate to express any concluded view on the question. I note, however, that the decision of the Court of Appeal in Garner v Cleggs[1] may provide some support for the view that a court should not have regard to an offer lodged pursuant to Rule 40.01 but later withdrawn, at least in respect of the costs incurred after the withdrawal of the offer. In Garner v Cleggs, the defendant, in accordance with the Rules of Court, had paid into Court a sum of money said to be sufficient to satisfy the plaintiff’s claim. It was open to the plaintiff to accept that sum in satisfaction of his claim. Later the defendant applied for, and obtained, leave to withdraw that money. The matter proceeded to trial at which the plaintiff obtained a judgment for an amount which was less than that paid into Court. The Court of Appeal held that the defendant was not entitled to rely on the payment into Court in respect of the costs incurred after the date of the withdrawal. In the circumstances of that case, it was not necessary to decide whether regard could be had to the amount paid into Court in respect of the costs incurred during the period that the moneys remained in Court. As I have said, it is not appropriate in this case to be expressing any concluded view about the effect on costs of an offer, lodged pursuant to Rule 40, which has been withdrawn. However, if, as Garner v Cleggs may suggest is appropriate, an offer which ceases to be open to acceptance because it is withdrawn should be disregarded, then it is difficult to see why an offer which is expressed to be open for acceptance for only a limited time should not also be disregarded if it is not accepted within that limited time.
[1] [1983] 2 All ER 398.
The final matter of relevance in the present context to note is that the Rules allow 14 days as the period in which plaintiffs may consider their position before facing the risk of sanctions resulting from non-acceptance of the offer. That is 14 days from the date of service of the offer, and not 14 days from the date on which the offer is lodged. This appears from Rules 40.03(c) and 40.05(b), and by comparing the latest time before trial at which a defendant may lodge an offer as fixed by Rule 40.01 (21 days) with the latest time before trial at which a plaintiff may accept an offer fixed by Rule 40.02 (7 days). A period of 14 days should, in my opinion, be understood as the period which the Court considers, in ordinary circumstances, to be a reasonable time in which plaintiffs may consider an offer. That does not mean that there may not be circumstances in which a shorter or longer period may be appropriate.
Rule 40 provides for offers of settlement by a defendant. Rule 41 provides for offers of settlement by a plaintiff. The two Rules deal in substance with the same subject matter.
Rule 41 provides for a régime by which a plaintiff may lodge with the Court a written notice offering to accept a stated amount in satisfaction of its claim. If a defendant does not accept that offer and, after trial, the plaintiff obtains judgment for an amount equal or greater than its offer, the Court, unless it thinks proper to order otherwise, is to order the defendant to pay the whole of the plaintiff’s costs of action to be taxed as between solicitor and client (Rule 41.04). In Pirrotta v Citibank Ltd,[2] the Full Court considered that it was open to a court deciding an issue of costs to have regard to a plaintiff’s Calderbank letter, even in circumstances where the plaintiff could have used the procedure established by Rule 41. It was not necessary for the Court, in the circumstances of that case, to determine whether the Calderbank letter gave rise to a prima facie presumption that a recipient, who had not accepted an offer and who did not achieve a result more favourable than the offer, should pay the costs of the other party on an indemnity basis or whether it was simply one of the factors to be considered when determining whether or not to order indemnity costs. In his judgment, Debelle J (with whom Millhouse and Olsson JJ agreed) mentioned four matters of general approach. Two of those matters are, in my opinion, relevant in the present case:
First, although r 41 provides a régime for the making of offers by plaintiffs to compromise actions, it should not be regarded as the only means by which plaintiffs might make such offers. There will obviously be situations which do not fall precisely within the rule. Rule 41 is in terms addressed to litigation between one party and another and thus might not always apply in multi-party litigation or where the litigation is otherwise complex. Thus, regard should, in appropriate circumstances, be had to a Calderbank letter for the purpose of determining whether an order for indemnity costs should be made.
Secondly, it is undesirable to permit a régime which differs in important respects from that contemplated by the Rules of Court and imposes more onerous obligations. Thus, while recognising that the Rules do not provide for every occasion and that there are circumstances which justify the writing of a Calderbank letter, the terms in which such a letter are couched should, as a general rule and so far as is reasonably practicable, conform to the régime in r 41. I do not mean to suggest a slavish adherence to r 41, but a party who seeks to use a Calderbank letter as the basis for solicitor and client costs should frame the letter in terms which are consistent with the spirit and intent of r 41.[3]
In many respects, Rules 40 and 41 are counterpoints. The matters of general approach to which Debelle J has referred in the two paragraphs quoted are, in my opinion, equally applicable to the consideration of a Calderbank letter in relation to Rule 40.
[2] (1998) 72 SASR 259.
[3] Ibid 266-7.
The first matter lends support to the view that a court may have regard to a Calderbank letter even though an offer in accordance with the Rules of Court could have been lodged. 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. The procedure specified in the Rules for the lodgement of an offer is to be understood as an expression of what the Court regards as a reasonable approach. To the extent that a defendant departs from that régime, it runs the risk that the Court will regard the manner or content of its offer as being unreasonable and, therefore, as not warranting any alteration of the usual position as to costs.
In considering whether to give a Calderbank letter the same effect as an offer lodged pursuant to Rule 40, a number of matters will be relevant. These will include: whether or not an offer could have been lodged pursuant to Rule 40;[4] any difficulties associated with the framing of an appropriate offer;[5] any difficulties occurring because of the involvement of other parties in the litigation;[6] the proximity of the trial at the time when the offer was made and the time available to the plaintiff in which to consider the offer;[7] the commitments to which the plaintiff may be subject at that time;[8] and the extent to which, if at all, the circumstances of the offer, or its terms and conditions, differ from the circumstances, or terms and conditions, of an offer lodged in accordance with Rule 40.[9] This is not intended to be an exhaustive list of the matters which may be relevant.
[4] Pirrotta v Citibank Ltd (1998) 72 SASR 259 at 266-7.
[5] Ibid.
[6] Ibid.
[7] MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 240; Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102.
[8] Ibid.
[9] Pirrotta v Citibank Ltd (1998) 72 SASR 259 at 267; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd(No 2) (1996) 70 FCR 236 at 240.
Turning to the circumstances of the present appeal, it is apparent that there are a number of differences between the defendants’ offer on the one hand, and an offer lodged in accordance with Rule 40, on the other. The defendants’ offer was expressed to be open for 7 days only. Furthermore, the defendants stated expressly that their offer was the only offer of settlement which would be made and that it would not be repeated. For the reasons already given, this was not the kind of offer contemplated by Rules 40.01 and 40.02. It was submitted on the appeal for the defendants, that they had to limit the period during which the offer would remain open in order to limit the amount of costs for which they would be liable in the event of its acceptance. Absent such a limitation, it was said that it would have been open to the plaintiff to accept the offer at any time right up to, and even during, the trial. That would have meant that the plaintiff would have been entitled to payment of his costs to the time of acceptance. I do not accept that submission. Whilst the concern of the defendants to limit their potential liability for the costs of the plaintiff is understandable, it would have been open to them to specify in the letter of offer that they offered to pay the plaintiff the sum of $20,000 and, in addition, the plaintiff’s reasonable party and party costs incurred up to, say, a date 14 days after the date of the offer. An offer in those terms would have achieved for the defendants the protection which they sought. Being expressed to be open for a short time only, the offer did not achieve one of the aims of the régime established by Rule 40. It did not afford to the plaintiff a continuing opportunity to reflect on the adequacy of the offer in the light of further consideration of his prospects. The terms of the offer, together with the plaintiff’s rejection of it on 6 May 2003, created the circumstance that the plaintiff was then left with two options only: proceed to trial or abandon his claim altogether.[10] That is not consistent with the “spirit and intent” of Rule 40.
[10] Cf Garner v Cleggs [1983] 2 All ER 398 at 405 per Lawton J.
Further, the offer was open for a period much shorter than the 14 day period established by Rule 40 as a reasonable period in which a plaintiff might consider and deal with an offer. In effect, as the offer was received by the plaintiff’s solicitors on 6 May 2003, it was open for acceptance for only two days. The defendants submitted that was not a matter of significance in the present circumstances because, the plaintiff had, as of fact, responded to the defendant’s offer by a letter dated 7 May 2003, ie, within the 7 day period. It was submitted, therefore, that the stipulated 7 day period had been sufficient in this case. I do not regard that consideration as being persuasive. It is to be expected that in every case where solicitors for a party receive an offer, expressed to be open for only a limited time, that those solicitors will, in the proper exercise of their professional duty, make all reasonable efforts to obtain their client’s instructions with respect to the offer within the time stipulated. If they do not, and the offer lapses, the solicitors may expose themselves to an action in professional negligence from their own client. The response of the plaintiff within the 7 day period in this case is, therefore, explicable as the plaintiff’s response to the circumstances dictated by the defendants. Further, and in any event, it is apparent that the defendants did not intend that the plaintiff should have an ongoing opportunity to reconsider the adequacy of the offer.
The trial Judge said that the plaintiff could have requested an extension of time in which to consider the offer and he had not. That is so, but again, I do not regard that as being persuasive. Had the defendants’ offer been made in a way which was “consistent with the spirit and intent” of Rule 40, the occasion for such a request would not even have arisen.
In the respects which I have identified, the offer departed in a significant way from the régime established by the courts to encourage parties to settle their differences without the need of litigation. That departure made it inappropriate to attach such significance to the defendants’ offer. In my opinion, the Judge was in error in giving to an offer that was only ever intended to be open for 7 days and which was expressed as an offer which would not be repeated, the same effect as an offer, lodged in accordance with the Rules of Court, which would remain open for acceptance at any time up to a date 7 days prior to the commencement of the trial.
For these reasons, in my opinion, the exercise of the discretion with respect to costs has miscarried. Although the circumstances in which an appellate court will interfere with a decision of a trial Judge on costs are limited, it is appropriate in this case for the Judge’s decision on costs to be set aside. As already noted, it appears from his reasons that, were it not for the letter of 1 May 2003, the Judge would have regarded this matter as warranting, what he called, “a fairly routine order for costs”. It was not submitted on the appeal that any other order as to costs would have been appropriate. In my opinion, therefore, the appeal should be allowed, the Judge’s decision set aside, and in its place there be substituted an order that the plaintiff have his costs of action to be taxed on the District Court scale.
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