Neville v Lam (No 4)

[2014] NSWSC 1088

Supreme Court

New South Wales

Medium Neutral Citation:

Neville v Lam (No 4) [2014] NSWSC 1088

Hearing dates:

12 August 2014

Decision date:

12 August 2014

Jurisdiction:

Common Law

Before:

Beech-Jones J

Decision:

(1) Order 2 made on 21 May 2014 be set aside.

(2) The plaintiff pay the defendant's costs of the proceedings on an ordinary basis up to and including 28 October 2013.

(3) The plaintiff pay the defendant's costs of the proceedings thereafter on an indemnity basis, such costs to include the costs of the defendant's motion filed 4 June 2014.

(4) The exhibits be returned.

Catchwords:

COSTS - application for indemnity costs - whether valid offer of compromise - absence of statement that offer made in accordance with the Rules - whether offer genuine compromise - whether finding that rejection of offer was reasonable is a basis for otherwise ordering.

Legislation Cited:

- Uniform Civil Procedure Rules 2005 (NSW), r 20.26, r 36.16, r 42.15A

Cases Cited:

- Barakat v Bazdarova [2012] NSWCA 140
- Commissioner of Taxation v Moodie [2014] NSWCA 59
- Dean v Stockland Property Management Pty Limited (No 2) [2010] NSWCA 141
- Duncan-Strelec v Tate [2010] NSWSC 1256
- Jones v Trad (No 3) [2013] NSWCA 463
- Leichhardt Municipal Council v Green [2004] NSWCA 341
- McGlashan v QBE Insurance (Australia) Ltd (No 4) [2014] NSWSC 882
- Neville v Lam (No 3) [2014] NSWSC 607
- South Eastern Sydney Area Health Service v King [2006] NSWCA 2
- The Uniting Church v Takacs (No 2) [2008] NSWCA 172

Category:

Costs

Parties:

Lisa Neville (Plaintiff)
Associate Professor Alan Lam (Defendant)

Representation:

Counsel:
A.J. Bartley SC (Plaintiff)
J.M. Sandford (Defendant)
Solicitors:
Ken Cush & Associates (Plaintiff)
Avant Law (Defendant)

File Number(s):

2008/289699

Publication restriction:

Nil

ex tempore Judgment

1. On 21 May 2014 I published my principal judgment in these proceedings (Neville v Lam (No 3) [2014] NSWSC 607).

1. I dismissed the proceedings and ordered the plaintiff to pay the defendant's costs. I drew the parties' attention to Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 36.16(3A), which enables the Court to set aside an order that has been entered provided that a notice of motion to that effect is filed within fourteen days after it is so entered (Neville v Lam (No 3) at [224]).

1. Within the time contemplated by that rule the defendant filed a notice of motion seeking a variation of the order for costs, and substitution of an order that the plaintiff pay his costs on an indemnity basis from a certain date.

1. The basis of the defendant's application was two offers he made to settle proceedings, each of which he contends constitutes an "offer of compromise" under the UCPR.

The First Offer

1. The first offer relied upon was made on or about 7 February 2012. It was accompanied by a letter entitled "without prejudice other than as to costs". The letter stated that it enclosed an "offer of compromise", but did not refer to any particular provision of the UCPR. The offer was entitled "offer of compromise". It stated that the defendant offered to compromise the proceedings on terms comprising a verdict for the defendant with each party to pay their own costs. It also stated that the offer was open for acceptance for twenty-eight days. The offer did not make any reference to the UCPR, except for the words "UCPR 20.26" found in the top left hand corner of the document under the heading "Form 1".

1. Senior Counsel for the plaintiff, Mr Bartley SC, submitted this was not an offer of compromise under the UCPR, and therefore did not give rise to any prima facie entitlement on the part of the defendant to be awarded indemnity costs under UCPR r 42.15A.

1. In written submissions filed on behalf of the plaintiff a contention was made that it was not a valid offer of compromise because it included provision for each party to pay their own costs.

1. As at the date the offer was made UCPR r 20.26 relevantly provided:

"20.26 Making of offer

(1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms.

(2) An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs.

(3) A notice of offer:

(a) must bear a statement to the effect that the offer is made in accordance with these rules, and

(b) if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to the payment so made or ordered.

..."

1. It follows from the terms of this rule that the contention advanced in written submissions is misconceived. The form of UCPR r 20.26(2) in existence as at February 2012 specifically contemplated an offer in the form of a verdict for the defendant with each party to pay their own costs.

1. However Mr Bartley SC submitted that the offer did not comply with UCPR r 20.26(3)(a) in that it did not bear a statement to the effect that the offer was made "in accordance with these rules".

1. In oral submissions Mr Bartley SC emphasised the mandatory words of UCPR r 20.26(3)(a). He pointed to the "strict" effect that a successful offer of compromise can have on a party's rights, namely that it can subject them to an order for indemnity costs, even perhaps in circumstances where their conduct in refusing the offer was not unreasonable.

1. There is nothing in the offer that was made on or about 7 February 2012 or the accompanying letter which literally states that the offer was being made in accordance with the UCPR. However, in her written submissions counsel for the defendant, Ms Sandford, submitted that no such literal statement was required. Ms Sandford pointed to the following passage from the judgment of Ward JA in Jones v Trad (No 3) [2013] NSWCA 463 at [30]-[31] (with whom Emmett and Gleeson JJA agreed):

"[30] Ms Nomchong submits that the 7 March letter was not a valid offer of compromise in accordance with the Rules because it did not state that it was an offer made pursuant to the Rules (referring to Uniting Church in Australia Property Trust (NSW) v Takacs (No 2) [2008] NSWCA 172 at [6]); because it did not involve a genuine offer of compromise; and because it was not more favourable than the ultimate result.

[31] As to the formal requirements for a valid offer of compromise, there was no statement that this was an offer made pursuant to the Rules, though that would not necessarily preclude the application of the Rules. However, there is nothing in the letter to suggest that the appellants were there invoking the offer of compromise procedure under the Rules and it was not open for the mandatory 28 days so failed to comply strictly with the Rules." (emphasis added)

1. Ms Sandford relied on the emphasised part of this passage. Her written submission suggested that this passage may represent a departure from the stricter view as to the need for compliance with r 20.26(3)(a) which seems to have prevailed at first instance in this Court (see for example Duncan-Strelec v Tate [2010] NSWSC 1256 at [8] per Nicholas J).

1. The form of offer being addressed in Jones v Trad (No 3) was clearly non-compliant in that it was simply a Calderbank letter (see Jones v Trad (No 3) at [25]). Be that as it may, I consider it follows from the effect of this passage from the judgment of Ward J in Jones v Trad (No 3) that strict compliance with r 20.26(3)(a) is not necessary. However, this proposition is qualified by the next statement in the extract. It suggests that there is a need for at least a clear indication that the offeror is invoking the "offer of compromise procedure" being that found in that case in former Part 20 Division 4 of the UCPR (see also The Uniting Church v Takacs (No 2) [2008] NSWCA 172 at [7] per Hodgson JA).

1. In my view the offer of 7 February 2012 lacked that quality. To simply invoke the phrase "offer of compromise" is not sufficient of itself to constitute substantial compliance with UCPR r 20.26(3)(a). The brief reference to the rule 20.26 in the top left hand corner under the heading "Form 1" may have hinted at reliance upon the procedure, but in my view that is not good enough. Of course experienced litigators may have understood what was sought to be conveyed, but that is not the test. Instead, on its face, the document must as a matter of substance indicate, in the words of Ward JA in Jones v Trad (No 3), that the "offer of compromise procedure" is being invoked.

1. It follows that I do not accept that the offer of 7 February 2012 satisfied the UCPR requirements for a valid offer of compromise. Otherwise I note that the defendant did not rely on this offer as a form of Calderbank offer.

The Second Offer

1. The second offer relied upon was made on or about 28 October 2013. This offer also sought agreement to a judgment in favour of the defendant with no order as to costs.

1. It was accepted before me that this offer did comply with the relevant provisions of the UCPR concerning offers of compromise that were in force as at that time. It was also not in dispute that the offer was not accepted and represented a superior outcome to that which was achieved by the plaintiff.

1. It follows that, "unless the court orders otherwise" under UCPR 42.15A(2), the defendant is entitled to an order for his costs on an ordinary basis up to and including 28 October 2013 and on an identity basis thereafter (UCPR r 42.15A(2)(b)(i)).

1. In her written submissions Ms Sandford drew my attention to an unresolved debate as to whether the discretion to otherwise order should only be exercised if exceptional circumstances are demonstrated, or whether it simply requires a proper consideration of all the relevant circumstances (see Barakat v Bazdarova [2012] NSWCA 140 at [42]-[49] Tobias AJA, and Commissioner of Taxation v Moodie [2014] NSWCA 59 at [64] per McColl JA). For my part I have difficulty envisaging how a requirement for special circumstances can be read into a rule that does not use that phrase. However, it is not necessary for me to resolve the debate adverted to by Ms Sandford.

1. One established category of case in which indemnity costs will not be ordered is where the Court is affirmatively satisfied that the relevant offer did not constitute a genuine compromise (see Dean v Stockland Property Management Pty Limited (No 2) [2010] NSWCA 141 at [14]). However, simply because a defendant proposes a resolution involving the entry of judgment in their favour with no order as to costs, does not necessarily mean that the offer has no real element of compromise (see Leichhardt Municipal Council v Green [2004] NSWCA 341 at [30]-[36] per Santow JA). Indeed, to reach such a conclusion would be inconsistent with the existing form of UCPR r 20.26(3)(a)(i). Instead, the offer must be considered having regard to the circumstances prevailing at the time (Leichhardt Municipal Council v Green at [27]).

1. As at October 2013, the proceedings had been on foot for over five years, although there was a significant delay between the filing of the statement of claim and its service on the defendant. By that time the defendant had incurred over $120,000 in costs and disbursements.

1. I accept the contention of Mr Bartley SC that, at that stage, it would have appeared to the plaintiff that, had she succeeded, the damages she would obtain would or at least may have been substantial. The conclusions that were reached in Neville v Lam (No 3) provide significant support for that assessment. However, that does not mean that the offer that was made in October 2013 was not a genuine compromise. To the contrary, I am satisfied that it was.

1. The offer was made after there had been a number of substantial interlocutory steps taken in the proceedings. It was made at a time reasonably proximate to the obtaining of a final hearing. The amount of costs that had been incurred to that time was, in my view, substantial.

1. Otherwise Mr Bartley SC submitted that the discretion conferred by UCPR r 42.15A(2) should be exercised in his client's favour.

1. One matter pointed to in the written submission filed on behalf of the plaintiff is the fact that as October 2013 there were still to be filed evidence, especially the witness statements of each of the plaintiff and the defendant. It was pointed out that it was the material filed on behalf of the defendant which ultimately proved to be of significance to the outcome in Neville v Lam (No 3). The written submissions filed on behalf of the plaintiff also submitted that as at October 2013 the boundaries of the dispute between the parties were not particularly well defined. In effect this was said to have made an assessment of such an offer very difficult. Finally it was otherwise submitted that the plaintiff's rejection of the offer was reasonable.

1. On the material that is available to me I consider that as at October 2013 the boundaries of the dispute as to liability in this case were reasonably well defined. Those boundaries are reflected in the judgment of Neville v Lam (No 3). As between the plaintiff and the defendant, there was a narrow but critical dispute as to what was said during the plaintiff's consultations with the defendant in the latter part of 2004. The overall effect of the expert evidence on liability was that the issue of whether or not the defendant breached his duty of care to the plaintiff turned upon which version of those consultations was accepted.

1. In relation to causation and damages the position was unclear. There were a number of difficult questions of law and fact that had to be resolved. The judgment in Neville v Lam (No 3) only sought to resolve the questions of law on causation and damages and some questions of fact. The very significant questions of fact concerning the extent of costs likely to be incurred in raising the plaintiff's son had to be deferred to another occasion if the need arose.

1. In my view, the fact that the relevant witness statements of the plaintiff and the defendant had not been served as at the time of the offer made in October 2013 is of little significance to any consideration of the exercise of the discretion to otherwise order as conferred by UCPR r 42.15A(2). At that time no such statements had been ordered to be provided. It was clear from the pleadings and the correspondence that there was the factual dispute that I have referred to. Each party was professionally represented and can be taken to be aware of the relevant uncertainties surrounding the resolution of competing factual claims of that nature.

1. One object of the offer of compromise regime is to promote early settlement, and in particular settlement before the costs of trial commence to be incurred. That object would be undermined by denying the party the benefit of an offer because, at the time the offer was made, lay witness statements had not been provided in circumstances where they were not ordered, and the boundaries of the factual contest concerning liability were not known (see McGlashan v QBE Insurance (Australia) Ltd (No 4) [2014] NSWSC 882 at [25] per Campbell J).

1. Otherwise in a sense I accept that the plaintiff's rejection of the offer was reasonable. I say "in a sense" because her case in my view clearly had a proper basis. Overall, I think it is clear that the plaintiff's fundamental objective was to obtain some financial assistance to offset the no doubt significant and onerous cost of caring for her son. However in circumstances where I accept that the offer that was made represented a true compromise, that conclusion is not sufficient to displace the operation of UCPR r 42.15A (see South Eastern Sydney Area Health Service v King 2006 NSWCA 2 at [84] per Hunt AJA).

1. Finally in oral argument Mr Bartley SC pointed to the fact that discretions such as UCPR r 42.15A(2) must be exercised in accordance with the "justice" of the case. However the notion of justice that is invoked at this point is justice according to law, which means giving effect to the offer of compromise procedure and acting in accordance with the relevant authorities that have opined upon how that procedure is to be implemented. The proffering of a wider concept of justice to the plaintiff to alleviate her predicament is simply not within my power.

1. Accordingly, the orders I make are:

(1)   Order 2 made on 21 May 2014 be set aside.

(2)   The plaintiff pay the defendant's costs of the proceedings on an ordinary basis up to and including 28 October 2013.

(3)   The plaintiff pay the defendant's costs of the proceedings thereafter on an indemnity basis, such costs to include the costs of the defendant's motion filed 4 June 2014.

(4)   The exhibits be returned.

**********

Decision last updated: 13 August 2014