Rail Corporation NSW v Vero Insurance Ltd (No 2)
[2012] NSWSC 926
•17 August 2012
Supreme Court
New South Wales
Medium Neutral Citation: Rail Corporation NSW v Vero Insurance Ltd (No.2) [2012] NSWSC 926 Hearing dates: 18/04/2011, 19/04/201127/04/2011, 29/04/2011,02/05/2011 Decision date: 17 August 2012 Jurisdiction: Common Law Before: Garling J Decision: (1) The defendant/cross claimant to pay the plaintiffs'/cross defendants' costs of the proceedings (including the cross claims) on an ordinary basis up to and including 31 March 2011.
(2) The defendant/cross claimant to pay the plaintiffs'/cross defendants' costs of the proceedings (including the cross claims) on an indemnity basis from 1 April 2011.
(3) Order the defendant/cross claimant to pay to the plaintiffs/cross defendants interest on costs and disbursements, at the rates set out in Schedule 5 Uniform Civil Procedure Rules, on the allowed percentage of each amount of costs and disbursements actually paid by the plaintiffs/cross defendants, from the date of payment by the plaintiffs/cross defendants of each such amount of costs and disbursements until the first to occur of:
(a) such time as the defendant/cross claimant pays the costs due to the plaintiffs/cross defendants under any order made in these proceedings, or
(b) the assessment of the costs to which the plaintiffs/cross defendants are entitled pursuant to the costs orders in their favour.
In this order X = the total amount of costs and disbursements which the plaintiffs/cross defendants have paid or are liable to pay to their legal advisers in connection with these proceedings, Y = the total amount of costs and disbursements allowed on assessment to the plaintiffs/cross defendants in connection with these proceedings. The allowed percentage equals ((y/x) x 100)%
(4) Grant liberty to the plaintiff's cross defendants to apply upon three days notice to the other parties for an order for payment of a specific amount in respect of the interest awarded upon costs pursuant to Order (3).
Catchwords: COSTS - indemnity costs - two offers by plaintiff - defendant failed to accept either - plaintiff achieved better outcome than both offers - first offer a Calderbank offer - whether failure by defendant to accept offer was unreasonable - no reference to "Calderbank" or "without prejudice" - sophisticated parties - required complex calculation of interest - short time period to respond - not unreasonable for defendant to refuse - second offer an offer of compromise - reference in offer to costs - whether complied with UCPR part 20 - whether "exclusive of costs" - principles applied by the courts - divergent authorities - no clear guideline - underlying principles of statutory interpretation - offer of compromise a complying offer - indemnity costs apply - in the alternative whether offer a non-complying offer analogous to Calderbank offer - whether genuine offer - whether unreasonable not to accept - offer in the circumstances a genuine informal offer to settle - indemnity costs apply Legislation Cited: Civil Procedure Act 2005
Motor Accidents Act 1988
Uniform Civil Procedure Rules 2005Cases Cited: 2144 Broke Road v ACN 062 859 358 [2010] NSWSC 489
Ambulance Service of NSW v Worley (No.2) [2006] NSWCA 236; (2006) 67 NSWLR 719
Associated Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349
Calderbank v Calderbank [1975] 3 All ER 333
Dean v Stockland Property Management Pty Ltd (No.2) [2010] NSWCA 141
Erect Safe Scaffolding (Australia) Pty Ltd v Sutton & Anor (No.2) [2008] NSWCA 289
Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No.2) [2008] NSWCA 85
Macquarie Radio Network Pty Ltd v Arthur Dent (No.2) [2007] NSWCA 339
Maitland Hospital v Fisher (No.2) [1992] 27 NSWLR 721
Miwa Pty Ltd v Siantan Properties Pte Ltd (No.2) [2011] NSWCA 344
Nominal Defendant v Hawkins [2011] NSWCA 93; (2011) 58 MVR 362
Old v McInnes & Hodgkinson [2011] NSWCA 410
Rail Corporation NSW v Vero Insurance Ltd [2012] NSWSC 632
San v Rumble (No.2) [2007] NSWCA 259, 48 MVR 492
The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No.2) [2006] NSWCA 120; (2006) 67 NSWLR 706
The Uniting Church v Takacs (No.2) [2008] NSWCA 172
Thiess Contractors Pty Ltd v SCI Operations Pty Ltd (Supreme Court of New South Wales, 21 September 1990, unreported)
Tickell v Trifleska Pty Ltd (1991) 25 NSWLR 353
Trustee for the Salvation Army (NSW) Property Trust v Becker (No.2) [2007] NSWCA 194
Vieira v O'Shea (No.2) [2012] NSWCA 121Category: Costs Parties: Rail Corporation NSW (P1)
Country Rail Infrastructure Authority (P2)
Vero Insurance Ltd (D)Representation: Counsel:
G Watson SC / D Lloyd (P1-P2)
R Burbidge QC / M Scott
Solicitors:
DLA Piper Australia (P1-P2)
Lander & Rogers (D)
File Number(s): 2008/289483
Judgment
On 8 June 2012, I delivered judgment in the principal proceedings: Rail Corporation NSW v Vero Insurance Ltd [2012] NSWSC 632.
Parties were directed to bring in short minutes of order.
On 29 June 2012, I made the following orders consequent upon deliver of the principal judgment:
(a) Judgment for the first plaintiff in the sum of $5,392,327.14;
(b) Judgment for the second plaintiff in the sum of $166,270.15.
The issue which now falls for determination in this judgment is the appropriate order for costs.
Offers with respect to costs
It will be necessary to record the various offers as to costs that were made between the parties.
Before doing so, it is appropriate I note some of the relevant dates:
(1) The collision giving rise to the claim occurred on 4 May 2004;
(2) A coronial inquest was held in 2006;
(3) The statement of claim in the proceedings was filed on 10 September 2008;
(4) The plaintiff completed serving its lay and expert evidence by 21 June 2010;
(5) On 5 October 2010, the Court ordered the question of quantum in the proceedings be referred to Mr O Stone, acting as a referee. Mr Stone's report was delivered on 16 February 2011;
(6) Mr Stone found that the proper quantum of the first plaintiff's claim was $3,179,286.14 and that the proper quantum of the second plaintiff's claim was $95,367.15;
(7) On 1 March 2011, the parties filed consent orders for the adoption of the report of Mr Stone;
(8) The hearing of the proceedings was fixed to commence on 18 April 2011.
It is clear from these dates that by the time each of the offers was made by the plaintiff, the defendant was fully aware of all of the issues to be litigated, and the likely quantum of the damages to which the plaintiffs would be entitled, if they succeeded.
The first offer was made by letter by the plaintiff to the defendant. The "without prejudice" letter, was faxed to the solicitors for the defendant on 7 March 2011, and was in these terms:
"We refer to the discussions between the parties at the mediation on 21 February 2011.
The plaintiffs will accept $3,500,000 inclusive of costs in full and final settlement of their claims against the defendant. It is a term and condition of the offer that the defendant agrees to verdicts in favour of the cross-defendants on both cross-claims and that each party pay their own costs.
The offer is open until 5pm on 11 March 2011."
No response was received to that offer and consequently, it lapsed without being accepted.
On 31 March 2011, the solicitor for the plaintiffs served by facsimile a Notice of Offer of Compromise on the defendant. It was expressed as follows:
"The first and second plaintiffs offer to compromise this action in whole on terms that:
1. Verdict and judgment for the plaintiffs as against the defendant in the sum of $2,600,000.
2. Defendant to pay the plaintiffs' costs and disbursements as agreed or assessed.
3. Verdict and judgment for the cross-defendant as against the cross-claimant on the first cross-claim.
4. Verdict and judgment for the cross-defendant as against the cross-claimant on the second cross-claim.
5. Cross-claimant to pay the cross-defendant's costs and disbursements of the first and second cross-claims as agreed or assessed.
This offer shall remain open to be accepted until 4pm Thursday 14 April 2011.
This Notice of Offer of Compromise is made in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW)."
This offer was not accepted, on or before Thursday 14 April 2011, and accordingly, it too lapsed.
Submissions
The plaintiffs submit that they are entitled to their costs on a party/party basis from the commencement of the proceedings until 7 March 2011, in accordance with the ordinary rule that costs follow the event.
In addition, the plaintiffs submit that they should have their costs on an indemnity basis with respect to the proceedings after 7 March 2011 as a result of achieving a better outcome than that contained in the letter of offer of this date.
Alternatively, the plaintiffs submit that by application of Part 42 of the Uniform Civil Procedure Rules 2005 ("UCPR"), having regard to the fact that it significantly bettered the Offer of Compromise which it made on 31 March 2011, it should have costs on an indemnity basis from that date.
The defendant accepts that the plaintiff should have its costs on a party/party basis of the proceedings as a whole, but disputes that the plaintiff has any entitlement to costs on an indemnity basis as and from 7 March 2011, or else as and from 31 March 2011.
The defendant submits that having regard to the terms of the Letter of Offer, which was expressed to be inclusive of costs, and which made no explicit reference to Calderbank v Calderbank [1975] 3 All ER 333, the Court could not conclude that it had acted unreasonably, in the short period for which the offer was open, by not accepting the offer.
With respect to the Offer of Compromise, the defendant submits that the offer did not comply with r 20.26 of the UCPR, and as a result, the cost regime of Part 42 of the UCPR is inapplicable. It submits, further, that, as a matter of discretion, the Court would not accept that the offer should be treated as a Calderbank offer, and so would not order costs on an indemnity basis.
The Statute and Rules relevant to Costs
Section 98(1) of the Civil Procedure Act 2005 provides that, subject to the UCPR, or any Act, costs are wholly within the discretion of the court. It provides that the court has full power to determine by whom, to whom, to what extent and upon what basis (ordinary or indemnity) costs are to be awarded.
Part 42 of the UCPR sets out some specific provisions with respect to costs. Principal amongst these provisions is r 42.1 which provides that the court is to order that costs follow the event "... unless it appears to the court that some other order should be made...".
Rule 42.2 provides that, unless the court otherwise orders, costs ordered to be paid are to be assessed on the ordinary basis.
Division 3 of Part 42 deals with Offers of Compromise. Rule 42.13 notes that the Division applies to proceedings in which an offer of compromise is made in accordance with r 20.26 with respect to a plaintiff's claim. It will be necessary to highlight r 20.26 and accompanying rules in due course. However, in considering Part 42, Division 3, the provisions of r 42.13A are of importance. They are relevantly:
"42.13A Where offer accepted
(1) This rule applies if the offer concerned:
(a) is made by the plaintiff and accepted by the defendant, or
(b) is made by the defendant and accepted by the plaintiff.
(2) The plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made, unless:
(a) the offer states that it is a verdict for the defendant and the parties are to bear their own costs, or
(b) the court orders otherwise.
..."
It is to be noted that the rule only applies once an offer is made by one party and accepted by the other. It has no other application. It also assumes that, except for the circumstances in r 42.13A(2)(a), that the offer that has been accepted does not include any specific agreement of the parties as to costs. That is because it provides a default provision, namely which party is to pay the costs with an exception, namely "... unless the court orders otherwise".
Rules 42.14, 42.15 and 42.15A deal with the regime of costs which is intended to have effect, subject to any order otherwise, where an offer is made by one party and is not accepted by the other party.
In the circumstances here, provided that an offer which complied with r 20.26 has been made, the appropriate rule is 42.14 which is in the following terms:
"42.14 Where offer not accepted and judgment no less favourable to plaintiff
(1) This rule applies if the offer concerned is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim concerned no less favourable to the plaintiff than the terms of the offer.
(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim:
(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and
(b) assessed on an indemnity basis:
(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and
(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."
Because the terms of Division 3 of Part 42 are premised upon an Offer of Compromise which complies with r 20.26 ("a complying offer"), it is necessary to identify and examine the rules which apply to offers of compromise.
Part 20 of the UCPR is entitled "Resolution of Proceedings without Hearing". It contains five divisions. The first three divisions refer to the resolution of proceedings by mediation, arbitration or by reference to a referee. The final division (Division 6) refers to a very limited circumstance of providing for the acknowledgement of a liquidated debt. It can be put aside in the context of the present proceedings.
The fourth division refers to the compromise of proceedings by the agreement of parties prior to a hearing, or else a final judicial determination of the proceedings.
The purport of the first three divisions is to provide a number of mechanisms to enable the determination of the dispute without resorting to a final judicial hearing. They provide mechanisms that may be appropriate, in particular cases, to enable the just, quick and cheap resolution of the real issues in the dispute or proceedings. Under the Court's control, they provide a mechanism by which the overriding purpose of the Civil Procedure Act may be fulfilled.
Each of the mechanisms of mediation, arbitration and reference to a referee require the active involvement of the Court, including determining that one or other of the mechanisms is appropriate, in the interests of justice, for the particular case. They require the Court to appoint the individual concerned - the mediator, arbitrator or referee. The Court may also be required to deal with various aspects of these mechanisms, before, or during or after, they have been concluded: eg a court is required to determine whether a referee's report is to be adopted in whole or in part, or else remitted to the referee for further explanation or report: see r 20.24 of the UCPR.
Division 4 of Part 20 of the UCPR is entitled "Compromise". Rule 20.26 is in the following terms:
"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.
(4) Despite subrule (1), a plaintiff may not make an offer unless the defendant has been given such particulars of the plaintiff's claim, and copies or originals of such documents available to the plaintiff, as are necessary to enable the defendant to fully consider the offer.
(5) If a plaintiff makes an offer, no order may be made in favour of the defendant on the ground that the plaintiff has not supplied particulars or documents, or has not supplied sufficient particulars or documents, unless:
(a) the defendant has informed the plaintiff in writing of that ground within 14 days after receiving the offer, or
(b) the court orders otherwise.
(6) An offer may be expressed to be limited as to the time it is open for acceptance.
(7) The following provisions apply if an offer is limited as to the time it is open for acceptance:
(a) the closing date for acceptance of the offer must not be less than 28 days after the date on which the offer is made, in the case of an offer made 2 months or more before the date set down for commencement of the trial,
(b) the offer must be left open for such time as is reasonable in the circumstances, in the case of an offer made less than 2 months before the date set down for commencement of the trial.
(8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer.
(9) An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides.
(10) A party may make more than one offer in relation to the same claim.
(11) Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer.
(12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division."
Rule 20.27 provides for the acceptance of an offer. It does not permit an offer to be accepted in part, rather it requires that the whole of an offer be accepted. The balance of the provisions in the Division need not be specifically noted, as they do not have any direct application to the issues raised in this application. They may assist by providing context.
It is of importance to note that an offer to compromise proceedings in accordance with r 20.26 is initiated at any time by one party, and may be accepted or rejected by the other party. The Court has no role to play in this litigant negotiated and controlled procedure which ends in a compromise of the proceedings. The parties are free to choose whether an offer is made at all, the terms of an offer, the period during which the offer is to remain open, when the offer is made and the number of offers which are made. They are required only to ensure that the offer accords with the UCPR, if the various costs regimes are to be engaged.
This Division represents the only mechanism created by the UCPR for the parties themselves to engage in a procedure leading to a compromise and thus, is an entirely party driven and controlled mechanism by which the litigants can fulfil their duty to the Court as articulated in s 56 of the Civil Procedure Act.
There are other mechanisms of the traditional kind, such as informal settlement conferences, without prejudice negotiations and Calderbank offers which are open to litigants, but they all stand outside the UCPR.
In seeking to understand and apply the provisions of Division 4 of Part 20, it is appropriate to do so, having recognised the particular features of the Division, in the context of the overriding purpose of the Civil Procedure Act and the UCPR, which, as articulated by s 56 of the Act, is:
"... to facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings."
The Letter of Offer of 7 March 2011
This letter did not explicitly refer to the principles derived from Calderbank v Calderbank. However, it was made just two weeks after the parties had participated in a mediation. All of the parties involved in the litigation are large corporate entities which are well versed in litigation. They are sophisticated parties with access to lawyers who are themselves well experienced in litigation. I do not think that the resolution of what order, if any, should be made arising from this letter of offer, should depend upon the fact that the letter made no specific reference to Calderbank, nor that it did not include the phrase "Without Prejudice save as to Costs".
Whilst it is important that parties are on notice that reliance is to be placed on an offer, if not accepted, when an application for costs is later made, sophisticated parties, experienced in litigation, who are ably represented by lawyers who are also experienced in litigation, ought be expected to understand and appreciate that, if an offer is unreasonably rejected (or not accepted), costs consequences are likely to ensue.
However, before an order for costs on an indemnity basis is made upon the basis that the defendant did not accept this offer, the plaintiffs bear the onus of satisfying the Court that the failure to accept the offer was unreasonable on the part of the defendant.
Unless the offer was a genuine compromise, it may not have been unreasonable of the defendant not to accept it. Equally, if insufficient time was allowed for the proper consideration of the offer, having regards to its terms, then the defendant's conduct may not be unreasonable.
Here, the referee, Mr Stone had determined that the quantum of the claim of the plaintiffs, if successful, was, in total, a little under $3.275 million. This did not include any amount for interest.
There is no evidence before the Court as to what the legal costs of the plaintiffs were in March 2011, nor is there any evidence which would allow the Court to make any proper estimate of how much the plaintiffs costs were likely to be up to the date of the letter of offer.
Whilst I do not leave out of my considerations that there had been a mediation two weeks earlier, and that ordinarily the Court could expect that the parties, in preparation for, or else in the conduct of, the mediation would have informed themselves of the quantum of their own legal costs, and the likely sum of their opponent's legal costs, I am not prepared to hold that the defendant's conduct in refusing this offer was unreasonable.
In my opinion, the likely real element of compromise was interest. This is on the basis that I would notionally allow $225,000 as a sum for recoverable costs of the plaintiffs. But the calculation of interest was not easy. The repairs to the infrastructure and the rolling stock took place over a lengthy period of time and payments were made in various amounts and on various dates. To realistically assess the nature and extent of the compromise required the defendant to obtain these details, assess the extent of the savings and interest to be made and then take advice from its lawyers. I do not think that a failure to accept this offer in the four clear working days between the receipt of the letter and the imposed deadline, was unreasonable: cf 2144 Broke Road v ACN 062 859 358 [2010] NSWSC 489 at [26] per McDougall J.
Shortly put, because the time period was too short for some quite complex calculations to be made under the judgment to be formed, I would not make an order against the defendant for indemnity costs based on the letter of 7 March 2011.
Was the offer of 31 March 2011 a complying offer?
It is clear that the plaintiff served a formal Notice of Offer of Compromise, on the defendant on 31 March 2011. As noted in [10] above, the Notice of Offer contained a number of features. The offer made in the Notice was to compromise the whole of the proceedings on the terms specified. The notice made two other statements, namely that:
(a) the offer was nominated as open for a specified period; and
(b) the notice of offer was said to be made in accordance with r 20.26 of the UCPR.
The plaintiff submits that the Offer was a complying one, and that the costs regime contemplated by the UCPR ought apply. In the alternative, the plaintiff submits that the Court would, if the Offer were a non-complying one, hold that it had the same effect as a Calderbank offer, and the defendant acted unreasonably in failing to accept it.
The defendant, which has now been ordered as a consequence of the judgment to pay considerably more than the plaintiff offered to accept in the Notice of Offer, submits that the Notice of Offer was not a complying one and that, accordingly, it is not a proper basis for the application of the costs regime contemplated by r 42.14 of the UCPR. As well, the defendant submits that the Offer is not an adequate basis on any other principle to order indemnity costs.
In order to analyse these submissions it is necessary to identify the principles that the Courts have applied to the determination of how offers of compromise are to be dealt with. In so doing, it will become apparent that not all of the decided cases are consistent with each other.
The policy underlying the general rules as to offers of compromise and indemnity costs contained in the Supreme Court Rules, was discussed by the Court of Appeal, Kirby P, Mahoney JA and Samuels AJA, in Maitland Hospital v Fisher (No.2) [1992] 27 NSWLR 721. At 724, the Court said:
"It is the obvious intention of the rule to oblige a defendant, which has received an offer of compromise, to give serious thought to the risk which it may run of losing the proceedings and then being ordered to pay costs on an indemnity basis.
The objects of the rule include:
1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promotion early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its 'bottom line' will be revealed to the court;
2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and as found, reasonable) offer of compromise made by a plaintiff to a defendant; and
3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation."
Although these remarks were made with specific reference to Part 52 r 17 of the Supreme Court Rules 1970, the terms of that rule are sufficiently close to the provisions of Part 20 and Part 42 of the UCPR, as to be directly applicable.
These remarks have subsequently been applied in a number of decisions: Nominal Defendant v Hawkins [2011] NSWCA 93 at [76] and Miwa Pty Ltd v Siantan Properties Pte Ltd (No.2) [2011] NSWCA 344.
As Rogers CJ Comm D said in Tickell v Trifleska Pty Ltd (1991) 25 NSWLR 354-355:
"It is the primary aim of any judicial system to attempt to bring the parties to a point where, with fairness to themselves, they are able to dispose of the dispute between them by compromise. It is only in the last resort that a dispute should proceed to trial and to determination. That is for any number of reasons. It is in the interests of the community that scarce resources, such as the Court, should not be overtaxed. It is in the interests of the community and of the parties themselves that they should not engage in the rancour which a dispute in court necessarily entails. It is in the interest of the parties themselves to save themselves the expenditure of time and energy necessarily entailed in participation in contested court proceedings."
Having regard to these underlying principles and the purpose of the relevant parts of the UCPR, it is necessary to consider when an offer complies with r 20.26 of the UCPR.
In Trustee for the Salvation Army (NSW) Property Trust v Becker (No.2) [2007] NSWCA 194, Ipp JA, with whom Mason P and McColl JA agreed, held that an offer of compromise expressed to be inclusive of the costs of the proceedings, was not a complying offer in accordance with r 20.26.
In so holding, Ipp JA at [22] applied the reasoning of Giles J in Associated Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349. In that case, Giles J was dealing with an offer which was in these terms:
"The defendant offers to compromise these proceedings including all claims between the parties by payment by the plaintiff to the defendant in the sum of $135,000 inclusive of costs."
Giles J held that there was a conflict between the terms of the offer and the provisions of Part 52 r 17(1) of the Supreme Court Rules, with the consequence that Part 52 r 17(2) of the Supreme Court Rules was engaged, which provided that if a notice of offer contained a term which purported to negative or limit the operation of sub-rule (1), that term would be of no effect.
This conclusion of Giles J was consistent with an earlier decision of Rogers CJ Comm D in Thiess Contractors Pty Ltd v SCI Operations Pty Ltd (Supreme Court of New South Wales, 21 September 1990, unreported).
The central basis of the Court's reasoning in Becker rests on the conflict between the terms of the offer and the specific provision of the UCPR.
In The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No.2) [2006] NSWCA 120; (2006) 67 NSWLR 706, Basten JA, with whom Santow J and Young CJ in Eq agreed, when dealing with an offer which stated that it was "exclusive of legal costs" and further provided "costs of the District Court proceedings and the appeal proceedings to be agreed or assessed", said at [15]:
"Rule 20.26(2) provides that an offer must be exclusive of costs: this offer clearly was. The further sentence quoted above is not inconsistent with the operation of r 42.14 and does not purport to exclude, modify or restrict the operation of that rule, contrary to r 20.26(12). Although in its written submissions the respondent submitted that a contrary conclusion should be accepted, no reason for that conclusion was put forward, and the words of the offer should not be so read."
To the extent that the Offer provided that the costs were to be agreed or assessed, having regard to the fact that a monetary sum was the substance of the Offer, and although this is not entirely clear, it does seem that this term required that the defendant pay the plaintiff's costs.
His Honour's remarks, seen in this context, suggest that even though the offer did not contemplate, or leave open that the Court may otherwise order, as provided for in r 42.14(2), this was no offence to the terms of r 20.26(12).
What seems to be the central reasoning of this decision is the requirement that it be clear from the terms of the Offer, that the monetary sum on offer is a sum which does not include any component for legal costs, and that any term dealing with costs is one which does not offend against the provisions of r 20.26(12), or else is in accordance with r 42.14.
In Dean v Stockland Property Management Pty Ltd (No.2) [2010] NSWCA 141, Giles JA, Handley AJA and Whealy J, with respect to an offer made in the Court of Appeal and expressed in the following terms:
"1. Appeal allowed;
2. Verdict and judgment in the Court below set aside;
3. Proceedings remitted to the District Court for re-trial;
4. Each party to pay its own costs of the appeal;
5. Costs of the first trial to follow the event of the second trial."
expressed this view:
"21 The UCPR regime differs in some respects from that of the Supreme Court Rules. Broad equivalents to r 52.17(2) and (2) are found in rr 42.13A and 20.26(12). But the position of an offer which is not exclusive of costs is now specifically governed by r 20.26(2).
22 The continued reasoning of inconsistency between an offer and the provisions of the UCPR with respect to costs has been recognised in Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) [2007] NSWCA 194 at [23] and Atkinson v Zey [2008] NSWCA 30 at [7].
23 The exception in r 20.26(2), from the reference to a verdict, appears to be restricted to common law proceedings for money sums. If there is a verdict for the defendant there is no money sum, and so no complication from an unknown amount of the defendant's costs. Although the appellant did not so submit, it could be argued that r 20.26(2) means that an offer involving payment of a money sum must not be inclusive of costs.
24 On that argument, the requirement that the offer of compromise be exclusive of costs suggests that the costs are ancillary to a substantive offer from the rationale perceived in Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd, the substantive offer must be one involving the payment of a money sum. The exception might support the argument. And a party in the position of the appellant, and others in a similar position such as a plaintiff claiming relief not involving payment of a money sum, should not be excluded from ability to make an offer of compromise under the UCPR in which the element of compromise is costs.
25 However, there are also arguments for the meaning that an offer of compromise can not involve costs at all.
26 The governing reasoning is inconsistency between an offer of compromise and the provisions of the rules with respect to costs. An offer of compromise involving costs will not necessarily be of no effect by force of r 20.26(12), because the costs will not necessarily be inconsistent with a plaintiff's (or defendant's) entitlement to an order for costs. But even in cases not involving payment of a money sum, such as the present case, there will be the inconsistency. And the language of the rule does not confine exclusivity to only some kinds of offers of compromise. The phrase "exclusive of" means "excluding, not compromising of"; "that excludes"; or "so as to exclude" (Colonial Mutual Life Assurance Society Ltd v Australian and Overseas Telecommunications Corporation Ltd (1993) ANZ Conv R 347). On a natural reading, the requirement that an offer of compromise be exclusive of costs means that it may not involve costs at all."
The Court did note that there were no submissions put to contradict the proposition that the offer was a non-complying one.
The Court went on to hold that the offer was of no effect for the purposes of the regime under the UCPR. But in so doing, the Court adopted and approved of the approach in Becker (No.2).
In Old v McInnes & Hodgkinson [2011] NSWCA 410, Meagher JA, with whom Giles JA agreed, said, of an offer which was expressed in the following terms:
"1 Judgment for the plaintiff against the first defendant in the sum of $8,190
2. First defendant to pay the plaintiff's costs as agreed or assessed."
this at [105]:
"Neither of the offers made on behalf of Mr McInnes was 'exclusive' of costs or within the exception in r 20.6(2). Each provided that Mr McInnes should pay Mr Old's costs 'as agreed or assessed'. For that reason, neither was an offer in fact 'made under r 20.26' for the purposes of UCPR r 42.13, and accordingly each was of no effect for the purposes of the offer of compromise regime under the UCPR."
I note in this extract, in the second line is a reference to r 20.6(2). This seems to be a typographical error, as his Honour was, I think, intending to refer to r 20.26(2) which is where the relevant exception to which he refers is to be found.
His Honour does not set out any further reasoning in support of his conclusion but draws attention to the earlier decisions of Becker and Deane.
Beazley JA also concluded that "the offer did not conform to UCPR, r 20.26, because it included an offer that Mr McInnes pay Mr Old's costs". Her Honour specifically noted however that there was no inconsistency between the terms of the offer and the costs regime in Part 42 of the UCPR.
The matter was again considered by the Court of Appeal more recently in Vieira v O'Shea (No.2) [2012] NSWCA 121, where the Court, which comprised Basten and Meagher JJA and Handley AJA were dealing with an offer made by the appellant/plaintiff which offered to compromise the appeal and his action upon the basis of a judgment in favour of the plaintiff for a monetary sum.
The respondent/defendant contended that the offer was not a complying offer because it did not state that it was "exclusive of the costs". The Court rejected this argument saying that such a statement was unnecessary. It held that it was a matter for the Court to determine, if in fact the offer was exclusive of costs, because the effect of the offer "... will be to engage the relevant costs rule in Pt 42" [13].
The Court was also asked to consider the effect of an offer of compromise, which had been made in the trial court, where the plaintiff was claiming $258,710 plus additional upkeep and maintenance costs for a horse. In respect of this claim, the plaintiff served a formal Offer of Compromise which sought to comprise the whole action for $215,600 "...with the defendants to pay his costs" [5].
It was necessary for the Court of Appeal to consider whether this was a complying offer so as to determine what orders it should make on the appeal with respect to the trial below.
In dealing with whether or not the offer was a complying offer, the Court said this:
"7. In written submissions in support of the motion, the appellant conceded that the offer did not comply with the UCPR because it was not "exclusive of costs". It is true that the offer was not stated to be exclusive of costs: the statement as to costs could have been understood as indicating that the offer was indeed not inclusive of costs, but was otherwise otiose as the same costs consequences followed from the application of the rules. ... The UCPR are to be construed by reference to their apparent purpose. A mere reference to costs in an offer otherwise compliant with Part 20, Div 4 will not take the offer outside the rules unless the reference operates inconsistently with the relevant costs rule: Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141, (Giles JA, Handley AJA, Whealy J) at [26]-[29]. The offer, if accepted, entitled the offeror to his costs: the offer did not seek to vary the effect of UCPR r 42.13A." (Emphasis added)
It is to be observed that the discussion by the Court, in this case, suggests that, contrary to what the Court said in Old, a reference to costs does not mean that the offer is not a complying offer, unless the reference to costs is inconsistent with the relevant costs rules. It is also to be observed that the phrase "reference to costs" is seen as an apt description of a term of an offer that the defendant pay the plaintiff 's costs.
It too, relies upon the decision of Deane as authority for that proposition.
Other decisions
There have been many previous decisions of the Court of Appeal and single Judges of the Court who have held that an Offer of Compromise which provides for a defined sum of money, which is expressed to be either "plus costs", or "together with costs" or a similarly worded, but separate, term of the offer, is an offer which ought be in compliance with r 20.26. Often these cases do not involve any detailed analysis, or else involve implicitly a finding of compliance with r 20.26. It is significant that none of these decisions found any offer to be a non-complying one, unless it was expressed to be "... inclusive of costs.".
In Ambulance Service of NSW v Worley (No.2) [2006] NSWCA 236; (2006) 67 NSWLR 719, the Court of Appeal, Basten JA, Tobias and McCool JJA agreeing, held that an offer by a defendant to a plaintiff of a judgment for $1.5 million plus costs, was an offer which complied with r 20.26 of the UCPR: see [19], [22].
In Macquarie Radio Network Pty Ltd v Arthur Dent (No.2) [2007] NSWCA 339, the Court of Appeal, Beasley JA, Mason P and Basten JA agreeing, held that an offer by the plaintiff to settle proceedings on terms of "...accepting the sum of $70,000, plus costs ..." was an offer which complied with r 20.26 of the UCPR. At [10], Beasley JA said:
"The offer of compromise made by the respondent satisfied the requirements of Part 20 Division 4 of the UCPR, in particular r 20.26."
In San v Rumble (No.2) [2007] NSWCA 259, 48 MVR 492 the Court of Appeal, Campbell JA, Beasley and Ipp JJA agreeing, held that two separate offers of compromise by a defendant to pay a specified sum to the plaintiff plus costs and settle the proceedings, implicitly, that the offers were each offers which complies with the Rules. This finding was obiter, because the central question was whether r 42.14 was capable of applying in circumstances where a claim for damages was under the Motor Accidents Act 1988.
The finding that r 42.14 did not apply to such proceedings necessarily meant that the finding that the offers were complying offers was obiter. However, there was no suggestion that these offers were not complying.
In The Uniting Church v Takacs (No.2) [2008] NSWCA 172, the Court of Appeal, Hodgson JA, McColl and Basten JJA agreeing, held that an offer to compromise on the basis of a judgment for the plaintiff in the sum of $20,000, with the defendant to pay the plaintiff's costs, was a complying offer.
In Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No.2) [2008] NSWCA 85, the Court, Basten JA, Giles and Tobias JJA agreeing on this point, held that an offer of compromise which offered by the defendant to pay the plaintiff "...$1.25 million plus costs", was a complying offer.
In Nominal Defendant v Hawkins [2011] NSWCA 93; (2011) 58 MVR 362, the Court of Appeal, Hodgson JA, Beasley and Sackville AJA agreeing, when dealing with the appropriateness of the decision of a trial Judge on a refusal to order indemnity costs after an offer of compromise, which offered to settle on the basis of a judgment for the plaintiff in a nominated sum, plus the defendant to pay the plaintiff's costs, did not hold that the offer of compromise was a non-complying offer. On the contrary, it seems essentially implicit from the judgment that the Court regarded the offer as a complying offer.
In Erect Safe Scaffolding (Australia) Pty Ltd v Sutton & Anor (No.2) [2008] NSWCA 289, Giles JA, with whom Basten JA and McClellan CJ at CL agreed, said at [16] this:
"16. A further question arises with respect to costs. Because the rules make their own provision with respect to the costs of proceedings, both where an offer has been accepted (r 42.13A) and where it is not accepted (r 42.14-r 42.15A), a valid offer under Part 20 must, except where this is to be 'verdict for the defendant and ... the parties are to bear their own costs' be 'exclusive of costs': r 20.26(2). The rationale for this provision is that an inclusive offer would be inconsistent with the legislative scheme: see, in relation to a previous rule, Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349 at 350-351 and Atkinson v Zey at [6]-[7].
17. Despite the reference to a verdict for the defendant, with each party to bear its own costs, there seems to be no reason in principle why an offer could not be made by a plaintiff seeking a judgment, but agreeing to waive any entitlement to costs, if the offer were to be accepted. An offer made prior to trial, expressed to be 'plus costs' may be intended to do no more than make it clear that the offer is not inclusive of costs, but that an entitlement to costs will flow pursuant to the rules. However, an offer expressed in this way after trial involves new elements of uncertainty. For example, is the reference to 'plus costs' intended to refer to the costs of the trial, or to the costs of the appeal?" As there was no contention that the costs of the trial were to be taken into account, the only question relevant for present purposes concerns the costs of the appeal, as to which the submissions are addressed below."
His Honour went on to note that it was not submitted to the Court that the offer of compromise was ineffective because "plus costs as agreed or assessed" offended the requirement of r 20.26(2). The Court did not go on to hold that the offer infringed the rule.
Analysis
It is, with respect, to the various decisions of the Court of Appeal, difficult to identify a consistency of approach to the issue of whether an Offer of Compromise complies with r 20.26 if it includes a term which provides for the payment of costs by one party to the other.
All of the authorities, and the explicit language of the UCPR make it clear that if a monetary offer is expressed to be "inclusive of costs" it does not comply with the UCPR. So much may be accepted. It is not relevant in this case.
But, what if the offer contains a sum of money which is plainly exclusive of costs, and the notice of offer also refers to an offer of costs which is not inconsistent with the costs regime?
This was not held in Dean to be a non-complying offer, nor seemingly in Vieira. Nor in many of the other decisions to which reference has been. Yet, without extensive reasoning or explanation, it was accepted as such in Old.
Since no clear or consistent guideline is available by which it is clear that I am bound, it is necessary to have regard to the underlying principles of statutory interpretation and to engage in a purposive construction of the relevant provisions of the UCPR.
In so doing, for the reasons which follow, I would conclude that the offer in this case is one which complies with r 20.26 of the UCPR.
Firstly, it is obviously in the Court's interests that parties can engage in the Offer of Compromise process so as to settle the litigation in which they are engaged in a simple and straightforward way, and one which provides a certainty of outcome.
The real benefit of an offer of compromise made by a formal notice is that it provides a clarity to the recipient of what they are entitled to expect if they settle the case. That is because the recipient will know how much they are to receive (or pay) and can compare this to their assessed prospects in the litigation. The party making the offer seeks to be in no different position.
Secondly, it is manifestly desirable that an offer should contain each of two elements, namely, a monetary component (if that be the appropriate term), and a separate clause which deals with costs. It is only by specifically referring to each of these two elements that certainty can be achieved from the perspective of either the offeror or the offeree.
It would be a most uncertain outcome for a party to accept a monetary offer of compromise and, if, having accepted it in the belief that costs would follow the event, and that party would be entitled to costs, the opposing party could apply to the Court to "otherwise order" without notice to the party which has accepted the offer, and after the offer has been accepted. That is one possible consequence if a separate provision with respect to costs means that the Offer of Compromise is a non-complying one, because in order to engage the UCPR costs regime, if costs cannot be mentioned, uncertainty must follow.
As well, where the offer does not involve any inconsistency with the UCPR, and provides that costs follow the event, that is, that the party offering a monetary judgment would also pay the costs of the opposing party, thereby merely seeking to clarify the position namely that the offering party does not propose to seek that the Court "otherwise order", it is hard to see why such an offer is inimical to the just, quick and cheap disposal of the proceedings.
It is difficult to discern why including a term of that kind would cause an offer to be a non-complying offer.
Thirdly, when interpreting r 20.26 of the UCPR, it is my opinion that the gravamen of the rule requiring an offer to be "exclusive of costs", is designed to prevent an offering party expressing the offer as "inclusive of costs". There is an obvious reason why preventing this is desirable. That is because if an offer is not accepted, and ultimately the offeree obtains a more beneficial result, or at least contends that it has, then a court will not be in a position to make such a judgment without engaging in an assessment of the costs due at the time the offer was made. This is an expensive, and an unnecessary and unproductive exercise in determining, hypothetically, something for which there is no obvious benefit.
By making the monetary verdict exclusive, that is, not inclusive, of costs, the UCPR facilitates the later comparison of whether or not a party is "better off" as a consequence of the ultimate judgment when compared with the offer that was made.
In all of those circumstances, I would hold that the offer in this case is a complying offer and accordingly, the costs regime provided for by the UCPR ought apply with the consequence that the defendant should pay indemnity costs as and from the date the offer was made, namely 31 March 2011.
A Non-Complying Offer
If my conclusion that the Offer of Compromise was a complying offer is in error, I am asked to hold that such a non-complying offer would nevertheless attract an order for indemnity costs because it ought be regarded as analogous to a Calderbank offer.
As the Court of Appeal said in Miwa Pty Ltd v Siantan Properties Pte Ltd (No.2) [2011] NSWCA 344 at [8] per Basten JA with whom McColl and Campbell JJA agreed, when a court is considering whether a non-complying offer, which can be characterised as an informal offer, ought trigger an order for indemnity costs, the approach frequently adopted in NSW has been to ask two questions, namely, whether:
(a) there was a genuine offer of compromise; and
(b) it was unreasonable for the offeree not to accept it.
In this case, having regard to the monetary sums involved, I am satisfied that there was a genuine offer of compromise. Clearly, the plaintiffs were offering to accept significantly less than they were entitled to.
The second question of whether it was unreasonable for the defendant to fail to accept the offer is more complex.
In Miwa, the Court of Appeal approved the factors identified in a Victorian Court of Appeal decision in the following terms:
"12 In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 the Court of Appeal (Warren CJ, Maxwell P and Harper AJA) identified the factors relevant to determining whether the rejection of an offer was unreasonable as including the following:
'(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree's prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed;
(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.' "
It is correct that the letter enclosing the Notice of Offer of Compromise did not refer to, nor make any suggestion that, if not accepted, the offer of compromise would be relied upon as a Calderbank offer: see Becker at [11], Old at [100]. It was on this basis that the defendant submitted that the Court would not proceed to make an order for indemnity costs.
It is necessary to attempt to discern the intention of the plaintiffs in making the offer, namely, whether they would rely on the offer with respect to an application for indemnity costs.
As I have indicated earlier at [35], having regard to the skill and capacity, and the nature of the parties in this case together with their lawyers, I have not the slightest doubt that the defendant was aware that the offer could be relied upon as a basis for a claim for indemnity costs when it chose not to accept it.
And, differently from my conclusion with respect to the initial without prejudice offer made by letter dated 7 March 2011, by the time the offer of compromise was served, the defendant had had more than sufficient time to engage in the making of the calculations necessary with respect to interest, to be in a position to respond to the offer of compromise without any undue burden or rush.
The defendant led no evidence as to whether it was difficult to obtain instructions in the period limited by the offer of compromise, nor what attitude it formed to that offer. In the absence of such evidence pointing to any difficulties which may have attended the failure to accept the offer, and having regard to the history of the proceedings including the mediation and the previous letter of offer, together with the approaching hearing date, I would not hold that it was reasonable for the defendant not to accept the offer. On the contrary, in my view, having regard to the matters to which I have made reference in the factual matrix described in this and my previous judgment, I am well satisfied that it was unreasonable for the defendant not to have accepted this offer.
So, if contrary to my conclusion, the Offer of Compromise was not an offer which complied with the provisions of Part 20 of the UCPR, then I would be prepared to order that the defendant pay the plaintiff's costs on an indemnity basis, because in my view the Offer of Compromise in those circumstances constitute a genuine informal offer to settle the proceedings,
Interest on costs
The plaintiff seeks an order making provision for interest on costs.
That is appropriate. The defendant did not contend that the form of the order was inappropriate, nor were the facts such that an order ought not to be made.
Orders
I make the following orders:
(1) The defendant/cross claimant to pay the plaintiffs'/cross defendants' costs of the proceedings (including the cross claims) on an ordinary basis up to and including 31 March 2011.
(2) The defendant/cross claimant to pay the plaintiffs'/cross defendants' costs of the proceedings (including the cross claims) on an indemnity basis from 1 April 2011.
(3) Order the defendant/cross claimant to pay to the plaintiffs/cross defendants interest on costs and disbursements, at the rates set out in Schedule 5 Uniform Civil Procedure Rules, on the allowed percentage of each amount of costs and disbursements actually paid by the plaintiffs/cross defendants, from the date of payment by the plaintiffs/cross defendants of each such amount of costs and disbursements until the first to occur of:
(a) such time as the defendant/cross claimant pays the costs due to the plaintiffs/cross defendants under any order made in these proceedings, or
(b) the assessment of the costs to which the plaintiffs/cross defendants are entitled pursuant to the costs orders in their favour.
In this order X = the total amount of costs and disbursements which the plaintiffs/cross defendants have paid or are liable to pay to their legal advisers in connection with these proceedings, Y = the total amount of costs and disbursements allowed on assessment to the plaintiffs/cross defendants in connection with these proceedings. The allowed percentage equals ((y/x) x 100)%
(4) Grant liberty to the plaintiff's cross defendants to apply upon three days notice to the other parties for an order for payment of a specific amount in respect of the interest awarded upon costs pursuant to Order (3).
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Decision last updated: 17 August 2012
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