Sampson v Prest & O'Connor Pty Ltd & Anor (No.3)

[2004] NSWSC 568

CITATION:	Sampson v Prest & O'Connor Pty Ltd & Anor (No.3) [2004] NSWSC 568
HEARING DATE(S):	5-8, 14 April 2004 13 May 2004
JUDGMENT DATE:	30 June 2004
JURISDICTION:	Common Law
JUDGMENT OF:	Sperling J at 1
DECISION:	(1) The first defendant to pay the plaintiff's costs of the proceedings on an indemnity basis from 8 August 2001 and on a party and party basis prior to that date; (2) The first defendant to pay the second defendant's costs of the proceedings on a party and party basis.
CATCHWORDS:	Costs - whether a successful defendant precluded from recovering costs against an unsuccessful defendant by reason of failure to call evidence at an arbitration hearing - whether successful defendant entitled to costs against an unsuccessful defendant on an indemnity basis in reliance upon non-acceptance of an offer to contribute as a Calderbank letter - whether non-acceptance of offer to contribute unreasonable
LEGISLATION CITED:	Arbitration (Civil) Civil Actions Act 1983 Supreme Court Rules 1970: Pt22 r1A, r12; Pt52A r24
CASES CITED:	Fowdh v Fowdh & Anor (NSWCA, 4 November 1993, unreported) Griffiths v Kerkemeyer (1977) 139 CLR 161 Hillier v Sheather (1995) 36 NSWLR 414 Jones v Dunkel (1959) 101 CLR 298 MacDougall v Curlevski (1996) 40 NSWLR 430 Quach v Mustafa (NSWCA, 15 June 1995, unreported) Sampson v Prest & O'Connor Pty Ltd & Anor [2004] NSWSC 318 Van Dore v Mendiz & Ors (No2) (NSWSC, 30 June 1997, unreported)
PARTIES :	Errol Clyde Sampson Prest & O'Connor Pty Ltd A J Lucas Networks Ltd & Downer Construction (Australia) Pty Ltd t/a Lucas Downer Joint Venture
FILE NUMBER(S):	SC 20015/02
COUNSEL:	Mr R Foord for the Plaintiff Mr P N Khandhar for the First Defendant Mr A P Coleman with Mr D M Jay for the Second Defendant
SOLICITORS:	Kingston Swift Solicitors for the Plaintiff Turkslegal Solicitors for the First Defendant Hunt & Hunt Lawyers for the Second Defendant

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IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

Sperling J

Wednesday, 30 June 2004

20015/02 Errol Clyde Sampson v Prest & O’Connor Pty Ltd & Anor

Judgment (No.3) – On costs

1 His Honour:

Judgment in the cause

2 On 23 April 2004, I gave judgment in these proceedings, holding the first defendant liable to the plaintiff and holding that the second defendant was not liable: Sampson v Prest & O'Connor Pty Ltd & Anor [2004] NSWSC 318. I also made findings concerning the quantification of damages. Judgment has now been entered in favour of the plaintiff against the first defendant in the sum of $994,486.54.

3 The plaintiff received injury in the course of his employment with the first defendant while collecting an item from the second defendant’s premises.

4 Evidence was given at the hearing before me by the plaintiff, by a senior employee of the first defendant, Mr Gemmill, and by the second defendant’s storeman, Mr Dunn. I need not refer to other evidence relating to liability.

5 The plaintiff gave evidence that, initially, materials were collected from the second defendant’s premises with Mr Dunn’s involvement. Mr Dunn gave evidence that it was his practice to arrange for a forklift to be provided as necessary in that regard. The plaintiff said that, shortly before the accident, Mr Gemmill changed that system by a direction that the first defendant’s employees were to take what they needed from the second defendant’s premises and were not to trouble Mr Dunn. According to the plaintiff, materials were collected under the new system before his accident.

6 Mr Gemmill gave no evidence to the contrary. Mr Dunn gave evidence that the initial system was not changed so far as he was aware.

7 I found the facts according to the plaintiff’s evidence.

8 Because it is relevant to an argument advanced in relation to costs, I provide the following further detail in relation to Mr Dunn’s evidence. He gave the following evidence in chief (Tr 122):

Q. Did you ever have a conversation with a Mr Gemmill in relation to the Prest & O'Connor employees seeking you out or contacting you when they wanted to obtain equipment?
A I cannot remember.
Q. Did you ever tell him that they weren't to contact you or not to bother you?
A. No.
Q. The method by which the Prest & O'Connor employees obtained equipment that you've told his Honour about, during the course of the Richmond Estate job, did that change at all?
A. No, it did not.

In cross-examination, he gave the following evidence (at Tr 148):

Q. Would it be that there was a system in place then that Prest & O'Connor employees could come and collect materials without notifying you, but the next day or a couple of days later, or at the end of the week, you would then be informed what materials had been collected?
A. No.

9 I found that Mr Dunn must have been aware, during the period immediately prior to the accident, that materials were being collected by employees of the first defendant without his knowledge at the time of collection (as, indeed, had occurred on the occasion of the accident); but that it was not established as against the second defendant that it was aware, through Mr Dunn or anyone else, that employees of the first defendant had been instructed to collect materials without informing Mr Dunn that they were there.

10 In the result, I found that the first defendant was negligent in failing to take reasonable care to avoid the foreseeable risk of injury to its employees arising from a possible attempt by them to obtain materials which could not be safely accessed without assistance from the second defendant, either by having a system for notifying the second defendant whenever materials were required (so that they could be put out for safe collection) or by not changing the pre-existing arrangements (under which the second defendant’s staff were available to provide assistance as required).

11 I found that negligence had not been established on the part of the second defendant because, although I inferred that Mr Dunn was aware that the first defendant’s employees were collecting materials without the second defendant being informed, I did not infer that he knew that the first defendant’s employees had been instructed not to trouble him and, accordingly, that an attempt might be made to remove materials which were not safely accessible without the kind of assistance which was previously provided.

The history of the proceedings up to the arbitration

12 These proceedings were commenced by ordinary statement of claim filed in the District Court on 4 September 2000. Initially, the first defendant was the only defendant.

13 On 28 April 2001, the second defendant was joined as a defendant by leave granted on 23 April 2001.

14 On 8 August 2001, the plaintiff served a notice of compromise:

The Plaintiff offers to compromise this claim on the following terms: the Defendants to pay the Plaintiff the sum of $700,000.00 plus costs plus workers compensation payments made to date.

15 By order made on 8 October 2001, the proceedings were transferred to this court.

16 On 28 May 2002, the first defendant filed a cross-claim against the second defendant, seeking indemnity or contribution.

17 On 26 June 2002, the second defendant filed a cross-claim against the first defendant.

18 At a status conference on 18 February 2003, proceedings were listed for arbitration pursuant to the Arbitration (Civil) Actions Act 1983, on 4 July 2003.

19 On 10 June 2003, the second defendant made an offer of contribution in the following terms:

1. The Second Defendant hereby offers by way of Offer of Contribution to contribute 10% to any verdict or settlement in favour of the Plaintiff with equivalent contribution to the Plaintiff costs as assessed or agreed.
2. This offer is conditional on the Second Defendant being further indemnified in these proceedings (including as to Cross Claims by and upon the Second Defendants).

20 The arbitration hearing was conducted on 4 July 2003 in the space of the day.

21 On 7 July 2003, the arbitrator published an award in favour of the plaintiff in the sum of $686,547.43 plus costs.

22 In his reasons for award, the arbitrator found that there had been a change of system concerning the collection of materials. The new system was found to have, relevantly, two elements: first, the first defendant’s employees were not to communicate with an employee of the second defendant when they arrived to collect materials; and, secondly, they were to help themselves to what was needed (with the paperwork being attended to later).

23 The arbitrator went on to record that the plaintiff was not challenged on that evidence, nor was any evidence called by either defendant to the contrary. The arbitrator thereupon made the following finding:

The inference I draw from that is that the arrangement was with the agreement of both defendants.

24 He apportioned liability 30:70 as between the first and second defendants respectively.

Contrast between findings at the arbitration and findings at the trial

25 Whereas the arbitrator made the foregoing finding concerning a change in the system for the collection of materials and inferred that the new arrangement was with the agreement of both defendants, I found that the second defendant had only limited knowledge of the new system. I found that the second defendant was aware, through Mr Dunn, that the first defendant’s employees were collecting materials without notifying him, but I did not draw the inference that the second defendant was aware that the first defendant’s employees had been instructed not to communicate with the second defendant’s employees when they came to collect materials.

26 The major difference between the evidence at the arbitration hearing and the evidence at the trial was that Mr Dunn was not called at the arbitration hearing and that he was called at the trial.

27 On the evidence adduced in relation to the costs of the trial, it is apparent that the decision made not to call Mr Dunn at the arbitration hearing was based on a judgment that calling him was not likely to advance the first defendant’s prospects in relation to the arbitration hearing itself.

28 On the evidence adduced by the plaintiff at the arbitration hearing, it was open to the arbitrator to infer that the change in system, including that there was to be no communication with the second defendant’s employees, was made with the second defendant’s agreement. The inference was available from the relationship between the defendants concerning the collection of materials from the second defendant’s premises and from the fact of the change in the system. The arbitrator drew the inference. Weight was given to it by the absence from the witness box of Mr Dunn: Jones v Dunkel (1959) 101 CLR 298.

29 If Mr Dunn had been called at the arbitration hearing, there may well have been a finding that there was no negligence on the part of the second defendant. As I have mentioned, Mr Dunn was called at the trial. The outcome of the arbitration may have contributed to the decision to call him at the trial.

Second defendant’s claim for costs

30 The second defendant was wholly successful at the trial. It is, accordingly, prima facie entitled to an order for its costs of the proceedings on a party and party basis. As against that, it is submitted that the second defendant should not have its costs, at least of the trial, by reason of having failed to call Mr Dunn at the arbitration hearing.

31 In MacDougall v Curlevski (1996) 40 NSWLR 430, separate judgments were given by Priestley AP, Cole JA and Simos AJA. Priestley AP referred to the earlier decision of the Court of Appeal in Quach v Mustafa (15 June 1995, unreported), in which the defendant produced moving film of the plaintiff at the trial which had not been adduced at the arbitration hearing. Priestley AP said, at 433-4:

There is no provision or practice, so far as I am aware, that can, as a matter of law, preclude a party from deciding what evidence that party will call in a District Court action referred to an arbitrator. The position adopted by the Court in Quach , as explained by Kirby P, which in my opinion is a sound one, is that although a party may choose such a course as was followed in Quach and analogously in the present case, if that course either caused or might have caused waste of public and private time and cost, then the fact that the party had chosen that course was something proper to take into account in considering the costs of the arbitration and the re-hearing; that is, a party adopts such a course at the party's risk as to the costs consequences. Further, in my opinion, the court considering the costs questions is entitled to take into account, in deciding what the consequences of such a course should be, the desirability of actions referred to arbitrators for determination being determined once and for all by the arbitrator. The whole scheme of referred actions in the District Court is aimed at speedier and cheaper decision of disputes, which by definition of the conditions subject to which actions may be referred to arbitration, are suitable for such decision. The scheme is not one designed to provide successive hearings by arbitrator and judge as a regular matter in which the first trial is to be regarded as a practice run, but rather one where the first trial is intended to be the final trial, subject to the re-hearing safeguard in the occasional, out of the ordinary, case. It seems to me, therefore, quite legitimate for courts in making costs orders, to promote, in appropriate cases, the use of the referred action system in what in my opinion is the intended way.

Cole JA said at 438:

In exercising its discretion regarding costs of a re-hearing and of the arbitration, the court must give consideration to the provisions of the rules to which I have referred, as well as matters generally affecting costs. It is clear that neither the Act nor the Rules compels a party to call evidence before an arbitrator or on a re-hearing. However where the court, here the District Court, has directed that an arbitration occur in an action before it, and a party decides for forensic purposes not to call available evidence at that arbitration but to reserve such available evidence for use at the trial if a re-hearing is requested, such action is likely to result in increased costs and delay. It is contrary to the intention and spirit of the legislation to which I have referred, enacted to reduce delay and reduce costs, that a party should act otherwise than by conducting the arbitration as though it were, as it is intended to be, a hearing of the action. That means that a party should call its evidence. If it does not do so and additional costs are thus involved, it can be expected that judges in exercising their unfettered discretion regarding costs of the hearing, and of the arbitration, will have regard to the factor of additional cost so incurred. If the trial judge forms the view that, had the withheld evidence been called at the arbitration, the result of the arbitration was likely to have been different, and the subsequent court proceedings thus were likely to be unnecessary, that is a factor which it is permissible to consider in the exercise of the discretion as to costs. That accords with the philosophy underlying the decision of this Court in Quach v Mustafa (Court of Appeal, 15 June 1995, unreported).

Simos AJA at 441 quoted a passage from the judgment of Kirby P in Quach which included the following sentence:

It seems likely, from his description of the respondent's complaints during the arbitration, and Karpin DCJ's description of the film, that the award entered by the arbitrator would have been for a sum substantially less.

Simos AJA went on to say at 443:

In the present case, it was, in my opinion, plainly open to his Honour to conclude in the exercise of his discretion that, in the circumstances of this particular case, if the whole or substantially the whole of the evidence of the appellants had been made available to the arbitrator, the arbitrator may well have found a verdict for the appellants, with the result that the respondent may have decided not to pursue the proceedings any further, on the basis that a judge would probably come to the same conclusion as the arbitrator. Put another way, the conduct of the appellants in failing to call the whole or substantially the whole of their evidence before the arbitrator, effectively rendered it inevitable that there would need to be a re-hearing before a judge, whereas the arbitration system, properly conducted, is directed to encouraging the avoidance of the expense and delay of a hearing before a judge in appropriate cases and after appropriate advice.

32 Two principles emerge from this decision. First, it is not necessary to establish that calling the evidence at the arbitration hearing would necessarily have made a material difference, or to establish with certainty that, if the outcome of the arbitration hearing had been different, there would have been no re-hearing. If that may well have been the result, that is sufficient to raise a consideration relevant to what order should be made in relation to the costs of the re-hearing.

33 In the present case, calling Mr Dunn at the arbitration hearing may well have resulted in a finding that the second defendant was not negligent. Whether the first defendant would then have initiated a re-hearing is uncertain, but it may well not have done so. So calling Mr Dunn may well have avoided a re-hearing.

34 There is, then, however, the second aspect of what was decided in MacDougall. As I read the case, the motivation for not adducing the relevant evidence at the arbitration hearing is important. A mere failure to call evidence which may well have avoided a re-hearing is not sufficient. It is necessary that the evidence has been intentionally withheld in a way which subverts the purpose of an arbitration hearing. Where a party treats the arbitration hearing as a practice run (that is, merely as an opportunity of testing the other side’s case) or holds back material evidence in order to “keep the powder dry” for use at the trial, the failure to adduce material evidence is a relevant consideration. Where, however, as here, the evidence was not adduced for such ulterior reasons but because of a bona fide opinion that calling the evidence would not advance the party’s prospects in the arbitration itself, the failure to adduce the evidence at the arbitration hearing is not a relevant consideration.

35 There is no other reason why the second defendant should not have its costs of the proceedings.

36 Should the second defendant’s costs be, partly at least, on an indemnity basis?

37 It was not contended, nor could it have been, that the second defendant’s offer of contribution constituted an offer of compromise within the meaning of Pt 22 r 1A. So far as Pt 22 is concerned, it was, and only was, an offer to contribute within the meaning of Pt 22 r 12. The consequence of non-acceptance of an offer to contribute is specified in Pt 52A r 24, which provides that the court may take an offer to contribute into account in determining whether it should order that the offeree should pay the whole or part of the costs of the offeror and any costs which the offeror is liable to pay to the plaintiff.

38 The rule says nothing about indemnity costs. An offer to contribute can, however, operate as a Calderbank letter, thereby providing the basis for a claim for indemnity costs from that time.

39 Paragraph 1 of the offer of compromise is clear enough. That was an offer to contribute 10 per cent of any verdict and costs recovered by the plaintiff, whether against either of both defendants, and similarly as to any order for costs in favour of the plaintiff, as assessed. By implication, it was an offer to apportion liability 90:10 as between the defendants irrespective of whether the plaintiff recovered a verdict against either of both of them.

40 The offer could not be construed as giving the first defendant a free hand to negotiate a settlement with the plaintiff to which the second defendant would be bound to contribute 10 per cent, irrespective of the amount of the settlement. It follows that the offer to contribute 10 per cent towards any settlement was otiose. There could be no settlement between the plaintiff and the defendants without the second defendant’s approval, giving each defendant the opportunity of renegotiating the apportionment in relation to any settlement with the plaintiff.

41 The same can be said about agreement as to the plaintiff’s costs. In that regard, the offer applied to any order for costs received by the plaintiff against either of both defendants as assessed, but the reference to the plaintiff’s costs as agreed was otiose.

42 The fact that the references to a possible settlement and to costs as agreed were otiose does not detract from the certainty of the offer to contribute 10 per cent to any verdict recovered by the plaintiff in the proceedings.

43 That, however, is construing paragraph 1 in isolation. It was not isolated. It was made conditional on paragraph 2.

44 As for cross-claims on the second defendant (referred to in paragraph 2), that would include a cross-claim against the second defendant by a new party joined by the plaintiff. It was not reasonable to expect the first defendant to agree to such an open-ended and uncertain commitment.

45 As for cross-claims by the second defendant, that could only contemplate indemnity against a liability for costs incurred by the second defendant in relation to such a cross-claim. The cross-claim could be brought by the second defendant against a new party joined by the plaintiff or a new party introduced by the first defendant. Again, it was not reasonable to expect the first defendant to agree to such an open-ended and uncertain commitment.

46 It is then to be noted that paragraph 2 provides for “further indemnity in these proceedings”, not limited to indemnity as to cross-claims by and on the second defendant. That comprehended any liability or expenditure incurred by the second defendant in the proceedings, other than to the plaintiff for damages or costs (which was covered by paragraph 1). That would include indemnity against the whole of the costs incurred by the second defendant in the proceedings from their inception to their conclusion irrespective of the reasonableness of the work done and the reasonableness of the charge for the work done. It was not reasonable to expect the first defendant to agree to such a commitment.

47 If paragraph 2 did not cast so wide a net, there was uncertainty as to its reach, and it was not reasonable to expect the first defendant to agree to such an uncertain commitment.

48 For these reasons, the offer to contribute does not provide grounds for an order for costs on an indemnity basis.

Plaintiff’s claim for costs

49 Having succeeded against the first defendant, the plaintiff is prima facie entitled to an order for its costs of the proceedings against that defendant. By reason of non-acceptance of the plaintiff’s offer of compromise of 8 August 2001, the plaintiff is entitled to his costs from that date on an indemnity basis and prior to that date on a party and party basis. That is subject to other order of the court on the ground that the case is “in some way exceptional”: Hillier v Sheather (1995) 36 NSWLR 414, 422.

50 On behalf of the first defendant it is asserted that the plaintiff’s costs should be limited to costs on a party and party basis. Such an order is sought on the ground that the plaintiff has succeeded at trial on a case which significantly changed after the date of the offer.

51 In Fowdh v Fowdh & Anor (NSW CA, 4 November 1993, unreported), Mahoney AP said:

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.

In Van Doore v Mendez & Ors (No 2) (NSW SC, 30 June 1997, unreported), Dunford J said that amendments to Pt 33 particulars subsequent to an offer of compromise can be significant on the issue, because such amendments can amount to changing the basis on which the offer of compromise has been made. However, on the arithmetic in that case, the plaintiff’s offer of compromise was less than the damages awarded with a notional deduction for the additional items. Indemnity costs were allowed.

52 In the present proceedings, the plaintiff’s case is said to have changed in two respects. First, it is said that there was a material change in the claim as notified by particulars filed in court. Secondly, a schedule of medical and paramedical reports was provided showing that 14 reports had been served before the offer of compromise, that Dr Dinnen’s report of 23 August 2001 was served during the period for acceptance of the offer and that, thereafter, some 13 further medical reports were served, including the reports of Dr Darveniza, Dr McEwin and Ms White, which were mentioned in my principle judgment.

53 Particulars were filed on 22 August 2000. Those particulars were current when the plaintiff’s offer of compromise was served on 8 August 2001. Subsequently, the particulars were amended on 24 September 2001 (that being after the expiration of the offer of compromise) and again in April 2003. Particulars of the plaintiff’s injuries did not change throughout that time, nor did my findings as to the nature of the plaintiff’s injuries, made at the conclusion of the trial, go beyond that description. In other respects, the particulars filed in August 2000 were in general terms. It was asserted that the plaintiff had been unfit for work since the injury and was totally incapacitated for work. The plaintiff claimed damages for loss of earnings on that basis.

54 There was also a claim for domestic expenses but the particulars were limited to lawn-mowing and occasional handy-man tasks requiring work at heights. In this respect, particulars subsequently filed included a Griffiths v Kerkemeyer claim.

55 Total damages were assessed in the proceedings at a figure of $1,122,654.50, judgment being entered for $994,486.54 after allowance for payments made under the Workers’ Compensation Act. The judgment included approximately $850,000 for general damages, loss of earning capacity and the associated loss of superannuation. Thus, without allowing for components in the judgment which were not particularised in August 2000, including the substantial Griffiths v Kerkemeyer claim, the amount recovered exceeded the claim for general damages and loss of earning capacity specified in August 2000.

56 In these circumstances, the supplementing of the plaintiff’s claim in the way I have mentioned did not constitute a material change in the claim which was subject to the offer of compromise made in August 2001.

57 As to the service of medical reports, the reports served prior to the offer of compromise included the reports of the treating orthopaedic specialist Dr Stratton, which provided the doctor’s opinion that the accident had caused a large posterior disc protrusion at the L5 / S1 level and a description of the operation carried out by him on 21 March 2000. There was also a report on the MRI carried out in January 2001, which included a finding of persistent left disc protrusion at L5 / S1 and findings of epidural fibrosis associated with the S1 nerve root. That was the pathology on which the plaintiff went to trial. Nothing new was adduced in relation to it.

58 The second defendant also had Dr Harrison’s report of 31 May 2001. I reviewed his report in [113]-[116] of my principle judgment. According to Dr Harrison, the plaintiff needed to avoid prolonged sitting, standing, repeated bending and heavy lifting and carrying. He needed a job that gave him the option to sit and stand, shift and change position frequently. That posed the question as to whether the plaintiff was, in a practical sense, fit for any employment at all.

59 Dr Harrison also raised the question of further surgery. He thought this might fit the plaintiff for employment as a courier or for light stores work. That posed another issue which arose for determination at the trial as to whether the prospects of surgery warranted that course and whether the plaintiff had been, or would in the future, be unreasonable in failing to undergo surgery.

60 It was known at the time of trial that the first defendant had the reports of three specialists, who had examined the plaintiff but who were not called at the trial. There is no evidence as to whether these reports or any of them pre-date the offer of compromise. There is an evidentiary burden on the first defendant to establish the facts relied upon as the basis for a special order disallowing indemnity costs.

61 I am not satisfied that the second defendant did not know the nature of the plaintiff’s alleged medical condition at the time of the plaintiff’s offer of compromise in August 2000 or that it did not have the opportunity of evaluating the plaintiff’s case in that regard at that time.

62 In these circumstances, I am not satisfied that there was any sufficient change in the nature of the plaintiff’s case, related to the service of medical reports or otherwise, between the date of the offer of compromise and the trial, to warrant an order disentitling the plaintiff to indemnity costs as from the date of the offer of compromise.

Conclusion and orders

63 The plaintiff is entitled to payment of its costs by the first defendant, on an indemnity basis from 8 August 2001 and on a party and party basis before that date. The second defendant is entitled to payment of its costs of the proceedings on a party and party basis. A Sanderson order is appropriate.

64 The orders of the court in relation to costs will be as follows:

(1) The first defendant to pay the plaintiff’s costs of the proceedings on an indemnity basis from 8 August 2001 and on a party and party basis prior to that date.

(2) The first defendant to pay the second defendant’s costs of the proceedings on a party and party basis.

-oOo-

Last Modified: 07/02/2004