Shellharbour City Council v Johnson (No 2)

Shellharbour City Council (the defendant) appealed a judgment awarded to Johnson (the plaintiff) for personal injuries, which was less than $100,000. The appeal was unsuccessful. The plaintiff had made an offer of compromise prior to the appeal. The central dispute concerned the basis on which the plaintiff should be awarded costs of the appeal, specifically whether an indemnity costs order was appropriate given the offer of compromise and the provisions of the *Legal Profession Act 1987* (NSW). The matter was heard in the Court of Appeal of New South Wales.

The court was required to determine whether the plaintiff was entitled to an order for indemnity costs of the appeal. This involved considering the effect of s 198F of the *Legal Profession Act 1987*, which limits a party's right to seek indemnity costs pursuant to the rules of court, and whether the plaintiff's offer of compromise met the definition of a "reasonable" offer for the purposes of awarding indemnity costs. The court also had to consider the application of the Uniform Civil Procedure Rules (UCPR) to offers of compromise and the relevance of the amount of interest lost on the judgment if the offer had been accepted.

The court reasoned that s 198F of the *Legal Profession Act 1987* does not itself authorise an indemnity costs order but rather limits the circumstances in which such orders can be sought. The general approach of the courts to offers of compromise under the Supreme Court Rules (SCR) is applicable to offers made under the UCPR. The court found that the amount of interest the plaintiff would have lost on the judgment if the offer had been accepted was a relevant factor in determining whether the offer should properly be regarded as a compromise. The court also clarified that s 198D(4)(b) of the Act, which prevents an order for costs exceeding the maximum permitted, applies to a certificate of assessment of costs filed in court, not to a general order made by the court.

The court ordered that the defendant pay the plaintiff's costs of the appeal up to and including 22 June 2005 on a party and party basis, and thereafter on an indemnity basis. The defendant was also ordered to pay the plaintiff's costs of the application.