Telstra Corporation Ltd v Adept Drainage Pty Ltd (No 2)

[2011] VCC 1422

IN THE COUNTY COURT OF VICTORIA Revised

Not Restricted

AT MELBOURNE
CIVIL DIVISION
DAMAGES AND COMPENSATION LIST

GENERAL DIVISION

Case No. CI-09-05410

TELSTRA CORPORATION LTD	Plaintiff
(ACN 051 775 556)
v
ADEPT DRAINAGE PTY LTD	Defendant
(ACN 090 652 172)

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JUDGE:	HIS HONOUR JUDGE PARRISH
WHERE HELD:	Melbourne
DATE OF HEARING:	5 September 2011
DATE OF RULING:	2 December 2011
CASE MAY BE CITED AS:	Telstra Corporation Ltd v Adept Drainage Pty Ltd (No 2)
MEDIUM NEUTRAL CITATION:	[2011] VCC 1422
RULING AS TO COSTS

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Catchwords: COSTS – whether party-party costs or special costs order – application of Rule 26.08(2) of the County Court Civil Procedure Rules 2008 – whether the Court should exercise its discretion – whether offers of compromise and Calderbank offer included “an element of compromise” – whether it was unreasonable for the defendant to reject offers of compromise when alleged “essential” information was still in the hands of the plaintiff – whether it was reasonable to reject offers of compromise in proceedings which involve a difficult and unresolved matter of law.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr I D McDonald	Sparke Helmore
For the Defendant	Mr K J Naish	Hall & Wilcox
HIS HONOUR:

Introduction

1          The issue to be determined is whether in this proceeding Telstra Corporation Ltd (“the plaintiff”) is entitled to a special costs order against Adept Drainage Pty Ltd (“the defendant”), or alternatively, is only entitled to an order for traditional party-party costs.

The Proceeding

2          In this proceeding, the plaintiff sued the defendant in negligence, seeking damages in the sum of $171,601.71, being the cost to repair cables owned and maintained by the plaintiff which were damaged as a result of underground boring work being performed by the defendant on Friday, 14 September 2007.

3          Such damages were made up of the following amounts:

(a)	the sum of $108,761.10, being the labour costs (“the labour costs”), being 310.5 hours at a normal time rate of $94.80 per hour and 667.5 hours at an overtime rate of $118.84 per hour;
(b)	the sum of $39,854.50, being for materials charges (“the materials charges”);

(c) the sum of $28,783.16, being the contactor costs (“the contractor costs”); The resulting sum of $177,398.81 was reduced by the sum of $5,797.10, being an allowance for the scrap.

4          The defendant admitted liability but disputed the amount of damages claimed on the following bases:

(a) the labour costs: 

(i)      the plaintiff should have engaged contractors to perform all of the work, or, at least part of the work. Contractors would have been much cheaper;

(ii)      the plaintiff’s normal time rate of $94.80 per hour and overtime rate of $118.84 per hour does not in fact or in law fairly and reasonably reflect the costs of repairing the cables. Labour costs should be based on what a contractor would have charged to repair the cables;

(b)

the materials charges:

(i)	the materials charges are excessive, in that further cable was used and was unnecessary as a result of “hauling” such cable to a further manhole than was necessary;
(ii)	in any event, placing a 16 per cent loading on materials said to be for “holding charges” was inappropriate.

(c)

contractor costs:

(i) the cables were “hauled” by a contractor, and, because they were hauled to a more distant manhole than necessary, excessive contractor costs were incurred.

5          The hearing of the matter occurred over five days, during which various witnesses gave evidence and were cross-examined.

6          On 5 September 2011, I gave Reasons for Judgment[1] and found that the plaintiff was entitled to the sum of damages sought. At that time, Counsel for the plaintiff gave notice that he would be seeking a special costs order, whereas the defendant, although accepting it had a liability to pay costs, submitted that such costs should be limited to the normal party-party costs.

[1] [2011] VCC 1172

7          It was agreed between the parties that written submissions would be made pursuant to an agreed timetable and accordingly:

(a)	Counsel for the plaintiff has made written submissions in support of his application for a special costs order and also relies on an affidavit sworn by his instructing solicitor, Adrian Stewart Kemp, on 9 September 2011 (“Kemp’s affidavit”);
(b)	Counsel for the defendant has also made written submissions in support of an order for party-party costs, and also relies on an affidavit sworn by the solicitor for the defendant, Zoe Keith, on 5 September 2011 (“Keith’s affidavit”).

The Costs Argument

8          I note that Counsel for the plaintiff in his written submissions advises that the parties will seek judgment be entered for the plaintiff in the sum of $171,601.71, together with interest agreed and fixed in the sum of $32,950.91, together with any costs order to be determined by the Court.

9          The plaintiff seeks an order that the defendant pay the plaintiff’s costs on a party-party basis and then on an indemnity basis from:

(a)	13 January 2010, being the date of the service of a first Offer of Compromise by the plaintiff dated 11 January 2010 (“the first Offer of Compromise”) or, as a fallback position;
(b)	6 April 2010, being the date of the service of a Calderbank Offer in a letter dated 6 April 2010 (“the Calderbank Offer”) or, as a further fallback position;
(c)	3 August 2010, being the date of the service of a second Offer of Compromise by the plaintiff dated 2 August 2010 (“the second Offer of Compromise”).

10        It is common ground between the parties that the Offers of Compromise and the Calderbank Offer complied with the technical requirements of such offers (leaving aside whether or not they were genuine Offers of Compromise) and that such offers were not accepted by the defendant.

11        In such circumstances, Counsel for the plaintiff, in particular, relies on Order 26.08 of the County Court County Civil Procedure Rules 2008 (“the Rules”) in support of his application that there be an order for party-party costs up to the receipt of one or other of the Offers of Compromise and thereafter the order be for indemnity costs.

12        Counsel for the plaintiff submits that “the authorities … make it abundantly clear that the plaintiff’s position is far stronger in relation to the recovery of indemnity costs where the defendant has not accepted a valid offer of compromise, compared to the non-acceptance of a Calderbank offer”.

13        The defendant resists such application, essentially on the following grounds:

(a)

In relation to the Calderbank offer, authority establishes that the rejection of a Calderbank offer does not create a presumption in favour of a special costs order and a court will only make such an order “where it is concluded that the rejection of the offer was unreasonable”.[2] In this sense, the rejection of a Calderbank offer is a factor the Court should have regard to when considering whether to order indemnity costs[3] and that it remains for the plaintiff to demonstrate that a special costs order ought be made;

(b)

In relation to the Offers of Compromise, such offers are governed by Rule 26 of the Rules. Such Rule, so it is submitted, “does not mandate that indemnity costs be awarded if the offer is more favourable than the result achieved by the plaintiff. The Court retains its discretion to ‘otherwise order’. As with all orders for costs, the Court’s discretion must be exercised judicially”.

[2]             See Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No.2) (2005) 13 VR 435, at paragraph [19], citing with approval the decision of Redlich J in Overseas-Chinese Banking Corporation v Richfield Investments Pty Ltd [2004] VSC at 351

[3]             See Hazeldene’s Chicken Farm Pty Ltd (op cit) at paragraph [20]

14        It is submitted on behalf of the defendant that the rejections of the plaintiff’s Offers of Compromise were reasonable and the Court should exercise its undoubted discretion and otherwise order that the plaintiff only be entitled to party-party costs. Essentially, Counsel for the defendant submitted that the rejections of such Offers of Compromise were reasonable because:

(a)	at the time that such offers were made, essential information remained in the possession of the plaintiff. In this respect, Keith’s affidavit makes reference to various requests being made to the solicitors for the plaintiff to supply details as to how the normal time and overtime labour rates were calculated and the basis of the calculation for material costs. In particular, the solicitor for the defendant refers to a letter dated 30 August 2010 from the solicitors for the plaintiff, wherein for the first time is supplied the Hourly Rate Calculations document signed by Mr Craig Gyles (who ultimately gave evidence in the trial and described himself as a finance manager employed by Telstra) and a forensic accountant’s report by Mr Matthew Gwynne (whose report was admitted into evidence at the trial of this matter);
(b)	the offers did not include an element of compromise and therefor should not be construed as “offers of compromise” within the meaning of Rule 26 of the Rules; and
(c)	the proceeding involved a difficult and unresolved matter of law.

Relevant Legal Principles

15        Section 78A(1) of the County Court Act 1959 and Rule 63A.02 give the Court a wide discretion in determining costs of any proceeding.

16        Order 26.02 of the Rules provides that a plaintiff and a defendant may, in respect of any claim in a proceeding, serve on one another an offer of compromise on the terms specified in the offer. The offer of compromise shall be in writing and prepared in accordance with Rules 26.02 to 26.04 and contain a statement to the effect that it is served in accordance with Rule 26.

17        Rule 26.03 of the Rules provides that an offer of compromise may be served at any time before the verdict or a judgment in respect of the claim to which it relates and a party may serve more than one offer of compromise. Such an offer may be expressly limited as to the time the offer is open but to be no less than fourteen days after service of the offer.

18        Rule 63A.16 of the Rules provides:

“Where an offer of compromise is served and the offer has not been accepted at the time of verdict or judgment, liability for costs shall be determined in accordance with Rule 26.08.”

19        Rule 26.08 of the Rules provides, inter alia:

“(1)

This Rule applies to an offer of compromise which has not been
accepted at the time of verdict or judgment.

(2)

Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled—

(a)	if the claim of the plaintiff is for damages for or arising out of death or bodily injury, to an order against the defendant for the plaintiff's costs in respect of the claim, taxed on an indemnity basis;
(b)	in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff's costs in respect of the claim up to and including the day the offer was served, taxed on a party and party basis, and for the plaintiff's costs thereafter taxed on an indemnity basis.

(3)

…

(4)

…

(5)

Where a plaintiff obtains judgment for the recovery of a debt or
damages and—

(a)	the amount for which the Court pronounces judgment includes an amount for interest or damages in the nature of interest; or
(b)	by or under any Act the Court awards the plaintiff interest or damages in the nature of interest in respect of the judgment amount—

for the purpose of determining the consequences as to costs referred to in paragraph (2) and (3) the Court shall disregard so much of the amount recovered by or awarded to the plaintiff for interest or damages in the nature of interest as relates to the period after the day the offer of compromise was served.

(6)

…

(7)

Paragraphs (2) and (3) …

(8)

Where the plaintiff obtains judgment for the recovery of a debt or damages, and the amount of the debt or the damages was not in dispute, but only the question of liability, paragraph (2) shall not apply unless the Court is satisfied that the plaintiff's offer was of a genuine compromise.”

20        An offer of compromise served in accordance with Rule 26 involves what has been referred to as a “fairly mechanical regime” under Rule 26.08 with what is described as the “more flexible one of discretion as to costs” which exists with a Calderbank offer.[4] The rejection of a Calderbank offer is a matter to which the Court should have regard when considering whether to order indemnity costs.[5]

[4]             Foster v Galea (No 2) [2008] VSC 331, at paragraph [7]

[5]             See Hazeldene’s Chicken Farm Pty Ltd (op cit) at paragraphs [17] - [20]

21        The principles governing the award of costs in respect of a Calderbank offer were discussed by the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd,[6] wherein the Court of Appeal stated:

[6]             Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No.2) (op cit)

“The discretion … must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

(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 an indemnity

costs in the event of the offeree’s rejecting it.

It has been argued on occasion that the maker of a Calderbank offer should not be entitled to costs unless the offer sets out, with some reasonable specificity, the basis for the offeror’s contention that the offeree should accept the compromise — for example, because the offeree’s case was hopeless or because the offeree had no reasonable prospects of doing better in the proceeding than was being offered in advance.

Once again, we think it neither necessary nor desirable to lay down any general rule in this regard. … .”[7]

[7]             See Hazeldene’s Chicken Farm Pty Ltd (op cit) at paragraph [25]

22        Both parties referred to the decisions of Charles Raymond Blackburn & Ors v Peter Gant & Anor,[8] a decision of Vickery J delivered on 3 June 2010 and Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd (No 2),[9] a decision of Croft J delivered on 12 March 2010.

[8] [2010] VSC 246

[9] [2010] VSC 70

23        Counsel highlight the division in these two cases as to whether the rejection of an offer of compromise under Order 26 creates a presumption in favour of a special costs order, or whether, like a Calderbank offer, it is still for the plaintiff to demonstrate that the rejection of the offer was unreasonable in all the circumstances.

24        Croft J, dealing with a Calderbank offer, stated that neither an offer of compromise under Rule 26 nor a Calderbank offer will have any cost consequences unless the rejection of the offer was unreasonable in all the circumstances.[10]

[10]           Tenth Vandy Pty Ltd (op cit) at paragraphs [16]-[19]

25        However, Vickery J considered that there were two essential differences between a Calderbank offer and an offer of compromise made under Rule 26:

(a)

provided the threshold elements of the offer of compromise are made out, that is: the service of an offer of compromise which complies with Rule 26; the non-acceptance of the offer at the time of verdict or judgment; and the obtaining by the plaintiff of a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer – the plaintiff becomes entitled under Rule 26.08(2) to a special order for costs pursuant to either Rule 26.08(2)(a) or (b), whichever is applicable;[11] and

(b)

although as made clear in Hazeldene’s Chicken Farm, a Calderbank offer does not give rise to any presumption that the party rejecting the offer should pay the offeror’s costs on an indemnity basis if the offeree receives a less favourable result at trial. The effect of Rule 26.08(2) gives rise to an entitlement to an award of costs in favour of a plaintiff on a special basis “unless the court otherwise orders”.

[11]           Rule 26.08(2)(a) concerns damages for or arising out of death or bodily injury and has no relevance to this proceeding.

26        In particular, Vickery J states:

“This creates a regulatory presumption permitting costs to be awarded in this manner, subject to the court being satisfied that special circumstances exist which justify the court’s discretion being exercised in a manner which departs from the Rule. Such circumstances may include, but are not necessarily limited to, considerations as to whether the rejection of the offer was reasonable.”[12]

[12]           See Charles Raymond Blackburn & Ors v Peter Gant & Anor (op cit) at paragraph [14]

27        I consider that the approach taken by Vickery J is more consistent with a proper construction of the rules pertaining to offers of compromise. I note the reasoning set out in Hazeldene’s Chicken Farm Pty Ltd was peculiar to Calderbank offers.

28        Counsel for the plaintiff also refers to recent decisions of the Full Court of the Federal Court of Australia dealing with what he calls “the prima facie position” where an offer of compromise pursuant to the relevant rules has not been accepted. In Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd,[13] the Court specifically approved a statement by Hely J in Port Kembla Coal Terminal Limited v Braverus Maritime Inc (No 2),[14] who stated that the prima facie position should only be departed from for proper reasons, which in general, only arise in an exceptional case. In particular, the Full Court in Futretronics.com.au stated:

“However, it is established that the fact that an unsuccessful litigant acted reasonably in rejecting an offer under r 11(4) (and its counterparts in other jurisdictions) is not of itself a sufficient reason to displace the operation of the rule.”[15]

[13] [2009] FCAFC 40, at paragraph [10]

[14] (2004) 212 ALR 281, at paragraph [17]

[15]           See Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (op cit) at paragraph [11]

29        More recently, the Full Court of the Federal Court in IFTC Broking Services Limited v Commissioner of Taxation,[16] stated:

“Futuretronics exposes the difference between a Calderbank offer and an offer of compromise. In respect of a Calderbank offer, characterisation of the refusal to accept the offer as reasonable or not is significant, even potentially determinative. In respect of an offer of compromise, the reasonableness of the refusal to accept the offer is not, of itself, sufficient to displace the consequence of indemnity costs. The appellants’ reliance on various circumstances said to make their refusal of the offer reasonable fails to confront this difference of principle.”

[16] (2010) 268 ALR 1

30        Curiously, Vickery J in Blackburn & Anor v Gant & Ors,[17] seemingly in contrast to the Federal Court position, suggests that it may well be a proper exercise of discretion to otherwise order where the rejection of an offer of compromise was reasonable. I do refer to the case of Simply Irresistible Pty Ltd v Couper & Ors (No 2)[18] wherein it seems to be accepted that issues of reasonableness of rejection of an offer of compromise under Rule 26 are relevant in determining whether the Court should “otherwise order”.

[17]           (op cit)

[18] [2011] VSC 33, a decision of Kyrou J delivered on 17 February 2011

31        For the purposes of this Ruling, I take the view that if the threshold elements of an offer of compromise under Rule 26 are made out, the plaintiff is entitled under Rule 26.08(2) to a special order for costs subject to the Court being satisfied that special circumstances do not exist which justify the Court’s discretion being exercised causing the Court to otherwise order. Of course, in relation to a Calderbank offer, the reasonableness or otherwise of a defendant rejecting an offer of compromise is an important consideration in determining whether a special costs order should be made.

32        I refer to Rule 26.08(8) of the Rules which provides that in circumstances where the amount of a debt or the damages is “not in dispute” and it is only a question of liability in relation to the amount of debt or damages, the Court would not apply sub-Rule (2) unless it is “satisfied that the plaintiff's offer was of a genuine compromise”.

33        It is to be stressed that sub-Rule (8) applies only in those circumstances where quantum is agreed and liability is in dispute. The circumstances of this matter are the reverse where liability is accepted by the defendant but the quantum of damages is in dispute. In such circumstances, it is not relevant to any aspect of this proceeding.

34        Counsel for the defendant, noting that the first Offer of Compromise was in the sum of $171,601.51; the second Offer of Compromise was in the sum of $165,000 and the Calderbank Offer was in the sum of $171.601.51, submits that such offers do not contain an element of compromise and, accordingly, the defendant was reasonable to refuse such offers. In particular, he refers to the New South Wales decisions of Tickell v Trifleska Pty Ltd & Anor[19] and Hobartville Stud Pty Ltd v Union Insurance Co Ltd[20] in support of such proposition. Both those cases were decided in the context of no equivalent to Rule 26.08 and in circumstances where the amount of the debt was not in dispute.

[19] (1990) 25 NSWLR 353 at 355

[20] (1991) 25 NSWLR 358 at 368

35        Counsel for the defendant also refers to the decisions of Berrigan Shire Council v Ballerini[21] and Southern Region Ltd v Wallington Hardware & Timber Pty Ltd (No 2).[22] In both those cases, the purported offer of compromise was held to be effectively a “demand to capitulate” and it was reasonable for the offeree not to accept such offer. It is to be noted that such offers were Calderbank offers and not offers made pursuant to the Rules.

[21] [2006] VSCA 65 at paragraphs [15]-[17]

[22] [2010] VSC 174 at paragraphs [31]-[32]

36        I do refer to Enerka Apex Belting Pty Ltd v Vickers Systems Pty Ltd (No 2)[23] wherein Habersberger J held that an offer of compromise made pursuant to the Supreme Court Rules, which amounted to a 6 per cent reduction in the claim, was not an offer of a “genuine compromise”. In that case, there was no dispute as to quantum – only liability. Reference was made to the New South Wales decision of Maitland Hospital v Fisher (No 2),[24] wherein the circumstances were that an offer was made by the plaintiff that she would accept the sum of $200,000 plus costs of the trial and the appeal. The appeal was subsequently dismissed so that the plaintiff retained her earlier judgment in the sum of $206,090.00 and the issue arose as to whether or not the offer was an appropriate offer of compromise. The Court, consisting of Kirby P, Mahoney JA and Samuels A-JA, held that she should receive her costs of the appeal on a special costs basis and in particular, stated, in part:

“It offered an inducement (admittedly small) to the appellant against the risks which are inherent in any litigation. Events have borne out the justification of the actual offer made and the wisdom of making it. It is important to stress, however, that a 2.5 per cent compromise is not to be taken as having general precedental significance. The decision to award or withhold indemnity costs where a plaintiff's settlement offer has been made but not accepted, involves a discretion to be exercised by reference to all of the circumstances of the case, not by applying a fixed mathematical formula.”[25]

[23] [2002] VSC 409

[24] (1992) 27 NSWLR 721

[25]           See Maitland Hospital v Fisher (No 2) (op cit) at page 725

37        As noted by Habersberger J in Enerka Apex Belting Pty Ltd, the Maitland Hospital Case involved a proceeding sought to be compromised at appeal level and so that, theoretically, at least one could be more confident of predicting the outcome, and the amount of the damages was to some extent still in dispute (because of the Appeal) so that any reduction in the claim was more significant.

38        Although the plaintiff was successful in obtaining a special costs order in the Maitland Hospital Case, the comments made by the Court in that matter do suggest that it is a relevant issue to consider whether an offer of compromise is an appropriate offer of compromise (rather than an offer of capitulation) even in circumstances where quantum is not agreed. However, it is to be stressed that the Court in the Maitland Hospital Case made clear it was somewhat peculiar in that the offer of compromise was made at appeal level in circumstances where the quantum of the claim, although not agreed, was more certain given the earlier judgment. Moreover, the “inducement” offered by the plaintiff, although small was significant to her.

Circumstances Surrounding the Making of the Two Offers of Compromise and the Calderbank Offer

39        It is convenient to set out a chronology of certain events in Kemp’s affidavit and Keith’s affidavit:

14 September 2007 - Outage incident.

9 November 2007 - Letter of demand made by the plaintiff on the defendant for $177,396.81. That letter contained details of the number of hours, the material costs and the labour rates used in calculating the claim but did not detail how the labour rates or material costs

themselves had been calculated.

1 December 2008	-	The solicitors for the defendant obtained an expert report from Mr George Georgevitis.
15 March 2008	-	Letter from the solicitors for the plaintiff to the solicitors for the defendant. This sets out the plaintiff’s view on liability and again details the basis of the claim but makes no reference to the calculation of the labour rate or materials cost.
23 December 2008	-	The solicitors for the defendant write to the solicitors for the plaintiff seeking, in part, details of and documents supporting the plaintiff’s losses.
3 February 2009	-	Letter from the solicitors for the plaintiff to the solicitors for the defendant which sets out details of the hours of labour, the material and contractor costs. In particular, the letter advises that if the matter does proceed to trial, the plaintiff will adduce independent expert accounting evidence in support of the quantum of its claim, including its claim for labour costs.
15 March 2009	-	Letter from the solicitors for the plaintiff to the solicitors for the defendant making a Calderbank offer in the sum of $177,398.81.
15 June 2009	-	A similar Calderbank offer made by the solicitors for the plaintiff.
12 November 2009	-	Proceedings issued by the solicitors for the plaintiff.
11 January 2010	-	First Offer of Compromise in the sum of $171,601.51 plus party-party costs.
12 February 2010	-	Orders made by the Court permitting either party to serve interrogatories.
4 March 2010	-	Offer of Compromise made by the defendant in the sum of $90,000.
19 March 2010	-	Notice of Discovery served by solicitors for the defendant.
6 April 2010	-	Calderbank offer in the sum of $171,601.51 served by the solicitors for the plaintiff.
19 May 2010	-	The solicitors for the defendant seeking overdue discovery.
30 June 2010	-	Discovery by the solicitors for the plaintiff but no details as to the calculations of the labour rate or materials charge.
3 August 2010	-	Second Offer of Compromise served on behalf of the plaintiff in the sum of $165,000 plus costs.
12 August 2010	-	Letter from the solicitors for the defendant received by the solicitors for the plaintiff seeking documents in relation to the calculation of labour rates and an annual report.
30 August 2010	-	Letter sent by the solicitors for the defendant (sent by email) enclosing the forensic accountant’s report prepared by Mr Mathew Gwynne, Chartered Accountant, dated 12 August 2010 and a document entitled “Hourly labour rate calculations” signed by Mr Craig Gyles, finance manager of the plaintiff.
25 October 2010	-	Proceeding commences in Court.

Ruling

40        I rule that it was not unreasonable for the defendant to reject the Calderbank Offer dated 6 April 2010. The extent of the compromise offered was negligible and such offer was made well prior to the supply by the plaintiff of details as to how the normal time and overtime labour rates were calculated and the basis of the calculation for material costs. In this sense, two of the matters referred to in Hazeldene’s Chicken Farm Pty Ltd – the extent of the compromise offered and the offeree’s prospects of success, assessed as at the date of the offer are relevant. If the defendant had the relevant calculations, it could better assess its prospects of success.

41        In relation to the Offers of Compromise, I accept that such offers comply with the Rules and were not accepted by the defendant within the requisite period. In such circumstances, I have formed the view that the effect of Rule 26.08(2) gives rise to an entitlement to an award of costs in favour of the plaintiff on a special basis “unless the Court otherwise orders”.

42        After a consideration of the circumstances pertaining to this matter and the various submissions, I consider that the Court should otherwise order, with the result that the plaintiff is not entitled to a special costs order but rather, is entitled to a party-party costs order.

43        The Court exercises such discretion on the following grounds:

(a) At the time that each Offer of Compromise was received by the defendant, it did not have available the material as to how the normal time and overtime labour rates were calculated and the basis of the calculation for material costs. Such material was supplied by letter dated 30 August 2010. Bearing in mind that the wages component is the largest item of the damages, I consider that such material should have been available to the defendant at the time that such offers were considered. Clearly, such information had always been available as the hourly rates had been based on such material.

I consider that it is not to the point that the defendant could have interrogated the plaintiff about such calculations (although the Order for Interrogation only occurred on 25 August 2010) or that when such information was to hand, no further offer of compromise was made by the defendant. The very fact that the defendant was prepared to make offers of compromise does suggest a degree of flexibility in resolving the claim. If the required information had been to hand, the defendant could have made a complete assessment of its position in determining whether to accept or reject the Offer of Compromise.

(b) Although Order 26.08 has no particular relevance to this proceeding, I do consider it relevant to take account of the amounts of the Offers of Compromise which were virtually the claims sought without any allowance for interest. Can it be said that such offers were offers of compromise or rather, in truth, offers of capitulation? The inducement to settle as at the date of the receipt of the first Offer of Compromise was extremely modest given that very little interest would have accrued by that date and similarly, only a modest amount of interest would have accrued at the time of the receipt of the second Offer of Compromise. Furthermore, notwithstanding having found for the plaintiff, I do consider there was at least, prior to all of the evidence, a reasonable basis for the factual assertions made by the defendant and an arguable legal basis for its contentions.

44        I will hear the parties on the formal orders to be made in the matter, having made this Ruling.

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