United Petroleum Pty Ltd v Skorpos (No 2) - [2012] SASC 215

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
UNITED PETROLEUM PTY LTD v SKORPOS & ANOR (NO 2)
[2012] SASC 215
Judgment of The Honourable Justice Stanley
29 November 2012
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE
Both parties have applied for an order for costs of the action - plaintiff seeks order that defendants pay the whole of the plaintiff's costs on a solicitor/client basis based on offer filed pursuant to 6SCR 188 - offer related to both principal relief and costs and indicated that the offer was only to be accepted in its entirety - submission based on the operation of 6SCR 188(6)(b)(ii) - alternatively, plaintiff submits that it is entitled to costs on a solicitor/client basis based on various Calderbank offers.
Defendants submit they are entitled to an order for costs and that there is no entitlement on the part of the plaintiff to solicitor/client costs pursuant to 6SCR 188(6)(b)(ii), or based on the Calderbank offers, as the defendants were ultimately successful in obtaining judgment in their favour - submits that as the offer pursuant to 6SCR188 was inadequate as to costs preventing an order pursuant to 6SCR 188(6) being made.
Held: plaintiff is entitled to costs on a solicitor/client basis of the whole of the plaintiff's action, except with respect to the injunction proceedings before Anderson J on 13 and 15 January 2010, to which it is entitled to costs on a party/party basis - the intention of 6SCR 188 is penal - a party's liability to the costs penalty contemplated by the rule is to be determined solely by reference to the adequacy or otherwise of the offer as to principal relief by an assessment of whether the Court has determined the relevant action or claim on terms as to the principal relief that is no more favourable to the party than the terms of the offer - as the principal relief was no more favourable to the defendants than the terms of the offer as to principal relief, subject to the exercise of the Court's residual discretion, the plaintiff is prima facie entitled to the order contemplated by 6SCR 188(6)(b)(ii) - there is no proper basis on which to exercise the Court's residual discretion.
Supreme Court Civil Rules 2006 r 187, r 188, r 263, referred to.
Whitehead v Maas (1991) 56 SASR 362, discussed.

UNITED PETROLEUM PTY LTD v SKORPOS & ANOR (NO 2)
[2012] SASC 215
Civil
STANLEY J:
Introduction

On 12 September 2012 I gave judgment in this matter for the defendants in the sum of $15,305.94 after setting off the respective liabilities of the parties in respect of the plaintiff’s claim and the defendants’ counterclaim. Separately I ordered that the defendants were to pay the costs of injunction proceedings that had been brought before Anderson J on 13 and 15 January 2010. Those costs have not yet been taxed.
Both parties have applied for an order for costs of the action.
The plaintiff’s claim for costs
The plaintiff seeks an order that the defendants pay the whole of the plaintiff’s costs of action on a solicitor/client basis.
It submits that it is entitled to this order on the basis of a filed offer, in accordance with 6SCR 188. In the alternative, it seeks this order on the basis of various Calderbank offers made respectively by letters dated 16 March 2012, 17 March 2012 and 23 March 2012.
The trial commenced on 19 March 2012. The plaintiff filed an offer of settlement pursuant to 6SCR 187(3) on 30 March 2010. The offer was in the following terms:
The plaintiff, United Petroleum Pty Ltd, offers pursuant to r 187 to settle the action as follows:
1.Pay to the first and second defendant (“the defendants”) the sum of $29,000, in full and final satisfaction of the plaintiff’s claim, and the defendants’ counterclaim in the within action;
2.Pay to the first and second defendants the sum of $1,000 on account of cost (sic).
The defendants may not accept the offer of principal set out in paragraph 1 without also accepting the offer as to costs set out at paragraph 2.
6SCR 188 provides as follows:
(1)A party to whom a formal offer of settlement is made may, before the relevant date—
(a)     accept the offer; or
(b)     if the offer relates to both the principal relief and costs and the offeror has not indicated that the offer may only be accepted in its entirety—accept the offer so far as it relates to principal relief.
(2)     In subrule (1), the relevant date is—
(a)     the date falling 7 days before the first, or any subsequent, date fixed for the trial to commence; or
(b)     if the offer relates only to costs and is made in proceedings relating only to the adjudication upon costs—the date falling two days before the date appointed for the adjudication.
…
(6)If a formal offer of settlement so far as it relates to principal relief is not accepted by the party to whom the offer is made and the Court determines the relevant action or claim on terms (as to principal relief) that are no more favourable to the party than the terms of the offer, then, subject to the Court's order to the contrary—
(a)     the party to whom the offer was made is not to be entitled to costs referable to the period falling after the relevant date; and
(b)     the party that made the offer—
(i)if a defendant—is entitled to costs referable to the period falling after the relevant date; and
(ii)if a plaintiff—is entitled to the whole of the party's costs of action on a solicitor/client basis and the defendant is not entitled to any costs not otherwise ordered.
(6A)If, after the relevant date, a plaintiff accepts a formal offer of settlement insofar as it relates to principal relief, the Court may, on the application of any other party, order that the plaintiff pay the costs of action incurred by that other party during some or all of the period after the relevant date.
(7)In subrules (6) and (6A), the relevant date is the date falling 14 days after the date of service of the offer.
The plaintiff submits that it is entitled to the order it seeks in respect of costs pursuant to the operation of 6SCR 188(6)(b)(ii). It submits that as its formal offer of settlement so far as it related to principal relief was not accepted by the defendants, and as the Court has determined the action on terms as to principal relief that are no more favourable to the defendants than the terms of the offer, it is entitled to the whole of its costs of action on a solicitor/client basis. It contends that the formal offer of settlement insofar as it related to principal relief was for $29,000. As the defendants obtained judgment in the sum of $15,305.94 only, it is entitled to the order it seeks in accordance with the terms of the rules.
In the alternative, it relies upon various offers made in Calderbank letters as follows:
·On 16 March 2012 it offered to settle on the basis of a payment of $60,000 in full and final settlement of the claim and cross-claim, in addition to a sum of $25,000 for costs;
·On 17 March 2012 it increased its offer to $75,000 in full and final settlement of the claim and counter-claim plus $25,000 by way of costs;
·On 23 March 2012 it increased its offer to a sum of $150,000 inclusive of interest and costs.
The defendants’ claim for costs
The defendants submit there is no entitlement on the part of the plaintiff to an order pursuant to 6SCR 188(6)(b)(ii). Further, they submit that the Court should not make an order for costs in favour of the plaintiff based on the Calderbank offers. Instead they submit that they are entitled to an order for costs as they were ultimately successful in obtaining judgment in their favour.
6SCR 188
The plaintiff submits that the terms of 6SCR 188(6)(b)(ii) entitle it to an order that the defendants pay the whole of its costs of action on a solicitor/client basis, and that the defendants are not entitled to any costs. It puts this submission on the basis that 6SCR 188(6) directs attention solely to the question of whether the Court has determined the relevant action or claim on terms (as to principal relief) that are no more favourable to the defendants than the terms of the plaintiff’s offer. The plaintiff’s offer as to principal relief was $29,000. It submits that as the judgment in the action for the defendants was in the sum of $15,305.94, after setting off the respective liability of the parties in respect of the plaintiff’s claim and the defendants’ counterclaim, the operation of 6SCR 188(6) is invoked.
The defendants contend to the contrary. While accepting that the consideration of the adequacy of the offer must commence with the offer as to principal relief, in circumstances where the terms of the offer include an offer that relates to both the principal relief and costs, the Court will only make an order pursuant to 6SCR 188(6) where it is satisfied as to the adequacy of the offer as to both principal relief and costs, not merely the principal relief.
In this case, the defendants rely upon evidence that as at the date of the filing of the rules offer, they were entitled to recover approximately $21,000 by way of party/party costs (inclusive of counsel fees). The defendants submit that when you aggregate the recoverable costs incurred as at the date of the offer with the amount actually awarded to them by the judgment sum, this figure exceeds the filed offer by an amount in excess of $6,000. Accordingly, they submit the offer was inadequate, and the Court cannot make an order pursuant to the rule. In the alternative, they submit that the operation of 6SCR 188(6) is subject to the discretion enshrined in the expression “subject to the Court’s order to the contrary” found in the sub-rule. They submit the Court, in the exercise of its discretion, should refrain from making an order because the offer viewed as a whole was inadequate, on any view of the matter, at the time of its filing, because the amount allowed for costs was grossly inadequate. The amount offered is inadequate even if the plaintiff has somehow credited the costs offer with the difference between the amount offered as to principal relief and the amount recovered by way of the judgment sum.
Consideration
In Whitehead v Maas[1] King CJ observed, in respect to the predecessor to 6SCR 188, that the intention of the rule is penal.[2] The purpose of the rule is to encourage plaintiffs to make offers and to deter defendants from non-acceptance of offers which are commensurate with the defendant’s just liability. It is an incentive to the settlement of litigation.
[1] (1991) 56 SASR 362.
[2] (1991) 56 SASR 362 at 367.
Pursuant to 6SCR188 the Court exercises its discretion upon its assessment of the adequacy of the offer and not on whether the judgment equals or exceeds the amount of the offer. However, the express terms of 6SCR 188(6) require the Court to apply the rule as to filed offers solely by reference to the adequacy of the offer as to principal relief rather than the adequacy of the offer as to principal relief and costs considered together. So much follows from the express inclusion of the words in parenthesis “as to principal relief”.
The express terms of 6SCR 188(6) might be thought to give rise to an hiatus. 6SCR 187 provides for the filing of an offer of settlement in Court. 6SCR 187(3) provides, inter alia, that the offer must state whether it relates to costs and, if so, the amount of the offer so far as it relates to costs and if the offer relates both to principal relief and costs, state whether the party to whom the offer is made may accept the offer of principal without also accepting the offer as to costs. That rule must be read in conjunction with 6SCR 188(1)(b) which permits the offer to be accepted insofar as it relates to principal relief only, unless the offeror has indicated that the offer may only be accepted in its entirety. In this context it might be thought that 6SCR 188(6) fails to address the circumstances which exist in this case, namely, where the offer relates to both principal relief and costs, and the offeror has indicated that the offer may only be accepted in its entirety. However, I do not consider that there is in fact an hiatus in the rule. Rather, I consider that the rules have been framed in this way because of the difficulties which the circumstances of this case illustrate in a court subsequently having to determine the adequacy of an offer by reference to costs which may have been incurred by a particular date long in the past. I do not consider that the drafter of the rule intended that the Court, which is required to undertake an assessment as to the adequacy of an offer pursuant to 6SCR 188(6), should have to make a determination as to the costs which had been incurred as at the date of the filed offer, and the amount of those costs which would be recoverable on a party/party basis. That kind of forensic exercise would complicate the assessment the Court is required to undertake in a way which I consider the drafter did not intend to occur.
On the contrary, I consider that the operation of the rule was intended to be much simpler. Subject to one matter, whether a party is liable to the costs penalty contemplated by the rule is intended to be determined solely by reference to the adequacy or otherwise of the offer as to principal relief by an assessment of whether the Court has determined the relevant action or claim on terms as to the principal relief that is no more favourable to the party than the terms of the offer. The existence of the residual discretion in the Court to depart from applying the provisions of 6SCR 188(6) strictly, allows for circumstances where the offer only is open to be accepted in its entirety and the term of the offer, insofar as it relates to costs, is manifestly inadequate. For example, if an action had been on foot for some years and an offer as to principal relief and costs was made, but the offer of costs was for $1,000 where the actual costs were substantial, where the offer could only be accepted in its entirety, and the Court determined the action on terms that were no more favourable to the offeree than the terms of the offer as to principal relief, it would be open for the Court to decline to apply the costs penalty in the exercise of the residual discretion. While there is scope for some amelioration in the harshness of the operation of the rule by reason of the residual discretion reposed in the Court to make an order to the contrary, that residual discretion, to my mind, only reinforces the construction I would give to the rule rather than detracting from it.
In this case, plainly the Court has determined the relevant action on terms as to principal relief that are no more favourable to the defendants than the terms of the offer as to principal relief. Accordingly, subject to the exercise of the Court’s residual discretion, the plaintiff is prima facie entitled to the order contemplated by 6SCR 188(6)(b)(ii).
In this case, I would not exercise the Court’s discretion in favour of the defendants so as to deprive the plaintiff of the order to which it has a prima facie entitlement.
There is evidence before the Court that the defendants’ recoverable costs as at the date of the filed offer were $21,000 (inclusive of counsel fees). That figure is calculated by the defendants’ present solicitor on the basis of information provided to him by the defendant’s former solicitors who were acting at the relevant time. That information, as set out in the affidavit of Richard Dunstone Townsend sworn 19 October 2012, is that the defendants’ former solicitors charged time costs of $12,583.73 for the period from 7 January 2010 to 24 February 2010, and the sum of $22,172.22 for the period from 7 January 2010 to 30 March 2010. As I noted earlier, the filed offer is dated 30 March 2010. The affidavit also refers to counsel retained by the defendants at that time rendering accounts in the sum of $1,980 in early February 2010, and $9,339 in March 2010.
Mr Townsend then estimates that the average recovery of party/party costs from solicitor and client costs is approximately two-thirds. Using that percentage he then arrived at the sum of $21,000 for party/party costs as at 30 March 2010 (inclusive of counsel fees).
This matter is necessarily complicated by the calculation of the defendants’ recoverable costs being based on an estimate of what portion of those costs is represented by party/party costs, an estimate being made by a solicitor who did not undertake that work. It is further complicated by the fact that the Court ordered the defendants to pay the plaintiff’s costs of the injunction proceedings that had been brought before Anderson J on 13 and 15 January 2010. Some portion of the costs that the defendants were charged by their solicitors at the time are likely to include work in relation to the injunction proceedings for which they had no entitlement to recovery from the plaintiff.
When the plaintiff’s offer is looked at as a whole, the difference between the judgment sum and the total offer[3] is an amount of $14,694.06. I am not in a position to say that the defendants were entitled as at the date of the filed offer to recover a sum in excess of this amount from the plaintiffs. Moreover, I note the terms of 6SCR 263 which relevantly provides:
[3]    That is an offer as to principal relief of $29,000 and an offer as to costs of $1,000.
263 – Court’s discretion as to costs
(1)As a general rule, costs follow the event.
(2)The general rule is, however, subject to specific rules to the contrary and also to the following exceptions (which apply subject to the Court's order to the contrary)—
…
(h)     in an action founded on a claim for damages or any other monetary sum (other than a motor accident claim or a claim for defamation), general costs of action are not to be awarded in favour of the successful plaintiff unless the amount awarded exceeds $75 000.
Again, subject to the Court’s residual discretion, the operation of 6SCR 263 would ordinarily deprive the defendants of any entitlement as to costs.
While I acknowledge that the defendants did not institute these proceedings in this Court, once the proceedings had been commenced in this Court the issue of costs of the proceedings came to be determined by reference to the terms of the rules of this Court, including 6SCR 263.
In that context, I consider that there is no proper basis upon which I should exercise my discretion to relieve the defendants from the consequences of the operation of 6SCR 188(6)(b)(ii).
Consequently, I am of the view that the plaintiff is entitled to an order that the defendants pay the whole of the plaintiff’s costs of action on a solicitor/client basis, except with respect to the order that I have made in relation to the costs of the injunction proceedings before Anderson J on 13 and 15 January 2010. The plaintiff is entitled to those costs but on a party/party basis only.
In consequence of the judgment to which I have come, it is unnecessary to consider the issues arising in relation to the Calderbank offers.
Conclusion
The plaintiff is entitled to costs to be paid by the defendants on the following bases:
(1)the whole of the plaintiff’s costs of action, except with respect to the costs of the injunction proceedings before Anderson J on 13 and 15 January 2010, on a solicitor/client basis; and
(2)the costs of the injunction proceedings before Anderson J on 13 and 15 January 2010 on a party/party basis.