Waller & Waller v Fmc & Burns (No 4) No. DCCIV-98-1796

[2004] SADC 73

VIVENE KAYE WALLER & KENNETH JAMES WALLER
v
FLINDERS MEDICAL CENTRE & RICHARD JOHN BURNS (NO 4)
[2004] SADC 73

Judge Lunn
Civil

REASONS ON PLAINTIFFS’ APPLICATION FOR INDEMNITY COSTS

1. On 5 May 2004 I entered judgment against both defendants for $3,202,000 for the 1^st plaintiff and $16,800 for the 2^nd plaintiff. The plaintiffs applied for an order that they have their costs of the action as between solicitor and client which was opposed by the defendants who submitted that the costs should be only between party and party. Reference should be made to my published reasons in this matter Nos 1, 2 and 3, being District Court Jud Nos [2004] SADC 45, 67 and 68, for the background of this costs dispute.

2. On 6 January 2004 the 1^st plaintiff lodged a document at Court offering to accept $2,000,000 inclusive of costs in settlement of the action.  I have not seen the document.  The plaintiffs’ counsel submitted that it was an offer under Rule 41.01 and that the plaintiffs were entitled to their costs as between solicitor and client by operation of R41.04.

3. The defendants disputed that the document was an offer within R41.01 because it was expressed to be for a sum inclusive of costs.  There is no authority known to me in which it has been considered whether an offer of an amount inclusive of costs is one which can be the subject of R41.  The New South Wales’ case of Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349, which held that an offer inclusive of costs was not within a similar New South Wales’ rule, is of no real assistance as it substantially turned upon wording in the New South Wales’ rule which does not appear in R41. The question is to be determined on the proper interpretation of R41.

4. The relevant parts of R41 are:

   “41.01(1)  A plaintiff may at any time up to 21 days prior to trial lodge with the Registrar and serve on all other parties a notice offering to accept a stated amount, or a judgment for a stated amount where it is necessary to enter judgment, together with his costs of action, in satisfaction of the plaintiff’s cause of action …

   (2)  A plaintiff may at any time up to 21 days prior to trial lodge with the Registrar and serve on all other parties a notice offering to accept a stated percentage of liability or to accept a stated sum after giving credit to the defendant for any set-off counterclaim or cross-demand claimed by the defendant against the plaintiff, and in each case stating whether the offer requires the defendant to pay the whole or some stated proportion of the plaintiff’s costs of action …

   …

   41.02(1)  A defendant may at any time after receipt of a notice under this Rule, and up to 7 days prior to trial, file and serve on all other parties a notice of acceptance of that offer. …

   (2)  The Registrar may enter judgment in the proceedings in the terms of the acceptance lodged by the defendant pursuant to subrule (1).

   (3)  Any party may apply to the Court in respect of any question of costs or other ancillary relief in the proceedings which needs to be determined upon the acceptance of an offer under this Rule.

   …

   41.04  Where a defendant has not accepted a plaintiff’s offer made pursuant to this Rule and the sum recovered or, as the case may be, the proportion of the debt or damages or the relief recovered by the plaintiff is equal to or greater than that contained in the plaintiff’s offer, the Court, unless it thinks proper to order otherwise, shall order the defendant to pay the whole of the plaintiff’s costs of action to be taxed as between solicitor and client. …”  (underlining added)

   In R41.01(1) the reference to “, or a judgment for a stated amount where it is necessary to enter judgment,” is somewhat mysterious, but I need not enter into what it might mean.  I am satisfied that on a proper reading of that subrule the following phrase “together with his costs of action” also refers back to the previous phrase of “offering to accept a stated amount”.  “With his costs of action” is a standard expression indicating costs as between party and party.  A judgment entered under R41.02(2) for the stated amount together with the costs of action would produce a judgment for the stated amount plus a proper basis for the Court to tax the plaintiffs’ costs of action as between party and party if they were not agreed.  I consider on its proper construction R41.01(1) means that the offer is to be for a stated amount of money plus the plaintiffs’ costs of action which are to be quantified separately by either a taxation or agreement.

5. I do not consider that the phrase in subrule (1) “or a judgment for a stated amount where it is necessary to enter judgment”, whatever it might mean, can encompass a sum inclusive of costs because the phrase “together with his costs of action” also applies to that alternative.

6. This construction of R41.01(1) is consistent with the reference to “the plaintiffs’ costs of action” in R41.01(2).  It is not inconsistent with R41.02(3) which merely deals with ancillary costs questions such as costs of interlocutory proceedings which have previously been reserved or applications for costs on a solicitor and client basis on special grounds.  Rule 41 is part of a series of rules from RR39 to 41 which deal with adverse consequences in costs to parties who have been given opportunities to resolve litigation by the means provided in these rules but have chosen not to do so.  In relation to payment into Court under R39 it is clear from R39.08 that the amount paid into Court cannot be inclusive of costs, and that if plaintiffs accept the amount paid in they are then entitled to an order for taxed costs under that rule.  Similarly in relation to R40 dealing with defendants’ offers to consent to judgment R40.03(a) makes it clear that the plaintiff is entitled to taxed costs in addition to the amount offered.  It would be anomalous if R41 did not follow suit in this regard with R39 and R40, and R41 should thus be construed as dealing with offers exclusive of costs.

7. Rule 41.04 refers to “the sum recovered” being equal to or greater “than that contained in the plaintiff’s offer”.  “The sum recovered” impliedly means the monetary amount of the judgment.  This does not include any inchoate entitlement to an additional amount for costs.  If R41.04 was referring to both the claim and the costs it would have been sufficient to refer to the judgment.  The use of “the sum” suggest a quantified amount of money.

8. There is a very cogent reason why RR39-41 should operate only on offers exclusive of any additional entitlement of the plaintiffs to the costs of the action.  If a payment in or offer under these rules is not accepted, the Court in determining what costs consequences follow under the respective rules after judgment upon a trial have to compare the amount paid in or offered with the judgment sum.  Subject to possible small problems about pre-judgment interest accrued to the date of payment in or offer, a judge can readily compare the amount paid in or offered with the judgment sum and determine whether the special costs rules such as R41.04 operate in those circumstances.  If the amount paid in or offered was to be inclusive of costs, it is almost impossible for a trial judge to determine how much of the amount paid in or offered is for the claim and how much is for costs.  Where the amount paid in or offered is close to the judgment sum it might require a full taxation of costs, to the date of payment in or offer before it could be determined whether costs consequences followed under these rules.  That would be time-consuming, expensive and serve no worthwhile purpose.  The interpretation I have placed on these rules facilitates an expeditious and economical resolution of any issues under the rules concerning consequences in costs.  The plaintiffs’ counsel submitted that defendants like to receive offers inclusive of costs.  That may be so, but R41 does not recognise it.  If a defendant wants an all-up amount, it can negotiate to obtain it.  This view of the Court needing offers to be exclusive of costs is consistent with the view taken by Spender J in Smallacombe v Lockyer Investment Co Pty Ltd (1993) 114 ALR 568 at 572-3 concerning “Calderbank” letters. It is not to the point that in this particular action the inclusion of the costs did not preclude a workable comparison between the offer and the amount of the judgment: whether an offer is within R41.01(1) cannot depend on a subsequent variable, ie the amount of the judgment.

9. Accordingly, I hold that the document lodged by the 1^st plaintiff on 6 January 2004 was not an offer within R41.01, and hence there is no basis upon which to make any order in the plaintiffs’ favour under R41.04.  This conclusion is consistent with the position on similar, but not identical, rules in the Federal Court: Mgicca (1992) Ltd v Kenny & Goode Pty Ltd (No 4) (1996) 140 ALR 707.

10. Apart from R41, it is still necessary to exercise the Court’s general discretion on the proper costs order to be made.  In Duke Group Ltd v Pilmer (No 8), 1/6/98, Jud No S6699, unreported, Mullighan J declined to have regard to any informal “Calderbank” offers where any offer by the plaintiff could have been pursued under R41.  (As to “Calderbank” offers generally see Civil Procedure SA, volume 1, para [R30.01.10].)  However, in Sheahan v Hertz Australia Pty Ltd (1995) 181 LSJS 147 at 155 the Full Court accepted that the trial judge there was entitled in exercising the costs discretion to have regard to an offer under R41.01 even though it was inoperative because it was out of time. The Full Court there treated the offer as a relevant consideration in determining whether the defendant had placed an undue and unnecessary burden on the plaintiff by not accepting the offer. I cannot see any material difference between an R41.01 offer being inoperative under the Rules because it was inclusive of costs or because it was lodged too late. Accordingly, I consider that the offer is a relevant consideration, although not a decisive one, on whether solicitor and client costs should be ordered. It is merely a factor in the exercise of the general discretion, and there is no presumption that a plaintiff who betters a “Calderbank” offer should get solicitor and client costs unless the Court thinks it proper to order otherwise: Pirrotta v Citibank Ltd (1998) 72 SASR 259 at 266-7.

11. On this issue the onus is on the plaintiffs here to show that the conduct of the defendants in not accepting the offer made was unreasonable or imprudent: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121; Pirrotta v Citibank (above). I do not consider that the plaintiffs have discharged this onus. The defendants were acting reasonably in relying on the reports of Professor McLeod in contesting liability and they could not have foreseen that his ultimate position after cross-examination would not assist them. In his submissions on costs the plaintiffs’ counsel candidly conceded that in offering to accept $2,000,000 the plaintiffs had substantially discounted their entitlement because of the risk of losing on liability, presumably in a major part because of the opinion of Professor McLeod. What was the appropriate discount for that risk was a matter on which opinions could, and did, legitimately differ. The case was not merely an assessment of damages. There was some risk that the plaintiffs could have failed entirely, or have only recovered a significantly lesser amount if they had merely succeeded on the subsidiary claim based on the 1988 MRI scan. None of the parties had fully prepared their cases on the issue of damages before the trial commenced. In his opening on 2 February 2004 the plaintiffs’ counsel said very little about the quantum of damages and as the evidence came out at the trial it was clear a good deal of the evidence about it had only been obtained after 2 February. The important reports of Dr Marshall had only been obtained well after the offer had been made. I will not repeat what I said on this topic in my reasons No 3, Jud No [2004] SADC 68. Both sides continued to make significant amendments to their pleadings until well into the trial. Under R41.02 the defendants only had until 24 February 2004 to accept the offer, assuming it was a valid R41.01 offer. I am not satisfied that on what was available to them by that date they were unreasonable or imprudent in not accepting the offer.

12. As mentioned above, in Smallacombe v Lockyer Spender J considered that a “Calderbank” offer should not be expressed in amounts inclusive of costs.  However, here the inclusion of the costs made no practical difference.  Even if the amount had been plus costs it clearly would have fallen well short of the judgment figure.  While that was fatal to the operation of R41, I do not consider that it would preclude the Court from treating the offer as a factor in whether the defendants are shown to have acted unreasonably and imprudently in not accepting it in the particular circumstances of this case.

13. Accordingly, I reject the plaintiffs’ application for costs on the basis of solicitor and client.

14. On 8 March 2004 I dealt with two applications issued on 3 March 2004 by the plaintiffs and the defendants respectively. I published reasons for my fiats on these applications on 10 March 2004, Jud No [2004] SADC 45. Reference should be made to those reasons for the details of what occurred. In each of my fiats I reserved the question of costs. It is now necessary to deal with them.

15. Both of the applications were issued after the trial had commenced.  Both should have been dealt with by Masters at a much earlier time.  While it would have been unjust for me not to have dealt with the applications when I did it is a practice which should be strongly discouraged in the interests of conducting expeditious trials.  This will be reflected in the order for costs which I make for each application.

16. Although the defendants failed in their application there was merit in it and it arose from defaults of the plaintiffs which needed to be regularised.  The plaintiffs’ application was largely necessitated by their own defaults.  The amendments which were allowed should have been incorporated in the original pleadings or in earlier amendments.

17. For these reasons there will be no order as to the costs of these two applications of 3 March 2004.  The plaintiffs are not to be allowed the costs of any amendments made pursuant to my fiat of 8 March 2004.

18. The orders of the Court made today are as follows:

    1.Except as otherwise ordered the defendants are to pay to the plaintiffs their costs of the action as between party and party as agreed or taxed.

    2.There is to be no order as to costs on each of the applications of 3 March 2004.

    3.The plaintiffs are not to recover the costs of the amendments for which leave was given on 8 March 2004.

    4.The plaintiffs are to pay to the defendants their costs of the application for costs on 10 May 2004 as agreed or taxed.