Whitaker v Paxad Pty Ltd
[2009] WASC 47 (S)
•27 FEBRUARY 2009
WHITAKER -v- PAXAD PTY LTD [2009] WASC 47 (S)
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2009] WASC 47 (S) | |
| Case No: | CIV:1197/2005 | 24 - 28 NOVEMBER 2008 & 17 APRIL 2009 | |
| Coram: | BLAXELL J | 26/02/09 | |
| 5/06/09 | |||
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Order for indemnity costs | ||
| B | |||
| PDF Version |
| Parties: | JULIE ELIZABETH WHITAKER PAUL ANDREW SMITH PAXAD PTY LTD (ACN 009 049 147) LIONEL MICHAEL HOAD |
Catchwords: | Practice and procedure Costs Indemnity costs Calderbank offer to compromise Whether offer unreasonably rejected |
Legislation: | Legal Practice Act 2003 (WA), s 215(2) Legal Profession Act 2008 (WA), s 280(2) Rules of the Supreme Court 1971 (WA), O 24A r 10, O 66 r 12 |
Case References: | Brymount Pty Ltd v Cummins [2005] NSWCA 69 Calderbank v Calderbank [1975] 3 All ER 333 Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122(S) Gove v Black [2006] WASC 298(S) Gretton v Commonwealth of Australia [2007] NSWSC 149 Lo Presti v Ford Motor Co (No 2) [2008] WASC 12(S) MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 18 WAR 190 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
DECISION : 5 JUNE 2009 FILE NO/S : CIV 1197 of 2005 BETWEEN : JULIE ELIZABETH WHITAKER
- PAUL ANDREW SMITH
Plaintiffs
AND
PAXAD PTY LTD (ACN 009 049 147)
First Defendant
LIONEL MICHAEL HOAD
Second Defendant
Catchwords:
Practice and procedure - Costs - Indemnity costs - Calderbank offer to compromise - Whether offer unreasonably rejected
(Page 2)
Legislation:
Legal Practice Act 2003 (WA), s 215(2)
Legal Profession Act 2008 (WA), s 280(2)
Rules of the Supreme Court 1971 (WA), O 24A r 10, O 66 r 12
Result:
Order for indemnity costs
Category: B
Representation:
Counsel:
Plaintiffs : Mr M D Cuerden
First Defendant : Ms J K Condon
Second Defendant : Ms J K Condon
Solicitors:
Plaintiffs : Macdonald Rudder
First Defendant : Minter Ellison
Second Defendant : Minter Ellison
Case(s) referred to in judgment(s):
Brymount Pty Ltd v Cummins [2005] NSWCA 69
Calderbank v Calderbank [1975] 3 All ER 333
Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225
Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122(S)
Gove v Black [2006] WASC 298(S)
Gretton v Commonwealth of Australia [2007] NSWSC 149
Lo Presti v Ford Motor Co (No 2) [2008] WASC 12(S)
MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236
Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 18 WAR 190
(Page 3)
1 BLAXELL J: On 27 February 2009, I delivered a judgment awarding damages to the plaintiffs against the defendants in the total sum of $152,612.04. The defendants were ordered to pay the plaintiffs' costs of the action, which were to be taxed if not agreed. I also granted the plaintiff liberty to apply for special costs orders.
2 The plaintiffs then applied for orders that their costs be taxed on an indemnity basis, or alternatively that such costs be taxed without regard to the limits for discovery and getting up for trial, as imposed by the Legal Practitioners (Supreme Court) (Contentious Business) Determination.
3 I heard oral submissions from the parties on 17 April 2009 and, by leave, there were subsequent written submissions.
The basis of the application for indemnity costs
4 The plaintiffs seek indemnity costs on the basis that the defendants unreasonably rejected several offers of compromise in the course of proceedings. The affidavits before me show that the relevant offers from the plaintiffs were as follows:
- 31 July 2006: An O 24A offer in the sum of $140,000.
- 16 October 2006: An O 24A offer in the sum of $70,000, together with a simultaneous 'without prejudice save as to costs' offer of $100,000 inclusive of costs.
- 5 April 2007: A 'Calderbank'offer in the sum of $70,000 plus costs to be taxed if not agreed.
- 7 January 2008: A 'Calderbank' offer in the sum of $51,000 plus costs (which costs were estimated by the plaintiffs to be $55,000 inclusive of disbursements).
5 Although the defendants rejected each of these offers, they have made the following counter offers:
- 28 December 2006: An O 24A offer in the sum of $10,000 plus costs.
- 29 March 2007: A 'without prejudice save as to costs' offer of $45,000 inclusive of costs.
- 9 October 2007: A reduced 'without prejudice save as to costs' offer of $25,000 inclusive of costs.
(Page 4)
- - 21 January 2008: A 'without prejudice save as to costs' offer of $60,000 inclusive of costs.
6 The plaintiffs contend that the defendants' rejections of their offers were unreasonable because of numerous circumstances, which include the following:
(a) Because of the nature of the alleged representations by Mr Hoad (most of which were admitted) there was always a high probability of a finding that he held himself out as a person with special or intimate knowledge of the property.
(b) On 17 March 2006 the plaintiffs provided the defendants with an audio tape of an interview with Mary Carroll, together with a written statement by Mrs Carroll. Mrs Carroll was an independent witness and her evidence established that there had been persistent water problems in the lower level of the property for five years up until the sale to the plaintiffs.
(c) There was always a real risk of a finding that Mr Hoad had actual knowledge of those pre-existing problems, because he had regularly visited the property, and the presence of water as described by Mrs Carroll would have been apparent to anyone who went to the lower level in the wintertime.
(d) The likelihood of that finding was enhanced by the fact that at all material times Mr Hoad stored personal possessions in and around the lower level of the house including a vintage car or cars.
(e) As a matter of commonsense and experience, it was likely that Mr Hoad's mother had informed him of the water problems given their severity as described by Mrs Carroll.
(f) The defendants did not lead evidence at trial to materially contradict the evidence of the plaintiffs or their witnesses (and in particular, Mrs Carroll) and must have known beforehand that much of that evidence was likely to be accepted.
(g) The defendants must have known that Mrs Hoad and Eddie Calvert would not be called as witnesses, notwithstanding that they were each uniquely placed to contradict the plaintiffs' witnesses if they were in a position to do so.
(Page 5)
- (h) At the time the plaintiffs made their O 24A offers, the terms of O 24A put the defendants on notice that (if the offers were not accepted and were matched or exceeded by judgment at trial), they faced an order for indemnity costs.
(i) Notwithstanding all of these the circumstances, the defendants passed up a number of opportunities to settle the action for amounts which were substantially less than the damages ultimately awarded.
7 The affidavit from the defendants' solicitor explains in considerable detail the reasons why the plaintiffs' offers were rejected. At all material times the solicitor was acting for the defendants' insurer, but when advising the insurer to reject each offer, relied on assertions by Mr Hoad that he was unaware of any water problems in the house at the time of the sale to the plaintiffs. These assertions were corroborated by a written statement from Mrs Hoad (dated 27 December 2007) and by statements that she and Eddie Calvert had previously made in connection with an inquiry by the Real Estate and Business Agents Supervisory Board. On counsel's advice, Mrs Hoad and Mr Calvert were not called as witnesses at trial. At the time of trial, Mrs Hoad was 92 years of age, and Mr Calvert was resident in Victoria.
8 The defendants' solicitor's affidavit also shows that the insurer's rejection of each of the plaintiffs' offers was not in any way peremptory, but was based upon detailed and reasoned advice from the defendants' solicitors.
The principles governing the discretion to order indemnity costs
9 The courts will usually order that the unsuccessful party to an action pay the successful party's costs on a party to party basis. This is so notwithstanding the notorious fact that those costs are almost always a fraction of the costs actually incurred in successfully pursuing or defending the action. As Sheppard J stated in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, 227, this situation has come about because:
[M]embers of the profession, both solicitors and counsel, and also professional witnesses, have refused to accept as a proper or sufficient guide to their costs and fees the provisions of [the prescribed] scales of costs and charges.
(Page 6)
10 The policy reasons underlying the reluctance of courts to make orders which fully indemnify successful litigants for their costs have been said to be the following:
[T]he law for reasons which it considers to be in the public interest requires a litigant to exercise a greater austerity than it exacts in the ordinary way, and which it will not relax unless the litigant can show some additional ground for reimbursement over and above the bare fact that he has been successful (Berry v British Transport Commission [1062] 1 QB 306, Devlin LJ at 323).
Litigation is already expensive. The limited indemnity provided to a successful represented litigant for expense incurred and time lost reflects a compromise between the interests of successful and unsuccessful litigants (Cachia v Hanes (1991) 23 NSWLR 304, Handley JA at 318).
11 Accordingly, orders for indemnity costs are only made in cases where there is some special or unusual feature which justifies a departure from the ordinary practice. When the justice of a particular case requires a departure from the ordinary practice, the court has a discretion to order indemnity costs. The discretion is a wide one, and the categories of circumstances in which it may be exercised are not closed (Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 18 WAR 190, 191; Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122(S)).
12 One category of cases where the discretion is sometimes exercised is when the unsuccessful party has unreasonably rejected an offer of compromise. Such offers are often in the form of a 'Calderbank' letter, which if unaccepted and of an amount less than that achieved by the offeror at trial, can be used in support of an application for indemnity costs as from the date of the offer (Calderbank v Calderbank [1975] 3 All ER 333).
13 However, the rejection of an offer of settlement which was more favourable to the offeree than the outcome at trial, does not (in itself) raise any prima facie entitlement to indemnity costs (MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236, 240; Gove v Black [2006] WASC 298(S) [44]; Lo Presti v Ford Motor Co (No 2) [2008] WASC 12(S) [17]). In this regard, Goldberg J held in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 [17] that:
[W]henever a Calderbank offer is made, and is enlivened by a result more favourable to the offeror and less favourable to the offeree, it is necessary
(Page 7)
- to look at all the surrounding circumstances and not simply the fact that an offer was made and rejected and the offeree has achieved a less favourable result than the offer. It is necessary to look at the genuineness of the offer, whether it was realistic, the point of time at which it was made and that whether, in all the circumstances, it was such a reasonable offer as required the offeree to give careful consideration to it. If, in all the circumstances, it was unreasonable for the offeree to reject the offer and not accept it then there are strong grounds for the Court ordering indemnity costs on the basis that the offeror has made a fair and reasonable attempt to resolve the proceeding and has given the offeree the opportunity at a relevant point of time in the proceeding to consider the reasonableness of the offer. The Full Court (Neaves, Ryan and Lee JJ) underscored this approach in Donnelly v Edelsten (1994) 121 ALR 333 where it said at 345:
'The foundation for the order is the need for the costs order to do equity where a party who has succeeded in the proceeding has made a reasonable attempt to terminate the proceeding by an offer of compromise shown to have been a fair offer in all the circumstances and to have provided appropriate opportunity for the offeree to consider and deal with the offer.'
(a) whether the rejection of the compromise offer was reasonable in the circumstances. While the rationale of Calderbank offers is to promote settlement of disputes, 'an offeree can reasonably fail to accept an offer without suffering in costs';
(b) the timeframe in which the offeree had to consider the offer. This factor is relevant as it usually accords with a party's legal advisers being given sufficient time to weigh up the prospects of a case and the potential value of any damages sought, as against the likely costs should the claim fail;
(c) whether the letter of compromise explicitly stated that the offer was made in Calderbank terms, the exact conditions of the offer, and whether indemnity costs would be pursued if the offer was rejected.
15 In the end, the essential issue to be determined is whether the rejection of the Calderbank offer was so unreasonable in all of the circumstances that an order for costs on the usual basis would not do the
(Page 8)
- successful party justice (Gove v Black [44] - [46]; Lo Presti v Ford Motor Co (No 2) [19]) .
16 This determinationis not to be made with the benefit of the hindsight which has been gained as a result of the outcome at trial. In this regard, the circumstances relevant to the question whether the failure to accept the offer was unreasonable include an assessment of the strength and weaknesses of the unsuccessful parties' case, when viewed prospectively at the time that the offer was made (Gretton v Commonwealth of Australia [2007] NSWSC 149 [24]).
Whether the plaintiffs should be awarded indemnity costs
17 An unusual feature of the present case is that at all material times the main factual contest (relevant to liability) was not between Mr Hoad and the plaintiffs, but between him and the independent witnesses, Mary Carroll and Norman Carroll. It is therefore highly significant for present purposes that the plaintiffs took the step very early in the proceedings of serving the defendants with (the recorded) oral and written statements of Mrs Carroll.
18 The critical issues of fact on which liability turned were:
(1) whether the water problems experienced by the plaintiffs two weeks after taking possession of the property, were present prior to the sale;
(2) if so, whether Mr Hoad was aware of those problems at the time of the representations made to the plaintiffs prior to sale. (In this regard there was no substantial issue as to what was said between the parties).
19 Without the evidence of Mrs Carroll, the plaintiffs were not in the position to adduce direct evidence as to the first issue. All they had was the evidence of their expert's inspection of the property soon after the water problem manifested itself. This showed that channels had been dug in the dirt floored cavity areas of the lower level to drain water away from the house. The presence of those channels supported an inference that it was a pre-existing problem.
20 As to the second issue, the only evidence that the plaintiffs could rely on was the inference as to Mr Hoad's knowledge to be drawn from the following facts:
(Page 9)
- - the statements made by Mr Hoad while showing the plaintiffs around the property prior to sale, which indicated that he had a special or intimate knowledge of the property;
- his storage of personal items in the lower level for a number of years up until sale;
- his regular visits to the property to meet with his mother and to attend to his personal items including vintage car(s) stored in the lower level.
21 Based upon the above evidence alone, the plaintiffs' case, and their prospects at trial could not have been regarded as being very strong.
22 However, when Mrs Carroll's evidence became available, the plaintiffs' prospects greatly improved. She was a neighbour who had been very friendly with Mrs Hoad, and had regularly visited the property between 1997 and 2002 when it was sold to the plaintiffs. During that period she had observed seasonal flooding in the lower level and had discussed the presence of the water with Mrs Hoad. She also had been present with Mrs Hoad when the latter had telephoned Mr Hoad and asked him to remove his vintage car(s) because of the dampness and flooding. Mrs Carroll had also assisted in moving cardboard cartons (containing Mr Hoad's personal items) from the lower level prior to sale, and had noticed that these were water damaged.
23 At the time of rejecting each of the plaintiffs' offers of compromise, the defendants, their insurer, and their solicitors were aware of the evidence that Mrs Carroll would give at trial. However, the insurer and the solicitors did not give great credence to Mrs Carroll because they accepted at face value the assurances from Mr Hoad that he was unaware of any water problems at the material time (and implicitly that he would have been aware of those problems if they had been there).
24 They also doubted Mrs Carroll's credibility because her written statement referred to Mr Hoad having 'two of his old antique cars' stored in the lower level at the time that Mrs Hoad had told him to shift them out. The defendants' solicitor had inspected the garage at the lower level and concluded that there was insufficient room for two vintage cars. However, I infer that at all material times the defendants did not place great weight on this discrepancy because it was not a matter that was put to Mrs Carroll during cross-examination at trial.
(Page 10)
25 It was significant that Mrs Carroll's evidence as to the existence of seasonal flooding of the lower level between 1997 and 2002, was corroborated by the presence of the drainage channels which had been dug under the house at sometime prior to the sale. The defendants had photographs of these drainage channels, and given that Mrs Hoad was blind, they could only have been dug by her maintenance contractor Mr Calvert. However, it would appear that the defendants made no effort to contact Mr Calvert notwithstanding that his address in Victoria was known.
26 Furthermore, Mrs Carroll's evidence was of such a nature that she could not possibly be mistaken about seeing water in the lower level of the house. It was also very unlikely that she would be mistaken about the telephone conversation that she claimed to have overheard. Accordingly, the issue that the defendants', their insurer, and their solicitors needed to consider was whether Mrs Carroll was telling lies in circumstances where she was very friendly with Mrs Hoad and had no connection with the plaintiffs.
27 I think that it is a fair inference from these circumstances that at all material times, the defendants, their insurer, and their solicitors, chose to disregard the potential of Mrs Carroll's evidence to greatly strengthen the plaintiffs' case at trial. This inference is supported by the facts that Mr and Mrs Carroll's evidence ultimately went unchallenged, that the only witnesses who were be in a position to contradict them were not called, and that no explanation was offered for the absence of those witnesses.
28 In the course of the trial I heard a great deal of evidence as to the plaintiffs' financial circumstances and difficulties at the material times. I also heard evidence as to the distress, inconvenience, and anxiety that they experienced as a result of the events that gave rise to the proceedings. In light of this evidence, I can be readily satisfied that at all material times the plaintiffs were very keen to settle the proceedings short of trial. I can also be satisfied that each of their offers was a genuine attempt to compromise their action on a mutually satisfactory basis.
29 In my opinion, the issues as to damages were never as clear cut as those in respect of liability. Nevertheless, at all material times the defendants faced the real prospective risk of a judgment against them in a sum at or about the amount that was ultimately awarded.
30 Having made these general observations, I now turn to the question whether the defendants' failure to accept any of the offers of compromise
(Page 11)
- was so unreasonable as to justify the exercise of my discretion to award indemnity costs.
31 The plaintiffs' first offer on 31 July 2006 was made under O 24A and was for the sum of $140,000. This sum was not far short of the amount ultimately awarded, and the plaintiffs do not contend that the defendants' failure to accept that offer entitles them to indemnity costs.
32 At the time of the second set of offers on 16 October 2006, a plaintiff making an offer under O 24A had a prima facie entitlement to indemnity costs in the event that the result at trial was less favourable to the defendant than the terms of the offer. However, amendments to O 24A as from 1 March 2007 have had the retrospective effect that the plaintiffs can no longer claim indemnity costs by reason of the defendants' failure to accept such an offer. It follows that the focus for present purposes must be upon the offer made 'without prejudice' save as to costs' which accompanied the O 24A offer on 16 October 2006.
33 It is a very relevant circumstance that shortly prior to this offer, the parties had participated in a mediation conference on 9 October 2006. It follows that the defendants had had the opportunity to fully assess the relative strengths of the respective cases, as well as their prospects for a successful defence at trial. The plaintiffs, on the other hand, would have been well aware at the time of the offer that the decision on whether it would be accepted would be made by the defendants' insurer. It is therefore very surprising that the plaintiffs' solicitors' letter of 16 October stipulated that the 'alternative offer' was open only until 'noon 23 October 2006 unless earlier withdrawn in writing'.
34 The offer was faxed to the defendants' solicitors at 3.45 pm on 16 October, which left less than seven days to provide appropriate advice to the insurer and obtain instructions on whether it should be accepted. In fact, it was not until 24 October that the defendants' solicitors discussed the offer with the insurer and received instructions that it should be rejected.
35 It is clear that the time allowed by the plaintiffs was insufficient for the defendants to properly consider the prospects of their case and the potential value of the damages sought, as against the likely costs should the claim fail. For this reason alone, the defendants' rejection of the offer of 16 October 2006 cannot be characterised as unreasonable.
36 The plaintiffs' third offer was a 'Calderbank' offer to accept the sum of $70,000 plus costs to be taxed if not agreed. That offer was left open
(Page 12)
- for 21 days unless earlier withdrawn by notice in writing. It was also explicitly stated that if the offer was not accepted, the plaintiffs reserved the right to rely on the letter in support of an application for indemnity costs against the defendants.
37 In my view, the period of 21 days was sufficient for the defendants' insurer to be properly advised and to make an informed decision whether or not to accept the offer. In any event, on 17 April 2007, the defendants' solicitors were in a position to respond to that offer and advise that it had been rejected.
38 The defendants submit that the question whether the offer was unreasonably rejected should be viewed from the perspective of the insurer rather than that of the defendants generally. They contend that the insurer was the 'real party' or 'true litigant', and that the reasonableness of the relevant conduct should be measured against the matters then known to the insurer. These matters included Mr Hoad's assurances that he had been unaware of the water problems. I understand the effect of this submission is that the insurer was entitled to rely on the accuracy of Mr Hoad's assurances in deciding to reject the offer.
39 However, the insurer of a litigant must take that litigant as it finds him. In defending the action, the insurer stood in Mr Hoad's shoes for all purposes connected with the proceedings. In my opinion the question of reasonableness in relation to rejection of the offer must be looked at from the point of view of the defendants and not limited to a consideration of matters as they appeared to their insurer.
40 This is so, even though the insurer acted responsibly in accepting the advice of its solicitors that the offer should be rejected. The basis of that advice was the assumption that, at trial, Mr Hoad's evidence would be accepted and Mrs Carroll would not be believed. However from an objective point of view, the logic of the surrounding circumstances showed there was a need to take Mrs Carroll's evidence seriously, and to question the reliability of Mr Hoad's assertions. Unfortunately, neither of these things occurred.
41 In my view the offer was a very realistic one at the time it was made, and it was also a fair, genuine, and reasonable attempt by the plaintiffs to achieve a compromise. To this end, they had taken the unusual step of providing early disclosure of the evidence of Mrs Carroll. The defendants had ample time to weigh their prospects and to carefully consider the offer, but failed to do so. In all of the circumstances, I consider that their
(Page 13)
- failure to accept the offer was so unreasonable that the usual order as to costs would not do the plaintiffs justice.
Conclusions
42 For the above reasons there will be an order that the plaintiffs' costs of the action be taxed on an indemnity basis as from 5 April 2007. I further order that such costs be taxed on the basis that they include all costs incurred by the plaintiffs except insofar as they are of an unreasonable amount or have been unreasonably incurred.
0
13
3