ZD by his tutor LD v Fast Lane Karting Centre Pty Ltd

[2013] NSWDC 52

District Court

New South Wales

Medium Neutral Citation:

ZD by his tutor LD v Fast Lane Karting Centre Pty Ltd [2013] NSWDC 52

Hearing dates:

26 April 2013

Decision date:

26 April 2013

Jurisdiction:

Civil

Before:

Gibson DCJ

Decision:

(1) Plaintiff's application dismissed.

(2) Plaintiff to pay the defendant's costs of Friday 19 April 2013 and today.

Catchwords:

COSTS - personal injury action brought by a minor - settlement negotiations by both parties include offers of compromise - parties settle for the amount the plaintiff had sought in a lapsed offer of compromise - plaintiff amends consent orders to bring application for costs of the application for approval of the settlement - additional application by plaintiff for indemnity costs relying upon the lapsing of the offer of compromise - whether "without any prejudice save as to costs and interest" renders the offer of compromise invalid - whether the court should otherwise order by reason of exceptional circumstances

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 75-77
Legal Profession Act 2004 (NSW), s 341
Uniform Civil Procedure Rules 2005 (NSW), rr 20.26 and 42.14

Cases Cited:

Azar v Kathirgamalingan [2012] NSWCA 429
Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109
Channel Seven Sydney Pty Ltd v Mahommed (No 2) (2011) 278 ALR 129; [2011] NSWCA 6
Dean v Stockland Property Management Pty Ltd (No 2) [2011] NSWCA 141
Egan v Mangarelli (No 2) [2012] NSWSC 1226
GSA Industries Pty Ltd v NT Gas Ltd (1990) 24 NSWLR 710
Harding v Bourke [2000] NSWCA 60
Holland by his next friend Holland v The Minister for Health (In His Capacity As the Board of Management of King Edward Memorial Hospital for Women) [2001] WADC 215
Insurance Australia Ltd t/as NRMA Insurance v Checchia [2011] NSWCA 101
Lahoud v Lahoud [2006] NSWSC 126
LGS v Barbagallo [2013] NSWSC 68
Macourt v Clark (No 2) [2012] NSWCA 411
Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721
Nominal Defendant v Hawkins [2011] NSWCA 93
Old v McInnes [2011] NSWCA 410
Pacanowski v Simon Wakeman & Associates (No 2) [2010] NSWCA 40
Port Stephens Council v Theodorakis [2006] NSWCA 143
Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368
Rosebanner Pty Ltd v EnergyAustralia (No 2) [2011] NSWCA 150
Separovich v Ferrao (No 2) [2011] NSWCA 346
Tomasetti v Brailey [2012] NSWCA 399
Viera v O'Shea (No 2) [2012] NSWCA 121
Ziliotto v Dr Hakim (No 2) [2012] NSWSC 1079

Texts Cited:

G E Dal Pont, "Law of Costs", 2nd ed., 2009

Category:

Costs

Parties:

Plaintiff: ZD by his tutor LD
Defendant: Fast Lane Karting Centre Pty Ltd

Representation:

Plaintiff: Mr M Thompson
Defendant: Ms A Sivarajan (solicitor)
Plaintiff: Gerard Malouf & Partners
Defendant: McCabes Lawyers

File Number(s):

2011/334244

Judgment

1. This is an application for costs to be paid on the ordinary basis up until 7 January 2013 and thereafter on an indemnity basis, pursuant to r 42.14 Uniform Civil Procedure Rules 2005 (NSW) ("UCPR").

1. This rule provides:

"42.14 Where offer not accepted and judgment no less favourable to plaintiff

(1) This rule applies if the offer concerned is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim concerned no less favourable to the plaintiff than the terms of the offer.

(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim:

(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and

(b) assessed on an indemnity basis:

(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."

1. This is an application for approval of a settlement of personal injury proceedings where the plaintiff is a minor. The Consent Judgment prepared by the plaintiff contains specific provisions in paragraphs 2 and 3 for the bringing of an application for costs for "application for approval and any preparation and attendance on the court" for that purpose.

1. The precise text of these paragraphs is as follows:

"2. In consideration for the above application for approval, the plaintiff will be at liberty to apply to the court for a further order directing payment on the ordinary basis by the defendant of the plaintiff's costs of the application for approval and any preparation and attendance on the court in respect of such application for approval.

3. Subject to approval of the infant settlement:

(a) Judgment for the plaintiff against the defendant in the sum of [the settlement sum].

(b) The defendant to pay the plaintiff's costs as agreed or assessed and, in addition, any costs as may be ordered by the court in accordance with paragraph 2 of these orders.

(c) All prior costs orders vacated."

1. As these are proceedings for approval of a settlement of a claim brought by a person under the age of eighteen years, who is represented by a tutor, pursuant to ss 75-77 Civil Procedure Act 2005 (NSW) such a settlement must be approved by the court. This requires an assessment of the adequacy of the settlement by the judge hearing the approval, which may in some circumstances be a difficult or inexact process: Egan v Mangarelli (No 2) [2012] NSWSC 1226 at [39]-[40]. However, that does not mean that offers of compromise cannot apply to a plaintiff under a disability: Azar v Kathirgamalingan [2012] NSWCA 429 at [200]. The principles behind the offer of compromise system, namely to encourage the proper compromise of litigation (Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724), apply to actions involving persons under a disability just as they do to persons who do not labour under such a disadvantage, although the court will exercise both common sense and compassion when dealing with parties who, by reason of age or intellectual impairment, are unable to represent themselves.

The plaintiff's application on 19 April, 2013

1. I should first note that the plaintiff's initial application before me, when this application for approval of the settlement was listed before me on 19 April, was for costs to be assessed outside the usual scale provided for in s 341 Legal Profession Act 2004 (NSW) ("the Act"). Section 341 of the Act provides:

341 Court may order certain legal services to be excluded from maximum costs limitation

1. An order may be made if the court is satisfied that the legal services were provided in response to any action on the claim by another party which are "not reasonably necessary for the advancement of that party's case" or "intended or reasonably likely to unnecessarily delay or complicate" the determination of the claim. The principle issue is proportionality: Port Stephens Council v Theodorakis [2006] NSWCA 143 at [13] per Giles JA and at [20] per Ipp JA.

1. The plaintiff's application on 19 April 2013 was brought on the basis that the costs of having the settlement approved could have been avoided by the defendant simply agreeing to the proceedings being discontinued, which would have obviated the need for the settlement to be approved by the court. However, the process of court approvals of settlements for infants and other persons under a disability cannot be circumvented in this fashion. Any discontinuance involving a person under a disability must be approved by the court: Holland by his next friend Holland v The Minister for Health (In His Capacity As the Board of Management of King Edward Memorial Hospital for Women) [2001] WADC 215. It would be inappropriate for the parties to enter into an agreement for the settlement of these proceedings in contravention of the accepted process for approval of settlements for persons under a disability. The defendant was right to require that the approval to be put before the court for aproval in accordance with the provisions of ss 75 - 7 Civil Procedure Act 2005 (NSW).

1. The plaintiff has now withdrawn this submission, but the fact that it was made is relevant to the costs of this application, as well as helping to explain the manner in which the plaintiff framed the costs provision in the Offer of Compromise, the text of which is set out below.

The application for indemnity costs from 7 January 2013 to date

1. The application in its present form before me today is an application for indemnity costs from 7 January 2013. The basis of this application is that an offer of compromise was served on 7 January 2013. That offer lapsed 28 days thereafter, namely on 4 February 2013.

1. The terms of the offer of compromise are as follows:

"The plaintiff offers to compromise this claim on the following terms:

(1) By accepting the amount of [the settlement sum].

(2) This offer of compromise is open for acceptance for a period of 28 days from the date of this offer.

(3) This offer of compromise is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005.

(4) Without any prejudice save as to costs and interest.

A copy of this document has been served on the solicitor for the Defendant."

1. The parties had been making offers and discussing settlement since December 2012, in the context of a settlement conference. Although the plaintiff's offer of compromise lapsed on 4 February, settlement discussions continued. On 15 March 2013 settlement was agreed to, for the same sum in the offer of compromise, "plus costs as agreed or assessed" (Exhibit C to the affidavit of Mr Kolokossian sworn 23 April 2013). The deed sent by the defendant did not contain any reference to the costs orders the plaintiff sought in relation to the costs of the approval. The defendant was, however, prepared to agree to the settlement being put before the court and for the plaintiff to put the argument for approval costs before the court as part of that approval (although the defendant proposed to oppose that application).

The validity of the offer of compromise

1. The first issue is whether, having regard to Old v McInnes [2011] NSWCA 410 and Viera v O'Shea (No 2) [2012] NSWCA 121, this offer of compromise is invalid. The problem is not simply that it refers to costs in point number 4 of the offer (as to which see also Dean v Stockland Property Management Pty Ltd (No 2) [2011] NSWCA 141; Pacanowski v Simon Wakeman & Associates (No 2) [2010] NSWCA 40; Rosebanner Pty Ltd v EnergyAustralia (No 2) [2011] NSWCA 150; Insurance Australia Ltd t/as NRMA Insurance v Checchia [2011] NSWCA 101; Channel Seven Sydney Pty Ltd v Mahommed (No 2) (2011) 278 ALR 129, [2011] NSWCA 6; Separovich v Ferrao (No 2) [2011] NSWCA 346; Nominal Defendant v Hawkins [2011] NSWCA 93). Point 4 of the offer of compromise goes well beyond the "plus costs" or "exclusive of costs" provisions discussed in these cases, in that it states the offer is made "without any prejudice save as to costs and interest".

1. Mr Thompson's first submission is that it is acceptable to refer to costs in an offer of compromise and that Old is no longer regarded as a correct interpretation of the law: Egan v Mangarelli (No 2), supra. In Egan v Mangarelli (No 2), supra, Hoeben J identifies a "conflict of opinion" (at [34]) between Viera v O'Shea (No 2), supra, and Old v McInnes, supra. Mr Thompson submitted that Viera v O'Shea (No 2), supra, should be preferred to Old v McInnes, supra, for the reasons explained by Hoeben J. Alternatively, he submitted that "a mere reference to costs in an offer otherwise compliant with Pt 20 Div 4 will not take the offer outside the rules unless the reference operates inconsistently with the relevant costs rule" (Egan v Mangarelli (No 2), supra, at [20]). I am prepared to accept that Viera v O'Shea (No 2), supra, is the decision to be preferred, for the reasons explained by Hoeben J in Egan v Mangarelli (No 2), supra.

1. However, this does not assist the plaintiff. Point 4 of the offer of compromise goes well beyond a mere reference to costs. It refers to costs and interest in the context of "without prejudice" offers in a manner inconsistent with the Rules and is, in addition, ambiguous about the costs and interest in question. I shall deal with each of these problems in turn.

1. Firstly, the offer does not identify the manner in which the plaintiff reserves the position as to costs. What was sought is more than the usual "plus costs" situation. Not only was the nature of what additional costs were sought was unidentified in the offer of compromise, but the language employed indicated that these unidentified applications would be brought regardless of the settlement of the personal injury claim for the sum offered.

1. The defendant agreed, in the settlement deed, that the plaintiff could preserve the right to bring an application for additional costs in relation to the approval. They did not agree to pay these costs, and successfully opposed the application which was first brought before me, namely that pursuant to s 341 of the Act costs of the approval should be awarded in the plaintiff's favour, on the basis that the defendant had unreasonably refused to a discontinuance of proceedings.

1. It is unclear how many of these costs applications fell within the contemplation of the plaintiff when drafting the Offer of Compromise, but at least some of them did. The defendant was, however, left to guess, from the terms of the offer of compromise, just what the plaintiff meant by reserving issues of costs to be determined.

1. Secondly, the offer refers to interest. Does this mean interest on damages (to which a person claiming damages for personal injury is not entitled) or to interest on costs (Lahoud v Lahoud [2006] NSWSC 126 at [78] - [88]; Tomasetti v Brailey [2012] NSWCA 399 at [163]-[165]; Macourt v Clark (No 2) [2012] NSWCA 411)? Again, the defendant was left to guess this.

1. Thirdly, the addition of the phrase "without any prejudice" is unclear. I infer, from Mr Thompson's submissions, that this was designed to protect the plaintiff's rights to make applications for any kind of special orders for costs and/or interest. This goes beyond the mere mentioning of costs, in that the recipient of the offer is left to guess what sort of applications will be made, and thus beyond the principles set out in Viera v O'Shea (No 2), supra. In addition, the inclusion of these words may reduce the offer of compromise to a Calderbank offer; in LGS v Barbagallo [2013] NSWSC 68 at [38] - [44] McDougall J held that an offer of compromise sent under cover of a letter marked "without prejudice except as to costs" could deprive the enclosed offer of compromise of its status. I note, however, that in Ziliotto v Dr Hakim (No 2) [2012] NSWSC 1079 at [2] the same words were used without challenge. Nevertheless, where those words appear in the actual offer itself, they create ambiguity and confusion.

1. In addition to these problems, the entitlement of a party to costs under the offer of compromise system needs to be seen in context. Mr Thompson repeatedly referred to his client's entitlements under the offer of compromise system as a right that could not be abrogated. Once the offer expired, his client had a right to costs on an indemnity basis. However, the rules of court are our servants, not our masters, as the Court of Appeal has repeatedly stated: GSA Industries Pty Ltd v NT Gas Ltd (1990) 24 NSWLR 710; Harding v Bourke [2000] NSWCA 60 at [26]. However, what the plaintiff was seeking to do here was to use the offer of compromise to obtain additional costs to which it was not, under the Legal Profession Act, entitled without agreement from the defendant or an order of the court. By seeking to tie the defendant to an agreement to pay additional costs (in the reopened offer of compromise) the plaintiff was including costs in the offer of compromise, contrary to what is permissible under the principles enunciated in Viera v O'Shea (No 2), supra.

1. I am satisfied that, individually or in combination, these references to interest and costs, and the inherent ambiguities of these references in point 4 of the Offer of Compromise, which go much further than a mere reference to costs of the kind identified in Viera v O'Shea (No 2), supra, render the offer incapable of acceptance.

1. As this offer is invalid, no order for indemnity costs can be made on that basis. The application for indemnity costs is refused. However, in the event that I have erred in making that finding, I set out the reasons why, if the offer had been valid, I would have ordered otherwise, and declined to make any order for indemnity costs.

Appropriate to "order otherwise"?

1. If I have erred in holding that the offer is invalid, should indemnity costs be awarded?

1. In Azar v Kathirgamalingan, supra, at [208], Campbell JA notes at [208] that, in principle, factual circumstances arising from cases requiring court approval "might sometimes enter into a court's decision" to order otherwise. While this observation was directed at the problems faced by tutors, any aspect of the court's approval process which creates some difficulty for any party would, I infer, be a matter to take into account. In G E Dal Pont, "Law of Costs", 2nd ed., 2009, Professor Dal Pont (at [13.26] draws attention to a series of decisions where there were difficulties with offers of compromise in proceedings where the plaintiff was represented by a tutor. However, none of these decisions were brought to the attention of the Court of Appeal in Azar, so I should exercise caution in relying upon them.

1. Mr Thompson relied upon Azar v Kathirgamalingan, supra, where the submission was unsuccessfully made that indemnity costs should not be awarded where an offer made less than two months before the matter was listed for a 10-day trial, open for 21 days.

1. The defendant relied upon the affidavit of Ms Sivarajan sworn today, which set out a series of offers of compromise made by the defendant immediately prior to and following the settlement conference. On 6 March 2013 the plaintiff reopened the 7 January 2013 offer of compromise, and made the additional request for $2,000 costs for settlement approval. The defendant did not accept this and after discussions between the solicitors sent the letter of 15 March enclosing a Consent Judgment. This was amended by the plaintiff to enable the bringing of an application for special costs for the preparation of the infant approval today. The defendant argues the exceptional circumstances are that it had offers of compromise of its own on the table, that it agreed to the sum for damages, and that the stumbling block in the settlement has been the repeated insistence of the plaintiff on additional costs for its work in relation to the approval of the settlement.

1. Mr Thompson states there must be exceptional circumstances. While I am satisfied that these have been made out in the present case, I note that in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 the court held that the discretion should be one that is exercised having regard to all the circumstances of the case. I am satisfied on that basis as well that this would be an appropriate factual situation for refusing an order for indemnity costs.

1. This history underlines what I consider to be a fundamental flaw in this application: there has been no hearing, and the parties have in fact, by a process of exchange of offers, settled the proceedings. Any orders I make will not be the result of a contested application on liability, but by way of approval of the settlement negotiated by the parties. Not only has there been no hearing, but the defendant has accepted (or counter-offered) the same sum, and the matter has settled as a result.

1. In Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109, McColl JA stated that for the court to exercise its undoubted discretion the party resisting such an order why the offer of compromise was rejected (this observation by the trial judge in Azar v Kathirgamalingan, supra, was cited with approval by Campbell JA at [220]). However, in the present case, the offer was not rejected. It lapsed, but then was made again and accepted, as well as the subject of counter-offers, including a counter-offer for the same amount (see the letter of 15 March 2013), a matter of weeks later.

1. The fact that an offer is made, and then subsequently lapses, following which the parties, in a matter of weeks, negotiate to settle for the sum in question, does not readily lend itself to an appropriate situation where indemnity costs will be ordered. The procedure in r 20.26 UCPR is designed to promote settlement, which is what occurred in these circumstances. It would be a triumph of form over content for one or both parties who have settled a matter to point to offers made for the purpose of seeking indemnity costs. It might, for example, be open to the defendant to rely upon its open offer to settle for the settlement sum plus costs as agreed or assessed in order to seek indemnity costs of this application, since that will be the practical result of the orders to be made today.

1. The plaintiff's application for indemnity costs must therefore be dismissed. This brings me to the issue of costs of the application.

1. The application before me on Friday 19 April 2013 was withdrawn and an application brought for costs pursuant to an offer of compromise. The defendant was, unsurprisingly, not ready to meet that application and an adjournment was sought and granted with costs reserved. The plaintiff's application for costs based on the offer of compromise has similarly been unsuccessful and the plaintiff must pay the costs of today as well as the costs of Friday 19 April 2013.

1. I have separately made orders for approval of the settlement of the plaintiff's claim pursuant to ss 75-77 Civil Procedure Act 2005 (NSW).

Orders

(1)   Plaintiff's application dismissed.

(2)   Plaintiff to pay the defendant's costs of Friday 19 April 2013 and today.

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Decision last updated: 26 April 2013