Abbott v Klein

Rule 36.15

1. Rule 36.15 provides: "36.15 General power to set aside judgment or order (cf DCR Part 13, rule 1, Part 31, rule 12A; LCR Part 11, rule 1, Part 26, rule 3) (1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith. (2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent."
2. Mr Klein says the order was made irregularly, because it relied upon an offer of compromise that was not in compliance with UCPR 20.26.
3. Rule 20.26 relevantly provides that the closing date for acceptance of an order, in the circumstances of the present case, "is to be no less than 28 days after the date on which the offer is made". The reference to "an offer" must be read as "an offer under this rule", see the definition of offer in r 20.25.
4. Mr Klein says that Mr Abbott's offer of compromise specifies a period of acceptance less than 28 days, and therefore is not a valid offer of compromise under r 20.26. One consequence of this, it is submitted, is that the costs consequence referred to in Part 42, specifically rr 13A, 14, 15 and 15A, do not apply.
5. It may readily be accepted that the relevant costs provision, r 42.14, does not apply if the offer of compromise is not an offer of compromise under r 20.26. The cost rules in Part 24 "Division 3 Offers of compromise" only apply to offers made under r 20.26 in accordance with r 42.13.
6. Thus, it is submitted, the Court's order in respect of costs was made irregularly, because r 42.14 is said to be the source of "power" or even "jurisdiction" for the indemnity costs order, and r 42.14 does not apply if the offer does not comply with r 20.26.
7. However, it is apparent that the existence of an offer of compromise under r 20.26 is not the source of power or jurisdiction for an indemnity costs order. Rather, the existence of an offer of compromise under r 20.26 gives rise to a presumption in favour of an indemnity costs order. The existence of the power to make the order, or the jurisdiction to make it, derives from s 98 of the Civil Procedure Act 2005 which provides: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. …"
8. The discretionary exercise of the power to award indemnity costs is informed by other provisions of the rules, including r 42.1, that costs generally follow the event, r 42.2, that costs generally are assessed on the ordinary basis, and r 42.14, where a complying offer of compromise has been made. The discretion is also informed by past decisions indicating the circumstances in which ordering indemnity costs may be appropriate, such as where a party has maintained proceedings when they should have been aware that they had no real prospect of success: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397, 401; and where the result is no less favourable than an offer made by the successful party: Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425.
9. Accordingly, this was not a case which depended on the existence of a complying offer of compromise to empower the Court to order indemnity costs. Mr Klein referred to the decision of Arnold v Forsythe [2012] NSWCA 18, which involved the grant of default judgment. But in that case r 16.6 required certain matters to be evidenced by affidavit, and required that a debt or liquidated claim be pleaded, in order for default judgment to be given. That is different from the present case. Here the offer of compromise was relevant but not a necessary precondition to power.
10. Thus, the alleged irregularity is no more than an alleged error in the merits. This is insufficient to enliven the powers in r 36.15. The rule does not extend to errors in the merits of the substantive decisions: Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) (2009) 78 NSWLR 190 at [16]. Rule 36.15 is concerned with an irregularity in the process and not with the correctness of the decision: Dimitrovski v Australian Executor Trustees Limited [2013] NSWSC 337 at [3].
11. In addition, as noted in Perpetual Trustees Australia Ltd at [17]: "The rule applies with particular force to default or consent judgments and orders, and those given or made ex parte. It can only have limited application to judgments and orders made or entered after a hearing on the merits at which all parties were represented and fully heard." See Ghosh v Renew You Cosmetics Clinic Pty Ltd [2014] NSWSC 193 at [23].
12. Accordingly, the order was not made irregularly, and so the occasion for consideration of the exercise of the power under r 36.15 does not arise. Nor am I satisfied that there was "sufficient cause" shown to set aside the order, for the reasons which follow.

Rule 36.16

1. Rule 36.16 does not impose so demanding a hurdle as r 36.15 in order for an order to be set aside. As the application was made within 14 days of the costs order being made, r 36.16(3A) allows the Court "if appropriate" to set aside the order. The power to set aside an order under r 36.16 involves a consideration of the alleged error in the decision weighed against the public interest in the finality of decisions. Rule 36.16 does not entitle a party to have, without limitation, another hearing of the matter.
2. In De L v Director-General, Department of Community Services (NSW) (1997) 190 CLR 207 at 215, the High Court stated: "The Court may do so if it is convinced that, in its earlier consideration of the point, it has proceeded 'on a misapprehension as to the facts or the law', where 'there is some matter calling for review' or where 'the interests of justice so require'. It has been said repeatedly that a heavy burden is cast upon the applicant for reopening to show that such an exceptional course is required 'without fault on his part', ie without the attribution of neglect or default to the party seeking reopening. By such expressions of the power to reopen final orders, courts seek to recognise competing objectives of the law. On the one hand, there is the principle of finality of litigation which reinforces the respect that should be shown to orders, final on their face, addressed to the world at large and upon which conduct may be ordered reliant upon their binding authority. On the other hand, courts recognise that accidents and oversights can sometimes occur which, unrepaired, will occasion an injustice". The High Court indicated that it may "afford relief in the exceptional circumstances of the case".
3. In Autodesk Inc v Dyason [No 2] (1993) 176 CLR 300 at 302 the High Court stated: "But these statements do not exclude the exercise of jurisdiction to reopen a judgment which has apparently miscarried for other reasons, at least when the orders pronounced have not been perfected by the taking out of formal orders. So much was acknowledged by Brennan, Dawson, Toohey and Gaudron JJ. in Smith v. N.S.W Bar Association when their Honours said: 'if reasons for judgment have been given, the power is only exercised if there is some matter calling for review.' It is sufficient to give three examples. In In re Harrison's Share under a Settlement, orders were set aside following a decision of the House of Lords which overruled authorities on the basis of which the orders had been made. In New South Wales Bar Association v. Smith, the New South Wales Court of Appeal reconsidered orders previously made in view of an argument that the Court had mistakenly assumed that particular evidence had not been given at earlier hearings. And, in Pittalis v. Sherefettin, a judge recalled orders the day after they were made upon determining that he had 'erred in a material matter in his approach to the case'. These examples indicate that the public interest in the finality of litigation will not preclude the exceptional step of reviewing or rehearing an issue when a court has good reason to consider that, in its earlier judgment, it has proceeded on a misapprehension as to the facts or the law. As this Court is a final court of appeal, there is no reason for it to confine the exercise of its jurisdiction in a way that would inhibit its capacity to rectify what it perceives to be an apparent error arising from some miscarriage in its judgment."
4. And in Blessington v The Queen [2007] HCA 51 at [32]; (2007) 234 CLR 38 at [32] the High Court stated: "It is here that guidance is provided by remarks of Mason CJ in Autodesk Inc v Dyason (No 2). His Honour gave examples from jurisdictions in this country (including the New South Wales Court of Appeal) and the United Kingdom where the power to reopen had been exercised on grounds not limited to denial of a fair hearing, but went on: What must emerge, in order to enliven the exercise of the jurisdiction, is that the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing. The purpose of the jurisdiction is not to provide a backdoor method by which unsuccessful litigants can seek to reargue their cases. The circumstance in Autodesk that Mason CJ dissented as to the outcome of the reopening application which was before this Court does not detract from his remarks."
5. The exercise of the power under r 36.16 thus depends on the existing order being made when the Court is under a misapprehension of law or fact. Mr Klein asserted that the parties and the Court misapprehended the validity of Mr Abbott's offer of compromise.
6. I do not accept that there was any misapprehension. Mr Abbott previously submitted at the earlier costs hearing that his offer of compromise was compliant with r 20.26. He still does, so he was not under any misapprehension. His submission may be wrong, or rejected, but that is insufficient to amount to a misapprehension. Nor was the Court under a misapprehension. The Court stated that "The offer met the formal requirements of an offer of compromise under Part 20 of the Uniform Civil Procedure Rules 2005" (see Abbott (No 2) at [3]) but in so stating, the Court was not resolving an issue between the parties. Mr Klein had already conceded, orally and in writing, that the only issue in respect of Mr Abbott's offer of compromise was whether it involved a genuine element of compromise. The Court's statement recorded a concession by Mr Klein resulting from his forensic decision to raise, in respect of Mr Abbott's offer of compromise, the sole issue of whether it involved a genuine element of compromise. This was at least, and probably more than, having "silently acquiesced" in a concession about other potential issues - see Helicopters Pty Ltd v Bankstown Airport Ltd [2010] NSWCA 178 at [48]. This application reflects more a "change of heart" than a mistake "leading to the making of an unjust order": see Nicholson v Nicholson [1974] 2 NSWLR 59 at 66B, Remedial Building Services Australia Pty Limited v Pony (NSW) Pty Ltd (No 2) [2013] NSWDC 132 at [11]-[17].
7. There was evidence that Mr Klein's solicitor overlooked the period during which Mr Abbott's offer allegedly remained open. But a misapprehension by Mr Klein's solicitor is insufficient. The Court proceeded on the correct understanding that no issue was taken about the formal requirements of r 20.26. Further, there is no evidence that Mr Klein or his then counsel Mr Zipser were under any misapprehension. In the earlier costs hearing, counsel for Mr Klein also relied upon an offer by Mr Klein to settle the dispute. That offer was neither an offer of compromise under r 20.26 nor a Calderbank offer (see Abbott (No 2) at [16] and [17]). Counsel argued that the offer could and should be taken into account. And so it was, in Abbott (No 2) at [17]. However, had the present argument about Mr Abbott's non-complying offer been raised at that time, its force (or the force of Mr Klein's argument based upon his own offer) would have been weakened. Mr Klein was concerned to submit that all offers, whether the offer was under r 20.26, was a Calderbank offer or was some other form of offer, needed to be taken into account. Mr Klein could not consistently also assert that Mr Abbott's offer could have no force as a non-complying offer, because his own offer was of the same character. To allow Mr Klein to postpone any argument about Mr Abbott's non-complying offer until a second subsequent application would allow Mr Klein an unfair forensic advantage. He has not had to deal with the defects in his own offer when identifying the defects of, and advocating the rejection of, Mr Abbott's offer cf Wentworth v Woollahra Municipal Council (No 2) (1982) 149 CLR 672 at 685.
8. The power under r 36.16 will not usually be exercised in favour of an applicant who was at fault in failing to raise a point earlier: Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 301-2, Wentworth v Woollahra Municipal Council (No 2) (1982) 149 CLR 672, R v Giri (No 2) [2001] NSWCCA 234 at [17], Aktas v Westpac Banking Corp Ltd (No 2) (2010) 241 CLR 570. Mr Klein was at fault in failing to raise the matter. He had a duty to assist the Court to further the overriding purpose of the just, quick and cheap resolution of the real issues in the proceedings (ss 56(1) and (2) of the Civil Procedure Act 2005). By not identifying this issue, submitted to be a real issue, at the earlier costs hearing, Mr Klein was in breach of that obligation, cf Perpetual Trustees Australia Ltd at [23]-[27].
9. In some circumstances the resulting injustice to a party may be sufficient to outweigh an omission or oversight by them for the purposes of r 36.16. But that must depend on the nature of the error or misapprehension: see Smith v New South Wales Bar Association (1992) 176 CLR 256. Circumstances for the exercise of the power in r 36.16 are less likely to be found when there is a lacuna in the evidence in respect of the oversight, as there is here with the absence of any evidence from Mr Zipser or Mr Klein, or as a result of the oversight, as here where there is a need to lead evidence about the receipt of Mr Abbott's offer. It is also less likely where, as here, there is a forensic advantage obtained by the defaulting party as a result of the omission.
10. The offer provided: "OFFER OF COMPROMISE 1. The Plaintiff offers to compromise and dispose of the proceedings by the Defendants paying to the Plaintiff the sum of $100,000.00. 2. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005. 3. This offer shall remain open for 28 days from the date hereof. SIGNATURE Signature of legal representative Capacity Solicitor for the Plaintiff Date of signature [signature] 2/8/2013"
11. The offer was not separately dated, but the signature was dated Friday, 2 August 2013. It was served using the DX, and received on Monday, 5 August 2013. In view of the date of the signature, and the same date on the covering letter, Mr Abbott did not submit that "the date hereof" was other than 2 August 2013.
12. The phrase "the date hereof" in context must mean "the date of this offer". In circumstances where an offer is not made (or is "ineffective" or "nothing") until it is communicated (see Alpine Hardwood (Aust) Pty Ltd v Hardys Pty Ltd [2001] FCA 1876 at [254], see also Vagg v McPhee (No 2) [2013] NSWCA 126 at [40]), there remains uncertainty as to whether the date of the offer is the date below the signature and on the covering letter, 2 August 2013, or the date the offer was made, 5 August 2013.
13. Mr Abbott relied on the ambiguity said to arise from reading clauses 2 and 3 together, namely, that since the offer was asserted to be in accordance with r 20.26, and one component of conformity with r 20.26 is that the offer is open for acceptance for at least 28 days from when it was made, then the offer should be read as being open for acceptance for 28 days from the date the offer was made. This approach finds some support in Vagg v McPhee (No 2) at [6] and [41] where an ambiguity concerning the period during which the offer was open for acceptance was "resolved in favour of validity".
14. If ambiguity should be resolved in favour of validity, then the uncertainty about whether the date of the offer is 2 August or 5 August, and whether it is open for 28 days after receipt on 5 August 2013 (supported by clauses 2 and one construction of clause 3) or 28 days after the date below the signature, namely 2 August 2013, should be resolved in favour of the offer remaining open for 28 days from 5 August 2013. The ambiguity in this offer is different from that in Vagg v McPhee (No 2) (where there was conflict between a 28 day period and a nominated date) and the argument for validity might not be as strong, but it is arguable nonetheless.
15. As in Vagg v McPhee (No 2) at [6], Mr Klein took no point at the time of receipt of the offer about the period for which the offer was open. He "could have sought clarification" but did not. If the Court "should not decide the issue on this basis [the construction favouring invalidity] unless the proper application of the law relating to practice and procedure requires it" then this Court should adopt a construction that the offer remained open for 28 days from 5 August 2013.
16. It may strictly be unnecessary to deal with the question of whether the indemnity costs order would have been different had this point about the validity of the offer been raised at the time of the first hearing. That question would raise an issue of whether the weakness of Mr Klein's defence, together with the offer by Mr Abbott and the other circumstances identified, would be sufficient to warrant an indemnity costs order. Generally special or unusual features must exist, such as that there were allegations which ought never to have been made, or there was undue prolongation of the case by groundless contentions, or there was an impudent refusal of an offer of compromise: Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233.
17. A weak case is not enough, see Vagg v McPhee (No 2) at [30]-[33]. But the present defence was not only weak, it was conceded in without prejudice correspondence to be non-existent in the sense that the debt was conceded. And the circumstances included the imprudent rejection of an offer of compromise.
18. The Court of Appeal in Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 at [43] decided that, without more, an offer of compromise: "made expressly pursuant to r 20.26 will not of itself take effect as a Calderbank offer unless there is something in it or in the surrounding circumstances to indicate that it is proposed to be relied upon on the question of costs, irrespective of its effectiveness as an offer under r 20.26."
19. But "the essence of a Calderbank offer" is that it "would be relied on in relation to the question of costs should a verdict more favourable than the offer be achieved" (see Whitney at [42]). I find it difficult to see how that indication does not appear plainly from an assertion that it is an offer made pursuant to r 20.26. It is made no more plain by a statement in a covering letter to the effect that "[t]his offer will be relied upon on the question of costs". The very point of an offer made pursuant to r 20.26 is that it will be relied on to obtain a special costs order and that there is an obvious peril in rejecting it. Whether the offer is ultimately found to be non-compliant with r 20.26 does not remove this "indication" that it would be relied upon in respect of costs.
20. In any event, the Court of Appeal at [43] recognised that offers other than offers of compromise complying with r 20.26 and Calderbank offers may be relevant to the exercise of the Court's discretion. The same point is identified in the authorities noted in Abbott (No 2) at [17].
21. In my view, there is much to be said for the same order being made, even had Mr Klein raised this point at the earlier costs hearing, and even if I were to accept that Mr Abbott's offer did not comply with r 20.26. For the reasons given, I do not need finally to determine that issue.
22. The notice of motion shall be dismissed. As agreed by the parties at the hearing of the motion, the costs orders that follow from such a result should be that the defendant pay the plaintiff's costs of the motion on an indemnity basis.

Orders

1. Accordingly, the Court orders: 1. Defendant's notice of motion (filed 26 May 2015) to set aside the costs order made on 13 May 2015 be dismissed. 2. Defendant to pay the plaintiff's costs of the motion on an indemnity basis.

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