Alsuleiman by her tutor Haimour v George

District Court of NSW|2017-12-15|Before: Mr J

A. Background

Aisha Alsuleiman, a young child, by her mother as tutor obtained a judgment on 21 November 2017 for $24,319.40 for personal injuries sustained in a motor vehicle accident. [1] Costs were reserved and are the subject of this judgment.
The plaintiff seeks costs partly on an indemnity basis under the Uniform Civil Procedure Rule 42.14. She relies upon an offer of compromise proposing a judgment of $19,995.35. The defendant seeks that there be no costs order pursuant to UCPR 42.35, relying on the circumstance that the judgment was for less than $40,000. Thus, at issue is the potential conflict between these two provisions, and the proper exercise of the discretion on costs.

B. The Rules

The following rules apply: "42.13 Application This Division applies to proceedings in respect of which an offer of compromise (the offer) is made under rule 20.26 with respect to a plaintiff's claim (the claim). 42.14 Where offer not accepted and judgment no less favourable to plaintiff (cf SCR Part 52A, rule 22; DCR Part 39A, rule 25) (1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim 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… 42.35 Costs order not to be made in proceedings in District Court unless Court satisfied proceedings in appropriate court (1) This rule applies if: (a) in proceedings in the District Court, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $40,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the District Court is satisfied the commencement and continuation of the proceedings in the District Court, rather than the Local Court, was warranted."

C. Do both of the rules apply?

Any potential conflict between these rules does not arise unless both rules are applicable. As in Averkin v Insurance Australia Ltd (No 2), [2] the defendant did not dispute that a valid offer of compromise had been made, but disputes its effect. Thus r 42.14 is applicable.
Rule 42.35 is only relevantly applicable if the Court is not satisfied that the commencement and continuation of the proceedings in the District Court was warranted. In Averkin, [3] the presence of an allegation of fraud, assertions of complex questions of interpretation and a supposed greater capacity and inclination of the District Court to deal expeditiously with the type of matters in that case were not sufficient to persuade the Court of Appeal that the "commencement and continuation" test was satisfied. [4] The Court stated (omitting references): "The underlying purpose of the rule is clear: it is to discourage people from commencing proceedings in a higher court where they are well within the jurisdictional limits of a lower court. Small claims are ordinarily more efficiently and more cheaply litigated in a court of appropriately limited jurisdiction. Costs are of especial importance in connection with small claims, because costs can readily exceed the amount at stake." [5]
The Court of Appeal rejected the assertions of the defendant in Averkin: finding that the Local Court was readily able to deal with fraud cases. The complexity asserted was not present and the other assertions were not supported by evidence. For reasons which are dealt with below, these findings were obiter dicta, but with respect, they highlight matters of importance in considering the application of r 42.35.
The plaintiff submits that the "commencement and continuation of the [District Court] proceedings…was warranted" for a number of reasons.
First, the plaintiff refers to the Local Court jurisdiction in personal injury claims, which is limited to $60,000, an amount less than the amount claimed by the plaintiff. At the commencement of the trial, the amount of the plaintiff's claim, as indicated by her schedule of damages (which abandoned a claim for future care), was barely in excess of this amount, although at earlier times the excess was more substantial. The level of the amount claimed is a matter to be taken into account, but in this case, I do not think it alone is sufficient to warrant the proceedings in this Court, especially if the amount of the judgment is "well within the jurisdictional limits of a lower court". [6]
Secondly, the plaintiff submitted that her status as a child required her solicitors to commence in this Court. It is not suggested that the claim could not be maintained in the Local Court. I am not persuaded that the plaintiff being a child enlivens a greater entitlement to maintain proceedings in this Court. There was no evidence of the extent to which the Local Court deals with small personal injury claims, whether involving children or otherwise. This, together with the third point dealing with asserted complexity, bore some similarity to issues which found no favour in Averkin. [7]
Finally, the plaintiff submitted that, "unlike claims for a debt, personal injury matters are somewhat fluid". I accept there is some force in this. In a case where a claim is for an amount in excess of the Local Court's jurisdiction, and there is properly uncertainty as to the amount of unliquidated damages to be awarded, it is appropriate that proceedings be commenced and maintained in the court which has jurisdiction to uphold the plaintiff's claim. I reject the defendant's submissions that there was "never a possibility of [damages] exceeding that figure of $60,000". [8] At least while the claim for future care was maintained, that possibility (if not the likelihood) remained.
For these reasons, namely the relatively uncertain level of damages awarded in personal injury matters and the fact that the claim exceeded the jurisdiction of the Local Court, I accept that "commencement and continuation of the proceedings in the District Court…was warranted", and therefore r 42.35 has no application to preclude an award of costs.
I do not accept the defendant's submission [9] that the level of the offer of compromise is tantamount to a concession that the realistic value of the claim would be less than the Local Court's jurisdiction. There are other reasons, including costs protection, why an offer of compromise may be made. It would be contrary to the purpose of the offer of compromise procedure if the offer could be evidence of an admission. [10]
It follows that there is no conflict in this case between r 42.35 and r 42.14. As no other reasons were advanced against the usual order under r 42.14, the plaintiff is entitled to the orders sought in accordance with r 42.14.
In case I am mistaken about the inapplicability of r 42.35, I propose to deal with the circumstance that both rules are applicable.

D. Resolving the conflict

Averkin [11] considered the interplay between r 42.14 and r 42.35 in these terms: "[9] …there is force in the proposition that if r 42.35 applies and the proceedings should not have been commenced and continued in the District Court, then the making of an offer of compromise would not of itself detract from the proposition that there be no order as to costs. That is because while r 42.14 (which may be enlivened when an offer of compromise should have been accepted) affects the way in which a costs order is to be assessed, r 42.35 affects whether a costs order is to be made at all. Put differently, although both rules displace the operation of the default positions stated in rr 42.1 (costs to follow the event) and 42.2 (costs to be assessed on the ordinary basis), it is clear that r 42.35 takes priority, because only if a costs order is made can it matter whether that order is assessed on an ordinary basis or some other basis. [10] The matter may be tested thus: suppose a plaintiff with a small straightforward claim for a debt of $5,000 commences in the Supreme Court, but makes an offer of compromise for $4,500 shortly thereafter. It cannot be right that a plaintiff who chooses to commence proceedings in the wrong jurisdiction, thereby becoming subject to a default regime that the plaintiff not be awarded costs in the event of success, becomes entitled to an order for indemnity costs by making an offer of compromise."
The Court noted that it was not necessary to decide the point of which provision takes priority, [12] so the comments quoted above are obiter dicta. But while the passage commenced in a somewhat equivocal tone ("there is force in the proposition"), it ended in more emphatic terms ("it is clear that r 42.35 takes priority").
Historically, only the ratio of decisions higher in the appellate line are binding on an inferior court, but in more recent times, the "seriously considered dicta" of higher appellate courts has been held to assume substantial precedential weight. [13]
One difficulty that arises is that the passage from Averkin, quoted above, is, with great respect to the learned Justices of the Court of Appeal, less than compelling in its reasoning. Of course it "cannot be right" that a successful $5,000 claim in the Supreme Court entitles the plaintiff to indemnity costs if the plaintiff has made a timely offer of compromise for $4,500. [14] But that is hardly the automatic result.
First, the defendant must reject the offer for the indemnity costs provisions in r 42.14 to be enlivened, perhaps not a reasonable course in the example mentioned.
Secondly, r 42.35 has no application to this circumstance since it concerns only proceedings commenced in the District Court. Rule 42.34 is the equivalent provision in respect of proceedings in the Supreme Court, but it has a threshold amount of $500,000, and a claim for a debt of 1% of that threshold amount would be plainly inappropriate in the District Court let alone in the Supreme Court.
Thirdly, the postulated outcome in the example ignores the discretions inherent in both rr 42.14 and 42.35: "[u]nless the court orders otherwise" and "may be made, but will not ordinarily be made".
And fourthly, the proper principle is, with respect, not to be tested by taking an extreme example and ignoring the available avenues to avoid injustice, nor by using an example that relies upon the application of a different rule to the one in issue.
Moreover, it is not at all apparent that r 42.14 merely "affects the way in which a costs order is to be assessed". [15] Rule 42.14, in its terms, principally provides an entitlement to an order for costs [16] and only thereafter provides for the manner of assessment. The point is more clearly seen with r 42.15A, an analogous provision, where an unsuccessful defendant not otherwise entitled to costs obtains that entitlement (and on an indemnity basis) only because of an offer of compromise.
Thus, the finding that "it is clear that r 42.35 takes priority" does not follow from the self‑evident proposition that "only if a costs order is made can it matter whether that order is assessed on an ordinary basis or some other basis". There is a disconnect between the reason given and the proposition of priority the reason is said to establish. The need for a costs order as a precondition to assessment is no reason for the priority of r 42.35 over r 42.14, since r 42.14 itself provides for the plaintiff's entitlement to a costs order.
Notably, the tenor of r 42.14, providing an entitlement "[u]nless the court orders otherwise", is, if anything, more emphatic than the opening words of r 42.35. The former confers a right to a special costs order [17] subject to there being "sufficient circumstances" to justify a departure. [18] Rule 42.35 allows an order, but not "ordinarily", when the particular circumstances stated in the rule apply.
The comments of the Court of Appeal are contained in a decision, like this one, "on the papers", but I would not infer that it was other than "seriously considered dicta".
However, I would not be persuaded that I should follow it in the event that r 42.35 was applicable to the present case. In my view, the appropriate course would be to weigh the extent to which the proceedings in the District Court were unwarranted against the circumstance that an appropriate offer of compromise was rejected. Both r 42.14 and r 42.35 contain a discretion in the Court in relation to costs and, in my view, both provisions ought to be given some weight if both are applicable.
The defendant submitted that "an offer of compromise is predicated upon the basis that a plaintiff would be entitled to costs on an ordinary basis". [19] For the reasons given in [19]-[20] above, I do not accept this submission if it is intended to indicate that the costs consequences of a rejected offer apply only if the offeror is, independent of the offer, entitled to costs. Nor, as the defendant repeatedly submitted, is it correct to describe an order for indemnity costs as a "penalty". [20] The purpose of an indemnity costs order is to fully compensate the party for the costs (other than unreasonable costs) of the litigation, even if unreasonable conduct is commonly a pre-condition for such an order.
If r 42.35 was also found to apply, I would, in the circumstances of this case, order that the defendant pay the plaintiff's costs on the ordinary basis. This would be an order permissible under r 42.35, not ordinarily made, but made in this case because of the appropriate but rejected offer of compromise. The order would be an order "otherwise" made under r 42.14 because of the applicability of r 42.35.

E. Order

The order of the Court is that the defendant pay the plaintiff's costs on an ordinary basis up to and including 16 June 2017, and on an indemnity basis thereafter.

Endnotes

Alsuleiman by her tutor Haimour v George [2017] NSWDC 442.
[2016] NSWCA 150 at [7].
At [12].
See [16] and [17].
At [15].
Averkin at [15].
See Averkin at [10]-[17].
Defendant's submissions, 6/12/17 ("DS"), at [19].
See DS at [18].
Cf Macplan Logistics Systems Pty Ltd v Baxter Healthcare Pty Ltd (1996) 39 NSWLR 324.
At [9]‑[10].
See Averkin at [9], [15]‑[16].
See Farah Constructions Pty Ltd v Say‑Dee Pty Ltd [2007] HCA 22 at [134], [158].
See Averkin at [10].
Averkin at [9].
See the chapeau to subr 42.14(2).
Hillier v Sheather (1995) 36 NSWLR 414.
Morgan v Johnson (1998) 44 NSWLR 578.
DS at [23].
See DS at [24]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 November 2018

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