ATKINSON v ZEY; ZEY v ATKINSON

CATCHWORDS: APPEAL - leave to appeal - notice of discontinuance filed - no need for leave - liability of applicant for costs to date of discontinuance - COSTS - offer of compromise - comparison with judgment - inclusion of interest to date of offer - no part of costs to be included - COSTS - offer of compromise - change in costs consequences flowing from non-acceptance - application of rules applicable at date of offer - power to otherwise order - PRACTICE AND PROCEDURE - replacement of District Court Rules by Uniform Civil Procedure Rules - power to dispense with requirements of uniform rules - Civil Procedure Act 2005 (NSW) Sch 6, cl5 - PRACTICE AND PROCEDURE - summons filed out of time - power to extend time repealed - effect on existing liability - Interpretation Act 1987 (NSW), s 30 - dispensing power - Civil Procedure Act, ss 14 and 16

13 March 2008 ATKINSON v ZEY; ZEY v ATKINSON Judgment 1 BASTEN JA: On 1 July 2005 Ms Zey commenced proceedings in the District Court claiming an amount of $250,000 by way of an adjustment of interests with respect to property of Mr Atkinson pursuant to s 20(1) of the Property (Relationships) Act 1984 (NSW). (It is convenient to continue to refer to Ms Zey as the plaintiff and Mr Atkinson as the defendant.) 2 On 1 August 2005 the defendant served an offer of compromise under Part 19A of the District Court Rules 1973 (NSW) as then in force. It is common ground that the offer was made in compliance with the rules, was a proposal to pay an amount of $50,000 to the plaintiff in settlement of her claims and was not accepted. 3 The matter went to hearing, as a result of which the plaintiff obtained a judgment on 16 November 2006, for an amount considerably below $50,000. In what appears to have been compliance with Part 39A, r 25(6) of the District Court Rules, his Honour ordered that the defendant pay the plaintiff's costs up to the day the offer was made and that the plaintiff pay the defendant's costs thereafter. 4 There was a miscalculation in the original judgment and the matter came back before the District Court Judge on 8 March 2007. His Honour delivered a second judgment on 27 April 2007, when he corrected the amounts in question. The result was that the plaintiff obtained a judgment in the sum of $43,462 together with interest. When the interest was added to the amount of the payment, the result exceeded $50,000. However, his Honour concluded, properly, that it was appropriate to calculate interest on the sum of $43,462 for a period of one year being the period up to the date of the offer of compromise: see District Court Rules 1973 (as in force at the date of the offer), Part 39A, r 25(8). That amount was only $3,911, with the result that the relevant part of the judgment payable to the plaintiff was $47,373. 5 On the basis that the final judgment including interest to the date of judgment exceeded $50,000, the plaintiff sought to revisit the costs order made on the earlier occasion. The defendant resisted that application. Despite the reduced amount of interest relevant to the offer, the plaintiff was successful on the basis that account should be taken of her costs to the date of the offer, which costs, his Honour accepted, would exceed the difference between the sum of $47,373 and the offer of $50,000. The defendant submitted that costs should not be included, but that even if costs were looked at, the plaintiff was only entitled, as at the date of the offer, to recover professional costs on the statement of claim of $752.40 and a filing fee of $454, which would render the total judgment still marginally below the offer. 6 In dealing with the question of costs, his Honour referred to the judgment of Giles J (sitting in the Commercial Division) in Associated Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349. Giles J held that the scheme of the Supreme Court Rules, which dealt separately with the cost consequences of an offer whether accepted or not, was inconsistent with the view that costs should be taken into account in assessing the value of the offer. 7 It is true that Associated Confectionary was concerned with whether an offer stated to be "inclusive of costs" complied with the requirements of the rules then in force. It may be accepted that this context provided a point of distinction. However, the trial judge was wrong to think that he could look at the issue of costs in order to determine whether the offer of compromise had been bettered. To do so ignored the analysis of the structure and operation of the rules undertaken by Giles J. The rules there in question, in common with the District Court Rules and the UCPR, separately provided for the costs consequences of an offer in a way entirely inconsistent with the view that the offer was to be compared with a judgment including costs assessed to the date of the offer. This was an error of principle which warrants this Court's intervention. Accordingly, I would give leave to appeal in relation to this issue. 8 If he had not taken this view as to the relevance of costs, it appears that his Honour would have left the order as made on the previous occasion, namely that the plaintiff receive her costs on a party and party basis up to the date of the offer and the defendant receive his costs thereafter on a party and party basis, that being in compliance with the District Court Rules in force at the date the offer was made. 9 The Uniform Civil Procedure Rules 2005 (NSW) commenced on 15 August 2005 and, unless a requirement was dispensed with pursuant to cl 5(2) of Schedule 6 of the Civil Procedure Act 2005 (NSW), the uniform rules should govern the proceedings between the parties from the date of their commencement. Under the uniform rules, the defendant would be entitled to an order for payment of his costs, assessed on an indemnity basis, from the day following the day on which the offer was made: r 42.15(2)(b)(i). The plaintiff would be entitled to her costs, assessed on the ordinary basis, up to that day. On the hearing in this Court, the defendant disavowed any claim to costs on an indemnity basis. 10 Clause 5 of Schedule 6 of the Civil Procedure Act provides: "5(1) Subject to subclause (2), this Act and the uniform rules apply to proceedings commenced before the commencement of this Act in the same way as they apply to proceedings commenced on or after that commencement. (2) A court before which proceedings have been commenced before the commencement of this Act may make such orders dispensing with the requirements of the uniform rules in relation to the proceedings, and such consequential orders (including orders as to costs), as are appropriate in the circumstances." 11 The straightforward purpose of cl 5 is to provide for the application of the uniform rules in all cases after their commencement, but with a general discretion in the Court to make other arrangements where their operation would be potentially or actually unjust. Offers of compromise provide a ready example of circumstances where the need for other arrangements may arise. Thus, it will often be unjust that a person at risk of suffering costs on a party and party basis, at the time at which a decision had to be made with respect to an offer, and who rejects the offer, should later become subject to costs on an indemnity basis. In the present case, the offer was made under the old regime and remained in force for 28 days. During that period, the consequences of non-acceptance changed. Although the respondent had an opportunity to accept the offer after the rules had changed, it would not be unreasonable to make an order dispensing with the requirements of the uniform rules in relation to these proceedings and in respect of the offer of compromise. Although no such order was expressly made, that appears to have been the intention of the trial judge when he initially ordered that the plaintiff pay the costs from the date of the offer, on the ordinary basis. 12 Although there may be some awkwardness of speaking of the costs consequences of the uniform rules as a "requirement" from which a dispensation may be given, the apparent purpose of cl 5(2), which is to apply across all of the uniform rules, indicates that semantic infelicity in particular circumstances should be ignored. 13 The other variation which arose on the introduction of the UCPR was the abandonment of the significant restriction upon the court otherwise ordering under Part 39A, r 25(6) of the District Court Rules. Under that provision, the cost consequences for which the rule provided were to operate "unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders". The cost consequences under the UCPR operate "[u]nless the court orders otherwise": r 42.15(2). If the plaintiff obtains the benefit of the old regime in relation to the costs consequences which follow from non-acceptance of the offer, she should also be subject to the relatively more stringent requirements militating against a variation of the rule. 14 Because the trial judge erred in taking into account the costs incurred to the time of the offer, the offer was in fact higher than the judgment obtained by the plaintiff. No exceptional circumstances were demonstrated nor was it shown that the rule requiring the plaintiff to pay costs from the date of the offer would create substantial injustice. Accordingly, his Honour erred in varying his earlier decision. 15 The defendant also referred to the fact that the plaintiff would not be entitled to any costs, in accordance with r 42.30 because she failed to obtain a judgment exceeding the jurisdictional limit of the Local Court in the General Division at the time the proceedings were commenced, which was $60,000. However, he expressly disavowed any intention to deprive the plaintiff of all of her costs. It is therefore not necessary to address this rule further, although it may be noted that r 42.30 permits the Court to order that the rule does not apply in respect of particular proceedings: r 42.30(3). 16 Prior to the commencement of the UCPR, the District Court Rules made somewhat different provision in relation to the appropriate costs where an action was brought which "could have been brought in a Local Court": Part 39A, r 12(1). Where, in such a case, the plaintiff recovered an amount which did not exceed a prescribed amount, the plaintiff was disentitled to costs unless the Court certified that there was "a sufficient reason" for proceeding in the District Court. It was not contended that the amount in question was less than the relevant prescribed amount and it may be that his Honour disregarded the rule because it was not engaged. Consistently with the approach which he took to the consequences of the offer of compromise, he may well have intended to dispense with the requirements of the UCPR in this respect also. 17 The plaintiff resisted a grant of leave on the basis that the holdings summons was served out of time. Although the summons was filed at the end of the relevant period, it was not served until approximately two weeks later. Because no notice was given of that point prior to the hearing, the defendant had no evidence to explain the delay and had not filed an application for an extension of time. However, such an application was made orally and should be acceded to. Under the old rules, the filing of a holding summons provided a potential applicant for leave with a period of an additional three months within which to consider whether to challenge the judgment below. Of course, if the initial 28 day period passed without the filing and service of a holding summons the other party might be entitled to act on the basis that no appeal would be pursued. However, the plaintiff did not seek to demonstrate that any prejudice had flowed to her from the delay. 18 These proceedings were commenced under the Supreme Court Rules which provided a power in this Court to extend the time for commencement of proceedings by a holding summons, such extension being available "at any time": Supreme Court Rules, Part 51, r 4A(1) and (6). Those rules have since been repealed: see Uniform Civil Procedure Rules (Amendment No. 16) 2007, Item [2]. The repeal was effective from 1 January 2008. There are no relevant transitional provisions. Under the old rules the defendant was liable to have his application struck out at any time for failure to comply with the rules. However, he was also entitled to seek leave at any time to extend the period, so as to avoid that result. Both the liability and the procedural entitlement survive the repeal of the rules, pursuant to s 30(1)(c) of the Interpretation Act 1987 (NSW). Additionally, the Court has power to dispense with "any requirement imposed by rules of court", pursuant to s 14 of the Civil Procedure Act 2005 (NSW). The term "rules of court" is not defined and should be understood to include any rules under which particular steps were taken or purportedly taken in the course of proceedings. In any event, the Court has power to give directions in respect of any aspect of practice or procedure for which the rules of court do not provide: Civil Procedure Act, s 16. There are other ways in which the Court has power to grant the extension of time. Withdrawal of application for leave 19 There is also before the Court an application for leave to appeal filed by the plaintiff prior to the matter being relisted before the District Court Judge for correction of certain arithmetical errors. The history of the matter thereafter in this Court was apparently contentious and need not be considered. However, the plaintiff's application for leave was listed prior to the defendant's application and was due to be heard in September 2007. It appears that the day before the hearing, the plaintiff sought to discontinue by filing a notice of discontinuance in the Registry. The fact of discontinuance appears not to be in dispute, although the date on which the notice was served may be. That is not a matter for this Court to address, although it may have consequences for the assessment of costs. In any event, the effect of filing a notice of discontinuance and serving it on the defendant was automatic: Supreme Court Rules, Part 51, r 4A(1), as then in force. The plaintiff did not need leave, nor was any further step required of her. On 11 October 2007 the defendant sought an order that the plaintiff pay the costs of her application for leave to appeal on an indemnity basis. That application was abandoned at the hearing, the defendant indicating through counsel that he would be satisfied with an order for costs to the date of discontinuance. 20 The general rule is that where a plaintiff discontinues, there will be an entitlement in the other party to costs to the date of discontinuance. No order of the Court is required generally to achieve that result: see UCPR, r 42.19. That rule was in force at the time the notice of discontinuance was filed and had application to a discontinuance in this Court pursuant to the legislative chain outlined in The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No. 2) [2006] NSWCA 120; 67 NSWLR 706 at [17]. Although r 42.19 in terms applies to discontinuance under r 12.1, it would be appropriate to read that, in its application to this Court, as embracing, though not necessarily restricted to, discontinuance under Part 51, r 4A. 21 In any event, now that the application for indemnity costs has been withdrawn, there is no dispute between the parties as to the outcome. The defendant's motion for indemnity costs should be dismissed, and the plaintiff should have her costs (for what it may be worth to her) of that motion. To avoid any continuing doubt, it is appropriate for this Court to make orders dismissing the plaintiff's application for leave to appeal and confirming the entitlement of the respondent to his costs of the application up to the date of service of the notice of discontinuance. 22 I would propose the following orders:

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