Averkin v Insurance Australia Ltd

The amount of the judgment to be entered

1. The parties disagreed in respect of most components of the judgment. The underlying insurance policy was for an agreed value of $38,870 with a "basic excess" of $800. It was not suggested that any additional excesses were applicable. However, Mr Averkin's submissions disregarded the excess. That was an error. The damages to which Mr Averkin is entitled do not include the excess; otherwise he would be in a better position than he would have been had the insurer paid his claim: see for example K & M Prodanovski Pty Ltd v Calliden Insurance Ltd [2012] NSWCA 117.
2. It was agreed that pre-judgment interest in accordance with s 100 of the Civil Procedure Act 2005 (NSW) for the period from 23 August 2013 (when the vehicle was destroyed) to 31 December 2013 at the rate of 6.75% should be allowed. Although the parties accepted that there were 133 days, in fact there are 131 days in that period. It was also agreed that pre-judgment interest should be allowed for a period of 481 days from 1 January 2014 to 24 April 2015 (when the judgment of the primary judge was delivered), but Mr Averkin sought a rate of 6.75%, while the insurer said the rate was 6.5%. In fact that is a period of 479 days, but the insurer's submissions as to the applicable interest rate are correct. They accord with Practice Note DC (Civil) No 15 and with the rates posted on the District Court's webpage.
3. Accordingly, the pre-judgment interest to which Mr Averkin is entitled is $922.28 + $3,247.42 = $4,169.70.
4. The insurer appeared to submit that Mr Averkin was entitled to two pecuniary orders: a judgment in the amount of $38,070, and a separate order in the amount of $4,169.70. Presumably this submission was intended to support its contention under Uniform Civil Procedure Rules 2005 (NSW), r 42.35 (see below). At least in ordinary cases, there is no occasion for a successful party who is entitled to more than one monetary amount against the same defendant to be given more than one judgment. Indeed, s 100 of the Civil Procedure Act 2005 (NSW) states that "the court may include interest in the amount for which judgment is given".
5. Judgment should be entered in favour of Mr Averkin in the amount of $42,239.70, taking effect as of 24 April 2015, pursuant to r 36.4(3).

Costs at first instance

1. Costs at first instance are complicated by two potentially conflicting rules. Mr Averkin contended that r 42.35 did not apply, and that in light of an offer of compromise made by him, he was entitled to an order for costs assessed in part on an indemnity basis in accordance with r 42.14. The insurer did not dispute that a valid offer of compromise had been made, but nevertheless disagreed with both of Mr Averkin's submissions.

Does r 42.35 apply?

1. The first question is whether r 42.35 applies at all. That rule provides as follows: "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."
2. Mr Averkin contended that the rule was inapplicable, he having obtained a judgment in an amount exceeding $40,000, once pre-judgment interest was included. The insurer pointed to the fact that judgment on Mr Averkin's principal claim was $38,070, and maintained that the rule applied notwithstanding the award of pre-judgment interest. For the reasons which follow, it will not be necessary to decide the point, but 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.
3. 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.
4. Returning to whether r 42.35 applies, there had been correspondence between the parties' solicitors on 11 February 2014, shortly after the proceedings commenced, in which the solicitors for the insurer advised that the claim sought damages well within the $100,000 monetary jurisdiction of the Local Court, and contended that "the matter can be progressed quicker and cheaper in the Local Court in accordance with the overriding purpose of the Civil Procedure Act and section 56 of the Act". The letter asked whether there was "any particular reason why the proceedings were commenced in the District Court rather than the Local Court".
5. The solicitors for Mr Averkin responded, promptly, referring to the allegation that Mr Averkin had engaged in fraudulent conduct, which was a most serious matter. It was asserted that the legal issues arising out of the interpretation of the policy "are likely to be complex" and that the proceedings would be estimated to "take up three days of Court time". The solicitor for Mr Averkin submitted that "the Local Court at Orange is not properly equipped nor inclined to deal with matters of this nature", and suggested that the current schedule, for a hearing in November 2014, would be far quicker than a matter in the civil jurisdiction of the Local Court. The author maintained that the proceedings were properly commenced and maintained in the District Court, and referred to the decision Spanos by his tutor Spanos v Thornberry [2013] NSWDC 193. In that case the Court was satisfied that the complexities in the assessment of damages warranted commencing and continuing the proceedings in the District Court, rather than the Local Court, and a costs order was made.
6. Neither party referred to authority on the threshold question whether the $40,000 in r 42.35 included pre-judgment interest. However, this Court's decision in Fire & All Risks Inurance Co Ltd v Rousianos (1989) 19 NSWLR 57 is squarely on point. Although Gleeson CJ, with whom Kirby P and Clarke JA agreed, was concerned by the possibility of cases where there was a large amount of interest which had built up between the commencement of the proceedings and the hearing, the Court held that "the sum which a plaintiff recovers, for the purposes of the application of r 24 of Pt 52 [an analogous provision in the former Supreme Court Rules] must include any interest awarded": at 70. The same was stated, obiter, and without reference to Rousianos, by Perry J (with whom Nyland and Sulan JJ agreed) in Conroy's Smallgood's Pty Ltd v Channel Seven Adelaide Pty Ltd [2007] SASC 76; (2007) 97 SASR 14 at [269]-[274], in relation to provisions to substantially similar effect.
7. Nevertheless, the power to award costs is discretionary and the general rule that costs follow the event does not displace the discretion to order otherwise. The underlying claim made by Mr Averkin was for the agreed value under his insurance policy, less the excess. The proceeding was commenced by statement of claim filed on 22 January 2014. At that time, pre-judgment interest was in the order of $1,000. Pre-judgment interest, accruing at $6.78 per day, would cause the total judgment to exceed $40,000 by the middle of May 2014. There was no realistic possibility that, if the matter went to trial, it would be heard and determined before the threshold of $40,000 in r 42.35 was exceeded.
8. This is not a case where the threshold in r 42.35 was exceeded only because of substantial delay. In such a case, there might be a powerful case for denying a successful plaintiff costs. 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: Rousianos at 70. 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. But although Mr Averkin's proceeding could easily have been litigated in the Local Court (whose civil jurisdiction extends to $100,000), r 42.35 did not apply so as to displace the default position that costs follow the event. Nor as a matter of discretion should that position be rejected.
9. It follows that the question posed by r 42.35(2), namely, whether the commencement and continuation of the proceedings in the District Court, rather than the Local Court, was warranted, does not arise. However, were it necessary to address that question, the points made in Mr Averkin's solicitor's letter of 17 February 2014 should be rejected. There were no complex issues arising out of the interpretation of the policy. It is true that the insurer's allegation of fraud was a most serious matter, but Local Courts deal with cases of fraud on a daily basis. The same submission was rejected by Gleeson CJ in Rousianos at 70-71: "[I]t must be recognised that there is nothing at all unusual about the circumstance that civil litigation, often over relatively trifling sums of money, may involve serious allegations of fraud ..." The same point was made by Stephen CJ in Minehan v Clarke (1870) 9 SCR 227 at 230.
10. To the extent that it was asserted by Mr Averkin's solicitor that the Local Court at Orange was ill-equipped or disinclined to deal with matters of this nature, there is no evidence of that, and it is not a matter which Mr Averkin sought to develop in his written submissions on costs. Finally, to the extent that it was said that there were complex legal and factual issues arising on the appeal, and that the grant of leave to appeal acknowledged the importance of some of these issues, notably, the operation of s 69(3)(b) of the Evidence Act 1995 (NSW), those matters were consequences of the forensic decision of Mr Averkin to abandon a large proportion of his pleaded case at trial, and to object to the tender of certain documents by the insurer.

The effect of the offer of compromise

1. Under cover of a letter dated 21 May 2014, Mr Averkin's solicitor supplied an offer of compromise, stated to be in accordance with UCPR r 20.26, in the amount of $33,100 inclusive of interest. Alternatively, and by the same letter, Mr Averkin made an offer in accordance with the principles set out in Calderbank v Calderbank as follows: "1. Verdict and judgment for the Plaintiff against the Defendant in the sum of $33,100 inclusive of interest. 2. Defendant to pay the Plaintiff's costs as agreed or assessed. 3. Offer to be open for acceptance for 28 days from the date of this letter."
2. Dealing first with the offer of compromise, it is common ground that the offer complied with the rules. Plainly enough, the judgment which should have been obtained by Mr Averkin is no less favourable than that offer. Rule 42.14 provides in those circumstances that: "(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."
3. It is well established that, in an ordinary case, the onus lies upon the unsuccessful party to establish a basis for displacing the presumption that a special costs order be given in favour of the successful party: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 at [35].
4. The insurer submits that at the time that offer was made, Mr Averkin had served no evidence in the proceedings, and it was therefore not unreasonable for it not to have accepted the offer. That submission cannot be accepted. At trial, Mr Averkin relied on no evidence at all, save for the insurance policy. At all times, it should have been apparent that the insurer would fail unless it could establish fraud. Moreover, by the time the offer was made, the insurer had filed a defence making positive allegations of fraud against Mr Averkin concerning the loss and destruction of the vehicle, the possession and use of the key, and various other aspects of Mr Averkin's conduct.
5. Something out of the ordinary is required, in circumstances such as this, to deny the entitlement to a special costs order: see Caine at [35]-[37]. No such circumstances have been made out in the present case.
6. No other matters being raised by the insurer, it follows that Mr Averkin is entitled to his costs on the basis stated in r 42.14. It is not necessary to address the Calderbank offer which accompanied the offer of compromise, which could not lead to a result more favourable to Mr Averkin.
7. There is one final matter. Mr Averkin abandoned much of his pleaded case no later than the outset of the hearing. Rather than the trial taking the three days anticipated in the letter of 17 February 2014, Mr Averkin's case in chief (which involved the tender of one document and no other evidence) was closed within a matter of minutes. The entire trial appears to have concluded before lunch on the first day. However, Mr Averkin's solicitor referred to his client incurring costs which substantially exceeded the amount at stake. That is a matter of concern, having regard to the overriding purpose in s 56 of the Civil Procedure Act 2005 (NSW) and the requirement of proportionality in s 60. Those concerns are not new (see for example Blest v Brown (1862) 4 De G F & J 367; 45 ER 1225). How such substantial costs were incurred, given the abbreviated way in which the trial was run, is not clear from the appeal materials. However, it seems likely that much of the costs incurred at first instance would have been in respect of aspects of Mr Averkin's case which were not pressed at trial. It will be a matter for agreement or assessment whether the costs claimed to have been incurred by Mr Averkin are properly regarded as costs of the trial.

Costs of the appeal

1. Leave to appeal was granted on 27 October 2015, and a notice of appeal was filed on 2 November 2015. By email dated 9 November 2015, a further offer of compromise, and, in the alternative, an offer in accordance with Calderbank v Calderbank, was made. The offer of compromise was for the appeal to be allowed, the decision of the primary judge set aside, and for the insurer to pay Mr Averkin the sum of $20,000 plus costs.
2. The insurer did not suggest that the offer did not comply with the rules. The insurer submits that by 9 November 2015, the appellant's submissions had not been served. That is, to say the least, somewhat inaccurate. Given the amount in issue, leave to appeal was required, and was sought. Both parties had exchanged summaries of argument on the question of leave, with Mr Averkin consenting to the application for leave being heard concurrently with the appeal (thereby indicating that so far as he was concerned, complete written submissions had been served). There had also been an oral hearing following which there was a grant of leave.
3. There is no reason to displace the ordinary operation of the rules following the making of the offer of compromise. Those rules apply to the appeal by reason of r 51.1(4), as if Mr Averkin was a plaintiff. He is entitled to his costs assessed on an indemnity basis from 10 November 2015. Again, it is not necessary to address the Calderbank letter, which could not improve Mr Averkin's position.

Orders

1. The result is that Mr Averkin is entitled to costs orders in his favour, both at first instance and on appeal, and assessed on an indemnity basis for the period following his offers of compromise. He should also receive a favourable costs order in respect of the present application, but assessed on the ordinary basis.
2. For the foregoing reasons, the Court makes the following additional orders: 1. In lieu of the judgment of 24 April 2015 in favour of the defendant insurer in the District Court, give judgment in favour of Mr Averkin in the amount of $42,239.70, taking effect as of 24 April 2015, and order that the insurer pay Mr Averkin's costs at first instance (a) assessed on an ordinary basis until and including 21 May 2014, and (b) assessed on an indemnity basis from 22 May 2014. 2. Order that the insurer pay Mr Averkin's costs of the appeal (a) assessed on an ordinary basis until and including 9 November 2015, and (b) assessed on an indemnity basis from 10 November 2015. 3. Order that the insurer pay Mr Averkin's costs of the application for the amount of judgment and for orders as to costs, assessed on an ordinary basis.

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