BRYMOUNT PTY. LIMITED t/a WATSON TOYOTA (ACN 003 200 459) v. CUMMINS & ANOR. YOUNG SHIRE COUNCIL v. CUMMINS & ANOR. (NO. 2) [2005] NSWCA 69

CATCHWORDS: COSTS - offers of compromise - Calderbank offers - relevance of Calderbank offers to offers of compromise made under the District and Supreme Court Rules - courts' general discretion as to costs - COSTS - indemnity costs - Calderbank offer made prior to trial but not renewed or revived between trial and appeal - whether party is entitled to indemnity costs extending from the trial to appeal proceedings in the absence of a fresh offer of compromise

District Court Rules 1973 (NSW) LEGISLATION CITED: Supreme Court Rules 1970 (NSW) Suitor's Fund Act 1951 (NSW)

Brodie v Singleton Shire Council; Ghantous v Hawkesbury City Council (2001) 206 CLR 512 Brymount Pty Limited t/a Watson Toyota v Cummins & Anor; Young Shire Council v Cummins & Anor [2004] NSWCA 438 Calderbank v Calderbank (1975) 3 WLR 586 Ettingshausen v Australian Consolidated Press (1995) 38 NSWLR 404 Jones v Bradley (No.2) [2003] NSWCA 258 CASES CITED: Multicon Engineering Pty Ltd v Federal Airport Corporation (1996) 138 ALR 425 MICA (1992) Pty Limited v Kenny & Good Pty Ltd (1996) 70 FCR 236 Moore v Woodforth (No.2) [2003] NSWCA 46 Noriega v The Trustee of the Roman Catholic Church (No.2) [2000] NSWCA 133 SPEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323 South Sydney Council v Morris (No.3) [2001] NSWCA 200

CA 41169/2003 - BRYMOUNT PTY. LIMITED t/a WATSON TOYOTA (ACN) 003 200 459) (Appellant) PATRICIA KAREN CUMMINS (First Respondent) YOUNG SHIRE COUNCIL (Second Respondent) PARTIES: CA 41170/2003 YOUNG SHIRE COUNCIL (Appellant) PATRICIA KAREN CUMMINS (First Respondent) BRYMOUNT PTY. LIMITED t/a WATSON TOYOTA (ACN 003 200 459) (Second Respondent)

Angela Christopher (Solicitor) - Brymount Pty. Limited COUNSEL: R. Taylor (Cummins) J. Morris (Young Shire Council)

Henry Davis York (Brymount Pty. Limited) SOLICITORS: McCabe Partners (Cummins) Deacons (Young Shire Council)

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41169/03 CA 41170/03 DC 1898/02

BEAZLEY JA IPP JA McCOLL JA

17 March 2005 BRYMOUNT PTY. LIMITED t/a WATSON TOYOTA (ACN 003 200 459) v. CUMMINS & ANOR. YOUNG SHIRE COUNCIL v. CUMMINS & ANOR. Judgment

1 BEAZLEY JA: On 26 November 2004, the Court delivered judgment in which it upheld the appeals of the appellants against the judgment of Hungerford ADCJ in favour of the plaintiff, Mrs Cummins.

Facts and procedural history 2 Mrs Cummins brought an action in negligence against the Young Shire Council and Brymount Pty Limited in the District Court after she fell in a public laneway which bisected Brymount's business premises. Hungerford ADCJ found that both the Council and Brymount had breached the duty of care each owed to Mrs Cummins. His Honour held that the Council was liable because it had carried out roadworks on the laneway in the past and had undertaken responsibility for the maintenance of the laneway but had failed to maintain it in good order and condition. Brymount was found liable because it conducted business on both sides of the laneway and, therefore, owed a duty to warn persons that the road was in a state of disrepair because both employees and customers frequently traversed the laneway. His Honour awarded Mrs Cummins damages in the sum of $341,161.34. 3 The Council and Brymount successfully appealed to the Court of Appeal ([2004] NSWCA 438, 26 November 2004). Hungerford ADCJ's orders were set aside and verdicts entered for the Council and Brymount. Mrs Cummins was ordered to pay Brymount's costs of the appeal and of the trial but leave was granted to the appellants to make application in respect of the basis upon which costs should be awarded. Both appellants have now made an application for an order that the costs of the trial and the appeal be on an indemnity basis as each had made a Calderbank offer to Mrs Cummins prior to trial. 4 Before dealing with those applications, it should be indicated that in making the Orders for costs, the Court did not make any order relating to the Suitors Fund Act in favour of Mrs Cummins. That was an oversight and the matter having now been drawn to the Court's attention in Mrs Cummins' written submissions, the Court's Orders in each appeal should be amended under the slip rule (see: SCR Pt 20 r.10) so as to include the following Order: "6. The first respondent is to have a certificate under the Suitor's Fund Act (NSW) 1951 if so entitled."

Application for indemnity costs 5 Prior to the trial, Brymount and the Council each made offers of settlement to Mrs Cummins. The Council, in a letter dated 18 June 2002, offered to settle the claim on the basis that it would bear its own costs of the proceedings up to 18 June 2002 in exchange for a judgment and verdict in its favour. The Council stated that should the settlement offer be rejected and Mrs Cummins' case ultimately fail they would seek costs on an indemnity basis. The letter was framed in terms commonly referred to as a Calderbank offer, although it was not expressly said to be such. The offer was open for 14 days. 6 Brymount made an equivalent offer on 28 January 2003. The terms of Brymount's offer were that each party pay their own costs to date and judgment be entered in favour of Brymount. Brymount specifically noted that this offer was made in accordance with the principles in Calderbank v. Calderbank ((1975) 3 WLR 586), and advised that they would pursue costs on an indemnity basis should the offer be rejected and Mrs Cummins failed to obtain a judgment no more favourable than the terms of their offer. No time period in which to accept or reject the offer was given in the letter of 28 January 2003. 7 Both the Council and Brymount stated that their offers were made on the basis of the principle in Brodie v. Singleton Shire Council; Ghantous v. Hawkesbury City Council (2001) 206 CLR 512. 8 Neither the Council nor Brymount made any further offers of settlement, and in particular did not make an offer subsequent to the judgment in favour of Mrs Cummins in the District Court. 9 Mrs Cummins did not respond to either offer.

Status of Calderbank offers 10 There is a clear policy in the Courts to encourage the early settlement of claims. This is reflected in the Rules, both of the Supreme Court and the District Court: see SCR Pt 22; DCR Pt 19A. Under the Rules in each Court, the sanction, if an offer is not accepted and the party to whom the offer is made receives a verdict that is less than the offer, is an award of costs on a more favourable basis than party/party costs (SCR Pt 42 r.22(4); DCR Pt 39 r.25(4). Under the Supreme Court Rules the sanction is automatic unless the Court finds exceptional circumstances, Under the District Court Rules, the Court must find either exceptional circumstances or deem that it would cause substantial injustice to the party who refused the compromise offer. 11 In this case, the appellants did not utilise the procedures provided for under the Rules of Court but rather made the Calderbank offers to which I have referred. Calderbank offers are well recognised means of making offers of settlement where the party making the offer ultimately seeks a costs advantage if the offer is not accepted. However, as such offers do not comply with the Rules of Court for making offers of compromise, the ultimate costs order made is a matter for the court's discretion. 12 As the Court of Appeal identified in Jones v Bradley (No.2) [2003] NSWCA 258 at [6]-[8], there are two competing views as to how the Court exercises its discretion where there has been a Calderbank offer. One view is that a Calderbank offer gives rise to a prima facie presumption that the party who rejects the offer should pay the other party's costs on an indemnity basis should the former receive a less favourable result than the offer of compromise: see Multicon Engineering Pty. Ltd. v. Federal Airports Corporation (1996) 138 ALR 425. 13 The alternative view, and the one endorsed by this Court in Jones v Bradley (No.2), is that the rejection of (what ultimately transpires to be) a more favourable offer is not decisive as to the awarding of costs on an indemnity basis: see SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323 [37]. Rather, the question whether the court will exercise its discretion to award costs on an indemnity basis depends on all the circumstances of the case (MICA (1992) Pty Limited v Kenny & Good Pty Ltd (1996) 70 FCR 236, at 239). 14 In SMEC Testing Services Pty Limited, Giles JA considered that the following factors were relevant to determining whether costs should be awarded on an indemnity basis where a Calderbank offer had been made:

(a) Whether the rejection of the compromise offer was reasonable in the circumstances: Giles JA at [37] held that, while the rationale of Calderbank offers was to promote settlement of disputes, " an offeree can reasonably fail to accept an offer without suffering in cost ".

(b) The time frame in which the offeree had to consider the offer. This factor is relevant as it usually accords with a party's legal advisers being given sufficient time to weigh up the prospects of a case and the potential value of any damages sought, as against the likely costs should the claim fail.

(c) Whether the letter of compromise explicitly stated that the offer was made in Calderbank terms, the exact conditions of the offer, and whether indemnity costs would be pursued if the offer was rejected. 15 In this case, Brymount's offer was specifically identified as a Calderbank offer and the Council's offer was, in substance, a Calderbank offer, even though that was not stated expressly in the letter (see Noriega v. The Trustee of the Roman Catholic Church (No. 2) [2000] NSWCA 133). In each case, the offer was made significantly prior to trial. The Council's offer was made approximately 18 months prior to the trial before Hungerford ADCJ; Brymount's offer was made a year before the trial. The Council's offer was open for 14 days. This period was less than that provided for in both the Supreme Court and District Court Rules (see SCR Pt.22 r.3; DCR Pt.19A r.4), but Calderbank offers are not subject to the limitations imposed by the Rules. Fourteen days is not a generous period to allow for consideration of an offer, but it is not so short as to be unreasonable. No time limit was imposed in the Brymount offer. 16 The real issue therefore is the reasonableness or otherwise of Mrs Cummins' non-acceptance of the offer. 17 The case against the Council was argued on the basis that the principles in Brodie and Ghantous applied. The trial judge dealt with it on that basis although, on this Court's judgment, his Honour made a number of findings of fact in aid of his conclusion on liability that were considered unsustainable on the evidence. In particular, the Court found that, contrary to the trial judge's conclusion, there was no shadowing in the laneway that obscured its uneven surface. The Court concluded the state of the road was obvious. Mrs Cummins had agreed in cross-examination that had she been looking at the ground in front of her she would have seen its uneven surface. Further, Mrs. Cummins had not been able to prove that the depression in the road in which she had fallen had been caused by the Council. Rather, it was caused by work undertaken by some other public utility. In all the circumstances the Court held that the trial judge had erred in finding the Council had breached its duty of care. 18 In relation to the case against Brymount, the Court concluded that it was not an occupier of the roadway and did not owe Mrs Cummins a duty of care in her use of the roadway. 19 In my opinion, this was not a borderline case but was one which, as against the Council, was governed by the principles in Brodie and Ghantous and as against Brymount, was one where no duty of care was established on the evidence. 20 Although I have already remarked that the time in which to accept the Council's offer was abbreviated when compared to the Rules of Court, it was not unduly short. Both offers were made at a significant time prior to the hearing. Mrs. Cummins could have sought an extension of the Council's offer, or counter-offered in the same or similar terms. In circumstances where she had fair warning of the case that was going to be run against her, and the Council was successful on that basis, it should have its costs of the trial on an indemnity basis. Although this Court decided Brymount's liability on a different basis, that is, that there was no duty of care, it too should have its costs on an indemnity basis. In my opinion, the cases were not borderline and the Calderbank offers were made responsibly at an early stage in the proceedings. As no time was specified in Brymount's offer it presumably would have remained open until it was withdrawn. It was neither accepted nor withdrawn but as the appellant did not respond to the offer, the time for which it was open is of no relevance to the matter under consideration. 21 In my opinion, Mrs Cummins' failure to accept the offers of compromise was unreasonable and the appellants should have the benefit of those offers at least insofar as they relate to the trial from the date on which each was made.

Costs of the appeal 22 That leaves the question as to costs on the appeal. No fresh offers were made and the appellants seek to extend the advantage they sought from the pre-trial offers to the appeal. 23 In Ettingshausen v Australian Consolidated Press (1995) 38 NSWLR 404, the majority of this Court held that a pre-trial offer of compromise was relevant to costs orders in respect of appeal proceedings. Gleeson CJ and Priestley JA said (at 408) that an offer of compromise related to the entire claim brought by a party as opposed to a single trial or individual round 'in a bout of litigation'. This encompassed trial, appellate and even re-trial proceedings.

24 However, the decision in Ettingshausen turned upon the operation of offers made under Pt 52A r.22(4) of the Supreme Court Rules and, therefore, is not directly relevant where an offer of compromise is framed in Calderbank terms.

25 In Moore v Woodforth (No.2) [2003] NSWCA 46, Mason P and Meagher JA noted that Calderbank offers stand outside the scope of compromise offers made pursuant to the Rules of both the Supreme and District Court. Such offers thus fall within the ambit of a court's general discretion with respect to costs. In this Court, that discretion is specified in Pt 52A r.11 of the Supreme Court Rules: "'If the Court makes an order as to costs, the Court shall, subject to this part, order that costs follow the event, except where it appears to the Court that some other order should be made as the whole or any part of the costs". 26 The rule is conventionally applied on the basis of an order for costs made on a party/party basis unless there is some good cause for an order to be made on some other basis. The Council and Brymount seek indemnity costs of the appeal flowing from their pre-trial Calderbank offers.

27 Several factors are relevant to the question whether this Court should exercise its discretion and order the respondent to pay the appellants' costs of the appeal on an indemnity basis. First, the respondent received a significant judgment in her favour in the District Court. Although this Court held that Hungerford ADCJ erred in several respects, his Honour, an experienced District Court judge, was persuaded of Mrs. Cummin's claim. Indeed the trial judge appeared to have no doubt about it. I might add, experience in this Court indicates that courts at both first instance and appellate level have not found the principles stated in Brodie and Ghantous to be of easy application. Accordingly, it would not have been unreasonable for the respondent to believe that she would succeed before this Court.

28 Secondly, neither of the appellants made further offers of compromise after their respective offers of 18 June 2002 and 28 January 2003. In particular, no offers were made in the period between the District Court and Court of Appeal proceedings. While the majority in Ettingshausen held (at 411) that there is no obligation upon a party to "revive or renew" an initial compromise offer, that decision is only strictly relevant to offers made pursuant to the Rules. In circumstances where the offer of compromise is couched in Calderbank terms, this Court has held that "the absence of any renewal or variation of [an] offer during the pendency of [appeal] proceedings" is relevant to the exercise of discretion under Pt 52A r. 11 (See Moore v Woodforth (No.2) at [15]).

29 In my opinion, given that the compromise offers substantially pre-dated proceedings in this Court (2½ years in the case of the Council; 2 years in the case of Brymount), coupled with the substantial judgment the respondent received in the District Court, the appellants should have advanced subsequent offers in the period between the trial and appeal if they wished to secure their claim for indemnity costs of the appeal.

30 Had the offers of compromise been made pursuant to Pt 19A of the District Court Rules prior to the trial before Hungerford ADCJ, they would, in any event, have ceased to be operative in appellate proceedings save insofar as the offers would have been relevant to this Court's discretion as to costs under Pt 52A r.11 (See South Sydney Council v Morris (No.3) [2001] NSWCA 200 at [10]). A party who makes a Calderbank offer ought be in no better position than a party who made an initial offer of compromise in accordance with the District Court Rules. Conclusion and Orders

31 Pt 52A r.11 contemplates that, ordinarily, the proper exercise of the court's discretion as to costs on an appeal is an order that costs follow the event. The ordinary costs orders are made on a party/party basis. Given the circumstances of this case I see no basis, in the exercise of discretion, to depart from the orders that would normally follow appeal proceedings in this Court. 32 Accordingly, I propose the following Orders:

1 That the first respondent pay the appellant's costs up to 27 January 2003 on a party and party basis;

2 That the first respondent pay the appellant's costs in respect of the trial from 28 January 2003 on an indemnity basis;

3 That the first respondent pay the appellant's costs in respect of the appeal on a party and party basis;

4 That the first respondent have a Certificate under the Suitors Fund Act 1951 (NSW), if so entitled; and

5. That there be no order as to costs in respect of the second respondent.

1 That the first respondent pay the appellant's costs up to 17 June 2002 on a party and party basis;

2. That the first respondent pay the appellant's costs in respect of the trial from 18 June 2002 on an indemnity basis;

3 That the first respondent pay the appellant's costs in respect of the appeal on a party and party basis;

4. That the first respondent have a Certificate under the Suitors Fund Act 1951 (NSW), if so entitled; and

5. That there be no order as to the costs in respect of the second respondent. 33 IPP JA:` I agree with Beazley JA. 34 McCOLL JA: I agree with Beazley JA. **********

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