Procedure - Costs - General rule - Costs follow the event - Costs of whole action - Where money paid into court or offer of compromise made - Offer of compromise made - Judgment for plaintiff no less favourable than the offer - Costs of whole action taxed on solicitor/client basis.

Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721; Freemantle's Pastoral Pty Ltd v Hyett & Ors [1999] VSC 188; Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154, followed.

MGICA (1992) Ltd v Kenny & Good Pty Ltd & Anor (No 4) (1996) 140 ALR 707, referred to.

Judgment Number: [1999] TASSC 130

DAVID JOHN CLARK v THE STATE OF TASMANIA (No 2)

1 On 28 October 1999, I ordered that judgment in this action be entered for the plaintiff against the defendant in the sum of $163,000. The plaintiff sought an order for costs in accordance with the Rules of Court, O24A, r11(1). The application was adjourned for argument at a later, more convenient, time.

2 Upon the resumption of the hearing, and before embarking on submissions with respect to a costs order, both parties agreed that the judgment should be reduced by $8,985.69, this sum having been paid to the plaintiff pursuant to the provisions of the Workers Rehabilitation and Compensation Act 1988. I was advised of this payment by counsel during the course of the trial, and told that it was agreed that it should be deducted from any judgment sum. However, due to inadvertence, I omitted to take it into account before ordering judgment.

3 In addition, Mr Read, for the plaintiff, submitted that inadvertent error may have occurred in the following paragraph of the reasons for judgment:

"67 Together the plaintiff's present medical and pharmaceutical needs cost $75.41 per week. Dr McArdle's opinion was that these needs will probably last indefinitely. I find accordingly, but reduce the award for attending the gymnasium as I find it unlikely that the plaintiff will attend there after he reaches the age of about 60 years. The plaintiff's life expectancy is 35.7 years. Application of the 7% discount tables, taking into account mortality, to the weekly figure of $76.74 produces a figure of $47,432. This figure must be reduced to $46,000 to take account of the finding that the plaintiff will not use the gymnasium after he reaches the age of about 60 years. Interestingly, the mortality factor reduces the discounted calculation by about 12% which is within the range of deduction for contingencies. Early death is the only relevant contingency applicable to this head of damage in this case."

4 Neither counsel were able to identify from the 7% discount tables, an appropriate multiplier of $76.74 which would produce the figure of $47,432. At the request of counsel, I made an order withdrawing the order that judgment be entered for $163,000 until I had time to consider the matter. It is, of course, inappropriate to reconsider the judgment, other than to correct some mathematical error or similar slip.

5 The error in the passage set out lies in the figure "$76.74". At the start of the passage, the plaintiff's present medical and pharmaceutical needs are found to cost $75.41 per week. A little further on in the passage, this weekly figure was referred to again but due to typographical or like mistake, is erroneously shown as $76.74, instead of $75.41. The plaintiff was aged 45 at the date of trial. The 7% discount tables which take into account mortality and which are set out in Luntz on Damages (3rd edn) at 548, show $629 as the appropriate value of a regular loss of $1 per week to a male aged 45 years, ceasing at death. Application of this multiplier to $75.41 produces the figure correctly set out in the reasons for judgment as $47,432.

6 Accordingly, there is no need to amend the judgment sum, other than to reduce it by $8,985.69.

7 With respect to the issue of costs, it was common ground that the plaintiff had made an offer of compromise in accordance with the provisions of the Rules of Court, O24A, r2. The offer was made on 9 June 1999 to settle the claim for $130,000, a sum considerably less than the judgment sum (as amended).

8 The plaintiff claims to be entitled to an order that the defendant pay his costs of the action taxed on a solicitor and client basis, in accordance with the provisions of O24A, r11(1) which provides:

"11 - (1) Unless the Court or a judge otherwise orders, a plaintiff is entitled to an order for costs against the defendant taxed on a solicitor client basis if -

(a) the plaintiff has made an offer of compromise in accordance with this Order; and

(b) the defendant has not accepted the offer at the time of the judgment; and

(c) the judgment is no less favourable to the plaintiff than the terms of the offer."

9 Mr Turner, for the defendant, accepted that the conditions prescribed by pars(a) - (c) inclusive, had been satisfied, but submitted that:

(1) the Rule should be construed to mean that the costs of a successful plaintiff who can bring him or herself within the Rule will, unless a judge or a court otherwise orders, be taxed on a party and party basis, up to the date of the offer of compromise and thereafter on a solicitor/client basis; or

(2) the proper exercise of the discretion in this case requires the making of an order that costs be taxed on that basis.

10 With respect to the general philosophy behind offers of compromise rules, I refer to the judgment of the New South Wales Court of Appeal in Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 724:

"The obvious purpose of providing Pt 52, r 17 is to facilitate the proper compromise of litigation. This has been attempted by the twin measures of a 'carrot' and 'stick'. Relevantly, the 'carrot' is the promise of indemnity costs to a plaintiff in the event that the defendant is found unreasonably to have refused an offer of compromise. The 'stick' is the threat of the penalty of the imposition of an indemnity costs order against a defendant in such circumstances. It is the obvious intention of the rule to oblige a defendant, which has received an offer of compromise, to give serious thought to the risk which it may run of losing the proceedings and then being ordered to pay costs on an indemnity basis.

1 To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its 'bottom line' will be revealed to the court;

2 To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and

3 To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation."

11 This expression of philosophy was approved in Freemantle's Pastoral Pty Ltd v Hyett & Ors [1999] VSC 188; Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154 at 164; Sands & McDougall (Wholesale) Pty Ltd (in liq) & Anor v Commissioner of Taxation [1999] VSCA 36. In Whitehead v Maas [1991] SASC 3011; (1991) 56 SASR 362, King CJ referred to the South Australian offer of compromise rule (O41) at 367 as "penal" and said:

"Any order for the payment of the costs of the whole action must be penal to some degree. The purpose is to encourage plaintiffs to make offers and to deter defendants from non-acceptance of offers which are commensurate with the defendant's just liability".

12 However, care must be taken when referring to offers of compromise rules in other jurisdictions, to ensure that the terms of the rules are identical to those contained in O24A. In particular, it may be noted that the New South Wales equivalent only provides the successful plaintiff with costs on an indemnity basis "from the day on which the offer was made". The Federal Court Rule, O23, r11(4) is to the same effect. However, no material distinction can be drawn between the provisions of the Rules of Court, O24A, r11(1) and (2) and the Rules of Court (Vic), O26.8(2) and (3). According to Cairns, Australian Civil Procedure (4 ed) at 439, the Rules of Queensland and the Northern Territory are to the same effect as the Tasmanian Rules, whereas the Rules of Western Australia are to the same effect as the Rules of Court (Federal) and the New South Wales Rules.

13 Mr Turner submitted that I should have regard to the decisions in which an order for costs has been made following the writing of a "Calderbank letter". It seems that there is somewhat of a division amongst these authorities but they are one to the effect that in an appropriate case, where a "Calderbank letter" has been written, the costs of the successful party will be ordered to be taxed on a solicitor/client or indemnity basis after the writing of a letter, and on a party/party basis up until that date.

14 The division appears to be over the effect of a "Calderbank letter" in the exercise of the discretion. In Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425, Rolfe J gathered together many of the relevant authorities and concluded at 451, that in the event of the offer in the letter being rejected and the recipient of the letter not receiving a result more favourable than the offer, there was a "prima facie presumption" that the party rejecting the offer should pay the costs of the other party upon an indemnity basis from the date of the offer. However, in Quirk v Bawden (1992) 111 FLR 115, the Full Court of the ACT held that the making of a "Calderbank offer" was no more than a factor in the exercise of a discretion unfettered by the statute. The same approach has been adopted in Victoria, see Azzopardi v Netin [1986] VicRp 56; [1986] VR 593; Grbavac v Hart (supra). In South Australia, the Full Court in Pirrotta v Citibank Ltd (1998) 72 SASR 259, held at 267, that a "Calderbank letter" was no more than a factor in the exercise of the discretion albeit, it a "significant factor".

15 The weight of authority clearly is that where there has been a "Calderbank offer" and the discretion is exercised in favour of the successful party on an application for costs, the order for taxation on a solicitor/client basis will be confined to costs incurred after the letter was written. However, the application in this case is not based upon a "Calderbank letter". It is based upon the provisions of the Rules of Court O24A, r11(1).

16 The terms of O24A, r11(1) confer on the plaintiff a presumption that if the conditions precedent prescribed by the subrule are fulfilled, he will receive his costs of the action, taxed on a solicitor/client basis. In MGICA (1992) Ltd v Kenny & Good Pty Ltd & Anor (No 4) (1996) 140 ALR 707, Lindgren J described the words of the Rules of Court (Federal), O23, r11(4) as providing a "presumptive entitlement to indemnity costs". I would adopt that expression and the following passage from the judgment of Lindgren J, at 711, as apposite to the provisions of O24A, r11(1) and (2):

"Order 23 establishes a regime which, if utilised, gives rise to a presumptive entitlement to indemnity costs. Notwithstanding the policy of encouraging settlement of litigation, it should not be assumed that the mere writing of a Calderbank letter generates the same presumptive entitlement to indemnity costs that is provided for in O 23."

17 There is simply no basis for accepting Mr Turner's first submission. It is contrary to the plain words of O24A, r11(1). There is no reason to import words into the rule that are not there, especially when read in the light of the immediately following subrule that applies in the case of a successful defendant, viz:

"(2) Unless the Court or a judge otherwise orders, a plaintiff is entitled to an order for costs against the defendant, up to and including the day on which an offer of compromise was served, taxed on a party and party basis and the defendant is entitled to an order for costs against the plaintiff in respect of the claim after service of the offer on a party and party basis if -

(a) the defendant has made the offer in accordance with this order; and

(b) the plaintiff has not accepted the offer at the time of the judgment; and

(c) the judgment is no more favourable to the plaintiff than the terms of the offer." [emphasis added]

18 At the time O24A was introduced into the Rules of Court (Statutory Rule 146/1995), offers of compromise rules were in place in other jurisdictions. Some of those rules provided for taxation of costs of the whole action on a solicitor/client, or indemnity basis and some of them provided for taxation of costs on that basis only after the making of the offer of compromise. The Rules makers are presumed to have been aware of this and framed O24A r(11)(1) without confining the taxation of costs on a solicitor/client basis to those costs incurred after the date the offer of compromise was made in the case of a plaintiff who was able to satisfy the conditions prescribed by the subrule. Quite different provision was made in the case of a defendant who was able to satisfy the conditions prescribed by subr(2).

19 The intention is plain. Rule 11(1) is penal in effect. It is designed to encourage the proper settlement of litigation. In the event of the conditions prescribed by the rule being established, there is a presumptive entitlement to an order that the defendant pay the plaintiff's costs of the whole action taxed on a solicitor/client basis. To otherwise construe the rule would do violence to its language. There is no warrant for reading down the clear words of the rule to confine solicitor/client costs to those costs incurred after the offer was made.

20 It is of course, not possible to identify the circumstances that will displace the presumptive entitlement. In an appropriate case the making of an offer late in the proceedings may be such a circumstance. The manner in which the plaintiff conducted his or her case may be another circumstance. Suffice to say that in the present case, there is no circumstance to displace the presumption that the plaintiff is entitled to his costs of the action taxed on a solicitor/client basis. The offer of compromise was made almost three months before the trial began. The difference between the judgment sum and the offer is quite substantial. There was nothing about the plaintiff's conduct of his case that was out of the usual.

21 For those reasons, the plaintiff's application succeeds. There will be an order that judgment be entered for the plaintiff against the defendant for $154,014.31 and costs to be taxed on a solicitor/client basis.