Cook v. Hawes (On costs) [2002] NSWCA 120

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40629/01 DC 7701/99

STEIN JA HODGSON JA IPP AJA

Judgment (On Costs) 1 STEIN JA: I agree with Hodgson JA. 2 HODGSON JA: These proceedings were commenced in the District Court on 13th October 1999. On 21st December 1999, the appellant served an offer of compromise offering to settle the respondent's claim for $94,000.00 plus costs of $10,000.00. The offer was not accepted and the matter was heard in the District Court between 18th and 22nd June 2001. On 31st July 2001, judgment was given in favour of the respondent for $229,532.41, and the appellant was ordered to pay the respondent's costs of the proceedings. 3 After an appeal was brought to this Court, an order was made on 17th December 2001 staying execution of the judgment conditional on half being paid. Half the judgment was then paid, by means of a payment of $90,892.00 to the respondent on 23rd October 2001, a payment of $22,954.24 to the Health Insurance Commission, and allowance being made for $1,154.50 previously paid by the insurer. 4 By its decision on 23rd March 2002, this Court substituted a judgment in favour of the respondent for $93,205.18. Leave was given for further submissions on the question of costs. 5 The appellant now seeks orders that the appellant pay the respondent's costs of the proceedings and the appeal up to and including 20th December 1999, and that the respondent pays the appellant's costs of the hearing and the appeal from 21st December 1999 to the conclusion of the case, and also seeks ancillary orders including orders for refund of moneys paid. 6 The appellant has put on evidence that its costs amounted to about $85,000.00, of which about $65,000.00 seem to relate to the proceedings at first instance, and about $20,000.00 seem to relate to the appeal. 7 The appellant relies on the District Court rules, in particular Pt.19A rr.2, 2A, 3 and 4; and Pt.39A r.25. The appellant also relies on District Court Practice Note 42. Those rules and the Practice Note are as follows: Pt.19A r.2(1) Subject to this rule, in any proceedings each of the plaintiff and the defendant may make to the other an offer to compromise any claim in the proceedings on the terms specified in the offer. (2) A plaintiff may not make an offer under subrule (1) unless he has supplied to the defendant such particulars of the plaintiff's claim, and copies or originals of such documents available to the plaintiff, as are necessary to enable the defendant to fully consider the offer. (3) Unless the Court otherwise orders, where a plaintiff makes an offer under subrule (1), no order shall be made in favour of the defendant on the ground that the plaintiff has not supplied, or has not supplied sufficient, particulars or documents as required by subrule (2) unless the defendant has informed the plaintiff in writing of that ground within 14 days after receipt of the offer.

2A(1) A party may make an offer under rule 2 (1) (a "principal offer") to compromise any claim in an action and, at the same or a subsequent time, an offer (a "costs offer") to compromise any claim of the plaintiff for his costs incurred in the action up to the date of any acceptance of the principal offer by paying or accepting an amount specified in the costs offer. (2) Where a principal offer and a costs offer are made under subrule (1) and the offeree accepts the principal offer, the offeree may accept or fail to accept the costs offer. (3) A costs offer is of no effect for the purposes of this rule if the principal offer is not accepted. (4) Where: (a) a plaintiff accepts a principal offer and fails to accept a costs offer, and (b) the plaintiff's costs in the action are taxed, and (c) the taxing officer is of opinion that the costs offer was in an amount not less than the costs reasonably incurred by the plaintiff up to and including the day when the principal offer was accepted, the taxing officer may, notwithstanding Part 39 rule 25 (1), in his discretion award the costs, or any part of the costs, of the taxation to the defendant.

3(1) An offer may be made at any time before the time prescribed by subrule (8) in respect of the claim to which it relates. (2) A party may make more than one offer. (3) An offer may be expressed to be limited as to the time it is open to be accepted but the time expressed shall not be less than 28 days after it is made. (4) An offeree may accept the offer by serving notice of acceptance on the offeror before: (a) the expiration of the time specified in accordance with subrule (3) or, if no time is specified, the expiration of 28 days after the offer is made, or (b) the time prescribed by subrule (8) in respect of the claim to which the offer relates, (c) (Repealed) whichever event is the sooner. (5) An offer shall not be withdrawn during the time it is open to be accepted, unless the Court otherwise orders. (6) An offer is open to be accepted within the period referred to in subrule (4) notwithstanding that during that period the party to whom the offer (the "first offer") is made makes an offer (the "second offer") to the party who made the first offer whether or not the second offer is made in accordance with this Part. (7) Where an offer is accepted under this rule, any party to the compromise may apply to the Court to enter judgment accordingly. (8) The time prescribed for the purposes of subrules (1) and (4) and Part 39A rule 25 (3) is: (a) where the trial is before a jury---after the Judge begins to sum up to the jury, (b) where the action has been referred under section 63A of the Act for determination pursuant to the Arbitration (Civil Actions) Act 1983 ---after the conclusion of the arbitration hearing, or (c) in any other case---after the Judge gives his decision or begins to give his reasons for his decision on a judgment (except an interlocutory judgment), whichever is the sooner.

4. An offer providing for the payment of a sum of money, or for the doing of any other act, shall, unless the notice of offer otherwise provides, be taken to provide for the payment of that sum or the doing of that act within 28 days after acceptance of the offer. Pt.39A r.25(1A) The objects of this rule are: (a) to introduce an added element of risk in order to promote early settlement of actions without hearing or arbitration, (b) to compel the parties to an action, under threat of possible penalties in costs, to arrive at an early assessment of the amount of damages, if any, recoverable by the plaintiff, (c) to encourage the making and acceptance of reasonable offers of compromise by: (i) providing for penalties in costs to be imposed on a party who rejects an offer of compromise and does not at the hearing or arbitration of the action achieve a position better than he would have held if he had accepted the offer of compromise, and (ii) providing corresponding costs relief to the party making the offer, (d) to impart as much certainty to the imposition of costs penalties referred to in object (c) as may be imparted without substantial injustice, and (e) to provide a discretion in the Court to relieve a party from the imposition of a costs penalty, to be exercised only in an exceptional case and for the avoidance of substantial injustice. (1B) A decision of the Court to make or refuse to make an order for costs under this rule must be made in pursuance of the objects of this rule. (1) Subject to subrule (2), upon the acceptance of an offer of compromise in accordance with Part 19A rule 3 (4), the defendant shall, unless the Court otherwise orders, pay the costs in respect of the claim by the plaintiff against the defendant up to and including the day the offer was accepted. (2) If a notice of offer contains a term which purports to negative or limit the operation of subrule (1), that offer shall be of no effect for any purpose under Part 19A or this rule. (3) Subrules (4)--(6) apply to an offer which has not been accepted at the time prescribed by Part 19A rule 3 (8). (4) Where and offer is made by a plaintiff 28 days or more before the hearing of the action commences, and the offer is not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders, the plaintiff shall be entitled to an order against the defendant for the plaintiff's costs in respect of the claim assessed on a solicitor and client basis. (4A) Where an offer is made by a plaintiff less than 28 days before the hearing of the action commences, and the offer is not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders, the plaintiff shall be entitled to an order against the defendant for the plaintiff's costs in respect of the claim from the day on which the offer was made, assessed on a solicitor and client basis, in addition to the plaintiff's costs incurred before that time, assessed on a party and party basis. (5) For the purpose of subrules (4) and (4A), where the offer was made on the first or a later day of the trial of the proceedings, then, unless the Court otherwise orders, the plaintiff shall be entitled to the plaintiff's costs in respect of the claim from 11 am on the day following the day on which the offer was made, assessed on a solicitor and client basis, in addition to the plaintiff's costs incurred before that time, assessed on a party and party basis. (5A) An entitlement to costs on a solicitor and client basis under subrule (4), (4A) or (5) does not include an entitlement to the amount of any surcharge on costs provided by a costs agreement, conditional or otherwise. (6) Where an offer is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim to which the offer relates not more favourable to him than the terms of the offer, then, unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders, the plaintiff shall be entitled to an order against the defendant for the plaintiff's costs in respect of the claim up to and including the day the offer was made, assessed on a party and party basis, and the defendant shall be entitled to an order against the plaintiff for the defendant's costs in respect of the claim thereafter assessed on a party and party basis. (7) For the purpose of subrule (6), where the offer was made on the first or a later day of the trial of the proceedings, then, unless the Court otherwise orders, the plaintiff shall be entitled to his costs in respect of the claim up to 11 am on the day following the day on which the offer was made, assessed on a party and party basis, and the defendant shall be entitled to his costs in respect of the claim thereafter, assessed on a party and party basis. (8) Where a plaintiff obtains an order or judgment for the payment of a debt or damages and: (a) the amount payable under the order or for which judgment is given includes interest or damages in the nature of interest, or (b) by or under any Act the Court awards the plaintiff interest or damages in the nature of interest in respect of the amount, then, for the purpose of determining the consequences as to costs referred to in subrules (4), (4A) and (6), the Court shall disregard so much of the interest or damages in the nature of interest as relates to the period after the day the offer was made. (9) For the purpose only of subrule (8), the Court may be informed of the fact that the offer was made, and of the date on which it was made, but shall not be informed of its terms. (10) If, a reasonable time before the Court makes an order under subrule (4), subrule (4A) or subrule (6), the party to whom the offer is made requests the party making the offer to satisfy the Court that the party making the offer was at all material times willing and able to carry out the offer: (a) if the Court is so satisfied---the party making the request shall pay the costs of the party to whom the request is made occasioned by the request, or (b) otherwise: (i) subrules (4), (4A) and (6) shall not apply, and (ii) the party to whom the request is made shall pay the costs of the party making the request occasioned by the request, unless the Court otherwise orders. (11) Unless the Court otherwise orders, any application for an order for costs under subrule (4), subrule (4A) or subrule (6) must be made immediately after the order or judgment giving rise to the entitlement to the order for costs is made or given.

PRACTICE NOTE 42. The Court is concerned that the system of offer of compromise under Part 19A of the District Court Rules, which ought to be a most effective aid to the settlement of actions before hearing or arbitration, is not producing the results it should. With the Court's approval, an investigation of the system has been made under the auspices of the Centre for Legal Process. This Practice Note is issued, and certain Rule amendments have been made, as a result of the Court's consideration of that investigation. The amendments, and this Practice Note, have effect on and from 1 January 1998; they apply to offers made on or after that date.

Offer of compromise depends for its effectiveness on a reasonable degree of certainty in both parties that rejection of an offer that should have been accepted will have serious consequences in costs. To strengthen that certainty, the Rules have been amended to provide that the discretion to absolve a party from these costs consequences is to be exercised only in accordance with the stated objects of Part 39A rule 25. It may also be taken that in cases where the amount of the judgment or award varies either way from the amount of the offer by more than 10 per cent the discretion will be exercised only for the most unusual and compelling reasons.

Where a defendant's offer is made some time before the hearing (which the system should encourage) and not accepted, there are factors operating over time to increase the amount which the plaintiff will recover - eg the annual review of the amounts prescribed under section 79 and 79A of the Motor Accidents Act. It may be taken that in deciding whether the judgment is or is not more favourable to the plaintiff than the terms of the offer the Court will entertain argument that it should take those factors into account and consider the offer as at the time it was made.

The "indemnity costs" incentive to a plaintiff to make a reasonable offer of compromise has lost much of its efficacy since the 1994 reformation of the costs regimen. The Rule amendments substitute solicitor and client costs for indemnity costs, following the practice in most other States of Australia. Where the offer is made 28 days or more before the hearing the sanction is solicitor and client costs for the whole of the proceedings, not merely from the date of the offer. The surcharge payable by the plaintiff to his solicitor under a conditional costs agreement is not part of the sanction and is not recoverable from the defendant.

Offers can be more effectively expressed. The Court strongly recommends that they be as detailed as practicable. As to plaintiffs' outgoings, a defendant's offer ought to include specific statements as to which of these - eg Medicare, Workers Compensation repayments - have been taken into account in framing the offer and in what amount. Where such amounts are not immediately quantifiable, an offer might specify that they will be met in addition to the amount of the offer if accepted. It may be taken that the Court will not hold such an offer to be void for uncertainty.

The settlement process can be assisted by mutual disclosure. An offer ought to include - or be accompanied by a letter including - the bases on which the offer is made, unless there are cogent reasons why those bases should not be revealed at that time. The bases revealed could cover such matters as heads of damage rejected, the level of medical evidence available to the offeror, the percentage of the most extreme case thought applicable. In appropriate cases, Judges or registrars will direct the service by both parties of offers of compromise in the "Scott Schedule" mode used in the Supreme Court's Differential Case Management system.

Defendants can be assisted to make offers if "Part 12 Particulars" are supplied as early and as fully as possible. Registrars will insist that full particulars be supplied, and undertakings to provide them later will not be accepted in the absence of good reason for the delay. Nevertheless, defendants' offers ought to be made on the basis of the available information, without always waiting for the evidence. Where a plaintiff has complied with the requirements of section 50A of the Motor Accidents Act, and of Practice Note 33, the defendant ought to have sufficient information, in the usual case, to assess the plaintiff's case and make an offer well before the deadline for "Part 12 Particulars". 8 The respondent has submitted that the offer made was not an offer satisfying the requirements of the District Court rules. The respondent pointed to Pt.39A r.25(2), and submitted that the offer purported to negative or limit the respondent's right to costs by limiting costs to $10,000.00. The respondent also submitted that the offer was void for uncertainty because it did not specify whether or not it included the $1,154.50 already paid by the insurer. 9 The respondent also submitted that it was necessary for the Court to further amend the judgment by increasing it to take into account the adjustment since the time of the trial of the amount appropriate for a most extreme case (see Marsland v. Andjelic (1993) 31 NSWLR 162) and also to take into account a necessary re-calculation of future economic loss. In any event, the respondent submitted, the judgment awarded by the Court of Appeal was not ten percent less than the offer, as contemplated by Practice Note 42. 10 In my opinion, it is too late now to raise the matters referred to in the first sentence of the previous paragraph. In my opinion also, the offer was not void for uncertainty. 11 In my opinion, it would have been preferable if the offer of compromise had simply made no reference to costs or else offered party and party costs; and if any offer in relation to costs had been a separate offer, as contemplated by Pt.19A r.2A. However, as a matter of substance and reality, I do not think this particular offer of compromise did purport to negative or limit the operation of Pt.39A r.25(1), because it is unlikely in the extreme that the respondent's costs would have exceeded $10,000.00 within two months of commencement of the proceedings, and there is certainly no evidence to suggest that the costs at that stage would have exceeded that amount. 12 Even if the offer of compromise did contravene Pt.39A r.25(2), and for that reason did not have any effect under Pt.19A or Pt.39A r.25, it would in the circumstances still stand, in my opinion, as a very powerful discretionary factor in relation to costs. Indeed, in the particular circumstances referred to in the previous paragraph, I think it would be appropriate for the Court to exercise its discretion on costs in the same way as if Pt.39A r.25(2) had not been contravened. 13 In my opinion, having regard to the purpose of Pt.39A r.25, as set out in r.25(1), it is appropriate in this case to order that the respondent pay the appellant's costs of the proceedings at first instance from 22nd December 1999. I do not think this is an exceptional case or that this order involves substantial injustice. The reference to ten percent in the Practice Note does not cut down the effect of the rule. 14 As regards the costs of the appeal, the District Court rules do not apply to the Court of Appeal. Even if this had been an appeal from the Supreme Court, the existence of such an offer of compromise would be a discretionary factor to be taken into account on the costs of the appeal: see Fotheringham v. Fotheringham (No.2) (1999) 46 NSWLR 194. In my opinion, the order originally proposed for the costs of the appeal is still appropriate. The appeal sought judgment for the appellant, so the respondent was forced to contest the appeal in order to retain any judgment at all, and the respondent contested the appeal with some success. 15 Turning to the question of refund, an order for refund should have been sought at the hearing of the appeal. Notwithstanding that, I think it is appropriate to order a refund of the difference between the amount paid and the substituted judgment of $93,205.18, that is $21,794.56. Interest has not been sought, and no interest will be ordered. In my opinion, it is not necessary or appropriate to order any refund on account of the costs at first instance or the costs of the appeal, particularly where no refund was sought in the Notice of Appeal or at the hearing of the appeal. 16 Accordingly, the orders I propose are that, in lieu of Order 3 made on 22nd March 2002, 3. Respondent to pay one-half of the appellant's costs of the appeal, and have a suitors fund certificate if otherwise entitled. 4. Set aside costs order below, and in lieu thereof order that appellant pay the respondent's costs of the proceedings below up to and including 21st December 1999 and respondent pay appellant's costs of the proceedings below from and including 22nd December 1999. 5. Order that the respondent refund to the appellant $21,794.56. 17 IPP AJA: I agree with Hodgson JA.

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.