Egan v Mangarelli & Ors

Judgment 1HIS HONOUR: Nature of proceedings The judgment in the principal proceedings was handed down on 7 August 2012. Judgment was entered in favour of the defendants and the plaintiff was ordered to pay the defendants' costs. After judgment had been delivered, the defendants advised the Court that they had served an Offer of Compromise, in accordance with the rules, dated 21 October 2011. The defendants sought a special costs order from that date. The plaintiff opposed the making of such an order. 2This judgment relates to that costs argument. Submissions and consideration 3By letter dated 21 October 2011, the defendants served on the solicitors for the plaintiff an offer which purported to be made pursuant to rule 20.26 of the Uniform Civil Procedures Rules 2005 (UCPR). The covering letter was in the following terms: "We enclose by way of service, the Defendants' Offer of Compromise in the sum of $750,000 plus costs. The offer is made inclusive of any funds management. This offer will remain open until 4pm on 4 November 2011." 4The purported Offer of Compromise was as follows: "The Defendants offer to compromise the Plaintiff's claim in the following manner: 1.Payment of Seven hundred and fifty thousand dollars ($750,000) plus costs, to be agreed or assessed. 2.The Plaintiff may be liable to pay amounts under the Health and Other Services (Compensation) Act, 1995 and/or the Health and Other Services (Compensation) Care Charges Act 1995 and/or to Centrelink. This offer is inclusive of any such liability. 3.If the Plaintiff accepts the offer, payment shall be made within 28 days of receipt by the Defendants of the following, whichever is the later: (a)Sealed Judgment; (b)Authority to Receive (c)Notice of Charge pursuant to the Health and Other Services (Compensation) Act, 1995 and/or the Health and Other Services (Compensation) Care Charges Act 1995' (d)Notice from Centrelink as to the amount repayable. 4.No interest shall be payable on the amount referred to in paragraph 1. provided that the said amount, less any deductions referred to in paragraph 2. is paid within the time referred to in paragraph 3. 5.Acceptance of this offer by the Plaintiff should be made by the serving by the Plaintiff of a Notice of Acceptance on or before 4pm on 4 November 2011 at which time, this offer will lapse. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedures Rules 2005. A copy of this has been served on the solicitors for the Plaintiff. [Signature] 21 October 2011." 5That offer was not accepted by the plaintiff. Because of the outcome of the principal proceedings, the defendants seek an order that the plaintiff pay their costs until 21 October 2011, as agreed or assessed, and thereafter on an indemnity basis. 6The plaintiff opposes the making of that order on two bases. The first is that the offer does not comply with Rule 20.26 UCPR. The second is that this matter gave rise to circumstances which would justify the Court not making such an order. 7Rule 20.26 UCPR relevantly provides: "20.26(1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2)An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs. ..." 8The plaintiff submits that the defendants' offer was not in accordance with Rule 20.26 UCPR because it was not "exclusive of costs". This is because the offer in terms referred to "plus costs as agreed or assessed". In support of that proposition, the plaintiff relies upon Old v McInnes & Hodgkinson [2011] NSWCA 410 where Meagher JA (with whom Beazley and Giles JJA agreed) said: "105... Neither of the offers made on behalf of Mr McInnes was "exclusive" of costs or within the exception in r 20.6(2). Each provided that Mr McInnes should pay Mr Old's costs "as agreed or assessed". For that reason, neither was an offer in fact "made under rule 20.26" for the purposes of UCPR r 42.13 and accordingly each was of no effect for the purposes of the Offer of Compromise regime under the UCPR: Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No. 2) at [22]-[24]; Dean v Stockland Property Management Pty Ltd & Anor (No. 2) [2010] NSWCA 141 at [16]-[29]." 9The decision in Old is directly on point. The offer made by the defendant in that case was in identical terms in its reference to costs, as the offer under consideration here. As a single judge, I would normally defer to a unanimous decision of the Court of Appeal. 10Unfortunately, the issue is not quite so simple. In Vieira v O'Shea (No 2) [2012] NSWCA 121 the Court (Basten, Meagher JJA and Handley AJA) said: "7In written submissions in support of the motion, the appellant conceded that the offer did not comply with the UCPR because it was not "exclusive of costs". It is true that the offer was not stated to be exclusive of costs: the statement as to costs could have been understood as indicating that the offer was indeed not inclusive of costs, but was otherwise otiose as the same costs consequences followed from the application of the rules. ... The UCPR are to be construed by reference to their apparent purpose. A mere reference to costs in an offer otherwise compliant with Part 20, Div 4 will not take the offer outside the rules unless the reference operates inconsistently with the relevant costs rule: Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141, (Giles JA, Handley AJA, Whealy J) at [26]-[29]. The offer, if accepted, entitled the offeror to his costs: the offer did not seek to vary the effect of UCPR r 42.13A." 11The factual background to Vieira was that the plaintiff had made an Offer of Compromise to accept a sum of money with the defendant to pay his costs. In other words, the offer was in similar terms to that considered in Old and that which I am presently considering. 12In single judge decisions, subsequent to Old and Vieira, two judges of the Common Law Division have declined to follow Old because of the apparent conflict between it and Vieira. In one of those decisions, Rail Corporation NSW v Vero Insurance Ltd (No 2) [2012] NSWSC 926 (Garling J), his Honour took into account seven other decisions of the Court of Appeal decided between 2006 and 2011 which involved offers of compromise that contained a term "plus costs", or a term with a similar meaning. 13These cases were: Ambulance Service of NSW v Worley (No.2) [2006] NSWCA 236; (2006) 67 NSWLR 719; Macquarie Radio Network Pty Ltd v Arthur Dent (No.2) [2007] NSWCA 339; San v Rumble (No.2) [2007] NSWCA 259, 48 MVR 492; The Uniting Church v Takacs (No.2) [2008] NSWCA 172; Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No.2) [2008] NSWCA 85; Nominal Defendant v Hawkins [2011] NSWCA 93; 58 MVR 362 and Erect Safe Scaffolding (Australia) Pty Ltd v Sutton & Anor (No.2) [2008] NSWCA 289. 14In each of those cases the Offer of Compromise was held to be effective for the purposes of r 20.26 without adverse comment concerning the "plus costs" part of the offer. None of those cases was referred to in Old. 15Like Garling J, I have some difficulty with the reasoning in Old. No explanation was provided as to why such an interpretation should be given to the words "exclusive of costs" in r 20.26. A finding was made to that effect and the decisions in Becker and Dean were identified as authority. With great respect to the members of the Court, those cases are not authority for that proposition. Becker was a case where an offer was expressed to be "inclusive of costs". There is a long line of authority to the effect that such an offer does not comply with r 20.26 and there was nothing new or controversial in that decision. In Dean the possibility of two interpretations of the words "exclusive of costs" was raised by the Court, but the Court declined to decide the issue on the basis that it had not been fully argued before it. Dean left the issue open. 16There are, with respect, compelling reasons why the alternative interpretation in Dean should be preferred. 17Those matters were set out by Garling J in Rail Corporation NSW case when his Honour summarised the current state of the law as follows: "85It is, with respect, to the various decisions of the Court of Appeal, difficult to identify a consistency of approach to the issue of whether an Offer of Compromise complies with r 20.26 if it includes a term which provides for the payment of costs by one party to the other. 86All of the authorities, and the explicit language of the UCPR make it clear that if a monetary offer is expressed to be "inclusive of costs" it does not comply with the UCPR. So much may be accepted. It is not relevant in this case. 87But, what if the offer contains a sum of money which is plainly exclusive of costs, and the notice of offer also refers to an offer of costs which is not inconsistent with the costs regime? 88This was not held in Dean to be a non-complying offer, nor seemingly in Vieira. Nor in many of the other decisions to which reference has been. Yet, without extensive reasoning or explanation, it was accepted as such in Old. 89Since no clear or consistent guideline is available by which it is clear that I am bound, it is necessary to have regard to the underlying principles of statutory interpretation and to engage in a purposive construction of the relevant provisions of the UCPR. 90In so doing, for the reasons which follow, I would conclude that the offer in this case is one which complies with r 20.26 of the UCPR. 91Firstly, it is obviously in the Court's interests that parties can engage in the Offer of Compromise process so as to settle the litigation in which they are engaged in a simple and straightforward way, and one which provides a certainty of outcome. ... 93Secondly, it is manifestly desirable that an offer should contain each of two elements, namely, a monetary component (if that be the appropriate term), and a separate clause which deals with costs. It is only by specifically referring to each of these two elements that certainty can be achieved from the perspective of either the offeror or the offeree. ... 97Thirdly, when interpreting r 20.26 of the UCPR, it is my opinion that the gravamen of the rule requiring an offer to be "exclusive of costs", is designed to prevent an offering party expressing the offer as "inclusive of costs". There is an obvious reason why preventing this is desirable. That is because if an offer is not accepted, and ultimately the offeree obtains a more beneficial result, or at least contends that it has, then a court will not be in a position to make such a judgment without engaging in an assessment of the costs due at the time the offer was made. This is an expensive, and an unnecessary and unproductive exercise in determining, hypothetically, something for which there is no obvious benefit. 98By making the monetary verdict exclusive, that is, not inclusive, of costs, the UCPR facilitates the later comparison of whether or not a party is "better off" as a consequence of the ultimate judgment when compared with the offer that was made." 18The other single judge decision which followed the approach of Garling J is that of Davies J in Ziliotto v Dr Hakim (No 2) [2012] NSWSC 1079. It should be noted that in Cheal Industries Pty Ltd - Fitzpatrick v Cheal [2012] NSWSC 932 Ward J considered that she was bound to follow Old. 19I find myself in a similar position to Garling J, Ward J and Davies J in that it is not clear how the rule should be interpreted, given the apparent tension between the decisions of the Court of Appeal in Old and Vieira. 20For the reasons set out by Garling J, I propose to follow the most recent decision of the Court of Appeal, i.e. Vieira. Accordingly, I approach the matter on the basis that "a mere reference to costs in an offer otherwise compliant with Pt 20 Div 4 will not take the offer outside the rules unless the reference operates inconsistently with the relevant costs rule". 21The offer in this case, if accepted, entitled the offeree to his costs. The same costs consequences would have followed from the application of the costs rules. The offer did not seek to vary the effect of UCPR r 42.13A. It follows that I am satisfied that the defendants' Offer of Compromise of 21 October 2011 was "exclusive of costs" and was otherwise effective. 22In case I am incorrect in that conclusion, I need to consider whether the offer operated as a Calderbank offer. Here the offer was silent as to any alternative basis, other than a reliance upon r 20.26 UCPR. 23On this issue the decisions in Dean and Old are directly on point. Dean (unanimously) and Old (by a majority) held that an offer purporting to be made in accordance with r 20.26 UCPR, which made no reference to any other basis, would not operate as a Calderbank offer. Those decisions held that whether a document operates as a Calderbank offer depended upon the intention of the offeror, as revealed by the terms of the offer. 24In Dean the Court said: "33... The offer was explicitly an offer of compromise under r 20.26. Unlike the offer considered in Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2), it was not said that it was intended to operate as a Calderbank offer if it was ineffective under the rules. The statement that the letter that the offer would be relied on in support of an application for indemnity costs did not go beyond affirming that costs would be claimed under the offer of compromise regime in the rules. 34The intention must be made clear. It would be unfair for a party to be subject to the consequences of a Calderbank offer if it was not made clear that the offer should be treated as such. A party receiving an offer of compromise apparently made under the rules should be entitled to decide whether or not to accept it according to the offer of compromise regime in the rules, including deciding whether or not it is an effective offer of compromise." 25If I am incorrect in my conclusion that the offer did comply with r 20.26, it could not, in the alternative, operate as a Calderbank offer. 26The plaintiff's second submission was based on r 42.15 UCPR. That rule relevantly provides: "42.15(1) This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim concerned as favourable to the plaintiff, or less favourable to the plaintiff, than the terms of the offer. (2) Unless the Court orders otherwise: ... (b)The defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: ..." 27The plaintiff submitted that under that rule, it was not necessary for him to establish "special circumstances", rather the discretion was one that had to be exercised having regard to all of the circumstances of the case. He relied upon Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [15] to support that proposition. 28The matters relied upon by the plaintiff were that the figure in the Offer of Compromise represented approximately 10 percent of the full value of the plaintiff's claim. He submitted that even if the Offer of Compromise had been accepted within 28 days of being made, it was most unlikely that it would have been approved by the Court. This was because at that time, according to the information available to the plaintiff, he had a strong case and it was unlikely that his legal advisers would have recommended such a settlement to the Court. 29The plaintiff submitted that it was only after the trial commenced that the importance of the CCTV video was fully appreciated and it was only during the trial that Mr Aslett made a concession under cross-examination that he could not recall when it was that he looked behind and saw that the plaintiff was close. The plaintiff submitted that the situation was similar with Ms Luchˆt. Her deficiencies as a witness only emerged during the trial. 30The plaintiff submitted that it was only during the course of the trial and after the adjournment between 6 December 2011 and 10 April 2012, that the plaintiff's expert, Mr Johnston, gave evidence in terms that the accident could not have occurred in the way described by the plaintiff. The plaintiff submitted that this was a significant change in the dynamic of the trial. 31The proposition relied on by the plaintiff to the effect that he did not need to establish "special circumstances", based on the Regency Media case is controversial. The court in Regency Media (Spigelman CJ, Beazley and McColl JJA) said at [15]: "15... Part 39A, r 25(6) [as did r 25(4) and (4A)] expressly provided that the adverse costs consequences following a failure to accept an offer of settlement applied "[u]nless the Court in an exceptional case and for the avoidance of substantial injustice otherwise [ordered]". Rules 42.14, 42.15 and 42.15A are in different terms. They provide that, when the relevant costs rule is engaged, a party is entitled to indemnity costs from a specified time (usually one day after an offer of compromise is made), "unless the court orders otherwise" (emphasis added). The relevant provisions of these rules do not specify that exceptional circumstances or the avoidance of substantial injustice must be established before the court will make a different order to the prima facie order for which the Rules provide and, in our opinion, the Rule should not be so construed. Rather, the discretion is one that has to be exercised having regard to all the circumstances of the case." 32There are, however, other decisions of the Court of Appeal to different effect. In Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109, McColl JA (with whom Mason P and McClellan CJ at CL agreed) said: "35The onus is on the respondent to demonstrate why the Court should not order the respondent to pay the appellants' costs on an indemnity basis. In particular, the respondent must establish that it had given serious thought to the risks involved in not accepting the offers, had assessed the appellants' case properly and in the context of the relevant rules and the achievement of their purpose as outlined in Morgan. Generally, exceptional circumstances are required to justify such an order denying the appellants' entitlement: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (at [83]) per Hunt AJA (Mason P and McColl JA agreeing)." 33In Nominal Defendant v Hawkins [2011] NSWCA 93, a decision handed down after Regency Media, Hodgson JA (with whom Beazley JA and Sackville AJA agreed) said: "56... despite the change of wording in the rule, it is not enough to justify ordering otherwise for a person who refused an offer of compromise to show that he/she acted reasonably in doing so. Generally, exceptional circumstances are required." There was no reference in Hawkins to Regency Media. 34Accordingly, there appears to be a conflict of opinion in the Court of Appeal as to whether a court can otherwise order, for the purpose of the indemnity costs rule, in the absence of exceptional circumstances. The problem was identified and discussed in Barakat & Ors v Bazdarova [2012] NSWCA 140, but the Court there was able to reach its decision without it being necessary to resolve this conflict. 35The issue is, however, fairly and squarely raised in this application. Were the test one involving the exercise of discretion based on all the circumstances of the case, I would have little difficulty in accepting the submissions of the plaintiff. The test of exceptional circumstances, however, is clearly more stringent. 36The Offer of Compromise expired on 18 November 2011. The trial commenced on 22 November. At that time, the plaintiff had available two reports from Mr Johnston and a report from Mr Bailey, the defendants' expert. The first report of Mr Johnston relied entirely upon the statements of the plaintiff and was very supportive of his claim. Mr Johnston's second report, which was dated 24 October 2011 (exhibit V), was designed to answer Mr Bailey's report, dated 3 May 2011 (exhibit 3). Mr Johnston's second report was still very supportive of the plaintiff's claim and challenged a number of conclusions in Mr Bailey's report. 37Mr Bailey's report was based on CCTV footage from a camera located in the bus which ran over the plaintiff. Some of the detail revealed by that footage can be seen in [32] - [46] of the principal judgment. Mr Johnston only became aware of that evidence after Mr Bailey's report had been served. Before preparing his second report, Mr Johnston viewed that CCTV footage. I suspect, however, that Mr Johnston (like myself) did not appreciate the significance of the CCTV footage until the trial when particular aspects were identified and explained by Mr Bailey. 38By way of illustration, although I had read the two reports of Mr Johnston and that of Mr Bailey before those witnesses gave evidence, I did not appreciate the significance of much of the CCTV material. In particular, I did not appreciate the importance of when and where the plaintiff's bike was first seen and the relationship between it and the human tissue found on the road. It became apparent, as was eventually conceded by Mr Johnston, that the accident could not have occurred in the way described by the plaintiff. 39The significance of that evidence is that it provides strong support for the primary submission by the plaintiff that even if he had accepted the Offer of Compromise, it was most unlikely that the settlement would have been approved by the Court. 40As the plaintiff pointed out, the figure in the Offer of Compromise represented approximately one-tenth of the full value of his case. For such a settlement to be approved, the Court would have had to have been persuaded that liability was not only very much in issue, but that it was most likely to be decided adversely to the plaintiff. Having been the trial judge and having closely examined the exhibits, including the CCTV footage, I am able to say that any judge before whom such a settlement came for approval would have had to engage in a complex hearing over a number of days before being in a position to understand the plaintiff's liability problems. Such a process was unlikely in an approval application. 41Given the continuing support for the plaintiff's case provided by Mr Johnston in his second report, even though he had seen the CCTV material, it seems unlikely, as the plaintiff submitted, that his legal advisers would have supported such a settlement even if he had decided to accept it. Accordingly, I accept the plaintiff's submission that even if the Offer of Compromise had been accepted by the plaintiff, it was most unlikely to have been approved by the Court. 42It follows from that analysis that I accept the other submissions of the plaintiff to the effect that this was the sort of case where the deficiencies in the plaintiff's claim only emerged as the trial progressed. 43The question then arises, even if those submissions are made out, do they amount to exceptional circumstances? Clearly the latter submission on its own would not. It is a well-known risk of litigation that what may appear to be a strong case will often not survive the blowtorch of cross-examination and other testing as occurs in a forensic situation. 44The other issue raised by the plaintiff's submissions is novel. The rationale is that any acceptance by the plaintiff of the Offer of Compromise would have been futile because the settlement would have been rejected by the Court and the trial would have had to proceed in any event. That would, in effect, defeat the primary purpose of the Offer of Compromise procedure. 45I am persuaded that this circumstance, and the particular facts of this case, are such that they do amount to exceptional circumstances. Accordingly, I am not prepared to give effect to r 42.15 UCPR. I decline to make a special costs order in favour of the defendants. The costs order will remain that which is set out in the principal judgment. The defendants are to pay the plaintiff's costs of this application.