Electro Optic Systems Pty Ltd v The State of New South Wales; West and West v The State of New South Wales [2013] ACTSC 155

2. In brief, that decision affirms that it is a proper exercise of a court's discretion to award or not the costs of litigation as between parties having regard, inter alia, to offers of settlement and the timing thereof. Ordinarily, a successful party may expect to be awarded an order for costs. That award is, if no more is stated, on a party and party basis. If not agreed, that implies that such costs as were reasonably and necessarily incurred will be assessed and become payable by that party.

3. The approach endorsed by the court in Quirk v Bawden (supra) took into account the desirability of discouraging parties from unreasonably rejecting offers of settlement. For a successful plaintiff that might result in a less favourable order for costs than otherwise might be expected. In the case of an unsuccessful defendant that less than favourable order might mean that some or all of the costs awarded to the plaintiff be on a solicitor/client basis, or, even on an indemnity basis. For the latter basis all costs incurred by the plaintiff would be payable unless unreasonably incurred (see Singleton v Macquarie Broadcasting Holdings (1991) 24 NSWLR 103). It is not enough to warrant such a special order that the offer made was more favourable than the ultimate result, though that will be a relevant factor.

4. The starting point is that costs are in the discretion of the Court (see Reg 1721 Court Procedures Rules 2006 (ACT). Though not fettered by any hard and fast rules, that discretion must be exercised judiciously.

5. Some assistance on this issue may be derived from the recent decision of Refshauge ACJ in Ezekiel-Hart v The Law Society of the ACT & Ors (No 2) [2012] ACTSC 135 (10 August 2012).

6. His Honour noted that it may be relevant to the award of costs to consider whether the parties have engaged in mediation or not. His Honour said, at [30]:

There may be, however, consequences of a failure properly to engage in mediation. Just as the courts have made costs consequences follow a failure to act reasonably in respect of offers of compromise (as in Calderbank v Calderbank [1976] Fam 93), so the courts are likely to have to grapple with the need to provide sanctions for parties who fail to take reasonable opportunities to engage in other forms of dispute resolution, such as mediation.

7. I would respectfully agree, though it does not seem to me that any of the parties to this litigation have unreasonably declined to negotiate or to seek alternative means to resolve the dispute.

8. Of relevance in this present case is that after the proceedings had gone to trial, a number of the parties agreed upon settlement upon terms that have, no doubt quite properly, not been disclosed to the Court.

9. It would be unfair for the costs occasioned by NSW in respect of those parties, including the ACT, to be visited upon any of the remaining plaintiffs.

10. There is, also, the consideration that the West plaintiffs were concerned only with the damage resulting from the escape of fire from the west across the Goodradigbee river. The fire fighting efforts otherwise did not concern them.

11. In addition to those complicating features, it is apparent that a major part of the time of the hearing, even apart from the case against the Australian Capital Territory (ACT), which did not need to be determined, focussed on the negligence of the New South Wales (NSW) authorities in permitting the escape of the fire to the west and the east. In essence I found that, but for certain statutory defences under the Civil Law (Wrongs) Act 2002 (ACT) and the Rural Fires Act 1997 (NSW), NSW would be liable to the plaintiffs for damages for negligence.

12. That consideration led, in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107, to an apportionment of costs so that the successful party was to receive only 70% of its costs.

13. Indeed, in PGA Group Pty Ltd v Idameneo (No 789) Ltd [2011] VSC 420, a partially successful plaintiff was ordered to pay 85% of the defendants' costs in that action.

14. Similar orders, reflecting partial success and failure, were made in a case of Gavan McFadzean & Ors v Construction, Finance, Mining, Education & Energy Union & Ors [2007] VSCA 289. Costs orders were made ordering the appellants to pay 40% of the respondents' costs and each individual appellant was ordered to pay a fixed proportion of those costs, varying from 1.5% to 6%.

15. I also note that, in Leichhardt Municipal Council v Green [2004] NSWCA 341, the ultimately unsuccessful plaintiff had rejected an offer of a verdict for the defendant with no order as to costs. That offer was contained in a Calderbank letter. Santow JA (Bryson and Stein JA concurring) said:

1. It is clear that an offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise.

1. The fact of the matter is that the Council was not really compromising its position at all - it maintained it was not liable and that the law clearly justified the rightness of its cause. Its attitude was not one of compromise in the sense of strict give and take, but it was made in a bona fide attitude designed to reach settlement, which accords with the policy of the law in encouraging early termination of litigation.

16. However, laudable as that might be, it "does not follow from this that costs sanctions should follow as a matter of course".

17. It was noted that under the Rules of Court, if a plaintiff declined a reasonable offer of settlement the sanction was that thereafter the defendant should have the costs of the matter on a party and party basis. As Santow JA commented at [44]:

Given that this is the case under the Rules, it would be a curious thing if a different result were to prevail if a defendant makes its offer by way of Calderbank letter.

18. Of course, the present case is distinguishable on the basis that a plaintiff, if unsuccessful, would expect no more than an order for costs on a party and party basis but the principle remains relevant.

19. Whether or not a costs award to a successful defendant should be made is, as Santow JA states, still a discretionary matter not determined or made the more likely merely by rejection of a Calderbank offer. All relevant circumstances must be considered.

20. It is trite to observe as Mr Colleary, for the West plaintiffs submits, that the degree of success of a party is relevant to the exercise of discretion as to cost.

21. In that context, it is fair to observe that the plaintiffs were successful in persuading the court that NSW was negligent. That was subject to the "good faith" defence made out by NSW. That defence might have failed had it appeared that there was "a single disregard of the rights of the [neighbour]" per Giles JA in Melaleuca Estate Pty Ltd v Port Stephens Council [2006] NSWCA 31, [61]. That simply goes to the issue of the reasonableness of the plaintiffs in declining to accept the offer of the defendant when it was made. It is a fair comment to make that NSW could have confined the issue with the West plaintiffs to the issue of good faith under s 128 of the Rural Fires Act 1997 (NSW). The issue agitated with the QBE plaintiffs (as they are called) was broader than with the West plaintiffs. It was apparent to me, though I did not need formally to decide it, that the sole relevantly causative negligence was that of NSW. Whatever costs the presence of the ACT in this litigation occasioned should not be paid for by any of these plaintiffs.

22. Granted that there should therefore, be a limited contribution by the unsuccessful plaintiffs to the costs incurred by NSW, the foundational question is whether, on public interest grounds, any order for costs should be made and, then, if that be answered adversely to the plaintiffs or any of them, whether any of those costs should be assessed on a more favourable basis than party and party costs.

23. It is recognised that where a case has been brought to vindicate the public interest, then, even if unsuccessful, the plaintiff might not be ordered to pay the costs of the other side - see Oshlack v Richmond River Council [1993] HCA 11; (1998) 193 CLR 72.

24. In this case, it is apparent that there was a public interest in the conduct of the fire fighting authorities in both the ACT and NSW, particularly with a view to identifying shortcomings in their responses as, with NSW, my judgment does. It is also a fair characterisation of the proceedings against NSW as "fairly arguable". Indeed, it was only by reference to special statutory defences that NSW was able to avoid liability.

25. However, it is also apparent that each of the plaintiffs was seeking to vindicate their private right to compensation. That is, perhaps, less the case with the West plaintiffs. I had the distinct impression that vindication of his grievance against the NSW authorities was the most important issue for Mr West, nevertheless, it was not "entirely without self-interest" (see Williams v Minister for Environment & Heritage [2004] FCAFC 58 per Gray J [22] - [23], Tamberlin and Lander JJ agreeing).

26. That would ordinarily lead to an order for costs being made in favour of the successful party even if the unsuccessful party had taken the proceedings in good faith with reasonable prospects for success.

27. It follows that, in my view, it would not be a proper exercise of my discretion to refuse to make any order for costs in favour of NSW. Its lack of success on the issue of negligence and the fact that only part of the proceedings related to issues involving NSW can be addressed by appropriate limitations on the scope of the costs orders.

28. This is based solely on the refusal by the various plaintiffs now remaining in the proceedings to accept offers of settlement made by NSW on the same basis as in Calderbank v Calderbank (supra).

29. The first Calderbank offer to which I was referred was an offer (22 February 2010 and 23 February 2010) for judgment for the defendant with each party paying their own costs save for costs already ordered in respect of the strike-out application. It allowed 14 days (for the West plaintiffs) and 12 days (for the QBE plaintiffs) to accept it.

30. A similar offer was made on 14 October 2010, allowing 15 days for its acceptance.

32. There is no doubt that NSW has won the litigation, albeit that all issues but one were decided in favour of the plaintiffs. That issue was, of course, critical to NSW's success and enlivens a discretion to award costs in its favour. It is also fair to note that the issue of good faith was a live one throughout the trial and necessarily required an examination of all the evidence relevant to the conduct by NSW authorities of the fire-fighting effort.

33. However, it is a matter for a discretionary judgment as to whether, even if an offer is not a mere demand for surrender, it is unreasonable to refuse to accept it.

34. As is apparent, the issue of good faith or lack of it was not capable of being easily determined before all evidence had been presented and tested. There had been by the time any offer was made, a considerable investment of legal resources by all parties. It does not seem to me, as a matter of overall impression, that, whether in hindsight it was wise or not, the plaintiffs could be said to have acted vexatiously or even unreasonably in continuing the litigation when the offers did not give them any net gain, merely the avoidance of a contingent liability. Of course, that in no way suggests that the offer was not one of a genuine compromise. I accept that it was. However, I cannot conclude that its rejection was unreasonable.

35. I will not, therefore, award costs to NSW on any but the usual party and party basis.

36. I would add too, that there is some force in the submission that, until it was clear that Mr Lomas and Ms Carey were not going to be called by NSW, there was some expectation that the good faith defence could be subjected to further doubt by cross-examination. That does not suggest that the decision not to call them was improper but it was not unreasonable for the plaintiffs to wait until then before being able to assess the strength of the good faith defence.

37. The question is one of the just disposition of the costs issue. There are a number of considerations.

38. First, the plaintiffs should not have to bear any costs associated with the ACT proceedings. The ACT settled all those proceedings, even though it had sound prospects to avoid a finding of negligence. The same is true for the proceedings settled by agreement with NSW.

39. Second, it would be unreasonable for the Wests plaintiffs to bear any costs associated with any factual issues apart from the escape of fire across the Goodradigbee River. Even that issue was one shared with all other plaintiffs. It would be unfair for them to have to bear the entire burden of costs even on that one issue.

40. Third, the QBE plaintiffs were clearly being resourced by an insurer which, as NSW rightly submits, had long-term interests, in respect of potential claims, to advance. In contrast there is no suggestion that the West plaintiffs have any such backing or interest. That is quite apart from the trauma and burden of the losses they suffered as a result of the negligence of NSW. Nevertheless, costs are not awarded or withheld to punish or reward a party but to recompense, to some extent, a party successful in litigation.

41. I order that the QBE plaintiffs, jointly and severally, pay NSW costs assessed on a party and party basis as to 50% thereof, reflecting the defendant's failure on some issues. Those costs are not to include any costs attributable to the issue of the liability of the ACT or of proceedings settled with any other plaintiff.

42. Having regard to the limited role of the West plaintiffs it seems to me fair and reasonable that of the costs attributable to the plaintiffs, the QBE plaintiffs should bear the major burden. The latter number over 30. It is, however, true that there are no separate issues raised as between the QBE plaintiffs in these proceedings.

43. I would, therefore, attribute liability for all costs awarded against the QBE plaintiffs. The West plaintiffs should be liable to contribute 5% thereof to the QBE plaintiffs being an estimate of that proportion of the costs relating to the issue with which they alone were concerned as shared with the QBE plaintiffs generally.

I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Higgins.

Solicitor for the West plaintiffs: Collaery Lawyers

Solicitor for the defendant: Crown Solicitor's Office