Elphick v Elliott & Anor [2002] QSC 285

[3] On 26 July 2002 the applicant applied unsuccessfully for a stay of execution of the judgment until its costs had been assessed. On 9 August 2002 the applicant appealed against my refusal of the stay. On 6 September 2002 the applicant's application for a stay of the judgement pending the hearing of its appeal came before Jerrard JA who granted a stay but only for the purpose of preserving the applicant's position until it could apply to me for an order setting-off the costs order in the applicant's favour against the judgment in favour of the respondent. As Jerrard JA correctly pointed out the original application sought a stay by way of final relief rather than in support of some other remedy.

[4] By this circuitous route the matter comes back before me. The applicant now seeks an order setting-off the costs order in its favour against the judgment. By an amendment the applicant also seeks to set-off its costs order against the costs orders in favour of the respondent. This latter order is not opposed. In any event rule 734 expressly empowers the registrar to make such an order.

[5] The applicant's costs have not been assessed. No bill has been prepared. One of the ancillary orders sought in the application is that bills be prepared pursuant to rule 709 of the Uniform Civil Procedure Rules within 30 days.

[6] By a letter of 9 July 2002 the applicant offered to resolve the costs and set-off issues by having a common costs assessor provide an opinion as to the costs of each side and retain $50,000 from the damages. This is the amount the solicitors for the applicant calculate as the amount of the costs payable by the respondent. The solicitors for the respondent estimate that the costs orders in the respondent's favour total $24,000. The respondent's solicitors estimate the costs payable to the applicant at $15,600. I am not in a position to make any informed comment on the quantum of either estimate.

[7] The applicant's offer of an estimate and set-off was rejected on 11 July 2002.

[8] Two issues are raised by this application. The first is whether I have the power to set-off the costs against the judgement debt and the second is whether in the exercise of my discretion I should do so.

[9] Prior to the coming into force of the Uniform Civil Procedure Rules the power to set-off was undoubted. Order 91 rules 11 and 12 provided the following:

"11. When in any cause or matter any sum of money is ordered to be paid by one party to another, whether for debt, damages, or costs, and in the same cause or matter the party to whom such sum is to be paid is ordered to pay any sum, whether for debt, damages, or costs, to the party by whom the firstmentioned sum is to be paid, 1 of such sums shall be set off against the other without any order for that purpose, and the balance (if any) shall be payable by the party by whom the larger sum is ordered to be paid, and to the other party.

12. Money recovered by 1 party against another party in any cause or matter shall not be set-off against money recovered by the latter part against the former in another cause or matter, except subject to the liens of their respective solicitors upon the sum so ercovered, but may be set-off subject to such liens."

[10] No equivalent rules appear in the Uniform Civil Procedure Rules.

[11] Counsel for the applicant has referred me to a number of cases where such set-off as the applicant now seeks have been allowed. Among these were Howell v Harding (1807) 8 East 362; Lang v Webber (1815) 1 Price 375 and Pringle v Gloag (1879) 10 Ch 676. In each of these cases, however, the costs of the applicant had been taxed or assessed prior to the making of the application for set-off. Counsel was not able to refer me to any decision where an unascertained amount for costs has been set-off against an ascertained judgment sum.[1] Lang v Webber in particular, was a case in which the original application for set-off made prior to the taxation of the costs was refused. The application was renewed after the quantum of the costs was ascertained by taxation and the set-off granted. This was a pre Judicature Act case in the Court of Exchequer.

[12] Among the authorities relied on by the applicant was an extract from Rory Derham, Set-off, 2 ed, Clarendon Press, 1996. At page 34 the author states:

"It has been the practice of the common law courts since the eighteenth century to allow one judgment or order for the payment of a sum of money to be set off against another. This practice extends to a judgment for damages as well as to an order for the costs..."

[13] The authority relied on by the author for the relevant proposition is Edwards v Hope (1885) 14 QBD 922. In that case the set-off was refused because of its potential to adversely affect a solicitor's lien. More importantly it was again a case in which the quantum of costs had been ascertained by taxation prior to the application. It is also a case, as are a number of the others, where a rule (Order LXV r.14) equivalent to the former O91 r11 existed. Most recently I was referred to the decision of the Court of Appeal in England in Lockley v Blood Transfusion Services [1992] 1 WLR 492. That case does not disclose whether the costs had been taxed or not. Neither is there any discussion of the Rules of Court although this is probably because the 1965 Rules of Court did not contain any analogue of Order LXV r14. Of some significance however is that at p497B the Court's general jurisdiction in respect of costs conferred by the Supreme Court Act 1981 was not considered to provide the basis for a set-off. Further, at p497D it was said that:

"A set-off of costs against costs when all are incurred in the prosecution and defence of the same action seems so natural and equitable as not to need any special justification. I would expect a party objecting to the set-off to give some special reason for the objection. It is, in my opinion, less obvious that a set-off of costs against damages would always be justified."

[14] Lockley v National Blood Transfusion Service identifies the right of set-off as being an equitable set-off arising from the close connection between the claims. This conclusion is criticised by Derham (supra) who argues that the right arose at common law and is an example of the Court's inherent power. It is undoubtedly true that many of the authorities to which I was referred were cases at common law predating the Judicature Act. Since all of those cases involved the setting-off of a liquidated sum against a liquidated sum I would not be surprised that even without a rule the Courts at common law were prepared to order set-off. In the absence of any other authority to which I was referred it seems to me that the analysis of the Court of Appeal in Lockley as to the source of the power to set-off should be followed. It provides an identifiable and defined source of a power which has been exercised by courts for many years. It is an altogether more satisfactory solution than resorting to vague notions of inherent power. If the source of the power to order set-off is equity the opportunity to exercise it has been limited by the adoption in Hill v Ziymack [1908] HCA 13; (1908) 7 CLR 352 of the "impeachment test" propounded in Rawson v Samuel (1841) 41 ER 451 where at 458 Lord Cotterham said:

"We speak familiarly of equitable set-off, as distinguished from the set-off at law; but it will be found that this equitable set-off exists in cases where the parties seeking the benefit of it can show some equitable ground for being protected against his adversary's demand. The mere existence of cross demands is not sufficient ... Several cases were cited in support of the injunction; but in every one of them except Williams v Davies it will be found that the equity of the bill impeached the title to the legal demand."

[15] The impeachment test finds more recent support as the basis of an equitable set-off in James v Commonwealth Bank of Australia [1992] FCA 420; (1992) 37 FCR 445 (per Gummow J); Lord v Direct Acceptance Corporation (1993) 32 NSWLR 362 (CA); Hazcor Pty Ltd v Kirwanon (1998) 12 WAR 62 at 67 (FC) and Walker v Secretary Department of Social Security [1995] FCA 1136; (1995) 56 FCR 354 (FC). In the last mentioned case Drummond J in a dissenting judgment argued for a broader test invoking discretionary considerations.

[16] If the impeachment test applies here I am satisfied that a sum of damages arising from the negligence of the first defendant can be impeached by an award of costs at a trial such as to empower me to order a set-off. While the right to damages arises quite separately from the trial in which the orders both for damages and costs are made the obligation to pay the damages is conditional on the order of the Court. It is thus possible for equity to require that the cost of ascertaining the amount payable by way of damages be met from the damages themselves by way of set-off.

[17] The first issue is thus decided in favour of the applicant.

[18] The consideration that concerns me most in relation to the exercise of discretion is the delay of the applicant in having the costs assessed. It is presently impossible to determine by what amount (if any) the costs the respondent must pay to the applicant exceed the amount the applicant must pay to the respondent. The need to formally assess costs was apparent as early as 11 July. Despite this the respondent has been held out of $50,000 which the applicant has unilaterally chosen to withhold for over two months. If the order as to preparation of bills sought by the applicant is made it will be another month before the applicant even has a bill ready to submit. How much longer it will take to have the bill assessed is entirely in the hands of the applicant who also has the power to delay the final resolution. It appears to me that the applicant has, to date, been more intent on withholding sufficient money to insure itself against any possibility of being out of pocket for costs than it has been to see the respondent paid that which is owing. There has, in my view, been more than enough time for the applicant's solicitors to prepare a proper bill and submit it so that the true state of the account can be ascertained. It is clear that the applicant has not even commenced on that process.

[19] If the applicant wishes the support of equity it must act fairly towards the respondent. In my view the delay in even commencing the preparation of a bill in this case is unacceptable having regard to the relief the applicant seeks. On any view the amount withheld by the applicant from the damages paid exceeds the difference between the two sides' respective costs orders based on the respective solicitors opening figures. Depending on which side's solicitor has best estimated the standard costs there may or may not be any balance owing to the applicant after the two sets of costs have been set-off.

[20] Both the statute governing the recovery of damages for motor vehicle accidents and the Uniform Civil Procedure Rules are designed to ensure early finalisation of claims. With judgment in this action having been given in June the tardiness of the applicant in having its costs assessed is contemptuous of that express object and even more so if the applicant is to withhold payment of the amount due for some months to come. It was argued on behalf of the applicant that the applicant will be prejudiced by not getting the order sought because if its costs exceed those of the respondent it is unlikely to be paid. It is also pointed out that the respondent has not sworn to any prejudice by not receiving the money. The failure to resolve the litigation despite there being no appeal against the judgment is in itself, in my view, a prejudice. There is some merit in the first submission in relation to prejudice to the applicant although it is still problematic whether there is any excess to set-off. Nonetheless the failure of the applicant to take any step towards an assessment of the quantum of costs before now and the fact that the ultimate resolution of that matter is and has always been in the hands of the applicant tips the balance in favour of refusing the order in relation to set-off of costs against judgment in the exercise of my discretion. Should it be separately required, the matters to which I have referred persuade me to decline to exercise my discretion to grant a stay of the judgement until the existence and quantum of any amount which the applicant is entitled to set-off is ascertained.

[20] Because it was uncontested, I have no difficulty in ordering that the costs orders in favour of the applicant and the defendant be set-off. I otherwise dismiss the application.

[1] I have subsequently found two cases in which a set-off of unascertained costs against damages were allowed. These are Carr v Boxall [1960] 1 WLR 314 (per Cross J) and Cook v Swinfen [1967] 1 WLR 457 (CA). Neither is directly authority in favour of the applicant because both are in relation to the power to set off costs against damages payable to a legally aided client to whom special statutory provisions apply. In both cases there had been a payment into court and the problem was met in the first case by ordering payment out of court of less than the damages awarded to provide some protection for the costs of the defendant when assessed. In neither case was the general power to set off the subject of discussion. The first case was decided when the RSC Order LXV r14 was in place.