Gorst v Sydney Equine Coaches Pty Ltd

1. Judgment be entered for the applicant against the First and Second Respondents, jointly and severally, in the sum of $36,000.
2. The First and Second Respondents are to pay the applicant's costs up to 8 March 2016 as agreed or taxed, and each party is to pay its own costs of the proceedings thereafter.
3. Order 2 of the Orders of 28 June 2016 be vacated.
4. Order 1 above be stayed for a period of 28 days from the date of these orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JAGOT J: 1 The only outstanding issue in this matter upon which reasons for judgment are required is the effect of an offer of compromise made on 13 August 2015, pursuant to r 25.14(1) of the Federal Court Rules 2011 (Cth) (the Rules). 2 The respondents offered to settle the applicant's claim for the sum of $85,000, with costs also to be paid. As noted, the offer was a formal offer in accordance with the relevant rule. The applicant did not accept that offer. Subsequently, as a result of discussions between the parties spurred by a joint report of the experts which was provided to them on the second day of hearing, the parties have agreed to settle the proceedings apart from this issue. The terms of settlement are that there be judgment for the applicant in the sum of $36,000, and the respondents pay the applicant's costs of the proceedings up to 15 August 2015 as agreed or taxed. 3 The remaining issue for determination is what should be done with costs from 15 August 2015 onwards. 4 Unsurprisingly, the respondents seek an order that the applicant pay the respondents' costs after the relevant time, namely, 15 August 2015, on an indemnity basis, as provided for in r 25.14(1)(b). The position of the respondents is that the offer was for a substantial sum, it was not accepted by the applicant, and the applicant has obtained a judgment less favourable than the terms of the offer - that is, an award of $36,000 and costs, compared to the offer of $85,000 and costs. 5 The applicant, for her part, says that in accordance with rule 1.35 of the Rules, the Court should make an order inconsistent with r 25.14(1)(b). The applicant relies on what it describes as a substantial change of position by the respondents. In short, at the time the offer was made to settle the proceedings, the respondents had filed a defence to the applicant's claim (on 16 July 2015) in which they asserted that the vehicle in question (a bespoke horse truck for up to six horses and mobile home) complied with all relevant legal requirements and was capable of being "lawfully driven on public roads in Australia". In evidence filed on 8 March 2016 but dated 25 February 2016, an engineer specialising in heavy vehicles provided an affidavit on behalf of the respondents. In his report, there was an express acknowledgment for the first time that in certain circumstances (where the vehicle was not fully laden) the vehicle would not comply with statutory axle load limits on the front axle, with the consequence that the vehicle could not be driven on a public road in that condition. 6 This evidence for the respondents, accordingly, conflicted with the defence which the respondents had filed. In addition however, the engineer proposed that the non-compliance with the front axle load limits could be rectified by placing counterweights towards the rear of the vehicle, secured to the underside of the chassis. The appropriate counterweight required could be up to 1200 kilograms, and, it was said, "could be accommodated without affecting the ability of the vehicle to transport up to six horses and four persons and without exceeding statutory axle load or vehicle mass limits or the structural capacity of the vehicle's chassis". He estimated that the cost of installing a smaller counterweight would be in the order of $8000, but otherwise did not estimate the costs of the other counterweights which he recommended. 7 In response, and on the day before hearing, the applicant filed a further report of Mr Peter Jakins who, although not an engineer, is involved in the construction of heavy vehicles of the kind in this case. Mr Jakins' evidence was to the effect that the proposed counterweight would place the vehicle over other relevant statutory axle weights. 8 I ordered the preparation of a joint report by the experts including in respect of the issue about the feasibility of the proposed counterweights. In that report, Mr Jakins said that "after consultation with [the respondents' engineer] and remodelling the scenarios", he concurred with the view that "counter weights of sufficient mass to resolve the over loading of the front axle … can be accommodated without overloading any axle of the vehicle or the vehicle as a whole". The applicant, whose position had been that she should be repaid the purchase price and the vehicle returned because it was not fit for purpose (being incapable of being driven on a public road if unladen), thereafter, agreed the settlement of the proceedings for a sum calculated by reference to rectification of the accepted deficiencies, including installation of the counterweight. However, as noted, this cost was less than the offer in August 2015. 9 The respondents' position is that these circumstances do not involve an exceptional case, nor provide the foundation for any departure from r 25.14(1)(b). The applicant submits that, at all times up to the report of the respondent's expert of 8 March 2016, (by which time the offer had expired), the position of the respondents was that there was no problem with the vehicle at all, and that the vehicle complied with all statutory requirements. It was not until the filing of the evidence from the respondent's engineer on 8 March 2016 that a different position was disclosed but, of course, at that time there was no offer available for the applicant to accept (and, I note, it was not apparent that the proposed counterweight would render the vehicle capable of being driven on a public road while unladen). 10 The applicant says that the change in the respondent's position and the admission (however informal) through the evidence of the engineer is critical, because from that time onwards only it was common ground that the vehicle did not comply with statutory load limits and could not be driven on a public road if unladen. Further, it was only at this time that any possibility of rectifying the problem was put forward by the respondents' engineer and, thereafter, could be considered by the applicant. 11 The applicant relies upon the decision of Bromberg J in Rakic v Johns Lyng Insurance Building Solutions (Victoria) Pty Ltd (No 2) [2016] FCA 783 (Rakic), in particular, at [16] where his Honour accepted the submission that "the Court's ability to depart from r 25.14 is not limited to instances in which compelling and exceptional reasons have been shown", although whether or not the case is exceptional "remains significant". At [18], his Honour said that the applicable principle: … is that the position provided for in the rule should only be departed from for proper reasons, which in general arise only in exceptional cases. Although "exceptional circumstances" is not the test, were a case wholly unexceptional, it is unlikely that proper reason would be shown to depart from the rule. In that way, whether circumstances are exceptional remains relevant. 12 The applicant also referred to [37], [38] and [42] of this decision to support the proposition that a significant change in the way in which a case is advanced can constitute a ground for departing from r 25.14, referring to Rolls Royce Industrial Power (Pacific) Ltd (Formerly John Thompson (Aust) Pty Ltd) v James Hardie and Coy Pty Ltd [2001] NSWCA 461; (2001) 53 NSWLR 626 (Rolls Royce). 13 In particular at [38], Bromberg J observed that Rolls Royce related to a Calderbank offer rather than a formal offer of compromise under a rule akin to r 25.14, and thus allowances must be made for the different regimes, including by recognising that it would not suffice for the party which did not accept the offer to show that it acted reasonably in doing so. Nevertheless, his Honour recognised that Rolls Royce is consistent with other cases dealing with rules similar to r 25.14, including Shaw v Jarldorn (1999) 76 SASR 28, which his Honour quoted at [42]. The applicant referred to Shaw v Jarldorn at [36] that it might be appropriate to depart from the ordinary position under the rule: … where there is such a significant change in the manner in which the plaintiff's case is presented at the trial, or the manner in which the evidence emerges at the trial, that it might fairly be said that the full dimensions of the plaintiff's entitlement could not possibly have been foreseen before the hearing commenced. 14 Although in this case, the offer was made by the respondents to the applicant and Rakic and the other cases to which reference has been made involve offers from an applicant, I do not see any reason why the same principles would not apply. I accept that the offer that was made was for a significant sum. However, I am of the view that there has been a substantial change in the position of the respondents, sufficient to engage the principles explained above. 15 At all times before 8 March 2016 - being the date of the filing of the engineer's report - the respondents' position was that the vehicle complied with all statutory requirements. It was not until 8 March 2016 that a different position emerged. The position that emerged was that the vehicle the respondents had built and sold to the applicant for a purpose that must have included driving on a public road while unladen did not comply with statutory axle load requirements in that condition and, as a result, the vehicle could not be driven on any public road in accordance with the law while unladen. 16 This acceptance by the respondents' engineer and the suggestion of a counterweight was critical because it acknowledged for the first time that the vehicle was not able to be driven on a public road if unladen, and that something significant had to be done to bring it into compliance with legal requirements. The issue for the applicant then was whether something practical could be done and whether she wished to retain the vehicle in that different condition from which it had been sold to her. In these circumstances, it is not only that the applicant's failure to accept the offer within the time prescribed from its receipt on 13 August 2015 was reasonable, it is that the entire basis of the dispute between the parties changed on 8 March 2016. It is only from that time onwards that anything might reasonably be expected of the applicant, in terms of contemplating a possible solution involving a counterweight (and even then only if the applicant was willing to retain the vehicle with a large counterweight under the rear, which was different in a substantial way from the vehicle she had initially purchased). 17 Accordingly, while the judgment sum is less than the $85,000 proposed in the offer of compromise in August 2015, I consider that there is a proper basis in this case, and that justice demands, that the applicant not be subjected to an order that she pay the respondents' costs calculated on an indemnity basis on and from 15 August 2015. In accordance with r 1.35, I am satisfied that I should not order indemnity costs in favour of the respondents from 15 August 2015. The circumstances of this case, while perhaps not exceptional, provide a compelling reason to depart from the ordinary application of the rules as to costs. The applicant was sold a vehicle which she could not lawfully drive on a public road in an unladen condition. The only solution to the illegality is to attach a large counterweight to the rear of the vehicle. That is not the vehicle the applicant agreed to purchase. 18 Having decided not to award the respondents' indemnity costs by reason of the offer of compromise, the issue of the costs discretion is then at large. 19 The applicant contends that she should have her costs on and from 15 August 2015 in the ordinary course. I am not persuaded that that is an appropriate exercise of discretion in circumstances where the case changed on and from 8 March 2016, as described above. 20 In my view, the order which would best reflect the justice of the case is that the applicant should have her costs on the ordinary basis, up to and including, 8 March 2016, which was the date of filing of the engineer's report, but that each party should bear its own costs of the proceedings thereafter. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.