Gretton v Commonwealth of Australia

Colgate Palmolive Pty Limited v Cussons Pty Limited (1993) 46 FCR 225 John S. Hayes & Associates Pty Limited v Kimberly-Clark Australia Pty Limited (1994) 52 FCR 201 Jones v Bradley (No 2) [2003] NSWCA 258 CASES CITED : Leichhardt Municipal Council v Green [2004] NSWCA 341 MGICA (1992) Pty Limited v Kenny & Good Pty Limited & Anor (1996) 70 FCR 236 Multicon Engineering Pty Limited v Federal Airports Corporation (1996) 138 ALR 425 SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323

PARTIES : Cecil Eric Gretton (Plaintiff) The Commonwealth of Australia

COUNSEL : J. Sharpe (Plaintiff) P. Jones/I. McLachlan (Defendant)

SOLICITORS : Hollows Lawyers (Plaintiff) Australian Government Solicitor (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20821/01 CECIL ERIC GRETTON v THE COMMONWEALTH OF AUSTRALIA

JUDGMENT 1 HIS HONOUR: There are at present two applications to be determined:

(ii) the defendant's application that "the payment of any damages and interest be stayed".

The defendant's application as to costs 2 The defendant seeks an order that the plaintiff pay its costs as from the date upon which a Calderbank style offer was made, namely 1 June 2006. The defendant seeks an order for payment of its costs from the date of that offer as on an indemnity basis. That application is opposed by the plaintiff, who submits that costs should follow the event pursuant to Pt 42 r 42.1 of the Uniform Civil Procedure Rules. 3 On 3 February 2006 the plaintiff's solicitor conveyed to the defendant's solicitor an offer of compromise pursuant to Pt 20 r 20.26 of the UCP Rules. The plaintiff offered to settle by that notice for the sum of $250,000 plus costs. The defendant's response was not conveyed pursuant to the above rule but rather by way of a Calderbank letter dated 1 June 2006, which letter was in the terms following: "1. We advise that the defendant is prepared to resolve this matter with the plaintiff upon the following basis: a) the defendant to make payment to the plaintiff of the sum of $150,000.00, from which sum are to be deducted all statutory repayments pursuant to the provisions of the Commonwealth Health and Other Services (Compensation) Act 1995, the Commonwealth Health and Other Services (Compensation) Care Charges Act 1995, the Commonwealth Social Security Act 1947 (as amended), the Commonwealth Social Security Act 1991 (as amended), the Safety Rehabilitation and Compensation Act 1988 and the Commonwealth Veterans' Entitlement Act 1986; b) the defendant to pay the plaintiff's party-party costs, to be agreed or assessed, save for any costs orders made in favour of the dependent [sic], including the costs of the extension of time application; c) the Terms of Settlement to remain confidential as between the parties and their legal advisors save as required by law or to satisfy a request of the Australian Parliament, or an Australian Government Minister, or an Australian Government Parliamentary Committee; and d) the defendant to have 28 days from the entry of judgment for payment of the settlement sum. 2. Please note that this offer is made in accordance with the principles enunciated in the matter of Calderbank v Calderbank [1976] Fam 93 and the defendant reserves the right to rely upon this letter as to the question of costs if the plaintiff fails to obtain a verdict in excess of the sum referred to at paragraph 2(a) above or to seek an order for indemnity costs if appropriate. 3. This offer is open for acceptance until 4.00 pm, 30 June 2006 ." 4 It is to be observed that whilst the defendant did not make its offer pursuant to the rules, it did convey an offer that was open for acceptance for an effective period of no less than twenty-eight days. 5 The jury awarded the plaintiff damages in the sum of $50,000. When interest was added, I directed the entry of judgment for the plaintiff on 20 December last in the sum of $77,600. Hence, the plaintiff recovered substantially less than the amount he was offered by the defendant. 6 Under Pt 42 r 42.1 "the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs". Should the Court make the order sought by the defendant having regard to its Calderbank offer? 7 Where an offer of compromise is made under r 20.26, it is not accepted, and the plaintiff recovers less, then Pt 42 r 42.15 applies, and relevantly: "(2) Unless the court orders otherwise: (a) the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (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: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made." 8 So it is that where the offer not accepted is an offer made under r 20.26, the defendant in the circumstances here contemplated has an entitlement to a costs order on an indemnity basis "unless the court orders otherwise". 9 Prima facie then, where r 42.15 applies, the defendant is to have the benefit of the rule and it will be for the plaintiff to prove that the court should otherwise order. 10 Having considered the authorities in point, it does not seem to me that there is such a prima facie entitlement if the rejected offer was a Calderbank offer. 11 In Multicon Engineering Pty Limited v Federal Airports Corporation (1996) 138 ALR 425 Rolfe J concluded that there was a prima facie presumption that an order for indemnity costs should be made if an offer of settlement was made, rejected and not bettered in litigation. His Honour said (at 451): "In my opinion the proper approach to take to an Offer of Compromise, whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer, which unreasonableness is demonstrated, prima facie, by the ultimate result. This approach is consistent with the decisions to which I have referred, the policy evidenced by the Act and the Rules and the widely accepted philosophy that settlements should be encouraged. The relevant Rules provide that costs will be paid on the basis set out therein "unless the Court otherwise orders". My understanding is that the Court is required to proceed on the basis that it should make the order provided for by the Rules, unless the party rejecting the offer is able to establish good reason for having done so." 12 Lindgren J took a different view in MGICA (1992) Pty Limited v Kenny & Good Pty Limited & Anor (1996) 70 FCR 236 when he was considering the effect of a Calderbank offer. Having referred to the decision of Rolfe J in Multicon, his Honour, having earlier considered the decisions of Sheppard J in Colgate Palmolive Pty Limited v Cussons Pty Limited (1993) 46 FCR 225 and of Hill J in John S. Hayes & Associates Pty Limited v Kimberly-Clark Australia Pty Limited (1994) 52 FCR 201, determined he should follow those two earlier judgments of the Federal Court. His Honour said (at 240): "Order 23 establishes a regime which, if utilised, gives rise to a presumptive entitlement to indemnity costs. Notwithstanding the policy of encouraging settlement of litigation, it should not be assumed that the mere writing of a Calderbank letter generates the same presumptive entitlement to indemnity costs that is provided for in O 23." 13 In SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323, Giles JA considered the effect of the Calderbank offer (at [37]): "The making of an offer of compromise in the form of a Calderbank Letter…where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure." 14 The different lines of authority reflected by the judgments to which I have just referred were addressed by the Court of Appeal in Jones v Bradley (No. 2) [2003] NSWCA 258. In the joint judgment of the court in Jones v Bradley, Meagher JA, and Beazley and Santow JJA, having referred to Multicon and MGICA, considered also SMEC, citing the passage from the judgment of Giles JA set out above. Their Honours proceeded: "It appears that Priestley JA, by his Orders in this case, would endorse this approval. But in any event, the principle has been applied in the Supreme Court both at first instance and on appeal: see Enron Australia Finance Pty Limited (in liquidation) v Integral Energy Australia [2002] NSWSC 819; Nobrega v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133; LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74; and Cummings v Sands [2001] NSWSC 706. 9 It is worth pausing to note that the difference between the two lines of authority may be " more apparent than real" as in either approach the Court must consider all the circumstances of the case: see CBA Investments Limited v Northern Star Limited (No 2) [2002] NSWCA 164. Be that as it may, we consider that the approach taken by the Court in SMEC Testing Services is correct and is the approach which should be consistently applied when dealing with Calderbank offers." 15 Following Jones v Bradley it seems to me that there is no prima facie entitlement to the order sought by the defendant such as there would be had the provisions of the rules been invoked. Indeed, in Leichhardt Municipal Council v Green [2004] NSWCA 341 Santow JA said as to this: "There are some distinctions between the two procedures in their attendant costs consequences [his Honour was here referring to the relevant cost rule and a Calderbank letter]. A key difference is that where an offer of compromise has been made under the Rules, a prima facie entitlement arises in the relevant party to have costs awarded in accordance with the appropriate rule. This entitlement, though subject to the court's discretion to prevent substantial injustice in exceptional cases, will rarely be interfered with… By contrast, the costs consequences attendant under general law upon an offer of compromise made in a Calderbank letter lie within the discretion of the court, to be exercised having regard to all the relevant circumstances of the case." 16 It is for the defendant to persuade the Court that the plaintiff acted unreasonably in rejecting its offer. It seems to me that more is required to prove the plaintiff was unreasonable than to prove that the offer which was not accepted was a reasonable offer. In a particular case a plaintiff might act reasonably in rejecting an offer which was within the possible verdict range. 17 What emerges from SMEC and from Jones v Bradley and from Leichhardt Municipal Council v Green is that all the relevant circumstances have to be considered in determining whether the plaintiff's rejection of the settlement offer was unreasonable. Rejection would be unreasonable if it occurred without any consideration or without due consideration of the offer made. Rejection of an offer would be unreasonable if the plaintiff could not reasonably hope to match the offer by proceeding to a hearing. Rejection of an offer would be unreasonable if it involved a disregard of serious problems confronting the plaintiff in establishing liability. However, none of the decisions to which I have referred has sought to define what amounts to unreasonable rejection. I instance the above circumstances as examples of situations in which an offeree would act unreasonably in not accepting an offer, but it has to be recognised that there can be no all embracing definition as to what amounts to unreasonable conduct in failing to accept an offer. All the relevant circumstances of the particular case have to be considered. 18 Mr Jones submitted that the failure of the plaintiff to accept the defendant's offer in this case was unreasonable having regard to the following:

(i) the verdict returned was substantially less than the offer;

(ii) the offer allowed for general damages and some modest component for economic loss;

(iii) to recover more than the offer, it was necessary for the plaintiff and his witnesses to be substantially accepted;

(iv) the condition of post traumatic stress disorder involved significant psychiatric impairment;

(v) the plaintiff had been in a lengthy marriage and in steady employment throughout his lifetime and this was not indicative of such a condition. 19 The possible verdict range in this case was very wide. The plaintiff's case was one of significant psychiatric problems ever since the Naval tragedy in February 1964. The claim advanced by the plaintiff allegedly had the features characteristically associated with post traumatic stress disorder, such as sleep disturbance, intrusive thoughts and flashbacks, and alcohol abuse, as well as personality change. The plaintiff claimed economic loss under a number of headings:

(iii) cost of treatment. 20 The plaintiff was discharged from the Navy on 23 August 1968, so he fell well short of twenty years of service, and hence of qualifying for his Naval pension. He applied for and was granted early discharge on compassionate grounds, citing as his reason his wife's asthma. Of course, the pension entitlement would have been very valuable. On figures available, had the plaintiff obtained the rank of petty officer, his pension would have been worth $362,874. Had he left the Navy after twenty years as a chief petty officer, his pension would have been worth $418,329. Had he achieved the rank of warrant officer, his pension would have been worth $461,133. 21 In order to establish any entitlement under this heading, it was incumbent upon the plaintiff to prove that it was because he was suffering from post traumatic stress disorder and not for the reason stated when he obtained his discharge that the plaintiff left the Navy. Had he proved this as the reason for leaving when he did, the plaintiff had an alternative claim that as a consequence of the harm suffered he lost the chance of serving for twenty years and thus qualifying for his pension. 22 The second claim of an economic nature was for loss of advancement in employment with Golden Circle. The plaintiff advanced a claim in round figures of $300,000 for this, but it seems to me that this claim prospectively had to be regarded as being unlikely to succeed. It was based upon having to prove to the jury that but for his post traumatic stress disorder the plaintiff would have been promoted to a position usually given to persons with university education, and there was no evidence from Golden Circle that supported the claim for this lost opportunity. 23 The third economic claim was a claim for future medical treatment. This was a modest claim for which Mr Sharpe suggested the jury might make an allowance of $5000-10,000. The plaintiff had had no treatment in the past. 24 Circumstances to be considered in determining whether the failure to accept the offer was unreasonable or not include the making of an assessment of the strengths and weaknesses of the plaintiff's case looking at the claim prospectively at the time the offer was made. This task is not to be determined with the benefit of hindsight. 25 The plaintiff's work history from 1962 onwards evidenced consistent work attendance. So long as he remained in the Navy his behaviour was satisfactory, and then after he left the service he had regular employment outside the Navy. Of particular relevance was the lengthy period of employment with Golden Circle, a company he joined in March 1975 and with which company he remained until the condition of an injured knee incapacitated him in 2004. In short, the plaintiff's work history was not characteristic of the work history of a person who suffered from post traumatic stress disorder for over forty years. 26 The medical evidence in the case had the common theme that diagnosis of post traumatic stress disorder or any other mental disturbance involved an acceptance of the plaintiff's complaints and history. There was evidence from family members, including the plaintiff's siblings, and later in point of time, his wife, affording some evidence of change in the behaviour of the plaintiff, such as supported his claim. 27 Ultimately, so much depended upon the view that the jury took of the plaintiff. As events transpired, it is evident that the jury rejected the plaintiff's claim in relation to economic loss and discounted to a very significant degree the plaintiff's claim for the non economic aspects of general damages. 28 Considering the defendant's offer at the time it was made, it seems to me that it was a reasonable offer, weighing the anticipated evidence. 29 Was the plaintiff unreasonable in June 2006 not to accept it? 30 The offer was an offer plus costs on a party-party basis, but subject to the plaintiff paying the costs of the application under the Limitation Act that had been ordered against him by McDougall J. Those costs had not been quantified as at 1 June 2006 and they have not been quantified since. It follows that the Calderbank offer did not convey to the plaintiff the nett value of the offer. However, I have concluded that this of itself would not render the failure to accept the offer reasonable, any more than it would be reasonable to reject an offer simply because it was made "plus costs on a party and party basis" with no definition of the amount. 31 An offer of settlement in a sum specified "plus party-party costs" would not of itself tell the plaintiff what the offer was worth in nett terms. The plaintiff may have to pay his own legal costs to the extent to which they were not recoverable on a party and party basis. Hence, in a case where an offer was made plus costs, a plaintiff considering the offer would be dependent in the ordinary course upon being informed by his solicitor what the offer meant in nett terms. A plaintiff would look to his solicitor to tell him what costs were non recoverable. In the same way, it seems to me it was reasonable to expect that the plaintiff would look to his solicitor to be informed as to the likely costs liability to the defendant under the order made by McDougall J. 32 Indeed, it seems to me the conclusion is inescapable that the plaintiff's solicitor must have been able to advise the plaintiff of that likely costs burden in order to obtain the plaintiff's instructions not to accept the offer. 33 If there had been some difficulty from the plaintiff's point of view in determining the likely amount payable to the defendant by way of costs, the plaintiff's solicitor could have reasonably been expected to have sought some clarification from the defendant's solicitor, and this did not happen. There simply was no response by the plaintiff to the defendant's offer in the time provided in the Calderbank letter. The plaintiff's silence simply invites the inference that he was not attracted by the defendant's offer. 34 Mr Sharpe submitted that the failure to accept the defendant's offer ought not to be considered unreasonable bearing in mind that the reports of Dr Roldan and of Dr Alcorn were not served on the plaintiff's solicitor until 6 June 2006, five days after the Calderbank letter. The reports were lengthy and the plaintiff, living in Queensland, had to consult his solicitor in Sydney. It was submitted it was not unreasonable not to respond by 30 June 2006. 35 I do not regard those circumstances as determinative. I observed earlier that a consistent theme of the medical evidence in this case is that diagnosis depended upon an acceptance or otherwise of the plaintiff's history and presentation. Moreover, there has been no evidence advanced on this application to the effect that the plaintiff's solicitor was unable in the time provided to obtain informed instructions from the plaintiff on the settlement proposal. 36 Absent evidence to the contrary, I would draw the inference that the plaintiff was given appropriate advice concerning the settlement proposal and that his failure to accept the offer followed due consideration of it. 37 The earlier offer of compromise made by the plaintiff on 3 February 2006 put forward a settlement proposal which could not be regarded as being outside the possible verdict range but it was a figure unlikely to be awarded unless the jury made some allowance for the economic aspects of the claim to be presented. 38 Care has to be taken not to determine the reasonableness of the plaintiff's behaviour simply by reference to the jury's award. Back in June 2006, I do not consider that it was unreasonable for the plaintiff to have entertained the expectation that a jury might properly award him more than the sum offered. 39 I allowed the introduction of evidence of later settlement discussions on this application, since I considered such evidence may shed some light on the plaintiff's behaviour in June 2006 and the reasons for it. Ultimately, however, I do not find that I have been assisted by that evidence of later discussions. 40 Those discussions took place at a settlement conference on 10 October 2006 and at that conference the offer of $150,000 was renewed. Before it was renewed, the plaintiff's solicitor put forward a proposal at that conference of $550,000 plus costs. If the issue before me was a determination as to whether or not that was a reasonable offer by the plaintiff's solicitor, I would conclude that it was not. An unexplained leap from $250,000 to $550,000 could not be regarded as reflecting a realistic or reasonable attempt to reach a compromise in this cause, and I consider the suggested figure of $550,000 was altogether unreasonable. 41 Ultimately though, I have concluded that I am not assisted in my task by the evidence as to what took place in October 2006. My task is to decide whether the plaintiff acted unreasonably in not accepting the offer $150,000 by 30 June 2006 in a case in which I have concluded that it was not unreasonable for the plaintiff to have entertained the expectation that a jury might properly award him more, and in a case in which the plaintiff's earlier settlement figure of $250,000 could not be regarded as outside the possible verdict range. Not without some hesitation, I have concluded that it has not been shown that the plaintiff was unreasonable in failing to accept the defendant's offer in June 2006, or that a departure from the ordinary rule as to costs is warranted in all the circumstances of this case. 42 Mr Jones drew attention to the fact that there are many cases arising out of the HMAS Melbourne-Voyager collision awaiting resolution in this court, and the affidavit of Ms Roins-Fisher evidences that there are thirty-one cases pending in this court arising out of this collision, of which fifteen cases have presently been allocated hearing dates. It was submitted that the parties are to be encouraged to make a genuine attempt to settle cases in order to bring this litigation to finality. Costs sanctions are an important consideration in this regard. 43 Mr Jones is unquestionably correct in his submission that parties should be encouraged to explore settlement in a responsible fashion. The requirements of Pt 20 r 26, read in conjunction with Pt 42 Div 3, including r 42.15, are plainly directed at encouraging parties to explore settlement prospects in a careful way. A plaintiff who rejects a reasonable offer of settlement made pursuant to Pt 20 r 26 and recovers less exposes himself to the possibility of a heavy costs penalty unless he is able to satisfy the court there is some good reason why r 26 should not operate against him. The costs sanction is enlivened "unless the court otherwise orders", and this means that where, unlike with a Calderbank offer, a plaintiff has made an offer pursuant to Pt 20, it is the plaintiff who must assume the burden of establishing that the court should make an order other than an order that he pay the defendant's costs as on an indemnity basis from the time the offer was conveyed to him. In the present case, however, it was a Calderbank offer that calls for consideration, and for the reasons stated, I am not persuaded that costs should not follow the event.

The defendant's application for a stay 44 Mr Jones submitted that it would be proper to make an order staying the payment of damages and interest until the plaintiff's liability to the defendant as to costs has been determined. This will allow for a set off against the judgment sum. Otherwise, when the defendant seeks to enforce the order for costs in its favour there may be no available funds left. 45 I do not consider that the Court would be justified in granting a stay in the current circumstances. There is no suggestion that the defendant wishes to challenge the verdict of the jury, nor could there be. Since the plaintiff is going to have the benefit of a costs order in his favour and the defendant is going to have the benefit of a costs order in its favour, each order can be taken into account when there is a final accounting as to costs. No doubt the trial costs will be greater than the costs of the Limitation Act application, since the trial occupied eighteen sitting days. 46 The defendant's application for a stay is, in the circumstances, refused.

Formal orders 47 1. Order that the defendant pay the plaintiff's costs of this cause other than the costs which McDougall J ordered to be paid by the plaintiff, which costs remain to be paid by the plaintiff.

2. The defendant's application for a stay in respect of the payment of damages and interest is dismissed.

3. Order that the defendant pay the plaintiff's costs of the two applications the subject of this judgment. **********

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