HOUATCHANTHARA v BEDNARCZYK

Court of Appeal (NSW)|1996-10-14|Before: Clarke JA

HOUATCHANTHARA v BEDNARCZYK SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CLARKE and HANDLEY JJA and SANTOW AJA 14 October 1996, 14 October 1996 [1996] NSWCA 253

COSTS - District Court rules Pt19A r9(6) - order when plaintiff secures judgment in lesser amount than that offered by way of compromise - no exceptional circumstances justify departure from general rule.

One difficulty with the suggestion was that a notice of appeal had not been filed, but the Court as then constituted, took the view that that matter should not stand in the way of acceding to the suggestion which was not opposed by counsel for the opponent. Accordingly, the Court adjourned the hearing of the application and reconvened with three Judges of Appeal.

It seems to me that although the absence of a notice of appeal is a formal defect, this Court should dispense with the need for the filing of that formal document, and proceed upon the basis that the substantial ground of appeal relied upon by the claimant is that his Honour took into account an irrelevant consideration in the exercise of his discretion on costs, and that the proper exercise of discretion required that he make another order.

The proceedings before Judge Hughes involved a claim by the opponent for damages in respect of injuries which he suffered in a motor vehicle accident on 26 February 1993. In those proceedings his Honour awarded the opponent damages in the total sum of $9,224. The question of costs was then raised by counsel for the claimant who advised his Honour that an offer of compromise had been served upon the opponent's solicitors, offering to resolve the case by paying to the opponent $1 0,000 plus costs as agreed or assessed.

It was also said that the offer of compromise operated from 30 July 1996. There is some ambiguity arising from the word "operated", but I have understood the claim to be that if costs were to be ordered in accordance with the relevant rule which I will mention in a minute, the critical time for the costs order was 30 July 1996.

In making his application, counsel for the claimant relied upon District Court Rule Ptl9A, r9(6). It is unnecessary to set out that rule in this Judgment. It is sufficient to note that, putting it broadly, the rule relevantly applies where a plaintiff secures a judgment in a sum lesser than the amount offered by a defendant by way of compromise. In those circumstances, the rule provides for the plaintiff to receive his or her costs on a party and party basis until a date following the service of the notice of compromise, and that from that date the plaintiff pay the defendant's costs also on a party and party basis.

In the present case it was said that the order should be that the defendant pay the plaintiffs costs leading up to 30 July 1996, and thereafter the plaintiff should pay the defendant's costs.

The rule applies "unless the Court otherwise orders", and it is relatively clear that an appeal was made to Judge Hughes to make a different order. His Honour decided that it was appropriate in this case to make another order, and on my understanding, he ordered that the defendant pay the plaintiff s costs.

His Honour gave a number of reasons for declining to make the order sought by the defendant. The first was that he had a discretion to make another order, the second was that, in the light of the small amount of the Judgment, a costs order of the type claimed by the claimant would "Substantially subsume and may exceed the plaintiff s damages", and that for this reason such an order would cause an injustice to the plaintiff. The third reason was expressed in terms which suggest to me that his Honour thought that because the amount ordered was only about $750 less than the amount offered, it would be unjust to make the order sought, and the fourth was that, unless he made a special order, the tort feaser would profit from the damaged plaintiff.

Mr Deakin submitted that none of those factors provided a reason for making a special order. Indeed, he went further and said that the philosophy underlining the bringing to law of the rule was quite inconsistent with judicial exercise of discretion setting the rule at nought simply because the plaintiff who had declined to accept the offer would suffer if the rule were allowed to operate.

Mr Deakin referred to the decision of this Court in Hillier v Sheather (1995) 36 NSWLR 414, where the Court considered the nature of the discretion afforded by the rule, and the circumstances in which another order may be made. He referred in particular to the judgment of the President, Justice Kirby, at 422, where his Honour said that in the light of the terms of the rule, it would only be in exceptional cases that another order should be made. Justice Kirby pointed out that the general rule is provided for in the rule itself.

Without embarking upon a detailed analysis of the judgments of those cases, it seems to me that, looked at broadly, what his Honour said is, with respect, quite correct. The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case.

It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk. Where, as here, the claim was a very small one, the risk was very great indeed.

In my opinion, none of the reasons given by the trial judge provides any basis upon which the Court could depart from the general principle. The thrust of the Judge's reasoning was that the order flowing from the rules would cause detriment to the opponent, but that, as I pointed out, flows from the opponent's acceptance of the risks of proceeding and declining to accept the offer. As it seems to me, the trial Judge's discretion miscarried in so far as there was no

sound basis upon which to make a special order, and subject to what I say hereafter, the obvious consequences flow.

Miss Ryan, who appeared for the opponent, pointed out, however, that there were two reasons why, despite any error made by the trial Judge, this Court should not interfere. The first was that there had been an arbitration between the parties, at the end of which the opponent secured an award of more than $15,000. That award did not stand because the claimant, believing it was too high, sought a hearing de novo in the District Court. Her submission was that in circumstances where the offer made was less than an amount already awarded to the opponent, it would be unjust and unfair to subject the opponent to the consequences flowing from the normal operation of the rule.

The second reason advanced in support of the Court declining to interfere was that the opponent had sustained a serious injury, and in the circumstances his declining to accept the amount offered was completely reasonable, and the Court was entitled in those circumstances to make a special order.

In my opinion neither of these reasons justifies this Court in declining to interfere. Neither of them provides a solid ground for declining to let the rule operate in accordance with its terms. Neither of the reasons could be regarded as making this case exceptional, or as providing any reason why the normal consequences should not flow from the opponent deciding to run the risk of litigation.

In these circumstances it is my opinion that not only did the trial Judge err, but that there was not shown to be any ground for making a special order in the case. In these circumstances I would propose that leave to appeal be granted, that the appeal be allowed, that the costs order of Judge Hughes be set aside, and that in lieu thereof it be ordered that the claimant pay the opponent's costs of the proceedings until 30 July 1996, and that the opponent pay the claimant's costs thereafter. The opponent should pay the claimant's costs of the application for leave to appeal, and the appeal itself, and is to have a certificate under the Suitors Fund Act in respect of the costs of the appeal.

Handley JA DCR Pt19A r9(6) establishes a prima facie rule which should be applied unless the unsuccessful party is able to point to special factors which justify a departure from that rule in the particular case. General factors which apply in most, if not all cases, such as hardship, and difficulty in predicting the result of the trial cannot support an exercise of the discretion in favour of the unsuccessful party. I agree therefore with the orders proposed by Justice Clarke.

Santow AJA I agree with the orders proposed by Justice Clarke and the reasons given. Clarke JA: The order of the Court will be as I have earlier indicated.

Leave to appeal granted, appeal allowed, the costs order of Judge Hughes set aside, and that in lieu thereof it is ordered that the claimant to pay the opponent's costs of the proceedings until 30 July 1996, and that the opponent to pay the claimant's costs thereafter. The opponent to pay the claimant's costs of the application for leave to appeal, and the appeal itself, and is to have a certificate under the Suitors Fund Act in respect of the costs of the appeal.

Solicitors for the opponent: Maxwell Berghouse and Ives, Fairfield

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