Houghton v Potts & Anor [2023] NSWSC 69 | Case summary

Supreme Court of NSW|2023-02-10|Before: Chen J, Mr J

Introduction

On 22 December 2022 I delivered my reasons for judgment, and made orders dismissing the proceedings brought by both plaintiffs, with costs: Houghton v Potts & Anor (No 2) [2022] NSWSC 1778.
At the time judgment was delivered the defendants sought, and were granted, leave to vary the orders for costs so made. The defendants have, consistent with the leave granted to them, sought to vary the costs order made in the proceedings involving Mr Houghton. To be clear, the defendants have not sought to vary the costs order I made in the proceedings involving Mrs Houghton.
Shortly stated, the defendants seek an order that, from the time they served offers of compromise pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ('UCPR'), the costs should be payable on an indemnity basis following the date of one of the offers.
The defendants read, in support of the application, an affidavit of Claire Tingey sworn 30 January 2023 (which was admitted without objection). The plaintiff did not rely upon any evidence.

Short statement of facts

The defendants served three offers of compromise.
To give these offers some chronological perspective: the accident occurred on 28 December 2014, and the plaintiff filed a Statement of Claim in this Court on 11 May 2016.
The offers made by the defendants were as follows.
The first was dated 2 March 2017: in short, the defendants made an offer involving judgment being entered in favour of the defendants, with no order as to costs. That offer was served under a Calderbank letter, dated 2 March 2017, which explained, in some detail, why the defendants considered the offer was a genuine compromise, and the reasons why it considered that the plaintiff's claim would not succeed.
The second was dated 25 July 2018: in short, it made an offer that judgment be entered in favour of the plaintiff in the amount of $800,000 (a judgment against each defendant in the amount of $400,000). That offer was served under a Calderbank letter, dated 25 July 2018, which explained why the defendants considered the offer was a genuine compromise, and made reference to evidence that had previously been served supportive of the case that the defendants were advancing (which was explained in some detail).
The third was dated 14 November 2018: in short, that offer was in the same terms as the offer dated 25 July 2018. Unlike the earlier two offers made, the letter serving the offer of compromise was not a 'Calderbank-style' letter. Nor did the letter seek to provide, by way of amplification, the basis for the offer so made. There is, of course, no requirement that this occur: I am merely recording this to contrast the position in connection with the two previous offers.
The defendants seek an order, based upon the non-acceptance of the offers, that the plaintiff pay their costs on an indemnity basis from one or other of these dates.
It should be noted that the plaintiff did not submit that the offers were, in some way, non-compliant with the UCPR. It thus becomes unnecessary to consider the particular provisions contained within r 20.26 of the UCPR in order to determine whether there has been strict compliance or, as it is sometimes called, procedural non-compliance: see Old v McInnes and Hodgkinson [2011] NSWCA 410 and Whitney v Dream Developments Pty Limited (2013) 84 NSWLR 311; [2013] NSWCA 188, where issues of this kind are discussed. Further, the plaintiff has not argued that, in some way, the defendants succeeded in a case that was distinctly different to that which they sought to compromise by the service of the offers of compromise. Or, further still, that they were unable to properly assess the offers because of a lack of material to enable that to occur. Finally, there was also no issue about whether the offer was properly served, that the plaintiff did not accept it and that the ensuing judgment was less favourable to the plaintiff than the offer.
Rather, the plaintiff confined his opposition to the orders sought by the defendants to the ground that those offers, as made, did not represent a true compromise which, so the argument went, should justify the Court declining to make any orders imposing indemnity costs (plaintiffs' submissions dated 8 February 2023 at [5]-[6]).

Offers of compromise: the UCPR

All three offers of compromise served by the defendants on the plaintiff were expressed to be made pursuant to r 20.26 of the UCPR. In light of the fact that no issue has arisen about compliance with the requirements of that rule, it is unnecessary to refer further to it, other than to note that it is permissible, under r 20.26(3)(a) of the UCPR for a defendant to make an offer of compromise proposing judgment being entered in favour of the defendant with no order as to costs.
The entitlement to an order for indemnity costs, when an offer of compromise is made by a defendant to a plaintiff and not accepted by a plaintiff, is conferred by r 42.15A of the UCPR: 42.15A Where offer not accepted and judgment no less favourable to defendant (cf SCR Part 52A, rule 22; DCR Part 39A, rule 25; LCR Part 31A, rule 20) (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) Unless the court orders otherwise - (a) the defendant is entitled to an order against the plaintiff for the defendant'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.
Some further matters should be noted in connection with the operation of the rule. Relevantly, they are as follows. First, there is a prima facie entitlement to indemnity costs upon engagement of r 42.15A(1) of the UCPR - viz., an offer of compromise is made by a defendant, but not accepted by the plaintiff, and that the defendant obtains judgment on the claim no less favourable to the defendant than the terms of the offer: Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [40]. Secondly, though the Court retains the discretion to otherwise order (r 42.15A(2)), the onus (here) is upon the plaintiff to demonstrate to the Court that indemnity costs should not be ordered: South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 at [83]; Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [29] and [45].
As earlier noted, the plaintiff opposes the order sought on the ground that none of the offers constitute "a genuine offer of compromise". In relation to this argument, it has been held that "whilst this terminology is not entirely apposite", it is "serviceable": Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [25]. It is important to recognise, however, that to characterise an offer "by reference to epithets such as 'real' or 'genuine' adds little to the requirement of compromise, and may imply (wrongly) that an enquiry is to be made about the subjective intentions of the offeror": Fabre v Lui (No 2) [2015] NSWCA 312 at [6]. Thus, the critical question is whether objectively there has been compromise, in the sense of the offeror offering to forgo something of substance: Lui at [6]-[7]. Whether there is compromise is largely a matter of impression: Prospect Resources Ltd v Molyneux [2015] NSWCA 171 at [94].

Consideration: indemnity costs should be ordered

Based upon r 42.15A, the defendants are, subject to the Court otherwise ordering, entitled to payment of their costs in respect of the claim on the ordinary basis up to the day following the day on which the offer was made, and thereafter on an indemnity basis.
In the way in which the matter has been argued by the plaintiff, there are two issues: first, whether any of the offers amount to a "genuine compromise"; and, secondly, if so, which ones.
In my view, the offer made dated 25 July 2018 was a genuine compromise, and indemnity costs should be ordered based upon the non-acceptance of that offer by the plaintiff. I have formed that view, and make that finding, based upon the amount that was offered ($800,000 exclusive of the plaintiff's legal costs); the fact that the defendants set out in some considerable detail the basis upon which it considered that the plaintiff's claim enjoyed modest prospects of success in several Calderbank letters including the one dated 25 July 2018; the defendants had served expert evidence (including biomedical engineering evidence and evidence from Professor Dauncey, a consultant toxicologist), as well as an evidentiary statement from Bethany Long prior to this time - a statement that set out her version of how the accident occurred (put simply, in the way that I found the accident did - by the plaintiff holding Bethany Long over the balcony wall: see the primary judgment at [144]ff); and that the defendants had incurred costs, to that point "in excess of $250,000 to date in defending the plaintiff's proceedings".
It is true that the amount was considerably less than the agreed amount of damages. But I do not, respectfully, consider that the genuineness of any compromise can be considered in this case so narrowly. That is at least because there was an appreciable number of "liability issues" - including a substantive contest on the way in which the accident occurred; the nature and scope of any duty of care owed; whether there was any breach of duty of care; whether the plaintiff was himself negligent; and whether the intoxication defence, under s 50 of the Civil Liability Act 2002 (NSW) was engaged (and, if so, whether liability could arise). That this was so was evident, at least, from the Calderbank letters served.
It is not a case where the offer, rather than being a genuine attempt to reach a negotiated settlement, was merely a procedural move to trigger costs consequences. Rather, as I have said, I consider that that offer constituted a genuine compromise of the claim. It follows that the plaintiff has failed to persuade me that I should decline to order indemnity costs.
To the extent that it is necessary to determine, and find, that the rejection of the offer was unreasonable, I do so for the above reasons.
The defendants also served an offer of compromise dated 2 March 2017 wherein it offered to bear its own costs in return for judgments being entered in their favour.
In the particular circumstances of this case, although I am alive to the fact that a defendant can make an offer of compromise offering judgment in its favour, with no order as to costs (r 20.26(3) of the UCPR), I am not persuaded that indemnity costs should be ordered based upon the non-acceptance of that offer. Essentially that is because the offer was made quite soon after the commencement of proceedings and the issues were still developing; although the defendants served the offer of compromise with a Calderbank letter, none of the underlying evidence to support much of which was contained within that letter was served at that time; and the offer involved no monetary payment.
I am not, to be clear, suggesting that there is an overriding requirement for requirements of the kind just mentioned to occur in a case in order for there to be 'compromise'. However, I do find, in the present one, based upon the matters to which I have referred, that the first offer did not constitute a compromise, so as to entitle the defendants to an order under r 42.15A.

Orders

For the above reasons, I make the following order in proceedings 2016/144762: 1. Vary order 2 made on 22 December 2022, as follows: order the plaintiff to pay the defendants' costs on the ordinary basis up to 26 July 2018 to be assessed on the ordinary basis and, thereafter, to be assessed on an indemnity basis.

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Houghton v Potts & Anor

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