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Solicitors Ken Cush & Associates (Appellant) DLA Piper (Respondent)

File Number: ACTCA 13 of 2014

Decisions under appeal: Court: Supreme Court of the ACT Before: Burns J Date of Decision: 7 March 2014 Case Title: Hulanicki v Walton Citation: [2014] ACTSC 17

Court: Supreme Court of the ACT Before: Burns J Date of Decision: 24 July 2014 Case Title: Hulanicki v Walton (No 2) Citation: [2014] ACTSC 174

THE COURT:

1. The appellant appealed against the primary judge’s assessment of damages associated with a severe traumatic brain injury arising from a motor vehicle accident. On 24 July 2014, the primary judge awarded damages of $3,946,775.98 (plus damages for the cost of funds management of $1,307,172).

2. On 24 April 2015, this Court delivered its reasons for judgment and directed the parties to prepare short minutes of order: Hulanicki v Walton [2015] ACTCA 14. On 11 May 2015, the Court ordered that:

(a) Orders 1, 2 and 3 made by the Court below on 24 July 2014 are set aside.

(b) In lieu thereof, there is judgment for the appellant in the sum of $6,957,240.69 including damages for the cost of fund management.

(c) The respondent have credit for the damages already paid in the sum of $5,534,848.32

3. On 13 November 2013, during the trial proceedings, the parties made Calderbank offers. The appellant’s offer of $6,500,000 was not accepted by the respondent. Nor did the appellant accept the respondent’s offer of $4,500,000.

4. In the appeal proceedings, the appellant sought orders that:

(a) The order that the respondent pay the appellant’s costs in the Court below on a party/party basis be set aside. (b) The respondent pay the appellant’s costs in the Court below up to and including 13 November 2013 on a party/party basis and from 14 November 2013 on an indemnity basis.

(c) The respondent pay the appellant’s costs of the appeal on an indemnity basis.

5. The respondent opposed any order for indemnity costs and submitted that the Court should not allow the appellant her full party/party costs of the appeal.

6. On 24 April 2015, the Court directed the parties to file short written submissions on costs and granted liberty to apply to list the matter for oral submissions. The parties declined the opportunity to make oral submissions and the issue of costs is decided on the written submissions.

The Appeal

7. The appeal concerned:

(a) Whether the assessment of past and future domestic care needs at three hours a day was erroneous.

(b) The failure to include a buffer for future early onset dementia, although the primary judge found that a buffer was warranted.

(c) The deduction of 15% from the award for future care to allow for vicissitudes.

(d) The failure to allow “funds management on funds management”. At the time of the trial, there was conflicting authority about whether damages should include “funds management on funds management” (Gray v Richards [2011] NSWSC 877). At the time of the primary judge’s decision, the law in NSW did not allow “funds management on funds management” (Richards v Gray [2013] NSWCA 402). At the time of the appeal, the law allowed “funds management on funds management” (Gray v Richards [2014] HCA 40).

(e) The amendment of the judgment sum by deducting the amount already paid by the respondent.

8. These issues were resolved as follows:

(a) The Court found no error in the primary judge’s approach to the assessment of the appellant’s past and future needs for domestic assistance.

(b) The Court gave effect to the primary judge’s intention and awarded a buffer of $150,000.

(c) The parties agreed and the Court accepted that the deduction of 15% for vicissitudes was erroneous as vicissitudes had already been factored in by the life expectancy tables.

(d) The parties agreed that “funds management on funds management” should be allowed, in accordance with the High Court’s decision in Gray v Richards [2014] HCA 40. At the hearing of the appeal, they agreed to compromise on a percentage of 55.1%.

(e) The parties agreed that the amount paid by the respondent should not have been deducted from the judgment sum. Determination of Costs

9. Section 37O of the Supreme Court Act 1933 (ACT) outlines the powers of the Court of Appeal with respect to the orders that are the subject of an appeal. Relevantly, the Court can:

... (a) ...confirm, reverse or amend the order; (b) ...give any order it considers appropriate, or refuse to give an order applied for;

10. In relation to costs orders, the Court of Appeal has the same discretion. Rule 1721(1) of the Court Procedures Rules 2006 (ACT) (CPR) provides that “[t]he costs of a proceeding...are in the discretion of the court.” That rule applies to appeal proceedings by virtue of r 5001 of the CPR: Pires v DibbsBarker Canberra Pty Limited [2014] ACTSC 283 at [92].

11. Despite the costs discretion conferred upon this Court (and courts generally), it is settled practice that, absent any special circumstances, a successful litigant is entitled to recover their costs from the opposing party: Oshlack v Richmond River Council (1998) 193 CLR 72 at 86; Pires v DibbsBarker Canberra Pty Limited at [92]. An order to this effect is commonly described as “costs follow the event”: Singer v Berghouse (1993) 114 ALR 521 at [5] per Gaudron J. Ordinarily, costs follow the event and are awarded on a party/party basis: r 1751 of the CPR.

12. However, “[t]he disposition which is ultimately to be made in any case where there are competing considerations will reflect a broad evaluative judgment of what justice requires”: Gray v Richards [No 2] [2014] HCA 47 at [2].

13. The acceptance of reasonable offers of compromise is in the interests of litigants and the public; it minimises the personal and financial costs to litigants and it enables the courts to focus resources on claims that are not amenable to compromise. “The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs”: Stewart v Atco Controls Pty Ltd (In Liquidation) (No 2) (2014) 252 CLR 331 at [4]. On the other hand, it is critical that litigants have ready access to justice and do not feel unreasonably constrained to compromise cases.

14. When a Calderbank offer has been made, the issue is whether it was unreasonable to reject the offer, considering all the circumstances of the case, including the apparent strength of each party’s case at the time that the offer was made: Quirk v Bawden (1992) 112 ACTR 1 at 6; Leichhardt Municipal Council v Green [2004] NSWCA 341 at [56]; South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [90]. In Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at [25] the Victorian Court of Appeal noted that other matters that should be taken into consideration when evaluating the reasonableness of a rejection are:

(a) The stage of the proceeding at which the offer was received.

(b) The time allowed to the offeree to consider the offer.

(c) The extent of the compromise offered.

(d) The offeree’s prospects of success, assessed as at the date of the offer. (e) The clarity with which the terms of the offer were expressed.

(f) Whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.

15. Even where it is found that a Calderbank offer should have been accepted and the offeree achieves a result that is no better than the offer, it does not automatically follow that indemnity costs will be awarded against the offeree: Evans v Braddock (No 2) [2015] NSWSC 518 at [49]

16. The applicant for indemnity costs bears the onus of showing that rejection of the offer was unreasonable: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]; Vizovitis v Ryan (No 2) [2014] ACTSC 301 at [17].

Should the appellant’s costs of the appeal be reduced?

17. The respondent submitted that the appellant should be awarded less than 100% of her party/party costs of the appeal. The respondent noted that the bulk of the Court’s time was spent on issues relating to the assessment of the appellant’s needs for past and future domestic care, in relation to which the appellant was unsuccessful, and the other issues occupied very little time. The respondent submitted that it was inevitable that the appellant would succeed in relation to “funds management on funds management” and that, on one view, the only contentious issue was the award of a buffer of $150,000 in relation to early dementia. Further, the respondent maintained that the appellant had unreasonably advanced an application to adduce additional evidence about the costs of funds management, abandoning the application at the last minute.

18. We find no reason to depart from the usual rule that costs follow the event. It is true that the bulk of the appeal hearing was devoted to issues concerning past and future care (in relation to which the appellant was unsuccessful), but the appeal occupied little time overall. It was not until the hearing of the appeal that the parties made all appropriate concessions, and it would be unproductive to attribute relative fault.

Did the respondent unreasonably reject the Calderbank offer?

19. The appellant’s offer of $6,500,000 plus costs was served on 13 November 2013, in the middle of the trial proceedings.

20. This Court found that, consistent with the findings of the primary judge (which were not challenged successfully on the appeal), damages should have been calculated at $6,957,240.

21. The appellant submitted that the substantial difference of $457,240 between the offer and the ultimate result demonstrates that the Calderbank offer represented a significant compromise and the respondent’s refusal of that offer was unreasonable.

22. The respondent submitted that refusal of the offer was not unreasonable.

23. First, the respondent submitted that the offer remained open for an unreasonably short period, being an effective period of just under seven hours (10.22am to 5pm on 13 November 2013). As explained in Hillman v Box (No 5) [2014] ACTSC 150 at [40] – [42], the time for which an offer remains open is important to the determination of the reasonableness of the offer.

24. The duration of the offer was expressed as follows: We advise this offer will remain open for acceptance until 5pm on 13 November 2013, in view of the fact that there have been negotiations on foot for some time. However, should you need more time you should let us know immediately.

25. In our view, when considered in context, the offer was open for a reasonable period. It was open during day three of the trial. The primary judge did not sit on that day. By that stage of the proceedings, the issues would have been clear to the parties. The respondent had heard evidence from the appellant and one expert (Professor Jellinger, as to the prospect of early onset dementia), and the evidence of other experts would have been served. During the day when the offer was open, the respondent had access to advice from counsel. The respondent was in a very good position to assess the relative merits of the appellant’s claim and its own case. On the same day, the respondent also made a Calderbank offer which remained open for five hours; a period that the respondent must have considered to be reasonable. Further, the appellant’s offer invited the respondent to seek an extension of time, if an extension was considered necessary.

26. Second, the respondent submitted that the uncertain state of the law on damages for “funds management on funds management” meant that, in November 2013, it was not unreasonable for the respondent to reject the offer. Although not binding on an ACT judge sitting at first instance, the decision of the NSW Court of Appeal (reserved as at November 2013) was likely to be persuasive. The decision of the NSW Court of Appeal (upholding the appeal) had been reserved in April 2013 and was delivered on 2 December 2013. The “funds management on funds management” component of the damages was considerable; the inclusion of damages for “funds management on funds management” elevated the damages awarded by this Court by approximately $946,138.

27. At the time of the offers, there was conflicting Australian authority on whether an award of damages should include damages for “funds management on funds management”. This is not a unique position. Parties must address offers made in the course of litigation within the context of the law evolving over time. That there was a pending appeal on the issue may have sharpened the issue for the respondent but this did not mean that it was reasonable to reject the offer. An offer of compromise is, by its nature, intended to include some element to account for such uncertainty. After all, there will usually be some uncertainty about the outcome of proceedings.

Costs of the appeal

28. There is no doubt that the appellant should have her costs of the appeal. It was necessary for her to prosecute the appeal to correct errors of the primary judge and to gain the advantage of the law of “funds management on funds management” as ultimately decided by the High Court in Gray v Richards [2014] HCA 40. In addition, she obtained a buffer for personal care (dementia) which, though less than her claim, was more than had been awarded at trial.

29. However, the appellant, sought costs on an indemnity basis because the outcome of the appeal was substantially more favourable to her than the amount which she said in the Calderbank offer that she would have accepted at trial.

30. The appellant did not succeed on all the grounds that she presented on the appeal and those on which she did not succeed occupied the larger part of the hearing, especially since the respondent did not contest the grounds involving the admitted errors of the primary judge and the High Court’s determination of the law.

31. The appellant did not renew the Calderbank offer or a variation of it during the appeal but simply relied on the offer made at trial.

32. In Ettinghausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404, the NSW Court of Appeal found that an offer of compromise made at or before trial was not exhausted once the trial came to an end. An offer is made in respect of the claim itself and that may not be finally determined until any appeal is decided.

33. However, since Ettinghausen v Australian Consolidated Press Ltd, the NSW Court of Appeal has refined that approach and, in the leading case of Fotheringham v Fotheringham (No 2) (1999) 46 NSWLR 194 at [26] and [33], held that the rejection or non-acceptance of an offer made at trial is relevant to the exercise by an appellate court of its still wide discretion as to costs. In Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [21] it held that the failure to renew a Calderbank offer during the appeal is a also a relevant consideration.

34. In this case, the appellant was required to bring the appeal to vindicate her rights, but she also chose to prosecute claims for ongoing care. Those claims occupied the majority of the hearing of the appeal and the appellant was largely unsuccessful in relation to them.

35. Given that a very large part of the financial success of the appeal was known from the point when the High Court delivered judgment in Gray v Richards [2014] HCA 40, well before the appeal was heard, the appellant’s prosecution of the grounds on which she was unsuccessful raises the question of whether we should consider making an order for costs of separate issues, as explained in Amaca Pty Ltd v Moss [2007] WASCA 162 (S) at [7].

36. Although that point has not been reached in this case, the matters which raise it are important. Had the appellant succeeded on those grounds, the cost of ongoing care would have increased her damages by over $400,000. Further, it was only during the appeal hearing that the appellant abandoned her claim for overnight care (which would, if successful, have increased the damages by an even more significant amount).

37. While the touchstone for the ordering of indemnity costs following the rejection or non-acceptance of a Calderbank offer is whether the final verdict is more favourable than the amount of the offer, this factor does not automatically entitle a successful litigant to a special costs order. As the Full Court of this Court recognised in Quirk v Bawden at 6 (per Higgins J, with whom Miles CJ and Gallop J agreed), there remains a discretion to be exercised.

38. In the context of her awareness of the High Court’s decision (she had every reason to expect that the overall award would be increased by the amount allowed for “funds management on funds management”), the appellant’s claim for indemnity costs is undermined by her failure to remake the Calderbank offer or an amended offer during the appeal proceedings.

39. It is also relevant that the appellant gave notice that she intended to adduce further evidence as to the funds management issue on her appeal, an intention that she abandoned only at the hearing of the appeal.

40. On the other hand, in her submissions the respondent, did not concede all the issues on which the appellant was ultimately successful, albeit that some issues were not contested at the hearing itself.

41. Taking all these matters into account, it is appropriate to order that the respondent pay the appellant’s costs of the appeal, but on a party and party basis.

Orders

42. The Court:

(a) Confirms the order that the respondent pay the appellant’s costs in the Court below on a party/party basis.

(b) Orders that the respondent pay the appellant’s costs of the appeal on a party/party basis.

I certify that the preceding forty-two [42] numbered paragraphs are a true copy of the Reasons for Judgment of the Court of Appeal.

Associate:

Date: 31 August 2015