Jay & Anor v Petrikas & Ors

The offers of settlement made on 26 November 2020

1. The offer of compromise and First Calderbank Offer were both made by the defendants' solicitors (the Crown Solicitors Office, or CSO) on 26 November 2020. They were served on the plaintiffs' solicitor, AR Conolly & Company, by email (11:51am). The email was (relevantly) in the following terms: "Dear Mr Connolly I refer to the above matter and attach the following. 1. Letter dated 26 November 2020 regarding the plaintiffs' proposed categories for discovery. 2. Offer of compromise dated 26 November 2020; and. 3.Calderbank offer dated 26 November 2020…"

The Rules Offer

1. This offer by the defendants to compromise was in the following terms: "1. Verdict is entered in favour of the defendants. 2. Pursuant to r 20.26(3)(a)(i) of the Uniform Civil Procedure Rules 2005, that there be no order as to costs. 3. That no order as to costs includes any existing order for costs in favour of either party in the proceedings to date. 4. This offer shall remain open for a period of 28 days only from the date it is made. 5. This offers is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005. 6. This offer is made on condition that should the plaintiff accept this offer then the parties will cause to be executed a consent judgment/order including the following terms: By consent and without admissions of liability: 1. Judgment for the defendants against the plaintiff. 2. No order as to costs. 3. Any existing order for costs in favour of any party are hereby vacated"

The First Calderbank Offer

1. This letter was sent under the name of Mr Bruce Cantrill, Special Counsel of the CSO. It was expressed to be 'without prejudice save as to costs'. The gist of the offer was "to resolve the whole of the proceedings against the defendants with verdict to be entered for the defendants and all parties are to bear their own costs of these proceedings including any order for costs made in favour of either party".
2. The next part of the letter contained explanatory comment as to why an offer in those terms constituted a genuine attempt to resolve the dispute. The arguments marshalled by the CSO included: (a) that the Court had made earlier orders for costs in favour of the defendants on 12 March 2020 and 29 April 2020 on procedural motions; (b) Mr Cantrill had estimated that costs incurred by the defendants (as at the date of the offer) were $90,000 on a party and party basis; (c) the defendants' view that the plaintiffs had limited prospects of success having regard (amongst other things) to the historical nature of the tort relied upon and the unlikelihood of the plaintiffs establishing malice.
3. The letter then pointed out that the Calderbank offer was being served at a time when the pleadings had closed. The offer was expressed as being open for 28 days. The case authorities of the Calderbank decision itself and also Messiter v Hutchinson (1987) 10 NSWLR 525 were cited. The plaintiffs were finally warned that in the events that the offer was not accepted, the matter proceeded to hearing and the plaintiffs did not obtain a verdict exceeding what was offered, the defendants proposed to tender the offer to support an application for indemnity costs.

The Second Calderbank Offer

1. The CSO's letter to AR Conolly on 28 September 2022 was also expressed to be 'without prejudice save as to costs'. As with the First Calderbank Offer, it also alluded to the authorities of Calderbank and Messiter v Hutchinson. It was expressed to be open for 28 days (i.e. by 26 October 2022).
2. The letter alluded to an offer of settlement. Proposed terms of settlement (nine in number) were set out at the conclusion of the letter. It is unnecessary, for reasons to become apparent, to set out verbatim all of those terms. It suffices to state that the substance of the terms: (a) provided letters (in what may be said to be positive terms) from the defendants, and also the RFS, to the plaintiffs which, among other things accepted the findings of Mr Plumridge and acknowledged the plaintiffs' service over many years to the RFS as senior volunteer firefighters; (b) offered to pay the plaintiffs the sum of $75,000 (inclusive of costs); and (c) offered a discontinuance of the proceedings.
3. Earlier in the letter, the CSO set out reasons for the defendants' view that the offer represented a reasonable compromise.

The defendants' submissions in chief

1. The defendants argue that the offer complied with the requirements under r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ('UCPR') in that the offer of compromise: (a) identified that it related to the whole of the claim and specified proposed orders for disposing of the claim (per r 20.26(2)(a)(i) and (ii); (b) did not provide for costs otherwise than in accordance with r 20.26(3)(a) of the UCPR (per r 20.26(2)(c)); (c) included notice that the offer was made in accordance with r 20.26 (per r 20.26(2)(d)); (d) specified a period of time (28 days) within which the offer was open for acceptance (per r 20.26(2)(f)). The offer also proposed that there be judgment in favour of the defendants with no order as to costs (r 20.26(3)(a)(i)).
2. The defendants then invoke r 42.15A of the UCPR, which sets out the default position relating to costs consequences flowing from the plaintiffs' non-acceptance of a valid offer of compromise where the defendants obtain a judgment which is no less favourable to the defendants then that which was offered.
3. In anticipation of what the plaintiffs might say, the defendants argue that there is no basis for the Court to 'otherwise order'. The rules offer involved a genuine element of compromise; rather than amounting to an attempt to trigger costs consequences. This had been explained in the explanatory comments concerning the First Calderbank Offer that had been served the same day. Those comments should have led the plaintiffs to realise risks to their cases and thereby made the terms of the offer more attractive, especially by avoiding their exposure to a costs liability.

The plaintiffs' submissions in response

1. The plaintiffs argue that there were formal and substantial errors within the rules offer.
2. To begin with, they argue that the content of the offer of compromise could not be construed with reference to what was said in the First Calderbank offer. Further, nothing was said in the covering email, by way of elaboration, about the purported rules offer.
3. The plaintiffs argue that errors within the offer bred 'confusion and uncertainty'. They apparently express concern as to what was meant in the offer regarding earlier costs orders made in the proceeding. They also apparently say that any agreement regarding the condition (in paragraph 6) is not something that could clearly bind the court. They point to the singular use of the word 'plaintiff' in paragraph 6 and point out that the defendants did not indicate whether that word incorporated reference to the first and second defendants. They argue that the requirement to enter into a consent judgment (whose content was in paragraph 6) contained different requirements to other terms of the offer (in paragraphs 1-3). They argue that the content of paragraph 3 offends r 20.26 and earlier precedent.
4. The plaintiffs then argue, in effect, that if their earlier arguments were rejected, the Court should 'otherwise order', for the purposes of r 42.15A of the UCPR. This is because the timing of the offer was such that it was not a genuine attempt to settle the proceeding, but rather an attempt to trigger costs consequences. The plaintiffs had not, by then, exhausted evidentiary inquiries or the application of coercive processes of discovery and interrogatories.
5. Further, they say, no significant costs would have been incurred by the defendants at the date when the rules offer was made. The plaintiffs emphasise that whereas in the First Calderbank offer (26 November 2020) Mr Cantrill had estimated that costs incurred to that point were $95,000 (although, in fact, Mr Cantrill had estimated they were $90,000, on a party and party basis), in the Second Calderbank offer (28 September 2022) the plaintiffs contend that these were only estimated to be $65,000 (on the same party and party basis). Necessarily, there was a misstatement of some kind by the defendants in the First Calderbank offer which disentitled them from making any application for a special costs order.

The defendants' submissions in reply

1. In reply, the defendants note that the plaintiffs had not identified any non-compliance with formal requirements in r 20.26. Further, they argue that there was no confusion or internal inconsistency in what was being offered.
2. They repeat their submission in chief that the offer of compromise involved a genuine element of compromise. They distinguish authorities which the plaintiffs had relied upon as instances where offers of compromise had been made at a relatively early stage of proceedings and when it was therefore unlikely that significant legal expenses would have been incurred. Here, at the date of the rules offer, the issues had well and truly crystallised. It was wrong to say that the timing of the rules offer was designed to trigger costs sanctions. The plaintiffs did not say that they needed more time or evidence to consider the offer. Regardless of whatever other evidence they obtained after the offer was made, the plaintiffs' prospects of success of establishing their claim would continue to remain very limited. The real position was that the plaintiffs did not seriously engage with the rules offer.

Consideration

1. The plaintiffs did not dispute the defendants' specific contentions in respect to formal compliance with the requirements of r 20.26. Nor did they (or could they) dispute the presumptive operation of r 42.15A if it was determined that the offer of compromise did comply with the requirements of r 20.26, given that the defendants obtained judgments in circumstances no less favourable than what the defendants offered them.
2. In substance and effect, the plaintiffs essentially submit that the Court should find that either (a) the offer did not genuinely attempt to resolve the proceeding and/or (b) it was not unreasonable for the plaintiffs to reject the rules offer and that, therefore, it was appropriate for the Court to 'otherwise order', which meant that the usual operation of r 42.15A should be displaced.
3. As to the question whether the offer represented a genuine attempt to resolve the dispute, in my opinion, it was. It is well accepted that 'Walk away' offers can comply with r 20.26 (Jojeni Investments Pty Ltd v Mosman Municipal Council (No 2) [2015] NSWCA 208 at [13]), although usually, an offer should contain some real benefit to a plaintiff rather than amount to a bare invitation to capitulate. In this regard, the offeror's foregoing of significant costs can suffice. In this case, the defendants' rules offer went further than merely an offer to walk away. The defendants had already obtained multiple costs orders against the plaintiffs, which they had offered to forego as part of the costs order they would ordinarily be expected to obtain against the plaintiffs (under r 42.1) if, as later occurred, they succeeded in their defences.
4. A prima facie entitlement therefore arose in favour of the defendants to have costs awarded in accordance with UCPR 42.15A. This is because, from "the time of non-acceptance 'notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise'": Leach v Nominal Defendant (QBE) Insurance (Aust) Ltd (No.2) [2014] NSWCA 391 ('Leach'), per McColl JA (Gleeson JA and Sackville AJA agreeing) at [40], citing Morgan v Johnson (1998) 44 NSWLR 578 ('Morgan') (at 581 - 582) per Mason P (Sheller JA agreeing) (see also Maitland Hospital v Fisher [No.2] (1992) 27 NSWLR 721 ('Maitland Hospital') at 724).
5. In the circumstances so referred to, the onus falls upon the plaintiffs to persuade the Court that the defendants should be deprived of their prima facie entitlement under r 42.15A: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (at [83]) per Hunt AJA (Mason P and McColl JA agreeing); Leach at [29]. In Walker v Harwood [2017] NSWCA 228 Basten JA (with Payne JA agreeing) said (at [22]) that a 'tight leash' should be maintained as to the circumstances in which the Court should 'otherwise order', so as to promote certainty in the operation of the rules relating to offers of compromise and discourage offerees who seek to 'game the system' and avoid satellite litigation with respect to costs. It is also pertinent to note that departures from the default position of r 42.15A require not only consideration of the private interests of the parties to be considered, but also the public purposes of r 20.26 (not to also mention the general case management objectives in ss 56-60 of the Civil Procedure Act 2005 (NSW)), such as the prompt and economical disposal of litigation (Maitland Hospital at 725-6; Morgan at 581). A premise underlying r 42.15A is the common knowledge that litigation is 'inescapably chancy' and an underlying objective is to force offerees to give serious thought to the risk involved in non-acceptance of offers (Maitland Hospital at 724-6; Morgan at 581-2).
6. As to the plaintiffs' submission that it was not unreasonable for them not to accept the rules offer, their points were, in summary, that a reasonable offeree in their position would not have understood what was being offered in the rules offer; and that the timing of the offer was such that they had not fully exhausted their pre-trial preparation. A third, somewhat ancillary point, was that on the same date that the rules offer was served, the First Calderbank offer may have over-estimated the defendants' costs incurred to that point.
7. I am not persuaded by the matters raised by the plaintiffs. There could be no real confusion in what the defendants offered. They were making a 'walk away' offer, including the offered benefit (to the plaintiffs) of a consensual vacation of earlier costs orders consequential from procedural motions. As to the latter, that is a commonplace term in offers of settlement and there is no reason, or authority, pointed to by the plaintiffs which would suggest that an offer essentially in these terms is inimical to the objects of the scheme for rules offers. As the defendants pointed out in their submissions in reply, r 36.15(2) contemplates the court's vacation of an earlier order by the parties' consent. The structure of the terms of the offer was designed to accommodate the difficulties sometimes confronted in the making of rules offers posed by the requirement in r 20.26(2)(c). Similarly, it is a commonplace for settlement offers to require parties to enter into consent orders that a Court may make to dispose of the proceeding, as reflected by paragraph 6. This did not derogate from the structure or substance of the other terms. The orders proposed in paragraph 6 were hardly novel. Finally, although there was a slip in the singular reference to plaintiff in paragraph 6, by reference to the date when the offer was made (18 months or so after the proceeding had commenced) and the title page of the offer of compromise, the prefatory reference to the defendants' intention to "compromise the whole of the proceedings", it was obvious that the offer was being made to both the plaintiffs; and not just one of them.
8. The timing of the offer does not assist the plaintiffs in the circumstances. The offer, as indicated, was served well into the proceeding - 18 months after the proceeding was commenced against the first, second and third defendants and about 6 months after the joinder of the fourth defendant. It is not to the point that the plaintiffs had not completed all the pre-trial evidentiary steps that they wanted to take even though, as the defendants noted in their submissions in reply, they had, at the point when the offer was made, already issued a subpoena to RFS resulting in the production of a large number of documents in response to categories which was virtually synonymous with a request for third party discovery so voluminous the categories were [2] .
9. Further, it was, or should have been, well-known to the plaintiffs, as at the date the offer was made that they faced a large number of obstacles to success, having regard to the singular cause of action that they relied upon. It was a potentially (indeed probable) dispositive ground of failure of the action if, as came to pass, the plaintiffs could not satisfy the first of the requirements for the tort, which as the defendants indicated at the date of the offer, in terms ultimately reflected in the Primary Judgment, cut across the historical nature or rationale for the tort. No amount of the evidentiary trails that they wanted to explore after the offer of compromise was made could make up for this deficiency. Arguably, the same point may also have been raised, perhaps with lesser force, about the findings concerning causation; at least to the extent that this aspect of the case depended upon proof of what a third-party decision-maker might have done in terms of the scope of the investigation but for any maliciously false representations as was found. Further, it was not the case that at the date the offer was made, the plaintiffs could reasonably have held confidence that even if they succeeded on liability issues, they had the prospect of procuring as reward a large damages payout to justify the risks of failure on liability issues, given the very modest claims of actual damage and the somewhat speculative, or at least inherently unpredictable, nature of the claims for aggravated and exemplary damages.
10. It is not necessary, and it is therefore not a 'disentitling' factor, to consider the accuracy of the estimate of costs incurred to date as at the date of the rules offer, contained in the CSO's letter of 26 November 2020. The parties are at issue whether there was any actual conflict, with the defendants plausibly arguing that the $65,000 estimate in the Second Calderbank Offer was only an estimated quantification of earlier costs orders in their favour rather than an estimate of all costs incurred. It is arguably inappropriate to have regard to the content of the Second Calderbank Offer when considering the reasonableness or otherwise of non-acceptance of the rules offer since the position is to be assessed with reference to the circumstances known to the parties at the time of the offer (Noon v Bondi Beach Astra Retirement Village Pty Ltd (No.2) [2010] NSWCA 285 at [11]). At any rate, regardless of whether there was any ambiguity, given the timing of the offer, 18 months' into the proceeding, when, as the defendants had said, pleadings were closed (with the contours of the litigation not subsequently changing), and where costs orders had already been obtained by the defendants on procedural motions, it would or should have been obvious to a reasonable plaintiff in these plaintiffs' position that significant legal expenses would likely have been incurred by the defendants to the point when they were making that offer; and, further, that by the terms of the rules offer, the defendants were yielding an entitlement of not insignificant value. There is nothing in the evidence to indicate that the quantification of an estimate in the letter of 26 November 2020 had any effect upon the decision-making of the plaintiffs at the time. The plaintiffs rightly do not assert that the costs incurred by the defendants at the date of the rules offer were likely to be modest.
11. It follows from the Court not being persuaded to 'otherwise order' that the operation of r 42.15A upon a valid rules offer results in the defendants succeeding with their primary application.
12. It is unnecessary for the Court to consider the remaining bases for the defendants' application for a partial indemnity costs order and the issues raised about the two Calderbank offers.

Order

1. For the above reasons, the plaintiffs are to pay the defendants' costs of the proceeding: 1. up to and including 26 November 2020, on the ordinary basis; and 2. from 27 November 2020, on an indemnity basis.

Endnotes

1. Jay & Anor v Petrikas & Ors (No.4) [2022] NSWDC 628 (the "Primary Judgment'). These reasons on costs assume the reader's familiarity with the Primary Judgment
2. Jay & Anor v Petrikas & Ors (No.2) [2021] NSWDC 512 at [53]

Amendments 15 August 2023 - Amendment made to footnote DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 August 2023