Langley v Age Company Ltd [2002] VSC 243

5. The plaintiff gave notice of acceptance of the offer on the evening of 11 June; that is, the evening preceding the day on which a new trial was to commence. Although the notice in terms accepted the defendant's offer, a covering letter said this:

"We advise that the plaintiff intends by reason of the defendant's non-acceptance of the plaintiff's Offer of Compromise dated 4 October 2000 to seek costs on a solicitor and client basis except in respect of all extant costs orders."

9. The offer of compromise referred to in the covering letter was handed to me by Mr Houghton, for the plaintiff, during argument on 12 June. Mr Sher, for the defendant, did not consent to its disclosure and submitted that it should not be formally received. I looked at it subject to those important reservations, which must later be considered. The plaintiff offered to accept "$70,000 plus party party costs".

12. On 12 June, Mr Houghton sought orders that all previous costs orders made in the proceeding stand; that otherwise the defendant pay the plaintiff's costs, including reserved costs, up to that day; and that from 4 October 2000 the costs be paid on a solicitor and client basis.

15. On 12 June there was no argument between the parties against the position that previous costs orders, including the order which I made on 6 June, should stand. In my opinion no confirmatory order is required in that connection.

18. According to r. 26.03(7) of Chapter 1 of the Rules, the effect of acceptance of an offer of compromise is that, unless the court otherwise orders, the plaintiff shall have his costs up to and including the day the offer was served. It was not in debate that the court has power to make a costs order extending beyond that date[1]. Having regard to the relevant course of this matter, including the circumstance that the new trial of the proceeding was to commence on 12 June on amended pleadings, to the fact that (as I was told from the Bar Table) the defendant's offer of compromise was made on Friday 7 June at about lunchtime, this being just before the commencement of the Queen's Birthday Holiday weekend, and to the fact that the matter was complex and justified careful consideration of any offer made, I consider that there should be an order that the plaintiff have his costs up to and including 12 June 2002. Mr Sher, I add, did not argue to the contrary.

21. The only area of debate between the parties on 12 June centred on the plaintiff's claim to solicitor and client costs from 4 October 2000. The plaintiff relied on his offer of compromise, which counsel submitted should be given effect notwithstanding that his client had not obtained a judgment no less favourable than the terms of the offer: as to which see r. 26.08(2)(b). Counsel argued that the court has power, notwithstanding the acceptance of an offer of compromise, to make a special order for costs. He cited Way v Swan Television & Radio Broadcasters Ltd[2]. He submitted that it would accord with the purposes of the offer of compromise procedure to make the order sought. In connection with those purposes he referred to Maitland Hospital v Fisher (No. 2)[3].

24. Mr Sher did not press an argument that the plaintiff, by accepting the defendant's offer, had accepted an offer by the defendant to pay the plaintiff's costs on a party and party basis. That argument, if pursued, would have run into trouble because of r. 26.03(8). Nor did Mr Sher challenge the jurisdiction of the court to make a special costs order where an offer of compromise is accepted. He rather submitted that no circumstance had been disclosed which justified the making of such an order. He argued that I could not have regard to the plaintiff's offer of compromise. It was a without prejudice communication, part of negotiations. The defendant did not consent to its disclosure. He cited Walker v Wilsher[4] the correctness of which, he submitted, had not been questioned for more than a century. The plaintiff's offer, he submitted, could only be relied upon, vis-à-vis the question of costs, in the circumstances described by the rules - specifically, r. 26.08(2).

27. Mr Sher also submitted that, in the event that I considered I was entitled to consider the plaintiff's offer, I should take into account, against the plaintiff:

[diamond] the circumstance that if the defendant had accepted the plaintiff's offer it was possible that the plaintiff would have recovered only County Court costs, the amount of the plaintiff's offer being less than 50% of the County Court jurisdictional limit. Now, by contrast, the plaintiff will recover Supreme Court costs;

[diamond] the fact that the plaintiff, by accepting the defendant's recent offer, is now $50,000 better off than he would have been had the defendant accepted his offer. That additional sum should more than meet any solicitor/client costs incurred by the plaintiff since October 2000.

32. Mr Houghton replied to the proposition that the plaintiff's offer constituted a without prejudice communication, which could not now be relied upon, by referring me to r. 26.05(2). Mr Sher countered by referring me to r. 26.04.

35. I consider that I do have power to make a special order as to costs, a matter which, as I have said, was not in debate between the parties. Whether I should make the special order sought by the plaintiff turns, in my opinion, principally upon the question whether the plaintiff's offer of compromise may be considered on the issue of costs. I consider that this question must be resolved against the plaintiff, for the plaintiff's offer of compromise was a without prejudice communication, to the disclosure of which the defendant has not consented.

38. I am strongly of opinion that the parties to litigation today must seriously consider all offers of settlement; including offers of informal character[5]. That opinion reflects, I would understand, the trend of judicial thought in Australia and elsewhere. But it does not justify the Court treating an offer made under the Rules, given the status of a without prejudice communication subject to specific exception, as being, in effect, an offer without prejudice save as to costs.

41. I should enlarge upon the conclusions which I have just expressed. I deal first with the nature of the plaintiff's offer. The plaintiff sought to make use of the O. 26 procedure. His offer complied with the requirements of r. 26.02[6]. His offer was to be taken to be an offer of compromise without prejudice; there was no statement otherwise: r. 26.04. The offer potentially carried with it a costs benefit for the plaintiff, defined by the Rules. At the same time the plaintiff was protected in making the offer by the operation of r. 26.04.

44. Rule 26.05 inhibits the circumstances in which the making of an offer of compromise under the Rules can be brought to the attention of the Court. Paragraph (2) deals with the situation at trial. It relevantly provides that:

"... no communication with respect to the offer shall be made to the Court on the trial of the proceeding until after all questions of liability and the relief to be granted have been determined."

48. I have no doubt that this means, in a trial situation, that there is an embargo on disclosure of an offer until the Court or a jury, as the case may be, has resolved disputed questions; and that r. 26.05(2) does not address the circumstance where in the course of a trial an offer of compromise is accepted. It is not appropriate to describe resolution of a proceeding by acceptance of an offer of compromise as a determination of all questions of liability and the relief to be granted. That is so for a number of reasons.

51. First, determination is the language of resolution of disputed issues by the Court or a jury[7].

54. Second, "relief to be granted" evidently includes determination by the Court of entitlement to interest, a matter which ordinarily does not arise when an offer of compromise is accepted. Even after determination of such entitlement a certain prohibition on disclosure of an offer of compromise remains: see r. 26.08(5) and (6).

57. Third, by contrast with determination of disputed questions by the Court or a jury, acceptance of an offer of compromise is to the same effect as an agreement to compromise: "(I)t does not result and is not intended to result in a judicial decision and cannot be the basis of a plea of res judicata"[8]. To highlight that point, a compromise can in certain circumstances be the subject of judgment: r. 26.07(1)(2).

60. Fourth, central to O. 26 is the notion that a party should suffer in costs if judgment at trial is less favourable that what was earlier offered by the other party. The thrust of r. 26.08 is set by paragraph (1), which says that it "applies to an offer of compromise which has not been accepted at the time of verdict or judgment". All that follows is predicated upon there being judgment.

63. It might be argued - perhaps it was implicitly argued by Mr Houghton - that r. 26.05 is not exhaustive; that it does not address all circumstances in which an offer of compromise may be brought to the court's attention. So, if in the present case r. 26.05 for one reason or another[9] did not authorise communication of the plaintiff's offer of compromise to the court, yet it was nonetheless open to the plaintiff to rely upon his offer on the question of costs.

66. I do not accept that argument. It seems to me that the structure of the relevant rules is that, unless an offer provides that it is not without prejudice, it is to have that status, a status to which there is but one exception[10]. It is at trial, where the Court or a jury has determined all questions of liability and the relief to be granted. That exception is critically necessary in order that the sanction created by r. 26.08 can work.

69. I acknowledge the possibility that disclosure of an offer might be permissible on a particular interlocutory application - specifically, an application for an order under r. 26.03(5). In that connection the previous payment into court procedure may provide a guide. There, the Court had power to permit a defendant to withdraw money in court, or to reduce the amount paid in. In some instances at least a defendant was permitted to disclose the offer constituted by the payment in[11]. But there is evidently a distinct limit upon disclosure of an offer of compromise on interlocutory applications[12] just as there is on appeal.

72. In the event, subject only to the possible influence of what may be called policy considerations, the plaintiff's offer of compromise was and remains a without prejudice communication; and the plaintiff should not be entitled to rely upon it in seeking an order for solicitor and client costs from 4 October 2000.

75. So far as policy is concerned there is a strong impetus to obliging parties, at pain of costs, to give serious consideration to informal as well as to formal offers. There are a number of aspects to that impetus. Thus:

[diamond] the judicial imprimatur given to the Calderbank letter procedure,[13] whatever debate there may be as to the precise consequences of use of that procedure;

[diamond] the enactment of legislation and adoption of rules of court which formally recognise what was formerly an informal procedure. Section 117C of the Family Law Act 1975 (Cth) is a case of the former type. Part 36.19(1) of the English Rules of Civil Procedure 1998, which reads:

"A Part 36 offer will be treated as `without prejudice except as to costs'."

[diamond] enactment of s. 131(2)(h) of the Evidence Act 1995 (Cth). It creates an exception to the general rule, set out in sub-s. (1), that evidence is not to be adduced of communications made between, inter alia, parties to a dispute in an attempt to negotiate a settlement. It does so by providing that sub-s. (1) does not apply if:

"the communication or document is relevant to determining liability for costs."[14]

84. Given the policy to which I have referred, the fact remains that in Victoria, in the case of an offer made under the Rules, there is no equivalent of Part 36.19(1) of the English Rules. The Victorian Rules have a quite different content. Moreover, the legislation to which I have referred has no application. The question, in reality, becomes this: should the orthodox principles by which the Rules would ordinarily be construed be abandoned for policy reasons, that enabling the plaintiff's offer in the circumstances of this case to be treated as something which it was not - an offer without prejudice save as to costs. To that question there is a short answer: it is no part of construction of the relevant rules to ignore their language and create a fiction. I could not accept that Murphy J had any such thing in mind when he said, in Henderson v Simon Engineering (Australia) Pty Ltd[15] that the court should attempt to give effect to the spirit of the Rules rather than slavishly applying their words as a code. Nor, I should add, does the dissenting judgment of Hayne JA in Grbavac provide any support for reading the Rules to say something which they do not.

87. Order 26 contemplates not simply that any party to a proceeding may make an offer of compromise but that a party may make multiple offers. It might be thought unsatisfactory that the penalty costs consequences of the Order depend upon litigation going to judgment. The present case may be said to exemplify the need for a change to the Rules which would strip an offer of its without prejudice character in circumstances where the later offer of another party was accepted[16]. But that is another matter.

90. What I have said disposes of the plaintiff's application for solicitor and client costs. There is no need for me to consider the additional matters raised by Mr Sher, noted at paragraph 9 of these Reasons.

93. It being common ground that existing costs orders should stand and that r. 26.03(7) provides for the residue of the plaintiff's costs up to and including 7 June 2002, and bearing in mind my conclusion that the plaintiff should have his costs up to and including 12 June 2002, I will order that the defendant pay the plaintiff's costs for the period 8 June - 12 June 2002 inclusive.

[1] As to which see Malliaros v Moralis and Anor [1991] VicRp 86; [1991] 2 VR 501 at 504-505.

[2] (1991) 5 WAR 323 at 324-325.

[3] (1992) 27 NSWLR 721 at 724, cited with approval by Hayne JA, dissenting in the result, in Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154 at 164.

[5] See my observations in Clarke and anor v Australian Broadcasting Corporation and anor [2001] VSC 274 at paragraphs 16 and 17 and in Pearson and anor v Williams and anor [2002] VSC 30 at paragraphs 20-31.

[6] Save by its reference to costs, which may be ignored: r. 26.03(8).

[7] See, the list is not intended to be exhaustive, Rules 45.04(4)(a)(c), 45.05(7)(a)(c), 47.05, 77.01(b)(c), 77.02(3)(4) and 77.04(1)(2).

[8] Cole v Austin Distribution Ltd [1953] VicLawRp 25; [1953] VLR 155 at 158. That case related to the payment into court procedure, but is not for that reason inapt.

[9] Because acceptance of the defendant's offer was not a determination of questions of liability and the relief to be granted; or perhaps because 12 June was not "the trial of the proceeding".

[10] I disregard, for it does not affect the argument, the partial exception created by r. 26.08(6).

[11] Williams v Boag [1941] 1 KB 1 (CA); see also Bonitto v Fuerst Bros & Co Ltd [1944] AC 75 at 84.

[12] Macplan Logistic Systems Pty Ltd v Baxter Healthcare Pty Ltd (1996) 39 NSWLR 324; and see the cases there cited.

[14] Section 131(2)(h) is also contained in the Evidence Act 1995 (NSW).

[15] [1988] VicRp 77; [1988] VR 867 at 872, cited with approval by McGarvie J in Malliaros op cit at 504-505.

[16] Though here, because of the costs order which I made on 6 June, the plaintiff's position was in fact substantially protected.