This is my judgment in the matter of Lawson v Gana Holdings Pty Ltd. This case was one of five claims for professional negligence, heard together by me, against the same solicitors, arising out of the same matrix of fact. I gave my judgment in each of the cases on 25 March 2022. My principal judgment, as I styled it, was given in the matter of Lavars v Gillis and Ors [2022] NSWSC 13. The judgment in Mr Lawson's case, is in the matter of Lawson v Gillis and Ors [2022] NSWSC 185 ("Lawson").
In Mr Lawson's case, my orders were:
1. Judgment for each defendant as against the plaintiff.
2. The plaintiff to pay the defendant's costs.
3. Liberty to apply on short notice.
Within the time permitted by the rules, the defendants gave notice that they wish to apply for a special order as to costs more because of formal offers made which were no less favourable to the defendants than the result.
The first alternative is an order that the plaintiff pay the defendant's costs up to and including 5pm on 22 May 2019, on the ordinary basis, and thereafter, on the indemnity basis. The ground for that form of the order is set out in the affidavit of Julia Hewitt, solicitor, affirmed on 4 May 2022. That affidavit, relevantly, attaches a letter in the familiar Calderbank form, dated 22 May 2019, offering a settlement in the sum of $330,000, and costs in the sum of $65,000.
In the second alternative, the defendants seek an order that the plaintiff pay the defendant's costs up until 5pm on 10 July 2019 on the ordinary basis, and thereafter on the indemnity basis as agreed or assessed. The grounds for that offer are set out in Ms Hewitt's second affidavit, affirmed on 16 August 2022. That claim is based upon a letter dated 10 July 2019, making an offer in the same sum together with the plaintiff's costs as agreed or assessed, not subject to any cap. That second offer, although made in a letter rather than a court document, was expressed to be an offer of compromise in accordance with r 20.26, Uniform Civil Procedure Rules 2005 (NSW). In the further alternative, the solicitors specified that the offer was made in accordance with the principles set out in Calderbank v Calderbank [1976] Fam 93 and Messiter v Hutchinson (1987) 10 NSWLR 525.
The terms of the offer made clear that the defendants would be seeking costs on an indemnity basis from the date of the offer if the plaintiff received a less favourable result. Having considered the form of the letter of 22 May 2019, which I will not set out in full, I am satisfied that in its form, it is apt to engage with the principles set out in Calderbank v Calderbank. There is no doubt that the offer was more favourable in terms than the result obtained by judgment, obviously. And I am satisfied that although I assessed Mr Lawson's damages contingently in a sum in excess of $900,000, the sum offered was a genuine attempt at compromise, rather than an offer tactically made to engage an entitlement to indemnity costs.
The principles governing the exercise of the discretion to award indemnity costs when a plaintiff rejects or fails to accept a Calderbank offer, have been authoritatively summarized by Brereton JA in Della Franca v Lorenzato; Burwood Council v Lorenzato (No 2) [2022] NSWCA 53 ("Della Franca") (Basten AJA agreeing). Brereton JA said at [47] (omitting citations):
"An unaccepted Calderbank offer is merely a relevant consideration in the exercise of the cost discretion. Unlike a formal offer of compromise under the rules, it does not have any presumptive effect as to the costs position if the offeree does not better it… Nonetheless, as a matter of discretion, a Calderbank offer may justify a special order for costs, including an order for costs on an indemnity basis, if the final judgment is no more favourable than the offer, its rejection was unreasonable, and the offer sufficiently foreshadowed its use to support a special costs order. A party who seeks to rely on a Calderbank offer for costs purposes bears the onus of showing that an order for indemnity costs should be made on the basis of the offer."
Looking at the result in the case at hand by reference to Brereton JA's "conditions", the final judgment was less favourable to Mr Lawson than the offer, and the defendant sufficiently foreshadowed the offer would be used to support an application for indemnity costs in that event. The only question in my mind is whether the rejection or failure to accept the offer was unreasonable, bearing in mind the defendant bears the onus in this regard.
During argument, I discussed with Ms Harris-Roxas of counsel, who appears for the defendant, my concern in relation to one aspect of the matter. My contingent findings on quantum are set out in the Lawson judgment (at [127], ff) (Court Book p. 144 ff). The principal proceedings related to what was allegedly negligent advice given in relation to an offer to compromise in Federal Court proceedings. Mr Lawson's judgment in the Federal Court was much less favourable to him than the offer of compromise had it been accepted.
I determined in my contingent quantum findings that there were three elements, or three heads of damages to Mr Lawson's claim, had it been successful. The first was the net difference between the offer of compromise and the Federal Court judgment. The second head was costs paid and payable to the defendant after the date upon which the offer of compromise took effect, and the third element was the Federal Court respondent's costs. So far as the second element was concerned, Mr Lawson had paid invoices to the defendant solicitors, at various times, up until the Federal Court judgment was handed down. A dispute arose about further and total fees payable to them. At [138] of my judgment in the Lawson case, I said:
"As in other cases, there remains a question about the legal practice's entitlement to claim additional costs from Mr Lawson, for work done before and after 13 December 2011, which has not been resolved by finalisation of the assessment process. The legal practice contents itself with arguing that this issue cannot be dealt with as damages. As in Moore v Gillis, I would have been prepared to make declaratory order in terms I would have required the parties to bring in to finalise the proceedings and quell all issues in dispute."
Two things seem to me to be clear. First, on the face of the May Calderbank offer, there is no mention of the costs due from Mr Lawson to the legal firm. Secondly, it was known to both parties, that is to say, the law firm and Mr Lawson, that the law firm had initiated an assessment process in respect of the fees due to it for acting for him, which was not yet finalised. Perhaps arguably, as a matter of construction, the offer, if accepted, would have included those costs. However, that is not clear on the face of the offer and subsequent events suggest that that would have been an erroneous understanding.
I accept that there was no request for additional information on behalf of Mr Lawson. There is no evidence before me that the question of the fees due to the law firm was not raised with their solicitors in relation to a consideration of the offer. However, bearing in mind where the onus lies in relation to the application for indemnity costs, based on the May offer, I am not satisfied that the defendant has proved that Mr Lawson's rejection of that offer was unreasonable, in the sense discussed by Brereton JA, so that a discretion to award indemnity costs, based upon that circumstance, has been engaged. And I would not allow indemnity costs from May 2019.
And I turn then to the July offer. The July offer was also made in a way of letter headed, without prejudice save as to costs, but as I have pointed out, in its express terms, it specified that the offer was being made in accordance with the provisions of the rules, and in particular, r 20.26. It seems to me that there is nothing in r 20.26 which specifies the form an offer of compromise under the rules must take, other than the consideration that there must be a notice in writing. It also seems to me that without more, the specification that the rule applies to a formal offer made in writing, even by letter, sufficiently engages r 20.26, for it to operate as an offer of compromise, all other things being equal.
There is nothing else about the form of the July offer, which, it seems to me, invalidates it as an offer of compromise, a matter which Ms Harris‑Roxas took me through during argument, in relation to my concerns about various aspects of the form of the letter. And I am satisfied that it does engage the rules. For this reason, it's unnecessary, I think, in respect of that letter, for the defendant to rely upon the principles in Calderbank v Calderbank, which were only invoked, as it were, in the alternative, if "this offer is ineffective under the rules".
There were a number of conditions imposed in relation to Mr Lawson's acceptance of the offer, which it was envisaged would be embodied in a deed of settlement and release (my expression, not the expression used in the letter), including a full discharge of the defendant from all and any liability to Mr Lawson arising out of, I will simply say, the matrix of fact, to all of the related cases cases. However, it was subject to this important condition, which is relevant to what I have said, in relation to the offer of compromise:
"Payment is conditional upon the execution by the plaintiff of a Deed of Release in favour of the defendants, which:
…
e) preserves the defendant's legal rights and entitlements to enforce any judgement registered in their favour, arising out of any certificate of determination issued by the Supreme Court of New South Wales, in cost assessment, at 2016/383451"
As I have already said, it was agreed between the parties at the hearing of the principal proceedings before me that that entitlement had not yet crystalised in the assessment process, and that no certificate had in fact, even at that stage, been registered as a judgment in favour of the defendant law firm in the Supreme Court. This has given me considerable concern as in the absence of finalisation of that matter, the value of the offer to Mr Lawson is impossible to calculate.
So far as that matter is concerned, Ms Harris‑Roxas drew my attention to subrule (4) of r 20.26 which is in the following terms:
If the offeror makes an offer before the offeree has been given such particulars of the offeror's claim, and copies or originals of such documents available to the offeror, as are necessary to enable the offeree to fully consider the offer, the offeree may, within 14 days of receiving the offer, give notice to the offeror that:
The offeree is unable to assess the reasonableness of the offer because of the lack of particulars or documents, and
In the event that r 42.14 applies to the proceedings, the offeree will seek an order of the Court under rule 42.14(2).
Rule 42.14 is the cost rule which applies in respect of a plaintiff's offer to a defendant. That is not this case. It is clear, however, that subrule (4) applies to all offers, and par (b) in its terms make clear that it deals with a contingency, by use of the expression "in the event that", which may arise in cases where the costs consequences of a plaintiff's offer are in question. It is apparent that the language of par (b) does not indicate as a matter of construction that subrule (4) only applies to plaintiff's offers. Were that so, the neutral language of offeror and offeree would not be employed but reference would be made to plaintiff and defendant respectively.
Ms Harris‑Roxas argues that the failure of Mr Lawson to invoke subrule (4) of r 20.26 is relevant to the exercise of the residual discretion to order otherwise which the Court has in relation to r 42.15A, which is the cost rule applying here where an offer has been made by the defendant, not accepted by the plaintiff and the defendant has obtained a judgment which is no less favourable than the offer.
One can see that having made an offer in the sum of $330,000 plus costs, the result of judgment for the defendant with the plaintiff to pay the defendant's costs is in anyone's understanding "no less favourable to the defendant" than the July offer. Subrule (2) creates the "presumptive effect" Brereton JA referred to in Della Franca. It provides in legal effect that the defendant is entitled to an order against the plaintiff for its costs in respect of the claim to be assessed on the ordinary basis up until a certain date and on an indemnity basis thereafter "unless the court orders otherwise".
This application has proceeded ex parte because by email to my chambers last night at 5pm the solicitors for the plaintiff indicated they would take no part in the proceedings because the plaintiff was not in the position to, as it is sometimes put "properly instruct counsel." Accordingly, Ms Harris-Roxas has presented the argument without a contradictor. It seemed to me that the issue about the unfinalised cost assessment was a ground capable of engaging the residual discretion to "order otherwise" under r 42.15A. Ms Harris-Roxas drew my attention to the decision of Justice Kunc in Bates v Cooke (No 2) [2014] NSWSC 1322, which has been followed in a number of subsequent decisions. His Honour indicated that for the residual discretion to be favourably exercised from a plaintiff's point of view, the plaintiff must point to "a rational basis" founded in the history of the proceedings, the terms of the offer or other considerations firmly rooted objectively in the litigation that justified the court ordering otherwise in the context of the intended presumptive effect. She argued that having regard to the option available to Mr Lawson under subrule (4) of r 20.26, and bearing in mind where the onus lies, I could not be satisfied that I should otherwise order.
No doubt was the residual discretion should be exercised with the purpose of offers of compromise borne firmly in mind. And in her written submissions Ms Harris-Roxas has referred to Maitland Hospital v Fisher (No 2)(1992) 27 NSWLR 721 ("Maitland Hospital") where a unanimous Court of Appeal (Kirby P, Mahoney JA and Samuels A-JA) identified the objects of the rules then in force. Despite amendments over the years, I think it can be said with confidence that the purpose and object of the rule has not altered at all since Maitland Hospital was decided (at 724):
The objects of the rule include:
1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its "bottom line" will be revealed to the court;
2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and
3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation.
In the case at hand, the first object their Honours identified, the encouragement of the saving of private costs and the avoidance of the inherent risks and uncertainties necessarily attended upon litigation must be borne in mind. There can be no doubt that the defendant's offer was, to adopt their Honour's expression, "a realistic assessment of the plaintiff's real claim" which must necessarily be considered with the benefit of hindsight, given the touchstone of the plaintiff's liability for indemnity costs is a result of "no less favourable to the defendant".
While I think there is force in counsel's argument, it should also be borne in mind that the question of costs payable to the defendant law firm was entirely within the control of the defendant. The terms of the July offer made it clear that the defendant was not intending in any way to waive what it considered its costs entitlements arising out of its retainer with Mr Lawson. Given the complexity of the proceedings in the Federal Court and the length of the hearing in that forum, those costs were obviously going to be very significant indeed. I acknowledge what would be obvious to anyone, that the carriage of the litigation on behalf of the legal practice is in the hands of the single professional indemnity insurer of solicitors for NSW, Lawcover. It would be unrealistic to not acknowledge that. At the same time, for the purpose of the litigation the defendant is the law firm, and the offer is made on behalf of the law firm and the question of insurance is strictly irrelevant.
Without any criticism, unless it was made clear to the plaintiff, Mr Lawson here, what costs were due, a matter entirely within the control of the defendant then no assessment could be made of whether the offer of compromise was of any value to Mr Lawson. Now, obviously the payment of a sum of $330,000 has an absolute value, and whatever the resolution of the question of the law firm's costs Mr Lawson would be, objectively speaking, $330,000 better off by accepting the offer subject to the margin of solicitor and client costs due to his own solicitors.
I have not found this an easy question to resolve, however, it seems to me that the consideration I have identified in relation to the unfinalised assessment of costs which was in the control of the named defendant in the litigation, provides a rational basis firmly founded in the objective circumstances of the litigation sufficient to justify an exercise of the residual discretion connoted by the words "order otherwise".
I am not of the view, in the particular circumstances of this case, that subrule (4) of r 20.26 provides an answer to that consideration. Doubtless, Mr Lawson would have been served with materials that were put before the cost assessor to justify the solicitor's charges. The real question was what would the cost assessor make of them? Indeed, the real question was what would his final liability be? And that could not have been answered by seeking any further particulars from the defendants in relation to their offer of compromise. It could only be answered by the provision of the certificate of assessment. In these circumstances, I am satisfied that I should order otherwise.
I decline for these reasons to vary the cost order I made on 25 March 2022. Were it necessary to go on and consider what effect those matters which have led to my decision would have had, had I treated the July offer as a Calderbank offer, I would have come to the same conclusion.
My order is
1. The amended notice of notion of 24 August 2022 is dismissed with no order as to costs.
2. Given that there has been no appearance or indeed any response other than the email of last night, to which I have referred, it is not appropriate that there should be any award of costs for, as it happens, the "successful" plaintiff.
[2]
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Decision last updated: 30 August 2022