Leach v The Nominal Defendant

Statutory framework 8Costs are in the discretion of the Court which has full power to determine by whom, to whom and to what extent costs are to be paid (whether on the ordinary basis or on an indemnity basis), subject to, inter alia, rules of court: s 98(1), Civil Procedure Act 2005 (NSW). 9Subject to the provisions of UCPR Part 42, if the court makes any order as to costs, it is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs: UCPR 42.1. Unless the court orders otherwise or the rules otherwise provide, costs payable by court order or under the rules are to be assessed on the ordinary basis: UCPR 42.2. The "ordinary basis" means the basis of assessing costs in s 364(1) and (2) of the Legal Profession Act 2004 (NSW): s 3(1) Civil Procedure Act. 10UCPR Part 51, Division 8, Subdivision 1 deals with "Offers of compromise" in the Court of Appeal. In Subdivision 1, "'opposite party' means a prospective respondent, respondent or cross-respondent (as the case may be)": UCPR 51.46 11UCPR 51.47(1) enables any party "by notice in writing, [to] make an offer to any other party to compromise any claim in the proceedings, in whole or in part, on specified terms". The provisions of UCPR Part 20, Division 4 "apply to any offer of compromise made under subrule (1)", subject to modifications which reflected the parties' and the proceedings' status in the Court of Appeal: UCPR 51.47. Three of those modifications are presently relevant. First, UCPR 51.47(2)(c) provides that "a reference to a plaintiff is a reference to an initiating party in the Court." Secondly, UCPR 51.47(2)(d) which provides that "a reference to a defendant is a reference to an opposite party in the Court" and thirdly, UCPR 51.47(2)(f) which provides that "a reference to a verdict for the defendant is a reference to a judgment for the opposite party". 12UCPR 51.48 (Application of Division 3 of Part 42 to offers of compromise made in proceedings in Court) has the effect that if an offer of compromise is made under UCPR 51.47, then Division 3 of Part 42 applies, subject to matters not presently relevant, but, again, with certain modifications. First, UCPR rule 42.13 "is to be read as if it provided that the Division applies where an offer of compromise ... is made as provided by rule 51.47 with respect to a plaintiff's claim ... ": UCPR 51.48(1)(a). Secondly, "a reference to a verdict for the defendant is a reference to a judgment for the defendant": UCPR 51.48 (1)(g). 13UCPR 42.15A, which appears in Division 3 of Part 42, must be taken into account for the purposes of UCPR 42.1 and UCPR 51.48: 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." 14By reason of the UCPR 51.47 modifications to which I have referred, "defendant" in the present context is to be read as referring to the respondent, and "plaintiff" to the appellant. 15At the time the Offer was made on 12 November 2013, UCPR 20.26 (which appears in Division 4 of UCPR Part 20), in the form inserted into the UCPR on 7 June 2013 by Sch 1, cl 4 of the Uniform Civil Procedure Rules (Amendment No 59) 2013 (NSW) (the "2013 UCPR amendments"), relevantly provided: "20.26 Making of offer (cf SCR Part 22, rules 1A, 2, 3 and 4; DCR Part 19A, rules 1, 2, 2A, 3 and 4; LCR Part 17A, rules 2 and 5) (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer under this rule: (a) must identify: (i) the claim or part of the claim to which it relates, and (ii) the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and (b) if the offer relates only to part of a claim in the proceedings, must include a statement: (i) in the case of an offer by the plaintiff, as to whether the balance of the proceedings is to be abandoned or pursued, or (ii) in the case of an offer by a defendant, as to whether the balance of the proceedings will be defended or conceded, and (c) must not include an amount for costs and must not be expressed to be inclusive of costs, and (d) must bear a statement to the effect that the offer is made in accordance with these rules, and (e) if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to that interim payment, and (f) must specify the period of time within which the offer is open for acceptance. (3) An offer under this rule may propose: (a) a judgment in favour of the defendant: (i) with no order as to costs, or (ii) despite subrule (2) (c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or (b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or (c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer. (4) 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: (a) the offeree is unable to assess the reasonableness of the offer because of the lack of particulars or documents, and (b) in the event that rule 42.14 applies to the proceedings, the offeree will seek an order of the court under rule 42.14 (2). (5) The closing date for acceptance of an offer: (a) in the case of an offer made two months or more before the date set down for commencement of the trial-is to be no less than 28 days after the date on which the offer is made, and (b) in any other case-is to be such date as is reasonable in the circumstances. (6), (7) (Repealed) (8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer. (9) An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides. (10) A party may make more than one offer in relation to the same claim. (11) Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer. (12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division. 16Prior to 7 June 2013, UCPR 20.26 (the "former rule") relevantly provided: "20.26 Making of offer (cf SCR Part 22, rules 1A, 2, 3 and 4; DCR Part 19A, rules 1, 2, 2A, 3 and 4; LCR Part 17A, rules 2 and 5) (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs. (3) A notice of offer: (a) must bear a statement to the effect that the offer is made in accordance with these rules, and (b) if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to the payment so made or ordered. ... (6) An offer may be expressed to be limited as to the time it is open for acceptance. ... (12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division." (Emphasis added) 17The former rule is germane because, as discussed below, it is apparent that the Offer was drafted by reference to it, rather than UCPR 20.26 as in force in November 2013.

Consideration 27The appellant does not dispute the fact that the judgment on appeal was more favourable to the respondent than the terms of the Offer. The appeal was dismissed with costs, thus preserving the costs order the respondent secured at trial, as well as awarding costs in the respondent's favour. The respondent had been prepared to forego both of those costs outcomes in the Offer. The Offer was not, as the respondent submitted, identical with the Court's order, because the respondent was awarded costs and retained the benefit of the trial costs order. However that is of no moment in considering the application for indemnity costs once it is concluded that, prima facie, the Offer attracted the operation of the relevant rule. 28As I have said, the respondent submitted that it was entitled to an indemnity costs order by virtue of UCPR 42.15(2)(b). That rule applies in circumstances where, applying the UCPR 51.47(2) modifications, "the offer is made by the [respondent], but not accepted by the [appellant], and the [appellant] obtains an order or judgment on the claim no more favourable to the [appellant] than the terms of the offer": UCPR 42.15(1). However, it was the respondent which obtained an order no less favourable than the terms of the Offer. Accordingly, the relevant rule is UCPR 42.15A which, again with the appropriate modifications, applies where "the offer is made by the [respondent], but not accepted by the [appellant], and the [respondent] obtains an order or judgment on the claim no less favourable to the [respondent] than the terms of the offer". 29In those circumstances, on the assumption the Offer operated under UCPR 20.26 so as to trigger UCPR 42.15A, it was the appellant who bore the onus of persuading the Court that indemnity costs should not be ordered: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (at [83]) per Hunt AJA (Mason P and McColl JA agreeing). With that in mind, I turn first to the appellant's challenge to the proposition that the Offer took effect pursuant to UCPR 20.26. 30It is apparent from the form of the Offer, that its drafter was unaware of the 2013 UCPR amendments. The Offer's terms reflect the former UCPR 20.26(2) which permitted an offer to provide for a "verdict for the defendant", which with the modifications made by UCPR 51.47(2), would have supported the respondent's offer of a "verdict for the Respondent". UCPR 20.26(3)(a) as in force when the Offer was made, however, permits an offer proposing "a judgment in favour of the defendant". UCPR 51.47(2)(f) was not amended when the 2013 UCPR amendments were made. However, in my view UCPR 51.47(2)(f) should be read as applying to UCPR 20.26(3)(a). In other words the term of the Offer that there be a "verdict for the Respondent" (the latter being an "opposite party in the Court") should be read as proposing a "judgment in favour of the [respondent]" for the purposes of UCPR 20.26(3)(a). 31Secondly, the Offer proposed that "[e]ach party ... pay their own costs" in respect of the trial and the appeal, reflecting the former UCPR 20.26(2), rather than proposing "no order as to costs" as now permitted by UCPR 20.26(3)(a)(i). The appellant contended the form of words used invalidates the Offer. That submission should be rejected. 32The effect of a "no order as to costs" order is that each party must pay his own costs: Re Hodgkinson [1895] 2 Ch 190 (at 194) per Lindley LJ; see also (at 194) per Lopes LJ to like effect. That meaning of a "no order as to costs" order has remained unchanged for over a century: Donnelly v Maxwell-Smith [2010] FCAFC 154 (at [23]) per Bennett, Rares and McKerracher JJ); see also Vertzayias v King [2011] NSWCA 215 (at [111] - [114]) per Giles JA (with Macfarlan and Whealy JJA's agreement). 33Accordingly, in my view, although the Offer uses a different form of words to those found in UCPR 20.26(3)(a)(i), the effect of the words used is that intended by the current rule. 34Another indication the drafter was looking at the former UCPR 20.26 can be seen in the fact that the time during which the Offer could be accepted was set out in the covering letter rather than in the Offer itself. That indicates an intention to comply with the former UCPR 20.26 which did not, on its face, compel inclusion of any time condition within the offer of compromise. UCPR 20.26(2)(f) now mandates that an offer "specify the period of time within which [it was] open for acceptance". Does that omission, as the appellant submits, invalidate the Offer? 35As the present case illustrates, there could be many breaches of the requirements of the contents of an offer of compromise. However UCPR 20.26 only deals with non-compliance in one respect. Pursuant to UCPR 20.26(12), a "notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division". (Curiously, the rule does not refer to UCPR 42.15A, most probably because it was inserted into the rules in December 2006: Uniform Civil Procedure Rules (Amendment No 11) 2006 (NSW); New South Wales Government Gazette, Number 175, 8 December 2006, at 10465 - 10466; for the apparent genesis of its insertion, see Seven Network Ltd v News Ltd [2007] FCA 1489; (2007) 244 ALR 374 (at [35]) per Sackville J.) 36UCPR 42.14 and UCPR 42.15 deal with the costs consequences of an offer not being accepted. It was the inconsistency between an offer of compromise containing terms concerning costs (other than those permitted by the rules to which I have referred) and the court's power under those rules to make a contrary order, which invalidated such offers: Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311 (at [25] ff) per Bathurst CJ (Beazley P, McColl and Emmett JJA agreeing). 37Whether non-compliance with the requirements of UCPR 20.26 as to the form of an offer invalidates the offer turns on whether "it was a purpose of the legislation that an act done in breach of the provision should be invalid ... [i]n determining the question of purpose, regard must be had to the language of the relevant provision and the scope and object of the whole statute": Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 (at [91] - [93]) per McHugh, Gummow, Kirby and Hayne JJ. 38No such inconsistency as that discussed in Whitney v Dream Developments Pty Ltd arises where the time an offer is open for acceptance is contained in the covering letter. Further, the fact that UCPR 20.26 does not sanction non-compliance with the otherwise apparently obligatory requirements for the form of the offer suggests the legislature did not intend to render inefficacious an offer which otherwise complied with its requirements: see Lardil, Kaiadilt, Yangkaal and Gangalidda Peoples v State of Queensland [2001] FCA 414; (2001) 108 FCR 453 (at [117] - [118]) per Dowsett J (Merkel J agreeing). 39Accordingly, in my view, the fact that the time the Offer was open for acceptance appeared in the covering letter rather than in the body of its text, does not render the Offer inefficacious. 40The consequence is that a prima facie entitlement arose in favour of the respondent to have costs awarded in accordance with UCPR 42.15A: New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 (at 102) per Gleeson CJ (Clarke and Cripps JJA agreeing); Leichhardt Municipal Council v Green [2004] NSWCA 341 (at [19]) per Santow JA (Stein JA agreeing). 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'": Morgan v Johnson (1998) 44 NSWLR 578 (at 581 - 582) per Mason P (Sheller JA agreeing). 41However, in order for an offer of compromise made under the UCPR to attract an indemnity costs order, it must involve a "genuine offer of compromise" and not merely be made so as to trigger the costs consequences under the rules: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 (at [16]) (Spigelman CJ; Beazley and McColl JJA). 42Whether there was a real element of compromise is determined objectively according to the circumstances of the particular case at the time the Offer was made rather than with the benefit of hindsight: Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 (at [17]); Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 ("Miwa") (at [11]). It is also determined by reference to the rule pursuant to which the offer was made: Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 (at [22]) per Basten JA (Campbell JA agreeing). 43In my view in the circumstances of this case, the Offer did constitute a genuine offer of compromise. The opportunity to offer any compromise for the respondent was limited. The substantive issue on appeal was an all or nothing determination on the liability issue. There was no range of verdicts as in the case of a challenge to an award of damages or to an assessment of contributory negligence or contribution between tortfeasors: cf Leichhardt Municipal v Green (at [22] - [26]); Regency Media Pty Ltd v AAV Australia Pty Ltd (at [29]). Thus the only room for compromise was in relation to costs, in which respect the respondent was prepared to forego the costs order it had been awarded by the primary judge and any costs order it might ordinarily obtain in this Court by the operation of UCPR 42.1. That constituted a "real concession": Clark v Commissioner of Taxation [2010] FCA 415 (at [90] - [92]) per Greenwood J. 44It can be inferred that foregoing the costs of the one day trial would have involved a significant sum. It is not as apparent that foregoing the costs of the appeal at the stage the Offer was made involved a great compromise. As at 12 November 2013, the appellant had filed the notice of appeal, but not his written submissions such that it seems improbable that the respondent had incurred any real costs. Its written submissions were filed on 13 February 2014 following the filing of the appellant's submissions dated 27 November 2013. Foregoing the costs of the trial, however, is sufficient to conclude the necessary element of compromise was present: Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (No 2) [2009] NSWCA 12 ("Baulderstone Hornibrook Engineering") (at [19]) per Allsop P (Beazley and Campbell JJA agreeing). 45Accordingly, the question is whether, as the appellant submits, the Court should "order otherwise": UCPR 42.15A(2). The onus is on the appellant to demonstrate why the Court should depart from the consequence of his rejection of the Offer: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 (at [35]) per McColl JA (Mason P and McClellan CJ at CL agreeing); Miwa (at [16]). 46There is a conflict in decisions of this court as to whether exceptional circumstances are required before the court may exercise the discretion to "order otherwise" in relation to an unaccepted offer of compromise or whether that discretion has to be exercised having regard to all the circumstances of the case: Commissioner of Taxation v Moodie [2014] NSWCA 59; (2014) 282 FLR 453 (at [64]) per McColl JA. 47An "exceptional circumstances" test could be seen as a gloss on the language of the relevant rules their text does not admit. That suggestion was discounted by Hely J in relation to the like power to "otherwise order[s]" in O 23, r 11(4) of the Federal Court Rules 1979 (Cth) (as then in force): Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; (2004) 212 ALR 281 (at [17]). Rather, his Honour was of the view that such language merely "convey[s] that the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case". In my view his Honour's observation sufficiently encapsulates the approach to be adopted in the present case. 48It is impossible exhaustively to state the circumstances in which the court's discretion to "order otherwise" might be exercised: New South Wales Insurance Ministerial Corporation v Reeve (at 102). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: Morgan v Johnson (at 582). However that does not mean that reasonableness of the rejection is an irrelevant consideration: see Seven Network Ltd v News Ltd (at [64] - [67]); Uniting Church in Australia Property Trust (NSW) t/as Northaven Retirement Village v Takacs (No 2) [2008] NSWCA 172 (at [15]) per Hodgson JA (McColl JA agreeing); cf Basten JA (at [32] - [33]). 49The essence of the appellant's opposition to the costs orders the respondent sought was that even if the Offer constituted a genuine offer of compromise, it was reasonable for him not to accept it as it was a "walk-away" offer which merely invited his capitulation. 50A walk-away offer is one "where the offeror expresses its willingness to settle on the ground that each party bears its own costs" (G E Dal Pont, Law of Costs (3rd ed 2013, LexisNexis at [13.9]). As will be apparent, both UCPR 20.26(3)(a)(i), and former rule UCPR 20.26(2), enable a walk-away offer to be made in an offer of compromise: Schepis v Commonwealth of Australia [2013] NSWCA 354 (at [33]) per Leeming JA (Beazley P agreeing); see also Taheri v Vitek (No 2) [2014] NSWCA 344 (at [8]) where the court (Bathurst CJ, Emmett and Leeming JJA) observed that "it has long been open for a defendant (or respondent to appeal) to engage the rules by an offer that there be a verdict in its favour with no order as to costs." 51A walk-away offer can successfully trigger the indemnity costs mechanisms under the rules, however "the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case": Regency Media Pty Ltd v AAV Australia Pty Ltd (at [31]) per Spigelman CJ; Beazley and McColl JJA. 52In Taheri v Vitek (No 2) the court held that three offers of compromise made by the respondent expressed in terms that "the appeal (or the appeals) be dismissed, with each party paying their own costs" complied with the rules relating to offers of compromise in UCPR 20.26, as made applicable to appeals by UCPR 51.47, albeit that all were made after the 2013 UCPR amendments. However the court declined to award indemnity costs in relation to two of those offers because they "in large measure invited capitulation", there was no significant measure of compromise and, finally, because enabling a defendant or respondent to an appeal to engage the rule early in the litigation by making a "walk-away" offer of compromise would not serve the public policy of encouraging settlement: Taheri v Vitek (No 2) (at [9] - [10]). The position differed in relation to the third offer which "involved a significant element of compromise [which] it was unreasonable for the appellant not to accept": Taheri v Vitek (No 2) (at [13]). 53In my view, the liability case cannot be said to have been frivolous or vexatious so as to trigger the indemnity costs mechanisms. It was difficult and, to a certain extent, novel, as is apparent from the discussion in Leach (No 1) and the different outcome in Nominal Defendant v Hawkins upon which the appellant relied heavily. Thus, at the time the offer was made, notwithstanding the primary judge's conclusion (and as his Honour recognised in his costs judgment - see [23] - [24] above), the outcome on liability was "far from a foregone conclusion": cf Baulderstone Hornibrook Engineering (at [21]); Council of the City of Liverpool v Turano [No 2] [2009] NSWCA 176 (at [58]). 54Further, it is apparent the appellant suffered serious injuries in the incident, another factor the primary judge took into consideration in declining to award indemnity costs of the trial. Their severity can be seen from the discharge summary from Westmead Hospital from which it is apparent that the appellant spent 54 days in intensive care following the shooting and suffered, at least, a brain injury. Accordingly the case involved a substantial claim for damages. 55Finally, the case was all or nothing for the appellant. The Offer did involve an element of compromise, but only on costs. It offered the appellant nothing by way of damages on account of his injuries. It did not serve the public policy of encouraging settlement. 56In my view, accordingly, it was not unreasonable for the appellant not to accept the Offer. 57If the Offer had not been effective under the UCPR, it would have taken effect as a Calderbank letter, the respondent having reserved the right so to rely on it on the question of costs: Whitney v Dream Developments Pty Ltd (at [42]). I would reach the same conclusion if it so operated. 58In those circumstances I would not vary the costs orders made in Leach (No 1).

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