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[2012] NSWSC 1421
Supreme Court of NSW
2012-11-22
Fullerton J
Original judgment source is linked above.
Judgment 1HER HONOUR: On 8 November 2012 I published my findings on the issue of liability and my findings on the disputed issues of fact that were argued at the hearing bearing upon the calculation of damages ([2012] NSWSC 1420). The parties were directed to prepare a schedule of damages in accordance with those findings to enable final orders to be made. I stood over the question of costs to the adjourned date as neither party had addressed costs in the substantive hearing. 2At the resumed hearing Mr Rowe submitted that my approach to the calculation of damages was infected with error and that I should hear further argument with a view to revising my published judgment to correct that error. Unsurprisingly, Mr Downing opposed that application. I invited Mr Rowe to identify the nature of the error in order to see whether it was a matter that might attract the application of the "slip rule" in which case, despite the opposition of the defendants, it might be appropriate to amend the judgment. It was obvious from the fact that Mr Rowe wished to refer me to the report of a forensic accountant not in evidence, and to advance further submissions as to how I should approach an assessment of the plaintiff's loss contrary to my published findings, that his application was, in effect, to reopen the proceedings. That application was refused. 3Mr Downing provided a schedule of damages drawn by reference to my published findings and the evidence. The order I propose to make as to damages reflects that analysis save only for the fact that because the plaintiff's banking records, exhibited in the proceedings, refer only to the period up to and including September 2012, it will be necessary to make an approximation of the interest to the date of judgment. 4Mr Downing advanced two submissions on the costs question. 5First, he relied upon an offer of compromise dated 2 December 2011 expressly made in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (UCPR), in which the defendants offered to compromise the claim by paying the plaintiff $400,000 and by paying his costs "as assessed or agreed", as entitling the defendants to an order that the plaintiff pay the defendants' costs on an indemnity basis as and from 30 December 2011 in accordance with r 42.15A of the UCPR. In the alternative he relied upon the offer as a Calderbank offer. 6The offer of compromise is in the following terms: Without admission as to liability, the defendants offer to compromise this claim on the following terms: 1. The defendants will pay the plaintiff the sum of $400,000. 2. The defendants are to pay the plaintiff's costs to be agreed or assessed. 3. This offer of compromise is open for acceptance for a period of 28 days from the date of this offer. 4. This offer is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005. 7Notably, there was nothing in the terms of the offer to suggest that it was to be treated otherwise than as an offer of compromise and, as I understand it, no other correspondence which might have made it clear that the defendants were intending, in the event that the offer had been rejected or lapsed due to the fluxion of time, to treat it as a Calderbank offer. 8Secondly, while it was accepted that the plaintiff was entitled to an order for costs on the ordinary basis up to the date of the offer, Mr Downing submitted that the costs order should be discounted by 50 per cent by reason of the plaintiff's conduct of the litigation which, in his submission, had the effect of lengthening the proceedings unnecessarily and unjustifiably increasing the costs of the litigation. In support of that submission he relied on the fact that although I resolved the issue of liability adverse to his clients it was on a very limited basis and that the dominant factual contest at the trial, bearing on the question of breach, was resolved against the plaintiff because of a series of adverse credit findings.
The offer of compromise 9Mr Downing referred me to a number of authorities which have considered the question whether an offer to compromise a claim under r 20.26 of the UCPR (which must be an offer exclusive of costs except where it proposes a verdict for the defendant and the parties are to bear their own costs) is a complying offer for the purposes of the UCPR where, as here, it includes an offer to pay the other party's costs "as assessed or agreed" together with the offer of a monetary sum. 10What Mr Downing was careful to describe as the unsettled state of the authorities, was said to source from an inconsistent approach in decisions of the Court of Appeal as to the construction of r 20.26. 11In Old v McInnes and Hodgkinson [2011] NSWCA 410, Meagher JA, with whom Giles and Beazley JJA agreed, said of an offer which was expressed the following way: 1. Judgment for the plaintiff against the first defendant in the sum of $8,190 2. First defendant to pay the plaintiff's costs as agreed or assessed. This at [105]: Neither of the offers made on behalf of Mr McInnes was "exclusive" of costs or within the exception in r 20.6(2). Each provided that Mr McInnes should pay Mr Old's costs "as agreed or assessed". For that reason, neither was an offer in fact "made under r 20.26" for the purposes of UCPR r 42.13, and accordingly each was of no effect for the purposes of the offer of compromise regime under the UCPR. 12In Vieira v O'Shea [2012] NSWCA 21, Meagher JA, in obiter remarks, said: 7. In written submissions in support of the motion, the appellant conceded that the offer did not comply with the UCPR because it was not "exclusive of costs". It is true that the offer was not stated to be exclusive of costs: the statement as to costs could have been understood as indicating that the offer was indeed not inclusive of costs, but was otherwise otiose as the same costs consequences followed from the application of the rules. ... The UCPR are to be construed by reference to their apparent purpose. A mere reference to costs in an offer otherwise compliant with Part 20, Div 4 will not take the offer outside the rules unless the reference operates inconsistently with the relevant costs rule: Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141, (Giles JA, Handley AJA, Whealy J) at [26]-[29]. The offer, if accepted, entitled the offeror to his costs: the offer did not seek to vary the effect of UCPR r 42.13 A. (Emphasis added) 13In Rail Corp NSW v Vero Insurance Ltd (No 2) [2012] NSWSC 926, Garling J was confronted with the question whether an offer expressed the following way was a complying offer: The first and second plaintiffs offer to compromise this action in whole on terms that: 1. Verdict and judgment for the plaintiffs as against the defendant in the sum of $2,600,000. 2. Defendant to pay the plaintiffs' costs and disbursements as agreed or assessed. 3. Verdict and judgment for the cross-defendant as against the cross-claimant on the first cross-claim. 4. Verdict and judgment for the cross-defendant as against the cross-claimant on the second cross-claim. 5. Cross-claimant to pay the cross-defendant's costs and disbursements of the first and second cross-claims as agreed or assessed. This offer shall remain open to be accepted until 4pm Thursday 14 April 2011. This Notice of Offer of Compromise is made in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW). 14After considering the authorities referred to above and cases to which Meagher JA referred in Vieira, Garling J declared he was unable to find a consistency of approach in the Court of Appeal to the construction of r 20.26. After applying the underlying principles of statutory interpretation his Honour engaged in a purposive construction of the relevant provisions of the UCPR at [85] - [99] which led him to conclude that the offer under consideration (which is to the same practical effect as the defendants' offer here) was a complying offer with the consequence that the costs regime in the UCPR applied. In the result his Honour awarded indemnity costs. 15Some months earlier in Cheal Industries Pty Ltd, Re; Fitzpatrick v Cheal [2012] NSWSC 932 Ward J, (as her Honour then was) having accepted the concession of counsel that she was obliged to follow Old, did not treat the offer there under consideration (again to the same practical effect as the defendants' offer here) as a complying offer under the UCPR. In addition, both proceeding on the assumption that it was part of the ratio of the decision in Old that an offer could not be treated as a Calderbank offer if it did not include a statement to that effect and, if she were wrong about that, resolving to the view that the principles in Calderbank had not been enlivened in any event, she took into account the offers under consideration as part of the circumstances to be considered in the exercise of the costs discretion. Her Honour noted that this was in accordance with the approach of Beazley JA (in dissent) in Old at [26], [32] and [34]. 16In Ziliotto v Hakim (No 2) [2012] NSWSC 1079 Davies J referred to the conflict in the judgments at first instance of Ward J and Garling J noting, as I have, that her Honour was not referred to the decisions that Garling J had analysed or the judgment in Vieira which appeared to his Honour to be in conflict with Old. Davies J revisited the tension between the two decisions and, at [15] - [20], made particular mention of the two cases upon which Meagher JA relied in Old and the analysis that Garling J had also undertaken. He considered that Garling J's approach was correct. 17In Egan v Mangarelli & Ors (No 2) [2012] NSWSC 1226, Hoeben JA (sitting at first instance) followed Vieira for the reasons Garling J enunciated in Rail Corp NSW v Vero Insurance Ltd to the effect that a mere reference to costs in an offer that otherwise complies with the Rules will not take the offer outside the Rules unless the reference operates inconsistently with the relevant costs rule. In the event that this approach was wrong, his Honour also considered whether the offer under consideration operated as a Calderbank offer where, as here, the offer was silent as to any alternate basis other than a reliance upon r 20.26 of the UCPR. On that question his Honour considered he was bound by the decisions in Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 and Old which, as his Honour noted were directly on point. He arrived at the same conclusion as Ward J in Cheal Industries. 18Most recently Rein J in JKB Holdings Pty Ltd v de la Vega (No 5) [2012] NSWSC 1238 reviewed the gathering conflict between the decisions at first instance and the two decisions of the Court of Appeal said to be productive of inconsistency. His Honour accepted that there may be inconsistency but he regarded what was said in Vieira as obiter and, since Old had not been overturned or held to be erroneous, he considered himself bound to apply it. His Honour went onto observe as follows: [13] I would add one matter which supports the conclusion in Old v McInnes, which is the point made by Beazley JA in that case that UCPR r 42.13A provides that the Court might order otherwise. Expanding on this, if a party accepts an offer which contains as a term "the defendant to pay costs as agreed or assessed", the party loses the right to argue in accordance with the terms of UCPR r 42.13A(2)(b) that some other order should be made. To preclude that possibility would appear to be inconsistent with the UCPR. In Dean v Stockland and Vieira v O'Shea (No.2) it was said that an offer will not be outside the UCPR if it is not inconsistent with the scheme of the UCPR and it may therefore be possible to reconcile the two strands of authority - see also Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [15] and [24]. 19As with Hoeben JA and Ward J in view of the decisions in Old and Dean, Rein J did not regard the offer of compromise under consideration as capable of being relied upon as Calderbank letters, despite the fact that they were, in his Honour's view, genuine attempts to resolve the proceedings. His Honour referred to the following seminal passage in Dean at [34]: The intention must be made clear. It would be unfair for a party to be subject to the consequences of a Calderbank offer if it was not made clear that the offer should be treated as such. A party receiving an offer of compromise apparently made under the Rules should be entitled to decide whether or not to accept it according to the offer of compromise regime in the Rules, including deciding whether or not it is an effective offer of compromise. 20I am confronted with divergent approaches from four judges at first instance, three of whom have undertaken a detailed analysis of the authorities. Counsel for the defendants urged me to adopt Garling J's approach to the issue, an approach which has found favour with Hoeben JA and Davies J. The plaintiff's counsel submitted I would not. Neither counsel sought to argue the point. 21In the result, and while the question of whether the offer of compromise in this case is a complying offer is not free from doubt, as with Rein J, I consider myself bound by Old both as to the construction of the offer of compromise under r 20.26 of the UCPR and, in the alternative, as to whether it is capable of constituting a Calderbank letter. I do however propose to adopt the approach of Ward J In Cheal Industries at [104] and to take the invalid offer of compromise into account as part of the circumstances to be considered in the exercise of the costs discretion.
Should the ordinary rule as to costs be modified in this case? 22The pleadings, and the conduct of the plaintiff's case at the hearing as opened by his counsel, was predicated upon the assertion that the first defendant conducted himself relative to the testamentary affairs of the plaintiff's father in persistent breach of the duty of care he owed him as a client when, on 15 June 2002, he undertook to attend upon the plaintiff's father in hospital for the purposes of drawing up a new will. For the reasons set out at length in the substantive judgment, I did not accept the plaintiff's evidence of the various dealings he had with the solicitor on his father's behalf on and from that date, or that the Mobile Phone Transcription document upon which the plaintiff placed considerable reliance in proof of his case was a document prepared in the circumstances he deposed to in his evidence. That nature and extent of the plaintiff's dealings with the solicitor was the dominant disputed issue of fact. Again, as I made clear in the substantive judgment, while I was satisfied that the first defendant had breached his duty of care, it was on a very limited basis. Although the conduct amounting to breach was comprehended by the pleadings, and although the plaintiff gave evidence of it, I was satisfied that breach had been established in large measure referable to evidence independent of the plaintiff's testimony, in particular by reference to the telephone billing records and the hospital notes. 23As Ward J observed in Cheal Industries there is a tension between the accepted principle that a successful party should have the whole costs of the proceedings (including the cost of an issue on which it has failed) and the recognition that in an appropriate case a costs order may be formulated to reflect the degree of success on distinct issues. In Sahab Holdings Pty Limited v Registrar-General & Anor (No 3) [2010] NSWSC 403, Slattery J at [35]-[40] set out the relevant principles. While the differentiation as to the success or failure on particular issues will not normally disturb the ordinary rule that costs follow the event, where the issue upon which a party failed is a dominant issue or clearly separable from the issues on which the party succeeded (whether the issue be an issue of fact or law) the court may deprive an otherwise successful party of costs in relation to those particular issues (Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15). I also acknowledge that to displace the general rule requires particular justification and that it will rarely be displaced unless the successful parties conduct has lengthened the proceedings unnecessarily, caused unnecessary issues to be canvassed or otherwise increased costs of the litigation (MacDougall v Curlevski (1996) 40 NSWLR 430). 24I am satisfied that the ordinary rule should be displaced in this case. While it is not necessary for me to be satisfied that the plaintiff has acted unreasonably in raising the issue upon which he failed, where I am satisfied that the plaintiff gave untruthful evidence concerning his dealings with the defendants it follows that, at the very least, that he acted unreasonably and that his conduct resulted in unnecessarily lengthy proceedings greatly increasing the costs of litigation. In these circumstances, I am well satisfied that the ordinary rule as to costs should be displaced in this case. I accept, of course, that the exercise of the costs discretion in Part 42 r 1 of the UCPR is compensatory rather than punitive. 25Terms of the costs order also take into account the defendants' genuine offer to compromise the proceedings at an early stage (albeit not a valid offer of compromise under the UCPR) which it was unreasonable for the plaintiff to have rejected (despite it not enlivening the Calderbank principles). 26See Maestrale v Aspite [2012] NSWSC 1421 for final orders.
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: 29 November 2012
Maestrale
Aspite