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1. On 26 July 2024, the Court gave judgment in favour of the plaintiff against the defendants in the sum of $155,524.00, with the defendants ordered to pay the plaintiff’s costs: Marhaba v Chen [2024] ACTSC 241 (Marhaba).

2. The Defendants have applied for a variation of the costs order, on the basis of various offers of compromise made under Part 2.10 of the Court Procedures Rules 2006 (ACT) (Rules) and in accordance with the principles articulated in Calderbank v Calderbank [1975] 1 All ER 333 (Calderbank).

3. In addition, because the amount ultimately awarded was less than $175,000 and the matter was one which the Magistrates Court would have had the jurisdiction to hear and decide (such jurisdiction extending to $250,000), r 1725 of the Rules applies.

4. That rule limits the proportion of costs that may be recoverable. Relevantly here, under r 1725(2)(d) of the Rules, the plaintiff is only entitled to recover 75% of the costs and disbursements to which he is entitled (that is, 75% of costs on the ordinary basis).

5. The costs dispute is to be determined on the papers, with the parties filing written submissions and each relying on an affidavit attaching the correspondence relevant to the settlement negotiations that occurred between the parties over November 2021 to May 2023.

Competing orders sought by the parties

6. Relying on a combination of the compromises offered and the operation of r 1725 upon the proceeding, the defendants sought the following orders in respect of costs: (a) The defendants are to pay 75% of the plaintiff’s professional costs and disbursements up to (but not including) 5 September 2022; and (b) From 5 September 2022, the plaintiff is to pay the defendants’ costs, as set off against the plaintiff’s costs recovered from the defendants.

7. In the alternative, the defendants sought the following orders: (a) The defendants are to pay 75% of the plaintiff’s professional costs and disbursements up to (but not including) 5 September 2022; and (b) From 5 September 2022, there are no orders as to costs, with the result that the plaintiff is to bear her own costs.

8. The plaintiff sought to preserve the original costs order made, namely that the defendants pay her costs. The plaintiff sought the entirety of her costs pursuant to r 1725(3) of the Rules, which gives to the Court a discretion to make a different order from that which would otherwise apply under r 1725(2).

Issues

9. The issues thus falling for determination are: (a) Whether the Court should make a different costs order in the exercise of its discretion pursuant to r 1725(3) of the Rules (Issue 1); (b) Whether there was a genuine offer of compromise made under r 1002 of the Rules (Issue 2); and (c) Whether the plaintiff unreasonably rejected a Calderbank offer (Issue 3).

General principles applying to the Court’s discretion to award costs

10. Underlying the specific rules invoked in the present cost dispute are general costs principles, which may be summarised as follows: (a) Costs are in the discretion of the Court: r 1721(1) of the Rules. (b) The discretion is a very wide one, though it must be exercised judicially, in accordance with established principle and the statutory context: Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 (Oshlack) at [35], [65]. (c) The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party: EMI Songs Australia Pty Ltd v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 at [9]. A substantially successful party is entitled to recover its costs from the opposing party, because it is just and reasonable that the party who has caused the other party to incur costs should reimburse that party for the liability incurred: Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [135]; Latoudis v Casey (1990) 170 CLR 534 at 543 per Mason CJ, at 562-3 per Toohey J, at 566-7 per McHugh J (Latoudis). (d) Fairness is the touchstone. The result should be fair having regard to the particular facts and circumstances of the proceeding. “Ultimately, the Court is required to determine the appropriate order in the interests of justice”: Clarkson Williams Partners Pty Ltd v Vaughan (No 2) [2016] ACTCA 8 at [10], [12]. In other words, the court makes a “broad evaluative judgment of what justice requires”: Gray v Richards (No 2) [2014] HCA 47; 89 ALJR 113 at [2]. Issue 1: Should the Court make a different order, pursuant to r 1725(3)?

11. Part of the statutory context includes r 1725, which is designed to provide a costs motivation for parties to commence proceedings in the Magistrates Court where that is appropriate: McLennan v Meyer Vandenberg (No 2) [2020] ACTCA 15 (McLennan) at [9]. In that decision, the Court of Appeal went on to say (in relation to r 1725) at [24]: ...The rule does not itself require special circumstances. It provides an unconstrained discretion to make a different order. That requires the court to be satisfied that a different order is appropriate. Obviously that discretion has to be exercised in the context of the rule itself, which is clearly designed to encourage parties to commence claims in the appropriate court within the judicial hierarchy. It must also be exercised in light of the requirements of s 5A of the Court Procedures Act.

12. Factors relevant to the exercise of the discretion here (without being exhaustive) include: (a) Fairness: Mareva Building Consultants v Zevon (No 2) [2012] ACTSC 24 at [12]; (b) The complexity of the proceedings: Woodger v Federal Capital Press of Australia Pty Ltd (1992) 107 ACTR 1 at 40; (c) The quantum of damages actually awarded: Cressy v Miloriad (No 2) [2016] ACTSC 339; 317 FCR 267 at [61]; (d) The conduct of the parties: Yogini v Eveille [2006] ACTSC 23 at [25]; and (e) Proportionality: s 5A(2)(e) of the Court Procedures Act 2004 (ACT) (the Act); McLennan at [28].

13. Here, there was no contest that rule 1725 was engaged, as: (a) The Magistrates Court would have, apart from the amount claimed for damages, had jurisdiction to hear the claim; (b) The plaintiff was entitled in the primary judgment to the costs of the proceeding; and (c) Judgment was entered for the plaintiff for an amount less than $175,000.

14. In arguing for a different order under r 1725(3) of the Rules, the plaintiff submitted that: (a) At the time the claim was commenced, there was complexity to the plaintiff’s claim for economic loss arising from: (i) Her inclusion of a claim for economic loss in relation to a business enterprise she owned and operated and her claiming of Centrelink benefits after the accident, which was not linked to the accident; (ii) Her pre-existing medical conditions and expert determinations of the causes of those conditions being obtained only after the proceedings were commenced; (iii) The plaintiff’s cognitive deficits and consequent difficulties in giving instructions; (b) The judgment sum ultimately awarded was less than $20,000 short of $175,000; (c) The plaintiff made a late decision to abandon the economic loss claim; (d) The defendants themselves had made offers above the jurisdictional limit of the Magistrates Court even excluding the economic loss claim (that being the $300,000 offer discussed below).

15. In arguing that they were only liable for 75% of the plaintiff’s costs, the defendants relied on the ordinary application of the rule. The defendants’ position was that: (a) Breach of duty of care had been admitted; (b) The plaintiff’s claim did not involve any unusual level of complexity, including as to the medical related issues; (c) As part of the Court’s general discretion, the Court should consider plaintiff’s unreasonable refusals of the defendants’ offers; (d) The claim for economic loss was abandoned, which significantly reduced the quantum of the claim; (e) Applying s 5A of the Act, to allow the plaintiff to recover 100% of her costs from the defendants would not be a proportionate outcome; (f) No unjust consequence arises which would warrant the discretion being exercised, given that it was the plaintiff’s decision to maintain what was ultimately accepted to be an inflated claim for damages.

16. Notwithstanding that a breach of duty of care had been admitted, I accept that this was a somewhat complex case and that it was appropriately brought in the Supreme Court. The trial ran for 5 days, and senior counsel was briefed by the defendant. Assuming here some knowledge of the judgment in Marhaba and its findings, further indicators of the complexity are seen from the issues set out in the judgment itself. The plaintiff’s underlying cognitive condition, the issue of her pre-existing back injuries and the likelihood of the plaintiff’s degenerative condition becoming symptomatic all required a detailed analysis of the medical and lay evidence.

17. The reasonableness or otherwise of the plaintiff’s failure to accept any offers made by the defendant is dealt with separately below. It suffices to record here that I am not persuaded any conduct in relation to any of the settlement negotiations disclosed before the Court was such as to weigh against making a different costs order from that which would ordinarily apply under r 1725.

18. However, I am not persuaded that difficulties in getting instructions and the fact that judgment sum fell $20,000 below the upper limit that engages the rule are reasons that either individually or cumulatively warrant excusal from the operation of the rule.

19. Having found that this was a complex case appropriately brought in the Supreme Court, I do not consider that the objective behind r 1725 applies in this case and I would therefore be minded to make a different order. But I accept the plaintiff’s view of quantum was vastly exaggerated ($2 million was initially claimed). The claim for economic loss was abandoned late in the proceeding when it should have been clear much earlier that there was little support for the claimed loss of earnings that inflated the quantum sought at the outset. The fact that there were two different offers put by the defendants more than a year before trial (discussed below), based on whether the plaintiff continued to pursue her economic claim or not, demonstrates that the defendant incurred costs in responding to a claim which was ultimately abandoned.

20. There is authority to the effect that where a successful party has propounded a substantially exaggerated claim, succeeds only to a limited extent, and the exaggeration has resulted in the incurring of additional costs a departure from the ordinary rule that costs follow the event may be appropriate: O’Neil v Williams (costs) [2007] NSWSC 51 at [5] per Brereton J as his Honour then was, cited in Summers v Repatriation Commission (No 2) [2015] FCAFC 64 (among others).

21. That persuades me to find that although a different costs order is warranted, giving effect to compensatory, proportionality and fairness considerations, the plaintiff should not receive 100% of her costs. It is in the interests of justice to allow the plaintiff to recover 85% of the recoverable costs on an ordinary basis.

Issue 2: Was there a genuine offer of compromise made under r 1002 of the Rules?

22. The starting point is r 1002 of the Rules, which provides for the making of an offer of compromise. The relevant parts of r 1002 are as follows: Making an offer (1) A party may, by written notice, make an offer to another party to compromise any claim in proceedings, either in whole or in part, on stated terms. (2) An offer under this rule must— (a) 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 the judgment; and (b) if the offer relates only to part of the proceedings ... (c) not include an amount for costs or state that it is inclusive of costs; and (d) state that the offer has been made in accordance with this part; and (e) state the period of acceptance. (3) An offer under this rule may propose— (a) … (b) that the costs as agreed or assessed up to the time of the offer will be paid by the person making the offer; or (c) … (4) If the offeror makes an offer before the offeree is given particulars of the offeror’s claim, and documents available to the offeror necessary for the offeree to properly consider the offer, the offeree may, within 14 days after 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) if rule 1010 applies—the offeree will seek an order under rule1010(2). (5) The end of a period of acceptance for an offer— (a) for an offer made 2 months or more before the date set down for the start of the trial—must be not less than 28 days after the day the offer is made; and (b) in any other case—must be after a period that is reasonable in the circumstances. (6) Unless the notice of offer otherwise provides, an offer providing for the payment of money or doing of an act is taken to provide for the payment or doing of the act within 28 days after the offer is accepted. (7) Unless the notice of offer otherwise provides, an offer is made without prejudice. (8) A party may make more than 1 offer in relation to the same claim. (9) Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer. (10) A notice of offer purporting to exclude, modify or restrict rule 1010 or rule 1011 is invalid.

23. If an offer made by a party is one that complies with r 1002, then the Rules provide for certain costs consequences. In the present case it is r 1011, the relevant parts of which are as follows: (1) This rule applies if an offer is made by the defendant in relation to a claim, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim no more favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise— (a) if the claim is a personal injury claim—the plaintiff— (i) is entitled to an order against the defendant for the plaintiff's costs in relation to the claim, assessed on a party and party basis up to and including the day the offer was made; and (ii) is not entitled to an order against the defendant for the plaintiff's costs in relation to the claim after the day the offer was made; but (iii) is not required to pay the defendant's costs in relation to the claim on and from the day the offer was made; … Applicable principles

24. I have applied the following principles governing offers made under court rules: (a) The offer must be a genuine offer of compromise, meaning that the offer must involve giving something away in order to end the dispute: Anderson Group Pty Ltd v Tynan Motors (No 2) [2006] NSWCA 120; 67 NSWLR 706 at [8] and the cases there-cited; De Gruchy v The Owners Units Plan No. 3989 (No 2) [2020] ACTSC 166 (De Gruchy) at [12]-[15]. (b) The offer must be clear and certain in its terms: Dover Beach Pty Ltd v Geftine Pty Ltd [2008] VSCA 248; 21 VR 442 at [118]. (c) The judgment on the claim must be no more favourable to the plaintiff. In that regard, the offer should not be viewed with excessive formality or technicality, but rather with a view to giving effect to the spirit of the Rules. The Court does not look to the form of the orders, but rather to their substance: Pettiford v Whicker [2005] NSWCA 370 at [15]; Re Williams; Smith v Thwaites (No 2) [2017] VSC 771 at [29], cited in De Gruchy at [27]. (d) Where the offer is made within 2 months before trial, the offer must be open for a “period reasonable in the circumstances”: r 1002(5). In Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No. 2) [2008] NSWCA 85 (Kooee), Basten JA stated at [22]: The question of reasonableness must be judged objectively, in the circumstances known, or which should reasonably have been anticipated, by both parties. In setting the time during which the offer is to remain open, the offeror must necessarily rely upon the circumstances as known to it, or which should reasonably be anticipated by it. The actual circumstances of the recipient, unknown to the offeror, may be relevant to an application that the Court otherwise order in relation to costs of a valid unaccepted offer, but so might evidence as to whether the recipient took any steps to bring such matters to the notice of the offeror.

25. In Kooee, Giles and Tobias JJA agreed with the reasons of Basten JA on this point and further added at [2] that service of an offer of compromise made under the rules of court obliges the offeree to give serious thought to the risks of the proceedings and their outcome, going on to state that such an obligation means “the court should not be ungenerous to an offeree in determining whether a time is reasonable”. The offers in the present case

26. Two offers are relied upon, each dated 5 September 2022.

27. The first offered judgment in favour of the plaintiff against the defendants in the sum of $300,000 inclusive of previous payments made and Medicare charges, if the claim for economic loss was formally withdrawn.

28. The second offered judgment in favour of the plaintiff against the defendants in the sum of $425,000 inclusive of previous payments made and Medicare charges, if the claim for economic loss was maintained.

29. In each case the defendant offered to pay the plaintiff’s costs as agreed or assessed as part of the settlement sum.

30. Each offer stated that it was made in accordance with Part 2.10 of the Rules.

31. It is thus uncontroversial that the offers were each genuine compromises in amounts considerably more favourable than the judgment ultimately awarded, expressly made under the Rules, and clear and certain as to their terms.

32. The matter in dispute is the period for which each offer was open. In each case this was 5:00pm on Friday 9 September 2022. Although each offer was dated Monday 5 September 2022, they were only served after close of business that day, by an email at 5:36pm. There is no criticism of that timing, but it means that the offer was effectively only open for 4 days.

33. At the time the offer was made, the matter was listed for hearing to commence on 26 September 2022. Although the trial was ultimately delayed, the assessment of reasonableness is undertaken at the time the offer was made.

34. The defendants submitted that the plaintiff had just participated in a mediation and was thus in a strong position to quickly assess the prospects and substance of the offer, and further that the defendants were about to be put to great expense in preparing for hearing. Even so, the trial was three weeks away and the plaintiff was entitled to a reasonable opportunity to be given advice and consider the latest offer. The plaintiff referred the Court to Hillman v Box (No 5) [2014] ACTSC 150 (Hillman), where Refshauge J referred to a number of cases where offers open for periods of time of 7 days or less were held not to be reasonable. It is unnecessary to separately consider each of the authorities to which his Honour referred as each case turns on its own facts. In this case, I consider an objectively reasonable time in circumstances where the trial was still three weeks away would have been 7 days. I am not satisfied that 4 business days was “reasonable in the circumstances” of this case. Accordingly, I do not accept that the offers made engaged r 1002(5) such as to then enliven the costs consequences under the Rules.

Issue 3: Did the plaintiff unreasonably reject a Calderbank offer?

35. The principles applying to Calderbank offers are set out in a number of previous decisions of this Court, including detailed consideration given by Refshauge J in each of Pires v DibbsBarker Canberra Pty Limited [2014] ACTSC 283 at [97] and Financial Integrity Pty Ltd v Farmer (No 4) [2014] ACTSC 145 at [24]-[46], which I respectfully adopt. The criteria that the Court considers when determining whether a letter constitutes a Calderbank offer are as follows: (a) The letter must be either an open letter or marked “without prejudice save as to costs” and thus be able to be tendered at any hearing or an application for costs; (b) The offer in the letter must be a genuine compromise; (c) The offer must be in clear and unambiguous terms and be a final offer, not subject to any further negotiation; (d) The letter must state expressly that, if the offer is not accepted, then a special order, such as for indemnity costs, will be sought.

36. Each of those criteria were satisfied here.

37. In Hillman at [30], Refshauge J indicated a view that the costs component should ordinarily be isolated in a way that makes it clear and capable of proper assessment without a taxation or formal assessment of costs. However, given that the offer under consideration here was expressed to be plus costs as agreed or assessed, the clarity and certainty of what was being offered is not in doubt.

38. Once a genuine offer of compromise is established, the second question that arises is whether it was unreasonable for the plaintiff not to accept it: see Miwa Properties Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]; Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 at [10]; Tuggeranong Town Centre Pty Ltd v Brenda Hungerford Pty Limited (No 3) [2017] ACTSC 301; 325 FLR 436 at [281] and the case there-cited.

39. The mere fact that an offer was made but not accepted does not result in an award of indemnity costs (or other costs order, as was sought here). The party seeking the order bears the onus of establishing the entitlement based on the rejection of an offer of compromise being unreasonable: see Kemp v Ryan [2011] ACTSC 42 at [18] and Vizovitis v Ryan (No 2) [2014] ACTSC 301 at [17], each relying on Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26].

40. An oft-cited case is Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) VR 435, which contains a non-exhaustive list of relevant factors relevant to assessing whether it was unreasonable to reject an offer at [25], including: (a) the stage of the proceedings at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise made; (d) the offeree’s prospects of success, assessed at the date the offer was made; (e) the clarity with which the terms of the offer were expressed; and (f) whether the offer foreshadowed an application for indemnity costs in the event the offer was rejected.

41. Again, the time for which each offer remained open is a difficulty for the defendants here. As stated above, the trial was not for another 3 weeks. There was also evidence that mediation discussions had been ongoing over 26 to 30 August 2022. The defendant submitted that the plaintiff should have been well placed to assess her prospects of success and the merit of the offer as a result of the recent mediation.

42. I agree with the defendants to an extent, in that a mediation does galvanise parties to assess their cases and the evidence and make offers in a confined space of time. However, not every plaintiff is a sophisticated client, capable of understanding easily the information and advice that solicitors provide and their consequences, let alone have an ability to make a quick decision about the advice. At the conclusion of the mediation, where an offer was left open by the insurer for the defendants, the plaintiff’s solicitor had communicated his difficulties with this particular plaintiff to the defendants’ solicitors. First, he told them that he was having difficulty contacting the plaintiff and second, he told them that the plaintiff had been sick all weekend and had not been able to “process” the advice she had received. In addition, by the time the offers were made in September 2022, the defendants had the medical reports, including that of their own expert, which in this case, disclosed serious cognitive difficulties and psychological disabilities (whether caused by the accident or not): Marhaba at [83]-[91]. Armed with that information, offers that were open for only 4 days were made.

43. There may have been strategic reasons why the defendants preferred such a short period of time, but that is not the question. The assessment is whether it was unreasonable for the plaintiff not to accept the offer and that includes within the time available for its acceptance. In the circumstances of this case, it has not been established that it was unreasonable for the plaintiff not to respond to the offers made.

44. To the extent that any reliance was placed on a later offer of 8 May 2023, the above reasons apply with greater force. That later offer was open for one day in circumstances where the hearing was not listed to commence until 5 June 2023.

Conclusion

45. For the above reasons, none of the offers operate to entitle the defendants to a special costs order either under the Rules or otherwise. The result is that a different order will be made pursuant to r 1725(3) of the Rules, in line with the reasoning above on the first issue. The Court makes the following orders: (1) Pursuant to r 1725(3) of the Court Procedures Rules 2006 (ACT), order 2 of the orders made on 26 July 2024 is varied to read as follows: The defendants are to pay 85% of the plaintiff’s costs.

I certify that the preceding forty-five [45] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Justice McWilliam Associate: Date: **************

Amendments 25 September 2024 Insert ‘not’ before the words ‘to accept’ Paragraph [38]