TITLE OF COURT: SUPREME COURT OF TASMANIA (FULL COURT)

Procedure - Costs - Departing from the general rule - Conduct of parties - Demand, offer and consent - Offer of compromise - Significance in relation to costs of appeal.

Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404; Fotheringham v Fotheringham (No 2) [1999] NSWCA 21; (1999) 46 NSWLR 194; Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85, referred to.

Judgment Number: [2009] TASSC 40

1 That the appellant pay 70 per cent of the respondent's costs of and incidental to the appeal.

2 That the respondent pay 30 per cent of the appellant's costs of and incidental to the appeal, and all the appellant's costs of the cross-appeal.

3 That the respondent be granted an indemnity certificate pursuant to the Appeal Costs Fund Act 1968, s8, in respect of the appeal.

1 I agree with the reasons for judgment of Blow J and the orders he proposes.

2 There are three costs applications before the Court. The appellant and the respondent are each seeking an order that the other pay the costs of the appeal, and the appellant is seeking an order that the respondent pay all of the costs of the proceedings at first instance. The background to this situation is as follows:

•

On 11 December 1994 the appellant was travelling in a vehicle driven by the respondent when it ran off the road and the appellant was injured.

•

In 1997 the appellant brought an action against the respondent for damages for negligence in respect of his injuries. The respondent denied negligence and pleaded contributory negligence on the part of the appellant.

•

On 7 December 2004 the respondent made an offer of compromise to the appellant in accordance with the Supreme Court Rules 2000, r280. The amount offered was $159,600 plus costs as agreed or taxed. The appellant did not accept that offer.

•

The action proceeded to trial about two years later. The learned trial judge made findings of negligence and contributory negligence, assessed damages, and gave judgment for the appellant in the sum of $73,302.99: Marlow v Walsh [2007] TASSC 32. She ordered the respondent to pay the costs up to 7 December 2004, the date of the offer of compromise, and ordered the appellant to pay the costs after that date.

•

The appellant appealed in relation to the finding of contributory negligence and various aspects of the assessment of damages. This Court allowed the appeal, holding that there had been no contributory negligence, but all of the grounds of appeal relating to damages were unsuccessful. We ordered that the appeal be allowed, that the judgment be set aside, and that judgment be entered for the appellant against the respondent in the sum of $99,000: Marlow v Walsh [2008] TASSC 58.

•

There was an unsuccessful cross-appeal in relation to aspects of the assessment of damages.

3 The original judgment sum was less than the amount specified in the offer of compromise. In that situation the Supreme Court Rules, r289(2), applies. That sub-rule reads as follows:

"(2) Unless the Court or a judge otherwise orders, a plaintiff is entitled to an order for costs against the defendant, up to and including the day on which an offer of compromise was served, on a party and party basis and the defendant is entitled to an order for costs against the plaintiff in respect of the claim after service of the offer on a party and party basis if -

(a) the defendant has made the offer in accordance with this Part; and

(b) the plaintiff has not accepted the offer at the time of the judgment; and

(c) the judgment is no more favourable to the plaintiff than the terms of the offer."

4 It is quite clear that the learned trial judge must have applied that sub-rule when she made her orders as to costs. The result of the appeal is that the appellant ended up with a judgment for $99,000, but that is nowhere near the sum of $159,600 that he was offered in 2004. One might think it is obvious that the costs orders of the learned trial judge should therefore not be disturbed. However counsel for the appellant, Mr Bradfield, submitted otherwise.

5 There was no ground of appeal in relation to the costs orders made by the learned trial judge, but I do not think that fact has any jurisdictional consequences. When an appeal to the Full Court succeeds, the Court may no doubt make orders in relation to the costs of the proceedings at first instance if the result of the appeal warrants some new or different orders being made. For example, if a plaintiff has recovered damages and costs at first instance, but an appeal by the defendant is wholly successful, with the result that the plaintiff ends up with nothing, the Full Court no doubt has the power to set aside the original costs order and substitute an order for the costs of the action in favour of the successful appellant. Under the Supreme Court Civil Procedure Act 1932, s47(1), the Full Court has the power "to give any judgment or make any order or determination which ought to have been given or made, and to grant a new trial in any cause or matter in which there has been a trial (whether with or without a jury), and to make such further or other order as the case may require." (My emphasis.)

6 Mr Bradfield referred us to Commonwealth of Australia v Gretton [2008] NSWCA 117. That was a decision in relation to a Calderbank offer: Calderbank v Calderbank [1975] 3 WLR 586. It was not a case about an offer of compromise made pursuant to a rule of court. Mr Bradfield relied on that case as the basis for an argument that an order in accordance with r289(2) should not be made, or should not stand, in the absence of evidence that the offer of compromise was made in good faith, made reasonably, and unreasonably rejected.

7 In that case the plaintiff had rejected a Calderbank offer of $150,000 plus the costs of the trial, proceeded to trial, and obtained a verdict of only $50,000. The Commonwealth sought costs on an indemnity basis from the date of its Calderbank offer, but Studdert J refused that application, and ordered the Commonwealth to pay the costs of the trial. The Commonwealth appealed, without success. The New South Wales Court of Appeal held, amongst other things, that costs should be ordered on an indemnity basis after the making of a Calderbank offer only if it was unreasonable for the offeree not to accept that offer, and that no appealable error had been demonstrated in the decision of the primary judge, who had held that the plaintiff had not acted unreasonably in refusing the offer.

8 Mr Bradfield argued that, because this Court had increased the judgment sum, we should revisit the question of costs at first instance, but he said he did not have any authority to support that proposition. He sought to persuade us that the appellant had not acted unreasonably in not accepting the offer of compromise in this case. He argued that any offer of compromise was difficult, and that this was a difficult personal injury case. He pointed out that the appellant might have recovered more than the sum offered to him if findings more favourable to him had been made as to the extent to which he would have exploited his earning capacity had he not been injured, or as to his credit. Mr Bradfield told us from the bar table that the respondent's solicitors had disclosed the existence of surveillance tapes for the first time a week before the trial of the action started, and that that put the appellant in a difficult position.

9 In my view Gretton should be distinguished because the present case has nothing to do with indemnity costs or Calderbank offers. The opening words of r289(2) empower a judge to make some other costs order in a situation where that sub-rule would ordinarily be applied. Evidence suggesting that an offer of compromise was not made in good faith, or not made reasonably might warrant the making of some other order. Under r289(3), the provisions of r289(2) do not apply unless the Court or a judge "is satisfied that the party making the offer was at all material times willing and able to carry out his or her part of the offer". Mr Bradfield made a concession to the effect that there had been no opposition on the part of the appellant to the making of costs orders in accordance with r289(2) by the learned trial judge. There is nothing in the material before us to suggest that the offer was not made in good faith, nor that it was somehow made unreasonably. As the respondent's liability arose out of the use of a motor vehicle, the provisions of the Motor Accidents (Liabilities and Compensation) Act 1973 were applicable. If the offer had been accepted, the amount offered would no doubt have been paid. That was so obvious that it went without saying.

10 There is nothing in r289 to suggest that a party wishing to rely on an offer of compromise should have to prove that the recipient acted unreasonably in not accepting it. Situations will often arise in which a recipient of a generous offer will have to make a difficult choice, and rejection or non-acceptance could not be regarded as unreasonable. In that situation, if the offer is not accepted, the case proceeds to judgment, and the judgment is less favourable to the recipient than the offer, it may still be quite appropriate for r289 to be applied, even if the decision not to accept the offer was not unreasonable at the time it was made. One of the purposes of the rule is to provide reasonable litigants with strong incentives to settle their cases.

11 In this case, there is nothing in the material before us to suggest that there were reasonable grounds for the appellant to reject the offer of compromise. In fact the material before us tends to suggest that the appellant might have had bad advice as to the quantum of his claim. The plaintiff's senior counsel at the trial pursued a claim for damages based on Griffiths v Kerkemeyer [1977] HCA 45; (1977) 139 CLR 161 until the trial reached the stage of closing addresses before he learned that such damages have not been available in Tasmania since the commencement of the Common Law (Miscellaneous Actions) Act 1986. He provided the learned trial judge with a "schedule of damages" that showed he had proposed seeking an award of $132,600 under that head. That document also shows that he suggested an award of $150,000 by way of general damages for pain and suffering and loss of amenities. Any expectation of such an award in Tasmania was unrealistic, particularly in the light of the comments in Southern Regional Health Board v Grimsey (1998) 8 Tas R 166 at 187 - 188. The learned trial judge awarded $25,000 under that head.

12 The order made by the learned trial judge in accordance with r289(2) was appropriate and uncontroversial. There is nothing in the material before us that suggests that it should not have been made, or that it should now be disturbed. I would therefore refuse the appellant's application in respect of the costs of the action.

13 Counsel for each of the parties relied on different provisions in the Supreme Court Rules, each of them arguing that there was a rule that entitled his client to an order for costs. For the appellant, Mr Bradfield relied on r672(6), which reads as follows:

"(6) The Full Court may make any order as to the whole or any part of the costs of an appeal as appears to the Full Court to be just, but, unless some other order is made, the costs of an appeal follow the event."

14 Mr Read relied on r289(2), the text of which appears earlier in these reasons. He argued that that rule applies not just to the costs incurred in an action after the making of an offer of compromise, but also to the costs of any related appeal. When r289(2) applies, "the defendant is entitled to an order for costs against the plaintiff in respect of the claim after service of the offer on a party and party basis". (My emphasis.) Mr Read submitted that the costs of the appeal are costs "in respect of the claim" within the meaning of that provision. He referred us to some decisions of the New South Wales Court of Appeal that support that view. Those decisions concern the Supreme Court Rules 1970 (NSW), Pt52A, r22, and that rule's successor, the Uniform Civil Procedure Rules 2005 (NSW), r42.15. Each of those rules refers to "costs in respect of the claim".

15 The first of these cases relied on by Mr Read, Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404, did not concern appeal costs. It stands for the proposition that an offer of compromise made in respect of a claim, following the conclusion of the trial of that claim and a successful appeal, can be relied on in relation to the costs of a second trial of that claim without the necessity of the offeror having to revive or renew it. However there were comments about appeal costs in the judgment of Gleeson CJ and Priestley JA. At 408, their Honours said the following in relation to the relevant offer of compromise:

"It is not a compromise of a hearing, or of one round in a bout of litigation. The appellant had only one claim, and it was that which he offered to compromise. The same claim was litigated at the second trial. That claim was only finally heard and determined at the conclusion of the second trial (and, still then, subject to the appeal process)."

16 After summarising provisions in the relevant rule, their Honours said at 409 - 410:

"There is nothing in that which either requires or justifies the conclusion that the consequences of an offer are 'exhausted' once the trial, prior to which the offer was made, comes to an end. As was noted, the offer is made, not in respect of a trial, but in respect of a claim. Depending upon the circumstances of a case, a claim may not be finally heard and determined until after there have been a number of appeals, and, perhaps, a number of trials. ... In truth, this Court routinely reassesses damages on appeal, and is frequently asked to make, and makes, orders for indemnity costs based upon offers of compromise that were made before the original trial.

... In our view, there is no justification for concluding that, once the claim to which it relates has been the subject of a complete trial, an offer of compromise made before the trial has no further significance for any appeal, or subsequent re-trial."

17 These passages were cited with approval by Basten JA in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 at pars28, 29. His Honour took the view that the relevant rule applied in relation to appeal costs. At par35, he said the following:

"It appears to follow from the judgment in Ettingshausen, which has not been expressly departed from and was not challenged in the present proceedings, that once an offer has been made, the relevant costs rule continues to operate for so long as the 'claim' in relation to which it was made has not been finally determined. The fact that, once it has lapsed, it cannot be accepted, is not an objection to this conclusion, but flows directly from the operation of the rule, whether there is one trial or more. Further, once the rule is engaged, it would appear that, on an application for costs being made in terms of the rule, the Court must apply the principles stated in the rule. That does not mean that the application of the principles may not vary depending on the stage reached in the whole proceedings, but it would seem to mean that an order for indemnity costs would be appropriate, unless the Court otherwise ordered, so long as the precondition to the operation of the rule remains satisfied."

As the last sentence I have quoted indicates, the rule being considered in that case provided for the making of an order for indemnity costs. Our r289(2) does not provide for indemnity costs, but that point of difference is irrelevant to the meaning of "costs in respect of the claim".

18 The other members of the court in Kooee, Giles and Tobias JJA, agreed with the orders proposed by Basten JA, but made it clear that they considered it unnecessary to decide whether the rule in question applied in relation to the costs of an appeal.

19 Mr Bradfield did not make any submissions about these cases. However arguments could be advanced as to why the words "in respect of the claim" do not refer to the costs of an appeal. An appeal from a judgment in an action is a new and separate proceeding. The fact that r289 abrogates the firmly established rule that costs ordinarily follow the event arguably suggests that the rule should be given a narrow interpretation. When offers of compromise were introduced by the Rules of the Supreme Court (Offer of Compromise) 1995, no amendment was made to the predecessor of r672(6): Rules of the Supreme Court 1965, O76, r56(1). The interpretation suggested by Mr Read would have awkward or arbitrary consequences in cases where the Full Court orders a new trial, or a new assessment of damages, since the time for applying for costs would arrive before it is possible to compare the offer of compromise with the terms of the final judgment, a point which Basten JA referred to in Kooee at par38.

20 Even if the costs of an appeal do not amount to costs "in respect of the claim" for the purposes of r289(2), there is ample authority for the proposition that, when an offer of compromise is made in accordance with rules of court and either rejected or not accepted, those events can be taken into account as relevant factors by a court making a discretionary order as to the costs of an appeal: Fotheringham v Fotheringham (No 2) [1999] NSWCA 21; (1999) 46 NSWLR 194; Suresh v Jacon Industries Pty Ltd (No 2) [2005] NSWCA 270; Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd (No 2) [2006] NSWCA 379; Estate of Virgona v De Latour (No 2) [2007] NSWCA 323. That is to say, an offer of compromise can be relevant when an appellate court considers whether to depart from the general rule that costs follow the event and, if that rule is departed from, in deciding what order to make.

21 The hearing of this appeal took a full day. Most of that day was spent on grounds of appeal relating to damages, all of which failed. The cross-appeal related only to the assessment of damages in respect of economic loss and lost superannuation entitlements. It failed, but it lengthened the hearing only by a matter of minutes since the awards under those heads were the subject of grounds pursued by the appellant. As I have said, the only ground of appeal that succeeded was the one relating to contributory negligence. If only that ground had been pursued, the hearing of the appeal would have taken less than half a day. If no other grounds of appeal had been pursued by either party then, whether r289(2) applies to appeal costs or not, I think this would have been an appropriate case for this Court to have ordered that the respondent pay the appellant's costs, and receive an indemnity certificate under the Appeal Costs Fund Act 1968, s8. The granting of an appeal certificate is ordinarily appropriate when the costs of the appeal have resulted from an error on the part of the court appealed from. However the maximum payable from the Appeal Costs Fund pursuant an indemnity certificate is $11,500: Appeal Costs Fund Regulations 2003, reg6.

22 In this appeal the appellant succeeded in relation to two parts of the case - contributory negligence and the cross-appeal - and failed in relation to the other parts of the case - his grounds of appeal relating to the assessment of damages. Whether r289(2) applies to appeal costs or not, it is open to this Court to make an order that reflects the fact that the appellant has succeeded in relation to some questions, and that the respondent has succeeded in relation to the others: Forster v Farquhar (1893) 1 QB 564; Cretazzo v Lombardi (1975) 13 SASR 4; Hughes v Western Australian Cricket Association (Inc) [1986] FCA 382; [1986] ATPR 40-748; Burnie Port Corporation Pty Ltd v Bank of Western Australia Limited (No 3) [2003] TASSC 132; (2003) 12 Tas R 325.

23 It was appropriate for the appellant to institute and prosecute an appeal in relation to contributory negligence. That state of affairs was brought about as a result of an error on the part of the learned trial judge. In those circumstances, I think it would be unjust for the appellant not to recover part of the costs of the appeal, whether r289(2) applies to appeal costs or not, especially since the respondent can be granted an indemnity certificate under the Appeal Costs Fund Act. I do not think it is necessary to decide in this case whether r289(2) applies to appeal costs since I think it is in the interests of justice for this Court to make costs orders that are tailored to the circumstances of this particular appeal. I still think that the respondent's offer of compromise is something that weighs in his favour. If the appellant had settled for $159,600 plus costs in 2004, this appeal would not have been necessary. Mr Bradfield, in his written submissions, argued that we should take the impecuniosity of the appellant into account, but that is an irrelevant factor: Board of Examiners v XY [2006] VSCA 190; Edwards v Stocks [2009] TASSC 11 at par12.

24 Having regard to the factors that I have referred to above, I would make the following orders:

(1) That the appellant pay 70 per cent of the respondent's costs of and incidental to the appeal.

(2) That the respondent pay 30 per cent of the appellant's costs of and incidental to the appeal, and all the appellant's costs of the cross-appeal.

(3) That the respondent be granted an indemnity certificate pursuant to the Appeal Costs Fund Act 1968, s8, in respect of the appeal.

25 I agree with the reasons for judgment of Blow J and with the orders which he proposes.