McDevitt v Irwin [2005] ACTSC 133

3. The plaintiff accepts that at the least, there must be an order that she pay the defendant's costs as between party and party. The defendant seeks an order for costs on the normal basis up to 18 November 2002, and thereafter costs as between solicitor and client. In his initial submission, the defendant sought an order that costs after that date be on an indemnity basis, but following consideration of submissions on behalf of the plaintiff, that is no longer pursued.

4. The basis of the defendant's submission is a letter dated 18 November 2002 addressed to the solicitors for the plaintiff in the following terms:

We refer to the Originating Application dated 25 September 2002 and confirm that we have filed a Defence dated 11 November 2002 denying all allegations of negligence.

Although we do not consider that our client has any liability we are instructed to offer to consent to the discontinuance of these proceedings with no order as to costs.

Please note that this offer is open for acceptance for 14 days from the date received by you but if not accepted then we propose to tender this letter in relation to costs and in particular on an application for indemnity costs against the plaintiff.

5. The action was commenced on 25 September 2002 by originating application with accompanying statement as provided by the Rules in lieu of a formal statement of claim. The defendant was served on 19 October 2002, and an appearance was entered on his behalf on 7 November 2002. On 12 November 2002 a defence was filed denying negligence and alleging contributory negligence. The defence was relatively formal and did not include any assertions of fact. The letter offering to consent to the discontinuance of the proceedings was sent on 18 November, that is within a month of the defendant being served and probably no more than two weeks of the defendant's solicitors receiving instructions. It can reasonably be inferred that the defendant's costs by that date would have been modest in the extreme.

6. I have not been informed whether there was any formal response by the plaintiff to the letter of 18 November, but there is no issue that it was received and that the offer was not accepted. Thereafter, it is apparent from the court file that prior to trial interrogatories were exchanged and answered, and the plaintiff sought and obtained discovery from the defendant.

7. The principles to be applied in relation to an application for costs on a more generous basis were set out by Higgins J, as his Honour then was, in Quirk v Bawden (1992) 112 ACTR 1, in a judgment with which Miles CJ and Gallop J agreed. His Honour referred to the genesis of such orders in Calderbank v Calderbank [1975] 3 WLR 586, and to a number of Australian decisions where such orders had been made. His Honour referred to the desirability of encouraging, at an early stage, the serious consideration of offers of settlement. Early settlement resulted in savings to the parties and to the community. It might in some cases be appropriate to award some or all costs of an action on a more favourable than usual basis to a party put to the expense of continuing litigation that ought reasonably to have been settled earlier.

8. His Honour adopted remarks of Giles J in Hobartville Stud v Union Insurance Co Ltd (1991) 25 NSWLR 358, in which a plaintiff had unreasonably insisted that its total claim was unchallengeable. The plaintiff was ultimately awarded more than its offer of compromise but this was because of the inclusion of a large sum for interest. The offer, termed an offer of compromise, had discounted the plaintiff's total claim by only one dollar. The defendant had submitted that there was no element of compromise in the offer, a submission which Giles J accepted. The word compromise connoted that a party was giving something away. A party which makes an offer which does not in any real sense give anything away cannot sustain a later claim for a more favourable costs order.

9. Higgins J went on to say that indemnity costs should not be used to inhibit either party from litigating an issue reasonably in contention between them.

10. It follows from Quirk v Bawden that a party seeking an order for costs on a more favourable basis than the norm, relying on the non-acceptance of a Calderbank offer, must be in a position to show that the offer contained an appropriate element of compromise, and that the conduct of the other party in not accepting the offer was unreasonable.

11. The plaintiff referred in her written submissions to observations I had made in Heywood v Miller [2005] ACTSC 12, in which I had said at paragraph [20]:

...in exercising a discretion as to costs in personal injury actions, a further relevant consideration is the impact of the costs order sought on each of the parties. This may require some consideration of their comparative financial positions.

12. Heywood v Miller was a case where a plaintiff had succeeded in relation to liability but recovered less than the amount of a Calderbank offer which she had rejected. The order sought in that action was that she have her costs as between party and party up to the date of the offer but that she be ordered to pay the defendant's costs from that date. It appeared to me that the defendant's costs after the date of the offer would have been equivalent to a significant portion of the judgment sum, and might have exceeded it. My observations were made in that context.

13. The situation here is different. Although this is a personal injury case, the plaintiff has failed on liability, and no question of proportionality with a judgment sum arises. It does not seem to me that the fact that the plaintiff is an individual reliant on her own resources while the defendant is insured is a factor to be taken into account in exercising my discretion as to costs between plaintiff and defendant. This is a case where insurance was not compulsory, as it would have been in the case of a motor vehicle or employment injury. An insurer was involved on behalf of the defendant because the defendant, sensibly and prudently, had chosen to take out insurance. This was no doubt capable of providing the plaintiff with the benefit of certainty of payment (or near-certainty) if she won her case: it does not follow that the presence of an insurer should provide her with a further benefit (arising from an imbalance in comparative financial positions) in circumstances where she has lost.

14. This leaves for consideration the questions of the level of compromise contained in the offer, and whether the plaintiff behaved unreasonably in not accepting it. As to compromise, as I have said, the offer was made very early in the proceedings. All that the defendant was offering to give away was his costs up to the date of the offer. The defendant's solicitors had been instructed in the matter for a very short time, probably about two weeks, and had entered an appearance and delivered a defence. I can reasonably assume that they had been provided with some material by the insurer, and that they had had some correspondence with the insurer and the plaintiff's solicitors. Nevertheless, their costs would have been extremely modest in the context of a $60,000 case in which liability was in issue. By the time of the offer, the plaintiff was already out of pocket in relation to her treatment expenses and her own costs as between solicitor and client up to that time. The offer would have left her liable for those amounts: all she might have saved was a liability for the defendant's costs as between party and party up to the date of discontinuance, had she chosen to discontinue the action at that time. In the circumstances, the element of compromise contained in the Calderbank offer seems to me to have been negligible.

15. On the issue of reasonableness of the plaintiff's conduct, it should be noted that the Calderbank letter did not include any argument or factual assertions which might have caused the plaintiff to give serious consideration to dropping her claim. Although I am conscious of the risk that a defendant might waive privilege by saying too much about the evidence likely to be given by its witnesses, it seems to me that in a case of this kind, where the offer is not an offer to consent to judgment for any amount, but simply an offer not to seek costs if the plaintiff discontinues, there must be some argument put to the plaintiff as to why her case is bound to fail if it is to be effective in a Calderbank sense.

16. It is also relevant that the offer was to be open only for 14 days, which seems to me a very short period to expect a plaintiff to make a considered decision to discontinue her action, particularly in the absence of any explanation as to why it is being put to her that the action is doomed to failure.

17. In summary, I am not satisfied that the plaintiff acted unreasonably in not accepting the offer to discontinue, nor am I satisfied that the offer reflected the requisite degree of compromise on the part of the defendant.

18. The plaintiff must pay the defendant's costs of the action as between party and party. There should be no order as to costs in relation to the submissions as to costs.

I certify that the preceding eighteen (18) numbered paragraphs are

a true copy of the Reasons for Judgment herein of the Master.