McGlashan v QBE Insurance

Supreme Court of NSW|2014-07-03|Before: Campbell J, Schmidt J, McColl JA, Mason P, McClellan CJ

Judgment 1On 2nd June 2014 I delivered Judgment for the defendant in these proceedings. My reasons for that decision are published in McGlashan v QBE Insurance (Australia) Ltd (No 2) [2014] NSWSC 486 and McGlashan v QBE Insurance (Australia) Ltd (No 3) [2014] NSWSC 716. 2This judgment deals with the defendant's application for indemnity costs. 3An offer of compromise was served on the plaintiff's solicitors on 21st January 2013. It offered to resolve the matter by a payment of $200,000 to the plaintiff. 4There is no issue that the offer was properly served; that the plaintiff did not accept it; and that the ensuing judgment was less favourable to the plaintiff than the offer. For those reasons the defendant has applied to vary my original orders as to costs by dint of r 42.15A Uniform Civil Procedure Rules 2005 (NSW). The defendant's submissions (wrongly entitled "plaintiff's submissions") erroneously relied on r 42.15. 5The plaintiff's written submissions oppose the order on two grounds which may be summarised as follows: (a)first, that at the time of the service of the letter of compromise all evidence had not been served; and (b)Secondly, because the offer was made inclusive of all or any interim or other payments made to or on behalf of the plaintiff by the defendant, and did not notify the plaintiff of the amounts said to be involved. 6It is the plaintiff's submissions that these grounds, severally or jointly, denied the plaintiff the opportunity to properly assess the offer and that accordingly the application should be dismissed. 7As was stated by Schmidt J in Vagg v McPhee (No 2) [2012] NSWSC 187 the UCPR rules relating to offers of compromise operate quite differently to Calderbank principles. Having refused an offer which complies with the rules a plaintiff must establish circumstances which, as a matter of justice, warrant a departure from what r 42.15 contemplates will be the usual result of the refusal of an offer. In other words, if the offer is compliant the defendant is entitled to an order in accordance with the rules, unless the plaintiff establishes that the Court should order otherwise. 8Generally speaking, for the Court to exercise that discretion in favour of a plaintiff it would have to be satisfied that 'exceptional circumstances' exist; Hillier v Sheather (1995) 36 NSWLR 414. In Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 McColl JA at [35] (Mason P and McClellan CJ at CL agreeing) said the following: The onus is on the respondent to demonstrate why the Court should not order the respondent to pay the appellants' costs on an indemnity basis. In particular, the respondent must establish that it had given serious thought to the risks involved in not accepting the offers, had assessed the appellants' case properly and in the context of the relevant rules and the achievement of their purpose as outlined in Morgan. Generally, exceptional circumstances are required to justify such an order denying the appellants' entitlement (my emphasis; citations omitted) 9The first question is whether the offer is compliant. To effectively engage Rule 42.15 (or Rule 42.15A for that matter) it is necessary for the applicant to demonstrate strict compliance with r 20.26: Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 at [40] by Bathurst CJ [54]: by Barrett JA.

The Interim Payments 10The only ground relied upon by the plaintiff going to compliance with rule 20.26 relates to the reference to an interim payment. 11Clause 2 of the offer of compromise dated 21st January 2013, which formed Annexure A of the Affidavit of Yasmin Bell dated 30th May 2014, is in the following terms: The offer is inclusive of all or any interim or other payments made to or on behalf of the Plaintiff by the Defendant. At the time the offer was made, rule 20.26 (3) read as follows: 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. (My emphasis) 12There is nothing contained in the affidavit relied on evincing that an interim payment of damages had been made. One may infer from that and from the plaintiff's complaint (not supported by affidavit) that none in fact had been made. As the contingency upon which rule 20.26 (3)(b) depended had not occurred its terms were not engaged and strictly the terms of the offer were non-compliant. But is this non-compliance fatal or am I required to treat the unnecessary words as mere surplusage? 13The line of previous decisions which prevailed in Whitney, Whitney itself, and the cases referred to at Ritchie's Uniform Civil Procedure NSW at page 6804 [20.26.5] suggest, as I have said, strict compliance is necessary before the related cost rules are engaged. The principle underpinning this approach may be based on the potentially drastic costs consequences that might follow the departure from the ordinary costs rules in a given case. Whitney also shows that adding what might be regarded as unnecessary conditions vitiates the effectiveness of the offer. Whitney decides that making provision for costs offended the requirements of r 20.26(2) as it then stood, and possibly subrule 12, regardless of the content of what was provided in relation to costs. A statement, as a condition of an offer, "that the defendant is to pay the plaintiff's costs on the ordinary basis" in addition to a monetary judgment offered could not be treated as mere surplusage; notwithstanding that such an order would follow as night follows day in the vast majority of cases settled by acceptance of the offer of compromise. This approach suggests that a high degree of strict compliance with the requirements of r 20.26 is required before rr 14.32 - 14.15A are engaged. This strict approach is necessary given the virtually automatic operation of rr 42.13A - 42.15A. 14English authorities impose a duty on an offeree to seek clarification where an offer is uncertain. Simon Brown LJ in Butcher v Wolfe and Wolfe [1998] EWCA Civ J1030-15; [1999] 1 FLR 334 at 15 enunciated that an offeree is not entitled to take a Calderbank letter at face value but is bound to explore whether something more might be available. To not do so would be to "impose too narrow and inflexible an approach to this valuable means of protecting parties to litigation against unreasonable opponents." 15In the Victorian case of M T Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No 3) [2000] VSC 163 Gillard J at ([74]-[76]) said: The fact is that in litigation experienced counsel and litigation solicitors have a very good idea during the course of a trial as to what their client should receive or be expected to pay. It is not difficult in most cases to make an assessment of the risks involved and what is a fair compromise to the client. A court will always give reasonable time to the parties to consider settlement. If a proposal is put forward the litigant and his adviser receiving the proposal ignores that proposal at his peril. Some proposals will involve discussions and negotiations between the parties. But any litigant and his adviser who takes the view that the proposal or offer can be ignored on some technical ground does so at their own risk. In days of old, points were taken justifying the refusal of an offer because of some point, but in this day and age where costs in heavy litigation are high litigants and their lawyers must consider all offers of settlement, bona fide and reasonably. By offers I include proposals, and exploratory discussions as well as offers. If the evidence is admissible on the question of costs any unreasonable conduct may result in a special order for costs. 16In Alves v Patel [2005] NSWSC 841 Adams J at [14] said in relation to Calderbank offers that: The notion that Calderbank offers can safely be ignored without costs consequences just because the offeror's case is not ready for trial or all pre-trial requirements as to service of reports or supply of particulars have not been complied with cannot be right: much will depend on a commonsense approach to the case and the particular circumstances at the time of the offer. 17Persuasive as these authorities are, they belong in the field of Calderbank offers, not offers of compromise under the rules. The wide discretion which may be activated by a Calderbank offer is susceptible to a much more flexible approach, not available in the stricter regime instituted by the rules. 18One has a feeling that a word processing precedent has generated the reference to interim payment in this case. Such precedents whilst useful in the efficient conduct of litigation need to be amended to suit the circumstances of the particular case. 19The reference to interim payments inapplicable in the present case renders the offer non-compliant with Rule 20.26 as it then stood with the consequence that the defendant is not "entitled " to an order for indemnity costs.

Service of All Evidence 20This ground relies upon an erroneous statement contained in the defendant's submissions on costs (not supported by any evidence). The defendant's submissions contained the statement that the offer of compromise was made "following completion of service of all evidence". The plaintiff submitted in response (not supported by any evidence) that this was not in fact the case as the report of a Dr John Cummine dated 26th February 2013 was not served by the defendant until 12th March 2013, well after the offer of compromise had expired. 21Subrule 20.26(4) requires that an offer may only be made by a plaintiff when the defendant has been given particulars of the plaintiff's claim and such documents as are available to the plaintiff and as are necessary to enable the defendant to consider the offer fully. There was no corresponding obligation on a defendant who made an offer under the former rule. This may have changed: see subrule 20.26 (4) in its current form. 22The plaintiff submitted that as a result of this delayed service the plaintiff was unable to make an informed assessment of the offer and that the order for indemnity costs should accordingly not be made. 23Even if one were to accept that the rules required the defendant to serve on the plaintiff particulars of its case prior to making an offer of compromise the case-law does not appear to require the prior service of all documents. Instead the position is that where the plaintiff's case at trial is significantly different to that particularised when the offer was made a departure from r 42.15 may be justified. In Fowdh v Fowdh [1993] NSWCA 100 Mahoney JA (line 50 p 8) enunciated the following: It is one thing for a plaintiff to present her evidence, make an offer of compromise, and to succeed at the trial on that evidence. In such a case, indemnity costs may be warranted. It is another thing for the plaintiff to present a case and make an offer of settlement, and then to succeed at the trial upon a relevantly different case. A plaintiff who has done that may not readily receive indemnity costs. I do not mean by this that minor differences between the case at offer and the case at trial will be of significance or that, if the difference be significant, a discretionary judgment for indemnity costs may not be given. But where the difference between the position at offer and the position at trial be as the Master assessed it to be, a decision to refuse indemnity costs may readily be understood. 24In this case the report of Dr Cummine did not materially change the nature of the defendant's case. Further, the report went to quantum, not liability which was where the plaintiff's case foundered. 25It would be contrary to the principles governing civil litigation in this State to require an offeror to serve all evidence and comply fully with all pre-trial requirements before an offer of compromise later bettered at trial could give rise to a prima facie entitlement to indemnity costs. Such an approach would defeat the purposes of offers of compromise which include the encouragement of the early resolution of litigation before costs get out of hand. 26I would not "otherwise order" on this ground. 27Before pronouncing orders, I wish to make some observations about the manner in which the material relevant to the indemnity costs application was placed before the Court. I think it may be taken as read that consequential cost applications should be resolved with as little technicality and formality as the circumstances of the particular case will allow lest the tail of costs wag the dog of the case. Bearing this in mind, I permitted the application to vary my orders to be made by way of written submission, supported by affidavit. Even so, the materials submitted by the parties were unsatisfactory in some respects. First, neither set of written submissions identified the Australian practising lawyer taking responsibility for them. I regard it as an essential requirement of legal practice that when submissions are made to a court in writing, they must be signed by the lawyer taking responsibility for them, and that lawyer must be identified by name and role in the litigation, whether as solicitor or counsel. The submissions of both parties contained only the name of the legal practice. Unlike the plaintiff's, at least the defendant's submissions appeared to be signed, but the person signing them was not identified by name or capacity. As I have said this is unsatisfactory and should not occur. 28Moreover, the submissions of both parties relied upon material not established by evidence. The affidavit read in support of the application did no more than prove service of an annexed offer of compromise. The submissions, however, went on to assert other facts which I must suppose the author of them thought material to the exercise of the power invoked. If so, those facts should have been proved by affidavit. Likewise in resisting the application, the unidentified author of the plaintiff's written submissions made reference to facts he or she thought material to the resistance of the application. These facts too should have been proved by affidavit rather than by mere assertion in written submissions. 29My order is that the application for indemnity costs is refused.

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: 03 July 2014

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