Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak & Ors

Supreme Court of NSW|2006-06-30|Before: McDougall J, Campbell J, Dougall J

CITATION : Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak & Ors [2006] NSWSC 684 This decision has been amended. Please see the end of the judgment for a list of the amendments.

DECISION : See para [45] of judgment

CATCHWORDS : PRACTICE - application for specific performance of alleged settlement agreement - whether offer of a sum "plus costs as agreed or assessed" is an offer of compromise "exclusive of costs" pursuant to UCPR rule 20.26(2) - where no express provision regarding time for acceptance - whether time for acceptance extended pursuant to UCPR rule 20.26(7)(b) - COSTS - where plaintiff's case fails - whether application unreasonable - whether costs should be awarded on an indemnity basis - no question of principle

LEGISLATION CITED : Trade Practices Act Uniform Civil Procedure Rules 2005

The Mid-City Skin Cancer and Laser Centre Pty Ltd (Plaintiff) Dr Ali Zahedi-Anarak (First Defendant) PARTIES : Idameneo (No 123) Pty Ltd (Second Defendant) L W Kernot Pty Ltd (Third Defendant) Laurence William Kernot (Fourth Defendant)

R D Marshall (Plaintiff) COUNSEL : J Downing (First Defendant) G Lucarelli (Second Defendant) A J Tibbey (Third and Fourth Defendants)

Kelvin Solari (Plaintiff) SOLICITORS : Yeldham Lloyd Associates (First Defendant) Kennedys (Second Defendant) Hancock Alldis & Roskov (Third and Fourth Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Friday 30 June 2006 ex tempore (revised 30 June 2006)

3433/06 THE MID-CITY SKIN CANCER AND LASER CENTRE PTY LIMITED v ALI ZAHEDI-ANARAK & ORS JUDGMENT 1 HIS HONOUR: These proceedings are part heard before Campbell J. They have so far occupied four days of his Honour's time (13 to 16 June 2006) and have been listed for hearing for a further four days next week (4 to 7 July 2006). 2 The plaintiff's case as pleaded and opened before his Honour made allegations against the first and second defendants of pass off, breaches of the Trade Practices Act, and misuse of confidential information. Those claims were made in the context of a purchase by the plaintiff of a medical practice specialising in the treatment of skin cancers, and the alleged conduct of the first defendant in leaving the employ of that practice and either taking with him or soliciting to him at a new practice numerous patients of the first practice. Although it does not matter, it may be noted that on the final day of the first branch of the hearing, the plaintiff abandoned his claims against the first and second defendant in respect of passing off and breaches of the Trade Practices Act. 3 The plaintiff claims that these proceedings have been settled. On 27 June 2006, it obtained leave to serve on short notice a summons claiming declaratory relief and an order that the defendants specifically perform the contract of settlement that the plaintiff said had been reached. Because of the proximity of the further hearing, I have heard the fresh proceedings as a matter of urgency. 4 The plaintiff bases its case as to settlement on a document either being or purporting to be an offer of compromise. That offer of compromise (as I shall call it for convenience, but without prejudgment) was served under cover of a letter of 10 May 2006 and received on 11 May 2006. Both the offer of compromise and the letter under cover of which it was served made it plain that the offer was made by order of the defendants. 5 Omitting formal parts, the offer of compromise offered the following: "1. Pursuant to Part 20 rule 20.26 of the Uniform Civil Procedure Rules 2005, the defendants offer to the plaintiff the sum of $10,000 plus costs as agreed or assessed, in full satisfaction of any claim the plaintiff may have against the defendants. 2. This offer is made without prejudice and in accordance with Part 20 rule 20.26 of the Uniform Civil Procedure Rules 2005." 6 The plaintiff's solicitor responded by letter dated 16 May 2006. He stated that he had referred a copy of the offer of compromise to his client for instructions. (I interpose that he described the document as "the offer of compromise enclosed" with the letter of 10 May 2006.) However, he said, "it does not appear to me that my client is currently in a position to properly consider the offer made in the Offer of Compromise", and that "my client would not be in a position to properly consider that offer until well after the time for acceptance of that offer has expired." 7 At this stage, I should note that the proceedings before Campbell J have been concerned so far with the issue of liability, and that, as I understand it, the further hearing will continue on that issue only: ie, at the conclusion of the hearing on or before 7 July 2006 (assuming that the hearing finishes in the four days allocated), only the issue of liability will have been argued. 8 The plaintiff's solicitor continued by inviting the defendants "to put forward an offer of compromise expressed in terms of liability". 9 There was no purported acceptance of the offer until on 21 June 2006 the plaintiff's solicitor wrote to the solicitor who had served the offer of compromise on behalf of the defendants, and, having referred to the letter and offer of compromise, said: "I am instructed to hereby advise that my client accepts that offer made in that Offer of Compromise." 10 It will be observed that this acceptance (or purported acceptance) occurred after the conclusion of the first tranche of the hearing before Campbell J. 11 It is apparent that between 10 May and 2 June 2006 there was (as one might expect) substantial activity in preparing for the hearing. That activity included (but doubtless was not limited to) the service of subpoenas on the defendants requiring the production of documents that would go to a number of issues, including the relationship between the first defendant and his purported employer, and communications made by the first defendant to former patients of the practice purchased by the plaintiff. There was a dispute over those subpoenas, which was not ultimately resolved until the first day of the hearing when Campbell J heard argument on notices of motion filed by the defendants seeking an order that the subpoenas be set aside, and in substance dismissed those notices of motion and ordered production of the relevant documents. 12 It is apparent that the documents sought may have gone to the issue, whether the plaintiff had made out a prima facie case that it had suffered loss, so that it was entitled to an inquiry as to the amount of its loss or an account of profits. That having been said, it may well be that the documents sought and produced went also to issues of liability in the proceedings. 13 The plaintiff puts its case, as to settlement, in two alternative ways. Firstly, it says, the offer of compromise was not an offer of compromise in accordance with the rules, so that it was an offer to settle which contained no express (or any) limitation of a time for acceptance. It followed, the plaintiff said, that the offer (not having been withdrawn, and not having been rejected) remained open until the purported acceptance on 21 June 2006. 14 Alternatively, the plaintiff said, the offer of compromise was an offer pursuant to UCPR rule 20.26, but was one to which subrule (7) applied (because its offer was "limited to the time as it is open for acceptance") and that there was therefore, by virtue of para (b) of subrule (7), a reasonable time for acceptance. 15 It was the plaintiff's case that a reasonable time for acceptance had not expired by 21 June 2006. 16 The defendants disputed these contentions, and raised a number of alternative issues if, contrary to their principal positions, I came to the view that there was a concluded contract for settlement. In the view to which I have come, it is not necessary to refer to the defendants' alternative arguments; but I shall note, in case this matter goes further, that the arguments are recorded in summary form in the written submissions provided by the defendants. Those written submissions, together with written submissions provided by the plaintiff, will remain with the file. 17 The first question is therefore whether the offer of compromise is or is not an offer pursuant to UCPR rule 20.26. It is apparent that the defendants thought that it was, having regard to the introductory words of paragraph 1, and to the statement made, presumably intended to comply with rule 20.26(3)(a) in paragraph 2. However, the plaintiff says, despite those indicia, the reference to costs in paragraph 1 takes the offer outside the rules. 18 To understand this argument, and the alternative argument based on rule 20.26(7), it is necessary to set out the relevant provisions of UCPR rules 20.25, 20.26, and 42.13A. They read as follows: " 20.25 Definitions (cf SCR Part 22, rule 3)

In this Division: "final deadline" for an offer means: (a) if the trial is before a jury, the time at which the judicial officer begins to sum up to the jury, or (b) if the proceedings have been referred for arbitration, the conclusion of the arbitration hearing, or (c) in any other case, the time at which the judicial officer begins to give his or her decision or his or her reasons for decision, whichever is the earlier, on a judgment (except an interlocutory judgment).

"offer" means an offer of compromise referred to in rule 20.26. "period for acceptance "for an offer means the period from when the offer is made until: (a) the expiration of the time limited by the offer or, if no time is limited, the expiration of 28 days after the offer is made, or (b) the final deadline for offers in respect of the claim to which the offer relates,

20.26 Making of offer (cf SCR Part 22, rules 1A, 2, 3 and 4; DCR Part 19A, rules 1, 2, 2A, 3 and 4; LCR Part 17A, rules 2 and 5)

(1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs. (3) 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. (4) Despite subrule (1), a plaintiff may not make an offer unless the defendant has been given such particulars of the plaintiff's claim, and copies or originals of such documents available to the plaintiff, as are necessary to enable the defendant to fully consider the offer. (5) If a plaintiff makes an offer, no order may be made in favour of the defendant on the ground that the plaintiff has not supplied particulars or documents, or has not supplied sufficient particulars or documents, unless: (a) the defendant has informed the plaintiff in writing of that ground within 14 days after receiving the offer, or (b) the court orders otherwise. (6) An offer may be expressed to be limited as to the time it is open for acceptance. (7) The following provisions apply if an offer is limited as to the time it is open for acceptance: (a) the closing date for acceptance of the offer must not be less than 28 days after the date on which the offer is made, in the case of an offer made 2 months or more before the date set down for commencement of the trial, (b) the offer must be left open for such time as is reasonable in the circumstances, in the case of an offer made less than 2 months before the date set down for commencement of the trial. (8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer. (9) An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides. (10) A party may make more than one offer in relation to the same claim. (11) Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer. (12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division.

… 42.13A Where offer accepted (1) This rule applies if the offer concerned: (a) is made by the plaintiff and accepted by the defendant, or (b) is made by the defendant and accepted by the plaintiff. (2) The plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made, unless: (a) the offer states that it is a verdict for the defendant and the parties are to bear their own costs, or (b) the court orders otherwise." 19 It will be observed from rule 20.26(2) that in the present case (the offer not being one for a verdict for the defendants) the offer must be exclusive of costs. That I take to mean that the amount of the offer must be exclusive, and not in any way inclusive, of costs. 20 In the present case, the settlement amount offered was in my view $10,000. Paragraph 1 made it clear that that sum did not include, or was not to be taken to include, costs. That is because it said that the sum of $10,000 was "plus costs as agreed or assessed". 21 It was not necessary for the offer to refer to costs. The statement that the offer was made in accordance with "Part 20 rule 20.26" (quoting from paragraph 2) makes it plain that rule 20.26(2) applies; and in circumstances where, as I have said, the offer was not one of a verdict for the defendants, that makes it plain that the offer was exclusive of costs. 22 Nonetheless, it does not follow that because the offer made plain (or sought to make plain) that which was in any event the fact, it was thereby converted from being what it was intended to be - an offer made pursuant to the rules - into something else - an offer not made pursuant to the rules. 23 For the plaintiff, reliance was placed upon rule 42.13A. As will be seen, that rule deals with the costs consequences of acceptance of an offer. By subrule (2), the consequence is that the plaintiff (in the circumstances governed by subrule (1)) is entitled to costs up until the date of the offer. That may be seen as a change to the general law position, whereby an entitlement to costs in respect of an accepted offer of compromise, or an accepted offer of a settlement plus costs, would be taken to include costs to the date of acceptance. 24 The plaintiff submitted that the reference to costs in paragraph 1 of the offer introduced ambiguity, because it was not clear whether the costs referred to were up until the date of the offer (in accordance with rule 42.13A(2)) or up until the date of acceptance (in accordance with the general law). Thus, it was submitted, the introduction of an element of ambiguity took the offer outside the rules. 25 I think that there are two answers to this submission, each of which is fatal. The first is that the question of application of the rules turns on whether the offer is one "exclusive of costs". If the offer is "exclusive of costs" then it may be an offer under the rules, because it would then comply with the requirements of rule 20.26(2). Even if the reference to costs introduced an element of ambiguity as to the extent of those costs, this would not detract from the position that the offer was intended to be, as in my view it is, one exclusive of costs. The only debate would be as to the extent of costs recoverable. 26 The second answer is that, in any event, the purported ambiguity may be resolved by a process of construction. In circumstances where the offer asserts twice that it is made pursuant to rule 20.26, the proper construction of the reference to costs (in the absence of some specified basis on which the costs were to be paid) is that it means costs in accordance with the rules. In other words, I think, as a matter of construction, the reference to "plus costs as agreed or assessed" should be construed as a reference to such costs in accordance with the provisions of rule 42.13A(2). 27 Even if the other construction were to be preferred - ie, that the costs referred to were costs up until the time of settlement - that would not invalidate the offer. It would mean that the defendants were offering the plaintiff something more than, by application of the relevant rule, they were bound to do. That neither destroys the nature of the offer as an offer of compromise, nor makes it an offer that is anything other than an offer exclusive of costs. 28 Accordingly, in my view, the first basis on which the plaintiff's case was put must fail. 29 It will be seen that the offer of compromise contains no express provision for a time for acceptance. It follows, since it is in my view an offer made in accordance with the rules, that the period for acceptance is governed by rule 20.25. In other words, the period is the first to occur of 28 days after the making of the offer, or the final deadline for offers; and, in the context of this case, it is the former that is relevant. 30 If one assumes that the offer was served on the date it was received (11 May 2006) and if one counts 28 days from then, exclusive of the date for acceptance, the offer expired at the latest on 9 June 2006. The precise date does not matter; the defendants submitted that the offer expired two days earlier. But on any view it expired before the purported acceptance. Perhaps of greater significance, on any view it expired before the commencement of the trial. 31 Thus, unless the plaintiff's second and alternative submission be accepted, the plaintiff must fail. 32 The second submission was based on rule 20.26(7). That rule applies, as the plaintiff accepted, "if an offer is limited as to the time it is open for acceptance". The plaintiff's submission was that even though the offer contained no reference to a time for acceptance, the provisions of the definition of "period for acceptance" in rule 20.25 meant that there was, in substance, a statutory limitation of a time for acceptance; and that a statutory limitation (or a limitation implied by force of the rules) was sufficient to engage subrule (7). 33 I do not think that that submission is correct. There are a number of reasons why this is so. Firstly, it will be seen, the statutory deadline of 28 days contained in paragraph (a) of the definition of "period for acceptance" applies only where no time is limited by the offer for its acceptance. 34 Secondly, subrule (6) authorises an express limitation of a time for acceptance. 35 Thirdly, in the very following subrule, the provisions apply "if an offer is limited as to the time it is open for acceptance". In other words, the provisions of subrule (7) apply where an offer is "expressed to be limited as to the time it is open for acceptance" as permitted by subrule (6). That construction is completely consistent with the way in which para (a) of the definition of "period for acceptance" in rule 20.25 is framed; and the plaintiff's submission on this point is completely inconsistent with that paragraph. 36 Fourthly, if the plaintiff's submission as to the proper application of subrule (7) were accepted, the introductory words would have no work whatsoever to do, because, either through express limitation (subrule (6)) or statutory implication (para (a) of the definition of "period for acceptance") there would always be a time limited for acceptance of the offer, so that subrule (7) would apply in all circumstances and its introductory words would add nothing to that. I do not think that one should impute to the drafters of the rules an intention to introduce a subrule by a meaningless verbal formulation. 37 Thus, as I have said, I conclude that the second basis on which the plaintiff put its case before me must fail. 38 It follows that the plaintiff is not entitled to the relief prayed by its summons, and that the summons should be dismissed.

FOR APPLICATIONS ON COSTS SEE SEPARATE TRANSCRIPT. 39 HIS HONOUR: The plaintiff accepts that it must pay the costs of the application. However, the defendants seek those costs on the indemnity basis. Mr Lucarelli of counsel for the second defendant pointed to the circumstance that the application had been made at a time when the parties might be taken to have been preparing for the further hearing next week. He said that it was a distraction from that preparation. He submitted further that the merits of the application were so minimal that, in the relevant sense, the very application itself was unreasonable. 40 Mr Downing of counsel for the first defendant made a similar application. He pointed to the circumstance that, as he put it, the application was one with no real prospects of success. 41 Ms Tibby of counsel for the third and fourth defendants likewise made an application for indemnity costs. She relied on the submissions put by Mr Lucarelli and Mr Downing, and pointed in addition to the circumstance that there was no notification of the basis of the application until (I think) this morning when the plaintiff's outline submissions were made available. 42 I do not think that this is an appropriate case to be visited by an award of costs on the indemnity basis. Part of the problem arose from the circumstance that the defendants, for reasons that are not clear, sought to embroider their offer of compromise by words that, on what I think is the proper construction of the rules, were not necessary. Had the defendants wished to make the point made by those words clear, it could have been made equally clear, and equally effectively, in the covering letter. 43 The rules relating to offers of compromise, and costs consequences, have changed in some significant ways upon the commencement of the Uniform Civil Procedure Rules, compared to the tradition that formerly obtained under the Supreme Court Rules. Whilst I have concluded that the plaintiff's case must fail, I do not think that the making of the application can be said to exhibit the relevant kind of unreasonable quality, or "delinquency", so as to attract the undoubted jurisdiction of the Court to order costs on the indemnity basis. 44 The case was one that needed to be heard, and heard urgently. The parties co-operated in achieving this. As I have said, the Court is grateful to counsel for their assistance in the form of written submissions that, having regard to the time available for their preparation, state each party's position clearly and succinctly. But it does not follow that the failure of the case, even having regard to the nature of the arguments raised, means that there should be costs on the indemnity basis. 45 I make the following orders:

(1) I order that the summons filed on 27 June 2006 be dismissed.

(2) I order the plaintiff to pay the defendants' costs of that summons.

(3) I order that the exhibits be retained for 28 days and thereafter held over or disposed of in accordance with the Rules. ******

07/07/2006 - Incorrect file number on judgment - Paragraph(s) there is no paragraph number - it is the file number

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Judgment (21 paragraphs)

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