NAJDOVSKI v CRNOJLOVIC [2008] NSWCA 281 | Case summary

30 October 2008 Alex NAJDOVSKI v Antonio CRNOJLOVIC & Anor (No. 2) Judgment 1 ALLSOP P: I have read the reasons in draft of Basten JA. I agree with the orders proposed by his Honour. I agree also with his Honour's reasons. 2 BASTEN JA: The appellant was a passenger in the rear seat of a motor vehicle at the time of a collision which caused him a severe head injury. In proceedings in the District Court at Wollongong, he obtained a judgment against the respondent, with damages assessed at $687,554. He brought an appeal to this Court challenging that assessment. He was successful in obtaining an increase in the award, as explained in reasons delivered on 1 August 2008: Najdovski v Crnojlovic [2008] NSWCA 175. Final orders were not made at that time, but the parties were directed to consider the appropriate amount of the substituted judgment, calculated on the basis that it would take effect from the date of the trial judgment, namely 9 June 2006 (pursuant to Supreme Court Act 1970 (NSW), s 75A and Uniform Civil Procedure Rules 2005 (NSW), r 36.4(3)). 3 Pursuant to leave granted in that judgment, the parties filed further submissions with respect to the calculation of damages. In fact, subject to two qualifications, they were in agreement as to the amount of the award. Leaving aside amounts for pre-judgment and post-judgment interest, damages were agreed at $833,498. Post-judgment interest 4 The parties were agreed that the appellant was entitled to an amount by way of post-judgment interest, the point in dispute being an apparent claim by the appellant for interest on the amount of the judgment outstanding as a result of the increased award following from the judgment of this Court, but without taking into account payments made by the respondent following the earlier judgment. The amount of interest in dispute is less than $5,000 and depends on factual issues which the parties might have been expected to resolve. In any event the resolution of the dispute is inappropriate. The assistance sought by the Court was in the calculation of the award of damages and thus the amount for which judgment should be given. Judgment is not given for post-judgment interest, even where the Court directs that its judgment take effect from an earlier date. 5 Where a plaintiff obtains an entitlement to an award of damages, or to an increased award of damages, as a result of an appeal court judgment, it will be necessary to determine when that entitlement took effect. If the judgment takes effect from the date on which it is delivered by the appeal court, it will usually be appropriate to include an amount by way of pre-judgment interest in the award to cover the period during which the appellant has been deprived of the damages since the trial judgment, but that is done pursuant to the power to award pre-judgment interest: see Nicol v Allyacht Spars Pty Ltd [No. 2] [1988] HCA 48; 165 CLR 306 at 312. If the effect of the judgment is back-dated, that will not be appropriate, but the plaintiff will be entitled to post-judgment interest until the relevant amount is paid. 6 There being no order to the contrary pursuant to s 101 of the Civil Procedure Act 2005 (NSW), the appellant in the present proceedings will be entitled to interest after judgment in accordance with that section. The interest will be calculable on such amount as may have been outstanding from time to time since the date on which the judgment took effect, namely 9 June 2006. Any dispute as to the quantum of interest would need to be determined in debt recovery proceedings, which are not to be anticipated. Pre-judgment interest 7 The general provision for the inclusion in an award of damages of an amount by way of interest is to be found in the Civil Procedure Act, s 100. That power is constrained, in relation to proceedings for damages, so that the Court may not order payment of interest under that section "in respect of the period from when an appropriate settlement sum was offered (or first offered) by the defendant unless the special circumstances of the case warrant the making of such an order": s 100(4). The term "appropriate settlement sum" is defined by reference to the judgment, as a sum which the judgment does not exceed by more than 10%. This provision, although subject to an exception based on a matter of evaluation and impression, depends upon a precisely identifiable criterion, which, if applicable, was satisfied. 8 In the present case, the payment of interest is regulated (or also regulated) by the Motor Accidents Compensation Act 1999 (NSW), s 137. That section either replaces or limits any entitlement of a plaintiff to interest on damages payable in relation to a motor accident. It excludes all entitlement to interest on those components of an award calculated under s 128 (with respect to attendant care services) and any amount for non-economic loss: s 137(2), (3). It will be necessary to return to the specific provisions in relation to other heads of damages. The section also provides for the means of calculating interest (sub-s (5)) and the rate of interest (being three-quarters of the rate prescribed for the purposes of s 101 of the Civil Procedure Act - sub-s (6)), but further provides that nothing in the section affects the payment of interest on a judgment debt: sub-s (7). 9 It may be noted that the amount of interest is to be calculated "for the period from when the loss to which the damages relate was first incurred until the date on which the court determines the damages": sub-s (5)(a). It was not submitted that this language precluded a calculation by this Court from the date of loss to the date of judgment in the trial court. The possibility that this provision effectively qualifies the power of this Court to back-date a judgment need not be considered. 10 The primary dispute between the parties turns on the operation of sub-s (4) which reads as follows: "(4) Other heads of damages The following provisions apply to damages, other than damages to which subsection (2) or (3) applies, payable in relation to a motor accident: (a) Interest is not payable (and a court cannot order the payment of interest) on such damages unless: (i) information that would enable a proper assessment of the plaintiff's claim has been given to the defendant and the defendant has had a reasonable opportunity to make an offer of settlement (where it would be appropriate to do so) in respect of the plaintiff's full entitlement to all damages of any kind but has not made such an offer, or (ii) the defendant has had a reasonable opportunity to make a revised offer of settlement (where it would be appropriate to do so) in the light of further information given by the plaintiff that would enable a proper assessment of the plaintiff's full entitlement to all damages of any kind but has not made such an offer, or (iii) if the defendant is insured under a third-party policy or is the Nominal Defendant, the insurer has failed to comply with its duty under section 83, or (iv) if the defendant has made an offer of settlement, the amount of all damages of any kind awarded by the court (without the addition of any interest) is more than 20% higher than the highest amount offered by the defendant and the highest amount is unreasonable having regard to the information available to the defendant when the offer was made. (b) The highest amount offered by the defendant is not unreasonable if, when the offer was made, the defendant was not able to make a reasonable assessment of the plaintiff's full entitlement to all damages of any kind. (c) For the purposes of this subsection, an offer of settlement must be in writing." 11 This section has, remarkably, been the subject of little attention since the commencement of the Motor Accidents Compensation Act. Similar provisions were originally found in the Motor Accidents Act 1988 (NSW), s 73 ("the 1988 Act"), in variable form over the years, but from 17 June 1994 in a form which is now reflected in the Motor Accidents Compensation Act: see Motor Accidents (Amendment) Act 1994 (NSW), Schedule 1(1). The history of the legislation was adverted to in Riddle v McPherson (1995) 37 NSWLR 338, in relation to the 1988 Act. In Thomas v Eyles (1998) 28 MVR 240, at 255 (Priestley JA, Beazley and Stein JJA agreeing) the Court held that where the various paragraphs of sub-s (4) were satisfied, there was no discretion to decline to include interest in the award of damages. However, in Tran v The Government Insurance Office of NSW (No. 2) [2001] NSWCA 211; 51 NSWLR 733 at [6] this Court appears to have treated s 73 of the Motor Accidents Act not as a source of power, but as a constraint on the exercise of a pre-existing statutory power, in that case identified as s 83A of the District Court Act 1973 (NSW). Accordingly, the award of interest remained discretionary, in accordance with principles applicable with respect to the general statutory provision. 12 The structure of paragraph (a) of sub-s 137(4) is not without its difficulties. The four sub-paragraphs are stated disjunctively and it appears to have been assumed, at least in some cases, that they operate in different circumstances. Thus, sub-par (i) permits interest where the defendant has had a reasonable opportunity to make a settlement offer, but has not done so. Because the provision does not identify any particular time for its operation, it is not easy to envisage circumstances where a matter has gone to trial and judgment without the defendant at any stage being in a position to assess his or her situation. For example, in a case dealing with an assessment under the statutory scheme (rather than a trial), the assessor having stated the amount of damages to be awarded, the insurer sought to make an offer of settlement after the assessment was made but before the date when the certificate rendered the assessment final: see Allianz Australian Insurance Ltd v Crazzi [2006] NSWSC 1090; 68 NSWLR 266 (reported only in part) at [46], [74], [77], [84] and [181] (Johnson J). 13 Sub-paragraphs (ii) and (iv) operate where at least one offer has been made. The former appears to assume (because it speaks of "a revised offer") that an earlier offer had been made which was reasonable having regard to the information available to the defendant at the time, but which ceased to be reasonable in the light of further information provided by the plaintiff. That must be seen as a qualification on sub-par (iv), which merely requires the reasonableness of the offer to be assessed at the time it was made. For the purposes of the latter provision, the availability of interest depends upon the judgment debt (without interest) being more than 20% above the highest offer and that offer being unreasonable at the time it was made. 14 Paragraph (a) does not, however, involve four exclusive categories. Thus, sub-par (iii) deals with the case of a defendant who is insured under a third party policy or which involves the nominal defendant, which will cover, in practical terms, all cases. In most cases, the insurer will not fail to comply with its duty to pay hospital, medical and other expenses in the circumstances identified in s 83. The fact that this negative provision will almost invariably not operate is generally ignored. The assumption presumably is that the defendant cannot avoid liability for interest if the insurer has failed to comply with its duty under s 83. However, the grammatical form of a double negative, including an exception ('interest is not payable … unless … x has not occurred') gives rise to a different literal construction: cf Harrison v Melhem [2008] NSWCA 67; (2008) Aust Torts Rep ¶81-951 in respect of a similar problem under s 128 of the Motor Accidents Compensation Act. 15 In relation to sub-par (iv), a further difficulty concerns the relationship between an offer which does not reach 5/6ths of the judgment but may nevertheless not be unreasonable, having regard to the information available to the defendant when the offer was made. Is the Court to approach the matter on the basis that although the judgment exceeded the offer by more than 20%, the differential did not mean that the offer was necessarily unreasonable, regardless of the information available or, in the alternative, should the Court reason that an offer which fails to better the prescribed differential is unreasonable unless explained by a lack of information, being information available to the trial judge in reaching his or her award? In the latter case, further information must have become available, thus engaging sub-par (ii) and the need to consider whether the defendant had a reasonable opportunity to make a revised offer in the light of the further information. But in practical terms, that must be the usual case, where the Court reserves its judgment. The question then remains whether the 20% excess awarded by the trial judge is in itself sufficient to demonstrate the unreasonableness of the offer. 16 An assessment of unreasonableness in this context requires some understanding of the statutory purpose underlying the constraint on an award of interest. This question was considered in Cochrane v Hannaford [1999] NSWCA 371; 30 MVR 55 in a joint judgment of Mason P, Brownie and Foster AJJA. Their Honours stated at [96]: "The purpose of this part of s 73 is to encourage settlement and to sanction a defendant which does not act realistically, excepting cases where the inability to have made a realistic offer was hampered by the absence of relevant available information." 17 The joint judgment continued in respect of the approach adopted by the trial judge in relation to the function of s 73(4) (at [99]): "Clearly it is aimed at encouraging litigants to give serious consideration to the settlement of proceedings. The function of such provisions is discussed in Morgan v Johnson (1998) 44 NSWLR 578 at 581-2. Mason P was there speaking of familiar provisions found in the Supreme Court Rules and District Court Rules which indicate that the usual order for costs is generally to be departed from if a party does not accept what turns out in the light of the judgment to have been a reasonable settlement offer. Section 73(4) works a little differently, but the rationale is the same. For s 73(4) (as for the provisions under the rules) it is true to say (in the words of Mason P in Morgan at 582): Lying behind [the section] is the common knowledge that litigation is inescapably chancy…. For this reason, the ordinary provision is expected to apply in the ordinary case." 18 No doubt, at a reasonably high level of generality, there is a common purpose underlying variation of the common rule with respect to costs following the event in circumstances where a reasonable offer of settlement has been made but not accepted, and the limitations on the payment of interest imposed by s 73. However, the rules ultimately have differing purposes and operate in differing contexts. The failure of a party to accept a reasonable offer of settlement may mean that each party incurs unnecessary costs. The consequences of failure to accept a reasonable offer generally flow from the time when the offer was made. More particularly, the rules seek, in a sense, to vary the definition of a successful outcome of litigation by taking into account not merely that a plaintiff, for example, obtains a judgment, but the fact that the judgment does not exceed an offer of settlement. In that sense, the plaintiff, though obtaining a judgment, has been unsuccessful with respect to the real controversy, as defined by the offer. 19 With respect to interest, the purpose for the inclusion of such an amount in an award of damages is to compensate the plaintiff for being kept out of compensation for the amount of his loss from the date when the loss accrued until the date of judgment. If interest is not payable, because the conditions in sub-s 137(4) are not satisfied, no interest is payable for any period. Thus, the time at which the offer is made is irrelevant, because the potential liability for interest does not run to the date of the offer, by contrast with the potential liability for costs. 20 In Cochrane the comments as to the purpose of the provision were made in the context of remarks by the trial judge that the true nature of the claim had not fully emerged until the conclusion of the evidence at trial. However, the error in that approach may have been identified without reference to the purpose of the provision; the section itself required the reasonableness of the offer to be assessed "having regard to the information available to the defendant when the offer was made". 21 A further question, which arises not only where there has been no offer but where there has been a failure to make a revised offer in the light of further information, is whether it "would be appropriate" to make any offer. This language appears to assume some other standard which may operate even in circumstances where the defendant has had a reasonable opportunity to make an offer in respect of the plaintiff's "full entitlement to all damages of any kind". Inevitably, such an offer must involve some assessment of liability, possible contributory negligence and apportionment. It may also need to take account (perhaps in rare cases) of contested legal principles and the difficulties in making an assessment. Because, absent settlement, the trial judge will be required to assess damages (and rule on other factors, including liability) it is difficult to identify matters which might render it inappropriate for the defendant to make an offer or a revised offer. Accordingly, the underlying statutory purpose may need to be addressed. 22 Fitzgerald v Dansey [2001] NSWCA 339; 35 MVR 86, to which the respondent referred the Court, was a case where no offer had been made prior to judgment but the plaintiff was denied interest on the basis that he had not demonstrated that "it would be appropriate" for the defendant to make an offer. The trial judge recorded the defendant's argument that "the nature of the plaintiff's claim was such that it had good prospects of a substantial reduction of the plaintiff's damages by reason of contributory negligence": quoted by Sperling J in the Court of Appeal at [101]. The trial judge continued: "The defendant had evidence that although he was affected by alcohol his manner of driving was not erratic or abnormal. Under these circumstances it was the view of the defendant that it had reasonable prospects of successfully defeating the claim or alternatively of reducing the damages very considerably." 23 Sperling J himself (Powell JA agreeing) held at [106]: "In my view, the trial judge was right to reject the plaintiff's argument that it was appropriate for the defendant to have made an offer on the ground that was advanced. That is because there was, in my view, no reasonable requirement for the defendant to accept, before trial, that the plaintiff was entitled to recover damages. As I have said earlier in this judgment, it is my own view that it was reasonably open to the trial judge to have found, on the evidence, that the only real cause of the accident was the plaintiff's own negligence." 24 Fitzgerald AJA took a somewhat different view of the concept of what was "appropriate". His Honour thought it "by no means obvious" why it would appear appropriate not to make an offer "merely because of a reasonable but erroneous opinion" that it might win the case: at [20]. Addressing the underlying purpose, in terms partly reflecting the reasoning in Cochrane, his Honour continued: "[21] Sub-section 73(4)(a)(i) of the Motor Accidents Act only arises for consideration where a plaintiff has succeeded and a defendant has not made an offer of settlement. The compromise of litigation is plainly in the interest of the public as well as the parties: Studer v Boettcher [2000] NSWCA 263, [74]. Sub-section 73(4)(a)(i) of the Motor Accidents Act seeks elliptically to give effect to that public interest by exposing a defendant who is in a position to make an offer of settlement to the risk of an order that he pay interest if he fails to make an offer and is unsuccessful in the litigation. That legislative intent would be rendered nugatory by a conclusion that it is 'appropriate' for a defendant not to make any offer of settlement merely because of a possibility that he might be ordered to pay the plaintiff less than he claims." 25 It may also be noted that the trial judge, in a manner affirmed by the majority in this Court, held that it was necessary for the plaintiff to satisfy the Court on the balance of probabilities of each of the various matters set out in sub-par (a)(i), including that it 'would have been appropriate' for the defendant to have made an offer: at [101]-[102]. It is not entirely clear what is meant by the statement that the plaintiff must demonstrate on the balance of probabilities that it would be appropriate for the defendant to make an offer. In any event, neither sub-pars (i) nor (ii) were invoked in the present case and it is not a matter which need be taken further. Contrary to the respondent's submissions, Fitzgerald v Dansey did not deal with any question of what was "unreasonable", being the criterion applicable to the offer. However, the contention sought to be made is presumably by way of analogy: if because of the likelihood of success it would have been appropriate not to make an offer, the making of an offer should not be deemed to be unreasonable because, for similar reasons, it was a low offer. 26 The submissions of the parties in the present case did not elucidate in any respect the policy underlying the limitations on interest payments with respect to motor accident damages. Whilst it must be accepted, in accordance with Cochrane, that constraints imposed by reference to pre-judgment offers suggest a purpose of encouraging settlement, it is not possible to identify any more specific statutory purpose. Further, as the parties were content to address the criterion of unreasonableness by reference to an assessment of quantum, based on information available to the defendant, the assessment should be made on that basis. Nevertheless, it should also be accepted, in accordance with the reasoning of Fitzgerald AJA in Dansey, that too great a willingness to treat an offer as "reasonable", and therefore not unreasonable, will allow defendants to escape too readily the obligation to pay for the cost of keeping the plaintiff out of his or her damages. Ultimately reasonableness depends upon an objective assessment of the circumstances and, where the material before the Court does not materially differ from that available to the defendant at the relevant time, the judgment of the Court must be treated as, subject to recognition that no precise figure is necessarily correct, a baseline for determining the reasonableness of the offer. Application of principles 27 Returning to the sole sub-paragraph relied on in the present case, s 137(4)(a)(iv), the respondent accepted that the offer of $500,000, made on 8 December 2005, did not better the threshold requirement, in that the damages (without interest) were 66.7% higher than the offer. The respondent contended, however, on two bases that the offer was not unreasonable. The first was that the base amount involved a reasonable assessment, having regard to the expert evidence as to the extent of the plaintiff's recovery from the brain injury and other physical injuries suffered in the accident. It was not suggested that information available to the trial judge or this Court was not available to the respondent at the time the offer was made. The respondent, quite properly, noted that he did not seek to reargue this Court's finding with respect to the quantum of the claim. Nevertheless, given the disparity, the Court should not hold that the offer, as an assessment of damages, was reasonable. 28 The second limb of the respondent's argument is problematic in a different sense. It was contended that the offer properly took into account the chance that the appellant would have been found contributorily negligent and that the range of culpability was between 20%-50%. A figure in the middle of the proposed range, namely 35%, would have seen a judgment in the amount of $542,000 in favour of the appellant. Given that the appellant was a passenger in the back seat of the car and the evidence of contributory negligence was, in practical terms, restricted to his failure to wear a seat belt, that might have been a generous assessment for the respondent to anticipate. However, some further allowance would have been necessary to allow for the fact that a conclusion that the appellant was not wearing a seat belt was largely circumstantial and the supporting circumstances had not been fully investigated. What might have been a reasonable allowance for the chance that there would be no factual finding to support contributory negligence is difficult for this Court to assess. The trial judge was not satisfied that the appellant was not wearing a seat belt and therefore made no reduction on account of contributory negligence. That finding was not appealed and therefore not addressed in this Court. 29 If the respondent had made an allowance of 25% on account of contributory negligence, thus reducing the tentative assessment of 35% by taking into account the real possibility that the failure to wear a seat belt would not be established (a fact in relation to which the defendant bore the onus of proof) the appellant would have received an amount slightly in excess of $625,000, and thus 25% above the respondent's offer. Accordingly, subject to one qualification, the Court should be satisfied that the offer made by the respondent was on any view unreasonable, having regard to the information available to him when the offer was made. 30 The qualification relates to a separate basis upon which the respondent sought to resist payment of interest, namely that there had been no claim for pre-judgment interest at trial. This argument was put, both in relation to the pleadings and in relation to submissions. In relation to the pleadings it was acknowledged that the plaintiff's amended statement of particulars filed on 27 October 2005 did include a claim for "damages and interest thereon": at par 30. The complaint was that the amended statement of claim (filed on 7 December 2005) made no claim for interest. That, however, was not correct: the relief claimed on page 1 included damages, interest and costs. 31 It was then said that the "synopsis of damages" handed up at trial did not seek to quantify interest and that no claim for pre-judgment interest was made following the judgment given on 9 June 2006 by the trial judge. This submission needs to be addressed by reference to the procedural steps involved. 32 Where claims for interest are dependent upon a statutory scheme which requires reference to offers of settlement, it is inevitable that the basis upon which interest is claimed, like a claim for costs where an offer of compromise is to be relied upon, cannot be pursued prior to judgment. Another similarity with questions of costs is that the judgment itself may render a claim inappropriate or otherwise not worth pursuing. For example, where a plaintiff is unsuccessful at trial, he or she would rarely want to pursue a claim for costs and hence will not raise the existence or otherwise of a pre-judgment offer of compromise. So, in relation to interest, even where a plaintiff is successful, it may be seen to be inappropriate to pursue a claim for interest because the amount of the damages is either not more than 20% greater than the offer or not sufficient to make the offer unreasonable. When, on appeal, the award is increased, different considerations may apply. 33 One consequence will be that, interest not having been pursued at trial, this Court will not have the benefit of the trial judge's assessment of the reasonableness of the offer. It will also give rise to the circumstance (equally common with respect to costs) of this Court having to return to the appeal after giving judgment, in order to consider consequential issues. The circumstances may be such that it is inappropriate to consider questions of interest: see, eg, Kendirjian v Ayoub [2008] NSWCA 194 at [198]-[201] (McColl JA, Beazley JA agreeing). Nevertheless, those circumstances are likely to be rare. 34 Although not relied upon by the respondent, the notice of appeal in the present case did not specifically refer to interest. It did allege that damages assessed at trial were "inadequate" and sought that the damages be reassessed by this Court. There is no reason why a claim for interest, which is dependent upon the reassessment of damages in other respects, should not be pursued after judgment has been delivered, even if it be necessary for this Court to make assessments which have not been made by the trial judge. 35 Different considerations may arise where a final judgment is given in this Court for a specific amount, there having been no attempt to reserve the point for later argument. In such a case, the rights of the appellant to set aside or vary the judgment as delivered may depend upon the timely invocation of the power in the Uniform Civil Procedure Rules, r 36.16. That issue does not presently arise because no final judgment had been given by the Court prior to the application being made. Conclusions 36 The only reason addressed by the parties as to why the appellant should not have an amount by way of interest included in the judgment was the operation of s 137 of the Motor Accidents Compensation Act. The claim for interest was based solely upon past economic loss, including an amount for past loss of superannuation. The calculation was undertaken in accordance with the statutory rate prescribed by s 137(6). The amount of the calculation, namely $8,995, was not challenged by the respondent. 37 The precondition to the award was thus treated by both parties as satisfaction of sub-par (a)(iv) of sub-s 137(4). The elements of that condition having been satisfied, for the reasons given above, the amount as calculated should be included in the judgment. 38 In addition to orders (1) and (3) made on 1 August 2008, the Court should make the following order:

NAJDOVSKI v CRNOJLOVIC

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Judgment (16 paragraphs)

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