Nash v State of New South Wales

1. The plaintiff's offer of compromise on 16 October 2014 is set out below.

The plaintiff's solicitor's offer of compromise

1. On 16 October 2014, Mr Pearce, the solicitor for the plaintiff, made an offer of compromise (Exhibit A) in the following terms: 1. Judgment for the plaintiff against the defendant in the sum of $140,000.00. 2. This Offer of Compromise is open for acceptance until 3 November 2014. 3. This Offer of Compromise is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005.
2. In his covering letter, Mr Pearce stated: "We enclose an Offer of Compromise. In the event your client accepts the Offer of Compromise the Defendant would be liable to pay the Plaintiff's costs up to the date of the Offer of Compromise. In the event the Offer of Compromise does not comply with Rule 20.26 of the Uniform Civil Procedure Rules 2005 it should be treated as an offer pursuant to the principles in Calderbank v Calderbank (1975) 3 ER 333. The offer can be treated as an offer of $170,000 inclusive of costs." (Exhibit A)

The relevant rules

1. Rule 20.26 UCPR provides: "20.26 Making of offer (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 under this rule: (a) must identify: (i) the claim or part of the claim to which it relates, and (ii) the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and (b) if the offer relates only to part of a claim in the proceedings, must include a statement: (i) in the case of an offer by the plaintiff, as to whether the balance of the proceedings is to be abandoned or pursued, or (ii) in the case of an offer by a defendant, as to whether the balance of the proceedings will be defended or conceded, and (c) must not include an amount for costs and must not be expressed to be inclusive of costs, and (d) must bear a statement to the effect that the offer is made in accordance with these rules, and (e) 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 that interim payment, and (f) must specify the period of time within which the offer is open for acceptance. (3) An offer under this rule may propose: (a) a judgment in favour of the defendant: (i) with no order as to costs, or (ii) despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or (b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or (c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer. (4) If the offeror makes an offer before the offeree has been given such particulars of the offeror's claim, and copies or originals of such documents available to the offeror, as are necessary to enable the offeree to fully consider the offer, the offeree may, within 14 days of receiving the offer, give notice to the offeror that: (a) the offeree is unable to assess the reasonableness of the offer because of the lack of particulars or documents, and (b) in the event that rule 42.14 applies to the proceedings, the offeree will seek an order of the court under rule 42.14(2). (5) The closing date for acceptance of an offer: (a) in the case of an offer made two months or more before the date set down for commencement of the trial-is to be no less than 28 days after the date on which the offer is made, and (b) in any other case-is to be such date as is reasonable in the circumstances. (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."
2. Rule 42.14 UCPR provides: "42.14 Where offer not accepted and judgment no less favourable to plaintiff (1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim: (a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and (b) assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."
3. Additionally, s 56 sub-ss (3) and (4) Civil Procedure Act 2005 (NSW) permit the court to take into account any failure with the obligation to facilitate the just, quick and cheap resolution of issues in dispute when exercising a discretion as to costs.
4. The defendant did not make any subsequent offer or counteroffer at any stage following receipt of the offer of compromise. Not only was there no response to the offer of compromise, but the only matter upon which the plaintiff relies, in relation to establishing that the defendant acted reasonably in rejecting the offer, is that, during the course of the hearing, the plaintiff sought to rely upon a letter written by Senior Constable Michael Hicks which had not been provided to the defendant prior to the hearing. As there was no order for discovery in the proceedings, that is not an issue of significance.

The relevant principles

1. It is not in dispute that the offer of compromise was made in accordance with the Rules, notwithstanding the unfortunate oversight in paragraph 1 of Mr Pearce's letter in failing to clarify that the plaintiff would expect his costs after the date of the offer of compromise to be paid on an indemnity basis. Nor is it submitted that the offer of compromise was not open for a reasonable period. These proceedings were listed in the second week of a country circuit, in circumstances where the making of an offer of compromise of this nature at such a time is a common practice.
2. The issue of substance between the parties is whether the offer involves "a real and genuine element of compromise" (Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706 at [8]; see also Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [25]). While I note Basten JA's hesitation as to the adequacy of terms such as "real and genuine" (Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [9]), these are the terms which are generally used in the discussion of this principle.
3. The first question is to determine the sum which is being offered. This is relevant because interest accruing after the offer of compromise has been made cannot be taken into account in determining whether the offeror obtained a judgment no less favourable: Channel Seven Sydney Pty Ltd v Mahommed (No 2) (2011) 80 NSWLR 210. As McColl JA stated at [55]: "[55] The appellant's submissions should be accepted. On the appellant's calculations (which the respondent did not contest) the effect of r 42.16 of the UCPR is that the respondent is not entitled to include interest after the date the offer of compromise was made. Accordingly, the respondent did not obtain a judgment no less favourable to him than the terms of the offer: r 42.14(1) of the UCPR."
4. The parties initially made submissions on the basis that the relevant amount was the full judgment sum of $154,786.52. Having now consulted McColl JA's observations to the contrary in Channel Seven Sydney Pty Ltd v Mahommed (No 2), the parties agree that this is incorrect. The parties have now agreed that the amount of interest which would have accrued on the judgment sum actually awarded as at the date of the offer is $148,250, and that this represents approximately a 5 to 6% discount on the judgment sum. This has necessitated further submissions in the form of written submissions from both parties, which were received on 6 August 2015.
5. Mr Hutchings, for the defendant, acknowledges that the costs saved by reason of the settlement of the proceedings prior to the hearing date would have been significant, in that hearing costs would not have been incurred for both parties, but submits that the offer is not capable of being a genuine compromise. He has refined this argument to the following main points: 1. The statement of claim omitted to ask for interest. If such a claim was to be pursued, it should have been the subject of pleading or particulars, as the plaintiff is obliged to identify fully the case the defendant has to meet, and the plaintiff is not entitled now to use interest at all in the argument about whether the plaintiff bettered his earlier offer; 2. If interest is included up to the date of the offer, the "discount" in question ($8,240) is a reduction of 5 - 6%, which is simply not sufficient for the offer to be a genuine compromise; 3. The costs referred to in the Calderbank offer ($30,000) would have increased this sum to $170,000, which is the sum the plaintiff was in reality offering to settle for. This is well in excess of the amount of the judgment, and this additional sum should flow into the Offer of Compromise as well.
6. As to what amounts to a genuine compromise, Mr Hutchings refers to early decisions of the NSW Supreme Court, as set out by the NSW Court of Appeal in Leichhardt Municipal Council v Green [2004] NSWCA 341 at [23], submitting (written submissions, paragraphs 22 - 23) that "there does not appear to be any authority advocating a percentage or formula that can be applied in assessing whether an offer contained a genuine element of compromise" and that "the question is one of judicial discretion".
7. I shall deal with this last submission before addressing the three main points that I have set out in paragraph 17 above. Mr Hutchings' submission is something of a simplification of the onus and of the nature of the inquiry, both of which are helpfully explained in Leach v Nominal (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [40] - [42]: "[40] The consequence is that a prima facie entitlement arose in favour of the respondent to have costs awarded in accordance with UCPR 42.15A: New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 (at 102) per Gleeson CJ (Clarke and Cripps JJA agreeing); Leichhardt Municipal Council v Green [2004] NSWCA 341 (at [19]) per Santow JA (Stein JA agreeing). This is because, from "the time of non-acceptance 'notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise'": Morgan v Johnson (1998) 44 NSWLR 578 (at 581-582) per Mason P (Sheller JA agreeing). [41] However, in order for an offer of compromise made under the UCPR to attract an indemnity costs order, it must involve a "genuine offer of compromise" and not merely be made so as to trigger the costs consequences under the rules: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 (at [16]) (Spigelman CJ; Beazley and McColl JJA). [42] Whether there was a real element of compromise is determined objectively according to the circumstances of the particular case at the time the Offer was made rather than with the benefit of hindsight: Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 (at [17]); Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 ("Miwa") (at [11]). It is also determined by reference to the rule pursuant to which the offer was made: Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 (at [22]) per Basten JA (Campbell JA agreeing)."
8. It was to these principles that Giles J was referring, in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368, where his Honour states: "Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so."
9. The question of whether a genuine element of compromise is included is most commonly encountered where the offer is a "walk away" offer (see Leichhardt Municipal Council v Green; this issue is most recently discussed by the NSW Court of Appeal in Leach v Nominal (QBE Insurance (Australia) Ltd) (No 2)) or where a "derisory" offer is made: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2), In Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2), Basten JA referred to two decisions where derisory offers were made, namely Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 and Regency Media Pty Ltd v AAV Australia Pty Ltd. However, this is not the case here. The facts in this case are closer to Hobartville Stud Pty Ltd v Union Insurance Co Ltd, in that an offer very close to the amount mathematically awarded was sought in the offer of compromise, which brings me to a consideration of Mr Hutching's claim that there does not appear to be any appellate guidance as to what kind of percentage is sufficient for the offer to amount to a compromise.
10. This issue has been considered by a series of decisions of the NSW Court of Appeal, from which the following principles may be distilled: 1. An offer to accept full payment of a claim is not a compromise. Therefore, for an offer of compromise to be effective, there must be some real element of compromise: Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355; Hobartville Stud Pty Ltd v Union Insurance Co Ltd at 368; 2. Whether the amount offered constitutes a compromise will depend upon the factual circumstances: Shellharbour City Council v Johnson (No 2) (2006) 67 NSWLR 308. For example, in Prestige Residential Marketing Pty Ltd v Depune Pty Ltd (No 2) [2008] NSWCA 341, a party offered to settle proceedings for an amount which was a discount of almost 5% of the total (at [24] per Bell JA). Bell JA was satisfied that such an offer was "not to be characterised as a stratagem to trigger entitlement under the rules". In those proceedings, as is the case here, the defendant did not point to any circumstance which would justify the court withholding from the party making the offer its entitlement under the Rules for an order that costs be paid on an indemnity basis from the date of the offer; 3. The Rules do not in fact require that the offer should be substantially less than the amount claimed or recovered. There is no "5% minimum discount" or other "rule of thumb" which applies. In Forbes Services Memorial Club Ltd v Hodge (New South Wales Court of Appeal, Kirby P, Priestley and Cole JJA, 8 March 1995), the court held that an offer to compromise an appeal for an amount only $129.24 less than the trial judgment was a sufficient compromise, having regard to the slight prospects of success in the appeal.
11. In the present case, the offer that is made is not a mere invitation for the defendant to surrender. The offeror is giving something away, namely an amount of between 5 and 6% of the damages which were ultimately awarded. Additionally, and significantly, the compromise would involve a very substantial saving of costs on the part of the defendant.
12. Did the plaintiff, however, do better? The defendant advances two reasons for saying that this is not the case. The first is that the assessment of costs for the Calderbank offer was $30,000, and that the plaintiff was in fact seeking $170,000. This submission impermissibly elides costs and the settlement sum; the amount offered in the Offer of Compromise is silent as to costs because it is understood, from the nature of the Offer, that costs on a party/party basis forms part of the offer. (Given the closeness of the hearing, this $30,000 figure represented, as I understand the plaintiff's arguments, a compromise of costs as well as of the damages sought, which is another indication of compromise).
13. The second is that the plaintiff's failure to refer to interest in the statement of claim is fatal in that the defendant was not expecting to meet a claim for interest in the statement of claim; as noted, the defendant relies upon Sims v Wran [1984] 1 NSWLR 317, where the pleading in question is a defamation pleading. However, as Tobin and Sexton, Australian Defamation Law and Practice (LexisNexis), note at [25,120] (citing Murphy v Murphy [1963] VR 610), interest may be awarded even where it is not pleaded, although the preferable course is to include it in the statement of claim. A similar entitlement to claim interest in personal injury claims even where it is not pleaded appears to have been acknowledged by the New South Wales Court of Appeal in Tehfe v Chiu (1984) Aust Torts Reports 80-581; referred to in Keeffe v Marks (1989) 16 NSWLR 713 at 715 - 6.
14. The plaintiff in these proceedings did not fail to claim interest at all; the defendant's complaint is that the claim for interest was only included in the UCPR r 15.2 Statement of Particulars, and not in the statement of claim as well, a complaint I consider to be unduly technical. I am satisfied that the defendant was always aware of the plaintiff's intention to claim interest, and that this should have been a factor for the defendant to take into account at the time that the offer of compromise was made.
15. P Taylor, Dr E Elms, M Meek SC, The Hon Justice G Bellew , Ritchies Uniform Civil Procedure NSW (LexisNexis) (at [42.13.14]) note that where there is a closeness between the result and the amount of the offer of compromise, some decisions have proceeded on the basis that the offer in contention should be taken into account in exercising a discretion to "order others", citing Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) at [12]-[19]. However, I am satisfied that that step is not necessary here. Following the reasoning of Bell JA in Prestige Residential Marketing Pty Ltd v Depune Pty Ltd (No 2), who was considering an offer with a similar discount, I am satisfied that the amount in question amounted to a reasonable compromise.

"Unreasonable" rejection

1. As the amount offered does involve a significant compromise, it follows that the rejection of the offer was unreasonable: Regency Media Pty Ltd v AAV Australia Pty Ltd at [32]. The discretionary considerations open to me in relation to the unreasonableness (Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) at [11]-[16]) are limited by the defendant's inability to point to any factor, apart from the challenged tender of the letter written by Senior Constable Hicks to the licensed club, in relation to this issue. It is acknowledged that there is no such issue before the court.

Conclusions concerning the application for indemnity costs

1. Taking all of the above into account, the plaintiff is entitled to an order for costs on the ordinary basis up to and including 17 October 2014 and thereafter on an indemnity basis.
2. I note I have been addressed in the alternative, in the event that some challenge to the offer of compromise is successful, on the basis that the offer of compromise is explicitly stated to amount to a Calderbank offer as well.
3. Mr Hutchings did not address on this issue, either orally or in his subsequent written submissions.
4. I formally note that, if I have erred in relation to my findings as to the applicability of the offer of compromise to an award of indemnity costs, I would have awarded such costs on an indemnity basis in accordance with the principles set out in Calderbank v Calderbank [1975] 3 ER 333, for the reasons set out in counsel for the plaintiff's helpful written submissions.

Orders 1. The defendant pay the plaintiff's costs on a party/party basis up to and including 17 October 2014 and thereafter on an indemnity basis, such costs to include the costs of this application.

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: 11 August 2015