Plaintiff v Defendant

1 Issues have arisen between the parties concerning interest and costs.

2 Damages in the nature of interest (conveniently "interest") are payable on the judgment amount of $60,000 pursuant to s.60(1) of the Supreme Court Act 1986. Such interest is payable on that amount because it contains no compensation for loss or damage yet to be incurred. Vide s.60(3)(b).

3 The issue is as to the rate at which interest is to be awarded. The figures themselves were not in debate. For the plaintiff, it was eventually submitted that the penalty interest rate should apply, this yielding an amount of $27,540. For the defendant, it was submitted, in reliance upon M.B.P. (S.A.) Proprietary Ltd v Gogic[1] that interest should be allowed at 4%, that leading to an amount of $9,180.

4 By s.60(1) the court must,

"unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983, as it thinks fit from the commencement of the proceeding to the date of judgment . . . "

5 Section 60(1) sets, save in very particular circumstances, a maximum rate at which interest may be calculated. The sub-section, on the other hand, sets no minimum rate with respect to calculation of interest.

6 Section 2(2) of the Penalty Interest Rates Act 1983 requires the Attorney-General to determine the penalty interest rate to be fixed by obtaining from time to time a recommendation from the Treasurer as to an appropriate 'institutional rate of interest.' There must also be a determination whether the recommended institutional rate should be adjusted to include some and what penalty element. The institutional rate of interest must be a rate:

"(i) which is charged for loans or paid for borrowings by a public or commercial institution; and

(ii) which, in the opinion of Treasurer, reflects prevailing commercial rates of interest."

7 Under the Victorian provision, then, the maximum rate at which interest may be calculated will bear a relationship to the prevailing commercial rate of interest; and may contain a penalty component. There was no evidence in the present case which cast any light upon what the prevailing commercial rates of interest had been in the period since the proceeding was commenced.[2]

8 In Victoria, the issue of interest on pain and suffering damages has not loomed large. That is because of provisions such as s.93(15) of the Transport Accident Act 1986, and ss. 134AB(34) and s 135A(16) of the Accident Compensation Act 1985. But I know of no case, and I was not referred to any case, which suggests that Gogic does not apply, when it can apply, to an award of pain and suffering damages made in this State.

9 There is no reason why Gogic should not apply in this State. The rationale for the decision was stated this way in the joint judgment:

"The function of an award of interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period: Batchelor v Burke, per Gibbs CJ. But the loss or detriment which a plaintiff suffers by being kept out of his or her damages for pre-trial pain and suffering cannot be equated with the amount which those damages, invested at the commercial rate of interest, could have earned during the relevant pre-trial period. The determinants of rates of interest have been the subject of much dispute among economists. But it cannot be denied that during periods of significant inflation, such as those which have existed in Australia during the last twenty-five years, commercial rates of interest reflect a component to compensate a lender for the decline, by reason of inflation, in the real value of the principal which occurs during the period of the loan: see the comments, for example, in Hawkins v Lindsley; Sharman v Evans; Todorovic v Waller. Damages for pre-trial non-economic loss, however, are assessed in accordance with the value of money as at the time of the award. In no way is any loss which a plaintiff incurs by reason of being deprived of his or her damages for pre-trial non-economic loss brought about by inflationary factors. In those circumstances, to award interest on damages for non-economic loss during the pre-trial period by reference to commercial rates is to compensate the plaintiff for a "loss" which he or she has not sustained."[3]

and

"The proposition that, during periods of inflation, interest on pre-trial non-economic loss ought to be calculated at commercial rates, therefore, is erroneous in principle."[4]

That rationale is as relevant here as it was in South Australia. It emphasises that use of the Penalty Interest rate would be inappropriate in the case of pain and suffering damages, for the starting point of that rate is a rate which in the Treasurer's opinion "reflects prevailing commercial rates of interest."

10 There may be a question whether 4% should continue to be the applicable interest rate for pre-trial pain and suffering damages. In Gogic, decided in early 1991, the High Court adopted an arbitrary figure which had been selected in South Australia in 1982.[5] Those cases, set in the landscape of quite rapidly changing economic conditions, occurred quite a long time ago. Given the observation in Gogic that

". . . the use of the real rate of interest figure as the measure of a plaintiff's loss in being deprived of his or her damages for pre-trial pain and suffering does not seem inherently superior to the use of a fixed figure,"

and accepting that use of a "real rate of interest figure" might at times leave plaintiffs worse off, and at times better off, than the outcome resulting from application of an arbitrary rate of interest, it does not follow that 4% would now be considered an appropriate arbitrary rate. But if that could be an issue for debate, it was not debated in this case. In the event, interest should be calculated in this case by applying a 4% rate.

11 Before passing on from the question of interest, I would add this: the Penalty Interest rate, as I have said, may include a penalty component. Probably, in light of the rates fixed from time to time over the years, it has done so. The question might possibly be asked whether the Victorian Parliament has stated, in effect, a position that damages accrued at time of trial should attract interest which reflects a penalty component. The answer to such a question might be in the negative - on the footing that s.60(1)[6] simply sets the Penalty Interest rate as an upper limit for an exercise of judicial discretion pertaining to the rate at which interest is to be calculated. In any event, so far as I know, the question has never hitherto been raised; and, specifically, it was not raised in this proceeding.

Costs

12 The plaintiff sought an order for party and party costs in respect of the whole proceeding. The defendant relied upon a so-called Calderbank offer, made by letter dated 21 December 2004, and sought an order that the plaintiff pay the costs from that date on a party and party basis.

13 The letter was as follows:

"1. We refer to the above matter which is listed for trial on 1 February 2005.

2. We advise that the defendant is prepared to resolve this matter with the plaintiff upon the following basis:

(a) the defendant to make payment to the plaintiff the sum of $100,000, inclusive of all statutory repayments pursuant to the provisions of the Commonwealth Health and Other Services (Compensation) Act 1995, the Commonwealth Health and Other Services (Compensation) Care Charges Act 1995, The Commonwealth Social Security Act 1947 (as amended), the Commonwealth Social Security Act 1991 (as amended), the Safety Rehabilitation and Compensation Act 1988 and the Commonwealth Veterans' Entitlement Act 1986;

(b) the defendant to pay the plaintiff's party-party costs, to be taxed in absence of agreement between the parties;

(c) the Terms of Settlement to remain confidential as between the parties and their legal advisors save as required by law or to satisfy a request of the Commonwealth Parliament or a Commonwealth Minister for information;

(d) the plaintiff to execute a formal Deed of Release to be prepared by the defendant to the effect of the above Terms; and

(e) the defendant to have 28 days from receipt by its solicitors of the executed Deed of Release referred to in paragraph (d) above for payment of the settlement sum referred to in paragraph (a).

(3) Please note that this offer is made in accordance with the principles enunciated in the matter of Calderbank v Calderbank [1976] Fam 93 and the defendant reserves the right to rely upon this letter as to the question of costs if the plaintiff fails to obtain a verdict in excess of the sum referred to at paragraph 2(a) above.

(4) This offer is open for acceptance until 5.00 pm, Tuesday, 4 January 2005."

14 The offer made by the letter dated 21 December 2004 remained open, as can be seen, until 4 January 2005. That is, it remained open for a period of about 14 days - a period which embraced the Christmas and New Year holidays. That said, it was not contended for the plaintiff that the time when the offer was made, the period for which it was left open, or the fact that such period embraced the Christmas and New Year holidays, or any combination of those circumstances, were such as to deny him a fair opportunity of considering the offer and responding to it within the period that it was open for acceptance.

15 Rather, counsel for the plaintiff fastened upon the circumstance that the offer required the "Terms of settlement", subject to specific exceptions, to remain confidential between the parties and their legal advisers. It seemed to be accepted that by "terms of settlement" was meant the offer to pay $100,000 plus party and party costs to settle the plaintiff's claim, if once that offer was accepted.

16 Counsel's submission was a simple one:

". . . we say that the term of confidentiality means that the plaintiff was entitled to pursue his action to the court so that he could have his judgment and not be restrained by confidentiality."

17 I pause for a moment to note that counsel's submission did not assert, nor was there any attempt to lead evidence to show, that the plaintiff had not accepted the offer because he wanted a judgment in his favour which was not inhibited by a requirement of confidentiality, and which thus could stand as a public recognition of the validity of his claim. Nor was any submission made, or evidence sought to be led, as to why the plaintiff might have wanted public recognition of the validity of his claim.

18 Counsel for the plaintiff also relied upon the defendant's failure to use the offer of compromise procedure made available by Order 26 of Chapter 1 of the Rules:

". . . perhaps just to take the point that your Honour raised . . . namely, there is a perfectly straight-forward procedure set out for defendants in Order 26, to make offers of compromise that are recognised by the Rules, and they chose not to give themselves that protection."

" . . . notwithstanding the issue of confidentiality, it would be my submission that the defendant remains, or should be entitled to the benefit of having made that offer. It was an offer, as I said, that the plaintiff came well under, and there should be some cost benefit to the defendant as a result of this letter."

20 The defendant could have made an offer of compromise complying with Rules 26.02 and 26.03 and so have secured the advantage given by Rule 26.08(3). Depending upon whether the plaintiff should be taken to have obtained judgment which was "more favourable to the plaintiff than the terms of the offer", the defendant would then have been entitled - unless the court otherwise ordered - to an order for party and party costs in respect of the period after the offer was made.

21 The defendant however, did not make such an offer. The reason why it did not do so is unknown. Perhaps its solicitors believed that an offer of compromise could not be made which contained a term as to confidentiality; or that if an offer was made which contained such a term, it might be difficult to say whether a judgment in the plaintiff's favour was more favourable than the terms of the offer. But that is speculation. The fact is that an offer of compromise under the Rules was not made.[7]

22 There are, I think, two questions to be answered. First, was the offer bettered by judgment? Second, and only if no to the first question, was the rejection of a reasonable offer unreasonable in all the circumstances? Those questions are encapsulated in this passage from the reasons of Nettle, J.A. in Berrigan Shire Council v Ballerini and Anor (No 2)[8] -

"The rejection of a Calderbank offer not later bettered by judgment does not lead automatically to an indemnity costs order in favour of the offeror. The question in each case is whether the offer was a reasonable offer of compromise, and whether the rejection of the offer was unreasonable, and the answer to that question turns in each case on all the circumstances of the case. The making of an offer and its rejection are but two albeit important circumstances to which the court will have regard in the exercise of its costs discretion. As the court explained in Hazeldene's Chicken Farm:

'The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

a) the stage of the proceeding at which the offer was received;

b) the time allowed to the offeree to consider the offer;

c) the extent of the compromise offered;

d) the offeree's prospects of success, assessed as at the date of the offer;

e) the clarity with which the terms of the offer were expressed;

f) whether the offer foreshadowed an application for an indemnity costs [order] in the event of the offeree's rejecting it."

23 In my opinion, the plaintiff did not better the defendant's offer. Viewed from this standpoint, he received by judgment an amount substantially less than he had been offered. This was not a case in which vindication of reputation was involved. In a defamation proceeding, the importance of vindication of reputation might outweigh the circumstance that a plaintiff received by judgment less than he or she had been offered by an offer with confidentiality attached. But that is not this case. Further, the plaintiff did not assert that a judgment free of confidentiality was of importance to him; or that for some reason he had an interest in the fate of the litigation brought by other former crewmen of Melbourne such as impelled him to reject the offer because there was a condition of confidentiality.

24 It is, I think, clear that the defendant wanted everything its own way. The letter of offer shows that such was the case. If the plaintiff was to accept its offer, then the defendant required confidentiality. But in the event that the plaintiff did not recover a greater amount than had been offered, then it sought to use its letter on the question of costs. That was so although the amount recovered would necessarily be free of any requirement of confidentiality.

25 Beyond those circumstances, it seems to me very clear that the defendant attached particular significance to the question of confidentiality. It is notorious that, as at December 2004, there were a large number of claims by former crewmen of Melbourne outstanding against the defendant, such claims being for alleged PTSD (sometimes in association with other psychiatric disorders) arising out of the circumstances of the collision. It is notorious that for a number of years preceding December 2004 the defendant had been resisting such claims strenuously. Injuries had been denied and limitations defences taken. The litigation had followed a tortuous path. Very few cases had been compromised. It was very much in the defendant's overall strategic interests that any settlement which it effected should not come to the notice of other plaintiffs. That was not the less because the solicitors acting for the plaintiff were the solicitors acting for many of the other plaintiffs. The requirement that the proposed settlement of the plaintiff's claim be held confidential by the solicitors, as well as by the plaintiff, met - or was intended to meet - that problem.

26 But it does not follow, in my opinion, from the fact that the defendant sought to achieve two purposes by its offer - that is, to achieve a settlement with the plaintiff, and at the same time protect its position in connection with claims by other former Melbourne crewmen - that the plaintiff bettered the defendant's offer because he obtained a judgment unaffected by confidentiality. The defendant, in the end, did not achieve confidentiality. By the plaintiff obtained a judgment which was for a much lesser amount than he had been offered. The Court encourages compromise of claims. It would run counter to that encouragement to conclude that a plaintiff whose reputation was not in issue in the litigation could successfully argue that he had bettered an offer by obtaining judgment for a much smaller amount than that offered, albeit unaffected by a requirement of confidentiality.

27 But assume that I was wrong to conclude that the plaintiff did not better the defendant's offer. Did he, then, unreasonably refuse a reasonable offer? In my opinion, all things considered, the answer is yes.

28 First, the offer was made at a stage when the plaintiff and his advisers were ready - or nearly so - for trial. That is, the plaintiff and his advisers should have been well-equipped to assess his prospects of success and the quantum of damages.

29 Second, the offer was made sufficiently in advance of the trial to permit a considered decision to be made; and, as I said earlier, no complaint was made on behalf of the plaintiff as to the date upon which the offer was made, or the time left open for its acceptance.

30 Third, the offer was clear in its terms.

31 Fourth, it should have been evident to the plaintiff as at late 2004 that if he succeeded in showing that he had suffered from PTSD ever since the collision, and if he could connect an underlying PTSD with the major depressive episode which he suffered in 1989, and its sequelae, then his claim for damages - encompassing both economic and non-economic loss - must have led to an award well-exceeding $100,000. The plaintiff held evidence to support such a claim. But he, or at least his solicitors, must have known that such a claim - upon the lay evidence which was available, and then considering the evidentiary foundation for the expressions of medical opinion - was far from impregnable. It should not have required the wisdom of hindsight to appreciate that this was so. Moreover, the claim faced a limitation defence, the decision of the Court of Appeal in Clark v Stingel[9] was then outstanding, and it could not have been said with any confidence that the approach in Herschberg and Anor v Mula[10] would be maintained. In all, whilst this was a personal injuries claim of some complexity, it was far from being a claim where the risks could not be adequately assessed for the purposes of considering the defendant's offer.

32 Fifth, the offer did not foreshadow an application for indemnity costs in the event of the plaintiff rejecting it and then recovering a lesser amount by judgment. But, on the other hand, the letter of offer adverted to costs consequences; and the defendant only sought party and party costs.

33 Sixth, it was not submitted for the plaintiff that his non-acceptance of the offer had anything to do with the confidentiality term.

34 Seventh, the offer was not only clear, it was shown by the judgment to have been reasonable, in that there was a considerable disparity between the amount of the offer and the amount of the judgment. It was not an unreasonable offer, in the circumstances of the particular case, because it attached a condition of confidentiality.

35 In all the circumstances, I consider that the plaintiff should have his costs on a party and party basis up to date of trial - rather than only to 21 December 2004; and thereafter the defendant should have its costs on such a basis.

Orders

Subject to anything that counsel may wish to say, I will order that -

1. The defendant pay the plaintiff $9,180 damages in the nature of interest.

2. The defendant pay the plaintiff's costs, including any reserved costs, up to and including 31 January 2005 on a party and party basis.

3. The plaintiff pay the defendant's costs on and from 1 February 2005 on a party and party basis.

[1] [1991] HCA 3; (1991) 171 CLR 657.

[2] Contrast the situation in Gouldstone v Walker Corporation Pty Ltd, No 7871 of 1991, judgment 6 November 1995, unreported_,_ although even there the evidence was not altogether satisfactory. See at pp. 40-41.

[3] At 663-664, citations omitted.

[4] At 664.

[5] See Wheeler v Page (1982) 31 SASR 1 at 6-7.

[6] See also s.58(1).

[7] The situation is unlike that which obtains an appeal, where a Calderbank letter can stand as an offer of compromise under Rule 26.12. See Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298 at [10].

[8] [2006] VSCA 65 at [33].

[9] [2005] VSCA 107.

[10] (1993) Aust Torts Reports 81 - 256.