Plaintiff v Defendant

"Except as provided by these rules or any order of the Court, costs shall be taxed on a party and party basis."

6 As Hargrave J said in Masha Nominees Pty Ltd v Mobil Oil Australia Pty Ltd (No 2)[1]

"The general rule in litigation is that costs follow the event and that the successful party will be awarded costs on a party and party basis. It is recognised that this will leave the successful party out of pocket. The gap between the amount of costs in fact paid by a successful litigant and the amount of party and party costs which are recoverable is often substantial."

His Honour went on to note that the rules provide a range of alternative bases upon which costs may be ordered including the indemnity basis and the solicitor and client basis.

7 At paragraphs 11-12 his Honour said (omitting the citation):

"[11] There are many cases which have considered the appropriate principles to be applied in exercising the discretion to award costs on a basis other than party and party. It is accepted that something special or unusual must be demonstrated in order to justify a departure from the ordinary costs order. In PCRZ Investments Pty Ltd v National Gulf Holdings Ltd Chernov JA noted the need to establish something special or unusual in order to justify a departure from the ordinary costs order and continued:

'It is true that the categories of such circumstances are not closed. Nevertheless, the authorities indicate that, generally, the ordinary cost rule should only be departed from where the losing party has misconducted itself in relation to the proceeding or where the institution of the proceeding was plainly unreasonable or where the proceeding was issued for an ulterior or collateral purpose'.

[12] In the same case, Callaway JA noted the gap between the actual costs incurred by a successful party and the amount of costs recoverable under the general party and party rule and added 'but that should not lead judges into readily opting for an extraordinary order'."[2]

8 There is, however, some specific judicial learning, indeed of quite an extensive nature, in relation to what consequences should follow from the sending of either a formal offer of compromise or an informal offer of compromise, the latter commonly being referred to as a Calderbank offer.

9 The Court of Appeal has recently considered the jurisprudence relating to Calderbank offers and has settled, for this Court anyway, what had been some uncertainty as to the principles that ought to apply. The leading case is now Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[3]. In that case the Court of Appeal constituted by Warren CJ, Maxwell P and Harper JA said (omitting citations):

"Calderbank offers and the award of indemnity costs

[17] Calderbank letters and the consequences that flow from them have been considered by the Trial Division of this Court in a number of cases: see MT Associates Pty ltd v Aqua-Max Pty Ltd & Anor (No 3); Clarke v ABC; Pearson v Williams; Nolan v Nolan; and Aljade & MKIC v OCBC.

[18] One of the seminal contributions to the law on indemnity costs was the judgment of Sheppard J in Colgate Palmolive Company v Cussons Pty Ltd. Amongst the circumstances listed by his Honour as having been thought to warrant the exercise of the discretion to award indemnity costs was -

So widely has this been accepted that the proposition has been advanced that a Calderbank offer gives rise to a presumption that the party rejecting the offer should pay the offeror's costs on an indemnity basis if the offeree receives a less favourable result.

[19] In Aljade and MKIC v OCBC, however, Redlich J rejected the notion of any such presumption, holding that the weight of authority -

'strongly points to an approach that involves no preconceptions about when the rejection of a Calderbank offer should lead to the making of a special costs order. It will do so where it is concluded that the rejection of the offer was unreasonable'.

We respectfully agree with his Honour's conclusion. We note, as did his Honour, that the notion of such a presumption has been decisively rejected by the New South Wales Court of Appeal (most recently in Brymount v Cummins (No 2)), by the Federal Court and by the Queensland Court of Appeal.

[20] The correct approach in our view is to treat the rejection of a Calderbank offer as a matter to which the Court should have regard when considering whether to order indemnity costs. As Gyles JA stated in SMEC Testing Services v Campbelltown City Council:

'In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rules as to costs' ...

Encouraging settlement

[21] In Grbavac v Hart, Hayne JA cited with approval what the New South Wales Court of Appeal had said in Maitland Hospital v Fisher (No 2) about the policy rationale underlying the availability of special orders for costs where offers of compromise are rejected. Like his Honour, we think that what was there said is equally relevant to the exercise of the costs discretion where a Calderbank offer has been made. The policy objectives were said to be:

(1) To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its 'bottom line' will be revealed to the court;

(2) To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and

(3) To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances that party should ordinarily bear the costs of litigation.

[22] At the same time, as Redlich J said in Aljade, there are other competing objectives of equal importance.

'Potential litigants should not be discouraged from bringing their disputes to the Courts. It is such considerations which underlie the general rule that an order for special costs should only be made in special circumstances'.

The test of unreasonable rejection

[23] In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as 'manifestly' or 'plainly' unreasonable.

[24] Of course, deciding whether conduct is 'reasonable' or 'unreasonable' will always involve matters of judgment and impression. These are questions about which different judges might properly arrive at different conclusions. As Gleeson CJ said recently, 'unreasonableness is a protean concept'. But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this.

Factors relevant to assessing reasonableness

[25] 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;

(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 in the event of the offeree's rejecting it."

10 The authority of Hazeldene's case was confirmed by the Court of Appeal in Berrigan Shire Council v Ballerini[4]. In that case, Nettle JA, (with whom Callaway JA and Chernov JA relevantly agreed) said:

"[33] 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."[5]

His Honour proceeded to quote with approval, and apply, the observations contained in paragraph 25 of the judgment in Hazeldene's case.

11 In the present matter I have considered the letter of 12 May 2006 against the factors referred to in paragraph 25 of Hazeldene's case and I have considered generally whether the sending of the letter warrants an exercise of the discretion of the Court to make an order for indemnity costs.

12 The first factor, (a), is the stage of the proceeding at which the offer was received. I think in this case that that factor is essentially neutral. The offer was made at a time that was quite close to the trial. By then the plaintiff must have invested heavily in the case and was presumably concentrating on getting ready for the imminent hearing. On the other hand, by that time the plaintiff should have been better apprised of how the case might turn out than she may have been at an earlier stage. So there are pointers both ways in relation to the stage of the proceeding.[6]

13 As to factor (b), the time allowed to the offeree to consider the offer, I consider that the offer made in this case allowed an unduly short time for consideration. The letter of offer was sent at 2.24 pm by fax on Friday 12 May 2006. It was stated to be open for acceptance until 4 pm on Monday 15 May, after which it would lapse. The period allowed was barely in excess of one working day, which I regard as quite a short period in the circumstances of this case. Indeed I think it would be regarded as a short period in most cases, particularly by comparison to the time which is allowed under the rules applicable to formal offers of compromise pursuant to Order 26 of the Supreme Court Rules. The minimum time to be allowed under those rules is 14 days. That period is, I recognise, no more than a guide or a yardstick and of course it is not applicable in its own terms to an informal offer, but nonetheless I think there is a significant difference between the time allowed in this case and the time that would be the minimum required under a formal offer of compromise.

14 I do not have any evidence before me as to any particular difficulties that may have attended the obtaining of instructions in response to the offer on the Friday or over the weekend or on the Monday, but I do note that the plaintiff herself, in giving evidence, required the use of an interpreter. Whether there would have been an interpreter available, by way of her family or anyone else, to enable the offer to be conveyed to her and duly considered and to enable instructions to be received in time, is perhaps questionable.

15 The next factor is (c), the extent of the compromise offered, and here one has the problem that there was perhaps little scope for compromise in this case. It was in a sense an all or nothing case. The claim was for an easement of way over the laneway in question. There was no additional or alternative claim for a lesser right, and it would probably not have been open to the Court to have granted any different or lesser right than the right claimed in the proceeding.

16 The offer was that there be orders by consent that the proceeding be dismissed and that each party bear their own costs of the proceeding. This was either no compromise or only a limited compromise, depending upon whether one should treat an offer to bear one's own costs as containing a compromise for present purposes. There are authorities which suggest that such a proposal should not be regarded as any kind of compromise at all[7], and other authorities which do recognise an offer to bear one's own costs as a kind of compromise, albeit not necessarily a large compromise[8]. Certain observations in Berrigan Shire Council v Ballerini tend to suggest that such a proposal should be regarded "not so much as an offer of compromise as a demand to capitulate".[9]

17 The plaintiff says that the extent of the compromise offered (if any) was too low to warrant any special order as to costs. The defendants say, "What more could we have offered?" The plaintiff responds, "Well, it would have been open to the defendants to have offered to pay some or all of our costs or to have made some sort of substantive offer, albeit of benefits that the Court may not have been able to award in the proceedings, such as a right to park in the laneway, and corresponding alterations to titles to allow that. The abortive settlement of the 1982 proceedings involved something similar". The plaintiff points out that in Nolan v Nolan (No 2)[10] the defendant had offered to give up the benefit of an order in her favour for the costs of an interlocutory injunction hearing, which had been taxed at $19,659. This was something the Court could not have ordered her to do. Moreover, in Nolan the defendant's offer to give up even those costs and to bear her own costs of the proceeding as well was described by the Court as involving only a "relatively modest" element of compromise.[11] On the other hand, there may be some unreality about the suggestion of an offer of parking rights, albeit that that is so, in part, because the defendants themselves, without waiting for the result of this case, had gone ahead and built decking and piping, et cetera, on the laneway in 2004.

18 It seems to me that this is a case in which very little was offered by way of compromise and whilst that may have been, in a sense, inevitable, I think in the end that this factor tends in favour of the plaintiff. It may just be that in certain kinds of cases (such as the present) there is little or no room for relevant compromise and so the ordinary party-party rule may be very difficult to displace by the sending of a Calderbank letter.

19 The next factor (d) is "the offeree's prospects of success, assessed as at the date of the offer". This was a case that may have been difficult to predict because it turned on credibility. I take into account that the letter of 12 May 2006 itself did not rely on the outlines of evidence of the defendants' proposed witnesses but rather asserted that the plaintiff should withdraw her claim because her own witness statements tended to indicate that she would be unable to make out her case. I think that in the end Mr Wallis conceded that the evidence which was foreshadowed in those witness statements would not necessarily have been insufficient, had it been accepted, to make out the plaintiff's case. In reality, the case failed because I accepted the evidence of the defendants' witnesses in preference to that of the plaintiff's witnesses. I cannot know what was actually in the minds of the plaintiff and her family at the time but I can, I think, take into account that the very letter relied upon did not purport to rely on the evidence that in the end proved most decisive.

20 The fifth factor (e) is the clarity with which the terms of the offer were expressed. There is no question here that the offer was a clear one.

21 The sixth factor (f) is whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it. Again, clearly, the offer did foreshadow such an application.

22 I need to weigh up each of those factors and come to a conclusion as to whether the ordinary rule that party and party costs should apply is displaced. I am not satisfied that there is sufficient reason supplied by the letter of 12 May 2006 to displace that rule. I am not satisfied that it was unreasonable of the plaintiff to reject the offer. No other feature of the case is relied upon. It is not suggested that the plaintiff's case was hopeless. Nor is it suggested that there was any misconduct in the litigation on the part of the plaintiff. For these reasons I would reject the application for indemnity costs.

[1] [2006] VSC 56 at [9].

[2] The citation given by Hargrave J for the references to PCRZ Investments Pty Ltd v National Gulf Holdings Ltd was [2002] VSCA 24 at [35]- [36].

[3] [2005] VSCA 298.

[4] [2006] VSCA 65.

[5] [2006] VSCA 65 at [33]. See also at [10] per Callaway JA and at [19] per Chernov JA.

[6] Compare Metcalfe v Commonwealth [2006] VSC 133 (Ashley J) at [27]-[29].

[7] Chapman v Wickman Ryan Pty Ltd [2000] FCA 536 at [22]- [23]; McKerlie v State of New South Wales [2000] NSWSC 1159 at [9]- [10]; Singh v Singh (No 2) [2004] NSWSC 225 at [11]- [15].

[8] NMFM Property Pty Ltd v National Mutual Property Services, unreported, FC, Lindgren J, 27 April 2001, BC200101932 at [88]; Aljade and MKIC v OCBC [2004] VSC 351 at [76]- [81].

[9] [2006] VSCA 65 at [17] per Callaway JA; see also at [20] per Chernov JA and at [38]-[39] per Nettle JA.

[10] [2003] VSC 136.

[11] [2003] VSC 136 at [77].