Plaintiff v Defendant

Plaintiff v Defendant - [2010] VSC 70 - VSC 2010 case summary — Zoe

[13]

"[67] The expression the 'usual order as to costs' embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party.[6] The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.

[68] As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice.

[69] The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd[7], Devlin J formulated the relevant principle as follows:

'No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.'

'Misconduct' in this context means misconduct relating to the litigation[8], or the circumstances leading up to the litigation.[9] Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation;[10] unnecessarily protracts the proceedings;[11] succeeds on a point not argued before a lower court[12]; prosecutes the matter solely for the purpose of increasing the costs recoverable;[13] or obtains relief which the unsuccessful party had already offered in settlement of the dispute.[14]"

[24]

"Rule 26.08(3) refers only to the situation where the plaintiff recovers a judgment that is not more favourable to the plaintiff than the terms of the offer. The rule is silent on the question of costs where the plaintiff fails altogether and judgment is given for the defendant. However, it is well-established that in such an event the Court may, in the exercise of its general discretion, award costs to the defendant on a more generous basis than party and party from the time the offer was served.

The principle in Calderbank v Calderbank[21] exposes a litigant to the risk of a costs order if, taking into account all relevant considerations including the facts known to the offeree at the time of the offer, the offeree unreasonably ignores a reasonable offer of settlement, whether made by letter or formal offer of compromise.

As Byrne J observed in Mutual Community Ltd v Lorden Pty Ltd[22]:

'The policy of the Court is to encourage litigating parties to undertake genuine settlement negotiations and, for the purpose, to face up to serious offers of settlement... The response of a litigant in receipt of an offer of settlement will always be affected by the prospect that the sum which the Court might order including party and party costs may be less advantageous than the terms of the offer. Experience, however, shows that this prospect alone is not always sufficient to compel a litigant to face up to the offer. The further prospect of a super-added costs penalty if a reasonable offer be not accepted is a salutary inducement to an offeree to undertake this often painful task...'

In Richfield Investments Pty Ltd v Oversea-Chinese Banking Corporation Ltd[23], Redlich J carried out a comprehensive review of the authorities in relation to the award of costs on a higher than usual basis. In particular, he considered whether, once an offer of compromise was made, there was a prima facie presumption that indemnity costs should be ordered, unless the party rejecting the offer could show that it was reasonable not to accept the offer.[24] After a detailed examination of cases in the Federal Court, the Courts of Appeal in New South Wales and Queensland, and of single judges in this Court, his Honour concluded that:

'...the preponderance of authority, and the weight of the recent decisions is to the effect that there is no rule, predisposition, presumption or guideline to the effect that a failure to obtain a judgment more favourable than a rejected Calderbank offer will, in the absence of persuasion to the contrary, lead to a special costs order.'[25]

I respectfully agree with and adopt Redlich J's analysis and conclusion. In any event, the outcome in this particular case would be the same, even if (contrary to the above) there were such a prima facie presumption.

The final general observation which I wish to make is that courts have warned of the dangers of judging the reasonableness of a settlement offer through the prism of hindsight. As Redlich J observed in Richfield Investments, there is a real risk that a court, upon making findings concerning contested questions of fact, may too readily embrace a submission that it was always inevitable that the proceeding would fail.[26] As Hamilton J said in Grynberg v Muller:

'...These submissions focus the bright light of hindsight. Hindsight sings a siren song of which Judges must be cautious...'[27]"

[27]

"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;

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

[26] It has been argued on occasion that the maker of a Calderbank offer should not be entitled to costs unless the offer sets out, with some reasonable specificity, the basis for the offeror's contention that the offeree should accept the compromise - for example, because the offeree's case was hopeless or because the offeree had no reasonable prospects of doing better in the proceeding than was being offered in advance.

[27] Once again, we think it neither necessary nor desirable to lay down any general rule in this regard. We agree with what Redlich J said in Aljade, as follows:

[36]

"What, then, is meant by "unreasonable" in this context? A decision to accept or not an offer of this kind will ordinarily be based upon the offeree's perception of its ultimate chances of success, that is, it involves a prediction as to the likely outcome of the trial. At the time the debate about costs occurs the trial will normally be over; the event will have demonstrated that the prediction which underlay the decision was not fulfilled, that it was erroneous or even imprudent.[35] I put to one side the case where the decision was one based on factors other than the prospect of success. A decision to commence or to press on with litigation which is based on the desire to grind a less resourced opponent into capitulation or to put it out of competitive business could hardly be countenanced by the court. If an offeree sought to justify its decision to refuse an offer by reference to some consideration other than the prospect of success, this would be a matter for it to raise, leaving always the ultimate onus on the issue upon the offeror. In the same way that the failure to achieve a more advantageous result will not automatically put the offeree at risk, so too it is not sufficient for it to avoid the consequence of its erroneous prediction that it says only that the outcome was uncertain. The outcome of almost all litigation is uncertain. The erroneous prediction may not, however, be an unreasonable one if the predictor was not, at the time, for good reason in possession of sufficient information to make an assessment or if the circumstances upon which it was based later changed. It must be acknowledged that it is part of the ordinary function of a lawyer to make predictions of this kind. The lawyer must make them at the outset and during the litigation in order to enable the client to make responsible and informed decisions to commence the litigation, to pursue it and to make the various decisions in the course of the proceeding's progress to trial and judgment."

[86]

"First, Mr Thomas caused the proceeding to be commenced. The evidence is abundant and clear that Mr Thomas held, and continues to hold, the reins of the plaintiff's case, and the prosecution of that case. He was the principal lay witness for the plaintiff and had the principal management, control and conduct of the plaintiff', case, including making offers to the defendant (and its owner) to settle the proceeding and determining whether to accept offers made by the defendant from time to time, as set out in the First Affidavit. There is, in all the circumstances, a real and direct connection between Mr Thomas and the proceeding.

Second, there is and was by that connection, a causal connection between Mr Thomas (by examination of the role played by him) and the costs incurred by the defendant.

Third, and further to the second matter, as a matter of practical experience and judgment, given the control exerted by Mr Thomas over the plaintiff, he plainly stood to benefit from the litigation, or had a financial interest in its outcome.

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Fourth, Mr Thomas has played an active part in the conduct of the litigation in circumstances where the plaintiff is and has been impecunious at all relevant times. In Knight v FP Special Assets Ltd, Mason CJ and Deane J recognised a general category of case in which an order for costs should be made against a non-party:

'... where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.'

Their Honours said that such a category, on the facts in the case, would 'encompass' a receiver of a company who was not a party to the litigation. The generality of the category envisaged by their Honours plainly includes circumstances where, as here, the plaintiff is impecunious and where its controlling director has played an active part in the litigation."

At a glance

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Judgment (135 paragraphs)

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Legislation Cited (3)

Cases Cited (12)