Plaintiffs v Defendant

(a) monthly benefits to 7 September 2005 amounting to $262,968

(b) interest on that amount of benefits of $41,000;

(c) return of premiums in the amount of $11,000; and

2. That there be judgment for the second Plaintiff in the sum of $273,968 together with interest of $42,500.

3. That the Defendant pay the Plaintiffs' costs of the proceedings including reserved costs on a party/party basis on County Court Scale D to 4 March, 2004.

4. That the Defendant pay the Plaintiffs' costs of the proceedings including reserved costs on a party/party basis in accordance with the Supreme Court Scale from 4 March, 2004 to 6 July, 2005.

2 As to the costs incurred 6 July, 2005, they are agreed that the defendant should pay the plaintiffs' costs of the proceeding including reserved costs but are in disagreement as to the basis - party/party or indemnity.

3 The latter issue arises because on 6 July 2005, the plaintiffs made an offer to settle the claim on the following terms:

"A. The Plaintiffs agree to accept the sum of $275,000.00 in settlement of entitlements to past premium and income protection benefits and damages and

i. The Defendant pay to the Second Plaintiff monthly benefits in accordance with the income protection insurance policy commencing 1 August 2005.

This offer will remain open for acceptance for a period of 14 days after the date on which it is served.

Should the offer not be accepted and a judgment is delivered which is more favourable to the Plaintiffs than this offer then this letter will be produced to the Court on the issue of costs.

In that event, an application will be made for our clients' costs on an indemnity basis or alternatively on a solicitor and client basis in accordance with the principles applied in Calderbank v Calderbank (1975) 3 All ER 333 and Cutts v Head [1983] EWCA Civ 8; (1984) 1 All ER 597 and adopted in the unreported decision of His Honour Mr Justice Byrne in the Supreme Court of Victoria on 28 April 1993 in Mutual Community Ltd v Lordon Holdings Pty Ltd & Ors and the unreported decision of his Honour Mr Justice Gillard in the Supreme Court of Victoria on 3 May 2000 in NT Associates Pty Ltd v Aqua Max Pty Ltd & Anor (No. 3) and further in accordance with the principles set out in Order 26 of the Supreme Court Rules.

B. In the alternative in the event the Defendant wishes to pay the Plaintiffs a lump sum payment in full settlement of all entitlements under the policy of insurance the Plaintiffs agree to accept the sum of $850,000.00 and costs.

Similarly should a judgment be delivered which is more favourable to our client than this offer then this letter will be produced to the Court on the issue of cost as herein before indicated.

This offer to settle will also remain open for acceptance for a period of 14 days after the date on which this letter is served."

4 I was referred to a relatively recent judgment of Redlich J in the matter of Richfield Investments Pty Ltd v Oversee-Chinese Banking Corporation Limited[1] in which his Honour conducted an exhaustive analysis of the authorities in this area. I refer to that discussion. It appears to be reasonably well established that the mere making of such an offer as that above does not raise a presumption in favour of an indemnity costs order or in any way change the onus of proof. Ultimately, it would appear, the judge in exercising the cost discretion should have regard to the question of the reasonableness of the offer and the reasonableness of the conduct of the party rejecting the offer in doing so. The authorities also make it clear that the discretion should not be fettered and that the criteria to be considered are not closed. The judge is required to consider the circumstances existing at the time the offer was made and to be on guard against the perils of hindsight.

5 At the time the offer was made, the defendant had in its possession all the expert reports relied upon by the plaintiff. The report of the treating psychiatrist, Dr C Simons, was delivered on about 6 July 2005 to the defendant's solicitors - the same day as the Calderbank offer. The plaintiffs' expert reports supported the case ultimately put of a combination of physical and psychological disabilities resulting in Mr Baneth being unable to engage in his usual occupation for more than 10 hours per week. In addition, the plaintiff and the defendant were also well aware that the defendant's ear nose and throat specialist Mr Thomas, had delivered reports in 2001 and on 18 November 2004. In his first report he had expressed an opinion adverse to Mr Baneth. In his second report, however, he supported Mr Baneth's case. Shortly prior to the plaintiffs making the offer, the defendant had arranged for an examination of Mr Baneth by another ear, nose and throat specialist, Mr Hooper. The examination was arranged for 19 July 2005. The parties also knew that the defendant was not seeking any additional psychiatric advice or opinions. Thus, even if Mr Hooper provided a report adverse to Mr Baneth, the defendant was faced with the difficulty that

● its original ear, nose and throat specialist was supporting the plaintiffs' case and

● the situation so far as psychiatric evidence was concerned was no different.

In relation to psychiatric evidence, a reasonable assessment of the existing reports favoured the plaintiff.

6 On any view, a reasonable assessment of the case on the material then available was that the plaintiff was in a strong position.

7 The offer made by the plaintiff involved a discount at the time of something of the order of 15% together with a significant saving of future legal costs including, of course, the costs of a trial.

8 There does not, on the evidence before me, appear to have been any overt response by the defendant to the offer. Rather, it has been stated in submissions presented by counsel, that the defendant was awaiting the outcome of the examination of Mr Baneth by Mr Hooper and that it was reasonable for the defendant not to accept the offer but to await Mr Hooper's report. This may be an accurate description of the chronology but there is no evidence before me to suggest that the defendant was in fact awaiting Mr Hooper's report before determining what to do. If it was considering its position, one might have expected it to seek a further psychiatric opinion and to seek more time from the plaintiffs. There is no evidence, however, that any serious consideration was given to the offer. If the defendant had done so, it would have appreciated that it was in difficulty when its own first preference ear, nose and throat specialist had come to the conclusion that the plaintiffs' claim was genuine and the psychiatric aspect of the case was strongly supported by the treating psychiatrist.

9 I note that, at the hearing, a significant issue raised by the defendant was whether notwithstanding the physical and psychiatric disabilities, the plaintiff still had a capacity to engage in his usual occupation for more than 10 hours per week. This issue turned on the ways and means of performing such an occupation and the use of the National Relay Service. That is not an issue raised by the defendant in submissions in this cost application by the defendant. This is understandable because it appears that that issue was something that came alive shortly before the trial and the evidence was organised very much at the last minute.

10 It seems to me that the offer was a reasonable offer and a genuine attempt to settle the litigation. The response, or lack of it, of the defendant in all the circumstances was unreasonable.

11 First, on the evidence before me, the defendant did not address what was a serious offer of settlement and did not engage with the plaintiff in any way. It needs to be borne in mind that:

"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 . . . "[2]

In referring to Calderbank letters, Tamberlin J has commented:

"The principle is designed to impress upon the parties the need to give careful consideration to the consequences of proceeding further with their dispute:[3]

" . . . a useful and flexible weapon for litigants who want to achieve reasonable settlement."[4]

On the evidence before me as to the circumstances at the time, the offer warranted serious consideration by the defendant. It, however, appears to have chosen to ignore the attempt at settlement and chose to take its chances on the outcome of litigation. This was an unreasonable response in all the circumstances. It may fairly be said that, from the rejection of the offer, the responsibility for the litigation continuing rested with the defendant.

12 In my view those circumstances are sufficient to warrant departure from the ordinary rule as to costs[5] and justify the ordering of costs on an indemnity basis after the date of the offer.

13 In addition, I am of the view that at the time the offer was made, it was unreasonable on the likely evidentiary material then known by the defendant not to accept the offer. That conclusion would also warrant the indemnity costs order sought.

14 Having regard to these matters, the defendant's failure to accept the offer warrants departure from the ordinary rule as to costs and justifies the ordering of the payment by the defendant of the plaintiffs' costs incurred after 6 July 2005 on an indemnity basis.

[1] 2004 VSC 351

[2] Mutual Community Limited v Lorden Holdings Pty Ltd unreported, Supreme Court of Victoria, Byrne J 28 April 1993, at 12-13.

[3] Mowie Fisheries Pty Ltd v Switzerland Insurance Australia Ltd [1996] FCA 931.

[4] Alpine Hardwood (Aust) Pty Ltd v Hardies Pty Ltd (No. 2) [2002] FCA 224, [19].

[5] CF Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSW CA 323 [37].