The application for indemnity costs - Michael Khouri
The plaintiff seeks an order for indemnity costs, relying upon an offer of compromise served on each of the defendants on 22 December 2021 in the following terms:
"The plaintiff offers to compromise the entirety of his claim on the following terms:
1. Judgement for the Plaintiff in the amount of $350,000.
2. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).
3. Other Orders in accordance with the Uniform Civil Procedure Rules 2005 (NSW).
4. The offer is open to be accepted for 28 days from the date that it is made."
Alternatively, the plaintiff relies upon a Calderbank offer made in the letter serving the offer of compromise as follows:
"If, for any reason, the Offer of Compromise is deemed to be invalid, our client will rely upon the enclosed offer of $480,000 inclusive of costs and clear of workers compensation, as a Calderbank offer made in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 ALL E33 (Sic)"
[2]
Was the offer a valid offer of compromise in accordance with UCPR 20.26?
UCPR 20.26, relevantly, provides as follows:
"20.26 Making an 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."
The offer was for the disposal of the entirety of the claim in circumstances where, at the time the offer was made, the plaintiff was pursuing a claim against three defendants.
The fundamental difficulty with the offer of compromise as framed is that, given the offer was for the disposal of the entire claim, it did not identify the proposed orders for the disposal of the entirety of the claim against the three defendants. In circumstances where the offer was made to each of the defendants, it was incumbent on the plaintiff to identify, in the event the offer was accepted by one of those defendants, the orders proposed for the disposal otherwise of the proceedings.
Counsel for the plaintiff ultimately conceded, in my view properly, that the offer did not comply with UCPR 20.26(2)(ii), given it did not identify the proposed orders for the disposal of the entire claim. The effect of the offer not complying with UCPR 20.26 is that the plaintiff cannot rely upon the cost consequences provided in UCPR 42.14 - 42.15A.
[3]
The Calderbank offer
The Calderbank offer contained in the covering letter was expressed to be inclusive of costs and clear of workers compensation. There was no attempt by the plaintiff to quantify the workers compensation payments for which the respective defendants would have been liable.
Further, there was no attempt by the plaintiff to quantify the costs component of the offer. Counsel for the plaintiff submitted that, given the offer of compromise was enclosed with the Calderbank offer, the defendants would have some idea of the costs' component. However, the two offers were not in the same terms. The offer of compromise made no reference to the workers compensation payments whereas the Calderbank offer was clear of such payments.
In Grbavac v Hart [1997] 1 VR 154, Winneke P at [155] observed the following:
"I can readily accept that there may be cases where the court, in the exercise of its general costs discretion, will be prepared to pay some regard to an offer of compromise which purports to be in accordance with the rules but which, for some reason or other, is technically deficient: Schulte-Hordelhoff v Patons Brake Replacements Pty. Ltd. [1965] V.R. 369. But, in my view, it ought not to do so unless the terms of the offer are such as to leave the offeree in no reasonable doubt as to the nature and extent of what is being offered: Prior v Lansdowne Press Pty. Ltd. [1977] V.R. 65; Veeken v Rosella Foods Pty. Ltd. [1978] V.R. 71; Dajak v Riebe [1985] V.R. 561 at 568."
In Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 Goldberg J said the following:
"If the purpose of a Calderbank letter is to offer to bring litigation to an end it should be couched in such terms as enable the offeree to make a carefully considered comparison between the offer made and the ultimate relief it is seeking in all its aspects. An offer inclusive of costs confuses this issue as it puts the offeree in a position of not being able to determine the appropriate amount to attribute to the money sum it is seeking."
The mere fact that an offer is framed inclusive of costs does not render it invalid as a Calderbank offer: Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [5]. However, the offer lacked sufficient precision and clarity to enable the defendants to appreciate the precise nature and extent of what was being offered. The fact that the offer was framed both inclusive of costs and clear of workers compensation payments is such that I am not satisfied that the failure to accept the offer by any of the defendants warrants a departure from the ordinary rule as to costs.
In any event, for the reasons discussed below, I am not satisfied that the offer was capable of acceptance (Grbavac v Hart at [164]), being a relevant enquiry as to whether it was unreasonable for the defendants to have rejected the Calderbank offer: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Jones v Bradley (No 2) [2003] NSWCA 258 at [8] - [9]; Commonwealth of Australia v Gretton [2008] NSWCA 117 at [43], [44], [117], [120].
[4]
Section 98 discretion
Alternatively, the plaintiff seeks an order for indemnity costs relying upon general discretion as to costs contained in s 98 of the CPA. I am not satisfied that such an order should be made despite the broad discretion contained within that section.
As previously observed, the Calderbank offer was an offer made to each of the defendants.
In Vieira v O'Shea (No 2) [2012] NSWCA 121 an offer was sent by the plaintiff to the first defendant, and separately to the third and seventh defendants, offering to compromise the action as a whole on terms that the defendants pay a specified sum. In finding that the offer was not capable of acceptance, the Court (Basten and Meagher JJA and Handley AJA) said the following in circumstances where the first defendant would have accepted the offer:
"[12] … Nor would it have resolved the "action in whole". There would have remained the question whether the appellant would proceed against the third and seventh defendants and, in the absence of him doing so, a further question as to the basis upon which the proceedings against them would be disposed of, particularly in relation to their costs."
Similarly, in the event one of the defendants had accepted the Calderbank offer there would have remained the question as to the manner in which the plaintiff would proceed against the remaining defendants. This included the basis upon which the proceedings against those defendants would be disposed of, including their costs.
This matter was the subject of correspondence from the solicitors for the second defendant immediately following service of the offer to the following effect:
"Furthermore, our client says the offer is invalid on the following grounds:
1. The offer fails to identify to whom the offer is being made and against who the judgment is to be entered.
2. If, in the alternative, the offer is made to all defendants, as your client's offer is not capable of being accepted by our client on behalf of the other defendants, pursuant to the principals in Vieira v O'Shea (No 2) 2012 NSWCA 121, it is not capable of acceptance and is therefore invalid."
The plaintiff did not respond to this letter.
In the circumstances, I am not satisfied that the Calderbank offer, by its terms, was capable of acceptance by any one of the defendants.
[5]
The application for indemnity costs - Hana Khouri
The plaintiff seeks a variation of the costs order in her favour as follows:
"The first and second defendants are to pay the plaintiff's costs of the proceedings up to and including 22 December 2021 on an ordinary basis and thereafter on an indemnity basis."
The plaintiff relies upon an offer of compromise served under the covering letter of 22 December 2021 in the following terms:
"The plaintiff offers to compromise the entirety of its claim on the following terms:
1. Judgement for the Plaintiff in the amount of $110,000.
2. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).
3. Other Orders in accordance with the Uniform Civil Procedure Rules 2005 (NSW).
4. The offer is open to be accepted for 28 days from the date that it is made."
In effect, the offer of compromise is in the same form as the offer made by Michael Khouri.
[6]
Was the offer a valid offer of compromise in accordance with UCPR 20.26?
For the reasons set out above the offer is non-compliant with UCPR 20.26 in that it does not identify the proposed orders for the disposal of the whole of the claim, therefore disentitling the plaintiff to an indemnity costs order in accordance with UCPR 42.14.
[7]
The Calderbank offer
The letter serving the offer of compromise contained the following Calderbank offer:
"If, for any reason, the Offer of Compromise is deemed to be invalid, our client will rely upon the enclosed offer of $190,000.00 inclusive of costs as a Calderbank offer made in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 ALL E33 (sic)."
Unlike the offer made by the plaintiff Michael Khouri, the Calderbank offer, whilst stated as inclusive of costs, did not have the added complication of the offer being clear of workers compensation payments made. However, I am not satisfied the offer was capable of acceptance given it was similarly addressed to each of the defendants without any particularisation as to the basis upon which the proceedings against the remaining defendants would be disposed of, particularly in relation to their costs.
[8]
Section 98 discretion
As in the claim by Michael Khouri, the solicitor for the second defendant promptly wrote to the plaintiff's solicitor advising that in its view the offer was not capable of being accepted. No response was received to this correspondence.
For the reasons set out in the related claim of Michael Khouri, I am not satisfied that the failure to accept the offer by any of the defendants warrants a departure from the ordinary rule as to costs.
[9]
Application for indemnity costs - Ramsay Surveyors Pty Ltd
Ramsay seeks a variation of the costs order made in its favour as follows:
"In its place, the first and second defendants be ordered to pay the plaintiff's costs on an ordinary basis up to 16 November 2022 (or in the alternative 8 February 2023) and on an indemnity basis thereafter."
The offer of compromise was in the following terms:
"Pursuant to Rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW), the plaintiff offers to the defendants to compromise the whole of the statement of claim on the basis that the following order and notation are made:
1. Judgment for the plaintiff against the defendants by way of an indemnity pursuant to section 151Z(1)(d) of the Workers Compensation Act 1987 in the sum of $216,698.48 inclusive of interest but plus costs as agreed or assessed on the ordinary basis.
2. Notation: The parties agree that the judgment referred to in Order 1 above does not restrict the plaintiff's rights pursuant to section 151Z(1)(d) of the Workers Compensation Act 1987 (NSW) regarding the compensation payments (relating to the subject injury) made after that judgment is entered."
The covering letter notes that:
"In the alternative, the offer is made in accordance with the principles as set out in Calderbank the Calderbank (1975) 3 ALL ER 333."
Ramsay contended that the offer was a genuine compromise in that it offered to resolve the claim in the absence of any payment of interest awarded, as agreed, in the sum of $15,000.
Ramsay contended that an inference would be drawn that each of the defendants understood the effect of the offer even if it was not capable of acceptance. Further, it was contended that the only reasonable inference was that the defendants considered it would win as it was not at fault, given the pleadings of the two defendants, together with the letter from the second defendant setting out the reasons why it considered the plaintiff would not succeed.
Ramsay submitted that the first and second defendants did not call evidence or cross-examine any witnesses in respect to the central theme of the defence and correspondence, that the penetrations were closed off at lunch and / or that the plaintiff opened the penetration himself. It is on this background, Ramsay submitted, that the application pursuant to s 98 of the CPA should be approached. At least by the second day of hearing it would have been apparent to both defendants that they would lose against the plaintiff. Indeed, it was suggested that continuing defence of the plaintiff's claim was contrary to ss 56 to 58 of the CPA.
The offer of compromise, and for that matter the Calderbank offer, was only open for acceptance for 28 days after the offer was made. To that extent, any submission that the defendants would have appreciated by the second day of the hearing that it could not succeed, is irrelevant. There is no suggestion that Ramsay was prepared to reopen the offer which had long expired.
The Calderbank offer, by its terms, was contained within the offer of compromise. That offer was judgment for the plaintiff against "the defendants". It was not an offer to the defendants individually. This is consistent with the letter enclosing the offer of compromise being jointly addressed to the three defendants (Steelfixers still being a defendant at that time). Given the offer was made jointly to all the defendants, the offer was not capable of being accepted by any one of the defendants without the agreement of the remaining two. This issue was squarely raised by the solicitors for the second defendant shortly after the offer was made:
"If, in the alternative, the offer is made to all defendants, as your client's offer is not capable of being accepted by our client on behalf of the other defendants, pursuant to the principles in Vieira v O'Shea (No 2) [2012] NSWCA 121, it is not capable of acceptance."
There is no evidence that the solicitors for Ramsay replied to this correspondence.
In the circumstances, it was not unreasonable for any one of the defendants not to have accepted the offer. I am not satisfied that the failure to accept the offer by any of the defendants warrants a departure from the ordinary rule as to costs.
[10]
In respect to proceedings 2019/392950 - Ramsay Surveyors Pty Ltd v Toplace Pty Ltd & Others
1. The plaintiff's notice of motion is dismissed.
2. The plaintiff is to pay the first and second defendants' costs of the notice of motion.
3. The second defendant's notice of motion is dismissed.
4. The second defendant is to pay the plaintiff's and first defendant's costs of the motion.
5. The orders made on 13 March 2023 are confirmed.
[11]
In respect to proceedings 2020/97924 - Michael Khouri v Toplace Pty Ltd & Others
1. The plaintiff's notice of motion is dismissed.
2. The plaintiff is to pay the first and second defendants' costs of the notice of motion.
3. The second defendant's notice of motion is dismissed.
4. The second defendant is to pay the plaintiff's and first defendant's costs of the motion.
5. The orders made on 13 March 2023 are confirmed.
[12]
In respect to proceedings 2021/22054 - Hana Khouri v Toplace Pty Ltd & Others
1. The plaintiff's notice of motion is dismissed.
2. The plaintiff is to pay the first and second defendants' costs of the notice of motion.
3. The second defendant's notice of motion is dismissed.
4. The second defendant is to pay the plaintiff's and first defendant's costs of the motion.
5. The orders made on 13 March 2023 are confirmed.
[13]
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: 04 April 2023
The second defendant's notice of motion sought the following orders in each of the proceedings:
"2. Pursuant to Section 98 of the Civil Procedure Act 2005 and Rule 6.28 of the Uniform Civil Procedure Rules 2005, the Second Defendant is to pay the plaintiff's costs of the proceedings and the Cross Claimant's costs of the Cross Claim on an ordinary basis from 6 February 2023;
3. In the alternative, pursuant to Section 98 of the Civil Procedure Act 2005 the Second Defendant is to pay the plaintiff's costs of the proceedings and the Cross Claimant's costs of the Cross Claim on an ordinary basis.
4. The Plaintiff and Cross Claimant/First Defendant pay the Second Defendant's costs of the Motion."
Counsel for the second defendant accepted that he was seeking a variation of orders made on 13 March 2023. During submissions an issue arose as to whether any variation of the existing order as to costs should be made pursuant to Rule 36.16(3)(a) of the Uniform Civil Procedure Rules 2005 ("UCPR") or the general powers as to costs pursuant to s 98 of the Civil Procedure Act 2005 ("CPA"). Given my finding, for the reasons which appear below, it is unnecessary to determine this issue.
In essence the second defendant contended that it was "joined" to the proceedings and accordingly Division 5 of Part 6 of the UCPR applies. More particularly, it was submitted that UPCR 6.28 was determinative of the issue. It provides as follows:
"6.28 Date of commencement of proceedings in relation to parties joined
If the court orders that a person be joined as a party, the date of commencement of the proceedings, in relation to that person, is taken to be the date on which the order is made or such later date as the court may specify in the order."
The first defendant contended that the "joinder" of the insurer mischaracterises the effect of the orders made on the first day of hearing. It contended that the insurer was substituted as second defendant for the deregistered company, and in those circumstances UCPR 6.32(2) applies:
"6.32 Orders as to the future conduct of proceedings
(1) ….
(2) if the court orders the substitution of one party for another or former party, all things previously done in the proceedings have the same effect in relation to the new party as they had in relation to the old, subject to any other order by the court."
It is contended that the insurer, having been substituted for the deregistered company, is bound by the acts of the former party and is liable for the costs of the proceedings from the beginning of the action: Cook v Hathway (1869) LR 8 Eq 612.
Alternatively, it is contended that the orders made on the first day of hearing were made pursuant to s 64 of the CPA; granting leave to the plaintiffs and cross claimant to amend their respective pleadings, and the effect of such amendments thereafter relate back to the date of commencement of proceedings: Greenwood v Papademetri [2007] NSWCA 221 at [28].
Was the insurer joined or substituted?
The second defendant's contention that it was joined, and not substituted, is inconsistent with several statements of its counsel during the hearing.
At the commencement of the hearing counsel for the second defendant announced his appearance as follows:
"Your Honour, Ronzani, for the proposed substituted second defendant".
Counsel for the plaintiffs and the cross claimant (Toplace) separately referred to their applications as being to "substitute" the insurer for Summit. In response, counsel for the second defendant indicated that it neither opposed nor consented to the insurer being so substituted. Further, following the making of orders bringing the insurer into the proceedings, counsel for the second defendant made the following inquiry of the court:
"RONZANI: Does your honour want to receive the appearance for the now substituted second defendant AAI Limited trading as GIO and the defences?"
It is readily apparent from the characterisation of the applications by the plaintiffs and the first defendant that the effect of the orders each sought by way of notice of motion was that the insurer was to be substituted for the deregistered company. It is for this reason that following the making of such orders the parties filed amended documents, in accordance with the courts orders, effectively substituting the insurer as the named second defendant. It is also consistent with the insurer filing defences as the second defendant.
This is consistent with the courts primary judgment as follows:
"[5] On 6 February 2023 AAI Limited trading as GIO Insurance was substituted for Summit pursuant to s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW)."
The fact that the insurer was substituted for the deregistered company is consistent with ss 4 and 5 of the CLPT Act. Section 5 provides the mechanism by which a party is given leave to bring or continue proceedings against an insurer in the circumstances contemplated in s 4.
Relevantly, s 4 provides as follows:
"4 Claimant may recover from insurer in certain circumstances
(1) If an insured person has an insured liability to a person (the claimant), the claimant may, subject to this Act, recover the amount of the insured liability from the insurer in proceedings before a court.
(2) The amount of the insured liability is the amount of indemnity (if any) payable pursuant to the terms of the contract of insurance in respect of the insured person's liability to the claimant.
(3) In proceedings brought by a claimant against an insurer under this section, the insurer stands in the place of the insured person as if the proceedings were proceedings to recover damages, compensation or costs from the insured person. Accordingly (but subject to this Act), the parties have the same rights and liabilities, and the court has the same powers, as if the proceedings were proceedings brought against the insured person.
(4) This section does not entitle a claimant to recover any amount from a re-insurer under a contract or arrangement for re-insurance."
(Emphasis added)
The effect of leave being granted pursuant to s 5 was that the insurer stood in the place of the deregistered company, and the insurer had the same liability as if the proceedings were brought or continued against that company. In this respect counsel for the second defendant accepted that the insurer was liable to indemnify Summit in respect to the judgment sum and any consequential orders as to costs.
It is also significant to note that the former solicitor on the record for Summit remained as solicitor on the record for the insurer. The amended defence filed on behalf of the insurer was effectively in identical terms to the original defence filed on behalf of Summit.
In all the circumstances, the insurer, as second defendant, should be liable for all the costs of the proceedings from the beginning of the action.
In any event, the order made by the court that the second defendant pay the plaintiffs' costs of the proceedings, and the costs of the cross claimant, should remain given the broad discretion conferred by s 98 of the CPA. As Bergin CJ in QBE Insurance (Australia) Limited v Hotchin & Ors [2013] NSWSC 315 observed:
"[56] Section 98 is the statutory recognition of the "long asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where the person is the effective litigant standing behind an actual party" thus making the person the "real litigant" or the "real parties" rather than the "nominal party" liable for costs: Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 188 per Mason CJ and Deane J and at 202 per Dawson J. A general category of cases in which costs may be awarded against a non-party has been identified to include a receiver of a company, an insolvent person or a "man of straw", a person who has played an active role in the litigation and a person who has an "interest in the subject of the litigation": Knight v FP Special Assets Ltd at 192-193 per Mason CJ and Deane J." (Emphasis added)
The second defendant should not only be liable for the costs of the plaintiffs and cross claimant from the time it was substituted, but it should also be liable for the costs incurred prior to its substitution in circumstances where it was clearly "the effective litigant standing behind [the] actual party".