2 On 20 June 2013, the Court delivered judgment with respect to the final disposition of this matter, allowing an appeal brought by the appellant, Helen Rosa ('Rosa'), and dismissing a cross-appeal brought by the respondent, Galbally & O'Bryan ('Galbally's'). The Court also set aside the award of damages of $56,750 and the award of interest of $9,420 made by the trial judge on 31 January 2012 and substituted instead an award of damages to be in the sum of $285,335 and an award of interest of $87,384.

3 The Court had previously delivered its reasons for judgment (the 'principal judgment') in the appeal and cross-appeal.

4 At the delivery of judgment on 20 June 2013, Rosa applied for indemnity costs of both the trial and the appeal. Rosa based her application on an offer of compromise it had made as plaintiff which had been rejected by Galbally's, as the defendant. There had been a series of offers of compromise between the parties, Galbally's offering to pay the sums of $50,000; $75,000; $100,000; $125,000 and ultimately, on 20 July 2011, $150,000 to compromise Rosa's claim. Rosa had made two offers of compromise, an offer to accept $150,000 (plus costs) on 3 September 2010 and an offer to accept $125,000 (plus costs) on 21 April 2011. The offers of compromise were all made pursuant to Pt 2 of Order 26 of the Supreme Court (General Civil Procedure) Rules (the Rules of Court).

5 On 20 June 2013 the Court also ordered, in light of the fact that the substituted award of damages was more favourable to Rosa than the offers rejected by Galbally's, that Rosa's costs of the trial be paid on a party/party basis up to and including 3 September 2010 and thereafter on an indemnity basis, but reserved the consideration of the costs of the appeal.

6 The offers of compromise made pursuant to Pt 2 of Order 26 are confined to the compromise of the claim at trial. This is apparent from the judgment of this Court in Grbavac v Hart.[1] The claim there was for damages for bodily injury. The plaintiff obtained a verdict of $250,000 on 11 February 1992. The defendant appealed on 25 February 1992 and served with the notice of appeal an offer of compromise which was expressed to be made under then r 26.02 offering the sum of $150,000. The offer was rejected. The appeal was allowed and a re-trial ordered and on the re-trial the jury found a verdict for $125,000. In dealing with costs at the end of the re-trial, the trial judge treated the offer of compromise as applicable to the re-trial and ordered indemnity costs. On appeal this Court held that the trial judge was wrong to do so because the then r 26.02 did not authorise the making of an offer of compromise after the first verdict for the reason that the claim or the cause of action had merged with the judgment.

Rule 26.02(1)... provides that:

Where in any proceeding the plaintiff makes a claim for damages for or arising out of death or bodily injury, the plaintiff and the defendant may serve on one another an offer of compromise of that claim on the terms specified in the offer. [Emphasis added]

... It follows that r. 26.03(1) contemplates that an offer of compromise may be served only if there is a claim to which it relates. By virtue of r. 26.03(4), such an offer of compromise may be accepted, at the latest, before the verdict or judgment in respect of "the claim to which the offer relates".

What, then, was 'the claim to which' the purported offer dated 25 February 1992 related? In my opinion there was on 25 February 1992 no such claim. The plaintiff's claim against the defendant had been her claim - of cause of action - sounding in damages for negligence ... it ceased to have any independent existence when the appellant obtained a verdict and judgment in respect of it on 11 February 1992.

It is elementary that, when judgment has been given in an action in a court of record ... the cause of action in respect of which judgment is given is merged in the judgment. It was therefore impossible that the judgment for damages,

which the plaintiff held on 25 February 1992, could co-exist with the cause of action on which it was founded.

8 The terms of the current r 26.02 also speak of the compromise of a claim between plaintiff and defendant. It is clearly directed to the compromise of a claim or cause of action at trial. The consequences of the rejection of the offer of compromise are dealt with in r 26.08 in terms which also make it apparent that it is concerned with entitlements, including entitlements to costs awarded on an indemnity basis, arising from a judgment at trial. Thus, r 26.08 does not operate of its own force in relation to an appeal: Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation (Cth) (No 2).[3]

9 Nevertheless, Sands & McDougall makes it clear that, on appeal, the court can take into account, in its discretion, the making of an offer at trial and its rejection:[4]

[I]t will be open to a plaintiff who before judgment made an offer answering the requirements of [the rules] to contend, in the event of a successful appeal by the plaintiff or an unsuccessful appeal by the defendant, that the making of the offer and its non-acceptance should induce the court, in disposing of the appeal, to award the costs of the appeal on a solicitor and client basis. In doing this the plaintiff would be founding an argument upon the presence in the rules of [the order relating to offers of compromise at trial] but would not be suggesting that it operated of its own force in relation to the appeal.

10 The fact that Galbally's rejected Rosa's offers of compromise and Rosa has now received an award of damages more favourable to her than either of her offers is a relevant consideration for this Court to take into account in its discretion in an award of costs of the appeal. However, it is also relevant that the Rules of Court now provide for offers of compromise to be made to compromise an appeal, pursuant to Pt 3 of Order 26 (r 26.12). It was not suggested by the parties that either of them had made such an offer. In those circumstances, the only other special feature of the appeal that might warrant an award of indemnity costs is the fact that the costs of a re-trial have been obviated by reason that this Court has substituted its own award of damages.

11 The issue of the substitution of an award of damages was dealt with as a separate issue from the issues dealt with in the principal judgment. The costs incurred in relation to that issue (including the written submissions made on the issue and the oral submissions made at the Mention) ought to be readily identifiable. In my opinion, the discretion to award indemnity costs ought be exercised in favour of Rosa only with respect to those costs incurred between the delivery of the principal judgment on 17 May 2013 and the delivery of the judgment on damages on 20 June 2013.

12 With that exception, I consider that the costs of the appeal and the costs of the cross-appeal ought to be made on a party/party basis.

[1] [1996] VSC 37; [1997] 1 VR 154 (Winneke P, Tadgell and Hayne JJA).

[2] Ibid 158 (with whom Winneke P agreed).

[3] [1999] VSCA 36; [1999] 2 VR 114 ('Sands & McDougall'), 118.