Fourth Issue: Costs
125 After judgment the respondent applied for indemnity costs based on the appellant's conduct of the proceedings and its failure to accept an early Calderbank offer (see Calderbank v Calderbank [1975] 3 All ER 333) in which the respondent had offered to compromise the proceeding by accepting a verdict in its favour but each party bearing its own costs. The trial judge upheld the application. He found that the appellant conducted the proceedings unreasonably so that it would be unjust to limit the respondent to party and party costs and that the Calderbank offer was "reasonable and proposed a genuine compromise of a case brought without a realistic prospect of success': Sagacious Legal (No 5) (at [24]). Once again this is a discretionary judgment and the appellant must show that the discretion miscarried on House v The King principles.
126 No criticism is made of the trial judge concerning the issues he considered. Nor, in its written submissions at least, did the appellant complain about the finding that the insured conducted the proceedings unreasonably. Neither is there any explicit challenge to the finding in the notice of appeal. Counsel for the appellant explained in oral argument that the success of any challenge to that finding depended on the success of the challenges to the trial judge's findings against Mr O'Shanassy. As that challenge fails, the only question for us is whether the trial judge erred in one of the ways mentioned in House v The King when he held that the offer was reasonable and proposed a genuine compromise.
127 The Calderbank offer was made on 30 July 2009. The offer was expressed to remain open until 13 August 2009. It was not accepted.
128 His Honour held that, after receipt of the letter, the appellant was in a realistic position to assess its prospects. He noted that it had run a technical case by putting the insurer to proof. He also noted that its intention was to rely on a history in a report from a psychiatrist it qualified in the proceeding as proof of its truth (without giving notice of such an intention to the respondent) (presumably because counsel for the appellant below informed his Honour that the report was included in the tender bundle to see whether the respondent would consent to its tender, although his Honour considered the appellant never believed it would consent): Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2010] FCA 274 at [12], [14]). His Honour's view was that this "tactic" exposed a lack of confidence in the merits of its case "and of its fundamental basis, namely, what his Honour called "Mrs O'Shanassy's substantive sobriety at the time of the accident" (Sagacious Legal (No 5) at [18]). The history in the report, we would add, was inconsistent with histories given in reports from treating specialists and ultimately inconsistent with what his Honour found was the real position.
129 The appellant submitted that at the time the offer was made there was nothing for the appellant to consider - the respondent was not giving anything away other than an order for costs. It submitted that the offer was "in substance a tactical offer aimed to put pressure on the appellant without offering any true compromise".
130 A similar submission was made and rejected in Clark v Commissioner of Taxation [2010] FCA 415 where Greenwood J observed at [90] (correctly in our opinion):
[T]he notion that the applicants are giving up nothing of substance by offering to compromise on the footing that they will absorb the recoverable costs incurred to the date of the offer misunderstands the lay community's concerns about legal costs and therefore the concerns lay litigants hold about costs. Costs do not lie at the margins for litigants. They are real and of value. When a party elects as part of its offer to abandon a claim to recoverable costs (which in the circumstances must be taken to be a good claim) in the order of $123,000 or $153,000 or possibly $184,000, a real concession arises. As Finkelstein J observed in Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd (No. 4) ("Brookfield Multiplex v ILFP") [2009] FCA 803 at [13] and [14]:
13. One can easily envisage circumstances where a "walk away' offer must be regarded as a genuine offer of compromise. Take for example a case that has progressed for some time and the party's costs are quite high. In that event an offer to walk away may, in a business sense, be a significant offer: see for example Commissioner of Taxation v Evenfont (No. 2) (2009) 223 FLR 28 at 31.
14. Conversely there are circumstances … where an offer to walk away does not involve any real give and take.
131 In Uniline Australia Ltd v S Briggs Pty Ltd (No. 2) [2009] FCA 920, Greenwood J noted at [38]:
In the modern world of commercial litigation and various subsets of that litigation such as intellectual property litigation, costs are a very real and quantifiable concern. It would be extremely odd to think otherwise. Costs are incurred in a recoverable inter-parties sense from the moment the proceedings issue and they continue to be incurred at every point along the continuum of the litigation. Litigants who are required to pay these costs in order to assert or resist a claim, regard them as a very real and present expense, if not a real and present danger. Very often these costs are a significant business expense. They invariably require a commitment of significant resources and separate budget allocations. An offer to compromise which is framed in terms of a party's willingness to abandon the recovery of costs so incurred along that continuum through the preparation and analysis of statements, disclosure, analysis of documents and the preparation and review of expert reports, is undoubtedly considered by the litigant as an offer that involves giving up something meaningful, real and measurable. This is particularly so after the completion of case managed preparatory steps at various phases of the litigation which may have the effect of front-end loading significant costs in order to save trial costs. In many cases although not in all cases, the notion that a party is giving up nothing by inviting another party to discontinue a claim on the footing that the offeror will not make any claim for payment of its costs incurred to the date of the offer, is a fundamentally abstracted notion from the practical perspective of the engaged litigant confronting the management of the proceeding and the appropriation of expenditure to conduct it. An offer, on the other hand, that invites discontinuance of a claim on the payment of the offeror's costs to date offers not very much at all other than the stemming of future costs which in a particular case may nevertheless be very real.
[Emphasis in original]
132 We agree with these remarks.
133 In Clark the "walk away" offer involved the abandonment of costs in the range $123,000 to $184,000. Greenwood J held (at [92]) that the offer was "made in good faith and in making that offer the applicants were willing to abandon a good claim of substance that represented a real element of compromise on their part". Here, the abandoned costs could not conceivably have amounted to anything like these sums. There does not appear to have been any evidence of what they would have been. The offer was made at a very early stage in the litigation. That said, however, it was an offer to forgo some costs.
134 In its written submissions the appellant described the point raised for consideration as
Whether the views expressed by the New South Wales Court of Appeal in Uniting Church in Australia Property Trust (NSW) v Takacs (No. 2) [2008] NSWCA 172 (scil.) at [14] is the correct approach or whether it is that set out in Clarke v Commissioner of Taxation [2010] FCA 415 at [90]-[92].
135 Assuming there is a difference between the two approaches, this Court, faced with conflicting decisions of a State appellate court and a decision of a single judge of this Court, should follow the decision of the State appellate court unless we are satisfied that it was plainly wrong: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 151-2 [135]. In fact, however, the supposed difference is illusory.
136 The passages in The Uniting Church v Takacs [2008] NSWCA 141 ("Takacs") upon which the appellant relies are these. They are drawn from the judgment of Hodgson JA, with whom McColl JA agreed.
13 In a case such as this, it is in my opinion possible and appropriate for a court to reach a view as to whether there is justification for ordering otherwise, on the basis of its own assessment of the characterisation and merits of the offer and its refusal, without receiving evidence as to the motivations and understandings of the parties. In the present case, insofar as the offer suggests the Trust was confident of winning the case, the result vindicates that confidence. On the other hand, it cannot be denied that the offer was one that invites substantial capitulation by the plaintiff.
14 I do not make any adverse findings as to the bona fides of the Trust; but the offer in this case does have the appearance more of a procedural move to trigger costs consequences than of a genuine attempt to reach a negotiated settlement: cf. Leichhardt Municipal Council v Green [2004] NSWCA 341 at [39]; Commonwealth of Australia v Gretton [2008] NSWCA 117 at [104]-[105].
137 The trial judge was correct when he observed (at [21]) that Hodgson JA was not expressing any principle but making a finding about the reasonableness of the offer in the circumstances of that case. So much is obvious from a reading of the judgment as a whole. In Takacs the appellant had made an offer of compromise of $20,000, which the respondent submitted was "for a nominal amount in the circumstances" and that, therefore, the offer was not a genuine offer of compromise (at [10]-[11]). Hodgson JA said there was force in the submission "understood as being a submission to the effect that the offer was not an offer of a genuine compromise", noting that the respondent could have succeeded in the case on either of two issues, "on both of which reasonable minds could differ" (at [11]). That, his Honour said, was apparent from the different outcomes at trial (where Mr Takacs succeeded) and on appeal (where the Church succeeded). It is also apparent from the fact that, on appeal, the Court divided, with Basten JA in dissent.
138 His Honour also noted that the offer would not have afforded the respondent any appreciable compensation for his very serious injuries. Importantly, however, at [12] his Honour emphasised:
I do not suggest that this consideration would prevent the offer from being one that engages the relevant rules and one that, in the circumstances, entitles the Trust to indemnity costs unless the court otherwise orders. The question is whether the court should otherwise order.
139 The NSW Court of Appeal has not taken the view that an offer of the kind made in this case could never amount to a genuine compromise. In Leichhardt Municipal Council v Green [2004] NSWCA 341 at [36] the Court made it clear that there was no error of legal principle in holding that a "walk-away" offer can constitute a "genuine offer of compromise" in a particular case.
140 That view is consistent - not inconsistent - with the approach of this Court. See Clark at [90]-[92], which the trial judge followed in this case.
141 Here, the trial judge found that the insurer's offer was reasonable and proposed a genuine compromise of a case brought without reasonable prospects of success (at [24]). The prospects of success were relevant to the reasonableness of the offer and the extent of the compromise: cf Manly Council v Bryne (No. 2) [2004] NSWCA 227.
142 The trial judge noted that, had the appellant accepted it, "very considerable time, money and resources" of the insurer would have been saved. He also noted that at the time the appellant received the offer, it would have been apparent to it that a trial would last a number of days and involve the calling of many independent witnesses to Mrs O'Shanassy's behaviour on the day of the accident whose evidence it knew would strongly suggest that she was under the influence of alcohol. He also pointed out that Mr O'Shanassy was aware that his wife smelt of alcohol and behaved as if she was drunk when he arrived at the scene of the accident and that her blood alcohol analysis of 0.124 strongly supported that conclusion. As Mr O'Shanassy did not give evidence we infer that this observation was based on his Honour's appreciation of the lay evidence from those who did, which plainly supported that conclusion or from other material not reproduced in the appeal books. Thus, the appellant knew at the time it received the offer that it was unlikely to succeed because Mrs O'Shanassy was under the influence of alcohol at the time of the accident and Mr O'Shanassy, its controlling mind, was either actually aware of, or ought reasonably to have known, that she was.
143 An issue arises as to whether any of these matters went to the question of compromise.
144 Leichhardt Municipal Council v Green was a similar case where the defendant had offered a verdict in its favour with each party bearing its own costs. The Court of Appeal did not award indemnity costs, but that was for reasons related to the particular circumstances, not because an offer of this kind did not represent a genuine compromise. There, Santow JA, with whom Bryson and Stein JJA agreed, observed at [25]-[26]:
25 The position of a defendant without a cross-claim is analytically quite distinct. First, a defendant by definition is not the claiming party, and thus is not before the Court voluntarily. If it reasonably disputes liability and has a firm belief in the strength of its case, the best solution it can hope for - that the claim is dismissed - is not a monetary one. It will in economic terms be no better or worse off for its victory by way of successful defence, costs aside. Thus, unlike a plaintiff, it cannot discount its optimum return by way of compromise. It does not need the same sorts of incentive as a plaintiff does to compromise. It cannot, in the expectation of receiving $100,000, offer to compromise proceedings for $75,000 to reflect the vicissitudes and expenses of litigation.
26 Therefore the only option for a defendant is not an attractive one; to 'buy off' the claim by offering to pay unmeritorious claimants a sum of money to discontinue the litigation. This practice, though it no doubt occurs, is not one which the law should encourage. The policy of the law is certainly to encourage genuine compromise, but it is no genuine compromise for a defendant to pay off a plaintiff or series of plaintiffs. Second, a defendant will know that if it loses on liability, the general rule will result in costs being awarded in favour of the successful plaintiff on a party and party basis (as set out in Division 6 of Pt 11 of the Legal Practitioners Act 1987). This means that a defendant already has less of an incentive to offer a compromise by conceding liability or quantum or both. As far as costs are concerned, a defendant who disputes liability and has a firm belief in the strength of its case will generally expect to reap no more than party and party costs in its favour. It will still be out of pocket to the tune of the difference between party and party costs and solicitor/client costs. What can such a defendant offer by way of compromise, in furtherance of the policy of the law of early settlement of disputes?
145 Here, the particular claim was weak. The offer reflected that. It gave nothing to the appellant, however, other than the prospect of saving future costs and avoiding a costs order that would be made against it if it failed. Was that enough?
146 In our opinion his Honour was correct to see the offer as a reasonable and genuine compromise. Regardless of whether the waiver argument had merit, driving under the influence of drugs or alcohol was a general exception under the policy. There was no realistic possibility that the Court would not have found that Mrs O'Shanassy was driving under the influence of alcohol at the time of the accident.
147 His Honour found that the appellant was aware when it received the offer that the evidence of many independent witnesses strongly suggested that Mrs O'Shanassy was under the influence of intoxicating liquor at the time of the accident. More importantly, his Honour held, Mr O'Shanassy was aware that his wife smelt of alcohol and behaved as if she were drunk when he arrived at the scene and afterwards (presumably referring to her erratic behaviour at the hospital). His Honour ultimately concluded that Mr O'Shanassy knew, or ought reasonably to have appreciated, that his wife was under the influence of intoxicating liquor at the time of the accident.
148 No specific challenge was made to these findings. In any event, they were findings well open to his Honour. An ambulance officer who attended Mrs O'Shanassy made a contemporaneous note that that there was "a smell of intoxicating beverages about her person" and that she was "rude and unco-operative". He said the smell was noticeable in both the car and the ambulance. Two police officers went to the car and immediately smelt alcohol emanating from where Mrs O'Shanassy was trapped. A member of the volunteer rescue squad gave similar evidence. At the hospital the doctor who attended her noted a strong smell of alcohol on her breath, as did a nurse who also gave evidence. They, too, commented on her aggressive behaviour. True it is, this does not necessarily mean that she was under the influence of alcohol. But there was every prospect in the circumstances that the Court would conclude that she was. And it is highly unlikely in all the circumstances that Mr O'Shanassy did not have the same perception.
149 His Honour stated that Mr O'Shanassy was also aware that Mrs O'Shanassy's blood alcohol analysis of 0.124 strongly supported that conclusion although his Honour noted that there might have been difficulties for the insurer being able to rely on the analyst's certificate. There is no evidence, however, that Mr O'Shanassy was aware of those difficulties at the time the offer was made.
150 The defence pleaded the alleged misrepresentations in the 2004 proposal form in a way that overlooked the earlier disclosures. It is conceivable, therefore, that the appellant thought it was capable of overcoming those parts of the defence. But the respondent also relied on breaches of the general duty of disclosure referred to in s 21 of the Act. The appellant must have known at that time that it had failed to disclose Mrs O'Shanassy's 1999 conviction and the consequent cancellation of her licence.
151 In any case, as the respondent pointed out, the finding that the appellant conducted the proceedings below unreasonably so that it would be unjust to limit the respondent to party and party costs appears to be an independent basis for the order. As that finding is not challenged, there is no proper basis to disturb his Honour's order.