Sahade v Bischoff

Offer of compromise

The relevant facts are as follows: 1. On 23 December 2014, the notice of appeal was filed. The subject of the appeal was Mr Sahade's claim of assault against Mr Bischoff, and Mr Sahade's and Mr Smith's respective claims against the Bischoffs for malicious prosecution; 2. On 12 February 2015, the Bischoffs filed a cross-summons seeking leave to cross appeal. The subject of the draft notice of cross-appeal was the quantum of damages awarded on the Bischoffs' cross claim against Mr Sahade for damages for trespass and the costs orders made against Mr Sahade and Mr Smith on their claims, and against Mr Sahade on the cross claim; 3. On 17 March 2015, the Bischoffs served an offer of compromise, which offered to compromise the whole of the appellate proceedings on the following terms: 1. The appeal is dismissed; 2. The summons for leave to cross-appeal is dismissed; 3. There is no order as to the costs of the appeal and cross-appeal, with the intention that the parties will bear their own costs in the Court of Appeal. 1. The offer was expressed to be made by the Bischoffs, as the respondents and cross-applicants, in accordance with r 51.47 and r 20.26 of the UCPR. The offer was open for acceptance until 4pm on the 29th day after the day on which it was served. In a covering letter dated 17 March 2015, the Bischoffs' solicitors indicated that, in the event the offer of compromise was not effective under UCPR r 20.26, it was relied upon as a Calderbank offer. 2. Neither of the appellants/cross-respondents accepted the offer.
It is convenient to deal with the issues raised by the offer of compromise under the UCPR first. This requires an outline of the rules relating to offers of compromise in this Court.
UCPR r 51.47(1) provides that a party to proceedings in this Court may make an offer to any other party to compromise any claim in the proceedings, in whole or in part, on specified terms. The provisions of Division 4 (Compromise) of Pt 20 of the UCPR apply to any offer of compromise in this Court, subject to the modifications in UCPR r 51.47(2). Relevantly, a reference to a plaintiff is a reference to the initiating party in this Court: r 51.47(2)(c) (which includes an applicant: r 51.46) and a reference to the defendant is a reference to an opposite party in this Court: r 51.47(2)(d).
Where an offer of compromise is made under UCPR r 51.47, the costs consequences are as stated in Div 3 of Pt 42, which is made applicable to proceedings in this Court subject to the modifications in UCPR r 51.48. Importantly, UCPR r 51.48(1) provides that r 42.13 is to be read as if it provided that the Division applies where an offer of compromise (the offer concerned) is made as provided by UCPR r 51.47 with respect to a plaintiff's claim (the claim concerned). Further, in the case of appeal proceedings, a reference to the plaintiff is a reference to the party who was the plaintiff in the court below and a reference to the defendant is a reference to the party who was the defendant in the court below: UCPR r 51.48(2)(d). The UCPR does not contain a definition of "plaintiff", but s 3 of the Civil Procedure Act 2005 (NSW) (CP Act) does and that definition is applicable to the UCPR. Section 3 of the CP Act defines a "plaintiff" as, relevantly, "a person by whom proceedings are commenced ….and includes a person by whom a cross-claim is made". Thus, for the purposes of the cost consequences stated in Div 3 of Pt 42 (as modified by r 51.48), a cross-claimant in the court below is to be regarded as a plaintiff and the cross-defendant in the court below is to be regarded as the defendant.
There is no dispute that the offer of compromise was served in accordance with UCPR r 20.26, making such modifications as required by UCPR r 51.47 in respect of proceedings in this Court. The Bischoffs contend that because they are to be regarded as defendants in this Court for the purposes of making the offer of compromise (r 51.47(d)), the applicable rule as to the consequence of the offer not being accepted is r 42.15A. That submission requires some qualification. It can be accepted that for the purposes of making an offer in respect of the appeal, the Bischoffs are to be regarded as defendants, since they are each an "opposite party" in this Court: r 51.47(2)(d). However, for the purposes of making an offer in respect of the cross-summons, the Bischoffs are to be regarded as plaintiffs, since they are each an "initiating party" in this Court as applicants on the cross-summons: r 51.47(2)(c).
Next it was contended that because the offer made by the Bischoffs was not accepted by the appellants/cross-respondents and the Bischoffs obtained an order on the claim (the appeal and the cross-summons) no less favourable to them than the terms of the offer, they are entitled to a special costs order under UCPR r 42.15A. As mentioned, UCPR r 51.48 makes that rule applicable to appeal proceedings with some modifications.
UCPR r 42.15A states: 42.15A Where offer not accepted and judgment no less favourable to defendant (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
The appellants say that the offer of compromise contained two offers, neither being capable of acceptance independently of the other. One related to the appeal and the other related to the cross-summons. They submit that UCPR r 42.15A can only apply to the offer made by the Bischoffs with respect to the appeal, but not to the offer in respect of the Bischoffs' cross-summons because the Bischoffs are to be regarded as plaintiffs in respect of the proceedings to which that offer relates. There is force in that argument. Nevertheless, it is open, in principle, to treat the offer as having two interdependent parts, each providing the consideration for the other.
Even if the offer is treated that way, for the purposes of the cost consequences stated in Division 3 of Pt 42 (as modified by r 51.48), the appellants are each to be regarded as a plaintiff and the Bischoffs are each to be regarded as a defendant in respect of the appeal. On the other hand, the Bischoffs (as cross-applicants) are each to be regarded as a plaintiff and appellants (as cross-respondents) are each to be regarded as a defendant in respect of the cross-summons: r 51.48(1)(d).
It follows that the cost consequence stated in r 42.15A(2), read with the modifications in r 51.48(1), does not apply to the offer of compromise with respect to the Bischoffs' claim the subject of the cross-summons in this Court. The relevant rule, if otherwise applicable, would be r 42.14 which applies where an offer is made by a plaintiff but not accepted by the defendant and the plaintiff obtains an order for judgment on the claim no less favourable to the plaintiff than the terms of the offer. Neither of the parties' submissions addressed the stated cost consequence found in r 42.14 for the Bischoffs' offer relating to the cross-summons.
However, there is a more fundamental problem with the Bischoffs' reliance on the stated cost consequence in r 42.15A(2), or indeed in r 42.14(2), had that rule been relied upon.
Here, the offer of compromise was a joint offer to the appellants/cross-respondents and could not be accepted by only one of them. Mr Sahade and Mr Smith were each independent parties with separate causes of action against the Bischoffs for malicious prosecution and further, Mr Sahade had a separate cause of action against Mr Bischoff for assault. With respect to the cross-summons, the Bischoffs' cause of action for damages for trespass was only against Mr Sahade, not Mr Smith. Further, Mr Smith did not have any interest in the cross-summons so far as it related to the costs order against Mr Sahade relating to the Bischoffs' cross claim for damages.
As explained by this Court in Archer v Archer (No 2) [2000] NSWCA 315 at [8] (Handley, Beazley and Fitzgerald JJA) in an appeal - following a retrial - against an indemnity costs order made under the former Pt 52A r 22 of the Supreme Court Rules 1970 based on an offer of compromise which had not been accepted by the two unsuccessful plaintiffs (see Archer v Archer (Sup Ct NSW, 7 July 1999, Windeyer J, unrep)): Here the offer of compromise was made to the parties jointly, although their causes of action were several, and the offer was therefore not capable of individual acceptance. In our opinion therefore, there was no basis for the making of an indemnity costs order.
The Bischoffs' joint offer with respect to the appellants' claim was not capable of individual acceptance by only one of the appellants. Accordingly, the terms of r 42.15A(1) are simply not engaged. The rule cannot apply to a joint offer made by defendants, but not accepted by the plaintiffs with separate causes of action, since one plaintiff's ability to accept is dependent upon another plaintiff's agreement. The same reasoning would apply to r 42.14(1), if the Bischoffs had sought to separately characterise their offer regarding their cross-summons as referable to that rule. In my view, the costs consequences stated in these rules do not operate in this scenario.
This reasoning also applies if the offer of compromise is treated as a Calderbank offer. The inquiry as to whether it was unreasonable for the unsuccessful offeree to have rejected a Calderbank offer assumes that the offer was capable of acceptance by the offeree: see Vieira v O'Shea (No 2) [2012] NSWCA 121 at [10] and the authorities there cited. Here, the joint offer was not an offer "capable of acceptance" by either appellant. In Rafferty v Time 2000 West Pty Ltd [2010] FCA 873; 87 IPR 593, Besanko J concluded that it was not appropriate to make an order for indemnity costs based on offers of compromise relying upon the principles in Calderbank where a joint offer is made to independent parties and it was not open to one party to accept the offer unless the other also accepted: at [21] and [33].
If, contrary to the above reasoning, the particular cost consequences stated in r 42.15A and r 42.14 were applicable in the present case to the appeal and cross-summons, respectively, it would be appropriate, in my view, for the Court to exercise its discretion to "order otherwise". It is well-established that in circumstances such as the present, where no significant compromise at all is made by a party to an appeal, the prima facie result provided for in the UCPR will not be applied. The position is well-explained in Taheri v Vitek (No 2) [2014] NSWCA 344 at [9]-[11]: However, as the appellant's submissions point out, the offers made on 17 July and 10 December 2013 in large measure invited capitulation by the appellants in each appeal. There is no evidence before the Court as to the costs incurred by the respondents at those times (some three weeks after the commencement of the first appeal, and seven days after the commencement of the second appeal). It would be expected that virtually no costs would have been incurred by those times. In our view, it would not be appropriate for the non-acceptance of either of those offers to lead to the consequences for which Pt 42, r 42.15 provides. The only measure of compromise involved on the part of the respondents was not to seek their costs which could not, by that stage, have been significant: cf Botany Bay City Council v Latham (No 2) [2013] NSWCA 450 at [12] (Adamson J, Ward and Leeming JJA agreeing). If that were not so, then the rule could be engaged by a defendant (or a respondent to an appeal) early in the litigation making a "walk-away" offer of compromise; that would not serve the public policy of encouraging settlement. For the same reasons, if the correspondence of 17 July and 10 December 2013 be treated in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333, the same result obtains.
There is no evidence before the Court as to what costs had been incurred by the Bischoffs at the time of the offer. On any view, virtually no costs would have been incurred with respect to the appeal. The only step apparently taken by the Bischoffs was the filing of an appearance. The position is similar for the cross-summons; the costs incurred in preparing, filing and serving it would probably not have been significant.
The Bischoffs have not demonstrated that the present appeal and cross-summons are materially different to the position in Taheri v Vitek (No 2).

What order for costs should be made?

Costs should follow the event of the appeal and cross-summons, unless it appears to the Court that some other order should be made as to the whole or any part of the costs: UCPR r 42.1.
The appellants contend for a different order. They submit that the costs liabilities of the respective "camps" would effectively cancel each other out. This is not entirely accurate. The failure of Mr Smith's appeal against the Bischoffs (which only concerned the malicious prosecution claim) is only matched by the corresponding failure of the Bischoffs against Mr Smith on the cross-summons regarding the costs orders below. Further, Mr Smith was not a cross-defendant party to the Bischoffs' cross claim against Mr Sahade for damages for trespass. Nonetheless, elements common to Mr Smith's and Mr Sahade's failures on appeal were substantial, as demonstrated by their common representation and the presentation of the appeal. Their respective malicious prosecution claims were based on essentially the same evidentiary materials and raised the same issues. Accordingly, the unsuccessful appeal by Mr Smith did not add in any material way to the costs burden of the Bischoffs.
The appellants also contend that the time and expense involved in quantifying separate costs orders would be contrary to the objects of elimination of delay and proportionality of costs as stated in s 59 and s 60 of the CP Act.
The Bischoffs seek an order for a substantial proportion of their costs in this Court on the basis that greater time was spent on the appeal than the cross-summons. They point to the much smaller number of paragraphs in the judgment of the Court dealing with the cross-summons as being indicative of the time spent on the cross-summons. I do not agree. Costs are not to be assessed by counting up paragraph numbers in a judgment.
However an examination of the parties written submissions and the transcript of the hearing provides stronger support for the Bischoffs' submission. The appellants' written submissions on the appeal are double the length of the Bischoffs' submissions on the cross-summons. The transcript of the hearing indicates that the hearing time devoted to the cross-summons was significantly less than the time devoted to the appeal; about one-tenth of the hearing related to oral argument on the cross-summons. In these circumstances, it can be anticipated that the costs of the appeal would well exceed the costs of the cross-summons.
Notwithstanding the further expense in quantifying their respective entitlements if orders are made that costs follow the event of the appeal and the cross-summons, the appellants have not demonstrated that a different order should be made.
Since the parties have each had some success and some failure on the costs application, in my view, it is not appropriate that any party pay the other party's costs of the costs application. Accordingly, the orders that I propose are as follows: 1. The appellants to pay the respondents' costs of the appeal, 2. The cross-applicants to pay the cross-respondents' costs of the cross-summons. 3. Each party to bear their own costs of this application for costs.
BEECH-JONES J: I agree with Gleeson JA.

At a glance

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