In these proceedings, the court handed down its reasons for decision on 27 November 2019: Salih v Emirates (No 2) [2019] NSWDC 715 ("Judgment"). The plaintiff had unsuccessfully sought damages for an injury sustained by her during a flight with the defendant aircraft carrier on 31 October 2016.
On 27 November 2019, the court made the following orders:
1. Judgment for the defendant.
2. The plaintiff is to pay the defendant's costs as agreed or assessed.
3. Any application to vary the costs order in (2) above should be made within 14 days.
4. Exhibits to be returned in 28 days.
When the reasons for decision were published, the legal representative for the defendant, Mr B Lord, made an oral application for an indemnity costs order against the plaintiff from 11am on 2 October 2019. In support of the oral application, the defendant tendered a letter from the defendant's solicitors to the plaintiff's solicitors dated 1 October 2019 indicating that the defendant's solicitors had been instructed to offer settlement of the proceedings on the following basis:
1. Judgment for the plaintiff in the amount of $10,000; and
2. The defendant will pay the plaintiff's costs of the proceedings.
The offer was stated in the letter to be open for written acceptance until 9am on Wednesday 2 October 2019. It was stated that the offer was made on the basis that the costs order of the court, the subject of a certificate of determination dated 13 May 2019 and the defendant's entitlement to interest on the unpaid costs, would not be waived. Annexed to the letter was a Certificate of Determination of Costs dated 13 May 2019 pursuant to which the amount payable by the plaintiff, Mrs Salih, to the defendant, Emirates, was $14,320.43. It was stated in the offer letter that the defendant reserved its right to produce the letter dated 1 October 2019 to the court in relation to any issue as to costs (including indemnity costs) in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 WLR 586.
A number of factual matters relevant to the application should be set out:
1. The final hearing of the matter commenced on Tuesday 1 October 2019;
2. On 1 October 2019, counsel for the plaintiff opened the case, a number of admissibility arguments were made and determined with ex tempore judgments given by the court relating to them and the court took some time to read the two bundles of documents tendered including medical reports and consultation notes which became Exhibit A and Exhibit 1 in the proceedings;
3. The court also allowed some time to the parties to continue discussions in an attempt to settle the proceedings: see T1.16-.31. The court encouraged the parties to resolve the matter if they could: T3.6. Ultimately, the matter did not settle and the hearing continued until 4 October 2019 and oral submissions were made on 8 November 2019;
4. The defendant served an affidavit of Christopher Danker on 30 September 2019 which provided factual evidence in relation to the procedures adopted by the defendant in inspecting the defendant's aircraft and correcting defects. Initially, the plaintiff objected to the affidavit: T23.46-T24.29. Counsel for the plaintiff indicated that the affidavit was served on 30 September 2019 but the contents of the annexures which became significant in the proceedings were served on 27 September 2019. The court did not hear full submissions on the final admissibility of the affidavit: T26.39. In due course, the plaintiff did not require Mr Danker for cross-examination in relation to his affidavit and it was read in a limited form: T54.49-T55.5;
5. The court placed some reliance on Mr Danker's affidavit in its reasons for decision: Judgment paragraphs 123-126, 170-172 and 179.
In the costs application, the defendant sought the following orders:
1. The plaintiff pay the defendant's costs on the ordinary basis up to and including 1 October 2019;
2. The plaintiff pay the defendant's costs on an indemnity basis from 11am on 2 October 2019.
No written submissions were served by the plaintiff responding to the application despite orders as to the service of submissions being made on 27 November 2019. Leave was granted to the plaintiff on 13 December 2019 to file submissions responding to the defendant's written submissions. As a result, short submissions were received from the plaintiff dated 15 December 2019. These were served late but no objection was made to the court considering them. The defendant had earlier filed submissions dated 11 December 2019.
[3]
Relevant legislation
Section 98(1) and (2) of the Civil Procedure Act 2005 (NSW) provide as follows:
"98 Courts powers as to costs
(1) Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.
(2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court."
Part 42(1) of the Uniform Civil Procedure Rules 2005 provides as follows:
"42.1 General rule that costs follow the event
Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs."
In Zhang v Harmstorf (No 2) [2019] NSWDC 116 I set out the principles applicable to Calderbank offers where a judgment has been obtained by a plaintiff which is for a greater sum than an offer. The principles were considered in the context in which an indemnity costs order was sought for a plaintiff. In my view, similar principles apply in the context where an indemnity costs order is sought by a defendant.
In paragraphs 8-12 of Zhang the following was stated:
[8] The rejection of a Calderbank offer by a party does not mean that indemnity costs follow as a matter of course. The applicant must demonstrate to the court that the rejection of the offer was "unreasonable" in all the circumstances of the case: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19]; Jones v Bradley (No 2) [2003] NSWCA 258 at [12]; Russell v Edwards (No 2) [2006] NSWCA 52 at [8]; Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [7].
[9] In NRMA Insurance for the Nominal Defendant v Al-Bayati (No 2) [2019] NSWCA 14, the Court of Appeal stated in paragraph 10 as follows:
"[10] The party making an offer of compromise or Calderbank offer bears the onus of satisfying the court that it should exercise the costs discretion in its favour: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61; Commonwealth of Australia v Gretton [2008] NSWCA 117 at [46]; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No 2) [2008] NSWCA 273 at [31] ..."
[10] In Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344, Basten JA (with whom McColl and Campbell JJA agreed) stated as follows at paragraphs [8]-[16]:
[8] The willingness of the courts to take account of a "without prejudice" offer of settlement in disposing of costs was originally tempered by the view that the practice should only be adopted where the alternative of a payment into court was unavailable: Cutts v Head [1984] Ch 290. The practice was, however, adopted in this jurisdiction without the restriction: Messiter v Hutchinson (1987) 10 NSWLR 525 (Rogers J); SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [45] (Giles JA). The expansion of formal rules providing for offers of compromise has not diminished the willingness of the courts to act upon informal offers, rather the contrary. However, there is no presumption that an offeree who does not accept an offer and does not obtain a judgment more favourable than the offer will necessarily pay indemnity costs from the date of the offer: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] (Santow JA, Stein AJA agreeing); Jones v Bradley (No 2) [2003] NSWCA 258 at [6]-[9]; Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; 67 NSWLR 719 at [18]. The approach frequently adopted in this jurisdiction has been to ask two questions, namely whether -
(a) there was a genuine offer of compromise, and
(b) it was unreasonable for the offeree not to accept it.
Genuine offer of compromise
[9] There is authority for the proposition that both an offer of compromise under the rules and an informal offer must involve "a real and genuine element of compromise": Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; 67 NSWLR 706 at [8]. While this terminology is not entirely apposite, it has been described as "serviceable": Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [25] (Spigelman CJ, Beazley and McColl JJA). To characterise an offer by reference to epithets such as "real" or "genuine" adds little to the requirement of compromise, and may imply (wrongly) that the appropriate inquiry is as to the subjective intentions of the offeror: Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 at [23] (Ipp, McColl and Basten JJA); Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 at [17]-[18]. As explained by Giles J in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368:
Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so.
Unreasonable refusal
[10] Most cases will turn on the second element, namely whether there has been an unreasonable refusal by the offeree. This in turn involves a number of considerations.
(a) timing
[11] It is not in doubt that the response of the offeree must be assessed at the time it was made, and not with the benefit of hindsight resulting from a known outcome, recorded in a judgment: Regency Media at [33]. However, that factor should not entail a detailed investigation into the state of preparation or knowledge of the offeree as at the date of the offer. The expense and use of resources which settlement is intended to avoid include those involved in the assessment and preparation of a case.
(b) relevant factors
[12] In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 the Court of Appeal (Warren CJ, Maxwell P and Harper AJA) identified the factors relevant to determining whether the rejection of an offer was unreasonable as including the following:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree's prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed;
(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.
[13] The court rejected the suggestion that an offer need set out with specificity the bases upon which it was said that the offeree should accept the compromise proffered. The relevance of such material would depend upon the extent to which the issues had already been canvassed, for example by way of pre-litigation correspondence, and whether there were circumstances with which the offeror might reasonably expect the offeree not to be conversant. In some circumstances greater leniency may be accorded to a defendant offeree at an early stage of proceedings, than to a plaintiff offeree.
[14] The extent of the compromise offered will always be a relevant factor in determining the reasonableness of the offeree's rejection. In Robb Evans & Associates an offer in compliance with the UCPR, r 20.26, involved an effective amount (after deducting a sum as to which there was no dispute) of less than $2,000 to settle a claim in excess of $800,000. The court stated:
[20] … If the offer were based on a legal assessment of the likelihood of success in an amount in excess of $800,000, the claim should have been struck out as frivolous and vexatious. It ultimately failed in this Court, but could not, on any view, be so categorized. It is implausible that the appellant so categorized it in quantifying his offer.
[21] If the appellant had carried out a commercial evaluation, rather than a pure legal assessment of the likelihood of success, he would undoubtedly have concluded that, even if ultimately successful, he would be unlikely to recover many thousands of dollars of costs incurred if the litigation proceeded. A commercially based offer would have taken that matter into account. This offer clearly did not.
…
[23] … The amount offered, beyond that amount which was not in dispute, is properly characterized as trivial or contemptuous. It does not engage the costs consequences provided by r 42.15.
[15] A similar approach was applied in Regency Media, where an offer of $10,000 was made in response to a claim of approximately $600,000: at [16]. The court noted at [32]:
If a derisory offer, of the kind made in these proceedings, could result in an order for indemnity costs, then it is likely that many, perhaps most, contract interpretation disputes would result in an indemnity costs order, if the formality of an offer in accordance with the rules had been made at an early stage. If the appellant were to succeed in the present case, it is quite likely that such an offer would accompany most statements of claim as a matter of commercial practice. The purpose of the special order - to encourage settlement - would no longer be served. An order for indemnity costs could, in our opinion, become the normal order in many commercial disputes.
(c) onus of proof
[16] The general rule is that costs payable under an order of the court are to be assessed on the ordinary basis: UCPR, r 42.2. The court may otherwise order, but the burden of persuading the court will lie with the offeror: Black v Lipovac [1998] FCA 699; 217 ALR 386 at [217] (Miles, Heerey and Madgwick JJ), which has been regularly followed in the Full Court - see, eg, CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75] (Moore, Finn and Jessup JJ). Again, however, the reference to onus of proof is not intended to suggest that an application for indemnity costs be turned into a mini-trial. Generally, such applications are dealt with on the papers, a practice which should be maintained. It is nevertheless correct, as a matter of principle, to say that it is the offeror which must persuade the court that the rejection of the offer was, in the circumstances at the relevant time, unreasonable.
[11] The Miwa decision has been followed in numerous later cases: see Hanna v Raoul [2018] NSWCA 201 at [154] per Beazley P and Ku-ring-gai Council v Chan (No 2) [2018] NSWCA 73 at [6]. The Miwa case was relied on by both parties in their written submissions.
[12] The principles applicable therefore appear to be as follows:
(a) A party who is forwarded an offer who does not accept an informal Calderbank offer and thereafter obtains a judgment which is less favourable than the offer made will not necessarily be required to pay indemnity costs to the offeror from the date of the offer;
(b) Whether indemnity costs should be awarded to the offeror depends on first, whether there has been a genuine offer of compromise and secondly, whether in all the circumstances it was unreasonable for the offeree not to accept the offer;
(c) A number of factors are relevant. These include the following;
(d) The stage of the proceedings at which the offer was received and whether the offeree was conversant with the issues in the case;
(e) The extent of the compromise offered;
(f) Whether the amount offered was properly characterised as trivial or contemptuous;
(g) The time allowed to the offeree to consider the offer;
(h) The offeree's prospects of success, assessed as at the date of the compromise;
(i) The clarity of the offer; and
(j) Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it."
I will consider the application of these principles further below.
[4]
Submissions of the parties
The parties have relied on written submissions.
In its written submissions dated 11 December 2019, the defendant submitted, in general summary, as follows:
1. In paragraph 1 of the written submissions, it is stated that the defendant seeks an order for indemnity costs pursuant to Rule 42.15A of the Uniform Civil Procedure Rules ("UCPR"). In my view, this rule is clearly inapplicable to the current application. Part 42.15A of the UCPR applies to Offers of Compromise. The offer in the present case did not constitute a formal offer of compromise under the UCPR: see Part 20.26 and Part 42.13. It was not stated to be an Offer of Compromise under the UCPR. Accordingly, the offer could only be seen as a Calderbank offer;
2. A Calderbank offer is to be considered in the exercise of the court's discretion in awarding costs. This must be exercised having regard to informal offers of compromise that have been made;
3. The question is whether the rejection of the compromise offer was reasonable in the circumstances including the time frame in which the offeree had to consider the offer, whether the letter of compromise explicitly stated that the offer was made in Calderbank terms, the exact conditions of the offer and whether it was stated that indemnity costs would be pursued if the offer was rejected;
4. The defendant's offer was a genuine offer of compromise which attempted to bring the proceedings to an end. The time allowed had to be considered in the light of an offer of compromise served by the plaintiff on 1 October 2019 which was open for acceptance until 9.30am on 2 October 2019. The short period was appropriate as the offer was made after the first day of the hearing. I note that this offer was not included with the submissions and was not part of the evidence before the court;
5. If the plaintiff had accepted the offer the subject of the application, a prolonged hearing could have been avoided;
6. The plaintiff's rejection of the offer was unreasonable in circumstances where all the evidence relating to whether the incident on board the aircraft constituted an "accident" under Article 17 of the Montreal Convention had been served. This clearly demonstrated that the plaintiff's case did not meet the requisite threshold.
The plaintiff submitted, in general summary, as follows in response:
1. The indemnity costs application should be rejected. The time allowed to consider the offer was very limited and did not allow "any real time for serious consideration";
2. An offer had been made by the plaintiff on 19 September 2019 to settle for $49,000 plus costs which was far closer to the court's assessed damages;
3. The plaintiff, having regard to her offer, was not being "unrealistic, perverse or greedy";
4. The costs order already made should not be altered.
[5]
Consideration
I will proceed to consider the various factors which have been referred to in the authorities set out above, particularly Miwa:
1. The stage of the proceedings at which the offer was received and whether the offeree was conversant with the issues in the case: The offer was received by the plaintiff's solicitors on the first day of the trial, 1 October 2019. Accordingly, the plaintiff should be inferred as being conversant with the issues in the case when the offer was received and she had her legal representatives available to give her advice in relation to the offer. In these circumstances the short period to consider the offer is not decisive against the offer. The plaintiff had also made her own offer of compromise in September 2019 (Exhibit A on the application) showing she was "armed with sufficient information to make a reasoned judgment of the offer": see Gray v Hobson (No 2) [2018] NSWCA 131 at [7];
2. The extent of the compromise offered: The defendant had put in issue whether there was an "accident" within Article 17.1 of the Montreal Convention. At the time that the offer was made, the defendant had served the annexures to Mr Danker's affidavit a number of days previously and the affidavit itself on 30 September 2019. In circumstances where there was to be a factual issue between the parties as to the accident and strongly different views had been expressed as to the injuries arising out of the accident, the defendant offered a limited settlement amount of $10,000 plus costs. However, importantly, the defendant indicated that its entitlement in relation to a costs order previously made in the proceedings would not be waived. While this was a separate matter and the defendant was legally entitled to take that approach, the effect of the terms of the offer made was that the plaintiff would be liable to pay the defendant $4,320.43 (the $10,000 in the offer being subtracted from the Certificate of Determination of Costs dated 13 May 2019 amount of $14,320.43). Relevantly, the costs of the plaintiff were also offered to be paid. The settlement terms offered, effectively requiring the plaintiff to pay the defendant over $4,000, were accordingly in my view very modest and limited;
3. Whether the amount offered was properly characterised as trivial or contemptuous: I do not consider that the amount offered was contemptuous in all the circumstances. It was also not trivial such as an offer of $100. However, the amount offered has to be considered in the light of the existing costs order which is relevant and the claim made. In all the circumstances, the offer could reasonably be characterised as a very modest offer;
4. The time allowed for the offeree to consider the offer: A very short period was allowed for the plaintiff to consider the offer. There was no evidence as to when the offer was received on 1 October 2019. However, in the light of the fact that the offer was made on the first day of the trial, the plaintiff was present and she was represented by solicitors and counsel, the very short period the offer was open was not unreasonable in the circumstances;
5. The offeree's prospects of success, assessed as at the date of the compromise: The case was essentially largely a factual one on liability. The defendant had the benefit of Mr Danker's affidavit and the contemporaneous documents annexed to it. There was also the incident report: Judgment paragraph 12. The plaintiff gave oral evidence. The evidence obtained from the plaintiff's husband as to the mechanism of the opening of the relevant locker door after the accident was obtained in cross-examination. I assess the plaintiff as having reasonable but not good prospects of success as at the date of the offer. There were, however, extensive damages issues raised;
6. The clarity of the offer: In my view the offer was in clear terms;
7. Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it: The last sentence in the offer letter in my view made clear that an application for indemnity costs in the event that the plaintiff was not successful in the proceedings was adequately foreshadowed.
The rejection of a Calderbank offer by a party does not, of course, mean that indemnity costs follow as a matter of course. The applicant for costs, who bears the onus of satisfying the court that it should exercise the cost discretion in its favour, must demonstrate to the court that the rejection of the offer was "unreasonable" in all the circumstances of the case.
I find that the offer made was genuine. There is no basis to find or infer on the evidence that it was made purely to justify an indemnity costs application. In my view, the extent of the compromise was very limited in the present case when one takes into account the defendant relying on its previous costs order and costs determination. In practical terms, the extent of the compromise was objectively unattractive, although of course the defendant was entitled to maintain its previous costs determination. Nevertheless, in my view the entire position must be considered to determine whether the extent of the compromise offered was more than limited.
Having regard to the limited extent of compromise involved in all the circumstances, it requiring the plaintiff to pay the defendant over $4,000, in my view it was not unreasonable for the plaintiff to reject the offer made. In considering this matter, I take into account the evidence available as at the time the offer was made as to the accident and the quantum of the damages that I considered were established by the plaintiff if the plaintiff had been successful on liability.
For these reasons, taking into account all the evidence, in the exercise of my discretion I would reject the application for indemnity costs.
In relation to the costs of the application, I do not consider that the defendant's application was an unreasonable one. There were a number of factors supporting an indemnity costs order. In my preliminary view, the parties should each pay their own costs of the application.
Accordingly, I make the following orders:
1. The oral application of the defendant for indemnity costs is rejected.
2. The costs order made on 27 November 2019 is confirmed.
3. The parties should confer as to the costs of the application. If agreement is reached, proposed consent orders should be forwarded to the Associate to Dicker DCJ. If agreement cannot be reached, I grant leave to approach my Associate to relist the matter on 2 business days' notice.
[6]
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: 20 December 2019