On 30 September 2014 I gave judgment in favour of the defendants in proceedings commenced by Mrs Blaga Stambolziovski (see Stambolziovski v Nestorovic (No 2) [2014] NSWDC 292), and made orders for the defendants' costs to be paid by Mrs Stambolziovski. Order (5), made on that day, was in the following terms:
"(5) I defer entry of any order in respect of costs for 14 days and thereafter until further order in the event that any party seeks to argue that a different costs order should be made."
The first defendant, Lilly Nestorovic, made an application for a special costs order relying upon an offer of compromise dated 29 November 2013 which was the subject of further correspondence on 9 April 2014 remaking that same offer. The offer of compromise dated 29 November 2013 was in the following terms:
"Defendant's offer of compromise in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW), the first defendant makes an offer to compromise the plaintiff's claim in this proceeding on the following terms:
1. Judgment for the first defendant.
2. Each party to pay its own costs.
This offer remains open for acceptance for 28 days from the date of this offer of compromise."
The covering letter of that offer stated:
"We enclose by way of service an offer of compromise. The offer is made without prejudice except as to costs and interest.
The offer remains open for 28 days from the date of this letter."
The letter bore the same date, 29 November 2013. The letter also recorded "by facsimile" and recorded a facsimile number. There was no issue that the document was received on that same date by facsimile, and that service of the offer of compromise occurred on 29 November 2013.
On 9 April 2014 a further letter was sent by the solicitors for Ms Nestorovic which stated:
"We are instructed to offer to settle the plaintiff's claim on the terms set out in our client's offer of compromise dated 29 November 2013. The offer will remain open for 28 days from the date of this letter."
Ms Nestorovic sought an order that the costs order in her favour made on 30 September 2014 be amended to add words to the existing order. The existing order states: "Plaintiff to pay the first defendant's costs of the proceedings." The substance of Ms Nestorovic's application is to amend that order so that it would read:
"Plaintiff to pay the first defendant's costs of the proceedings on the ordinary basis save that those costs are to be paid on an indemnity basis from 29 November 2013".
In view of r 42.15A(2)(b)(i), which provides that the costs are to be assessed on an indemnity basis from the day following the day on which the offer was made, an indemnity costs order based on Ms Nestorovic's offer of compromise could not commence until 30 November 2013.
Ms Nestorovic submits that she has made an offer in accordance with the rules and that she is entitled to the benefit of r 42.15A of the Uniform Civil Procedure Rules 2005 because the proceedings by Mrs Stambolziovski were dismissed and judgment was given in Ms Nestorovic's favour.
Rule 20.26 provides:
"20.26 Making of offer
(cf SCR Part 22, rules 1A, 2, 3 and 4; DCR Part 19A, rules 1, 2, 2A, 3 and 4; LCR Part 17A, rules 2 and 5)
(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.
(3) An offer under this rule may propose:
(a) a judgment in favour of the defendant:
(i) with no order as to costs, or
(ii) despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or
(b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or
(c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer.
…
(5) The closing date for acceptance of an offer:
(a) in the case of an offer made two months or more before the date set down for commencement of the trial - is to be no less than 28 days after the date on which the offer is made, and
(b) in any other case - is to be such date as is reasonable in the circumstances.
…"
Rule 42.15A provides:
"42.15A Where offer not accepted and judgment no less favourable to defendant
(cf SCR Part 52A, rule 22; DCR Part 39A, rule 25; LCR Part 31A, rule 20)
(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."
Mrs Stambolziovski submits that although Ms Nestorovic has established a prima facie entitlement to an order under r 42.15A, nevertheless, questions of reasonableness are relevant to whether, in my discretion, I should make the order sought.
Reference was made to the decision of Hall J in Simmons v Rockdale City Council (No 2) [2014] NSWSC 1275 at [51]-[54], where his Honour says:
"(a) Principles
[51] In accordance with the Uniform Civil Procedure Rules, an offer of compromise creates a prima facie entitlement to indemnity costs, as to which the offeree must establish a basis for some other order: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 at [33]. It has been stated that exceptional circumstances are required and it is insufficient merely to show that the offeree acted reasonably in refusing the offer: Nominal Defendant v Hawkins [2011] NSWCA 93 at [56].
[52] However, the Court of Appeal in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 considered that:
'...Rules 42.14, 42.15 and 42.15A are in different terms. They provide that, when the relevant costs rule is engaged, a party is entitled to indemnity costs from a specified time (usually one day after an offer of compromise is made), 'unless the court orders otherwise' (emphasis added). The relevant provisions of these rules do not specify that exceptional circumstances or the avoidance of substantial injustice must be established before the court will make a different order to the prima facie order for which the rules provide and, in our opinion, the rule should not be so construed. Rather, the discretion is one that has to be exercised having regard to all the circumstances of the case.' (at [15]) (emphasis added (by Hall J))
[53] In Sydney Attractions Group Pty Ltd v Frederick Schulman (No 3) [2013] NSWSC 1544, Sackar J at [31] observed:
'Although it is suggested in a number of authorities that there must be "exceptional circumstances" before a court may order otherwise, I think the use of that expression in the earlier authorities is simply to recognise that there does exist a general rule providing for indemnity cost consequences, and therefore "the case needs in some way to be exceptional ... because the general rule is that provided for in the rule itself" (Kirby P in Hillier v Sheather at 422). In my view, the words "exceptional circumstances" used in the earlier cases indicate that there must be some reason or ground for a court to make an order departing from the general indemnity cost consequences, but those words do not suggest that the case must be extraordinary, nor do they suggest a particular degree of difficulty in persuading a court to 'order otherwise'.'
(b) Reasonableness in Not Accepting the Offer of Compromise
[54] Accordingly, the reasonableness of a party (offeree) refusing an offer remains an important feature in determining whether an order for indemnity costs should be made. The reasonableness must be assessed as at the date of the offer and without the benefit of hindsight: Barakat v Bazdarova [2012] NSWCA 140 at [51]. This matter was also considered by the Court of Appeal in Noon v Bondi Beach Astra Retirement Village Pty Ltd (No 2) [2010] NSWCA 285 at [11]:
'The appellants' submissions amounted to little more than that their ultimate success meant that it was unreasonable for the respondents not to have accepted the offer. That is incorrect reasoning. Reasonableness is not to be determined with hindsight; rather, the strength or otherwise of the appellants' claim should be considered prospectively as at the time of the offer (for example, Gretton v Commonwealth of Australia [2007] NSWSC 149 at [24]). A claimant can reasonably seek to have a claim determined in court, although ultimately it fails, rather than accept an offer of much less than that which success would bring.'"
In that case his Honour decided at [63] that the plaintiff's failure to accept the offer of compromise was not to be regarded as unreasonable.
Mrs Stambolziovski submitted that as at November 2013 she was not in a reasonable position to consider the offer and the offer was not reasonable at the time. The basis of this submission was said to be that there were two defendants and neither of them had conceded liability so this was not a case where Mrs Stambolziovski should have just proceeded against the second defendant. However, this does not appear to be a reason which renders an offer of compromise unreasonable.
As at November 2013 Mrs Stambolziovski knew that the defendants were denying liability. Nothing was identified in the evidence to indicate that it was reasonable for Mrs Stambolziovski to reject the offer. I am not persuaded that the fact that there were two parties denying liability is sufficient to establish unreasonableness in the offer. I accept that the question of reasonableness is relevant to the exercise of my discretion in accordance with Simmons.
One other matter mentioned in Simmons at [68] was whether there was a reasoned explanation of the deficiencies in the plaintiff's case. That is a matter that would operate in favour of Ms Nestorovic if it were present. But in this case there is no reasoned explanation of the deficiencies in Mrs Stambolziovski's case. Rather, the correspondence merely refers to the existence of the offer of compromise.
Another matter of importance that Ms Nestorovic must establish is that the offer of compromise represents a genuine compromise. This factor is particularly apposite since the offer does not propose any payment by Ms Nestorovic but only that she will pay her own costs and obtain judgment in her favour.
Rule 20.26(3) provides that an offer under the rule may propose a judgment in favour of the defendant with no order as to costs. In the present case, that form of words was not adopted by Ms Nestorovic, rather she stated "Each party to pay its own costs".
In certain circumstances that different form of words may produce a different result, but it was not pressed by Mrs Stambolziovski that they did so in the present case. I accept that the words adopted by Ms Nestorovic are, in substance, the same as the permissible words referred to in r 20.26(3)(a)(i). The offer in Simmons was almost identical in terms to the offer in this case; namely that "each party to pay their own costs" and no issue was taken about the difference between that form of words and the words that appear in r 20.26(3)(a)(i). Matters of substance should take precedence over matters of form: an order that each party bear their own costs should be treated as equivalent to an order that there be no order as to costs. Nor does such a form of words appear to offend the provision in r 20.26(2)(c) that the offer "must not include an amount for costs and must not be expressed to be inclusive of costs".
Does the offer represent a genuine compromise by Ms Nestorovic? This depends upon how much Ms Nestorovic is giving up if the offer were to be accepted. It is apparent that she is giving up some possible future entitlement to recover her costs already incurred. There was no evidence before me as to the amount of costs incurred by Ms Nestorovic as at the date of the offer of compromise. The offer was made sometime after a defence and an amended defence had been filed. I was also referred to an expert report dated August 2013, some months before the first offer of compromise. Thus, the expenditure of Ms Nestorovic must have included at least the cost of filing a defence and obtaining an expert report.
On the other hand, given that the proceedings lasted the best part of three weeks, the difference between the costs incurred by Ms Nestorovic as at the date of the offer of compromise and the irrecoverable component of costs after a lengthy trial may be small or non-existent. It might not be enough to constitute a genuine compromise if the offeror is offering a settlement which puts her in a more favourable position financially (bearing in mind costs and the irrecoverable component of costs) than she would be in if the proceedings ran to a successful conclusion.
Although neither party raised the matter, it also seems to me to be appropriate to consider the circumstance that Mrs Stambolziovski failed because of a finding in the judgment in favour of Ms Nestorovic's witnesses as to the cause of the accident. Mrs Stambolziovski's evidence of how the accident occurred was rejected.
Mrs Stambolziovski raised the matter of there being two parties. I note that r 20.26(2)(a)(i) requires that an offeror "must identify…the claim or part of the claim to which it relates".
In [20.26.20] of Ritchie's Uniform Civil Procedure NSW, the following passage appears:
"If the offer is expressed to apply to a plaintiff's singular claim, and there are multiple claims pleaded, the offer will not comply with the requirements of UCPR r 20.26(b)."
This passage relates to r 20.26(2)(a) notwithstanding the reference to paragraph (b). If this reference in Ritchie's is meant to be a reference to 20.26(2)(b) then there is some uncertainty as to whether Ms Nestorovic's offer needed to deal with the residue of the proceedings against the second defendant. That might seem to be an unlikely construction of the provision. However, a rule that an offer will not comply if it is expressed to apply to a singular claim and there are multiple claims pleaded will impact upon the offer in the present case.
There is a claim against Ms Nestorovic and a second defendant. It seems proper to describe it as being "multiple claims pleaded".
Is the offer expressed to apply to a singular claim? The offer refers to "the plaintiff's claim in this proceeding," not, for example, "the plaintiff's claim against the first defendant in this proceeding". But to construe the offer as an offer to settle the claim against the second defendant would seem to be a construction which is unreasonable. A reasonable construction would construe the offer as applying only to the claim against Ms Nestorovic. That may lead to the conclusion that it offends any rule in the terms quoted from Ritchie's. There may also be an uncertainty as to whether, by accepting the offer, Mrs Stambolziovski is compromising the whole of her claim in the proceedings, including the claim against the second defendant.
The presence of the second defendant has another impact. Order (4) made on 30 September 2014 provided: "All cross-claims dismissed with no order as to costs". There was no dispute that there were "cross-claims" in the proceedings involving each of the defendants. Thus, settlement of the proceedings between Ms Nestorovic and Mrs Stambolziovski would not remove Ms Nestorovic as a party. She would remain a cross-defendant. That is a relevant matter in determining whether indemnity costs should be ordered. There is no particular reasonableness in accepting an offer to let one party out of the proceedings in the terms of the offer of compromise if the party in fact is not let out of the proceedings but remains potentially liable, though indirectly, by means of a cross-claim. It would also follow that acceptance of the offer would not necessarily have saved any costs in the proceedings, a fundamental objective of the offer of compromise procedure.
There is one other matter of potential significance. Rule 20.26(5) requires that, "The closing date for acceptance of an offer… is to be no less than 28 days after the date on which the offer is made". In this case, both offers were open to be accepted "for 28 days from the date" of the letter containing the offer of compromise. It was common ground between the parties that the closing date for acceptance of the various offers of compromise was the date being the 28th day after the date of the letter. In the case of the offer of compromise of 9 April 2014, for example, the offer needed to be accepted on or before 7 May 2014.
Rule 1.11 is as follows:
"1.11 Reckoning of time
(cf SCR Part 2, rule 2; DCR Part 3, rule 1; LCR Part 4, rule 1)
(1) Any period of time fixed by these rules, or by any judgment or order of the court or by any document in any proceedings, is to be reckoned in accordance with this rule.
(2) If a time of one day or longer is to be reckoned by reference to a given day or event, the given day or the day of the given event is not to be counted."
In my view, that provision does not add an additional day to that provided by r 20.26(5) but rather indicates that the term "after" in r 20.26.(5)(a) specifies no different period than had the alternative term "from" been used in the provision. The time begins at the beginning of the following day in accordance with r 1.11(2). That means that in this case it was common ground that the 28th day after the date on which the offer was made is the closing day for acceptance.
The difficulty is that r 20.26(5) provides that the closing day for acceptance of an offer is to be no less than 28 days. Requiring acceptance on (or before) the 28th day might not be setting a period for acceptance which is "no less than 28 days".
However, it might also be submitted that r 1.11(1) applies to the "offer of compromise" as being "any document in any proceedings" so that the offer of compromise must be construed in the same way as the rule. Correspondence between the parties in relation to litigation may be a "document" in the proceedings. That was not an argument that was raised before me.
In relation to costs, the relevant circumstances include the existence of another party, the presence of cross-claims, the seeming likelihood of Ms Nestorovic remaining in the proceedings even if her offer was accepted, the uncertainty as to whether the offer represented a genuine compromise since it did not involve a payment in any form by Ms Nestorovic to Mrs Stambolziovski, the absence of a reasoned explanation of the deficiencies in Mrs Stambolziovski's case and the absence of evidence that compared the amount of costs incurred up to the date of the offer or that might have been expected by November 2013 to have been incurred with the amount of costs that were actually incurred. These circumstances do not support an indemnity costs order.
Accordingly, I do not propose to make an order in respect of indemnity costs. I propose to confirm the order that I made on 30 September 2014.
Mrs Stambolziovski makes an application that her costs of Ms Nestorovic's application for indemnity costs should be paid by Ms Nestorovic on the basis that Mrs Stambolziovski was successful on the application in resisting an order for indemnity costs. She referred to the ordinary rule in r 42.1 dealing with costs following the event.
Rule 42.7 also potentially has application. It indicates an inclination for costs in any application or step in the proceeding to be paid in the same way as the general costs order of the proceedings.
That Ms Nestorovic was not successful on this application provides some support for a costs order in favour of Mrs Stambolziovski for the costs of today. On the other hand, the question of whether an indemnity costs order should be made in circumstances where there is an offer of compromise which, for discretionary reasons, did not warrant a special costs order is a matter that I take into account on the question of what particular rule should apply.
Bearing in mind the provisions of rr 42.1 and 42.7, the circumstances of the rejection of Mrs Stambolziovski's claim in the proceedings and the discretion that I have exercised to refuse indemnity costs, it seems to me the proper course in respect of today's application is that there be no order for the costs of today, with the intent that the costs of the application for the special costs order do not fall within the terms of the costs ordered on 30 September 2014.
Accordingly, the orders of the Court are:
1. Dismiss the application for indemnity costs and I confirm the costs orders made on 30 September 2014.
2. Order that there be no order in respect of the costs of today with the intent that these costs do not fall within the terms of the costs ordered on 30 September 2014 but that each party bear their own costs of today.
[2]
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Decision last updated: 19 August 2015