Vagg v McPhee

Judgment 1BASTEN JA: On 22 February 2013 the Court dismissed the appeal in this proceeding: Vagg v McPhee [2013] NSWCA 29. Ordinarily, the appellants would have been ordered to pay the respondents' costs of the proceedings, to be assessed on the ordinary basis. However, on 27 February the respondents sought an order for costs to be assessed on an indemnity basis. 2The basis for the proposed order was twofold. First, it was said that the appeal was hopeless and dismissal inevitable. Secondly, reliance was placed upon an offer of compromise dated 4 July 2012. 3The first ground should be rejected. I agree with Tobias AJA that the case was not one in which it could be said that the appellants should have known they had no real prospects of success: cf Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; 81 ALR 397 at 401. 4The second basis for such an order depended on an offer of compromise. The application was not supported by an affidavit annexing the offer, but it was accompanied by a copy of the letter under cover of which the offer was served, a copy of the notice of offer of compromise and a transmission report to establish service. The letter stated that the offer was open for acceptance for a period of 28 days. The notice of offer made a similar statement, but with an additional clause, "that is, until 1 August 2012". 5The appellants contended that it was not open for 28 days because it stated it was open until 1 August, but could not have been accepted on 1 August and thus was open only for a period of 27 days. That submission is incorrect. There is no reason to suppose the offer could not have been accepted on 1 August. 6Tobias AJA notes, however, that it was not served on 4 July but on 5 July and accordingly the 28th day was 2 August. In fact, the notice was ambiguous in that it stated both a period and a date as to the end of the period, which proved to be inaccurate. Competent legal advisors on both sides would have known that the offer, to comply with the rules under which it was made, was required to be open for 28 days. It was expressly stated to be open for that period. Ambiguity should be resolved in favour of validity. If the appellants had been uncertain and it mattered to them, they could have sought clarification. They did not, nor did they seek to rely on the ambiguity in resisting the present application. The Court should not decide the issue on this basis unless the proper application of the law relating to practice and procedure requires it. In this case it does not. 7The real difficulty with the offer is that it did not purport to be a "compromise". It was a "walk away" offer, pursuant to which the respondents would forego any entitlement to their costs. Upon the original application there was no evidence that the respondents had incurred any significant costs by 5 July 2012, the date the offer was made. Unless they had then received and addressed the appellants' written submissions, it is probable that they would not have incurred significant costs and in particular costs beyond those which would have been irrecoverable even in the event of success, assessed on the ordinary basis. 8There is no reason to treat an offer as otherwise than in compliance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), merely because it was designed to trigger a costs sanction; on the other hand, if the offer, objectively viewed, does not involve any realistic element of compromise, it does not comply with the rules, understood according to their purpose: Hancock v Arnold (No 2) [2009] NSWCA 19 at [23]. For this reason, an offer which involves no element of compromise should be rejected as a basis for awarding indemnity costs, pursuant to UCPR r 42.15A, as applied in this Court by Pt 51, Div 8. 9This issue not having been addressed by the parties, the Court deemed it appropriate to allow them a further opportunity to address the question of compromise. By submissions filed on 29 April 2013, the respondent noted the following matters: (a) the notice of appeal raised a plethora of points and generated unnecessary costs from the outset; (b) the appellant's written submissions were filed on 21 May 2012; (c) an amended notice of appeal was filed pursuant to a direction of the Court on 20 June 2012, but resulted in minimal changes; (d) the respondent's submissions were filed on 29 June 2012. 10In these circumstances it was clear that significant costs had been incurred prior to the offer of compromise, made on 5 July 2012. The offer therefore satisfied the rules. There were no discretionary considerations which would warrant the Court departing from the prescribed result, namely that costs should be assessed on an indemnity basis from the date of the offer. 11The Court should make the following additional order: Order that the appellants pay the respondents' costs of the appeal to be assessed - (a) up to and including 5 July 2012, on the ordinary basis, and (b) from 5 July 2012, on the indemnity basis. 12WARD JA: As outlined in the reasons for judgment of Basten JA and Tobias AJA, the respondents in these proceedings have sought an order for costs on the indemnity basis following the dismissal of the appellants' appeal. The appellants do not resist an order for costs on the ordinary basis. 13Indemnity costs are sought on two bases: first, that the appeal was hopeless as a matter of law and, second, in reliance on an offer of compromise served in July 2012. 14I have had the benefit of reading the reasons for judgment prepared by each of Basten JA and Tobias AJA. For the reasons set out in those judgments I agree that the first ground on which indemnity costs are sought should be rejected. As to the second ground, I agree that the offer of compromise should be construed as being open for acceptance for the mandatory 28 day period (as stated in the Offer of Compromise itself and in the covering letter). 15I agree with Basten JA that ambiguity introduced by the inclusion in the Notice of Offer of Compromise by the words "that is, until 1 August 2012" (arising because, though dated 4 July 2012, it appears that the offer was not transmitted until 5 July 2012) should be resolved in favour of the validity of the offer, at least in circumstances where there was no evidence that the appellants had been uncertain as to the operation of the offer. In a different context, in Vieira v O'Shea (No 2) [2012] NSWCA 121 this Court said (at [22]) that "it would require a significant element of uncertainty to render the offer one which did not comply with r 20.26" (the question there being whether an offer to settle proceedings on the condition that a particular sum be paid could be understood as a compromise of the offeror's claim for damages and challenge to the costs order made at trial). Their Honours noted that there was no evidence that the offer had been understood in any other way. 16Here, the words "that is", read in a commonsense way, indicate what the offerors had calculated to be the end of the 28 day period but do not, in my view, detract from the clear statement that the offer was open for acceptance for a period of 28 days. Therefore, I agree with Basten JA and Tobias AJA that the offer was one that complied with the requirement under r 20.26(7)(a) that it be open for acceptance for that period. 17The question (on which submissions were invited, as this had not been raised in the costs submissions) was whether what amounted to a "walk away" offer contained a genuine element of compromise. 18In Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368, this Court considered an offer of compromise served by the defendants at an early stage of the proceedings, offering to settle a claim in the order of $600,000 by payment of the sum of $10,000. The Court accepted that an offer that was in substance an invitation to surrender could result in the successful triggering of the indemnity costs mechanisms under the Rules but added (at [31]), that "the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case" (referring to what was said by Basten JA in Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 at [20] and to Hancock v Arnold (No 2) [2009] NSWCA 19 at [17]). The Court noted that if it were otherwise, the public policy to encourage settlement would rarely be served in an all or nothing case. 19At [32], the Court made it clear that the purpose of encouraging settlement would not be served if derisory offers made at an early stage of proceedings (at least those involving a dispute as to the interpretation of a contract which could be said to be an all or nothing case as opposed to those involving a process of evaluation or assessment where the end result could vary over a range) were to result in indemnity costs orders. 20In the present case, as is clear from the chronology set out in submissions served for the respondents, by the time the offer of compromise was served most, if not all, of the costs of preparation for the appeal would have been incurred and the appellants had the benefit of the reasoned submissions of the respondents' Counsel as to why the appeal was bound to fail. 21The appeal was commenced on 19 March 2012. The appellants had failed at first instance (and were the subject of adverse indemnity costs orders). The Notice of Appeal raised numerous issues in relation to the factual and other findings made by the primary judge (on the face of which the appellants sought to canvass seriatim much, if not all of, the primary judgment - including the observation by her Honour at [98] that the difficulty with the claim they had advanced was apparent). An Amended Notice of Appeal was filed on 20 June 2012 deleting 10 of the 77 grounds of appeal (or 78, if the "[o]n any and such further grounds as the Court may find" is included). The respondents' submissions were filed on 29 June 2012. The offer of compromise was served, as noted earlier, on 5 July 2012 with the hearing of the appeal to commence on 4 February 2013. 22There was, therefore, ample time for the appellants to have considered the respondents' written submissions and to have formed an assessment as to the prospects of success of the appeal. Further, although the offer was in effect a "walkaway offer", it contained the necessary element of compromise in my view since it involved the respondents foregoing a claim to the costs they must by then have incurred in considering the Notice of Appeal, the appellants' submissions and the Amended Notice of Appeal and then in preparation of their submissions in response. While the appeal was not one that has been found to have been so hopeless that the appellants should have known it had no chance of success, in my view it was one the chances of success of which were slim (as the respondents submissions made clear). In those circumstances, it seems to me that it approaches the character of a claim that was frivolous or vexatious (of the kind referred to in Robb Evans at [20]) or one which, if the appellants chose to pursue it in the face of the offer that had been made for the respondents to bear their own costs, they did so at the risk of indemnity costs flowing from the non-acceptance of the offer. 23For those reasons, I agree that indemnity costs should be ordered having regard to the making of the offer of compromise in accordance with the Rules. It is in my view consistent with the public policy underlying the special costs rules to visit indemnity costs on the appellants in the circumstances of this case. 24Accordingly, I agree with the orders proposed by Basten JA. 25TOBIAS AJA: On 22 February 2013 the Court delivered judgment in this matter dismissing the appellants' appeal (Vagg v McPhee [2013] NSWCA 29). At the end of the argument on the appeal the respondents requested that, if the appeal was dismissed, they have the opportunity to make submissions on costs. Accordingly, the respondents were directed to file and serve any written submissions on costs within 7 days of the publication of the Court's reasons for judgment, the appellants to have a further 7 days to respond thereto. Each party has taken advantage of the opportunity so provided to them. 26The respondents seek an order for indemnity costs with respect to the appeal on alternative bases. Their primary position is that the appellants should pay the whole of the respondents' costs of the appeal on an indemnity basis upon the ground that the appeal was hopeless as a matter of law. Alternatively, they seek an order that the appellants pay the respondents' costs of the appeal on the ordinary basis up to 4 July 2012 and on an indemnity basis thereafter. 27With respect to the first basis upon which indemnity costs are sought, the respondents submitted that in order to succeed, the appellants needed to establish a wider duty of care on the part of solicitors to intended beneficiaries under a client's will than the duty then known to the law. Notwithstanding this limitation, the appellants maintained throughout the appeal that they did not seek to establish such an extended duty. Therefore they failed on that threshold point. Accordingly, the appeal was inevitably destined for defeat. 28The appellants responded by observing that although Basten JA held that no duty of care was owed by the solicitors to the appellants as intended beneficiaries in circumstances where the estate had an effective remedy, nevertheless he considered the distinction to be "unduly pedantic" albeit incapable of being ignored on the present state of the authorities. It was further submitted that I had similarly relied upon the unavailability of a duty of care to the appellants. As the case was ultimately argued as one of negligent advice provided by the solicitor, any relevant duty of care was owed only to the deceased and, therefore, to her estate. Nevertheless, I decided the matter on the basis that the solicitor was not negligent given the instructions that she had received from the deceased. 29Rule 42.2 of the Uniform Civil Procedural Rules 2005 (NSW) provides: Unless the court orders otherwise or these rules otherwise provide, costs payable ... under an order of the court ... are to be assessed on the ordinary basis. The issue in the present case is whether the Court should otherwise order. Relevantly, the respondents submitted that indemnity costs were justified as the appellants should have known that they had no real prospect of succeeding on the appeal, this being an accepted example of where indemnity costs have been awarded. 30The Court will not lightly depart from awarding costs on the ordinary basis. Generally speaking, the discretion to award indemnity costs against a party will only be exercised where some relevant delinquency or unsatisfactory conduct has been established: Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [44]; Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 at 33. 31Relevant to the respondents' submissions is that indemnity costs may be awarded in cases that are commenced or continued where there is no chance of success: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [4]. Similar epithets have been used in the authorities to include a claim that is "without substance", "groundless", "fanciful or hopeful" or so weak as to be futile. The principle applies equally to untenable appeals: Bon Appetit Family Restaurant Pty Ltd v Mongey [2009] NSWCA 14 at [2]-[3]. 32However, mere weakness of a case will not be sufficient to warrant the exercise of the discretion to award indemnity costs. Something more is required, which generally involves some form of wilful conduct which, in effect, justifies the conclusion, in the present context, that the appeal should never have been instituted let alone pursued. 33In my view, the appellants' case and their conduct in instituting and maintaining it was not so delinquent as to justify the making of an otherwise order for the purpose of r 42.2. The appeal involved issues of law and fact that required some analysis and consideration. The appellants' prospects of success were certainly dim but their case was not, to their knowledge or that of their legal representative, so devoid of all merit as to justify the order that the respondents seek. Thus I would not regard the pursuance of the appeal as tantamount to misconduct or so unreasonable as to constitute an unjustifiable waste of the Court's time and resources. The primary basis on which the respondents rely for the costs order they seek should therefore be rejected. 34I therefore turn to the alternative basis upon which the respondents submit that a more limited order for indemnity costs should be made. 35On 20 June 2012 an Amended Notice of Appeal was filed. On 4 July 2012 the solicitor for the respondents wrote to the solicitor for the appellants a letter which, omitting formal parts, stated as follows: Please find attached offer of compromise of the respondents in respect of the Appeal proceedings commenced by your clients. The offer is open for acceptance for a period of 28 days. We look forward to hearing from you. 36The Notice of Offer of Compromise referred to in that letter was relevantly in the following terms: TERMS OF OFFER OF COMPROMISE The First respondent, Second respondent, Third respondent and Fourth respondent offers to the Appellants to compromise the whole of the appeal proceedings on the following terms: 1. Appeal filed 19 March 2012 dismissed by consent. 2. Each of the parties to bear their own costs of the Appeal. 3. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005. 4. This offer is open for acceptance for a period of 28 days, that is, until 1 August 2012. 37The period of 28 days in respect of which the offer was stated to be open for acceptance was mandated by r 20.26(7)(a) which relevantly provided as follows: 7. The following provisions apply if an offer is limited as to the time it is open for acceptance: (a) the closing date for acceptance of the offer must not be less than 28 days after the date on which the offer is made ... 381 August 2012 was 28 days after 4 July 2012. However, the appellants submitted that although the Offer of Compromise purported to be open for 28 days, it was not. It was contended that although the offer was made on 4 July 2012 by facsimile, it stated itself to be open "until 1 August 2012" and as such could not have been accepted on that date. The consequence was that it was only open for a period of 27 days from the date it was made contrary to the mandatory requirements of r 20.26(7)(a). 39If in fact the offer was made on 4 July 2012 then, in my view, it was open for acceptance on 1 August 2012 as the number of days between 5 July and 1 August (both inclusive) is 28. There can be little doubt that if the offer was made (that is, communicated to the appellants' solicitor) on 4 July, it was open for acceptance on 1 August. The appellants' submission to the contrary cannot be sustained. 40However, the documents annexed to the respondents' submissions include a Transmission Report from which it is clear that the Offer of Compromise and its accompanying letter were not transmitted by facsimile from the respondents' solicitor to the appellants' solicitor until 9.08 am on 5 July 2012. The number of days between 6 July and 1 August is only 27. 41Both the accompanying letter and paragraph 4 of the Notice of Offer of Compromise stated that the offer was open for acceptance for a period of 28 days. That accords with the mandatory requirements of r 20.26(7)(a). The fact that paragraph 4 stated that the 28 days expired on 1 August 2012 does not, in my view, detract from the proposition that the offer was stated to be open for acceptance for a period of 28 days, with the consequence that had it been accepted on 2 August 2012, being 28 days from the date the offer was transmitted, it would not have been open to the appellants to argue that there had been a breach of the requirements of r 20.26(7)(a). As it happened, the offer was not accepted at any time. In my view, the Notice of Offer of Compromise complied with the rules so that the appellants' submission that it had no effect for the purpose of the rules should be rejected. 42The only basis the appellants advanced initially in support of the proposition that the offer failed to comply with the rules or otherwise could not be relied upon for the purpose thereof was that it was not open for acceptance for a period of 28 days. Only after submissions were invited by the Court on the point was it submitted by the appellants that the offer was not a genuine offer of compromise. The appellants' prospects were dim. Furthermore, as the reasons of Basten JA and Ward JA demonstrate, the respondents' offer was made at a time when costs had been incurred by them in preparation of the appeal. The respondents were offering to bear those costs. There was therefore a sufficient element of compromise. 43In the foregoing circumstances, effect should be given to the Offer of Compromise with the consequence provided for in r 42.15A. The result is that the respondents are entitled to an order that their costs be paid on the ordinary basis up to and including 5 July 2012 and that thereafter they be assessed on an indemnity basis. I therefore agree with the additional order proposed by Basten JA.