Victorian WorkCover Authority v Roman Catholic Trusts Corporation for Archdiocese of Melbourne & Anor [2013] VSC 26

1 This proceeding was brought by the plaintiff under s 138 of the Accident Compensation Act 1985 seeking an indemnity from the defendants for payments made by it under the Act to Mrs Linda Hudspeth, whom I will refer to as the worker. In a related proceeding, the worker's claim against her employer, and the defendants in this proceeding who were, in that proceeding, the second and third defendants, failed. It will be convenient to refer to the defendants in each proceeding as the employer, the school and ISS and to the two proceedings as the recovery action and the worker's proceeding respectively.

2 The trial of the worker's claims commenced before a jury of six on 13 November 2012. On 30 November 2012, the court was informed that all claims against and by ISS in each proceeding had been compromised by agreement and those claims were dismissed without adjudication on the merits.

3 On 12 December 2012, the court entered judgment for the school in the worker's proceeding when the jury returned its verdict by, inter alia, answering in the negative the question 'Was there any negligence or breach of occupier's duty on the part of St John's College, or its employees, which was a cause of injury to the plaintiff?'

4 On 13 November 2012, when the trial of the worker's proceeding commenced, the court ordered that the evidence in the worker's proceeding be evidence in the recovery action and that the parties in the recovery action have leave to rely on documents in the worker's proceeding. Counsel for the Authority announced their appearance and were present in court during the trial of the worker's claims.

5 Section 138 of the Accident Compensation Act 1985 relevantly provides:

(1) Where an injury or a death for which compensation has been paid, or is or may be payable, by the Authority, a self-insurer or an employer was caused under circumstances creating a liability in a third party to pay damages ... the Authority, self-insurer or employer is entitled to be indemnified by the third party in accordance with this section.

6 The Authority accepts that it is now precluded by the judgment entered in favour of the school in the worker's proceeding from establishing that the worker's injury was caused in circumstances creating a legal liability in the school to pay damages and that it cannot maintain an entitlement to be indemnified by the school under s 138 of the Accident Compensation Act 1985. However, the worker has filed a notice of appeal and the Authority contends that the filing of the notice of appeal affects the manner of disposition of the recovery action.

(a) What is the appropriate form of disposition of this proceeding?; and

(b) What is the appropriate order in relation to costs?

8 The Authority contended that the hearing of the recovery action ought to be adjourned pending the ultimate outcome of the worker's appeal. This consequence, it was submitted, followed on the interconnection and dependency between the two proceedings. The plaintiff points to the orders made that the hearing of the recovery proceeding follow immediately after the hearing of the worker's proceeding and that the evidence adduced in the worker's proceeding stand as evidence to be adduced in the recovery action. Plainly, and it is common practice, the Authority accepts the liability finding in respect of the party from whom indemnity is sought that is made in the worker's proceeding. The argument proceeded on the basis that because the worker intended to appeal against the judgment entered on the basis of the jury's verdict answering no to question 3, that liability question was not finally resolved.

9 In my view, speculation about the outcome of the appeal that arises on contemplating whether the recovery action should be adjourned until after the determination of the appeal, is irrelevant to the disposition of this proceeding.

10 In Geelong Football Club Ltd v Clifford[1] the Court of Appeal explained that whether a proceeding ought to be adjourned pending the hearing of an appeal in which a legal conclusion which could support the claim made by the party seeking the adjournment might be reached is a matter of discretion to be exercised in the particular circumstances then prevailing.

11 On 12 December 2012, the recovery action was listed and ready for trial and the school was entitled to proceed with that trial unless it was clearly shown that injustice was likely to be caused to the Authority if an adjournment was refused.

12 The Authority contended that if the action was dismissed and the worker later succeeded on appeal, prejudice or injustice would follow if the Authority was required to commence the recovery action afresh rather than proceeding by reviving the existing proceeding. That prejudice arose from possible limitation defences affecting payments made by it more than six years prior to issue of the proceeding.

13 As the recovery action is being dismissed on the basis of the jury's verdict without any further adjudication on its merits, if the basis for that dismissal is later reversed and the circumstances then prevailing might permit the Authority to establish its entitlement to a statutory indemnity, I see no impediment to resurrecting the recovery action. Counsel for the school did not suggest otherwise. In case that circumstance arises, liberty to apply can be reserved. Unless and until that occurs, the school is entitled to the fruits of the judgment that it has earned.

14 Since the application was argued, the worker has filed her notice of appeal. It does not on its terms warrant the assumption made in argument. Although reciting that the worker appeals against the whole of the judgment entered, the grounds of appeal are that the jury ought to have been discharged without verdict either on 3 December 2012 as a result of statements made by counsel for the school to the jury in final address or on 6 December 2012 following conduct alleged against the school's instructing solicitor in the presence of the jury. The remaining ground of appeal is that a finding of the jury - that there was no negligence on the part of the employer - was perverse or not open on the evidence. Significantly for present purposes, there is no issue raised on the appeal that the finding of the jury that there was no negligence or breach of occupier's liability on the part of the school which was a cause of injury to the worker was perverse or not open on the evidence.

15 The worker seeks on appeal, inter alia, judgment against her employer with damages assessed by the court or remission of the proceeding for retrial. It is not immediately apparent that success by the worker in her appeal will resurrect the opportunity for the plaintiff to contend that the circumstances of the worker's injury created a liability in the school to pay damages that might enliven the plaintiff's entitlement to indemnity under s 138. It may be that an order for a retrial might encompass a retrial of the claims against the school.

16 Balancing the relevant considerations, the proper order to make in this instance is that the proceeding be dismissed, with liberty to apply on written notice to the school.

17 During the early stages of this dispute it is clear that the school attempted to negotiate a compromise of both the worker's proceeding and the proposed recovery action by the Authority. The school was awarded its costs in the worker's proceeding against the plaintiff worker.[2] The school reserved its position to argue for its costs in the worker's proceeding against the Authority as a non-party to that proceeding.

18 On this application, the school submitted that it was entitled to its costs in the worker's proceeding against the Authority as a non-party to that proceeding as well as its costs in the recovery action and, or alternatively, that that it was entitled to an order against the Authority, as unsuccessful plaintiff in the recovery action, for the school's costs of the recovery action, which was extended to include, as common costs, costs incurred in the worker's proceeding. As I understood the submission, it was contended that costs orders should be made against the Authority, as a losing plaintiff, in the recovery action, and as a non-party in the worker's proceeding. It was submitted that there was no prospect of the school doubling up on its costs as that prospect would be avoided either by the costs court on taxation or assessment of the quantum of the costs orders or by the application of the principles against double recovery on execution of those costs orders.

19 A further issue arises through reliance by the school in the recovery proceeding on a Calderbank letter served during the trial.

20 It does not matter how the school's claim for costs against the Authority is articulated, in my view, the relevant discretionary considerations that I will shortly explain remain unchanged. Before doing so, I will deal with the issues raised by the Calderbank letter.

21 On 22 August 2009, the solicitors for the school wrote to the solicitors for the Authority. At that time, the Authority had not commenced this proceeding. The school denied any liability to indemnify the Authority and stated that any proceedings would be defended and in due course indemnity costs sought. The school did not seek to rely on this correspondence.

22 On 23 November 2012, the eighth day of the trial, the school's solicitors sent a Calderbank letter to the plaintiff's solicitors. The offer was that if the Authority withdrew its proceeding and released the school from all claims arising from the alleged incident, the school would bear its own costs of the recovery action and would not seek a costs order against the Authority, as a non-party, in the worker's proceeding. The school's solicitors put the Authority on notice that if the Authority did not accept the offer and ultimately failed in the recovery action, it would seek orders that:

(a) its costs in the recovery proceeding be paid by the Authority on a party/party basis to the date of expiry of the offer and thereafter on an indemnity basis; and,

(b) its costs in the worker's proceeding be paid jointly by the worker and the Authority.

Some reasoning about why the Authority ought to accept this offer was advanced, but it is unnecessary to recite it.

23 The solicitors for the Authority responded immediately, later that day, rejecting the offer and putting a counter offer. The counter offer was rejected by the school, which restated that its offer would remain open for acceptance until 10.00 am the following Monday, the time at which it was originally to lapse.

24 The critical question to be examined in determining whether the rejection of a Calderbank offer is a special circumstance that may warrant an award of indemnity costs is whether the rejection of the offer was unreasonable in the circumstances.[3] On this question, the Court of Appeal said:

The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

(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 an indemnity costs (sic) in the event of the offeree's rejecting it.

25 The Authority first submitted that the time allowed to consider the offer was unreasonable. The time allowed appears to have been about one business day plus a weekend. For a variety of reasons that need not here be repeated, a reasonable time to consider an offer made during the course of the trial may be a shorter period than might be expected prior to the commencement of a trial. Here it is clear that the Authority had ample opportunity to consider the offer because it did consider it without complaint that it was unreasonably pressed in doing so. It then rejected the offer and made a counter offer. When the counter offer was rejected with the Calderbank offer remaining open for acceptance, it was not suggested, for obvious reasons, that the Authority required further time in which to properly consider the offer that was on the table.

26 While I am not suggesting that the recipient of an offer with a limited opportunity for acceptance needs to complain of that fact as a pre-condition for arguing that its refusal to accept the offer was reasonable, an offer that lapses on its terms shortly after it is made without any communications between the parties is distinguishable from what occurred here. Each case turns on its own circumstances. The course of dealings between the parties on 23 November 2012 does not show that the limited time for acceptance of the offer made the conduct of the Authority in not accepting the offer reasonable or the conduct of the school in setting a limited time for acceptance of its offer unreasonable.

27 Next, the Authority submitted that the offer can be described as an invitation to capitulate. In Challenger Listed Investments, the Court of Appeal said about such invitations:

There is Authority to the effect that where the offer does not involve a genuine compromise, but is in fact either an invitation to capitulate or a derisory or nominal offer, it would not be unreasonable for the losing party to have rejected it.[4]

28 The school's offer was neither an invitation to capitulate nor a derisory or nominal offer. At an advanced stage of the proceeding it was offering to bear its own costs. Although I have no evidence of its party/party costs entitlement at that time, the offer involves a concession of real value. From its counter offer, it appears that the Authority estimated its own party/party costs to 23 November 2012 at $50,000. It is likely that the school's costs in the recovery action were in the same ball park. There was also further value offered in the school's offer to not seek an order for costs against the Authority, as a non-party, in the worker's proceeding. That is not an insignificant or nominal offer, nor was it a demand for capitulation when the school offered to bear a significant costs liability.

29 The Authority was readily able to evaluate that offer against its prospects of success in the recovery action. Counsel for the Authority observed the progress of the jury trial from the body of the court and did not want for opportunity to assess their risk of a less favourable outcome in the recovery action than the school's offer. The Authority contended it did not have the opportunity to speak or confer with Mrs Hudspeth, but that is not to the point. The school invited the Authority to consider that the worker's proceeding was in disarray and the consequence would be that the recovery proceeding would fail. The Authority's counsel had observed Mrs Hudspeth's evidence and cross-examination. The Authority was clearly in a position to appropriately assess the school's offer and the consequences of rejection.

30 Balancing all of the matters to which my attention is directed by the Court of Appeal which need not be separately addressed and by counsel, I consider that the Authority's rejection of the school's offer was unreasonable.

31 I will order in the recovery action that the plaintiff pay the costs of the first defendant, including reserved costs, to be taxed on a party/party basis up to and including 23 November 2012 and thereafter to be taxed on an indemnity basis.

32 The final issue to be resolved is whether and to what extent the Authority should be held liable to the school for its costs incurred in the worker's proceeding, whether by a non-party costs order made in that proceeding or by inclusion of those costs that are common to the issues in each proceeding, as reasonably or necessarily incurred in the recovery action.

33 In Knight v FP Special Assets Ltd,[5] the High Court recognised that the cases established a long asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or abuse of process of the court. That is not the present circumstance, but the jurisdiction that the school seeks to invoke is well established. The relevant discretionary considerations appear from other decisions.

34 In Bischof v Adams,[6] the trial of an action was significantly extended by the conduct of a non-party in destroying evidence at a time when the non-party could foresee the effect of the destruction on the length of the litigation. Finding limited guidance in a review of the authorities as to the approach to exercise of discretion in such a case, Gobbo J made the following observations about the connection that must exist between a non-party and the proceeding to warrant such relief:

It is not practicable to lay down a set of parameters in advance for there may be cases where the interests of justice support an order for costs even though the connection is slender. Thus if a witness deliberately refuses to answer to a subpoena and thereby causes the case to be adjourned and so increases costs to the parties, I would have thought that it was very much arguable that he should bear these extra costs. There would seem to be no connection in the ordinary sense of that word between that witness and the proceedings, beyond the fact that he was a potential witness. It may be said, however, that there is a causal connection between the non party and the incurring of the costs, a matter that bears directly on the justice of whether he should be made to pay costs that he has caused to be incurred.

Again, there may be cases where the connection is significant but not material to the issue of costs. Thus a person may benefit greatly from a particular proceeding but may not have any real part in supporting the proceeding.

The most convenient course is, in my view, to look at both factors in considering the connection between the proceedings and the non party, namely, the connection between the non party and the proceedings and secondly, the causal connection between the non party and the costs.... the connection must be real and direct and it must be material to the issue of costs. The mere fact that a person may benefit from the litigation will not, without more, suffice.

35 The guidance provided by Gobbo J's observations about the exercise of the discretion has been followed in more recent cases.[7]

36 In the present circumstances, although there is a significant connection between the non-party and the proceeding, it is a connection which is not material to the issue of costs.

37 I accept that there is a real and direct connection between the two proceedings. So much is clear from the procedural orders made at the commencement of the worker's proceeding and the orders that the trial of the recovery proceeding immediately follow the jury trial before the same judge. If the Authority has any entitlement to a statutory indemnity from the school it arises in the exact circumstances of any entitlement in the worker to recover damages from the school. The Authority stood to benefit from the worker's proceeding because the jury's fact finding determines, one way or the other, whether the injury for which compensation has been paid by the Authority was caused under circumstances creating a liability in a third party to pay damages. Plainly, that is a substantial benefit.

38 The fact that the Authority has an interest in and may benefit from that litigation is not a sufficient connection. The presence of a real and direct connection between the Authority as a non-party and the worker's proceeding does not, of itself, demonstrate how that connection is material to the issue of the school's costs in the worker's proceeding.

39 The Authority played no active part before the court during the trial supporting the worker to establish the liability of the school. The school has not been able to point to any aspect of the Authority's connection to the worker's proceeding that has caused it to incur costs, or incur increased costs, in the defence of that proceeding. The school did not identify, either by evidence or submission, any particular aspect or item of costs in the worker's proceeding that was affected by the prospect of liability in the recovery action. The school submitted that some costs might be common to its defence of each proceeding but that contention merely restates the existence of the connection between the two proceedings that has been identified as a necessary but not a sufficient condition for a non party costs liability to be found. The fact that costs are common does not show that the defence of the recovery action has made a real and material contribution to the costs incurred by the school in the worker's proceeding.

40 Taking all of those considerations into account and for the reasons that I have expressed, I refuse the school's application for a non-party costs order in the worker's proceeding and for the costs order to be made in its favour in the recovery action to be extended to include common costs incurred in the worker's proceeding.

41 The application of the second defendant made in proceeding S CI 9222 of 2009 for a costs order in its favour against the Victorian WorkCover Authority is refused.

42 I will enter judgment in this proceeding in the following terms:

(b) The plaintiff pay the first defendant's costs of the proceeding, including reserved costs, to be taxed as between party and party up to and including 23 November 2012, and thereafter on an indemnity basis.

(c) Liberty to the plaintiff to apply on written notice to the first defendant if the judgment entered on the jury's verdict against the second defendant in that proceeding, who is the first defendant in this proceeding, is set aside.

[1] [2002] VSCA 212 (29 November 2002).

[2] See my unreported ruling of 12 December 2012 in that proceeding at T2145.

[3] Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435; Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 272.

[4] [2011] VSCA 272 at [13].

[5] [1992] HCA 28; (1992) 174 CLR 178.

[6] [1992] VicRp 61; [1992] 2 VR 198.

[7] Re Bonlac Foods Ltd [2001] VSC 75 at [26]; Guss v Geelong Building Society (In Liq) [2001] VSC 288 at [7]; Plain v Howard (No 2) [2004] VSC 539 at [7]; Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd [2010] VSC 70 at [51]; ACN 074 971 109 (as trustee for the Argot Unit Trust) and Pegela Pty Ltd v The National Mutual Life Association of Australasia Ltd (No 2) [2012] VSC 177 (4 May 2012) at [52].