COSTS - plaintiff withdrawing counts during trial - Calderbank offers by plaintiff to accept less than amount ultimately recovered - Calderbank offer including resolution of other issues between parties - principles to be applied - Calderbank offer effective - order that plaintiff recover costs on party-and-party basis to expiry of Calderbank offer and on solicitor-and-client basis thereafter

Cairns v Woolworths Ltd (2006) ACTSC 17

Becker v Queensland Investment Corporation and Bovis Lend Lease (No 2) [2009] ACTSC 147

Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]

Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack & Ors [2003] NSWCA 302 at [22]

Leichhardt Municipal Council v Green [2004] NSWCA 341

Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298

Colgate Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225

Commonwealth of Australia v Gretton [2008] NSWCA 117

Calderbank v Calderbank [1975] 3 ALL ER 333

1. On 19 September 2014, for reasons which I published on that date, I ordered that judgment be entered for the plaintiff in this action in the sum of $53,250.00. I ordered that the defendant pay the plaintiff's costs, but stayed that order for fourteen days in case a party decided to apply for a different costs order. I subsequently extended that stay until further order of the court.

2. On 23 September 2014 the solicitors for the plaintiff filed an application seeking an order that the defendant pay the plaintiff's costs on a party-and-party basis up to 6 January 2009, and on a solicitor-and-own client basis from 7 January 2009. In the alternative the plaintiff sought orders in the same terms up to 1 August 2012 and from 2 August 2012.

3. On 16 October 2014 the defendant filed an application seeking an order that the plaintiff pay the defendant's costs on a party-and-party basis up to 10 June 2010, or alternatively that there be no order as to costs up to that date, and an order that the defendant pay the plaintiff's costs from 11 June 2010.

4. The parties relied on correspondence between the solicitors prior to trial. I heard the applications on 17 October 2014, and reserved my decision. The plaintiff was represented, as at trial, by Mr Hausfeld of counsel. The defendant, a solicitor, made submissions in person.

5. The defendant, as sole principal of a firm of solicitors, had acted for the plaintiff in two actions for damages for personal injury in this court, arising out of motor vehicle collisions in 1994 and 1996. Those actions had gone to trial on 5 November 2003 and had been settled at the end of the second day of the hearing.

6. The plaintiff and the defendant had signed documents headed "agreement as to costs" on 23 March 1999 and on 10 December 2002. The defendant's firm had received the judgment moneys in the two personal injury actions, and subsequently an agreed amount for party-and-party costs in those two actions, and had deducted solicitor-and-client costs from the amounts received. The claim by the plaintiff in the present action was for a declaration that the agreements were not fair and reasonable and for consequential orders that the agreements be set aside and that the defendant account to her for such amount as the court might find to be owing to her.

7. On 19 September 2014 I made a declaration that the agreements were not binding on the parties, prior to entering judgment for the plaintiff. I found that the defendant, through her firm, would have been entitled to costs at scale $30,000.00 less than the amount she had charged the plaintiff. I found that the defendant had had the benefit of that overpayment from about mid-July 2004, and awarded a further $23,250.00 interest from then to judgment, in arriving at the total judgment sum of $53,250.00.

8. Both parties conceded that costs were a matter for the discretion of the court. I was asked by the parties to take into account in exercising that discretion a number of letters, some of which I need to set out at some length.

9. The plaintiff commenced the present action in October 2004. The hearing began on 7 June 2010 and continued at intervals up to 24 April 2013, with final written submissions being lodged on 21 May 2013.

10. On 9 December 2008 the solicitors for the plaintiff wrote to the defendant's firm in the following terms:

Without prejudice save as to costs

We refer to the above matter.

We have now had an opportunity to conduct a complete overview of the evidence submitted by both parties in this matter.

We take the view that there are many matters set out in the affidavit of Eunice Ryan which are inadmissible. In addition to this, several statements made by Ms Ryan are inconsistent with the exhibits referred to and are subject to challenge.

Much of the evidence in the matter is oral, and as a consequence we accept that this matter will be determined based upon evidence given by the individual witnesses.

Our client is determined to see this matter through, and after taking into consideration all of the evidence available, she considers that she has a good case.

However, as you are no doubt aware, our client's health has been deteriorating over many years, and she considers that the stress of this matter is a contributing factor to her ongoing problems. As a consequence it would be in the interests of her health and the parties in general to have this matter settled.

We are therefore instructed to make an offer of settlement on the following terms:

1. the defendant pay the plaintiff $30,000.00;

2. the defendant release to the plaintiff the money currently held in trust, which we understand amounts to approximately $26,000.00;

3. an allowance be made in favour of the defendant in the amount of $2,500.00 to satisfy the order for costs awarded against the plaintiff on 25 February 2008;

4. except as provided above, each party to pay their own legal costs of and incidental to these proceedings.

This offer is made pursuant to the authority Calderbank v Calderbank [1975] 3 ALL ER 333, and it is open for acceptance until 4:00 pm on 6 January 2009.

Calculations

We have calculated that during the course of both personal injury matters, the following amounts of professional costs were issued at the higher hourly rate(s) after the dates of the costs agreements:

1. Invoice number 5400 dated 19 December 2003 $44,225.50

2. Invoice number 4854 dated 19 January 2004 $21,616.87

3. Invoice number 8406 dated 25 May 2004 $1,788.53

4. Invoice number 8407 dated 25 May 2004 $403.40

Total $68,034.30

We consider that the amount of $68,034.30 (excluding GST) as disclosed in the above invoices, is the amount which would be subject to re-assessment and adjustment if our client was successful in these proceedings.

The other earlier invoices issued to the plaintiff during the initial stages of the personal injury matters were issued at the rate of $180.00 and are not in dispute.

Our client does not deny that for the most part (subject to some items of overcharging and double entry) the work billed in the disputed invoice was actually performed by your firm.

The dispute arises in relation to the rate at which the time was charged.

We have not put our client to the cost of having the files for the personal injury claims submitted for re-assessment by a legal costs assessor, to determine the figure which should have been charged if the costs agreements were set aside.

We do not intend to undertake this procedure unless a court order is obtained to set aside the costs agreements in accordance with the proceedings. In any event we could not achieve this without access to the files.

As a consequence we estimate the likely reduction that would be made to the disputed costs if our client was successful, as outlined below.

Based upon the standard rate of $180.00, as compared to the higher hourly rates of $280.00 and $380.00 actually charged to our client, we consider that an assessment of the professional fees in dispute would result in the sum of $68,034.30 being reduced by between 36% and 53%.

This provides a range of $24,492.35 to $36,058.18 which our client is seeking to recover.

Based upon these calculations, our client considers that the amount of $30,000.00 is a reasonable and genuine settlement offer.

Law Society Complaint

We note that you continue to hold an amount of approximately $26,000.00 in your trust account on behalf of our client. Despite several requests, you have refused to release that money to our client. As previously advised, our client is entitled to that money and your firm does not have any legal authority to hold a lien over that money.

Our client has now confirmed her instructions to make a complaint to the ACT Law Society in relation to this issue. However, she has instructed the writer to withhold the complaint until we have received a response from your firm in relation to the offer of settlement in this letter.

We reserve the right to tender this letter in respect of any issue of costs or interest arising from the further conduct of these proceedings.

We look forward to receiving your response.

11. The expiry date of the Calderbank offer was subsequently extended by agreement to 23 February 2009. The defendant did not formally reject the offer. Rather, her firm did not respond to it within the extended timeframe and the offer lapsed for want of acceptance.

12. A further offer was made in July 2012, after 17 days of hearing but with a further ten days to come. On 4 July 2012 the solicitors for the plaintiff wrote to the defendant's firm as follows:

We refer to the above matter.

Our client remains of the view that she has a strong case, and in all the circumstances, considers it likely that Master Harper will consider a judgment favourable to her in this matter.

We are instructed to offer to settle the matter on the basis that the defendant pay the plaintiff $15,000.00 plus costs to be agreed or assessed.

You will appreciate that the $15,000.00 is significantly less than the amount which would arise from the court's acceptance of one or more of the plaintiff's expert reports and involves no additional interest on the principal amount.

This offer is made on the principles in Calderbank v Calderbank and in the event that it is not accepted, the plaintiff reserves her right to tender this letter in support of an application for indemnity costs.

This offer will remain open for a period of 28 days from the date of this letter, unless it is withdrawn earlier.

We look forward to receiving your response.

13. The following day, 5 July 2012, the defendant's firm replied by fax, rejecting the offer and making a counteroffer, using the same Calderbank formula, "to settle the matter on the basis that both parties walk away and each party pay their own costs".

14. The rejection, or failure to accept, a Calderbank offer has been accepted in this Territory as a factor to be taken into account in relation to costs at least since Quirk v Bawden (1992) 112 ACTR 1. Special order as to costs have been made many times since then. As with all orders as to costs, the making of an order in a particular matter is within the discretion of the court. Orders as to costs will vary depending on the circumstances of individual cases.

15. The consequences will vary depending upon whether the Calderbank offer was made on behalf of the plaintiff or the defendant. The relative financial positions of the parties may be relevant. In some cases orders have been made for the payment of costs on an indemnity basis and in others on a solicitor-and-client basis. In at least one case the court fixed a dollar amount as a costs penalty for a plaintiff who had rejected a reasonable Calderbank offer: Cairns v Woolworths Ltd (2006) ACTSC 17.

16. Refshauge J summarised the history of the development of the Calderbank offer and other special costs orders in Becker v Queensland Investment Corporation and Bovis Lend Lease (No 2) [2009] ACTSC 147, an example of a modest offer by a plaintiff which the defendant had not accepted, the plaintiff going on to recover a significantly greater amount. On the facts of that case his Honour ordered the defendant to pay the plaintiff's costs up to the date of expiry of the Calderbank offer as between party-and-party and thereafter on an indemnity basis. His Honour, in setting out the essential elements, said at [12] that the terms of the settlement offered must be unambiguously clear, and that the offer must be capable of being accepted and thereby concluding the proceedings by creating a binding contract. In Becker, the offer had not foreshadowed an application for indemnity costs, but this was not regarded by his Honour as essential. His Honour thought it so common that a Calderbank offer encompassed an intention to seek indemnity costs that a reference to the case would trigger that expectation without need for an express reference.

17. It is now accepted that the onus lies on the party making the offer to establish to the satisfaction of the court that in all of the circumstances the failure of the other party to accept the offer was unreasonable: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26].

18. It is also accepted that an effective Calderbank offer must be made at a time when the other party has a reasonable opportunity to consider it and respond to it. An offer made at an early stage of complex litigation will not necessarily provide the party receiving the offer with a fair opportunity to consider it: Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack & Ors [2003] NSWCA 302 at [22].

19. A further aspect of an effective Calderbank offer is that it must contain a genuine element of compromise, as opposed to being designed merely to trigger costs sanctions - see for example Leichhardt Municipal Council v Green [2004] NSWCA 341 at [22]- [27].

20. The Court of Appeal of the Supreme Court of Victoria (Warren CJ, Maxwell P and Harper AJA) considered the rationale for the making of special costs orders following an unaccepted Calderbank offer, and the principles to be applied, in Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298. Their Honours adopted the words of Sheppard J in Colgate Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, where his Honour regarded one of the circumstances warranting the exercise of the discretion to make a special costs order as "an imprudent refusal of an offer to compromise" (at 233).

21. The court rejected any notion that the rejection of a Calderbank offer gave rise to a presumption that the party who rejected the offer should pay costs thereafter on an indemnity basis in the event of a less favourable result. It was necessary for the court to be satisfied that the rejection of the offer had been unreasonable. The question was whether the failure to accept the compromise offer, in all of the circumstances, warranted departure from the ordinary rule that costs follow the event.

22. The court accepted that the policy rationale behind the making of special orders for costs following the rejection of a Calderbank offer included encouraging the saving of costs to the parties and the avoidance of the risks, delays and uncertainties of litigation by promoting early offers of settlement; saving the public the expense involved in a lengthy trial; and indemnifying the party making the offer subsequently found to have been reasonable against the costs thereafter incurred. At the same time, the court recognised that potential litigants should not be discouraged from bringing their disputes before a court.

23. The Court of Appeal concluded at [23] that the critical question was whether the rejection of the offer had been unreasonable in the circumstances. The determination of that question would always involve matters of judgment and impression, as to which different judges might properly arrive at different conclusions. The Court of Appeal said that a court considering an application for a special costs order following rejection of a Calderbank offer should ordinarily have regard to at least 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, expressed 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 rejecting it.

24. The court noted that it had been argued on occasion that the maker of a Calderbank offer should not be entitled to costs unless the offer set out with reasonable specificity the basis for the contention that the offer should be accepted. The Court of Appeal rejected this, saying that it was neither necessary nor desirable to lay down any such rule. Whether there is a need for the offeror to descend to specificity depended on a consideration of all of the circumstances existing at the time of the offer.

25. The Court of Appeal of the Supreme Court of NSW considered the applicable principles in some detail in Commonwealth of Australia v Gretton [2008] NSWCA 117 (Mason P and Beazley and Hodgson JJA). The plaintiff in that case had been awarded by a jury a lower amount in damages for post-traumatic stress disorder than an amount the defendant had offered by Calderbank offer prior to trial. The trial judge refused to make any special costs order, simply ordering the defendant to pay the plaintiff's costs of the action. The Court of Appeal noted that the usual rule was that costs were to follow the event, and that this applied unless the court considered another order should be made. A Calderbank offer might be the reason for making some other order, but did not automatically have that result. The Court of Appeal said that for a Calderbank offer to have effect, it must be a genuine offer of compromise which it was unreasonable for the other party not to have accepted. It was not enough for the party making the offer to establish that the offer had been reasonable. The onus lay upon the party who had made the Calderbank offer to satisfy the court that the discretion should be exercised in its favour. In litigation where there was a wide range of possible verdicts, an offer might be a reasonable one yet it might not have been unreasonable for the offeree not to have accepted it.

26. In relation to the application by the plaintiff for a special order as to costs, my task is to apply these principles to the facts of the present case. I must also consider the submissions made by the defendant that the plaintiff should pay her costs up to 10 June 2010, or alternatively that the parties should bear their own costs up to that date. The defendant concedes that it follows from my reasons for judgment that she must pay the plaintiff's costs as between party and party for the period from 11 June 2010.

27. It is appropriate that I deal first with the defendant's application, the grounds for which are set out in the application as follows:

(a) On 10 June 2010, being some six years after the Statement of Claim and defence was [sic] filed, the plaintiff's counsel withdrew the plaintiff's claims in relation to undue influence, unconscionability, total failure of consideration, breaches of the Trade Practices Act and breaches of the Fair Trading Act. Consequently, the plaintiff withdrew all her claims except for the Legal Practitioners Act claim.

(b) The plaintiff's actions significantly increased the defendant's costs in requiring the defendant to prepare for and defend the allegations raised in relation to undue influence, unconscionability, total failure of consideration, breaches of the Trade Practices Act and breaches of the Fair Trading Act for six years including and [sic] 31 direction hearing days and four days of defended hearing, ten days of notice of motions hearing dates, thirteen applications, two days listing hearing dates.

(c) On 10 June 2010 the plaintiff closed her case for the first time without any expert evidence as to costs despite the orders of the court made on 24 February 2006 that evidence of costs be filed in accordance with the timetable in the orders. The plaintiff closed her case for the second time on 22 September 2011. The plaintiff reopened her case and closed it again for the last time on 8 January 2013. The failure of the plaintiff to submit expert evidence of costs caused the hearing to be greatly extended.

(d) The plaintiff failed to quantify her claim for the duration of the hearing. The failure of the plaintiff to quantify her claim increased the costs and uncertainty of the hearing. It made it impossible for the defendant to access [sic] any offer of settlement by the plaintiff against the proceedings and to understand the extent of compromise offered.

28. It is correct that on 10 June 2010 counsel for the plaintiff informed the court and the defendant that the plaintiff's claim would be limited to the claim pursuant to the Legal Practitioners Act 1970 for a declaration that the fees agreements were not binding on the plaintiff, and for consequential relief under that Act. However, all of the other counts, which the plaintiff decided not to pursue further, were based on the same pleaded facts. I am satisfied that counsel for the plaintiff took this approach with a view to simplifying the proceedings before the court and in an endeavour to shorten the hearing. I am not satisfied that the defendant was put to any measureable additional expense by reason of the plaintiff's decision not to pursue the other counts, nor am I satisfied that any of those counts was necessarily doomed to failure. In the event it was simply unnecessary for me to consider those counts further as the hearing proceeded, or to make any determination about them.

29. In the circumstances the view I take is that the costs of both parties up to and including 10 June 2010 should be seen as costs in the cause for each party. The plaintiff having been generally successful, I see no reason to depart from the provisional view I expressed at the end of my reasons for judgment, that those costs should follow the event, so that the plaintiff should be entitled to recover her costs from the defendant up to 10 June 2010 as between party and party, subject to any different order which I might be persuaded to make as a result of the application by the plaintiff.

30. This takes me to the plaintiff's application for a different and special order about costs. The plaintiff relies initially on the Calderbank offer of 9 December 2008. If I am not persuaded that that letter should result in a special order about costs, the plaintiff then relies on the Calderbank letter of 4 July 2012.

31. As to the letter of 9 December 2008, I am satisfied that the offer put in that letter was not made so early in the proceedings that the defendant did not have a proper opportunity to make a decision about it.

32. Whilst I might have been concerned as to whether the time limited for replying to the offer was inadequate having regard to the Christmas-New Year break, I am satisfied that the agreed extension to 23 February 2009 gave ample time for consideration of the offer. In this regard I note that there was no request for clarification of any aspect for the offer, nor was it formally rejected.

33. The only aspect which causes me any concern is the fact that the letter required agreement on issues other than the amount the plaintiff was offering to accept in settlement. The offer included agreement by the defendant to releasing to the plaintiff an amount of $26,000.00 held in trust, and agreement as to quantum of costs which had been ordered in respect of an interlocutory application in February 2008.

34. In relation to the amount held in trust, I am satisfied that at the time of the letter (9 December 2008) the defendant had no lien over the money in trust and no answer to a demand that the money be paid to the plaintiff. The defendant did not make any submission to the contrary. In those circumstances the demand for the release of the funds was entirely reasonable. The issue was not in contest between the parties to the litigation at that time.

35. In relation to the quantum of costs recoverable by the defendant pursuant to the order of 25 February 2008, I take account of the fact that by the date of the letter the defendant had not submitted an assessment of costs to the plaintiff. The application had been for reinstatement of the action, which had been struck out by operation of the rules because no step had been taken by either party for more than a year. The application for reinstatement had been made formally, supported by two affidavits by Mr Barnett, the then solicitor for the plaintiff. The defendant had filed and served an affidavit in response. The application was stood over on its return date and determined on the adjourned date by the Registrar. The parties were represented by employed solicitors on that date. There is nothing in the bench sheet to suggest that the hearing of the application occupied any significant time. The defendant has not submitted, or provided any evidence supporting a conclusion, that the suggested figure of $2,500.00 was other than reasonable.

36. It should be said that a party who includes in a Calderbank offer of settlement a precise figure for the costs ordered at the time of determination of a previous interlocutory application does so at some risk to that party. However, in all of the circumstances in the present matter, it seems to me that the suggested allowance was fair and reasonable.

37. I take account also of the fact that otherwise it was a term of the offer that each party pay her own costs of the action. The action had by December 2008 been proceeding for some four years. Costs on each side would already have been significant.

38. The amount the defendant offered to accept was precisely the amount which I allowed as the differential between the costs charged by the defendant's firm and the costs to which the firm would have been entitled at scale. I allowed interest on that amount from mid-2004, that is more than four years before the date of the offer, which included no interest component.

39. I am satisfied that in all of the circumstances the offer contained in the Calderbank letter of 9 December 2008 represented a genuine compromise by the plaintiff. If accepted it would have brought the litigation to an end, at an immense saving in legal costs on both sides.

40. I am accordingly satisfied that the decision by the defendant not to accept the offer was unreasonable, and warrants a departure from the usual rule that costs should follow the event.

41. The letter made specific reference to the decision in Calderbank v Calderbank [1975] 3 ALL ER 333. In those circumstances there was in my opinion no necessity for the letter to state specifically that in the event that the offer was not accepted, costs would be sought on a more generous basis than the usual party-and-party basis.

42. Whilst the plaintiff's application sought costs subsequent to the Calderbank offer on a solicitor-and-own client basis, on the hearing of the application counsel for the plaintiff tempered this and now seeks costs only on a solicitor-and-client basis. I am satisfied that such an order is warranted, from the date when the extended period for acceptance of the offer expired, that is from 24 February 2009.

43. Should I be found to have been in error about the effect of the letter of 9 December 2008, I should say that I would have had no hesitation in making a special costs order by reason of the defendant's rejection of the Calderbank offer contained in the letter of 4 July 2012. The plaintiff in that letter offered to settle for $15,000.00 plus costs. This was half only of the amount which I found to be the differential between the costs actually charged and the costs chargeable at scale, and included no interest component. That offer was rejected on 5 July 2012. I would have found the plaintiff entitled to costs on a solicitor-and-client basis from 5 July 2012.

44. In the result, the plaintiff succeeds on both applications and the defendant fails. The cost of both applications will be recoverable by the plaintiff on a solicitor-and-client basis by reason of the orders I propose to make, and there is no necessity for any specific order about the costs of either application.

45. On 19 September 2014 I ordered that the defendant pay the plaintiff's costs. I vacate that order, and in its place I order that the defendant pay the plaintiff's costs on a party-and-party basis up to 23 February 2009, and on a solicitor-and-client basis from 24 February 2009.

I certify that the preceding forty-five [45] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Master Harper