Zurich Australia Insurance Limited v Motor Accidents Authority of NSW & Ors

CATCHWORDS : Costs application - Calderbank letter - Indemnity costs - Principles - Whether genuine offer of compromise - Whether rejection of offer reasonable.

LEGISLATION CITED : Supreme Court Rules Uniform Civil Procedure Rules 2005

SMEC Testing Service Pty Limited v Campbelltown City Council [2000] NSWCA 323 Zurich Australia Insurance v Motor Accidents Authority & Ors [2010] NSWFC 214 at [78] Leichhardt Municipal Council v Green [2004] NSWCA 341 CASES CITED : Commonwealth of Australia v Gretton [2008] NSWCA 117 Jones v Bradley (No 2) [2003] NSWCA 258 Penrith Rugby League Club v Elliott (No 2) [2009] NSWCA 356 Macquarie Radio Network Pty Limited v Arthur Dent (No 2) [2007] NSWCA 339 Oshlack v Richmond River Council (1998) 193 CLR 727 at 89 [44] per Gaudron and Gummow JJ

PARTIES : Zurich Australia Insurance Limited v Motor Accidents Authority of New South Wales & Ors (No 2)

COUNSEL : Mr F. Kunc SC; H. El-Hage - Plaintiff Mr A. J. Stone SC; Ms M L Holz - 4th Defendant

SOLICITORS : Mr George Mallos - Plaintiff Grogan & Webb - 4th Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ADMINISTRATIVE LAW LIST

298127/09 - ZURICH AUSTRALIA INSURANCE LIMITED v MOTOR ACCIDENTS AUTHORITY OF NEW SOUTH WALES & Ors (No 2)

1 HIS HONOUR: The plaintiff, Zurich Australia Insurance Limited (Zurich), brought proceedings against the fourth defendant, Mrs Robinson, seeking to set aside an assessment made by a claims assessor of the Motor Accidents Claims Assessment and Resolution Service. 2 Mrs Robinson had been awarded a sum of $225,184.10 as compensation for injuries sustained when she was hit by a bus whilst crossing a pedestrian crossing. The quantification of the fourth defendant's damages was the central dispute at the assessment hearing. A DVD, which showed her answering questions put to her by Ms Holz, her counsel, with respect to her claim, was relied upon by her at the hearing. Mrs Robinson could not attend the hearing as she was elderly, somewhat agoraphobic and therefore generally unavailable for cross-examination. 3 The solicitor for Zurich had objected to the admission of the DVD, although he did not object to the text of the DVD being placed before the assessor. After hearing argument, the assessor allowed the DVD to become part of the fourth defendant's case. This, it was submitted in these proceedings, had resulted in a denial of procedural fairness requiring that the award be set aside and the matter re-opened. 4 On 31 March 2010 I found for the fourth defendant on this issue and I ordered that her costs should be paid by the plaintiff. I ordered that the plaintiff's summons be dismissed. 5 The fourth defendant now brings an application for indemnity costs. The basis for the application is that the plaintiff had refused to accept a genuine offer of compromise contained in a Calderbank letter. 6 I turn first to deal with the letter itself. The fourth defendant's solicitor sent a letter to the plaintiff's solicitor, George Mallos, on 30 November 2009. It was marked 'without prejudice save as to costs' and contained an offer to resolve the proceedings. The offer was stated to expire on 2 December 2009. It was in the following terms: "1. The CARS assessor's award be set aside. 2. In lieu thereof Zurich agree to pay the fourth defendant, Mrs Robinson, $200,000 plus costs assessed in the assessor's award (with credit for payments made to date and deduction of the Medicare charge). 3. Each party to pay its own costs of the current Supreme Court proceedings". 7 (I should point out that a stay application in relation to the assessment had been heard by Harrison J shortly before the letter of 30 November 2009. His Honour had reserved his decision on the point and it remained reserved as at the date of the letter. His Honour gave a decision on 4 December 2009 refusing to grant the stay and ordering the plaintiff to pay the costs of the application).

Submissions of the parties 8 The plaintiff opposed the application for indemnity costs on the grounds that:

(a) The letter did not contain a genuine offer of compromise which it was unreasonable to reject SMEC Testing Service Pty Limited v Campbelltown City Council [2000] NSWCA 323.

(b) The argument in the proceedings which claimed a denial of procedural fairness was not baseless or frivolous. It raised the contention that the use of a DVD interview in CARS assessments gave an unfair advantage to a claimant if cross-examination were not permitted. This was an important and novel issue which a court had not previously considered. 9 The submissions made on behalf of the fourth defendant were that first, as to the compromise argument, the fourth defendant submitted: (a) the amount of the compromise offer, a sum which was 25,000 less than that awarded by the assessor, was in any event a substantial sum, and (b) the offer to have each party pay its own costs of the Supreme Court proceedings to date was, it was submitted, not insignificant. This was especially so as the plaintiff already ran the risk it might be ordered to pay the fourth defendant's costs of the stay application. (As I have said, the plaintiff was, in fact, later ordered to pay the fourth defendant's costs although the offer had expired by the time the order for costs was made). 10 Secondly, as to the plaintiff's argument that the procedural fairness point was not baseless or frivolous, the fourth defendant relied on a comment I had made in my principal decision in this matter, (Zurich Australia Insurance v Motor Accidents Authority & Ors [2010] NSWFC 214 at [78]), "It is hard to imagine a more unsuitable case to test the point".

Principles in relation to a Calderbank offer 11 The principles in relation to indemnity costs and the situation of an offer made in a Calderbank letter are well established. They may be distilled as follows:

(a) A Calderbank offer does not give rise to a prima facie presumption in favour of indemnity if the offer is not bettered. ( Leichhardt Municipal Council v Green [2004] NSWCA 341) or, alternatively, where the judgment is more favourable than the terms of offer to the party making the offer, ( Commonwealth of Australia v Gretton [2008] NSW CA 117). Put simply, it does not automatically result in the making of an indemnity costs order. The court retains its general discretionary power with respect to costs. Leichhardt Municipal Council v Green ; Jones v Bradley (No 2) [2003] NSWCA 258).

(b) The onus is on the party making the Calderbank offer to satisfy the court that in all the circumstances the failure of the other party to accept the offer in question was unreasonable. ( Evans Shire Council v Richardson (No 2) [2006] NSWCA 61).

(c) Costs consequences under the general law, upon an offer of compromise made in a Calderbank letter, lie within the discretion of the court to be exercised having regard to all of the relevant circumstances of the case. ( SMEC Testing Services Pty Limited v Campbelltown City (above)).

(d) All the circumstances of the case must be considered to determine whether or not an offer is a genuine offer of compromise or merely a demand to capitulate. ( Leichhardt Municipal Council v Green (above)). An offer with no real element of compromise in it, which is designed merely to trigger costs sanctions, will not be treated as a genuine offer of compromise.

(e) Factors that may be taken into account in determining whether indemnity costs apply where a Calderbank offer has been made, include whether the rejection of the compromise offer was reasonable in the circumstances, and whether the time frame specified for acceptance was reasonable, including whether it may have been unduly short ( Penrith Rugby League Club v Elliott (No 2) [2009] NSWCA 356).

Resolution of the issue 12 Calderbank letters are written communications containing offers that are without prejudice save as to costs and which do not comply with the relevant rules of courts relating to the making of offers of compromise Jones v Bradley (No 2) (above). 13 The Rules providing for the making of offers of compromise are to be found at Rules 20.25 to 20.26 of the Uniform Civil Procedure Rules 2005. The Rules providing for the costs consequences of unaccepted compromise offers are to be found in Rules 42.13 to 42.18 of the UCPR 2005. 14 Calderbank letters have been accepted as a legitimate alternative to an offer of compromise under the statutory rules although, unlike the rules, they do not carry with them any right to a special costs order. For example, a court will not only deviate from the general rule for an indemnity costs order provided for by rule 42.14 of the UPCR, and make a different order, if it finds that there are exceptional circumstances for doing so. (Macquarie Radio Network Pty Limited v Arthur Dent (No 2) [2007] NSWCA 339 per Beazley JA with whom Mason P and Basten JA agreed). Calderbank letters have been encouraged as useful tools because they facilitate the public policy objective of discouraging wasteful and unreasonable behaviour by litigants. 15 In the present matter the letter sent on 30 November 2009 to Mr Mallos was marked 'without prejudice save as to costs'. The period for which the offer was open was for a relatively limited period of a little over two days. Under the Supreme Court Rules, to which I have made reference, offers of compromise have to remain open for at least twenty-eight days. Consequently the letter of 30 November 2009 may properly be described as a Calderbank letter. It was not disputed between the parties that it might be so regarded. 16 The first matter to be determined is whether the offer was "a genuine offer of compromise". In considering that matter, all the circumstances of the case must be considered. The offer contained in the letter required Zurich to pay $200,000. This sum amounted to approximately 89 per cent of the damages awarded by the assessor. The offer also required Zurich to pay the whole of the amount of the costs assessed by the assessor. 17 Zurich submitted that the only real benefit to it was the reduction in the award of approximately $25,000. Zurich submitted that, in those circumstances, it was not a genuine offer. 18 Mr Stone's submissions argued that it was not fair to assert that the degree of compromise was merely $25,000. The point he made was that, at the time when the offer was made, Harrison J had reserved his decision on the interlocutory stay application. Accordingly Zurich was already at risk of an adverse costs order at that point. It is true that Harrison J ultimately refused the stay and ordered that Zurich pay the costs of the interlocutory application. This, however, was not known at the time the offer was made and, more importantly, the offer expired before any costs order was made. Mr Stone's argument, it seems to me, really cuts both ways. The timing of the offer, and the limited time for its acceptance, really suggests to my mind that the letter of 30 November 2009 was essentially designed to 'frighten off' the insurance company before the proceedings went any further. 19 I am even more certain that this was the case when I consider the small amount of the savings that were being offered to Zurich. The offer does not attempt in any meaningful way to recognise the monetary differences between the parties in the dispute that had been debated in the assessment. Rather, it indicates the fourth defendant simply "shaved" off a relatively small amount of the sum awarded without regard to those disputed issues. 20 Mr Stone argued that a number of cases decided under rule 42.14 have made it clear that the fact that the judgment amount only marginally exceeds the amount of an offer is not a relevant consideration in the refusal of indemnity costs. A good example of this is Macquarie Radio Network Pty Limited v Dent (No 2), which I have referred above. There are other cases to the same effect. 21 The cases decided under Rule 42.14 of the UCPR 2005, however, are of limited assistance in relation to the situation where a Calderbank offer has been made and rejected. The relevant rule provides, in effect, a right to special court costs unless there are exceptional circumstances. Moreover the rule itself uses the phrase 'no less favourable' than the terms of the offer. The wording of rule 42.14 leaves little, if any, scope for an argument based on marginality. 22 Having regard to the whole of the circumstances revealed by the material before me, I have come to the conclusion that the offer was not a genuine offer of compromise but was an offer made to warn off the plaintiff by reason of the prospect for a costs sanction if the offer were not accepted. 23 If I am wrong about this conclusion, it is nevertheless necessary for the fourth defendant to satisfy me that Zurich's rejection of the offer was unreasonable. Evans Shire Council v Norman Boyd Richardson (No 2) (as above), Leichhardt Municipal Council v Green (above) at 46. 24 In determining that question, it is not without significance that there is an unusual feature about the present matter. This was not simply a case where the claimant sought compensation following an accident and the insurance company was contesting the quantum of the claim. That, of course, was the situation in the proceedings before the assessor. 25 The proceedings in this court, however, were brought as a consequence of the plaintiff's concern that it had been denied procedural fairness in the CARS assessment hearing. Although its position was undoubtedly that it believed that the claimant had received too high an award, its real complaint in this court was that it had been denied an opportunity to present its case fairly, and that it required the entire assessment hearing to take place anew. 26 The point at issue in the Supreme Court proceedings, it is conceded, was a novel one. Zurich maintained that the use of a DVD interview as evidence in a CARS assessment, without an opportunity for cross-examination, had not been considered by the Supreme Court in any previous decision. I accept that it was reasonable for Zurich to bring and maintain the proceedings. From its point of view, as an insurer appearing regularly in CARS assessment proceedings, there was a question of principle involved. 27 I accept Zurich's submissions that the case it put to the court was well and truly arguable and that it could not be described as baseless or frivolous. Mr Stone referred to paragraph 78 of my substantive decision, where I had said "it is hard to imagine a more unsuitable case to test the point". Read fairly, however, this was not an observation that suggested that the point was baseless or unarguable. Rather it pointed to some unusual features in the case, which made it so out of the ordinary as to be unsuitable to be a satisfactory vehicle for a test case of general application. 28 The observation was not intended to deny Zurich's right to a hearing, nor was it intended to suggest that the point raised was frivolous. I ultimately determined the point was without substance, but that is a different matter. 29 The fourth defendant has failed to satisfy me that Zurich's rejection of the offer was, in all the circumstances, unreasonable. I am not persuaded that there was any 'general delinquency' on the part of Zurich sufficient to move the court to displace the general rule on costs. Oshlack v Richmond River Council (1998) 193 CLR 727 at 89 [44] per Gaudron and Gummow JJ. Moreover, the amount of the offer bore no real relationship to the amounts in dispute in the assessment. Zurich could not be criticised for believing that it had reasonable prospects of success in relation to its claim that it had been denied procedural fairness, even though it ultimately failed on the point. In that context, the offer did not operate as a reasonable enticement to bring the proceedings to an end. 30 The order I have made for costs on 31 March 2010 should stand. The application for indemnity costs, however, is dismissed.

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