COMMERCIAL UNION ASSURANCE COMPANY OF AUSTRALIA v PELOSI [NO 2] SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL HANDLEY, SHELLER and POWELL JJA 8 February, 27 February 1996 [1996] NSWCA 115 On 2 February 1996 the Court of Appeal gave judgment allowing this appeal and cross appeal, ordering the appellant to pay the respondent's costs of the trial and making no order as to the costs of the appeal. At trial, Barr AJ ordered that the appellant pay the respondent's costs of the trial on and from 25 May 1993, the date of the arbitrator's award, on an indemnity basis. On 13 August 1993 the plaintiff made an offer of compromise to the respondent in accordance with Part 22 Supreme Court Rules for an amount of $1.7m. On appeal the Court substituted a verdict higher than this amount. In accordance with Part 52A r22(4) the plaintiff/respondent applied for her costs of the appeal on an indemnity basis in reliance on Ettingshausen v Australian Consolidated Press Limited (unreported) 17 November 1995. She submitted that, since the substituted verdict exceeded her offer, she should be entitled to the costs of the appeal on an indemnity basis, whatever the result of the appeal or cross appeal. Held: 1. Accepting that it was open to the plaintiff to rely on her offer of compromise on the appeal, the submission that she was entitled to indemnity costs regardless of the result of the appeal or cross appeal should be rejected. 2. Part 52A 122 is directed, not to which party should pay the costs, but to whether the party ordered to pay the costs should pay them on an indemnity basis. 3. The order for costs made on 2 February 1996 was confirmed and the application to review the order dismissed with costs. Handley JA. I agree with Sheller JA. Sheller JA. On 2 February 1996 the Court, differently constituted (Kirby P, Handley and Sheller JJA), delivered judgment allowing this appeal and cross appeal, substituting a verdict of $1,985,881.90 for the verdict at trial of $2,082,865.90 and ordering the appellant, Commercial Union Assurance Company of Australia Limited (Commercial Union) to pay the costs of the respondent, Michelina Pelosi (the plaintiff) of the trial. The Court made no order as to the costs of the appeal or cross appeal. The orders of this Court have not been entered and Miss Pelosi now applies for an order that she have her costs of the appeal on an indemnity basis. On 7 April 1995 the trial judge, Barr AJ, noted that the parties were agreed that on his assessment the plaintiff was entitled to indemnity costs, commencing from 25 May 1993, the date of the arbitrator's award. He made an order accordingly and the order of this Court that the appellant pay the respondent's costs of the trial should beplaintiff relied upon that case and the judgment of the majority of the Court (Gleeson CJ and Priestley JA, Kirby P dissenting) in Ettingshausen v Australian Consolidated Press Limited (unreported) 17 November 1995. The parties put no submissions about the costs of the appeal at the hearing of the appeal but it is not suggested that we should not now address the submission. 2 UNREPORTED JUDGMENTS [Editoral note: Text missing for second paragraph on this page] For present purposes I am content to accept, without deciding the matter, that the plaintiff's offer of compromise remained available for her to rely upon when this Court came to consider what order should be made as to the costs of the appeal. As Kirby P remarked in his dissenting judgment, where this Court reassesses damages it has been the common practice for the Court to consider, for its own part, the application of any offer made before trial to the costs of the proceedings, including in the Court of Appeal. As the President observed, the purpose of the rule is to promote compromised settlements. The obvious reasons for this in terms of the saving of private and public costs are summarised in the Maitland Hospital case at 724. In my opinion this object isbetter achieved, where there is an appeal against the decision at first instance, if the incentive to settle is maintained by requiring the parties again to give serious thought to the risk run of losing the appeal or cross appeal. If a respondent/plaintiff wishes to take advantage of the rule I see no reason why it should not be required to proffer an offer on the basis of which it would be prepared to compromise the appeal rather than simply rely upon an offer made in the quite different circumstances existing before trial. Consideration should be given to amending the rules accordingly. Mr Semmler QC, who appeared for Miss Pelosi, went so far as to submit that whatever the result of the appeal or the cross appeal in terms of the issues raised, if the substituted verdict exceeded the amount of the offer, his client was entitled to her costs of the appeal on an indemnity basis. I reject this submission. Although the successful party on an appeal has no right to costs unless and until the Court awards them and the Court has an absolute and unfettered discretion, which must be exercised judicially to award or not award them, the successful party in the absence of special circumstances, has a reasonable expectation of obtaining an order for the payment of costs from the unsuccessful party; see generally Donald Campbell & Co Limited v Pollak [1927] AC 732 at 811-2. I doubt whether the fact that an offer of compromise under Pt 22 has been made should weigh in determining which party should pay the costs of the appeal. Part 52A r 22 is directed, not to which party should pay the costs, but to whether the party ordered to pay the costs should pay them on an indemnity basis. In the present case if Miss Pelosi had appealed against the amount of the verdict and Commercial Union not cross appealed and the appeal had failed, the reasonable expectation of Commercial Union would be that it receive the costs of the appeal. If, in this case, there had been no cross appeal and Commercial Union had succeeded on its appeal though not to an extent sufficient to reduce the amount of the verdict below the amount of theoffer, it would be contrary to its reasonable expectation that Miss Pelosi, the unsuccessful respondent, would receive the whole of the costs of the appeal or indeed any part of them. On the other hand if she succeeded on the appeal it would be her expectation to obtain an order for costs and, in accordance with the dictum in Ettingshausen and the previous practice of this Court, an order that those costs be paid on an indemnity basis. In my judgment of 2 February 1996 I explained why I was of opinion that there should be no order as to the costs of the appeal or cross appeal. In light of the submissions that have been made I have reviewed this conclusion. In doing so I have taken account of the arguments advanced on Miss Pelosi's behalf but put them aside as not relevant to the question of how the parties should bear the costs of this appeal. I confirm the form of the order as I originally proposed it. \WROMMERCIAL UNION ASSURANCE COMPANY OF AUSTRALIA v PELOSI [NO 2] (Powel JA) Commercial Union advanced other arguments against Miss Pelosi's application. The conclusions I have reached make it unnecessary further to consider these. I propose the following orders: 1. The respondent's application to review the order for costs is dismissed with costs; 2. Amend order 3 of the orders made on 2 February 1996 by adding at the end the words 'on and from 25 May 1993 on an indemnity basis." 3. Confirm order 4. Powell JA. I have had the opportunity to read in draft the Judgment which has been prepared by Sheller JA. I agree with the Orders which his Honour proposes and with his reasons for so doing. 1. The respondent's application to review the order for costs is dismissed with costs; 2. Amend order 3 of the orders made on 2 February 1996 by adding at the end the words "on and from 25 May 1993 on an indemnity basis." 3. Confirm order 4. Counsel for the appellant (Pelosi): PCB Semmler QC Solicitors for the appellant (Pelosi): Carroll and O'Dea Counsel for the respondent (CUA): G Curtin Solicitors for the respondent (CUA): Henry Davis York