New South Wales District Court CITATION: Aldag v Eistis (No 2) [2008] NSWDC 186 HEARING DATE(S): Written submissions JUDGMENT DATE: 29 August 2008 JURISDICTION: Civil JUDGMENT OF: Gibson DCJ DECISION: 1. Amend order 3 of the judgment of 7 August 2008 to order the applicant to pay the respondent's costs of the Notice of Motion. 2. Respondent's application for costs to be paid on an indemnity basis refused. CATCHWORDS: COSTS - Calderbank offer - application by uninsured defendant for costs against solicitor for plaintiff in unsuccessful public liability claim - whether "walk-away" offer amounts to a compromise - whether seven days a reasonable period - whether unreasonable to reject the offer - application for indemnity costs refused Civil Procedure Act 2005 (NSW), s 99 LEGISLATION CITED: Legal Profession Act 1987 (NSW), s 198M Legal Profession Act 2004 (NSW), s 348 Uniform Civil Procedure Rules 2005 (NSW), rr 42.1 and 42.27(1) Aldag v Eistis [2008] NSWDC 157 Calderbank v Calderbank [1975] 3 All ER 333 Commonwealth of Australia v Gretton [2008] NSWCA 117 Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284 Fowler, Corbett and Jessop t/as Haydon Fowler Corbett Jessop v Toro Constructions Pty Ltd [2008] NSWCA 178 Jones v Bradley (No 2) [2003] NSWCA 258 Leichhardt Municipal Council v Green [2004] NSWCA 341 Lemoto v Able Technical Pty Ltd [2005] NSWCA 153 LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 Ng v Chong [2005] NSWSC 385 CASES CITED: Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133 Peter Willis v Health Communications Network Ltd (No. 2) [2008] NSWCA 2 Russell v Edwards (No 2) [2006] NSWCA 52 Seary v White (No 5 – Costs) [2008] NSWDC 21 Singh v Singh (No 3) [2004] NSWSC 866 Skalkos v Assaf (No 2) [2002] NSWCA 236 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 South Eastern Sydney Area Service v King [2006] NSWCA 2 Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 Uniting Church in Australia Property Trust (NSW) t/as Northaven Retirement Village v Takacs (No 2) [2008] NSWCA 172 Wakaniuci v Adecco Australia Pty Limited; re Abboud [2008] NSWDC 174 Whyked Pty Ltd v Yahoo!7 Pty Ltd [2008] NSWSC 477 PARTIES: Applicant: Jody Aldag Respondent: Spiro Eistis FILE NUMBER(S): 1187 of 2007 COUNSEL: Applicant: Mr P Jones Respondent: Mr J Downing SOLICITORS: Applicant: Matthews Dooley & Gibson Respondent: Middletons JUDGMENT ON COSTS Introduction 1. On 7 August 2008 I handed down judgment dismissing an application for the respondent to be held personally liable for the costs of a personal injury claim brought unsuccessfully by his client against the applicant, Mr Aldag: Aldag v Eistis [2008] NSWDC 157. 2. The respondent seeks an order that the applicant pay his costs of and incidental to the Notice of Motion and in addition an order that such costs be awarded on an indemnity basis. 3. Noting the warning of McColl JA in Lemoto v Able Technical Pty Ltd [2005] NSWCA 153 at [92(g)] concerning "satellite litigation" I have determined this application on written submissions rather than put the parties to the costs of a further time in court. Costs following the event 4. The general principle is that costs should follow the event (r 42.1 Uniform Civil Procedure Rules 2005 (NSW)). In applications to seek personal costs orders against solicitors pursuant to s 198M Legal Profession Act 1987 (NSW), s 348 Legal Profession Act 2004 (NSW) or s 99 Civil Procedure Act 2005 (NSW), the courts have generally ordered the unsuccessful applicant to pay the successful respondent's costs: Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284 at 300; Whyked Pty Ltd v Yahoo!7 Pty Ltd [2008] NSWSC 477 at [188]-[189]; Fowler, Corbett and Jessop t/as Haydon Fowler Corbett Jessop v Toro Constructions Pty Ltd [2008] NSWCA 178. Where applications of this kind against a solicitor for a party have been successful, costs have followed the event. A recent example is Wakaniuci v Adecco Australia Pty Limited; re Abboud [2008] NSWDC 174, where costs were awarded against the former solicitor for the plaintiff by reason of "serious neglect and incompetence"(at [35]), although these costs were limited under Pt 42 r 42.27(1) to his refusal to produce his file at an application brought by his former client to extend time to commence proceedings. 5. The costs involved are of a significant nature. As was the case in Degiorgio (at 300), the application was commenced by way of Notice of Motion, requiring the filing of affidavits and a lengthy cross-examination of Mr Eistis over a full day of hearing, conduct which the Court of Appeal in Lemoto indicated was undesirable in such applications. This is important because had the application for costs been of a minor or incidental nature in the total context of the proceedings, those circumstances might militate against the making of an order for costs in respect of the Notice of Motion (Singh v Singh (No 3) [2004] NSWSC 866). 6. However, this process was not of the applicant's choosing. The trial judge was asked to deal with the application as soon as judgment was handed down, but declined to do so, according to the parties. If the application had been dealt with on the day, or at some other convenient time by the trial judge (who was familiar with the matter and did not need to be given a lot of background), the legal costs might have been less, but this is not the result of the applicant's choice of procedure. 7. The applicant further submits that as an uninsured person, faced with an indigent plaintiff, he had no prospects of any recovery of the costs of defending what was a highly unmeritorious claim. It is submitted that the respondent was put on notice by way of the Defence filed in the proceedings in which he was acting for the plaintiff, not mere by the Defence but also by the conduct of the case of the hopelessness of the proceedings in circumstances where the applicant had no alternative other than to defend them. 8. However, the applicant does not challenge the entitlement of a party who has been successful on a motion to an order for costs following the event. His submissions are essentially a request for merciful treatment for an uninsured defendant forced to defend a hopeless case commenced by an indigent plaintiff. 9. While I am sympathetic to the position of the applicant's position as an uninsured defendant, put to the expense of bringing this motion because the trial judge recused himself for bias, I see no reason to depart from the usual position that costs should follow the event. Costs on an indemnity basis 10. On 25 June 2008 the solicitors for the respondent sent a Calderbank letter (Calderbank v Calderbank [1975] 3 All ER 333) drawing attention to the Court of Appeal's decision in Lemoto, setting out a detailed analysis of the facts and offering to settle the matter on a "walk-away basis" with each party paying his own costs, such offer to be open for seven days. 11. The court can treat a Calderbank offer as grounds for an order for costs on an indemnity basis (Jones v Bradley (No 2) [2003] NSWCA 258) but such an offer will not justify an indemnity costs order unless its rejection was unreasonable: Jones v Bradley (No 2) at [13]; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133; LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74; Skalkos v Assaf (No 2) [2002] NSWCA 236; Leichhardt Municipal Council v Green [2004] NSWCA 341 at [46]-[47]; South Eastern Sydney Area Service v King [2006] NSWCA 2 at [90]; Russell v Edwards (No 2) [2006] NSWCA 52 at [6]-[7]; Peter Willis v Health Communications Network Ltd (No. 2) [2008] NSWCA 2 at [20]. In Leichhardt Municipal Council v Green, where the offer was made by a successful defendant, the Court of Appeal at [46]-[47] emphasises the width of the discretion and the special nature of an order for indemnity costs. 12. What is an unreasonable rejection of a Calderbank offer? That tends to turn on the facts of each case. In the present case, the applicant submits that the offer, being of the "walk-away" kind, was not a proper Calderbank offer but an offer demanding the capitulation of the applicant and thus not a compromise: Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355. The question of what amounts to a genuine compromise was considered recently by the Court of Appeal in Uniting Church in Australia Property Trust (NSW) t/as Northaven Retirement Village v Takacs (No 2) [2008] NSWCA 172. The court noted (having regard to the matters raised by Hodgson JA in Commonwealth of Australia v Gretton [2008] NSWCA 117 at [113]) that there may well be cases where a defendant offering to settle a claim for an amount which would reflect unrecoverable costs which would be bona fide, there still needs to be an element of compromise. A Calderbank offer in these proceedings which offered to make a contribution towards the applicant's costs may well have resulted in a settlement. The defendant had made some offers in the litigation which involved payment of modest sums, and may have responded favourably to a similar offer. 13. Another issue for consideration is the timing of the offer and the length of time that the offer remained open. The offer was made shortly before the application was to be heard, by which time substantial costs had been incurred on both sides. The applicant was already facing the prospect of not being able to recover legal costs for the trial in which he was successful. However, it must also be said that at the time the offer was made the applicant had before him all the necessary information upon which to make a decision, so the timing of the offer was reasonable. 14. However, the offer was only open for seven days. In Seary v White (No 5 – Costs) [2008] NSWDC 21 a party made an offer of compromise on the second day of the trial which remained open for only three days. The court considered sufficient time as a counter-offer was made during this period, and the parties represented by senior counsel. However, this was an offer of compromise; the reasonableness of a Calderbank offer includes the period of time allowed for acceptance: Ng v Chong [2005] NSWSC 385 at [13] – [15]. There is much to be said for giving a person who has been locked in litigation for a long period of time, particularly someone who is an uninsured defendant, time to consider his position. Seven days is a short period in the circumstances of this case. 15. The offer to walk-away on an each pay own costs basis was not a compromise, nor was it unreasonable to reject it in the circumstances of this case. 16. Accordingly, while the applicant should pay the respondent's costs of the motion, those costs should not be payable on an indemnity basis. Orders 1. Amend order 3 of the judgment of 7 August 2008 to order the applicant to pay the respondent's costs of the Notice of Motion. 2. Respondent's application for costs to be paid on an indemnity basis refused. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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