New South Wales Court of Appeal CITATION : South Sydney Council v Morris (No 3) [2001] NSWCA 200 FILE NUMBER(S) : CA 40263/99 HEARING DATE(S) : Decided on written submissions JUDGMENT DATE : 28 June 2001 PARTIES : South Sydney Council (Appellant) Teresa Morris (Respondent) JUDGMENT OF : Meagher JA at 1; Heydon JA at 2; Fitzgerald AJA at 17 LOWER COURT JURISDICTION : District Court LOWER COURT DC 5713/96 FILE NUMBER(S) : LOWER COURT Moore DCJ JUDICIAL OFFICER : COUNSEL : S Rares SC/V M Heath (Appellant) C Evatt (Respondent) SOLICITORS : Phillips Fox Lawyers (Appellant) Newman & Associates (Respondent) LEGISLATION CITED : Supreme Court Act 1970 Ettingshausen v Australian Consolidated Press (1995) 38 NSWLR 404 CASES CITED: Fotheringham v Fotheringham (No 2) (1999) 46 NSWLR 194 Oshlack v Richmond River Council (1998) 193 CLR 72 DECISION : See paragraph 15 THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40263/99 DC 5713/96 MEAGHER JA HEYDON JA FITZGERALD AJA 28 June 2001 SOUTH SYDNEY COUNCIL v Teresa MORRIS [No 3] JUDGMENT 1 MEAGHER JA: I agree with Heydon JA. 2 HEYDON JA: On 28 June 2000 the court announced that it dismissed the appeal with costs. The respondent indicated that she wished to contend that there should be an indemnity costs order in relation to the costs of the appeal in her favour, and the parties have filed written submissions about this as directed. 3 The respondent submitted she was entitled to an indemnity costs order in relation to the costs of the appeal on two grounds. The first ground rested on the making of an offer of settlement the night before the appeal was called on for hearing, and was said to depend on the inherent jurisdiction of the court. This ground was rejected in South Sydney Council v Morris [No 2] (16 August 2000) [5]-[7]. 4 The second of the grounds on which the respondent sought an indemnity costs order was that pre-trial offers of 12 December 1997 and 28 April 1998 made pursuant to Pt 19A of the District Court Rules can affect the costs of the appeal. The offers were to settle for $6,000 plus costs. In South Sydney Council v Morris [No 2] it was decided that that aspect of the application should not be determined until the trial judge delivered judgment on the question of what costs order should be made in relation to the trial. 5 On 4 June 2001 the trial judge delivered judgment on that question. His order was: "The Plaintiff should have her costs assessed on a solicitor and client basis, with the exception of the costs incurred solely in connection with the arbitration. The defendant is to have the latter costs on a party and party basis." 6 The essential reason why the trial judge made that order rested on Pt 39A r 25(4) of the District Court Rules, which provided: "Where an offer is made by a plaintiff 28 days or more before the hearing of the action commences, and the offer is not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders, the plaintiff shall be entitled to an order against the defendant for the plaintiff's costs in respect of the claim assessed on a solicitor and client basis." The trial judge said that the case was not exceptional, and no contrary order was called for in order to avoid substantial injustice. The trial judge's reasoning emerged in the course of rejecting the defendant's application for an order that the plaintiff pay the defendant's costs of the trial. That application was based on a supposed failure by the plaintiff to call vital evidence at the arbitration preceding the trial, and on the supposed fact that the plaintiff called substantially different evidence at the trial from that which she called on the arbitration without giving notice to the defendant. The trial judge held that the plaintiff had not suppressed evidence at the arbitration, but rather had prepared her case inadequately then and improved her case before the trial. He found nothing sinister in the plaintiff's conduct in a case with rudimentary pleadings to which the parties paid little regard, and considered that the arbitrator and the defendant had experienced a genuine misunderstanding of her case at the arbitration. He said that the defendant had not been taken by surprise at the trial. 7 The respondent in this Court (who was the plaintiff below) drew particular attention to Ettingshausen v Australian Consolidated Press (1995) 38 NSWLR 404 and Fotheringham v Fotheringham (No 2) (1999) 46 NSWLR 194. In the first case, Gleeson CJ and Priestley JA gave consideration to the application of Pt 52 r 17(4) of the Rules of the Supreme Court of New South Wales, which provided: "Where an offer is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to him than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall, subject to rule 24, be entitled to an order against the defendant for his costs in respect of the claim from the day on which the offer was made, taxed on an indemnity basis in addition to his costs incurred before and on that day, taxed on a party and party basis." The "offer" referred to was an offer of compromise in accordance with Pt 22 r 3(5). Pt 52 r 17(4) thus had similarities to Pt 39a r 25(4) which related to offers of compromise made under Pt 19A of the District Court Rules. The Supreme Court rule now in force which corresponds to Pt 52 r 17(4) is Pt 52A r 22(4). Gleeson CJ and Priestley JA rejected a submission that an offer of compromise ceased to have effect once the claim to which it related had been the subject of a complete trial and did not apply in relation to the costs of any appeal. At 409-410 they said: "the offer is made, not in respect of a trial, but in respect of a claim. Depending upon the circumstances of a case, a claim may not be finally heard and determined until after there have been a number of appeals, and, perhaps, a number of trials …. In truth, this Court routinely reassesses damages on appeal, and is frequently asked to make, and makes, orders for indemnity costs based upon offers of compromise that were made before the original trial. … In our view, there is no justification for concluding that, once the claim to which it relates has been the subject of a complete trial, an offer of compromise made before the trial has no further significance for any appeal, or subsequent re-trial." 8 Ettingshausen's case was further considered in Fotheringham v Fotheringham (No 2) (1999) 46 NSWLR 194. In that case the Court of Appeal had under consideration Pt 52A r 22(4). Four judges of appeal applied the dicta in Ettingshausen's case in deciding that a pre-trial offer of compromise continued to have costs consequences for an appeal. Five judges of appeal held that it did not dictate what the order for the costs of the appeal should be. Pt 52A r 22(4) contained its own discretion ("unless the Court otherwise orders"). That was a case in which the respondent had made an offer to compromise a claim for $70,000. The respondent obtained an order from a Master that the appellant pay her $125,000. An appeal succeeded to the extent of having that sum reduced to $90,000. The respondent had thus done better, even after the appeal, than her offer of compromise. However, the Court of Appeal ordered her to pay the costs of the appeal. 9 The language and structure of the relevant District Court Rules are sufficiently close to the language and structure of the Supreme Court Rules considered in Ettingshausen's case and Fotheringham v Fotheringham (No 2) to make it appropriate to follow them if they were directly in point. 10 However, Pt 39A r 25(4) cannot apply in terms to the costs of the appeal. It gives power to "the Court" - that is, the District Court. This Court is not the District Court. Pt 52A r 22(4) of the Supreme Court Rules does not apply in terms to the respondent's offers of compromise either, since they were made under the District Court Rules, not Pt 22 r 3(5) of the Supreme Court Rules. 11 The costs of the appeal are in the discretion of this Court: Supreme Court Act 1970, s 76(1)(a). They may be assessed on an indemnity basis: s 76(1)(c). The question is whether the fact that the respondent made offers to settle pursuant to the District Court Rules which were more favourable to the appellant than the ultimate result of the appeal justifies an order for indemnity costs. Normally a costs order made by the Supreme Court is an order that "assessed costs" be paid: Pt 52A r 6(1). Pt 52A r 37 contemplates that costs may be payable on an indemnity basis "by or under the rules or any order of the Court". No rule specifically applies to the present circumstances (cf Pt 52A rr 22 and 32). 12 It follows that any order for indemnity costs of the appeal in favour of the respondent must depend on a favourable exercise of the inherent jurisdiction of the court. One area where the inherent jurisdiction exists is where there is "some relevant delinquency on the part of the unsuccessful party" (Oshlack v Richmond River Council (1998) 193 CLR 72 at [44]). That does not apply here. The only other relevant possibility for exercise of an inherent jurisdiction would rest on failure to better the pre-trial offers either at the trial or on appeal. 13 The existence of the court's inherent jurisdiction to make an indemnity costs order in relation to the costs of an unsuccessful appeal was not mentioned by the Court of Appeal in Ettingshausen's case or Fotheringham v Fotheringham (No 2). It was not strictly relevant to do so in Ettingshausen's case in two respects, since the actual decision turned on the operation of offers under the rules, and since the case concerned the costs of the second trial (not the costs of the appeal from the first trial, in which the defendant succeeded against the plaintiff, who had won the first trial, in obtaining an order for a new trial on damages). Nor was the inherent jurisdiction strictly relevant in Fotheringham v Fotheringham (No 2), because again the actual decision turned on the operation of offers under the rules, and in that case, unlike this, the respondent lost the appeal. 14 The present case is not an appropriate one in which to consider how far the court's inherent jurisdiction reaches and what circumstances it is appropriate to exercise it in. The respondent, in relying on Ettingshausen's case and Fotheringham v Fotheringham (No 2), can only have been relying on the operation of rules of court, because that is all that those cases discussed. The entitlement to indemnity costs based on the offer made the evening before the appeal was argued was said to rest on the inherent jurisdiction of the court, but the pre-trial offers were not said to be based on the inherent jurisdiction of the court. There has been no real argument directed to the inherent jurisdiction. While the trial judge's award in favour of the respondent was much greater than her offer, there were aspects of his reasoning which it was not unreasonable for the appellant to test. 15 I propose the following orders additional to those made on 28 June 2000: 1. That the respondent's application for indemnity costs in relation to the appeal be dismissed. 2. That the respondent pay the appellant's costs of the respondent's application for indemnity costs in relation to the appeal. 16 That leaves undisturbed the order of the court on 28 June 2000 that the respondent's costs of the appeal in every respect except her application for indemnity costs be paid by the appellant. 17 FITZGERALD AJA: I agree with Heydon JA. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.