New South Wales Court of Appeal CITATION: The Uniting Church v Takacs (No 2) [2008] NSWCA 172 HEARING DATE(S): In chambers JUDGMENT DATE: 1 August 2008 JUDGMENT OF: Hodgson JA at 1; McColl JA at 18; Basten JA at 19 DECISION: (1) The Trust's application to vary the costs orders dismissed. (2) The Trust to pay the plaintiff's costs of that application. CATCHWORDS: COSTS – Plaintiff successful at first instance, and defendant successful on appeal – Offer of compromise by defendant at first instance, but not on appeal – Whether offer complied with rules – Whether it was an offer of a genuine compromise, where acceptance would leave plaintiff with no appreciable compensation – Whether court should order otherwise as regards costs at first instance – Whether court should order indemnity costs of the appeal. LEGISLATION CITED: Uniform Civil Procedure Rules 2005, 20.25-20.32, 42.13, 42.15A CATEGORY: Consequential orders The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No. 2) [2006] NSWCA 120; 67 NSWLR 706 Baresic v Slingshot Holdings Pty Ltd (No. 2) [2005] NSWCA 160 Commonwealth of Australia v Gretton [2008] NSWCA 117 Donald Campbell and Company Ltd v Pollak [1927] AC 732 Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 Hospital v Fisher [No 2] (1992) 27 NSWLR 721 CASES CITED: Jones v Dunkel [1959] HCA 8; 101 CLR 298 Latoudis v Casey [1990] HCA 59; 170 CLR 534 Leichhardt Municipal Council v Green [2004] NSWCA 341 Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 Ritter v Godfrey [1920] 2 KB 47 Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 The Uniting Church v Takacs (No 2) [2008] NSWCA 141 PARTIES: THE UNITING CHURCH IN AUSTRALIA PROPERTY TRUST (NSW) t/as Northaven Retirement Village (Appellant) John Ernest TAKACS (Respondent) FILE NUMBER(S): CA 40176/07 COUNSEL: P R GARLING SC/ R G GAMBI (Appellant) P G MAHONY SC/ R E QUICKENDEN (Respondent) SOLICITORS: Ebsworth & Ebsworth (Appellant) CBD Law (Respondent) - 10 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40176/07 SC 20224/05 HODGSON JA McCOLL JA BASTEN JA 1 AUGUST 2008 THE UNITING CHURCH IN AUSTRALIA PROPERTY TRUST (NSW) t/as Northaven Retirement Village v John Ernest TAKACS (No 2) Judgment 1 HODGSON JA: On 26 June 2008, the Court made the following orders (see [2008] NSWCA 141): (1) Appeal allowed. (2) Judgment below set aside. (3) In lieu thereof judgment for the Trust and order that the plaintiff pay the Trust's costs of the proceedings. (4) Order that the plaintiff pay the Trust costs of the appeal and have a certificate under the Suitor's Fund Act if otherwise eligible. 2 Pursuant to leave reserved on that day, the Trust has applied to vary the orders as to costs to the following: (i) The respondent pay the appellant's costs of the proceedings below on an ordinary basis up to and including 19 August 2005 and thereafter on an indemnity basis; and (ii) The respondent pay the appellant's costs of the appeal (except the costs incurred by it in reproducing the medical evidence) on an indemnity basis and to have a certificate under the Suitor's Fund Act if otherwise eligible. 3 The reference in par (ii) to the costs incurred in reproducing the medical evidence is there because the appeal was on liability, and it would be entirely inappropriate for the plaintiff to have to pay the costs incurred by the appellant in reproducing the medical evidence. The matter was not referred to in the Court's original orders, because costs on the ordinary basis would not have carried those costs; but are referred to in the Trust's proposed orders, because indemnity costs could be thought to carry those costs. 4 The application is made on the basis of an offer of compromise served on 19 August 2005, in the following terms: 1. The defendant offers the plaintiff the sum of $20,000.00 (twenty thousand dollars) on the terms and conditions referred to in paragraphs 2 and 3 below. 2. The offer is open for acceptance by the plaintiff for a period of 28 days. 3. If a notice of acceptance of the offer is received by the defendant's solicitors within 28 days then terms of settlement will be filed on the following terms: "By consent and without admission of liability: (a) judgment for the plaintiff against the defendant in the sum of $20,000; (b) interest Is not to be payable on the judgment for a period of 28 days from the date of filing of the terms or the date of receipt by the defendant's solicitors of a document signed by the plaintiff authorising the payment of the judgment monies to the plaintiff's solicitors, whichever is the later; (c) the defendant will pay the plaintiff's party/party costs as agreed or assessed; (d) the terms of the settlement are not to be disclosed." 4. This offer is made In accordance with Part 20 of the Uniform Civil Procedure Rules 2005. 5 For the Trust, it has been submitted that UCPR 42.15A has the effect that, unless the Court otherwise orders, the Trust is entitled to indemnity costs from 19 August 2005. The Trust submits that the Court should not otherwise order; and insofar as the rule does not apply to the appeal proceedings, the Trust submits that the Court in the exercise of its discretion should award indemnity costs. 6 For the plaintiff, it was submitted that the offer of compromise did not comply with the requirement of UCPR 20.26(3) that the offer "bear a statement to the effect that the offer is made in accordance with these rules", because it referred to Pt 20 without specific identification of rule 20.26. 7 In my opinion, the statement that the offer was made in accordance with Pt 20, together with the form of the document headed "Offer of Compromise", was sufficiently a statement to the effect that the offer was made in accordance with "these rules", these rules being Div 4 of Pt 20 (UCPR 20.25-20.32). 8 The offer of compromise was expressed to be subject to terms and conditions, including the condition that the terms of the settlement would be "without admission of liability" and would include a provision that "the terms of settlement are not to be disclosed". It could possibly be argued that this was inconsistent with rule 20.27, providing for entry of judgment, in that judgment requires a determination of liability and the firm practice of the Court is not to order the terms not be disclosed. However, in my opinion, the clear intention that judgment be entered would prevail over any contrary intention that might be suggested by the words "without admission of liability"; and having regard to the notoriety of the practice of the Court, the provision that the terms not be disclosed would not be understood as making the settlement conditional on the Court making such an order. 9 For those reasons, in my opinion, the offer of compromise did comply with the relevant rules. 10 It was also submitted by the plaintiff that the offer, being for a nominal amount in the circumstances, was not a genuine offer of compromise. 11 In my opinion, there is force in that submission, understood as being a submission to the effect that the offer was not an offer of a genuine compromise. The plaintiff could have succeeded in the case on either of two issues, on both of which reasonable minds could differ, as indicated by the judgments at first instance and on appeal. While I would not suggest that, in these circumstances, a genuine compromise would necessarily need to be in the order of fifty per cent of estimated damages, it would I think need to be for a substantial sum. The offer in this case would not have afforded the plaintiff any appreciable compensation for his very serious injuries. 12 I do not suggest that this consideration would prevent the offer from being one that engages the relevant rules and one that, in the circumstances, entitled the Trust to indemnity costs unless the court otherwise orders. The question is whether the court should otherwise order. 13 In a case such as this, it is in my opinion possible and appropriate for a court to reach a view as to whether there is justification for ordering otherwise, on the basis of its own assessment of the characterisation and merits of the offer and its refusal, without receiving evidence as to the motivations and understandings of the parties. In the present case, insofar as the offer suggests the Trust was confident of winning the case, the result vindicates that confidence. On the other hand, it cannot be denied that the offer was one that invites substantial capitulation by the plaintiff. 14 I do not make any adverse findings as to the bona fides of the Trust; but the offer in this case does have the appearance more of a procedural move to trigger costs consequences than of a genuine attempt to reach a negotiated settlement: cf Leichhardt Municipal Council v Green [2004] NSWCA 341 at [39]; Commonwealth of Australia v Gretton [2008] NSWCA 117 at [104]-[105]. 15 Having regard to that consideration, and to my view that the plaintiff did not act unreasonably in refusing the offer, I would in this case order otherwise, by leaving costs at first instance on the ordinary basis. 16 As regards the costs of the appeal, even if I had not ordered otherwise in relation to the costs at first instance, I would not have ordered indemnity costs of the appeal. In my opinion, appeal proceedings are properly treated as distinct proceedings for the purpose of UCPR 42.13, although offers of compromise made in first instance proceedings can still be relevant to the Court of Appeal's discretion as to costs. In this case, it was plainly reasonable for the plaintiff to seek to maintain the judgment he obtained at first instance, particularly in circumstances were no offer was made by the Trust in the appeal proceedings themselves. 17 For those reasons, I propose the following orders: (1) The Trust's application to vary the costs orders dismissed. (2) The Trust to pay the plaintiff's costs of that application. 18 McCOLL JA: I agree with Hodgson JA. 19 BASTEN JA: This Court has held that the appellant had no obligation to pay any amount by way of damages to the respondent: The Uniting Church v Takacs [2008] NSWCA 141. The offer of compromise referred to at [4] above would, if accepted, have involved a payment of $20,000 to the plaintiff. The offer was made by the defendant and not accepted by the plaintiff. The final order disposing of the proceedings, as a result of the decision of this Court, was a judgment in favour of the defendant. The defendant thus obtained a judgment "as favourable to the defendant, or more favourable to the defendant than the terms of the offer": Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 42.15A(1). 20 The primary purpose of an offer of compromise, made pursuant to Part 20, Div 4 of the UCPR, is to provide a basis for an order for indemnity costs in the event that the offer is not accepted and the matter proceeds to a trial at which the offeror receives a judgment no less favourable than the terms of the offer: rr 42.14-42.15A. The relevant rule provides that in such circumstances the defendant is entitled to an order for its costs in respect of the claim, assessed on an indemnity basis, of and from 20 August 2005, unless the Court otherwise orders: r 42.15A. Was there an effective offer? 21 The first question is whether the offer was an offer for the purposes of the rule. I agree with Hodgson JA that there was no substance in the plaintiff's contentions of procedural non-compliance. 22 There is a second basis on which, according to the authorities, an offer may fail to comply with the rules. That is said to happen in circumstances where the offer was not a "genuine offer of compromise" because it contained "no real element of compromise": see Leichhardt Municipal Council v Green [2004] NSWCA 341 at [23] (Santow JA), applied in Baresic v Slingshot Holdings Pty Ltd (No. 2) [2005] NSWCA 160 at [13] (Beazley JA, Mason P and Bryson JA agreeing). 23 There is also some suggestion in the cases that an offer may not qualify if the offer is not a bona fide offer, apparently because the Court can discern that the offeror's purpose was merely to invoke the rule and not to compromise its position: see Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355 (Rogers CJ Comm D), approved in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 367-368 (Giles J); Leichhardt Municipal Council at [57] (Santow J) and Baresic at [13]-[14] (Beazley JA). 24 Why an offer which is "merely advanced to enliven the costs sanctions under the Rules" is otherwise than a valid offer, given that it can have no other purpose, is unclear: cf Baresic at [14], following Leichhardt Municipal Council. Further, it seems unlikely that these authorities intended that there be some inquiry into the motives of the party making the offer. For practical purposes, that approach can be put to one side. The real question, as it appears, is whether the Court can discern in the amount of the offer a failure to compromise. 25 How that is to be assessed has not been clearly explained. In Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721, the Court (Kirby P, Mahoney JA and Samuels AJA) appears to have assessed the offer by reference to the final judgment. It was a case in which the plaintiff offered to compromise her claim for $200,000 and was ultimately awarded a judgment in the sum of $206,090. After discussing the nature of the assessment of damages, the Court stated at 725C: "In such circumstances, the offer of compromise was one which realistically assessed the chances of success in the appeal. It offered an inducement (admittedly small) to the appellant against the risks which are inherent in any litigation. Events have borne out the justification of the actual offer made and the wisdom of making it." 26 The Court also referred to the fact that the difference between the offer and the judgment was "small, being only 2.5% of the judgment sum" but was "real and not trivial or contemptuous": at 725A-B. There may be an inference that the Court would have treated an even smaller variation as "trivial or contemptuous" and not as a genuine offer, but that inference was not made express. The remainder of the paragraph suggests that the Court was addressing the question of discretion, not the question of the validity of the offer. 27 There are other difficulties. In Maitland Hospital, it was said of the difference between the sum offered and the judgment that the amount was "a real sum" for a person in the position of the plaintiff: at 725B. That invites a differential approach to the degree of compromise offered by a kitchen maid (as in Maitland Hospital) and a large corporation or its insurer. There is no authority which expressly supports that approach. 28 Further, the fact that the costs rule applies where the offer is equal to the judgment suggests that the validity of the offer for the purposes of the rule is not to be assessed according to the degree of departure from the outcome. On the other hand, it would be unfortunate if such matters were to be assessed according to the state of knowledge, legal advice and other circumstances relating to the offeror at the time the offer was made. Such an approach would invite disputation, with the offeree challenging the offeror to put on evidence of those matters and invoking the rules in Jones v Dunkel [1959] HCA 8; 101 CLR 298, if it did not. One can envisage cases (which may include the present) where a defendant is confident of succeeding in litigation, but makes a commercial decision based on expectations as to the amount of unrecoverable costs which would be incurred if the matter went to trial (and possibly appeal). A defendant which offered to settle a claim for an amount which was intended to reflect those unrecoverable costs would, in my view, be acting appropriately within the terms of the rules; the offer would not be otherwise than genuine or bona fide and it would involve a real element of compromise, whatever that may mean. 29 This case having been dealt with by way of brief written submissions on the question of indemnity costs, it does not provide an appropriate occasion to consider the manner in which the relevant principles have been developed, either in this Court or in comparable jurisdictions. Nevertheless, there may be merit in the comment of Hodgson JA in Commonwealth of Australia v Gretton [2008] NSWCA 117 that the terms of the rules have changed over time and it may be necessary to consider the significance of changes in relation to the application of earlier authority: at [113]. It may also be necessary to consider the appropriateness of applying principles developed in relation to Calderbank offers with respect to offers made in compliance with the relevant rules. There are many examples of cases in which such distinctions have not been identified or considered, including The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No. 2) [2006] NSWCA 120; 67 NSWLR 706 at [8], although the importance of distinguishing Calderbank offers was noted: at [10]. In that case the offer was assessed as involving an increase of 20% on the final judgment and therefore as involving a "genuine element of compromise": at [12]. It was not necessary to address the appropriateness of that test. Exercise of discretion 30 Accepting, as I do, that the offer in the present case was an offer for the purposes of Part 20, Div 4 of the UCPR, and that it engages, as it must in that circumstance, the terms of r 42.15A, the question is whether the Court should otherwise order, so as to deprive the defendant of its entitlement to indemnity costs from the day after the offer. 31 Such an offer must be seen in the context of existing costs rules. Any party to civil litigation, where the ordinary rule is that costs will follow the event, must, in assessing the likely financial outcomes, take account of the possibility of having to pay two sets of costs if unsuccessful in the litigation. In the Supreme Court, that general principle is encapsulated in r 42.1 and is also subject to the power of a court to make some other order. That may occur where the successful party has engaged in what is sometimes described as "disentitling conduct": see generally Donald Campbell and Company Ltd v Pollak [1927] AC 732; Ritter v Godfrey [1920] 2 KB 47. The circumstances justifying a different order are not limited to cases of disentitling conduct, but such an order is not justified merely because the unsuccessful party acted reasonably. That is because an adverse costs order is made to compensate the successful party in respect of its costs (or part thereof) and not to punish the unsuccessful party for unreasonable or inappropriate conduct: see generally Latoudis v Casey [1990] HCA 59; 170 CLR 534 at 569 (McHugh J). 32 The only effect of an indemnity costs order is to increase the amount of the recoverable costs: it does not interfere in any respect with the justification underlying the usual order that costs follow the event. Accordingly, in terms of policy, it is not self-evident that the discretion to decline to award indemnity costs should depend upon the reasonableness or otherwise of the conduct of the offeree in not accepting the offer. Again, to take such matters into account is to invite consideration of the state of knowledge of the offeree, the degree of preparation of the case and the content of any legal advice then obtained. That in turn invites the presentation of evidence as to those matters. The alternative is for the Court awarding costs to engage in speculation and possibly reconstruction of the state of affairs from the perspective of the offeree at the time the offer was made. In my view this is not an exercise to be encouraged unless the terms of the rule demand it. 33 The rule does not in express terms make any such demand: it does not refer to a "reasonable" offer of compromise, nor to an "unreasonable" failure to accept the offer. Justification for making orders otherwise than in accordance with r 42.15A(2) should properly be found in considerations which would be deemed relevant for the purposes of otherwise ordering in relation to the general rule (that costs follow the event): see r 42.1. No such circumstances arise in the present case. It follows that the appellant is entitled to its costs at trial on and from 20 August 2005 on an indemnity basis. Costs of appeal 34 As to the costs of the appeal, I agree with the general approach of Hodgson JA at [16]. It is not necessary for this purpose to identify the precise operation of the UCPR, which came into force four days before the offer was made, and their application with respect to the operation of offers in relation to proceedings in this Court: but see The Anderson Group at [17]. The respondent should have a certificate under the Suitors' Fund Act 1951 (NSW). 35 Because the appellant has succeeded on the present application in having the costs order in the Common Law Division varied, but has not obtained variation of the costs order with respect to the appeal, I would make no order as to the costs of the application. 36 I would propose the following orders: (1) Vary order (3) made on 20 June 2008 to read: (3) In lieu of the orders made in the Common Law Division, (a) give judgment for the defendant; (b) order the plaintiff to pay the defendant's costs of the proceedings in the Division, to be assessed on an indemnity basis on and from 20 August 2005. (2) No order as to the costs of this application. (3) Grant the respondent a certificate under the Suitors' Fund Act 1951 (NSW). ********** 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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