New South Wales Court of Appeal CITATION: Chubs Constructions Pty Ltd v Chamma [2009] NSWCA 98 HEARING DATE(S): 24 March 2009 JUDGMENT DATE: 5 May 2009 JUDGMENT OF: Beazley JA at 1; McColl JA at 2; Mathews AJA at 3 DECISION: (a) Grant leave to appeal. (b) Appellant to file the Notice of Appeal within 7 days. (c) Appeal allowed (d) Costs order made by Patten AJ on 7 May 2008 set aside and in lieu thereof order the applicant to pay 25% of the respondent's costs of the trial on a party and party basis. (e) Reserve the question of the costs of the appeal. (f) Applicant to file and serve written submissions as to the costs of the appeal on or before 11 May 2009. (g) Respondent to file and serve written submissions as to the costs of the appeal on or before 18 May 2009. (h) Applicant to file and serve any written submissions in reply on or before 25 May 2009. (i) Written submissions referred to in paras (f) – (h) to be delivered to the Associate to Beazley JA at the time of, and in addition to, their filing. CATCHWORDS: COSTS – claim for work injury damages – court proceedings – costs governed by Workplace Injury Management and Workers Compensation Act 1998, s 346 and Workers Compensation Regulation 2003, rr 89-91, 94 – whether power to order costs to be paid on an indemnity basis – whether cl 110 or 113 of the Regulation confers a power to award costs on a basis other than party and party - COSTS – court proceedings to recover work injury damages – worker sues employer and principal contractor – mediation – offer of compromise – whether sufficient compliance with cl 89 and cl 94 of the Workers Compensation Regulation 2003 – whether offer to settle economic loss component of respondent's claim constituted final offer to settle the claim against all defendants under cl 89 – whether sufficient for purposes of cl 94(a) if offer covers only economic loss component of claim – meaning of "the claim" in cl 94(a) – whether primary judge erred in ordering that respondent's costs be paid on a party and party basis - WORDS AND PHRASES – "the claim" Civil Liability Act 2002 Civil Procedure Act 2005 Interpretation Act 1987 LEGISLATION CITED: Workers Compensation Act 1987 Workplace Injury Management and Workers Compensation Act 1998 Uniform Civil Procedure Rules 2005 Workers Compensation Regulation 2003 CATEGORY: Principal judgment CASES CITED: Smith v Sydney West Area Health Service (No 2) [2009] NSWCA 62 PARTIES: Chubs Constructions Pty Ltd - Appellant Sam Chamma - Respondent FILE NUMBER(S): CA 40236 of 2008 COUNSEL: Mr S Campbell SC with Mr D P O'Dowd - Appellant Mr P Semmler QC - Respondent SOLICITORS: Bartier Perry Solicitors- Appellant CMC Lawyers - Respondent LOWER COURT JURISDICTION: Supreme Court LOWER COURT FILE NUMBER(S): SC 20252/05 LOWER COURT JUDICIAL OFFICER: Patten AJ LOWER COURT DATE OF DECISION: 7 May 2008 LOWER COURT MEDIUM NEUTRAL CITATION: [2008] NSWSC 382 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40236/08 SC 20252/05 BEAZLEY JA McCOLL JA MATHEWS AJA Tuesday 5 May 2009 Chubs Constructions Pty Ltd v Sam Chamma Judgment 1 BEAZLEY JA: I agree with Mathews AJA. 2 McCOLL JA: I agree with Mathews AJA. 3 MATHEWS AJA: This is an application for leave to appeal against costs orders made by Patten AJ in the following circumstances. On 18 June 2004 the respondent suffered serious injury when he fell a considerable distance during the course of his employment. In due course he commenced proceedings in this Court seeking damages for personal injuries against the principal contractor at the worksite ("Soliman") and his employer, the present applicant. The proceedings were complex and protracted, occupying some five weeks of hearing. 4 On 5 March 2008, Patten AJ handed down his judgment in the principal proceedings. He entered a verdict against Soliman for $1,402,460 and against the applicant for $890,676. He stood the matter over for final orders, including as to costs. 5 On 7 May 2008, having taken submissions from both parties, his Honour ordered that the applicant pay 25% of the respondent's costs on a party and party basis up to 15 September 2006 and thereafter on an indemnity basis. It is from this order that the applicant seeks leave to appeal. It is submitted that the appropriate order should have been that the applicant and the respondent pay their own costs of the proceedings pursuant to cl 91 of the Workers Compensation Regulation 2003 ("the Regulation"). 6 For reasons which will become apparent, the Court took the view at the outset of the hearing that leave to appeal should be granted. Accordingly, submissions were taken as on an appeal. 7 Two distinct matters were raised on the application. The first was whether the primary Judge had the power to order that costs be paid on an indemnity basis. The second related to his Honour's order that the respondent's costs be paid on a party and party basis. 8 Two offers were made by the respondent which the primary Judge treated as relevant for costs purposes. The first in point of time was contained in a letter sent by the respondent's solicitor to the applicant's solicitor on 31 August 2006 in the following terms: "For the purposes of Regulation 94 of the Workers Compensation Regulation 2003, the Plaintiff offers to settle the past and future economic loss component of this claim against Chubs Construction and against the current Supreme Court Defendant being Soliman & Sons Pty Ltd in the sum of $550,000 plus costs. The above offer is made to all potential Defendants being Chubs Construction Pty Ltd and Soliman & Sons Pty Ltd and is an offer to settle the economic loss component of the claim against both corporations. The above-named offer is open for a period of 14 days after which it is withdrawn." 9 The second offer was made during the course of a mediation held pursuant to the Workplace Injury Management and Workers Compensation Act 1998 ("the WIM Act"). It was in the following terms: "Sam Chamma The Plaintiff offers to settle the economic loss component of his claim against the defendant in the work injury damages claim subject of this mediation and the offer is also made to the defendant, Soliman & Sons in the related Supreme Court proceedings, matter No. 20252/2005. The offer is a joint offer made to both abovementioned defendants. Economic Loss Component Offer is $500,000 plus costs inclusive of incapacity payments made by the employer but clear of all other payments made by the employer under the Workers Compensation Act 1987. 14.11.06" 10 The primary Judge found that the offer made on 14 November 2006 fell within clauses 89 and 94 of the Regulation (see later, para [12]), thereby entitling the respondent to an order that his costs be paid "at least" on a party and party basis. His Honour then went on to discuss the question of indemnity costs. He concluded that the offer made on 31 August 2006 should be treated as a Calderbank offer and that the employer's refusal to accept it was unreasonable. The offer had remained open for 14 days. Accordingly his Honour ordered that the defendant pay the plaintiff's costs on an indemnity basis from 15 September 2006. Indemnity costs 11 There is a significant question as to whether there is power to order indemnity costs in a claim for work injury damages. The primary Judge assumed that such a power existed, for reasons I shall discuss later. In the normal course of events, this would be a reasonable assumption, given the wide powers conferred by s 98(1) of the Civil Procedure Act 2005. That section provides as follows: " 98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." 12 However the wide discretion conferred by s 98(1) is subject, inter alia, to the provisions of "any other Act", which includes the WIM Act. The WIM Act regulates, inter alia, court proceedings seeking damages against employers for work related injuries (described as "work injury damages"). Section 346 of this Act provides as follows: " 346 Costs (1) This section applies to costs (including disbursements) payable by a party in or in relation to a claim for work injury damages, including court proceedings for work injury damages. (2) The regulations may make provision for or with respect to the awarding of costs to which this section applies. The regulations may provide for the awarding of costs on a party and party basis, on a practitioner and client basis, or on any other basis. (3) A party is not entitled to an award of costs to which this section applies, and a court may not award such costs, except as prescribed by the regulations under this Act or by the rules of the court concerned. (4) In the event of any inconsistency between the provisions of the regulations under this section and rules of court, the provisions of the regulations prevail to the extent of the inconsistency." 13 The combined effect of subsections (3) and (4) is that, in a claim for work injury damages, a court can only award costs as prescribed by the regulations or by the rules of court, and in the event of any inconsistency between them, the provisions of the regulations are to prevail. 14 The material regulations in this case are clauses 89 to 94, which are to be found in Part 19 (Costs), Division 3 (Costs recoverable in work injury damages matters), Subdivision 2 (Restriction on awarding of costs) of the Regulation. In particular, the following clauses are relevant to this application: " 89 Costs where claimant no less successful than claimant's final offer If a claimant obtains an order or judgment on a claim that is no less favourable to the claimant than the terms of the claimant's final offer of settlement in mediation under the 1998 Act as certified by the mediator under section 318B of the 1998 Act, the court is to order the insurer to pay the claimant's costs on the claim assessed on a party and party basis. 90 Costs where claimant less successful than insurer's final offer or insurer found not liable (1) If a claimant obtains an order or judgment on a claim that is less favourable to the claimant than the terms of the insurer's final offer of settlement in mediation under the 1998 Act as certified by the mediator under section 318B of the 1998 Act, the court is to order the claimant to pay the insurer's costs on the claim assessed on a party and party basis. (2) If a claimant does not obtain an order or judgment on a claim (that is, if the court finds the insurer has no liability for the claim), the court is to order the claimant to pay the insurer's costs on the claim assessed on a party and party basis. 91 Costs in other cases Except as provided by this Subdivision, the parties to court proceedings for work injury damages are to bear their own costs. 92 … 93 … 94 Multiple parties Where 2 or more defendants are alleged to be jointly or jointly and severally liable to the claimant and rights of contribution or indemnity appear to exist between the defendants, this Subdivision does not apply to an offer of settlement unless: (a) in the case of an offer made by the claimant—the offer is made to all the defendants and is an offer to settle the claim against all of them, and (b) in the case of an offer made to the claimant: (i) the offer is to settle the claim against all the defendants concerned, and (ii) where the offer is made by 2 or more defendants—by the terms of the offer the defendants who made the offer are jointly or jointly and severally liable to the claimant for the whole amount of the offer." 15 These provisions are mandatory in their terms and permit of no discretion. The general fall-back position is asserted in cl 91, namely that parties in proceedings for work injury damages are to bear their own costs. Only if an offer is made which satisfies the provisions of cl 89 (in the case of a claimant's offer) or cl 90 (in the case of an insurer's offer) and cl 94 (if there is more than one defendant) can any other order be made. In that event the order which the court is required to make is that costs be paid on a party and party basis. 16 The scheme of the regulations therefore appears to be such that there is no scope for any indemnity costs order to be made. 17 Mr P Semmler QC, on behalf of the respondent, submitted that a residual discretion to award such cost does exist. In support, he referred the Court to other provisions of the Regulation, particularly clauses 110 and 113. Those clauses appear in Part 19 (Costs), Division 4 (Assessment of Costs), Subdivision 3 (Assessment of party/party costs). 18 Clause 110(3) provides: "(3) If a court or the Commission has ordered that costs are to be assessed on an indemnity basis, the Registrar must assess the costs on that basis, having regard to any relevant rules of the court or Commission." Clause 113 provides: "This Division does not limit any power of a court or the Commission to determine in any particular case the amount of costs payable or that the amount of the costs is to be determined on an indemnity basis." 19 It is apparent that the primary Judge attached particular significance to cl 113. In his judgment on costs, he quoted the relevant applicable provisions of the Regulation as being clauses 89, 90, 91, 94 and 113. Had cl 113 been in the same Division as the other clauses, it might arguably have overridden the apparently peremptory requirements of clauses 89 and 91. However it is not in the same Division, and it therefore has no direct effect upon those other provisions. 20 It is certainly the case that clauses 110 and 113 appear to presuppose that there might be an order for costs on an indemnity basis or that a court might have the power to make such an order. That may reflect the fact that s 346(2) of the WIM Act, contemplates that the regulations may provide for the awarding of costs on other than a party and party basis. However the restrictions on the awarding of costs in work injury damages cases found in clauses 89–94 of the Regulation only permit the awarding of party and party costs. Neither cl 110 or cl 113 operates to confer a power to award costs on any other basis. Clause 110 deals only with issues relating to the assessment of costs. Clause 113 ensures Division 4 does not limit any power of a court to determine that costs be on an indemnity basis. However before such a power can be exercised, it must have been conferred. For the reasons I have explained, the legislative has not conferred such a power in work injury damages cases. The peremptory terms of clauses 89 to 91 leave no discretion to order costs on any basis other than as set out in those provisions. 21 In my opinion, the primary Judge had no power to order costs on an indemnity basis. Relevant error has therefore been demonstrated. 22 I now turn to the remaining matter in contention, namely the primary Judge's order that the applicant pay the respondent's costs on a party and party basis. Party and party costs 23 His Honour found that the offer made by the respondent on 14 November 2006 fell within cl 89 of the Regulation and therefore entitled the respondent to an order that the applicant pay his costs on a party and party basis. The applicant submits that his Honour erred in two respects: first, it is submitted that the respondent's offer dated 14 November 2006 was not a "final offer of settlement" under cl 89; secondly, that the offer did not comply with the requirements of cl 94. I shall discuss those submissions in turn. 24 Mr S G Campbell SC for the applicant did not dispute that the offer made on 14 November 2006 was made in a mediation held under the 1998 Act and was certified as such by the mediator. It was for an amount significantly less than the amount recovered by the respondent under his Honour's judgment. However, he argued that the offer could not have been a "final offer of settlement" given that it offered to settle only the economic loss component of the claim against the applicant. 25 On the other hand, as Mr Semmler pointed out, the economic loss component of the respondent's claim constituted the full amount which he was entitled to recover from the applicant in the proceedings before his Honour. Part 5 Division 3 of the Workers Compensation Act 1987 regulates the damages which may be awarded to workers for injury caused by the negligence of their employers. Section 151G(1) provides as follows: "(1) The only damages that may be awarded are: (a) damages for past economic loss due to loss of earnings, and (b) damages for future economic loss due to the deprivation or impairment of earning capacity." 26 In accordance with this requirement, the judgment which the applicant obtained against the applicant, in the sum of $890,676, consisted entirely of damages for past and future economic loss. 27 It follows that the offer to settle the economic loss component of the respondent's claim constituted a final offer to settle the whole of his claim against the applicant. The offer therefore complied with all requirements of cl 89 with the result that, subject to cl 94, the court was required to order that the applicant pay his costs on a party and party basis. 28 Clause 94 is not free of difficulties. It requires, as relevant here, that the offer be made to all defendants in the proceedings and that it be an offer to settle the claim against all of them. 29 In this case the offer was made to both defendants. To this extent it complied with cl 94. For reasons already given, the offer operated as an offer to settle the claim against the respondent, given that this claim was restricted to damages for economic loss. However, in relation to the other defendant, Soliman, the respondent's claim was brought under the Civil Liability Act 2002 and the claim for economic loss was but one of several major components. This is illustrated by the fact that the respondent obtained a judgment against Soliman which exceeded the judgment he obtained against the applicant by more than $500,000. It follows that the respondent's offer of November 2006 was not capable of settling the whole of the claim against Soliman, nor was it intended to do so. 30 The respondent submits that the offer to settle the economic component of his claim was sufficient compliance with cl 94. The applicant disputes this. The real question is whether cl 94(a) requires that the claimant's offer must relate to all components of the claimant's case against all defendants, including claims other than work injury damages; or whether, on the other hand, it is sufficient if the offer covers only the work injury damages component (namely the economic loss component) of the claim against all defendants. The answer to this question turns on what is meant by "the claim" in cl 94(a). 31 The principal legislative enactment in this scheme is the WIM Act. Section 4 of that Act defines "claim" as "a claim for compensation or work injury damages that a person has made or is entitled to make". Section 11 of the Interpretation Act 1987 provides that words that occur in an instrument have the same meaning as they have in the Act under which the instrument is made. Accordingly, "the claim" in cl 94(a) is restricted to a claim in relation to work injury damages. On this basis an offer to all defendants to settle the economic component of a plaintiff's claim would comply with cl 94. If not accepted it would entitle the plaintiff to an order for party and party costs, so long as the other requirements of cl 89 were fulfilled. 32 This interpretation accords with the general scheme of the relevant legislation. Under cl 89, only an offer made at mediation can attract the costs benefits provided in that provision. Under s 318A of the WIM Act a mediation must take place before a claimant can commence court proceedings against an employer for recovery of work injury damages. Section 318B(1) provides that the mediator must use his or her best endeavours to bring the parties to agreement on the claim. It follows that the mediation is concerned only with the claim for work injury damages. Any other head of damages against defendants other than the employer are not within the purview of the mediation. Indeed, they are not within the purview of this legislative scheme. Nor could it be said that an offer, restricted in this manner, was lacking in utility. If accepted by the employer, it would remove one party from the proceedings. If accepted by the remaining party or parties, it would resolve a very significant component of the plaintiff's claim against them. 33 In my view the respondent's offer dated 14 November 2006 complied with the requirements of both clauses 89 and 94. Mr Campbell accepted that if that was the case the appellant was exposed to an order that it pay 25% of the respondent's costs on a party and party basis. In my view that was an appropriate concession. Costs on appeal 34 The consequence of this judgment is that the appeal will be upheld and the respondent will lose the indemnity costs order, but nevertheless have an order that the appellant pay 25% of the his costs of the trial on a party and party basis. Both parties to the appeal will, accordingly, have enjoyed success and suffered failure in roughly equal measure. In a case where the costs issues are governed by s 98 of the Civil Procedure Act and Pt 42 of the Uniform Civil Procedure Rules 2005 ("UCPR") this may result in an application for departure from the general rule that costs follow the event: UCPR r 42.1. However the question has arisen as to whether the applicable legislation might require a different result. 35 In Smith v Sydney West Area Health Service (No 2) [2009] NSWCA 62 which was handed down the morning this appeal was heard, the Court (Beazley, Giles and Marfarlan JJA) concluded that s 346 of the WIM Act and the Regulation governed the issue of the costs in proceedings in the Court of Appeal relating to claims for work injury damages. In that case, although the appellant worker obtained a verdict against the respondent employer, she did not obtain an order or judgment on her claim that was no less favourable to her than the terms of her final offer of settlement in a mediation under the WIM Act as certified by the mediator under section 318B of the WIM Act: cl 89. Accordingly, the Court ordered that there be no order as to costs, with the intent that the parties were to bear their own costs of the trial and of the appeal: cl 91. 36 This appeal concerned only the issue of the costs outcome on the respondent's claim at trial. The parties did not address any submissions to how the costs of the appeal might be affected in the circumstances of the orders I propose. In my view they should be given the opportunity to file submissions as to how, in the light of Smith (No 2) and the outcome of the appeal, the costs of the appeal should fall with a view to that issue being determined on the papers. Orders 37 I propose the following orders: (a) Grant leave to appeal. (b) Appellant to file the Notice of Appeal within 7 days. (c) Appeal allowed. (d) Costs order made by Patten AJ on 7 May 2008 set aside and in lieu thereof order the applicant to pay 25% of the respondent's costs of the trial on a party and party basis. (e) Reserve the question of the costs of the appeal. (f) Applicant to file and serve written submissions as to the costs of the appeal on or before 11 May 2009. (g) Respondent to file and serve written submissions as to the costs of the appeal on or before 18 May 2009. (h) Applicant to file and serve any written submissions in reply on or before 25 May 2009. (i) Written submissions referred to in paras (f) – (h) to be delivered to the Associate to Beazley JA at the time of, and in addition to, their filing. ********** 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.