Supreme Court New South Wales Medium Neutral Citation: Orcher v Bowcliff Pty Ltd [2012] NSWSC 1429 Hearing dates: 2 November 2012 Decision date: 23 November 2012 Before: Harrison J Decision: 1. Order the first defendant to pay the plaintiff's costs on the ordinary basis up to and including 7 September 2010 and thereafter on an indemnity basis. 2. Order the third defendant to pay the plaintiff's costs on the ordinary basis up to and including 17 December 2010 and thereafter on an indemnity basis. 3. Stay execution of the judgment against the first and third defendants until further order upon their undertaking to prosecute any appeals to the Court of Appeal that they may be advised to commence with all due despatch. Catchwords: PROCEDURE - costs - departing from the general rule - plaintiff seeking order for costs on indemnity basis from first and third defendants - UCPR 20.26 - whether offers of compromise valid under rule - whether conduct of plaintiff throughout litigation disentitling - award of costs on indemnity basis PROCEDURE - judgment and orders - application by first and third defendants for stay of judgment pending appeal - stay opposed - where affidavit sworn by officer of the Court attesting to indemnification of first and third defendants - stay granted Legislation Cited: Uniform Civil Procedure Rules 2005 Cases Cited: Collins v Sydney Ports Corporation [2012] NSWSC 1316 Old v McInnes and Hodgkinson [2011] NSWCA 410 Orcher v Bowcliff Pty Ltd [2012] NSWSC 1088 Pritchard v Trius Constructions Pty Ltd (No 2) [2011] NSWSC 1114 Vieira v O'Shea (No 2) [2012] NSWCA 121 Woolworths Ltd v Strong (No 2) (2011) 80 NSWLR 445; [2011] NSWCA 72 Category: Consequential orders Parties: John James Orcher (Plaintiff) Bowcliff Pty Ltd (t/as The Bridge Hotel Rozelle) (First Defendant) Tamiano Paseka (Second Defendant) Richard Francis Keough (Third Defendant) QBE Insurance (Australia) Limited (Fourth Defendant) Representation: Counsel: J E Sexton SC with C P Heazlewood (Plaintiff) R S Sheldon SC (First and Third Defendants) M T McCulloch SC (Fourth Defendant) Solicitors: Carneys Lawyers (Plaintiff) Wotton + Kearney (First and Third Defendants) HWL Ebsworth (Fourth Defendant) File Number(s): 2006/296392 Judgment 1HIS HONOUR: Two issues remain for consideration following publication of my reasons for judgment in this matter on 12 September 2012: see Orcher v Bowcliff Pty Ltd [2012] NSWSC 1088. First, Mr Orcher seeks costs from Bowcliff and Mr Keough on an indemnity basis. That application is opposed. Secondly, Bowcliff and Mr Keough seek a stay of my orders pending disposition of their foreshadowed appeals to the Court of Appeal. That application is also opposed. (An earlier application by QBE for a similar stay on terms was dealt with by consent). This judgment deals with the two remaining matters. Indemnity costs 2By letter dated 7 September 2010, Mr Orcher's solicitors served an Offer of Compromise upon solicitors then acting for Bowcliff in the following relevant terms: "The plaintiff offers to compromise this claim on the following terms: 1.Judgment for the plaintiff against the first defendant in the sum of $385,000 plus costs as agreed or assessed. 2. This Offer of Compromise is open for acceptance until 4.00pm on Friday 1 October 2010. 3. This Offer of Compromise is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005." 3The offer was not accepted. 4By a subsequent letter dated 17 December 2010, Mr Orcher's solicitors served a second Offer of Compromise upon the same solicitors who had by then come to appear for Mr Keough as well. That offer was in the following relevant terms: "The plaintiff offers to compromise this claim on the following terms: 1.Judgment for the plaintiff against the first defendant in the sum of $795,000 plus costs as agreed or assessed. 2. This Offer of Compromise is open for acceptance until 4.00pm on Monday 17 January 2011. 3. This Offer of Compromise is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005." 5That offer was not accepted either. 6It is not in issue that Mr Orcher recovered a verdict against these defendants that was more favourable to him than either of the offers of compromise. The only questions for determination are whether the offers are valid offers having regard to the terms of the relevant rule or, if they are not, whether they are capable of taking effect as Calderbank offers in any event. So much is apparent from the terms of a letter written on 1 November 2012 by the solicitors for Bowcliff and Mr Keough. It contended that the offers "were not valid offers of compromise", citing the rules in general and Old v McInnes and Hodgkinson [2011] NSWCA 410 in particular. It also referred in bare terms to "[Mr Orcher's] conduct of the proceedings" as a basis for contesting the application. 7UCPR 20.26 is in these relevant terms: "20.26 Making of offer (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs..." 8Bowcliff and Mr Keough rely upon what was said by Meagher JA in Old at [105] and [106] as follows: "[105] Mr McInnes relies upon the Offers of Compromise as offers in accordance with UCPR r 20.26 and alternatively as informal offers relevant to the exercise of the discretion as to costs: see Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No. 2) at [7], [27]; Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344 at [7]-[8]. UCPR r 20.6(2) [sic] provides: '(2) An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs.' Neither of the offers made on behalf of Mr McInnes was "exclusive" of costs or within the exception in r 20.6(2) [sic]. Each provided that Mr McInnes should pay Mr Old's costs "as agreed or assessed". For that reason, neither was an offer in fact "made under rule 20.26" for the purposes of UCPR r 42.13 and accordingly each was of no effect for the purposes of the Offer of Compromise regime under the UCPR: Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No. 2) at [22]-[24]; Dean v Stockland Property Management Pty Ltd & Anor (No. 2) [2010] NSWCA 141 at [16]-[29]. [106] Whether either offer could operate as a Calderbank offer depends upon the intention of the offeror, Mr McInnes, as revealed by the terms of the offer: Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No. 2) at [27]; Dean v Stockland Property Management Pty Ltd & Anor (No. 2) at [31]. Each offer was stated as being made pursuant to the UCPR. Neither contained any statement that it was to operate as a Calderbank offer: cf Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No. 2) at [11]. In the circumstances, neither could be relied upon on that basis." 9I recently dealt with a similar application in Collins v Sydney Ports Corporation [2012] NSWSC 1316. I said this at [43] - [44]: "[43] I was referred to Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 and Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141. More recently in Ziliotto v Dr Hakim (No. 2) [2012] NSWSC 1079, Davies J considered the meaning and effect of this rule: see [8] - [32] in his Honour's reasons. His Honour reviewed all of the currently relevant authorities, particularly the conflict apparent between and among decisions of single judges in this Court and decisions in the Court of Appeal. It may be that in due course the issue will have to be made the subject of a determinative consideration by that Court. [44] In the meantime it seems to me that the reasoning of Davies J, and the reasoning of the decisions that he followed, applies to the circumstances of this case. In my opinion, having regard to the apparent intention of the rule, there is no conflict between a requirement that an offer must be made exclusive of costs and an offer that is expressed in terms of a particular sum plus costs. In my view the offer of compromise in this case complies with the rules." 10I respectfully remain of the view that there is no conflict between a requirement that an offer must be made exclusive of costs and an offer that is expressed in terms of a particular sum plus costs. It seems to me that such an approach is adequately supported and clearly explained in Vieira v O'Shea (No 2) [2012] NSWCA 121 at [7] as follows: "[7] In written submissions in support of the motion, the appellant conceded that the offer did not comply with the UCPR because it was not 'exclusive of costs'. It is true that the offer was not stated to be exclusive of costs: the statement as to costs could have been understood as indicating that the offer was indeed not inclusive of costs, but was otherwise otiose as the same costs consequences followed from the application of the rules. (Somewhat opportunistically, the solicitors for the first respondent submitted that a later offer of compromise did not comply with the rules because it was not stated to be exclusive of costs and therefore should be presumed to be inclusive.) The UCPR are to be construed by reference to their apparent purpose. A mere reference to costs in an offer otherwise compliant with Part 20, Div 4 will not take the offer outside the rules unless the reference operates inconsistently with the relevant costs rule: Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141, (Giles JA, Handley AJA, Whealy J) at [26]-[29]. The offer, if accepted, entitled the offeror to his costs: the offer did not seek to vary the effect of UCPR r 42.13A." (Emphasis added) 11I can see no basis for a contention that an offer of compromise expressed as a sum "plus costs as agreed or assessed" operates inconsistently with any relevant costs rule. On the contrary, a losing party might ordinarily expect to be ordered to pay costs, which may be agreed between or among the parties or alternatively left to the vicissitudes of the assessment procedure. The touchstone of the rules concerning offers of compromise seems to me to be one of reasonable certainty: can a party in receipt of an offer reasonably ascertain from its terms what position that party will be in following either an acceptance or rejection of the offer. It is no less certain for any party to become subject to an unassessed costs liability in litigation as the result of a settlement upon acceptance of an offer expressed in terms of a sum plus costs as agreed or assessed than the costs liability to which all parties remain potentially liable pending the determination of contested proceedings. The purpose of the rule is not frustrated or circumvented by enforcement of offers of compromise expressed in this way. 12Although it becomes unnecessary to decide the point, I remain of the view that unless an offer is otherwise expressed to take effect as a Calderbank offer in the event that it is otherwise invalid, it should not do so. I repeat what I said in this respect in Collins at [44]. I consider that what Hoeben J said in Pritchard v Trius Constructions Pty Ltd (No 2) [2011] NSWSC 1114 at [40] - [43] applies with equal force in this case. 13Mr Orcher's "conduct of the proceedings" was also criticised by Bowcliff and Mr Keough in aid of the contention that it disentitled him to an order for indemnity costs. That proposition was supported by a detailed affidavit of Justin Carroll, a solicitor employed by Wotton + Kearney Lawyers, sworn on 1 November 2012. In that affidavit Mr Carroll traces the procedural history of this litigation from its commencement on 11 December 2008 in the District Court up to the present time. The proceedings were removed to this Court on 2 October 2009 and set down for hearing commencing 5 October 2010. 14On the third day of the hearing Mr Orcher sought, and was granted, leave to amend his statement of claim so as to join Mr Keough and expand the allegations of breach of duty. Opposition to that course by Bowcliff at the time was mounted upon the basis that the case against Bowcliff would thereby become significantly different from Mr Orcher's original case, which had not put in issue the adequacy of the security provided at the Bridge Hotel. That then raised the issue of whether Bowcliff needed to join DSSS Cousins as a party, it having provided security to Bowcliff at the hotel on the evening in question. 15On 15 October 2010 Bowcliff and Mr Keough sought leave to join QBE, which was DSSS Cousins' public liability insurer, as that company had gone into liquidation. Mr Orcher joined in that application and also sought leave to file a further amended statement of claim to add QBE as a fourth defendant. I dismissed both applications. In due course the Court of Appeal took a different view, and on 3 February 2011 remitted the matter to me on terms. I subsequently ordered that QBE be joined to the proceedings and ordered QBE to pay costs. 16Following resumption of the hearing on 27 June 2011 Mr Orcher once again sought to amend his then much amended statement of claim. I granted that application on 12 August 2011 and ordered Mr Orcher to pay the costs of that application. 17I delivered reasons for judgment in the principal proceedings on 12 August 2012. The single ground upon which Bowcliff and Mr Keough were found to have been negligent was that they permitted Mr Paseka to assault Mr Orcher and/or failed to take any or any proper steps to prevent him from doing so: Orcher v Bowcliff Pty Ltd at [208]. Mr Keough was not found by me to be vicariously liable to Mr Orcher for Mr Paseka's acts. 18Mr Orcher's offer of compromise dated 7 September 2010 expired on 1 October 2010 and was made at a time before the particular of negligence upon which Mr Orcher succeeded had been alleged. Mr Orcher's offer of compromise dated 17 December 2010 expired on 17 January 2011 and was made at a time when, according to Bowcliff and Mr Keough, neither the parties to the proceedings nor Mr Orcher's pleadings had been finalised. This was allegedly because of the outstanding issues surrounding the applications to join QBE as a party. QBE did not file a defence in the proceedings until 20 June 2011. 19Bowcliff and Mr Keough contend in these circumstances that until QBE filed a defence to Mr Orcher's claim in its final form, they were not in a position to know whether QBE would admit liability for Mr Orcher's injuries or admit matters of fact that potentially enhanced their prospects of successfully defending Mr Orcher's claim against them. 20Mr Sheldon of senior counsel for Bowcliff and Mr Keough put the matter thus: "The simple fact is that between the date of the first offer of compromise and your Honour's judgment there were a series of amendments...two of which had the effect of joining new parties and both of which preceded the joinder of the fourth defendant. In addition to those two general propositions there was amendment and the case against the first and third defendant during the course of its progress from commencement to hearing and after the offers of compromise were served. It supports my submission that the conduct of the litigation was such that the order ought not be made in any event and to observe, as my learned friend did, that the basis upon which the plaintiff succeeded was a basis that was already pleaded. The reason for that is that all of the toing and froing that occurred after the offer was shown to have been unnecessary in one sense except for the joinder of the fourth defendant and has in effect increased the costs of the case in circumstances where those amendments were found to have no basis. If your Honour has regard to the proposition that a change in the plaintiff's case can be a basis for declining to make the offer which is sought as was held, in amongst other cases, Vale v Evans, which I hand up at [13]. That was a case concerned with damages and a fortiori a case where the plaintiff who changes his case on liability is in the same position and that justifies, if your Honour is otherwise satisfied as to the validity of the offer of compromise, departing from the presumptive costs order ..." 21Mr Sexton of senior counsel for Mr Orcher responded in these terms: "At page 17 of the judgment your Honour noted that there were two fundamental issues in these proceedings. The first was the factual issue of whether Mr Paseka was working at the time. The second was whether the first and third defendants had any liability for something that occurred outside the premises. Those two fundamental points were always in issue. The way in which the case started, if your Honour looks at the pleadings, is that the initial claim was a claim on which the first defendant was alleged to be vicariously liable only for the conduct of Mr Paseka. That was amended in the amended statement of claim to assert that the assault occurred, in paragraph 7, as a consequence of the negligence of the first defendant and/or of the second defendant, that is Mr Paseka, for which the first defendant is vicariously liable. I don't have the defences but the defence put in issue that there was vicarious liability on the basis inter alia that Mr Paseka was not working at the time. The case my learned friend referred to about a significant change did not include changes which may arise because of the evidence. Mr Carroll in his evidence makes reference to something that Ms Williams said in her evidence. I don't have the case with me but there is a note in Ritchie that it is not enough for an offeree to say they were unaware of evidence. As I have already said, the state of play, so far as Mr McCulloch's client was concerned has absolutely nothing to do with the liability of the first and third defendants. It is not that sort of case. Either both of them could be liable or neither of them could be liable or some of them could be liable. The submissions about vicarious liability, the vicarious liability of the third defendant was raised in the final amendment. It took up no evidentiary time and it took up a short time in submissions. That amendment had absolutely nothing to do with any extension of time or costs in this case. The joinder of Mr McCulloch's client in support of a proposition that that extended the time and the costs of this case. I can't think of the right word to describe it but that joinder accompanied Mr Sheldon's client's joinder. Whether we joined them or not that time was going to be taken up because Mr Sheldon made the application first and we followed. I don't know any case which says that a defendant or, for that matter, a plaintiff who doesn't accept an offer and there is later an amendment or a change in the evidence which is not fundamental in introducing a completely new cause of action which may be unanswerable once it has been thought of but we are not in that territory. This is litigation in which the fundamental facts never changed, the fundamental issues never changed. The pleadings had no impact on the conduct of the case or the evidentiary material. For those reasons, my learned friend bears the onus of coming within the words "unless the Court orders otherwise" [in] UCPR 42..." 22In my opinion it is correct to say that this case was fought upon a factual background that remained constant from start to finish. The various iterations of the pleadings did not change that fundamental fact. It is not unusual for refinements of the legal issues in an action based on particular facts to occur from time to time. That happened here. Those refinements in this case undoubtedly generated extra costs. However, the question of who may be responsible for the incurring of such costs and of where the burden of such costs should fall ought not be confused with the question of whether those costs are to be paid on the ordinary basis or upon some other basis. Unnecessarily or unreasonably generated costs may often not be recoverable, in accordance with general principles applying in the cost assessment process, but that process is not directly concerned with or affected by the question of whether costs to which any party may have become entitled also attract an order for their payment on an indemnity basis. 23It does not seem to me that the somewhat tortured progress of this litigation disentitles Mr Orcher to the consequences that otherwise arguably flow from the failure of Bowcliff and Mr Keough to accept either of his offers of compromise. 24In my opinion Bowcliff and Mr Keough should pay a portion of Mr Orcher's costs on an indemnity basis. Bowcliff should pay Mr Orcher's costs on the ordinary basis up to and including 7 September 2010 and thereafter on an indemnity basis. Mr Keough should pay Mr Orcher's costs on the ordinary basis up to and including 17 December 2010 and thereafter on an indemnity basis. Stay application 25The application by Bowcliff and Mr Keough for a stay was supported by an earlier affidavit of Justin Carroll sworn on 10 October 2012. Correspondence annexed to Mr Carroll's affidavit included a letter dated 2 October 2012 sent to that firm by Mr Orcher's solicitors setting out the basis of his opposition to the stay. Part of that letter is as follows: "3. The first defendant has no apparent assets. The third defendant appears to have an interest in the hotel premises and the hotel licence, however his liabilities are unknown. The market value of hotels, including licences, has been steadily declining over recent years to the point where many are now virtually unsaleable and this trend may well continue. There is no doubt that the appeal process will take longer than six months. 4. We have been given to understand that there may be issues whether an insurance policy held by the first and/or third defendants responds to our client's claim. We also understand that the insurer(s) are foreign entities with no place of business in Australia. Your letter does not disclose whether the reference to 'our clients' includes such insurer(s)." 26Paragraphs 11 and 12 of Mr Carroll's affidavit are in these terms: "11 Should the judgment sum be paid to the plaintiff, I consider that there is a very significant risk that the judgment sum or a significant part of it will be irrecoverable should the appeal of the first, third and fourth defendants against the judgment succeed. 12 The first and third defendants are insured under a general liability policy of insurance underwritten by HCC Underwriting Agency (HCCUA). I am informed by Chay Wilkinson of DCS Global, the claims manager for HCCUA, and I believe that HCCUA is solvent and has confirmed indemnity to the first and third defendants in respect of their present liability to the plaintiff." 27In the events that have occurred, Mr Orcher does not require payment of the balance of the judgment to him or to his solicitors. He implicitly, and understandably, accepts the force of matters of the type referred to by Campbell JA in Woolworths Ltd v Strong (No 2) (2011) 80 NSWLR 445; [2011] NSWCA 72 at [67] - [73]. On the contrary, Mr Orcher was distinctly unimpressed with the terms of paragraph 12 of Mr Carroll's affidavit. His solicitor's letter dated 15 October 2012 observed that it was "merely a hearsay representation by a solicitor and [gave] little comfort to our client in regards to documentary proof there is indemnity for [Bowcliff and Mr Keough] in relation to the judgment". Mr Orcher's solicitors demanded "documentary proof" that there was "cover for the judgment". Nothing said by Mr Orcher to amount to proof of the kind required has been supplied. 28In light of those matters Mr Orcher required Bowcliff and Mr Keough, as a condition of Mr Orcher's agreeing to a stay, to undertake to prosecute their foreshadowed appeals expeditiously, and to have Mr Keough provide a verified statement of assets and liabilities together with an undertaking not to dispose of any assets pending final determination of the proceedings. Mr Orcher also demanded that Bowcliff and Mr Keough provide security for the costs of the appeals. Finally, Mr Orcher demanded that both of these defendants deposit "an amount equivalent to the balance of the judgment", together with an amount of his estimated costs upon an indemnity basis, into the trust account of Wotton + Kearney Lawyers until final determination of the proceedings. 29In my opinion it is not unreasonable on one view for Mr Orcher to feel less than comfortable with the "assurances" given by Mr Carroll on behalf of Bowcliff and Mr Keough. The terms of paragraph 12 of his affidavit are drawn and expressed in unsettlingly cautious terms and would give no particular comfort to most people who might find themselves in Mr Orcher's situation. Coupled with the apparent disinclination of Mr Keough to provide any other supporting materials or an undertaking to allay Mr Orcher's concerns, there is much force in the notion that Mr Orcher remains at risk unless or until Bowcliff and Mr Keough establish that their ability to satisfy the judgment currently favouring Mr Orcher is not in doubt. The question that emerges in these circumstances seems to me to be whether Bowcliff and Mr Keough should therefore be required to pay the amount of the judgment into an appropriately styled trust account in the joint names of the parties' solicitors pending the disposition of any appeal. 30On another view it may be that such an approach gives insufficient context to the assurances given by Mr Carroll. They are contained in an affidavit that was prepared with the purpose of postponing his clients' obligations to pay a judgment debt until his clients' appeals to the Court of Appeal have been determined. Viewed in that light, his assertions about the availability of cover could not have been made and cannot be understood as requiring me to balance or assess the probable or possible consequences of what he is saying in deciding whether or not to grant a stay. Mr Carroll's evidence in the setting of the current application must be viewed as a statement by him on oath as an officer of the Court that there is no risk to Mr Orcher because, upon Mr Carroll's enquiries of those from whom he takes instructions in this case, Bowcliff and Mr Keough are "covered" by a policy of insurance that will satisfy the judgment, interest and costs to which Mr Orcher is currently entitled and to which he will continue to be entitled following a successful response to the foreshadowed appeals. 31It goes without saying that if Mr Carroll's evidence were to be proffered in any other fashion it would be little short of an impertinent and disrespectful strategy. Because I take the view that Mr Carroll did not depose to the matters in his affidavit in that fashion or for that reason, I will operate upon the basis that his evidence was intended to amount to a warranty that Bowcliff and Mr Keough will satisfy Mr Orcher's judgment in full if their appeals to the Court of Appeal do not succeed. If that impression is incorrect in any respect whatsoever, or if I have misconstrued the burden of Mr Carroll's evidence, then I would expect and require Mr Carroll on behalf of Bowcliff and Mr Keough and on his own behalf immediately to inform Mr Orcher and the Court of that fact and to relist the matter before me for urgent further consideration. Unless and until that occurs it seems to me that Mr Orcher is entitled to the comfort that Mr Carroll's evidence was on my present understanding intended to provide. 32Accordingly, upon the basis that Mr Carroll intended that I should understand his evidence in the way I have described, and subject to any application to disabuse me of the understanding I have formed, I am prepared to grant a stay of the judgment against Bowcliff and Mr Keough on terms that they or either of them prosecute any appeals to the Court of Appeal that they may be advised to commence with all due despatch. ********** 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. Decision last updated: 23 November 2012