Supreme Court New South Wales Medium Neutral Citation: Bird v Ford (No 2) [2013] NSWSC 429 Hearing dates: On papers Decision date: 29 April 2013 Jurisdiction: Common Law Before: Schmidt J Decision: 1. The plaintiffs pay the defendants' costs on the ordinary basis to 11 August 2012 and thereafter on an indemnity basis. 2. The defendants pay the plaintiffs' costs of the motion for leave to tender the affidavit of Mr Davidson. Catchwords: PROCEDURE - costs - departing from the general rule - order for costs on indemnity basis - Calderbank offer - offers of compromise - was there a genuine offer of compromise - was it unreasonable for the plaintiffs to have refused the offer - orders made Legislation Cited: Uniform Civil Procedure Rules 2005 Cases Cited: Bird v Ford [2013] NSWSC 264 Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005)13 VR 435 Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 Leichhardt Municipal Council v Green [2004] NSWCA 341 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Townsend v Townsend (No. 2) [2001] NSWCA 145 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Category: Costs Parties: Vrede Jane Bird (First Plaintiff) Gordon Phillip Bird (Second Plaintiff) David Clifton Ford t/as Emil Ford & Co (First Defendant) Gary Cedric Pritchard t/as Emil Ford & Co (Second Defendant) Representation: Counsel: Mr DE Baran (Plaintiffs) Mr G Craddock SC (Defendants) Solicitors: John Stonham & Co (Plaintiffs) Mullane & Lindsay (Defendants) File Number(s): 2010/232539 Publication restriction: None Judgment 1Judgment was given for the defendants on 28 March 2013 (see Bird v Ford [2013] NSWSC 264). The plaintiffs failed to establish either the negligence they alleged against their former solicitor, Mr Ford or his alleged misleading and deceptive conduct. The usual order as to costs under the Uniform Civil Procedure Rules 2005 is that they follow the event (see Rule 42.1). It was common ground, however, that the plaintiffs should have the costs of the defendants' motion, filed on the second day of the hearing in relation to the late service of Mr Davidson's affidavit. The defendants otherwise sought an indemnity costs order in their favour, following upon the plaintiffs' rejection of various offers of settlement which they had made. The plaintiffs opposed such orders being made in the defendants' favour, even though they did not better any of the offers they rejected, at trial. 2The defendants had made a Calderbank offer on 7 December 2010 and two offers of compromise under the Rules on 23 March 2011 and 10 August 2012. The hearing commenced on 26 November 2012. 3The Calderbank offer was made on the basis that the defendants would waive some $10,000 of the costs which the plaintiffs had been ordered to pay them in District Court proceedings; that there be a verdict for the defendants, with no order as to costs; and that a deed of mutual release be entered into, with the plaintiffs' son being made a party to that deed. It was noted that these proceedings had been commenced only after the defendants had obtained judgment against the plaintiffs in the 2008 District Court proceedings. The defendants advised that the plaintiffs' claims would be vigorously defended and that they had poor prospects of success, for reasons then explained. 4The two offers of compromise were made on a walk away basis, each party to bear their own costs. By their solicitor's letter of 10 August 2012 when the final offer was made, the defendants drew attention to the December 2010 Calderbank offer; the offer of compromise which had been served in March 2011; and to repeated communications to the plaintiffs' past and present solicitors, advising that the defendants considered the claim against them to be fundamentally misconceived; that they would fail; and that they would receive an indemnity costs order in their favour. The defendants then advised that they had incurred costs of approximately $80,000. The matter had been listed for an eight-day hearing and it was anticipated that costs in the vicinity of $200,000 would then be incurred. 5The plaintiffs accepted that at the time of the August 2012 offer, the matter was substantially ready for trial, that the pleadings were closed, that affidavits had been drafted and evidence served. It was argued that the offer then made was too late, given the enormity of the time, effort, expense and costs that had then been incurred by the plaintiffs by way of preparation for the trial. It was submitted that in the circumstances, indemnity costs would not be ordered in favour of the defendants. The plaintiffs were then offered nothing; the sum offered bore no resemblance to the claim; there was no provision regarding the costs that had been incurred, which exceeded the offer proposed; and the offer was in the circumstances unreasonable. 6It was also submitted that no indemnity costs order would follow upon their rejection of the earlier offers made to them, even though those offers were made at a time when such significant costs had plainly not been incurred. That was because, it was submitted, as at December 2010, the proceedings had been on foot for a relatively short time, with no evidence having been served by either party and that as at March 2011, the position was similar. The Calderbank offer 7In their submissions reference was made for the plaintiffs to Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344, where it was observed that: "6 The appellant did not make an offer in accordance with the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 20.26, which would have carried with it a presumptive entitlement to indemnity costs if a judgment were obtained no less favourable than the terms of the offer: r 42.14. In Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 this Court (Kirby P, Mahoney JA and Samuels AJA) identified the objects of the Court rules then in force as including: "1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its 'bottom line' will be revealed to the court; 2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and 3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation." 7 These objects have been accepted as relevant to informal offers of compromise: Grbavac v Hart [1997] 1 VR 154 at 165 (Hayne JA). The informal offer must, in the present case, operate against the background of the Court's discretion with respect to the award of costs which is to be exercised, presumptively, in favour of an order that "the costs follow the event": Civil Procedure Act 2005 (NSW), s 98 and UCPR, r 42.1. One way to view an offer of compromise is to treat it as a basis for the court otherwise ordering; an alternative view is that it changes the proper characterisation of "the event" or outcome: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 at [13]. On the latter view, the party who fails to accept the offer and obtains no better result in the judgment is, from the date of the offer, treated as the unsuccessful party." 8At [8] the Court considered that in the case of a Calderbank offer, what had to be considered was whether: "(a) there was a genuine offer of compromise, and (b) it was unreasonable for the offeree not to accept it." Was there a genuine offer of compromise? 9An offer must be assessed at the time that it is made, not with the benefit of hindsight (see Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [33]). In Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358, Giles J explained at 368: " Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so." 10In this case the offer of compromise was plainly genuine, given that not only were the defendants prepared to forego the costs which they had incurred to that point in defending the proceedings, notwithstanding their firm view as to the weakness of the plaintiffs' case, but they were also prepared to compromise the amount that the plaintiffs owed them under a judgment of the District Court, by some $10,000. Was it unreasonable for the plaintiffs to have refused the offer? 11The relevant factors were identified in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 to include: "(a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it." 12In this case it must be accepted that the plaintiffs' prospects of success were slight. This offer was made at an early stage, where that may not have been readily apparent, for reasons which I will explain below. Further, that this offer was put on the basis that not only were the plaintiffs to execute a deed of release in favour of the defendants', but that their son was a necessary party to that deed. That conduct, in my view, precludes that an indemnity costs order being made in favour of the plaintiffs, as from the date of that offer. It was not an offer they could accept. That depended on someone else agreeing to give the defendants a release. The offers of compromise 13The offers of compromise were made under Rule 20.26. It was not suggested that they were not valid. In accordance with Rule 20.26 (2), they provided that there would be a verdict for the defendants and the parties were to pay their own costs. They were each open for 28 days. Neither offer was accepted and under Rule 42.15, in the result, the defendants are entitled to an indemnity costs order in their favour, in relation to the costs incurred after the date of the offer, unless the Court orders otherwise. It is for the plaintiffs to establish a basis for any departure from the usual order as to such costs. 14The purpose of the compromise system established by the Rules is to encourage genuine compromise of proceedings, by specifying the conditions in which special costs orders may be made. Thus it is that consideration must be given to the question of whether either of the walk away offers made were genuine offers of compromise, reflecting a real compromise (see Townsend v Townsend (No. 2) [2001] NSWCA 145). 15It is settled that a walk away offer may involve real compromise. In Leichhardt Municipal Council v Green [2004] NSWCA 341 it was explained as to walk away offers such as were here made (at [36] - [38]): "36 Clearly the trial judge was proceeding on the basis that the offer of compromise was a valid and genuine offer of compromise, but one which should fail in the exercise of discretion. The Court of Appeal declined to interfere with this discretionary decision on costs, as no appellable error had been shown. Thus, it evidently concluded that no error of legal principle exists in holding that a 'walk-away' offer can in a particular case be a "genuine offer of compromise". There is no reason to doubt the correctness of that conclusion. It follows the approach of Dunford J should, if understood as stating a universal, non-discretionary rule to the contrary, not be followed. 37 In the circumstances of this case it is difficult to characterise the defendant's offer as merely a tactical step designed to secure the benefits which flow from whatever incentives there are. It should not, with respect, be seen as involving no realistic or genuine attempt to resolve the dispute by agreement, without going to the expense and time involved in court proceedings. Since the circumstances of the case are important, and in this case the Council's case was a strong one, it was appropriate for the offer to reflect the degree of optimism and confidence felt by the Council. In some cases a plaintiff's offer which allows only a small discount from 100% success on the claim can be genuine and realistic always depending upon the circumstances. The same is true of defendant's offers: in some cases it will not be necessary to offer any monetary proportion (however slight) of the plaintiff's claim. 38 That leads to the question was the offer in these circumstances a "genuine" offer of compromise?" 16The question of whether the offer was genuine, must be determined in the face of the circumstances confronting the parties at the time that each of the offers were made. The second offer of compromise 17Curiously it was the plaintiffs' case that the while the first offer of compromise, made in March 2011 after the rejection of the Calderbank offer in which the defendants were prepared to waive $10,000 of the fees owed to them, was made too soon, the 2012 offer was made too late. In my view, this submission may not be accepted, particularly when it is considered that the second offer was made in August 2012 after the rejection of the two earlier offers, at a time when it was not only the plaintiffs who had incurred considerable additional costs, but when the real weakness of the plaintiffs' case must have been apparent. It is also relevant to consider that the defendants advised that to that point, they had incurred some $80,000 in costs, but would incur $200,000 if the matter went to the trial due to commence on 26 November 2012. In the circumstances, the risk which the plaintiffs were prepared to take in rejecting this final offer of compromise, was a considerable one. 18There are cases where a walk away offer will involve genuine compromise, because the case which the plaintiff advances is so plainly a weak one. In my view a party advancing such a case, who receives a number of offers of compromise under the Rules, all of which it rejects and none of which it betters at trial, will not easily be able to resist the indemnity costs order which the Rules contemplate will follow such a rejection. Incurring significant costs as the result of a fruitless pursuit of a weak case is not a proper basis for departing from the consequences which the Rules provide will follow from the rejection of such an offer. 19To adopt a different approach would fly in the face of the provisions of s 56 of the Civil Procedure Act 2005, which requires the Court to exercise its powers to facilitate the just, quick and cheap resolution of the real issues in the proceedings. It would also overlook the provisions of s 60, as to the proportionality of costs. 20In this case, by the time of the final offer made in August 2012, not only had the plaintiffs received and rejected two earlier offers of settlement, but the difficulty with the case they sought to advance had repeatedly been drawn to their attention. Given not only Mrs Bird's own affidavit evidence, but the documentary case advanced against them, which the affidavit evidence of Mr Ford and other witnesses called in the defendants' case revealed, the force of the defendants' position must have been apparent, by the time that this offer was made. At that time Mr Davidson's affidavit, which supported the defendants' case, had not been served. It is relevant, however, to consider that the plaintiffs' attitude was that there had been no negligence on his part. Mr Davidson was the senior counsel instructed by Mr Ford to appear for the plaintiffs in the Supreme Court proceedings which Mr Ford and Mr Davidson had repeatedly warned them against pursuing. That there was a very substantial risk that there was no real basis for taking a different view in relation to Mr Ford, than that which the plaintiffs took in relation to Mr Davidson, must have been by then appreciated. 21It is not to approach these considerations on the basis of hindsight, to conclude that by August 2012, the real weakness of their case, the strength of the defendants' case and the risks they were running in rejecting this second offer of compromise, so far as an indemnity costs order was concerned, must have been apparent to the plaintiffs. 22The offer then made was a genuine one in the circumstances, even though it was made on a walk away basis. 23In December 2010, the defendants had been prepared to waive $10,000 which the plaintiffs owed them, in order to achieve a settlement. Given the costs which they had incurred after the rejection of that offer and the further offer made in March 2011, that this aspect of the first offer was not repeated and instead a walk away offer was made in August 2012, was understandable. In the circumstances where the defendants were prepared to bear the $80,000 costs they had incurred to that point, there was a real compromise being offered. 24Given the very considerable costs which the defendants had by that point incurred, the real and apparent weakness of the plaintiffs' case and the significant costs which further pursuit of their case would inevitably involve the parties in, it must be concluded that the plaintiffs have not established any basis for a departure from the consequences which the Rules provide will follow their rejection of this offer. 25The rejection of this final offer was clearly unreasonable in the circumstances. The first offer of compromise 26The real question arising to be determined, in my assessment, is whether or not an indemnity costs order should be made in favour of the defendants from the time of the rejection of their first offer of compromise made in March 2011. 27In the Calderbank offer, it was not only costs, but also $10,000, which the defendants were prepared to forego. This aspect of the first offer was not repeated in the first offer of compromise. 28At that time preparation of the case was not well advanced. That there was difficulty with the case which the plaintiffs wished to pursue against the defendants, may have been apparent. The real weakness of their case, may, however, not then have been able to be fully appreciated, given that this offer was made before the service of Mr Ford's affidavit. 29I have concluded in the circumstances, not without some hesitation, that the better view is that the defendants have established a basis for concluding that there should be a departure from the effect of the Rules, that there be an indemnity costs order in favour of the defendants, from the time of the rejection of this offer. In the circumstances, even though the plaintiffs had given instructions, that the offer then made was genuine, involving real compromise, may not have been readily apparent, particularly to those advising the plaintiffs. In coming to that view, I have taken account of the psychological illness from which Mrs Bird was suffering, a relevant matter to consider, it seems to me in all of the circumstances. Order 30For these reasons, I order that: 1. The plaintiffs pay the defendants' costs on the ordinary basis to 11 August 2012 and thereafter on an indemnity basis. 2. The defendants pay the plaintiffs' costs of the motion for leave to tender the affidavit of Mr Davidson. ********** Amendments 30 April 2013 - typographical error in line 3 - the word 'plaintiffs' now changed to 'defendants' Amended paragraphs: [29] 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: 30 April 2013