District Court New South Wales Medium Neutral Citation: Janet Harris v Sydney Local Health District (No. 2) [2014] NSWDC 41 Hearing dates: 16 April 2014 Decision date: 24 April 2014 Before: Mahony SC DCJ Decision: Application for special costs order dismissed. Catchwords: Offer of compromise, indemnity costs. Legislation Cited: Civil Procedure Act 2005 Cases Cited: Dean v Stockland Property Management Pty Limited & Anor (No. 2) [2010] NSWCA 141 Kooee Communications Pty Limited v Primus Telecommunications Pty Limited (No. 2) [2008] NSWCA 85 Miwa Pty Limited v Siantan Properties Pty Limited (No. 2) [2011] NSWCA 344 Nominal Defendant v Hawkins [2011] NSWCA 93 Old v McInnes and Hodgkinson [2011] NSWCA 410 Sydney Attractions Group Pty Limited v Frederick Schulman (No. 3) (2013) NSWSC 1544 Whitney v Dream Developments Pty Limited [2013] NSWCA 188 Vieira v O'Shea (No. 2) [2012] NSWCA 121 Category: Costs Parties: Janet Harris (Plaintiff) Sydney Local Health District (Defendant) Representation: H Halligan (Plaintiff) S Kettle (Defendant) Carneys Lawyers (Plaintiff) Curwoods Legal Services Pty Ltd (Defendant) File Number(s): 12/370813 Judgment ON COSTS Introduction 1On 28 March 2014 I delivered judgment in the principal matter and made orders entering a verdict and judgment for the plaintiff against the defendant in the sum of $31,057.00. I made a further order that the defendant is to pay the plaintiff's costs of the proceedings, however, I granted the parties liberty to apply for any special costs order sought on 7 days notice. 2In 16 April 2014 the defendant sought an order that I vacate the costs order made and make an order in its favour pursuant to r 42.14 UCPR. The application was made on two bases: (1)An offer of compromise was served under cover of letter dated 18 December 2013 offering to compromise the plaintiff's claim by making a payment in the sum of $30,000 (exhibit A). (2)On the basis of an offer of compromise dated 26 February 2014 and served under cover of the letter of the same date (exhibit B). That offer was in the following terms: "The defendant offers to compromise the whole of this claim on the following terms: 1. By making a payment in the sum of $50,000. 2. This offer of compromise is made in accordance with rule 20.26 of the uniform Civil Procedure Rules 2005." 3The covering letter, which was not marked "without prejudice", contained the following: "We enclose by way of service Offer of Compromise served on behalf of the Defentant. Please note this Offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005 and that the offer is exclusive of costs as required by the Rules. Therefore costs are payable in addition to the amount stated in the enclosed offer of compromise. Please note this offer of compromise is open for acceptance for seven (7) days." The Relevant Rules 4Rule 20.26 UCPR provides as follows: "(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 under this rule: (a) must identify: (i)The claim or part of the claim to which it relates, and (ii)The proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and (b)If the offer relates only to part of a claim in the proceedings, must include a statement: (i)In the case of an offer by the plaintiff, as to whether the balance of the proceedings is to be abandoned or pursued, or (ii)In the case of an offer by a defendant, as to whether the balance of the proceedings will be defended or conceded, and (c)Must not include an amount for costs and must not be expressed to be inclusive of costs and (d)Must bear a statement to the effect that the offer is made in accordance with these rules, and (e)If the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to that interim payment, and (f)Must specify the period of time within which the offer is open for acceptance. (3) An offer under this rule may propose: (a)A judgment in favour of the defendant: (i)With no order as to costs, or (ii)Despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or (4) If the offeror makes an offer before the offeree has been given such particulars of the offeror's claim, and copies or originals of such documents available to the offeror, as are necessary to enable the offeree to fully consider the offer, the offeree may, within 14 days of receiving the offer, give notice to the offeror that: (a)The offeree is unable to assess the reasonableness of the offer because of the lack of particulars of documents, and (b)In the event that rule 42.14 applies to the proceedings, the offeree will seek an order of the court under rule 42.14(2). (5) The closing date for acceptance of an offer: (a)In the case of an offer made two months or more before the date set down for commencement of the trial - is to be no less than 28 days after the date on which the offer is made, and (b)In any other case - is to be such date as is reasonable in the circumstances. (8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer. (9) An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides. (10) A party may make more than one offer in relation to the same claim. (11) Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer. (12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division." 5Rule 42.15 UCPR provides as follows: "42.15(1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, the plaintiff obtains an order or judgment on the claim no more favourable to the plaintiff than the terms of the offer. (2) Unless the Court orders otherwise: (a)The plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, to be assessed on an ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b) and, (b)The defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an ordinary basis: (i)If the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii)If the offer was made on or after the first day of trial, as from 11am on the day following the day on which the offer was made." Defendant's Submissions 6On the basis of exhibit A, the defendant submitted that the amount by which the plaintiff achieved a more favourable result than the offer made on 18 December 2013 (exhibit A) was de minimis i.e. a sum of $1,057, and therefore the defendant should be entitled to indemnity costs pursuant to r 42.15. That submission could not be upheld as the plaintiff did achieve a result more favourable than the offer contained in exhibit A. 7In respect of the offer contained in exhibit B, the defendant submitted that the Offer of Compromise complied with r 20.26, it represented a genuine compromise of the case for the defendant and it was not unreasonable for the plaintiff to accept it, given that it was made 13 days out from the date of commencement of the trial, and provided the plaintiff with 7 days to accept it. Implicit in that submission was that the offer comprised both the covering letter and the formal Offer of Compromise. The Plaintiff's Submissions 8The plaintiff submitted in respect of the offer of compromise dated 26 February 2014 (exhibit B) that strict compliance with the rules is mandatory in respect of such offers and that the offer here was defective for two reasons. First, the offer of compromise did not specify the period of time within which the offer is open for acceptance in accordance with r 20.26(f). The plaintiff relied on the Court of Appeal's decision in Old v McInnes and Hodgkinson [2011] NSWCA 410 as authority for the proposition that a failure to observe the requirements of r 20.26(2) (as it then was) resulted in an offer being held not to comply with the rules and thus disentitling the offeror to the benefits that the rule conferred. The plaintiff further relied on the Court of Appeal's decision in Dean v Stockland Property Management Pty Limited & Anor (No. 2) [2010] NSWCA 141 as authority for the proposition that in the event that the Offer of Compromise was non-compliant with r 20.26, and therefore defective, it could not be regarded as a Calderbank Offer as the letter enclosing it (exhibit B), did not make that proposition clear. 9Secondly, before trial the matter had been referred to mediation on the basis that the mediator's costs were to be shared between the parties. As the plaintiff was impecunious, the defendant paid the whole of the mediator's fees of $2,640, and it looked to the plaintiff for repayment of half that amount if the plaintiff was successful in the proceedings. Learned counsel for the plaintiff characterised that payment as an "interim payment", and as the offer of compromise made no reference to it, the offer was in breach of r 20.26(e). 10Alternatively, the plaintiff submitted that, assessed at the time of the making of the offer, it was not unreasonable for the plaintiff to not accept the offer for the following reasons: (1)The offer was open for a period of 7 days, and was sent 13 days before the trial commenced. (2)After the offer of compromise was received, correspondence was sent by the defendant's solicitors to the plaintiff's solicitors concerning medical evidence (exhibit C). This correspondence, however, was sent on 10 March 2014, after the offer had expired. (3)More relevantly, on 27 February 2014 the defendant's solicitors sent two letters to the plaintiff's solicitors concerning that part of the plaintiff's case concerning her claim for damages for discitis, which was abandoned by the plaintiff at trial (exhibit D). The letters concerned the parts of Associate Professor Raftos' report dated 28 August 2012 which referred to that part of the plaintiff's claim, and to Dr Davis' report, which was rejected at trial. (4)The plaintiff also relied on an affidavit of her instructing solicitor, Mr Ford, which contained the following: "8. After I received the Offer of Compromise in the sum of $50,000.00 dated 26 February 2014 I noted the said Offer was open for acceptance for a period of only 7 days. I spoke by telephone with the Plaintiff on 27 February 2014 in relation to the said Offer of Compromise. The Plaintiff was still in Dooralong Rehabilitation Centre and although I informed her of the amount offered by the Defendant I was not comfortable with having to discuss the offer to her over the telephone and I would have preferred to have made arrangements for her to travel to Sydney with a chaperone in order to see both myself and/or counsel in order to explain the said offer to her. The difficulty which I faced was the fact that if the Plaintiff needed to leave Dooralong Rehabilitation Centre to travel to Sydney for a conference with her legal advisors, several days' notice is required to be given to the Centre in order to arrange for a chaperone to accompany her." 11The plaintiff relied on the Court of Appeal's decision in Miwa Pty Limited v Siantan Properties Pty Limited (No. 2) [2011] NSWCA 344. That case concerned the previous rule under Part 20 Rule 26 and a Calderbank Offer which did not comply with the rule. Basten JA, with whom McColl and Campbell JJA agreed, set out the considerations that a Court must have regard to in assessing whether a refusal by an offeree of an offer of compromise has been unreasonable at [10] - [16]. His Honour referred to the following factors identified in determining whether the rejection of an offer was unreasonable as including the following: "(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 considering these matters, and in particular the offeree's prospects of success, counsel referred to evidence contained in the defendant's own records, and in particular a clinical note dated 17 October 2011, which supported a contention that the plaintiff might enjoy greater success in the litigation than she actually did. 13On those bases, the plaintiff submitted that the defendant had not persuaded the Court that the rejection of the offer was, in the circumstances of the relevant time, unreasonable. Therefore, the Court should exercise its discretion to "otherwise order", pursuant to Pt 42.15 UCPR. Defendant's Submissions in Reply 14Counsel for the defendant submitted that there was no official form for a notice of offer of compromise. The offer in this case comprised both the document headed "offer of compromise" and the letter enclosing it. When read together, the offer was a valid offer in that it included the advice that the offer was open for acceptance for a period of 7 days. The offer stated that it was made in accordance with r 20.26, and any ambiguity introduced by the form of the offer should be resolved "in favour of the validity of the offer". 15On the question of whether the offer of compromise was defective by way of breach of Part 20 Rule 26 UCPR (e), in that it did not refer to an "interim payment", the defendant submitted that the plaintiff's submissions were misconceived. "Interim payment" was defined by s 81 of the Civil Procedure Act 2005 as follows: "Interim payment In relation to proceedings for the recovery of damages, means a payment of any of those damages by a defendant before the completion of the proceedings, either voluntarily or in accordance with an order of the court under this Division." 16Interim payments are also dealt with by way of Part 15 Rule 18 UCPR. The defendant submitted that the payment by it of the mediator's fees could not be characterised as a payment of damages so as to comply with that definition, and therefore the submission raised by the plaintiff was without merit. 17Counsel for the defendant further submitted that the matters raised by Mr Ford in his affidavit, and relied on by the plaintiff, did not demonstrate that the refusal was not unreasonable. Rather, the plaintiff, or her solicitor, had done nothing, given her circumstances, to request an extension of the time to enable a face to face meeting with her to discuss the offer. 18Counsel also referred to Sydney Attractions Group Pty Limited v Frederick Schulman (No. 3) (2013) NSWSC 1544 where Sackar J referred to the principles to be applied by a court in respect of whether it should "order otherwise", pursuant to the previous r 20.26. His Honour, at [12], referred to the judgment of Basten JA in Kooee Communications Pty Limited v Primus Telecommunications Pty Limited (No. 2) [2008] NSWCA 85 at [20] where His Honour identified three factors relevant to assessing whether an offer was open for a reasonable time "where it is made at the commencement of the preparation for the trial". He said: "The first is that, given the stage at which the offer was made, both parties may reasonably be expected to have had a clear perception of the strengths and weaknesses of their positions, so that the reasonableness of a particular offer may be speedily assessed. Secondly, because significant costs will be accruing on a daily, even an hourly basis, there is a heightened incentive to respond within the time permitted. Thirdly, and counterbalancing the first factor, the need to address the terms of an offer, provided advice and obtain instructions will often be a significant distraction from final preparations." 19The defendant submitted that the plaintiff and her legal advisors were, at the time the offer was made, in the best position to consider the offer and to assess the plaintiff's prospects of success in the litigation. 20Further, at [28], Basten JA referred to Nominal Defendant v Hawkins [2011] NSWCA 93 where the Court held that: "It is not enough to justify ordering otherwise for a person who refused an offer of compromise to show that he/she acted reasonably in doing so. Generally, exceptional circumstances are required." In explaining that expression, Basten JA said at [31]: "Although it is suggested in a number of authorities that there must be 'exceptional circumstances' before a Court may order otherwise, I think the use of that expression in the earlier authorities is simply to recognise that there does exist a general rule for providing for indemnity cost consequences, and therefore 'the case needs in some way to be exceptional ... because the general rule is that provided for in the rule itself.'" (Kirby P in Hillier v Sheather at 422). In my view, the words 'exceptional circumstances' used in the earlier cases indicated that there must be some reason or ground for a Court to make an order departing from the general indemnity costs consequences, but those words do not suggest that the case must be extraordinary, nor do they suggest a particular degree of difficulty in persuading a Court to "order otherwise"". 21Basten JA went on to find that "exceptional circumstances" must be assessed upon the facts of the individual case, that they were circumstances which were "out of the ordinary course or unusual" and could include "a single exceptional matter, a combination of exceptional factors, or a combination of ordinary factors which, although individually of no particular significance, when taken together, are seen as exceptional" - see [66]. 22The defendant submitted that there were no exceptional circumstances demonstrated here. Rather, the plaintiff had been informed of the offer of compromise and had failed to respond to it. In those circumstances the ordinary rule should apply. Determination 23I am not satisfied that the offer of compromise is defective on the basis that it does not comply with r 20.26(e) as submitted by the plaintiff in that the defendant had paid the mediator's fee in full, and upon the plaintiff being successful in the litigation, the defendant would have looked to her for part payment of that fee. Such a payment could not be characterised as an interim payment as defined by s 81 of the Civil Procedure Act. 24In Whitney v Dream Developments Pty Limited [2013] NSWCA 188 the Full Court of the Court of Appeal resolved the apparent inconsistency between the Court's decisions in Old v McInnes and Hodgkinson, supra, and Vieira v O'Shea (No. 2) [2012] NSWCA 121 (and a number of earlier decisions of the Court). The Court held that Old v McInnes was correctly decided and thus an Offer of Compromise that was not expressed in terms exclusive of costs was non-compliant with r 20.26 and therefore invalid. 25I was not referred to any reported decision where the Offer of Compromise had not on its terms provided for a period of time in which the time was open for acceptance. Nor was I able to find any such case. Of the numerous appellate decisions under the old rule, which was not in identical terms, the Offers of Compromise in each case included such a provision on its terms. At the time Whitney was decided, the relevant rule included the following provision: "20.26(6) An offer may be expressed to be limited as to the time it is open for acceptance." 26As set out above, the present rule includes the following: "20.26(f) Must specify the period of time within which the offer is open for acceptance." The change in the rule as outlined above, is significant. The use of the word "must" makes the requirement to specify in the Offer of Compromise the period of time within which the offer is open for acceptance as mandatory rather than discretionary. 27I do not accept the defendant's submission that the Offer of Compromise here is comprised of both the formal Offer of Compromise and the covering letter. The covering letter makes it clear that it encloses, by way of service, the Offer of Compromise. That offer does not comply with r 20.26 and therefore it is not a valid offer pursuant to that rule. That defect is not remedied by the defendant's solicitor including the words "please note this Offer of Compromise is open for acceptance for 7 days" in the letter. Rather, that gives rise to ambiguity as to the period of time for which the offer is open for acceptance, namely, whether it is 7 days from the date of the letter, or 7 days from the date that offer is received by the plaintiff's solicitor. I therefore find that the Offer of Compromise does not comply with r 20.26. Further, the defendant did not advocate, and I find, that the offer does not amount to a Calderbank Offer. 28If I am wrong in finding that the Offer of Compromise was invalid, I find that the defendant has demonstrated that it was unreasonable for the plaintiff not to accept the offer in the circumstances at the time it was made. The offer was made just less than two weeks from the commencement of the trial, at a time when it must have been plain to the plaintiff and her legal advisors that her case was problematic. In addition to being in the process of making a decision to abandon a significant part of her claim, the hospital records concerning her treatment by way of the insertion of an ear wick into her ear were not all one way, and were certainly not supported by other medical records available to the plaintiff at the time. 29Nor could the correspondence dated 27 February 2014 (exhibit D) have complicated the matter unduly for the plaintiff or her legal advisors. The matters raised by the defendant's solicitors in those two letters were appropriate to be raised given the state of the evidence at that time. The later correspondence upon which the plaintiff relied, namely, the correspondence dated 10 March 2014 (exhibit C), were, in any event, sent after the offer had expired. 30Also relevant is the fact that the plaintiff or her solicitor did not request an extension of time, given her particular circumstances. As the defendant was not put on notice as to the adequacy of the time given for acceptance of the offer, in my view, no exceptional circumstances have been demonstrated to exist here to warrant an exercise of the Court's discretion to "otherwise order" pursuant to r 42.15. Therefore the usual rule would have applied. Conclusion 31For the above reasons, the defendant is not entitled to an order setting aside the order made for costs in the proceedings, and in lieu thereof, an order for indemnity costs from the day following the making of the offer of compromise on 26 February 2014. Orders 32I therefore order as follows: (1)Application by the Defendant for special costs order is dismissed. (2)Order the Defendant to pay the Plaintiff's costs of the special costs application made on 16 April 2014. ********** 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: 24 April 2014