Supreme Court New South Wales Medium Neutral Citation: Lee v Carlton Crest Hotel (Sydney) Pty Ltd (No 2) [2014] NSWSC 1586 Hearing dates: 6 November 2014 Decision date: 06 November 2014 Jurisdiction: Common Law Before: Beech-Jones J Decision: (1) The first and fourth defendants pay the plaintiff's costs on a party/party basis up to and including 23 March 2013. (2) The first defendant pay the plaintiff's costs on an indemnity basis after 23 March 2013. (3) The fourth defendant pay the plaintiff's costs on a party/party basis after 23 March 2013. (4) The Court declares that, as between the first and fourth defendants, they are liable to indemnify each other in respect of the party/party costs payable and paid to the plaintiff on the basis that the first defendant is to ultimately bear 75% of those party/party costs and the fourth defendant is to ultimately bear 25% of those party/party costs. Catchwords: COSTS - Calderbank letter - whether invalid offer of compromise was effective as a Calderbank letter - whether unreasonable for defendants to refuse offer - contribution between defendants for plaintiff's costs. Cases Cited: - Commonwealth of Australia v Gretton [2008] NSWCA 117 - Lee v Carlton Crest Hotel (Sydney) Pty Ltd [2014] NSWSC 1280 - Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; 84 NSWLR 311 Category: Costs Parties: Michelle Lee (Plaintiff) Carlton Crest Hotel (Sydney) Pty Ltd (First Defendant) City of Sydney Council (Fourth Defendant) Representation: Counsel: R.A. Cavanagh SC, A.J. Bowen (Plaintiff) J. Sheller (First Defendant) C. Purdy (Fourth Defendant) Solicitors: Beswick Lynch Lawyers (Plaintiff) Thompson Cooper Lawyers (First Defendant) Moray & Agnew (Fourth Defendant) File Number(s): 2009/297394 ex tempore Judgment 1On 19 September 2014, I published the principal judgment in these proceedings, Lee v Carlton Crest Hotel (Sydney) Pty Ltd [2014] NSWSC 1280 ("Lee v Carlton"). The effect of Lee v Carlton was that the plaintiff, Michelle Lee, succeeded in her claim against both the First Defendant, Carlton Crest Hotel (Sydney) Pty Ltd, ("Carlton Crest") and the Fourth Defendant, City of Sydney Council ("the Council"). Findings were made in Lee v Carlton that enabled the amount of damages to be calculated. The proceedings were then stood over to enable those calculations to be made. 2On 31 October 2014, orders were entered giving effect to the findings in Lee v Carlton. They included a judgment for the plaintiff against both defendants in the sum of $2,619,206.09. The only outstanding issue that remained was a claim that the defendants pay her costs on an indemnity basis on and from 22 March 2013. That issue was stood over until today. 3The basis for the plaintiff's claim for indemnity costs concerns the rejection by each defendant of what was described as an offer of compromise sent to each of them under cover of a letter dated 22 March 2013. The letter to each was in the same form and stated, inter alia, as follows: "We enclose by way of service the Plaintiff's offer of compromise dated 22 March 2013 ('the Offer'). The Offer is made pursuant to Pt 20.26 of Division 4 of the Uniform Civil Procedure Rules 2005 (NSW) ('the Rules'). The Offer is open for acceptance until 19 April, 2013. We put you on notice that the Plaintiff will rely on the Offer in relation to a claim for indemnity costs pursuant to Rule 42.14 of the Rules. If for any reason the Offer is found to be not validly made under the Rules, then this letter is intended to be an offer pursuant to the principles enunciated in Calderbank v Calderbank (1975) 3 All ER 333." 4The enclosed document was in relevantly the same form for each defendant. It was entitled "Offer of Compromise", and stated as follows: "The Plaintiff offers to compromise the cause of action under the Compensation to Relatives Act and for nervous shock upon which she claims, upon the following terms: 1. Verdict and Judgment for the Plaintiff in the sum of $1,555,00 exclusive of costs. 2. The First Defendant to pay the Plaintiff's costs as agreed or assessed. 3. The Offer is open for acceptance for 28 days from the date of the offer. The Offer is made in accordance with provisions of Pt 20 Rule 20.26 of the Uniform Civil Procedure Rules 2005 and is made without prejudice save as to costs and interest." 5It is now common ground that this offer did not conform with the requirements for an offer of compromise found in the relevant provisions of the Uniform Civil Procedure Rules as in force as at March 2013 (see Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; 84 NSWLR 311) ("Whitney"). Nevertheless, the plaintiff seeks to rely upon the letter as a so-called Calderbank letter citing the authority set out in the letter. 6Carlton Crest contended that the combination of the letter and the enclosed document did not sufficiently indicate that the offer made by the combination of the two was intended to take effect as a Calderbank letter, notwithstanding any finding as to the invalidity of the offer of compromise, (see Whitney at [43] per Bathurst CJ and [57] to [58] per Barrett JA). Carlton Crest contended that the last paragraph of the above letter is not sufficient because it refers to the "offer" but no such "offer" was, as a matter of law, made. I do not consider that the letter should be construed in that way. To the contrary, if ever a communication made it clear that if it was not effective as an offer of compromise it was nevertheless meant to take effect as a Calderbank letter, it was this one. 7Otherwise there is no doubt that the plaintiff obtained a result which exceeded the offer in respect of both defendants. 8To justify an order for indemnity costs in respect of a Calderbank letter, the court must be satisfied that the offer is a "genuine offer" and that it was "unreasonable" for the defendants not to accept it (Commonwealth of Australia v Gretton [2008] NSWCA 117 at [44] per Beazley JA). 9Although the underlying rationale supporting the approach taken by the courts to offers of compromise and Calderbank letters is the same, or at least very similar, it nevertheless needs to be borne in mind that with Calderbank letters it is the plaintiff who bears, at the very least, an onus of persuasion that the conduct of the defendant in refusing the offer was unreasonable. 10In respect of Carlton Crest, it submitted that the plaintiff had failed to demonstrate that its refusal of the offer was unreasonable. In particular, it contends that it was only subsequent to the offer being made that sufficient material was put forward by the plaintiff which supports so much of her case that concerned her claim for loss of earnings and, to a lesser extent, those concerning her husband. It submits that those heads of damage, especially that concerning her loss of earnings, amounted to the bulk of the entire judgment. 11In respect of the late Mr Lee's earnings it appears that, as at the time of the offer, material had been provided to Carlton Crest which indicated what the plaintiff contended was his likely future earnings from the time of his death. The only relevant material in respect of the late Mr Lee of any significance that was served between the time of the offer and the conduct of the trial, was a witness statement from his former supervisor which filled out that indication and also testified to the author's views as to Mr Lee's career prospects had he not tragically passed away. 12There are always questions of degree involved in the assessment of this aspect of Calderbank letters. On the one hand the entire policy objective of Calderbank letters, namely the promotion of early settlement, would be undermined if the mere fact that evidence was served after the offer was made, even evidence of some significance, was held to be a decisive factor as to why the offer should not be given effect to. Equally, if a party is not provided with sufficient material to make an informed assessment as to the reasonableness of the offer, then ordinarily it would follow that the Court simply cannot be satisfied that its refusal of any offer was unreasonable. 13At least in respect of the position of the late Mr Lee, I think the former is the correct characterisation. It seems that, as at March 2013, Carlton Crest was in a position to make a realistic assessment of the range of possible findings that might be made as to his future income so as to enable it to make an assessment of the reasonableness of the offer that was made. 14In respect of the plaintiff's loss of earnings claim the position is a little more complicated. As at March 2013, it appears that the plaintiff had served on the defendants her taxation returns. The taxation returns were discussed in some detail in Lee v Carlton at [460] to [465]. They can be divided into two categories. The first set of tax returns relates to a period prior to Mr Lee's death when Ms Lee was not working full time. The second category relates to the period after his death where she attempted to build a business of providing speech pathology services. The returns were a reasonably poor guide as to her loss of earning capacity for a number of reasons, including the fact that the returns gave little explanation of the true value to her of certain tax deductible expenses, as well as the fact that she was suffering the psychological damage that was discussed in Lee v Carlton. 15However, there was also provided to the defendants a set of accountants' reports that pitched her level of loss at a much higher basis than that set out in her taxation records. Equally, Carlton Crest had retained accountants and obtained a report that did so as well. 16In the end, Ms Lee's case was run on a basis that did not rely upon the accountants' reports and, instead, attempted a bottom-up analysis of what her earning capacity was by reference to some evidentiary material provided by a speech pathologist in a comparable position and the principal of a firm that provided, or procured, speech pathologists to provide private consulting services. This latter material was clearly not known to the first defendant as at March 2013 and it could not reasonably be expected to assess any offer by reference to a case that was pitched by reference to it. 17However, the material set out in the accountants' reports that were exchanged, while not the full picture evidentiary-wise, was in my view, more than sufficient to enable Carlton Crest to make an assessment of the reasonableness of the offer. That material, in my view, would have indicated that Ms Lee's case was well above the offer that was made. 18At a high level of generality, Ms Lee's claim presented as a very substantial case, in that her husband was a professional person who was struck down at the commencement of his professional career, and Ms Lee was also a professionally qualified person working in a service industry where personal contacts and service were critical but who was now extremely psychologically damaged. In my view there was more than sufficient material that enabled Carlton Crest to make an assessment of the offer and that that assessment would have yielded the conclusion that the offer was more than reasonable. 19Although not debated, I should add that in my view the position of Carlton Crest, in terms of liability, was such that even if a reasonable person in its position would have built in some discount for liability, it would not have been great. 20In the end result, I am satisfied that it was unreasonable for Carlton Crest to refuse the offer that was made in March 2013. 21In respect of the Council, it sought to rely upon the issues concerning damages that were raised on behalf of Carlton Crest. I have just addressed and rejected those. 22The Council also submitted that the Court could not conclude that its rejection of the offer was reasonable for two related reasons. The first that was identified in the written submissions concerned the alleged significance of the evidence given by Mr Glanville, which was contained in a written statement which was served in October 2013 by the first defendant. Mr Glanville was ultimately called to give evidence at the trial. Mr Glanville was a former Council officer who gave evidence explaining the Council's approach to building approvals and inspections (see Lee v Carlton at [246] to [258]). 23By itself the fact that a statement was served between March 2013 and the time of the trial relating to the Council's practices in the 1980s would not, in my view, have much significance as to whether the Council should be found to have unreasonably refused an offer. The question of the assessment of the reasonableness of the offer as at March 2013 must allow for the fact that a defendant in the Council's position would know that evidence was coming and should contemplate that it might include evidence directed to the Council's own procedures. 24However, the second basis is that, at a more general level, the case against the Council was of such a kind that a substantial or at least reasonable level of discount should have been afforded to any offer. To put it more accurately, the Court could not be satisfied that it was unreasonable for the Council as at March 2013 to have refused the offer because it did not contain a sufficient discount to reflect the uncertainties of the case on liability as against the Council. 25Part of the submissions sought to possibly revisit the basis upon which the Council was liable, and then perhaps speculate as to what different findings should have been made. If that is what is requested, that is an invitation that I would decline. Nevertheless, I think it is clear from Lee v Carlton at [187] to [402] that the case against the Council was anything but straightforward. Looking at the position of the Council as at March 2013, it was entitled to treat any offer that did not contain a realistic discount of some level for liability as one which it was entitled to reject. 26In the end, this aspect of the matter comes down to the difference that I identified earlier between offers of compromise and Calderbank letters. The onus of persuasion in respect of the position of the Council rests upon Ms Lee. Given the intricacies of the case against the Council which centred upon inspections made many years before, I am simply not able to be satisfied that the Council's rejection of the offer that was made against it was unreasonable. 27In that context it must be remembered that the Council was confronted by an offer which it had to either accept or reject. It might be possible, as Senior Counsel for Ms Lee contended, for the Council to then have engaged in some intricate negotiations with the first defendant concerning matters of contribution and the like, but at present the relevant issue is whether it was unreasonable for it to reject an offer that it pay the full sum to the Plaintiff. In the end I am not persuaded this is so. 28The end result is that there will be orders against both defendants for the payment of costs, but only Carlton Crest will be required to pay costs on an indemnity basis from 23 March, 2013. 29One matter I raised with the parties concerned the question of respective apportionment, as between the first and fourth defendants, of the plaintiff's costs. There is no reason why the plaintiff should not obtain a joint and several order against both defendants in respect of her party/party costs. 30In respect of those party/party costs, it seems to me that as between Carlton Crest and the Council they should contribute on the basis previously stated, namely 75% for Carlton Crest and 25% for the Council. To give effect to that I think it is appropriate to make a declaration so as to avoid any further disputation. 31Accordingly the Court makes the following orders: (1)the first and fourth defendants pay the plaintiff's costs on a party/party basis up to and including 23 March 2013; (2)the first defendant pay the plaintiff's costs on an indemnity basis after 23 March 2013; (3)the fourth defendant pay the plaintiff's costs on a party/party basis after 23 March 2013; (4)the Court declares that, as between the first and fourth defendants, they are liable to indemnify each other in respect of the party/party costs payable and paid to the plaintiff on the basis that the first defendant is to ultimately bear 75% of those party/party costs and the fourth defendant is to ultimately bear 25% of those party/party costs. ****************** 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: 14 November 2014