Supreme Court New South Wales Medium Neutral Citation: Thiess Pty Ltd v Dobbins Contracting Pty Ltd (No 2) [2016] NSWSC 547 Hearing dates: On the papers Date of orders: 04 May 2016 Decision date: 04 May 2016 Jurisdiction: Equity - Technology and Construction List Before: McDougall J Decision: Plaintiffs to pay second defendant's costs on the ordinary basis up to and including 1 February 2016 and on the indemnity basis thereafter. Catchwords: PROCEDURE — costs — order sought for costs on indemnity basis by second defendant – where offer of compromise not accepted by unsuccessful plaintiffs – whether offer allowed reasonable time for acceptance – whether in circumstances Court ought "otherwise order" – order made Legislation Cited: Uniform Civil Procedure Rules 2005 Cases Cited: Jones v Dunkel (1959) 101 CLR 298 Category: Costs Parties: Thiess Pty Ltd (First Plaintiff) Hunter Valley Earthmoving Co Pty Ltd (Second Plaintiff) Dobbins Contracting Pty Ltd (First Defendant) Daryl Stuart Bate (Second Defendant) Representation: Counsel: A S Martin SC / A Zahra (Plaintiff) R A Cavanagh SC / S J Walsh (Second Defendant) Solicitors: Carter Newell Lawyers (Plaintiffs) Thompson Cooper Lawyers Pty Ltd (Second Defendant) File Number(s): 2011/241122 Judgment 1. HIS HONOUR: The plaintiffs (there is no need to differentiate between them) sued the defendants for damages arising from the destruction by fire of an excavator used for coal mining operations. The plaintiffs' claim against the first defendant was resolved at a mediation conducted on 27 January 2016; orders were made the following day. The plaintiffs' claim against the second defendant (Mr Bate) went to trial. After ten days of hearing commencing on 8 February 2016, I concluded, for reasons given on 17 March 2016 ([2016] NSWSC 265), that the plaintiffs' claim against Mr Bate failed. 2. It is common ground between the plaintiffs and Mr Bate that, as I ordered on 17 March 2016, the plaintiffs should pay Mr Bate's costs. However, pursuant to leave that I reserved, Mr Bate seeks a special order for costs. He relies on an offer of compromise, alternatively a Calderbank offer, made on 1 February 2016. In those offers, Mr Bate offered to settle effectively on the basis that there be judgment in his favour and that there be no order as to costs. 3. It appears to be non-contentious, and in any event is hardly surprising having regard to the issues in the proceedings, that by 1 February 2016, Mr Bate had incurred substantial costs. They were said to be of the order of $550,000.00. The plaintiffs accept, in those circumstances, that Mr Bate has bettered his offer. They accept also that, save as to the time limited for acceptance, the offer of compromise complied with the formal requirements of UCPR r 20.26. Outline of the parties' submissions 1. It is convenient to deal with the issues as they have been raised by the plaintiffs. 2. First, the plaintiffs submitted, in the circumstances in which the offer was made, the time limited for acceptance – effectively four business days – was not reasonable. It is common ground that the offer was served after five o'clock Sydney time on Monday, 1 February 2016. It required acceptance by five o'clock (again, presumably, Sydney time) on 5 February 2016. At that time, as one might expect, the active parties – the plaintiffs and Mr Bate – were engaged in preparation for the hearing of a case that was both factually and legally complex. 3. Alternatively, the plaintiffs rely on a number of matters of fact, relating to the state of preparation for hearing as at 6 February 2016. For the most part, those matters are (factually at least) non-contentious. 4. First (and I am taking them out of the order in which the plaintiffs raised them), they noted that Mr Bate's "fire" expert witness, Professor Gray, had not participated in the conclave of the liability experts, had not contributed to the joint report that the other liability experts prepared, and indeed had declined to respond to a list of questions that had been submitted for the consideration of the liability experts. Although the plaintiffs' submissions do not mention the point, Professor Gray's evidence was decisive on the primary causation issue: which of the two "hot work" operations that had been conducted on the excavator on the day in question was responsible for the fire (in circumstances where all experts accepted that there was no other cause)? The significance of Professor Gray's evidence is apparent from what I said at [75] to [76] of my earlier reasons. 5. The plaintiffs point also to the fact that the quantum experts had not completed their conclaves. They had met and discussed the matter, but it seems there were further issues that they wished to consider. Again, it was the experts to be called by Mr Bate who had delayed the completion of the conclave of the quantum experts, and the production of a final joint report. 6. Next, the plaintiffs submitted, once their case against Dobbins had settled, they were required to call Dobbins' principal witness, Mr Bradbury, in their own case. Mr Bradbury gave evidence at the trial that diverged significantly from his affidavit evidence (see at [14], [93] to [100] of my earlier reasons). 7. Finally, the plaintiffs submitted, Mr Bate's case had changed significantly after the offer was made: 1. on the day that the offer was due to expire, Mr Bate's solicitors notified the plaintiffs' solicitors of their client's intention to seek leave to amend his list response in substantial ways; 2. Mr Lance Bate (who was a crucial witness of fact in Mr Bate's case) was not called, although the plaintiffs had been given to believe that he would be called; and 3. Mr Bate's case as to the quantum of damages only became clear on the fifth day of the hearing, when it was explained at some length by his Senior Counsel, and was explained in a way that went well beyond anything that had been notified to the plaintiffs hitherto. 1. I turn to the submissions for Mr Bate. 2. I note at the outset that the directions given required any party seeking some variation to the costs order that I had made to serve submissions and any evidence within a stated time, and for the party against whom the order was sought to serve submissions and evidence in answer within a stated time. There was no provision for the first party to serve submissions in reply. Thus, the submissions for Mr Bate (having been served first) did not deal with all the points raised in the submissions for the plaintiffs. 3. Mr Bate submitted that the offer of compromise did allow a reasonable time for acceptance. (He referred to authorities which, if I may say so, turn on their particular facts and offer little by way of general assistance.) 4. In those circumstances, Mr Bate submitted, he had "a prima facie entitlement", or "a legitimate expectation", that costs would be dealt with on the basis set out in UCPR r 42.15A. He submitted that the discretion to order otherwise should be exercised only in exceptional cases, when it was necessary to do so to prevent injustice. 5. Mr Bate drew attention to the purpose underlying the relevant rules: namely, to require the parties to assess the strengths and weaknesses of their cases, so as to help serve the public policy encouraging the prompt and economical disposal of litigation. 6. Mr Bate submitted that the offer of compromise represented a real and genuine compromise. As I have noted, the plaintiffs did not submit otherwise. 7. The submissions for Mr Bate accepted that the expert conclaves and joint reports had not been finalised until after 5 February 2016. Nonetheless, he submitted, there was nothing in the joint reports that could have had any significant impact on the plaintiffs' assessment of the offer. Decision 1. I start by setting out the provisions of rules 20.26 and 42.15A: 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 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 (b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or (c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer. (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 or 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. (6) [Repealed] (7 June 2013) (7) [Repealed] (7 June 2013) (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. 42.15A Where offer not accepted and judgment no less favourable to defendant (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the 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 indemnity 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 the trial, as from 11 am on the day following the day on which the offer was made. 1. As was submitted for Mr Bate, the fundamental purpose of those rules is to encourage the appropriate settlement of litigation. If that purpose is to be achieved, a party who is served with an offer of compromise should, at the pain of incurring the consequences prescribed by r 42.15A, consider the offer, and assess it on its merits having regard to a number of factors. Those factors are not statutorily prescribed, nor can they be stated in any exhaustive way. They may include, among others: 1. the stage the proceedings have reached when the offer is served; 2. the amount at issue in the proceedings; 3. the likely amount of the costs to be incurred thereafter if the offer is not accepted; 4. related to the previous matter, the likely duration of the hearing; 5. the real factual and legal issues in the proceedings; and 6. the strength of the offeree's case (and, as a necessary reflex, the strength of the offeror's case) on those issues. 1. I start with the question: was the time limited for acceptance of the offer reasonable in the circumstances? In my view, it was. The parties had submitted their dispute to mediation in the week before the offer was served. It must be assumed that they had prepared for that mediation in the usual way, including by making an assessment of the strengths of their respective positions, and the positions of the other parties, on the factual and legal issues in dispute. They must also have been well and truly aware of what those factual and legal issues were. 2. In some circumstances, it may be apparent that the service of an offer of compromise shortly before the start of a lengthy hearing of a complex case will be disruptive to preparation, to the extent that it is not reasonable for the offeree to divert from preparation to attend to and consider the offer. This is not such a case. As I have said, the very fact that a mediation had been concluded the week before the offer was served indicates that the parties had had ample opportunity to consider the strengths and weaknesses of their cases. Further, there was no evidence from the plaintiffs' solicitor to suggest that the state of preparation was so disorganised that to direct attention from preparation to consideration of the offer would have been an inefficient and potentially costly diversion of resources. 3. I accept, of course, that the experts had not completed their conclaves and had not completed their joint reports (or, at least, the final versions of their joint reports). Thus, the plaintiffs could not know with any degree of precision to what extent the experts might come together on any particular factual issue, either on the liability case or on the damages case. However, the plaintiffs were well aware of what their own experts had said. They were well aware of what the defendants' experts (including Professor Gray) had said. 4. No doubt, the plaintiffs' case (as to liability or damages or both) may have been strengthened if the defendants' experts made concessions in the yet to be served joint reports, or weakened if their own experts made concessions. That does not alter the fact that the plaintiffs were well aware of what all the experts said, and could assess the merits of the competing arguments. It may be noted that the fact that the experts had not completed their joint reports (or final joint reports) does not appear to have inhibited the parties from attempting to mediate their differences. 5. As I have said, I conclude that the offer, considered in the circumstances in which it was made, did allow a reasonable time for acceptance. 6. I return to the question of the expert conclaves and joint reports. It is regrettable that the experts had not completed their conclaves, and produced their joint reports, well before 1 February 2016. It is regrettable that the experts, or the parties instructing them, appear to have paid little attention to the Court's orders, in particular to paras [3] and [4] of the usual order for hearing which was made in this case. I raised that matter with the plaintiffs and Mr Bate at the beginning of the hearing. They agreed that it would be possible for the hearing to proceed notwithstanding that the experts had not finished their work. In circumstances where it appeared to be the defendants' experts who had caused the delay, I did not think that it would be appropriate effectively to punish the plaintiffs by depriving them of the hearing date; otherwise, I may well have vacated the hearing. 7. That is now all past history. The relevant point is that which I have set out already: although the experts had not completed their work, the parties were in a position to proceed, whilst waiting for the experts to finish their conclaves and produce the final versions of their joint reports. 8. I noted at [7] above that Professor Gray's evidence was decisive on the primary causation issue. That evidence did not emerge from the conclave process. On the contrary, Professor Gray's position, on the relevant questions, was clear from the reports that had been served well before 1 February 2016. The conclave between Professor Gray and the other liability experts did not diminish the force with which he adhered to those views. 9. In my view, the plaintiffs were well able to consider the evidence of Professor Gray and the other liability experts, and to make an assessment of each party's strengths and weaknesses, even though the conclave process had not been completed. 10. I turn to the evidence on damages. The first point to note is that, by agreement between the defendants, the first defendant was to have had the carriage of the defendants' evidence and arguments on damages. Since they were equally exposed, that was a rational distribution of responsibilities. It would have been wasteful and inefficient for each defendant to have sought to adduce evidence on the same topics, when their interest in reducing as much as possible the amount of the plaintiffs' claim was identical. 11. Thus, when the plaintiffs settled with the first defendant at mediation, Mr Bate was left to assume carriage of the case on damages. This may have been at least in part a cause of the delay in the completion of the conclaving process, and production of the final version of the joint report, of the damages experts. 12. Whether or not that is correct, the simple fact is that the plaintiffs had had access to all the reports of all the damages experts for some time. They were in a position to assess the strengths and weaknesses of the competing positions, and to make a judgment as to the likely outcome on each of the issues raised between the experts. 13. It is correct to say that the case that Mr Bate wished to put on damages was, at the outset of the hearing, opaque. It is equally correct to say that it was not until the fifth day of the hearing that Senior Counsel for Mr Bate, at my request, outlined the case on damages in a way that made it more readily comprehensible. That having been said, it is the fact that the case so outlined was one that was clearly available on the expert evidence that had been served for the first defendant (and that was adopted and propounded by Mr Bate following the plaintiffs' settlement with the first defendant). I do not think that the failure to outline the damages case with specificity has any real bearing on the question presently under consideration. 14. I turn to the witnesses: Mr Bradbury and Mr Lance Bate. The submissions for the plaintiffs were correct to say that in a particular and important respect, Mr Bradbury departed from his affidavit evidence. However, that is a normal incident of litigation. If it were the fact that the failure of a witness to come up to proof was sufficient to deflect the operation of r 42.15A, then the outcome in my view would be seriously inconsistent with the policy underlying the rules, as I have expressed it above. 15. As to Mr Lance Bate, the plaintiffs were entitled to think that he would be called. There was material in his affidavit that (depending on the outcome of cross-examination) may have assisted them on the liability issues. Equally, there was material in the contemporaneous documents which no doubt would have been put to Mr Lance Bate, in a way that may well have assisted the plaintiffs' case on liability. 16. However, affidavits are served because orders of the Court require that to be done. Ordinarily, all parties are required to serve all the evidence on which they propose to rely in chief or in reply. The service of evidence does not guarantee that an affidavit will be read, so as to expose the witness to cross-examination. A party is entitled to make a tactical decision not to read an affidavit, and to take the view that the Jones v Dunkel inference is better than the evidence that the witness is likely to give. 17. In the present case, Mr Bate appears to have made that tactical decision. The effect of it may well have been to deprive the plaintiffs of evidence that could have supported their case. However, litigation is inherently full of chances and surprises. There are no guarantees: on the micro level (as to who might be called) or the macro level (what the outcome will be). 18. In truth, it seems to me, the fact that Mr Bradbury did not in some respects come up to proof, and the fact that Mr Bate chose to suffer the Jones v Dunkel inference rather than call Mr Lance Bate, are no more than two quotidian illustrations of the inherently chancy nature of litigation. 19. I should note, in this context, that the plaintiffs' solicitor, in his affidavit sworn in opposition to Mr Bate's indemnity costs application, did not go into any detail as to the plaintiffs' assessment of the offer of compromise, or of the extent (if any) to which the evidence that they hoped Mr Bradbury would give, and the evidence they expected Mr Lance Bate to give, might enhance their prospects of success. Thus, there is no way of assessing the extent to which their deliberations (if any) on the offer were undermined by the way in which the litigation unfolded. That task was left to the submissions made in opposition to the costs order sought by Mr Bate. 20. In my view, looking at the matter as a whole, there is no reason for the Court to order otherwise. 21. Having come to that conclusion, there is no need to give separate consideration to Mr Bate's offer in its alternative guise as a Calderbank offer. Conclusion 1. I order that the costs payable by the plaintiffs to the second defendant be assessed on the ordinary basis up until and including 1 February 2016 and on the indemnity basis thereafter. ********** 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: 04 May 2016