Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Singapore Airlines Cargo Pte Limited v Principle International Pty Ltd (No 2) [2017] NSWCA 340 Hearing dates: On the papers Decision date: 21 December 2017 Before: Beazley P; Meagher JA; Payne JA Decision: Notice of motion dismissed with costs. Catchwords: COSTS – application in respect of costs at first instance – where appeal allowed in part from District Court judgment – whether order for costs should be made under Uniform Civil Procedure Rules 2005 (NSW), r 42.35 on the basis that proceedings were not commenced in the appropriate court – whether offer properly characterised as Calderbank offer – whether special costs order should be made Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.35 Cases Cited: Averkin v Insurance Australia Ltd (No 2) [2016] NSWCA 150 Calderbank v Calderbank [1975] 3 All ER 333 Jones v Bradley (No 2) [2003] NSWCA 258 Leichardt Municipal Council v Green [2004] NSWCA 341 Old v McInness and Hodgkinson [2011] NSWCA 410 Singapore Airlines Cargo Pte Limited v Principle International Pty Ltd [2017] NSWCA 216 Treloar Constructions Pty Ltd v McMillan (No 2) [2017] NSWCA 146 Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 Texts Cited: GE Dal Pont, Law of Costs (3rd ed, LexisNexis Butterworths) Category: Costs Parties: Singapore Airlines Cargo Pte Ltd (Applicant) Principle International Pty Ltd (First Respondent) Xin Mao Imp & Exp Co Ltd (Second Respondent) Longjiang Wellbright Foods Co Ltd (Third Respondent) Representation: Counsel: D Stanton (Applicant) D Klineberg (Respondents) Solicitors: Norton White (Applicant) Blackstone Waterhouse Lawyers (Respondents) File Number(s): 2016/322075 Decision under appeal Court or tribunal: District Court Jurisdiction: Civil Date of Decision: 30 September 2016 Before: Norton DCJ File Number(s): 2014/371613 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. THE COURT: On 30 August 2017, this Court delivered its judgment in Singapore Airlines Cargo Pte Limited v Principle International Pty Ltd [2017] NSWCA 216 (the principal judgment) in which it reduced the award of damages payable to Principle International Pty Ltd (Principle) from $43,296, as awarded by the primary judge, to $14,432. That reduction reflected a different apportionment of contributory negligence against Principle from 50 per cent, as found by the primary judge, to 80 per cent as determined by this Court. 2. The Court did not, in the principal judgment, set aside the costs order made in favour of Principle in the court below, which was in the following terms: "… (2) Defendant to pay the plaintiffs' costs. (3) If any party seeks a special costs order, they should do so by filing and serving a notice of motion with a supporting affidavit and brief written submissions within 14 days." 1. Singapore Airlines Cargo Pte Limited (SIA Cargo) did not take any steps to seek a special costs order as referred to in order (3). However, by notice of motion, SIA Cargo now seeks an order remitting the matter to the trial judge for determination of the costs of the proceedings at first instance; or alternatively, an order that those costs be determined by this Court on written submissions. The latter course is preferable. It will result in the just, quick and cheap determination of this remaining issue, as well as the efficient use of the judicial resources available. 2. In an affidavit sworn in support of the notice of motion, Mr Cooper, a law graduate employed by Norton White, stated that the intention in bringing this application was to seek an order that Principle pay its costs at first instance. In its written submissions, SIA Cargo advanced two bases for a costs order in its favour. First, it contended that Principle was not entitled to a costs order pursuant to the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.35. Secondly, it relied upon one or more offers of settlement it made to Principle, which it contended were made by way of Calderbank offers: Calderbank v Calderbank [1975] 3 All ER 333. The UCPR, r 42.35 1. The UCPR, r 42.35 provides as follows: "42.35 Costs order not to be made in proceedings in District Court unless Court satisfied proceedings in appropriate court (1) This rule applies if: (a) in proceedings in the District Court, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $40,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the District Court is satisfied the commencement and continuation of the proceedings in the District Court, rather than the Local Court, was warranted. 1. SIA Cargo submitted that unless Principle established grounds for commencing and continuing its claim in the District Court, given that it obtained a judgment for only $14,432, it was not entitled to its costs. It pointed out that in its statement of claim, Principle claimed damages in the sum of $72,160 and that the jurisdictional limit of the Local Court at the time it filed its claim was $100,000: see the Local Court Act 2007 (NSW), s 29. 2. SIA Cargo further submitted that there was no feature of the case that made it inappropriate for it to be conducted in the Local Court. In this regard, it relied upon the following summary of factors identified in GE Dal Pont, Law of Costs (3rd ed, LexisNexis Butterworths) at [12.15] as being relevant to the application of r 42.35: 1. the amount claimed, and the reasons for this; 2. the amount actually recovered, and the reasons for this; 3. the difficulty or otherwise of assessing the likely damages awarded; 4. the complexity or otherwise of the case, factually and/or legally; 5. the nature of the proceedings in question, and how this impacts, if at all, upon the need to proceed in the higher or specialist court; 6. the conduct and attitude of the parties to litigation; and 7. the importance of the legal principle involved in the case as a matter of precedent. 1. By reference to these various factors, SIA Cargo submitted that there were no complex issues in relation to the assessment of damages, nor were the facts overly complicated or extensive and were relatively easily resolved, as it turned out, overwhelmingly in its favour. It recognised that although the case involved a question as to the meaning of the word "event" in Art 18 of the Montreal Convention 1999, there was no evidence to indicate that the proceedings were commenced in the District Court because of any complex or important legal issue. 2. In its response, Principle submitted that at no stage did SIA Cargo suggest that the matter had been commenced inappropriately in the District Court, and accordingly, this case was able to be distinguished from Averkin v Insurance Australia Ltd (No 2) [2016] NSWCA 150. In that case, the defendant had raised with the plaintiff the appropriateness of the proceedings being in the District Court, shortly after their commencement. 3. Principle further submitted that at all times it had been common ground between the parties that the matter was one of general importance to SIA Cargo and the industry in general, having regard to the interpretation of Arts 18 and 20 of the Montreal Convention, there having been no relevant appellate decision in relation to Art 18. 4. Principle also submitted that SIA Cargo had not appropriately considered the effect of the various propositions summarised by Dal Pont. In particular, Principle submitted that the case involved a question of general importance concerning the proper construction of an international convention and reiterated that SIA Cargo during the course of the litigation had never queried whether the proceedings would appropriately have been conducted in the Local Court. 5. Principle also argued that the evidence in the case was detailed and significant, including from a variety of experts relating to cattle loading, the crates used and the placement of crates on the aircraft. Principle also argued that SIA Cargo: "… proceeded on the basis that the value of the claim relative to the costs of the matter was not, given the significance of the issues, of particular relevance." 1. It contended that this was of particular importance given that ordinarily costs "are of especial importance in connection with small claims, because costs can readily exceed the amount at stake": Averkin v Insurance Australia (No 2) at [15]. 2. Principle next argued that the ultimate award in its favour was the result of this Court's determination of contributory negligence. It submitted that questions of contributory negligence involve an evaluative judgment in respect of which "minds may differ". It submitted, therefore, that he could not be said that a judgment sum of under $40,000 was either "obvious" at the time that the proceedings were commenced, or necessarily "straightforward". 3. It further contended that the critical factual issues were not relatively easily resolved. In this regard, Principle submitted that the critical issues in the case were whether there was "an event" within the meaning of Art 18(1) and whether the cattle died due to defective packing within the meaning of Art 18(2). It pointed out that it had been successful both at first instance and on appeal in respect of these critical legal and factual issues, the latter having involved the calling of expert evidence. 4. SIA Cargo responded to these various submissions, reiterating that the case could have been dealt with adequately in the Local Court. It disputed the contention that "at all times it was common ground" that the proceedings involved important issues concerning the interpretation of the Montreal Convention, although it accepted that by the time of the appeal this was clear to both parties. It also submitted that it could not be assumed that Principle's decision to pursue the case in the District Court was made with any attention to that consideration. 5. SIA Cargo also contested Principle's assertion that the value of the claim was not of particular relevance to SIA Cargo. Consideration 1. In the view of the Court, the commencement and continuation of the proceedings in the District Court was warranted. The case involved factual circumstances of some complexity, particularly in relation to the expert evidence. This is apparent from the discussion of the "Background facts" in the principal judgment and the consideration of the expert evidence in relation to the meaning and application of Art 18(2) of the Montreal Convention: see especially at [76]-[85] and the consideration of Art 18(2). 2. We are also of the opinion that the legal question as to the proper construction of Art 18(1) was not straightforward. It was also, as the parties recognised, an important question, not only for SIA Cargo, but for the industry generally. 3. We would reject this aspect of SIA Cargo's claim based on UCPR, r 42.35 that there be no order for costs in favour of Principle. The Calderbank offers 1. SIA Cargo made four offers of settlement in relation to the proceedings, the terms of which are set out below. Principle disputed that the first three offers were Calderbank offers at all. It accepted that the fourth offer was a Calderbank offer and a genuine offer of compromise. It submitted, however, that as the offer was inclusive of costs, it did not better the ultimate result that it achieved in the Court of Appeal. Terms of the offers of settlement 1. The first offer was made in writing prior to the commencement of proceedings by letter dated 7 October 2014 from SIA Cargo's solicitor to Principle's solicitor and was headed "Without prejudice save as to costs". In the letter, SIA Cargo's solicitor contended that it would only be liable for the loss of the cattle where there was evidence of "gross negligence or wilful misconduct in accordance with the terms of the contract between the parties". The letter continued that, nonetheless, in order to resolve the matter "swiftly and amicably": "… our client would be willing to offer your client AUD 33,146.15, representing 50% of its claim amount, in full and final satisfaction of its claim against our client." The offer was subject to Principle signing a full and final release, and was made "on a strictly without prejudice and without admission of liability basis". 1. The second offer was made shortly after the commencement of proceedings by letter dated 16 January 2015 from SIA Cargo's solicitor to Principle's solicitor, which was headed "Without prejudice". The letter reiterated the offer made on 7 October 2014. Again, the offer was subject to the execution of a satisfactory release and indemnity and was made "without prejudice and without admission of liability". 2. It is convenient at this point to refer to Principle's response by letter dated 6 February 2015 from its solicitor to SIA Cargo's solicitor's letter of 16 January 2015. Principle's solicitor contended that there was no basis for SIA Cargo to deny liability and pointed out that Principle at that time had incurred legal costs in the sum of $8,679.82 and that interest on the claim was $8,481.85. Principle made a counter offer in the sum of $72,160. 3. The third offer was made in a telephone call between the solicitors on 19 February 2015, in which SIA Cargo's solicitor offered in full settlement of the claim the sum of $57,250 inclusive of costs. 4. The fourth offer was made by letter dated 30 June 2016 and headed "Without Prejudice save as to costs" and was relevantly in the following terms: "Our client offers to pay your client the amount of $20,000 inclusive of costs in full and final settlement of your claim. This offer to settle ... is on the basis and in accordance with the principles of Calderbank v Calderbank … and remains open for 7 days. Our client reserves its right to tender this offer on an application for costs if the offer is rejected and will seek payment of its costs from your client on an indemnity basis from the date of this offer …" Were the first three offers Calderbank offers? 1. Principle submitted that in order to constitute an offer in respect of which the court might, in the exercise of its discretion, make an adverse order for costs against a party otherwise entitled to costs, it was necessary that the offer state that it would be relied upon as a Calderbank offer, or otherwise made apparent that non-acceptance of the offer would be relied upon as a basis for seeking a special costs order: see Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 at [42], [57]; Treloar Constructions Pty Ltd v McMillan (No 2) [2017] NSWCA 146 at [8], [10]. 2. SIA Cargo submitted that the approach for which Principle contended introduced a degree of formalism that was inconsistent with the values that Calderbank offers seek to promote. It also submitted that Principle had misunderstood what had been said in Treloar Constructions v McMillan (No 2). Consideration 1. Whitney v Dream Developments was concerned with the question whether an offer purportedly made pursuant to UCPR, r 20.26 was compliant with that rule. The respondents in that case had contended, by way of notice of contention, that notwithstanding the non-compliance of the offer with UCPR, r 20.26, it could nonetheless operate as a Calderbank offer. The portion of Whitney v Dream Developments at [42] upon which Principle relied in support of its argument, whilst set out correctly, must be read in the context of the contention that was being advanced, namely, that the non-compliant rules offer could be considered on the basis that it was also advanced by way of a Calderbank offer. In that context, Bathurst CJ stated: "42 In the present case all that there was, were the offers of compromise, the second seeking a greater amount by way of settlement than the former. There was nothing in either of the offers to indicate that they were intended to have effect other than as offers under r 20.26. Further, there was nothing in the correspondence with which the offers were enclosed or in the surrounding circumstance to indicate they would be relied on in relation to the question of costs should a verdict more favourable than the offer be achieved. Such an indication, in my opinion, is the essence of a Calderbank offer. 43 That is not to say that the conduct of the parties during litigation, including the making of open offers, may not in certain circumstances be relevant to the appropriate manner in which a court's discretion as to costs should be exercised. However, an offer made expressly pursuant to r 20.26 will not of itself take effect as a Calderbank offer unless there is something in it or in the surrounding circumstances to indicate that it is proposed to be relied upon on the question of costs, irrespective of its effectiveness as an offer under r 20.26. 44 In the present case neither the correspondence nor the surrounding circumstances provide any such indication. It follows that the offer cannot take effect as a Calderbank offer." 1. Calderbank offers are a well-established means of parties seeking to compromise proceedings in circumstances where, provided that the offer is a genuine offer of compromise and the opposing party unreasonably rejects the offer, the court may, in the exercise of its discretion, make a special costs order in favour of the offeror. This was explained in Treloar Constructions v McMillan (No 2) at [6]-[10], as follows: "6 Subject to the rules and to any other Act, costs are in the discretion of the Court: Civil Procedure Act 2005 (NSW) (CPA), s 98. Pursuant to the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.2: 'Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis.' 7 The Court may, in its discretion, order that costs be assessed on the indemnity basis: CPA, s 98(1)(c); UCPR, r 42.5. Although not confined to established categories of case, the discretion to order costs on the indemnity basis is to be exercised judicially and in accordance with principle: see, for example, Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 per McHugh J at [65]; Botany Bay City Council v Minister for Local Government (No 2) [2016] NSWCA 127 at [5]; Mohareb v Palmer [2016] NSWCA 378 at [53]. 8 The making, and rejection, of a Calderbank offer is one factor which may, but will not necessarily, cause the Court in its discretion to order costs on the indemnity basis. Barrett JA explained in Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188, at [57], that an offer will qualify as a Calderbank offer: '… only if the maker of it is shown to intend that the fact of its non-acceptance may be deployed as a basis for seeking a special costs order in the event of that party's ultimate success in the action. Everything therefore depends on the message conveyed by the offer itself and any covering letter or other attendant circumstance.' 9 The rejection of an offer of that type may cause the Court to make an order that costs be assessed on the indemnity basis if the Court is satisfied that (1) the offer was a genuine offer of compromise and (2) the rejection of the offer was unreasonable: see, for example, Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]. 10 Although no fixed form of words is required for an offer to constitute a Calderbank offer, an indication that the offer will be relied on in relation to the question of costs should a verdict more favourable than the offer be achieved 'is the essence of a Calderbank offer': per Bathurst CJ in Whitney v Dream Developments Pty Ltd at [42]. The 7 November 2014 letter does not embody an offer of the type contemplated for the reason that it fails this essential requirement." 1. Thus, the party making the offer ultimately seeks to obtain a costs advantage if the offer is not accepted: see Jones v Bradley (No 2) [2003] NSWCA 258 at [5]; Old v McInness and Hodgkinson [2011] NSWCA 410 at [22]. Further, from the Court's perspective, as was explained in Leichardt Municipal Council v Green [2004] NSWCA 341 at [14] the rationale underlying Calderbank offers is to: "… facilitate the public policy objective of providing an incentive for the disputants to end their litigation as soon as possible. Furthermore … it can be seen as also influenced by the related public policy of discouraging wasteful and unreasonable behaviour by litigants." 1. In the Court's opinion, the first, second and third offers were not Calderbank offers, nor were they offers such that this Court would exercise its discretion to make a special costs order in favour of SIA Cargo. Our reasons may be stated briefly. 2. The first offer was made prior to the commencement of proceedings and did not give any indication that if proceedings were to be commenced the offer would be relied upon in relation to costs. The letter of offer also stated that pursuant to the contract between the parties, for liability to be established against it, gross negligence or wilful misconduct had to be established. That was not correct. The matter was governed by the terms of the Montreal Convention, as was explained in the principal judgment. 3. The second offer was made shortly after the commencement of proceedings. It was expressed to be "in the interests of achieving a commercial resolution to this matter" and was a reiteration of the first offer. It was thus made on the basis that its liability was to be determined in accordance with the contract between the parties. 4. The third offer was oral. No reference was made to it being in terms of a Calderbank offer, or otherwise, to be relied upon in support of a costs order if not accepted. 5. In our opinion, regardless of any classification of the offers as Calderbank offers, none of the offers conveyed the message, to adopt the language of Barrett JA in Whitney v Dream Developments, that the offers were to be used as a basis to claim a special costs order. 6. That does not mean that the court may not make a special costs order in the exercise of its discretion. In Old v McInnes Beazley JA considered, at [32], that although a Calderbank offer provided a readily recognisable basis for the court to exercise its costs discretion, the discretion is not confined to offers that are strictly characterised as or stated to be Calderbank offers. In that case, the respondent had made a non-compliant rules offer. However, there was other correspondence in which the client had made an offer of settlement and a subsequent letter from the solicitor which enclosed that offer and stated that it was made in accordance with the principles in Calderbank v Calderbank. 7. Although Beazley JA dissented in that case, the availability of that approach to costs in an appropriate case was not disavowed in Whitney v Dream Developments. Rather, whether the court will exercise its discretion in a given case depends upon the relevant factual circumstances, including the terms in which offers are made and the message that is conveyed. We do not consider that the relevant message was conveyed in this case. Nor do we consider the first and second offers were made in terms or in circumstances such as to compel the exercise of a costs discretion in favour of SIA Cargo. This is particularly so given that SIA Cargo was resisting liability on a basis that was not available to it. 8. Different considerations arise in relation to the third offer, in that it was in an increased amount, and seems to reflect an offer of damages of between $40,000 and $45,000. We say this because Principle had advised two weeks earlier that its costs were $8,647.82 and that interest on its claim (which was in the sum of $72,160) was $8,481.85. This offer was thus very close to the result achieved in the District Court, which as explained below, we consider to be the correct comparator, not the ultimate result in the Court of Appeal. 9. However, it was an offer made by telephone, without the formalities of what might be expected of an offer the intention in respect of which was to provide a basis for seeking an advantageous costs order. In saying that, we do not intend to indicate that a Calderbank offer or an offer which is intended to provide a basis for a special costs order must be in a particular form. Rather, as already stated, it is the message that is conveyed by the terms of the offer that is the relevant consideration. 10. That leaves the fourth offer. In our opinion, this offer did not better the result in the proceedings. That is clearly so if we are correct in considering that the correct comparator is with the damages awarded at first instance. The reason for our view in that regard is that the offer was made in respect of those proceedings and is the reverse contention to the view taken in this Court that if a party wishes to rely on an offer of compromise for the purposes of proceedings on appeal, it is usually not sufficient to rely upon an offer made in relation to the proceedings at first instance. 11. But in any event, as the offer was made inclusive of costs, it was not better than the result that was achieved on the basis that it is necessary to substitute for the damages awarded by the primary judge the amount of $14,432 awarded by this Court. Pre-judgment interest was payable on that amount and, as we have rejected SIA Cargo's application under UCPR, r 42.35, Principle was also entitled to its costs at first instance. As at 6 February 2015, Principle advised that its costs at that stage were $8,679.82. The fourth offer was made over 12 months later. It may be inferred that significantly more costs had been incurred by that time. 12. In our view, even if the correct approach is to substitute the damages awarded by this Court in determining whether SIA Cargo was entitled to a special costs order in its favour, the fourth offer of $20,000 inclusive of costs did not better the ultimate result achieved by Principle in the proceedings at first instance. 13. It follows that SIA Cargo has not established a basis for an order for costs of the proceedings in the District Court. 14. Accordingly, the notice of motion is dismissed with 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: 21 December 2017