John Kosev v Gio General Limited [1997] ACTSC 92 (18 November 1997)

SUPREME COURT OF THE ACT

JOHN KOSEV v. GIO GENERAL LIMITED
No. SC 553 of 1996
Number of
pages - 6
Practice and Procedure

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

COOPER J

CATCHWORDS

Practice and Procedure - variation of costs order - Calderbank offer of settlement - plaintiff received judgment sum less than the offer made by the defendant - whether failure to accept a reasonable offer on its own will lead to an award of costs against the plaintiff

Supreme Court Rules, Australian Capital Territory - O32 r14, O65 r7A

Symes v The Commonwealth of Australia (1987) 89 FLR 356 - Appl

Quirk v Bawden [1992] ACTSC 118; (1992) 111 FLR 115 (FC) - Appl

Humphries v TWT Ltd [1993] ACTSC 24; (1993) 113 FLR 402 - Appl

MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 - Appl

HEARING

CANBERRA, 29 October and 7 November 1997 (hearing), 18 November 1997 (decision)

Further written submissions: 29 October and 7 November 1997

18:11:1997

Solicitors for the Plaintiff: Romano & Co

Solicitors for the Defendant: Mallesons Stephen Jaques

ORDER

THE COURT ORDERS THAT:

1. The costs order made herein on 8 October 1997 be varied by deleting all the words after the word "action" where first occurring and inserting in lieu thereof the words "up to and including 14 March 1997".

2. That such costs and disbursements be calculated in accordance with sub-rules (1) and (3) of Order 65 rule 7A of the Supreme Court Rules, Australian Capital Territory, and be taxed, if not agreed.

DECISION

COOPER J

On 8 October 1997 I gave judgment in this action for the plaintiff in the sum of $2,720 and ordered that he recover costs on the appropriate Magistrates Court of the Australian Capital Territory ("ACT") scale. The order as to costs was made without the benefit of submissions from the parties. It was nonetheless the usual order that costs follow the event and that where proceedings ought properly to have been brought in a lower court, the costs order reflect what would have occurred if the lower court jurisdiction had been invoked.

The defendant seeks to have the costs order varied or set aside and different orders made on the issue of costs. The plaintiff opposes such a course and submits that I lack jurisdiction to entertain the application, being functus officio.

The application by the defendant arises out of the fact that open offers of settlement were made prior to the hearing. Those offers exceeded the amount recovered and were made on the basis that their making and non-acceptance would be placed before the court on the question of costs. I have no doubt that had the judgment been delivered in Canberra by me attending personally, the application would immediately have been made by the defendant. I am satisfied that I have jurisdiction to entertain the application under the slip rule: O 32 r 14 of the Supreme Court Rules, ACT. This was also the view of Gallop J in Symes v Commonwealth of Australia (1987) 89 FLR 356 esp at 357 - 358.

The defendant seeks that the following orders be made :-

1. That the defendant pay the plaintiff's costs up to 14 March 1997 in accordance with the applicable ACT Magistrates Court scale. 2. That the plaintiff pay the defendant's costs from 14 March 1997 on an indemnity basis. 3. That the plaintiff's recoverable costs be reduced by an amount equal to the additional costs properly incurred by the defendant by reason of the proceedings having been instituted in the Supreme Court instead of the Magistrates Court.

If the question of costs is at large, the plaintiff seeks to recover the whole of his costs on the Supreme Court scale without reduction in accordance with O 65 r 7A of the Supreme Court Rules.

The facts as to the making of settlement offers are not in dispute. On 26 June 1996 the defendant, in addition to the $10,000 already paid on account of the claim, offered a further $15,000 in full and final settlement of the claim. That offer was not accepted. On 28 February 1997 the defendant, by its solicitors, offered on a without prejudice basis, other than as to costs, a judgment of $25,000 plus costs. That offer was to remain open for fourteen days. After the expiration of the offer period, the defendant's solicitors by letter dated 25 March 1997 inquired of the plaintiff's solicitors as to whether the plaintiff had any counter-proposal in respect of which the defendant's instructions should be sought. On 9 April 1997 the plaintiff put a counter-offer, without prejudice except as to the issue of costs, offering to accept $70,000 plus costs. That offer was not accepted.

On 28 May 1997 the defendant, by reference to the report of McLeay's Chartered Accountants dated 26 May 1997 which assessed the plaintiff's loss at $13,295 less the $10,000 paid on account, namely $3,295, offered the sum of $5,000 plus costs. That offer was not accepted.

The defendant submits that a costs sanction ought to be applied because the plaintiff refused to accept a reasonable offer of settlement which included costs.

The defendant submits that the orders sought in paragraphs 1 and 2 are justified on the basis of the reasoning in Quirk v Bawden [1992] ACTSC 118; (1992) 111 FLR 115 (FC). There, Higgins J, with whom Miles CJ and Gallop J agreed, in a passage relied upon by the defendant, said (at 120) :-

"Accordingly, I believe that this Court should apply an appropriate costs sanction where a party has declined to accept or to make, as the case may be, a reasonable offer of settlement."

However, it is important to have regard to the passage following that to which the defendant referred. Higgins J continued :-

" ... It may, in some cases, be sufficient to deprive an otherwise successful party of all or part of the costs that otherwise would follow the event. In other cases, it may be appropriate to award some or all costs of an action on a more favourable than usual basis to a party who has been put to the expense of continuing litigation that ought reasonably to have been earlier settled.

Of course, there needs to be more than an offer of settlement made by the plaintiff and not accepted by a defendant which is exceeded by the judgment to make it appropriate to order indemnity costs. As Priestly JA noted in Moran v McMahon (1985) 3 NSWLR 700, the assessment of non-economic loss in a personal injuries claim involves a judgment that is akin to a discretionary judgment. That makes it difficult to suggest that the mere refusal of an offer which happens to be less than the sum ultimately awarded is to be characterised as unreasonable.

Of course, if there has been proper particularisation by a plaintiff of his or her claim, it is difficult to conceive of a case in which a defendant, properly advised, could not tender a realistic offer of settlement. It may be enough to avoid an order for indemnity costs that the defendant has engaged, reasonably, in a proper attempt to settle the matter."

It is for this reason that a failure to accept a reasonable offer does not necessarily lead to an award of costs against the party refusing the offer on an indemnity basis. Consequently the conduct of the parties in the conduct of the litigation is relevant to the award of costs and it was decisive in Humphries v TWT Ltd [1993] ACTSC 24; (1993) 113 FLR 402 at 426 - 427, the other case referred to by the defendant.

The order sought in paragraph 3 flows from the operation of O 65 r 7A of the Supreme Court Rules, unless the court makes an order under sub-rule 7A(4) that the costs and disbursements be paid in a greater amount.

The plaintiff's solicitors submitted that on the pleadings the action was "for indemnity for loss of business earnings as [a] result of business interruption occasioned by fire" (paragraph 1: plaintiff's submissions of 6 November 1997). The submission contends that the operation of Section 2 of the Policy of Insurance ("the Policy") was not put in issue by the defendant until receipt of the report of McLeay's Chartered Accountants dated 26 May 1997 which was served on the plaintiff on 28 May 1997 together with the offer of $5,000 plus costs. The plaintiff contends that Section 2 of the Policy was not pleaded and accordingly was not an issue to be addressed by the plaintiff. The submission continues that the failure to plead Section 2 of the Policy was to "ambush" the plaintiff. The failure to plead Section 2 at an early stage was wrongful conduct on the part of the defendant, it was submitted, which entitled the plaintiff to his full costs. It is clear from the submissions on costs that the plaintiff ascribes his failure to obtain a judgment in a substantial sum on the operation of Section 2 of the Policy.

The plaintiff's case as pleaded was that he was insured under contract of insurance contained in Policy No SB2705447. The pleading continued in paragraph 3: "The plaintiff will rely and refer to the content of that policy of insurance at the hearing as if the same had been set out hereunder in full." By paragraph 4 he pleaded that the Policy was amended by mutual consent on 14 June 1994.

Paragraph 5 of the statement of claim pleaded :-

"5. The terms of the said policy and the cover provided by the same were counselled by an agent and or servant of the defendant and based upon the representations of that agent or servant of the defendant the plaintiff took out the cover provided by the said policy of insurance."

Paragraph 6 of the statement of claim pleaded :-

"The said policy of insurance as amended provided cover to the plaintiff amongst others against fire, burglary, losses of stock and profit and loss of trading."

Paragraph 7 of the statement of claim pleaded :-

"On 2 October 1994 the business was extensively damaged by fire resulting in its closure and cessation of trade with consequent losses, damages and business interruptions."

Paragraph 8(C) pleaded loss from business interruption in the sum of $108,704.81.

The defendant in its defence filed 31 July 1996, admitted paragraphs 3, 4, 6 and 7 of the statement of claim. It denied paragraphs 5 and 8.

On these pleadings there was no issue raised that the plaintiff was entitled to an indemnity for loss caused by business interruption in consequence of fire on any basis other than that provided for in the written insurance policy pleaded in paragraph 3 of the statement of claim and specifically incorporated into the pleading. Paragraph 5 does not, in terms or as a matter of necessary implication, raise an entitlement to an indemnity on any other basis.

Such being the state of the pleadings, the plaintiff's right to be indemnified against the loss sustained from business interruption, including the width of the indemnity and the calculation of loss falling within the indemnity fell to be determined by reference to the contract of insurance pleaded and particularised in paragraph 3 of the statement of claim, ie by reference to the Policy terms. Section 2 of the Policy was not a matter of defence. Absent Section 2, the plaintiff had no cover for the loss claimed. Section 2 is the basis of the plaintiff's entitlement and it controls the extent and calculation of the indemnity. The plaintiff always bore the onus to prove up an entitlement in the sum of $108,704.81 calculated in accordance with the terms of Section 2 of the Policy if he was to succeed on his claims. His entitlement to an indemnity was not at large and was required to be calculated in accordance with the agreed terms of the contract of insurance. If the plaintiff failed to prove an entitlement in accordance with Section 2 of the Policy, he would have failed entirely in the action. The claim of $108,704.81 was not calculated in accordance with Section 2 of the Policy. When that was done by Mr Irving, the accountant called by the plaintiff, the claim was reduced to $63,912. That did not occur until trial.

The reason the plaintiff failed to recover the sum of $63,912 was not because of the operation of Section 2 of the Policy, but because the evidence of the takings used to calculated the loss recoverable under Section 2 was unsatisfactory, for whatever reason, to sustain such a calculation.

It appears from paragraph 6 of the written submissions on costs that the plaintiff was aware from the negotiations and conferences between the defendant, the loss adjustor and the plaintiff that the defendant was contending that the taking of the business had not been fully disclosed for whatever reasons. This occurred well before trial. There can be no complaint that the cash register rolls were produced and tendered at trial by the defendant. The rolls were the source documents against which the plaintiff's partner confirmed the accuracy of the books of account relied upon by Mr Irving to do his calculations.

Having regard to the sum recovered, the offer of $25,000 plus costs was a reasonable offer. There is nothing in the conduct of the defendant which would justify not visiting on the plaintiff the consequences of his failure to accept the offer on or before 14 March 1997.

The plaintiff's entitlement to costs should cease after 14 March 1997 as his failure to accept by that date ought reasonably to disentitle him to costs and disbursements incurred thereafter. The mere failure to accept the offer does not mean, however, that the plaintiff thereby became liable to pay the defendant's costs after 14 March 1997 on an indemnity basis: MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236. What is required is a consideration of whether there is anything in the conduct of the plaintiff which would justify making any order beyond depriving him of his costs.

In my view there is not. The terms of the definitions in Section 2 of the Policy, because of the limited period of trading of the business at the time of the fire, left room for the making of decisions of judgment and degree, the choice of which could influence the quantum of the indemnity. Further, the evidence of the fall in business takings tendered by the plaintiff, if accepted, would have resulted in a recovery in excess of the sum offered. So far as the material goes, the evidence of Mrs Van Gerwan and of Mr Wiltshire was never disclosed before trial and the defendant at trial eschewed any notion that the claim of the plaintiff was a fraudulent one.

These circumstances tend against making any order that the plaintiff pay the defendant's costs after 14 March 1997. There is a further reason for adopting such a course which involves the operation of O 65 r 7A of the Supreme Court Rules.

In my view there is no reason why O 65 r 7A ought not be allowed to operate according to its terms. There is no suggestion that the claim was not one which could have been brought in the jurisdiction of the ACT Magistrates Court. Operation of the order relieves the defendant from the consequences of the plaintiff commencing or maintaining the action in the Supreme Court. The order will impact upon the quantum of the costs recoverable up to 14 March 1997 and the defendant will benefit thereby.

The conduct of the plaintiff in maintaining his action and refusing the settlement offer is not such that he should be denied his costs in full, and have such costs as he recovers on a lower scale subject to further deduction and then be required to pay the defendant's costs whether or not on an indemnity basis.

The refusal of the offer of 28 February 1997 justifies an order that the defendant pay the plaintiff's costs up to and including 14 March 1997 in accordance with the applicable ACT Magistrates Court scale.

The failure to obtain a judgment greater than the amount in Column 1 of the table to O 65 r 7A(1) justifies an order that the costs recoverable by the plaintiff be calculated in accordance with O 65 r 7A(1) and (3) of the Supreme Court Rules.

THE COURT ORDERS THAT:

1. The costs order made herein on 8 October 1997 be varied by deleting all the words after the word "action" where first occurring and inserting in lieu thereof the words "up to and including 14 March 1997".

2. That such costs and disbursements be calculated in accordance with sub-rules (1) and (3) of Order 65 rule 7A of the Supreme Court Rules of the Australian Capital Territory and be taxed, if not agreed.