Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 (27 May 2008)

Last Updated: 28 May 2008

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109


FILE NUMBER(S):
40307 of 2006

HEARING DATE(S):
On the papers

JUDGMENT DATE:
27 May 2008

PARTIES:
Robert Lewis Caine - First appellant
Pauline Joy Byfield - Second Appellant
Lumley General Insurance Ltd - Respondent

JUDGMENT OF:
Mason P McColl JA McClellan CJ at CL

LOWER COURT JURISDICTION:
Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S):
SC 50033 of 2004

LOWER COURT JUDICIAL OFFICER:
Einstein J

LOWER COURT DATE OF DECISION:
2 May 2006

LOWER COURT MEDIUM NEUTRAL CITATION:
[2006] NSWCA 337

COUNSEL:
Mr R W Seton SC - Appellants
Mr J C Kelly SC - Respondent

SOLICITORS:
Barry F Cosier & Associates - Appellants
Piper Alderman - Respondent

CATCHWORDS:
PROCEDURE – costs – offers of compromise – failure to establish reason for refusing offers.

LEGISLATION CITED:
Civil Procedure Act 2005
Insurance Contracts Act 1984 (Cth)
Supreme Court Rules 1970
Supreme Court Rules (Amendment No 405) 2005
Uniform Civil Procedure Rules 2005

CATEGORY:
Consequential orders

CASES CITED:
Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; (2006) 67 NSWLR 719
Caine v Lumley General Insurance Limited [2008] NSWCA 4
Robert Lewis Caine v Lumley General Insurance Limited [2006] NSWSC 337
Dib v Regtop [2006] NSWCA 380
Maricic v Dalma Formwork (Australia) Pty Ltd (No 2) [2006] NSWCA 237; (2006) 67 NSWLR 712
Morgan v Johnson [1998] NSWSC 367; (1998) 44 NSWLR 578
South Eastern Sydney Area Health Service v King [2006] NSWCA 2
The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; (2006) 67 NSWLR 706

TEXTS CITED:


DECISION:
1 Appeal allowed in part. 2. Judgment entered in favour of the respondent on 5 May 2006 set aside. 3. In lieu thereof declare that the appellants are entitled to recover the extra costs of reinstatement pursuant to cl D5 of the Policy and interest on that amount pursuant to s 57 of the Insurance Contracts Act (Cth) from 7 February 2003. 4. Judgment for the appellants in the sum of $105, 872 with interest accruing at $18.56 per day from 1 April 2008 until payment of the judgment debt in full. 5. Summons otherwise dismissed. 6. As to costs:(a) Respondent to pay the appellants’ costs of the appeal on the ordinary basis up to and including 7 June 2006 and thereafter on an indemnity basis; (b) respondent to pay the appellants’ costs of the trial on the ordinary basis up to 18 July 2005, and thereafter on an indemnity basis. 7. Parties to file Short Minutes of Order in the Registry within fourteen days reflecting these reasons. 8. Liberty to apply to a Commercial List judge in relation to any matter relating to the working out of the costs orders, such liberty only to be exercised on seven days notice to the other party. 9. Respondent to pay the costs of the Notice of Motion.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40307/06

Mason P

McColl JA

McClellan CJ at CL

Tuesday 27 May 2008

Robert Lewis Caine & Anor v Lumley General Insurance Limited (No 2)

Judgment

1 MASON P: I agree with McColl JA.

2 McCOLL JA: The Court delivered judgment in this matter on 6 February 2008. The appellants were partially successful on appeal and on what, in my opinion (Mason P and McClellan CJ at CL agreeing) was a more minor aspect of their claim: Caine v Lumley General Insurance Limited [2008] NSWCA 4 (“Caine No 1”, at [127]).

3 The Court made the following orders:

“(a) Appeal allowed in part.

(b) Judgment entered in favour of the respondent on 5 May 2006 set aside.

(c) In lieu thereof declare that the appellants are entitled to recover the extra costs of reinstatement pursuant to cl D5 of the Policy and interest on that amount pursuant to s 57 of the Insurance Contracts Act (Cth) from 7 February 2003.

(d) Summons otherwise dismissed.

(e) As to costs:

(i) Respondent to pay one-third of the appellants’ costs of the appeal and trial, and

(ii) Appellants to pay two-thirds of the respondent’s costs of the trial and of the appeal, such costs to be set off against each other.

(f) Parties to file Short Minutes of Order in the Registry within fourteen days reflecting these reasons.”

4 Instead of filing short minutes of order as contemplated by order (f), on 26 February 2008 the appellants filed a Notice of Motion seeking that the Court’s orders be varied. The variations proposed sought to quantify the extra costs of reinstatement the subject of the declaration in order (c), and also sought orders that a Notice of Contention the respondent had relied upon be dismissed (see Caine No 1 at [40]), that the respondent pay the appellants’ costs of the appeal on an indemnity basis from 7 June 2006 (the date an offer to compromise the appeal was served), pay the costs of the trial on a party\party basis up to and including 18 July 2005 (the date an offer to compromise the proceedings before trial was served) and thereafter on an indemnity basis and an order that the respondent repay monies the appellants had paid in discharge of cost orders at first instance.

5 Both parties then filed affidavits and written submissions. The parties accepted the Court could dispose of the Motion on the papers.

Background

6 As a result of the appeal, the appellants recovered judgment for $72,808 plus interest. There was initially a dispute about the quantification of the interest component, however the appellants attached an interest calculation to their written submissions which the respondent’s written submissions accepted as correct. It appears to be common ground, therefore, that the total judgment the appellants will recover as at 1 April 2008 was $105,872.00 with interest accruing at $18.56 per day thereafter.

7 The only real issue debated in the written submissions, therefore, is whether the appellants should receive all or part of the costs of the proceedings on an indemnity basis as a result of two offers of compromise.

8 On 18 July 2005 prior to the trial at first instance, the appellants served an offer of compromise on the respondent offering to accept $50,000 “plus costs to be agreed or assessed”. The offer was expressed to be open for 28 days (“the July 2005 offer”). It was not accepted.

9 On 2 May 2006 Einstein J ordered that the appellants’ claim be dismissed with costs: Robert Lewis Caine v Lumley General Insurance Limited [2006] NSWSC 337.

10 The appellants filed a Notice of Appeal on 29 May 2006. On 7 June 2006, they served an offer of compromise on the respondent offering to compromise the appeal on the following basis (“the June 2006 offer”):

“1. Appeal is allowed.

2. Judgment below is set aside.

3. In lieu thereof judgment for the plaintiffs in the sum of $50,000.00

4. Defendant to pay the Plaintiffs’ costs in the court below.

5. Respondent to pay the Appellants’ costs of the appeal

6. This offer is open to be accepted for 28 days only after the date on which it is made.”

11 That offer was also not accepted.

Procedural history

12 The proceedings were commenced by summons in the Equity Division of the Supreme Court of New South Wales seeking a declaration as to the proper construction of Clause D5 of the Policy. On 11 March 2004, Bergin J acceded to the respondent’s application to transfer the matter to the Commercial List. According to the appellants’ solicitors, her Honour required the appellants to file a summons setting out all their monetary claims under the Policy. Having complied with that direction, the appellants sought an order that the construction of Clause D5 and the release defence be determined as separate issues. This was refused.

13 In their Amended Summons, the appellants claimed the following sums:

· $700 for damage to their residence;
· $806,253.60 for damage to their caravans including $574,647.64 for the increased costs of complying with Council requirements subject to a limit of $192,000 for caravans and a payment of $100,000 which had been made by the defendant under the insurance policy; and
· approximately $95,000 for business interruption.

14 On 4 June 2004, the appellants served a Second Amended Summons claiming:

· $700 for damage to their residence;
· $624,617 for increased costs of complying with Council requirements (free of any limits) plus $92,000 for damage to caravans (being the total costs of repair of $937,177 less the $624,617 already mentioned, and subject to, first, the above $192,000 limit and, secondly, the $100,000 payment); and
· approximately $95,000 for business interruption.

15 On or about 3 July 2005 the respondent made an ex gratia payment of $700 to the appellants which disposed of the issue concerning damage to the residence.

16 The matter was set down for hearing on 18 July 2005. However on that day Einstein J granted the appellants leave to file a Third Amended Summons, vacated the hearing date and ordered the appellants to pay the costs thrown away by the adjournment. The appellants satisfied the costs order Einstein J made on 18 July 2005. They do not seek to recover any part of those costs by virtue of their offers of compromise.

17 The Third Amended Summons:

· claimed $700 for damage to the residence;
· claimed the same amounts as before for damage to caravans and annexes and an “extra cost of reinstatement/repairs to the tropical roofs of $9,718.75”; and
· abandoned the claim for business interruption.

18 According to the respondent’s written submissions, the quantum of the appellants’ claim based on the Third Amended Summons was $511,248.

Legislative framework

19 At the time of the July 2005 offer, Part 22 of the Supreme Court Rules 1970 set out the procedure for making Offers of Compromise. Part 52A dealt with Costs and rule 22 thereof with Offers of Compromise. Sub-rule (4) provided:

“(4) Where an offer is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates and no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall, subject to rule 33, be entitled to an order for costs against the defendant for the plaintiff’s costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to his costs incurred before and on that day, assessed on a party and party basis.”

20 The Uniform Civil Procedure Rules 2005 replaced the Supreme Court Rules from 15 August 2005. UCPR 20.26 dealt with making Offers of Compromise. That rule applied in this Court: The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; (2006) 67 NSWLR 706 at 709 [17]; Maricic v Dalma Formwork (Australia) Pty Ltd (No 2) [2006] NSWCA 237; (2006) 67 NSWLR 712. UCPR 42.14 deals with the consequences of an offer not being accepted where the judgment is no less favourable to the plaintiff than the offer, and relevantly provides:

“(1) This rule applies if the offer concerned is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim concerned no less favourable to the plaintiff than the terms of the offer.

(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff’s costs in respect of the claim:

(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and

(b) 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.”

21 For the purposes of an appeal, the reference to a “trial” in UCPR 42.14 must be treated as the hearing of the appeal: Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; (2006) 67 NSWLR 719 (at [21]).

22 Part 52A was omitted from the Supreme Court Rules on and from 15 August 2005 by Supreme Court Rules (Amendment No 405) 2005 (New South Wales Government Gazette, No 99, 5 August 2005, at 4148). However in my view, the July 2005 offer having been made prior to their repeal, the appellants had a substantive right to have its effect considered in terms of Part 52A, r 22(4): Dib v Regtop [2006] NSWCA 380 (at [13] – [14]). While it is possible it could also be considered under the UCPR (see cll 5 and 10, Sch 6, Civil Procedure Act 2005) a costs order made under the Supreme Court Rules operates from the day the offer of compromise was made, whereas one under UCPR 42.12 operates only from the following day. The appellants should not be deprived of one day’s costs if they are entitled to indemnity costs orders.

Submissions

23 The appellants’ essential submission is that the outcome of the appeal is that they have recovered a judgment more favourable than the terms of their two offers of compromise, that the respondent has not demonstrated why it was reasonable for it not to have accepted either offer and that there are no discretionary reasons which militate against an application of the rules entitling them to indemnity costs.

24 As to the June 2006 offer, they also point out that if accepted by the respondent, the latter would only have had to pay the costs of the trial on a party/party basis.

25 The appellants also contend that the Court should take into consideration the fact that they originally sought to confine their case to the point on which they were ultimately successful, the construction of clause D5, but were required by orders made when the matter was transferred to the Commercial List from the Equity Division where they had been commenced, to file a Summons setting out all monetary claims they made under the Policy.

26 The respondent submits that the July 2005 offer was not an offer within UCPR 42.14 because the appellants did not obtain “an order or judgment on the claim concerned no less favourable to the plaintiff than the terms of the offer”: UCPR 42.14(1). As I have explained, the UCPR did not apply to the July 2005 offer which was made prior to their commencement on 15 August 2005. Part 52A, r 22(4) applied. However that rule also requires a comparison between the offer of compromise and the ultimate order or judgment. The respondent submits that the 18 July offer was based on the then current Second Amended Summons, whereas the claim in respect of which the appellants were successful on appeal was that appearing in the Third Amended Summons. It also argues it is impossible to say whether the order or judgment the appellants obtained was no less favourable than the offer because, in order to undertake that comparison, it would be necessary to assess the two sets of costs, divided on the 1/3:2/3 basis (this I understand being a reference to the costs the Court actually ordered) and deduct the product of that exercise from the principal amount the appellants recovered.

27 The respondent submits that the same considerations apply to the June 2006 offer, save that it accepts that offer related to the Third Amended Summons.

28 The respondent also seek to invoke the discretionary power found in each costs rule relating to offers of compromise which enables the Court not to give effect to the rule’s prima facie operation. They rely upon the considerations which influenced the Court to order the costs be born as to one-third by the respondent, and two-thirds by the appellants: Caine No 1 (at [127]). They submit that the Court should take into account the fact that the appellants “wasted a substantial amount of court time and cost pursuing an exaggerated claim on which they were ultimately unsuccessful”.

29 In reply the appellants submitted that once the Court became aware of the offers of compromise, the costs order proposed in Caine No 1 should be set to one side and the costs issues should be considered in the light of the offers of compromise.

Consideration

30 The respondent’s submission that the appellants did not obtain an order or judgment which was no less favourable than the terms of the offer should be rejected. It proceeds on the false premise that for the purpose of considering the offers, the Court should take into account the costs orders it proposed at a time when it was ignorant of the offers of compromise. The appellants have recovered more than twice the amount for which they offered to compromise the proceedings both at trial and on appeal. They have clearly recovered a substantially more favourable judgment than that the subject of both offers of compromise.

31 I would also reject the respondent’s submission that the 18 July offer was not “the claim to which the offer relates” for the purposes of SCR Pt 52A, r 22(4). It was made on the morning the appellants were given leave to amend the Second Amended Summons to add a claim for extra costs of reinstatement/repairs to the tropical roofs of $9,718.75 and to abandon their claim for business interruption. After leave was granted, the Third Amended Summons was the operative pleading for all but half a day or so of the period the July 2005 offer was open for acceptance. It was the appellants “claim” which was the subject of the July 2005 offer for substantially the whole period it was extant.

32 The appellants are, therefore, prima facie entitled to costs on an indemnity basis from the date referred to in the relevant rule.

33 The question then arises whether the respondent has established any basis on which the Court should deprive the appellants of this prima facie entitlement. In my view it has not.

34 In Morgan v Johnson [1998] NSWSC 367; (1998) 44 NSWLR 578 (at 581 – 582), Mason P (with whom Sheller JA agreed) summarised the rationale for the rules relating to offers of compromise as follows relevantly:

“...(1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital (at 725-726); Hillier (at 421, 431).

(2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital (at 724).

(3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: NSW Insurance Ministerial Corporation v Reeve (at 102); Hillier (at 422). This is because, from the time of non-acceptance ‘notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise’: Maitland Hospital (at 724); see also Hillier (at 420).

(4) Lying behind the rule is the common knowledge that ‘litigation is inescapably chancy’: Maitland Hospital (at 725). For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve (at 102-103). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102). As Clarke JA expressed it in Houatchanthara (at 2-3):

‘The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case. It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk.’

(5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital (at 725-726). Reasons must be given for ‘otherwise ordering’: Hillier (at 419); Quach.” (my emphasis)

35 The onus is on the respondent to demonstrate why the Court should not order the respondent to pay the appellants’ costs on an indemnity basis. In particular, the respondent must establish that it had given serious thought to the risks involved in not accepting the offers, had assessed the appellants’ case properly and in the context of the relevant rules and the achievement of their purpose as outlined in Morgan. Generally, exceptional circumstances are required to justify such an order denying the appellants’ entitlement: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (at [83]) per Hunt AJA (Mason P and McColl JA agreeing).

36 The respondent has made no attempt to explain why it rejected either offer of compromise. Its complaints about the “exaggerated” nature of the appellants claim do not support its submission why the appellants’ claim for indemnity costs should be resisted. While I do not accept its characterisation of the appellants’ case, if that was the respondent’s view, it might have been thought that an offer $50,000 compared to the appellants’ claim for $511,248 cried out for serious consideration in the light of the object of the rules relating to offers of compromise namely “the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation”. The respondent’s failure to accept the offers, and its failure to explain why it did so, means that notionally the real cause and occasion of the litigation was the attitude it displayed in rejecting the offers.

37 I can discern no exceptional circumstances which would justify denying the appellants their costs on an indemnity basis.

Conclusion

38 In my view the appellants are entitled to indemnity costs orders in accordance with the rules governing the respective offers.

39 The application that the orders include an order requiring the respondent to repay monies the appellants had paid in discharge of cost orders at first instance was not pursued in the appellants’ written submissions. The respondent submitted that it was neither usual, nor appropriate but accepted, as it properly had to, that to the extent there was a balance in favour of the appellants after working out the costs orders this Court may make, it had to reimburse that sum to the appellants. It proposed that liberty should be reserved to apply to the trial judge in relation to any matter that may be necessary to give effect to the costs orders. It did so on the basis that the costs orders the Court proposed involved a set-off. As will be seen, there is no longer a set-off in the orders I propose, but in my view it is sensible to permit the parties to have liberty to apply to a judge in the Commercial List in the event there is a dispute about the reimbursement of the appellants’ costs and I have included an order to that effect in the orders.

40 Neither parties’ written submissions addressed the appellants’ proposal that the orders include an order dismissing the Notice of Contention. That proposed order was misconceived. A Notice of Contention is the formal basis on which a respondent advances reasons other than those on which the trial judge relied for upholding the decision below, without seeking a discharge or variation of the orders made: UCPR 51.40. It will not lead to different orders being made. It is unnecessary to dismiss it.

41 I propose the following orders in lieu of those made on 6 February 2008:

1 Appeal allowed in part.

2 Judgment entered in favour of the respondent on 5 May 2006 set aside.

3 In lieu thereof declare that the appellants are entitled to recover the extra costs of reinstatement pursuant to cl D5 of the Policy and interest on that amount pursuant to s 57 of the Insurance Contracts Act 1984 (Cth) from 7 February 2003.

4 Judgment for the appellants in the sum of $105, 872 with interest accruing at $18.56 per day from 1 April 2008 until payment of the judgment debt in full.

5 Summons otherwise dismissed.

6 As to costs:

(a) Respondent to pay the appellants’ costs of the appeal on the ordinary basis up to and including 7 June 2006 and thereafter on an indemnity basis;

(b) Respondent to pay the appellants’ costs of the trial on the ordinary basis up to 18 July 2005, and thereafter on an indemnity basis.

7 Parties to file Short Minutes of Order in the Registry within fourteen days reflecting these reasons.

8 Liberty to apply to a Commercial List judge in relation to any matter relating to the working out of the costs orders, such liberty only to be exercised on seven days notice to the other party.

9 Respondent to pay the costs of the Notice of Motion.

42 McCLELLAN CJ at CL: I agree with McColl JA.

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LAST UPDATED:
27 May 2008