Erect Safe Scaffolding (Australia) Pty Limited v Sutton & Anor (No 2) [2008] NSWCA 289 (11 November 2008)

Last Updated: 12 November 2008

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Erect Safe Scaffolding (Australia) Pty Limited v Sutton & Anor (No 2) [2008] NSWCA 289


FILE NUMBER(S):
40011/07

HEARING DATE(S):
On written submissions following publication of reasons

JUDGMENT DATE:
11 November 2008

PARTIES:
Erect Safe Scaffolding (Australia Pty Ltd - Appellant
Ian Sutton - First Respondent
Australand Constructions Pty Ltd - Second Respondent

JUDGMENT OF:
Giles JA Basten JA McClellan CJ at CL

LOWER COURT JURISDICTION:
District Court

LOWER COURT FILE NUMBER(S):
DC 4948/04

LOWER COURT JUDICIAL OFFICER:
Goldring DCJ

LOWER COURT DATE OF DECISION:
14 December 2006


COUNSEL:
G Laughton SC/N Cotman SC - Appellant
P R Hennessey SC & M J Perry - First Respondent
B Toomey QC & J Stewart - Second Respondent

SOLICITORS:
McCulloch & Buggy - Appellant
Taylor & Scott - First Respondent
Ebsworth & Ebsworth - Second Respondent

CATCHWORDS:
INTEREST - trial judge's damages reduced on appeal - agreement that plaintiff entitled to interest - judgment on appeal taking effect on date of trial judge's judgment - interest entitlement under s 101 Civil Procedure Act - interest not included in substituted judgment - COSTS - offers of compromise - application of UCP Rules concerning offers in Court of Appeal - offer to party A that party B pay $X - can not be accepted by party A - ineffective - same offer to party B - need to take interest into account - offeror bettered offer - no occasion for order otherwise - indemnity costs from date of offer.

LEGISLATION CITED:



CASES CITED:
Associated Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349;
Atkinson v Zey; Zey v Atkinson [2008] NSWCA 30;
Erect Safe Scaffolding (Australia) Pty Ltd v Sutton [2008] NSWCA 114;
Najdovski v Crnojlovic (No 2) [2008] NSWCA 28;
Nichol v Allyacht Spars Pty Ltd [1988] HCA 48; (1988) 165 CLR 306.

TEXTS CITED:


DECISION:
(1) Appeal and cross-appeal allowed in part. (2) Set aside the judgment for $663,369.77 and in lieu thereof verdict and judgment for $601,568.53 taking effect on 14 December 2006. (3) Subject to order 4: (a) set aside any order that Erect Safe pay Australand’s costs in the District Court to the extent of the costs referred to in (b); (b) Australand pay Erect Safe’s costs of grounds 2 and 3 of its notice of appeal and corresponding costs incurred in the District Court; (c) Erect Safe pay Mr Sutton’s costs of the appeal from 7 January 2008 on an indemnity basis; (d) otherwise each party pay its and his costs of the appeal and cross-appeal. (4) Mr Sutton pay Australand's costs of the notice of motion filed on 13 June 2008; Erect Safe pay Mr Sutton’s costs of the notice of motion save so far as incurred between Mr Sutton and Australand. (5) Noted as between Erect Safe and Australand
Erect Safe and Australand to complete payment of the judgment referred to in order 2 as follows: Erect Safe - $424,647.23; Australand - $176,921.30.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40011/07

DC 4948/04

GILES JA

BASTEN JA

McCLELLAN CJ at CL

Tuesday 11 November 2008

ERECT SAFE SCAFFOLDING (AUSTRALIA) PTY LTD v SUTTON & ANOR (No 2)

Judgment

1 GILES JA: The Court’s reasons were published on 6 June 2008: Erect Safe Scaffolding (Australia) Pty Ltd v Sutton [2008] NSWCA 114. So far as presently relevant, the appeals of Erect Safe and Australand against Mr Sutton were upheld in part, with reduction of Mr Sutton’s damages to $601,568.53: at [197]. As between those parties it was proposed that each should bear its and his own appellate costs: at [16], [17], [200]. It was directed that short minutes be delivered to my Associate to give effect to the reasons.

2 By notice of motion filed on 13 June 2008 Mr Sutton applied for an order for interest on the $601,568.53 and for variation of the proposed costs order. At least in part for that reason, agreement on short minutes was not achieved.

3 Pursuant to directions given by a Registrar, written submissions were delivered for these matters to be determined on the papers.

Interest

4 The trial judge had assessed damages of $663,369.97. The majority decision in this Court assessed the damages at $601,568.53, starting with the $663,368.97 and reducing it in the application of s 151Z(2)(c) of the Workers Compensation Act 1987. Accordingly, the reduced damages were assessed as at the date of the trial judge’s judgment, 14 December 2006.

5 Mr Sutton claimed an order that Erect Safe and Australand “pay interest on the judgment sum of $601,568.53 pursuant to s 101 of the Civil Procedure Act from 14 December 2006”. In their written submissions Erect Safe and Australand agreed that he was entitled to this interest. Calculations were provided. Mr Sutton calculated interest of $92,838.28 to 23 June 2008, with interest accruing thereafter at $164.81 per day. Erect Safe and Australand calculated interest to 23 June 2008 at $91,681.36 and $91,385.93 respectively, and agreed with the daily rate.

6 When a judgment is varied on appeal it is often ordered that it take effect from the date of the trial judgment (see UCP Rules r 36.4(3)), so that post-judgment interest is payable pursuant to s 101 of the Civil Procedure Act 2005 and is not calculated and included in the substituted judgment. Calculation is appropriately left to the parties, who can allow for any part-payment of the judgment sum of which the Court may not be aware. However, this Court’s substituted judgment is arrived at on the law as it stood when the appeals were heard and possibly with regard to fresh or further evidence, and in the absence of such an order would take effect when given or made (r 36.4(1)(a); see Nichol v Allyacht Spars Pty Ltd [1988] HCA 48; (1988) 165 CLR 306. In that event, interest would fall for inclusion as interest up to judgment pursuant to s 100 of the Civil Procedure Act: Nichol v Allyacht Spars Pty Ltd at 312. See Najdovski v Crnojlovic (No 2) [2008] NSWCA 28 at [4]- [6]

7 Mr Sutton’s application confused these different paths to recovery of interest. Interest pursuant to s 101 does not need an order for payment. What is needed for interest pursuant to s 101 is an order that the substituted judgment take effect on 14 December 2006, and interest calculated from 14 December 2006 is not part of the substituted judgment. The orders should include that this Court’s judgment takes effect on 14 December 2006.

Costs

8 Mr Sutton applied for variation of the proposed costs order to provide that “the appellant [Erect Safe] pay the costs of the first respondent to the appeal (Mr Sutton) and the cross-appellant [Australand] pay the costs of the first cross-respondent to the cross-appeal (Mr Sutton) on an indemnity basis from 7 January 2008 but otherwise each party should pay their own costs of the appeal and cross-appeal”.

9 The claimed variation did not touch costs prior to 7 January 2008. Under the varied order, Erect Safe and Australand would pay Mr Sutton’s costs from 7 January 2008, and pay them on the indemnity basis.

10 Mr Sutton claimed the variation by reason of offers of compromise served on Erect Safe and Australand. The offers of compromise were served on 7 January 2008, about seven weeks prior to the hearing date fixed for the appeal and cross-appeal. They were sent by separate letters to each of Erect Safe and to Australand. The offers were in identical terms, being that “The first defendant [Erect Safe] pay to the plaintiff [Mr Sutton] the sum of $600,000 plus costs as agreed or assessed.”

11 Mr Sutton submitted that “in respect of both Offers of Compromise Part 42 rule 14 of the Rules now applies because the judgment of $601,568.53 is no less favourable to Mr Sutton than the terms of his offer(s)”. He did not elaborate on the application of r 42.14, or on the comparison.

Offers of compromise in this Court

12 Part 51 of the rules now provides that any party in this Court may make an offer to any other party to compromise any claim in the proceedings, in whole or in part, on specified terms: r 51.47(1). Part 51 does not, however, provide a framework for making such an offer but rather provides that the general provisions in Pt 20, Div 4 apply, subject to “modifications”, some of which are specified but others of which may not be: see r 51.47(2). Relevantly for present purposes, a reference in Pt 20 to a “plaintiff” is a reference to an appellant or cross-appellant in this Court and a reference in Pt 20 to a “defendant” is a reference to a respondent or cross-respondent in this Court. It follows that in relation to both Erect Safe and Australand, Mr Sutton was a “defendant”.

13 However, a different principle applies in relation to the operation of Pt 42 which respect to the consequences for costs orders where an offer has been made. Thus, in the case of appeal proceedings, references in Pt 42 to the “plaintiff” and “defendant” are references to the party who was a plaintiff or defendant respectively in the Court below: r 51.48(1)(d). This drafting device has some curious consequences: for example, in considering the validity of an offer of compromise, under r 20.26, a reference to “the plaintiff’s claim” will be treated for the purposes of r 51.47 as a reference to the appellant’s claim. However, for the purposes of Pt 42 a reference to a “plaintiff’s claim” will be a reference to a claim made by the plaintiff in the court below. It does, however, follow that the offer made by Mr Sutton was an offer made by “the plaintiff” and hence, the offer not being accepted, the costs consequences are to be derived from r 42.14, as the parties accepted.

14 A second problem arising from the adoption with modifications of the rules in Pt 42, Div 3 with respect to costs concerns the treatment of interest. That issue arises because the comparison required by the rules is to be made between the terms of the offer and the judgment on the claim. In order to undertake the required comparison, the amount of interest contained in the judgment and attributable to the period after the day on which the offer was made is to be disregarded: r 42.16(1). Where an offer is made before judgment, it will therefore be treated as including any amount of interest which would be included in a judgment given on the date the offer was made. However, a judgment does not include post-judgment interest, as explained above. Accordingly, where an appeal is dismissed, or where it is upheld but back-dated to the date of the trial judgment, a difficulty arises in the comparison required between the judgment and the offer which is, in effect, a post-judgment offer.

15 Because the parties cannot confidently predict whether the outcome of an appeal will operate from the date of judgment in this Court or from an earlier date, the only way that an offer of compromise could cope with this problem would be to make a separate offer with respect to a claim for interest. It may be possible to divide an offer in this way, but it seems undesirable to enforce it on parties to an appeal. The preferable course is to proceed on the basis that r 42.16 is subject to an additional necessary modification, in accordance with r 51.48(h), which permits such other modifications. The relevant modification, where the judgment of this Court is back-dated, is to identify the amount of a notional judgment, including interest (but subject to no other variation) which would have been given had judgment been delivered on the date of the offer. That calculation is not dissimilar to the calculation required where there has been a separate judgment with respect to an amount excluding interest: see Atkinson v Zey; Zey v Atkinson [2008] NSWCA 30 at [4].

16 A further question arises with respect to costs. Because the rules make their own provision with respect to the costs of proceedings, both where an offer has been accepted (r 42.13A) and where it is not accepted (r 42.14-42.15A) a valid offer under Pt 20 must, except where there is to be “verdict for the defendant and ... the parties are to bear their own costs” be “exclusive of costs”: r 20.26(2). The rationale for this provision is that an inclusive offer would be inconsistent with the legislative scheme: see, in relation to a previous rule, Associated Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349 at 350-351 and Atkinson v Zey at [6]-[7].

17 Despite the reference to a verdict for the defendant, with each party to bear its own costs, there seems to be no reason, in principle, why an offer could not be made by a plaintiff seeking a judgment, but agreeing to waive any entitlement to costs, if the offer were to be accepted. An offer made prior to trial, and expressed to be “plus costs” may be intended to do no more than make it clear that the offer is not inclusive of costs, but that an entitlement to costs will flow pursuant to the rules. However, an offer expressed in this way after trial involves new elements of uncertainty. For example, is the reference to “plus costs” intended to refer to the costs of the trial, or to the costs of the appeal? As there was no contention that the costs of the trial were to be taken into account, the only question relevant for present purposes concerns the costs of the appeal as to which the submissions are addressed below.

Application of rules: Australand

18 Australand submitted that because the offer of compromise was that the first defendant, Erect Safe, pay the $600,000 plus costs, it had no effect as against it. It could not meaningfully be accepted by Australand. Mr Sutton responded that Australand knew or ought to have known that the reference to the first defendant was a mistake. He provided no evidence in support of actual knowledge. He said that the mistake “was so sufficiently plain that a reasonable recipient would correct the error and treat the letter as expressing an offer as so corrected”.

19 The offer was in plain terms that the first defendant pay the $600,000 plus costs, and the importance of the consequences given to an offer of compromise under the Rules calls for careful and correct expression. It was not for Australand to divine, despite its terms, that Mr Sutton meant the offer of compromise to refer to it. The offer of compromise as made to Australand was ineffective.

Application of rules: Erect Safe

20 Erect Safe submitted that the offer of compromise should not bring the variation to the proposed costs order, for what amounted to three reasons. First, the trial judge had arrived at an apportionment between Erect Safe and Australand which meant that in reality Erect Safe was not exposed to payment of $600,000; Australand’s challenge to the apportionment on appeal was such that that would remain the position even if the challenge were successful; and accordingly there was no true compromise in Mr Sutton seeking to recover $600,000 from Erect Safe. Secondly, Erect Safe had a measure of success on appeal in that the damages awarded to Mr Sutton were reduced, and an offer under which Mr Sutton would receive the entirety of his costs had “no compromise on the issue of costs”. Thirdly, when the offer was only $1,568.53 less than the damages there was “insufficient basis for the Court to exercise its discretion to order indemnity costs against Erect Safe”.

21 The first and third of these submissions were misconceived. Apportionment was a matter between Erect Safe and Australand, and Mr Sutton was entitled to claim and recover from Erect Safe the full amount of his damages. The reliance on a differential of only $1,568.53 took a wrong figure, see below, but more fundamentally if r 42.14 applied it was not a question of exercising a discretion to order indemnity costs against Erect Safe. An offer of compromise which is not accepted entitles the offering party to indemnity costs from the date of the offer unless the Court orders otherwise, and in that event the question is whether an order otherwise should be made. It was for Erect Safe to make out a case for the exercise of a discretion in its favour.

22 The second of the submissions was unclear. It may have been put forward as part of the comparison between the offer and the “order or judgment on the claim concerned” under r 42.14, but Erect Safe apparently accepted as the comparison only the difference between the trial judge’s damages and this Court’s damages. It may have been put forward as the basis for an order otherwise, although Erect Safe appeared not to recognise that the question was whether an order otherwise should be made.

23 First, as to the differential of $1,568.53. As I have said, the $601,586.53 was assessed as at 14 December 2006. Mr Sutton was additionally entitled to interest, see earlier in these reasons. Interest to the date of the offer of compromise, 7 January 2008, was of the order of $63,000. On the application of r 42.14 discussed above the proper differential is not $1,568.53, but a figure in the order of $65,000.

24 Secondly, as to compromise on the issue of costs. I will deal with the alternative views of the second submission earlier identified.

25 It was not submitted that the offer of compromise was ineffective because “plus costs as agreed or assessed” offended the requirement of r 20.26(2) that it must be exclusive of costs, and as I have said Erect Safe apparently accepted as the comparison only the difference between the trial judge’s damages and this Court’s damages. It is accordingly not necessary to decide whether the costs element of the offer of compromise is to be taken into account in the comparison. The comparison is between the $600,000 and the $665,000. Had the offer been accepted, costs would have followed pursuant to r 42.13A. It was not accepted, and the comparison required by r 42.14 without regard to the costs element favours Mr Sutton. The costs fall in the manner prescribed by r 42.14 unless the Court orders otherwise.

26 Turning then to the submission as the basis for an order otherwise, while Erect Safe succeeded in reducing Mr Sutton’s damages it could have obtained a better outcome by accepting the offer; and had it done so, costs would not have been incurred. It is not enough for an order otherwise that an appellant has some success if the success is insufficient for a better outcome than that the subject of the respondent’s offer.

27 Accordingly, Mr Sutton is entitled to the variation to the costs order as against Erect Safe. As has been noted, the claimed variation did not touch costs prior to 7 January 2008. The terms of r 42.14 would extend to costs on the ordinary basis to 7 January 2008, but that is not claimed.

Costs of the application

28 Mr Sutton should pay Australand’s costs of the notice of motion; Erect Safe should pay Mr Sutton’s costs of the notice of motion save so far as incurred between Mr Sutton and Australand.

Orders

29 Erect Safe and Australand agreed on short minutes, but they included orders concerning apportionment of costs in the District Court and in this respect did not give effect to the Court’s reasons. Mr Sutton proposed other short minutes. They unnecessarily included an order as to the trial costs. Both versions of short minutes appropriately extended the costs order as between Erect Safe and Australand to corresponding trial costs. They also provided as between Erect Safe and Australand that their agreement upon sharing payment to Mr Sutton be noted, rather than that there be judgment between them.

30 Drawing upon these short minutes, the orders of the Court should be -

(1) Appeal and cross-appeal allowed in part.

(2) Set aside the judgment for $663,369.77 and in lieu thereof verdict and judgment for $601,568.53 taking effect on 14 December 2006.

(3) Subject to order 4 -

(a) set aside any order that Erect Safe pay Australand’s costs in the District Court to the extent of the costs referred to in (b);

(b) Australand pay Erect Safe’s costs of grounds 2 and 3 of its notice of appeal and corresponding costs incurred in the District Court;

(c) Erect Safe pay Mr Sutton’s costs of the appeal from 7 January 2008 on an indemnity basis;

(d) otherwise each party pay its and his costs of the appeal and cross-appeal.

(4) Mr Sutton pay Australand’s costs of the notice of motion filed on 13 June 2008; Erect Safe pay Mr Sutton’s costs of the notice of motion save so far as incurred between Mr Sutton and Australand.

(5) Noted as between Erect Safe and Australand

Erect Safe and Australand to complete payment of the judgment referred to in order 2 as follows -

Erect Safe $424,647.23

Australand $176,921.30

31 BASTEN JA: I agree with Giles JA.

32 McCLELLAN CJ at CL: I agree with Giles JA.

**********

LAST UPDATED:
12 November 2008