Dalma Formwork (Australia) Pty Ltd & Anor v Maricic (No 3) [2008] NSWCA 29 (12 March 2008)

Last Updated: 19 March 2008

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Dalma Formwork (Australia) Pty Ltd & Anor v Maricic (No 3) [2008] NSWCA 29
This decision has been amended. Please see the end of the judgment for a list of the amendments.

FILE NUMBER(S):
40217/07

HEARING DATE(S):
3 March 2008

JUDGMENT DATE:
12 March 2008

PARTIES:
Dalma Formwork (Australia) Pty Ltd - First Applicant/First Appellant
Bovis Lend Lease Pty Ltd - Second Applicant/Second Appellant
Zoran Maricic - Respondent

JUDGMENT OF:
Giles JA Basten JA McClellan CJ at CL

LOWER COURT JURISDICTION:
District Court

LOWER COURT FILE NUMBER(S):
DC 13478/01

LOWER COURT JUDICIAL OFFICER:
Garling DCJ

LOWER COURT DATE OF DECISION:
23 March 2007

LOWER COURT MEDIUM NEUTRAL CITATION:
Marcicic v Dee Why Enterprises Pty Ltd (t/as Dalma the Formwork Specialists), Garling, DCJ, 23 March 2007, unreported

COUNSEL:
S R Donaldson SC & J P Braham - Applicants/Appellants
C T Barry QC & G Walsh - Respondent

SOLICITORS:
Curwood and Partners - First Applicant/First Appellant
Yeldham Price O'Brien Lusk - Second Applicant/Second Appellant
CMC Lawyers - Respondent

CATCHWORDS:
Costs - defendant's offer of compromise - made under Pt 19A District Court Rules - at the time, consequences of plaintiff's failure to accept offer and then not bettering it under Pt 39A District Court Rules - prior to finalisation of proceedings Uniform Civil Procedure Rules came into force - different consequences under Pt 42 r 5 - costs would substantially eat up damages - whether a relevant consideration - discretion miscarried - whether order dispensing with UCP rule - or order otherwise under UCP rule - order made as if under District Court Rules.

LEGISLATION CITED:


CATEGORY:
Principal judgment

CASES CITED:
Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404;
Fordham v Fordyce [2007] NSWCA 129; 154 LGERA 49;
Hillier v Sheather (1995) 36 NSWLR 414;
Houalchanthara v Bednarszyk (CA, 14 October 1996, unreported);
House v The King [1936] HCA 40; (1936) 55 CLR 499.

TEXTS CITED:


DECISION:
(1) Grant leave to appeal and direct that the notice of appeal be filed within seven days; (2) Appeal allowed; (3) Set aside the substantive order made on 23 March 2007, and in lieu thereof order that the second and third defendants pay the plaintiff's costs up to 28 August 2004 and that the plaintiff pay the second and third defendants' costs thereafter, in both cases assessed on a party and party basis; (4) Opponent pay the applicants' costs of the application for leave to appeal and the appeal and to have a certificate under the Suitors Fund Act.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40217/07

Dc 13478/01

GILES JA

BASTEN JA

McCLELLAN CJ at CL

Wednesday 12 March 2008

DALMA FORMWORK (AUSTRALIA) PTY LTD & ANOR v MARICIC (No 3)

Judgment

1 GILES JA: The respondent was injured when working on a construction site at Pyrmont in Sydney. In proceedings in the District Court he recovered damages from the first applicant, the formwork contractor to which the respondent’s labour was hired by his employer, and the second applicant, the project manager on the construction site.

2 This is an application for leave to appeal from the costs order made at the conclusion of the proceedings. Leave to appeal is required because the challenged order was as to costs only: Supreme Court Act 1970, s 101(2)(c). The application was heard on full submissions, so that the appeal could be determined without a further hearing if leave were given.

The course of the proceedings

3 The respondent was injured on 20 August 2001. He brought proceedings in which he joined as defendants the two applicants and his employer. He thereafter discontinued against his employer, accepting that he had not suffered a degree of permanent impairment of at least 15 per cent and so could not obtain damages from the employer (Workers Compensation Act 1987, s 161H(1)).

4 A hearing before Hughes DCJ occupied some seven days in September and October 2004. Judgment was delivered on 8 March 2005. It was held that neither applicant was liable to the respondent, and there were verdicts for the applicants. The judge did not assess damages against the possibility that he was wrong as to liability.

5 The respondent appealed to this Court. Judgment upholding the appeal was delivered on 30 June 2006, and it was ordered that on the question of liability there be a finding for the respondent as against the applicants. On 1 August 2006 the matter was remitted to the District Court for assessment of damages.

6 The hearing on the assessment of damages took place before Garling DCJ on 20 and 21 November 2006. His Honour gave judgment on 19 December 2006, assessing the damages at $146,450. The costs order then made was subject to variation on further application.

7 Application was made. There was a hearing as to costs on 7 February 2007, central to which was an offer of compromise made by the applicants on 27 August 2004 offering to pay the respondent $200,000 plus costs. His Honour gave judgment on 23 March 2007, ordering that the applicants pay the respondent’s costs up to 1 August 2006 and that the respondent pay the applicants’ costs from (no doubt intending including) 1 August 2006 on a party and party basis. His Honour said that each party should to bear their own costs of the application, giving as the apparent reason that “[e]ach party has succeeded to a degree”.

The offer of compromise

8 The offer of compromise was served under Pt 19A of the District Court Rules (the “DC Rules”), then in force. The time for which the offer was open to be accepted was not stated, but by Pt 19A r 3(4)(a) the time expired 28 days after 27 August 2004.

9 The respondent ultimately recovered a significantly lesser amount than the amount of the offer.

10 At the time the offer of compromise was served, its effect in that event was stated in Pt 39A r 25(6) of the DC Rules. It was that “unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders” the applicants were to pay the respondent’s costs up to and including 27 August 2004 and the respondent was to pay the applicants’ costs thereafter, in both cases assessed on a party and party basis.

11 The Uniform Civil Procedure Rules (“the UCP Rules”) came into force on 15 August 2005. They applied to proceedings commenced before the commencement of the Civil Procedure Act 2005 (Civil Procedure Act, Schedule 6, cl 5(1)), subject to the Court making an order “dispensing with the requirements of the uniform rules in relation to the proceedings” (Schedule 6, cl 5(2)). The offer of compromise was taken to have been served under the provisions of the UCP Rules corresponding with Pt 19A, relevantly Pt 20 r 16 (Schedule 6, cl 10(b)).

12 At the time the respondent obtained his award of damages and costs were then decided, under the UCP Rules the effect of the offer of compromise was stated in Pt 42 r 15. It was that “[u]nless the Court orders otherwise” the applicants were to pay the respondent’s costs up to 28 August 2004, assessed on the ordinary basis, and the respondent was to pay the applicants’ costs thereafter, assessed on an indemnity basis.

The judge’s reasons

13 The order made by his Honour on 23 March 2007 did not reflect Pt 42 r 15 of the UCP Rules, nor did it fully reflect Pt 39A r 25(6) of the prior DC Rules. The date on which the costs burden was reversed was not 27 or 28 August 2004, as the application of those rules would have meant, but 1 August 2006. The costs to which the applicants were entitled were not on an indemnity basis, as the application of Pt 42 r 15 would have meant. In the result, the costs burden of the seven day trial in September-October 2004 fell upon the applicants rather than the respondent, and the applicants’ recovery in relation to the two day hearing in November 2006 was at the lesser level.

14 It is not entirely clear whether his Honour acted under Pt 42 r 15. He recognised that it was the current rule. He concluded, as hereafter set out and it seems in considering whether he should order otherwise under that rule, that it would be “unfair and unjust” if the respondent had to pay all the applicants’ costs from before the first trial and of the second trial. He then said that there was “another argument”, and noted that when the respondent considered the offer of compromise the “penalty” was party and party costs but under the subsequent UCP Rules it was indemnity costs. He referred to cl 5(2) of Schedule 6, and said -

“And, whilst the Civil Procedure Act and the Uniform Rules do apply to these proceedings, I clearly have the power to dispense with requirements of the Rules and I believe that is the only thing I can do here because the plaintiff has had the goal posts moved during the course of these proceedings from party and party costs to indemnity costs.”

15 On one view his Honour purported to dispense entirely with Pt 42 r 15; on another view he purported to dispense with it so far as it provided for costs payable to the applicants to be on an indemnity basis. He does not appear to have considered either that Pt 39A r 25(6) revived and governed the effect of the offer of compromise, or that he was left with a general discretion as to costs. The prior recognition of Pt 42 r 15 as the current rule and consideration of unfairness and injustice, followed by reference to “another argument”, are against entire dispensation with that rule. The better view is that there was purported dispensation with Pt 42 r 15 so far as it provided for costs payable to the applicants to be on an indemnity basis. Whether that could be done may be open to argument, but need not be decided.

16 At the heart of his Honour’s decision was his conclusion to which I earlier referred, the reasons in that respect being more fully -

“The plaintiff argues that to order the plaintiff to pay the defendant’s costs from before the first trial and the costs of the second trial is simply unfair and unjust. The defendants argue quite simply that they made a reasonable offer of compromise, the plaintiff could and should have accepted it, did not, and is therefore responsible for those costs. It seems to me that to order the plaintiff to pay all the costs, be it on an indemnity basis or a party/party basis, the plaintiff will probably recover very little of the plaintiff’s verdict. In other words, a large proportion of the verdict would be taken up in the payment of costs.

When the plaintiff was faced with a decision as to whether or not to accept an offer of compromise I could not imagine that those advising the plaintiff or the plaintiff would have in their minds that this matter was going to take the course it did, that is, a very lengthy hearing followed by a verdict for the defendants, followed by an appeal to the Court of Appeal, followed by the Court of Appeal overturning that verdict and returning the matter to this Court for assessment of damages. It would seem to me that, certainly on what the Court of Appeal found, there should always have been a verdict for the plaintiff and that the matter really should have revolved around an assessment of damages.

I believe that it would be unfair and unjust to ask this plaintiff to pay all those costs. The plaintiff, on the other hand, did reject an offer of compromise which, in my view, was a fair and proper offer of compromise. And the plaintiff, in my view, still must bear part of the burden of the defendant’s costs. It becomes a very difficult exercise to work out how one does that but I believe that it can be done fairly.”

17 After dealing with what he described as the “another argument”, his Honour said -

“Having said all that, I then come back to this problem of how do you deal with the matter being fair to both the plaintiff and the defendant and bearing in mind that it is my view that the plaintiff must bear some responsibility for not accepting a reasonable offer of compromise. The way that I believe that it should be done is this – that I should not order the plaintiff to pay the costs relating to the hearing before his Honour Judge Hughes. The reason I say that is because the Court of Appeal are of the view, on the very same evidence that was before his Honour, that there should have been a verdict for the plaintiff against the two defendants and that that would mean there was a clear case against the defendants and that the real consideration for this court should have been the assessment of damages. The Court of Appeal having made that ruling, it seems to me it would be unfair to ask the plaintiff to pay all of the defendant’s costs over that period. It is a tricky little issue because the offer was made, I think, about a month before the hearing but I believe the best way to do it is to order the defendants to pay the plaintiff’s costs up until such time as this matter came back to this court from the Court of Appeal for the re-hearing and, as far as I can see, that date is 1 August 2006.”

The discretion to order otherwise miscarried

18 His Honour made 1 August 2006 the date on which the costs burden was reversed, rather than a date in August 2004, because costs would otherwise swallow up a large part of the respondent’s verdict and because of the perceived unfairness, when his Honour considered that the real issue should have been one of damages, of burdening the respondent with the costs of the trial in September-October 2004. Neither of these matters provided a proper basis for departing from the effect given by the rules to service of an offer of compromise offering to pay the respondent an amount significantly greater than his eventual recovery.

19 Hillier v Sheather (1995) 36 NSWLR 414 considered a complaint that payment of costs would significantly impact upon the plaintiff’s verdict. That was regarded as an irrelevant consideration. Kirby P said at 422 -

“It is impossible not to have a certain sympathy for the cross-respondent. Unless relieved by the intervention of the Court, she will not only recover substantially less than she was successively offered by the cross-appellant. She will also have to bear from the diminished judgment which she recovered, much of the costs of the litigation, including all of the costs of the trial (and of the appeal). Her venture into litigation will certainly demonstrate to her the speculative and risky enterprise in which she became involved. I do not consider that these considerations can properly be taken into account in “otherwise ordering”. They are precisely the considerations which the rule anticipated would arise. Indeed, their occasional occurrence is exactly the sanction which the rule imposes upon people in the position of the cross-respondent. Through the burdens cast upon her in this case, the rule is designed to send a clear signal to litigants, and their legal representatives, which will promote early settlement discussion outside the court and realistic consideration of offers made. A significant new peril has been introduced for litigants and those advising them.”

20 In Houatchanthara v Bednarszyk (CA, 14 October 1996, unreported) it was said that the fact that the costs would “substantially subsume and may exceed the plaintiff’s damages” did not provide a basis for departure from the general principle of the then Pt 19A r 9(6) of the DC Rules.

21 Clarke JA, with whom Santow AJA agreed, endorsed what Kirby P had said in Hillier v Sheather and continued -

“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. Where, as here, the claim was a very small one, the risk was very great indeed.

...

The thrust of the Judge’s reasoning was that the order flowing from the rules would cause detriment to the opponent, but that, as I pointed out, flows from the opponent’s acceptance of the risks of proceedings and declining to accept the offer. As it seems to me, the trial judge’s discretion miscarried insofar as there was no basis upon which to make a special order ... “.

22 Handley JA said succinctly of the rule that “general factors which apply in most, if not all cases, such as hardship, and difficulty in forecasting the result of the trial cannot support an exercise of the discretion in favour of the unsuccessful party”.

23 The respondent submitted that his Honour was entitled to ameliorate the burden which would otherwise fall on him of a flawed trial as to liability in September-October 2004. Why that burden should be shifted to the applicants is not apparent, and a wholesale shifting would be unwarranted when the trial before Hughes DCJ was concerned with damages as well as liability. However, both costs swallowing up a large part of the verdict and a misdirected trial in September-October 2004 were inherent risks of the litigation, which would not have become realities had the respondent accepted the offer of compromise. It was not correct to separate out the contest over liability, as his Honour apparently sought to do in relieving the respondent from the burden of the costs of the trial in September-October 2004, since the rules as to offers of compromise are concerned with claims in proceedings and a claim is not determined until damages are assessed: cf Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404 at 408-10.

24 The rules are intended to encourage serious consideration of settlement, and the respondent was not to be relieved from the consequences for which the rules provide simply because the risks of the litigation became realities. In my opinion, in ordering otherwise in relation to the date on which the costs burden was reversed his Honour acted upon considerations which could not properly be taken into account.

Re-exercise of the discretion

25 It is nonetheless correct that the goal posts were moved. At the time the respondent considered the offer of compromise, his exposure was to payment of the applicants’ costs on a party and party basis. The offer of compromise was no longer open for acceptance when Pt 42 r 15 came into force, and with the UCP Rules the exposure became exposure to payment of the applicants’ costs on an indemnity basis.

26 The applicants submitted that the increased sanction was introduced together with the provision, by Schedule 6 cl 5(1), that the regime under the UCP Rules would apply to proceedings on foot at the time the rules came into force. This included when an offer of compromise had earlier been served under Pt 19A of the DC Rules, and the applicants said, in effect, that moving the goal posts was intended and was not a reason for an order otherwise whereby the costs were not assessed on an indemnity basis.

27 I do not think that is correct. It was recognised in Schedule 6 cl 5(2) that the UCP Rules would not necessarily be appropriately applied to proceedings on foot at the time they came into force. Clause 5(2) may or may not itself have been available to relieve from the application of Pt 42 r 15, but Pt 42 r 15 contained its own provision for relief by an order otherwise. That provision in my opinion could be invoked if the translation from the DC Rules to the UCP Rules would bring injustice. In my opinion, the movement in the goal posts provides a compelling basis to order otherwise under Pt 42 r 15 to the extent of giving effect to the offer of compromise as if the prior Pt 39A r 25(6) applied. However, there is no proper basis for further modifying the effect of the offer of compromise.

Leave to appeal

28 There was no evidence of the financial consequences of upholding the appeal, but the costs of the seven day hearing in the District Court must have been significant. It would be unjust to leave the burden of those costs on the applicants in the flawed exercise of the judge’s discretion. Leave to appeal should be granted.

Costs of the hearing as to costs

29 His Honour left the parties to pay their own costs because each had succeeded to a degree. It was not suggested, at first instance or on appeal, that the costs were caught by the substantive costs order.

30 Before the judge the respondent had challenged conformity of the offer of compromise with the rules, and in the alternative had contended for an order otherwise by which he would be completely relieved from its effect. The applicants had sought to uphold the validity of the offer of compromise, and had relied on Pt 42 r 15 and resisted any order otherwise. The degrees of success have now altered, but not fully in the applicants’ favour; there is still an order otherwise, although only in relation to the basis for the assessment of costs. The order as to the costs of the hearing as to costs should remain.

Orders

31 I propose the orders -

1. Grant leave to appeal and direct that the notice of appeal be filed within seven days.

2. Appeal allowed.

3. Set aside the substantive order made on 23 March 2007, and in lieu thereof order that the second and third defendants pay the plaintiff’s costs up to 28 August 2004 and that the plaintiff pay the second and third defendants’ costs thereafter, in both cases assessed on a party and party basis.

4. Respondent pay the applicants’ costs of the application for leave to appeal and the appeal and have a certificate under the Suitors Fund Act.

32 BASTEN JA: I agree with the orders proposed by Giles JA and, subject to the following comments, with his Honour’s reasons.

Transitional provisions
33 As his Honour has explained, it is unclear precisely what approach the trial judge took to the Uniform Civil Procedure Rules 2005 (NSW). However, the approach preferred by Giles JA is that the costs consequences prescribed by r 42.15 should not operate but that the Court should “otherwise order”, so that the consequences previously prescribed by Part 39A, r 25(6) of the District Court Rules 1973 (NSW) should be applied: at [27] above. While I do not suggest that such a course is not open, the reason for otherwise ordering appears to fit more squarely within the purpose of the Civil Procedure Act 2005 (NSW), Schedule 6, cl 5(2). The fact that the goal posts have moved since the period during which the offer was open for acceptance suggests that the old rule should properly apply, it providing the context in which the respondent originally made his judgment as to whether or not to accept the offer.

34 The availability of discretionary relief from the costs consequences of refusing an offer are in similar terms to those which were found in Part 52A, r 22(6) of the Supreme Court Rules 1970 (NSW), as in operation prior to the commencement of the UCPR. The kinds of factors which primarily fell for consideration within the Court’s discretion were factors specific to the proceedings, the offer and the time available for its acceptance. That is not to say that other factors might not be relevant in particular circumstances. However, the District Court regime in force prior to the commencement of the UCPR contained a different discretionary power to order otherwise. The power was only available “in an exceptional case and for the avoidance of substantial injustice”, which were factors suggesting a more tightly constrained discretion than that available under the UCPR. It is possible to envisage a case in which the particular circumstances of the litigation would warrant the Court otherwise ordering under the UCPR, but not under the former District Court rule. In such a case, it would at least be awkward to hold that the change in the rules justified the Court otherwise ordering under the UCPR that the old rule should be applied, but then concluding that that rule did not justify a departure from the consequence it prescribed, although the current rule might. Put more succinctly, the consequence of otherwise ordering under r 42.15 will usually be a different specific result, rather than the operation of a different regime.

35 Accordingly, in my view the preferable course is to apply cl 5(2), if available, and then decide the matter according to the old rule. The only bases upon which that course might be resisted is if it were thought that the proposed course did not involve a dispensation from the requirements of one of the uniform rules, or that the application of a repealed rule did not constitute a “consequential order”, appropriate in the circumstances.

36 In my view, these semantic objections have no merit. The clear purpose of Schedule 6, cl 5 was to provide a simple and straightforward mechanism by which the uniform rules would apply from the date of their commencement, leaving to the various courts the power to prevent such a course operating unfairly or unjustly. Because that power might need to operate in a range of circumstances, the language in which the power is conferred should not be read so as to constrain its intended breadth of operation. In any event, the cost consequences which flow from the refusal of an offer of compromise do constitute a “requirement” of the uniform rules, from which the Court may grant a dispensation. Nor is there any reason to suppose that the application of a predecessor to the uniform rules, as appropriate in the circumstances, might not constitute a “consequential order”.

37 The significance of this approach for present purposes is that the irrelevance of the financial consequences of the order, as explained in Hillier v Sheather (supra at [19]) and Houatchanthara v Bednarczyk (supra at [20]), is reinforced. Those decisions addressed a discretionary power to “otherwise order” which was not subject to the additional constraints found in Part 39A, r 25(6) of the District Court Rules. The mere fact that the kind of consequences relied upon do not render this “an exceptional case” would be sufficient to remove the justification for otherwise ordering under the District Court Rules. It follows that the trial judge erred.

Grant of leave
38 The next question is whether there should be a grant of leave in order to address an error in the course of a ruling on costs.

39 It has been said on more than one occasion that the Court will be slow to grant leave in respect of an appeal restricted to a challenge to an order for costs: see, eg, Fordham v Fordyce [2007] NSWCA 129; 154 LGERA 49 at [7]. It is also said that the Court will be slow to grant leave in a case which raises no particular issue of principle, but merely the correct application of well-established principles.

40 On the other side of the coin, it must be accepted that in many cases a liability for costs will involve a significant sum, quite frequently in excess of the monetary floor on appeals against substantive judgments as of right, namely $100,000: Supreme Court Act 1970 (NSW), s 101(2)(r). Where it can be inferred that, as in the present case, a not insignificant amount is involved, there is a risk of injustice to one party if it fails to recover costs in circumstances where it should have been allowed to do so. Nevertheless, the power to award costs being inherently discretionary, it will always be necessary for the applicant for leave to establish an error of the kind described in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505.

41 Further, there should be no general constraint based upon the fact that relevant principles are well-established. If the applicant establishes a clear case involving the misapplication of principle, that in itself may be sufficient to warrant a grant of leave. In the present case, the applicant was able to go further by demonstrating that there was confusion as to the proper approach with respect to transitional arrangements upon the commencement of the UCPR.

42 Accordingly, there should be a grant of leave on the basis that a significant amount was in issue, there was a clear breach of principle and a resultant injustice to the applicant.

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

**********

AMENDMENTS:


18/03/2008 - C T Barry QC not SC - Paragraph(s) Coversheet


LAST UPDATED:
18 March 2008