HANCOCK v ARNOLD; DODD v ARNOLD (NO. 2) [2009] NSWCA 19 (20 February 2009)

Last Updated: 23 February 2009

NEW SOUTH WALES COURT OF APPEAL

CITATION:
HANCOCK v ARNOLD; DODD v ARNOLD (NO. 2) [2009] NSWCA 19


FILE NUMBER(S):
40619/07
40639/07

HEARING DATE(S):
On written submissions

JUDGMENT DATE:
20 February 2009

PARTIES:
In matter No. CA 40619/07:
Ken Hancock – First Appellant
John Hill – Second Appellant
Jason Arnold – First Respondent
John William Dodd – Second Respondent

In matter No. CA 40639/07:
John William Dodd – Appellant
Jason Arnold – First Respondent
Ken Hancock and John Hill – Second Respondents

JUDGMENT OF:
Ipp JA McColl JA Basten JA

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
SC 20397/02

LOWER COURT JUDICIAL OFFICER:
Hulme J

LOWER COURT DATE OF DECISION:
24 March 2006; 8 September 2006; 28 June 2007; 13 September 2007

LOWER COURT MEDIUM NEUTRAL CITATION:
[<i>Arnold v Hancock</i>] [2006] NSWSC 156; [<i>Arnold v Hancock (Damages 2)</i>] [2007] NSWSC 659

COUNSEL:
In matter No. 40619/07:
G Watson/J Sheller –Appellants
C S Leahy/T Boyd – First Respondent
M Windsor – Second Respondent

In matter No. 40639/07:
M Windsor – Appellant
CS Leahy/T Boyd - First Respondent
G Watson/J Sheller – Second Respondents

SOLICITORS:
In matter No. 40619/07:
Ebsworth & Ebsworth –Appellants
Herbert Weller – First Respondent
Minter Ellison – Second Respondent

In matter No. 40639/07:
Minter Ellison – Appellant
Herbert Weller – First Respondent
Ebsworth & Ebsworth –Second Respondents

CATCHWORDS:
COSTS – offers of compromise – indemnity costs – whether letters contained offers of compromise – invitation to abandon cross-claim – offer to accept judgment on cross-claim without costs order – invitation to enter into release and indemnity – time allowed for acceptance
COSTS – scope of leave given to challenge costs orders
PRACTICE AND PROCEDURE – entry of judgment – procedure for variation of orders – oral application – power of Court to vary orders after entry – whether order determining claim for relief includes ancillary or consequential relief – Uniform Civil Procedure Rules 2005 (NSW), rr 36.11, 36.16

LEGISLATION CITED:
[<i>Civil Procedure Act</i>] 2005 (NSW), s 14
Uniform Civil Procedure Rules 2005 (NSW), rr 36.11, 36.16

CATEGORY:
Consequential orders

CASES CITED:
[<i>Deputy Commissioner of Taxation v Meredith (No 2)</i>] [2008] NSWCA 133
[<i>Hancock v Arnold; Dodd v Arnold</i>] [2008] NSWCA 254
[<i>Herning v GWS Machinery Pty Ltd [No. 2]</i>] [2005] NSWCA 375
[<i>Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2)</i>] [2008] NSWCA 85
[<i>Leichhardt Municipal Council v Green</i>] [2004] NSWCA 341
[<i>Sunlec International Ltd v Carroll Australasia Pty Ltd</i>] [2001] WASC 354
[<i>Townsend v Townsend (No 2)</i>] [2001] NSWCA 145

TEXTS CITED:


DECISION:
(1) Motion dismissed.[<br>][<br>](2) The barrister to pay the solicitors’ costs of the motion.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40619/07

CA 40639/07

SC 20397/02

IPP JA

McCOLL JA

BASTEN JA

20 February 2009

HANCOCK & ANOR v ARNOLD & ANOR
DODD v ARNOLD & ANOR [NO. 2]

Judgment

1 THE COURT: In 1994 Mr Jason Arnold (“the plaintiff”) was injured whilst at work in an accident involving a motor vehicle. He obtained legal assistance from a firm of solicitors, Hancock Alldis (“the solicitors”). The solicitors briefed a barrister, Mr John Dodd (“the barrister”) to give advice to the plaintiff. A compensation claim was made and settled on satisfactory terms. However, no proceedings were taken within the period limited by law for damages under the general law. In 2002, the plaintiff commenced proceedings against the solicitors seeking damages for breach of duty in failing to commence proceedings in respect of his personal injury.

2 On 28 November 2003 the solicitors cross-claimed against the barrister. By judgment given on 13 September 2007, the plaintiff succeeded against the solicitors, who in turn obtained a judgment against the barrister with respect to 15% of their liability to the plaintiff.

3 The solicitors appealed to this Court, joining both the plaintiff and the barrister as respondents. The barrister, in separate proceedings, appealed against the judgment on the cross-claim, joining the plaintiff and the solicitors as respondents to his appeal. This Court concluded that neither the solicitors nor the barrister were negligent: Hancock v Arnold; Dodd v Arnold [2008] NSWCA 254.

4 In the solicitors’ appeal, no order was made for payment of the barrister’s costs, although the barrister was granted a certificate under the Suitors’ Fund Act 1951 (NSW) in respect of his costs of the appeal.

5 In respect of the barrister’s appeal, the solicitors were ordered to pay his costs; they were also ordered to pay the barrister’s costs of the proceedings at trial on the cross-claim.

Motion for special order as to costs
6 Subject to certain exceptions which do not apply in the present case, this Court may only vary or set aside a judgment or order if a notice of motion to that effect has been filed before entry of the judgment or order: Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), r 36.16(1).

7 UCPR r 36.11 requires that any judgment or order of the court be entered. Further, unless the court orders otherwise, a judgment or order “is taken to be entered when it is recorded in the court’s computerised court record system”: r 36.11(2). In the absence of an order to the contrary, that is likely to take place on the day on which the orders are made. The significance of these provisions was noted in Deputy Commissioner of Taxation v Meredith (No. 2) [2008] NSWCA 133. They may require a change in the practice which has operated in the past at a time when entry of orders required a specific step to be taken by one of the parties. In such circumstances, if one party thought there was some error in the orders, or sought to have them varied, entry was commonly postponed by agreement for a sufficient time to allow a motion to be filed seeking variation. Alternatively, orders would not be entered if, as was common with respect to costs, an oral application was made for leave to provide further evidence and submissions (usually with respect to offers of compromise) at the time judgment was delivered.

8 That practice was adopted in the present case, counsel for the barrister orally requesting leave to make submissions as to a special order for costs, at the time judgment was delivered. That leave was granted. The orders were nevertheless entered. As no motion was filed in accordance with r 36.16(3A), within 14 days of judgment, the power of this Court to vary the orders with respect to costs must be addressed.

9 Neither party raised any issue as to the power of the Court in the written submissions filed pursuant to leave granted orally when judgment was delivered. Two mechanisms may be available to permit what was clearly intended to occur. First, r 36.16(3) provides a power in the following terms:

“(3) In addition to its powers under subrules (1) and (2), the court may set aside or vary any judgment or order except so far as it:

(a) determines any claim for relief, or determines any question (whether of fact or law or both) arising on any claim for relief, or

(b) dismisses proceedings, or dismisses proceedings so far as concerns the whole or any part of any claim for relief.”

10 The precise scope of this provision is unclear. Read literally, it might be thought to operate only in respect of orders which were not sought by any party. That reading seems implausible. Given its context, it is more likely that the distinction intended to be drawn is between substantive relief, to which the power does not extend, and ancillary or consequential relief, to which it does extend. On that understanding, a costs order would clearly fall within the latter category. Such a distinction would make practical sense because appropriate orders as to costs frequently depend upon the existence of offers of compromise which are properly not known to the Court until after substantive relief has been determined. On that basis, a party seeking to vary a costs order would not need to rely upon sub-r (3A).

11 An alternative course, which would be open in a case such as the present where an oral application has been made within the 14 day period specified by sub-r (3A), would be for the Court to exercise the power conferred by s 14 of the Civil Procedure Act 2005 (NSW) to dispense with a requirement imposed by the rules, if satisfied that it is appropriate to do so in the circumstances of the particular case. Whether such a statutory power could permit dispensation with the requirement as to time, despite the terms of sub-r (3C), need not be determined: it is sufficient that the power is available to dispense with the need for filing a notice of motion in circumstances where a timely oral application has been made.

12 If it is necessary to exercise the power under s 14, the Court would do so in the circumstances of the case. However, on either approach, the leave extended on the delivery of judgment should be understood to encompass only an application for a special order as to costs and not as permitting a reopening of the question as to the existence of, or some other order as to, costs. In other words, the application permits an order that costs be assessed on the indemnity basis, rather than the ordinary basis, but would not extend to relief in the form of an order which was not made. Thus, to the extent that the barrister seeks to recover his costs of the solicitors’ appeal, that application should be rejected. The orders made by the Court on 15 October 2008 did not extend to such an order because such an order was not thought to be appropriate. The barrister was no doubt joined to the solicitors’ appeal so that he would be bound by any variation in the order made by the trial judge against the solicitors; he nevertheless had the same interest as the solicitors in challenging the judgment below.

Costs on an indemnity basis
13 In the barrister’s appeal, the Court ordered that the respondents pay the appellant’s costs of that appeal. The orders sought by the barrister would require that the costs recoverable be assessed on the indemnity basis from one of three dates, being 8 March 2004, 29 April 2005 and 30 May 2005.

14 The plaintiff has not filed submissions in response to the application by the barrister, but for present purposes he should be seen as having similar interests to those of the solicitors and the orders sought by the barrister should operate equally with respect to the plaintiff and the solicitors.

15 On 8 March 2004, less than four months after the cross-claim was served, the barrister wrote to the solicitors inviting them to abandon their cross-claim on the basis that they shared the view that the plaintiff did not have a meritorious claim. The letter was headed “Without prejudice save as to costs”. The proposal was that the solicitors should abandon their cross-claim without incurring liability for costs. At that stage of the proceedings, the element of compromise would have been of limited significance. A more significant element of compromise was involved with the second letter discussed below. Because the latter should not be treated as a basis for awarding indemnity costs, the same conclusion must follow in respect of the first letter.

16 The second letter was sent on 29 April 2005. It stated that the barrister had already incurred costs and expenses in excess of $45,000 and offered to accept judgment on the amended cross-claim, without order as to costs. It also offered to provide the solicitors with all assistance they required to defend the plaintiff’s claim.

17 Where indemnity costs are sought on the basis of a Calderbank letter the general approach adopted in this Court is that there must be a real element of compromise and that it must be unreasonable for the offeree not to accept: see Leichhardt Municipal Council v Green [2004] NSWCA 341; Herning v GWS Machinery Pty Ltd [No. 2] [2005] NSWCA 375 at [4]- [5]. No doubt there are cases where an offer permitting the other party to abandon its case without bearing responsibility for the offeror’s costs may constitute a basis for indemnity costs, the offer not having been accepted. In other cases a mere invitation to “capitulation” may involve no real element of compromise: see Townsend v Townsend (No. 2) [2001] NSWCA 145 at [5]. Whether there was a real element of compromise and whether the offeree acted unreasonably in failing to accept it will be judged according to the circumstances of the particular case. The assessment required is an objective one and may require reference to the ultimate outcome, but also to the circumstances known to the offeree at the time the offer is open for acceptance: see Sunlec International Ltd v Carroll Australasia Pty Ltd [2001] WASC 354 at [14] (Wheeler J). The consideration of what is reasonable may depend upon the relationship of the parties. In particular, offers passing between plaintiff and defendant (in opposing interests) may need to be assessed differently from offers between a defendant and a third party (where each has a common interest in resisting the claims of the plaintiff).

18 In one sense the second letter involved an offer of compromise, but only to the extent that, if the solicitors abandoned their defensive claim, at that stage, they would not have to pay costs. In circumstances where the liability of one party may be seen to be contingent on that of another, a Calderbank offer can be made in ways which involve a real offer of compromise, without requiring any immediate or inevitable payment. For example, the barrister might have accepted liability for 20% of any judgment suffered by the solicitors. Assuming a judgment such as that made by the trial judge, apportioning 15% of the responsibility to the barrister, it would be seen that the barrister had made an offer which the solicitors had failed to better at trial. No such offer was made on 29 April 2005 and it was not unreasonable for the solicitors to reject the proposal that they abandon unconditionally their cross-claim without consequences as to costs.

19 The third letter sent by the barrister arrived at some stage on the first day of the hearing, namely 30 May 2005. There was no evidence as to when it was served. It offered to settle the cross-claim, with no order as to costs, on the basis that the barrister paid $50,000 in full and final settlement of the claim by the solicitors.

20 This offer suffered from two defects. First, it required the solicitors to enter into a “release and indemnity in relation to any liability our client has, had or may have arising directly or indirectly out of the subject matter of the proceedings”, the precise terms of which were not identified. Secondly, it required acceptance by 10am on the following morning.

21 The offer of payment was not conditional upon the solicitors being found liable in the proceedings. That matter aside, although it may have caused some concern on the part of the solicitors as to the precise terms intended, it is not possible to know whether a reasonable time was allowed. If it had been served at 8am on the first day of the hearing, the allowance of 26 hours at a time when the solicitors were fully prepared for a disputed hearing may not have been unreasonable. On the other hand, if it had been served at 6pm that evening, the time available to consider the offer and obtain instructions may not have been reasonable: see generally Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No. 2) [2008] NSWCA 85. In the circumstances, the barrister has not established that the failure of the solicitors to accept the offer was unreasonable. He should not, therefore, obtain the costs of the trial.

22 It follows that there should be no variation in respect of the costs of the appeal either, no offer having been made between the judgment at the trial and the judgment on the appeal.

Other matters
23 There should be no variation of the orders made on 15 October 2008. Nevertheless, it should be emphasised that this conclusion does not provide support for the submission by the solicitors that the second offer was “only an attempt to trigger cost consequences, rather than an attempt to facilitate an overall settlement”. This apparent dichotomy is not valid. What is required to trigger the costs consequences is an offer of “compromise”. It is sometimes said that the offer must be “genuine”, but this epithet probably adds little to the concept of compromise. Indeed, it may be distracting if it suggests that some assessment is required of the subjective intentions of the offeror. Whether there is an offer of compromise must be capable of objective determination by reference to the circumstances at the time the offer was made.

24 Similarly, the suggestion that an offer designed to attract particular costs consequences is in someway unreasonable or inappropriate is a misconception. The purpose of the cost rules is to encourage the making of offers of compromise. If the offer is designed to attract the rules, the rules are presumably having their intended effect. With a Calderbank offer, it is necessary to state expressly that the offer is without prejudice except with respect to costs: such a statement provides no basis for depriving the offer of the consequences it would otherwise have, if not accepted and bettered by the offeree. The incentive to settlement will be diminished to the extent that persons receiving offers believe that they can ignore them with impunity as to costs consequences.

25 When offers are made and receive no response at all, let alone a counter-offer, the courts may need to be wary of accepting later suggestions that the offeree acted reasonably. For example, if the time permitted for accepting the offer is thought to be unreasonably short, a letter of response seeking an extension of time within which to consider the terms of the offer might be expected.

Orders
26 The motion should be dismissed. The barrister should pay the solicitors’ costs of the motion.

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LAST UPDATED:
20 February 2009