Gray v Hobson (No 2)

1. [1]

   THE COURT: Judgment on this appeal was delivered on 1 March 2018: Sparks v Hobson; Gray v Hobson [2018] NSWCA 29. It allowed Dr Gray’s appeal and ordered the entry of judgment in his favour. Mr Hobson was ordered to pay Dr Gray’s costs of the proceedings at first instance and on appeal.

2. [2]

   Both parties applied by notice of motion filed within the 14 day period specified in r 36.16(3A) of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) for variation of the costs orders. It is convenient to deal with that of Dr Gray first.

Whether costs of trial should be payable on the indemnity basis

1. [3]

   Dr Gray seeks an order that the costs of the proceedings at first instance be payable on the ordinary basis up to and including 1 November 2016 and thereafter on the indemnity basis. 1 November 2016 is the date of an Offer of Compromise served by Dr Gray on Mr Hobson offering to compromise the proceedings on the basis that Dr Gray pay Mr Hobson’s costs agreed in the amount of $250,000 and that judgment be entered in favour of Dr Gray. The offer was stated to be open until 9.00am on Thursday 3 November 2016. It followed an unsuccessful mediation on 1 November 2016 and preceded the commencement of the 11 day hearing at first instance on 7 November 2016. Before Dr Gray’s offer expired, Mr Hobson, on 2 November 2016, served an offer of his own.

2. [4]

   As Dr Gray ultimately obtained a more favourable result than that which he had offered to accept, UCPR r 42.14 prima facie entitles him to an order that his costs at first instance incurred after the date of his offer be assessed on the indemnity basis.

3. [5]

   Mr Hobson’s sole response to Dr Gray’s application was that, contrary to UCPR 20.26(5), Dr Gray’s offer was not open for acceptance for a period that was “reasonable in the circumstances”.

4. [6]

   In considering the sufficiency of the period for which an offer made shortly before a hearing is open, Basten JA, in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85, identified the following relevant circumstances at [20]:

5. [7]

   In the present case it can be inferred that at the time the offer was made the parties had a “clear perception of the strengths and weaknesses of their positions”. They had participated in a mediation to resolve the proceedings on 1 November 2016, the day of Dr Gray’s offer, and must have been well-advanced in their preparation for the hearing, fixed for three weeks to commence on 7 November 2016. Thus they would have been “armed with sufficient information to make a reasoned judgment of the offer” (Leda v Weerden (No 3) [2006] NSWSC 220 at [10]). Further, and perhaps most importantly, Mr Hobson must be taken to have been in a position to assess his prospects of success in the proceedings as he made his own settlement offer within the period Dr Gray’s offer was open. Moreover, it is relevant that during this period, Mr Hobson did not request any extension of the time for acceptance of the offer to enable him to give it further consideration (see Port Kembla Coal Terminal Ltd v Construction, Forestry, Mining and Energy Union (NSW Branch) (No 2) (2014) 88 NSWLR 471; [2014] NSWIC 3 at [38]).

6. [8]

   In these circumstances, Dr Gray’s offer was open for a period that was reasonable in the circumstances. He is therefore entitled to an order that his trial costs incurred after 1 November 2016 be assessed on the indemnity basis.

Whether Dr Gray should have his appeal costs on the indemnity basis

1. [9]

   After the hearing at first instance, Dr Gray did not renew his unaccepted offer of 1 November 2016, nor did he make a further offer. Nevertheless, he relies upon his 1 November 2016 offer to found his application for an order that his costs of the appeal be assessed on the indemnity basis.

2. [10]

   In McKeith v Royal Bank of Scotland Group PLC (No 2) [2016] NSWCA 260, Tobias AJA (Macfarlan JA and Emmett AJA concurring) summarised principles relevant to an application of this type as follows:

3. [11]

   In the present case, in light of the issues and money at stake it can be inferred that the absence of an offer relating to appeal costs was not due to oversight but resulted from a forensic decision by Dr Gray not to renew the offer he had made at first instance, or to make another offer. The soundness of this inference is confirmed by Dr Gray’s written submission in relation to the present cost applications that:

4. [12]

   The circumstances do not warrant the making of the order Dr Gray seeks. The offer he made at first instance was spent and he decided, no doubt for good, considered reasons, not to renew it or make any other offer in relation to the appeal. His appeal costs should accordingly be assessed on the ordinary basis.

Interest on costs

1. [13]

   Dr Gray seeks orders under s 101(4) of the Civil Procedure Act 2005 (NSW) that he be paid interest on all costs payable to him from the date such costs were paid by him to his legal representatives. His evidence indicates that his insurer paid professional fees and disbursements totalling $938,711 in respect of the proceedings at first instance and appeal.

2. [14]

   Section 101(4) and (5) are in the following terms:

3. [15]

   Prior to 24 November 2015 those subsections were in the following terms:

4. [16]

   As Mr Hobson’s proceedings at first instance against Dr Gray were commenced in 2013, the previous form of the legislation applies to the trial proceedings, whilst the current form applies to his appeal (South West Helicopters Pty Ltd v Stephenson (No 2) [2018] NSWCA 99 at [36]).

5. [17]

   Under the earlier provision, interest on costs is not payable unless the Court so orders. If it does make an order, interest is payable from the date that the costs were paid, unless the Court specifies a later date. Under the present provision, interest is payable as from the date of the Court’s order for payment of costs, unless the Court orders otherwise. Whilst neither set of provisions requires special or exceptional circumstances to be proved for the Court to make an order (see South West Helicopters at [43]-[47]), an applicant for an order under either must provide a sufficient reason for the Court to depart from the default position.

6. [18]

   In the present case the Court has been informed of the total amount that Dr Gray’s insurers paid over time in respect of professional costs and disbursements; however, the evidence does not enable the Court to draw any inference as to whether the interest rates applicable if the Court made relevant orders would, or would not, constitute fair compensation for the insurer being out of pocket pending reimbursement by Mr Hobson. It is also relevant that the orders now sought by Dr Gray were not sought in his notice of appeal. Nor has the Court been informed of any notification to Mr Hobson, after the commencement of the proceedings in 2013 and prior to the present application, that Dr Gray would ask the Court to depart from the default positions established under the Act.

7. [19]

   No sufficient reason having been established for the Court to depart from the default positions, the Court should not make an order for the payment of interest on Dr Gray’s costs. The statutory provisions should be left to operate according to their tenor.

Application for moneys to be held in trust

1. [20]

   Dr Gray seeks the following further order:

2. [21]

   In effect, this proposed order seeks security for payment by Mr Hobson of the costs ordered to be paid to Dr Gray. The asset sought as security is Mr Hobson’s entitlement to damages payable in his successful proceedings against Dr Sparks. Although for convenience the two proceedings were heard together, they are in fact quite separate and Dr Gray’s present application is tantamount to an application for a Mareva injunction. Such an application is outside the purview of the present appellate proceedings. If Dr Gray considers that he has any proper basis for a Mareva order, he should apply to a Court of first instance.

Should the appeal costs be apportioned

1. [22]

   By his notice of motion, Mr Hobson seeks an order that the existing order that he pay Dr Gray’s costs of the appeal be varied to provide that he pay 75% of those costs.

2. [23]

   Mr Hobson submits that the costs should be apportioned because, whilst Dr Gray was successful on his appeal on liability, he was unsuccessful on the discrete issue of quantum. Mr Hobson contends that approximately 25% of the written appeal submissions and about 18% of the materials in the Blue Appeal Books related to quantum rather than liability. In response, Dr Gray points out that this approach fails to address such relevant matters as the attention to liability and damages reflected in the transcript and judgment at first instance, and the time spent by Mr Hobson’s legal representatives on the different aspects of the appeal.

3. [24]

   In Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 this Court summarised principles that are applicable to the present application at [6]:

4. [25]

   Ryde Developments had been successful in having the trial judgment reduced, but had failed in its contention that the reduction should have been considerably greater. The Court found that “[a]s a rough evaluation, approximately 30 per cent of the monetary value of the appeal and 30 per cent of the time taken in the appeal was devoted to issues upon which the appellant succeeded” (at [12]). As a result, the Court’s order concerning the costs of the appeal was that the respondent pay 30% of the appellant’s costs.

5. [26]

   The position in the present case is different. On appeal Dr Gray was successful in having the whole of the judgment against him set aside. His challenges to the primary judge’s assessment of the quantum of Mr Hobson’s damages were fallback positions, only applicable in the event that he failed on liability. Bearing this in mind and that the quantum arguments occupied only a limited part of the Court’s attention on appeal, the order made on 1 March 2018 that Mr Hobson pay Dr Gray’s costs of the appeal should not be varied.

Costs of motions

1. [27]

   Dr Gray has been successful with respect to one application (indemnity costs) and unsuccessful with respect to another (interest on costs). There should be no order as to the costs of his notice of motion.

2. [28]

   Mr Hobson’s application having been dismissed, he must pay the costs of the notice of motion.

Orders

1. [29]

   For these reasons the Court makes the following orders: