Fairall v Hobbs (No 2)

1. [1]

   THE COURT: On 18 April 2017, the Court delivered its primary judgment: Fairall v Hobbs [2017] NSWCA 82. The orders made were:

2. [2]

   On 2 May 2017 the successful appellants filed a notice of motion under Uniform Civil Procedure Rules 2005 (NSW) r 36.16 seeking the following orders:

3. [3]

   In accordance with orders of the Registrar of the Court for the filing of submissions and dealing with motion on the papers the following written submissions were filed:

   1. (1)

      applicants’ written submissions dated 15 May 2017;

   2. (2)

      respondent’s written submissions dated 22 May 2017; and

   3. (3)

      applicants’ reply submissions dated 26 May 2017.

Evidence on the motion

1. [4]

   Each side tendered relevant documents with their written submissions.

2. [5]

   On 31 July 2014, the applicants on the motion (the successful appellants) made an offer of compromise on the following terms:

3. [6]

   That offer elicited no response from Mr Hobbs’s representatives and expired according to its terms.

4. [7]

   On 18 March 2016, the applicants made a further offer of compromise on the following terms:

5. [8]

   The letter also attached detailed terms of a proposed consent order which are unnecessary to set out here. That offer elicited no response from Mr Hobbs’s representatives and expired according to its terms.

6. [9]

   It was common ground that no offer of compromise was made by the applicants in relation to the appeal proceedings.

Relevant UCPR rule

1. [10]

   UCPR r 42.15 applied to the offers made by the applicants in 2014 and 2016. It was common ground that both offers complied with the formalities required by r 42.15 and “were validly made as to content and form”. Rule 42.15 provides:

2. [11]

   It was common ground that no offer of compromise was made by the applicants for the purposes of the appeal. It was submitted by the applicants that UCPR r 51.49 permitted the Court to have regard to the offers of compromise made below. The applicants accepted that in The Uniting Church v Takacs (No 2) [2008] NSWCA 172, Hodgson JA at [16] (McColl and Basten JJA agreeing) had found that appeal proceedings ought properly be treated as distinct proceedings. This is because the parties are in a different position in the Court of Appeal. Accordingly, as was explained in Regency Media Pty Ltd v AAV Australia Pty Limited [2009] NSWCA 368 per Spigelman CJ, Beazley and McColl JJA at [40], recently re-affirmed in Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd [2017] NSWCA 27 (at [238]-[239]), per Bathurst CJ, (Beazley P and Gleeson JA agreeing), it is necessary that the parties to an appeal recognise that they are in a different position from that prior to trial and should assess their cases accordingly, if they intend to seek indemnity costs based upon an offer of compromise.

Applicants’ submissions

1. [12]

   The applicants made three overlapping submissions. First, they submitted that they should be paid their costs of the trial on an ordinary basis until 31 July 2014 and on an indemnity basis after that date. Secondly, and in the alternative, the applicants submitted that they should be paid their costs of the trial on an ordinary basis until 18 March 2016 and on an indemnity basis after that date. Thirdly, in relation to the costs of the appeal, the applicants submitted that having regard to the rejection of the offers of compromise they made before the trial they should be entitled to their costs of the appeal on an indemnity basis.

2. [13]

   The applicants submitted that there was a clear presumption in favour of the ordinary consequences of UCPR r 42.15. That said, the applicants accepted that the rule expressly confers discretion on the Court to make “orders otherwise”.

3. [14]

   The applicants accepted that the exercise of the discretion conferred by UCPR r 42.15 to make “orders otherwise” does not require exceptional circumstances to be shown: Regency Media at [15]; Barakat v Bazdarova [2012] NSWCA 140 at [42] – [49] per Tobias AJA (Bathurst CJ and Whealy JA agreeing).

4. [15]

   The presumption in UCPR r 42.15 may be displaced by demonstrating that rejection of the offer was reasonable. The determination is an evaluative judgment requiring a consideration of the facts and circumstances specific to the case: Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (No.2) [2009] NSWCA 12 at [19]. The applicants accepted that an important matter relevant to the reasonableness of rejection is where the full parameters of the dispute are still uncertain at the time of the offer: Equity 8 Pty Limited v Shaw Stockbroking Limited [2007] NSWSC 503 at [42]; or where the offeror’s case changes after the offer: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [85]; or where all relevant evidence has not been served before the offer: Vale v Eggins (No.2) [2007] NSWCA 12 at [22].

5. [16]

   In relation to the offer of compromise dated 31 July 2014, the applicants submitted that the rejection of the offer to walk away necessarily had costs consequences. While the respondent’s case was not “hopeless”, it was nonetheless “speculative”.

6. [17]

   In relation to the offer of compromise dated 18 March 2016, the applicants submitted that the rejection of the offer of $90,000 plus costs was unreasonable in circumstances where central aspects of Mr Hobbs’ liability case could fairly be characterised as speculative and the applicants’ liability case was strong.

7. [18]

   In relation to the costs of the appeal, the applicants submitted:

   1. (1)

      it was reasonable for the applicants not to renew the 18 March 2016 offer of compromise as to have done so, and in the event their offer was accepted, would have exposed the applicants to paying Mr Hobbs’ costs up to the date of the renewed offer;

   2. (2)

      the bringing of an appeal by the applicants was a sufficient reassertion of their belief of the strength of their case;

   3. (3)

      some of the errors in the primary judgment were so serious that it was unreasonable for the respondent to attempt to defend the reasoning of the trial judge; and

   4. (4)

      Senior Counsel for the respondent ultimately conceded at the hearing of the appeal that he could not defend the exercise the primary judge undertook in the critical paragraph where his Honour accepted the evidence of the respondent as to the speed of the second applicant’s car (see the appeal judgment at [41]). Such a concession should have been made at an earlier point given its clear importance.

Respondent’s submissions

1. [19]

   In relation to the offer of compromise dated 31 July 2014, the respondent submitted that the offer did not contain the necessary element of compromise and was served on the same day as the applicants’ defence. The respondent was not then in any position to make an assessment of the strength of its case.

2. [20]

   In relation to the offer of compromise dated 18 March 2016, the respondent submitted that, even at that stage, he did not know a great deal about the applicants’ case:

   1. (1)

      no lay or expert evidence going to the issue of the applicants’ liability to the respondent had been served;

   2. (2)

      the respondent did not know what evidence the driver of the vehicle would give, nor what evidence may be forthcoming from the passenger in her vehicle;

   3. (3)

      the respondent had served a report containing the expert opinion of Mr Doughty in support of his case. Whilst, ultimately, this Court was unpersuaded by Mr Doughty’s opinion, it was, at the time the second offer of compromise was served by the applicants, uncontradicted;

   4. (4)

      at the time the respondent permitted the applicants’ offer to expire he did not have the information contained in Mr Jeffreys’ report which included, significantly, the driver of the vehicle’s version of events.

3. [21]

   The respondent submitted, in the circumstances, that the respondent’s failure to accept the offer was not unreasonable.

4. [22]

   In relation to the costs of the appeal, the respondent submitted that he had been successful in the court below and had obtained a relatively large judgment in his favour. It was reasonable for the respondent to attempt to support the reasoning of the trial judge, particularly when there was no offer of compromise served in the proceedings in this Court.

Consideration

1. [23]

   There was no debate between the parties about the applicability of UCPR r 42.15 to the two offers of compromise made at the trial, nor any debate about the appropriate legal principles in applying that rule. There was no issue between the parties that no similar rule applied to the appeal proceedings, as the applicants made no offer of compromise in relation to those proceedings. The respondent emphasised, and the applicants accepted, that the appeal proceedings are distinct proceedings.

2. [24]

   The offer of compromise dated 31 July 2014 does not give rise to an entitlement to indemnity costs. The offer of compromise was served on 31 July 2014, 3 days after the applicants filed their Defence. The offer was a walk away offer made at a time when the issues were not crystallised and the costs of the parties were likely to be low.

3. [25]

   An offer of compromise by its nature must contain an element of compromise: Robb Evans & Associates v European Bank Ltd (No. 2) [2009] NSWCA 170; Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3. This offer was in effect an offer to capitulate. The offer did not contain the necessary element of compromise. An award of indemnity costs is not justified.

4. [26]

   In relation to this offer of compromise it is appropriate that this Court “orders otherwise” under UCPR r 42.15(2). Similar considerations mean that the principles in Calderbank v Calderbank [1975] All ER 333 do not warrant departing from the usual order as to costs.

5. [27]

   The offer of compromise dated 18 March 2016 is in a different category. The significant quantum of the offer, $90,000 plus costs, and its timing, on 18 March 2016 approximately six weeks before the trial, reflect the necessary element of compromise.

6. [28]

   The respondent had sufficient information to make an informed decision about whether or not to accept this offer. Although the respondent was not aware of the precise evidence the driver and passenger of the vehicle would give, he was aware that the speed of the vehicle was in contest. The expert opinion of Mr Doughty provided no basis to conclude that the applicants’ offer should be rejected. That report, on its face, was of dubious admissibility and utility.

7. [29]

   Of course, as time passed, the respondent learnt more details about the applicants’ case. What he did know, however, on 18 March 2016, was that his version of events, and in particular the speed and proximity of the vehicle as a cause of the injury he suffered, were strongly in contest. This was a sufficient basis to make an informed decision about whether to accept the applicants’ offer of compromise.

8. [30]

   In relation to this offer of compromise it is appropriate for UCPR r 42.15(2) to have its ordinary operation and for the respondent to pay the applicants’ costs of the trial from 18 March 2016 on an indemnity basis.

9. [31]

   As to costs of the appeal, no offer of compromise was made. The applicant’s accepted that the appeal proceedings ought properly be treated as distinct proceedings.

10. [32]

    While the Court has an undoubted discretion to award indemnity costs in a case like this, we are not persuaded that this is an appropriate case to do so.

11. [33]

    The question of an offer of compromise on appeal was not a question of renewing the 18 March 2016 offer of compromise. Rather, it was a question of complying with the regime for offers of compromise in the Court of Appeal as found in UCPR r 51.47 - 49. Such an offer of compromise can make provision for how the costs at first instance should be dealt with.

12. [34]

    The bringing of an appeal by the applicants was not, of itself, a “sufficient reassertion of their belief of the strength of their case”. If that were so, all successful appellants could rely on that matter as a factor in favour of an award of indemnity costs.

13. [35]

    While the Court has found that the primary judgment to be flawed, and seriously so, it was not unreasonable in the sense referred to in the authorities for the respondent to seek to defend the judgment he had obtained.

14. [36]

    The concession made by Senior Counsel for the respondent on the appeal about the evidence of the respondent concerning the speed of the second applicant’s car concerned an important issue but either alone, or in combination with other circumstances does not lead to a conclusion that the respondent’s conduct of the appeal was unreasonable or otherwise entitle the applicants to an award of indemnity costs for the appeal.

15. [37]

    The application for an award of indemnity costs for the appeal is rejected.

Conclusion and orders

1. [38]

   For the foregoing reasons the orders made by this Court on 18 April 2017 should be varied in accordance with r 36.16 of the UCPR as follows:

   1. (1)

      Order 2(b) made by the Court on 18 April 2017 be varied as follows:

2. [39]

   Each party has had some success on this motion. The parties should pay their own costs of the motion. The appellants’ costs of the appeal in order 3 made on 18 April 2017 do not include the costs of the notice of motion filed on 2 May 2017.