Indemnity costs and failure to comply with the UCPR

 Thornton v Lessbrook Pty Ltd (No 2) [2010] QSC 363

Issue:

Whether indemnity costs should be awarded following offers made purportedly in accordance with the Uniform Civil Procedure Rules 1999 (“UCPR”) and informally for an amount of $300,000.00, 40% less than the judgment.

I refer to my earlier posting regarding the decision.

Applegarth J refused indemnity costs in part because the formal UCPR offers did not comply with the requirements of the rules and further that the case involved a number of contingencies and imponderables, which was not so unreasonable as to award indemnity costs.

[2] The first defendant’s original costs submissions in response, dated 1 September 2010, contested the plaintiff’s entitlement to an order pursuant to UCPR 360. The basis for the opposition was that UCPR 355(1) requires an offer to specify a period “ending not less than 14 days after the day of service of the offer” during which the offer is open for acceptance. The offer dated 15 June 2009 was stated to be “open for acceptance for the period of fourteen (14) days from the date hereof”. The offer was sent by facsimile after 4.00 pm on 15 June 2009. UCPR 103 deems a document served after 4.00 pm to be served the following day. The offer was expressed to be open for acceptance for 14 days from the date of the offer, rather than 14 days after the day it was served. Although facsimiled on 15 June 2009, it was not served under the rules until 16 June 2009. The consequence is that the minimum 14 day period required by UCPR 355 was not satisfied, and the offer did not comply with the requirements of the rules.

[3] In further submissions dated 7 September 2010 the plaintiff conceded that the offer in question, and two earlier offers, did not comply with the rules. Nevertheless, the plaintiff continued to seek indemnity costs. His new submissions sought an order that the first defendant pay the plaintiff’s costs of and incidental to the proceeding:

(a) on a standard basis until 9 October 2008 (alternatively 15 June 2009); and

(b) thereafter, on an indemnity basis.

Reliance was placed upon three offers, purportedly made in accordance with the rules:

(a) An offer of $400,000 plus costs made on 29 September 2008 (left open for seven days);

(b) An offer of 9 October 2008 in the sum of $400,000 plus costs (left open for 14 days from 29 September 2008 and served, it appears, after 4.00 pm on 9 October 2008);

(c) The offer to settle of $300,000 plus costs made on 15 June 2009 to which I have already referred. The plaintiff contends that the Court has a broad discretion to award indemnity costs in appropriate circumstances. It cites authorities governing the award of indemnity costs. However, the facts of those cases were materially different to the present case.

[6] The principles governing an award of indemnity costs have been considered in a

number of cases. In Thiess Pty Ltd v FLSMIDTH Minerals Pty Ltd (No. 2)2

McMurdo J cited the leading authorities on the circumstances in which an order for

indemnity costs may be justified. Some authorities require unreasonable conduct on

the part of a litigant. Chesterman J (as his Honour then was) in Todrell Pty Ltd v

Finch (No. 2)3 preferred a criterion of “something irresponsible about the conduct of

the losing party which exposed its opponent to costs which should, in fairness, be

ordered on the indemnity basis”. As McMurdo J observed in Thiess Pty Ltd,4

whether the criterion is that of unreasonableness or irresponsibility, there must be

something about the facts and circumstances beyond the demerit of a party’s case,

as reflected in the outcome, before such an order is warranted.5

 

[7] The judgment of Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd6 is

frequently cited in this context. It is authority for the proposition that the

circumstances which may be considered to warrant the exercise of the discretion to

award costs on an indemnity basis include:

• the fact that proceedings were commenced or continued in wilful disregard of

known facts;

• the making of allegations which ought never to have been made;

• the undue prolongation of a case by groundless contentions;

• evidence of particular misconduct that causes loss of time to the Court and to

other parties;

• any imprudent refusal of an offer to compromise.

[8] In Fick v Groves (No 2)7 I considered some authorities relating to an imprudent

refusal of an offer to compromise. In that case I was concerned with an imprudent

refusal by a plaintiff to accept a reasonable offer of compromise by a defendant.

However, the authorities considered by me in that case have more general application to the circumstances in which an unreasonable refusal of an offer of compromise will be a proper ground for the award of indemnity costs. Those authorities include consideration of the circumstances in which a party has rejected a Calderbank offer. This case does not involve a Calderbank offer in the form of a letter that set out the reasons that explained the formulation of the offer and which foreshadowed an application for an indemnity costs order in the event that the offer was rejected. Nevertheless, the provision of three offers to settle, albeit not complying with the rules, is a factor which I take into account in considering whether the defendant’s failure to accept these informal offers justifies an order for indemnity costs.

[11] The failure of the first defendant to accept what amounted to a 40% reduction of the damages assessed at trial involved a substantial miscalculation of the likely outcome of the trial. The damages assessed by me did not involve acceptance of the plaintiff’s submissions on a number of issues. For example, the assessment would have been higher had I accepted certain authorities upon which the plaintiff relied concerning the impact of the birth of children. Still, the first defendant’s miscalculation was a “mis-calculation in a case with large imponderables.”8 The failure to accept the plaintiff’s reasonable offer of compromise may have been unreasonable, not only with the benefit of hindsight, but according to what was known at the time. However, I do not consider that it was so unreasonable as to warrant an order for indemnity costs.

2 [2010] QSC 120.

3 [2008] 2 Qd R 95 at 96 [4].

4 Supra at [4].

5 See also Anderson v AON Risk Services Australia Ltd [2004] QSC 180 at [2].

6 (1993) 46 FCR 225.

7 [2010] QSC 182 at [28] – [36].

8 Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725.

Brisbane Barrister – David Cormack

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