Moray & Agnew acted on behalf of the defendant in a recent case where the decision begs the question What can a defendant do to provide itself with indemnity cost protection in the early stages of defending a matter? Background The plaintiff, Ms Gray, alleged that on 21 September 2017 she was walking through an automatic door at the Council-operated Wagga Wagga Airport when she was struck by the door and sustained injury. She alleged that the door closed prematurely due to the failure of a set of photoelectric cells in the door frame, which ought to have registered her presence and prevented the door from closing. Ms Gray sued the defendant Council alleging, inter alia, failure to maintain the door. The matter proceeded to Hearing in the District Court, Newcastle, before Her Honour Sidis ADCJ, in March 2021. In her judgment of 7 April 2021 (Gray v Wagga Wagga City Council [2021] NSWDC 108), Sidis ADCJ found in favour of the defendant Council, in essence, on the basis of the plaintiff’s failure to establish a causal link between the defective photoelectric cells and her injury. The defendant sought orders that it be granted its costs on an indemnity basis from 3 April 2020, or in the alternative, from 11 February 2021, on the basis of Offers of Compromise conveyed on those dates. Each offer was in identical terms, as follows: Judgment for the defendant, and No order as to costs. There was no dispute that both offers complied with the relevant Uniform Civil Procedure Rules (UCPR) requirements. The plaintiff sought orders that each party pay its own costs of the proceedings. She argued that the defendant was only partially successful, as Her Honour had found against the defendant (in the alternative) on the issues of contributory negligence and obvious risk. She further alleged the existence of ‘exceptional circumstances’ on the basis of, inter alia, an assertion (which Her Honour did not accept) that the defendant Council ‘withheld’ certain documents from the plaintiff. In her costs judgment of 25 May 2021, Her Honour awarded the defendant its costs on an ordinary basis up to 11 February 2021 (the date of the second offer), and on an indemnity basis thereafter. Principles that apply to the exercise of discretion in respect of costs In considering the parties’ applications, Her Honour provided a concise summary of the principles applicable to the exercise of discretion in determining issues raised as to costs, as follows: As a basic general rule, a successful party to litigation is entitled to an order for costs against the unsuccessful party. Where an offer of settlement is made on the basis of Calderbank v Calderbank [1975] 3 All.ER 333, the onus is on the successful party to establish that the unsuccessful party acted unreasonably in failing to accept the offer. Where an offer of compromise is made in accordance with UCPR 20.26, the onus is on the unsuccessful party to establish that the Court should not follow the procedure provided for in UCPR 42.15A: Vagg v McPhee (No 2) [2012] NSWSC 187. Instances where, as a matter of justice, a departure from the Rule may be warranted are: Litigation that involves public interest considerations: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72; The presence of exceptional circumstances: Vagg; South Eastern Sydney Area Health Service v King [2006] NSWCA 2. The purpose of the rules relating to offers of compromise is to encourage early settlement of proceedings rather than to use those rules to deter a party from continuing proceedings that ostensibly have merit. An offer to walk-away or one that requires complete capitulation can qualify as a genuine offer of compromise: Vagg; Leichhardt Municipal Council v Green [2004] NSWCA 341. Circumstances that make it difficult to assess chance and risk at the time of receipt of the offer are insufficient to warrant departure from the Rule: Hillier v Sheather (1995) 36 NSWLR 414. The 3 April 2020 Offer – departure from UCPR 42.15A In not awarding the defendant Council its costs on an indemnity basis from 3 April 2020, Her Honour pointed to the following: The offer was made 28 days after the proceedings were commenced. Her Honour stated that this was “before the plaintiff had the opportunity to embark upon the investigatory processes available to her as a consequence of the commencement of litigation”. The offer made no reference to the elements of the defence that provided the defendant with sufficient confidence in its position to warrant an offer that the plaintiff abandon her claim. Her Honour found that the offer “indicated an intention to deter rather than compromise the proceedings” and so considered a departure from UCPR 42.15A was warranted. The 11 February 2021 Offer – costs awarded on an indemnity basis Her Honour awarded indemnity costs on the basis of the second offer. In so doing, Her Honour noted: The offer was made following the matter being listed for Hearing, when the parties had been able to investigate the claim and had finalised the service of their evidence. The covering letter to the offer detailed the bases on which the defendant said the plaintiff’s claim could not succeed, and those bases were substantially supported by Her Honour’s findings. Implications for Defendants The 11 February 2021 succeeded, where the 3 April 2020 offer failed, because: It was made after the matter was listed for Hearing and in circumstances where the parties had finalised service of evidence. It was accompanied by a detailed letter setting out the bases on which the defendant said the plaintiff’s claim must fail, and most of those bases found support in Her Honour’s judgment. Her Honour’s finding that the defendant’s first offer was made before the plaintiff “had the opportunity to embark upon the investigatory processes available to her as a consequence of the commencement of litigation” poses a clear difficulty for defendants. If the defendant must wait until a plaintiff has fully investigated the claim before a valid Offer of Compromise can be served, presumably, the defendant must simply accept that it will bear the difference between ordinary costs and indemnity costs during that period. Similarly, Her Honour’s finding that the first offer did not set out “the elements of the defence that provided the defendant with sufficient confidence in its position to warrant an offer that effectively required the plaintiff to abandon her claim” suggests that it is incumbent upon a defendant to, early in the proceedings, notify the plaintiff of the deficiencies in the case such as to make the plaintiff’s case liable to fail. At first blush this appears counter intuitive as advising the plaintiff of the weaknesses in the case appears to provide the plaintiff with an opportunity to remedy the defects. However, properly considered the recovery of costs on an indemnity basis following a ‘walk-away offer’ requires a departure from the general principle that making an offer which requires complete capitulation is arguably not a compromise. As such, it is necessary to notify the opponent as to the defect(s) in the case which render it unwinnable so as to present a compelling argument that the opponent was aware from the offer of the issues which ultimately caused the claim to fail and thus, not being able to remedy/overcome those defects, acted unreasonably in deciding not to accept the offer when properly informed of the situation. We suggest that defendants: Repeat ‘walkaway offer’ early and often, particularly following material points in the litigation (e.g., production of documents under subpoena, receipt of particulars, completion of evidence), and In the covering letter to each Offer of Compromise, include as much detail as possible to explain the basis on which the case will fail.
