FEDERAL COURT OF AUSTRALIA

Kuzmanovski v New South Wales Lotteries Corporation (No 2)
[2010] FCA 1016

THE COURT ORDERS THAT:

1.                  Order 1 made on 17 August 2010 be varied by deleting “$100,000 plus interest” and substituting “$128,049.32”.

2.                  The respondent pay the applicants’ costs of the proceedings on an indemnity basis.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1                     I ordered Lotteries to pay $100,000 plus interest to Mr and Mrs Kuzmanovski on 17 August 2010:  Kuzmanovski v New South Wales Lotteries Corporation [2010] FCA 876.  Following delivery of my reasons the parties agreed on the calculation of interest on the judgment sum pursuant to the method of calculation in Practice Note CM 16 issued by the Chief Justice on 28 June 2010.  That interest up to 17 August 2010 amounted to $28,049.32. 

2                     Mr and Mrs Kuzmanovski also sought that Lotteries pay their costs on an indemnity basis, rather than on a party-party basis, as Lotteries contended.

3                     The principal basis of the claim for indemnity costs was an offer by Mr and Mrs Kuzmanovski made on 20 May 2009, before the commencement of the proceedings, to settle their claim for the prize of $100,000 for $80,000 (made up of $75,000 for the claim plus costs of $5,000).  The letter enclosed a draft statement of claim that incorrectly named the State of New South Wales as respondent.  It required acceptance within 7 days, but was not accepted.  Mr and Mrs Kuzmanovski made a subsequent offer on 4 March 2010, less than two weeks before the trial.  It was for the sum of $120,000 inclusive of costs.  Lotteries rejected it.  The only counter-offer was a desultory one by Lotteries on 25 August 2009, after the proceedings had commenced, suggesting that if the claim was withdrawn Lotteries would not seek costs, but if not, it would seek indemnity costs.

4                     The letter of 20 May 2009 was not made as an offer of compromise under O 23 of the Federal Court Rules, but rather as a Calderbank offer (Calderbank v Calderbank [1976] Fam 93).  The question is whether Lotteries’ rejection of that offer was unreasonable by reference to the circumstances facing it at that time:  CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] per Moore, Finn and Jessup JJ.

5                     Lotteries argued that the error naming the State as respondent in the draft statement of claim was “a serious distraction”.  I reject that argument.  This was no reason for Lotteries to have rejected the offer.  The offer had come to its attention and the name of the offeree could easily have been corrected.  Lotteries claimed that the time limit of seven days for acceptance was “too tight”.  The time limit of seven days for acceptance was not a reason for Lotteries’ rejection and there is no evidence it caused any difficulty.  Lotteries also argued that the offer of $80,000 inclusive of costs did not involve any real element of compromise.  That was self-evidently not correct.  The claim was for the $100,000 prize plus nearly two years interest and costs.  Lotteries’ subsequent counter-offer of 25 August 2009 suggest that it was never prepared to consider any offer to settle that required it to pay money to Mr and Mrs Kuzmanovski.  Lotteries also asserted that the subsequent three amendments of the draft statement of claim before the trial required it to expend unparticularised “significant costs”.  That consequence was addressed because on 10 February 2010 and 15 March 2010 I ordered Mr and Mrs Kuzmanovski to pay Lotteries any costs thrown away by reason of amendments to the statement of claim.

6                     The substance of the underlying claims in contract and under s 52 of the Trade Practices Act 1974 by Mr and Mrs Kuzmanovski never changed.  These were based, from first to last, on the argument that the ticket had won the $100,000 in accordance with the terms of the play instructions.  The offer of $80,000 involved a real element of compromise.  Lotteries no doubt considered that it should reject the claim in its entirety and rely upon the matters it argued at the trial.  It was entitled to take that view and, if it were wrong, to pay for it.

7                     I am of opinion that Lotteries was unreasonable to have rejected the commercially sensible offer made on 20 May 2009 that would have avoided the need for the litigation.  Lotteries had marketed a consumer product, the Pictionary scratchie lottery game.  Had Lotteries taken a reasonable approach it would have accepted that the intended design of the game was seriously flawed by its error in understanding the ordinary and natural meaning of the word it chose for the game, namely “bathe”.  When it received the offer of 20 May 2009 Lotteries should then have realised that an ordinary and natural meaning of the word “bathe” was “swim” and that Mr and Mrs Kuzmanovski’s ticket satisfied the designation in the play instructions that the ticket won the $100,000 prize.  Moreover, the misleading and deceptive quality of Lotteries’ error of understanding was obvious.

8                     Lotteries should pay the costs of Mr and Mrs Kuzmanovski on an indemnity basis other than any costs that they should pay that were thrown away by the amendments to the statement of claim.

Associate:

Dated:         17 September 2010