FEDERAL COURT OF AUSTRALIA

Rakic v Johns Lyng Insurance Building Solutions (Victoria) Pty Ltd (Trustee) (No 2) [2016] FCA 783

ORDERS

THE COURT ORDERS THAT:

1.    In respect of the Applicant’s claim under the Australian Consumer Law:

(a)    the Respondent pay to the Applicant damages in the amount of $333,422.00.

(b)    the Respondent pay to the Applicant interest up to judgment in the amount of $36,391.45.

2.    In respect of the Applicant’s claim in debt:

(a)    the Respondent pay to the Applicant $16,529.00.

(b)    the Respondent pay to the Applicant interest up to judgment in the amount of $3,162.71.

3.    The Respondent pay:

(a)    90 per cent of the Applicant’s costs incurred before 11:00 am on 10 August 2014, on a party and party basis; and

(b)    90 per cent of the Applicant’s costs incurred after 11:00 am on 10 August 2014, on an indemnity basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BROMBERG J:

1    On 27 April 2016 I delivered my reasons in Rakic v Johns Lyng Building Solutions (Victoria) Pty Ltd [2016] FCA 430 (“principal reasons”). I will use the same abbreviations and definitions as utilised therein.

2    On the issues of costs and interest, and consistently with prior directions, Ms Rakic filed submissions (“Ms Rakic’s submissions”), as did Johns Lyng (“Johns Lyng’s submissions”). Without having leave to do so, Ms Rakic filed further submissions (“Ms Rakic’s reply submissions”). Also without leave, Johns Lyng filed responding submissions (“Johns Lyng’s reply submissions”). I grant leave for the parties to rely upon their reply submissions.

3    As set out at [285] of the principal reasons, Ms Rakic’s ACL claim was established, and she suffered $333,422 of compensable loss or damage, Johns Lyng is indebted to Ms Rakic in the sum of $16,529, but Ms Rakic failed on the Lease issue. At [286] I said this:

… I expect that any submissions concerning costs take account of Ms Rakic having succeeded on two of her claims but failed on one. Submissions should also take into account that the claims in respect of which Ms Rakic succeeded were, collectively, by far the most significant claims and occupied the lion’s share of the litigation. …

Interest

4    Ultimately, there was no dispute as to the method of calculating interest. The parties agreed, as at late-May 2016, that—if interest is to be awarded—it should be awarded in the amount of $3,037 in respect of the Debt Claim and $33,239 in respect of the ACL Claim. Though, since then around a month has passed and I have had to make adjustments. I utilise the same approach as agreed by the parties. I note that there were a few cases in which Johns Lyng appeared to calculate numbers of days exclusively rather than inclusively, but I have not changed these, as they were the subject of the parties’ agreement. In any effect, the difference in worth less than $15. By my calculation, as at 30 June 2016, interest accrued on the debt is $3,162.71, and interest accrued on the ACL damages is $36,391.45.

5    This near-consensus position came about through the exchange of submissions. Ms Rakic’s initial submission was that interest ought to accrue on the entire amount of loss and damage from April 2013. Johns Lyng submitted that that would overcompensate Ms Rakic in that it would give her interest on loss and damage not yet accrued—her loss and damage accruing over time rather than all at once. Johns Lyng relied upon Rutter v Brookland Valley Estate Pty Limited [2009] FCA 702 at [122]–[125] (Buchanan J), Moss v Lowe Hunt & Partners Pty Ltd [2010] FCA 1181 (Katzmann J), and Miletich v Murchie [2012] FCA 1013 at [92]–[94] (Gray J). That submission is correct. Since Ms Rakic’s damages accumulated over time, rather than all at once, a stepped approach is appropriate.

6    Ms Rakic conceded the correctness of Johns Lyng’s figure for interest, with a “qualification”. The qualification is, in my view, misplaced. I need not further address it. Ultimately, there was no dispute that to award Ms Rakic interest from April 2013 on the full amount of her loss would overcompensate her.

7    That leaves Johns Lyng’s primary submission as to interest, which was that no interest at all should be awarded. It was submitted that “good cause” obtained for such a conclusion, being that at [239] and [240] of the primary reasons I had not discounted for contingencies and that any award of interest would risk over-compensating Ms Rakic.

8    I reject that submission. It fails to grapple with the fact that [239] and [240] address adjustment to deal with both the risk of over-compensation and the risk of under-compensation. I found that the most-likely scenario in the hypothetical counterfactual was that Ms Rakic would have left Pattersons after around 2.5 years for a job paying around $220,000. Perhaps, she would have lost her job sooner and taken a less-remunerative job, in which case my award over-compensates her. But it was also possible that she would not have left Pattersons for years thereafter, or would have done so for greater remuneration, in which case my award under-compensates her. I found that the risks of over- and under-compensation “balanced out”. Thus Johns Lyng’s submission is half right. It is true that there was no discount for contingencies. Equally, and this is what Johns Lyng omits, there was no uplift for contingencies, as occurred in (for example) Norris v Blake (No 2) (1997) 41 NSWLR 49. The same can be said concerning the contingencies set out at [239(2)].

9    Sometimes it might be necessary to decline to award interest to avoid over-compensation, such as where an applicant has sought and been awarded damages for loss of use of money (Management 3 Group Pty Ltd (In Liq) v Lenny’s Commercial Kitchens Pty Ltd (No 2) (2012) 203 FCR 283 at [34] (Lander, Gilmour and Gordon JJ)). But this is not such a case and it does not seem to me that, absent a specifically-identified risk of over-compensation, it would be appropriate to deny interest to take account of such a risk.

Costs

10    Ms Rakic sought that Johns Lyng pay her costs incurred before 10 August 2014 on a party and party basis, and from and after 10 August 2014 on an indemnity basis. The significance of 10 August 2014 is that, two business days prior, Ms Rakic had served on Johns Lyng an offer to settle under Pt 25 of the Federal Court Rules 2011 (Cth) (“2014 offer”). Johns Lyng’s submission was that it ought to be ordered to pay 50 per cent of Ms Rakic’s costs on a party and party basis up to 19 August 2015, and 50 per cent of Ms Rakic’s costs on an indemnity basis thereafter. The significance of 19 August 2015 is that, on that date, Ms Rakic had made a further offer to settle under Pt 25 (“2015 offer”). The 2014 offer was in the amount of $130,000 inclusive of costs. The 2014 offer was in the amount of $185,000 inclusive of costs. There were other offers, made in reliance on the principle in Calderbank v Calderbank [1975] 3 All ER 333, upon which Ms Rakic did not rely. It is unnecessary to discuss them further.

11    There was no issue that the two offers were made consistently with Pt 25 and therefore that r 25.14 applied. Only r 25.14(3) is relevant, and it is set out below:

(3)    If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:

(a)    before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b)    after the time mentioned in paragraph (a)—on an indemnity basis.

Note 1    Costs on an indemnity basis is defined in the Dictionary.

Note 2    The Court may make an order inconsistent with these rules—see rule 1.35.

12    At [1] of Johns Lyng’s written submissions it said that there were four reasons why its proposed costs orders should be made rather than those proposed by Ms Rakic:

(a)    the fundamental and late amendments to Ms Rakic’s pleadings (“issue (a)”);

(b)    the main issue upon which the judgment turned, being a decline in estimator sales in so far as the ACL claim is concerned (“issue (b)”);

(c)    Johns Lyng’s partial success on the Debt claim in terms of quantum and the fact that Ms Rakic’s partial success on the Debt claim was not based upon the reasons advanced by Ms Rakic. The same argument applies to the ACL claim in terms of quantum claimed and the award made (“issue (c)”); and

(d)    the failure of Ms Rakic on the Lease issue (“issue (d)”).

13    At [23] and [24] Johns Lyng re-iterated those points. At [23] it also mentioned Ms Rakic’s failure to achieve the quantum sought on two of her claims, and to establish all pleaded representations. That is probably captured in [1(c)], but I mention the separate submission so that it is not thought I have overlooked those arguments.

The effect of r 25.14

14    Both parties referred to Smith v Deputy Commissioner of Taxation [1997] FCA 945, which concerned the old O 23 r 11(4). Ms Rakic relied upon Smith for the proposition that “compelling and exceptional reasons” were required in order that the rule be displaced. Johns Lyng submitted that Smith was distinguishable on the basis of a change in the words as between O 23 r 11(4) and r 25.14. As the authorities below show, this argument is without merit. Johns Lyng also submitted that “compelling and exceptional circumstances” meant simply “that the appropriate starting point is to apply the rule, and that there is an onus upon the party seeking to assert that the rule should not apply on its terms to make out such matters, whether of fact or of mixed fact and law or of law, as to justify the Court, in the proper exercise of a judicial discretion, ordering otherwise than as the rule provides”.

15    Johns Lyng also relied upon Kassem v Commissioner of Taxation (No 2) [2012] FCA 293 at [9]–[11], where Nicholas J said as follows:

[9]    Speaking of O 23, r 11(4) of the Federal Court Rules 1979, Hely J in Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281 at para [17] said:

Once an offer is made, and a judgment no less favourable obtained, a rebuttable presumption in favour of indemnity costs is created. It then becomes incumbent on the defendant to show reason why the presumption should not crystallise.

[10]    His Honour’s observations were expressly approved by a Full Court in Futuretronic.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 (Tamberlin, Finn and Sundberg JJ) at para [10].

[11]    Rule 25.14(3) of the Federal Court Rules 2011 is in a slightly different form to O 23, r 11(4) but for relevant purposes they are to the same effect. As the notes to r 25.14 make clear, the Court may make an order under r 1.35 that would result in costs being awarded otherwise than as provided for by r 25.14(3). However, it is for the party who is prima facie required to pay costs in accordance with the requirements of the rule to persuade the Court that some other order should be made.

16    Johns Lyng referred to Metz Holdings Pty Ltd v Simmac Pty Ltd (No 3) [2011] FCA 1450 at [24] and Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652 at [10]. It is not necessary to set out the paragraph from Specsavers, which is consistent with Kassem. Johns Lyng relied upon these cases in support of a submission that the Court’s ability to depart from r 25.14 is not limited to instances in which compelling and exceptional reasons have been shown. I accept that submission. However, as the cases show, the concept of the exceptional case remains significant. In Metz at [24], Barker J cited Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40, and said that it was for the respondent to show proper reasons why a presumption in favour of indemnity costs should not crystallise, which reasons “in general only arise in an exceptional case”. In Futuretronics at [10], Tamberlin, Finn and Sundberg J said this:

In dealing with rule 11(4), which also uses the expression appearing in rule 11(6)—“unless the Court otherwise orders”—Hely J in Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281 at [17], after referring to Heerey J’s observation in an earlier case that “compelling and exceptional circumstances” must exist before the Court would “otherwise order”, said:

Once an offer is made, and a judgment no less favourable obtained, a rebuttable presumption in favour of indemnity costs is created. It then becomes incumbent on the defendant to show reason why the presumption should not crystallise. Correctly understood, Heerey J was explaining the operation of the Rule, rather than impermissibly attempting to place a fetter on the exercise of the court’s discretion. … [H]is Honour was not seeking to do more than to convey that the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case…

We agree with these remarks about rule 11(4) which in our view are applicable to rule 11(6).

17    Futuretronics has been followed in cases relating specifically to r 25.14(3), including Merost Pty Ltd v CPT Custodian Pty Ltd (No 2) [2014] FCA 594 at [11] (North J), Robinson v Kenny (No 2) [2015] FCA 2 at [17]–[18] (Farrell J), and Skyy Spirits LLC v Lodestar Anstalt (No 2) [2015] FCA 575. In Skyy, Perram J distilled the principles thus (at [5] and [7]):

It is not necessary for the purposes of r 25.14(3) for the Wild Turkey interests to show that the Irish Whiskey interests were unreasonable in not accepting the offer. This was held by the Full Court to be so in the case of the predecessor rule, O 23 r 11(6), in IFTC Broking Services Ltd v Commissioner of Taxation (2010) 268 ALR 1 at 4 [9] and 5 [12] (FC). Rule 25.14(3) is not relevantly different. Single judges of this Court have reached the conclusion that the same [principle] applies to r 25.14(3): [Merost] at [10] per North J; Murphy v Westpac Banking Corporation (No 2) [2015] FCA 266 at [18] per Griffiths J.

Rule 25.14(3) is, therefore, enlivened in this case. It creates a rebuttable presumption that the Wild Turkey interests are entitled to an indemnity costs order. This arises from the Court’s power to dispense with the operation of any rule, including r 25.14(3) (r 1.34) and its power to make orders contrary to the rules (r 1.35). Generally, it will not be appropriate to dispense with the operation of r 25.14(3) unless there is proper reason to do so and this will generally only be the case where exceptional circumstances are present: [Robinson] at [18] per Farrell J.

18    The applicable principle, which I will now apply, is that the position provided for in the rule should only be departed from for proper reasons, which in general arise only in exceptional cases. Although “exceptional circumstances” is not the test, were a case wholly unexceptional, it is unlikely that proper reason would be shown to depart from the rule. In that way, whether circumstances are exceptional remains relevant.

Issues (c) and (d)—partial success and partial failure

19    Ms Rakic sought an award of $71,863 in respect of the Debt claim and, instead, I will award $16,529. The argument she advanced in respect of the interpretation of the relevant contractual clause was not accepted. Ms Rakic sought a declaration in respect of her novated lease, and was unsuccessful. And, she was not wholly successful in respect of the ACL claim, in that she pressed only three of the four pleaded representations, and one of those three was held not to have been misleading or deceptive. Relying on those matters, Johns Lyng submits that Ms Rakic should be awarded only half of her costs.

20    In Hockey v Fairfax Media Publications Pty Ltd (No 2) (2015) 237 FCR 127 at [84]–[91], White J set out the authorities concerning apportionment of costs by issue. His Honour’s summary was adopted by a Full Court in Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27 at [302] (Bennett, Besanko and Beach JJ).

21    White J quoted Cretazzo v Lombardi (1975) 13 SASR 4 for the propositions that a successful party who failed on certain issues may be deprived of its own costs or ordered to pay its opponent’s and that “issue” does not mean a precise issue in the technical pleading sense, “but any disputed question of fact or … of law”. Jacobs J, in Cretazzo, warned against the “too ready apportionment of costs according to a plaintiff’s failure on some issues in the trial” (see Hockey at [86]). White J quoted (at [87]) the following observation of Mahoney JA in Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328 at 330–1: “unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party” without apportionment as between issues.

22    However, at [88]–[89] White J noted the more-recent readiness of courts to apportion, which might “reflect the increasing factual and legal complexity of modern litigation and the multiplicity of factual and legal issues it entails, and the tendency of applicants to pursue multiple claims involving different factual enquiries in the one proceeding”. White J noted that, nowadays, courts are particularly conscious of controlling the cost of litigation, and that including multiple causes of action, even if based on a common factual substratum, adds to cost. White J quoted from Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 and from Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261, in each case broadly to the effect that if an issue-by-issue approach produces a fairer result then it should be applied. Finally, White J set out the following passage from [34] of James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296:

Where a matter involves multiple issues and the question before the court is whether it should make some other order as to costs other than the order that costs follow the event, a distinction is commonly drawn between cases which involve clearly discrete issues for determination, and those in which all issues are inseparable, or at least sufficiently linked, with respect to the overall disposition of a particular matter. In Permanent Trustee Aust Ltd v FAI General Insurance Co Ltd (unreported, NSWSC, 3 June 1998), Hodgson CJ in Eq noted that the obvious examples of a matter involving discrete issues is one where a plaintiff makes separate claims for different relief, or a claim by a plaintiff and a cross-claim by a defendant. Another example is where a respondent is successful in having an appeal against an earlier decision dismissed, but for reasons other than those raised in the respondent’s Notice of Contention. This is not to say that so-called “discrete issues”, for the purposes of apportioning costs, only exist in cases where there are separate claims made within a single matter. As Toohey J stated in the passage quoted at [33] above, it can relate to “any disputed question of fact or law” before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter.

23    Finally, it is necessary to note Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 90 ALJR 270, in which this was said at [6] (French CJ, Kiefel, Nettle and Gordon JJ) (citations omitted):

In any event, the preferable approach in this case is the one usually taken, that costs should follow the outcome of the appeal. This is not a case where it may be said that the event of success is contestable, by reference to how separate issues have been determined. There are no special circumstances to warrant a departure from the general rule, and good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like.

24    It is on the basis of the foregoing principles that I approach Johns Lyng’s submissions as to apportionment.

Failure on the Lease issue

25    This was, in my view, a discrete issue. As pleaded in the amended statement of claim (“ASOC”), the Lease issue turned on a conversation between Ms Rakic and Mr McPhee occurring on or about 8 April 2013, which conversation was not otherwise of relevance. As advanced at trial, reliance was also placed on a conversation with Mr Didier. That conversation—at the Brunetti meeting—was otherwise of relevance and was part of the same substratum of facts that supported the ACL claim. Nevertheless, overall, I think that Ms Rakic’s failure on this issue does provide a basis for apportioning costs.

26    The evidence and submissions on the issue were brief: the Lease issue occupied about seven pages of transcript in Ms Rakic’s opening. There were a handful of questions asked of each of Ms Rakic, Mr McPhee, and Mr Didier, in each case both in chief and in cross-examination, The Lease issue occupied around two pages of transcript in Ms Rakic’s closing submissions. Altogether, I cannot think that the matter occupied more than an hour of hearing time—and probably quite a bit less than that—across the four hearing days.

27    I think it is appropriate to take account of Ms Rakic’s failure on this issue in an award of costs. I will return later to how much apportionment is appropriate.

The Debt Claim

28    The interpretation of the contractual clause that Ms Rakic advanced was partially but not wholly the one that I accepted. I accept that that might theoretically provide a basis for adjusting costs. Indeed, one of the examples of a discrete issue given in Surf Road Nominees at [34] is of a situation in which a respondent “is successful in having an appeal against an earlier decision dismissed, but for reasons other than those raised in the respondent’s Notice of Contention” (see also Whiting v Somerset Regional Council (No 2) [2010] QSC 329, Simonton v Australian Prudential Regulation Authority (No 2) [2008] FCAFC 113, Dimento v Dimento (Costs) [2007] NSWSC 1233, and Donnelly v Johnson [1999] FCA 1875, c.f. Malick v Lloyd (1913) 16 CLR 483 at 492). That strikes me as being conceptually similar to this case.

29    As Johns Lyng submits, the specific interpretation of the relevant contractual clause that I reached was not advanced by Ms Rakic. In fact, she expressly disowned it. I think that there is a basis for adjusting the award of costs on that basis. However, I think a fairly minor adjustment is required. In the first place, the Debt claim took up even less time than the Lease issue. The only issue was interpretation of a contractual clause, the terms of which were uncontroversial. And, Ms Rakic was not wholly wrong. She said that pursuant to that clause she was entitled to a sum of money representing a percentage of Johns Lyng’s net profit, and that was correct.

30    Again, I will return later to the appropriate adjustment.

Failure to establish that all representations were misleading or deceptive

31    This aspect of Johns Lyng’s argument is without merit. There is no doubt that, on the ACL claim, Ms Rakic achieved success. She pleaded that, arising out of communications at the Brunetti meeting and in the 21 March email, misrepresentations were made that she relied upon, in consequence of which she suffered damage. That was sustained. She also alleged that Johns Lyng was aware of reasons that it knew made it otherwise than likely that it would meet FY13 forecasts ([157] primary reasons) and was unsuccessful on that score ([164] primary reasons). But that allegation arose from the same factual substratum. Very little additional evidence was led on the question. The omission of this representation from the pleadings would have had no real impact on the way that the case was run. In my view it would be inappropriate to apportion costs on this basis.

Failure to achieve quantum sought in Debt and ACL claims

32    This argument, too, is without merit. As Ms Rakic submitted, when damages are unliquidated and reliant upon the assessment of hypotheticals, recovery of less than the whole amount sought is not a basis for denying that the “event” was in Ms Rakic’s favour. Recovery of only nominal damages has been held to be a basis for depriving a successful party of costs (see cases cited in G E Dal Pont, Law of Costs (3rd. ed., LexisNexis Butterworths) [8.39]–[8.41])), but Ms Rakic’s damages in respect of the ACL claim were in no way nominal.

33    Nor do I consider that the above reasoning is limited to the case of unliquidated sums. The establishment by Ms Rakic of Johns Lyng’s indebtedness to her is a success, even though the debt was not in the amount that she sought. Ms Rakic claimed that Johns Lyng owed her money that it had not paid. Johns Lyng denied that allegation. Ms Rakic turned out to be right. It is appropriate that she be compensated for her cost of overcoming Johns Lyng’s denial (subject to what is said in the previous section of these reasons). The circumstances would, of course, be different if Johns Lyng had made a settlement offer concerning the debt that was more favourable to Ms Rakic than the actual award, but there was no evidence of such an offer.

Apportionment

34    I have held that some adjustment is necessary to take account of Ms Rakic’s lack of success on the Lease issue and the fact that the basis for Ms Rakic’s success on the Debt claim was not the one she advanced.

35    I think that the correct adjustment to take account of the Lease issue is to deny to Ms Rakic between 5 and 10 per cent of her costs. If Ms Rakic had been unsuccessful on the Debt claim the adjustment would not have been more than 5 per cent. And, Ms Rakic was not unsuccessful: she succeeded but, in part, on a basis not pursued. For that, she ought not to be denied more than 2 per cent of her costs.

36    In sum, the outcome in the Lease issue requires a downward adjustment of between 5 and 10 per cent; the outcome in the Debt claim requires a downward adjustment of around 2 per cent. Viewed holistically, I think it is appropriate to deny Ms Rakic 10 per cent of her costs. Taking an overall impression of the whole litigation, this strikes me as the order that best serves justice (c.f. Kimche v Commissioner of Taxation [2005] FCA 293 at [18] (Ryan J)).

Issues (a) and (b): changes in the pleading and in the case theory

37    Johns Lyng’s submission, that significant changes in the way in which a case is advanced can constitute a ground for departing from r 25.14, is consistent with authority. In Rolls Royce Industrial Power (Pacific) Ltd v James Hardie and Coy Pty Ltd (2001) 53 NSWLR 626, one of the issues was whether the primary judge had erred in failing to give effect to a Calderbank offer in favour of James Hardie. Stein JA (with whom Davies A-JA agreed) held not, because there had been a substantial change in circumstances after the making of the offer. Stein JA said that it was the circumstances existing at the time of the offer that were relevant (at [95]). He followed Mahoney AP in Fowdh v Fowdh [1993] NSWCA 100, wherein Mahoney AP had said this:

It is one thing for a plaintiff to present her evidence, make an offer of compromise, and to succeed at the trial on that evidence. In such a case, indemnity costs may be warranted. It is another thing for the plaintiff to present a case and make an offer of settlement, and then to succeed at the trial upon a relevantly different case. A plaintiff who has done that may not readily receive indemnity costs. I do not mean by this that minor differences between the case at offer and the case at trial will be of significance or that, if the difference be significant, a discretionary judgment for indemnity costs may not be given. But where the difference between the position at offer and the position at trial be as the Master assessed it to be, a decision to refuse indemnity costs may readily be understood.

38    Rolls Royce related to a Calderbank offer rather than an offer under a rule akin to r 25.14. Allowance must be made for the different regimes, including that it would not here suffice for Johns Lyng to show that it acted reasonably in refusing Ms Rakic’s offers (Skyy at [5] (Perram J); Port Stephens Shire Council v Tellamist Pty Ltd (No 2) [2004] NSWCA 415 at [15]–[16] (Giles JA, with whom Santow and Ipp JJA agreed)). However, Rolls Royce has been followed in cases dealing with rules like r 25.14.

39    In Castro v Hillery [2003] 1 Qd R 651, Williams JA (Wilson J agreeing) said at [72] that the basic principle is that the recipient of the offer to settle must have an “informed opportunity to assess the chances of either side doing better than the offer”, on the basis of the claim made in the proceeding and the material disclosed therein. Having cited Rolls Royce, Williams JA continued at [75] to say that an offer must be evaluated in the light of the circumstances as they exist at the time the offer is made. Minor differences thereafter will ordinarily be immaterial. But “where the difference is significant, where the risk to the defendant is significantly altered, there would have to be careful analysis before a proper exercise of discretion could result in indemnity costs being ordered”. At [79], Williams JA said that “[t]he Offer to Settle procedure is designed to focus attention on early resolution of the dispute”, and that if the plaintiff’s case changes substantially after an offer is made and declined, the defendant ought not be penalised for rejecting the offer. Otherwise, the procedure would be open to abuse.

40    Ainger v Coffs Harbour City Council (No 2) [2007] NSWCA 212, concerning r 25(1B)(4) in Part 39A of the District Court Rules 1973 (NSW), was to like effect. McColl JA, with whom Mason P and Hunt AJA agreed, said at [30]–[31] that it was relevant to consider the “strengths and weaknesses of each party’s case as they may have been apparent to the parties at the time the offer was made”, and that “success on a different case from that being advanced at the time of the offer could be significant.”

41    It is useful to mention two authorities dealing specifically with the purpose of rules like r 25.14. In Morgan v Johnson (1998) 44 NSWLR 578, Mason P said this (at 581–582, citations omitted):

(1)    The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation.

(2)    The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance.

(3)    The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party. This is because, from the time of non-acceptance “notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise”.

(4)    Lying behind the rule is the common knowledge that “litigation is inescapably chancy”. For this reason, the ordinary provision is expected to apply in the ordinary case. The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule. …

(5)    The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind. Reasons must be given for “otherwise ordering”.

42    Doyle CJ made similar points in Shaw v Jarldorn (1999) 76 SASR 28 at [3]–[8]. And, in the same case, Perry J said this—which is directly apposite—from [36]–[38] (emphasis added):

[36]    … The circumstances which are most likely to arise and which might justify relieving a defendant from the obligation to pay solicitor and client costs, will be those where there is such a significant change in the manner in which the plaintiff's case is presented at the trial, or the manner in which the evidence emerges at the trial, that it might fairly be said that the full dimensions of the plaintiff's entitlement could not possibly have been foreseen before the hearing commenced.

[37]    Another circumstance which might give rise to an application of the discretion in favour of the defendant is if the plaintiff substantially amends his or her case at the trial, or at least after the period within which the defendant might have accepted the offer has expired.

[38]    But the fact that the defendant is caught by surprise by some development at the trial, standing alone, would not ordinarily be sufficient, as it is symptomatic of litigation that the course taken by a trial will often be unpredictable. It will only be in an extreme case that such considerations would avail a defendant. … In considering their response to an offer, defendants must allow for the fact that the course of evidence may turn significantly and unexpectedly against them at the trial. That is an ordinary hazard of litigation which no properly advised defendant should fail to allow for.

43    Johns Lyng relied primarily upon a change, as between the original statement of claim (“SOC”) and the ASOC, in the quantum of damages claimed, and in the way that the ACL claim was advanced. The filing of the ASOC post-dated the making of the August 2014 offer. Johns Lyng argued that it constituted a reason for departing from the rule in r 25.14. Before considering that argument, it is useful to give a brief chronology of the proceeding.

44    Ms Rakic’s SOC was filed on 22 April 2014. A defence was filed in May 2014 and the matter was referred to mediation. Mediation occurred in July 2014. It was unsuccessful. Not long after, on 8 August 2014, the 2014 offer was served.

45    In November 2014 timetabling orders were made by consent contemplating the listing of the matter for hearing on 23 and 24 March 2015. Unfortunately, it became necessary for me to vacate that hearing, and also a re-listed hearing set down for 13 and 14 April 2015. The matter was re-listed for 21 and 22 May 2015.

46    On 1 May 2015, my chambers received a letter from Ms Rakic stating that it was necessary for her to seek leave to amend her SOC “by reason of, inter alia, information that has become available after discovery as well as a substantial change in law with respect to the implied term of mutual trust and confidence”. The latter part of the phrase quoted was a reference to the judgment of the High Court in Commonwealth Bank of Australia v Barker (2014) 253 CLR 169, which effectively foreclosed reliance on such an implied term.

47    On 22 May 2015, consent orders were made including an order allowing Ms Rakic to amend her SOC. The hearing was re-listed for 15–17 September 2016. On 17 July 2015 Ms Rakic filed her ASOC. On 19 August 2015 the 2015 offer was made. On 21 August 2015 Johns Lyng filed its amended defence. From 15 to 18 September 2015 the matter was heard.

Consideration

48    On balance, I consider that Ms Rakic’s amendment to her pleadings in July 2015 did not constitute a substantial departure from the way in which her case was advanced in her SOC. In my judgment, the amendment does not provide a proper basis for departing from r 25.14.

49    The case is not, however, entirely straightforward. There were, of course, changes. It is necessary to evaluate their significance. And, there is at least some importance in the manner of amendment. Ms Rakic’s ASOC constituted the striking-through of the entirety of her original SOC, and the addition of an entirely-new statement of claim. In her own words, in a chapeau to the ASOC, the SOC was “wholly replaced”. That is not to suggest that the new pleading was entirely dissimilar—many of the allegations were identical, or near-enough to it, as between SOC and ASOC. But it required Johns Lyng to completely re-plead its defence and, in at least some senses, constituted for Ms Rakic a fresh start. On the other hand, as I have said, Ms Rakic’s ASOC was constructed with many of the planks of the SOC, but in different form and with some additions. Was it the same claim?

50    I think it was. Viewed in its essence, Ms Rakic’s case, both as originally pleaded and post-amendment, comprised the following elements:

(1)    Ms Rakic was earning a certain amount of money through her employment with Pattersons (SOC [2]–[3]; ASOC [2]);

(2)    in (at least) the form of a meeting with Mr Didier and an email from Mr Cameron, Johns Lyng made to Ms Rakic certain statements (SOC [4], [6]; ASOC [6]);

(3)    the statements conveyed representations to the effect that Johns Lyng was profitable (SOC[4(a)(iv), (c), (d), (e), (f), (h)], ASOC [11(a)–(c)]), and would remain so into the future (c.f. SOC [17(e)–(g)]; ASOC [11(a)–(c)]).

(4)    relevant to whether the representations were misleading or deceptive was that Johns Lyng’s financial circumstances were, at the time of making the representations, parlous, or in any event not as favourable as stated or implied (SOC [21(h)–(o)]; ASOC [3]-[4]);

(5)    the representations were made without reasonable grounds (SOC [22]; ASOC [12(b], [13(b)], [14(b)], [15(b)]);

(6)    Ms Rakic relied upon the representations by leaving her job with Pattersons and taking the job with Johns Lyng (SOC [18], [20]; ASOC [7], [8]);

(7)    she suffered damages caused by the misleading or deceptive conduct (SOC [25]; ASOC [17]).

51    Further in relation to point (3) above, many of the statements attributed to Mr Didier in the SOC directly translated into the ASOC. Those include the matters set out at in 4(a)(ii)–(iii) and 4(c)–(f) of the SOC. The matters alleged in 4(a)(i), (a)(iv)–(v), (b), and (g)–(h) were dropped, but these were not especially important. The only real addition in the ASOC to the allegations concerning the Brunetti meeting was the statement pleaded in paragraph 6(a)(iv) ASOC, namely that “[i]f [Ms Rakic] accepted the position, with the 2.5% profit share [Ms Rakic] would not be out of pocket”. As is apparent from [35]–[37] of the principal reasons, I did not consider that allegation to have had any significant bearing on whether the pleaded representations were made. This addition, then, is of little moment. The ASOC continued to allege that the 21 March email had been sent, and set out its content at [6(b)]. There is no real change between the SOC and the ASOC in that connection.

52    An arguably-new allegation was made in the ASOC that Johns Lyng “did not inform [Ms Rakic] at any time prior to mid April 2013 of the deterioration in its sales and profit position.” However, in relation to that I said as follows at [56] of the principal reasons: “The lack of subsequent qualification or correction is a circumstance to be taken into account in assessing whether the representations pleaded at [11] were made. I have found that they were made, by the statements of Mr Didier and in the 21 March email, in context. The fact of silence thereafter does not either strengthen or weaken the allegation that the representations were made.” This addition, again, is of no moment. In any event, I think that Johns Lyng would have read [17] of the SOC as complaining about much the same thing.

53    That is not to say that the pleadings are identical. There are at least these differences. First, in her ASOC, but not in her SOC, Ms Rakic pleaded precisely the deterioration in Johns Lyng’s finances in late 2012 and early 2013, and its earlier financial circumstances. That was, in the end, highly relevant to Ms Rakic’s claim that Johns Lyng lacked reasonable grounds for its representations. Second, in her ASOC Ms Rakic particularised her damages in far-greater detail than in her SOC. Third, in her ASOC Ms Rakic had dropped the contractual claims alleged in her SOC and added the Debt claim and the Lease issue.

54    I am not persuaded that these differences constitute a sufficient alteration of the claim so as to provide a proper reason for departing from r 25.14. As to the first, Johns Lyng knew what its financial circumstances were in late 2012 and early 2013. It knew that Ms Rakic’s case included that its financial circumstances were such that its representations as to profitability were misleading or deceptive. It had the financial information available to it to determine whether it had reasonable grounds for the making of the representations Ms Rakic pleaded. It would not have been in the least surprised by the content of the paragraphs in the ASOC detailing its financial circumstances, which in any event Ms Rakic could not have pleaded until after discovery.

55    As to the second, Johns Lyng referred at [11] of its written submissions to [30] of the SOC and said that it “provides limited particulars of loss and damage with particulars of income lost being $195,000.00, an unspecified 5% equity figure and an unspecified loss of opportunity figure. There was no Debt claim as part of the SOC and no declaration sought as to the novated lease issue.” By comparison, said Johns Lyng, the ASOC sought $518,167 in respect of the ACL claim, $71,863 in respect of the Debt claim, and a declaration worth $20,343 to Ms Rakic in respect of the Lease issue.

56    Johns Lyng is looking at the wrong paragraph. Paragraph [30] of the SOC deals with damages in respect of Ms Rakic’s dropped contractual claims. It is [25] of the SOC that pleads damages for the ACL claim, and the particular is that “[Ms Rakic’s] loss is ongoing loss of income pursuant to the Pattersons Agreement at the rate of $230,000 per annum plus superannuation”. That particular did not include any deductions for amounts likely to be received (as the ASOC did), and for some reason the Pattersons salary is given as $230,000 plus superannuation (or around $250,000) rather than as around $275,000 (which is what her Pattersons package was actually worth, c.f. [242] primary reasons). But I am not convinced that either of those matters is of any moment. The point is that Ms Rakic was claiming loss of income as a consequence of Johns Lyng’s conduct. The amount she received from Pattersons was pleaded; Johns Lyng knew the amount that it had paid her; it knew that it faced a claim for at least the difference between her Patterson’s salary and what she in fact received or was likely to receive. The claim necessarily involved the assessment of hypotheticals, in respect of which perfect information was not possible. The nature of that claim did not change with the ASOC, rather, with the passage of time greater particularity was possible and was provided.

57    The change from $250,000 to $275,000 in the pleading of Ms Rakic’s Pattersons salary could, theoretically, be significant. If Johns Lyng could say, for example, that had it known Ms Rakic’s Pattersons salary was $275,000 rather than $250,000 that would have substantially altered its consideration of the August 2014 offer, that might provide a proper basis for departing from r 25.14. But this is not such a case. Johns Lyng did not submit that the alteration from $250,000 in the SOC to $275,000 in the ASOC had any effect on its thinking. Indeed, so far as Johns Lyng’s thinking is exposed in the evidence, its letter of 18 August 2014 (in response to the August 2014 offer) contains statements that Ms Rakic’s claim “lacks merit” and that Johns Lyng is “confident of successfully defending the matter”. It said that Ms Rakic had “unrealistic views about how this matter might be settled”, and rejected Ms Rakic’s offer. Its own offer, made some months later in May 2015, was a walk-away offer. And, in any event, in light of the degree to which Ms Rakic’s damages in respect of the ACL claim exceed the 2014 offer, whether Ms Rakic’s Patterson’s salary was $250,000 or $275,000 would not have made a difference to whether r 25.14 was enlivened.

58    The third matter is that Ms Rakic added in her ASOC the paragraphs giving rise to the Lease issue and the Debt claim. Again, I accept in theory that such an addition could be relevant. Suppose that rejection of a particular offer is entirely right and defensible when only $100,000 is claimed. If good claims worth an additional $1M are thereafter added and damages in that amount ordered, there would be an excess of damages over offer for the purposes of r 25.14. But the fact of the adding of the new claims after the date of the offer may constitute proper reason for departing from r 25.14.

59    Here, however, the two claims that Ms Rakic added made no difference at all to the amount ultimately recovered. She failed on the Lease issue. While she succeeded on the Debt claim, her success resulted in my subtracting its value from her ACL damages to avoid double compensation ([262] principal reasons). Had the Debt claim not been run, there would have been no cause for such subtraction and the total amount recovered by her would have been the same. The only difference—which is not relevant—is that her recovery would have comprised only damages whereas in the event it comprises a debt and damages.

60    Overall, in terms of the various statements of principle I set out at the commencement of this section, the changes in the claim were not significant. Ms Rakic’s case did not change substantially. The risk to Johns Lyng was not significantly altered by the amendments in the ASOC. There would have been no real difference in the assessment of the strengths and weaknesses of the parties’ cases post-amendment. The claim on which Ms Rakic was successful was substantially the same as that advanced when the offer was made. The full dimensions of her ultimate entitlement could have been foreseen on the original pleadings. I do not consider this to be an exceptional case. It is therefore unlikely that proper basis would be established for departing from r 25.14(3), and in fact none has been established. I would order that Ms Rakic have her costs from 10 August 2014 on an indemnity basis.

61    It was rightly conceded that there would be no proper basis for departing from r 25.14 in respect of the 2015 offer. If I had not reached the conclusions expressed above in relation to the 2014 offer, I would in any event have ordered that Ms Rakic have her costs from 21 August 2015 (not 19 August, c.f. r 25.14(3)(a)) on an indemnity basis.

Associate:

Dated:    5 July 2016