Costs implications – early settlement of low value claims

Motor Vehicle Directions

Mark Haureluik v Bowen James Furler [2012] ACTCA 11

Damages for pain and suffering are included in the amount of the ‘mandatory final offer’ when considering an award of costs under s144 of the Road Transport (Third-Party Insurance) Act 2008 (ACT)

The respondent was injured in a motor vehicle accident in March 2009. The circumstances were unremarkable and non-contentious.

On 22 April 2009, the respondent served a notice of claim on the appellant, pursuant to s84 Road Transport (Third-Party Insurance ) Act 2008 (ACT) (‘the Act’). The appellant’s CTP insurer subsequently admitted a breach of duty of care. On 30 July 2010, the appellant’s solicitor served a ‘mandatory final offer’ on the respondent in the following terms:

‘… we are instructed to offer the plaintiff the sum of $85,000.00, plus costs, in accordance with the Road Transport (Third-Party Insurance) Act 2008 (ACT) and Regulations, broken down as follows:

        1.     $40,000 for pain and suffering (general damages)

        2.     $45,000 for the balance of the plaintiff’s claim (inclusive of payments made on behalf of the claimant by (the insurer) in the sum of $2,787.60, and Medicare payback in the sum of $242.45).’

In April 2010, the respondent accepted the mandatory final offer, prior to the commencement of proceedings.

Issues

The respondent sought party / party costs in the sum of $26,950, and disbursements in the sum of $5,616.91.

The appellant, relying on s144 of the Act and Regulation 27 of the accompanying Road Transport (Third-Party Insurance) Regulation 2008, argued that the respondent’s costs (including disbursements) ought to be limited to $5,000.

The relevant provisions were as follows:

s144 Working out costs for mandatory final offers

(1)  A mandatory final offer for $50,000 or less must be exclusive of any amount for costs.

(2)  If a mandatory final offer is for $50,000 or less but for more than $30,000, and is accepted, costs must be worked out and paid in the way prescribed by regulation.

        (3)   If a mandatory final offer is for $30,000 or less, and is accepted, costs must be $0.

 r27 Costs – Mandatory final offer accepted – Act, s144(2)

If a mandatory final offer for more than $30,000 but not more than $50,000 is accepted, the costs (including disbursements) must not exceed $5,000.

Notwithstanding that there was no explicit intention in the abovementioned provisions, the appellant argued that any amount identified with regards to pain and suffering was to be excluded when calculating offers referred to in s144(2). This would make it consistent with the provisions contained in ss155 and 156 of the Act which deal with costs awards by the court following a hearing. Accordingly, it was argued that the relevant amount of the offer was $45,000, thus captured by s144(2).

The respondent disagreed that any amount should be excluded and asserted that the relevant amount of the offer was the total $85,000 and therefore it would be outside the scope of s144(2).

The appellant made an application to the Supreme Court of the Australian Capital Territory seeking a declaration consistent with its interpretation of s144(2) and Regulation 27.

First instance

With regards to construction of s144(2) and using extrinsic material to that section, the Master referred to s138 Legislation Act 2001 (ACT). Deciphering the meaning of an enactment involved such matters as resolving an ambiguity, confirming or displacing its apparent meaning and determining the meaning of the Act when its apparent one leads to a result that is manifestly absurd or unreasonable. Accordingly, the court would be very slow to depart from the literal meaning.

In support of his conclusion, the Master cited Cooper Brookes (Wollongong) Pty Ltd v The Federal Commissioner of Taxation (1981) 147 CLR 297, where Gibbs CJ indicated that the words in a statute were to be given their ordinary meaning unless that led to an irrational result, such that it could be concluded that the draftsman had made a mistake.

The Master also referred to R v Young (1999) 46 NSWLR. In that case the Chief Justice approved of Lord Diplock’s approach in Wentworth Securities v Jones [1980] AC 74, where it was indicated that the court would only consider using a purposive approach to construction where:

  • It was possible to determine from a consideration of the provisions of the Act read as a whole precisely what the mischief was that it was the purpose of the Act to remedy
  • It was apparent the draftsman and parliament had by inadvertence overlooked, and so omitted to deal with, an eventuality that required to be dealt with, the purpose of the Act was to achieve
  • It was possible to state with certainty what were the additional words that would have been inserted by the draftsman and approved by parliament, had their attention been drawn to the omission by the Bill passed into law.

The Master was not satisfied that there had been an ‘inadvertent omission’ in the drafting of the legislation or any other factors to warrant judicial interference. The Master found that there were no inconsistencies in the purpose of the legislation for costs to be awarded differently in matters which are settled before an action had commenced and those which had been determined by the court.

Master Harper dismissed the appellant’s application, holding that the words of s144 were to be construed literally, stating that the words ‘mean what they say and are to be applied accordingly’.

Judgment

The Court of Appeal agreed with the Master’s position that there was no ambiguity in the wording of s144(2), such that it should not be applied literally. The court accepted that the costs restrictions operated differently where a claim is settled before an action is commenced and after damages have been determined by the court.

Accordingly, the Court of Appeal dismissed the appeal and upheld the Master’s decision, concluding:

‘The mandatory final offer is the total offer and is not to be reduced by the amount….offered for pain and suffering’.

However, it was accepted that ‘… it would be logical for the sections to operate in a way which was consistent, but that does not mean that their operation under the respondent’s construction is irrational, absurd or plainly unintended’.

Conclusion

It is interesting that the Court of Appeal hinted it was not necessarily logical for there to be different costs regimes before hearing and after judgment. However, the court considered there was no justification for it to look beyond the meaning of the words of s144(2) in this particular circumstance. If consistency is to be achieved on costs, it seems legislative amendment will be required.

The decision affects insurers defending low value claims. Although it provides a costs incentive to claimants’ solicitors to settle their client’s claims early, there is not the same incentive for insurers in claims where the claimant’s damages, not including amounts for pain and suffering, are unlikely to exceed $50,000. They may be well advised to proceed to hearing in the absence of significant concessions with regards to the claimant’s costs.

Authored by Marco Nesbeth, Paralegal, Canberra.


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