Rules of Court Offers in Multi-Party Actions (August 2007)

Australian Rail Track Corporation Limited v Twentieth Superpace Nominees Pty Ltd and Others

Background

Despite a complete recast in 2006, the SA Supreme and District Court Civil Rules still do not provide any mechanism for the filing of a “Rules of Court” offer by two or more parties against another party to the action. This difficulty is compounded by the lack of authorities in SA regarding the effectiveness of multi-party Calderbank offers. Indeed, the further a Calderbank offer departs from the Rules, the less likely it is to be upheld. This case deals with Rules 40 and 41 of the former Supreme Court Rules 1987 (“Rules”) (which continue to apply to actions commenced prior to 4 September 2006). Rules 40 and 41 govern offers by plaintiffs and defendants and the consequences of bettering or not bettering those offers.

Facts

The action relates to a train derailment. The plaintiff is the owner of the rail track.

The defendant is the operator of the train which derailed and damaged the track. The first third party owned the rolling stock, which it leased to the defendant and agreed to maintain on the defendant’s behalf. The second third party (EDI Rail) had a contractual arrangement whereby it would provide maintenance to the rolling stock. The fourth third party is an insurance broker engaged by the defendant.

In his ex tempore judgment, Justice Debelle notes that, while there are a number of issues in the action, the real question is whether the derailment was caused by the failure of EDI Rail to properly maintain and service the rolling stock involved in the derailment.

All parties other than EDI Rail (including the plaintiff) agreed between themselves as to the terms on which they were willing to compromise the action. They sought a means by which they could jointly file an offer upon EDI Rail which would apply the cost penalties described in Rule 41.04 should the offer not be bettered at trial by EDI Rail. In that event, EDI Rail would be liable for the solicitor/client costs of all other parties incurred from 14 days after service of the offer upon it (including costs of trial).

The offering parties devised a means by which this could be achieved. They would enter into a deed between themselves which set out the amount which the plaintiff would accept in settlement of the action, and the respective amounts that the defending parties, apart from EDI Rail, would contribute to the settlement (“the Deed of Offer”). The shortfall formed the amount which the offering parties would accept from EDI Rail.

This Deed of Offer was to be filed in Court in a sealed envelope and kept confidential. EDI Rail would be served with a filed offer setting out the amount it was required to pay to settle the matter, but it would not know the total amount the plaintiff had agreed to accept or the proportions that other defending parties were contributing. It was proposed that the offer to EDI Rail would be filed along with a draft deed of settlement so that EDI Rail would be fully aware of the terms on which settlement was proposed; save that the draft would not include dollar amounts.

The offering parties applied for dispensation from certain requirements of Rules 40 and 41 so as to enable the joint offer to be filed and served, and to ensure that the offer would have the cost consequences attaching to an offer filed strictly in accordance with the Rules.

Decision

His Honour found that the “… spirit and intent of Rules 40 and 41 should be capable of being applied in the case of multi-party litigation.”

However His Honour expressed concern that it may be unfair upon the recipient of such an offer if it were found liable for the solicitor/client costs of other parties that were incurred agitating at trial issues not directly related to the case against it. His Honour noted that in the case before him, there were contractual issues between various parties which did not concern EDI Rail. His Honour stated that in respect of such issues “…it would plainly be inequitable if EDI Rail were required to pay costs of all parties on a solicitor and client basis”.

His Honour felt that this situation could best be addressed by ensuring that if the offer was not accepted and the action went to trial and EDI Rail did not better the offer, then costs would be awarded against EDI Rail on a solicitor/client basis unless the trial judge determined otherwise. His Honour, in effect, reserved the trial judge’s discretion on costs.

His Honour was also mindful of a forthcoming mediation proposed by the parties. He did not believe it was appropriate for the offer to be filed until after the mediation had been held.

Orders

His Honour granted the application and ordered that:

• Notwithstanding the terms of Rules 40 and 41 of the Rules, that the plaintiff, defendant, first third party and fourth third party have leave to file and serve an offer to EDI Rail to consent to judgment in satisfaction or part satisfaction of their respective claims provided that the offer not be filed until after mediation.

• If EDI Rail did not accept the offer and the sum recovered by the other parties was equal to or greater than that contained in the offer, the Court must order EDI Rail to pay the whole of the costs of action of the other parties to be taxed as between solicitor and client, save to the extent that the Court thinks it proper to award otherwise. (Thereby reserving the trial judge’s discretion on costs.)

• The executed Deed of Offer to be kept confidential in a sealed envelope which must not be opened except by order of a judge of the Court.

Comment

His Honour’s decision gives hope to insurers subrogated to multi-party litigation that by this means they may be able to file a costs offer in conjunction with other parties which:

• will be a valid offer;

• will have the cost consequences provided by the Rules of Court, and

• will avoid the inherent uncertainty associated with the operation of a multi-party Calderbank offer.

Appeal

EDI Rail has applied for permission to appeal the decision to the Full Supreme Court of South Australia (such permission being required by the Rules where the judgment subject to appeal is an interlocutory judgment).

August 2007