Express law No. 31

12 December 2005

Caution to be exercised when relying on Calderbank letters

In
a recent application for review of a decision of Senior
Member Allen dated 8 July 2005, Jacobson J of the Federal
Court held that the Senior Member erred in finding that
he could interpret an earlier blanket costs order to
include provision for an exclusion of costs beyond a
certain date, based on a Calderbank style letter issued
by the Military Rehabilitation and Compensation Commission
(MRCC).

Collins v Military Rehabilitation and Compensation
Commission

NSD 1337/2005: judgment delivered orally on 7
December 2005, written reasons to follow.

Background

Mr Collins suffers from a work related psychiatric
condition. He had been paid compensation on the basis of
a 20 % whole
person impairment. In an application before the AAT, Mr
Collins asserted that his impairment level was now 40%,
and the MRCC maintained that it had not degenerated beyond
20%. In the months leading up to hearing, the MRCC offered
to settle on the basis of a 30% WPI. When no reply was
received, it sent a Calderbank style letter.

On the morning
of the hearing, the parties settled for a 30% WPI, as offered
by MRCC. However, costs discussions
stalled when MRCC sought to rely on the Calderbank letter.
The matter was resolved via consent orders, wherein costs
were to be 'as agreed or taxed'. The orders
were adopted in consent orders, by SM Kelly. The MRCC made
it very clear that it intended to rely on the terms of
the Calderbank letter, although there was no reference
to this in the consent terms.

The question of costs could
not be resolved. The matter went to taxation, but again
discussions stalled by reason
of the Calderbank letter. The issue was referred to SM
Allen for determination of whether or not the MRCC could
rely on the letter. On 8 July 2005, SM Allen held that
in the taxation of the applicant's costs, no allowance
should be made for items incurred after the date of the
Calderbank letter. Thus, the letter was upheld as a valid
basis for reducing the applicant's claimed costs.

The application
in the Federal Court

The applicant lodged an application
for review of the decision of SM Allen in the Federal Court
under the AD(JR) Act and
the Judiciary Act. Jacobson J handed down his oral decision
on 7 December 2005.

In short, he held that the AAT had 'spent' its
power to make an order on costs when it made the consent
decision that costs were payable 'as agreed or taxed'.
SM Allen had no power to 'go behind' that determination,
and factor in a reduction in costs taking into account
the Calderbank letter. Jacobson J considered provisions
of the SRC Act, the AAT Act and the Acts Interpretations
Act, and was of the view that SM Allen had impermissibly
varied the costs order. He did not accept the respondent's
submission that SM Allen was interpreting the costs order,
and putting it 'into context'. Jacobson J found
that disallowing costs beyond a certain date was not a
valid exercise of section 67(13) of the SRC Act, as it
was a blanket disallowance rather than a consideration
of the reasonableness of items claimed in a taxable bill
of costs.

Jacobson J added that, in his view, Calderbank letters had no application where there was no contested
hearing.
It did not matter that the matter was settled on the morning
of the hearing - it could not be said that Mr Collins had
had an adjudicated hearing in which he fared no better
than the offer of MRCC. This was more by way of obiter.

Finally,
Jacobson J was at first not minded to award Mr Collins
his costs in this application. He expressed some
concern that his solicitors had pressed this application,
when the difference in costs offers was only around $5,000.
Had he not awarded costs, this would have been a futile
victory for Mr Collins, as any costs gained on taxation
would have been lost by proceeding on this application.
However, he ultimately did award costs, but his hesitation
sounded as a warning for future litigants.

Implications
for clients

There is no authority to support Jacobson J's
proposition that Calderbank letters cannot be relied upon
unless there
is a contested hearing. However, this judgment may well
be relied upon as independent authority on this point.
Points for consideration are:

  • if an
    agency wishes to rely upon a Calderbank letter, and a
    matter is settled on the day of hearing with no agreement
    on costs, there should be an 'on the spot' application
    for a limited costs order
  • consent
    terms should not include a blanket reference to 'costs
    as agreed or taxed' if the agency intends to run
    an argument that costs should be reduced by reason of the
    lateness of acceptance of an offer. Even if the matter
    is not 'contested', the AAT retains a general
    discretion on costs, regardless of whether the principles
    in Calderbank actually apply (as interpreted by Jacobson
    J)
  • wherever possible, the quantum
    of costs should be agreed at the time of settlement and
    not left 'for another
    day'. This is often difficult when a matter is
    settled on the steps of the Court, but should be encouraged.

AGS
acted as solicitor for the respondent in this matter.

For
further information please contact:

Hervee Dejean
Senior Lawyer
T 02 9581 7504 F 02 9581 7650
hervee.dejean@ags.gov.au

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