Judgment date: 22 July 2011
Schimke v Clements and Suncorp Metway Insurance Limited (No. 2)  QSC 208
Supreme Court of Queensland1
The fact that a party has made a mandatory offer under s 51(1) of the Motor Accident Insurance Act 1994 (the Act) will not in itself be enough to avoid an indemnity costs order, if that party makes a later formal offer under the Uniform Civil Procedure Rules2 (UCPR) which the court considers to be a genuine offer by way of a substantial compromise.
The above case arises out of a claim for indemnity costs made by the plaintiff, as a result of a motor vehicle accident that occurred on 2 February 2008. The facts of the substantive action are outlined in detail in Schimke v Clements  QSC 182. They can be briefly summarised as follows.
Mrs Schimke developed a psychiatric injury in the form of an adjustment disorder with depressed mood, when her husband was fatally injured in a motor vehicle versus truck accident on 2 February 2008.
The accident occurred when the deceased and the defendant approached a single lane bridge in vehicles from opposite directions. As the defendant was approaching the bridge from his end, the deceased, on the other end, ignored a "Give Way" sign, and entered the bridge.
The defendant gave evidence that immediately before entering the bridge, he believed he had the right of way and that the deceased was slowing down, so as to allow his truck safe passage. However, upon entering the bridge he realised that the deceased had not given way, immediately slammed on his brakes, and ultimately collided with the deceased's vehicle.
The trial judge found that the defendant was negligent by failing to have his vehicle positioned on the road and travel at a safe speed, such that the defendant could bring the vehicle to a halt and avoid a collision if a vehicle travelling in the opposite direction reached the bridge and proceeded across it.
However, the trial judge considered the deceased to be more culpable than the defendant and assessed contributory negligence at 65%, essentially due to the fact the deceased failed to give way to the defendant's vehicle.
Damages were awarded at $539,028 less contributory negligence of $350,368, totalling $201,430.
The plaintiff served a formal offer on 26 February 2010 to settle the claim for $100,000 plus standard costs, as assessed according to the District Court scale. UCPR r.60 provides:
"Costs if offer to settle by plaintiff"
1. If –
(a) the plaintiff makes an offer to settle that is not accepted by the defendant and the plaintiff obtains a judgment no less favourable than the offer to settle; and
(b) the court is satisfied that the plaintiff was at all material times willing and able to carry out what was proposed in the offer,
the court must order the defendant to pay the plaintiff's costs calculated on the indemnity basis unless the defendant shows another order for costs is appropriate in the circumstances."
There was no doubt that the plaintiff obtained a judgment no less favourable than the offer. Further, Applegarth J was satisfied that the plaintiff was at all material times willing and able to carry out the offer proposed.
Accordingly, the onus shifted to the defendant to show why "another order for costs [was] appropriate in the circumstances." The defendant was unable to satisfy this requirement on the facts of the case.
The defendant argued that the plaintiff's mandatory final offer under the Act3, in the amount of $300,000 plus costs and out-of-pocket expenses, was a grossly excessive offer and properly rejected by the defendant. It submitted that the significant disparity between the mandatory final offer and the formal offer made on 26 February 2010 (approximately one month later), evidenced that it was grossly excessive and not a genuine offer pursuant to the pre-litigation requirements of the Act.
The court rejected the defendant's submission. Applegarth J specifically held that the mandatory final offer was not grossly excessive in the circumstances of the case. He said that had the plaintiff's submissions on apportionment of liability been accepted, a far more substantial award would have been made. At paragraph 4, he said:
"I do not consider that the mandatory final offer made by the plaintiff of $300,000 exclusive of certain payments plus costs was not a genuine offer to settle the claim. It involved a not unrealistic assessment of the likely outcome of the proceedings based upon a recognition of the deceased's contributory negligence." 4
Applegarth J went further and said that the formal offer reflected a substantial compromise on behalf of the plaintiff and was designed to give the offeree serious thought as to the risks involved in non-acceptance.5
Further, Applegarth J said that the prima facie rule in non-acceptance of the offer, is the enforcement of the rule against the non-accepting party.6 As such, he found that "notionally the real cause and occasion of the litigation was the defendant's non-acceptance of the offer of compromise." 7
Accordingly, the defendant was ordered to pay the plaintiff's costs of and incidental to the proceedings on an indemnity basis.
The case is an important reminder that insurers must approach every offer of compromise with caution and carefully consider whether it should be accepted, notwithstanding their views on liability. The substantive case is a further reminder of the rarity found in courts in upholding a verdict for the defendant, notwithstanding clear and significant breaches of statutory road rules.8
1 Applegarth J
3 s 51C (1)
4 per Applegarth J at paragraph 4
5 Ibid at 5, referring to Morgan v Johnson  44 NSWLR 578 at 581–582  NSWSC 367 per Mason P
7 per Applegarth J at 6, referring to Maitland Hospital v Fisher (No 2) (1992) NSWLR 721 at 724
8 Transport Operations (Road Use Management Road Rules) Regulations 1999 (Qld)
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