Carangelo v State of New South Wales

The proceedings

1. The plaintiff, a police officer, commenced the proceedings by statement of claim filed in July 2011. He sought damages from the State of New South Wales for psychiatric injury allegedly sustained as a result of negligence.
2. By the time of the First Offer, the defendant had spent approximately $99,000 in defence of the claim. The tasks performed to that date included: drafting the defence; advising on liability and quantum; perusing documentary material; considering the reports of Dr Smith, the plaintiff's treating psychiatrist; and briefing an expert psychiatrist, Dr Apler. The report of Dr Apler, which put breach and causation in issue, was served on 15 March 2013 (during the pendency of the First Offer).
3. By the time of the Second Offer, the defendant had spent about $143,000 in defence of the claim. By that time, the reports of another (independent, non-treating) psychiatrist, Dr Diamond, had been served by the plaintiff and a mediation had occurred.
4. The Third Offer was served on the second day of the hearing of the matter. I infer that almost all the costs had been incurred by that day, apart from the costs of the remaining four days of hearing. By this time the defendant had incurred costs of approximately $492,000 in defence of the plaintiff's claim.
5. A large number of statements and documents, including the Evidentiary Bundle, was served by the defendant in late 2014 and early 2015: that is, after the Second Offer and before the Third Offer.
6. The joint expert conclave took place on 4 June 2014 and resulted in the preparation of a joint report.
7. The expert psychiatrists gave concurrent evidence in the proceedings on 22 May 2015, after the Third offer had expired.

The Principal Judgment

1. The plaintiff succeeded in establishing breaches of duty but failed on causation. The evidence germane to the issue of causation was principally, if not wholly, comprised of the expert evidence of the psychiatrists: Drs Smith, Diamond and Apler.

The relevant provisions

1. The starting point is s 98 of the Civil Procedure Act 2005 (NSW) which provides that, subject to the UCPR, costs are in the discretion of the Court.
2. For the purposes of the present application, UCPR 20.26 and UCPR 42.15A are relevant. Although UCPR 20.26 was amended during the relevant period, the amendments are not material in the present case.
3. Rule 42.15A was in substantially the same terms at the date of each of the three offers. As at 10 October 2013, it read: 42.15A Where offer not accepted and judgment no less favourable to defendant (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.

The parties' submissions

1. The defendant relied UCPR 20.26 and 42.15A in support of its application for indemnity costs. It submitted that each of the three offers demonstrated a genuine willingness to compromise. In respect of the First Offer, the defendant contended that it was served 18 months after the proceedings were commenced when it had already incurred substantial costs. In respect of the Second Offer, the defendant contended that the issues were crystallised and the relevant evidence had been exchanged. The defendant submitted that in respect of the Third Offer, there can be no real doubt that the plaintiff was in a good position to evaluate his chances of success in the proceedings.
2. The plaintiff submitted that, at the time of the First Offer, the defendant had not served the report of Dr Apler. He also relied on the defendant's not having served its Evidentiary Bundle until early 2015 (after the First and Second Offers had been made). The plaintiff relied on his success on the issues of breach and contended that he "had a significant argument on . . . causation". He submitted that he had a substantial claim for significant psychological injuries and that, in the circumstances, neither the First nor the Second Offers contained the necessary element of compromise: Leichardt Municipal Council v Green [2004] NSWCA 341 at [23]. I understood Mr Hammond, who appeared on behalf of the plaintiff on the hearing of the costs application, to concede that the Third Offer contained the necessary element of compromise.
3. The plaintiff did not point to any basis on which it could be said that any of the offers did not comply with the requirements of the UCPR.

Consideration

1. I find that each of the three offers complied UCPR 20.26 as it was at the time each offer was made.
2. An Offer of Compromise, which otherwise complies with the UCPR, must, in order to attract an indemnity costs order, involve a genuine compromise and not merely be made so as to trigger the costs consequence under the rules: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 (at [16]) per Spigelman CJ (Beazley and McColl JJA agreeing). Whether an Offer of Compromise which otherwise complies with the UCPR contains the necessary element of compromise is a matter of impression: Prospect Resources Ltd v Molyneux [2015] NSWCA 171 (at [94]) per Ward JA (Beazley P and Leeming JA agreeing).
3. Although there was some compromise in the First Offer, in that the defendant had already incurred about $99,000 in costs, I am not persuaded that there was a true element of genuine compromise. The First Offer was, effectively, a demand for capitulation from a defendant which, though found to have breached its duty, appears to have formed the view (which proved to be correct) that it would succeed on causation.
4. However, the Second Offer was in a different category. By the Second Offer, the defendant offered a not insubstantial monetary sum. In addition, had the plaintiff accepted the offer, the plaintiff's costs would have been paid by the defendant. The Second Offer was made after the parties had participated in a mediation, albeit an unsuccessful one. Additionally, as noted above, by the time of the Second Offer, the plaintiff had the benefit of reports from all three experts. The plaintiff's legal representatives had more than adequate time to identify and assess the risk that, even if the plaintiff were to succeed in establishing a breach of duty, he would fail to establish the necessary element of causation. The difficulties of establishing causation in cases such as the present are well known: see the discussion of the authorities and relevant principles summarized by Mason P in Bendix Mintex Pty Ltd v Barnes; Jsekarb Pty Ltd v Barnes, Exxon Ltd v Barnes (1997) 42 NSWLR 307 at 311-318.
5. The plaintiff's case was narrowed substantially in the course of the proceedings. Ultimately, he relied on two breaches: the first in 1999 when he asked to be transferred from Detectives into General Duties; and the second when he was not alerted to an imminent Police Integrity Commission inquiry. Until the experts gave concurrent evidence on 22 May 2015, the issue of causation had not been squarely addressed in terms of the two breaches ultimately relied upon. This factor does not, however, work to the advantage of the plaintiff. In any event, the concurrent evidence did not improve the plaintiff's position on causation. Rather, it served to highlight that the experts were not prepared to opine that, on the balance of probabilities, either, or both, of the breaches caused the relevant harm.
6. In the circumstances, I am not persuaded that there is any proper reason why, in relation to the Second Offer, the Court should otherwise order. The Second Offer complied with the applicable rules and I am satisfied that the offer in terms that there be judgment for the plaintiff in the sum of $50,000 represented a genuine compromise at the time the offer was made. Accordingly, the defendant ought have the benefit of its costs paid on an indemnity basis from 11 October 2013 by reason of the Second Offer.

Orders

1. I make the following orders: 1. Note that, the defendant having made a written application for a different order within the time specified, order (2) made on 29 May 2015 is vacated. 2. Order the plaintiff, pursuant to UCPR 42.15A(2)(a), to pay the defendant's costs on the ordinary basis up to and including 10 October 2013. 3. Order the plaintiff, pursuant to UCPR 42.15A(2)(b)(i), to pay the defendant's costs on an indemnity basis from 11 October 2013.

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