Health Care Corporation Pty Ltd t/as Wollongong Private Hospital v Cleary

Costs of the trial

1. The starting point in determining costs is s 98 of the Civil Procedure Act 2005 (NSW), which provides that the award of costs is in the discretion of the court. The orders that the primary judge made as to costs were that HCC pay Mr Cleary's costs as agreed or assessed on an ordinary basis up to and including 26 July 2022; and that HCC pay Mr Cleary's costs on an indemnity basis from 27 July 2022 and thereafter.
2. Neither party has tendered the reasons that the primary judge gave on 11 August 2023 in so far as they included reasons for making the costs orders (there was also, at that time, an application for a stay pending HCC deciding whether to appeal, which her Honour granted). However, her Honour appears to have made those orders on the basis of an offer of compromise that Mr Cleary served on 26 July 2022, by which Mr Cleary offered to compromise the proceedings on terms that judgment be given for him against HCC in the sum of $350,000. As Mr Cleary submitted, that offer was made following mediation and prior to trial, at a time when the evidence had been filed save, according to HCC, for the joint expert reports and the evidence of Dr Pitham. On 28 July 2022, HCC rejected that offer.
3. The transcript of the argument on costs before the primary judge is annexed to the Second Behrens Affidavit. The purpose of Mr Cleary in tendering it was to demonstrate that HCC had made submissions to the primary judge as to why it was not unreasonable for HCC to have rejected Mr Cleary's offer of 26 July 2022. Although the reasons have not been tendered, it is reasonable to infer from the costs orders that the primary judge made that she rejected HCC's argument. As HCC did not advance any ground of appeal contending that the primary judge erred in ordering that it pay indemnity costs from 27 July 2022, it is not for this court to reconsider the reasonableness of HCC's position at that time, save to the extent that the appeal has impacted on that matter (Li Affidavit at [7]-[8]).
4. This court has, on the appeal, confirmed her Honour's judgment on liability but reduced the order for damages made by her Honour. Taking that result on the appeal as the starting position (see Sze Tu v Lowe (No 2) [2015] NSWCA 91 ("Lowe (No 2)") at [68] (Gleeson JA, Meagher and Emmett JJA agreeing)), it is necessary to consider two subsequent offers that HCC made to Mr Cleary after July 2022.
5. The first of those offers was made on 21 April 2023, at around 1.43pm (see Li Affidavit at [10]). HCC's solicitors sent a letter to Mr Cleary's solicitors conveying what Mr Li described in his affidavit as a Calderbank offer. The letter was in the following terms (omitting the formalities): "We are instructed to make the following offer: 1. The defendant will pay the plaintiff $475,000 inclusive of costs in full and final settlement of these proceedings. 2. Judgment is to [be] entered in favour of the defendant. 3. The parties are to enter into a deed of release. The offer is made pursuant to the principle enunciated in Calderbank v Calderbank [1975] 3 All ER 333 and is open for acceptance until 4.00pm today, 21 April 2023, after which it will expire if not accepted. We place the plaintiff on notice that in the event this matter proceeds to hearing and he is either unsuccessful in his claim or obtains a judgment that is less favourable than the terms of this offer, our client will rely on this letter to seek an order for the plaintiff to pay its costs on an indemnity basis."
6. In Rialto Sports Pty Limited (Admins Apptd) v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited (No 3) [2023] NSWCA 279 at [66], Gleeson JA (Bell CJ agreeing) observed, by reference to Monie v Commonwealth of Australia (No. 2) [2008] NSWCA 15 at [13] (Beazley JA, Mason P agreeing), that the general question in relation to an offer of the nature HCC sent to Mr Cleary on 21 April 2023 is whether it was made in terms that enable the offeree to give proper consideration to it. Having regard to the circumstances in which HCC made the offer of 21 April 2023, unaccompanied by any explanation for its basis and open for an extremely limited period, the answer to that question can only be "no". It follows that we would not make the order for indemnity costs in the court below from 22 April 2023, being the first of the orders HCC sought.
7. The next offer that HCC made was under cover of a letter from its solicitors dated 28 April 2023. The attached offer of compromise was in the following terms: "1. Judgment for the plaintiff against the defendant in the sum of $350,000. 2. The defendant will pay the plaintiff's costs as agreed or assessed up to the time the offer was made. 3. This offer is open for acceptance for 7 days after the date on which the offer is made. 4. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW)."
8. By contrast with its offer of 21 April 2023, this offer was accompanied by a covering letter in which HCC provided detailed reasons regarding the obstacles that it considered Mr Cleary faced in relation to breach of duty and causation, and why it believed that even if Mr Cleary was successful the damages would not exceed the amount in the offer. HCC also referred in the covering letter to the principles in Calderbank v Calderbank [1975] 3 All ER 333 ("Calderbank") and relied on those principles in the event that the offer did not meet the requirements in r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).
9. The offer met the requirements of UCPR, r 20.26. Rule 42.15 applies if the defendant makes an offer that the plaintiff does not accept, and the plaintiff obtains an order or judgment on the claim "no more favourable to the plaintiff than the terms of the offer": r 42.15(1). HCC submitted that given the outcome for Mr Cleary on the appeal was more favourable than its offer by a mere $189.60, the difference between the judgment in this court and the offers was de minimis and should not impact adversely on the application of the rule. In any event, HCC submitted, the difference would not affect its contentions regarding reasonable costs orders, noting that it had been prepared to pay Mr Cleary an amount essentially equivalent to this court's award and to pay his costs.
10. The Court is of the view that its judgment was "more favourable" than HCC's offer of 28 April 2023 for the purposes of r 42.15(1). It follows that r 42.15 does not apply. Even if the rule were to apply, r 42.15(2) provides: Unless the court orders otherwise - (a) the plaintiff is entitled to an order against the defendant for the plaintiff'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.
11. In Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 ("Fisher") at 724, which dealt with the predecessor to the rule that is now r 42.14 (which is the equivalent rule for an offer of compromise made by a plaintiff), the Court (Kirby P, Mahoney JA and Samuels AJA) stated that one of the objects of the rule was: "… To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation."
12. The reasons why the court may order otherwise "are generally to be found in the nature of the proceedings or the manner in which they have been conducted by the successful party": Walker v Harwood [2017] NSWCA 228 at [20]. As this court stated of costs more generally in Riechelmann v McCabe (No 2) [2024] NSWCA 62 at [10], it is necessary to consider each case on its merits.
13. In the present case, as Mr Cleary submitted, the offer that HCC made on 28 April 2023 offered him the same award of damages on which he had offered to compromise the proceedings nine months earlier, on 26 July 2022. HCC submitted that given this offer was for the same amount as Mr Cleary had himself offered, it was unreasonable for him to reject this offer. That submission does not, however, bring to account the point made by Mr Cleary, that the costs that Mr Cleary had incurred since 27 July 2022 were unnecessary, HCC having at that time rejected the very offer it then made. In offering to settle for the same amount, HCC included an order that it would pay Mr Cleary's costs up to the date the offer was made but only as agreed or assessed.
14. Against that background, Mr Cleary characterised the offer as an attempt to trigger costs sanctions rather than a genuine attempt to settle: see Leichhardt Municipal Council v Green [2004] NSWCA 341 at [39]-[40]. The lengths that HCC went to in the covering letter to explain the difficulties it perceived with Mr Cleary's case tells against that proposition. Nonetheless, having regard to the circumstances in which the offer was made, in particular the terms of the earlier offer that Mr Cleary had made (which was the same as to quantum) and the absence of any allowance for the costs he had incurred in the time since HCC rejected that offer, the Court considers it was reasonable for Mr Cleary to reject HCC's offer. Accordingly, even if r 42.15 applied, we would have otherwise ordered.
15. The same result follows from the application of the principles in Calderbank. HCC submitted that its 28 April 2023 offer (along with the subsequent offers involving the same amount to which the Court will shortly turn) was consistent with the public policy objective that lies behind the rules on offers of compromise and the principles in Calderbank, of providing an incentive to end litigation as soon as possible; and that if the discretion was not exercised in favour of HCC, it would not encourage compromise. That public policy objective does not avail HCC in the circumstances of the hearing below, having regard to the content of the offer that Mr Cleary made nine months earlier, on 26 July 2022. The judgment sum that Mr Cleary has retained as a result of the appeal was more favourable than his original offer of compromise.
16. It follows that the Court would not make the second of the orders that HCC sought. We agree with Mr Cleary's submission that the costs orders of the primary judge should not be disturbed.

Costs of the appeal

1. Together with s 98 of the Civil Procedure Act, r 42.1 of the UCPR provides that if the Court makes an order as to costs, it should be in terms that costs follow the event unless the circumstances justify some other order. Generally the "event" refers to the event of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15], citing Windsurfing International Inc v Petit [1987] AIPC 90-441 at 37,861-37,862 (Waddell J).
2. Mr Cleary submitted in relation to the appeal that the "event" should be characterised as his success in retaining a judgment against HCC, being an order for a sum of money in a claim for unliquidated damages. Mr Cleary emphasised that the Court dismissed HCC's grounds of appeal relating to liability (which was the dominant issue on the appeal in terms of the grounds, submissions and hearing time) and only allowed the appeal on aspects of HCC's appeal against damages. HCC, on the other hand, highlighted the various points on damages as to which they were successful, and the significant reduction in the award of damages.
3. As Mr Cleary noted in his submissions, he conceded error with respect to the heads of damage to which the greatest proportion of the reduction in the award to him was attributable, namely past and future economic loss and past domestic assistance. HCC complained that Mr Cleary made the concessions less than 48 hours prior to the commencement of the appeal hearing. That was the case with respect to past and future economic loss, although Mr Cleary had accepted in his written submissions that the primary judge erred in awarding him past domestic assistance. As to past and future economic loss, it is the case that Mr Cleary's concessions involved an acknowledgment of error in what Mr Cleary had submitted below, following receipt of HCC's reply. In the Second Behrens Affidavit, Mr Behrens explained that the process that led to making those concessions on the day before the hearing commenced immediately upon receipt of HCC's reply, and included conferencing with the counsel team before providing written and oral advice to Mr Cleary.
4. As Gleeson JA observed in Lowe (No 2) at [49], costs orders "should reflect a just and fair outcome on appeal, without isolating and weighing individual issues with minute precision" (citing Bullabidgee Pty Ltd v McCleary (No 2) [2011] NSWCA 343 at [10]). The primary focus of the oral and written submissions on the appeal was the primary judge's findings relevant to, and conclusions as to, negligence and causation. It was, as Mr Cleary submitted, the dominant issue on the appeal. In circumstances where HCC was unsuccessful as to liability, it is appropriate for Mr Cleary to be awarded his costs of the appeal less some proportion to fairly reflect HCC's limited success, noting that Mr Cleary made some concessions as to damages.
5. It remains necessary to consider the impact on this conclusion of the further offers of compromise on which HCC relied. In terms of the appeal proceedings, HCC made two offers of compromise after it filed the notice of appeal on 9 November 2023. In support of the alternative costs orders set out at [4] above, it relies only on the offer of compromise dated 22 December 2023, which its solicitors sent to the solicitors for Mr Cleary by email at 12.10am on 22 December 2023, which was the last business day before Christmas (court term having ended on 15 December 2023).
6. The offer of compromise was emailed together with a letter that stated (omitting the formalities): "We enclose by way of service our client's offer of compromise (Offer). The Offer is made pursuant to Rules 20.26 and 51.47 of the [UCPR]. In the event the Offer does not meet the requirements to constitute an offer under Rules 20.26 and 51.47 of the UCPR, then it is made pursuant to the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333. Should this matter proceed to hearing and the respondent be either unsuccessful or obtains an award of damages that is equal to or less favourable than the Offer, our client places the respondent on notice that it will rely on the Offer and this letter to seek an order for the respondent to pay its costs on an indemnity basis pursuant to Rules 42.15 and 51.48 of the UCPR or otherwise."
7. The offer of compromise proposed the following orders for disposal of the claim: "1. Appeal allowed. 2. The judgment and orders made by the primary judge in the court below on 11 August 2023 be set aside. 3. In lieu thereof, judgment for the respondent against the appellant in the sum of $350,000. 4. The appellant to pay the respondent's costs of the proceedings below as agreed or assessed on the ordinary basis. 5. No order as to costs in these proceedings. 6. This offer is open for acceptance for 28 days after the date on which the offer is made. 7. This offer is made in accordance with Rules 20.26 and 51.47 of the Uniform Civil Procedure Rules 2005 (NSW)."
8. At 7.04am that morning, Mr Cleary's solicitors replied to the email from HCC's solicitors, stating that in the absence of any submissions and given the "substantial scope of the notice of appeal", they were not in a position to advise Mr Cleary in respect of the offer. HCC's solicitors replied at 9.46am, stating that the grounds were "clearly outlined in our client's notice of appeal" and asserting that in circumstances where Mr Cleary and his solicitors were present below, they were aware of the issues and in possession of the evidence and submissions and thus had everything necessary to consider the offer and assess its reasonableness.
9. The offer met the requirements of UCPR, r 20.26, which is picked up by UCPR, r 51.47 in relation to proceedings in this court. Rule 42.15(1) is picked up for appeals by r 51.48 of the UCPR for appeals. HCC's arguments regarding the minimal difference between the offer and the judgment (see [15] above) also applied to this offer. As with the offer of 28 April 2023, the rule does not apply in circumstances where Mr Cleary obtained a judgment that was more favourable than the offer. Even if the rule did apply, we would have otherwise ordered within the language of r 42.15(2).
10. HCC's notice of appeal contained 17 grounds of appeal, 15 of which catalogued a series of alleged errors on the part of the primary judge in making various findings of fact and concluding that HCC was negligent and that causation and foreseeability were also established; and two of which catalogued errors with her Honour's award of damages. The grounds did no more than assert such errors, and the covering letter, which we have set out, did not further elaborate. In those circumstances, the point that Mr Cleary's solicitors made in their email to HCC's solicitors at 7.04am, as to their difficulty in assessing the reasonableness of the offer in so far as the appeal was concerned, was well made. By the time HCC filed its written submissions, on 16 January 2024, only three days remained in the period for which the offer was open for acceptance.
11. The Court accepts Mr Cleary's submission that it was not unreasonable for him not to accept the offer of compromise of 22 December 2023. Having regard to the breadth of the notice of appeal, accepting the offer would have involved capitulation as to quantum on his part without an opportunity to receive considered advice as to the strengths and weaknesses, risks and probable outcomes of the grounds of appeal.
12. Although the covering letter referred to the principles in Calderbank, as noted above, it did not attempt to give reasons as to why the offer should be accepted. The only attempt that HCC made to draw Mr Cleary's attention to features of the claim was in its solicitor's letter to Mr Cleary in advance of the trial, dated 28 April 2023, which enclosed an offer of compromise.
13. The Court notes that HCC's solicitors served a further offer of compromise on 14 February 2024. HCC does not make an application for indemnity costs on the basis of this offer. In any event, that offer of compromise, which was made some hours after Mr Cleary served on HCC an offer of compromise, was not open for a reasonable time.

Conclusion

1. The costs orders of the primary judge should not be disturbed. Mr Cleary should have his costs of the appeal, with a reduction to reflect HCC's limited success on damages.
2. Mr Cleary also sought an order that interest be payable on the revised judgment sum from 11 August 2023 (being the date of the primary judge's orders) to date. Section 101(1) of the Civil Procedure Act provides: "Unless the court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid". Rule 36.4(1)(a) of the UCPR provides that a judgment or order takes effect as of the date on which it is given or made, with r 36.4(3) providing that despite, relevantly, subrule (1), the court may order that a judgment or order is to take effect from as of a date earlier or later than the date fixed by that subrule. Referring to r 36.4(3) in Zoef v Nationwide News Pty Ltd (No 2) [2017] NSWCA 2 ("Zoef (No 2)"), Gleeson JA (Ward and Payne JJA agreeing) stated at [39]: "Where a plaintiff obtains an entitlement to an award of damages, or to an increased award of damages, as a result of an appeal court judgment, it is necessary to determine when that entitlement took effect: Najdovski v Crnojlovic (No 2) [2008] NSWCA 281 (Najdovski v Crnojlovic) at [5] (Basten JA, Allsop P and Windeyer J agreeing). There, Basten JA canvassed two possibilities. One is that the judgment takes effect from the date on which it is delivered by the appeal court. The other is that the judgment of the appeal court is back-dated. With respect to the first possibility, Basten JA said that it will usually be appropriate to include an amount by way of pre-judgment interest to cover the period during which the successful appellant has been deprived of the damages since the trial judgment, but that is done by exercise of the power to award pre-judgment interest: Nicol v Allyacht Spars Pty Ltd (1988) 165 CLR 306; [1988] HCA 48 at 312. With respect to the later possibility, Basten JA said (at [5]): If the effect of the judgment is back-dated … [an award of pre-judgment interest] will not be appropriate, but the plaintiff will be entitled to post-judgment interest until the relevant amount is paid."
3. In circumstances where the judgment sum that this Court substituted for that of the primary judge was a lesser amount than the primary judge awarded, on one view it is unnecessary to backdate the order that this Court made on 15 March 2024 (as the amount the subject of this Court's order always formed part of the award of the primary judge). Nonetheless, in the interests of making sure that the operation of the Court's orders for the purposes of post-judgment interest is clear, it is appropriate to make an order confirming the position.
4. Accordingly, the Court makes the following orders: 1. Confirm that order 2 of the orders of the Court dated 15 March 2024 takes effect from 11 August 2023. 2. Order that the appellant pay 75% of the respondent's costs of the appeal.

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