HER HONOUR: This costs judgment arises from a dispute between the applicant, Healthscope Operations Pty Ltd and the respondent, Dr David Page. The application was brought by Notice of Motion following the substantive proceedings which were determined in the applicant's favour. For consistency and clarity, I will refer to the parties as they were in the substantive matter - that being, the applicant as the defendant and the respondent as the plaintiff.
By an amended Statement of Claim filed in this Court on 8 July 2016, the plaintiff claimed that the defendant was in breach of contract and claimed damages in excess of 2.5 million dollars flowing from the breach. The defendant disputed the claim and denied the existence of a contract in the nature claimed by the plaintiff.
The plaintiff is a specialist anaesthetist who was accredited to work, and did work, on a regular basis at the Norwest Private Hospital, which is owned and operated by the defendant.
The matter came before me on 1 November 2016: Page v Healthscope Operations Pty Ltd [2016] NSWSC 1608. On that occasion, the Court was asked to consider and determine two preliminary questions in accordance with r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), prior to and separate from any further proceedings to hear and determine the plaintiff's claim for breach and subsequent damages.
On 1 November 2016 the Court made orders determining the two questions. The order was made at the request, and with the consent, of the parties, since it was agreed that determination of those questions would decide whether or not the plaintiff had a case to bring against the defendant.
The questions were formulated in the following way:
1. Whether the plaintiff's re-accreditation by the defendant in April 2012 gave rise to a contract between the parties to the effect of the contract pleaded in paragraph 5 of the Amended Statement of Claim?
2. If the answer to (1) is yes, whether the contract included the express terms pleaded in each of sub-paragraphs 6(a) to (g) of the Amended Statement of Claim, or terms to the same effect?
I determined the first question in the following way:
"[79] Having considered the evidence, I have concluded that the reaccreditation agreement was an agreement in the nature of a conditional license granted by the defendant to the plaintiff, such that the plaintiff was accredited to enter the Hospital and provide therein medical services within his area of expertise, subject to a separate authority from the General Manager so to do. The accreditation did not give rise to a contract, and did not contractually oblige the defendant to enforce the Code of Conduct and associated policies for the plaintiff's benefit.
[80] It did not give rise to a contract between the parties to the effect of the contract pleaded in paragraph 5 of the Amended Statement of Claim.
[81] Accordingly, Question 1 must be answered No."
The second question posed was to be dealt with if the answer to the first question was in the affirmative; since it was not, the second question became redundant.
The Court made the following orders on 16 November 2016:
(1) Question 1: The answer to Question 1 is No.
(2) Question 2: The answer to Question 1 being in the negative, Question 2 requires no answer.
(3) The Amended Statement of Claim filed on 8 July 2016 is dismissed.
(4) Costs in favour of the defendant.
On 30 November 2016, the defendant filed a Notice of Motion that sought an amendment to the costs order made on 16 November. The orders sought are:
"(1) Order 4 made on 16 November 2016 be varied such that the Plaintiff is ordered to pay the Defendant's costs up to and including 2 June 2016 on the ordinary basis and from 3 June 2016 on an indemnity basis.
(2) Costs.
(3) Such further or other order as the Court deems fit."
The Motion was to be determined on the papers and, to that end, a timetable for the filing of evidence and submissions was fixed:
• 23/03/2017 - Defendant to file and serve evidence and any submissions upon which they rely;
• 09/03/2017 - Plaintiff to file and serve submissions in reply
On 23 February 2017, the defendant filed its submissions and reserved its right to respond to the plaintiff.
On 8 March 2017, the plaintiff sought an extension of time for his submissions in reply. The request was granted as he was still waiting on unproduced documents from the defendant pursuant to a notice to produce served on 20 February 2017. The plaintiff was ordered to file and serve his submissions in reply seven (7) days after those documents had been provided in response to the notice to produce.
On 5 April 2017, there had been no material filed on behalf of the plaintiff. The parties were informed that the Motion would be determined with regard to any material filled by the parties by 4pm, 26 April 2017.
On 13 April 2017, the plaintiff filed his written submissions in reply; the defendant filed further submissions in reply on 26 April 2017.
The defendant asked the Court to vary the costs order relying on one of two bases:
1. In accordance with r 42.15A UCPR: because the judgment obtained was no less favourable than an Offer of Compromise (OOC) served on the plaintiff's solicitors on 2 June 2016 which was rejected on 4 June 2016; or
2. On a basis that Dr Page unreasonably failed to accept a Calderbank letter sent on 4 June 2016 to the plaintiff's solicitors.
[2]
Offer of Compromise
The defendant has informed the Court by way of written submissions in these proceedings that the plaintiff's solicitor was served an OOC by email on 2 June 2016 which was in the following terms:
"(1) Judgment in favour of the Defendant, namely, the Plaintiff's claim is dismissed.
(2) No order as to costs."
This type of OOC is what is generally referred to as a "walk away" offer where an offeror expresses a willingness to settle the matter on the basis that each party bears their own costs. A walk away offer is able to be made in an OOC pursuant to r 20.26(3)(a)(i) UCPR.
An OOC can enliven r 42.15A of the UCPR which is (relevantly) as follows:
"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 term "offer" in r 42.15A in accordance with r 42.13 means an offer of compromise made under r 20.26 UCPR.
The defendant's application is made as it obtained an order no less favourable to the terms of the OOC. Having satisfied the conditions set out in r 42.15A, it submits that it is entitled to the orders sought in the Notice of Motion.
There is no issue that the defendant obtained a judgment no less favourable than the terms of the offer. The plaintiff however, submits that the OOC was not a genuine offer of compromise and therefore, indemnity costs cannot attach to the OOC as r 42.15A is not in fact enlivened. He further contends that, if the Court finds that r 42.15A is enlivened, that the Court should depart from the prima facie position of awarding indemnity costs and "otherwise order" in favour of the plaintiff.
An OOC made under the UCPR must involve a 'genuine offer of compromise' in order for an indemnity costs order to be attached. The test is an objective one and must be in reference to the circumstances in which the offer was made: Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [41], [42]; Fabre v Lui (No 2) [2015] NSWCA 312 at [6]-[8]. If an offer is a procedural move to trigger costs consequences rather than a genuine attempt at settlement, then it cannot be a genuine offer of compromise: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [39]; The Uniting Church v Takacs (No 2) [2008] NSWCA 172 at [14].
A walkaway offer is capable of, but will not always constitute a genuine offer of compromise which will successfully trigger the operation of r 42.15A: Leach (No 2) at [50]-[51]; Townsend v Townsend (No 2) [2001] NSWCA 145.
It is the plaintiff's position that the OOC was not a genuine offer of compromise as the offer involved the capitulation of the plaintiff's entire claim in exchange for the defendant forgoing its costs incurred up to that point. The actual costs at the time were unknown to the plaintiff but have since been quantified at approximately $31,469 (ex GST). The plaintiff further contends that this offer had the "flavour of being made to trigger costs consequences rather than a genuine attempt to reach settlement" (plaintiff submissions [5]).
A genuine offer of compromise is both fact dependant and a matter of impression: Prospect Resources Ltd v Molyneaux [2015] NSWCA 171 at [92] & [94]. A walk away offer where the parties agree to settle on the grounds where each party bears their own costs is capable of being a genuine offer of compromise: Leach (No 2) at [50]-[51]; GIO General Ltd v ABB Installation and Service Pty Ltd [2000] NSWCA 118. UCPR r 20.26(3)(a)(i) enable's a walk away offer to be made in an OOC: Shepis v Commonwealth of Australia [2013] NSWCA 354 at [33].
The defendant's offer cannot be said to have been a disingenuous offer of compromise on the facts. It is true that the offer was sent to the plaintiff's solicitors at the same time as a Calderbank letter and another letter which outlined the difficulties the plaintiff faced in bringing the claim. The facts of the case were well known to both parties at that point.
The defendant's offer to forgo party/party costs for the capitulation of the plaintiff's claim is distinguished from the facts of SWM Financial Services Pty Ltd v Lloyd (No 2) [2012] NSWSC 202, an authority on which the plaintiff relies to show that the defendant's offer was not a genuine compromise. The facts of that case, as opposed to this matter, were that a "walk away" offer was made by an ultimately successful defendant who was not awarded indemnity costs as the offer invited capitulation which was found to have not constituted a genuine offer of compromise. That offer however, distinguished from the facts in this case, was essentially made shortly after the beginning of proceedings with both defendants conceding that the costs would have been minimal at that stage. In this matter, the offer was made after the proceedings had been on foot for approximately six months and substantial fees had been incurred by both parties.
I am satisfied that the defendant's offer was genuine and contained the necessary element of compromise. The defendant offered to forgo the not insubstantial costs that it would have otherwise been entitled to. There are many examples, where, on the facts and impression of the matter, an offer to forgo costs has been sufficient to satisfy the element of compromise: Leach (No 2) at [43]-[44]; Taheri v Vitek (No 2) [2014] NSWCA 344 at [12]-[13]; Mega-top Cargo Pty Ltd v Money tech Services Pty Ltd [2016] NSWCA 3; Hart Security Australia Pty Ltd v Boucousis (No 2) [2014] NSWSC 1815 at [7].
Accordingly, I am satisfied that r 42.15A UCPR is enlivened and that the Court has discretion to order indemnity costs in accordance with that rule, the prima facie position being that, unless the Court otherwise orders, the defendant is entitled to costs on an indemnity basis.
The general principle is that there must be exceptional circumstances in order to justify a departure from this prima facie position: Amaca Pty Ltd v Mathwin [2005] NSWCA 364; Morgan v Johnson (1998) 44 NSWLR 578 at 581-582. In Houatchanthara v Bednarczyk [1996] NSWCA 253, Clarke JA (with Handley JA and Santow AJA agreeing) expressed that:
"[i]t is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk." (2)
The plaintiff submits that the Court should in its discretion depart from the prima facie position and "order otherwise" in this case for two reasons:
1. the defendant's offer failed to include the necessary element of compromise as required and did not include an element of compromise as required: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368; and
2. the defendant's walk away offer can only successfully trigger an entitlement to indemnity costs if the claim approached "something of the character off being frivolous or vexatious": Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [31] cited and followed in Leach (No 2) at [51].
Whilst there is no exhaustive list of circumstances in which the Court can exercise its discretion in relation to displacing the presumption for ordering indemnity costs and "order otherwise", three broad categories have been established (Leach (No 2) at [48] per McColl JA - Gleeson JA and Sackville AJA agreeing - citing New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 (at 102). Those categories are:
1. the offer did not involve any compromise;
2. the rejection was not unreasonable; or
3. the period for acceptance was unreasonable.
The plaintiff's position as to why the Court should "otherwise order" relies upon the first of these categories, in that the offer did not involve any compromise. I have already concluded that the defendant's walk away offer was a genuine offer of compromise and I am satisfied that it enlivened r 42.15A UCPR.
However, it is not enough to show that the offer of compromise was genuine, in order for walk away offers to trigger a successful award of indemnity costs under r 42.15A, the claim would, as the plaintiff submits, have to "approach something of the character of being frivolous or vexatious": Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [31] cited and followed in Leach (No 2) at [51].
The availability of indemnity costs are considered a useful case management tool in that they can facilitate and encourage settlement and can limit hopeless cases from being litigated. The defendant submits that the plaintiff's claim was hopeless and there is evidence to support that position in the letter outlining the meritless basis of the plaintiff's claim which accompanied the OOC. Furthermore, the defendant submits that there was in fact no authority to support the plaintiff's claim and for that, the claim did in fact approach something of the character of being frivolous or vexatious.
The fact is that the defendant took a number of interlocutory steps in the six months prior to the OOC being made - these steps included: filing a defence to the initial statement of claim; reviewing the plaintiff's GCM document and preparing the defendant's GCM document; reviewing the plaintiff's 376 page evidentiary statement and preparing a statement of issues in dispute; attending two directions hearings; and participating in the making of consent orders.
I consider that the claim for damages brought by the plaintiff was of such a character that indemnity costs should be allowed. The damages claimed by the plaintiff were substantial and his case had limited prospects of succeeding - particularly as it was conceded at the hearing, and was known to the plaintiff at the time of the offer, that the loss of work that the plaintiff complained of was as a consequence of a decision made by Dr Yee and not attributable in any way to the defendant's conduct. It must be relevant to note here that the plaintiff is still accredited to practice and does so at Norwest Hospital, although not on Dr Yee's surgical list.
[3]
Calderbank Offer
I do not propose to deal with this aspect of the application as I have already determined that the defendant is successful on the first basis advanced, that being the Offer of Compromise.
[4]
Orders
I make the following orders:
1. Order 4 made on 16 November 2016 be varied as follows: The plaintiff is to pay the defendant's costs up to and including 2 June 2016 on the ordinary basis, and from 3 June 2016 on an indemnity basis.
2. Costs of this motion on an ordinary basis in favour of the defendant.
[5]
Amendments
02 June 2017 - cover sheet: solicitors' changed to reflect correct representation
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 02 June 2017