Dr Clark's cross appeal - the issue of indemnity costs
150Again, this issue is academic given my finding that Dr Clark did not suffer any compensable loss with respect to her inability to utilise the 3009 unusable straws of St George sperm.
151When he delivered his primary judgment on 25 October 2011, his Honour reserved the question of the appropriate orders to give effect to his reasons as well as the issue of costs. Those matters were argued on 8 November 2011 and on the same date his Honour delivered the costs judgment with respect to those outstanding issues. A number of submissions were made with respect to costs especially as to who should bear the costs of issues which were abandoned by Dr Clark subsequent to the orders made by Macready AsJ on 9 June 2010. Ultimately, his Honour determined (at [10]) that Dr Clark ought to pay the costs of St George and Dr Macourt of preparing those issues which were not ultimately pressed and he so ordered.
152The primary judge also ordered Dr Clark to pay the costs of St George and Dr Macourt thrown away by virtue of first, the allegations in certain paragraphs of the Cross-Claim which were not pressed or abandoned; secondly, the expert evidence filed by Dr Clark and, thirdly, her failure to read a paragraph of an affidavit which spoke for the first time of selling St George sperm to patients. It should also be remembered that Macready AsJ also made costs orders in favour of St George and Dr Macourt with respect to various allegations in the Cross-Claim relating to the issue of liability which were abandoned before him.
153There then remained to be determined the issue of costs of the proceedings generally excluding the costs the subject of specific orders in favour of St George and Dr Macourt. In this respect, on 29 May 2009 (prior to the issue of liability being dealt with by Macready AsJ), Dr Clark made an Offer of Compromise pursuant to UCPR r 20.26 in which she offered to compromise the proceedings by St George and/or Dr Macourt paying to her the sum of $50,000 plus costs of the proceedings as agreed or assessed. That offer was not accepted. In those circumstances, where the offeror, being a plaintiff or cross/claimant, obtains an order or judgment on the relevant claim no less favourable to the offeror than the terms of the offer (as occurred in the present case), then UCPR r 42.14(2) provides as follows:
(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim:
(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and
(b) 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 . . .
154It was common ground between the parties that given the award of damages in favour of Dr Clark made by the primary judge, she was entitled to have her costs paid on an indemnity basis as and from 30 May 2009 unless the court ordered otherwise. It was also accepted by all parties that the onus lay upon St George and Dr Macourt to demonstrate "exceptional circumstances" in order to escape an order for indemnity costs.
155In Barakat v Bazdarova [2012] NSWCA 140 at [42] to [49], I reviewed the authorities with respect to the requirement of exceptional circumstances and concluded that there appeared to be a conflict of opinion in this Court as to whether it could otherwise order for the purpose of the indemnity costs rule in the absence of such circumstances. However, it is unnecessary to further consider that issue in the present case given the parties agreement to which I have referred.
156It was submitted, and his Honour accepted at [32] of the costs judgment, that in an appropriate case indemnity costs may be avoided if there has been a significant change in a plaintiff's case between the date of the offer and the date of trial. In this context, his Honour cited the decisions of this Court in South Eastern Sydney Area Health Service v King [2006] NSWCA 2 and Nominal Defendant v Hawkins [2011] NSWCA 93; (2011) 58 MVR 362 at [52] and [58].
157At [36] the primary judge found that the changes that had occurred in Dr Clark's case between the date of the offer and trial created circumstances that made it appropriate to exercise his discretion against ordering indemnity costs. His Honour did not descend to any detail as to what precisely those changes were.
158The issue of indemnity costs was the subject of both written and oral argument before his Honour on 8 November 2011. In their written submissions St George and Dr Macourt, after referring to the filing by Dr Clark of the Cross-Claim on 8 September 2008, asserted that she had not served any of the evidence upon which she ultimately relied at the hearing at the time of the making of the relevant offer. Accordingly, it was submitted that St George and Dr Macourt were not in a position to give reasonable consideration to the Cross-Claim as ultimately prosecuted when they did not have the evidence on which Dr Clark would rely at the hearing and it was therefore not unreasonable for them not to have accepted the offer.
159In her written submission on the indemnity costs issue, Dr Clark submitted first, that she had obtained summary judgment in the proceedings on the issue of liability on the basis of admissions made by St George and Dr Macourt that "sperm donor records were not maintained in each case as required" by the terms of the Deed; secondly, that as his Honour found at [21] of the primary judgment, on any view of it Dr Clark had paid twice for the donor sperm; and thirdly, there was a massive difference between the offer to accept $50,000 and the judgment she ultimately obtained of $1,246,025.01.
160In oral argument Dr Clark relied upon the matters to which I have just referred. In their oral submissions before the primary judge, St George and Dr Macourt asserted that there had been a "very significant change to the landscape in the sense that a very great amount of the claim was abandoned by Dr Clark" as reflected in the orders of Macready AsJ. In particular, the only damages claimed after the making of those orders was limited to four sub-paragraphs of the Cross-Claim. Accordingly, a very significant amount of the claim was effectively abandoned subsequent to the making of the offer. It was further submitted that although some affidavit evidence had been served by Dr Clark in 2007, it was all abandoned and she effectively started again. As that evidence was not received until towards the end of 2010, rejection of the offer was not unreasonable.
161Dr Clark responded by submitting that although the issues set out in the Cross-Claim both in respect of liability and damages were reduced "as part of a streamlining" on receipt of the judgment of Macready AsJ, the fact that those matters were cut back did not offer any excuse for unreasonably rejecting an offer of just $50,000. If the claim had been increased or somehow amplified the position might have been different but the dramatic cut back took place at the time of Macready AsJ's summary judgment.
162A matter of some significance neither referred to by the parties nor by his Honour (but in evidence) was a letter from Dr Clark's solicitors accompanying the offer which outlined Dr Clark's reasons for making the offer at the time it was made. That letter was marked "Without Prejudice save as to costs". Those reasons may be summarised as follows:
with respect to the issue of liability, the offer was made because of a number of admissions made by Dr Macourt during cross examination at the hearing of a notice of motion on 4 and 5 May 2009 which admissions made it clear that Dr Clark would be successful in establishing breach of warranty under the Deed;
at the time of the making of the offer Dr Clark had incurred significant legal costs (approximately $1.1 million). Due to the pre-trial procedures adopted by the court and the manner in which the matter will proceed in the future, further legal costs will be incurred by both sides which will be very substantial so that in an effort to avoid those costs and as a commercial compromise, Dr Clark was prepared to accept a small portion of what she believed she would ultimately be awarded in the hope of achieving a prompt settlement;
due to the weaknesses on the issue of liability which were then noted including a list of 11 admissions made by Dr Macourt during cross examination that went to that issue, it was beyond question that if the matter proceeded to trial the court would determine that St George and Dr Macourt breached their obligations to Dr Clark under the Deed;
as Dr Clark was highly likely to obtain a verdict on liability with respect to her Cross-Claim, it was anticipated that a motion would be filed seeking summary judgment. I pause to note that this in fact occurred and summary judgment was, ultimately, by consent entered in favour of Dr Clark with respect to a number of the allegations of breach which she had asserted;
on the issue of damages Dr Clark was entitled to an amount of money which would place her in the same position as if St George had performed its side of the bargain; that is, as if the warranties had been fulfilled. Contrary to the suggestion of St George and Dr Macourt, Dr Clark was not seeking reimbursement of the monies she had paid to Xytex including reimbursement of her estimated future outlay for Xytex sperm, but was seeking damages equating to the cost of compliant replacement sperm [this was the basis upon which the matter was put to the primary judge by St George and Dr Macourt and by the latter on the appeal];
the amount which Dr Clark had in fact expended thus far on Xytex sperm was relevant to the extent that it gave a reasonable indication of the approximate cost of compliant replacement sperm.
163The letter also dealt with a number of the defences which St George and Dr Macourt had raised with respect to Dr Clark's entitlement to damages including an allegation that it was unlawful for her to use Xytex sperm; that there was a 10 year limit on the retention of sperm; and that there had been "betterment" which prevented Dr Clark from seeking damages based on the cost of Xytex replacement sperm. I note that each of these defences were pursued at trial unsuccessfully. It was also pointed out that Dr Clark did not receive any profit from the sale of Xytex sperm. Finally, it was asserted that if the warranties had been fulfilled and if Dr Clark could lawfully have charged her patients the cost for the donor sperm supplied to her by St George, then she was worse off to the extent that, in order to make that charge to patients, she first needed to outlay money to others (such as Xytex) to acquire donor sperm which she was entitled to lawfully use. In other words, she would not have had to outlay money to others to acquire compliant donor sperm, in order to charge a fee to patients, if the warranties had been fulfilled. This argument was also advanced at trial and on the appeal.
164Dr Clark made extensive written submissions on this issue before this Court. She took issue with his Honour's finding at [36] of the costs judgment that the changes that occurred in her case between the date of the offer and date of trial were sufficient to justify the exercise of his Honour's discretion against the making of an order for indemnity costs. It was submitted that not only were those changes not identified by his Honour but in fact there was no material change. Paragraphs 67 to 72 of Dr Clark's written submissions on this issue comprised a great deal of detail to justify the submission that there was no material change. In summary, it was submitted as follows:
although Dr Clark did not rely at trial on her affidavit affirmed on 13 July 2007 but on her affidavit affirmed on 26 November 2010 with respect to the issue of damages, the mere fact of serving affidavits after the offer had been refused could not of itself constitute a relevant change for otherwise there would be no utility in ever serving an Offer of Compromise before all affidavit evidence had been filed and served. This would undermine the purpose of the making of an Offer of Compromise and would be inconsistent with the public interest in encouraging early settlement: Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724D-G; Morgan v Johnson (1998) 44 NSWLR 578 at 581-582;
material in Dr Clark's affidavits upon which she relied at trial fell within the ambit of her pleaded case which had not changed since the Cross-Claim was filed on 8 September 2008;
at the time the offer was served on 29 May 2009 the only genuine issue arising in respect of the Cross-Claim was the assessment of damages; the only relevance of the service of those affidavits after the Offer of Compromise would be if St George and Dr Macourt had no indication at the time of the Offer of Compromise that the damages claimed were likely to be awarded and would likely to be in excess of $50,000;
in fact, at paragraph 432 of Dr Clark's affidavit affirmed on 13 July 2007 it was clear, and St George and Dr Macourt were on notice, that she was claiming damages in the sum of no less than $950,000;
comparison between the 2007 and 2010 affidavits affirmed by Dr Clark demonstrated that the latter to a very large extent replicated the former (so as to make the 2010 affidavit a stand alone document).
165In their written submissions in reply on the issue of indemnity costs, Dr Macourt submitted that as the question of costs was discretionary, it was necessary for Dr Clark to establish that the primary judge in not awarding costs on an indemnity basis made an error of the kind described in House v The King (1936) 55 CLR 499 at 505-506. The only other submission made was that at the costs hearing before the primary judge Dr Clark did not submit that there was no evidence of any significant difference in the evidence that had been served before the making of the offer compared to that served after the offer. None of the other submissions of Dr Clark were challenged; in particular, first, that as was set out in the covering letter from Dr Clark's solicitors accompanying the Offer of Compromise, St George and Dr Macourt's chances of escaping liability were remote; and, secondly, that as the evidence then stood at the time of the making of the offer, it was clear that Dr Clark was claiming damages, based upon the cost of replacement sperm, which in 2007 she had assessed at $950,000.
166It is true that the authorities establish that where a plaintiff's case has changed significantly between the date of the plaintiff's offer and the trial in which judgment is obtained for a higher amount, that change provides a sufficient basis for an order denying the plaintiff's entitlement to indemnity costs because it would otherwise be unfair to the defendant to make such an order when the evidence at trial is different from that known to the defendant at the time of the offer. In the present case the primary judge did not identify those changes. However, the parties were granted leave to file a note identifying those changes. Dr Macourt filed such a document with which Dr Clark generally agreed with some corrections. It revealed (in its corrected form) that the Cross-Claim contained in paragraph 10 some 24 alleged breaches of warranty of which all but five were abandoned or dismissed by Macready AsJ on 9 June 2010. Dr Clark obtained summary judgment for those five on that date.
167The document further revealed that the Cross-Claim claimed damages under six heads of which one was abandoned on 9 June 2010. The other five went to trial of which three were pressed, Dr Clark failing on one and succeeding on two. As I have noted above, his Honour ordered Dr Clark to pay the costs of the three heads of damage on which she failed.
168In oral submissions, Dr Macourt pointed to the fact that had he accepted Dr Clark's offer, he would have had to pay all her costs up to the time of acceptance and which her solicitors in the letter accompanying the offer had estimated at $1.1 million. The relevant rule governing the question of costs where a plaintiff's offer is accepted is UCPR r 42.13A which relevantly provides:
(1) This rule applies if the offer concerned:
(a) is made by the plaintiff and accepted by the defendant, or
(b) . . .
(2) The plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made, unless:
(a) . . .
(b) the court orders otherwise.
169Dr Macourt submitted that had he accepted the offer he would have had to pay not only his own costs but also those of Dr Clark including her costs incurred with respect to allegations in the Cross-Claim which had been abandoned prior to the making of the offer. He further submitted that much of the costs assessed up to that time related to a 270 page answer to particulars sought by St George and Dr Macourt as well as the costs of inspecting a mass of documents discovered by Dr Clark which extended over many days.
170There are a number of problems with this last submission. First, it did not necessarily follow that had he accepted the offer, St George and/or Dr Macourt would have been ordered to pay the whole of Dr Clark's costs to the date of acceptance including those costs relating to claims that had been abandoned pre-offer. An application could have been made to the court for an "order otherwise" pursuant to UCPR r 42.13A(2)(b). Secondly, it would appear from the schedule of abandoned claims provided by Dr Macourt that only two liability allegations had been abandoned when the Cross-Claim was filed on 8 September 2008 and six heads of damage. Thirdly, there was no evidence as to the costs of St George and Dr Macourt which were thrown away by the abandonment of these claims on the filing of the Cross-Claim. The schedule did not suggest that any other claims were abandoned prior to the making of the offer although a number were when the matter came before Macready AsJ on Dr Clark's application for summary judgment. Fourthly, the submission was not made to the primary judge and therefore he cannot be criticised for failing to take into account a matter which was not put to him.
171Accordingly, whether his Honour's discretion miscarried needs to be judged on the basis of the submissions which were advanced before him. In this respect in my opinion his Honour's discretion did miscarry. Although it is true that many allegations of breach of warranty were abandoned and dismissed by Macready AsJ on 9 June 2010, Dr Clark was ordered to pay the costs thrown away by the abandonment of those claims. However, the primary judge failed to take those costs orders into account as relevant considerations when exercising his discretion to "order otherwise". Furthermore, he failed to take into account the costs orders he had made himself against Dr Clark.
172Importantly, his Honour gave no consideration to whether, in all the circumstances then prevailing, it was reasonable for St George and Dr Macourt to reject what was, to say the least, an Offer of Compromise which, given St George's hopeless case on liability and the extremely modest amount of damages which Dr Clark was prepared to accept, would not only have been in the public interest but also in the interest of St George and Dr Macourt.
173In summary, in my opinion the primary judge failed to appreciate that the changes in Dr Clark's case upon which he relied to justify exercising his discretion to refuse an order for indemnity costs were, as Dr Clark submitted, reduced rather than expanded the allegations of breach contained in the Cross-Claim. Her abandonment of many of those allegations as well as of some of the heads of damage claimed did not in my view involve the type of changes to a party's case that would otherwise justify denying Dr Clark an order for indemnity costs given the timing and nature of her offer.
174For the foregoing reasons, I am therefore of the opinion that his Honour's discretion miscarried and that had Dr Clark otherwise succeeded in upholding his Honour's award of damages in her favour, she ought to have obtained an order that Dr Macourt pay the costs of the proceedings on and after 30 May 2009 on an indemnity basis.