Monique Frances King v SESAHS & Anor

Monique Frances King (Plaintiff) PARTIES : South Eastern Area Health Service (1st Defendant) Richard O'Gorman-Hughes as Executor of the Estate of the late Professor Darcy O'Gorman-Hughes (2nd Defendant)

D.Higgs SC with D.Graham (Plaintiff) COUNSEL : D. Davies (Defendant's)

Turner Freeman Solicitors (Plaintiff) SOLICITORS : Tress Cocks & Madddox Lawyers (Defendant's)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

JUDGMENT 1 HIS HONOUR: This is an application for indemnity costs bought on behalf of the plaintiff. On 8 April 2005 I delivered a judgment in which the plaintiff was awarded the sum of $7,000,000 damages. 2 The application for indemnity costs is made on two alternative bases. 3 The first of those bases is an offer of compromise made pursuant to Part 52A rule 22(4) of the Supreme Court Rules. That offer of compromise was one in which the plaintiff agreed to settle the matter by accepting the sum of $2,350,000, plus costs. It was contained on an appropriate form, filed with this court, and, I gather, served on the defendant's on 9 July 1999. The offer was to remain open for 28 days from 9 July 1999. It is common ground that the defendant's made no response to this offer. 4 The second basis upon which the plaintiff relies in its application is an offer made on 31 January 2005 to settle the matter for the sum of $6,000,000, plus costs. This offer was made by way of a letter written by the plaintiff's solicitors to the defendant's solicitors. The offer was open for acceptance until 4.30pm on Friday 4 February 2005 and was expressed to be made in accordance with the principles set out in Calderbank v Calderbank (1976) FAM 93. Again it is common ground that no response was made to this offer within the time frame set by the letter. It is appropriate to note that the trial itself commenced on 7 February 2005 and then, with breaks, went until 16 March of this year. 5 I turn first to the offer of compromise. Part 52A Rule 22(4) is in the following terms :- "Where an offer is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall, subject to rule 33, be entitled to an order against the defendant for the plaintiff's costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to his costs incurred before and on that day, assessed on a party and party basis." 6 It is trite law that the wording of Part 52A Rule 22(4) gives rise to a presumptive entitlement to indemnity costs should a defendant not accept the offer of compromise made pursuant to the rule (see Morgan v Johnson (1998) 44 NSWLR 578 at 581-2). However, as a matter of law the matter does not end there. In Morgan v Johnson the Court of Appeal expressly approved of what had earlier fallen from the Court in Maitland Hospital v Fisher (No.2) (1992) 27 NSWLR 721. There at 725 it was said: "The rule does no more than to oblige litigants, and those advising them to consider realistically, upon the best information available to them, the prospects of success and the likely outcome of the litigation. Where, in the particular circumstances, the litigant or its advisers misjudged the prospects of success or miscalculate the outcome, their mistake may be warranted on the material which they had available. Alternatively, it may be no more than a miscalculation in a case with large imponderables where the course they took was nonetheless perfectly reasonable. Litigation is inescapably chancy. The purpose of the rule is to put a rule (sic) a premium on realistic assessment of cases. It is not to demand perfect foresight which is denied even to the Judges. That is why a discretion is retained, under the rule, for the Court to order otherwise than as the rule provides." 7 At the time when the offer of compromise was made the plaintiff was then relying upon the Statement of Claim as had been amended on 6 October 1995. That Statement of Claim did incorporate an allegation that the defendant's had failed to take into account what was described as IRS III, as amended, by Particular J of the Particulars of Negligence contained in the Statement of Claim as it then stood. 8 What is contended for by the defendant's in opposition to the application is that the defendant's, in not responding to the offer of compromise, were acting reasonably. It was the defendant's submission that on the information then available to the defendant's there was a good prospect that the defendant's would defeat the plaintiff's claim. At the time of the offer of compromise the following reports had been served upon the defendant's by the plaintiff's :-

2. Two reports of Dr Martin Berry of 17 November 1992 and 17 September 1996,

3. A letter from Professor Bleyer of 15 May 1990, and

4. Two reports from Dr Steven Vaughn, which were not relied upon at the trial. 9 Professor Bleyer's letter of 15 May 1990 was one in which he expressed his views as to why it was that the plaintiff had become quadriplegic. That letter, in my view, did not contain any criticisms of the treatment afforded. Indeed, in the defendant's possession at the time was a response, by way of a letter, from Professor Bleyer to a letter written by the defendant's then solicitor's which, on a fair reading, would indicate that Professor Bleyer did not believe that Professor O'Gorman-Hughes, nor for that matter the hospital, had been negligent. That letter was written on 21 June 1995. It was only after the expiration of the offer of compromise that reports were furnished from Professor Bleyer in which he advanced the view that either Professor O'Gorman-Hughes, or the hospital, had been in breach of duty. 10 Dr Berry's reports contained reference to articles concerning the administration of intrathecal chemotherapy which were published after the cessation of the plaintiff's treatment. 11 Furthermore, at the time, Professor O'Gorman-Hughes was still alive. It was his contention that he had at all times carried out treatment of the plaintiff in accordance with medical standards as he appreciated them at the relevant time. Indeed, my findings, as expressed in the judgment, were supportive of Professor O'Gorman-Hughes' views. 12 In my view, on the material then available to them, the defendant's assessment of the prospective outcome of the litigation was warranted. Accordingly, I am of the view that this is a case where I should exercise my discretion and decline the application for indemnity costs, in so far as it is based upon the offer of compromise. 13 I turn now to the matter of the Calderbank offer. In Leichhardt Municipal Council v Green [2004] NSWCA 341 Santow JA, having reviewed the authorities in England dealing with the concept of offers to settle of the Calderbank type, dealt with the distinction between offers of compromise made pursuant to the Rules and Calderbank offers as follows :- "There are some distinctions between the two procedures in their attendant costs consequences. A key difference is that where an offer of compromise has been made under the Rules, a prima facie entitlement arises in the relevant party to have costs awarded in accordance with the appropriate Rule. This entitlement, though subject to the Court's discretion to prevent substantial injustice in exceptional cases, will rarely be interfered with: District Court - Practice Note 42; Supreme Court - Hillier v Sheather (1995) 36 NSWLR 414 and Morgan v Johnson (1998) 44 NSWLR 578. By contrast, the costs consequences attendant under general law upon an offer of compromise made in a Calderbank letter lie within the discretion of the Court, to be exercised having regard to all the relevant circumstances of the case: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] per Giles JA; affirmed in Jones v Bradley (No 2) (supra) at [9] per curiam. It is not the case that unaccepted offers of compromise by Calderbank letter should give rise to a prima facie presumption of indemnity costs if the offer is not bettered. Despite such differences, the two procedures should be regarded as being directed to the same ends. It is relevant for a Court considering a Calderbank offer to consider the various Rules of Court concerning offers of compromise when exercising its discretion regarding costs, although the Court's discretion is not constrained by those rules: Jones v Bradley (No 2) at [13] per curiam." 14 In MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 707, there Lindgren J adopted what had fallen from the Federal Court on this question in two cases, namely, John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201 and Sanko Steamship Co Ltd and Grand Slam Enterprise Corp v Sumitomo Australia Ltd (Fed C of A, 7 February 1996, unreported), a decision of Sheppard J. At 710 Lindgren J summarised the findings in those cases as follows :- "In John S Hayes , Hill J declined to order indemnity costs in favour of a respondent, noting that the case was not one in which the applicant had had "no chance of success": at FCR 206. His Honour concluded that it was not "so unreasonable" (at FCR 207) for the applicant to have brought and continued its case against the respondent that indemnity costs should be ordered. Similarly, in Sanko Steamship Co Ltd and Grand Slam Enterprise Corp v Sumitomo Australia Ltd (Fed C of A, 7 February 1996, unreported) (Sanko), Shepard J said that recovery of costs on the usual party and party basis should "only be departed from where the conduct of the party against whom the order is sought is plainly unreasonable " (emphasis supplied): p9. Ultimately, Lindgren J concluded as follows :- "Clearly, the circumstances must take a case out of the "ordinary" or "usual" category if an order for indemnity costs is to be made, since, as noted earlier, the rules evince an intention that in that category of case, an order for costs signifies an order for costs on a "party and party" basis. Perhaps the various "tests" which have been suggested are classifiable as "abuse of process", "ulterior or extraneous purpose" and "unreasonableness" tests. Be this as it may, I have concluded that none of the formulations to which I have referred encompass the present case." 15 In Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd and Anor (FCA 11/02/98) Lehane J observed as follows :- " This is not a case to which O23 r11 applies: the offers concerned were made by respondents who were wholly successful and are in any event entitled to an order for costs in their favour. The question is to be decided as a matter of discretion, to be exercised having regard to all the circumstances and in the light of the authorities concerning the effect to be given to Calderbank offers. Underlying that line of authority is, undoubtedly, a policy of the law in favour of the sensible compromise of disputes. That policy is promoted if a party who rejects a genuine and realistic offer of compromise risks an order for indemnity costs if it refuses the offer and ultimately obtains a result no better than that which it would have got by accepting the offer. Its promotion, however, does not in my view require that an applicant who receives any offer and rejects it be at risk of an order for payment of indemnity cost should the applicant ultimately fail to obtain any relief because it fails to make good the cause of action on which it relies. There is, after all, a policy also against deterring parties from pursuing claims to which they reasonably believe themselves entitled. A case - particularly a complex commercial case - in which there is room for substantial argument, and opposing views, about issues going to liability is by no means uncommon. Nor is it uncommon in such a case that an applicant, if it makes good the elements of its cause of action going to liability, will be entitled to substantial damages. The Calderbank policy by no means necessarily requires, in such a case, that the applicant, if ultimately unsuccessful, be required to pay indemnity costs because it rejected an offer of a small fraction of the amount which it claims. It may be - perhaps is likely to be - otherwise where the offer is a commercially realistic one made upon a sensible and informed assessment of the prospects and risks of the litigation on each side. Considerations of that kind explain, no doubt, the course of authority in this court which measures the weight to be given to a Calderbank offer having regard to its terms and to the other circumstances of the litigation, including the relative strengths and weaknesses of each party's case as they might have been apparent to the parties when the offer was made: see, for example, John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201 at 205-207; MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 4) (1996) 140 ALR 707 at 711-713. That approach is reflected in the judgment of Shepard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, particularly in his Honour's identification, among circumstances which have been thought to warrant the exercise of the discretion to award costs on an indemnity basis, "an imprudent refusal of an offer to compromise" (at 233). It is reflected also in the decision of the full court in Donnelly v Edelsten (1994) 49 FCR 384 at 395, 396. It may be that a somewhat different approach has found favour in the Supreme Court of New South Wales(see particularly Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425); in my view, however, I should follow the well established course of authority in this court." 16 I should add that Rolfe J's decision in Multicon was referred to by Santow JA in Leichhardt Municipal Council v Green. There Santow J observed as follows :- "It is respectfully submitted that there is no principle of law or persuasive policy reason why a defendant's unaccepted offer of compromise made by Calderbank letter should give rise to costs sanctions on any basis different to that provided by the Rules. Under the rules, such costs would only be awarded in exceptional circumstances if the court " otherwise orders". For the Court to depart from the general rule there must be particular grounds on which the Court can exercise its discretion; Hillier v Sheather (1995) 36 NSWLR 414. A defendant must resort to showing that the plaintiff's rejection of the offer was "unreasonable" under the general law; Multicon Engineering Pty Ltd v Federal Airports Corp (19960 138 ALR 425. That discretion is to be exercised in all the circumstances of the case; SMEC Testing Services Pty Limited (supra) at [37] per Giles JA affirmed in Jones v Bradley (supra) at [9]. Indemnity costs do not flow as a matter of course from unaccepted defendant offers. The conclusion that indemnity costs should not be viewed as a necessary or automatic consequence of not accepting a defendants offer does not in any way deny the general discretionary power of the Court regarding costs in such circumstances. It merely recognises that, influenced but not bound by the rules, a Court will be reticent to award such indemnity costs following defendant offers of settlement. It cannot be forgotten that the power to award indemnity costs is within the Courts general discretion in any event (see s148AB District Court Act 1973 s76(1)(c) Supreme Court Act 1970. It is preferable to consider applications for indemnity costs following unaccepted offers of compromise by defendants as being applications for a favourable exercise of the Court's general discretion to award indemnity costs. As far as Calderbank offers go there is very little difference, the cost consequences of these lying entirely within the Court's general inherent discretion on costs. Nothing said in GIO General Ltd v ABB Installations & Service Pty Ltd (supra) derogates from this conclusion. The Court there merely held that the trial judge's discretion not to award indemnity costs was not appellably erroneous. The decision of Dunford J in Bishop (supra) and Mckerlie (supra) can be regarded likewise. The authorities ( especially Jones v Bradley ) emphasise the width of the discretion and the unusual nature of the award of indemnity costs in relation to Calderbank letters. The circumstances warranting favourable exercise of the discretion were considered by Sheppard J in Colgate-Palmolive v Cussons (1993) 118 ALR 248 to include: "a) The making of allegations of fraud knowing them to be false, and the making of irrelevant allegations of fraud; b) Evidence of particular misconduct that causes loss of time to the court and the other parties; c) The fact that proceedings were commenced for some ulterior motive; d) The fact that the proceedings were commenced in wilful disregard of known facts or clearly established law; e) The making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions; f) An imprudent refusal of an offer of compromise; g) An award of costs on an indemnity basis against a contemnor; 17 I should observe that the offer of compromise contained in the plaintiff's letter of 31 January 2005 was, in my view, a genuine offer of compromise. At the time, the plaintiff's claim for damages, as particularised, exceeded $10,000,000. In the event, in the week after the trial had commenced, the parties agreed the plaintiff's damages in the sum of $7,000,000. Accordingly, I have no doubt, that an offer to settle for $6,000,000 was a genuine offer of compromise. 18 Adopting the principles falling from Leichhardt Municipal Council v Green and the other authorities to which I have referred, I am of the view that the plaintiff has not established the criteria which those authorities have indicated are to be considered when the court exercises its discretion to award indemnity costs following an offer made in a Calderbank letter. 19 During the course of the argument reference was made to the fact that an adjournment of some length was created during the trial because of the necessity of Professor Bleyer returning to America and indeed, as did Professor Hass-Kogan. In my view the defendant should not be ordered to pay costs which flowed from the return of both these experts to the United States, and their subsequent return to this country. However, as part of the time expended during the adjournment was utilised by the parties to agree damages, I am of the view that the plaintiff should not be required to forgo all her costs incurred during that time. However, it seems to me that this is not a matter for a judge to analyse, but a taxing officer. 20 I do not believe that it is appropriate at the moment for me to deal with the question of interest on costs - that in my view should await another day. 21 The order I make is that plaintiff's application for indemnity costs is refused and the plaintiff is to pay the defendant's costs of the application.

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.