In these circumstances, the plaintiff maintains that it is entitled to an order for costs on an indemnity basis at least from 24 November 2000.
29 The powers and discretions of the court to order costs are contained in s 76 of the Supreme Court Act. Relevantly, those powers and discretions are to be exercised subject to and in accordance with Part 52A of the Supreme Court Rules. Rule 22 of Part 52A provides in sub-paragraph 4, that 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.
30 The powers conferred on the court by these provisions of the Supreme Court Rules (and like provisions in the District Court) have been examined by the NSW Court of Appeal. Morgan v Johnson (1998) 44 NSWLR 578 dealt with three appeals, which were heard concurrently. In each case a plaintiff injured in a motor accident had obtained a modest verdict following a hearing in which liability was not or had ceased to be an issue. In each case the verdict fell well below the sums previously offered by the defendant by way of settlement offers. Consequently, the Court of Appeal was considering the District Court equivalent of Part 52A rule 22(6). At p 581 Mason P said: -
"The leading cases on the Supreme Court Rules are Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 and NSW Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100. The leading cases on the corresponding provision in the District Court Rules are Hillier v Sheather (1995) 36 NSWLR 414, Quach v Mustafa (Court of Appeal, 15 June 1995, unreported) and Houatchanthara v Bednarczyk (Court of Appeal, 14 October 1996, unreported). The following principles can be extracted:
(1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital (at 725-726); Hillier (at 421, 431).
(2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital (at 724).
(3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: NSW Insurance Ministerial Corporation v Reeve (at 102); Hillier (at 422). This is because, from the time of non-acceptance "notionally the real cause and occasion of the litigation is the attitude adopted by (the party) which has rejected the compromise": Maitland Hospital (at 724); see also Hillier (at 420).
(4) Lying behind the rule is the common knowledge that "litigation is inescapably chancy": Maitland Hospital (at 725). For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve (at 102-103). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102). As Clarke JA expressed it in Houatchanthara (at 2-3):
"The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case.
It 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 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 a 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."
(5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital (at 725-726). Reasons must be given for "otherwise ordering": Hillier (at 419); Quach."
31 In NSW Ministerial Insurance Corporation v Reeve (1997) 42 NSWLR 100 Gleeson CJ (with whom Clarke JA and Cripps JA agreed) said at 102 line D: -
"The authorities to which I have referred contain some discussion of the availability of the discretion which is conferred by Part 52 rule 17(4), and this is done in the context of a recognition that in an ordinary case where an Offer of Compromise has been rejected by a defendant and the plaintiff has obtained more than the amount for which the plaintiff was prepared to compromise, the defendant should pay indemnity costs from the time specified in the rule.
It is impossible exhaustively to state the circumstances in which a discretion to contrary effect might be exercised, and it would be imprudent to attempt any such exhaustive statement. However, I do not read Maitland Hospital v Fisher (No 2) as authority for the proposition that a discretion should be exercised against making an order for indemnity costs in any case in which it was reasonable for the defendant to take the view that it had a good chance of successfully defending the action. The prima facie consequence, which will apply in the ordinary case, is that in the circumstances postulated by the rule an order for indemnity costs will be made."
32 Mr Brereton SC advanced a number of reasons why, in his submission, the court should "otherwise order" in relation to the prospect of indemnity costs. First, he referred to a statement in Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at p 725 line D: -
"The decision to award or withhold indemnity costs where a plaintiff's settlement offer has been made but not accepted, involves a discretion to be exercised by reference to all of the circumstances of the case, not by applying a fixed mathematical formula."
33 Read in context, however, this statement does not, in my opinion, advance the defendant's position. It is clear that the statement was made at the conclusion of a paragraph where the court had been discussing the fact that the difference between the Offer of Compromise and the judgment was a small amount, namely 2.5% of the judgment sum. Further, at p 725 line F the Court 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. … The purpose of the rule is put a premium on realistic assessment of cases. It is not to demand a 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. But the ordinary provision is expected to apply in the ordinary case. It has added a new duty to the functions of legal practitioners advising litigants. It is a duty, which is both protective of the interests of litigants and of the public interest in the prompt and economical disposal of litigation. It is the duty of courts, allowing for exceptions in particular cases, to give effect to the purpose of the rule: see C. F. Larkin McDonald & Associates v Mahoney (Queensland Court of Appeal, 24 June 192, unreported)."
34 Secondly, Mr Brereton addressed the issue of the late admission of liability. He pointed to the fact that there was obstetrical evidence from Dr Keogh, which supported Dr Diamond's management of the plaintiff's delivery. In turn, there was the evidence of Dr Diamond himself who plainly did not think he was negligent in the circumstances. Mr Brereton argued that the admission of liability in fact was a substantial compromise on Dr Diamond's part and was one which effected a considerable saving in the cost of the trial.
35 Thirdly, Mr Brereton tendered a schedule of the plaintiff's expert reports. These showed that after 23 November 2000 there were some 65 reports and/or notes served by the plaintiff on the first defendant. These were reports relevant to the issue of quantum. Mr Brereton argued that this substantial body of evidence relating to the plaintiff's case on quantum was served after the exchange of offers of compromise. It could not be said, so the argument ran, that having regard to the way in which the evidence developed after November 2000, the rejection of the offer of $10,500,000 was unreasonable.
36 In this context, Mr Brereton also pointed to the fact that the defendant's own offer of $8,500,000 was of a greater amount than had ever been awarded in this type of litigation before. Dr Diamond's offer was above the established high mark in this type of litigation. While Mr Brereton conceded that the plaintiff had obtained more than the amount of her offer dated 24 November 2000, it was relevant to note that the defendant started from a position above the previous milestone and, as well, the plaintiff's position was yet again higher.
37 Fourthly, the first defendant points to the fact that it had a substantial measure of success on the issue of life expectancy.
38 Fifthly, Mr Brereton referred to the fact that negotiations continued between the parties even during the hearing in relation to the life expectancy issue. A bundle of documents was tendered as Exhibit 2 on this aspect of the costs argument. Mr Brereton argued that the fact that reasonable settlement negotiations were undertaken and pursued during the trial and that the plaintiff was continuing to maintain a position on life expectancy above that which was ultimately determined in her favour is relevant to the issue of indemnity costs.
39 A further matter relied upon by Mr Brereton was the fact that in a recent decision (Beck v State of New South Wales & Anor [2000] NSWSC 278) the court had allowed the costs of future care on the basis of the reasonable costs of a house couple. Mr Brereton said that this entitled the defendant to proceed on the basis that this was a likely albeit, not a guaranteed outcome.
40 Finally, Mr Brereton submitted that when the whole of the circumstances were examined it could not be said that the defendant had acted so unreasonably in defence of the proceedings as to warrant an order for indemnity costs. Mr Brereton submitted that this was the appropriate test to be applied and he referred to the observations made by Higgins J in Lipovac v Black & Ors (ACT Supreme Court unreported, 17 January 1997). His Honour said at p 18: -
"Nevertheless, I have to find before ordering costs on a more favourable than usual basis that the third defendant acted unreasonably or imprudently so that a costs sanction is appropriate. Then a question arises as to the extent of that costs sanction.
The burden of persuasion as to that proposition rests with the plaintiff. In some cases that persuasion may follow ineluctably from the refusal of or to make a reasonable offer. However, the issues in this case were far from clear and it is not clear to me that the plaintiff's offers of settlement, though reasonably made, were unreasonably or imprudently refused."
41 Mr Levy responded to these submissions. He accepted that the present case was an unusual one in the sense that it involved, because of the plaintiff's unique situation, a higher level of damages than had been encountered in previous litigation. Mr Levy said this fact did not justify the defendant's actions in adopting the position taken. The defendant had treated the plaintiff as if she were in the category of all other cases and did not recognise the truly unique situation she occupied and the influence this must have on the level of damages in relation to each of the individual heads of damage.
42 So far as the schedule of reports was concerned, Mr Levy made a number of points. The first was that the plaintiff's case had always been that her life expectancy was normal or near normal. Dr Shavelle's first report was served after the Offer of Compromise was made. A significant number of the plaintiff's reports prepared after November 2000, were reactive to the life expectancy issue, which was introduced late in the piece by the defendant. Secondly, a number of the reports (for example, from items 56 to 67) were purely historical material served for the purpose of filling in the gaps in the historical narrative. Thirdly, the reports from items 35 to 56 were either in the nature of update reports or reports, which focussed by way of reaction to the defendant's newly emerged case on life expectancy.
43 Finally, Mr Levy argued that the first defendant failed to recognise the significance and magnitude of the plaintiff's case on quantum. The plaintiff's offer of $10,500,000 represented a substantial compromise on the possibilities. The issue of public policy he identified was that parties should undertake more seriously their attempts at settling cases of this kind. The first defendant had failed to do that in the circumstances of this case. Mr Levy argued that it was essentially the defendant's conduct in refusing the Offer of Compromise, which led to the continuation of the action. Further, the length of the hearing was occasioned by the defendant pursuing a particular course of attempting to share its liability with the hospital. This was the principal focus of the first defendant and this resulted in the situation where the plaintiff was, notwithstanding the admission of liability, obliged to participate in a long and expensive trial unnecessarily.