Sorbello v South Western Sydney Local Health Network; Sultan v South Western Sydney Local Health Network

An indemnity costs order should be made.

The proceedings were commenced in 2011. Defences were filed in March 2012 and in June 2015 the proceedings were listed for concurrent hearing in 2016, together with those brought by Ms Sorbello for their son. The parties' causation and breach experts met in December 2015, when they produced their joint reports, which the parties then, of necessity, each had to consider if the duties imposed upon them by the Civil Procedure Act were to be met.
At trial Ms Sorbello and Mr Sultan succeeded on damages in circumstances where there can be no question that the Health Network's failure earlier to make the admissions they had sought, resulted in them incurring unnecessary costs. They included the costs which flowed from the engagement of experts who the Health Network had required for cross-examination, before the admissions earlier sought were finally made on the Friday before the commencement of the hearing.
As discussed in Oshlack v Richmond River Council (1998) 193 CLR 72' [1998] HCA 11 at [67], costs are not awarded to punish an unsuccessful party, but primarily to indemnify the successful party for the expense it would not have incurred, if the case had not been defended. His Honour also there identified at [69], the type of misconduct which would disentitle a successful party from such an order as including: ""Misconduct" in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute." [footnotes omitted]
The Health Network submitted that special costs orders would not be made against it, having regard to authorities which mitigated against the exercise of the discretion against it: "a) Maintaining proceedings which are known to have no real prospects of success: Fountain Select Meats (Sales) Pty Limited v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 (fraud alleged with no proper basis) and Colgate Palmolive Co v Cussons Ltd (1993) 46 FCR 225 at 224 (groundless allegations) - both cited by Defendant ; b) Abandoned claims. Care must be taken to distinguish hopeless claims and those which are arguable but which are abandoned late when careful consideration leads to abandonment: Lahoud v Lahoud [2006] NSWSC 126 at [23] - [43] abandonment led to narrowing of issues didn't lead to special costs order; and [44] - [69] - law changed to that which existed at the time. c) The general rule is that the late abandonment of a defence or claim is not conduct which justifies a special order for costs: Huntsman Chemical Co Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 at 247"
Some of these authorities long predate the enactment of the Civil Procedure Act and the promulgation of the Uniform Civil Procedure Rules. In Huntsman Chemical Co Australia Ltd, for example, an indemnity costs order was refused, the view there taken being that it would be undesirable for the Court, by its costs orders, to discourage the proper, but late abandonment of unwinnable points, which might result if such responsible advocacy was penalised by a special costs order.
That approach has been tempered by the consequences of the enactment of s 56 of the Civil Procedure Act, which specifies that the overriding purpose of the legislation is "to facilitate the just, quick and cheap resolution of the real issues in the proceedings". Parties must now adhere to the duty imposed upon them by s 56(3) "to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court". Similar obligations are imposed on their legal advisers by s 56(4).
As discussed by Allsop P in McMahon v John Fairfax Publications Pty Ltd [2010] NSWCA 308, the important changes to the conduct of civil litigation which were introduced by the enactment of s 56 must be complied with (see at [26] - [30]). One way of complying with that duty is by parties giving proper consideration to offers by which the real issues in the proceedings which require the Court's resolution are sought to be identified. Thus in Lahoud, where a Calderbank offer had not been accepted, evidence was led as to circumstances in which particular issues were abandoned late. An indemnity costs order was made as to one of those issues, in the circumstances revealed by the evidence there led.
That conclusion was consistent with the provision made in s 56(5), which expressly permits the Court to take into account any failure to comply with the obligations imposed upon parties and their lawyers, when exercising its costs discretions. Evidence that an unsuccessful party's conduct in failing to respond to, or accept offers made before making a late admission, has resulted in unnecessary costs being incurred by the successful party, is thus relevant to the resolution of a dispute over an application for an indemnity costs order by the successful party, contrary to the Health Network's submissions.
For the Health District it was argued, nevertheless, that "parties are entitled to conduct the case on the pleadings until such time as they are in a position to and are willing to make concessions". Such a course cannot, however, properly be pursued contrary to the duty imposed upon them by s 56.
Further, if such a course is pursued by an unsuccessful defendant, it will be at risk of a special costs order being made in favour of the successful plaintiff, if repeated offers of settlement are received and not accepted, especially when, as here, those offers are not even responded to.
The circumstances in which an indemnity costs order will be made where a defendant has persisted with an unsuccessful defence, were discussed in Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353. There Basten JA said after referring to earlier authority there cited, that: "111 Nevertheless, more recent case-law generally shows a tendency to grant indemnity costs orders more readily than was the case in the past. That may be seen to be an element of a broader policy directed to limiting the litigation of cases where there are no reasonable prospects of success: see, eg, Legal Profession Act 2004 (NSW), Part 3.2, Div 10. Such a policy is also reflected in the presumption in favour of an order of indemnity costs where an offer of compromise in accordance with court rules has been made by one party but not accepted by the other and where the offeror has bettered the offer in the litigation. Although the court may otherwise order, the fact that the offeree may be at substantial risk as to an adverse costs order, to be assessed on an indemnity basis, if the offer is bettered, places a significant financial incentive favouring careful consideration of such offers and careful assessment of the benefits of settlement. 112 As appears from the discussion in Commonwealth of Australia v Gretton [2008] NSWCA 117 (Beazley JA, Mason P agreeing) at [48]ff, the test of unreasonableness, applied with respect to the consequences of refusing a Calderbank offer are likely to operate also with respect to other aspects of a party's conduct of litigation: see also Gretton at [117] (Hodgson JA), referring to Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 (Mason P, Clarke AJA agreeing). 113 While the general rule remains that costs should be assessed on a party and party basis, it is important that the standard to be applied in awarding indemnity costs not be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis, absent some blameworthy conduct on its part. A test of unreasonableness should not be upheld on other than clear grounds. ..."
In Seller v Jones [2014] NSWCA 19 it was observed at [58]: "[58] … An indemnity order may be made in circumstances involving relevant delinquency on the part of the unsuccessful party in order more adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part: Oshlack (at [44]) per Gaudron and Gummow JJ. Such "delinquency" includes continuing or defending proceedings which, properly advised, a party should have known had no chance of success. …"
The Health Network argued that this was not such a case and that it was relevant to consider that the 25 January offer did not, in truth, involve a compromise, but was rather inviting capitulation on breach and causation. It also submitted that it could not be the case that a plaintiff is entitled to indemnity costs in any case where admissions are invited and are subsequently made. Such an order rather depends on inappropriate conduct by the defendant being established.
I am satisfied that such conduct was here established on the Health Network's part.
When an application for indemnity costs rests on refusal to make admissions and to accept offers, it is relevant to consider the strengths and weaknesses of each party's case, as they may have been apparent to the parties at the time that the offer was made (see Ainger v Coffs Harbour City Council (No 2) [2007] NSWCA 212 at [30]). Here the Health Network led no evidence about such matters, to resist the case brought against it. What lies in issue has to be determined on the evidence led by Ms Sorbello and Mr Sultan.
In South Eastern Sydney Area Health Service & Anor v King (No 2) [2006] NSWCA 73 it was observed at [20]: "Where an offer is made by the plaintiff to the defendant before the trial, it will often be the case that, unless the plaintiff's case is fairly revealed, the defendant will not be sufficiently aware of that case to enable him assess that case properly and to determine whether the compromise offered is a reasonable one. However, even then, the defendant's reasonable belief as to his own chances of success does not alone provide a basis for denying an order for indemnity costs: [2006] NSWCA 2 at [84]-[85]."
On the evidence, Ms Sorbello and Mr Sultan's case had been revealed to the Health Network before the experts' reports were received in December. When it received the 25 January letter, which explained how their case would be pressed in light of these reports, the Health Network was thus in a position to assess both their cases and its own and to determine its prospects of resisting their claims on breach of duty and causation.
On the Friday before the hearing, the Health Network finally accepted Ms Sorbello and Mr Sultan's position that causation and breach should be conceded, with the result that at trial, only the issues as to damages had to be resolved by the Court. The question is whether that acceptance should have been forthcoming earlier.
The Health Network did not explain the delay or its failure to respond to the various offers it received. It was not to suggested that it did not have the resources to deal with the exigencies of the litigation. I am satisfied that the evidence which was led establishes that the admissions as to causation and liability finally made by the Health Network, should have been made earlier, had it adhered to the duty imposed upon it by s 56 of the Civil Procedure Act. The Health Network's failure to respond to the 25 January letter and the offers there and later made, I consider, was contrary to its obligations under s 56, to assist the Court to facilitate the just, quick and cheap resolution of the real issues in the proceedings.
At the time it received the 25 January 2016 letter, the Health Network was not only well aware of how it put its own case, but also of how the case against it was put. It was thus in a position to assess the difficulties it confronted in resisting that case, given what had been agreed by the causation and breach experts in December.
The purpose of an expert's conclave and a joint report is, after all, not only eventually to assist the Court's understanding of issues which call for expert evidence at trial, but also earlier, to help the parties narrow those issues. On an application for a costs order such as this, the party seeking the order does not have to prove by clear evidence that the other party "never had any case whatsoever which it could defend", as the Health Network argued. What it rather has to establish is that the failure earlier to make the admissions finally made, should, in the circumstances have been made earlier. I am satisfied that Ms Sorbello and Mr Sultan have done so.
Contrary to the Health Network's arguments, had it not made the invited admissions and failed at trial to defend Ms Sorbello and Mr Sultan's case on breach and causation, in the circumstances, it would also have been open to the Court to make an indemnity costs order against it. It has long been the case that predecessors to the Civil Procedure Act and the Uniform Civil Procedure Rules imposed on litigants, the obligation to "consider, realistically, upon the best information available to them, the prospects of success and the likely outcome of litigation" (see Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725).
In furthering the submission that its conduct did not warrant any special costs order, the Health Network submitted that it was relevant that despite what had been agreed in the causation conclave, its expert had expressed opinions in his earlier reports, relevant to its case as to episodes of hypoxia in the hours prior to birth, on what had been causative of brain damage.
Those reports are not in evidence, but all of them, as well as the other relevant evidence, were certainly known to the Health Network at the time that it received the December joint reports and when it had to consider what was raised in the letter of 25 January. It was then in a position to assess what impact those reports had, both on its own case and that advanced against it.
The causation joint report importantly revealed that the Health Network had not earlier instructed its expert Professor Kornberg with relevant material. It was his consideration of that material and his discussion with the other experts at the conclave, which led to relevant alterations in his earlier views, as recorded in the joint report, albeit there was not complete agreement reached by the experts on every matter. The Health Network, like Ms Sorbello and Mr Sultan, then necessarily had to consider what impact these developments had on their respective cases. That necessity could not be ignored or avoided by the Health Network when the 25 January letter was received, given the duty imposed upon it by s 56.
Before the Health Network made its admissions in late May, what it had received in addition to the joint reports was the analysis of those reports provided in the letter of 25 January; the various later offers made; and the correspondence earlier referred to. There were also discussions between senior counsel. It settled the proceedings brought in favour of Ms Sorbello and Mr Sultan's son on 18 May, on the basis of a modest compromise, the result of advice given by senior counsel to Ms Sorbello, as to the risks involved in that litigation.
There was, however, no evidence that there were any developments after December 2015 in the Health Network's evidentiary case, or in the way that Ms Sorbello and Mr Sultan were putting their cases, or even that the Health Network was seeking any further evidence, which might assist it to advance its own case.
In fact, there is nothing in the evidence which suggests that between the receipt of the joint reports in December 2015 and the admissions made by the Health Network at the end of May 2016, anything changed which might have had an impact on the Health Network's ability to understand or assess Ms Sorbello and Mr Sultan's cases on duty and breach; the problems it confronted in defending their claims; and the risks of not making the admissions which they sought, other than the explanation it received in the 25 January letter.
On the evidence it must be accepted that the strengths and weaknesses of the Health Network's case were apparent and able to be appreciated by it and its legal advisers, when it received the letter of 25 January. Had that not been the case, or had there been any relevant developments later, either in an evidentiary sense or in the advice which the Health Network received, which had a relevant impact on its approach to the offers it received prior to the decision it finally conveyed to the Court on the Friday before the commencement of the hearing, thereby making the admissions sought, no doubt it would have led evidence about them.
In South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2, there in the context of an offer of compromise made under the Supreme Court Rules then operating, which imposed an onus on the unsuccessful party who had rejected the offer, to persuade the Court that an indemnity costs order should not be made, it was observed at [83] - [84]: "83 ... The onus is on the defendant to persuade the Court that indemnity costs should not be ordered. He must demonstrate the basis on which an order should be made denying the plaintiff's entitlement to indemnity costs. He must establish that he had given serious thought to the risk involved in non-acceptance of the offer, and that he had assessed the plaintiff's case properly and in the context of the rule and the achievement of its purpose - to encourage the proper compromise of litigation, in the private interests of the litigants and in the public interest of the prompt and economical disposal of litigation. Generally, exceptional circumstances are required to justify such an order denying the plaintiff's entitlement. See, generally, Fowdl v Fowdl, Court of Appeal, 4 November 1993, unreported, per Kirby P at 12, 16; Hillier v Sheather (1995) 36 NSWLR 414 at 422-423; Morgan v Johnson (1998) 44 NSWLR 578 at 581-582. 84 Although the Court may take into account the particular features of a case and the difficulty of putting an accurate estimate on its value in advance of the litigation, those considerations do not provide a basis by themselves for denying the party making the offer an order for indemnity costs: Hillier v Sheather (at 423). In Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 725, it was said that a miscalculation in a case with large imponderables, where the course taken by the party to whom the offer was made may have been perfectly reasonable, would provide a basis for denying an order, but the subsequent decision in Hillier v Sheather suggests that, whilst "large" imponderables may be a relevant factor in the particular case in denying an order for indemnity costs, in the general case a party's reasonable belief as to his own chances of success does not alone provide a basis for denying an order for indemnity costs."
Here the onus falls on Ms Sorbello and Mr Sultan to establish that the Court should depart from the usual costs order. The evidence relied on established a proper basis for such a departure. In meeting their evidentiary case, there was no suggestion on the part of the Health Network that when it received the 25 January letter it confronted any difficulties in understanding their cases on causation and breach, or that there was any difficulty in understanding or assessing their solicitor's analysis of the joint reports, or of the offers which Ms Sorbello and Mr Sultan then and later made to it, or of the risks of not accepting them.
The Health Network led no evidence to establish that serious thought was then given to the joint reports, or the explanation given in the 25 January letter about their impact, or to offers which it later received, or to the risks involved in their non acceptance. There was also not even evidence that until the Heath Network's admissions were made in May, it had a reasonable belief that it could resist Ms Sorbello and Mr Sultan's case on breach and causation, despite what the experts had agreed in the joint report.
The Health Network's failure to respond, not only to the analysis of the joint report in the letter of 25 January, but also to the various offers later made to it, does not establish the existence and pursuit of such a reasonable belief about its chances of success, notwithstanding what had been agreed by the experts at the December conclaves. Such failures leaves a party open to obvious adverse inferences being drawn against it, given the duty imposed upon it by s 56. Silence when such approaches are received is rarely a sensible way in which to adhere to that duty.
In this case, Health Network's failure to respond at all to the January letter, especially by the timely making of the admissions invited, is entirely consistent with a failure to adhere to its obligations under the Civil Procedure Act, by making admissions which ought to have been made long before 27 May, the Friday prior to the hearing, as to matters which it should earlier have accepted should not be put in issue at trial. Had there been a proper assessment of its own case, as well as those of Ms Sorbello and Mr Sultan, when it received the 25 January analysis and their offers, this litigation would have much earlier been confined to what the Health Network finally accepted truly lay in issue between the parties, on the evidence. Much unnecessary work and cost would thereby have been avoided.
In all of those circumstances, justice undoubtedly requires that the Health Network indemnify Ms Sorbello and Mr Sultan for the expenses they unnecessarily incurred, as the result of its failure to conduct this litigation in accordance with its statutory obligations.
In the result, I am satisfied that a proper basis for the exercise of the discretion to make an indemnity costs order has been established. There ought to have been proper consideration of and a response to the 25 January letter. The failure to do so and then to make the admissions which were finally made only on the Friday before the trial, within a reasonable time of receipt of that letter, is a proper basis for the making of an indemnity costs order. I assess that time to have been 14 days.
There was, however, no response within that time frame. Instead, on 15 January Ms Sorbello and Mr Sultan's wrote again to the Health Network. The response on 16 February conveyed its refusal to make the admissions sought, but invited further representations as to particular breaches. That invitation was responded to, again without a reply. There was also no reply to the further offers which the Health Network later received. There has been no evidence led which explains why this course was pursued.
That leaves well open the adverse inferences which Ms Sorbello and Mr Sultan ask the Court to draw from the evidence, so as to reach the conclusion that in the circumstances, they are entitled to indemnity costs for their costs thrown away as the result of the Health Network's failure to make the admissions sought in relation to breach and causation in January 2016.
The failure to accept Ms Sorbello's April 2016 offer of compromise was accepted by the Health Network as a basis for a general indemnity costs order in her case.
I am satisfied that the failure to accept Mr Sultan's 24 May offer of compromise is also a proper basis for a general indemnity costs order in his case, he having succeeded as he did on breach, causation and damages.
In the result, I am well satisfied that a proper basis for a departure from the usual costs order has been established.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (7 paragraphs)

Legislation Cited (3)

Cases Cited (20)

Cited By (1)