Symbion Medical Centre Operations Pty Ltd v Alexander

Judgment 1Doctors Alexander, Oxley and Smith, respectively the first, second and third Defendants seek an order that their costs as from 2 March 2009 or, alternatively, from 28 May 2009, be paid on an indemnity basis. 2On 2 March 2009 it was proposed on behalf of the three doctors that the Plaintiff, Symbion Medical Centre Operations Pty Ltd, file a notice of discontinuance and there be no order as to costs. The offer was to remain open until 5 pm on 30 March 2009. It was not accepted. 3On 28 May 2009 a further offer was made on behalf of the three doctors that the proceedings be dismissed and there be no order as to costs save for the costs orders made by Rein J against Symbion in respect of its notice of motion filed on 1 May 2009. The motion sought the vacation of a hearing and leave to Symbion to serve a further amended statement of claim. The offer was to remain open until 25 June 2009. It was not accepted. No offer of settlement was made on behalf of Dr Nakla. 4A notice of motion for interlocutory relief came before Palmer J on 13 February 2009. His Honour commented that Symbion had a very weak case against the doctor defendants in respect of any interlocutory injunction that relied upon the restraints contained and in the doctors' Practitioner Services Agreements. 5His Honour had decided Idameneo (No 123) Pty Ltd v Dr Teresa Angel-Honnibal [2002] NSWSC 1214; (2003) ATPR 41-918 and concluded that the restraint of trade provisions in the Practitioner Services Agreement in like terms in that case were naked restraints and unenforceable. 6In response to the first offer, the solicitors for Symbion by letter dated 9 March 2009 said the offer could not be assessed or meaningfully considered because no defences had been filed, no particulars of the defences had been given, no evidence had been served and Palmer J's comments were made in the context of an urgent interlocutory hearing and had no relevance to the substantive dispute. 7In response to the second offer, the solicitors for Symbion on 25 June 2009 noted that Rein J had that day granted leave to file a further amended statement of claim to which, of course, the doctor defendants had not provided defences. The solicitors claimed that they were unaware of the particulars of the defences and unable to consider the offer. They drew attention to the amended pleading including the new allegation that the doctor defendants had induced former employees of Symbion to terminate their employment, and said that Symbion's claim was strong. 8Symbion submitted that the observation of Palmer J in Angel-Honnibal should not bear upon the question of costs. I agree. His Honour was not delivering judgment and was concerned as to whether an interlocutory injunction should be granted. The statement in that context should not ground an order that Symbion pay the costs of the three doctors on an indemnity basis. 9In my view, 2 March 2009 was too early to ground the argument that it was unreasonable for Symbion to reject the offer. Not only had no defences been filed but only limited evidence had been served. The proceedings were still to be amended to join both Healthscope Medical Centres Pty Ltd and Dr Nakhla with associated changes to the pleading. 10The Uniform Civil Procedure Rules 2005, Pt 42 r 42.2 provides that unless the court orders otherwise, or the rules otherwise provide, costs payable to a person under an order of the court, or the rules, are to be assessed on an ordinary basis. 11In Leichhardt Municipal Council v Green [2004] NSWCA 341 Santow JA considered whether a Calderbank offer by a defendant for judgment to be entered in its favour with each party to pay its own costs could constitute a genuine offer of compromise. At [25] his Honour pointed out that unlike a plaintiff, a defendant cannot discount its optimum return by way of compromise. A defendant does not need the same sorts of incentive as a plaintiff does to compromise. His Honour gave this example: "It cannot, in the expectation of receiving $100,000, offer to compromise proceedings for $75,000 to reflect the vicissitudes and expenses of litigation." 12As his Honour observed at [27] it is trite law that, whether or not an offer is a genuine offer of compromise or merely a demand to capitulate, depends upon an assessment of all the circumstances of the case at the time. 13As in that case it seems to me that the offer of 28 May 2009 was not a mere demand for capitulation. It was a reasoned suggestion of capitulation that alerted Symbion to what the doctor defendants saw as the deficiencies in Symbion's case. It is difficult to imagine what otherwise the doctor defendants could have done by way of affirmative step towards ending the litigation. I respectfully agree with his Honour that there are compelling reasons for treating a defendant's "walk away" offer, as in this case, as different from a plaintiff's offer to settle for the full amount claimed. 14In Hali Retail Stores Pty Ltd v Hafaz [2007] NSWSC 427 at [6] Brereton J took the view that the change in the rules relating to indemnity costs in the Uniform Civil Procedure Rules undermined the continued application of Green . 15But in this case the offer was not made under the Uniform Civil Procedure Rules . In my view Santow JA's analysis of the difference between a plaintiff's Calderbank offer and a defendant's Calderbank offer is still relevant and is highly persuasive. 16The next question is whether Symbion's failure to accept the 28 May 2009 offer was, in all the circumstances, unreasonable. 17In SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] Giles JA put the proposition thus: "The making of an offer of compromise in the form of a Calderbank letter (from Calderbank v Calderbank (1976) Fam 93), where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure." 18This passage was cited with approval in Jones v Bradley (No 2) [2003] NSWCA 258 at [8]. 19It was submitted, again, that it was not unreasonable for Symbion to decline the offer when so much of the proceedings were yet to be formulated and interlocutory processes for evidence and discovery were yet to be completed. 20But Symbion had filed a statement of claim that sought to enforce restraints of trade in respect of which Symbion bore the onus to establish their validity, enforceability, reasonableness and their breach. 21The central issue as to the validity, enforceability and reasonableness of the restraints of trade were essentially questions of construction and law. These questions had already been determined adversely to the interests of Symbion in analogous circumstances in Angel-Honnibal . The evidence to be filed by the parties would have little impact upon the central issue as to the validity, enforceability and reasonableness of the restraints of trade. 22As the judgment in the substantive proceedings demonstrates, Symbion Medical Centre v Alexander [2010] NSWSC 1047 at [135] the nature of any goodwill of Symbion as the asset to be protected by the restrictive covenants, divorced from the practice of medicine, was not explained during the proceedings. 23By 28 May 2009 defences had been filed and the issues were joined. The defendants had also served further evidence. The issue was whether the post-termination restraints of trade were enforceable. 24The further amended statement of claim was filed on 29 June 2009. It raised allegations of breach of contract by the doctor defendants in inducing former employees of Symbion to terminate their employment with it. 25But, notwithstanding the claim that Symbion's case on this aspect was strong in the letter of 25 June 2009, the evidence in support of the claim was minimal and senior counsel for Symbion abandoned the claim in final address. 26In my view it was unreasonable of Symbion to reject the offer of 28 May 2009. In rejecting the offer it relied upon the further amended statement of claim to be served within a few days. It raised the issue of inducement of employees of Symbion to terminate their contracts. But the evidence available to Symbion at that stage was almost non-existent. Symbion sought to establish that claim by cross-examination but failed in that attempt. 27The central issue in the proceedings was the efficacy of the post-termination restraints of trade and whether Angel-Honnibal was distinguishable. Symbion failed on both issues. 28It must have been apparent to Symbion on 28 May 2009 that its prospects of success were dismal. It should have accepted the offer. It ended up with a judgment against it and an order to pay the defendants' costs. 29The Plaintiff is to pay the costs of the Defendants other than the First, Second and Third Defendants on the ordinary basis. The Plaintiff is to pay the costs of the First, Second and Third Defendants until 27 May 2009 on the ordinary basis and is to pay their costs from 28 May 2009 on an indemnity basis.