Wei Fan v South Eastern Sydney Local Health District

Supreme Court of NSW|2015-11-03|Before: Garling J

Judgment

HER HONOUR: This is a decision in relation to costs. On 31 August 2015, I delivered judgment in this matter: see Wei Fan v South Eastern Sydney Local Health District (No 2) [2015] NSWSC 1235. The plaintiff is Wei Fan. The defendant is South Eastern Sydney Local Health District. The plaintiff was legally represented up until May 2013. His solicitors drafted the further amended statement of claim and medical reports, instructed medical legal experts and obtained experts' reports on damages.
On 5 September 2014, Garling J listed these proceedings for a five day hearing commencing 16 March 2015. The hearing took place over 10 days being 16, 17, 18, 19, 20, 23 and 30 March 2015; 25, 26 and 28 May 2015. At the hearing, the plaintiff did not have legal representation. David Fan, the plaintiff's son, spoke on behalf of his father. David Fan is in his final year of Law School. Judgment was entered in favour of the defendant. Costs were reserved.
Orders were made that the parties provide written submissions and affidavit evidence in relation to costs. Both parties have now provided those written submissions. The defendant relies on two affidavits of its solicitor Simon Grey dated 7 September 2015 and 21 October 2015.
The defendant seeks an order that the plaintiff pay its costs on a party/party basis up to and including 27 June 2013 and on an indemnity basis from 28 June 2013. The defendant also seeks an order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW) for a specified gross sum instead of assessed costs.
The plaintiff's primary submissions did not address the issue of costs except to draw this Court's attention to the costs order made in his favour on 29 April 2010. The plaintiff in both his submissions in reply (dated 30/10/2015 and 2/11/2015), largely reproduces his earlier submissions. They seek to reagitate matters that were determined at trial. However, in his first submissions in reply the plaintiff at [15] submitted that the defendant should pay his damages, interest and costs of these proceedings. In the latter submissions in reply the plaintiff at [16] also seeks an order that the defendant pay the plaintiff's damages, interest and costs of these proceedings.

Costs order - 29 April 2010

On 19 February 2010, the defendant's notice of motion dated 12 December 2008 came before Harrison J for hearing. The plaintiff was represented by Mr N Kirby of counsel. On 26 February 2010, Harrison J delivered judgment dismissing the defendant's notice of motion and reserving the question of costs: see Fan v South Eastern Sydney and Illawarra Area Health Service [2010] NSWSC 123.
On 24 April 2010, the costs hearing was heard by Harrison J. On 29 April 2010, his Honour delivered reasons and made an order that the defendant pay the plaintiff's costs of the defendant's notice of motion dated 12 December 2008: see Fan v South Eastern Sydney and Illawarra Area Health Service (No 2) [2010] NSWSC 343.
The defendant agrees that the plaintiff is entitled to the costs of the notice of motion dated 12 December 2008, but that those costs ought to be absorbed into the gross sum costs order sought by the defendant. I will take into account that the plaintiff is entitled to costs incurred in defending this motion.

Overall costs of these proceedings

The defendant submitted that since it has been successful in the litigation, the plaintiff ought to pay its costs of the proceedings pursuant to UCPR 42.1.

The law

The starting point is s 98 of the Civil Procedure Act. It relevantly reads: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount." [My emphasis]
Rules 42.1 and 42.15A of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") are relevant. They read: "42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. … 42.15A Where offer not accepted and judgment no less favourable to defendant (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, 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, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."
On 1 September 2015, the defendant's solicitor reviewed Curwoods' file, and has compiled a document entitled "Court Appearances/Costs Orders" (Annexure "A", Aff. Grey, 7/9/2015) reflecting each Court listing of the proceedings prior to the substantive hearing in the proceedings which commenced on 16 March 2015. They are as follows: Date Appearance Costs Order 20/08/2008 Directions hearing 06/03/2009 Direction hearing notice of motion Plaintiff to pay defendant costs of the day 02/04/2009 Directions hearing notice of motion Costs of the day reserved 01/05/2009 Mention Plaintiff to pay Defendant's costs of the day 05/06/2009 Notice of motion 31/07/2009 Mention 29/10/2009 Mention 20/11/2009 Mention 17/02/2010 (Relisted) 19/02/2010 Notice of motion hearing 02/03/2010 Judgment handed down re notice of motion 27/04/2010 Directions hearing notice of motion Costs thrown away by plaintiff's ASC be awarded to defendant 22/10/2010 Directions 17/12/2010 Directions 10/02/2012 Directions 18/05/2012 Directions Costs reserved 02/11/2012 Directions 01/03/2013 Directions 14/06/2013 Directions Costs reserved 19/07/2013 (Relisted) 02/08/2013 Directions 20/08/2013 Notice of motion 30/08/2013 Notice of motion 19/09/2013 Notice of motion 11/10/2013 Directions 06/12/2013 Directions 07/03/2014 Directions 04/04/2014 Directions 13/06/2014 Judgment handed down re notice of motion 05/09/2014 Directions 07/11/2014 Directions 06/03/2015 Directions 12/03/2015 Directions

The defendant submitted that aside from the costs order made in the plaintiff's favour on 29 April 2010, no costs order has been made in the proceedings to date which entitles the plaintiff to costs regardless of the ultimate outcome of the proceedings.
Costs are discretionary. Costs usually follow the event. There is no reason to depart from the general rule. I order that the plaintiff is to pay the defendant's costs except for those of 29 April 2010.
The next issue to be determined is whether costs should be paid on an indemnity basis and/or a gross sum basis.

Offers of compromise

The defendant made three offers of compromise, the first on 27 June 2013, the second on 16 July 2014 and the final one on 26 February 2015.

(a) The first offer of comprise - 27 June 2013

On 27 June 2013, the defendant's solicitors wrote to the plaintiff enclosing an offer of compromise. This offer of comprise proposed a verdict for the defendant with each party to bear its own costs. This offer was not accepted. This offer was made in accordance with the UCPR.
The defendant submitted that this first offer of compromise was a genuine compromise in the circumstances, because the plaintiff would not have to bear the costs already incurred by the defendant and it could not be doubted, given the procedural history of the proceedings and its complexity up and to that date, that those would be considerable: see Melchior v Sydney Adventist Hospital Ltd (No 2) [2009] NSWSC 65, Hoeben J at [17].
The defendant submitted that in the circumstances, unless the Court otherwise orders, the defendant is entitled to an order that the plaintiff pay its costs on a party/party basis up to and including 27 June 2013, and on an indemnity basis from 28 June 2013. According to the defendant, there is a prima facie entitlement to the successful defendant to a special order for costs and it is a matter for the unsuccessful plaintiff to displace that entitlement. The defendant further submitted that it is a matter for the unsuccessful party to show there are exceptional circumstances warranting an exercise of the discretion not to order costs on an indemnity basis: see Hollier v Sutcliffe (No 2) [2010] NSWSC 433, RA Hulme J at [6].
In relation to the effect of the words "order otherwise", in Leach v Nominal (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [46] to [48] McColl JA (with whom Gleeson JA and Sackville AJA agreed), stated: "[46] There is a conflict in decisions of this court as to whether exceptional circumstances are required before the court may exercise the discretion to 'order otherwise' in relation to an unaccepted offer of compromise or whether that discretion has to be exercised having regard to all the circumstances of the case: Commissioner of Taxation v Moodie [2014] NSWCA 59; (2014) 282 FLR 453 (at [64]) per McColl JA. [47] An 'exceptional circumstances' test could be seen as a gloss on the language of the relevant rules their text does not admit. That suggestion was discounted by Hely J in relation to the like power to 'otherwise order[s]' in O 23, r 11(4) of the Federal Court Rules 1979 (Cth) (as then in force): Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; (2004) 212 ALR 281 (at [17]). Rather, his Honour was of the view that such language merely 'convey[s] that the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case'. In my view his Honour's observation sufficiently encapsulates the approach to be adopted in the present case. [48] It is impossible exhaustively to state the circumstances in which the court's discretion to 'order otherwise' might be exercised: New South Wales Insurance Ministerial Corporation v Reeve (at 102). 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: Morgan v Johnson (at 582). However that does not mean that reasonableness of the rejection is an irrelevant consideration: see Seven Network Ltd v News Ltd (at [64] - [67]); Uniting Church in Australia Property Trust (NSW) t/as Northaven Retirement Village v Takacs (No 2) [2008] NSWCA 172 (at [15]) per Hodgson JA (McColl JA agreeing); cf Basten JA (at [32] - [33])."
The defendant says that there is no evidence to support an "exceptional" ground here. Rather, to the contrary it says that there are a number of reasons why the plaintiff should be expected to pay the costs of the defendant. They are, first, that it was abundantly clear that the plaintiff had no interest in resolution of the proceedings. He maintained throughout the trial an (extraordinary) claim for damages in the order of $86,000,000; secondly, that at all times the plaintiff, and the lay witnesses called on his behalf, attempted to present his case "at its highest", and there were significant questions of creditability addressed in the judgment; and thirdly, that insofar as the plaintiff relied upon medical evidence in support of his claim, that evidence, in particular the core reports of Professor Smith, was based not on a proper understanding of medical records, but upon information provided to Professor Smith in conference with the plaintiff and his family.
Overall, in these circumstances, the defendant is entitled to the indemnity costs order sought: see Jojeni Investments Pty Ltd v Mosman Municipal Council (No 2) [2015] NSWCA 208 at [9] (Macfarlan, Gleeson and Leeming JJA).
The defendant says that if for any reason the first offer of compromise dated 27 June 2013 is held not to support an indemnity costs order, then the second offer of compromise dated 16 July 2014 ought to have effect and seeks orders that the plaintiff pay the defendant's costs on a party/party basis up to and including 16 July and on an indemnity basis from 17 July 2014.

(b) Second offer of comprise - 16 July 2014

On 16 July 2014, the defendant's solicitors wrote to the plaintiff enclosing an offer of compromise. This offer of compromise provided for the making of a payment to the plaintiff in the sum of $100,000. This offer of compromise was an offer open for acceptance for a period of 14 days. The offer was made within two months of the day of commencement of the trial. This offer was not accepted.
The defendant submitted that if the offers of comprise dated 27 June 2013 and/or 16 July 2014 are not held to support an indemnity costs order, then the third offer of compromise dated 26 February 2015 ought to have effect. If this situation arises then the defendant seeks orders that the plaintiff to pay the defendant's costs on a party/party basis up to and including 26 February 2015 and on an indemnity basis from 27 February 2015.

On 26 February 2015, the defendant's solicitors wrote to the plaintiff and emailed David Fan enclosing a third offer of compromise in the sum of $250,000. This offer was not accepted.
As previously mentioned, these proceedings were fixed for hearing on 5 September 2014. By that stage the plaintiff no longer had legal representation. At the time when the first and second offers of compromise were made, the plaintiff had not obtained his medical expert report of Professor Smith on liability (report dated 8/12/2014). So far as these first two offers of compromise are concerned, without the benefit of Professor Smith's report the plaintiff was not in a proper position to evaluate his chances of success. Professor Smith's report supported the plaintiff's case. The third offer of compromise was made after the plaintiff had obtained Professor Smith's report but before the hearing commenced. It was only after the conclave met and produced a report and then during the trial, when Professor Smith was shown various clinical notes he had not previously seen, that he revised his opinion. While I accept the third offer of compromise was more favourable than the judgment, after taking the above matters into account, in the exercise of my discretion I order otherwise. The defendant's costs are to be paid on an ordinary not an indemnity basis.

A gross sum costs order

Alternatively, the defendant says that this is a case where an order pursuant to s 98(4) of the Civil Procedure Act for a specified gross sum instead of assessed costs is appropriate.
The defendant referred to Hamod v New South Wales [2011] NSWCA 375, where Beazley JA (with whom Giles and Whealy JJA agreed) stated at [816]: "[816] The terms of s 98(4), together with the more general considerations reflected in the Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred (for example, Harrison v Schipp); the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability: Ritchie's Uniform Civil Procedure NSW at [s 98.45]."
Recently, in Ghougassian v Fairfax Community Newspapers Pty Ltd [2015] NSWCA 307, Emmett JA stated at [62]: "[62] Under s 98(4)(c) of the Civil Procedure Act, the court may make a costs order as a specified gross sum, rather than assessed costs. The discretion conferred by that provision may be exercised where the assessment of costs may be protracted and expensive and if it appears that a party obliged to pay the costs may not be able to meet a liability to do so. The power may also be exercised where a party's conduct contributes unnecessarily to the incurring of costs."
Further, the defendant submitted that this is a case where the assessment of costs will be protracted and expensive and that such expense will be incurred in circumstances where the plaintiff may not be able to meet a liability of the order likely to result from the assessment: see Hamod and Mainteck Services Pty Ltd v Stein Heurtey SA (No 2) [2014] NSWCA 214 at [13].
In Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [22], Giles JA (quoted with approval in Hamod) stated: "[22] …The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available."
The defendant submitted that its professional costs and disbursements from 8 April 2012 (the date when the proceedings were commenced) incurred to date, including counsel's fees, are $512,250.83. A breakdown of the costs and disbursements is as follows: (i) Solicitors' professional fees: $275,665.12; (ii) Counsel's fees: $177,238.60; and (iii) Disbursements: $72,647.23. (Aff. Grey 21/10/2015).
In Chaina v Presbyterian Church (NSW) Property Trust (No. 26) [2014] NSWSC 1009 at [50(c)] and [51], Davies J stated: "[50] I have taken into account the following matters in concluding that a specified gross sum for costs should be ordered: … (c) The fact that the Plaintiffs are unrepresented, and are likely to remain unrepresented through any costs assessment process. The difficulties that attended the hearing of the substantive proceedings when the Plaintiffs were unrepresented were significant. The position would be magnified in any costs assessment process, not the least reason for which would be that the Plaintiffs are unlikely to be able to engage any form of advisor to assist them through the process; … [51] When assessing the costs for the purpose of making a gross sum order a broad brush approach may be taken: Zepinic v Chateau Constructions (Aust) Ltd (No. 2) [2014] NSWCA 99 at [31] and [38]; Hamod v New South Wales (No 13) [2009] NSWSC 756 at [31]; see also Hamod at [819]-[820] and Young v Hones (No. 3) [2014] NSWSC 499 at [28]-[30]."
In Chaina at [56(b)] Davies J continued "As a broad rule of thumb, a successful party will recover 70% to 80% of costs assessed on the ordinary basis."
To ensure the Court can approach this task with the degree of confidence necessary, the defendant submitted that an order ought be made that the plaintiff pay its costs in an amount representing 50% to 60% of gross costs. The defendant submitted that these suggested percentages do not take into account the possibility of a special costs order as sought based upon any of the offers of compromise referred to above, but do take into account any tax credits available to it. However, to ensure that the plaintiff is not in any way disadvantaged by the making of a gross sum costs order, the defendant is prepared to accept the quantification of its costs within the range of 50% to 60% of gross costs regardless of any order which may be made in relation to its application for indemnity costs. Taking these matters into account, the defendant seeks a gross sum costs order in the sum of $260,000, which is approximately 50.76% of its costs incurred as at 7 September 2015. The defendant noted that 60% of the total costs incurred is approximately $307,350.
The defendant seeks payment of the gross sum of $260,000 on the basis that it sufficiently takes into account the single costs order in favour of the plaintiff and represents a fair and appropriate compromise in relation to the assessment of the defendant's costs for the purpose of a gross sum costs order.
It is my view that a gross sum costs should be made because firstly, it unlikely that the plaintiff will be able to satisfy the liability to pay costs; secondly, it relieves the parties of having to undergo a protracted and expensive costs assessment process; and finally, the award of a gross sum costs order does justice to both parties. From the evidence of the solicitor for the defendant, Mr Grey, I am satisfied that the total amount of costs incurred by the defendant is $512,250.83. The breakdown of the figures are solicitors' professional fees of $275,665.12, counsel's fees of $177.238.60 and disbursements of $72,647.23, which are reasonable. The defendant seeks a lump sum of $260,000, which is approximately 50.76% of the defendant's costs and which the defendant says takes into account the costs order made on 29 April 2010 in the plaintiff's favour.
I have deducted a further $10,000 from the lump sum to represent the costs order made in favour of the plaintiff on 29 April 2010.
I order that the plaintiff is to pay the defendant the gross sum of $250,000 being the defendant's costs of these proceedings. The Court orders that: (1) The plaintiff is to pay the defendant's costs. (2) The plaintiff is to pay the defendant the gross sum of $250,000 being the defendant's costs of these proceedings.

Amendments 04 November 2015 - Reformatted paragraph numbering from paragraph 21 to end of judgment 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. Decision last updated: 04 November 2015

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