Wheelahan v North Coast Area Health Service

Wheelahan v North Coast Area Health Service - [2008] NSWIRComm 244 - NSWIRComm 1993 case summary — Zoe

[11]

7 In deciding whether to award indemnity costs it is necessary to review, briefly, the history of the matter. The applicant filed his Summons for Relief under s 106 of the Industrial Relations Act 1996 on 21 June 2005. A Reply to Summons was filed by the respondent on 15 November 2005 and a Response to Reply filed by the applicant on 23 December 2005. On 5 April 2006, the parties attended a conciliation conference before Staff J, which was ultimately unsuccessful. On 8 May 2006, the applicant filed an Amended Summons, adding a further pleading, and on the same date served on the respondent an Offer of Compromise. As of 8 May 2006, the applicant had not filed any evidence. The Offer of Compromise included that the respondent pay the applicant $100,000 exclusive of costs and interest. The offer was open for a period of 28 days. It specifically stated that it was made in accordance with Part 23 of the Industrial Relations Commission Rules 1996 and would be relied upon in respect of the question of costs. The applicant did not receive any acknowledgement of receipt of the Offer of Compromise from the respondent. 8 On 29 August 2006, the applicant filed an affidavit in the proceedings. On 13 October 2006, the applicant caused to be served on the respondent a settlement offer ('first settlement offer'). The offer was as follows: The North Coast Area Health Service has advised our client that it proposes "to urgently consider recruiting another urologist specialist". If this appointment is made, the opportunity for our client to resume a full case load until the completion of his current appointment on 30 June 2008 will be severely curtailed. Our client is prepared to consider resigning his appointment as part of an overall settlement of his claims against the Area Health Service. The terms of such a settlement will include: 1. Statement that Dr Wheelahan retires in good standing. 2. Payment of the sum of $90,000 inclusive of costs in settlement of the claims for loss of income and other claims made in the proceedings. 3. Dee of Release in relation to the proceedings in the Industrial Relations Commission excluding any claim which would otherwise be the subject of an indemnity under the contract of liability coverage for VMO's bearing date 1 July 2003. We look forward to your client's response. 9 The respondent did not accept the offer and on 16 November 2006 the respondent filed seven affidavits in the proceedings. 10 On 12 March 2007, the applicant served another settlement offer ('second settlement offer') in response to an offer from the respondent of $65,000 inclusive of costs. The applicant's solicitors advised the respondent that Dr Wheelahan did not think the evidence rebutted his claim and that there were numerous factual errors in the respondent's affidavit. The letter continued: Your client's current settlement offer of $65,000 is insufficient to cover the costs incurred by Dr Wheelahan to date. As you know, Dr Wheelahan instructed us in October last year to put a settlement of $90,000 inclusive of costs, which represented a very significant compromise on the potential value of the claim. Further costs have been incurred since that time. In a further effort to achieve a settlement of this claim without the need for both sides to incur substantial additional costs, we are instructed to put a settlement offer of $85,000 inclusive of costs. If this offer is accepted, our client agrees to sign the draft settlement deed you have provided, subject of course to adjusting the settlement sum.

[13]

12 The applicant contended that as a result of the Offer of Compromise on 8 May 2006, and pursuant to r 216(4) of the Industrial Relations Commission Rules, the respondent should pay indemnity costs from 9 May 2006. Rule 216(4) provides that: Where an offer is made by an applicant and not accepted by the respondent, and the applicant obtains an order on the claim to which the offer relates no less favourable than the terms of the offer, then, unless the Commission otherwise orders, the applicant shall be entitled to an order against the respondent for costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to costs incurred before and on that day, assessed on a party and party basis. 13 The applicant must, therefore, have obtained an order on his claim that is no less favourable than the terms of the Offer of Compromise rejected by the respondent in order for r 216(4) to apply. At the time of filing the applicant's submissions on indemnity costs, the parties had not agreed on the final amount to be paid to Dr Wheelahan, but it was the applicant's submission that his proposed amount of $399,274.72 excluding interest and the respondent's proposed amount of $394,816.20 excluding interest were both significantly greater than the $100,000 included in the Offer of Compromise. Since this submission was made, the respondent has agreed to the applicant's amount of $399,274.72 excluding interest. This amount is clearly more favourable than the offer of $100,000. 14 The authorities demonstrate that the purpose of r 216(4) 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: South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 at [83]; Bowman v Ricegrowers Ltd (formerly Ricegrowers' Co-operative Ltd) (No 2) [2007] NSWIRComm 267; (2007) 168 IR 180 at [28]. The principles to be applied in respect of an Offer of Compromise were addressed in South Eastern Sydney Area Health Service & Anor v King at [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, Fowdh v Fowdh , 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. 15 In Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109, McColl JA, with Mason P and McClellan CJ at CL in agreement, considered the rationale underpinning the Supreme Court's equivalent rule to r 216(4): [34] In Morgan v Johnson (1998) 44 NSWLR 578 (at 581 - 582), Mason P (with whom Sheller JA agreed) summarised the rationale for the rules relating to offers of compromise as follows relevantly: (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 or 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 ." (my emphasis) [35] The onus is on the respondent to demonstrate why the Court should not order the respondent to pay the appellants' costs on an indemnity basis. In particular, the respondent must establish that it had given serious thought to the risks involved in not accepting the offers, had assessed the appellants' case properly and in the context of the relevant rules and the achievement of their purpose as outlined in Morgan . Generally, exceptional circumstances are required to justify such an order denying the appellants' entitlement: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (at [83]) per Hunt AJA ( Mason P and McColl JA agreeing). 16 In seeking indemnity costs pursuant to r 216(4), the applicant submitted that: .... the onus is on the respondent to persuade the Court that indemnity costs should not be ordered in accordance with the Rules, and generally exceptional circumstances are required to justify denying the applicant's entitlement under the Rules: Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 at [83]; Bowman v Ricegrowers Limited (formerly Ricegrowers' Co-operative Limited) (No 2) (2007) 168 IR 180 at [25]; Great Scott International Pty Ltd & Anor (No 3) v Cosmetic Suppliers Pty Ltd & Anor [2007] NSWIRComm 282 at [17]-[19].

[14]

17 The respondent submitted, however, that the Offer of Compromise was not a reasonable offer and that it was appropriate for the respondent to reject the offer 'without the sanction of an indemnity costs order'. First, it was submitted that the Offer of Compromise was served the same day as the amended summons was filed. 18 Secondly, the amended summons sought damages in the amount of $275,000 for loss of earnings due to restrictions on the applicant's clinical privileges, and for 'compensation for stress and suffering arising out of the applicant's employment by the respondent'. The quantum of damages claimed was subsequently reduced in a further amended summons in February 2008. The respondent submitted that the whole of the claim for damages related to the period 2003 to January 2005 and that the claim for the period 2003 to 13 December 2005 was wholly unsuccessful. 19 Thirdly, the Offer of Compromise inflated the applicant's claim. The respondent submitted that based on the substantive judgment and the applicant's submissions, Dr Wheelahan's loss of earnings as at May 2006 was $53,300. 20 Fourthly, the respondent was not in a position as at May 2006 to consider the offer as an offer seeking to compensate the applicant up to 30 June 2008. The respondent submitted that up until 18 February 2008, the date the applicant informed the respondent that he had no intention of returning work, the respondent expected that the applicant might have returned to work at some point. The respondent had communicated with Dr Wheelahan concerning the likely length of his leave, and subsequently sick leave, but the respondent received either no response from the applicant or was provided with medical certificates indicating that Dr Wheelahan was unfit to work for a specified period of time. The relevant medical certificate as at May 2006 indicated that Dr Wheelahan would be unfit from 11 January to 11 July 2006, but there was no indication that the applicant would never return to work. It was submitted, therefore, that it was not reasonable for the respondent to have accepted the Offer of Compromise in May 2006 on the ground that the applicant had no intention of returning to work and would be unfit for work until 30 June 2008. 21 Fifthly, as of 8 May 2006, the date of the Offer of Compromise, the applicant had filed no evidence nor had it foreshadowed any evidence from Dr Eaton. Significantly, the evidence of Dr Eaton, which the respondent submitted was material to the applicant's claim, was not filed until 7 March 2008, with a further affidavit having been filed on 23 May 2008. The first time the respondent was made aware by the applicant that Dr Eaton would be called as a witness was February 2008. Therefore, the respondent submitted that when the offer was made it did not have the benefit of any evidence relevant to determining the claims as set out in the amended summons. 22 Sixthly, the respondent submitted that as a result of amendments in the further amended summons in February 2008 and the eventual admission of Dr Eaton's evidence, the case that was run in June 2008 differed from the claim that was the subject of the Offer of Compromise in May 2006. 23 The respondent submitted that in light of these issues, its rejection of the offer was reasonable and that based on the material available and the applicant's communications regarding his leave, the respondent had assessed the applicant's case properly. As such, the Court should not treat the Offer of Compromise as grounds for ordering indemnity costs.

[21]

He said (at 6): "... It is one thing for a plaintiff to present her evidence, make an offer of compromise, and to succeed at the trial on that evidence. In such a case, indemnity costs may be warranted. It is another thing for the plaintiff to present a case and make an offer of settlement, and then to succeed at the trial upon a relevantly different case. A plaintiff who has done that may not readily receive indemnity costs. I do not mean by this that minor differences between the case at offer and the case at trial will be of significance or that, if the difference be significant, a discretionary judgment for indemnity costs may not be given. But where the difference between the position at offer and the position at trial be as the Master assessed it to be, a decision to refuse indemnity costs may readily be understood." 28 Although Rolls Royce Industrial Power (Pacific) Ltd (Formerly John Thompson (Australia) Pty Ltd) v James Hardie and Coy Pty Ltd, was concerned with a Calderbank offer, I am of the opinion that the principle is also applicable to an Offer of Compromise. 29 In Thomas William Vale v Timothy David Eggins (No 2) [2007] NSWCA 12, the Court of Appeal considered whether indemnity costs should be paid by the applicant where the respondent had made an Offer of Compromise, despite not serving all the medical reports which were in his possession at the time. The applicant in that case submitted that as medical and other expert reports on damages were served after the Offer of Compromise, it was not possible for the appellant to assess the merits of the respondent's offer when it 'did not have any significant evidence contrary to that which had already been obtained and served in his case'. At [22], Beazley JA, with McColl and Bryson JJA in agreement, said: However, the other matters raised by the appellant do warrant further consideration. In my opinion, there is merit in these points. As I have already indicated, the respondent, at the time that he made the offer of compromise, had not served all the medical reports which he already had in his possession. In those circumstances, when the respondent already had material in his possession which he did not serve, and which was relevant to an assessment of the offer made, he ought not to be entitled to the favourable costs provisions under the Rules. It is not an answer, as submitted by the respondent, that the appellant could have himself made an offer of compromise once all the evidence was in his possession. 30 Having regard to the facts in this case and the relevant authorities, I am satisfied that the applicant's application for indemnity costs from 8 May 2006 should be refused. I make this decision for the reasons that follow. The Offer of Compromise was served on the same day that the amended summons was filed and at a time when the applicant had not yet put on any of its evidence. Although the parties had attended conciliation, without the benefit of evidence the respondent was not in a position to consider the case it was to meet. To expect the respondent to accept the Offer of Compromise, without the opportunity to assess the merits of the applicant's case, was clearly unreasonable. 31 Secondly, Dr Eaton's evidence was crucial to the hearing and subsequent orders made by the Court in the substantive judgment. Yet as at 8 May 2006, the respondent was not aware that Dr Eaton would be giving evidence in the proceedings, nor had the applicant served or filed any evidence regarding Dr Eaton. The affidavits of Dr Eaton were not subsequently filed until 7 March 2008 and 23 May 2008. 32 It is true that the amended notice filed on 8 May 2006 included a claim for ongoing loss of earning due to unfitness for work. The applicant sought $275,000 in damages, including $15,000 for 'compensation for stress and suffering arising out of the applicant's employment by the respondent'. In addition, the following paragraph was inserted into the pleadings: The conduct of the respondent since May 2003 has caused the applicant to suffer stress and anxiety. Since 31 May 2004 he has been under treatment from Dr Warwick Eaton, consultant psychiatrist. On 14 December 2005, the psychiatrist certified that, in his opinion, the applicant is unfit for work by reason of anxiety and depression. 33 The respondent was, therefore, on notice of the nature of the applicant's claim, that is, that the conduct of the respondent had resulted in the applicant suffering anxiety and depression, and as a result was unfit to work. Further, as a result of the insertion of the above paragraph, the respondent should have been aware of the possibility that Dr Eaton would play a role in proceedings. However, the amended summons was only served and filed on the same day as the offer and at the time of the offer the applicant had provided no evidence regarding Dr Eaton. 34 The evidence of Dr Eaton was a central component of the applicant's case. The applicant's submissions at hearing included that the unfairness alleged in the contract had so affected the applicant that it caused his psychiatric illness of adjustment disorder with depression and anxiety and had rendered him unfit to work. As such, he was entitled to a loss of earnings in the period that he was declared unfit to work. As to Dr Wheelahan's unfitness to work, he relied on the evidence of Dr Eaton and submitted that it should be favoured over other medical evidence tendered in proceedings. Specifically, in his evidence Dr Eaton stated that Dr Wheelahan 'was unfit to perform his professional duties because of his symptoms of depression and anxiety' which were 'a reaction to his situation in his relationship with the Area Health Service'. 35 In the substantive judgment, the Court found that the contract was unfair because the respondent allowed the process of review of the applicant's clinical competence to be unreasonably and unfairly delayed, failed to act in a procedurally fair manner, and imposed on the applicant a requirement to regain his clinical privileges that was not reasonably capable of being carried out. As a result of these findings, the Court varied the contract and in determining compensation, considered the periods of leave taken by the applicant and the period of leave when the applicant was psychiatrically unfit for work.

[26]

[242] I take the view that up to September 2003, which was the expiry of the period indicated by the respondent (up to three months) for the review to occur, the respondent cannot be held to account for any unfairness that might attract compensation. From September 2003 to May 2004, I consider the applicant had an obligation to mitigate his loss by resuming work at the Hospital. Therefore, no question of compensation arises in respect of this period. 37 The Court further found that compensation should not be ordered from May 2004, when Dr Wheelahan first consulted Dr Eaton, to December 2005, when he was declared unfit by Dr Eaton. The Court stated that the applicant had not sought to rely on his psychiatric unfitness to work as the basis for taking leave until December 2005, that the opportunity to perform work at the hospital was still open, and that the applicant had informed the respondent in December 2004 that he had intended to return to work in January 2005, and in fact did so. 38 However, the Court found that for the period 14 December 2005, the date Dr Eaton declared Dr Wheelahan unfit to work, to 30 June 2008, which was the date that the contract expired, the applicant was entitled to compensation, less any money earned by the applicant in the period December 2005 to March 2006. The Court said at [247] - [248]: [247] In December 2005, the applicant decided to cease practice. This decision coincided with Dr Eaton certifying for the first time that the applicant was unfit to perform his professional duties from 14 December 2005. I have no doubt that the unfair contract permitting, or failing to prevent, as it did, the conduct of the respondent, was the major cause of the applicant's anxiety and depression and the main reason why the applicant decided to cease practice when he did. The failure of the respondent to manage the review process so that it was completed in a timely manner meant that the applicant was deprived of the benefit of having his clinical competence determined within a reasonable timeframe.

[28]

39 The Court, ultimately, favoured the evidence of Dr Eaton regarding the applicant's fitness to work, and it was the period that Dr Wheelahan was declared unfit to work by Dr Eaton in respect of which the Court ordered the respondent to pay compensation to the applicant. The applicant was not successful in obtaining damages for any other component of his claim. The evidence of Dr Eaton was crucial to the order eventually obtained by the applicant, but was not available to the respondent at the time of the offer. It would be unreasonable to require the respondent to pay the applicant's costs on an indemnity basis from 9 May 2006 when, as at the time the offer was open, the respondent was not aware of what Dr Eaton's evidence would be. 40 I also accept the respondent's submission that at the time of the offer it was not in a position to consider the applicant's loss of earnings up until 30 June 2008. Although the respondent should have been on notice that the applicant might not have returned to work, until it was informed otherwise it was entitled to believe that he might. 41 I disagree, however, with the respondent's contention that the applicant's claim for damages in the amended summons was wholly unsuccessful. The respondent was ordered to pay to the applicant $10,000 in relation to stress and suffering arising in the course of Dr Wheelahan's employment. Further, I find that the case that was eventually prosecuted was not so different to that in the amended summons. As Mahoney A-P said in Fowdh v Fowdh (Court of Appeal, 4 November 1993, unreported), it is necessary that there was not just a minor difference between the case at offer and the case at trial, but rather a significant difference. Although the amended summons was filed the same day as the offer, it did include the claim in relation to stress and suffering. 42 Nonetheless, I am satisfied that the totality of the situation facing the respondent at the time of the Offer of Compromise, in particular the lack of evidence and uncertainty regarding the applicant's employment, is sufficient to deny an order for indemnity costs pursuant to r 216(4) of the Rules from 9 May 2006 until entry of judgment. First Settlement Letter 43 In the first alternative, the applicant submitted that the respondent should pay indemnity costs from 14 October 2006, which is the day after the first settlement offer was served on the respondent. The terms of the offer were on a 'without prejudice save as to costs' basis and set out the terms in which the applicant was prepared to settle his claim. They included that Dr Wheelahan would resign from his position, that the respondent would provide a statement of Dr Wheelahan's good standing and pay to Dr Wheelahan an amount of $90,000 inclusive of costs. The respondent rejected the offer. 44 The applicant submitted that the Court should treat the offer as a Calderbank letter and that as the applicant had ultimately obtained orders for compensation that were considerably more favourable than the terms of the offer rejected by the respondent, it was appropriate to order indemnity costs from 14 October 2006. The respondent submitted that the offer was made inclusive of costs and as such did not conform with the rules for Calderbank letters as laid down in Calderbank v Calderbank [1976] Fam 93. 45 There is a significant amount of authority on Calderbank offers and indemnity costs. The concept was succinctly explained by the Court of Appeal in Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322: [97] A Calderbank letter is the appellation given to a letter which conforms to the structure of that deployed in Calderbank v Calderbank , namely one which is marked "without prejudice", makes an offer of settlement, and warns that the letter will be relied upon on the question of costs if and when that issue arises: Messiter v Hutchinson (1987) 10 NSWLR 525. "Calderbank offers" are well recognised means of making offers of settlement in circumstances where the party making the offer ultimately seeks a costs advantage if the offer is not accepted: Jones v Bradley (No 2) [2003] NSWCA 258 (at [5]).

[29]

[98] The general principles concerning Calderbank offers were set out in Jones v Bradley (No 2) where the Court approved Giles JA's statement in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (at [37]) that: "The making of an offer of compromise in the form of a Calderbank letter … 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 …" 46 It is clear from the authorities that an offer and subsequent rejection of a Calderbank offer will not automatically result in indemnity costs in favour of the offeror: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Leichhardt Municipal Council v Green [2004] NSWCA 341; Chint Australasia Pty Limited v Cosmoluce Pty Limited [2008] NSWSC 768. The award of indemnity costs based upon a Calderbank offer involves the exercise of the Court's discretion: Monie v Commonwealth of Australia (No. 2) [2008] NSWCA 15 at [11]. In Leichhardt Municipal Council at [47] the Court of Appeal said that: 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 costs consequences of these lying entirely within the Court's general inherent discretion on costs. 47 The Court of Appeal recently considered Calderbank letters and indemnity costs in County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) [2008] NSWCA 273. In that case, the Court outlined the discretionary nature of awarding indemnity costs and held that the person making the application for indemnity costs bears the onus of proving that indemnity costs should be awarded. The Court further said:

[32]

48 The onus, therefore, is on the applicant to show that the respondent's conduct in rejecting the offer was unreasonable: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]; County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) at [31]; Commonwealth of Australia v Gretton [2008] NSWCA 117 at [117]. In demonstrating the respondent's unreasonableness in rejecting the offer, the applicant has to prove that the offer on 13 October 2006 was a genuine offer of compromise, and that there was an appropriate opportunity for the respondent to consider and accept the offer: Boyd and Anor v Maxx Implementation Pty Limited and Ors (No 3) [2008] NSWIRComm 200 at [30]; County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2); Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4]. 49 As the respondent contended that the letter of offer dated 13 October 2006 did not comply with the requirements of a Calderbank offer, it is necessary to address the authorities that deal with the question of whether an offer made inclusive of costs can be treated as a Calderbank letter. In Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors [2006] NSWSC 583 at [40]-[41], Einstein J said: [40]It has been held that a Calderbank letter which is expressed to be "inclusive of costs", is insufficiently precise to qualify as a Calderbank offer, for the reason that the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim and the costs incurred in advancing it: Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102; Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Pty Ltd) [1998] 1429 FCA 11, BC9805993 ( Smallacombe Pty Ltd v Lockyer Investments Co Pty Ltd was referred to by Young J in Rosser v Maritime Services Board of New South Wales (No 3) (unreported, Supreme Court of New South Wales, 25 November 1997, Young J, BC9706221). [41]These authorities recognise the importance of isolating the costs component in such a way which is clear and capable of proper assessment independently of the principal claim, as part of a Calderbank letter.

[33]

50 In Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322, McColl JA at [100]-[103] gave extensive consideration to the authorities on the issue: [100] There is a line of authority, commencing with Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97, to the effect that a Calderbank letter expressed to be inclusive of costs will not warrant departure from the usual basis upon which a successful party's costs are calculated. Einstein J applied these authorities in Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (Formerly GIO Insurance Limited) and Ors [2006] NSWSC 583… [101] Campbell J made the same point in White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 910, where he observed, applying Baulderstone : [12] Further, there is a line of authority whereby, when a plaintiff makes a claim for an order involving payment of money, it is not appropriate for that plaintiff to serve a Calderbank letter offering to settle its claim for a particular sum of money inclusive of costs: Smallacombe & Others v Lockyer Investment Co Pty Ltd (1993) 114 ALR 568 at 573; Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [22]-[24 ] Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors [2006] NSWSC 583 at [40]-[41]. I agree with Einstein J, in the last-mentioned case, that the reason why in those circumstances the Calderbank offer is inappropriate is that, '… the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim', as opposed to the costs incurred in advancing it. In my view that principle is applicable in the present case, as damages was one of the elements of the claim which the plaintiffs made, and paragraph 5 of the Calderbank offer rolls together an amount offered to be paid for both damages and costs. [102] Gillard J did not apply Smallacombe in M T Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No 3) [2000] VSC 163. His Honour (at [125] - [126]) was of the view that a Calderbank letter could be expressed to be on an all-inclusive basis. He observed that many cases were settled on an "all in" basis and "[t]here is little difficulty in making an assessment of the likely amount of the claim and costs".

[37]

[113] In Sm allacombe (at 102) Spender J opined that "all-in" offers "would not promote the finality of litigation, but fragment it", a proposition implicitly recognised by Cole J (as his Honour then was) in W Jeffreys Holdings Pty Ltd v Appleyard and Associates (1990) 10 BCL 298 when he said "[g]reat difficulty is encountered if offers are framed in Calderbank letters on an inclusive of costs basis. It leads to ex post facto and unsubstantiated estimates of what costs may have been at a given date". [114] In my view, the point was well made by Goldberg J in Dr Martens where his Honour said: "[24] If the purpose of a Calderbank letter is to offer to bring litigation to an end it should be couched in such terms as enable the offeree to make a carefully considered comparison between the offer made and the ultimate relief it is seeking in all its aspects. An offer inclusive of costs confuses this issue as it puts the offeree in a position of not being able to determine the appropriate amount to attribute to the money sum it is seeking. Although an estimate can be made of what the offeree's taxed party and party costs might be at the time of the offer, the offeree is not being offered the opportunity to have those costs assessed by taxation in default of agreement, in addition to being made an offer to settle its claim. As a matter of principle, if a party is to be put at risk of losing its costs, even if ultimately successful, by not accepting an offer made to settle or compromise the proceeding at a point of time prior to trial, that risk should only be imposed if the party is given the opportunity, at the time of the offer, to obtain its taxed costs to date in addition to the offer made, knowing that it has been able to make a careful comparative assessment of the value of the offer as against the ultimate relief sought to be obtained." In GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited [2003] FCA 688; (2003) 201 ALR 55 Finn J referred (at [34] - [36]) to the views expressed in the Smallacombe line of authority and in M T Associates Pty Ltd v Aqua-Max Pty Ltd (No 3), and said he was not prepared to say that the Smallacombe approach was clearly wrong, particularly in the light of the views expressed by Goldberg J in Dr Martens at [24]. [115] I agree with Allsop J that Smallacombe does not lay down a "definitive rule" that an "all-in" Calderbank offer can never be considered on the question of indemnity costs. The Court cannot fetter the s 98 discretion by legal rules: Oshlack (at [35]). Smallacombe does, however, afford guidance as to the exercise of the s 98(1) discretion. It informs the question of the reasonableness of an offeree's refusal to accept an "all-in" offer. In my view it has a sound practical basis. While I accept each case should be considered on its facts, Smallacombe provides sound reasons to discourage offerors from drafting Calderbank letters on an "all-in"basis.

[39]

53 The authorities show that an offer made inclusive of costs does not prevent an offer from being treated as a Calderbank letter, but may be a relevant factor in determining the reasonableness of the offeree's rejection of the offer. Although McColl JA in Elite Personnel was quite affirmative in her view that a Calderbank offer should not be inclusive of costs, her Honour agreed with Allsop J in DSE (Holdings) Pty Ltd v Intertan Inc and Another [2004] FCA 1251; (2004) 51 ACSR 555 that whilst Smallacombe and Others v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 did not lay down a definitive rule that an 'all-in' Calderbank offer can never be considered on the question of indemnity costs, it provided guidance on the reasonableness of the offeree's refusal of the offer: Elite Personnel at [115]. 54 Whilst it is preferable, and indeed wise, for a settlement offer intended to relied on as a Calderbank letter for indemnity costs purposes to be made exclusive of costs, the inclusion of costs does not prevent the offer from being treated as a Calderbank offer. Instead, the inclusion of costs in the offer is relevant in determining the offeree's unreasonableness in rejecting the offer. I propose to treat the offer as a Calderbank offer and will consider whether, in the circumstances, it is appropriate to order indemnity costs from 13 October 2006. 55 As the authorities outlined earlier show, the mere offer and rejection of a Calderbank letter will not result in an automatic entitlement to indemnity costs. Instead the applicant must prove that it was unreasonable for the respondent to reject the offer and that, in the circumstances of the case, it is appropriate to order indemnity costs. In assessing the respondent's unreasonableness, I must consider whether the offer was a genuine offer of compromise and whether the respondent had sufficient time to consider and accept the offer. As noted earlier, in County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) the Court said: [32] An offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise. 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: Leichhardt Municipal Council v Green (at [21], [27]) per Santow JA (with whom Stein JA agreed); see also Herning v GWS Machinery Pty Ltd (No. 2) [2005] NSWCA 375 (at [4]); Gretton (at [44]) per Beazley JA (Mason P agreeing); cf Hodgson JA (Mason P also agreeing) (at [115]).

[41]

· as at 13 October 2006, the applicant had filed only one affidavit, his own, which was incomplete as it failed to refer to the death of a patient on 12 March 2002. Further, the evidence that was filed did not address the basis upon which compensation was sought; · as at 13 October 2006, the applicant had filed no evidence from Dr Eaton, nor had he foreshadowed any evidence from Dr Eaton. Dr Eaton's evidence was material to the applicant's claim; · as at 13 October 2006, the respondent did not know nor have 'knowledge of the applicant's illness and ongoing inability to perform his duty', as was contended by the applicant. Dr Wheelahan had informed the respondent in a letter dated 2 July 2006 that he was on leave on a 'month by month basis'. On 13 July 2006, the respondent did attempt to obtain from Dr Wheelahan an indication of the likely length of his sick leave, but received no response from Dr Wheelahan or Dr Eaton. When the respondent requested a doctor's certificate in September 2006, the applicant informed the respondent that he had seen his doctor and requested a certificate, but that Dr Eaton was overseas until 3 October 2006. The applicant then requested a further extension of leave until mid October 2006; · the offer was premised on the applicant seeking to return to work; note in particular, the statement regarding the impact that recruiting a urologist would have on the applicant's caseload; · the offer required a statement that the applicant 'retires in good standing', which the respondent contended was not a statement it could have made in light of the evidence that the applicant was not clinically competent to perform nephrectomy. 59 In reply, the applicant submitted that there was no basis to infer that the applicant was seeking a statement that there was no issue about his clinical competence. Rather the 'statement that Dr Wheelahan retires in good standing' was a proposed term of settlement. 60 There is an additional relevant factor in determining whether the respondent's refusal of the first settlement offer was unreasonable. As earlier discussed, the inclusion of costs in a settlement offer intended to be relied on as a Calderbank letter for the purposes of indemnity costs, may be relevant in determining the reasonableness of the offeree's conduct in refusing the offer. Here, at the time of the offer, there were a number of 'unknowns' in the case. The applicant's evidence was not yet complete; indeed there was only one affidavit on by the applicant and upon which the respondent was able to assess the case it was to meet; there was no evidence regarding Dr Eaton's evidence; the applicant had not addressed the basis upon which any compensation was sought; and the respondent believed that the applicant might return to work. Added to this was that the offer was made inclusive of costs, thus not enabling the respondent to appropriately assess the offer.

[50]

Court has the power to award a component for interest as part of its power under s. 106(5) to make such order as it "considers just in the circumstances of the case": see Thomas Nationwide Transport Ltd v Thomas (1990) 34 IR 378 at 383, 392, followed in Westfield Ltd v Helprin (1997) 82 IR 411 at 444 and Abboud v State of New South Wales (Department of School Education) (No 2) (2000) 99 IR 299 at 306-7 (per Schmidt J, with whom Wright P and Walton VP agreed on this point). 73 Accordingly, it was submitted that it was just in the circumstances of this case to allow the applicant to receive interest on the compensation representing lost earnings up until the date of an order that provided for payment of that amount. In other words, the relevant order was not the order in the principal judgment, which ordered the respondent to pay the applicant compensation, but the final order as to the total amount to be paid by the respondent to the applicant. 74 The respondent maintained that the award of interest was discretionary and that the applicant had failed in his summons to comply with the requirements of r 58(2) of the Commission's Rules. Rule 58(2) states: Where a party making application for orders under Part 9, Unfair Contracts, of Chapter 2 of the Act, claims, as part of that relief, an order for or which includes, interest, particulars must be given of the rates at which, the amounts on which and the periods for which, interest is claimed. 75 In reply, the applicant submitted that the respondent had not suggested any prejudice resulting from the lack of particularisation of the applicant's interest claim in his summonses and had, in fact, been provided with the method proposed by the applicant for calculating interest in the applicant's submissions filed 3 October 2008. It was contended that the respondent had accepted that interest should be payable on the lump sum compensation, and had accepted the formula used by the applicant to calculate that interest. 76 As to the calculation of interest up to the final order, the respondent submitted that there was no provision in the Act that permitted an order for interest to be paid on an ongoing basis after judgment or orders, nor had the applicant provided any authority to support its claim. The respondent referred to s 372 of the Act: (1) An industrial court may order that there is to be included, in an amount ordered to be paid under this Part (except under section 368), interest at the prescribed rate on the whole or any part of that amount for the whole or any part of the period from when the amount became due to the date of the order .

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Cases Cited (41)

Cited By (6)