Kenneally v Pouras & Ors - [2007] SASC 303

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
KENNEALLY v POURAS & ORS
[2007] SASC 303
Reasons for Decision of The Honourable Justice White
17 August 2007
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PAYMENT INTO COURT, AND OFFERS TO SETTLE OR CONSENT TO JUDGMENT
Infant plaintiff's action for damages settled part way through trial - compromise approved by Court - application by the plaintiff pursuant to the terms of the compromise for an order that costs be paid on an indemnity basis or, in the alternative, as between solicitor and client - nature of Court's discretion in awarding costs - whether settlement meant that plaintiff had succeeded in establishing liability so as to be able to take advantage of a Rules of Court offer - whether the arrangements entered into by the plaintiff to fund litigation are relevant to the basis for an award of costs - whether conduct of the defendants in the course of settlement negotiations had been unreasonable.
Held: application refused - no grounds established to warrant the award of costs on a basis other than as between party and party.
Evidence Act 1929 (SA) s 67C; Evidence Act 1995 (Cth) s 131; Supreme Court Act 1935 (SA) s 40; Supreme Court Rules 1987 r 35, r 11, r 40, r 41; Supreme Court Civil Rules 2006 r 8, r 263, r 264, referred to.
Re Wilcox; ex parte Venture Industries Pty Ltd (1996) 72 FCR 151; Colgate-Palmolive Ltd v Cussons Pty Ltd (1993) 46 FCR 225, applied.
Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128, not followed.
Moyes v J & L Developments Pty Ltd (No 3) [2007] SASC 268; Casley-Smith v FS Evans & Sons Pty Ltd (No 6) (1989) 148 LSJS 483; John S Hayes & Associates Pty Ltd v Kimberley-Clark Australia Pty Ltd (1994) 52 FCR 201; Flinders Diamonds Ltd v Tiger International Resources Inc (No 2) (2006) 244 LSJS 435, discussed.
Karvelas v Chikirow (1976) 11 ACTR 22; Halligan v Lawson (1993) 9 SR (WA) 166; Morris v McEwen (2005) 92 SASR 281; Rayner v Pethick (2006) 243 LSJS 471, considered.

KENNEALLY v POURAS & ORS
[2007] SASC 303
Civil

WHITE J: The plaintiff has applied for an order that the costs of action which the defendants are to pay to her consequent upon an agreed settlement of her claim for damages should be on an indemnity basis or, in the alternative, on a solicitor and client basis.
The plaintiff was born on 21 April 1994 at the Western Community Hospital (“WCH”). Her claim was that at the time of her birth she had contracted a Group B Streptococcal (“GBS”) infection and, later, hypoglycaemia, both of which had gone undetected and untreated until she was about 24 hours old. It was alleged that these had caused neurological damage resulting in a left sided hemiparesis (now resolved), epilepsy and a permanent impairment of the plaintiff’s intellectual functioning.
The defendants to the action are Dr Pouras, a general paediatrician, and the WCH. Dr Pouras had been engaged within an hour of the plaintiff’s birth as her paediatrician. He was responsible for the plaintiff’s management at the WCH until her transfer to the Queen Victoria Hospital (“QVH”) in the mid morning of Friday 22 April 1994. That transfer followed a request by Dr Pouras to the QVH. The WCH is the third defendant in the proceedings. The claim against the person named as second defendant in the proceedings was discontinued shortly after the commencement of the action.
The Children, Youth and Women’s Health Service Inc (“CYWHS”) is the third party. It is the successor in title to the Women’s and Children’s Hospital Inc which formerly conducted the QVH. Dr Pouras joined the CYWHS to the proceedings alleging that it had breached the duty of care owed by it to the plaintiff in its response to his request for the plaintiff’s transfer, in the transfer itself, and in the treatment of the plaintiff after her arrival at the QVH in the late morning of 22 April 1994. It was common ground, as I understand it, that any liability arising from the conduct of the QVH in relation to the plaintiff could be enforced against the CYWHS.
On 22 September 2006, the plaintiff filed an application seeking leave to join the CYWHS as a defendant. Later, however, the plaintiff sought (and was granted) an adjournment of the hearing of that application and, in the events which have happened, it was not necessary for it to be pursued.
All parties denied liability to the plaintiff.
On 4 June 2007, I commenced the trial of an application by the plaintiff for a declaration of the liability of the defendants and for an interim assessment of damages. On Monday 2 July 2007 (ie, at the commencement of the fifth week of trial) I was informed that the parties had reached an agreed settlement. Because of the plaintiff’s infancy, the compromise required the approval of the Court. The parties requested that the application for approval be heard by another judge of the Court. That request was made so as to avoid any possible prejudice to my ability to continue the trial in the event that the approval was not granted.
On 17 July 2007, Anderson J made an order approving the compromise. I recite those parts of the order which are relevant to the determination of the plaintiff’s application concerning costs.
BY CONSENT THE COURT ORDERS that:
1The compromise between the parties whereby the defendants agree to pay the plaintiff the sum of $1,700,000 (less the sum of $46,672.90 paid by reason of the order of this Honourable Court made on 2 August 2006) inclusive of interest and her costs of action to be determined by separate order of this Honourable Court be approved.
…
5.That the plaintiff’s costs be referred to the Honourable Justice White for determination as to the basis on which costs are to be paid and thereafter and subject to agreement the plaintiff’s costs be taxed on the ordered basis and that the defendants pay to the plaintiff’s solicitor the amount of the ordered costs certified by the taxing officer or as agreed.
…
9.That upon payment by the defendants and the third party of the said sum of $1,700,000 in the manner herein ordered and the costs hereinbefore mentioned they be discharged from any further liability in respect of the plaintiff’s claim and costs in the action, and the plaintiff will within 7 days of payment discontinue its action against the first and third defendants and withdraw her application to join the third party as a defendant.
Pursuant to paragraph 5 of that order, the plaintiff now seeks an order that the costs be paid on an indemnity basis or, in the alternative, on a solicitor/client basis. For reasons which will appear below, the plaintiff claimed an order for costs on the Supreme Court’s published scale together with “an uplift factor of 30 per cent”.
General Principles
Mr Heywood-Smith QC for the plaintiff commenced his submissions with the proposition that the discretion of this Court concerning costs is unfettered.
This Court does have a wide discretion with respect to costs, but it is not completely unfettered. Section 40(1) of the Supreme Court Act 1935 (SA) (“SCA”) provides that, subject to any express statutory provision and to the Rules of Court, the costs of an action are in the discretion of the Court, and that the Court has “full power” to determine by whom and to what extent such costs are to be paid. It was common ground that it is the Supreme Court Civil Rules 2006 which apply in relation to the plaintiff’s costs application.[1] Rule 263 contains a statement of a number of general rules which, subject always to a possible contrary order, are applicable to the allocation of the liability for costs as between parties. Rule 264 contains the basis for quantification of costs. As relevant to the present application, it provides:
(1)The Court may, in the exercise of its discretion as to costs, award costs on any basis the Court considers appropriate.
(2)As a general rule, however, costs are awarded as between party and party (that is, on the basis that the party entitled to the costs will be reimbursed for costs reasonably incurred by the party in the conduct of the litigation to an extent determined by reference to the scale of costs in force, under these rules or the previous rules, when the costs were incurred).
(3)The scale of costs is fixed by Schedule 1.
(4)The Court may depart from the scale if there is good reason to do so.
[1]    See r 8(2) of the Supreme Court Civil Rules 2006.
Example—
The Court might allow a fee greater than allowed by the scale for a pleading if satisfied that the fee is justified by the difficulty of the case.
(5)In exercising its general discretion as to costs, the Court may—
(a)     award costs as between solicitor and client (that is, on the basis that the party will be fully reimbursed for costs reasonably incurred by the party in the conduct of the litigation); or
(b)     award costs on the basis of an indemnity (that is, on the basis that the party will be fully reimbursed for costs incurred by the party in the conduct of the litigation except to the extent that the party liable for the costs shows them to have been unreasonably incurred); or
(c)     award costs by way of lump sum; or
(d)     award costs on any other basis the Court considers appropriate.
(6)     The Court may award different components of costs on different bases.
(7)The Court may include in an award of costs an amount representing interest.
(8)A party who is entitled to costs, or against whom costs have been awarded, may apply to the Court to have costs, or a particular component of costs, awarded on a particular basis.
It can be seen that the power of the Court to award costs on any basis which it considers appropriate (r 264(1)) is qualified by the statement of a general rule that costs are awarded on a party/party basis and are to be determined by reference to the prescribed scale (r 264(2)).[2] Rule 264(4) provides that the Court may depart from the scale “if there is good reason to do so”. There may be an issue as to the circumstance to which the discretion vested by r 264(4) applies. It is likely that it vests a discretion in the adjudicating master to depart from the prescribed scale even when the costs are being adjudicated as between party and party. It is r 264(5) which, amongst other things, vests a discretion in the Court to award costs on either a solicitor and client, or an indemnity, basis.
[2] See also Re Wilcox; ex parte Venture Industries Pty Ltd (1996) 72 FCR 151 at 152-3 per Black CJ, at 156-8 per Cooper and Merkel JJ.
The nature of this Court’s discretion with respect to costs was reviewed recently by Debelle J in Moyes v J & L Developments Pty Ltd (No 3).[3] It is not necessary to repeat that review. The principles relevant to the determination of the present application can be summarised as follows:
1.As a general rule costs in adversary litigation are awarded on a party and party basis.[4]
2.An order for payment of other than party/party costs ought only be made when the circumstances justify a departure from the general principle.[5] It has been said that there must be special and unusual features to justify an award of solicitor and client costs[6] but the categories warranting the exercise of the discretion are not closed.[7]
3.Care must be taken not to circumscribe the width of the Court’s discretion as to costs.[8]
4.The circumstances in which a court may appropriately order costs to be paid on an indemnity basis are, generally speaking, associated with the conduct of the litigation, eg, the making of allegations which ought never have been made, or the undue prolongation of the case by groundless contentions, or an unreasonable refusal of an offer of compromise, or when an action is commenced, continued or defended with no chance of success.[9]
5.The purpose of an award of indemnity or solicitor/client costs is to compensate a party, and not to punish the opponent.[10]
I approach the determination of the plaintiff’s application with these principles in mind.
[3] [2007] SASC 268.
[4]    Supreme Court Civil Rules 2006, r 264(2).See also Colgate-Palmolive Ltd v Cussons Pty Ltd (1993) 46 FCR 225 at 232-3; Re Wilcox; ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 152 per Black CJ, at 158 per Cooper and Merkel JJ.
[5]    Colgate-Palmolive Ltd v Cussons Pty Ltd (1993) 46 FCR 225 at 232-3.
[6]    Casley-Smith v FS Evans & Sons Pty Ltd (No 6) (1989) 148 LSJS 483 at 487-8.
[7]    Colgate-Palmolive Ltd v Cussons Pty Ltd (1993) 46 FCR 225 at 233.
[8]    John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 46 FCR 225 at 233.
[9]    Colgate-Palmolive Ltd v Cussons Pty Ltd (1993) 46 FCR 225 at 233.
[10] Flinders Diamonds Ltd v Tiger International Resources Inc (No 2) [2006] SASC 180 at [27]; (2006) 244 LSJS 435 at 440-1.
Basis of Plaintiff’s Claim
In support of the plaintiff’s application, Mr Heywood-Smith QC relied upon four matters in combination: the defendants’ failure until after the commencement of trial to make any offer of settlement; the defendants’ pursuit of defences which, on the plaintiff’s argument, were bound to fail; the making by the defendant of unjustified allegations of fraud; and the injustice to the plaintiff if she is now confined to party/party costs. The matter which underpinned the application was the plaintiff’s contention that the defendants had not made any genuine attempt to engage in settlement discussions until the end of the third week of trial.
By consent, I received a number of affidavits from the parties’ solicitors. Several of these affidavits exhibited or recited communications concerning negotiations for settlement which were of doubtful admissibility. It was common ground, however, that the Court should have regard to this material.
The Course of Negotiations
Given the plaintiff’s age and the nature of the injuries which were alleged, there was for some time uncertainty amongst the parties as to whether a final assessment of any damages to which she may be entitled could properly be made before she reached adulthood. This was recognised in the plaintiff’s statement of claim: it sought a declaratory judgment pursuant to s 30B of the SCA finally determining the issue of liability and an order for an interim payment of damages pending a final assessment. A neuro-psychologist who was to give expert evidence at the trial had recommended that any attempt to assess the plaintiff’s future needs should be delayed until she was at least 18 years old. The plaintiff’s age also meant that any compromise which was reached between the parties had to be approved by the Court in order to be enforceable.[11]
[11] Supreme Court Rules 1987, r 35.11.
Despite the uncertainty about the appropriateness of a final assessment, a formulation of the plaintiff’s claim on that basis had been mooted between the parties from time to time. On 14 October 2005 the plaintiff proposed a final settlement at $3.78m plus costs and disbursements. This figure was reached by the plaintiff after allowing a reduction of 10 per cent on account of the risks recognised by her next friend arising from the liability and assessment of damages aspects of the claim. As I understand it, the defendants made no response to that offer at that time.
On 23 May 2006 the parties held an informal settlement conference. The plaintiff again proposed a final settlement of $3.78m plus costs and, in the alternative, an interim assessment of $975,000 plus costs. Neither of these offers was accepted and the defendants made no counter offer. The defendants did, however, invite the plaintiff to particularise a claim for an interim payment. The plaintiff then formulated a claim for an interim payment of a little under $45,000, to which the defendants subsequently agreed.
On 16 June 2006 the plaintiff filed and served, pursuant to r 41 of the Supreme Court Rules 1987, an offer to settle her claim for 95 per cent of her damages to be assessed plus her costs of action. That offer was not accepted. Subsequently the plaintiff’s claim for a declaration of liability and for an interim assessment of her damages was listed for hearing.
On 12 December 2006, as part of a number of directions in the matter, I made the following orders:
36.On or before 21 December 2006 the plaintiff is to provide the defendants and the third party with a detailed formulation of the quantum sought by her for each head of damage in the interim assessment in the event that it is found that the plaintiff is entitled to damages from one or more of the defendants.
37.On or before 2 February 2007 each of the defendants and the third party is to notify the plaintiff in writing of:
(a) which, if any, of the amounts claimed by way of damages for each head of damage are agreed as to quantum;
(b) in relation to each head of damage which is disputed:
(i)any further information required by that party before agreement can be reached;
(ii)the grounds upon which the amount claimed is disputed;
(iii)the amount proposed by that defendant by way of quantum for that head of damage.
At the time of making those orders, I indicated to the parties that my intention was that they should endeavour to resolve by agreement, so far as possible, the issues of quantum which would arise in relation to the interim assessment in the event that the plaintiff succeeded in establishing liability. By way of compliance with direction 36, the plaintiff provided to the defendants and to the QVH a formulation of her claim for an interim assessment totalling $1.27m plus costs. The formulation indicated that that figure was reached after allowing a reduction of 10 per cent for risks associated with liability and the assessment.
The response of the first defendant’s solicitors (also written on behalf of the third defendant and the third party) dated 2 February 2007 did not, on any reasonable view, amount to a compliance with the direction which I had made. There then ensued further correspondence which it is unnecessary to detail. Being dissatisfied with the defendants’ response, the plaintiff applied for an order that the defendants and the third party comply with the direction numbered 37. That application was heard by Anderson J who made the following orders on 30 May 2007:
Remarks
The defendants and the third party maintain that they were limited in their ability to respond because of insufficient information.
Order
1Pursuant to order 36 made by White J on 12 December 2006, the plaintiff is to provide a schedule in relation to the claim for gratuitous assistance in respect of each person who has provided services, with sufficient detail to enable the defendants and third party to respond.
2Pursuant to order 36 made by White J on 12 December 2006, the plaintiff is to provide a schedule in relation to all special damages claimed.
3Both schedules are to be provided by the plaintiff to the defendants and the third party by noon on Thursday 31 May 2007.
4Pursuant to order 37 made by White J on 12 December 2006, the defendants and the third party are to respond in the same terms as directed by order 37 by 3.00 pm on Friday 1 June 2007.
5No order as to costs.
From the remarks and the orders, it appears that Anderson J was satisfied that the response of the defendants and the third party was inadequate, but also that there had been insufficient detail in the plaintiff’s formulation. I note that Anderson J ordered that there should be no order as to the costs of the plaintiff’s application which he had heard. Following the orders of Anderson J, the defendants responded with a formulation dated 1 June 2007 of $65,800 plus an additional amount for some of the special damages which had been claimed. Again, it is doubtful that this response was a sufficient compliance with the orders of Anderson J and myself. Mr Heywood-Smith QC submitted that the defendants’ responses were indicative of their attitude to agreement on any aspect of the plaintiff’s claims.

On Friday 1 June 2007, Mr Harris QC, senior counsel for Dr Pouras, invited Mr Heywood-Smith QC to propose a figure for settlement of the plaintiff’s claim on a final basis. On Saturday 2 July 2007 (and in response to the request of Mr Harris QC) the plaintiff proposed settlement for the sum of $2.75m inclusive of costs. The costs component of that sum was not disclosed in the evidence before me.
On Friday 22 June 2007 (ie, at the end of the third week of the trial) the defendants offered to settle the plaintiff’s claim by payment of $900,000 plus party/party costs. Over the next week negotiations took place which resulted in the parties agreeing to a compromise, subject to the approval of the Court, in the sum of $1.4m plus party/party costs. The agreement reserved to the plaintiff the right to seek an order that the costs be awarded on some other basis. Anderson J declined to approve a compromise in that amount. Later the defendants increased their offer to $1.7m. Anderson J gave this Court’s approval to settlement in that sum.
Based on that history, Mr Heywood-Smith QC submitted that I should conclude that the defendants had failed to address sensibly the issue of settlement until the end of the third week of trial, and that their omission to do so was unreasonable. In Mr Heywood-Smith’s submission, the omission to consider settlement explained the absence of any earlier offer of compromise by the defendants. The plaintiff had therefore been put to the full expense of a trial which, if the defendants’ attitude had been different, could have been avoided. Before considering that submission it is appropriate to address other aspects of the plaintiff’s submissions.
The Plaintiff’s Offer to Consent to Judgment
As already noted, on 15 June 2006 the plaintiff filed an offer to consent to judgment expressed as follows:
The plaintiff Michaela Claire Kenneally an infant by her next friend Karen Therese Kenneally subject to obtaining the approval of the Court under Rule 35.11 hereby offers to accept in satisfaction of her claim in this action ninety five per cent (95%) of the plaintiff’s damages to be assessed plus her costs of action as agreed or taxed.
Mr Heywood-Smith QC submitted that the plaintiff has, by the compromise, succeeded on liability. This was so, it was said, because in seeking the approval of the compromise by the Court, no allowance had been made for risks on the issue of liability. As I understand it, Mr Heywood-Smith sought either to invoke r 41.04 in relation to the offer or, alternatively, to rely upon the absence of any response to it as indicating more generally the unreasonableness of the defendants’ consideration of settlement of the action.
The defendants submitted that the plaintiff’s filed offer was ineffective. It was said that the procedure in r 41 of the Supreme Court Rules 1987 was inapplicable in a case such as the present in which no allegation of contributory negligence is made. No authority was cited in support of this proposition. I do not see any indication in r 41 of an intention that a plaintiff may file an offer to accept a stated percentage of liability only in those cases in which a defendant alleges contributory negligence. On the contrary, there is good reason to suppose that the procedure should be available in all cases in which a plaintiff recognises that there may be some risks in establishing liability. The defendants argued that the procedure could be abused, for example, by a plaintiff filing an offer making only a negligible allowance for risks (say 99 per cent) and then, if liability is established, seeking costs on a solicitor/client basis. If this did occur in circumstances indicating an abuse, it could be addressed by an exercise of the Court’s discretion. The mere possibility of this occurring does not warrant a reading down of the otherwise plain words of r 41.
The defendants next submitted that the plaintiff’s offer did not address the position of the defendants individually and was therefore ineffective. Reference was made to the decision of Layton J in Flinders Diamonds Ltd v Tiger International Resources Incorporated (No 2)[12] in which it was held that the plaintiff’s filed offer, in the circumstances of that case, had to be in a form which would have permitted each of the defendants to accept it, rather than requiring them to accept it collectively and then to address issues of contribution separately. I doubt that the plaintiff’s offer in this case was incapable of being accepted separately by either Dr Pouras or the WCH, and doubt that the plaintiff’s offer was ineffective for this reason. I consider that it was open to Dr Pouras or the WCH or both to have accepted the plaintiff’s offer. As formulated the offer was not materially different from an offer to accept 95 per cent of the damages in satisfaction of the plaintiff’s claim against Dr Pouras and a contemporaneous offer to accept 95 per cent of the damages in satisfaction of her claim against the WCH. Acceptance of an offer (or offers) in those terms would still have required the issue of contribution between Dr Pouras and the WCH to be determined separately. I am not prepared to conclude that the plaintiff’s filed offer was ineffective to attract the operation of r 41.
[12] [2006] SASC 180; (2006) 244 LSJS 435.
However, I do not consider it that it can be said that the plaintiff has succeeded on the issue of liability in the sense of obtaining 95 per cent or more of her damages. The plaintiff’s claim has not proceeded to judgment. The approval of the settlement by Anderson J did not involve a judicial pronouncement of the defendants’ liability. When a court approves a compromise in circumstances such as the present, it determines whether it is for the benefit of the plaintiff to accept the sum offered. This involves a consideration of whether or not it is in the interests of the plaintiff to reject the offer and to continue the action in the hope of receiving a larger amount.[13] Usually the Court takes account of a number of factors, including the prospects of the plaintiff establishing the liability asserted, the losses said to have been caused by the defendants’ wrongful conduct, the assessment of the damages for the loss caused, and any benefit to the plaintiff which an early termination of involvement in court proceedings may entail. There is no indication in this case that Anderson J (who had not been the trial judge) went beyond a consideration of those matters nor is there any indication of the significance which he attached to them individually.
[13] Karvelas v Chikirow (1976) 11 ACTR 22 at 23 per Blackburn J.
The terms of the defendants’ offer, which was accepted by the plaintiff, did not involve any concession that the plaintiff had succeeded in establishing liability. I do not consider that one can infer from the fact that the defendants have voluntarily agreed to pay a very substantial sum in order to compromise the plaintiff’s claim that they were, in effect, conceding the issue of liability.
As to the second way in which the plaintiff sought to rely upon the offer to consent to judgment, I do not consider that it (or the absence of any response to it) provides any support for the plaintiff’s central proposition that the defendants “did not bring their mind to the issue of settlement”.
A Possible Defence
At the stage that the parties reached their compromise, it could reasonably be said that the plaintiff’s prospects of establishing liability against both Dr Pouras and WCH were good. The very nature of a GBS infection with its potential to fulminate rapidly with serious effects (including possible death) suggests that, as a matter of commonsense, doctors and hospitals should be alert to its possible presence, and, as soon as it is suspected, treat an infant for it as a matter of urgency. The medical evidence in the trial confirmed that impression. The evidence of a number of the neonatologists and paediatricians in the trial was to the effect that there had been a departure from the requisite standard of care in this case. The plaintiff’s submissions on the application for costs emphasised this evidence and the length of time prior to trial during which the opinions of these practitioners had been available to the defendants. The defendants should have recognised, it was said, that their defences to the plaintiff’s claim would fail.
However, I do not think it can properly be concluded that the defendants were pursuing a defence which was bound to fail. At the time of the compromise, I had not heard all the evidence concerning the liability aspects nor had I heard counsels’ submissions. Further, the evidence which I had heard was not all one way. At the time of the compromise I had not yet heard oral evidence from Dr Pouras but his written statement of his evidence-in-chief provided an explanation for the events of 21 and 22 April 1994. Further, Dr Pouras led evidence from two medical practitioners, one an experienced neonatologist and the other an experienced paediatrician. Each considered that the management by Dr Pouras of the plaintiff had been in keeping with accepted standards of care. It appeared to me that the issue of liability was being fought on a basis which was open to the defendants. In all these circumstances, it would be inappropriate to conclude that the defendants were pursuing defences which were bound to fail.
Allegations of Fraud
The plaintiff submitted that the defendants had made allegations which were tantamount to allegations of fraud and which were quite unjustified. The plaintiff referred to aspects of the cross-examination of her mother, Karen Kenneally. That cross-examination put in issue the existence of certain symptoms to which Ms Kenneally had deposed in her evidence in chief. It was put to Ms Kenneally that she was (in effect) inventing or exaggerating certain symptoms. I accept that the cross-examination involved a serious attack on Ms Kenneally’s credit. It is not necessary presently to particularise further the nature of that attack. It is quite understandable that Ms Kenneally found the cross-examination distressing and hurtful.
At this stage, what I have to consider is whether there was a reasonable basis for the cross-examination along these lines. I am satisfied that there was such a basis. The defendants had access to a substantial amount of notes relating to the medical and hospital assessment and treatment of both the plaintiff and Ms Kenneally. I am satisfied that there was, in that material, a sufficient basis for the cross-examination of Ms Kenneally. I emphasise that this is not to be understood as an indication that the matters put in cross-examination had merit. It is not necessary for me to express a view about that. It is sufficient to say that I am satisfied that the cross-examination of the defendants did not involve the making of allegations of falsity for which the defendants did not have a sufficient basis.
General Unfairness
The plaintiff referred to a number of features which, it was said, made it fair and reasonable for her to have her costs on at least a solicitor/client basis. The first was that litigation of the present kind is expensive. One may readily accept that that is so. The second is that the incurring of a liability for costs at a level above that which is recoverable on a party/party basis is common in litigation of this kind. The third was that in the circumstances of this case the plaintiff had only been able to fund the litigation by entering into a contingency funding agreement with her solicitors. As an infant, she lacked financial resources and her mother, who acted as next friend, also lacked financial capacity. Under the terms of the contingency funding agreement the plaintiff (or more accurately her mother as next friend) is liable to pay solicitors and counsel fees calculated at double the rates contained in the scale of costs prescribed in the Supreme Court Rules. The mother as next friend has an entitlement to be indemnified to the extent of her liability from the plaintiff’s settlement.[14] The plaintiff’s solicitors have indicated, however, that that liability will be enforced only to the extent of an increase of 30 per cent in the prescribed scale.
[14] Halligan v Lawson (1993) 9 SR (WA) 166.
There was considerable debate in the submissions before me as to the enforceability of the contingency funding agreement and of the obligations of the plaintiff’s solicitors under it. I do not consider it necessary to resolve those issues. I will assume (without deciding) that the agreement is enforceable.
Mr Heywood-Smith QC referred to Marks v GIO Australia Holdings Ltd (No 2)[15] in which, in the course of doubting the continued applicability of the general rule that a successful party have its costs on a party/party basis, Einfield J said:
Most importantly is the fact that the cost of litigation and the difference between party and party costs and a party’s total costs have both grown so enormously that if limited to party and party costs, a successful party may and often will finish up out of pocket notwithstanding an award of damages. Facing a financially powerful party even though expecting to succeed may well confront a less powerful litigant with the choice of settling a case for less than is justified by the facts, rather than litigating successfully and then facing financial loss, even ruin. This outcome is not one the courts should ordinarily permit where another option is available.
There is a public interest involved in the assessment of costs of litigation. Parties must be dissuaded from bringing unnecessary litigation to court. The weight of court lists and the costs of litigation today both to the parties and to the public mean that there is a major community interest in encouraging litigants to settle their cases without resort to a court hearing.[16]
Despite the views of Einfield J, I note that the Federal Court continues to apply the general rules with respect to costs to which I have referred earlier in this judgment. In this respect, I refer in particular to the judgment of the Full Federal Court in Re Wilcox; ex parte Venture Industries Pty Ltd[17] in which the Court declined to follow the approach advocated by Einfield J. As indicated by the judgment in Moyes to which reference was made earlier, that is also the approach which is applied in this Court.
[15] (1996) 66 FCR 128.
[16] Ibid at 132.
[17] (1997) 72 FCR 151.
The fact that the plaintiff was only able to pursue the litigation by entering into a funding arrangement of some kind is not, in my opinion, a sufficient reason for an award of solicitor/client costs, let alone an award of indemnity costs. Litigation is expensive. Many persons are able to engage in litigation only by entering into some form of litigation of funding arrangement or by agreeing to pay costs which exceed those prescribed by the Court’s scale. The existence of liabilities of this kind cannot, of itself, be a reason for departing from the usual costs rules.
I return to the plaintiff’s underlying submission, namely, that the defendants’ omission to make any offer of settlement until the end of the third week of trial had been unreasonable and had caused the plaintiff to incur costs which, in the absence of an order for indemnity or solicitor/client costs, will be unrecoverable.
General Considerations
One stark feature of the plaintiff’s present claim for costs is that it is made in circumstances in which, apart from the offer to accept 95 per cent of her damages to be assessed, the plaintiff has not filed any r 41 offer. Nor, with the exception of a letter written during the trial, did the plaintiff deliver a Calderbank letter to the defendants.
Rules 40 and 41 of the Supreme Court Rules 1987 contain a regime established by the Court to encourage parties to engage in sensible negotiations for the settlement of the litigation. They provide an incentive for defendants (r 40) and for plaintiffs (r 41) to make reasonable offers and sanctions for those who unreasonably refuse or fail to accept a reasonable offer.[18] Mr Heywood-Smith conceded that it had been open to the plaintiff, if so advised, to file a r 41 offer concerning quantum for either an interim or final assessment, or both. If the plaintiff had done that, a simple comparison could now be made between the amount of the offer on the one hand, and the amount of the compromise on the other. The plaintiff’s failure to take advantage of the means provided by the Court by which plaintiffs may protect themselves from the costs consequences of defendants who do not engage in settlement discussions, or who do not make reasonable offers, militates very much against an order for solicitor/client costs in this case.
[18] Morris v McEwen [2005] SASC 281 at [66]; (2005) 92 SASR 281 at 298.
It is surprising that the defendants did not make any pre-trial offer of settlement. But regard should also be had to the offers of final settlement made by the plaintiff. The disparity between those offers and the amount of the final settlement is significant. The offer of $3.78m plus costs made in October 2005 and repeated in May 2006 was over $2m more than the amount of the compromise approved by Anderson J. Allowance should of course be made for the parties’ negotiating positions, but a reduction of over $2m is significant. Mr Heywood-Smith QC explained that the offer of $3.78m had been calculated by reference to the opinion of a therapist who was not able to be called at trial. The evidence of other therapists warranted the lower figure. I accept that that is so, but note that the defendants were not told that the plaintiff was revising her formulation until 2 June 2007, ie, two days before the commencement of the trial. If the amount of the compromise approved by Anderson J is taken as the yardstick, it cannot be said that the plaintiff herself had made a reasonable offer of settlement before reaching the court doorstep on 2 June 2007. The amount of the plaintiff’s offer makes it difficult to be confident in assessing what the outcome may have been even if the defendants had made an offer or offers which (at least in hindsight) had been reasonable.
I also think it reasonable to have regard to the following matters. The plaintiff’s application for joinder of the third party as a defendant no doubt heightened in the defendants’ minds the possibility of CYWHS being found liable to the plaintiff and therefore liable to contribute to any judgment in favour of the plaintiff. I accept that account should be taken of this in an assessment of the defendants’ approach to settlement. Secondly, there was the uncertainty, to which I have already referred, about whether a final assessment was possible in the plaintiff’s case. This would not, however, have precluded the defendants making an offer for an interim assessment. Thirdly, the plaintiff’s next friend and her solicitors acknowledged, at the time of entering into the contingency funding agreement, that there was a significant risk of the plaintiff’s claim failing. The existence of that acknowledgement undermined the plaintiff’s submission that the defendants had pursued an unreasonable defence. The plaintiff’s prospects of success may have improved as the case was prepared for trial, but at least for a time, both the next friend and the plaintiff’s solicitors thought that there were significant risks in her case. Fourthly, the next friend rejected a proposal raised by Dr Pouras in 1996 that there be a mediation of the plaintiff’s claim. Each of these factors militates against an award of costs on either an indemnity or solicitor/client basis on the basis that the defendants failed, unreasonably, to consider settlement.
Conclusion on Application
The matters relied on by the plaintiff, when considered individually, do not warrant the orders she seeks. I have also considered their effect in combination. For the reasons I have given above, my conclusion is that it is inappropriate to order that the plaintiff recover costs on either an indemnity or on a solicitor/client basis.
Other Matters

I have referred to the Court being asked to consider without prejudice communications in the course of determining the plaintiff’s application. There was a suggestion at the hearing that s 67C of the Evidence Act 1929 (SA) entitled the parties, even in the absence of their opponents’ consent, to put this material before the Court. This proposition was not argued before me and it is therefore inappropriate to express a concluded view about it. I do not wish, however, that this decision be seen as giving any endorsement to that view. I refer to the judgment of Bleby J in Rayner v Pethick.[19] I also note that there is no equivalent in s 67C of the Evidence Act to s 131(2)(h) of the Evidence Act 1995 (Cth).
[19] [2006] SASC 70; (2006) 243 LSJS 471.
The plaintiff also sought a certification from the Court that the matter was appropriate for the engagement of both senior and junior counsel. There is no opposition to such a certification being given. I am satisfied that the complexity of the case, and the volume of the material involved, warranted the engagement of two counsel and I will make the certification which the plaintiff seeks.