Melchior v Sydney Adventist Hospital Ltd (No 2)

[2009] NSWSC 65

CITATION:	Melchior and Ors v Sydney Adventist Hospital Ltd and Anor (No 2) [2009] NSWSC 65
HEARING DATE(S):	On the papers
JUDGMENT DATE :	20 February 2009
JUDGMENT OF:	Hoeben J
DECISION:	Plaintiffs are to pay the first defendant’s costs, as agreed or assessed. Plaintiffs are to pay the second defendant’s costs, as agreed or assessed, up to and including 13 March 2008 and thereafter on an indemnity basis. Plaintiffs are to pay the second defendant’s costs of this application.
CATCHWORDS:	COSTS - offer of compromise - "walk away" offer made - offer not accepted - whether exceptional circumstances established by offerees.
LEGISLATION CITED:	Part 42 Uniform Civil Procedure Rules - r 42.15A
CATEGORY:	Consequential orders
CASES CITED:	Fowdl v Fowdl, Court of Appeal, 4 November 1993, unreported, per Kirby P at 12 Hillier v Sheather (1995) 36 NSWLR 414 at 422-423 Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] Macquarie Radio Network Pty Ltd v Arthur Dent (No 2) [2007] NSWCA 339 Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 725 South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [83] – [84] Morgan v Johnson (1998) 44 NSWLR 578 at 581-582
PARTIES:	Elizabeth Melchior - Plaintiff Stephanie Melchior by her next friend Elizabeth Melchior - Plaintiff Gerard Melchior by his next friend Elizabeth Melchior - Plaintiff Hugh Melchior by his next friend Elizabeth Melchior - Plaintiff Beverley Melchior - Plaintiff Sydney Adventist Hospital - First Defendant Doctor Scott Newman - Second Defendant
COUNSEL:	Mr A Campbell - Plaintiffs Ms J Sandford - 1st and 2nd Defendants
SOLICITORS:	Gerard Malouf & Partners - Plaintiffs Ebsworth & Ebsworth Lawyers - First Defendants Sparke Helmore - 2nd Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

HOEBEN J

Friday 20 February 2009

20167/07 – Elizabeth MELCHIOR v SYDNEY ADVENTIST HOSPITAL LTD & ANOR (No 2)
20168/07 - Elizabeth MELCHIOR v SYDNEY ADVENTIST HOSPITAL LTD & ANOR (No 2)
20187/07 - Stephanie MELCHIOR by her next friend Elizabeth MELCHIOR v SYDNEY ADVENTIST HOSPITAL LTD & ANOR (No 2)
20188/07 - Gerard MELCHIOR by his next friend Elizabeth MELCHIOR v SYDNEY ADVENTIST HOSPITAL LTD & ANOR (No 2)
20189/07 - Hugh MELCHIOR by his next friend Elizabeth MELCHIOR v SYDNEY ADVENTIST HOSPITAL LTD & ANOR (No 2)
20318/07 - Beverley MELCHIOR v SYDNEY ADVENTIST HOSPITAL LTD & ANOR (No 2)

JUDGMENT

1 HIS HONOUR:

Nature of proceedings
Judgment in favour of the defendants in the principal matter was handed down on 9 December 2008. Subsequently, the second defendant made an application that the plaintiffs pay his costs on an indemnity basis from 14 March 2008.

2 In each matter the second defendant served an Offer of Compromise in the following terms:

“The second defendant offers to compromise the plaintiff’s claim in the following manner:
1. Verdict for the second defendant; and
2. Each party to bear their own costs of the proceedings.
This offer is made in accordance with the provisions of rule 20.26 of the Uniform Civil Procedure Rules 2005 and is open for acceptance until 5pm 10 April 2008.”

3 The Offer of Compromise was dated 13 March 2008. The Offer of Compromise was not accepted by any of the plaintiffs.

Submissions

4 The second defendant relied upon the provisions of Part 42 UCPR

r 42.15A. This rule relevantly provides:

“42.15A Where offer not accepted and judgment as or more favourable to defendant
(cf SCR Part 52A, rule 22; DCR Part 39A, rule 25; LCR Part 31A, rule 20)
(1) This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim concerned as favourable to the defendant, or more 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.”

5 The second defendant submitted that having made offers under that rule, and not by Calderbank letter, the second defendant had a prima facie entitlement to have costs awarded in accordance with the rule unless the plaintiffs were able to persuade the Court that the circumstances of the case were “exceptional”.

6 The second defendant submitted that the circumstances surrounding the offers were not exceptional. The offers were reasonable and valuable to the plaintiffs. As at 13 March 2008, the second defendant submitted, the proceedings had been on foot for some time and the plaintiffs would have been aware that the trial would be lengthy and attended with consequences as to costs. The second defendant submitted that by 13 March 2008 the inherent weaknesses of the plaintiffs’ case had been clearly exposed by the expert opinions served on behalf of the second defendant. In particular, the reports of Professor Fletcher and Dr McGrath of 21 December 2007 and 29 January 2008 made it clear that the plaintiffs faced considerable difficulties in establishing causation.

7 The second defendant accepted that further reports from Professor Fletcher, Dr Sullivan and Dr McGrath had been served after the expiration of the time specified in the offers. The second defendant submitted that those reports contained elaboration of the matters already addressed in the primary reports which were available as at 13 March 2008. No new matters were raised.

8 The second defendant submitted that although the offer was in the nature of a “walk away” offer, substantial costs had already been incurred by both sides as of 13 March 2008 and the offer contained a significant concession on the part of the second defendant in offering to pay his own costs up to that date. The second defendant submitted that the offer was a genuine one and went beyond a mere offer to “capitulate”.

9 The plaintiffs opposed the making of the order on the basis that the Offer of Compromise was not genuine and that in the particular circumstances of this case, it was reasonable for the plaintiffs to refuse to accept it. The plaintiffs implicitly accepted that it was necessary for them to establish exceptional circumstances in order to prevent the operation of the rule.

10 In seeking to establish exceptional circumstances, the plaintiffs’ submissions were made under three headings:

(i) The nature of the case.
(ii) The nature of the offer.
(iii) The conduct of the parties.

11 In relation to the nature of the case, the plaintiffs submitted that the plaintiffs’ case was a strong one because there was no issue that the second defendant had failed to give clear directions as to the administration of Clexane and had not ensured that those directions were followed. In those circumstances it was reasonable for the plaintiffs to believe that this acknowledged failure on the part of the second defendant had made a contribution to the deceased’s death. The basis for that belief emerged from what the plaintiffs described as the “occult” nature of the development of blood clots.

12 In view of the above analysis, the plaintiffs submitted that the offer was not a genuine one. The obvious breach of duty by the second defendant made this a class of case where a “walk away” offer was not appropriate and could not be regarded as genuine.

13 Finally, the plaintiffs submitted that they had co-operated in bringing these proceedings on quickly and had done nothing to delay them. Because some of the plaintiffs were children, an acceptance of the Offer of Compromise would have required the approval of the Court. Given the complex nature of the medical evidence and the uncertainties which arose from the medical literature, it would have been difficult, if not impossible, for a judge to properly assess this claim without embarking, at least in part, on a liability hearing. Without such a hearing, it would not have been possible for a judge to approve an acceptance of the Offer of Compromise had such an acceptance been forthcoming.

Consideration

14 The following statements of principle provide some guidance as to how UCPR r42.15A should be applied.

“19 There are some distinctions between the two procedures in their attendant costs consequences. A key difference is that where an offer of compromise has been made under the Rules, a prima facie entitlement arises in the relevant party to have costs awarded in accordance with the appropriate Rule. This entitlement, though subject to the Court’s discretion to prevent substantial injustice in exceptional cases, will rarely be interfered with …”. (Santow JA - Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19])
“83 Part 52 rule 22 provides that, where a plaintiff who has made an offer of compromise in accordance with Part 22 (Division I) which is not accepted by the defendant, and where the plaintiff obtains a judgment no less favourable than the terms of the offer, then, unless the Court otherwise orders, the plaintiff will be entitled to an order against the defendant for costs on an indemnity basis in relation to his costs incurred from the day after the offer was made. The onus is on the defendant to persuade the Court that indemnity costs should not be ordered. He must demonstrate the basis on which an order should be made denying the plaintiff's entitlement to indemnity costs. He must establish that he had given serious thought to the risk involved in non-acceptance of the offer, and that he had assessed the plaintiff’s case properly and in the context of the rule and the achievement of its purpose — to encourage the proper compromise of litigation, in the private interests of the litigants and in the public interest of the prompt and economical disposal of litigation. Generally, exceptional circumstances are required to justify such an order denying the plaintiff's entitlement. See, generally, Fowdl v Fowdl , Court of Appeal, 4 November 1993, unreported, per Kirby P at 12; Hillier v Sheather (1995) 36 NSWLR 414 at 422-423; Morgan v Johnson (1998) 44 NSWLR 578 at 581-582.
84 Although the Court may take into account the particular features of a case and the difficulty of putting an accurate estimate on its value in advance of the litigation, those considerations do not provide a basis by themselves for denying the party making the offer an order for indemnity costs: Hillier v Sheather (at 423). In Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 725, it was said that a miscalculation in a case with large imponderables, where the course taken by the party to whom the offer was made may have been perfectly reasonable, would provide a basis for denying an order, but the subsequent decision in Hillier v Sheather suggests that, whilst “large” imponderables may be a relevant factor in the particular case in denying an order for indemnity costs, in the general case a party’s reasonable belief as to his own chances of success does not alone provide a basis for denying an order for indemnity costs.” (Hunt AJA - South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [83] – [84])

15 Those statements of principle applied to the equivalent rules of the UCPR:

“15. A court will only deviate from the general rule provided for by r42.14 of the UCPR and make a different order if it finds that there are exceptional circumstances for doing so. Hunt AJA in South Eastern Sydney Area Health Service v King [2006] NSWCA 2 considered the authorities in relation to Pt 52A r 22 of the Supreme Court Rules (which is relevantly in the same terms as UCPR r42.14) …” ( Beazley JA - Macquarie Radio Network Pty Ltd v Arthur Dent (No 2) [2007] NSWCA 339).

16 Contrary to the plaintiffs’ submissions concerning the nature of the case, as of 13 March 2008 the plaintiffs should have appreciated that they had difficulties in succeeding in their claims. It is true that they had the benefit of an apparent breach of duty on the part of the second defendant, but the opinions in the experts’ reports then available did not establish a causal link between that apparent breach of duty and the deceased’s death. On the contrary they indicated that there was no such causal relationship.

17 It is always difficult to evaluate the genuineness of a “walk away” offer. As the second defendant submitted, there was a real benefit for the plaintiffs contained in the offer, i.e. they would if the offer were accepted have no liability for the second defendant’s costs. As of 13 March 2008 those costs would already have been substantial. I have concluded that in the circumstances of this case the second defendant’s Offer of Compromise of 13 March 2008 was genuine.

18 I accept that an acceptance of the Offer of Compromise would have required the approval of the Court in respect of some of the plaintiffs. I accept that such an approval would have been difficult and would have required the judge performing that task to have carefully reviewed, not only the experts’ reports, but also a quantity of medical literature.

19 That, however, is a task often performed by judges of this Court particularly in medical negligence matters arising from birth defects. The complexities in this matter would have made that task difficult but it would certainly have been well within the capability of the judges of this Court.

20 I appreciate that medical negligence matters are often very difficult to assess. Each side may feel very strongly about the prospects of success. This is not a reason of itself, however, why Offers of Compromise, regardless of which side is relying upon them should not be effective when the offeror achieves a result which is as good as or more favourable than that set out in the offer. What it means is that in such matters Offers of Compromise have to be very carefully evaluated and the evidence closely reviewed before a decision is made to accept or reject.

21 In this matter I am not satisfied that the plaintiffs have established exceptional circumstances such as would displace the operation of the rule. Accordingly the second defendant is entitled to have his costs paid on an indemnity basis from 14 March 2008.

Orders

22 The orders which I make are as follows:

(i) The plaintiffs are to pay the first defendant’s costs, as agreed or assessed.

(ii) The plaintiffs are to pay the second defendant’s costs, as agreed or assessed, up to and including 13 March 2008 and thereafter on an indemnity basis.

(iii) The plaintiffs are to pay the second defendant’s costs of this application.

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