Paul Harris v Dr Michael Bellemore (No 3)

[2010] NSWSC 907

CITATION:	Paul Harris v Dr Michael Bellemore (No 3) [2010] NSWSC 907
HEARING DATE(S):	5 August 2010
JUDGMENT DATE :	13 August 2010
JUDGMENT OF:	McCallum J at 1
DECISION:	1. Subject to order 2, I order the defendant to pay the plaintiff’s costs of the proceedings up to and including 6 March 2009. 2. I order the defendant to pay the plaintiff’s costs thrown away by reason of the defendant’s denial until 7 April 2009 of the matters admitted by letter that day, including any costs incurred after 6 March 2009, assessed on an indemnity basis. 3. Subject to order 2, I order each party to bear his own costs of the proceedings from 7 March 2009 to 11am on 8 April 2009. 4. I order the plaintiff to pay the defendant’s costs of the proceedings, assessed on an indemnity basis, from 11 am on 8 April 2009 apart from the costs of the present application. 5. I order each party to bear his own costs of the present application. 6. I grant liberty to the plaintiff to re-list the proceedings before me within 2 months of today in the event that he wishes to make any application against any of his former solicitors under section 99 of the Civil Procedure Act 2005.
CATCHWORDS:	COSTS - application for indemnity costs following late admission of liability - offers of compromise.
LEGISLATION CITED:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005
CATEGORY:	Consequential orders
CASES CITED:	Harris v Bellemore [2010] NSWSC 176 Lahoud v Lahoud [2006] NSWSC 126 Oshlack v Richmond River Council (1998) 193 CLR 72 Jones v Bradley (2) [2003] NSWCA 258 SMEC Testing Services Pty Ltd v The Campbelltown City Council [2000] NSWCA 323 Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (2) [2008] NSWCA 85 Hillier v Sheather (1995) 36 NSWLR 414
PARTIES:	Paul Harris (Plaintiff) Dr Michael Bellemore (Defendant)
FILE NUMBER(S):	SC 20699/01
COUNSEL:	Mr T D Kelly (Solicitor) (Plaintiff) Mr E C Muston (Defendant)

- 13 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

McCallum J

13 August 2010

20699/01 PAUL HARRIS v DR MICHAEL BELLEMORE (No 3)

JUDGMENT

1 MCALLUM J: Mr Harris sued Dr Bellemore for medical negligence arising out of limb-lengthening treatment undertaken in 1996 and 1997 using a technique named after a Russian doctor, Professor Ilizarov. On 29 March 2010, I gave judgment for Mr Harris in an amount to be assessed in accordance with my reasons published that day: Harris v Bellemore [2010] NSWSC 176. Those reasons identified two matters for further argument. My judgment on those further matters was given on 22 June 2010. The final amount in which judgment was entered for Mr Harris was $652,892.95 on 24 June 2010.

2 This judgment deals with the parties’ applications as to costs.

Orders sought by Mr Harris

3 Mr Harris seeks an order for his costs of the proceedings. Dr Bellemore accepts that Mr Harris has had some success in the proceedings and that the starting point for any consideration of the appropriate costs order must be the general rule that costs follow the event: UCPR 42.1. Dr Bellemore does not resist an order to that effect in respect of the period up to the commencement of the hearing, but relies on a series of offers of compromise to resist the payment of any costs after that date.

4 Secondly, Mr Harris seeks an order that his costs be assessed on an indemnity basis from 28 May 2007 to 13 May 2009. The basis for that application is that, after denying any liability in the proceedings for many years, Dr Bellemore admitted liability in one particular after the hearing had proceeded for 15 days. The dates identified in the order sought are the dates of the relevant pleadings, first denying then admitting that particular allegation. Dr Bellemore opposes that order.

5 The third order sought by Mr Harris is to have certain adverse costs orders made against him vacated and, in lieu thereof, an order that each party pay his own costs in relation to the matters covered by those orders.

Orders sought by Dr Bellemore

6 Dr Bellemore seeks his costs of the proceedings on an indemnity basis from either 20 February 2009, 11am on 7 March 2009 or 11 am on 8 April 2009 on the basis that Mr Harris failed to accept offers to compromise the proceedings on terms more favourable than the final judgment awarded to him.

7 Dr Bellemore also seeks an order that the costs of preparation relating to a number of expert reports served on behalf of Mr Harris but not used in the proceedings be excluded from the costs payable by Dr Bellemore to Mr Harris, and that Mr Harris pay Dr Bellemore’s costs of considering and responding to those reports.

8 Subject to that specific claim, it is common ground that Dr Bellemore should be ordered to pay Mr Harris’ costs of the proceedings up to 20 February 2009.

Dr Bellemore’s late admission of liability

9 The circumstances in which Dr Bellemore made his late admission of liability were explained in the principal judgment at [16] to [22] as follows:

“16. As already noted, when Mr Harris first consulted Dr Bellemore, he had a varus deformity in the right knee. An Ilizarov frame of straight design can nonetheless address such a deformity, while lengthening the limb, by the method of differential distraction, that is, by distracting one side of the frame at a greater rate than the other. That method, however, has the undesirable corollary of placing parts of the frame under greater strain. That can be avoided if the frame is constructed so as to have a form of pivot, using either hinges or conical washers.

17. In a statement served shortly before the commencement of the hearing, Dr Bellemore stated:
“… I had recognised the presence of a varus deformity pre-operatively and it was my intention to correct this by differential distraction, coupled conical washers were applied to the distal ring to facilitate the correction. The use of coupled conical washers allowed for angular correction of up to 15%. The use of hinges would have been an alternative means of correcting the varus deformity and I would have adopted this course had the varus deformity been more severe.”
18. Mr Harris said in his evidence-in-chief that conical washers were not used on the frame as contended by Dr Bellemore (T65.26-T66.26). That issue had not been specifically addressed in Mr Harris’ written statement served before the hearing, presumably because the only relevant negligence alleged at that stage was the failure to use hinges. The alternative method of using conical washers had not been raised as an issue in the proceedings at that point.
19. When Dr Bellemore gave his evidence-in-chief, he went so far as to identify what he said were images of conical washers on an x-ray of Mr Harris taken while he wore the Ilizarov frame. By reference to an x-ray taken on 11 February 1997, Dr Bellemore expressed the opinion that a conical washer could be seen on each of the four rods of the frame (Exhibit 10; T302.46).
20. A substantial amount of time over the first fourteen days of the hearing was occupied with that issue. After Dr Bellemore volunteered the opinion that conical washers could be seen on the x-ray, he was cross-examined up hill and down dale (as it is sometimes put colloquially) by Mr Kelly in relation to that aspect of his evidence. In saying so, I mean no criticism of Mr Kelly, whose tenacity on this issue ultimately produced an admission of liability. Mr Kelly took Dr Bellemore, in turn, to each in a series of x-rays showing the Ilizarov frame. Dr Bellemore consistently maintained that, in his opinion, each x-ray included images of conical washers fitted to the frame (see, for example, T308-310; T320.50; T554.28 and T558-562), albeit with a repeated qualification as to his lack of expertise as a radiologist or radiographer (T314.34; T318.43).
21. Mr Harris subsequently gave further evidence in which he said that the images in the x-rays identified by Dr Bellemore as conical washers were in fact square nuts affixed to the frame. He later obtained a report from an expert radiologist, Dr Kitchener, the broad effect of which was that Dr Bellemore’s evidence on that issue should be rejected. An outline of evidence was also obtained from Mr Sean Hogan, the designer of a component of the frame (known as a Hogan clicker) stating that there was indeed a version of the clicker in use in 1996 that included a square nut, as described by Mr Harris.
22. It was after that additional material was served that Dr Bellemore recanted his evidence that he had used conical washers. He explained how he came to his original belief, and his reasons for ultimately accepting that he was wrong, in a further witness statement dated 1 April 2009. In particular, he stated that, until reading the outline of evidence of Mr Hogan, he had had no recollection of the version of the clicker described. He further stated that he would defer to the expertise of Dr Kitchener as to the radiological issue. It was shortly after the service of that statement that Dr Bellemore made his admission of liability in the proceedings.

10 The admission was first made by letter dated 7 April 2009 as follows:

“ We refer to the statement of Dr Bellemore sent to you on 2 April 2009. For the reasons set out in his statement, Dr Bellemore accepts that neither conical washes [sic] nor hinges were used on the Ilizarov frame. In these circumstances Dr Bellemore admits that:

1. the failure to use conical washes [sic] or hinges on the Ilizarov frame fitted to the plaintiff constituted a breach of his duty of care; and
2. as a result of this breach of duty the second osteotomy on 5 May 1997 was required.”

11 As submitted by Mr Harris, an allegation of failure to fit hinges to the Ilizarov frame had previously been expressly denied in the further amended statement of claim filed on 28 May 2007. On that basis, Mr Harris seeks indemnity costs from that date until 13 May 2009, the date of an amended defence in which breach of duty owing to failure to fit conical washers or hinges was admitted.

12 Mr Muston, who appeared for Dr Bellemore on the costs applications, submitted that those matters do not establish a basis for a special costs order in favour of Mr Harris. He submitted that there would need to be some misconduct or impropriety established before it would be appropriate to make such an order.

13 That may be too narrow a statement. As noted by Campbell J in Lahoud v Lahoud [2006] NSWSC 126 at [11], it is open to a court to make an order for indemnity costs when the justice of the case requires. The making of such an order is a discretionary matter to be decided by reference to the facts of the particular case.

14 In Lahoud, an application for indemnity costs was based in part on the contention that Mr Victor Lahoud had made certain contentions at the hearing which he must have realised were false. Campbell J rejected that contention, and the costs application based on it. His Honour noted that it is a common enough experience for a party to litigation, by the time he gives evidence, to be quite convinced in his own mind that his evidence is correct, even though it is evidence ultimately rejected by the court.

15 A similar submission was put on behalf of Dr Bellemore in the present case. In my view, however, there is an important difference. The allegation of negligence based on the use of an inflexible frame that was unsuitable for correction of the varus deformity was raised fairly and squarely from an early point in the proceedings. The proceedings were commenced (in the District Court) on 3 November 1999. Particulars of the negligence alleged were provided on 5 July 2000. Those particulars included an allegation that Dr Bellemore “used an apparatus which…did not incorporate hinges to allow for deformity correction”. Having regard to the terms of the admission made on 7 April 2009, it is difficult to understand why that admission was not made in 2000 in a defence filed with knowledge of those particulars. Careful attendance to the issues in the case should have produced an early concession on that point.

16 I am satisfied that Dr Bellemore’s conduct of his defence in that specific respect entailed a “relevant delinquency” in the sense referred to in Oshlack v Richmond River Council (1998) 193 CLR 72 at [44]. In my view, the justice of the case requires that Mr Harris be fully compensated for the costs thrown away by reason of that delinquency.

17 I do not think it follows, however, that Dr Bellemore should pay all of Mr Harris’ costs on an indemnity basis for the period identified. As submitted by Mr Muston, the issue of conical washers, although it gained prominence during the hearing, was but one of a large number of particulars of negligence. The proper order in my view is that Dr Bellemore should pay Mr Harris’ costs thrown away by reason of the admission made 7 April 2009 on an indemnity basis.

Offer of Compromise dated 20 February 2009

18 On 20 February 2009, the Friday before the hearing commenced, Dr Bellemore made an offer to settle the proceedings on the basis that he would pay Mr Harris $650,000 plus costs as agreed or assessed. The offer was not an offer of compromise in accordance with the rules. It was what is known as a Calderbank letter (from Calderbank v Calderbank (1976) Fam 93).

19 The offer was expressed to be open for acceptance until 9:30am on Monday 23 February 2009, the first day of the hearing.

20 Mr Harris bettered that offer. The amount in which judgment was entered was $652,892.95 (including interest). Dr Bellemore argues, however, that the proper comparator is $646,993.79 (damages assessed in accordance with my judgment of 29 March 2010 including interest up to the date of the offer). In my view, the difference is de minimus. Mr Muston acknowledged, in any event, that he faced the further difficulties that the period of time for which the offer was open was very short and the fact that it was not a formal offer under the rules.

21 The decision of the Court of Appeal in Jones v Bradley (2) [2003] NSWCA 258 establishes that the correct approach in the case of a Calderbank letter is as stated by Giles JA in SMEC Testing Services Pty Ltd v The Campbelltown City Council [2000] NSWCA 323 at [37] where his Honour said (my emphasis):

“The Council was also entitled to orders that the Third Party Defendants pay its costs unless the court otherwise ordered: Pt 39 r 1A. The making of an offer of compromise in the form of a Calderbank letter (from Calderbank v Calderbank (1976) Fam 93), where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree’s failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs , and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: see for example, John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FLR 201; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FLR 235.”

22 I do not think that Mr Harris’ failure to accept the offer made on 20 February 2009 warrants departure from the ordinary rule. The issues in the proceedings were many and complex. The fact that the offer came close to the mark is not in itself enough to establish that a special costs order should flow from Mr Harris’ failure to accept it. Dr Bellemore’s application made on the strength of that offer is refused.

Offer of compromise dated 6 March 2009

23 On 6 March 2009, Dr Bellemore made an offer to compromise Mr Harris’ claim in accordance with UCPR 20.26. The offer was to pay $900,000 exclusive of costs together with costs as agreed or assessed. The offer was open up to and including 10 am on 20 March 2009.

24 In order to comply with rule 20.26(7)(b), the offer had to be left open “for such time as is reasonable in the circumstances”. Mr Kelly submitted that the time was not reasonable in the present case. He relied on the judgment of Basten JA in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (2) [2008] NSWCA 85 at [13] to [24].

25 That was a case in which an offer was made less than 23 hours before the commencement of a hearing, requiring acceptance within that period. In that context, Basten JA at [20] identified three factors to be considered:

“The first is that both parties may reasonably be expected to have a clear perception of the strengths and weaknesses of their positions, so that the reasonableness of a particular offer may be speedily assessed. Secondly, because significant costs will be accruing on a daily, even an hourly basis, there is a heightened incentive to respond within the time permitted. Thirdly, and counterbalancing the first factor, the need to address the terms of an offer, provide advice and obtain instructions will often be a significant distraction from final preparation.”

26 Considering those factors in the context of the present case, I am satisfied that the offer was left open for acceptance for a reasonable time. Although the hearing was in full swing on 6 March 2009, and Dr Bellemore was in fact being cross-examined on that day, there were 5 working days within the time for which the offer was open for acceptance when the court did not sit. In my view, notwithstanding the complexity of the issues to be considered, there was ample opportunity for Mr Harris and Mr Kelly to give the closest consideration to the offer. As noted by Mr Muston on behalf of Dr Bellemore, it was not contended otherwise during the currency of the offer.

27 Plainly, the result obtained by Mr Harris in the proceedings was less favourable. Accordingly, Mr Harris’ failure to accept the offer has engaged an entitlement under the rules for Dr Bellemore to have an order for his costs, assessed on an indemnity basis, from 11am on 7 March 2009: UCPR 42.15(2)(b). That is the order to be made unless the Court “otherwise orders”.

28 A party should not lightly be deprived of the benefit of such an entitlement. The case needs in some way to be exceptional: Hillier v Sheather (1995) 36 NSWLR 414 at 422E.

29 In opposing an order in the terms contemplated in UCPR 42.15(2)(b), Mr Kelly submitted that there was a great disparity between the parties in their financial resources and their access to technical, medical or scientific expertise. He submitted that disparity had the capacity for the party with the superior resources to “obfuscate and smother a legitimate and ultimately admitted claim, as nearly occurred in this case”.

30 As explained by Kirby P in Hillier at 423, such disparities would have been known to the rule-maker. The Court must give effect to the policy of promoting the most earnest attention of plaintiffs to defendants’ offers of compromise, notwithstanding such difficulties.

31 There is, however, an additional factor in the present case. At the time the offer was made, Dr Bellemore had made no admission of liability. Indeed, as observed by Mr Kelly on behalf of Mr Harris, 6 March 2009 was a day on which Dr Bellemore was being cross-examined as to the appearance of certain images on x-rays of Mr Harris’ leg and was steadfastly maintaining his assertion, from which he subsequently recanted, that those images depicted conical washers he had fitted to the Ilizarov frame.

32 Mr Muston noted that, in the absence of any admission of liability at that point, the case for accepting the offer was even stronger. There is some force in that argument. After careful deliberation, however, I have come to the conclusion that it would not be fair to approach the present issue on that basis. I confess I have not found this an easy issue to resolve. Dr Bellemore has a prima facie entitlement under the rules to the order sought. It is necessary, however, to bear in mind the purpose of the rule in question. The resolution of legal proceedings by compromise may be seen as the ultimate achievement of the overriding purpose (expressed in s 56 of the Civil Procedure Act 2005) to facilitate the just, quick and cheap resolution of the real issues in dispute.

33 The duty of a plaintiff to assist the Court to further the overriding purpose is not unilateral. There can be little doubt that criticism may fairly be directed at Mr Harris (or some of the solicitors he retained before Mr Kelly) for delay in the prosecution of his claim. That explains but does not excuse the lateness of Dr Bellemore’s admission of liability. As stated in the principal judgment at [27], I accept that the mistake Dr Bellemore made in his statement dated 1 April 2009 was honest, but it should not have been made. Proper attendance to the real issues in dispute should have produced an early admission of liability.

34 Ultimately, I think my reservations about making the order sought on the strength of the offer made on 6 March 2009 derive from a concern that such an order would condone and perhaps even reward that conduct. I have no doubt that the denial of any liability on the part of Dr Bellemore shaped the atmosphere of the trial. The offer came during a period when both parties were firmly entrenched in highly polarised positions. The task of analysing the offer was an extremely difficult one in that context. Undoubtedly the Harris team had much on their plate and much to consider.

35 It may be accepted that, if Mr Harris had accepted the March offer, Dr Bellemore would not have incurred further costs after that point. Conversely, however, if Dr Bellemore had made his admission of liability in a timely manner, it is certain that some costs would have been saved, and likely that the course of the litigation would have been different.

36 I am satisfied that those circumstances warrant an order other than in the terms of rule 42.15. The proper order for the period from 6 March 2009 to 7 April 2009 is, in my view, that each party bear his own costs of that period.

Offer of Compromise dated 7 April 2009

37 The position from 7 April 2009 is different. On that date, Dr Bellemore offered to pay $1,350,000 plus costs as agreed or assessed. It was an offer of compromise under UCPR 20.26. The offer was open up to and including 10 am on 21 April 2009.

38 Dr Bellemore’s admission of breach of duty was communicated by letter on the same day. The hearing was in a hiatus and there was ample opportunity to consider the offer. I have no difficulty in concluding that it was kept open for a reasonable time as required by rule 20.26. Further, the offer was, in my view, a generous attempt to compromise the proceedings. It is difficult to see how it could have been considered prudent or sensible not to accept it.

39 I am not satisfied that there is any basis for an order other than that to which Dr Bellemore is entitled in accordance with UCPR 42.15(2)(b).

Miscellaneous orders sought

40 As to the third order sought by Mr Harris, I am not satisfied that there is a proper basis for vacating any prior costs orders made against Mr Harris. The orders in question were made in circumstances where Mr Harris had failed to comply with directions of the Court. Mr Harris contends, in effect, that those breaches were due to a lack of enthusiasm for his claim on the part of various solicitors retained by him. He alleges that Dr Bellemore’s false pleading “undermined and destabilised” Mr Harris’ legal representation.

41 Implicitly, the contention is that, had Dr Bellemore made his admission of liability in a timely manner, those solicitors would have conducted the case differently and so the adverse orders made against Mr Harris from time to time would not have been made. If that is the position (as to which there is no evidence), it is those solicitors who should bear those costs.

42 In the context of my hearing a number of applications made by Mr Harris to vacate the hearing date, I obtained the clear impression that there was a lengthy series of breaches of directions of the Court on his part. Whether responsibility for any of those breaches falls at the feet of any solicitor previously retained by Mr Harris is an issue for another day. I am not persuaded that any of those breaches would (or should) have been obviated by an early admission by Dr Bellemore.

43 As to Dr Bellemore’s application for costs thrown away by reason of expert reports served by Mr Harris but not relied upon at the hearing, I am not persuaded that I should make that order. I accept that there may have been some wastage of costs occasioned by decisions by Mr Harris to retain different experts, but I do not think the position is so clear as to warrant carving out that single item from all the other costs of the case.

44 I make the following orders:

1. Subject to order 2, I order the defendant to pay the plaintiff’s costs of the proceedings up to and including 6 March 2009.

2. I order the defendant to pay the plaintiff’s costs thrown away by reason of the defendant’s denial until 7 April 2009 of the matters admitted by letter that day, including any costs incurred after 6 March 2009, assessed on an indemnity basis.

3. Subject to order 2, I order each party to bear his own costs of the proceedings from 7 March 2009 to 11am on 8 April 2009.

4. I order the plaintiff to pay the defendant’s costs of the proceedings, assessed on an indemnity basis, from 11 am on 8 April 2009 apart from the costs of the present application.

5. I order each party to bear his own costs of the present application.

6. I grant liberty to the plaintiff to re-list the proceedings before me within 2 months of today in the event that he wishes to make any application against any of his former solicitors under section 99 of the Civil Procedure Act 2005.