Sorbello v South Western Sydney Local Health Network; Sultan v South Western Sydney Local Health Network (No 2)

[2016] NSWSC 1496

Supreme Court

New South Wales

Medium Neutral Citation:	Sorbello v South Western Sydney Local Health Network; Sultan v South Western Sydney Local Health Network (No 2) [2016] NSWSC 1496
Hearing dates:	13 October 2016 and further written submissions
Date of orders:	24 October 2016
Decision date:	24 October 2016
Jurisdiction:	Common Law
Before:	Schmidt J
Decision:	(1)   The Health Network is to pay Ms Sorbello and Mr Sultan’s costs, as agreed or assessed to 9 February 2016. (2)   Thereafter the Health Network is to pay their costs on an indemnity basis for: (i)   the costs thrown away as the result of the failure to admit the issues of causation and breach; (ii)   In Ms Sorbello’s case, for all costs incurred after her 13 April 2016 offer; and (iii)   In Mr Sultan’s case, for all costs incurred from 25 May, the day after the 24 May offer of compromise. (3)   All exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.
Catchwords:	COSTS – departing from the general rule – indemnity costs order sought – failure to conduct litigation in accordance with its statutory obligations – Calderbank offers – discretion to make indemnity costs order established – orders made
Legislation Cited:	Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Ainger v Coffs Harbour City Council (No 2) [2007] NSWCA 212 Buksh by his next friend Buksh v South Western Sydney Local Health Network [2016] NSWSC 649 Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 Curtis v Harden Shire Council (No 2) [2015] NSWCA 45 Huntsman Chemical Co Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 Lahoud v Lahoud [2006] NSWSC 126 McMahon v John Fairfax Publications Pty Ltd [2010] NSWCA 308 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Seller v Jones [2014] NSWCA 19 Sorbello v South Western Sydney Local Health Network; Sultan v South Western Sydney Local Health Network [2016] NSWSC 863 South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 South Eastern Sydney Area Health Service & Anor v King (No 2) [2006] NSWCA 73
Category:	Costs
Parties:	Rosemary Sorbello (Plaintiff) South Western Sydney Local Health Network (Defendant)   Sleiman Sultan (Plaintiff) South Western Sydney Local Health Network (Defendant)
Representation:	Counsel: Mr D Higgs SC (Plaintiffs) Mr M McCulloch SC with Mr S Woods (Defendant)   Solicitors: Beilby Poulden Costello (Plaintiffs) Curwoods Lawyers (Defendant)
File Number(s):	2011/1082302011/108251
Publication restriction:	None

Judgment

1. In Sorbello v South Western Sydney Local Health Network; Sultan v South Western Sydney Local Health Network [2016] NSWSC 863, I found for Ms Sorbello and Mr Sultan in respect of claims they each brought in negligence, for damages for nervous shock suffered as the result of the severe injuries which their son, Joseph, suffered in 2008 at birth at Bankstown Hospital, as the result of oxygen deprivation. The parties later agreed on the orders to be made, other than as to costs.

2. The dispute over costs concerns the question of whether there should be certain departures from the usual costs order under the Uniform Civil Procedure Rules 2005 (NSW). In Ms Sorbello’s case the Health Network accepts that there should be an indemnity costs order in her favour, following its failure to accept an offer of compromise which she made under the Rules in April 2016. In Mr Sultan’s case it is also common ground that even though his damages were quantified to be less than $500,000, a costs order must in all of the circumstances be made in his favour.

3. Whether in both Ms Sorbello and Mr Sultan’s cases an indemnity costs order should be made from 25 January 2016, when the Health Network did not respond to their invitation to make admissions in each case as to causation and liability, which it finally made on the Friday before the commencement of the hearing in May, is in issue. There are also issues arising from its failure to accept certain other offers later made.

4. There is no issue as to the Court’s power to make the orders sought, given its discretions under s 98 of the Civil Procedure Act2005 (NSW).

The evidence

5. Affidavit evidence was led from Ms Henderson, Ms Sorbello and Mr Sultan’s solicitor. She was not required for cross-examination. The Health Network led no evidence.

6. In December 2015 the parties’ experts met and reached a large measure of agreement. The joint report of the experts engaged by the parties on the question of breach of duty of care was dated 9 December and the report of the causation experts, 15 December. Pertinently, the Health Network’s causation expert Associate Professor Kornberg, a paediatric neurologist who had not examined Ms Sorbello and Mr Sultan’s son and had not been instructed by the Health Network with relevant MRI reports, or the report of Professor Flodmark, a neurologist, altered his opinions on relevant matters, during the experts’ conclave, in ways recorded in the 15 December report.

7. At the conclave Associate Professor Kornberg came to an agreement with the other experts, that a period of severe sustained hypoxia-ischemia of 15-20 minutes was the most likely cause of Joseph’s MRI changes and that his pattern of injury was “not that described to occur with chorioamnionitis”, a possibility that Associate Professor Kornberg had considered, before seeing the MRI reports. Whether the injury had occurred towards the end of labour, was not agreed on the basis of the imaging. There was, however, other evidence relevant to that issue in the parties’ hands.

8. On 25 January 2016, Ms Sorbello and Mr Sultan’s solicitors wrote to the Local Health Network about the effect of the views reached in the experts’ conclaves, inviting it to admit causation and breach of duty in each case, for reasons there explained. Notice was also there given that the letter would be relied on in a costs application such as this, if such admissions were not made. There was no response.

9. By further letter of 15 February the Health Network’s attention was drawn to the requirements of s 56 of the Civil Procedure Act and the invitation and warning given in the earlier letter reiterated. Advice was also sought as to any disagreement as to the analysis of the joint reports in the 25 January letter.

10. On 16 February, the Health Network’s solicitor replied, the Health Network declining to admit either breach or causation, but advising that it would consider specific requests to admit a particular breach of duty. On 15 March Ms Sorbello and Mr Sultan’s solicitors responded, inviting admissions of particular breaches. There was again no response from the Health Network, with the result that preparation of the matter for hearing on all issues had to proceed.

11. On 13 April Ms Sorbello served an offer of compromise in the sum of $650,000. It was not accepted. The order finally made in her favour was for an amount of $1,278,459.

12. On 28 April the Local Health Network advised that all experts were required to attend court for cross-examination. Ms Sorbello and Mr Sultan’s solicitor explored whether this was necessary. It was finally agreed that Dr Flodmark could participate by videolink from Sweden. Again, advice was given on 18 May to the Health Network that the correspondence about these matters would be relied on in a special costs application.

13. Ms Sorbello and Mr Sultan then briefed senior counsel and negotiations ensued, which resulted in the settlement of the claim brought by Ms Sorbello as tutor for her son, on 17 May. It is common ground that the settlement involved a modest compromise. It was approved by Button J on 20 May (see Buksh by his next friend Buksh v South Western Sydney Local Health Network [2016] NSWSC 649).

14. On 23 May 2016, Ms Sorbello and Mr Sultan’s solicitors again invited admissions on breach of duty and causation, so that the trial could be confined to an assessment of damages. Advice was also given that the letters would be relied on under Calderbank principles. Again, there was no response from the Health Network.

15. On 24 May, offers of compromise under Rule 20.26 were made by Ms Sorbello and Mr Sultan as to the issues of liability and causation, with damages to be assessed, but reduced by 5%. They were open until 5pm on 26 May, but also expired without response.

16. It was not until 4 pm on the Friday before the hearing, 27 May, that the Health Network’s counsel advised the Court by email that both breach of duty and causation would be admitted at the hearing due to commence the following Monday. The result was that the hearing estimated to require 15 days was concluded in 5.

The parties’ cases

17. On Ms Sorbello and Mr Sultan’s case, the Health Network’s approach had resulted in them unnecessarily incurring substantial legal costs, as well as fees for experts who had been engaged to give evidence at the hearing, who were not finally required. In the result they sought an indemnity costs order either from 30 January 2016, or from the dates of their subsequent offers.

18. The Health Network’s case was that there would be no departure from the usual costs order, given that there had been no relevant misconduct on its part which would warrant the exercise of the Court’s discretion in favour of Ms Sorbello and Mr Sultan. It also contended that their May offers of compromise did not comply with the applicable Rules and did not, in fact, involve any compromise, so that an indemnity costs order could not flow under the Rules from these offers.

The offers of compromise

19. In issue is whether offers of compromise made on 24 May under Rule 20.26 were made in accordance with the Rules. It provides:

“20.26    Making of offer

(cf SCR Part 22, rules 1A, 2, 3 and 4; DCR Part 19A, rules 1, 2, 2A, 3 and 4; LCR Part 17A, rules 2 and 5)

(1)    In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms.

(2)    An offer under this rule:

(a)    must identify:

(i)    the claim or part of the claim to which it relates, and

(ii)    the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and

(b)    if the offer relates only to part of a claim in the proceedings, must include a statement:

(i)    in the case of an offer by the plaintiff, as to whether the balance of the proceedings is to be abandoned or pursued, or

(ii)    in the case of an offer by a defendant, as to whether the balance of the proceedings will be defended or conceded, and

(c)    must not include an amount for costs and must not be expressed to be inclusive of costs, and

(d)    must bear a statement to the effect that the offer is made in accordance with these rules, and

(e)    if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to that interim payment, and

(f)    must specify the period of time within which the offer is open for acceptance.

(3)    An offer under this rule may propose:

(a)    a judgment in favour of the defendant:

(i)    with no order as to costs, or

(ii)    despite subrule (2) (c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff’s costs, or

(b)    that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or

(c)    that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer.

(4)    If the offeror makes an offer before the offeree has been given such particulars of the offeror’s claim, and copies or originals of such documents available to the offeror, as are necessary to enable the offeree to fully consider the offer, the offeree may, within 14 days of receiving the offer, give notice to the offeror that:

(a)    the offeree is unable to assess the reasonableness of the offer because of the lack of particulars or documents, and

(b)    in the event that rule 42.14 applies to the proceedings, the offeree will seek an order of the court under rule 42.14 (2).

(5)    The closing date for acceptance of an offer:

(a)    in the case of an offer made two months or more before the date set down for commencement of the trial—is to be no less than 28 days after the date on which the offer is made, and

(b)    in any other case—is to be such date as is reasonable in the circumstances.

(6),    (7) (Repealed)

(8)    Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer.

(9)    An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides.

(10)    A party may make more than one offer in relation to the same claim.

(11)    Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer.

(12)    A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division.”

20. The May offers provided:

“1.   Verdict and Judgment in favour of the plaintiff on the issue of liability.

2.   Damages to be assessed but reduced by 5%.

3.   This offer remains open until 5:00pm on Thursday, 26 May 2016.

4. This Offer of Compromise is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005.”

21. In Curtis v Harden Shire Council (No 2) [2015] NSWCA 45, offers of compromise in similar terms were accepted as having been genuine and made in accordance with the Rule. Here the Health Network did not accept that the offers involved genuine compromise, because they required capitulation on causation and breach and a trial on damages, despite the offer to accept 5% less than what was assessed at such trial. It was not contended that the offer otherwise failed to comply with the Rule. Whether the offer in truth involved a compromise, was in issue.

22. Rule 42.14 is relevant. It provides:

“42.14   Where offer not accepted and judgment no less favourable to plaintiff

(cf SCR Part 52A, rule 22; DCR Part 39A, rule 25)

(1)    This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer.

(2)    Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff’s costs in respect of the claim:

(a)    assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and

(b)    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.”

23. When that Rule is borne in mind, it is apparent that the offer does fall within the Rules, involving as it does a real compromise.

24. The judgments given in favour of Ms Sorbello and Mr Sultan were more favourable than the offers they each made, as would any judgment in their favour have been, even if causation and breach had not been admitted.

25. What Mrs Sorbello and Mr Sultan were offering to accept, in return for the Health Network’s agreement that the issues still lying between the parties at the time of the May offer as to breach and causation be resolved in their favour without the necessity of the Court’s determination, was a reduction in their assessed damages by 5%. In those circumstances that the May offer involved a compromise on their part is unarguable.

26. Judgment in favour of both Ms Sorbello and Mr Sultan was given in an amount greater than they were prepared to accept in May, if the Health Network had then agreed to admit causation and breach. As Rule 42.14(1) contemplates, both obtained orders more favourable than the terms of their offers. In the circumstances they are entitled to orders for indemnity costs under Rule 42.14, the Health Network not having accepted their offers.

27. If accepted, the length of the trial would have been reduced from 15 to 5 days, as it was when the admissions were in fact later made and Mrs Sorbello and Mr Sultan would have received 5% less than their assessed costs in damages. That outcome provides no basis for the Court ordering otherwise under Rule 42.14, especially when the admissions which the Health Network made shortly afterwards, are taken into account.

28. On the evidence I will discuss below, it is evident that the offers of compromise should have been accepted, as should the Calderbank offers made the preceding day.

An indemnity costs order should be made.

29. The proceedings were commenced in 2011. Defences were filed in March 2012 and in June 2015 the proceedings were listed for concurrent hearing in 2016, together with those brought by Ms Sorbello for their son. The parties’ causation and breach experts met in December 2015, when they produced their joint reports, which the parties then, of necessity, each had to consider if the duties imposed upon them by the Civil Procedure Act were to be met.

30. At trial Ms Sorbello and Mr Sultan succeeded on damages in circumstances where there can be no question that the Health Network’s failure earlier to make the admissions they had sought, resulted in them incurring unnecessary costs. They included the costs which flowed from the engagement of experts who the Health Network had required for cross-examination, before the admissions earlier sought were finally made on the Friday before the commencement of the hearing.

31. As discussed in Oshlack v Richmond River Council (1998) 193 CLR 72’ [1998] HCA 11 at [67], costs are not awarded to punish an unsuccessful party, but primarily to indemnify the successful party for the expense it would not have incurred, if the case had not been defended. His Honour also there identified at [69], the type of misconduct which would disentitle a successful party from such an order as including:

“"Misconduct" in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute.” [footnotes omitted]

32. The Health Network submitted that special costs orders would not be made against it, having regard to authorities which mitigated against the exercise of the discretion against it:

“a)   Maintaining proceedings which are known to have no real prospects of success: Fountain Select Meats (Sales) Pty Limited v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 (fraud alleged with no proper basis) and Colgate Palmolive Co v Cussons Ltd (1993) 46 FCR 225 at 224 (groundless allegations) – both cited by Defendant ;

b)   Abandoned claims. Care must be taken to distinguish hopeless claims and those which are arguable but which are abandoned late when careful consideration leads to abandonment: Lahoud v Lahoud [2006] NSWSC 126 at [23] – [43] abandonment led to narrowing of issues didn’t lead to special costs order; and [44] – [69] – law changed to that which existed at the time.

c)   The general rule is that the late abandonment of a defence or claim is not conduct which justifies a special order for costs: Huntsman Chemical Co Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 at 247”

33. Some of these authorities long predate the enactment of the Civil Procedure Act and the promulgation of the Uniform Civil Procedure Rules. In Huntsman Chemical Co Australia Ltd, for example, an indemnity costs order was refused, the view there taken being that it would be undesirable for the Court, by its costs orders, to discourage the proper, but late abandonment of unwinnable points, which might result if such responsible advocacy was penalised by a special costs order.

34. That approach has been tempered by the consequences of the enactment of s 56 of the Civil Procedure Act, which specifies that the overriding purpose of the legislation is “to facilitate the just, quick and cheap resolution of the real issues in the proceedings”. Parties must now adhere to the duty imposed upon them by s 56(3) “to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court”. Similar obligations are imposed on their legal advisers by s 56(4).

35. As discussed by Allsop P in McMahon v John Fairfax Publications Pty Ltd [2010] NSWCA 308, the important changes to the conduct of civil litigation which were introduced by the enactment of s 56 must be complied with (see at [26] - [30]). One way of complying with that duty is by parties giving proper consideration to offers by which the real issues in the proceedings which require the Court’s resolution are sought to be identified. Thus in Lahoud, where a Calderbank offer had not been accepted, evidence was led as to circumstances in which particular issues were abandoned late. An indemnity costs order was made as to one of those issues, in the circumstances revealed by the evidence there led.

36. That conclusion was consistent with the provision made in s 56(5), which expressly permits the Court to take into account any failure to comply with the obligations imposed upon parties and their lawyers, when exercising its costs discretions. Evidence that an unsuccessful party’s conduct in failing to respond to, or accept offers made before making a late admission, has resulted in unnecessary costs being incurred by the successful party, is thus relevant to the resolution of a dispute over an application for an indemnity costs order by the successful party, contrary to the Health Network’s submissions.

37. For the Health District it was argued, nevertheless, that “parties are entitled to conduct the case on the pleadings until such time as they are in a position to and are willing to make concessions”. Such a course cannot, however, properly be pursued contrary to the duty imposed upon them by s 56.

38. Further, if such a course is pursued by an unsuccessful defendant, it will be at risk of a special costs order being made in favour of the successful plaintiff, if repeated offers of settlement are received and not accepted, especially when, as here, those offers are not even responded to.

39. The circumstances in which an indemnity costs order will be made where a defendant has persisted with an unsuccessful defence, were discussed in Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353. There Basten JA said after referring to earlier authority there cited, that:

“111    Nevertheless, more recent case-law generally shows a tendency to grant indemnity costs orders more readily than was the case in the past. That may be seen to be an element of a broader policy directed to limiting the litigation of cases where there are no reasonable prospects of success: see, eg, Legal Profession Act 2004 (NSW), Part 3.2, Div 10. Such a policy is also reflected in the presumption in favour of an order of indemnity costs where an offer of compromise in accordance with court rules has been made by one party but not accepted by the other and where the offeror has bettered the offer in the litigation. Although the court may otherwise order, the fact that the offeree may be at substantial risk as to an adverse costs order, to be assessed on an indemnity basis, if the offer is bettered, places a significant financial incentive favouring careful consideration of such offers and careful assessment of the benefits of settlement.

112    As appears from the discussion in Commonwealth of Australia v Gretton [2008] NSWCA 117 (Beazley JA, Mason P agreeing) at [48]ff, the test of unreasonableness, applied with respect to the consequences of refusing a Calderbank offer are likely to operate also with respect to other aspects of a party's conduct of litigation: see also Gretton at [117] (Hodgson JA), referring to Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 (Mason P, Clarke AJA agreeing).

113    While the general rule remains that costs should be assessed on a party and party basis, it is important that the standard to be applied in awarding indemnity costs not be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis, absent some blameworthy conduct on its part. A test of unreasonableness should not be upheld on other than clear grounds. ...”

40. In Seller v Jones [2014] NSWCA 19 it was observed at [58]:

“[58]    … An indemnity order may be made in circumstances involving relevant delinquency on the part of the unsuccessful party in order more adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part: Oshlack (at [44]) per Gaudron and Gummow JJ. Such "delinquency" includes continuing or defending proceedings which, properly advised, a party should have known had no chance of success. …”

41. The Health Network argued that this was not such a case and that it was relevant to consider that the 25 January offer did not, in truth, involve a compromise, but was rather inviting capitulation on breach and causation. It also submitted that it could not be the case that a plaintiff is entitled to indemnity costs in any case where admissions are invited and are subsequently made. Such an order rather depends on inappropriate conduct by the defendant being established.

42. I am satisfied that such conduct was here established on the Health Network’s part.

43. When an application for indemnity costs rests on refusal to make admissions and to accept offers, it is relevant to consider the strengths and weaknesses of each party’s case, as they may have been apparent to the parties at the time that the offer was made (see Ainger v Coffs Harbour City Council (No 2) [2007] NSWCA 212 at [30]). Here the Health Network led no evidence about such matters, to resist the case brought against it. What lies in issue has to be determined on the evidence led by Ms Sorbello and Mr Sultan.

44. In South Eastern Sydney Area Health Service & Anor v King (No 2) [2006] NSWCA 73 it was observed at [20]:

“Where an offer is made by the plaintiff to the defendant before the trial, it will often be the case that, unless the plaintiff’s case is fairly revealed, the defendant will not be sufficiently aware of that case to enable him assess that case properly and to determine whether the compromise offered is a reasonable one. However, even then, the defendant’s reasonable belief as to his own chances of success does not alone provide a basis for denying an order for indemnity costs: [2006] NSWCA 2 at [84]–[85].”

45. On the evidence, Ms Sorbello and Mr Sultan’s case had been revealed to the Health Network before the experts’ reports were received in December. When it received the 25 January letter, which explained how their case would be pressed in light of these reports, the Health Network was thus in a position to assess both their cases and its own and to determine its prospects of resisting their claims on breach of duty and causation.

46. On the Friday before the hearing, the Health Network finally accepted Ms Sorbello and Mr Sultan’s position that causation and breach should be conceded, with the result that at trial, only the issues as to damages had to be resolved by the Court. The question is whether that acceptance should have been forthcoming earlier.

47. The Health Network did not explain the delay or its failure to respond to the various offers it received. It was not to suggested that it did not have the resources to deal with the exigencies of the litigation. I am satisfied that the evidence which was led establishes that the admissions as to causation and liability finally made by the Health Network, should have been made earlier, had it adhered to the duty imposed upon it by s 56 of the Civil Procedure Act. The Health Network’s failure to respond to the 25 January letter and the offers there and later made, I consider, was contrary to its obligations under s 56, to assist the Court to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

48. At the time it received the 25 January 2016 letter, the Health Network was not only well aware of how it put its own case, but also of how the case against it was put. It was thus in a position to assess the difficulties it confronted in resisting that case, given what had been agreed by the causation and breach experts in December.

49. The purpose of an expert’s conclave and a joint report is, after all, not only eventually to assist the Court’s understanding of issues which call for expert evidence at trial, but also earlier, to help the parties narrow those issues. On an application for a costs order such as this, the party seeking the order does not have to prove by clear evidence that the other party “never had any case whatsoever which it could defend”, as the Health Network argued. What it rather has to establish is that the failure earlier to make the admissions finally made, should, in the circumstances have been made earlier. I am satisfied that Ms Sorbello and Mr Sultan have done so.

50. Contrary to the Health Network’s arguments, had it not made the invited admissions and failed at trial to defend Ms Sorbello and Mr Sultan’s case on breach and causation, in the circumstances, it would also have been open to the Court to make an indemnity costs order against it. It has long been the case that predecessors to the Civil Procedure Act and the Uniform Civil Procedure Rules imposed on litigants, the obligation to “consider, realistically, upon the best information available to them, the prospects of success and the likely outcome of litigation” (see Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725).

51. In furthering the submission that its conduct did not warrant any special costs order, the Health Network submitted that it was relevant that despite what had been agreed in the causation conclave, its expert had expressed opinions in his earlier reports, relevant to its case as to episodes of hypoxia in the hours prior to birth, on what had been causative of brain damage.

52. Those reports are not in evidence, but all of them, as well as the other relevant evidence, were certainly known to the Health Network at the time that it received the December joint reports and when it had to consider what was raised in the letter of 25 January. It was then in a position to assess what impact those reports had, both on its own case and that advanced against it.

53. The causation joint report importantly revealed that the Health Network had not earlier instructed its expert Professor Kornberg with relevant material. It was his consideration of that material and his discussion with the other experts at the conclave, which led to relevant alterations in his earlier views, as recorded in the joint report, albeit there was not complete agreement reached by the experts on every matter. The Health Network, like Ms Sorbello and Mr Sultan, then necessarily had to consider what impact these developments had on their respective cases. That necessity could not be ignored or avoided by the Health Network when the 25 January letter was received, given the duty imposed upon it by s 56.

54. Before the Health Network made its admissions in late May, what it had received in addition to the joint reports was the analysis of those reports provided in the letter of 25 January; the various later offers made; and the correspondence earlier referred to. There were also discussions between senior counsel. It settled the proceedings brought in favour of Ms Sorbello and Mr Sultan’s son on 18 May, on the basis of a modest compromise, the result of advice given by senior counsel to Ms Sorbello, as to the risks involved in that litigation.

55. There was, however, no evidence that there were any developments after December 2015 in the Health Network’s evidentiary case, or in the way that Ms Sorbello and Mr Sultan were putting their cases, or even that the Health Network was seeking any further evidence, which might assist it to advance its own case.

56. In fact, there is nothing in the evidence which suggests that between the receipt of the joint reports in December 2015 and the admissions made by the Health Network at the end of May 2016, anything changed which might have had an impact on the Health Network’s ability to understand or assess Ms Sorbello and Mr Sultan’s cases on duty and breach; the problems it confronted in defending their claims; and the risks of not making the admissions which they sought, other than the explanation it received in the 25 January letter.

57. On the evidence it must be accepted that the strengths and weaknesses of the Health Network’s case were apparent and able to be appreciated by it and its legal advisers, when it received the letter of 25 January. Had that not been the case, or had there been any relevant developments later, either in an evidentiary sense or in the advice which the Health Network received, which had a relevant impact on its approach to the offers it received prior to the decision it finally conveyed to the Court on the Friday before the commencement of the hearing, thereby making the admissions sought, no doubt it would have led evidence about them.

58. In South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2, there in the context of an offer of compromise made under the Supreme Court Rules then operating, which imposed an onus on the unsuccessful party who had rejected the offer, to persuade the Court that an indemnity costs order should not be made, it was observed at [83] – [84]:

“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, Fowdl v Fowdl, 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.

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.”

59. Here the onus falls on Ms Sorbello and Mr Sultan to establish that the Court should depart from the usual costs order. The evidence relied on established a proper basis for such a departure. In meeting their evidentiary case, there was no suggestion on the part of the Health Network that when it received the 25 January letter it confronted any difficulties in understanding their cases on causation and breach, or that there was any difficulty in understanding or assessing their solicitor’s analysis of the joint reports, or of the offers which Ms Sorbello and Mr Sultan then and later made to it, or of the risks of not accepting them.

60. The Health Network led no evidence to establish that serious thought was then given to the joint reports, or the explanation given in the 25 January letter about their impact, or to offers which it later received, or to the risks involved in their non acceptance. There was also not even evidence that until the Heath Network’s admissions were made in May, it had a reasonable belief that it could resist Ms Sorbello and Mr Sultan’s case on breach and causation, despite what the experts had agreed in the joint report.

61. The Health Network’s failure to respond, not only to the analysis of the joint report in the letter of 25 January, but also to the various offers later made to it, does not establish the existence and pursuit of such a reasonable belief about its chances of success, notwithstanding what had been agreed by the experts at the December conclaves. Such failures leaves a party open to obvious adverse inferences being drawn against it, given the duty imposed upon it by s 56. Silence when such approaches are received is rarely a sensible way in which to adhere to that duty.

62. In this case, Health Network’s failure to respond at all to the January letter, especially by the timely making of the admissions invited, is entirely consistent with a failure to adhere to its obligations under the Civil Procedure Act, by making admissions which ought to have been made long before 27 May, the Friday prior to the hearing, as to matters which it should earlier have accepted should not be put in issue at trial. Had there been a proper assessment of its own case, as well as those of Ms Sorbello and Mr Sultan, when it received the 25 January analysis and their offers, this litigation would have much earlier been confined to what the Health Network finally accepted truly lay in issue between the parties, on the evidence. Much unnecessary work and cost would thereby have been avoided.

63. In all of those circumstances, justice undoubtedly requires that the Health Network indemnify Ms Sorbello and Mr Sultan for the expenses they unnecessarily incurred, as the result of its failure to conduct this litigation in accordance with its statutory obligations.

64. In the result, I am satisfied that a proper basis for the exercise of the discretion to make an indemnity costs order has been established. There ought to have been proper consideration of and a response to the 25 January letter. The failure to do so and then to make the admissions which were finally made only on the Friday before the trial, within a reasonable time of receipt of that letter, is a proper basis for the making of an indemnity costs order. I assess that time to have been 14 days.

65. There was, however, no response within that time frame. Instead, on 15 January Ms Sorbello and Mr Sultan’s wrote again to the Health Network. The response on 16 February conveyed its refusal to make the admissions sought, but invited further representations as to particular breaches. That invitation was responded to, again without a reply. There was also no reply to the further offers which the Health Network later received. There has been no evidence led which explains why this course was pursued.

59. That leaves well open the adverse inferences which Ms Sorbello and Mr Sultan ask the Court to draw from the evidence, so as to reach the conclusion that in the circumstances, they are entitled to indemnity costs for their costs thrown away as the result of the Health Network’s failure to make the admissions sought in relation to breach and causation in January 2016.

60. The failure to accept Ms Sorbello’s April 2016 offer of compromise was accepted by the Health Network as a basis for a general indemnity costs order in her case.

61. I am satisfied that the failure to accept Mr Sultan’s 24 May offer of compromise is also a proper basis for a general indemnity costs order in his case, he having succeeded as he did on breach, causation and damages.

62. In the result, I am well satisfied that a proper basis for a departure from the usual costs order has been established.

Order

70. Accordingly, I order that:

1. The Health Network is to pay Ms Sorbello and Mr Sultan’s costs, as agreed or assessed to 9 February 2016.

2. Thereafter the Health Network is to pay their costs on an indemnity basis for:

1. the costs thrown away as the result of the failure to admit the issues of causation and breach;

2. In Ms Sorbello’s case, for all costs incurred after her 13 April 2016 offer; and

3. In Mr Sultan’s case, for all costs incurred from 25 May, the day after the 24 May offer of compromise.

3. All exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.

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Decision last updated: 24 October 2016