South Eastern Sydney Area Health Service & v King (No 2)

[2006] NSWCA 73

NEW SOUTH WALES COURT OF APPEAL

CITATION:      South Eastern Sydney Area Health Service & Anor v King (No 2) [2006]  NSWCA 73

FILE NUMBER(S):
40358/05

HEARING DATE(S):               The matter proceeded by way of written submissions

DECISION DATE:     13/04/2006

PARTIES:
South Eastern Sydney Area Health Service — First Appellant/Cross-Respondent
Richard O'Gorman Hughes — Second Appellant/Cross-Respondent
Monique Frances King — Respondent/Cross-Appellant

JUDGMENT OF:       Mason P McColl JA Hunt AJA   

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S):          18475/93

LOWER COURT JUDICIAL OFFICER:     Newman AJ

COUNSEL:
Appellants — PR Garling SC & SD Kalfas SC
Respondent — DJ Higgs SC & DE Graham

SOLICITORS:
Appellants — TressCox
Respondent — Turner Freeman

CATCHWORDS:
Appeal by defendants in medical negligence action dismissed and cross-appeal by plaintiff allowed — offer of compromise made by plaintiff pursuant to SCR Pt 22 after defendants’ notice of appeal and after her notice of contention filed and before defendants’ written submissions filed — further offer of compromise made by plaintiff pursuant to UCPR 20.26 after all written submissions filed and before hearing of appeal — application of Civil Procedure Act 2005, sched 6, s 5, to first offer — similarity between SCR Pt 52A r 22(4) and UCPR 42.14 — offer of plaintiff’s compromise after judgment and before hearing of defendants’ appeal raises different considerations from those relating to an offer of compromise before trial — indemnity costs ordered on first offer of compromise.

LEGISLATION CITED:
Civil Procedure Act 2005
Supreme Court Rules 1970
Uniform Civil Procedure Rules 2005

DECISION:
The defendants are to pay the plaintiff’s costs of the appeal and of the cross-appeal up to and including 14 June 2005 on a party and party basis, and thereafter on an indemnity basis.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40358/05

MASON P

McCOLL JA
HUNT AJA

Thursday 13 April 2006

SOUTH EASTERN SYDNEY AREA HEALTH SERVICE & ANOR v KING [No 2]

Headnote

After the defendants’ notice of appeal was filed, and after the plaintiff/respondent had filed a notice of contention and a cross-appeal, she made an offer of compromise to settle the appeal and the cross-appeal.  The date for acceptance of that offer expired before the Uniform Civil Procedure Rules (UCPR) commenced. The defendants’ appeal was dismissed and the plaintiff’s cross-appeal was upheld after the UCPR commenced. The plaintiff/respondent sought an order for indemnity costs.

Held:

1. The issues as to

   (1) whether the plaintiff’s offer complied with the requirements of the Supreme Court Rules (SCR), and

   (2) whether exceptional circumstances justified the defendants’ failure to accept that offer

   are to be tested according to the provisions of the SCR. The issue as to the consequences of that failure is to be determined according to the provisions of the UCPR.

2. SCR Pt 52A r 22(4) and UCPR r 42.14 are in substantially the same terms. Both effectively provide that indemnity costs are to be assessed as from and including the day following the day on which the offer was made.

3. Except in relation to a “fresh evidence” appeal, where the respondent to an appeal makes an offer of compromise after the notice of appeal and before the hearing of the appeal, both parties are familiar with the evidence to be considered in the Court of Appeal.  An appellant will rarely be in the position of being able to assert that he is not aware of the issues which arise in the appeal.  If the plaintiff succeeds in obtaining a judgment not less favourable than the offer as a result of raising a new issue which was not litigated in the trial, there could well be a sufficient basis for denying an order for indemnity costs, depending on the significance of the departure from the issues litigated in the trial.

An order was made that the defendants pay the plaintiff’s costs of the appeal and of the cross-appeal up to and including the date of the offer on a party and party basis, and thereafter on an indemnity basis.

~~~~~~~~~~~~~~~~~~~~~~~~~~~

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40358/05

MASON P
McCOLL JA
HUNT AJA

Thursday 13 April 2006

SOUTH EASTERN SYDNEY AREA HEALTH SERVICE & ANOR v KING [No 2]

Judgment

1. MASON P:   I agree with Hunt AJA.

2. McCOLL JA:  I agree with Hunt AJA.

3. HUNT AJA:  On 1 March 2006, this Court gave judgment on the appeal brought by the appellants (the defendants in the action) and on the cross-appeal brought by the respondent (the plaintiff):  South Eastern Area Health Service & Anor v King [2006] NSWCA 2. It dismissed the appeal, upheld the cross-appeal, and ordered the appellants to pay the respondent’s costs of the appeal and of the cross-appeal: Ibid at [96].

4. The proceedings were brought by the plaintiff against the South Eastern Area Health Service (the first defendant) and the executrix of the estate of the late Professor Darcy O'Gorman-Hughes (the second defendant).  The plaintiff claimed that in 1989, as a result of treatment she had received at the Prince of Wales Children's Hospital (which was operated by the first defendant), she became a quadriplegic because her treatment by the Hospital and Professor O’Gorman-Hughes had been negligent.  The trial judge found in favour of the plaintiff against the first defendant, but not the second defendant, and he awarded her $7,000,000 in damages (the amount agreed between the parties).  The success of the plaintiff’s case against the Hospital depended on the negligence of another doctor, Dr White, in relation to her treatment.  The plaintiff filed a notice of contention in relation to the dismissal of the case against the second defendant and succeeded on that basis, so that the case against the Hospital now depends on the negligence of both doctors. 

5. The plaintiff seeks indemnity costs orders against the defendants in relation to the appeal and the cross-appeal, on the basis of two separate offers of compromise served between the delivery of the judgment in the Common Law Division and the hearing of the appeal.  The application has proceeded by way of written submissions by the parties.

6. The first offer, made on 14 June 2005 pursuant to SCR Pt 22, was in the following terms:

   The plaintiff offers to compromise her claim in the following manner:

   1.by accepting an amount of $6,500,000.00 in respect of the cause of action upon which she claims.

   2.the appellants to pay the respondent’s costs of the substantive proceedings and of this Appeal as agreed or assessed.

   This offer is made without prejudice, except as to costs and is open for 28 days from the date of this offer.

   This offer is made in accordance with part 22 of the Supreme Court Rules 1970.

7. The second offer, made on 12 October 2005 pursuant to UCPR r 20.26, was in the following terms:

   The respondent offers to settle her claim and the appeal on the following terms:

   1.The appellants pay the respondent $6,500,000.00 plus costs as agreed or assessed.

   2.The appellants pay the respondent interest in accordance with the Uniform Civil Procedure Rules from the date of judgment being entered in her favour in the court below to the date of this offer.

   This offer is made without prejudice, except as to costs and is open for 28 days from the date of this offer.

   This offer is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules.

8. The plaintiff contends, and the defendants do not challenge, that the validity of the first offer is to be tested according to the provisions of the Supreme Court Rules, whereas the second offer is to be tested according to the provisions of the Uniform Civil Procedure Rules, which commenced on 15 August 2005.  Whether that is so would depend on the particular issues to be determined.  It must be correct insofar as it is necessary to determine (1) whether the plaintiff’s offer complied with the requirements of the Supreme Court Rules, and (2) whether exceptional circumstances justified the defendants’ failure to accept that offer where the offer and the failure to accept the offer occurred before the new rules commenced.  That is because both those matters, so far as the parties were concerned, were dependent on the terms of the Supreme Court Rules.

9. On the other hand, the situation is different in relation to the determination of the consequences of the defendants’ failure to accept the first offer where that determination is made after the commencement of the new rules. Provision is made in Sched 6 of the Civil Procedure Act 2005 for the application of the new rules to pending proceedings. Clause 5 of Sched 6 provides:

   (1)Subject to subclause (2), this Act and the uniform rules apply to proceedings commenced before the commencement of this Act in the same way as they apply to proceedings commenced on or after that commencement.

   (2)A court before which proceedings have been commenced before the commencement of this Act may make such orders dispensing with the requirements of the uniform rules in relation to the proceedings, and such consequential orders (including orders as to costs), as are appropriate in the circumstances.

   No order was made in these proceedings under s 5(2). 

10. However, so far as they are relevant to this case, it will be seen that both sets of rules are in substantially the same terms.  SCR Pt 52A r 22(4) provides:

    Where an offer is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff then the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall, subject to rule 33, be entitled to an order against the defendant for the plaintiff’s costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to his costs incurred before and on that day assessed on a party and party basis.

    UCPR r 42.14 provides:

    (1)This rule applies if the offer concerned is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim concerned 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.

11. Despite the different language used in each rule, both sets of rules effectively provide that indemnity costs are to be assessed as from and including the day following the day on which the offer was made.  Nothing therefore turns in this case on whether the costs consequences of the defendants’ failure to accept the first offer is assessed according to the old rules or the new rules. 

12. The defendants do not assert any non-compliance by the plaintiff with any of the formal requirements for the making of offers of compromise under either set of rules. Rather, the defendants say that the Court should exercise its discretion under SCR Pt 52A r 22(4) in relation to the first offer, and under UCPR r 42.14 in relation to the second offer, to decline any indemnity costs order.

13. The timetable of the relevant events is as follows:

Judgment in Common Law Division	8 April 2005
Notice of Appeal	9 May 2005
Respondent’s notice of contention	24 May 2005
First offer of compromise	14 June 2005
Appellants’ written submissions	3 August 2005
Commencement of UCPR	15 August 2005
Respondent’s written submission	20 September 2005
Respondent’s amended notice of contention	September 2005
Appellants’ written submissions in reply	October 2005
Second offer of compromise	12 October 2005
Hearing of appeal	16-18 November 2005
Judgment of Court of Appeal	1 March 2006

The amendment to the plaintiff’s notice of contention raised an issue on which she was unsuccessful in the appeal. The time spent on that issue was minimal: see [2006] NSWCA 2 at [95].

1. The parties have each approached the issues to be determined on the basis that the approach taken by the courts to SCR Pt 52A r 22(4) is applicable also to UCPR r 42.14. In the light of that joint approach, it is unnecessary in this case for any decision to be made whether that is so, although such an approach would appear to be correct.

2. As the result of the defendants’ appeal was no less favourable to the plaintiff than the amount specified in both offers, the plaintiff claims to be entitled to an indemnity costs order from the relevant day.  She says that, in order to avoid an indemnity costs order, the defendants must demonstrate that there were exceptional circumstances justifying their failure to accept the offers.  The plaintiff contends that there were no exceptional circumstances in this case, and that at the time when each offer was made the defendants were possessed of all the information they required to understand the case against them properly and to formulate a view as to their prospects of success on the appeal.

3. The defendants respond separately to each offer.  They concede that, prior to the expiration of the first offer, they did have the opportunity to consider the judge’s reasons and to formulate their grounds of appeal.  However, they say that they did not then have all the information they required to formulate a comprehensive view of the prospects of the appeal.  (The first offer was made some five weeks after the notice of appeal was filed and three weeks after the notice of contention was filed.) 

4. The defendants point out that the plaintiff’s written submissions on appeal were approximately 69 pages in length and were filed just over two months after the first offer expired.  They say that the litigation was complex, and that not every matter agitated before the judge was dealt with extensively in his judgment.  They claim that, until they had the opportunity to consider the plaintiff’s extensive written submissions, the full extent of the debate as to the merits of the appeal (including the matters the subject of the plaintiff’s notice of contention) were not exposed to them. 

5. In relation to the second offer, the defendants accept that, by the date of its expiration, they had had an opportunity to consider the plaintiff’s extensive submissions.  However, they point out that, on the final day of the hearing of the appeal, the plaintiff advanced for the first time an argument based on the decision of the House of Lords in Bolitho v City and Hackney Health Authority [1998] AC 232, which, it is claimed, was the antithesis of a submission made by the plaintiff at the trial. The defendants say that the plaintiff was ultimately successful because of a change in position as to the appropriate test of causation, and that, as this change was not communicated to the defendant until the final day of the hearing of the appeal, the making of the second offer does not justify an order for indemnity costs since that offer expired on 10 November 2005, eight days before the appeal was heard.

6. SCR Pt 52 r 22 has been interpreted as requiring a defendant to whom the offer of compromise has been made, where the judgment obtained by the plaintiff is no less favourable than the amount of the offer, to establish exceptional circumstances to deny the plaintiff’s entitlement to an indemnity costs order; the authorities are discussed in [2006] NSWCA 2 at [83]. The fact that the plaintiff’s case has changed significantly between the time when the offer is made and the hearing provides a sufficient basis for denying an order for indemnity costs:  Ibid at [85]. The change must, however, be a significant one: Ibid at [84]–[85].

7. 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].

8. But the situation is quite different where the defendant has appealed and the plaintiff makes an offer of compromise to settle the appeal.  Except in relation to a “fresh evidence” appeal, both parties are at that stage familiar with the evidence which is to be considered in the Court of Appeal and with the issues which arose at the trial.  The defendant/appellant will very rarely be in the position of being able to assert that he is not aware of the issues which will arise in the appeal.  The plaintiff/respondent may have fresh arguments to put, but the issues in the appeal are at that stage very clearly delineated by the defendant’s notice of appeal.  If they are not, the defendant/appellant cannot complain.  Of course, if the plaintiff succeeds in obtaining a judgment not less favourable than the offer as a result of raising a new issue which was not litigated in the trial, there could well be a sufficient basis for denying an order for indemnity costs, depending on the significance of the departure from the issues litigated in the trial.

9. In this case, the defendants have argued that the plaintiff’s reliance on the Bolitho decision in the House of Lords was such a new issue justifying the denial of an indemnity costs order. That decision concerned the issue of causation, which played a significant part in the trial. It was not a new issue in the appeal. It was submitted by the defendants in the appeal that it did not reflect the law of Australia: [2006] NSWCA 2 at [49]. This Court held that the plaintiff’s case fell within the first limb of the statement accepted in Bolitho, but that it was already part of the law on causation in Australia:  Ibid at [51]. Bolitho did not produce a new argument on the issue of causation.  The plaintiff’s reliance on Bolitho was fully consistent with the trial judge’s finding, referred to in [2006] NSWCA 2 at [50]. The fact that the plaintiff had not relied on Bolitho at the trial does not establish the defendants’ argument that her reliance on it in the appeal was the antithesis of her submissions at the trial, and that argument necessarily fails. 

10. The issue of causation in the appeal was therefore not determined by reference to any novel argument or principle of which the defendants could not reasonably have been expected to be aware at the time of the first offer of compromise on 14 June 2005.  The only issue which could possibly be suggested as novel was whether this Court should accept the decision in Bolitho as representing the law in Australia. Although it was unnecessary to determine that issue, it was in fact resolved against the defendants: [2006] NSWCA 2 at [51]. There was no significant change to the plaintiff’s case on the appeal such as to justify the denial of an award of indemnity costs in her favour.

11. No submission has been made that the amount which the plaintiff offered to take in satisfaction of the judgment given in the Common Law Division was not a genuine compromise. 

12. In these circumstances, it is unnecessary to deal with the second offer of compromise made pursuant to the new rules.

13. Accordingly, I propose that an order be made that the defendants pay the plaintiff’s costs of the appeal and the cross-appeal up to and including 14 June 2005 on a party and party basis, and thereafter on an indemnity basis. 

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LAST UPDATED:               18/04/2006