State of NSW v Hatzipetrou

[1999] NSWCA 178

CITATION:	State of NSW v Hatzipetrou [1999] NSWCA 178 revised - 29/06/99
FILE NUMBER(S):	CA 40184/98
HEARING DATE(S):	02/06/99
JUDGMENT DATE:	25 June 1999
PARTIES :	State of New South Wales Dussil Hatzipetrou
JUDGMENT OF:	Giles JA at 1; Fitzgerald JA at 2; Rolfe J at 4

LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S) :	6554/97
LOWER COURT JUDICIAL OFFICER:	Sidis DCJ

COUNSEL:	Appellant - Mr D. Letcher QC/Mr G. Giagios Respondent - Mr S.L. Walmsley SC/Mr M. Whitehead
SOLICITORS:	Appellant - Mr I.V. Knight, State Crown Solicitor Respondent - Turner Freeman
CATCHWORDS:	District Court Appeal:- Damages: past economic loss and loss of future earning capacity - no error of principle in calculating the amounts.; Indemnity Costs: Offer of Compromise made by the plaintiff some four months before the trial and not accepted - judgment for an amount in excess of the offer - application for indemnity costs refused by trial Judge on the ground that as further material was furnished after the making of the offer the defendant did not have a sufficient opportunity to assess it - held that on the particular facts of this case the material furnished after the Offer of Compromise was made was merely confirmatory of the case the plaintiff had always made, so that the defendant had ample opportunity to assess the offer and that, accordingly, the trial Judge's exercise of discretion had miscarried. Held further that costs of the appeal and the cross-appeal should be on an indemnity basis.
CASES CITED:	Marsland v Andjelic (No 2) (1993) 32 NSWLR 649; Morgan v Johnson (1998) 44 NSWLR 578; Houatchanthara v Bednareczyk (Court of Appeal - 14 October 1996 - unreported); Melville v Tadros (Court of Appeal - 21 May 1999 - unreported); House v The King (1936) 55 CLR 499; Ettingshausen v Australian Consolidated Press Limited (1995) 38 NSWLR 404
DECISION:	Defendant's appeal on damages dismissed with costs, such costs to be assessed on an indemnity basis from the date of the Offer of Compromise.; Plaintiff's application for leave to appeal on the question of costs allowed, appeal on that question allowed with costs on the same basis.

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA No 40184 of 1998
DC No 6554 of 1997

GILES JA

FITZGERALD JA

ROLFE AJA

Friday, 25 June 1999

STATE OF NEW SOUTH WALES v HATZIPETROU

JUDGMENT

1    GILES JA: I agree with Rolfe AJA.

2    FITZGERALD JA: The circumstances giving rise to my participation in the determination of the cross-appeal in this proceeding are set out in the reasons for judgment of Rolfe AJA.

3    I agree with the orders which his Honour proposes, and with his reasons for those orders.

4    ROLFE AJA:

Introduction

The plaintiff, who is the respondent and applicant for leave to cross-appeal and for whom Mr S.L. Walmsley of Senior Counsel and Mr G.M. Whitehead of Counsel appeared, was born on 16 January 1961. He left school at the age of about 17 years and, thereafter, engaged in various unskilled employment. He commenced employment as a cleaner with the defendant, who is the appellant and for which Mr D. Letcher of Queen’s Counsel and Mr G. Giagios of Counsel appeared, in 1989. On 24 March 1993, in the course of that employment, he was working at Balmain High School when he fell in some way into a drain and sustained quite severe injuries to his left knee. He was then aged 32 years.

5    The plaintiff commenced proceedings against the defendant in the District Court. They were heard by Sidis DCJ in March 1998 and, on 24 March 1998, her Honour ordered judgment for the plaintiff in the sum of $588,977. The principal components of this amount were $90,000 for past economic loss, which attracted interest of $31,500, and $305,456 for loss of future earning capacity. The defendant’s appeal is limited to an attack on those awards of damages, it submitting that her Honour failed to apply proper principles in reaching these conclusions.

6 On 6 November 1997, some four months before the commencement of the hearing, the plaintiff served on the defendant an Offer of Compromise whereby he offered to compromise his claim by accepting $350,000 plus costs. The offer was stated to be made in accordance with Part 19A of the District Court Rules. It did not specify any time within which it must be accepted. As the plaintiff recovered a judgment no less favourable than the terms of the offer, he sought an order that the costs, as from 6 November 1997, be paid on an indemnity basis. Her Honour declined to make that order for reasons to which I shall refer. The plaintiff seeks leave to cross-appeal out of time against that decision.

The Facts Established

7    Prior to 24 March 1993 the plaintiff had suffered an injury to his right knee. He had also been involved in a gas explosion as a result of which he was thrown against a wall, rendered unconscious and remained in a coma for several weeks. He suffered a closed head injury in this incident, which reduced his cognitive abilities. As a consequence of the injury to his left knee on 24 March 1993 he was forced to place more weight and strain on his right knee, which aggravated its pre-existing condition.

8    The medical evidence, which her Honour accepted, was that the plaintiff would not be able to return to work as a cleaner, although there was no suggestion that he was totally unemployable. However, whilst he was physically able to carry out some light and sedentary duties for limited periods, his capacity in this regard was reduced because of his diminished cognitive ability. The plaintiff also suffered some depression following the accident of 24 March 1993, but it was not suggested that this was permanent.

9    After a detailed and careful consideration of the facts, her Honour found, relevantly for present purposes:

“3. He was prevented, by reason of the injury suffered on 24 March 1993, from continuing in his employment as a cleaner. This finding is supported by the evidence of Dr Wallace, Dr Buckley and Dr Bodel, and conditionally by Professor Jones.
4. The plaintiff will require total knee replacement of the left knee, probably at around the age of 50. This finding is supported by the evidence of Dr Wallace, Dr Buckley and Professor Jones.
5. I am not satisfied on the evidence that the current condition of the right knee is solely attributable to the accident, but I am satisfied that the compounding effect of the injuries to both knees constitutes a significant disability in a 37-year-old man.
6. There is established an absence of effort and motivation on the part of the plaintiff to look for work. There is some residual income-earning capacity, but the plaintiff’s employment options are severely limited by the compounding effect of the injury to the left knee and the pre-existing conditions of the right knee, and his cognitive impairment. It was not until the injury to the left knee that the plaintiff was put in a position where his employment options were so severely limited. I seriously doubt as a matter of practicality that he will find suitable employment, but I have made allowance for a minor level of residual earning capacity in the award made in respect of past and future income.”

10    At the hearing her Honour was furnished with a document headed “Agreements”, which set out a number of amounts upon which the parties had agreed either for all purposes or as a matter of mathematics. That document noted a figure of $98,530 for past loss of wages, which this Court was informed had been reached by calculating the wage loss on comparable rates of a cleaner from the date of the accident to the date of trial and deducting moneys the plaintiff had earned during that period. The document noted that it was not agreed that all of this amount was recoverable.

11    In relation to “future loss of wages”, which obviously is a reference to loss of earning capacity, it was agreed that the then current comparable wage rate for a cleaner was $439 per week net. The plaintiff claimed that amount for twenty eight years with a fifteen per cent discount for vicissitudes. It was agreed that on the appropriate tables that sum so discounted was $370,799.15, but it was not agreed that all of this amount was recoverable.

Past Wage Loss

12    The defendant, both in relation to past wage loss and future loss of earning capacity, fastened upon her Honour’s finding in the first sentence of paragraph 6, which I have quoted. In relation to past wage loss her Honour reduced the figure of $98,530 to $90,000, her reason being:-

“Past wage loss is reduced to take account of the plaintiff’s residual income-earning capacity for the last two years, that is, the years 1996 and 1997.”

13    The defendant’s submission was that the years 1996 and 1997 represented approximately one third of the period for which the plaintiff was being compensated for past wage loss, and that as her Honour had found that there was an absence of effort and motivation on the plaintiff’s part to look for work and that he had a residual income earning capacity for those two years, the reduction she made was inappropriately small, and should have been in the order of one third, namely about $30,000.

14    In my opinion the defendant’s submissions as to the first sentence of paragraph 6 should not be accepted. Whilst her Honour clearly made that finding, it was heavily qualified by what she said subsequently. She recognised, and there was no real issue about this, that there was “some residual income-earning capacity”. However, she equally recognised that employment options were “severely limited”. Mr Letcher submitted that the final sentence of paragraph 6 should be read as a finding that the plaintiff would not find suitable employment because of an absence of effort and motivation to look for work and, perhaps, to perform it. In my opinion that reading is not open. Her finding follows her twice stated conclusion that employment options were “severely limited” and “so severely limited”. In that context what her Honour was saying, quite clearly in my opinion, was that in view of those limitations and having regard to the medical evidence to some of which she referred in paragraph 3, she considered that in so far as the plaintiff retained some earning capacity he would be unlikely to be able to exercise it because of his injuries.

15    If this conclusion required any further support it is to be found in her reasons for reducing the amount to $90,000, namely “to take account of the plaintiff’s residual income-earning capacity”, and in her finding as to loss of future earning capacity to which I shall refer in a moment.

16    In my opinion, this part of the award was within the range of figures open to her Honour on the findings she had made, although towards the higher end of it, and the defendant has not pointed to any reason why this Court should find that the amount was so high as to call for intervention on appeal.

Loss Of Earning Capacity

17    In this regard her Honour said:-

“Future income-earning loss has been assessed on the basis of $439 per week net with a thirty per cent discount to take account of contingencies and the plaintiff’s residual income-earning capacity. The amount allowed is $305,456.”

The defendant submitted that her Honour should have found that the plaintiff could, if appropriately motivated, have returned to gainful employment and that, in that employment, he would have earned approximately $300 per week net. It was submitted that that amount should then have been deducted from the amount of $439 per week net, and an allowance for loss of earning capacity calculated on the basis of the differential, viz $139 per week net. The defendant submitted further that it was an impermissible method of assessing such loss to increase the amount of the discount above the usual rate of fifteen per cent.

18    There are, in my opinion, several compelling reasons why these submissions should be rejected. Firstly, there was no evidence of available work in which the plaintiff could engage at the rate of $300 per week. Her Honour’s findings that his employment opportunities were severely limited meant that she accepted that he would have very great difficulty in finding any form of employment. The defendant’s submission virtually conceded this, it being that the Court should infer that a person, in the plaintiff’s condition, could go into the market place and obtain work at that figure. Her Honour, who was the principal finder of fact, was obviously not prepared to draw any such inference, and nor am I. Secondly, notwithstanding that the plaintiff had been seeking to obtain employment, he had failed to do so. The defendant sought to use the plaintiff’s seeking to obtain employment as a ground for submitting that he was capable of engaging in gainful employment. Rather, in my opinion, it was entirely open to her Honour to find, which in my opinion she did, that his inability to obtain employment was as a consequence of his various physical limitations. Of course, had the plaintiff not sought to obtain employment, he would have been further criticised, and the submission would have been available that having failed to seek it the Court should infer that he was not prepared to work.

19    Thirdly, I am not satisfied that her Honour erred in increasing the discount percentage. This was a permissible method of acknowledging that, notwithstanding the severe limitations on his ability to work, the plaintiff had some residual capacity to do so which made it inappropriate to compensate him on the basis of a total loss of earning capacity and deducting fifteen per cent for vicissitudes. The deduction of the further fifteen per cent represented what her Honour considered was the appropriate adjustment, in the exercise of her discretionary judgment, for such residual earning capacity as the plaintiff retained.

20    In my opinion it has not been shown that her Honour’s approach to the damages issues was incorrect, nor that the amounts she awarded are such as to attract appellate intervention.

The Plaintiff’s Application For Leave To Cross-Appeal

21    On the question of costs her Honour said:-

“The plaintiff has served two Offers of Compromise on the defendant, one in March 1997 and the other in November 1997. Both offers have been considerable exceeded by the amount awarded. The defendant resists an application for indemnity costs from the date of either of those offers on the basis that there was in October 1997 further material presented by way of Dr Buckley and Dr Dent, and in the few weeks and in some cases days prior to the hearing, further evidence presented from Dr Drew, Dr Wallace by way of vocational assessment in relation to the future economic loss, so that the defendant did not have the opportunity of properly assessing the extent of the plaintiff’s claim. It is apparent that a substantial amount of the plaintiff’s claim is comprised of the future economic loss award made, and the material supplied shortly prior to the hearing goes substantially to that issue. In the circumstances, I do not propose to make any award of indemnity costs.”

22    The plaintiff did not contest that he needed leave to cross-appeal against the costs’ orders and, further, that the application to do so was out of time, which, in it itself, required further leave to extend the time. On the time point the plaintiff submitted, and the defendant made no assertion to the contrary, that leave should be granted because there was no prejudice to the defendant or other reason why time should not be extended. In my opinion leave to bring the application for leave to cross-appeal on the question of costs, albeit out of time, should be granted.

A Procedural Difficulty

23    The question whether leave to cross-appeal against the costs’ order should be granted was subsumed in the submissions on the merits, the parties not suggesting that the Court, as constituted, viz by Giles JA and myself, should not determine both the leave application and, if it was thought appropriate to grant leave, the cross-appeal.

24 Whilst there is no doubt that the Court, as constituted, could, pursuant to s.46A of the Supreme Court Act 1970, determine the appeal as to damages, and the applications for leave to cross-appeal, the parties’ attention was directed to whether the Court could, having granted leave, determine the cross-appeal, or whether it should be determined by a Court comprising three Judges. The parties consented to Giles JA and me determining the cross-appeal, and that consent extended to obtaining the appropriate authorisation from the Chief Justice, if that be necessary, to that course, notwithstanding that such authorisation may be given after the hearing and determination of the applications and the cross-appeal. On further reflection Giles JA and I considered that the cross-appeal should be determined by three Judges. The parties were so advised when the appeal was dismissed, and they were asked to take instructions as to whether they wished the Court to be reconstituted by three Judges, i.e. Giles JA, myself and another Judge of Appeal, to decide the cross-appeal, or whether they would agree to its being determined by Giles JA, another Judge of Appeal to be nominated by the President and me, on the basis that the third Judge would reach his or her decision, subject to his or her not wishing to hear oral argument, having regard to all the appeal papers, the written submissions and the transcript of oral argument. As the parties consented to this latter course, it was adopted.

25    By letter dated 16 June 1999 the parties informed the Court that:-

“By consent, the parties request the third option to be exercised whereby an Honourable third Judge of the Court of Appeal will be brought into the hearing of the Cross Appeal and the matter be dealt with by transcript and papers already before the Court.”

My Conclusions On The Cross-Appeal

26    The plaintiff relied only on the Offer of Compromise served on 6 November 1997. It did not provide for the time within which the offer should be accepted. No point was taken about this and, rather, the parties proceeded on the basis that the time within which the offer should be accepted was twenty eight days after the making of the offer.

27    The District Court Rule, applicable to the offer made on 6 November 1997, is Part 39A rule 4, which read at the relevant time:-

“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 than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall, subject to rule 12, 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 the plaintiff’s costs incurred before that time, assessed on a party and party basis.”

28 In considering this aspect of the appeal there are some important principles to be borne in mind. Firstly, it is well recognised that an order for costs is of a highly discretionary nature, such that an appellate Court will seldom intervene in the exercise of that discretion. Secondly, it is well recognised that the Offer of Compromise Rules were inserted for the purpose of bringing about a situation where parties can seek a swift resolution of proceedings without resorting to further litigation, it being both in the private and public interest to bring about prompt and efficient disposal of litigation, which necessarily involves the parties giving serious thought to the risk involved in non-acceptance of an offer and to removing the “inescapably chancy” nature of litigation: Marsland v Andjelic (No 2) (1993) 32 NSWLR 649; Morgan v Johnson (1998) 44 NSWLR 578; Houatchanthara v Bednareczyk (Court of Appeal - 14 October 1996 - unreported) and Melville v Tadros (Court of Appeal - 21 May 1999 - unreported).

29    In Houatchanthara Clarke JA, in considering the rules dealing with an Offer of Compromise, said:-

“The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case.

It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk.”

30    Her Honour exercised her discretion because she did not consider the defendant had the opportunity of properly assessing the extent of the plaintiff’s claim.

31 In House v The King (1936) 55 CLR 499 the High Court, in considering whether there was an error in exercising discretion, said, at p.505:-

“If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the material for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.”

32    In my opinion the present case is one where, if I may say so with great respect, the learned trial Judge has mistaken facts and not taken into account some material considerations. Her reasons for refusing the order disclose that error.

33    It emerged from the Amended Statement of Particulars pursuant to Part 33 rule 8A, which was filed on 27 September 1996, that the plaintiff was seeking by way of future loss of earning capacity the difference between his earnings and the earnings of comparable employees between “24 March 1993 to date and continuing”.

34    The medical reports furnished to the defendant prior to 6 November 1997 made it clear that the plaintiff’s doctors were asserting that he had severely restricted ability to engage in gainful employment. Mr Letcher conceded that, as matters stood when the Offer of Compromise was served, his client was in a position to properly assess it in the light of the material then before it. Accordingly, the provision of further medical evidence in October 1997 could not be a reason for denying the plaintiff indemnity costs. The further question then arose as to whether the material served shortly before the hearing and, on the basis on which the appeal was conducted, after the Offer of Compromise had ceased to be capable of acceptance, raised some new or substantially different case, which would have led to a substantial increase in the plaintiff’s damages such that a proper assessment could not be made.

35    The report of Dr Wallace of 27 February 1998, (AB96-98), referred to the plaintiff’s unfitness for many forms of light work and concluded:-

“Unfortunately he will be unfit to return to his pre-injury duties at work as a Cleaner in the long term. He would be best suited to retraining in work involving only light physical activity or clerical duties on a part-time basis with due consideration given to the restrictions on his activities detailed above.”

In my opinion, this was not different from reports Dr Wallace had given prior to the making of the Offer of Compromise. On 14 July 1997, (AB101), he reported:-

“Unfortunately he will be unfit to return to his pre-injury duties as a Cleaner in the long term. He would be best suited to retraining in work involving only light physical activity or clerical duties on a part-time basis.”

These were the same words as he used in his report of 27 February 1998, although in that report he added “with due consideration given to the restrictions on his activities detailed above”.

36    In his report of 1 July 1996, (AB106), Dr Wallace had made the same comment as appeared in his report of 14 July 1997, which I have quoted.

37    Therefore, in my view, it cannot be said that Dr Wallace provided in the February 1998 report anything other than confirmatory advice.

38    In his report of 5 February 1998 Dr Drew said, (AB112):-

“He is not fit for work which would require even a moderate degree of physical activity. His ability to gain suitable employment is also handicapped because of his poor co-ordination and defective memory following his head injury in 1985.”

39    On 10 July 1997 Dr Drew had expressed the opinion, (AB114):-

“His capacity for work is greatly restricted still because of persistent symptoms in his knees and especially the left knee … His capacity for training in other areas is greatly limited because of the head injury suffered about 1985 following which he has had poor co-ordination and defects of memory. He has very little confidence that he would have adequate concentration or memory to study for anything more demanding than being a gatekeeper.”

40    In his report of 19 July 1996, (AB117), Dr Drew expressed the opinion:-

“He is not fit for work which would require him to be on his feet for long periods of time or which would require frequent bending at the knees, squatting, kneeling etc. He would have difficulty with any job which required much physical activity.”

41    In my opinion the reports of Dr Wallace and Dr Drew, which were served in February 1998, were only confirmatory of the views they had previously expressed, and did no more than further support the case the plaintiff was making prior to the Offer of Compromise.

42    Mr Walmsley submitted that this was a matter with which the doctors qualified by the defendant did not greatly disagree from these views. Dr Bodel expressed the opinion, on 8 December 1995, (AB3):-

“He is not fit for work that requires climbing, kneeling or squatting and prolonged standing may also aggravate the knee. He would be fit for sedentary work and I understand that he is hopeful of retraining in security work or as a gatekeeper.”

43    Dr Cummine expressed the view on 11 February 1997, (AB7):-

“At this late point, one is entirely reliant on the findings of the operating surgeon when attempting to assess the extent of damage suffered in the original accident in 1993.”

44    At AB11 Professor Jones, in a report dated 30 April 1997, said:-

“Ultimately it is my view that Mr Hatzipetrou will find work, but he will need supportive counselling and an empathetic employer to appropriately place him in work in the first instance. I believe him to be independent in personal care and most activities of daily living.”

45    Against this background one has to assess whether it was correct for her Honour to say that the defendant did not have the opportunity of properly assessing the extent of the plaintiff’s claim. I have already held that the service of the reports in October 1997 could not have precluded it from so doing. In my respectful opinion, the subsequent reports, when analysed with the earlier reports given by the same doctors and taken in the context of the case which it was clear the plaintiff was seeking to present, did not bring about a change in that case, let alone such a change as to justify the conclusion that the defendant did not have an opportunity to assess it.

46    In all these circumstances I have come to the conclusion, notwithstanding the caution that must accompany any interference with the exercise of the trial Judge’s discretion in the matter of costs, that her Honour’s discretion miscarried and that, accordingly, leave to cross-appeal should be granted and, further, that the cross-appeal should be allowed.

47    I have dealt with the matter on the basis that the Offer of Compromise remained open for acceptance within twenty eight days as that was the way in which the case was argued. Of course, if one were to take the view that the Offer of Compromise was still open when the later reports were served, the defendant’s position becomes worse. However, I do not proceed on that basis.

Costs Of Appeal

48 The costs to be awarded on an appeal are, generally speaking, governed by the Offer of Compromise: Ettingshausen v Australian Consolidated Press Limited (1995) 38 NSWLR 404. There is nothing in the circumstance of the present appeal to warrant a different approach and Mr Letcher did not seek to submit that this was not the position or that the decision in Ettingshausen did not apply. Accordingly, the costs of the appeal should be determined in the light of the Offer of Compromise. No submission was made that any different consideration should apply to that part of the appeal concerned with the damages issue and that concerned with the costs’ issue.

Orders

49    An order that the appeal should be dismissed has already been made, and these reasons include the reasons for that order. The further orders I propose are that:-

(a) The respondent be granted leave to cross-appeal out of time against so much of the order for costs at first instance as provided that the appellant should pay the respondent’s costs on a party and party basis from 6 November 1997;
(b) The order that the appellant pay the respondent’s costs of the proceedings on a party and party basis be set aside and in lieu thereof it be ordered that the appellant pay the respondent’s costs of the proceedings up to and including 6 November 1997 on a party and party basis and thereafter the respondent’s costs of the proceedings on an indemnity basis;
(c) The appellant pay the respondent’s costs of the appeal on an indemnity basis.

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