Industrial Court of New South Wales CITATION: Wheelahan v North Coast Area Health Service (No 2) [2008] NSWIRComm 244 APPLICANT: John Wheelahan PARTIES: RESPONDENT: North Coast Area Health Service FILE NUMBER(S): IRC 3147 of 2005 CORAM: Boland J President CATCHWORDS: COSTS - UNFAIR CONTRACT - Quantification of applicant's costs - Indemnity costs sought from three dates throughout proceedings - Offer of compromise pursuant to the rules - Principles applied in such circumstances - Indemnity costs denied from date of offer - Two offers of settlement inclusive of costs - Calderbank offer - Whether offer of settlement inclusive of costs may be treated as a Calderbank offer - Reasonableness of respondent to refuse applicant's offers - Indemnity costs denied for both offers. LEGISLATION CITED: Industrial Relations Act 1996 Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors [2006] NSWSC 583 Bowman v Ricegrowers Ltd (formerly Ricegrowers' Co-operative Ltd) (No 2) [2007] NSWIRComm 267; (2007) 168 IR 180 Boyd and Anor v Maxx Implementation Pty Limited and Ors (No 3) [2008] NSWIRComm 200 Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 Calderbank v Calderbank [1976] Fam 93 Chint Australasia Pty Limited v Cosmoluce Pty Limited [2008] NSWSC 768. Commonwealth of Australia v Gretton [2008] NSWCA 117 County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) [2008] NSWCA 273 Day v Smidmore & Ors (No 3) [2006] NSWIRComm 17; (2006) 149 IR 408 DSE (Holdings) Pty Ltd v Intertan Inc and Another [2004] FCA 1251; (2004) 51 ACSR 555 Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322 CASES CITED: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 Fowdh v Fowdh (Court of Appeal, 4 November 1993, unreported) Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 Leichhardt Municipal Council v Green [2004] NSWCA 341 Monie v Commonwealth of Australia (No. 2) [2008] NSWCA 15 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd (No.2); Carelli v FS Architects Pty Ltd (No.2) [2008] NSWCA 205 Rolls Royce Industrial Power (Pacific) Ltd (Formerly John Thompson (Australia) Pty Ltd) v James Hardie and Coy Pty Ltd [2001] NSWCA 461; (2001) 53 NSWLR 626 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Smallacombe and Others v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 Thomas William Vale v Timothy David Eggins (No 2) [2007] NSWCA 12 Wheelahan v North Coast Area Health Service [2008] NSWIRComm 164 HEARING DATES: Parties filed written submissions DATE OF JUDGMENT: 17 December 2008 APPLICANT: Mr P C Moorhouse of Counsel Solicitors: Mr P E Kennedy HWL Ebsworth Lawyers LEGAL REPRESENTATIVES: RESPONDENT: Ms K L Eastman of Counsel Solicitors: Ms V Vinski DLA Phillips Fox JUDGMENT: - 35 - INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: BOLAND J, President Wednesday 17 December 2008 Matter No IRC 3147 of 2005 JOHN WHEELAHAN v NORTH COAST AREA HEALTH SERVICE Application under section 106 of the Industrial Relations Act 1996 JUDGMENT [2008] NSWIRComm 244 1 On 12 September 2008, judgment was given in Wheelahan v North Coast Area Health Service [2008] NSWIRComm 164, in which the fee for service contract entered into between Dr Wheelahan, the applicant, and the respondent, North Coast Area Health Service, as it then was, was found to be unfair. The applicant had contended that there were six ways in which the contract was unfair, but was ultimately only successful in respect of three of those contentions. 2 The Court ordered that the contract be varied to the extent necessary and ordered that the respondent pay compensation to the applicant with interest, as well as an amount of $10,000 in relation to stress and suffering. The parties were directed to file short minutes of order reflecting the decision and to file submissions in regards to costs. Unless either or both parties requested to be heard further on the terms of the final order and costs, the matters were to be dealt with on the papers. No such request was made. This judgment deals with the final order and costs. Application for indemnity costs 3 The applicant submitted that as the successful party and consistent with Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [67] and Day v Smidmore & Ors (No 3) [2006] NSWIRComm 17; (2006) 149 IR 408 at [17], the applicant was entitled to an award of costs in his favour to indemnify him for costs incurred. The applicant submitted that the order sought would not disturb the order made by the Court on 19 February 2008, that the applicant pay the respondent's costs thrown away following the vacation of the original hearing dates. 4 The applicant sought the following costs order: The Respondent shall pay the Applicant's costs of the proceedings, in an amount assessed under the Legal Profession Act 2004 in default of agreement, on a party and party basis up to and including 8 May 2006 and on indemnity basis from 9 May 2006 until entry of judgment. However, this Order is subject to any previous costs orders made in the proceedings. 5 In the alternative, the applicant submitted that the Court should order that indemnity costs be payable from 14 October 2006 or, in the further alternative, from 13 March 2007. The alternative costs order was in the following terms: The Respondent shall pay the Applicant's costs of the proceedings, in an amount assessed under the Legal Profession Act 2004 in default of agreement, on a party and party basis up to and including 13 October 2006 [alternatively, 12 March 2007] and on indemnity basis from 14 October 2006 [alternatively, 13 March 2007] until entry of judgment. However, this Order is subject to any previous costs orders made in the proceedings. 6 The respondent submitted that if costs were to be ordered, then the costs should be payable on a party/party basis as assessed or agreed. Background 7 In deciding whether to award indemnity costs it is necessary to review, briefly, the history of the matter. The applicant filed his Summons for Relief under s 106 of the Industrial Relations Act 1996 on 21 June 2005. A Reply to Summons was filed by the respondent on 15 November 2005 and a Response to Reply filed by the applicant on 23 December 2005. On 5 April 2006, the parties attended a conciliation conference before Staff J, which was ultimately unsuccessful. On 8 May 2006, the applicant filed an Amended Summons, adding a further pleading, and on the same date served on the respondent an Offer of Compromise. As of 8 May 2006, the applicant had not filed any evidence. The Offer of Compromise included that the respondent pay the applicant $100,000 exclusive of costs and interest. The offer was open for a period of 28 days. It specifically stated that it was made in accordance with Part 23 of the Industrial Relations Commission Rules 1996 and would be relied upon in respect of the question of costs. The applicant did not receive any acknowledgement of receipt of the Offer of Compromise from the respondent. 8 On 29 August 2006, the applicant filed an affidavit in the proceedings. On 13 October 2006, the applicant caused to be served on the respondent a settlement offer ('first settlement offer'). The offer was as follows: The North Coast Area Health Service has advised our client that it proposes "to urgently consider recruiting another urologist specialist". If this appointment is made, the opportunity for our client to resume a full case load until the completion of his current appointment on 30 June 2008 will be severely curtailed. Our client is prepared to consider resigning his appointment as part of an overall settlement of his claims against the Area Health Service. The terms of such a settlement will include: 1. Statement that Dr Wheelahan retires in good standing. 2. Payment of the sum of $90,000 inclusive of costs in settlement of the claims for loss of income and other claims made in the proceedings. 3. Dee of Release in relation to the proceedings in the Industrial Relations Commission excluding any claim which would otherwise be the subject of an indemnity under the contract of liability coverage for VMO's bearing date 1 July 2003. We look forward to your client's response. 9 The respondent did not accept the offer and on 16 November 2006 the respondent filed seven affidavits in the proceedings. 10 On 12 March 2007, the applicant served another settlement offer ('second settlement offer') in response to an offer from the respondent of $65,000 inclusive of costs. The applicant's solicitors advised the respondent that Dr Wheelahan did not think the evidence rebutted his claim and that there were numerous factual errors in the respondent's affidavit. The letter continued: Your client's current settlement offer of $65,000 is insufficient to cover the costs incurred by Dr Wheelahan to date. As you know, Dr Wheelahan instructed us in October last year to put a settlement of $90,000 inclusive of costs, which represented a very significant compromise on the potential value of the claim. Further costs have been incurred since that time. In a further effort to achieve a settlement of this claim without the need for both sides to incur substantial additional costs, we are instructed to put a settlement offer of $85,000 inclusive of costs. If this offer is accepted, our client agrees to sign the draft settlement deed you have provided, subject of course to adjusting the settlement sum. 11 The respondent did not accept this offer and there were no further offers subsequent to this. The applicant's claim for indemnity costs, therefore, was on the basis of the Offer of Compromise dated 8 May 2006, and the Settlement Offers dated 13 October 2006 and 12 March 2007. Offer of Compromise 12 The applicant contended that as a result of the Offer of Compromise on 8 May 2006, and pursuant to r 216(4) of the Industrial Relations Commission Rules, the respondent should pay indemnity costs from 9 May 2006. Rule 216(4) provides that: Where an offer is made by an applicant and not accepted by the respondent, and the applicant obtains an order on the claim to which the offer relates no less favourable than the terms of the offer, then, unless the Commission otherwise orders, the applicant shall be entitled to an order against the respondent for costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to costs incurred before and on that day, assessed on a party and party basis. 13 The applicant must, therefore, have obtained an order on his claim that is no less favourable than the terms of the Offer of Compromise rejected by the respondent in order for r 216(4) to apply. At the time of filing the applicant's submissions on indemnity costs, the parties had not agreed on the final amount to be paid to Dr Wheelahan, but it was the applicant's submission that his proposed amount of $399,274.72 excluding interest and the respondent's proposed amount of $394,816.20 excluding interest were both significantly greater than the $100,000 included in the Offer of Compromise. Since this submission was made, the respondent has agreed to the applicant's amount of $399,274.72 excluding interest. This amount is clearly more favourable than the offer of $100,000. 14 The authorities demonstrate that the purpose of r 216(4) is to encourage the proper compromise of litigation in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 at [83]; Bowman v Ricegrowers Ltd (formerly Ricegrowers' Co-operative Ltd) (No 2) [2007] NSWIRComm 267; (2007) 168 IR 180 at [28]. The principles to be applied in respect of an Offer of Compromise were addressed in South Eastern Sydney Area Health Service & Anor v King at [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, Fowdh v Fowdh , 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. 15 In Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109, McColl JA, with Mason P and McClellan CJ at CL in agreement, considered the rationale underpinning the Supreme Court's equivalent rule to r 216(4): [34] In Morgan v Johnson (1998) 44 NSWLR 578 (at 581 – 582), Mason P (with whom Sheller JA agreed) summarised the rationale for the rules relating to offers of compromise as follows relevantly: (1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital (at 725-726); Hillier (at 421, 431). (2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital (at 724). (3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: NSW Insurance Ministerial Corporation v Reeve (at 102); Hillier (at 422). This is because, from the time of non-acceptance 'notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise' : Maitland Hospital (at 724); see also Hillier (at 420). (4) Lying behind the rule is the common knowledge that 'litigation is inescapably chancy': Maitland Hospital (at 725). For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve (at 102-103). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102). As Clarke JA expressed it in Houatchanthara ( at 2-3): '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.' (5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital (at 725-726). Reasons must be given for 'otherwise ordering': Hillier (at 419); Quach ." (my emphasis) [35] The onus is on the respondent to demonstrate why the Court should not order the respondent to pay the appellants' costs on an indemnity basis. In particular, the respondent must establish that it had given serious thought to the risks involved in not accepting the offers, had assessed the appellants' case properly and in the context of the relevant rules and the achievement of their purpose as outlined in Morgan . Generally, exceptional circumstances are required to justify such an order denying the appellants' entitlement: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (at [83]) per Hunt AJA ( Mason P and McColl JA agreeing). 16 In seeking indemnity costs pursuant to r 216(4), the applicant submitted that: .... the onus is on the respondent to persuade the Court that indemnity costs should not be ordered in accordance with the Rules, and generally exceptional circumstances are required to justify denying the applicant's entitlement under the Rules: Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 at [83]; Bowman v Ricegrowers Limited (formerly Ricegrowers' Co-operative Limited) (No 2) (2007) 168 IR 180 at [25]; Great Scott International Pty Ltd & Anor (No 3) v Cosmetic Suppliers Pty Ltd & Anor [2007] NSWIRComm 282 at [17]-[19]. 17 The respondent submitted, however, that the Offer of Compromise was not a reasonable offer and that it was appropriate for the respondent to reject the offer 'without the sanction of an indemnity costs order'. First, it was submitted that the Offer of Compromise was served the same day as the amended summons was filed. 18 Secondly, the amended summons sought damages in the amount of $275,000 for loss of earnings due to restrictions on the applicant's clinical privileges, and for 'compensation for stress and suffering arising out of the applicant's employment by the respondent'. The quantum of damages claimed was subsequently reduced in a further amended summons in February 2008. The respondent submitted that the whole of the claim for damages related to the period 2003 to January 2005 and that the claim for the period 2003 to 13 December 2005 was wholly unsuccessful. 19 Thirdly, the Offer of Compromise inflated the applicant's claim. The respondent submitted that based on the substantive judgment and the applicant's submissions, Dr Wheelahan's loss of earnings as at May 2006 was $53,300. 20 Fourthly, the respondent was not in a position as at May 2006 to consider the offer as an offer seeking to compensate the applicant up to 30 June 2008. The respondent submitted that up until 18 February 2008, the date the applicant informed the respondent that he had no intention of returning work, the respondent expected that the applicant might have returned to work at some point. The respondent had communicated with Dr Wheelahan concerning the likely length of his leave, and subsequently sick leave, but the respondent received either no response from the applicant or was provided with medical certificates indicating that Dr Wheelahan was unfit to work for a specified period of time. The relevant medical certificate as at May 2006 indicated that Dr Wheelahan would be unfit from 11 January to 11 July 2006, but there was no indication that the applicant would never return to work. It was submitted, therefore, that it was not reasonable for the respondent to have accepted the Offer of Compromise in May 2006 on the ground that the applicant had no intention of returning to work and would be unfit for work until 30 June 2008. 21 Fifthly, as of 8 May 2006, the date of the Offer of Compromise, the applicant had filed no evidence nor had it foreshadowed any evidence from Dr Eaton. Significantly, the evidence of Dr Eaton, which the respondent submitted was material to the applicant's claim, was not filed until 7 March 2008, with a further affidavit having been filed on 23 May 2008. The first time the respondent was made aware by the applicant that Dr Eaton would be called as a witness was February 2008. Therefore, the respondent submitted that when the offer was made it did not have the benefit of any evidence relevant to determining the claims as set out in the amended summons. 22 Sixthly, the respondent submitted that as a result of amendments in the further amended summons in February 2008 and the eventual admission of Dr Eaton's evidence, the case that was run in June 2008 differed from the claim that was the subject of the Offer of Compromise in May 2006. 23 The respondent submitted that in light of these issues, its rejection of the offer was reasonable and that based on the material available and the applicant's communications regarding his leave, the respondent had assessed the applicant's case properly. As such, the Court should not treat the Offer of Compromise as grounds for ordering indemnity costs. 24 In reply, the applicant submitted that he was ultimately awarded compensation based on his loss of hospital earnings due to unfitness for work from 14 December 2005 onwards. Further, that it was: ...correct that, during the period that the Offer of Compromise was open for acceptance, the respondent was not able to know whether or when the applicant would be able to return to work, and thus could not know with any certainty what the extent of the applicant's loss of earnings would ultimately be. However, during that period the respondent was aware that the applicant wished to take a period of extended leave and was closing his consulting rooms, and was provided with a medical certificate from Dr Eaton which stated that he was unfit to perform his professional duties until 11 July 2006. During period that the Offer was open for acceptance the applicant told Ms Bennett that he had closed down his practice, although it could be started up again with difficulty. Accordingly, at the time of considering the Offer the respondent was aware that the applicant was unfit to return to his duties until 11 July 2006, and was on notice of the possibility that the applicant would not return to work at all, or for a significantly longer period. Difficulty in putting an accurate value on the applicant's case at this stage of the litigation does not, of itself, provide a basis for denying the applicant's prima facie entitlement to indemnity costs: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [84]. 25 Finally, the applicant rejected the respondent's contention that the claim prosecuted at hearing in July 2008 differed significantly from the claim set out in the amended summons. The applicant noted that the amended summons introduced the claim for loss of earnings due to unfitness for work and introduced as a relevant matter that the respondent's conduct had caused the applicant to suffer stress and anxiety. Further, that on 14 December 2005, Dr Eaton had certified that Dr Wheelahan was unfit to work by reason of anxiety and depression. The applicant submitted that this was consistent with the claim prosecuted successfully in the hearing. 26 Generally, exceptional circumstances are required to displace the applicant's entitlement to indemnity costs under r 216(4). However, other circumstances may exist where an order for indemnity costs sought pursuant to this rule may be denied. In South Eastern Sydney Area Health Service & Anor v King at [85] the Court of Appeal said: ......the fact that the plaintiff's case had changed significantly between the date of the plaintiff's offer and the trial in which the judgment obtained is higher than the amount of the offer does provide a sufficient basis for an order denying the plaintiff's entitlement to indemnity costs: Maitland Hospital v Fisher [No 2] (at 725). The very nature of the situation itself demonstrates that it would be unfair to a defendant to make an order for indemnity costs when the evidence at the trial is different from that known to the defendant at the time of the offer. Whether or not this is an "exceptional" situation does not matter. 27 In Rolls Royce Industrial Power (Pacific) Ltd (Formerly John Thompson (Australia) Pty Ltd) v James Hardie and Coy Pty Ltd [2001] NSWCA 461; (2001) 53 NSWLR 626 at [95] Stein JA, said: I can see no error in his Honour's decision on the failure of the Calderbank offer. The cross-claim by James Hardie was late and was not a circumstance at the time of the offer of 4 June 1999. Surely what must be relevant is the circumstances which exist at the time the offer is made? The cross-claim produced a change of circumstance which, if in existence as at 4 June 1999, would have been likely to have produced a different complexion to the litigation so far as Rolls Royce was concerned. There is English authority which supports this — Gaskins v British Aluminium Co Ltd [1976] QB 524 and Proetta v Times Newspapers Ltd [1991]1 WLR 337; [1991] 4 All ER 46. A similar stance was adopted by Mahoney A-P in Fowdh v Fowdh (Court of Appeal, 4 November 1993, unreported) cited by Curtis J. Mahoney A-P noted that after expiry of the offer and the time in which to accept it, two things emerged which significantly changed the situation. He said (at 6): "... It is one thing for a plaintiff to present her evidence, make an offer of compromise, and to succeed at the trial on that evidence. In such a case, indemnity costs may be warranted. It is another thing for the plaintiff to present a case and make an offer of settlement, and then to succeed at the trial upon a relevantly different case. A plaintiff who has done that may not readily receive indemnity costs. I do not mean by this that minor differences between the case at offer and the case at trial will be of significance or that, if the difference be significant, a discretionary judgment for indemnity costs may not be given. But where the difference between the position at offer and the position at trial be as the Master assessed it to be, a decision to refuse indemnity costs may readily be understood." 28 Although Rolls Royce Industrial Power (Pacific) Ltd (Formerly John Thompson (Australia) Pty Ltd) v James Hardie and Coy Pty Ltd, was concerned with a Calderbank offer, I am of the opinion that the principle is also applicable to an Offer of Compromise. 29 In Thomas William Vale v Timothy David Eggins (No 2) [2007] NSWCA 12, the Court of Appeal considered whether indemnity costs should be paid by the applicant where the respondent had made an Offer of Compromise, despite not serving all the medical reports which were in his possession at the time. The applicant in that case submitted that as medical and other expert reports on damages were served after the Offer of Compromise, it was not possible for the appellant to assess the merits of the respondent's offer when it 'did not have any significant evidence contrary to that which had already been obtained and served in his case'. At [22], Beazley JA, with McColl and Bryson JJA in agreement, said: However, the other matters raised by the appellant do warrant further consideration. In my opinion, there is merit in these points. As I have already indicated, the respondent, at the time that he made the offer of compromise, had not served all the medical reports which he already had in his possession. In those circumstances, when the respondent already had material in his possession which he did not serve, and which was relevant to an assessment of the offer made, he ought not to be entitled to the favourable costs provisions under the Rules. It is not an answer, as submitted by the respondent, that the appellant could have himself made an offer of compromise once all the evidence was in his possession. 30 Having regard to the facts in this case and the relevant authorities, I am satisfied that the applicant's application for indemnity costs from 8 May 2006 should be refused. I make this decision for the reasons that follow. The Offer of Compromise was served on the same day that the amended summons was filed and at a time when the applicant had not yet put on any of its evidence. Although the parties had attended conciliation, without the benefit of evidence the respondent was not in a position to consider the case it was to meet. To expect the respondent to accept the Offer of Compromise, without the opportunity to assess the merits of the applicant's case, was clearly unreasonable. 31 Secondly, Dr Eaton's evidence was crucial to the hearing and subsequent orders made by the Court in the substantive judgment. Yet as at 8 May 2006, the respondent was not aware that Dr Eaton would be giving evidence in the proceedings, nor had the applicant served or filed any evidence regarding Dr Eaton. The affidavits of Dr Eaton were not subsequently filed until 7 March 2008 and 23 May 2008. 32 It is true that the amended notice filed on 8 May 2006 included a claim for ongoing loss of earning due to unfitness for work. The applicant sought $275,000 in damages, including $15,000 for 'compensation for stress and suffering arising out of the applicant's employment by the respondent'. In addition, the following paragraph was inserted into the pleadings: The conduct of the respondent since May 2003 has caused the applicant to suffer stress and anxiety. Since 31 May 2004 he has been under treatment from Dr Warwick Eaton, consultant psychiatrist. On 14 December 2005, the psychiatrist certified that, in his opinion, the applicant is unfit for work by reason of anxiety and depression. 33 The respondent was, therefore, on notice of the nature of the applicant's claim, that is, that the conduct of the respondent had resulted in the applicant suffering anxiety and depression, and as a result was unfit to work. Further, as a result of the insertion of the above paragraph, the respondent should have been aware of the possibility that Dr Eaton would play a role in proceedings. However, the amended summons was only served and filed on the same day as the offer and at the time of the offer the applicant had provided no evidence regarding Dr Eaton. 34 The evidence of Dr Eaton was a central component of the applicant's case. The applicant's submissions at hearing included that the unfairness alleged in the contract had so affected the applicant that it caused his psychiatric illness of adjustment disorder with depression and anxiety and had rendered him unfit to work. As such, he was entitled to a loss of earnings in the period that he was declared unfit to work. As to Dr Wheelahan's unfitness to work, he relied on the evidence of Dr Eaton and submitted that it should be favoured over other medical evidence tendered in proceedings. Specifically, in his evidence Dr Eaton stated that Dr Wheelahan 'was unfit to perform his professional duties because of his symptoms of depression and anxiety' which were 'a reaction to his situation in his relationship with the Area Health Service'. 35 In the substantive judgment, the Court found that the contract was unfair because the respondent allowed the process of review of the applicant's clinical competence to be unreasonably and unfairly delayed, failed to act in a procedurally fair manner, and imposed on the applicant a requirement to regain his clinical privileges that was not reasonably capable of being carried out. As a result of these findings, the Court varied the contract and in determining compensation, considered the periods of leave taken by the applicant and the period of leave when the applicant was psychiatrically unfit for work. 36 The Court said: [238] In my opinion, for the first three months after the applicant was advised of the review, it was reasonable for him to take leave. He understood the review would take about two to three months and he was obviously uncomfortable about working in the Hospital in circumstances where he was unable to do so using his full clinical privileges. By September 2003, however, notwithstanding his concern about working in the Hospital environment, it was only reasonable that the applicant re-assess his position in light of the fact that he did still not know when the review was to be undertaken. [239] As the respondent submitted, the applicant continued to work at Baringa (although taking regular time off) in circumstances where he was not performing nephrectomies and some of the medical practitioners he was working with at the private hospital were the same as those he encountered at the Hospital. This diminishes the strength of the applicant's submission about having to work with colleagues at the Hospital who the applicant believed "were responsible for speculation and innuendo about my competence as a surgeon." [240] Although I consider the respondent's reliance on the authorities relating to mitigation was somewhat misplaced, I accept that as a matter of justice between the parties, the applicant had an obligation to take reasonable steps to mitigate his loss in the face of the respondent's failure to expedite the review. I do not accept he was entitled to opt to take unpaid leave when he was capable of undertaking the work at the Hospital, albeit not to the full extent of his clinical privileges, and when he was invited, indeed urged, to return to work at the Hospital. [241] I accept that the applicant continued to feel anxious and stressed at the situation in which he found himself after three months and when no real progress, in his mind, had been made in respect of conducting the review. But the stress at this stage was not at such a level the applicant was unable to perform the work or that the applicant felt it necessary to consult a psychiatrist for treatment. It was not until May 2004 that the applicant consulted Dr Eaton about feelings of depression. [242] I take the view that up to September 2003, which was the expiry of the period indicated by the respondent (up to three months) for the review to occur, the respondent cannot be held to account for any unfairness that might attract compensation. From September 2003 to May 2004, I consider the applicant had an obligation to mitigate his loss by resuming work at the Hospital. Therefore, no question of compensation arises in respect of this period. 37 The Court further found that compensation should not be ordered from May 2004, when Dr Wheelahan first consulted Dr Eaton, to December 2005, when he was declared unfit by Dr Eaton. The Court stated that the applicant had not sought to rely on his psychiatric unfitness to work as the basis for taking leave until December 2005, that the opportunity to perform work at the hospital was still open, and that the applicant had informed the respondent in December 2004 that he had intended to return to work in January 2005, and in fact did so. 38 However, the Court found that for the period 14 December 2005, the date Dr Eaton declared Dr Wheelahan unfit to work, to 30 June 2008, which was the date that the contract expired, the applicant was entitled to compensation, less any money earned by the applicant in the period December 2005 to March 2006. The Court said at [247] - [248]: [247] In December 2005, the applicant decided to cease practice. This decision coincided with Dr Eaton certifying for the first time that the applicant was unfit to perform his professional duties from 14 December 2005. I have no doubt that the unfair contract permitting, or failing to prevent, as it did, the conduct of the respondent, was the major cause of the applicant's anxiety and depression and the main reason why the applicant decided to cease practice when he did. The failure of the respondent to manage the review process so that it was completed in a timely manner meant that the applicant was deprived of the benefit of having his clinical competence determined within a reasonable timeframe. [248] The additional failures of the respondent to put in place recommendations that were reasonably capable of being carried out by Dr Wheelahan, to act with reasonable expedition and to provide reasonable assistance to Dr Wheelahan in relation to those recommendations, meant that the opportunity for the applicant to take steps to regain his full clinical privileges was further delayed throughout most of 2005. As a consequence, the applicant's mental state reached a point where he was no longer fit to carry out his professional duties. By December 2005 Dr Wheelahan was, understandably, mentally exhausted by the unjustifiably lengthy process he was required to endure. Moreover, it is reasonable to expect that by December 2005, if a proper mentoring process had been put in place by the respondent, with the applicant given the right to perform nephrectomies under supervision, it is highly possible the applicant would have been in a position to demonstrate that his full privileges should be restored and he would, thus, have returned to his maximum earning capacity. 39 The Court, ultimately, favoured the evidence of Dr Eaton regarding the applicant's fitness to work, and it was the period that Dr Wheelahan was declared unfit to work by Dr Eaton in respect of which the Court ordered the respondent to pay compensation to the applicant. The applicant was not successful in obtaining damages for any other component of his claim. The evidence of Dr Eaton was crucial to the order eventually obtained by the applicant, but was not available to the respondent at the time of the offer. It would be unreasonable to require the respondent to pay the applicant's costs on an indemnity basis from 9 May 2006 when, as at the time the offer was open, the respondent was not aware of what Dr Eaton's evidence would be. 40 I also accept the respondent's submission that at the time of the offer it was not in a position to consider the applicant's loss of earnings up until 30 June 2008. Although the respondent should have been on notice that the applicant might not have returned to work, until it was informed otherwise it was entitled to believe that he might. 41 I disagree, however, with the respondent's contention that the applicant's claim for damages in the amended summons was wholly unsuccessful. The respondent was ordered to pay to the applicant $10,000 in relation to stress and suffering arising in the course of Dr Wheelahan's employment. Further, I find that the case that was eventually prosecuted was not so different to that in the amended summons. As Mahoney A-P said in Fowdh v Fowdh (Court of Appeal, 4 November 1993, unreported), it is necessary that there was not just a minor difference between the case at offer and the case at trial, but rather a significant difference. Although the amended summons was filed the same day as the offer, it did include the claim in relation to stress and suffering. 42 Nonetheless, I am satisfied that the totality of the situation facing the respondent at the time of the Offer of Compromise, in particular the lack of evidence and uncertainty regarding the applicant's employment, is sufficient to deny an order for indemnity costs pursuant to r 216(4) of the Rules from 9 May 2006 until entry of judgment. First Settlement Letter 43 In the first alternative, the applicant submitted that the respondent should pay indemnity costs from 14 October 2006, which is the day after the first settlement offer was served on the respondent. The terms of the offer were on a 'without prejudice save as to costs' basis and set out the terms in which the applicant was prepared to settle his claim. They included that Dr Wheelahan would resign from his position, that the respondent would provide a statement of Dr Wheelahan's good standing and pay to Dr Wheelahan an amount of $90,000 inclusive of costs. The respondent rejected the offer. 44 The applicant submitted that the Court should treat the offer as a Calderbank letter and that as the applicant had ultimately obtained orders for compensation that were considerably more favourable than the terms of the offer rejected by the respondent, it was appropriate to order indemnity costs from 14 October 2006. The respondent submitted that the offer was made inclusive of costs and as such did not conform with the rules for Calderbank letters as laid down in Calderbank v Calderbank [1976] Fam 93. 45 There is a significant amount of authority on Calderbank offers and indemnity costs. The concept was succinctly explained by the Court of Appeal in Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322: [97] A Calderbank letter is the appellation given to a letter which conforms to the structure of that deployed in Calderbank v Calderbank , namely one which is marked "without prejudice", makes an offer of settlement, and warns that the letter will be relied upon on the question of costs if and when that issue arises: Messiter v Hutchinson (1987) 10 NSWLR 525. "Calderbank offers" are well recognised means of making offers of settlement in circumstances where the party making the offer ultimately seeks a costs advantage if the offer is not accepted: Jones v Bradley (No 2) [2003] NSWCA 258 (at [5]). [98] The general principles concerning Calderbank offers were set out in Jones v Bradley (No 2) where the Court approved Giles JA's statement in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (at [37]) that: "The making of an offer of compromise in the form of a Calderbank letter … where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the Court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure …" 46 It is clear from the authorities that an offer and subsequent rejection of a Calderbank offer will not automatically result in indemnity costs in favour of the offeror: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Leichhardt Municipal Council v Green [2004] NSWCA 341; Chint Australasia Pty Limited v Cosmoluce Pty Limited [2008] NSWSC 768. The award of indemnity costs based upon a Calderbank offer involves the exercise of the Court's discretion: Monie v Commonwealth of Australia (No. 2) [2008] NSWCA 15 at [11]. In Leichhardt Municipal Council at [47] the Court of Appeal said that: It is preferable to consider applications for indemnity costs following unaccepted offers of compromise by defendants as being applications for a favourable exercise of the Court's general discretion to award indemnity costs. As far as Calderbank offers go there is very little difference, the costs consequences of these lying entirely within the Court's general inherent discretion on costs. 47 The Court of Appeal recently considered Calderbank letters and indemnity costs in County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) [2008] NSWCA 273. In that case, the Court outlined the discretionary nature of awarding indemnity costs and held that the person making the application for indemnity costs bears the onus of proving that indemnity costs should be awarded. The Court further said: [32] An offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise. Whether or not an offer is a genuine offer of compromise or merely a demand to capitulate depends upon an assessment of all the circumstances of the case at the time: Leichhardt Municipal Council v Green (at [21], [27]) per Santow JA (with whom Stein JA agreed); see also Herning v GWS Machinery Pty Ltd (No. 2) [2005] NSWCA 375 (at [4]); Gretton (at [44]) per Beazley JA (Mason P agreeing); cf Hodgson JA (Mason P also agreeing) (at [115]). [33] Other principles governing Calderbank offers were set out in Elite as follows: [98] The general principles concerning Calderbank offers were set out in Jones v Bradley (No 2) where the Court approved Giles JA's statement in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (at [37]) that: 'The making of an offer of compromise in the form of a Calderbank letter … where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the Court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure …' [99] In Leichhardt Municipal Council v Green [2004] NSWCA 341 (at [46]) Santow JA (with whom Stein JA agreed) reviewed the authorities concerning Calderbank letters. His review demonstrated that such a letter would only justify an order for costs on an indemnity basis, rather than the ordinary basis, if it constituted a genuine offer of compromise, which it was unreasonable for the appellant not to accept: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 (at [4]) per Handley, Beazley and Basten JJA. Among the issues germane to the question of the reasonableness of the offeree's conduct will be whether the offeree had an 'appropriate opportunity … to consider and deal with the offer': Donnelly v Edelsten (1994) 49 FCR 384 (at 396) (Full Court of the Federal Court, Neaves, Ryan and Lee JJ)." 48 The onus, therefore, is on the applicant to show that the respondent's conduct in rejecting the offer was unreasonable: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]; County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) at [31]; Commonwealth of Australia v Gretton [2008] NSWCA 117 at [117]. In demonstrating the respondent's unreasonableness in rejecting the offer, the applicant has to prove that the offer on 13 October 2006 was a genuine offer of compromise, and that there was an appropriate opportunity for the respondent to consider and accept the offer: Boyd and Anor v Maxx Implementation Pty Limited and Ors (No 3) [2008] NSWIRComm 200 at [30]; County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2); Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4]. 49 As the respondent contended that the letter of offer dated 13 October 2006 did not comply with the requirements of a Calderbank offer, it is necessary to address the authorities that deal with the question of whether an offer made inclusive of costs can be treated as a Calderbank letter. In Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors [2006] NSWSC 583 at [40]-[41], Einstein J said: [40]It has been held that a Calderbank letter which is expressed to be "inclusive of costs", is insufficiently precise to qualify as a Calderbank offer, for the reason that the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim and the costs incurred in advancing it: Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102; Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Pty Ltd) [1998] 1429 FCA 11, BC9805993 ( Smallacombe Pty Ltd v Lockyer Investments Co Pty Ltd was referred to by Young J in Rosser v Maritime Services Board of New South Wales (No 3) (unreported, Supreme Court of New South Wales, 25 November 1997, Young J, BC9706221). [41]These authorities recognise the importance of isolating the costs component in such a way which is clear and capable of proper assessment independently of the principal claim, as part of a Calderbank letter. 50 In Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322, McColl JA at [100]-[103] gave extensive consideration to the authorities on the issue: [100] There is a line of authority, commencing with Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97, to the effect that a Calderbank letter expressed to be inclusive of costs will not warrant departure from the usual basis upon which a successful party's costs are calculated. Einstein J applied these authorities in Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (Formerly GIO Insurance Limited) and Ors [2006] NSWSC 583… [101] Campbell J made the same point in White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 910, where he observed, applying Baulderstone : [12] Further, there is a line of authority whereby, when a plaintiff makes a claim for an order involving payment of money, it is not appropriate for that plaintiff to serve a Calderbank letter offering to settle its claim for a particular sum of money inclusive of costs: Smallacombe & Others v Lockyer Investment Co Pty Ltd (1993) 114 ALR 568 at 573; Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [22]-[24 ] Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors [2006] NSWSC 583 at [40]-[41]. I agree with Einstein J, in the last-mentioned case, that the reason why in those circumstances the Calderbank offer is inappropriate is that, '… the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim', as opposed to the costs incurred in advancing it. In my view that principle is applicable in the present case, as damages was one of the elements of the claim which the plaintiffs made, and paragraph 5 of the Calderbank offer rolls together an amount offered to be paid for both damages and costs. [102] Gillard J did not apply Smallacombe in M T Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No 3) [2000] VSC 163. His Honour (at [125] – [126]) was of the view that a Calderbank letter could be expressed to be on an all-inclusive basis. He observed that many cases were settled on an "all in" basis and "[t]here is little difficulty in making an assessment of the likely amount of the claim and costs". [103] In an ex tempore judgment in DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1251; (2004) 51 ACSR 555 (at [12]- [13]), Allsop J referred to Smallacombe , Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Pty Ltd) [1998] 1429 FCA (Federal Court of Australia, Moore J, 11 November 1998, unreported) and Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602. He did not regard Smallacombe as having articulated "a definitive rule that in an application for costs, an offer that was an all inclusive sum could not, in any circumstances, be taken into account by a Court in considering whether thereafter indemnity costs should be awarded". 51 At [111]-[116] McColl JA continued: [111] The Smallacombe line of authority has been developed by experienced trial judges whose views, in my opinion, should be accorded great weight. The underlying premise of such cases rests in the proposition that an offeree cannot be said to have acted unreasonably in not accepting an offer expressed to be inclusive of costs, because of the offeree does not have an adequate opportunity to consider the offer and because of the difficulties posed when a court comes to consider the reasonableness of the offeree's conduct in rejecting/not accepting it. In other words such an offer presents practical difficulties. [112] First, the recipient of such an offer would not know the likely party and party costs to date on taxation or assessment: see Smallacombe (at 102); Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) . Secondly, in considering the reasonableness of the offer at the time the question of its costs consequences arose, it would be necessary to indulge in a taxation, or assessment, of costs: Associated Confectionery (at 351). The Court should not be required to postpone the decision as to the basis upon which costs should be awarded while awaiting the outcome of that exercise. Nor should it be required either to speculate as to what the outcome of an assessment might be, nor arbitrate on a dispute between the parties on this topic. [113] In Sm allacombe (at 102) Spender J opined that "all-in" offers "would not promote the finality of litigation, but fragment it", a proposition implicitly recognised by Cole J (as his Honour then was) in W Jeffreys Holdings Pty Ltd v Appleyard and Associates (1990) 10 BCL 298 when he said "[g]reat difficulty is encountered if offers are framed in Calderbank letters on an inclusive of costs basis. It leads to ex post facto and unsubstantiated estimates of what costs may have been at a given date". [114] In my view, the point was well made by Goldberg J in Dr Martens where his Honour said: "[24] If the purpose of a Calderbank letter is to offer to bring litigation to an end it should be couched in such terms as enable the offeree to make a carefully considered comparison between the offer made and the ultimate relief it is seeking in all its aspects. An offer inclusive of costs confuses this issue as it puts the offeree in a position of not being able to determine the appropriate amount to attribute to the money sum it is seeking. Although an estimate can be made of what the offeree's taxed party and party costs might be at the time of the offer, the offeree is not being offered the opportunity to have those costs assessed by taxation in default of agreement, in addition to being made an offer to settle its claim. As a matter of principle, if a party is to be put at risk of losing its costs, even if ultimately successful, by not accepting an offer made to settle or compromise the proceeding at a point of time prior to trial, that risk should only be imposed if the party is given the opportunity, at the time of the offer, to obtain its taxed costs to date in addition to the offer made, knowing that it has been able to make a careful comparative assessment of the value of the offer as against the ultimate relief sought to be obtained." In GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited [2003] FCA 688; (2003) 201 ALR 55 Finn J referred (at [34] – [36]) to the views expressed in the Smallacombe line of authority and in M T Associates Pty Ltd v Aqua-Max Pty Ltd (No 3), and said he was not prepared to say that the Smallacombe approach was clearly wrong, particularly in the light of the views expressed by Goldberg J in Dr Martens at [24]. [115] I agree with Allsop J that Smallacombe does not lay down a "definitive rule" that an "all-in" Calderbank offer can never be considered on the question of indemnity costs. The Court cannot fetter the s 98 discretion by legal rules: Oshlack (at [35]). Smallacombe does, however, afford guidance as to the exercise of the s 98(1) discretion. It informs the question of the reasonableness of an offeree's refusal to accept an "all-in" offer. In my view it has a sound practical basis. While I accept each case should be considered on its facts, Smallacombe provides sound reasons to discourage offerors from drafting Calderbank letters on an "all-in"basis. [116] Further, Smallacombe reflects the policy considerations which, no doubt, led to the adoption of UCPR 20.26(2). Requiring Calderbank offers to be exclusive of costs prevents a court from becoming embroiled in collateral issues, such as the offeree's ability to assess the quantum of the costs component of an offer or the reasonableness of the opinion as to this issue an offeree formed at the time of rejection/non-acceptance. In this respect Calderbank offers which are exclusive of costs assist the Court in facilitating the just, quick and cheap resolution of the real issues in the proceedings: s 56(1) Civil Procedure Act . 52 Recently, the Court of Appeal in Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd (No.2); Carelli v FS Architects Pty Ltd (No.2) [2008] NSWCA 205 said at [51]: There is no rule that a Calderbank offer made on a basis inclusive of costs is incapable of resulting in the court making an order for indemnity costs if the party to whom it is made fares worse at the trial: Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322. However, the fact that the offer has not divided up the amount allocated to the claim itself, and the amount allocated to costs, is a matter which can bear upon the reasonableness of the conduct of the offeree in not accepting it, and thus on whether an indemnity costs order should be made. 53 The authorities show that an offer made inclusive of costs does not prevent an offer from being treated as a Calderbank letter, but may be a relevant factor in determining the reasonableness of the offeree's rejection of the offer. Although McColl JA in Elite Personnel was quite affirmative in her view that a Calderbank offer should not be inclusive of costs, her Honour agreed with Allsop J in DSE (Holdings) Pty Ltd v Intertan Inc and Another [2004] FCA 1251; (2004) 51 ACSR 555 that whilst Smallacombe and Others v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 did not lay down a definitive rule that an 'all-in' Calderbank offer can never be considered on the question of indemnity costs, it provided guidance on the reasonableness of the offeree's refusal of the offer: Elite Personnel at [115]. 54 Whilst it is preferable, and indeed wise, for a settlement offer intended to relied on as a Calderbank letter for indemnity costs purposes to be made exclusive of costs, the inclusion of costs does not prevent the offer from being treated as a Calderbank offer. Instead, the inclusion of costs in the offer is relevant in determining the offeree's unreasonableness in rejecting the offer. I propose to treat the offer as a Calderbank offer and will consider whether, in the circumstances, it is appropriate to order indemnity costs from 13 October 2006. 55 As the authorities outlined earlier show, the mere offer and rejection of a Calderbank letter will not result in an automatic entitlement to indemnity costs. Instead the applicant must prove that it was unreasonable for the respondent to reject the offer and that, in the circumstances of the case, it is appropriate to order indemnity costs. In assessing the respondent's unreasonableness, I must consider whether the offer was a genuine offer of compromise and whether the respondent had sufficient time to consider and accept the offer. As noted earlier, in County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) the Court said: [32] An offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise. Whether or not an offer is a genuine offer of compromise or merely a demand to capitulate depends upon an assessment of all the circumstances of the case at the time: Leichhardt Municipal Council v Green (at [21], [27]) per Santow JA (with whom Stein JA agreed); see also Herning v GWS Machinery Pty Ltd (No. 2) [2005] NSWCA 375 (at [4]); Gretton (at [44]) per Beazley JA (Mason P agreeing); cf Hodgson JA (Mason P also agreeing) (at [115]). 56 The applicant submitted that as at 13 October 2006, the date of the first settlement offer, he had filed his primary affidavit and that: Further, by this time the applicant had not operated at the Base Hospital since 14 March 2006, he had informed the respondent that he wished to take a period of extended leave and was closing his consulting rooms, he had informed the respondent that he would not be operating any longer, he had provided a medical certificate from Dr Eaton stating that he was suffering from an adjustment reaction with anxiety and depression and was unfit to perform his professional duties up to 11 July 2006, and he had subsequently informed the respondent that he was continuing to see Dr Eaton and requested further leave until mid-October to give him a chance to discuss his condition with Dr Eaton. 57 It was, according to the applicant, a genuine offer of compromise, which having regard to the outcome of proceedings, was unreasonable for the respondent to reject. As to the opportunity for the respondent to consider and accept the offer, I note that there was no specified time limit. 58 The respondent submitted that having regard to all the circumstances at the time of the offer, the applicant could not demonstrate that the respondent had acted unreasonably in refusing the offer. As such, it was not appropriate to order indemnity costs from 14 October 2006. The respondent advanced the following reasons in support of this submission: · as at 13 October 2006, the applicant had filed only one affidavit, his own, which was incomplete as it failed to refer to the death of a patient on 12 March 2002. Further, the evidence that was filed did not address the basis upon which compensation was sought; · as at 13 October 2006, the applicant had filed no evidence from Dr Eaton, nor had he foreshadowed any evidence from Dr Eaton. Dr Eaton's evidence was material to the applicant's claim; · as at 13 October 2006, the respondent did not know nor have 'knowledge of the applicant's illness and ongoing inability to perform his duty', as was contended by the applicant. Dr Wheelahan had informed the respondent in a letter dated 2 July 2006 that he was on leave on a 'month by month basis'. On 13 July 2006, the respondent did attempt to obtain from Dr Wheelahan an indication of the likely length of his sick leave, but received no response from Dr Wheelahan or Dr Eaton. When the respondent requested a doctor's certificate in September 2006, the applicant informed the respondent that he had seen his doctor and requested a certificate, but that Dr Eaton was overseas until 3 October 2006. The applicant then requested a further extension of leave until mid October 2006; · the offer was premised on the applicant seeking to return to work; note in particular, the statement regarding the impact that recruiting a urologist would have on the applicant's caseload; · the offer required a statement that the applicant 'retires in good standing', which the respondent contended was not a statement it could have made in light of the evidence that the applicant was not clinically competent to perform nephrectomy. 59 In reply, the applicant submitted that there was no basis to infer that the applicant was seeking a statement that there was no issue about his clinical competence. Rather the 'statement that Dr Wheelahan retires in good standing' was a proposed term of settlement. 60 There is an additional relevant factor in determining whether the respondent's refusal of the first settlement offer was unreasonable. As earlier discussed, the inclusion of costs in a settlement offer intended to be relied on as a Calderbank letter for the purposes of indemnity costs, may be relevant in determining the reasonableness of the offeree's conduct in refusing the offer. Here, at the time of the offer, there were a number of 'unknowns' in the case. The applicant's evidence was not yet complete; indeed there was only one affidavit on by the applicant and upon which the respondent was able to assess the case it was to meet; there was no evidence regarding Dr Eaton's evidence; the applicant had not addressed the basis upon which any compensation was sought; and the respondent believed that the applicant might return to work. Added to this was that the offer was made inclusive of costs, thus not enabling the respondent to appropriately assess the offer. 61 Whilst I accept the applicant's submission that as at the date of the offer Dr Wheelahan's loss of earning was about $124,866 plus interest (calculated by adopting the same method ultimately used to determine interest on the compensation), it was reasonable for the respondent to refuse the offer given the number of variables that still existed in the case at the time. I am unable to find that the applicant has proved that it was unreasonable for the respondent to reject the offer dated 13 October 2006 and I decline to order costs on an indemnity basis from 14 October 2006. Second Settlement Letter 62 The applicant submitted a further alternative for awarding indemnity costs, that is, from the 13 March 2007 following the service of the offer to settle on 12 March 2007. In response to an offer from the respondent to settle the matter for $65,000, the applicant offered to settle the matter for $85,000 inclusive of costs. The applicant submitted that by 12 March 2007, the respondent had filed seven affidavits in reply to the applicant's primary affidavit. It was the applicant's submission that: By this stage of the proceedings, it had clearly had the opportunity to consider the nature and merits of the applicant's claim, and its defence to that claim, in detail. 63 The submissions of the applicant reiterated that Dr Wheelahan had still not operated at the Hospital since 14 March 2006 and had provided a further medical certificate. As at 12 March 2007, his loss of hospital earnings since 14 December 2005 was about $164,435 plus interest. 64 The respondent submitted that it had received the medical certificate for the period 11 July 2006 to 11 January 2007, but that according to Ms Bennett, General Manager of the Hospital, she never received a copy of a medical certificate dated 8 March 2007 and that as far as the respondent was concerned, the applicant's absence from work as at 12 March 2007 was not subject to any medical certificate. Finally, there was no evidence that as at 12 March 2007 the applicant would not return to work or was unfit to work. 65 I accept that by the 12 March 2007, the respondent had filed some seven affidavits in the proceedings, and that it was in a better position than it was at the time of the earlier Offer of Compromise and first settlement letter to assess the merits of the applicant's claim and the strength of its defence. However, at the time of the offer the applicant had still not filed any evidence regarding Dr Eaton. As the respondent submitted, Dr Eaton's evidence was critical to the period of time for the calculation of damages, but the evidence was not filed until nearly a year after the date of this offer and following the filing of a further amended summons. Further, this offer, like the first settlement offer, was also inclusive of costs. All of these factors combined lead me to conclude that it was not unreasonable for the respondent to reject the applicant's second settlement offer. An order that the applicant's costs be paid on an indemnity basis from 13 March 2007 is refused. 66 Finally, although the applicant has been unsuccessful in its claim for costs on an indemnity basis, it was the successful party in the matter and costs should follow the event. I order that the respondent shall pay the applicant's costs on a party and party basis as agreed or assessed. 67 There are two further matters that must be dealt with concerning the final amount of compensation to be paid to the applicant and the calculation of interest. Calculation of compensation 68 In the principal judgment the Court ordered the respondent to pay to Dr Wheelahan compensation for the period 14 December 2005 to 30 June 2008 plus interest calculated on the basis of average hospital earnings of $160 000, less any monies earned by the applicant between 14 December 2005 to 14 March 2006. This was the period in which Dr Wheelahan saw the remaining patients on his waiting list. 69 The parties were in dispute as to the lump sum amount to be paid to Dr Wheelahan. However, in the respondent's submissions filed on 10 November 2008, the respondent advised that: To avoid further the need for a hearing and a dispute about the sum, the Respondent will accept the Applicant's figure of $399,274.72. 70 Accordingly, the total amount that the respondent will pay to the applicant as compensation for the period 14 December 2005 to 30 June 2008 will be $399,274.72 plus interest. Interest 71 In the substantive judgment, the Court made the following order: (2) In connection with the varied contract, the North Coast Area Health Service shall pay John Bernard Wheelahan compensation for the period 14 December 2005 to 30 June 2008 plus interest. The compensation shall be calculated on the basis of average annual hospital earnings of $160,000. From the resulting amount shall be deducted any monies earned by the John Bernard Wheelahan between 14 December 2005 to 14 March 2006 in connection with those remaining patients on the applicant's waiting list and whom the applicant felt obliged to deal with before he closed his consulting rooms. 72 The applicant sought interest in the amount of $57,127.53 up to 30 September 2008, plus interest in the amount of $109.39 per day from 1 October 2008 onwards until the date of the Court's final order. In support of this submission the applicant stated that the: Court has the power to award a component for interest as part of its power under s. 106(5) to make such order as it "considers just in the circumstances of the case": see Thomas Nationwide Transport Ltd v Thomas (1990) 34 IR 378 at 383, 392, followed in Westfield Ltd v Helprin (1997) 82 IR 411 at 444 and Abboud v State of New South Wales (Department of School Education) (No 2) (2000) 99 IR 299 at 306-7 (per Schmidt J, with whom Wright P and Walton VP agreed on this point). 73 Accordingly, it was submitted that it was just in the circumstances of this case to allow the applicant to receive interest on the compensation representing lost earnings up until the date of an order that provided for payment of that amount. In other words, the relevant order was not the order in the principal judgment, which ordered the respondent to pay the applicant compensation, but the final order as to the total amount to be paid by the respondent to the applicant. 74 The respondent maintained that the award of interest was discretionary and that the applicant had failed in his summons to comply with the requirements of r 58(2) of the Commission's Rules. Rule 58(2) states: Where a party making application for orders under Part 9, Unfair Contracts, of Chapter 2 of the Act, claims, as part of that relief, an order for or which includes, interest, particulars must be given of the rates at which, the amounts on which and the periods for which, interest is claimed. 75 In reply, the applicant submitted that the respondent had not suggested any prejudice resulting from the lack of particularisation of the applicant's interest claim in his summonses and had, in fact, been provided with the method proposed by the applicant for calculating interest in the applicant's submissions filed 3 October 2008. It was contended that the respondent had accepted that interest should be payable on the lump sum compensation, and had accepted the formula used by the applicant to calculate that interest. 76 As to the calculation of interest up to the final order, the respondent submitted that there was no provision in the Act that permitted an order for interest to be paid on an ongoing basis after judgment or orders, nor had the applicant provided any authority to support its claim. The respondent referred to s 372 of the Act: (1) An industrial court may order that there is to be included, in an amount ordered to be paid under this Part (except under section 368), interest at the prescribed rate on the whole or any part of that amount for the whole or any part of the period from when the amount became due to the date of the order . (2) If, in relation to proceedings for such an order, the whole of the amount of money due (or any part of it) is paid before or without the order being made, the industrial court may order that interest is to be paid at the prescribed rate on the amount so paid for the whole or any part of the period from when the amount became due to the date of the payment. (3) This section does not: (a) authorise the charging of interest on interest, or (b) authorise the charging of interest otherwise than by consent on any amount for the payment of which an order is made by consent. (4) In this section, prescribed rate means the rate of interest prescribed for the time being for the purposes of section 101 of the Civil Procedure Act 2005 . (respondent's emphasis) 77 In the event that interest was to be awarded, the respondent maintained it should be calculated only up until 12 September 2008, the date of the substantive judgment. The applicant maintained that if the Court was to adopt such an approach, the effect would be to deny the applicant the benefit of any interest on his lump sum compensation from 12 September 2008 until the date of final orders. 78 The Court has already ordered that interest be paid on the applicant's compensation. The question is the date to which interest should be calculated. I am unable to agree with the applicant's submission that interest should be calculated up to the date of final judgment, that is, the date of this judgment. The substantive judgment handed down on 12 September 2008 was the date whereby the Court made its determination that the applicant was entitled to compensation, and was, therefore, the date of judgment. I propose to order interest to be calculated on the compensation up until 12 September 2008. Orders 79 The Court makes the following final orders: (1) In connection with the varied contract, the North Coast Area Health Service shall pay John Bernard Wheelahan compensation for the period 14 December 2005 to 30 June 2008 in the amount of $399,274.72. (2) The respondent will pay interest on the amount of $399,274.72 calculated from 14 December 2005 up until the date of judgment, 12 September 2008. (3) The North Coast Area Health Service shall pay John Bernard Wheelahan an amount of $10,000 in relation to stress and suffering arising in the course of Dr Wheelahan's employment. (4) The respondent shall pay the applicant's costs of the proceedings on a party and party basis as assessed or agreed. (5) The order made on 19 February 2008, that the applicant pays the costs of the respondent thrown away by the vacation of the hearing dates, is not disturbed by order 4. ____________________________________ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.