New South Wales Supreme Court CITATION : Locke v Bova & Anor [No 2] [2005] NSWSC 799 HEARING DATE(S) : 05/08/05 JUDGMENT DATE : 10 August 2005 Common Law Division JURISDICTION : Professional Negligence List JUDGMENT OF : Kirby J DECISION : (1) The plaintiff should have indemnity costs in respect of costs incurred after 13 November 2002; (2) The plaintiff should have the costs of this Motion. CATCHWORDS : Application for indemnity costs - offer of compromise - prima facie right to indemnity costs - subject to Court's discretion - suggestion that plaintiff's case changed after offer - whether realistic assessment of plaintiff's case showed change "on the cards" - later Calderbank letter - entitled to indemnity costs. Locke v Bova & Anor [2004] NSWSC 534 Bova v Locke [2005] NSWCA 226 Messiter v Hutchinson (1987) 10 NSWLR 525 CASES CITED : Calderbank v Calderbank (1975) 3 WLR 5&6 Van Doore v Mendez & Ors [No 2] (unreported, 30.6.97) Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 Smec Testing Services v Campbelltown City Council [2000] NSWCA 323 Dr Peter Locke (Pl/Appl) Dr Colin Bova (1st Def/Resp) PARTIES : South Western Sydney Area Health Service (2nd Def) FILE NUMBER(S) : SC 20259/01 M B Williams SC (Pl/Appl) COUNSEL : I M Wales SC (Defs/Resps) Maurice Blackburn Cashman (Pl/Appl) SOLICITORS : David I Brown (Defs/Resps) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION PROFESSIONAL NEGLIGENCE LIST JUSTICE DAVID KIRBY Wednesday 10 August 2005 20259/01 DR PETER LOCKE v DR COLIN BOVA & ANOR JUDGMENT [No 2] - On application for Indemnity Costs. 1 KIRBY J: On 24 June 2004, judgment was given in the claim by Dr Peter Locke against Dr Colin Bova and the Liverpool Hospital ([2004] NSWSC 534). The plaintiff was awarded damages amounting to $782,978.48, made up as follows: General damages $225,000.00 Interest on general damages $10,035.00 Past economic loss $74,806.29 Interest on past economic loss $16,255.78 Future economic loss $393,426.00 Past out of pocket expenses $10,349.35 Future out of pocket expenses $7,239.51 Past superannuation $6,031.00 Future superannuation $39,835.55 $782,978.48 Total 2 The plaintiff was also awarded costs. Counsel for the plaintiff foreshadowed an application for indemnity costs. The defendants foreshadowed an appeal. The application for indemnity costs was deferred, pending the appeal. The appeal was heard on 28 June 2005 and dismissed (Bova v Locke [2005] NSWCA 226). The plaintiff now presses his claim for indemnity costs. 3 The plaintiff relies upon an affidavit of Ms Melanie Stevenson of 28 June 2005 and the defendants upon an affidavit of Ms Barbara Versace of 3 August 2005. 4 The plaintiff puts his argument for indemnity costs on two alternative bases, pointing to certain documents which were served at different stages of the litigation, offering to settle the action by Dr Locke against the defendants. First, an offer of compromise was made on 13 November 2002 in these terms: "The second plaintiff offers to compromise his action in the following manner: 1. By making a principal offer of $335,680.00 plus costs. 2. This offer shall be open for a period of 28 days only. This offer is made in accordance with Part 22 of the Supreme Court Rules." 5 The offer expired on 11 December 2002 and was not accepted by the defendants. 6 The second basis is a Calderbank letter dated 22 October 2003, which canvassed various issues and culminated with the following offer: "We have accepted Counsel's advice and our client has instructed us to reiterate the offer of $700,000.00 plus costs. We note that this offer will be open for a period of ten (10) days. Please note that this matter (sic) offer is made in accordance with the principles of Messiter v Hutchinson (1987) 10 NSWLR 525 and Calderbank v Calderbank (1975) 3 WLR 5&6 and this letter will be used in any argument as to costs." The Offer of Compromise. 7 In respect of the offer of compromise, the plaintiff relies upon Pt 52A r 22(4), which is in these terms: "22 Offer of compromise (4) 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 33, be entitled to an order against the defendant for the plaintiff's costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to his costs incurred before and on that day, assessed on a party and party basis." 8 Rule 33 has no relevant operation. The offer was, as mentioned, $335,680.00 plus costs. Obviously the verdict of $782,978.48 was substantially more favourable to the plaintiff than the offer. The plaintiff submits, therefore, that he is entitled to indemnity costs unless the Court otherwise orders. The defendants must satisfy the Court that it should otherwise order. According to the plaintiff, there is no basis upon which the Court should exercise its discretion to displace the prima facie operation of Pt 52A r 22(4). 9 The defendant, in helpful written submissions, suggested that there was such a basis. The plaintiff's case significantly changed after the date of the offer of compromise. Attention was drawn to the judgment of Dunford J in Van Doore v Mendez & Ors [No 2] (unreported, 30 June 1997), where his Honour dealt with the discretion to award costs on an indemnity basis. In that case, the defendant suggested that no such award should be made because, amongst other reasons, the plaintiff had increased the nature and extent of his claim by amending the particulars under Pt 33 r 8A. In the course of his judgment, his Honour said this: "... The object of Pt 22 is, as I have said above, to encourage settlements by way of compromise and whether the issues be relating to liability or damages, it is up to the party receiving the offer to make a realistic assessment of the claim , taking into account, where appropriate, the anticipated evidence of medical and other expert witnesses; and the appropriate response is to either accept the offer or make a counter-offer. Informal conferences and mediation may be of assistance but either after or without such mediation, the relevant issue on applications for indemnity costs is whether the offer has been accepted or a formal counter-offer made, and if so, for how much." (emphasis added) 10 His Honour then referred to Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 724, where the Court of Appeal identified the objects of Pt 52 r 17 (which is in the same terms at Pt 52 r 22(4)) in these words: "1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim; 2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary ...; and 3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable against the costs thereafter incurred ..." 11 The judgment of the Court of Appeal continued: (at 725) "The rule does no more than to oblige litigants, and those advising them, to consider realistically, upon the best information available to them, the prospects of success and the likely outcome of the litigation. Where, in the particular circumstances the litigant or its advisers misjudge the prospects of success or miscalculate the outcome, their mistake may be warranted on the material which they had available. Alternatively, it may be no more than a miscalculation in a case with large imponderables where the course they took was nonetheless perfectly reasonable. Litigation is inescapably chancy. The purpose of the rule is to put a premium on realistic assessment of cases. It is not to demand perfect foresight which is denied even to the judges. That is why a discretion is retained, under the rule, for the Court to order otherwise than as the rule provides. But the ordinary provision is expected to apply in the ordinary case." 12 Dunford J then addressed the issue raised by the defendants, in a passage relied upon by counsel for the defendants in this case, saying this: "But amendments to the Particulars under Pt33 r8A subsequent to an offer of compromise can however be significant on this issue because such amendments can amount to changing the basis on which the offer of compromise has been made." 13 Here, according to the defendants, the plaintiff significantly enlarged his claim after the offer of compromise, asserting a permanent reduction in his earning capacity. Whereas the particulars under Pt 33 r 8A filed on 16 October 2002, a matter of weeks before the offer of compromise, made a claim of $36,010.00 for future economic loss, a subsequent statement of particulars (dated 13 August 2003) under the same Part, claimed $859,174.00 under that head. The amount ultimately awarded to the plaintiff included $393,426.00 for future economic loss. On the defendant's argument, obviously there was then a substantial claim in respect of that item, in contrast to the modest amount claimed at the time of the offer of compromise. Both the plaintiff's and the defendants' solicitors, according to the defendants, had approached the matter in November 2002, when the offer of compromise was made, upon the basis that the plaintiff would return to his work in emergency medicine. 14 However, when considering the defendants' submission, the amount claimed in the particulars of October 2002 must be considered in context. The context included other particulars provided by the plaintiff in the same document concerning his disabilities and losses. It also included the medical evidence then available to the defendant. At the time of the offer of compromise, reports from the treating psychiatrist, Dr Galambos, had been served. The defendants had, in addition, arranged for Dr Lisa Brown, psychiatrist, to examine the plaintiff. Dr Brown had provided a report on 20 June 2001. They had also arranged an examination by Dr Lee. Dr Lee's report was never served. 15 What, then, was the plaintiff's claim as at 13 November 2002 when the offer of compromise was made? The incident which triggered the disabilities for which the plaintiff claimed damages occurred on 29 January 2000. The statement of claim was filed on 2 April 2001. The first set of particulars under Pt 33 r 8A were filed on 5 February 2002. The claim in respect of future economic loss, at that point, was expressed in these terms: "FUTURE ECONOMIC LOSS The second plaintiff claims an amount to be determined under this head of damage. Particulars (a) The second plaintiff has been diagnosed with chronic post-traumatic stress disorder and major depressive disorder attributable to his exposure to the traumatic scene of his wife having a seizure. (b) The second plaintiff's treating psychiatrist has prescribed time away from an environment with potential triggers of the second plaintiff's post-traumatic stress disorder. (c) As a result the plaintiff has been unable to return to work since 20 September 2001. The second plaintiff is taking sick leave from his place of work to attend therapy treatment. (d) We are instructed that the second plaintiff's treating psychiatrist has recommended the second plaintiff not return to work until at least July 2002. The plaintiff refers to and relies upon the report of Dr Gary Galambos dated 20 November 2001. (e) The second plaintiff will be reassessed by Dr Galambos in approximately April 2002, following which a report on whether the second plaintiff's damage has crystallised and his future prognosis and work capacity will be commissioned. (f) When the second plaintiff's damage has crystallised he will be in a position to determine fully his economic loss claim and at that time an actuarial report will be commissioned." 16 The disabilities identified in the same particulars included chronic disturbed sleep, depressed mood, markedly diminished interests, impairment in social functioning, as well as the following: "(e) Reduced work capacity and diminished ability to think or concentrate nearly every day." 17 The defendants, as mentioned, arranged for the plaintiff to be examined by Dr Lisa Brown. Dr Brown's report of 20 June 2001 described in detail the difficulties experienced by Dr Locke upon his return to the emergency department of the hospital. She described his pre-morbid personality in these terms: "Describing himself as outgoing by nature, Mr Locke further depicted himself as someone who likes to do things properly. He acknowledged becoming frustrated if he is unable to 'get things right' and said that he tends to be a 'black and white' type of person with a rather perfectionistic style." 18 Dr Brown then offered the following diagnosis and opinion: "Based on the information provided by Mr Locke and on the limited supplementary documentation, it is my opinion that this gent developed a post traumatic stress disorder, now chronic, as a result of witnessing events surrounding his wife's intracerebral haemorrhage." 19 Dr Brown made the observation that post traumatic stress disorder (from which Dr Locke suffered) was often accompanied by depression, but symptoms of depression at that point were not evident. That was to change. The change occurred well before the offer of compromise. Dr Locke developed a major depression. 20 The report continued under the heading of "Diagnosis and Opinion" with the following assessment: (p8) "Based on the history, I would rate his condition as being of mild to moderate severity and of a chronic nature, albeit with a slow and gradual improvement throughout 2000 and 2001, presumably due to treatment received during that period. A more recent exacerbation of symptoms is of unknown origin and would suggest that his condition remains currently active." 21 Dr Brown concluded with the following observations concerning the prognosis and treatment: (p8) "Although Mr Locke sounds to have made considerable improvement with the treatment administered by Dr Cheung, including relaxation exercises and rapid eye movement desensitisation, a recent relapse in symptoms is of concern in terms of possible chronicity. It would therefore be important for him to seek psychiatric assessment on a fairly immediate basis, particularly given the problems he is developing in the workplace . He might benefit from a trial of antidepressant medication and if he does return to Dr Cheung, his management could then be co-ordinated with a psychiatrist specialised in treating post traumatic conditions. His positive outlook on life, the lack of development of co morbid depression, and his willingness for treatment are all positive factors for the long term. Overall, I suspect his long term prognosis will be good, if he is able to deal with the reminders in the workplace and if he has access to ongoing treatment as he requires. He would probably benefit from around 8 -12 sessions on a fortnightly to monthly basis, and may thereafter require occasional sessions every 2 - 3 months for a further one year period. Although he currently continues to work in a full-time capacity, he does so with some limitations, given his difficulty dealing with certain emergency situations. He may require further time off work, up to several weeks at a time, if he does not respond to treatment in the immediate future. However, in the longer term, I suspect he will do well, given his expressed motivation and willingness to pursue his career and to seek treatment." (emphasis added) 22 This was a guarded report. Matters were still plainly in a state of evolution. Dr Locke was far from well. Although Dr Brown suspected that his long term prognosis was good, she was cautious in her optimism. 23 The treating psychiatrist, Dr Galambos, provided a report of 20 November 2001. Reference is made to it in the judgment of June 2004 (para 62). By that stage, Dr Locke had been experiencing significant symptoms for almost two years. There was, by that time, as set out in the judgment, the additional complication of a secondary major depression. Dr Galambos said this, in the context of Dr Locke's ability to continue in emergency medicine: (see [2004] NSWSC 534 para 63) "Although Dr Locke functioned very effectively in the emergency department prior to the onset of PTSD, this same environment is so saturated with triggers that cause anxiety symptoms and propagate his PTSD , that he is no longer able to tolerate this environment. In my opinion, his determination to continue working there has also been significant in the development of the secondary depression." (emphasis added) 24 Dr Galambos plainly had misgivings about Dr Locke's return to emergency medicine. He recommended further treatment. Dr Locke, on his recommendation, attended an eleven week course known as The Adult Trauma Programme at the St John of God Hospital, between March and June 2002. He, incidentally, paid for that course himself, such was his motivation to return to his former employment. Dr Locke attempted a return to work in September 2002, undertaking two shifts per week. 25 This was the context within which the plaintiff filed a second statement of particulars under Pt 33 r 8A on 16 October 2002 (a matter of weeks before the offer of compromise of 13 November 2002). The particulars identified the injuries in these terms: "2.1 Chronic posttraumatic stress disorder. 2.2 Nervous shock. 2.3 Major depressive disorder." 26 The disabilities were described as follows: "3.1 Morbid thoughts of his wife's death. 3.2 Chronic disturbed sleep, involving waking up to 10 times a night in a sweat and with associated tremors. 3.3 Recurrent intrusive images or flashbacks in the form of pseudo-hallucinations mainly nocturnal. 3.4 Chronic tiredness. 3.5 Reduced work capacity and diminished ability to think or concentrate on a daily basis. 3.6 Episodic tearfulness and distress. 3.7 Feelings of guilt. 3.8 Feelings of anxiety. 3.9 Acute emotional distress. 3.10 Feelings of anger. 3.11 Short temper and irritability of mood. 3.12 Hyper-vigilance and hypersensitivity to stimuli that remind him of the traumatic event, leading to panic attacks. 3.13 Requirement for ongoing psychiatric treatment, including anti-depressant medication. 3.14 Impaired relations with his wife." 27 The treatment undertaken by Dr Locke was then described, including the following: "4.9 The second plaintiff's treating psychiatrist has advised the second plaintiff to participate in a 'Adult Trauma Program', which consists of an 11 week program conducted by clinical psychologists and focuses on reintegration back to his workplace." 28 The future medical expenses were dealt with in these terms: " 6. FUTURE MEDICAL TREATMENT EXPENSES The second plaintiff claims the amount of $26,106.50 under this head of damage. Particulars 6.1 The second plaintiff is advised to complete the 'Adult Trauma Programme' co-ordinated by St John of God Hospital, being a rehabilitation program of eleven (11) weeks duration to enable him to return to his place of employment. The second plaintiff claims the cost of this programme totalling $6,545.50. 6.2 The second plaintiff will require future psychiatric treatment, namely 41 private sessions at a cost of $155.00 per session, totalling $6,355.00. 6.3 Should the second plaintiff's symptoms further deteriorate he might require psychiatric hospitalisation for a period of 3 weeks at a cost of $520.00 per day for a private room, totalling $10,920.00. 6.4 The second plaintiff may require referral to a therapist skilled in the use of EMDR as this has relieved the second plaintiff's symptoms in the past. It is recommended that the second plaintiff may benefit from six (6) treatments at a cost of $161.00 per treatment, totalling $966.00. 6.5 The second plaintiff may benefit from ECT if his symptoms fail to adequately improve with the current and future treatment plans. It is recommended that the second plaintiff may benefit from twelve (12) ECT treatments at a cost of $110.00 per treatment, totalling $1,320.00." 29 Particulars of past loss alluded to the recommendation by Dr Galambos that Dr Locke complete the Adult Trauma Programme at the St John of God Hospital. The following was stated: "7.5 Dr Galambos reviewed the second plaintiff on 30 April 2002. At that time, Dr Galambos was of the view that the second plaintiff should undergo therapy with a view to possibly returning to part-time work in July 2002." 30 The future economic loss claim was framed as follows: " 8. FUTURE ECONOMIC LOSS The second plaintiff claims the amount of $36,010.00 under this head of damage." 31 Particulars accompanied that claim, which identified the basis upon which the sum of $36,010.00 had been calculated: " Particulars 8.1 The second plaintiff has been diagnosed with chronic post-traumatic stress disorder and major depressive disorder attributable to his exposure to the traumatic scene of his wife having a seizure. 8.2 The second plaintiff's treating psychiatrist has prescribed time away from an environment with potential triggers of the second plaintiff's post-traumatic stress disorder. 8.3 As a result the plaintiff has been unable to work since 21 September 2001. 8.4 Dr Galambos has recommended the second plaintiff not return to work until at least July 2002 and then only on a part-time basis for three (3) months. The plaintiff refers to and relies upon the reports of Dr Gary Galambos dated 20 November 2001 and 2 May 2002. 8.5 The second plaintiff returned to work on 23 September 2002, working 1 shift per week of 5 hours duration. The second plaintiff intends to return to full time work on 1 February 2003. 8.6 Accordingly, the second plaintiff claims damages for loss of future income from 1 July 2002 to 1 February 2003." 32 At the time of the offer of compromise, the defendants were therefore on notice that the plaintiff was suffering from a chronic post traumatic stress disorder which had, to that point, persisted for almost three years. The plaintiff had also developed a major depression in 2002 due to his frustration with the chronic nature of his condition, and its interference with his work. Whilst there had been some remission and some improvement, he was still plainly disabled. He had significant periods off work. After completing the St John of God course in mid-2002, he had been reintroduced to emergency medicine, but only to the point where he was able to perform one or two shifts per week. Yet, such was his determination to overcome his disabilities that he intended, as announced in the particulars, to return to emergency medicine full time on 1 February 2003. His solicitors had apparently calculated his claim upon the assumption that he would succeed. 33 That was the context within which the offer of compromise was filed. The plaintiff, in a bold assumption as to his ability to overcome his problems by an effort of will, notwithstanding the difficulties he had experienced in the past, identified the figure he was prepared to accept to end his claim. 34 The defendants, in these circumstances, were obliged to make a realistic appraisal of his claim, including future economic loss. They were obliged to do so, aware that particulars were capable of amendment. They had to ask what, realistically, was the plaintiff's future? What was likely to happen if the matter did not settle? They may be taken as knowing that Dr Locke had not, to that point, succeeded in working full time in an emergency department, and that he was still experiencing symptoms. They can be expected to have noticed the obvious tension between the picture of disablement emerging from Dr Locke's history to this point, including the fact that he was only able to work one or two shifts a week, and the amount claimed for future economic loss. 35 It must be said that it is indeed surprising that Dr Locke's solicitors expressed the claim for future economic loss as one for $36,010.00 without adding a qualification. Given the history, and indeed the other particulars in the same document, one would have expected his solicitors, safeguarding his interests, to qualify that statement. The obvious qualification was that the amount claimed was subject to a successful resumption of work in February 2003. Although not stated in terms (as it should have been), the qualification was, in my view, implicit. It ought to have been noted as a significant risk in any realistic appraisal of his claim. 36 In other words, the defendants would surely have recognised that the claim in the particulars was based upon the assumption that Dr Locke would be able to resume work in emergency medicine on 1 February 2003, after more than three years of incapacity or reduced capacity. He was prepared to settle on that basis. He was prepared to do so in circumstances where he had not yet demonstrated that capacity. It is surprising that the defendants, recognising the risk that he may fail, did not accept his offer. 37 But they did not do so. Predictably the determination of Dr Locke to overcome his disabilities by an effort of will, proved not to be enough, just as that determination had not been enough in the past The particulars were naturally amended once he failed. 38 However, the essence of an offer of compromise, made in a situation which is still evolving, is that each party is obliged to make an appraisal of the risks, doing the best they can on the information they have. Had the defendants accepted Dr Locke's offer of compromise, he could not have been heard to complain that he was rather too hasty in his assumption that he would be able to resume work in emergency medicine. Nor do I believe that the defendants can complain in these circumstances. There was nothing unforeseeable about the events that unfolded. It was "on the cards". It is not hindsight to suggest that it was predictable. Indeed, I believe it was more than probable, based upon the information then available. 39 As a matter of discretion, I am not persuaded that the plaintiff should not be awarded indemnity costs. The Calderbank letter. 40 I should deal with the second basis put forward by the plaintiff in his claim for indemnity costs, should it happen that I am wrong in respect of the first basis. 41 The Calderbank letter came very late in the litigation, fundamentally between the completion of the evidence and the submissions. Nonetheless, the submissions were in writing and involved a deal of work. The issue arises, if I am wrong in respect of the view I have taken on the offer of compromise, whether the plaintiff at least should have indemnity costs from the offer made in the Calderbank letter. The authorities have made it clear that there is nothing automatic in the award of indemnity costs, simply because the ultimate outcome exceeds the offer contained within the letter. The rejection must be unreasonable. In Smec Testing Services v Campbelltown City Council [2000] NSWCA 323, Giles JA identified a number of factors that may be relevant. One is that the letter explicitly states that it is a Calderbank offer which, of course, this letter did. Another is the timeframe which the person receiving the offer had to consider the offer, in this case ten days. At the time of the offer, time was short, because there was a timetable in respect of submissions. I believe the time given at that stage, when all aspects of the claim were known, the evidence being complete, was not unreasonable. Certainly there were matters in contention which were likely to effect the damages awarded. However, the award ultimately made, I believe, was conservative. Overall, the plaintiff's offer was eminently reasonable and the defendants' rejection, in my view, unreasonable. The defendants had the opportunity to end the claim at a time when significant costs were about to be incurred in the preparation of written submissions which, inevitably, would be lengthy. It is appropriate that the plaintiff have indemnity costs from the date of the Calderbank letter. Order. 42 The orders I therefore make are as follows: 1. That the plaintiff should have indemnity costs in respect of costs incurred after 13 November 2002. 2. The plaintiff should have the costs of this Motion. ********** 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.