New South Wales Court of Appeal CITATION: Schultz v Bailey [2007] NSWCA 110 HEARING DATE(S): 16 April 2007 JUDGMENT DATE: 10 May 2007 JUDGMENT OF: Beazley JA at 1; Ipp JA at 2; Basten JA at 90 DECISION: (a) Appeal allowed; (b) the judgment of Hall J set aside; (c) in lieu thereof, a judgment for Mr Schultz in the sum of $255,561.95, together with interest from 20 July 2006; (d) Dr Bailey to pay Mr Schultz's costs of the trial on a party and party basis for work done up until 29 September 2005 and on an indemnity basis in respect of work done thereafter; (e) Dr Bailey to pay Mr Schultz's costs of the appeal; (f) Dr Bailey to have a certificate under the Suitors' Fund Act 1951 (NSW), if otherwise qualified. CATCHWORDS: APPEAL – fact – appellant unsuccessfully sought damages for professional negligence from the respondent general practitioner who had diagnosed the appellant's delusional beliefs as 'psychotic' in nature – medication prescribed by the respondent caused catastrophic, but rare, side-effects – whether, on the primary facts that were, or should have been, found by Hall J, it was reasonable for the respondent to diagnose the appellant as suffering from a psychosis, or depression complicated by psychotic symptoms – difference between psychosis and anxiety or a phobic state LEGISLATION CITED: Suitors' Fund Act 1951 (NSW) CASES CITED: Schultz v Bailey [2006] NSWSC 727 PARTIES: Rex John Schultz - Appellant Dr Belinda Bailey - Respondent FILE NUMBER(S): CA 40484 of 2006 COUNSEL: B Walker SC; J Anderson - Appellant S Kalfas SC - Respondent SOLICITORS: Farrell Lusher by their agents Turner Whelan - Appellant United Medical Protection - Respondent LOWER COURT JURISDICTION: Supreme Court - Common Law Division LOWER COURT FILE NUMBER(S): SC 20159 of 2003 LOWER COURT JUDICIAL OFFICER: Hall J LOWER COURT DATE OF DECISION: 20 July 2006 LOWER COURT MEDIUM NEUTRAL CITATION: Schultz v Bailey [2006] NSWSC 727 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40484/06 BEAZLEY JA IPP JA BASTEN JA Thursday 10 May 2007 SCHULTZ v BAILEY Judgment 1 BEAZLEY JA: I agree with Ipp JA 2 IPP JA: The nature of the appeal 3 This appeal concerns an action whereby Mr R J Schultz (the appellant) sued Dr Belinda Bailey (the respondent) for damages for medical negligence. No legal principle is raised. It is solely an appeal on fact. 4 The negligence alleged by Mr Schultz was said to be Dr Bailey's conduct on 20 July 2000 in diagnosing him, at that time, as being in a psychotic state and in prescribing the drug Melleril for his treatment. 5 Melleril carries a low risk of side effects including the risk of pancytopenia. Pancytopenia is a medical condition involving a failure of the bone marrow to produce the requisite blood cells. In September 2000, Mr Schultz became seriously ill and was hospitalised. He had contracted pancytopenia. The trial judge, Hall J, found that the Melleril had caused the pancytopenia: see Schultz v Bailey [2006] NSWSC 727. 6 Hall J found (at [208]) that Dr Bailey's diagnosis and decision to prescribe Melleril "was well within the range of legitimate judgment". His Honour held that it was not negligent for Dr Bailey to make a judgment that "Mr Schultz's presentation was consistent with or indicative of distorted thinking of a psychotic nature". His Honour held that the prescription of Melleril was "an appropriate course of treatment". He dismissed Mr Schultz's claim. 7 Notwithstanding the view his Honour took as to liability, he quite properly assessed Mr Schultz's damages. He concluded that they amounted to the sum of $255,561.95. 8 It was common ground that a diagnosis that Mr Schultz, at the relevant time, was suffering from a psychosis, or from depression "complicated by psychotic symptoms", would have justified the prescription of Melleril. The question raised by the appeal, therefore, is whether, on the primary facts found, or that should have been found, Dr Bailey reasonably diagnosed Mr Schultz as suffering from a psychosis, or depression complicated by psychotic symptoms. The contest at trial 9 The contest at trial involved, substantially, two fundamental factual disputes. One concerned what Mr Schultz said to Dr Bailey and how he presented himself at his consultations with her in July 2000. The other involved disputes between the parties' expert witnesses. Mr Schultz called Dr Jonathon Phillips, a consultant psychiatrist, and Dr Fisher, an experienced general practitioner. Dr Bailey called Dr Walsh, a general practitioner, and Dr Parmegiani, a consultant psychiatrist. 10 Hall J was impressed with the evidence of Dr Phillips. His Honour referred to "the disciplined analysis evident in [his reports and oral evidence]": at [74]. His Honour was also impressed with Dr Fisher. He said that Dr Fisher was "a balanced, experienced and knowledgeable general practitioner". 11 Hall J said that Dr Walsh's evidence was argumentative and unsatisfactory "in seeking to adhere to the statement that Dr Bailey's notes evidenced delusional beliefs": at [74]. This was the principal issue on which Dr Walsh was called to testify. His Honour did not rely in any way on anything Dr Walsh said and obviously did not regard him as a reliable witness. For that reason, Dr Walsh's testimony cannot be used to support Dr Bailey's case. 12 Hall J made no reference to the evidence of Dr Parmegiani, and appears not to have attached weight to it. 13 No notice of contention has been filed disputing the judge's approach to the witnesses. In these reasons, therefore, I shall not refer further to the evidence of Dr Walsh and Dr Parmegiani. The criteria for diagnosing a psychosis or psychotic symptoms 14 His Honour accepted the evidence of Dr Phillips and Dr Fisher as to how a diagnosis of psychosis should be made. His Honour accepted the criteria that, according to Dr Phillips and Dr Fisher, had to be applied in determining whether a psychotic state existed or whether a particular symptom was of a psychotic nature. 15 An understanding of these criteria is crucial to the issues raised by the appeal. Mr Schultz's case, in essence, is that the trial judge did not properly have regard to the criteria in determining that Dr Bailey's diagnosis was reasonable and not negligent, even though his Honour accepted that the diagnosis had to be made in accordance with them. 16 Dr Phillips explained that psychosis comprised two groups of disorders. The first group was primary psychotic disorders. He described these as "genetically driven disorders of the mind where the person is divorced from reality". Examples of this group are schizophrenia and bi-polar disorder. The second group, Dr Phillips said, could occur in association with other kinds of disorders. For example, he said, "[t]he very most severe form of depression, major depressive disorder, can be complicated by psychotic symptomatology. In particular, a person develops a delusion". 17 In this case, the issue did not concern a primary psychotic disorder. It is common ground that Mr Schultz, at the relevant time, was very anxious and depressed. Anxiety and depression, alone, do not amount to a psychotic state. These are "other kinds of disorders". For a psychotic state to exist, relevantly in this case (that is, in the context of a person suffering from anxiety and depression), there had to be a delusional state of mind. 18 Dr Phillips said that a delusion was "an idiosyncratic belief held firmly by a person at a particular point in time and not supported by known facts and where it is not shared by other members of the person's cultural and/or religious community". 19 He distinguished a delusion from an "overvalued idea". The latter, according to the evidence, is a psychiatric expression. Dr Phillips explained that an overvalued idea was not a delusion, but an irrational idea. He said that, although irrational, an overvalued idea is "sufficiently attached to the initial worry, if you like, to be understandable". He explained that, while an overvalued idea may be irrational, "the logic is obvious and there is no breach from the shared reality". By "shared reality", Dr Phillips was referring to beliefs "shared by other members of the person's cultural and/or religious community". 20 Dr Phillips gave practical examples of the difference between a delusion and an overvalued idea. He said that a person's belief that he or she has "concrete in their intestine" is a "not uncommon" delusion. Another example of a delusion is a person's belief that he or she has heard a voice saying, "you are going to die". These are beliefs that have no connection with reality and no connection with the shared beliefs of the community of which the individual is part. 21 An example of an overvalued idea, given by Dr Phillips, may be a fear of dying. He said that a person who has a fear of roads might believe that, if he tries to cross a road, he will be killed. He explained that such a belief "is a powerful, irrational, overvalued idea, but it is not by definition a delusion". 22 In dealing with a belief that death was imminent from cancer, Dr Phillips said: "[i]t is an overvalued idea, but in context with the seriousness of the illness or seriousness of the possibility, I do not think that it goes so far as to be a break from reality as we share it". For that reason, such a belief would not be delusional in character. 23 Dr Phillips also commented on the meaning of the term "phobia". He said that a person with a phobia "has a non-psychotic disturbance but an irrational concern". He said that a phobia was not a delusion. 24 Dr Fisher's views were similar to those of Dr Phillips. In particular, he agreed that psychosis involved a delusional state of mind. 25 Dr Fisher, like Dr Phillips, distinguished between delusions that were part of a psychosis, and anxiety responses that were not. He said that the term "delusion" was very well defined in medicine (and was to be distinguished from delusion in common parlance). Dr Fisher said that a delusion was a "firm, fixed, false belief which is not in accord with your intellect or with your cultural experience". Thus, he was in accord with Dr Phillips, in this regard, as well. 26 Dr Fisher said that a phobia was not a delusion. He said that a phobia was a fear of a particular stimulus or a particular thing. He said that, although anxiety could produce "an unreality to the perceived threat" where that unreality was a firm, fixed, false belief that was not in accord with the person's intellect and cultural experience, it was not delusional. 27 While Dr Fisher said that "distorted thinking" could occur with both anxiety and psychosis, he was firmly of the view that a distinction should be made between "psychotic thinking" and distorted thinking caused by anxiety. The distinction was based on the requirement that psychotic thinking required the element of delusional belief. 28 Thus, on the evidence of Dr Phillips and Dr Fisher: (a) A diagnosis of a psychotic condition, in the particular circumstances relevant to this case, required a finding that there was delusional thinking on the part of Mr Schultz. (b) To the extent that disordered or distorted thinking might be relevant to a finding of a psychotic state, such thinking had to be delusional. (c) There was a clear line between delusional thinking and statements produced by phobic thoughts or a state of extreme anxiety. (d) That distinction was clear and should be understood by a country general practitioner. 29 Dr Bailey's views as to the appropriate criteria bore some similarity to those of Dr Phillips and Dr Fisher (although they did not coincide). She agreed that the hallmark of a psychotic depression was delusional beliefs. She testified: "I had to make a decision as to whether I felt Mr Schultz's symptoms were purely anxiety or whether they incorporated – as part of his depression, he had a degree of distorted thinking; an irrational conviction. My judgment on that day was that he had anxiety of delusional intensity". 30 Dr Bailey repeated several times in the course of her evidence that she was of the view that a benzodiazepine (such as Valium) was inappropriate because Mr Schultz had "anxiety of delusional intensity". That anxiety was derived from Mr Schultz's fear of cancer and of dying by reason of cancer. Dr Bailey was of the opinion that Mr Schultz "had a delusional fear of cancer". 31 At times, Dr Bailey seemed to be of the view that "distorted or irrational thinking" would justify a diagnosis of a psychosis, but on reading her testimony as a whole I think that she was intending by that expression to convey thinking of a delusional kind. 32 In summary, (and in accordance with the evidence of Dr Phillips and Dr Fisher, accepted by Hall J) the appropriate criteria that Dr Bailey, as a reasonable country general practitioner, should have adopted, when diagnosing Mr Schultz, were as follows. There is a clear distinction between a psychotic state or symptom, on the one hand, and a phobia, or state of extreme anxiety, or an overvalued idea, on the other. A necessary and unique element of a psychotic state or symptom is a delusional belief. A delusional belief is one that involves a clear break from reality (as the concept of reality is understood by the community of which the patient forms part). Mere irrationality, even extreme irrationality, is not delusional if it has some connection with reality. The trial judge's findings as to Mr Schultz's symptoms on 20 July 2000 33 The symptoms Mr Schultz displayed at his consultation with Dr Bailey on 20 July 2000 are the significant symptoms in the case as Dr Bailey acknowledged that Mr Schultz had not exhibited psychotic symptoms prior to that date. The symptoms that he had previously manifested were, however, relevant in assessing his later symptoms. 34 Hall J stated (at [182]): "In relation to the issue (diagnosis), Dr. Bailey in making her diagnosis on 20 July 2000, relied essentially upon the following six matters:- (a) The fact that the plaintiff, when seen on 12 July 2000, was very anxious as to the possibility that he had colon cancer. (b) The continued anxiety expressed by the plaintiff to Dr. Horsley on 18 July 2000. (c) The fact that the plaintiff telephoned Dr. Bailey on 20 July 2000 and told her that he felt 'terrible' and could not cope. (d) That when seen later that day in consultation he was:- (i) distressed; teary; (ii) repeated statements that he had cancer, that he was convinced that he was going to die from cancer as his cousin had done. (e) That during the consultation, the plaintiff had symptoms of early morning wakening, loss of appetite, suicidal thoughts, but no plans about suicide. (f) The fact that she had difficulty reassuring him. (g) The fact that the symptoms referred to in (e) indicated that the plaintiff was depressed and very anxious and supported a diagnosis of "classical depression" . 35 The judge observed that, in making her diagnosis of a psychotic condition, Dr Bailey placed particular emphasis upon Mr Schultz's statements (denied by him) that he had cancer and that he was going to die from cancer. 36 In regard to the factual disputes as to what Mr Schultz said to Dr Bailey on 20 July 2000, Hall J said (at [192]): "I found both Mr. Schultz and Dr. Bailey to be impressive witnesses and my finding is one largely based upon the objective facts and circumstances to which I have referred. The explanation for the discrepancy in their evidence as to what was said on 20 July 2000 is probably related to inadequacies in the plaintiff's recollection." 37 His Honour stated (at [191]): "I have considered at length the evidence of the plaintiff, Dr. Bailey, Mrs. Schultz, the references in the St. Vincent's Hospital Progress Notes and the observations made by Dr. Hayes in determining whether the evidence does establish, as a matter of probability, that the plaintiff made the statements to Dr. Bailey as she maintained in evidence to the effect that he believed he was going to die, was riddled with cancer etc., notwithstanding that Dr. Bailey did not record them in her notes. In that respect, I find that, as a matter of probability, the plaintiff did make such statements". 38 The findings so made are challenged. The discrepancies between Dr Bailey's notes and her oral evidence 39 It was submitted on Mr Schultz's behalf that his Honour did not properly take into account his own reservations concerning the omission of Dr Bailey to record in her notes those statements and behaviour by Mr Schultz that must have been regarded by her as being out of the ordinary and important. Of particular relevance, as the judge noted (at [191]), are "the statements to Dr Bailey as she maintained in evidence to the effect that he believed he was going to die, was riddled with cancer etc." 40 Dr Bailey saw Mr Schultz on 12 July 2000. Her notes made on that date included the entry: "Anxious +++ re possibility of CA + - long consult" 41 On 18 July 2000, Mr Schultz saw Dr Bailey's colleague, Dr Horsley. Dr Horsley made notes. The only psychological symptom referred to in his notes was "anx ++". There was no reference to depression. 42 Mr Schultz saw Dr Bailey again on 18 July 2000. Hall J observed (at [112]) that she had recorded her observations on that date as being: "Objective signs of anxiety. Referred to the patient's anxiety as 'anxiety ++' and to the possibility rather than a conviction by the plaintiff that he had cancer : 'anxious ++ re possibility of cancer'. " 43 On 20 July 2000, Dr Bailey's notes read as follows: "Phone contact Depressed. Anxious +++ Will see later today Classical depression. EMW / o appetite teary. Suicidal thoughts but no plans. Cont. cipramil. Add Melleril. T - tds " 44 Dr Bailey testified that the term "classical depression" in her notes was a reference to a major depressive disorder and that symptoms such as early morning wakening, reduced appetite, teary and suicidal thoughts in combination would increase depression. When asked whether classical depression would indicate psychotic depression, she answered, "[n]o, well it could indicate psychotic depression, but no". She also said, "[t]he anxious ++ and classical depression would not indicate [delusional depression] necessarily. It could, but not necessarily, indicate a psychotic depression": [2006] NSWSC 727 at [117]. 45 There is no reference in Dr Bailey's notes to delusional beliefs, anxiety of delusional intensity, distorted thinking or an irrational conviction, or to psychotic depression as distinct from classical depression. There is no reference to Mr Schultz feeling "terrible" and not being able to cope. Importantly, there is no reference to repeated statements that he had cancer and that he was convinced that he was going to die from cancer. 46 Dr Phillips and Dr Fisher stressed the importance of Dr Bailey's notes. Both said that the notes did not reveal any psychotic condition or symptom. Dr Phillips said that he would expect anything as important as a psychotic condition or symptom to be recorded in a medical practitioner's notes. 47 Dr Bailey gave various explanations for the differences between her notes and her oral evidence. Hall J was not entirely satisfied with those explanations, particularly, as his Honour put it, in regard to "the failure to refer to the more florid or serious psychiatric symptoms which Dr. Bailey claimed had been in evidence and which were the basis for the prescription of the drug which she said she knew carried the risk of agranulocytosis": at [147]. 48 These reservations led Hall J to examine whether Dr Bailey's oral evidence was corroborated. He said, as I have noted, that he had "considered at length the evidence of the plaintiff, Dr Bailey, Mrs Schultz, the references in the St Vincent's Hospital progress notes and the observations made by Dr Hayes": at [191]. At a later point, he said that, upon a proper construction, the recorded history in the St Vincent's Hospital progress notes "constitute some, but not alone definite, evidence in the nature of corroboration of Dr Bailey to the effect that on 20 July 2000 the plaintiff was making statements which manifested disordered thinking": at [163]. And at [194], he said: "The surrounding facts as to the plaintiff's increasing or rising level of anxiety as to cancer and the observations of Dr. Hayes that he was as at 7 August 2000 "petrified" all tend to corroborate Dr. Bailey's assessment, which I accept she made, that Mr. Schultz was in effect in a very fragile, fearful state as at 20 July 2000 and exhibiting distorted and obsessive thinking." 49 In the light of the arguments raised on behalf of Mr Schultz, it is necessary to examine afresh whether the evidence of Mr and Mrs Schultz, the references in the St Vincent's Hospital progress notes and the observations made by Dr Hayes do support or corroborate the evidence of Dr Bailey. The St Vincent's Hospital Progress Notes 50 Mr Schultz was treated at St Vincent's Hospital when he became seriously ill in consequence of his ingestion of Melleril. The hospital progress notes, dated 24 September 2000, record details of a history taken from Mr Schultz's wife. They are as follows: " 4. Depression Mx GP Rx Cipramil Neurovegetative symptoms ↓ motivation ↓ mood early morning wakening 5. … 6. Phobia re colon Ca since Rx Melleril by GP 'I'm going to die' 'I've got cancer' Delusional Ø hallucinations Meds: Melleril Cipramil " The following further reference appears in the notes: " Cousin died → depression Rx Cipramil Paranoid re colon ca → Melleril by GP " The ITU ADM Note records: " Concurrent depression after death of cousin → LMO commenced citalopram Paranoia/phobia re / colon ca → psychotic features → thioridazine commenced ." 51 Hall J made the following comments (at [160]) in regard to these notes: · 24 September 2000 – The handwritten notes of 24 September 2000 were written by a haematology resident officer identified as 'M. Berry'. The heading to that entry indicates that a history was taken from the plaintiff's wife. · The defendant did not call Dr. Berry to establish precisely which entries or parts of entries reflect his interpretation of what he was told, what recorded medical terms or expressions appearing in the notes were his own and what observations and conclusions were his own. · Particular observations concerning the entries of 24 September 2000 (Exhibit E, p. 137) are as follows:- (a) As to the entry No 6 'Phobia re colon ca since Rx (treatment with) Melleril by GP', it is possible that the reference to 'phobia' may be Dr. Berry's reference or that of Mrs. Schultz. If Mrs. Schultz used the word 'phobia' ', that cannot be taken as necessarily used by her in a technical or medical sense. There is no indication that any fear or phobia referred to was psychotic in the sense identified by Dr. Phillips or a non-psychotic fear in the context of an 'overvalued' idea of a patient based on apprehension of a cancerous condition. (b) There are no medical or clinical facts identified as relating to psychotic delusions or hallucinations. (c) The statements referred to, 'I'm going to die' and 'I've got cancer' do not in themselves necessarily establish as at any particular date in the past whether such statements represented the concept of an overvalued idea in terms described by Dr. Phillips (non-psychotic) or were indicative together with any other unidentified symptoms, [sic] psychotic symptoms. (d) The entries 'Cousin died → depression Rx Cipramil, paranoid re colon ca → Melleril by GP' may be a mix of lay terminology used by the plaintiff's wife and medical interpretation by the registrar. As with the previous entry, there is no material from which the distinction is made between 'phobia', 'paranoid', 'depression' or 'pre-occupation re fear of cancer '. (The latter entered on 25 [sic] September 2005, Exhibit E, p.140, by a registrar who was not called to give evidence.) (e) The further entry relied upon by the defendant (Exhibit E, p.140-141) concerning pre-occupation with cancer 'I was obsessed' was made by the plaintiff whilst in a state of delirium as recorded in the notes. 52 Mr Walker SC, who, together with Mr Anderson, appeared for Mr Schultz, submitted that the St Vincent's Hospital notes, having regard to Hall J's comments in regard to them, must be taken as providing no support to, and no corroboration of, Dr Bailey's evidence "to the effect that on 20 July 2000 [Mr Schultz] was making statements which manifested disordered thinking". Mr Walker submitted that Hall J erred in finding that the progress notes corroborated to some degree the evidence of Dr Bailey "that on 20 July 2000 the plaintiff was making statements which manifested disordered thinking." 53 In the course of argument, the judgment under appeal was rightly described as "a careful and painstaking set of reasons". Nevertheless, in my view, Mr Walker's submissions must be accepted. The statement by his Honour that the notes do not identify "medical or clinical facts relating to psychotic delusions or hallucinations" is of particular significance. This statement could not be a clearer indication of a view on the part of the judge that the hospital notes do not support or corroborate Dr Bailey's oral testimony. Moreover, the general tenor of the other comments made by his Honour is that the notes do not reliably indicate any psychotic behaviour on the part of Mr Schultz. There was no suggestion by Mr Kalfas SC, who appeared on behalf of Dr Bailey, that his Honour erred in making the comments in question. 54 I should also comment on his Honour's observation that the St Vincent's Hospital notes evidenced the making of statements by Mr Schultz, as repeated by Mrs Schultz to the haematology resident officer, "in response to his extreme fear that he had colon cancer". Even if that is correct, fear of that kind is not a psychotic symptom according to the criteria his Honour accepted. 55 The fundamental point is that, because the notes do not identify any psychotic delusions, they do not corroborate Dr Bailey's evidence that Mr Schultz was making statements that revealed delusional beliefs or "anxiety of delusional intensity". The evidence of Mr and Mrs Schultz and that relating to Dr Hayes 56 The evidence of Mr Schultz did not support a finding that he made statements to Dr Bailey to the effect that "he believed that he was going to die, was riddled with cancer etc". Mr Schultz said that he was concerned, because his cousin had died of cancer, that - if he had cancer - his prospects of survival would not be good. He denied that he was convinced that he had cancer. He said that he was concerned, because of the bleeding, that there was a possibility that he had cancer. He accepted that he was anxious about these matters but denied that he was "terrified". Significantly, it was not put to Mr Schultz in cross-examination that he told Dr Bailey that he was riddled with cancer. 57 The evidence of Mrs Schultz, also, did not corroborate Dr Bailey's testimony. Mrs Schultz, who is a nurse by occupation, said that, as far as she was aware, Mr Schultz never appeared to suffer from delusions. She said that he never told her that he might be considering taking his own life and did not behave in any way that she considered irrational. She denied that Mr Schultz, on a number of occasions, sought reassurance from her about cancer. She said that, before experiencing the effects of Melleril, Mr Schultz was concerned and anxious because he did not know "what the bleeding was". He did not indicate to her that he believed that he actually had cancer. She said that at no time prior to his admission to St Vincent's Hospital did he say that he was going to die because he had cancer. 58 Mrs Schultz said that, when her husband was at St Vincent's Hospital, he thought he was dying of cancer (that is, when he was suffering from the effects of Melleril). Mrs Schultz said that this was because a Dr Smee had told him that "he was dying more or less and he thought that it was cancer, he was really confused". According to Mrs Schultz, Mr Schultz had never been irrational or obsessed about cancer prior to his admission to St Vincent's Hospital. 59 Mrs Schultz recalled speaking with Dr Berry and recalled telling him that her husband had had depression. She knew that her husband was being treated for depression. She said that, as far as she was concerned, he was not depressed and said, "[t]hat's something the doctors say". 60 It was also not put to Mrs Schultz that her husband had said that he was riddled with cancer. 61 Dr Hayes is a surgeon to whom Mr Schultz had been referred for a colonoscopy. On 21 July 2000, Mr Schultz rang Dr Hayes in an endeavour to bring forward an appointment that had been arranged for him to have a colonoscopy in three months' time. An appointment was fixed for 7 August 2000. On 9 August 2000, Dr Hayes wrote to Dr Bailey, reporting that Mr Schultz was "petrified that he has cancer". This statement by Mr Schultz does not fall into the category of "delusional" as explained by Dr Phillips and Dr Fisher. 62 Hall J found that Dr Bailey prescribed Melleril because she adjudged Mr Schultz to be "manifesting distorted thinking of a psychotic nature" and to be "exhibiting distorted and obsessive thinking". To the extent that his Honour relied on the evidence of the St Vincent's Hospital notes, Mr Schultz, Mrs Schultz, and Dr Hayes' letter of 9 August 2000 in coming to these conclusions, and to the extent that his Honour believed that that evidence corroborated Dr Bailey (see [163], [194] and [195]), he was in error. Applying the facts asserted by Dr Bailey to the accepted criteria 63 Mr Walker submitted that, even on the facts found by Hall J, his Honour erred in holding that those facts justified a finding that the diagnosis that Mr Schultz was suffering from a psychotic condition "was well within the range of legitimate clinical judgment". 64 In my view, applying the criteria accepted by the judge to the six matters on which, according to his Honour, Dr Bailey relied in making her diagnosis, there was no basis on which Dr Bailey's diagnosis could reasonably have been made. 65 The point is that, even if Dr Bailey did in fact rely on the six matters in question, no departure from reality of the kind required by the criteria was established. There was a basis in fact for Mr Schultz's fear, irrational or even phobic as it might have been. Mr Schultz was displaying extreme anxiety, but as Dr Phillips said, "anxiety per se is not a psychosis" and "there is no breach from reality in the course of an episode of anxiety". 66 Hall J accepted that a delusional belief was a totally different thing from "an extension or a greater degree of anxiety": at [187]. He also accepted that a psychotic symptom was "totally different" from anxiety, basing his finding on Dr Fisher's opinion (at [187]). 67 The judge, nevertheless, appeared to be influenced, strongly, by: · His finding that, up to and subsequent to 20 July 2000, Mr Schultz "exhibited a high level of anxiety that he had colon cancer": at [190]. · The note of the psychiatric registrar at St Vincent's Hospital, recorded in the hospital notes, as to "preoccupied fear of cancer" (his Honour said that this was "consistent with obsessive thought processes"): at [190]. · His finding that "Mr Schultz was plainly experiencing a rising sense of extreme anxiety and depression up to and including that day when he rang Dr Bailey seeking help": at [190]. · The St Vincent's Hospital notes which reflected Mr Schultz's preoccupation or concern with dying from colon cancer. 68 Here, the point is that the high level of anxiety, the fear of cancer, even an extreme fear of cancer, the extreme anxiety and depression, and even a phobia in relation to the cancer, were not signs of a psychosis. 69 In my opinion, his Honour erred in attributing material weight to these matters in determining whether it was "open" (as his Honour put it) to Dr Bailey to diagnose a psychotic condition. With respect to his Honour, his process of reasoning leading to his ultimate conclusion did not engage with the criteria that he accepted and which he held a general practitioner exercising reasonable care, skill and judgment should have applied. The facts asserted by Dr Bailey and the opinions expressed by Dr Phillips and Dr Fisher 70 Dr Phillips was of the opinion that a significant and specific fear on the part of Mr Schultz that he was going to die was not "a departure from the shared reality" and was not a sign of a psychosis. Dr Phillips said: "It is only delusional in character and it is only psychotic if the thinking of the client at that point in time breaches reality as we share it. I think it would be fair to say that any of us who have faced a cancer would have had similar thoughts. Death is imminent; but that does not go – it is an over-valued idea, but in context with the seriousness of the illness or seriousness of the possibility I do not think that it goes so far as to be a break from reality as we share it". 71 Dr Phillips accepted that, if Mr Schultz was convinced he was riddled with cancer, he was acting irrationally, but, nevertheless, understandably. According to Dr Phillips, the threshold for a breach from reality had not been reached. He said that a refusal to accept or address the objective facts was "very typical of an overvalued idea". Dr Phillips was of the opinion that, even were Mr Schultz to have been petrified that he had cancer, that fear would constitute a phobia and an overvalued idea, rather than a delusion. 72 Dr Phillips accepted that if a person believed that he was going to die because he had a cancer that "came out of nowhere", he would be "drawn towards a breach of reality". But, in this case, there was no breach from reality, although Mr Schultz had a "deep phobia" and irrational belief. There was no breach from reality because Mr Schultz's belief was grounded in his bleeding and what he knew about the signs of bleeding as a possible indication of colon cancer. 73 The judge, although accepting Dr Phillips' evidence generally, did not explain why, in effect, he rejected it in coming to his ultimate conclusion. 74 Dr Fisher said that he saw nothing in the notes taken by Dr Bailey to suggest the existence of a functional psychosis in Mr Schultz. Dr Fisher stressed that, on all the information given to him, Mr Schultz did not suffer from delusions. He, like Dr Phillips, said that a phobia was not a delusion. 75 The following exchange in the course of Dr Fisher's cross-examination is particularly relevant: "Q. If you were to assume that during the course of the time that Mr Schultz presented to Dr Bailey he was expressing a phobia in relation to colon cancer, and a conviction that he was going to die because he had cancer, the only objective evidence for any such view being the fact that he had more bleeding per rectum, that would tend to indicate a more severe mental disorder, would it? A. Not really, I mean that it's anxiety. Q. A conviction that you are going to die because you have cancer, in the absence of any medical support for that proposition? A. I commonly see people who have in this case bleeding from the bowel, who come in and the first question they ask is 'I've got cancer, I am bleeding, I want to know where I've got cancer', and until that's proven, that's their anxiety. Q. If they expressed to you a view that they believe that they are going to die because they have cancer, you would at least, would you not, indicate a presentation of some per rectal bleeding does not necessarily indicate such a situation? A. It depends on the state of the person's anxiety. I mean, anxiety can produce very great thoughts, particularly if one has fear, it can. Q. And those fears, with your now situation of looking at a long continuum presentation from different people, aren't we, in that those anxieties can be so severe that they lead to irrational beliefs or convictions? A. It would be a brave man to say it was irrational, because the evidence that they have is they are bleeding, and unless you can say 'it's not due to cancer', then it's not an irrational thought." 76 This exchange reveals the strength of Dr Fisher's views as to the absence of reasonableness in Dr Bailey's diagnosis. It makes plain his firm opinion that, while Mr Schultz was suffering from anxiety, he was not suffering from a psychotic condition. 77 I have indicated that his Honour implicitly accepted the evidence of Dr Fisher and expressly referred to his balance, experience and knowledge. Yet, in finding that Dr Bailey was justified in diagnosing a psychotic condition, his Honour did not deal with Dr Fisher's contrary opinion and his reasons for holding it. 78 Mr Kalfas submitted that Dr Fisher appeared to have based his opinion largely on Dr Bailey's notes and not on the additional facts to which she testified in her oral evidence. Whether this is so or not, was not canvassed with Dr Fisher in cross-examination. He was not asked, for example, if his opinion was based solely on Dr Bailey's notes, and whether his opinion would change if he had regard not only to those notes but to the additional material on which Dr Bailey relied. These matters militated strongly against any finding contrary to Dr Fisher's views. 79 His Honour came to his ultimate conclusion contrary to the evidence and views of Dr Phillips and Dr Fisher, notwithstanding the fact that he accepted their testimony, generally. Moreover, his Honour made no attempt to reconcile his ultimate conclusion with the views of Dr Phillips and Dr Fisher. In my view, no reconciliation of that kind is possible. In my respectful opinion, these matters amount to appealable error. Dr Bailey as a general practitioner 80 Hall J appeared to attach some significance to the fact that Dr Bailey was not exercising the specialist medical skill of a consultant psychiatrist but that of an experienced general practitioner, practising in the country. While that may be correct, the evidence on this issue was all to the effect that a general practitioner in Dr Bailey's position would be expected to be able to distinguish between a delusion, on the one hand, and a phobic statement or a statement made by reason of extreme anxiety, on the other. It was not, indeed, put to Dr Fisher that a country general practitioner would not apply the criteria he and Dr Philips had indicated. The case was not fought on that basis. Costs 81 On 29 September 2005, Mr Schultz's solicitors made a Calderbank offer to settle the matter in the sum of $220,000.00 inclusive of costs represented by $150,000.00 damages and a contribution of $70,000.00 towards costs and disbursements. This offer was not accepted. 82 In his notice of appeal, Mr Schultz - on the strength of the Calderbank offer - sought an order that Dr Bailey pay the costs of the trial on a party and party basis for work done up until 29 September 2005, and on an indemnity basis in respect of work done thereafter. Mr Schultz sought an order that Dr Bailey pay Mr Schultz's costs of the appeal. 83 Mr Kalfus resisted the claim for indemnity costs. He made the following points: (a) The letter of 29 September 2005 was a Calderbank letter, not a formal offer of compromise as provided by the Rules; (b) The offer called for a judgment to be made not only about the amount of damages but also about the amount of costs; and (c) The final report of Dr Phillips that, for the first time, introduced the "overvalued idea" concept was only served in January 2006, at which time the offer had expired. 84 I am not persuaded by Mr Kalfus' submissions. Firstly, the fact that a Calderbank offer was served gives the Court a discretion to order indemnity costs. There is nothing more, relevantly, that need be said about the making of the offer. Secondly, I do not think that there was anything complex or difficult about the form of the offer. Thirdly, even if it be accepted that the final report of Dr Phillips was served after the offer had expired, I do not consider that the nature of Mr Schultz's case was thereby changed materially. Conclusion 85 I have concluded that his Honour erred in finding that there was evidentiary material that corroborated Dr Bailey's evidence as to the statements made by Mr Schultz beyond those recorded in her notes. 86 I have concluded, further, that even on the judge's findings as to the statements Mr Schultz allegedly made, there was no proper basis for Dr Bailey diagnosing a psychotic condition. I have come to the latter conclusion by reference, particularly, to the element of delusion (according to its medical meaning) that, according to the expert evidence accepted by the judge, is essential to any finding of a psychotic condition. 87 I have also concluded that his Honour erred in finding for Dr Bailey when that finding was contrary to the evidence and views of Dr Phillips and Dr Fisher, which his Honour had accepted, and in not attempting to reconcile that finding with their views. 88 In my opinion, on the accepted evidence, Dr Bailey should not, in the exercise of reasonable care, have diagnosed a psychotic condition and, in my opinion, on that evidence, she was negligent in doing so. It follows that I would uphold the appeal. 89 I propose the following orders: (a) The appeal is allowed. (b) The judgment of Hall J be set aside. (c) In lieu thereof, there be a judgment for Mr Schultz in the sum of $255,561.95, together with interest from 20 July 2006. (d) Dr Bailey pay Mr Schultz's costs of the trial on a party and party basis for work done up until 29 September 2005 and on an indemnity basis in respect of work done thereafter. (e) Dr Bailey pay Mr Schultz's costs of the appeal. (f) Dr Bailey have a certificate under the Suitors' Fund Act 1951 (NSW), if otherwise qualified. 90 BASTEN JA: I agree with Ipp JA. ********** 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.