District Court New South Wales Medium Neutral Citation: Michael Szczerbanik v Carnival PLC trading as Carnival Cruise Lines [2019] NSWDC 198 Hearing dates: 18 March 2019 Date of orders: 26 March 2019 Decision date: 26 March 2019 Jurisdiction: Civil Before: Judge J Smith SC Decision: (1) The plaintiff is to pay the defendant's costs on a party/party basis up to and including 16 November 2017 and on an indemnity basis from 17 November 2017. (2) The plaintiff's solicitor is to repay the plaintiff the whole of the cost payable that the plaintiff has been ordered to pay to the defendant. (3) The exhibit is to be returned. Catchwords: COSTS – Party/Party – Court's discretion – indemnity costs – whether the Court should "otherwise order" – refusal of offer unreasonable Legislation Cited: Civil Liability Act 2002 (NSW) ss 31, 32, pt 3 Legal Profession Uniform Law Application Act 2014 (NSW) cl 5 of sch 2 Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 42.15 Cases Cited: Newell; Muriniti v De Costi [2018] NSWCA 49 Wicks v State Rail Authority of New South Wales (2010) 241 CLR 60 Zhang v Hardas (No 2) [2018] NSWCA 432 Category: Costs Parties: Michael Szczerbanik – Plaintiff Carnival PLC trading as Carnival Cruise Lines – Defendant Representation: Counsel: Mr A Campbell – Plaintiff Mr B Hull - Defendants Solicitors: Gerard Malouf & Partners – Plaintiff HWL Ebsworth - Defendant File Number(s): 2017/00162249 Publication restriction: No restriction. Judgment 1. There are two matters before me today, Michael Szczerbanik v Carnival PLC t/as Carnival Cruise Line (2017/162249) and Isobella Madeline Szczerbanik v Carnival PLC t/as Carnival Cruise Line (2017/00162222). 2. The plaintiff in each of these matters claim damages for mental harm said to have been caused by the negligence of the defendant. The matters came on for hearing before me on 18 March 2019 and judgment was entered for the defendant by consent. The plaintiffs were ordered to pay the defendant's costs. The defendant now seeks two additional costs orders: 1. that the costs be on a party and party basis up to 16 November 2017, and on an indemnity basis from 17 November 2017; and 2. that the plaintiffs' solicitors be directed to repay the plaintiffs' costs they have been ordered to pay the defendant. 1. I will deal with those issues in order. The relevant rules in respect of indemnity costs in the Uniform Civil Procedure Rules 2005 (NSW) are rr 20.26 and 42.15. 2. By letter of 16 November 2017, the solicitor for the defendant sent an offer of compromise to the solicitor for the plaintiffs, which remained open for 28 days from the date of that letter. The offer was in the following terms: 1. Judgment for the defendant with no order as to costs. 2. This offer is open for acceptance for 28 days from the date hereof. 3. This offer is of compromise is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005. 1. The offer was not accepted. The questions then are: 1. whether the offer was more favourable than the judgment that is ultimately entered, and if so; 2. whether the Court should "otherwise order". 1. The plaintiff quite properly, in each case, did not contest the first issue, however argued that the rejection of the offer was reasonable in circumstances where it was made prior to the conclave report of the two experts, Dr Pusey and Dr Kaplin. I neither understand nor accept that submission. The joint report of the two experts was dated 24 October 2018 well before the offer was made. It was received by the solicitor for the plaintiff two days later. 2. That report concluded that there was no significant addition to the previous existing pathology and a person of normal fortitude was not likely to have suffered a recognised psychiatric illness in the circumstances. Given that the claims were for pure mental harm, that evidence was significantly unfavourable to the plaintiffs and made it difficult, or impossible, for them to proceed. 3. Although the report did not exactly reflect the language of s 32 of the Civil Liability Act 2002 (NSW) (CLA), it was sufficient to make the refusal of the defendant's offer unreasonable. For that reason, I reject the plaintiffs' argument and make an order in each matter that the plaintiff pay the defendant's costs up to and including 16 November 2017 on a party/party basis and from 17 November 2017 on an indemnity basis. 4. The second issue then is whether there ought to be an order that the plaintiffs' solicitors indemnify the plaintiffs in respect of the costs orders made by the Court. There are a number of sources of the Court's power to award costs against the solicitors acting for a party to proceedings. The defendant principally relies on cl 5 of sch 2 to the Legal Profession Uniform Law Application Act 2014 (NSW). It was common ground that this effectively replicated provisions of the Legal Profession Act 2004 [1] . The obligation of the legal practitioners that precedes this power is found in cl 2. Both of those clauses are found in [1] of the written submissions of the plaintiff and I need not repeat them here. 5. In this matter a Vrege Kolokossian was the solicitor acting for the plaintiff. On 30 May 2017, he signed the following certification: I certify under clause 4 of Schedule 2 of the Legal Profession Uniform Law Application Act 2014 that there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim for damages in these proceedings has reasonable prospects of success. I have advised the plaintiff that court fees may be payable during these proceedings. These fees may include a hearing allocation fee. 1. There was no direct evidence of any belief by Mr Kolokossian, or indeed the basis for such belief. All that was in evidence was a statement that another solicitor in Mr Kolokossian's firm, Malouf & Partners, had taken instructions and prepared a statement of claim, and it may be inferred had a discussion with Mr Kolokossian about prospects on the success of the matter. The firm also had at that time a number of reports relating to the proceedings brought by Abby Szczerbanik, the sister and daughter of the plaintiffs. 2. Before explaining those proceedings and the relevance to the plaintiffs' cases, it is necessary to identify the issue for determination. That question is whether Mr Kolokossian "reasonably" believed on the basis of provable facts and a reasonable view of the law that the claim for damages had reasonable prospects of success. The phrase without "reasonable prospects of success" means that it is "so lacking in merit or substance as to be not fairly arguable": see Newell; Muriniti v De Costi [2018] NSWCA 49 at [57] per Beazley P. Assuming for present purposes that Mr Kolokossian actually held such a belief, the question is whether the belief was reasonably held. The parties' arguments proceeded on the basis that that required me to form a view as to whether the plaintiffs' case had reasonable prospects of success. In order to do that, I will start with the facts. Factual background 1. In November 2015, Abby Szczerbanik and her sister Isobella, and Isobella's boyfriend, booked and embarked upon a cruise holiday conducted by the defendant. While playing putt putt golf, Abby placed her left foot over an object at the edge of the course which gave way causing her an injury to her left ankle. On 31 August 2016, Abby subsequently commenced proceedings against the defendant claiming damages. The claim included damages for mental harm. 2. On 30 May 2017, Isobella and her father, Michael Szczerbanik commenced these proceedings. It is important to note the claims made by each of them, and I take these from the statement of claim made by Isobella Madeline Szczerbanik, at [10]-[14], which are in the following terms: 10. At all material times, the Defendant owed the Plaintiff and Abby Szczerbanik a duty of care to provide its services in a fashion to avoid the risk of harm to the Plaintiff and Abby Szczerbanik. 11. The risk that Abby Szczerbanik might stand on a brick bordering the golf course was foreseeable and the risk of harm if that brick was not properly fixed to the surface was not insignificant and the Defendant ought to have reasonably taken precautions to avoid injury to Abby Szczerbanik in the circumstances was negligence. Particulars of negligence Failed to ensure the brick was properly fixed to the surface. Failed to adequately inspect the course prior to Abby Szczerbanik playing to ensure that it was safe. Failed to warn Abby Szczerbanik. 12. It was reasonably foreseeable that the Plaintiff could suffer nervous shock if the Defendant had failed to exercise reasonable care in relation to Abby Szczerbanik. 13. The risk of harm to Abby Szczerbanik was not insignificant. 14. The Defendant knew or reasonably ought to have known of the risk of harm to Abby Szczerbanik and the Plaintiff. 1. At [20] and [21] the following claims were made: 20. In addition it was an implied term of the contract between the Plaintiff and the Defendant that the Defendant provide the cruise services and activities during the cruise with adequate due care and skill and the Defendant is in breach of this implied term in failing to provide a safe golf course with border stones and properly fixed to the surface. 21. In addition the Defendant guaranteed to the Plaintiff that the cruise would be rendered with due care and skill pursuant to section 60 of the Competition and Consumer Act 2012 – Schedule 2 – Australian Consumer Law and by failing to ensure the border bricks were properly fixed to the surface and not prone to rolling the Defendant is in breach of its duties under the Australian Consumer Law. Mental harm 1. Claims for mental harm such as this are governed by pt 3 of the CLA. Of particular importance are ss 31 and 32 of that Act, which I set out below: 31 Pure mental harm—liability only for recognised psychiatric illness There is no liability to pay damages for pure mental harm resulting from negligence unless the harm consists of a recognised psychiatric illness. 32 Mental harm—duty of care (1) A person (the defendant) does not owe a duty of care to another person (the plaintiff) to take care not to cause the plaintiff mental harm unless the defendant ought to have foreseen that a person of normal fortitude might, in the circumstances of the case, suffer a recognised psychiatric illness if reasonable care were not taken. (2) For the purposes of the application of this section in respect of pure mental harm, the circumstances of the case include the following: (a) whether or not the mental harm was suffered as the result of a sudden shock, (b) whether the plaintiff witnessed, at the scene, a person being killed, injured or put in peril, (c) the nature of the relationship between the plaintiff and any person killed, injured or put in peril, (d) whether or not there was a pre-existing relationship between the plaintiff and the defendant. (3) For the purposes of the application of this section in respect of consequential mental harm, the circumstances of the case include the personal injury suffered by the plaintiff. (4) This section does not require the court to disregard what the defendant knew or ought to have known about the fortitude of the plaintiff. (Emphasis in original) 1. The issues arising under s 32 were discussed by Leeming JA in Zhang v Hardas (No 2) [2018] NSWCA 432 at [109] to [118]. Important also is the discussion by the High Court in Wicks v State Rail Authority of New South Wales (2010) 241 CLR 60 at [26]. 2. Here, the defendant argues that it was not reasonably arguable that it was reasonably foreseeable that a person of normal fortitude might in the circumstances of the case suffer a recognised psychiatric illness. It also argued that it was not arguable the alleged negligence of the defendant caused the mental harm claimed by each of the plaintiffs. That harm was particularised as follows: psychological injury, depression, anxiety, stress. 3. The defendant points to the fact that the only evidence available to the plaintiffs' solicitors at the commencement of the proceedings was a slip and fall expert and the report of an orthopaedic rehabilitations specialist, Dr Ehrlich, that relates to a fractured metatarsal of Abby Szczerbanik's little toe. I interpolate that the actual injury was a fractured fifth metatarsal. There was later a report of Dr Pusey, a psychologist with no apparent expertise in psychiatric conditions. In respect of Dr Pusey's report, I note and adopt as accurate the comment made in the defendant's submissions on cost at [44]-[49] and [52]-[59]. The plaintiffs' solicitor argued that it was not merely the injured foot that must be considered when determining foreseeability, but also the subsequent mental injuries suffered by Abby Szczerbanik. 4. In this respect, he noted that there was a report by a consultant psychiatrist, Dr Jonathan Philips on 25 January 2017. In his report, Dr Philips noted at [79] that he did not doubt that Ms Abby Szczerbanik's symptoms were "triggered principally by the stressful experience at/following the incident on 17 November 2015, but in the context of Carnival failing to offer prompt, appropriate and assertive medical assessment and investigations". He continued: … [t]he plaintiff was already predisposed to experience mental health problems as a consequence of an almost certain cluster B personality disturbance (borderline type). If it had not been for the earlier psychological disequilibrium, the plaintiff's response to the events on 17 November 2015 would have been less obvious. 1. The doctor also went on to note that in his opinion, a person of normal fortitude suffering an unexpected or serious injury away from home where it proved hard to obtain adequate medical care would be likely to suffer from a psychiatric injury. In his report, Dr Pusey stated without any explanation, that in his view, a person of normal fortitude might under the circumstances described in the report suffer a recognised psychiatric illness as a consequence of the incident. 2. It might be noted that he changed that view in conclave with Dr Kaplin and in light of the lack of explanation for the view and the subsequent change of it, I give his opinion no weight. I must then consider the circumstances of the case in accordance with s 32. Section 32(a) requires the Court to consider whether mental harm was suffered as a result of a "sudden shock". 3. Sudden shock was explained by the High Court in Wicks, and I accept in this respect the defendant's written submissions at [27] to [30]. 4. Sub-section 32(2)(b) prescribes as a condition the circumstances to be considered where "whether the plaintiff witnessed, at the scene, a person being killed, injured or put in peril". Clearly enough, this does not apply to Michael who was not on the cruise with his daughters. It does, however, apply to Isobella who was there and witnessed the injury. I note however in this respect that the injury, particularly what she witnessed, was a very minor one. 5. The third matter under s 32(2) is the nature of the relationship. In this case, that relationship is that of sister and father respectively and I accept that for present purposes they were close relationships. Finally, under s 32(2), there is a question of the pre-existing relationship between the plaintiffs and the defendant. Here, Michael had no pre-existing relationship with the defendant and Isobella's only relationship with the defendant was a contractual one. 6. Taking those matters into account and giving weight to the relationship between Abby and the plaintiffs, there is no room for argument, in my view, that the defendant ought to have foreseen that a person of normal fortitude might in the circumstances of the case suffer a recognised psychiatric illness if reasonable care were not taken. It may be expected that a sister witnessing the injury and going on to enjoy her holiday would feel guilty as Isobella did, and that she and her father might feel some level of stress, and indeed they might wish to take some form of retribuntion on the defendant as they saw it being responsible for the injuries of their sister and daughter. 7. However, the claimed reaction here was extreme and idiosyncratic. The solicitor's argument that Abby later developed suicidal tendencies and various other psychiatric complaints ignores the fact that the test in question is a prospective one. In those circumstances, there was no reasonable belief here that there was a reasonable prospect of success. For those reasons, I make the following orders in each matter: 1. The plaintiff is to pay the defendant's costs on a party/party basis up to and including 16 November 2017, and on an indemnity basis from 17 November 2017. 2. The plaintiff's solicitor is to repay the plaintiff the whole of the cost payable that the plaintiff has been ordered to pay to the defendant and; 3. The exhibit is to be returned. ********** Endnote 1. Repealed by s 167(a) of the Legal Profession Uniform Law Application Act 2014 No 16, effective 1 July 2015. 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. Decision last updated: 23 May 2019