Costs consequences: importance of nature and timing of pre-trial offers of compromise

By Mitchell Stein, Hilary Lee and Nicolette Shaw

Health Care Corporation Pty Ltd t/as Wollongong Private Hospital v Cleary (No 2) [2024] NSWCA 94

This recent NSW Court of Appeal decision provides an interesting analysis of costs consequences flowing from Offers of Compromise and Calderbank offers, highlighting the importance of the nature and timing of pre-trial offers to ensure costs protection both at trial and on appeal.

Background

The Respondent, Graham Cleary, was admitted to Wollongong Private Hospital on 17 July 2020 for revision L4/5 posterior lumbar fusion and nerve decompression. Less than 24 hours after surgery, Mr Cleary was being transported from ICU to have a further scan when his bed collided with the wall in the hospital corridor.  A further surgery on 23 July 2020 found a piece of bone graft material under the left L5 nerve (said to be caused by the collision). Mr Cleary alleged he was left with significant impairment for which he commenced proceedings in the NSW District Court against Health Care Corporation Pty Ltd t/as Wollongong Private Hospital (HCC).

The NSW District Court trial proceeded before Acting Judge Ainslie-Wallace in May 2023.  Mr Cleary was successful and Her Honour awarded damages in the sum of $583,711.00.^[1] As Mr Cleary had served an Offer of Compromise in the sum of $350,000 plus costs as agreed or assessed on 26 July 2022, her Honour also ordered HCC to pay the Plaintiff’s costs as agreed or assessed on an ordinary basis up to and including 26 July 2022 and on an indemnity basis thereafter.

HCC appealed the NSW District Court decision. HCC advanced 17 grounds of appeal, with the factual findings and liability being the dominant issues on appeal. The NSWCA ultimately dismissed all grounds of appeal regarding the facts, breach of duty and causation. HCC succeeded, however, in respect of two grounds of appeal regarding quantum (for which Mr Cleary had made appropriate concessions).

The appeal was therefore allowed in part, reducing the primary judge’s award of damages from $583,711 to $350,187.60. The parties subsequently filed competing written submissions as to costs.

NSWCA costs decision

The NSWCA decision on costs considered the exchange of Offers of Compromise and Calderbank offers, and the reasonableness of rejecting those offers at various points. The NSWCA also considered exceptions to the general rule that costs follow the event. The relevant offers served by each party were as follows:

NSWDC costs

Regarding HCC’s first offer (being a Calderbank offer of $475,00 all-inclusive), the Court held that ‘having regard to the circumstances in which HCC made the offer … unaccompanied by any explanation for its basis and open for an extremely limited period’ it was not made on terms that enabled the offeree (ie Mr Cleary) to give proper consideration to it.^[2] It followed that the Court would not make an indemnity costs order in HCC’s favour from 22 April 2023, being the first of the orders HCC sought.

Turning to HCC’s second offer (being an Offer of Compromise of $350,000 plus costs), HCC submitted that, given the outcome for Mr Cleary on appeal was more favourable than its offer by a mere $189.60, the difference between the judgment on appeal and the offer was de minimisi and should not impact adversely on the application of UCPR 42.15. HCC submitted it had been prepared to pay Mr Cleary an amount ‘essentially equivalent’ to the final award of damages, and therefore the offer was no less favourable to him than the award he ultimately received.

The NSWCA determined that the award for damages was more favourable than HCC’s second offer (albeit marginally) for the purposes of UCPR 42.15 noting the offer:

• was for the same award of damages Mr Cleary had offered to compromise the proceedings for nine months earlier on 26 July 2022;
• did not account for the costs incurred by Mr Cleary since 27 July 2022; and
• included an order that it would pay Mr Cleary’s costs up to the date of offer but ‘only as agreed or assessed’.

Against this background, the Court considered it was reasonable for Mr Cleary to reject HCC’s offer.  It followed that the Court agreed with Mr Cleary’s submission that the costs order of the primary judge should not be disturbed.

NSWCA costs

Together with section 98 of the Civil Procedure Act 2005 (NSW), UCPR 42.1 provides that if the Court makes an order as to costs, it should be in terms that costs follow the event unless the circumstances justify some other order.  Mr Cleary submitted that the ‘event’ should be characterised as his success in retaining judgment against HCC on appeal. In response, HCC highlighted the various points of damages for which it succeeded and the significant reduction in the award of damages it achieved.  The NSWCA determined that, in circumstances where HCC was unsuccessful as to liability and causation (being the dominant issues on appeal), it was appropriate for Mr Cleary to be awarded his costs of the appeal, less some proportion to fairly reflect HCC’s limited success (as to quantum) on appeal.

Nonetheless, the Court deemed it necessary to consider the impact of a further Offer of Compromise, for $350,000 plus costs, upon which HCC relied. This offer was made at 12:10 am on 22 December 2023. At 7:04 am, Mr Cleary’s solicitors replied stating that, given the breadth of the Notice of Appeal and the absence of any written submissions from HCC, they were not in a position to advise Mr Cleary in respect of the offer. HCC’s solicitors disagreed and stated Mr Cleary had everything necessary to consider the offer and assess its reasonableness.

Given HCC’s notice of appeal contained 17 grounds that effectively did ‘no more than assert [the primary judge’s] errors’ and written submissions were only filed by the HCC three days prior to the expiration of the offer, the Court accepted Mr Cleary’s submission that it was not unreasonable for him to not accept the offer. The Court went on to state that ‘accepting the offer would have involved capitulation as to quantum on his part without an opportunity to receive considered advice as to the strengths and weaknesses, risks and probable outcomes of the grounds of appeal‘.

As such, the costs orders of the primary judge were not disturbed and HCC was ordered to pay 75% of Mr Cleary’s costs of the appeal (consistent with the costs orders sought by Mr Cleary).