Makaroff v Nepean Blue Mountains Local Health District (No 2)

HER HONOUR: This judgment concerns whether a special costs order should be made. On 14 June 2019, I delivered judgment in Makaroff v Nepean Blue Mountains Local Health District [2019] NSWSC 715. Judgment was entered in favour of the defendants and a costs order made that the plaintiff pay the defendants’ costs. I ordered the defendants to provide to my associate by email written submissions concerning special orders as to costs by 21 June 2019, and the plaintiff to provide written submissions in reply by 5 July 2019. The first defendant does not seek a special costs order. It has already been awarded costs on an ordinary basis on 14 June 2019.

The plaintiff is Diana Lynn Makaroff. The first defendant is Nepean Blue Mountains Local Health District (“Nepean Hospital”). The second defendant is Dr Paul Percy, the plaintiff’s former treating general practitioner.

On 8 July 2019, my associate emailed the plaintiff’s solicitor, Mr Margiotta, requesting the plaintiff’s written submissions. On 11 July 2019, my associate again emailed the plaintiff’s solicitor granting an extension of time to file and serve written submissions by 18 July 2019.

On 18 July 2019, the plaintiff’s solicitor emailed by associate advising that he was no longer acting on behalf of the plaintiff. On 19 July 2019, my associate emailed the plaintiff advising that if she wished to provide written submissions concerning special orders as to costs, she was to do so by email by 4.00 pm Friday 9 August 2019. The plaintiff sent two emails to my associate, one dated 8 September 2019, the other dated 9 August 2019. I have treated the contents of those emails as the plaintiff’s submissions.

In an attempt to finally conclude the proceedings (and expressly to avoid the delay of costs assessment), Dr Percy seeks an order pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) that the plaintiff pay his costs of the proceedings in a gross sum costs order specified in the sum of $200,000 (representing 57% of the total costs and disbursements incurred by him to date). According to Dr Percy, it is in the parties’ best interests and accords with the operation of s 56 of the Civil Procedure Act.

Dr Percy relies upon the affidavit of his solicitor Stacey Marie King dated 20 June 2019.

In June 2013, these proceedings were commenced in this Court. Initially, Nepean Hospital was the only named defendant. At that time, Stacks Goudkamp was representing the plaintiff.

On 17 June 2014, a notice of change of solicitor was filed appointing Anthony Margiotta of Margiotta Solicitors & Attorneys as the plaintiff’s solicitor.

A mediation took place between the plaintiff and Nepean Hospital some time in 2015. No settlement could be reached at that time.

On 15 December 2015, the plaintiff filed an amended statement of claim joining Dr Percy as the second defendant to the proceedings.

On 2 June 2016, a further notice of change of solicitor was filed on behalf of the plaintiff, this time appointing Stephen Smart & Associates as the plaintiff’s solicitor.

On 26 October 2016, a further mediation took place. Again, the parties were unable to reach a settlement at that time.

On 28 October 2016, the defendants served the first joint offer of compromise for $250,000 plus costs. It reads:

This first offer of compromise was not accepted. Dr Percy submitted that it is strongly arguable that he would be entitled to indemnity costs from this date, but it is noted that he has not applied for indemnity costs.

On 23 November 2016, the matter was listed for directions. The defendants sought a hearing date. However, the plaintiff sought an order for further evidence including an updated psychiatric report and a report from a general practitioner addressing liability. In circumstances where the plaintiff’s representatives could not provide any explanation for the delay, the matter was stood over for a period of one week and the plaintiff was ordered to file an affidavit as to the need for further reports.

On 30 November 2016, the matter was listed for a directions hearing. At that time orders were made for the service of a general practitioner’s report and an updated report from Associate Professor Carolyn Quadrio.

On 5 April 2017, the matter was again listed for directions hearing at which time the plaintiff was still not in a position to obtain a hearing date. The plaintiff instead sought orders for service of a life expectancy report. The defendants objected to service of any further evidence. Ultimately, the plaintiff was allowed an opportunity to serve a report by 31 May 2017. An order was also made that should the plaintiff not serve the report on time, then she could not rely on it unless she was granted leave from the Court.

On 20 June 2017, Stephen Smart & Associates filed a notice of ceasing to Act. On 20 July 2017, Turner Freeman served a Notice of Appointment of Solicitor.

On 14 July 2017 and 28 July 2017, the matter was again listed for directions hearing. No substantive orders were made at that time, as Turner Freeman were still awaiting receipt of the plaintiff’s file and could not commit to a timetable or hearing date.

On 15 August 2017, the defendants served a second joint offer of compromise for $250,000 plus costs. It reads:

The second offer of compromise was not accepted.

On 16 August 2017, the matter was listed for a further directions hearing. At that time orders were made regarding service of updated quantum reports by the plaintiff and a supplementary report from Dr Duke. The matter was also listed for a further directions hearing on 20 December 2017 for allocation of a hearing date.

By letter dated 1 September 2017, Dr Percy’s solicitors were advised that Turner Freeman was no longer acting for the plaintiff.

On 11 September 2017, Margiotta Solicitors & Attorneys filed a notice of change of solicitor.

On 20 December 2017, the matter was listed for directions hearing. The plaintiff sought further time for service of a report from Ms Prattley. In the circumstances, a hearing date could not be allocated.

On 7 February 2018, the matter was listed for directions hearing. At this time, approximately 15 months after the mediation, orders were finally made listing the matter for hearing for 10 days commencing on 3 September 2018.

On 27 July 2018, the matter was listed for directions hearing. At that time further orders were made to prepare the matter for hearing.

The final hearing of this matter proceeded as scheduled on 3 September 2018 for 10 days before me.

On 23 December 2015, TressCox Lawyers received instructions from Avant Insurance Limited to act on behalf of Dr Percy in relation to the plaintiff’s claim. Upon receipt of those instructions, a file was created.

From receipt of instructions from Avant Insurance Limited in December 2015, fee earners in the employ of TressCox Lawyers who performed work on this matter entered their time on the matter under number 1XXXX.

For the period between December 2015 and 4 February 2018, TressCox Lawyers employed a computerised accounting, time recording and billing system called 3E.

On 5 February 2019, TressCox Lawyers merged with HWL Ebsworth Lawyers. Upon the merger, the TressCox file numbere 1XXXX was closed and a new HWL Ebsworth file was opened in relation to this matter under number 8XXXX. From 5 February 2018, fee earners in the employ of HWL Ebsworth who performed work on this matter entered their time under the file number 8XXXX.

For the period from 5 February 2018 to date, HWL Ebsworth Lawyers employed a computerised accounting, time recording and billing system called Aderant Expert. HWL Ebsworth itemised tax invoices together with supporting documents and invoices for experts or other professional fees (such as mediator fees) which were billed directly to their client.

After the matter was set down for hearing on 7 February 2018, HWL Ebsworth received instructions to brief counsel.

In accordance with those instructions, on 9 March 2018, Matthew Hutchings of counsel was briefed to advise and appear on behalf of Dr Percy.

Both TressCox and HWL Ebsworth operate on a paper light basis.

Ms King deposes that she has reviewed both the electronic and hard copy file for this matter. The hard copy file consists of approximately 20 A4 lever arch folders and the electronic file is 2.1GB of data, including but not limited to:

The final hearing in this matter commenced on 3 September 2019. The plaintiff served 10 witness statements, including two statements from the plaintiff. Nepean Hospital served three witness statements. Dr Percy served his witness statement.

As part of the preparation of each witness statement, counsel for Dr Percy, Matthew Hutchings, and Ms King were required to meet with the witnesses.

In addition to the witness statements, the defendants also tendered two A4 lever arch folders containing the defendants’ tender bundle. Ms King also prepared an agreed tender bundle on behalf of all of the parties which was tendered at the hearing.

Annexure A to Ms King’s affidavit is a summary of all invoices issued to Avant Insurance Limited, the insurer, and includes the following information:

As at the date of this affidavit, the total fees billed to Avant Insurance Limited is $351,909.71 including GST.

A review the Online Registry show indicates that the following costs orders have been made in these proceedings in favour of the defendants:

On 30 November 2016, Registrar Bradford ordered the plaintiff pay the defendants’ costs of 23 November 2016;

On 28 July 2017, Registrar Bradford ordered that the plaintiff pay the defendants’ costs of 14 July 2017.

No adverse costs orders have been made against the Dr Percy in this matter.

As previously stated, on 8 August 2019, the plaintiff emailed my associate stating that her former solicitor is no longer practising. She says that she has been trying to obtain legal advice but has not been able to secure a solicitor as she has no money to pay anyone. The plaintiff requested that the costs order be waived as she has been homeless and camping in a paddock since the end of 2014. Her only assets are an old horse trailer and a 16-year-old Mazda ute.

On 9 August 2019, the plaintiff again emailed my associate advising that she had had telephoned a local community centre that morning for free legal advice. She was informed that if costs for order was made against her she would be made bankrupt and would therefore lose many of her legal rights including her right to appeal. The plaintiff says that her right to appeal should be determined by the Court of Appeal.

The plaintiff also referred to [583] of my judgment where I stated that costs are discretionary. The rest of [583] reads, “Costs follow the event. The plaintiff is to pay the defendants’ costs.” She says that there had been a number of attempts to settle her case but the stumbling block was always her first solicitor’s excessive legal fee of $264,000 which prevented a settlement. If she is declared bankrupt, her legal rights against her first solicitors will also be taken away from her. The plaintiff has requested that I exercise my discretionary powers in her favour so as to prevent her inevitable bankruptcy.

As previously stated, in the interests of concluding the matter and precluding the need for a costs assessment process, Dr Percy seeks a gross sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act. The sum sought by Dr Percy is $200,000. This sum includes a significant discount in favour of the plaintiff and represents only 57% of the total costs and disbursements Dr Percy incurred. According to Dr Percy, it would be wholly consistent with ss 98(4)(c) and 56 of the Civil Procedure Act for the Court to order the plaintiff to pay his costs in a specified gross sum.

That is particularly so given the prolonged history of the proceedings, the plaintiff’s limited financial circumstances, and the apparent delay that has occasioned almost every step that the plaintiff has been required to take in the proceedings.

Dr Percy is concerned by the likely expense, delay and aggravation of embarking upon a costs assessment. Going by the history of the proceedings, it is unlikely that the costs assessment would proceed in an orderly, cost efficient manner.

Dr Percy further submitted that the determination of the quantum of the specified gross sum that the plaintiff should be ordered to pay depends in part upon the impression made by Dr Percy’s evidence. Also, the content of the Court file must also be considered, which records the significant delay in the conduct of the proceedings by, or on behalf of, the plaintiff. The impression made by the evidence is sufficient for the purpose of arriving at an appropriate specified gross sum that does justice to both the plaintiff and Dr Percy.

Dr Percy argued that the costs need not be meticulously assessed; a broad-brush approach is appropriate and in accordance with the stated objects of the Civil Procedure Act. However, if the Court determined that the discount was insufficient, the Court should order a specified gross sum calculated from the total costs sought but discounted by an appropriate percentage. Dr Percy said that it would be more appropriate to make a percentage reduction rather than to decline to make a gross sum costs order at all.

The starting point for a costs order is s 98 of the Civil Procedure Act. It relevantly reads:

Further, UCPR 42.1 reads:

The onus is on the offeror, in this case Dr Percy, to satisfy the Court that it should exercise the costs discretion and make a special costs order in its favour: see Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26].

As previously stated, an order in accordance with UCPR 42.1 that the plaintiff pay the defendants’ costs on an ordinary basis was already made on 14 June 2019.

In Harrison v Schipp [2002] NSWCA 213 (“Schipp”), Giles JA contemplated the operation the Court’s power to order the payment of costs in a specified gross sum pursuant to Part 52A of the Supreme Court Rules, r 6(2). His Honour's approach in that case has been frequently approved and adopted in the determination of s 98(4)(c) applications.

In Schipp, Giles JA held that the making of such an order did not at all require a judge to engage in a task of ordinary costs assessment. At [21]-[22], his Honour stated:

The determination of the quantum of the specified gross sum to be ordered entails a review of the successful party’s costs by reference to the pleadings, the complexity of the issues raised on the pleading, the interlocutory processes undertaken, and the required preparation for final hearing and (where relevant) the conduct of the final hearing: see Smoothpool v Pickering [2001] SASC 131 at [12].

In Hamod v State of New South Wales (No 13) [2009] NSWSC 756 (“Hamond (No 13)”) Harrison J considered a s 98(4)(c) application. In Hamond No 13, both defendants sought a gross sum costs order from an impecunious plaintiff whose conduct in the proceedings had been often dilatory, if not obstructive: see Hamod v State of New South Wales (No 4) [2007] NSWSC 1363 and Hamod v State of New South Wales (No 11) [2008] NSWSC 967.

Harrison J identified the purpose of s 98(4)(c) to be the avoidance of the “expense, delay and aggravation involved in protracted litigation arising out of the assessment process”.

In Hamond (No 13) at [27]-[35], Harrison J considered the available material in support of the application, which included the invoices received by the defendant, the need to apply a broad brush in determining the quantum of a specified gross sum costs order, and the savings to the defendant of avoiding the assessment process. Harrison J granted the order. The plaintiff included that decision in his appeal from his Honour’s principal judgment in the proceedings.

In Hamod v State of New South Wales [2011] NSWCA 375, the Court of Appeal upheld Harrison J’s gross sum costs order. Beazley P summarised the applicable relevant principles attending to the consideration of a s 98(4)(c) application in Hamod [2011] NSWCA 375 at [814]-[820]:

The operation of s 98(4)(c) has been frequently considered since Hamod [2011] NSWCA 375.

In Chaina v Presbyterian Church (NSW) Property Trust (No 6) [2014] NSWSC 1009 (“Chaina (No 26)”), Davies J determined an application for a specified gross sum costs order. In making the order sought Davies J observed at [50]:

In Chaina (No 26), Davies J then observed at [56]:

In Ghougassian v Fairfax Community Newspapers Pty Ltd [2015] NSWCA 307, (“Ghougassian”) Emmett JA held at [62]:

In Sedgwick v Varzonek (No 2) [2015] NSWSC 1613, Slattery J held at [34]-[36]:

In Kostov v Zhang (No 2) [2016] NSWCA 279, Meagher and Payne JJA observed at [27]:

In Armstrong Strategic Management and Marketing Pty Ltd v Expense Reduction Analysts Group Pty Ltd (No 10) [2017] NSWSC 16, Ball J held at [38]:

In Wakim v State of New South Wales [2017] NSWSC 1492, Fagan J made such an order and applied a 20% discount. His Honour stated at [23]-[24]:

As to the plaintiff’s financial position, the relevance of a party’s impecuniosity to an adverse order for costs was recently considered in the case of Northern Territory v Sangare [2019] HCA 25 (“Sangare”). By reference to the judgment of Chernov JA (with whom Neave JA agreed) in Board of Examiners v XY (2006) 25 VAR 193, Keifel CJ, Bell, Gageler, Keane and Nettle JJ held in Sangare at [27]:

Their Honours continued in Sangare at [35]:

The plaintiff changed solicitors on a number of occasions. She says she incurred fees of $264,000 in relation to her first solicitors’ legal representation alone. This seems a large sum, and there is no actual evidence to support her assertion. The evidence obtained by the parties (including her own) was largely unfavourable to her, and she had the benefit of legal representation to advise her of her chances of success if she elected to proceed to a 10 day trial. There will be expense and delay involved in embarking on a costs assessment in a situation where the plaintiff is unrepresented and her assets very modest. In my view, the award of a gross sum for costs would obviate the costs assessment process and it will do justice to both parties. I note that as the Court held in Sangare outlined above at [74]-[75] of this judgment, the plaintiff’s impecuniosity is no reason not to award a gross sum for costs.

I am satisfied firstly, that after reviewing the legal work undertaken and the disbursement incurred, I can fairly and confidently reach an appropriate costs sum on the material; and secondly, there is material available and upon which I can reach an appropriate estimate of costs that is logical, fair and reasonable. Dr Percy’s costs are calculated on a solicitor/client basis and total $351,909.71. While there is no estimate of the costs incurred on an ordinary basis, the disbursements and barristers’ fees would be the same. However, Dr Percy is only claiming 57% of the total costs order in the sum of $200,000. Taking these matters into account and making a deduction for solicitors’ fees, I allow Dr Percy’s costs at 50% of $351,909.71. That equates to $175,954.86 rounded up to $176,000. I therefore make a gross sum order for costs in the sum of $176,000.

If the application for a gross costs order is opposed, Dr Percy seeks the costs of the application. In the exercise of my discretion, the appropriate order is that each party to pay their own costs of this costs application.

The second defendant’s costs are assessed at a gross sum of $176,000. With respect to the parties’ costs of the special costs application, I order that the plaintiff and second defendant pay their own costs.