Sundararajah v Teachers Federation Health Limited (No 2) [2011] FCA 1409 (9 December 2011)

Last Updated: 9 December 2011

FEDERAL COURT OF AUSTRALIA

Sundararajah v Teachers Federation Health Limited (No 2) [2011] FCA 1409

Citation:		Sundararajah v Teachers Federation Health Limited (No 2) [2011] FCA 1409
Parties:		DR RAAHULAN SUNDARARAJAH v TEACHERS FEDERATION HEALTH LIMITED (ABN 86 097 030 414)
File number:		NSD 1314 of 2010
Judge:		FOSTER J
Date of judgment:		9 December 2011
Catchwords:		COSTS – indemnity costs – whether the applicant’s failure to accept Calderbank offers was unreasonable – whether the introduction of a hopeless or very weak case based on s 46 of the Trade Practices Act 1974 (Cth) led to delay and expense which should result in an award of indemnity costs
Legislation:		Trade Practices Act 1974 (Cth), s 46 Federal Court Rules, O 23 r 3, O 23 r 11
Cases cited:		Sundararajah v Teachers Federation Health Limited [2011] FCA 1031 related
Date of hearing:	Determined on the papers
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	33
Solicitor for the Applicant:	The applicant in person
Counsel for the Respondent:	Mr S Philips
Solicitor for the Respondent:	Henry Davis York

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1314 of 2010

BETWEEN:	DR RAAHULAN SUNDARARAJAH Applicant
AND:	TEACHERS FEDERATION HEALTH LIMITED (ABN 86 097 030 414) Respondent

JUDGE:	FOSTER J
DATE OF ORDER:	9 DECEMBER 2011
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. Order 3 made by Foster J on 2 September 2011 be set aside.
2. In lieu of the said Order 3 made on 2 September 2011, the applicant pay the respondent’s costs of and incidental to the proceeding:

(a) Incurred in the period up to and including 14 October 2010, on the party/party basis; and

(b) Incurred in the period from 15 October 2010:

(i) As to one-third of those costs, on an indemnity basis;

(ii) As to two-thirds of those costs, on the party/party basis.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1314 of 2010

BETWEEN:	DR RAAHULAN SUNDARARAJAH Applicant
AND:	TEACHERS FEDERATION HEALTH LIMITED (ABN 86 097 030 414) Respondent

JUDGE:	FOSTER J
DATE:	9 DECEMBER 2011
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On 2 September 2011, I delivered judgment in this proceeding (Sundararajah v Teachers Federation Health Limited [2011] FCA 1031). On that occasion, I discharged the interlocutory injunction which had been granted by Davies J of the Supreme Court of New South Wales and ordered that the proceeding be dismissed. I also ordered that:

The applicant pay the respondent’s costs of and incidental to the proceeding.

2. After I announced the orders which I made on 2 September 2011, Counsel for the respondent applied for a special costs order. Counsel handed up a Written Submission in which the terms of that special costs order were set out. By way of variation of the costs order which I made on 2 September 2011, the respondent seeks an order that:

(a) Costs incurred up to and including 30 September 2010 be taxed on the party/party basis; and

(b) Costs incurred thereafter be taxed on an indemnity basis.

3. In the alternative, the respondent seeks indemnity costs from either 14 January 2011 or from 1 March 2011.
4. The respondent’s contention that it should be paid some of its costs on an indemnity basis is primarily founded upon the proposition that the applicant unreasonably rejected three offers of compromise made by the respondent to him. A bundle of letters comprising a copy of each of the three letters which contained the relevant offers was marked as Exhibit “A” in the indemnity costs application.
5. In order to give the applicant a fair opportunity to deal with the respondent’s indemnity costs application, I ordered the applicant to file and serve by 16 September 2011 any evidence and any submissions upon which he intended to rely in answer to the respondent’s indemnity costs claim. I also ordered the respondent to file any submissions in reply by 26 September 2011. I informed the parties that I would thereafter deal with the respondent’s application on the papers.
6. The applicant has not filed any evidence or any submissions in answer to the respondent’s materials.
7. These Reasons for Judgment determine the respondent’s claim for indemnity costs.

THE OFFERS

8. The first offer was made in a letter dated 15 September 2010 from the respondent’s solicitors to the solicitors then acting for the applicant. Omitting formal parts, that letter was in the following terms:

Dr Ray Sundararajah v Teachers Federation Health Ltd
NSW Supreme Court Proceedings Case No. 00291703/2009
We refer to the unsuccessful mediation which took place on 13 September 2010 and was ultimately adjourned to an unspecified date.
As you know, our client considers that it has strong prospects of success in these proceedings. Those prospects have strengthened its resolve to proceed, if necessary, to final hearing and judgment. Notwithstanding this, our client is willing to compromise in order to avoid the significant costs that will inevitably be incurred if this litigation runs its full course.
We confirm that our client would be prepared to settle all aspects of the dispute on the terms set out below which, apart from the addition of paragraph 2, are almost identical to the terms of the offer which was made by our client at an early point during the mediation.
Terms of defendant’s offer to settle the dispute

1. The HICAPS Agreement is to continue on existing terms and conditions, subject to the variations noted below, for a period of six (6) months from the date of written acceptance of this offer, and upon the expiry of those six months the HICAPS Agreement will terminate automatically.
2. Subject to 4 below, the defendant agrees not to take any steps to terminate the HICAPS Agreement for the six (6) month period referred to in 1 above.
3. The plaintiff is to provide to [sic] the defendant on a weekly basis with all necessary and reasonable documents required and requested by the defendant to verify all electronic claims including but not limited to:

(a) Treatment plans
(b) Patient records
(c) Billing records and documentation

4. The defendant reserves the right to immediately terminate the HICAPS Agreement if any anomalies are identified with the plaintiff’s billing, other than those which in the reasonable opinion of the defendant arise as the result of human error or omission.
5. The plaintiff to pay to the defendant the sum of $100,000 towards its costs within twenty-eight (28) days.
6. Proceedings (being file number 291703/2009 in the Equity Division of the Supreme Court of NSW) (Proceedings) to be dismissed.
7. The parties are to execute a deed reflecting the above terms, which deed would include a release by the plaintiff to the defendant of any and all claims, including any claim for injunctive or other relief, arising from the operation of the HICAPS Agreement or the subject matter of the Proceedings.

The offer set out above is made in accordance with the principles in Calderbank v Calderbank [1976] Fam 93 and section 131(2)(h) of the Evidence Act (NSW) and without any admission on the part of our client.
The offer remains open for acceptance for a period of fourteen (14) days from the date of this letter.
In the event that this offer is not accepted and our client obtains a judgment in these proceedings no less favourable to it than this offer, our client intends to produce this letter to the court in relation to the question of costs. Our client will seek that your clients pay the costs of the proceedings on an indemnity basis from the date of this letter.
We await your response.

9. Although the offer contained a term that the HICAPS agreement would continue for six months from the date of acceptance of the offer, the continuation of that agreement for that period was conditional upon the terms set out in par 3 and par 4 of the offer letter. That is, the applicant was obliged to provide to the respondent at regular intervals the records specified in par 3 and the respondent reserved the right to terminate the HICAPS agreement “immediately” if “anomalies” were identified in the applicant’s billing. “Anomalies” was not defined and no criteria for determining the scope of that expression were laid down in the offer. An amount of $100,000.00 was required to be paid “towards the respondent’s costs”. The parties were obliged to execute a Deed. The terms of the proposed Deed were not notified in the offer. Only the most general description was given.
10. No supporting material establishing the amount of costs actually incurred by the respondent as at 15 September 2010 was provided.
11. I pause to note that no evidence proving the amount of costs actually incurred up to 15 September 2010 or the reasonableness of that amount was tendered before me.
12. In those circumstances, it is difficult, if not impossible, to judge whether a demand to pay $100,000.00 on account of costs represented a compromise on the amount of costs that might have been awarded as at that date on the hypothesis that the respondent was successful in the case.
13. There is no evidence that the applicant replied to the above letter.
14. The respondent has been wholly successful in the proceeding. That success means that the respondent is no longer prevented by an interlocutory injunction from acting upon or implementing the Notice of Termination dated 29 September 2009 issued by it or from taking other steps to terminate the HICAPS agreement pursuant to cl 7.3 thereof. The Notice of Termination dated 29 September 2009 took effect, according to its terms, on 29 December 2009.
15. Therefore, the victory which the respondent achieved cleared the way for it to implement the termination of the HICAPS agreement. It was also awarded its costs of the proceeding.
16. In my judgment, the introduction of the terms set out in pars 3, 4 and 7 of the first offer and the requirement that the applicant pay $100,000.00 on account of costs had the consequence that the first offer cannot now conveniently be compared with the actual result in the proceeding. At the time when the first offer was made, the applicant was confronted with the task of weighing the first offer against the likely outcome of the proceeding as he saw it at the time. The terms of the offer also made this task extremely difficult. It is obvious that any extension of the term of the HICAPS agreement was a more favourable outcome than a dismissal of the applicant’s whole case. But the respondent’s insistence on the right to terminate that agreement in the event that “anomalies” were discovered had the very real potential to render the proposed extension illusory.
17. The second offer was made by letter dated 16 December 2010 from the respondent’s solicitors to the solicitors then acting for the applicant. Omitting formal parts, that letter was in the following terms:

Dr Ray Sundararajah v Teachers Federation Health Ltd
NSW Supreme Court Proceedings Case No. 00291703/2009
We refer to our letter dated 11 October 2010 and confirm that the mediation before Roger Gyles QC was terminated on 15 October 2010.
In light of the recent expert report of Dr Philip Williams served by our client, it remains of the view that your client’s prospects of succeeding in respect of its s46 claim are extremely low. Our client also remains of the view that your client’s prospects of succeeding in having a term of good faith implied into the HICAPS Agreement are very low.
Notwithstanding the above, our client remains willing to compromise in order to avoid further significant expenditure on costs. Our client is therefore be [sic] prepared to settle all aspects of the dispute on the terms set out below, which we note are different to those set out in our letter of 15 September 2010.
Terms of defendant’s offer to settle the dispute

1. The HICAPS Agreement is to continue on existing terms and conditions, subject to the variations noted below, until at least 30 June 2012.
2. Subject to 4 below, the defendant agrees not to take any steps to terminate the HICAPS Agreement pursuant to clause 7.3 until at least 30 June 2012.
3. The plaintiff is to provide to the defendant on a monthly basis all necessary and reasonable documents required and requested by the defendant to verify all electronic claims including but not limited to:

(a) Treatment plans;
(b) Patient records;
(c) Billing records and documentation.

4. The HICAPS Agreement is varied by agreement such that the following words are added as a new clause 7.2(c): “any anomalies are identified by the Fund with respect to your billing, other than those which in the reasonable opinion of the Fund arise as the result of human error or omission”.
5. The plaintiff to pay to the defendant the sum of $100,000 towards its costs within 28 days.
6. The Proceedings (being file no 291703/2009 in the Equity Division of the Supreme Court of NSW and NSD 1314 of 2010 in the Federal Court of Australia) to be dismissed.
7. The parties are to execute a deed reflecting the above terms, which deed would include a release by the plaintiff to the defendant of any and all claims, including any claim for injunctive or other relief, arising from the operation of the HICAPS Agreement or the subject matter of the Proceedings.

Our client’s offer to have the HICAPS Agreement continue on existing terms and conditions, subject to the variations noted above, until at least 30 June 2012, is very generous. Even if your client is successful in obtaining all of the relief he seeks, he clearly cannot obtain a permanent injunction restraining reliance by our client on clause 7.3 at any time in the future. Furthermore, our client’s costs are now approximately $280,000. Our client’s offer to accept $100,000 towards its costs therefore represents a very large compromise on the costs it would be entitled to if successful in the proceedings.
The offer set out above is made in accordance with the principles in Calderbank v Calderbank [1976] Fam 93 and section 131(2)(h) of the Evidence Act (NSW) and without any admission on the part of our client.
The offer remains open for acceptance until 14 January 2011.
In the event that this offer is not accepted and our client obtains a judgment in these proceedings no less favourable to it than this offer, our client intends to produce this letter to the court in relation to the question of costs, in which case our client will seek an order that your clients pay the costs of the proceedings on an indemnity basis from the date of this letter.

18. Although the second offer contained an assertion that the quantum of fees incurred by the respondent up to 16 December 2010 was $280,000.00, no material supporting that assertion was provided. Nor was there tendered before me any evidence directed to proving the quantum of the respondent’s costs actually incurred up to 16 December 2010 or the reasonableness of those costs as at that date.
19. In my judgment, the second offer otherwise broadly reflected the terms of the first offer (although the duration of the proposed extension of the HICAPS agreement was to be longer) and suffered from the same deficiencies as the first offer.
20. The third offer was made by letter dated 24 February 2011 to the applicant personally. He was, by then, representing himself. Apparently, there had been a counter-offer made by the solicitors for the applicant on 23 December 2010. There is no evidence before me as to the terms of that counter-offer.
21. Omitting formal parts, the letter dated 24 February 2011 was in the following terms:

Dr Ray Sundararajah v Teachers Federation Health Ltd
NSW Supreme Court Proceedings Case No. 00291703/2009
We refer to the Calderbank offer contained in our letter dated 18 December 2010 and your counter offer contained in the letter to us from TressCox dated 23 December 2010.
In order to resolve this matter without incurring the costs of a three day hearing, our client is prepared to make two alternative offers to you to settle this dispute, as follows.
Terms of first offer

1. The HICAPS Agreement is to continue on existing terms and conditions, subject to the variations noted below, until at least 30 June 2012.
2. Subject to 5 below, Teachers Federation Health Ltd agrees not to take any steps to terminate the HICAPS Agreement pursuant to clause 7.3 until at least 1 July 2012.
3. If the HICAPS Agreement is terminated pursuant to clause 7.3 after 30 June 2012, you agree not to object to that termination, including by the issuing of court proceedings, on any basis.
4. You are to provide to Teachers Federation Health Ltd on a monthly basis all necessary and reasonable documents reasonably required and requested by the defendant to verify all electronic claims including but not limited to:

(a) Treatment plans;
(b) Patient records;
(c) Billing records and documentation.

5. The HICAPS Agreement is varied by agreement such that the following words are added as a new clause 7.2(c): “any anomalies are identified by the Fund with respect to your billing, other than those which in the reasonable opinion of the Fund arise as the result of human error or omission, which are not remedied within 90 days of receipt of a notice in writing requesting the anomaly be remedied or is not remedied within that period to the satisfaction of the party giving the notice”.
6. You are to pay Teachers Federation Health Ltd $50,000 towards it [sic] costs of the proceedings (being file no 291703/2009 in the Equity Division of the Supreme Court of NSW and NSD 1314 of 2010 in the Federal Court of Australia) (Proceedings) in ten instalments of $5,000 to be paid monthly commencing on 5 April 2011.

7. The Proceedings to be dismissed.

8. The parties are to execute a deed reflecting the above terms, which deed would include mutual release by the parties of any and all claims, including any claim for injunctive or other relief, arising from the operation of the HICAPS Agreement or the subject matter of the Proceedings.

The above offer effectively accepts all the terms of the counter offer set out in the letter from TressCox dated 23 December 2010 but for the term regarding payment. As you will have seen, the above offer requires you to pay $50,000 towards our client’s costs. Although a specific payment regime has been proposed, our client is willing to negotiate the manner and time in which the payment is made.
Terms of second offer

1. The HICAPS Agreement is to continue on existing terms and conditions, subject to the variations noted below, until close of business on 31 August 2011 at which time the HICAPS Agreement will automatically terminate.
2. The HICAPS Agreement is varied by agreement such that clause 7.3 is removed from the Agreement. The removal of clause 7.3 will not effect the automatic termination of the Agreement referred to in 1 above.
3. You are to provide to Teachers Federation Health Ltd on a monthly basis all necessary and reasonable documents reasonably required and requested by the defendant to verify all electronic claims including but not limited to:

(a) Treatment plans;
(b) Patient records;
(c) Billing records and documentation.

4. The HICAPS Agreement is varied by agreement such that the following words are added as a new clause 7.2(c): “any anomalies are identified by the Fund with respect to your billing, other than those which in the reasonable opinion of the Fund arise as the result of human error or omission, which are not remedied within 90 days of receipt of a notice in writing requesting the anomaly be remedied or is not remedied within that period to the satisfaction of the party giving the notice”.
5. The parties are to bear their own costs of the proceedings (being file no 291703/2009 in the Equity Division of the Supreme Court of NSW and NSD 1314 of 2010 in the Federal Court of Australia) (Proceedings).
6. The Proceedings to be dismissed.
7. The parties are to execute a deed reflecting the above terms, which deed would include mutual release by the parties of any and all claims, including any claim for injunctive or other relief, arising from the operation of the HICAPS Agreement or the subject matter of the Proceedings.

The second offer above effectively accepts all the terms of the counter offer set out in the letter from TressCox dated 23 December 2010 but includes a term that the HICAPS Agreement will automatically terminate in approximately six months’ time, at close of business on 31 August 2011. In the second offer, the parties bear their own costs of the proceedings and our client does not seek any payment.
For the sake of clarity, nothing in either of the above offers precludes either party from terminating the HICAPS Agreement pursuant to clause 7.2 of that agreement.
In our view, both of the above offers are very generous because even if you are successful in obtaining all of the relief you seek in the proceedings, you will not be able to obtain a permanent injunction restraining reliance by our client on clause 7.3 at any time in the future. Thus, even if you are successful in obtaining all of the relief you seek in the proceedings, it is very likely our client will be entitled to terminate the HICAPS Agreement pursuant to clause 7.3 immediately following judgment. In contrast, the two offers our client makes allow you to keep utilising HICAPS until either 31 August 2011 (with no payment towards our client’s costs) or until 30 June 2012 (on the basis that a payment of $50,000 is made towards our client’s costs).
The offers set out above are made in accordance with the principles in Calderbank v Calderbank [1976] Fam 93 and section 131(2)(h) of the Evidence Act (NSW) and without any admission on the part of our client.
The above alternative offers remain open for acceptance until 5.00pm on 1 March 2011.
In the event that neither offer is accepted and our client obtains a judgment in these proceedings no less favourable to it than this offer, our client intends to produce this letter to the court in relation to the question of costs, in which case our client will seek an order that you pay the costs of the proceedings on an indemnity basis from the date of this letter.

22. The letter dated 24 February 2011 contained alternative proposals. Although I am prepared to infer that the amount of costs likely to be awarded to the respondent if it were successful in the proceeding would have exceeded $50,000.00 by a substantial amount with the consequence that the third offer did contain a substantial compromise in respect of costs, the continued inclusion of terms which allowed the respondent to terminate the HICAPS agreement because of “anomalies” and the requirement that the parties execute a Deed containing unspecified terms meant that the third offer also suffered from deficiencies which made it very difficult for the applicant to compare the offer with the likely outcome and which now makes it very difficult to compare the offer with the actual result.

THE RESPONDENT’S ARGUMENT

23. The respondent submitted that:

(a) The three offers contained common features. Each offer provided for a generous extension of the terms of the HICAPS agreement and a substantial compromise on the question of costs.

(b) Each of the offers amounted to a resolution of the dispute which was more favourable to the applicant than the actual outcome of the proceeding.

(c) Although none of the offers was made as a formal Offer of Compromise in accordance with the Federal Court Rules, each of the offers constituted a genuine and reasonable attempt to compromise the proceeding and, for that reason, the respondent should have the benefit of the presumptions contained in O 23 r 11 of the Federal Court Rules.

(d) The conduct of the applicant in introducing a hopeless or, at least, a very weak claim based on s 46 of the Trade Practices Act 1974 (Cth) (s 46 case) caused substantial delay and additional unnecessary cost to the respondent.

(e) The interlocutory injunction granted by the Supreme Court of New South Wales in 2009 was in place for a longer period than would have been the case had the applicant not introduced his s 46 case into the proceeding. This resulted in more costs being incurred. Those costs are akin to damages suffered as a result of the interlocutory injunction. The respondent argued: “The Court should be generous in favour of the respondent in framing its orders in relation to costs.”

DECISION

24. The respondent chose not to avail itself of the opportunity to make a formal Offer of Compromise in accordance with O 23 of the Federal Court Rules. It did not make an offer that conformed to the requirements of O 23 r 3 of the Federal Court Rules. It cannot, therefore, rely upon the various presumptions specified in O 23 r 11 of the Federal Court Rules.
25. Nonetheless, a document not following the requisite form which constitutes an offer of compromise may be taken into account in the exercise of the Court’s discretion as to costs. The usual approach of the Court in matters such as the present is to compare the terms of the offer of compromise with the substance of the result of the litigation and to determine whether the offer of compromise was more favourable to the offeree than the actual result. If the Court concludes that the offer was more favourable, the Court will generally move on to consider whether the failure on the part of the offeree to accept the offer was so unreasonable as to justify an indemnity costs order.
26. For the reasons which I have already explained at [8]–[22] above, I think that the applicant’s failure or refusal to accept any of the three offers made to him was not unreasonable. Each of the offers contained terms which gave an unguided discretion to the respondent to terminate the HICAPS agreement immediately in the event that “anomalies” in the applicant’s billing practices were uncovered. Each offer required the applicant to execute a deed of release containing unspecified terms. In the case of two of the offers, it was, and is, difficult to determine whether any compromise in respect of costs was truly being offered. I am not prepared to find that the applicant’s failure to accept these offers was unreasonable or imprudent. I am not prepared to award indemnity costs to the respondent because the applicant did not accept any of the offers made to him.
27. The second basis upon which indemnity costs is sought against the applicant is that the applicant ran a hopeless or very weak s 46 case and thus prolonged the resolution of the proceeding, thereby causing significant additional costs to be incurred by the respondent. There is considerable force in this proposition. Had the s 46 case not been raised, the proceeding would have remained in the Supreme Court of New South Wales and possibly been heard and determined a little earlier than, in fact, it was. Had that case not been raised, there would have been no need for the respondent to retain the services of Dr Williams and to address submissions to answer the applicant’s s 46 case. Further, because the applicant had introduced the s 46 case, the respondent was obliged to cross-examine Ms Pezzullo and to deal with the evidentiary material and assumptions upon which her opinions were based. None of this would have been necessary had the s 46 case not been brought into the proceeding. In my judgment, that case had fundamental flaws and should never have been brought or maintained.
28. One way of dealing with the impact of the introduction of the s 46 case into the proceeding is to make an order that the respondent’s costs of meeting the applicant’s s 46 case be taxed on an indemnity basis and to leave the quantification of that order to the taxing officer. To approach the matter in that way is likely to prolong and to render more expensive the process of taxation.
29. Another way of addressing these matters is to order that some of the costs incurred after the proceeding was transferred to this Court be taxed on an indemnity basis. The proportion of costs to be awarded on that basis would be that proportion which, in my judgment, represented a fair assessment of the additional costs visited upon the respondent by reason of the introduction of the s 46 case into the arena.
30. I favour the second approach because it will save time and money in the process of taxation.
31. Doing the best I can and bringing to bear my knowledge of the issues and evidence in the case, I think that one-third of all of the costs incurred by the respondent after 15 October 2010 should be taxed on an indemnity basis. 15 October 2010 was the day when the matter was first listed in this Court and the date from which it is reasonable to conclude that the effects of the s 46 case were well and truly in play. The respondent should be indemnified for the whole of the costs of Dr Williams’ Report and witness’ expenses provided the taxing officer is satisfied that those costs are not unreasonable. In my view, approximately two-thirds of the work done after 15 October 2010 was directed to the contract case and the unconscionable conduct case with the remaining one-third directed to the s 46 case.
32. The costs of the respondent’s indemnity costs application should form part of the respondent’s costs of and incidental to the proceeding which costs are to be taxed in accordance with the orders to be made today.
33. There will be orders accordingly.

I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.

Associate:

Dated: 9 December 2011