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Representation: Counsel:
M Evans (Plaintiff)
R Gall (Defendants)
Solicitors:
ELG Legal (Plaintiff)
Deutsch Miller (Defendants)

File Number(s): 2025/470186 / 2025/491005

Judgment

1. On 2 September 2026, I delivered judgment in Donatiello v Donatiello [2026] NSWSC 1043. I will assume familiarity with that judgment and adopt the defined terms used in it. This further judgment addresses the issue of costs.

2. Section 98 of the Civil Procedure Act 2005 (NSW) gives the Court a broad discretion in relation to appropriate costs orders, although, Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 42.1 provides that:

...if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.

3. For reasons given in my earlier judgment, I dismissed the proceedings brought by Maria against Paul and Catherine. As Paul and Catherine were wholly successful in their defence of the claim made against them by Maria, I expressed a tentative view that she should pay their costs of the proceedings; their successful defence of her claim being the “event” which a costs order would ordinarily follow. In doing so, I expressly reserved the parties’ right to apply for some other costs order if so advised. Paul and Catherine exercised that right.

4. Unsurprisingly, Paul and Catherine did not cavil with the proposition that Maria should be ordered to pay their costs of the proceedings. However, they said that those costs should be paid on an indemnity basis from 28 April 2026. The application was resisted by Maria.

5. In support of their application, Paul and Catherine relied on a letter sent by their solicitors, Deutsch Miller, on 28 April 2026 to Mary’s solicitor, ELG Legal. In that letter, Deutsch Miller identified what were said to have been a number of fundamental flaws in Maria’s case and enclosed a number of contemporaneous documents, which were said to be “irreconcilable with [Maria’s] evidence and case theory.”

6. The letter continued:

“4. If the proceedings continue, our clients will rely upon these documents at hearing. Further, we expect that the issuing of additional subpoenas by the defendants in due course will result in more contemporaneous records being produced which directly refute and disprove your client’s case.

5. For at least the above reasons, the commencement of these proceedings by your client is founded upon an artificially constructed and unsustainable narrative that conveniently and self-servingly ignores that, in 2020, your client gifted the property to our clients for the purpose of becoming eligible for the Aged Pension. In substance, by bringing these proceedings, your client now seeks to rewrite history. Any subsequent regret your client may have about its earlier decision to gift the property to our clients is, with respect, irrelevant.

6. Our clients consider that the continuation of the proceedings will likely result in substantial further costs being incurred unnecessarily, particularly in circumstances where the proceedings concern a property with an estimated value in the range of $1-1.5M and the proceedings are being litigated in the Supreme Court of NSW. From the defendants’ perspective, the proceedings are fast approaching a point where they will have little practical alternative but to continue to a final hearing in order to seek recovery of the costs they have incurred in defending the claim. Once that point is reached, our clients will no longer consider any settlement that does not include payment by the plaintiff of an amount to reimburse those costs.

7. Our clients’ preference is to resolve the matter now, before further steps are taken and before additional costs are incurred by either party.

8. We understand that our clients have incurred costs in the general range of $65,000 plus GST to date. The purpose of this letter is to provide your client with what is likely to be a “once only” opportunity to extricate itself from these proceedings which should never have been brought by it in the first place. For purely practical and commercial reasons, with no regard for the patent lack of merit of your client’s case or its prospects of success, our clients hereby offer that the proceedings (being, for the avoidance any doubt, both Supreme Court of New South Wales Proceedings 2025/00491005 & 2025/00470186) be settled on the following terms:

(a) The proceedings be dismissed.

(b) Caveat No XX lodged on the whole of the property which is in Folio Identifier XX being the property known as XX, Long Jetty NSW, be removed from the register, with the plaintiff precluded from lodging any further caveat.

(c) Pursuant to s91(1) of the Civil Procedure Act 2005 (NSW) it is to be a term of the dismissal by consent that the plaintiff is prevented from bringing fresh proceedings or claiming the same relief in fresh proceedings as was sought against the defendants in the proceedings.

(d) No order as to costs with the intent that each party to bear their own costs.

(e) The parties to enter into a standard deed of release containing the above terms pursuant to which your client releases our clients from all claims arising out of related to the matters the subject of the proceedings and the evidence filed in the proceedings.

9. This offer will remain open for a period of 28 days from the date of this letter and, if not accepted by return in writing according to its terms, will automatically lapse. That extended period of time is afforded to provide you with every reasonable opportunity to consider the contents of this letter and the contemporaneous documents we have drawn your attention to, on our assumption that you may not have been previously aware of them and the extent to which they conflict with instructions your client provided to you, leading to you being professionally comfortable to have commenced these proceedings.”

7. The offer conveyed through the letter was expressed to have been made in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333. Deutsch Miller made clear that the letter would be relied upon in support of any future application for indemnity costs should the offer it conveyed be rejected and Paul and Catherine obtain a more favourable result at a final hearing.

8. There was no real dispute between the parties as to the principles to be applied in determining Paul and Catherine’s application. The general rule is that costs payable under an order of the Court are to be assessed on the ordinary basis: UCPR r 42.2. However, the Court retains a discretion to deviate from this general rule in appropriate circumstances and order that some (or all) of a party’s costs be paid on the indemnity basis: s 98(1)(c) Civil Procedure Act.

9. One circumstance in which courts have recognised that costs may be awarded on an indemnity basis is where a party has obtained a judgment which is no less favourable than an earlier offer made in accordance with the Calderbank principles.

10. Where, as here, the party who made the relevant offer chose not to avail themselves of the formal offer of compromise process provided for in Part 42 Division 3 of the UCPR, the mere fact of having bettered that offer will not, alone, be sufficient to secure an order that any portion of its costs be paid on an indemnity basis. Rather, as noted in Chalik v Chalik [2025] NSWCA 136 at [137]:

"… where a plaintiff rejects a Calderbank letter, and the defendant obtains judgment which is no less favourable than the terms of the offer - the offeror is not presumptively entitled to indemnity costs: Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 3) [2021] NSWCA 160 at [23] -[24]. Rather, as the Court held in Stewart v Atco Controls Pty Ltd (in liq) (No 2) (2014) 252 CLR 331; [2014] HCA 31 at [4]:

This Court has a general discretion as to costs. The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs.

Nonetheless, in exercising discretion as to costs in relation to Calderbank letters, the Court looks to (i) whether there was a genuine offer of compromise; and (ii) whether it was unreasonable for the offeree not to accept it: Ziegler atf Doris Gayst Testamentary Trust v Cenric Group Pty Ltd [2020] NSWCA 85 at [69]; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]."

11. The party seeking an order that its costs be paid on the indemnity basis bears the burden of persuading the court that a departure from the usual approach contemplated by UCPR 42.2 is warranted: Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 at [16].

12. The offer conveyed through the 28 April 2026 letter was made in accordance with the Calderbank principles. In it, Paul and Catherine offered to forego any entitlement to recover the defence costs they had incurred prior to 28 April 2026. I am satisfied that this amounted to a genuine compromise on their part.

13. I recognise that the matters set out in paragraphs (c) and (e) of the offer are not perfectly reflected in the outcome that Paul and Catherine have secured through the dismissal of the proceedings brought against them by Maria. However, in my view, the combined operation of s 91(2) of the Civil Procedure Act 2005 (NSW) and the principles reflected in Port of Melbourne Authority v Anshun (1981) 147 CLR 589; [1981] HCA 45 mean that the outcome they have achieved is, in a practical sense, no less favourable than that contemplated by those aspects of their offer. Similarly, the issue raised in paragraph (b) of the offer was not addressed in the orders I made on 2 September 2026, the reasons for which are contained in paragraph [161] of my earlier judgment. No party has since suggested that any further order is required to give practical effect to that outcome.

14. To justify a departure from the usual approach contemplated by UCPR 42.2, Paul and Catherine must establish that Maria’s rejection of their offer at that time was unreasonable.

15. In Miwa, the Court of Appeal endorsed (at [12]) the following list of factors identified in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) 13 VR 435; [2005] VSCA 298; as being relevant to determining whether the rejection of an offer was unreasonable:

"(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(c) the extent of the compromise offered;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it."

16. Here Paul and Catherine’s offer was made long after the proceedings had been commenced and at time when Maria, guided by those who were advising her, should have been well able to assess the prospects of her claim. Viewed objectively in light of the contemporaneous documents then available to Maria — including those referred to in Deutsch Miller’s letter — those prospects were, at best, modest.

17. Paul and Catherine’s legal costs were said by Deutsch Miller in its letter to be “in the general range of $65,000 plus GST”. Maria submitted that the quantum of those costs must be weighed against the value of the Long Jetty property; the ownership of which was at stake in the proceedings. In doing so, I took her to have been implicitly submitting that Paul and Catherine’s offer to waive any future entitlement they might have had to recover those costs involved very little compromise on their part. I disagree. That submission makes no attempt to grapple with Maria’s then modest prospects of having the transfer of that property to Paul and Catherine set aside.

18. Although a small sum when compared with the value of the Long Jetty property, $65,000 is a significant amount of money. Viewed in the context of Paul and Catherine’s then prospects — objectively assessed — of resisting the claim made against them by Maria, their offer to forego any future claim which they might have had to recover those costs represented a material compromise on their part.

19. That offer was conveyed in clear terms and foreshadowed an application for indemnity costs in the event that it was rejected. Maria was given ample time to consider the offer and seek advice in relation to it. I am satisfied that her rejection of the offer was unreasonable.

20. Finally, Maria pointed to the fact that she is Paul’s mother, Catherine’s mother-in-law and a pensioner, submitting that I should take each into account when exercising the costs discretion. In my view, these matters have little bearing on the question of whether Paul and Catherine should recover any portion of their costs on an indemnity basis.

21. The fact that Maria is “a pensioner” was presumably relied on for the purpose of suggesting that she is of limited means. Her financial circumstances are largely irrelevant to the proper exercise of the Court’s discretion as to costs: Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 at [26] - [36].

22. It is well recognised that costs orders are compensatory in nature. They are made to reimburse the successful party the costs they have incurred by reason of the proceedings: Latoudis v Casey (1990) 170 CLR 534 at 543 and 576; [1990] HCA 59; Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [67]. While she is Paul’s mother, Catherine’s mother-in-law and a pensioner, she was also the plaintiff. She chose to bring these proceedings against them to vindicate a private right. She chose to reject their settlement offer in circumstances I have found to have been unreasonable. As a result of those decisions, Paul and Catherine incurred costs in connection with their defence of the proceedings. That portion of those costs which were incurred after their offer would have been avoided entirely had it been accepted by Maria. In those circumstances, it is appropriate that she be ordered to pay Paul and Catherine’s costs on an indemnity basis from the date of that offer.

23. For the reasons given above, Order 2 made on 2 September 2026 is vacated. In lieu thereof, I make the following orders:

24. The plaintiff is to pay the defendants’ costs of the proceedings, such costs are to be assessed:

(a) on the ordinary basis up to and including 28 April 2026; and (b) thereafter, on the indemnity basis.

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