1 BEAZLEY JA: I agree with McColl JA.
2 SANTOW JA: I agree with McColl JA
3 McCOLL JA: The Court delivered judgment in this matter on 5 October 2006. The appeal was allowed and the orders made by Nicholas J on 22 December 2005 that the appellant pay the costs of proceedings brought in the Equity Division of this Court by the respondents was set aside. In lieu the Court ordered that each party pay their own costs of the Supreme Court proceedings as well as their costs of appeal: Fordyce v Fordham & Anor [2006] NSWCA 274 (the "first judgment").
4 At the conclusion of the argument Mr Simpkins of Senior Counsel, who appeared with Mr J Johnson for the respondents, raised the question that, if the appeal was upheld and this Court re-exercised the costs discretion, it should not make an order concerning the costs of the argument before the primary judge on 23 November 2005 as the outcome of that day may be affected by correspondence. While the Court indicated its view that its costs should apply to the costs of 23 November 2005 the parties were given leave to file and serve written submissions limited to two pages concerning the costs of that day.
5 The parties have exercised that leave. This judgment deals with the resolution of the respondents' claim that the appellant should be ordered to pay their costs of 23 November 2005 on the basis that she had unreasonably rejected a Calderbank offer communicated by Mr Woolf, the respondents' solicitor on 6 September 2005.
6 The history of the Equity Division proceedings can be gleaned from the first judgment (at [18] - [26]). Relevantly, Mr Woolf first communicated his clients' intention to discontinue the proceedings in an open letter dated 9 August 2005. On 10 August 2005 the appellant filed a Notice of Motion: see first judgment at [19]. The correspondence the respondents have attached to their submissions in relation to the costs of 23 November 2005 shows the parties' subsequent attempts to settle the matter.
7 On 23 August 2005 Mr Fordyce, the appellant's solicitor, wrote a letter to the respondents' solicitor marked "Without prejudice except as to costs", noting the matter was before the Court again on 30 August 2005 and conveying his client's instructions to propose that the proceedings be dismissed with an order that the respondents pay the appellant's costs in the sum of $15,000. The letter said the appellant's actual costs at that date (which was three weeks after the proceedings had started) were $26,000. The letter made a number of assertions about the respondents' proceedings including accusing them of having "totally failed" and "having misled the Court". The letter advised that if the respondents were not agreeable to his proposal, Mr Fordyce's instructions were to seek indemnity costs and to rely upon his letter in support of that claim. His offer remained open until 4pm on 29 August 2005.
8 At this stage the proceedings had been stood over for further directions before the Registrar on 30 August 2005 with liberty to apply on two day's notice. All questions of costs had been reserved: first judgment at [24].
9 On 6 September 2005, Mr Woolf sent the letter upon which the respondents rely. It said:
" Without prejudice except as to costs
….
We refer to previous correspondence.
Our clients offer to discontinue the proceedings and each party pay their own costs. This offer is open to 28 September 2005.
The above offer is made on a without admissions basis and without prejudice except as to costs.
We reply as follows to matters in your letter but without any admission as to any matters not expressly mentioned.
We reject the contentions made in your letter of 23 August 2005. Contrary to the matters which you have asserted your client sought to commence work in the knowledge that our clients had applied to the Local Court for clarification of the terms of the consent orders in the Local Court. Your client's action would have undermined the purpose of the Local Court hearing.
Further your client had no right to commence any works, including removal of trees, before the Final Tree Report was received. As you know, the Local Court suspended the access orders at the Plaintiff's request until the Final Tree Report was provided to them and they had time to consider it and be advised on it.
It was accordingly not only a matter of belief by our clients but it was unarguably reasonable for our clients to commence injunctive proceedings and reasonable, as was the case, for the Court to grant injunctive relief in the first place and later for the Court to obtain an undertaking by your client in the terms of the undertaking given by your client to the Court on 10 August 2005.
In relation to the fees which you mention in the sum of $26,000 we are not aware that counsel has appeared on any occasion for your client in these proceedings such that in our view this calculation of costs is completely out of proportion to a reasonable amount of work which might be carried out in relation to these proceedings. Further, you filed a motion in the proceedings supported by Affidavit material which did not succeed and at the return of which it was your client who provided an undertaking to the Court. On any view, your client would not be entitled to any costs in relation to such motion and should bear our client's costs in relation to the motion.
Our clients have made a reasonable offer to settle the proceedings as set out above."
10 By the time the 6 September letter was sent the matter had been before the Registrar for further directions on 30 August 2005 and had been adjourned by consent to 27 September 2005. On the latter date the Court was advised that the respondents wished to seek leave to discontinue: first judgment at [24].
11 On the same day Mr Fordyce wrote a second letter to Mr Woolf, again headed "Without prejudice except as to costs". He noted Mr Woolf's advice to the Court that the respondents were seeking to discontinue the proceedings. He observed that they were entitled to do so by filing a notice of discontinuance with the consequence that they would have to pay his client's costs. He also noted that the respondents appeared to be seeking to discontinue on the basis that each party pay their own costs and advised that that proposal was not acceptable to the appellant. The letter then made a number of serious allegations against the respondents which it is unnecessary to repeat. It advised that the appellant was agreeable to accepting an order that her costs be paid on "the usual basis" and would not press for indemnity costs provided the respondents agreed and had consent orders discontinuing the proceedings on the basis that they pay her costs as assessed or agreed filed by no later than 4pm on 11 October 2005. The letter also advised that should the offer not be accepted and the appellant obtained a judgment more favourable to her than the offer, she reserved the right to rely on the offer on the question of costs including an application that the respondents pay her costs of the proceedings on an indemnity basis, referring to Calderbank v Calderbank [1976] Fam 93.
12 On 12 October 2005, Mr Woolf wrote to Mr Fordyce rejecting the serious allegations contained in the letter of 27 September 2005 in detailed terms which, again, it is unnecessary to repeat. The offer contained in Mr Fordyce's letter of 27 September 2005 was declined.
13 Mr Fordyce did not expressly reject the offer contained in Mr Woolf's 6 September 2005 letter, however that rejection can be inferred from his letter of 27 September 2005.
14 The respondents submit that their offer of 6 September 2005 was a genuine attempt to reach a negotiated settlement in circumstances where there was a real chance that the Court would order the appellant to pay some or all of their costs in the circumstances. They rely upon the fact that the 6 September 2005 letter set out the matters to which the Court of Appeal had regard in determining that each party should pay their own costs, namely that the respondents' conduct in commencing the proceedings was reasonable, while the appellant's conduct was provocative and a "matter for wonder" (first judgment at [89]) and the appellant was not the "victor" in the Local Court proceedings (first judgment at [92]).
15 Accordingly the respondents contend the result ordered by the Court of Appeal was that offered in the 6 September 2005 letter, that sought in their motion of discontinuance before Nicholas J and advocated as their primary position before his Honour: first judgment at [55]. They argue that the appellant was given particulars of the reason why each party should pay their own costs and a reasonable time (22 days) in which to consider the offer: cf Uniform Civil Procedure Rules 2005 20.25 and 20.26. They submit that the appellant acted unreasonably in rejecting their offer and maintaining that she was entitled to indemnity costs both before and through the hearing of 23 November 2005, asserting that the respondents had knowingly misled the Court and sworn false affidavits and indicating that she would subpoena their legal representatives in the Local Court proceedings to give evidence and pursue a custodial sentence for criminal contempt of court. They submit that none of the serious allegations made by the appellant which were relied upon as the basis for her refusing the respondents' offer had any sufficient evidential basis particularly in view of the necessary standard of proof for such allegations and none was accepted by the Court.
16 The appellant submits that the 6 September letter was not a Calderbank letter which would attract the costs order sought. She prays in aid Jones v Bradley (No 2) [2003] NSWCA 258 where (at [8]) the Court said: