Kramer v Stone

Court of Appeal (NSW)|2023-12-11|Before: Ward P, Leeming JA, Kirk JA, Robb J

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

THE COURT: On 10 November 2023, this Court delivered judgment dismissing a notice of motion filed on 24 July 2023 by the appellants for leave, if leave be necessary, to adduce additional evidence and dismissing, with costs, the appeal itself (Kramer v Stone [2023] NSWCA 270 (the principal judgment)).
The dispute between the parties concerned the ownership of a farming property at Upper Colo, New South Wales. The outcome of the proceedings was that an order was made that the said property was held on constructive trust for the respondent. That outcome was not disturbed on appeal. What now falls to be determined is an application by the respondent for a special costs order (costs on an indemnity basis on and after 3 August 2023) having regard to an offer made to compromise the appeal proceedings, which was rejected by the appellants. The application, which has been dealt with on the papers, is dismissed for the following reasons. In what follows, which assumes familiarity with the principal judgment, we adopt the definitions used in the principal judgment.

Offer

The special costs order is sought having regard to the non-acceptance by the appellants of an offer made by the respondent to settle the appeal by way of a formal offer of compromise served on 2 August 2023. The notice of appeal had been filed on 9 April 2023. The hearing of the appeal was listed for 4 September 2023. (An offer to settle the proceedings at first instance, which was served on 4 November 2020 prior to the hearing commencing on 20 November 2020 before Robb J, is referred to by the respondent in submissions on the present application only to demonstrate that he made attempts to settle the case both at trial and on appeal. It is not relevant to the issues here to be determined.)
The offer made on 2 August 2023 was for the appeal to be dismissed and for the respondent to pay his own costs. The respondent submits that the offer complied with the rules for an offer of compromise under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); in particular that it involved a genuine element of compromise in circumstances where the only result which might be useful to the respondent was that he receive the land. In the context of an appeal, the respondent submits that this was "possibly the only offer that could reasonably be made on behalf of the respondent"; and that it was not so little as to amount to a walk away offer.
Pursuant to UCPR Part 42, r 42.15A: Where offer not accepted and judgment no less favourable to defendant (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
The respondent seeks an order that the appellants pay his costs on the indemnity basis from one day after the making of the offer being from 3 August 2023. The offer was expressly rejected by letter dated 25 August 2023 from the solicitor for the appellants.

Appellants' submissions

The appellants do not contend that the offer did not comply with the offer of compromise rules but ask the Court to "order otherwise" than as provided for in r 42.15A(2)(b) of the UCPR. Reference in this context is made to Leach v Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 where McColl JA (with whom Gleeson JA and Sackville AJA agreed) said: 41 However, in order for an offer of compromise made under the UCPR to attract an indemnity costs order, it must involve a "genuine offer of compromise" and not merely be made so as to trigger the costs consequences under the rules: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 (at [16]) (Spigelman CJ; Beazley and McColl JJA). … 51 A walk-away offer can successfully trigger the indemnity costs mechanisms under the rules, however "the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case": Regency Media Pty Ltd v AAV Australia Pty Ltd (at [31]) per Spigelman CJ; Beazley and McColl JJA.
The appellants submit that an offer only to bear the costs of the appeal (made the day after the respondent had served his submissions) offered so little as to amount to a walk away offer.
Further, the appellants argue that it was not unreasonable for them to reject the offer. It is submitted that they could reasonably consider that the appeal had merit. In that regard, it is noted that although the Court dismissed ground 2 (as to whether the representation was one of revocable testamentary intention), some hesitation was expressed in accepting that the judge was entitled to find that it would be understood by a reasonable person in the respondent's position as an assumption (referring to [150] of the principal judgment). The appellants further note that a point of law was raised by ground 4 and again decided against them but with recognition that the point is unsettled with the weight of authority suggesting that actual knowledge is not necessary (referring to [291] of the principal judgment).
The appellants say that the respondent could have offered something more than total capitulation; and that it was reasonable in all the circumstances not to accede to what was in essence a walk away offer although the respondent's submissions contend it was the only offer he could reasonably make.

Respondent's submissions in reply

The respondent cavils with the proposition that his offer "offered so little as to amount to a walk away offer". The respondent notes that the subject matter of the appeal was land; and says that, because it was an appeal and because it was land, the case was an "all or nothing" case.
The respondent points out that the offer was more favourable with regard to the appellants' costs in that, had the appellants accepted the offer, the extent of their costs would have been significantly reduced by there being no hearing. It is said that the offer was more favourable with regard to the respondent's costs in that the respondent offered to bear his own costs whereas, if the appeal was to proceed and be dismissed, the appellants would have had to pay the respondent's costs.
Further, the respondent says that as plaintiff in the proceedings below he had already offered to give up his legacy at trial (which was ultimately ordered by the trial judge). The respondent asserts that "perhaps after years of impecunious employment", he had no money to contribute to an offer of compromise.
Further, the respondent says that the concern of the appellants was not with money but with the respondent, pointing to the appellants' solicitors' letter of 25 August 2023. The respondent suggests that this demonstrates that the appellant's attitude to settlement may have been motivated more by subjective matters than an appreciation of the merits of the respective cases.
The respondent also says that the absence of any monetary component to the offer "bears no relationship to reality" in circumstances where the value of the subject land was minimal (being $1.5 million, as noted at [14] of the principal judgment) compared to the whole of the estate (a value on probate of $13,078,877.97) and also compared to the money spent by the appellants on the proceedings and including the expert evidence at trial.
To the extent that this is found to be a "walk away" offer, the respondent says that in some cases a "walk away" offer may be regarded as a genuine offer of compromise (referring to the discussion in Leichhardt Municipal Council v Green [2004] NSWCA 341 (Leichhardt Municipal Council v Green) at [31]ff per Santow JA, with whom Bryson and Stein JJA agreed; and to what was said in Abdi v Abdi (No 2) [2022] NSWSC 582 (Abdi) at [34] per Ward P).
The respondent says that, at the time of the making of the offer of compromise, the offer that he would bear his own costs involved a "significant element of compromise". It is submitted that the appellants well knew by that late stage in the proceedings that the respondent's costs were likely to have been very substantial. Further, it is noted that there is no evidence that the appellants sought information as to the extent of the costs incurred by the respondent to that date, as it was open for them to do.

Determination

It is not disputed that, to be effective, an offer of compromise under the UCPR must contain some element of genuine compromise. That said, in some circumstances a "walk away" offer may constitute a genuine offer of compromise (apart from the reliance placed by the respondent on Leichhardt Municipal Council v Green, reference may be made to DSHE Holdings (Receivers & Managers appointed)(in liq) v Nicholas Abboud (No 4); National Australia Bank Ltd v Nicholas Abboud (No 5) [2022] NSWSC 91 at [47] per Ball J).
While the giving up of a claim for costs by the respondent is certainly capable of amounting to a genuine compromise, in the present case it is not easy to ascertain the extent of that compromise in the absence of evidence as to the level of costs incurred in the appeal by the respondent to the relevant time. This is not a situation where one looks to the costs of preparation of evidence for the trial itself (where there might have been a large volume of affidavit and expert evidence prepared - see for example Taheri v Vitek (No 2) [2014] NSWCA 344 at [9]-[14] per Bathurst CJ, Emmett and Leeming JJA; Port Kembla Coal Terminal Ltd v Construction Forestry Mining and Energy Union (New South Wales Branch) (No 2) (2014) 88 NSWLR 471; [2014] NSWIC 3 at [43], [49]-[50] per Walton P (as his Honour then was), Staff J and Boland AJ).
The offer of compromise here was made around a month before the hearing of the appeal but the costs involved on the part of the respondent would presumably have been limited to involvement in preparation of the appeal books and for the appeal. It seems unlikely that the costs would have been of a substantial nature.
Therefore, while it can be accepted that the offer involved an element of compromise, and there is nothing to suggest it was not genuine, it is not apparent that there was a large element of compromise.
As to whether it was unreasonable for the appellants to reject the offer, ultimately it is unedifying to delve into the motivation for them to do so nor is it particularly helpful to explore whether the rejection was reasonable by reference to the manner in which the Court expressed its conclusions. The fact remains that the prospects of the appeal could not be described as hopeless and it raised at least one issue of law that was worthy of debate.
Balancing those matters, in our opinion this is not a case where it could be said that the appellants were unreasonable in rejecting the offer of compromise. They were being asked to give up an arguable appeal (and to bear their own costs of the appeal proceedings) in return for the respondent offering to bear an unknown amount of the costs of his preparation for the appeal (which one would assume were unlikely to match or exceed those of the appellants). The fact that it may be difficult for a respondent to formulate an offer that involves a greater element of compromise in a given case is not to the point - it simply highlights the difficulty of reaching agreement on matters of this kind when the case is seen as an "all or nothing case".
The application for a special costs order is dismissed, with no order as to the costs of that application.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 December 2023

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