Marzbani v Embersits [2019] NSWSC 168 | Case summary

Supreme Court of NSW|2019-02-07|Before: Ward CJ

Judgment

HER HONOUR: In this matter the substantive dispute between the parties was resolved by the making of consent orders on 4 February 2019 pursuant to which the defendant (the plaintiff's estranged wife) was ordered to execute two deeds of undertaking to give effect to an agreement between the parties that had been noted in orders made in the Family Court of Australia on 10 March 2017 (the Family Court orders). The parties did not, however, agree on who should bear the costs of the proceedings in this Court by which the plaintiff had sought specific performance of that agreement. Each party sought a costs order in his or her favour. I heard argument on that, the sole remaining issue in the proceedings, in the course of the duty list on 7 February 2019. For the following reasons I am of the view that the appropriate order is for the parties to bear his or her own costs of the proceedings.

Background

The background to the dispute can be briefly stated. The plaintiff and the defendant were married in 1996; they separated in February 2010; they have two adult children (neither of whom has yet turned 25); proceedings were commenced in the Family Court for the dissolution of their marriage in 2011; and consent orders disposing of the property aspects of those proceedings were made under s 79 of the Family Law Act 1975 (Cth) by the Family Court in March 2017. As adverted to above, the proceedings in this Court involved a claim by the plaintiff for specific performance of an agreement recorded in those Family Court orders.
Relevantly, the defendant's father died in 2009 and all of the estate assets and trusts associated with him are situated in the United States of America. I was informed that there has been litigation in that country in connection with the deceased's estate, the details of which I am not aware (and they are not relevant to the present costs dispute). Self-evidently, the agreement recorded in the notation to the Family Court orders (see [4] below) was intended to deal both with the defendant's inheritance out of her late father's estate and with any inheritance the plaintiff might receive, in a manner that would see each of the children of the marriage receiving an equal portion of the value thereof.

Family Court orders

The relevant notation in the orders made by consent in the Family Court in March 2017 was as follows: 18. The Court notes that the parties have agreed that: 18.1 In the event of the wife receiving any funds or property distributed to her from the estate of her late father including trusts associated with her father of which she holds interests, including remainderman interests subject to the life and discretions of her step mother, Lucinda Embersits then forthwith upon receipt of such interests she will transfer and assign absolutely a sum equal to 10 per cent of the value of such interest to each of the parties [sic] … (the children), save that in the event that either child has not attained the age of 25 years then that child's share shall be paid to the wife's step-sister Holly Johnson (the trustee) to hold on trust for that child until the child attains the age [of] 25 years with the trustee to hold with power to invest at her discretion; 18.2 In the event that the husband inherits funds or property from any source then forthwith upon receipt he will transfer and assign absolutely a sum equal to 10 per cent of the value of such interest to each of the children, save that in the event that either child has not attained the age of 25 years then that child's share shall be paid to the wife's step-sister Holly Johnson (the trustee) to hold on trust for that child until the child attains the age of 25 years with the trustee to hold with power to invest at her discretion; and, 18.3 each party shall join in execution of any deed or instrument requested by the other to give force and effect to the agreement recorded above in both the United States of America and Australia.
The Family Court orders were duly executed by the defendant and by the then solicitors for each of the parties in 2017.

Events after Family Court orders

To the above brief recitation of the background to the dispute must be added the saga of events after the making of the Family Court orders, since it is by reference to those events that each of the respective parties now argues that the costs of these proceedings should be ordered against the other party.
On 3 April 2017, the plaintiff forwarded to the defendant two draft deeds of undertaking, prepared by his solicitors, which he considered "should reflect" the agreement recorded in the Family Court orders and two draft deeds of trust (one set relating to the defendant and the other to the plaintiff). Those deeds of undertaking were detailed documents (structured in relatively standard form, including recitals, an interpretation clause, operative provisions and boilerplate provisions), the content of which it is not necessary here to set out. As drafted, they contemplated that the children would be party to the deeds.
By letter dated 16 June 2017, the defendant's solicitor advised the plaintiff that her client was not prepared for documents to be signed directly by the children; and that there was no need for a deed of undertaking, just deeds of trust between each of the parties and the proposed trustee. In that letter, objection was taken to various parts of the draft deeds that had been prepared by the plaintiff's solicitors (including the complaint that the definition of the plaintiff's inheritance assets in the draft deed of undertaking proposed for execution by the plaintiff was incorrect).
On 4 July 2017, the plaintiff's solicitor forwarded to the defendant's solicitor "[i]n the interests of advancing resolution of outstanding issues on the consent deeds entered into between our respective clients and in recognition of your [sic] not having been able to respond to our detailed written proposal to you on Tuesday 20 June", a revised version of the four draft documents, pressing for a response by 6 July 2017 (failing which it was said that the solicitor had instructions "to consider" options for a return to the Family Court). The reference to a proposal of 20 June seems to be to an email of that date responding seriatim to the matters raised in the defendant's solicitor's 16 June 2017 correspondence.
Each of the revised undertakings enclosed with the 4 July 2017 correspondence was now drafted as a Deed Poll of Undertaking in favour of the children (who, consistently with each of the documents being drafted as a Deed Poll, were not named as parties thereto); and, among other things, there was amendment to the definition of inheritance assets in the draft Deed Poll proposed to be signed by the plaintiff.
It appears that there was no substantive response from the defendant as to the revised documents by the date nominated and, on 28 July 2017, the plaintiff filed an application in the Family Court seeking declaratory and other relief including an order that the parties to the proceedings forthwith execute the deeds. (The defendant took issue with the Family Court's jurisdiction in relation to this application but it is not necessary here to set out the contentions made by the respective parties on that issue.)
By letter dated 2 March 2018, the defendant's solicitor forwarded to the plaintiff's solicitor two deeds that had already been signed by the defendant, which it was said "give effect to the Notations in the Consent Orders". The letter stated that the documents prepared by the plaintiff's solicitors "go much further than the agreement actually reached in the Notation" and that, accordingly, the defendant had signed the enclosed documents.
The relevant agreement on the part of the defendant, as recorded in the deed she had signed (i.e., to give, transfer or assign part of the value of property or funds received from the estate of her late father to each of the children) was predicated on the receipt of funds or property by way of "Inheritance Assets" (that term being defined in the deed to mean "funds or property distributed to me from the estate of my late father") and was expressed in the following terms: 12. If during my lifetime I receive any funds or property from the estate of my late father by way of Inheritance Assets to which I am solely legally and beneficially entitled and which are not subject to any condition precedent or subsequent or life interest or other claim … [my emphasis] (The italicised words were not words to be found in the relevant notation to the Family Court orders.)
By letter dated 8 March 2018, the defendant's solicitor advised the plaintiff's solicitor that her client "considers that as far as she is concerned, the matter is now concluded".
The plaintiff's solicitor's response to this, on 24 April 2018, was that the deeds of undertaking forwarded on 2 March 2018 did not reflect the terms of the agreement; noting, in particular, that the agreement did not require either spouse to become "solely legally and beneficially entitled" (emphasis as per the original) to assets before becoming obliged to transfer and assign a sum to the children. The letter advised that the plaintiff would consider entry into consent orders forwarded by the defendant on 8 March 2018 (to dispose of the application in the Family Court proceedings) but only on the basis that the defendant validly execute corrected deeds of undertaking which "tracked precisely" the wording of the agreement recorded at paragraph 18.1 of the Family Court orders. The "corrected deed" of undertaking proposed for execution of the defendant amended cl 12 in that regard.
By email sent on 27 April 2018, apparently responding to a letter the previous day from the defendant's solicitor, the plaintiff's solicitor, "[i]n the interests of a consensual resolution of [the] matter", extended to 10 May 2018 the deadline for the return of undertakings, "validly executed" by the defendant, in the form sent on 24 April 2018, advising that "no further correspondence in relation to extension of time will be entered into".
The defendant's solicitor's response, by letter dated 3 May 2018, was again to assert that her client considered the matter now concluded. The letter advised that, unless the consent orders the defendant's solicitor had forwarded (i.e., those of 2 March 2018) were signed within 14 days of the letter, the defendant would seek: that the matter be listed; that the plaintiff's application be dismissed; and that an order be made against the plaintiff in respect of the defendant's costs.
This precipitated a letter dated 8 May 2018 from the plaintiff's solicitor in which, among other thing, the perceived deficiencies of the defendant's draft undertakings were articulated (including the reference in those proceedings to the defendant becoming "solely legally and beneficially entitled to the Inheritance Assets" and the reference to Inheritance Assets being "not subject to any conditions precedent or subsequent or any life interest or any other claim"). It was asserted that those deficiencies were "patently material" as the plaintiff "can have no visibility at all as to the timing of funds or property leaving the testamentary trusts of your client's late father rather than his estate as was intended by the Agreement, which timing for the purposes of the Wife's Undertakings might indeed conceivably be within the absolute legal and/or practical control of [the plaintiff]" (a complaint reiterated in submissions on the application now before me).
In the same letter, the plaintiff's solicitor foreshadowed an application to transfer the Family Court proceedings to this Court (there having been, in the defendant's solicitors correspondence referred to above, assertions as to the Family Court lacking jurisdiction in that matter). The plaintiff's solicitor also restated the offer made on 24 April 2018 to accept an undertaking from the defendant in the amended terms "you requested and [which] were offered" on 27 April 2018. Further correspondence ensued, by letter dated 11 May 2018, from the plaintiff's solicitor.
On 11 May 2018, the defendant's solicitor wrote to the plaintiff's solicitor, stating, among other things: Your client appears (at point 12) to believe he has some rights in the notations beyond the requirement of my client to formalise the arrangement for the children on a later date (which she has done). He has none. He is not entitled to know when my client receives entitlements, and whether or not the children receive the benefits. It is a promise my client has made to the children, as she promised your client she would, as recorded in the Court's notation to the property adjustment orders. All that remains between the spouse parties arising from the notations is whether or not the Deeds signed by my client reflect what my client agreed to do for the children. On this point, it feels necessary to state that my client only agreed to make provision for the children from funds and property actually received by her from the Estate, from the Trusts and from the remainderman interests at her stepmother's discretion during her life. The Deeds reflect this. My client did not agree to make provision before she actually becomes entitled herself to such funds or property. …
Pausing here, the second paragraph extracted above seems to me to contain the kernel of the confusion that subsequently arose between the parties and which (at least in part) led to the dispute as to the execution of either side's version of the draft undertakings until shortly before the hearing of the present application - namely, as to whether (at the time of counsel to the Family Court orders) the defendant had agreed to an immediate obligation to make provision for the children in respect of any amount representing the (present) value of her remainder interest in the relevant trusts or was only to be obliged to do so when in receipt of actual funds or property (received either earlier, when her stepmother died or at her stepmother's discretion). However, as will be noted in due course, the terms in which the defendant's concern on this issue was couched did not make that clear (and this was not the only concern raised in the correspondence as to execution by the defendant of the deeds drafted for the plaintiff).
As to the words "solely legally and beneficially entitled" (with which the plaintiff had taken issue), it was said by the defendant's solicitor that they were not "explicitly contrary" to the terms of the agreement (thus seemingly conceding that they were not terms that had been expressly agreed at the time). The question was posed (perhaps rhetorically, though it was in due course answered by the plaintiff's solicitor) "[d]oes your client seriously believe my client agreed to distribute 20% of property she is not legally and beneficially entitled to?". Similarly, it was asserted that the defendant never agreed to benefit the children from money or property subject to condition precedent or subsequent or any life interest and the question was posed, again perhaps rhetorically, "[d]oes your client seriously believe my client agreed to distribute 20% of property she owns subject to a life estate or to such conditions?". The defendant's position was that she had done what she said she would do in the "notations" (i.e., by signing her version of the deeds). Confirmation was sought (in hindsight one can only say optimistically) that the plaintiff agreed the dispute between them was at an end. Consent orders were attached.
Proceedings were then commenced by the plaintiff by the filing of a summons in this Court on 14 May 2018. In the summons as originally filed, prayer 2 of the prayers for relief sought a declaration that, in order to give effect to the agreement (recorded in the Family Court orders), the defendant should be ordered to execute and specifically perform the two deeds of undertaking issued to the defendant on behalf of the plaintiff on 24 April 2018 and annexed to the summons marked "B". Relevantly, cl 12 in that version was the version proffered on 24 April 2018 and did not include the later 28 May 2018 amendments (see below). Clause 12 of the draft commenced: 12. If during my lifetime, I receive any fund or property from the estate of my late father including trusts associated with my father by way of Inheritance Assets to which funds or property I am beneficially entitled and which are not subject to any life interest …
In response to the 11 May 2018 correspondence, the plaintiff's solicitor, by letter dated 15 May 2018 noted that a notice of discontinuance of the Family Court proceedings had been filed on 11 May 2018 (before receipt of the letter from the defendant's solicitor). The responses to the (perhaps rhetorical) questions posed in the defendant's solicitor's correspondence referred to above were: as to the first question, that the obligation was to transfer a sum of a specified value not to distribute property received and that there was no reason to require receipt of legal title (it being noted that beneficial interests "have a perfectly ordinary transfer value" and that the defendant might realise that value if required to meet her obligations"); and, as to the second question, that: The answer to the question posed is quite simply no for the same reason. Again, the plain terms of the Agreement are that your client's obligation is to transfer "a sum equal to 10 per cent of the value of" the interests received. The fact that interests might be subject to a condition precedent or subsequent or any life interest does not deprive them of a value. [emphasis as per original] (Pausing here, this suggests a construction of the agreement, as recorded in the notation to the Family Court orders, which would require an immediate transfer of a portion of the value represented by the remainder interest if that were (as it was, though the plaintiff says it did not then know this) presently held by the defendant.)
The letter concluded that the plaintiff remained amenable to consideration of an offer from the defendant "predicated upon the valid execution and forwarding" of the deeds issued by the plaintiff on 24 April 2018. This response seemingly perpetuated the confusion or misunderstanding between the parties as to what had been agreed at the time of the Family Court orders (namely as to whether there was to be a present obligation on the defendant's part to transfer an amount representing the agreed portion of the value of the defendant's remainder interest in the relevant trusts, whenever that interest sounded in an actual receipt of funds or property).
The defendant's position (see her solicitor's letter dated 16 May 2018) at this stage remained that the matters arising from the Notation "are now closed" (thus implicitly insisting on acceptance of the version of the deed she had signed).
It appears that there were then some without prejudice discussions (to the detail of which I am not privy and on which nothing here turns) on 21 May 2018, reference thereto being made by the plaintiff's solicitor in a letter dated 28 May 2018 marked "without prejudice save as to costs" (CB 1/342). In that 28 May 2018 letter, the plaintiff's solicitor conveyed the plaintiff's proposal for settlement of the text of the relevant undertakings in the form forwarded by him on 24 April 2018 (which themselves were largely in the form of the defendant's original signed 2 March 2018 version) subject (relevantly) to the substitution of the text italicised below in cll 9 and 12 of the deeds: If during my lifetime I receive any funds or property from the estate of my late father by way of Inheritance Assets (to the extent received from [two identified trusts] only, solely to the extent to which I am solely legally and beneficially entitled to those funds or to that property and which funds or property are not subject to any condition precedent or any life interest or other claim) …and as at the date I become entitled to receive such funds or property …
The plaintiff reserved his position on the settlement of outstanding costs in the context of that offer, pending agreement to the above revised text. The letter stated that the offer to settle the text of the undertakings would lapse "for all purposes" in the absence of a response on or before 12 noon, 4 June 2018.
It seems that it took some time for a response to be forthcoming to the above letter (and it was certainly not within the timeframe stipulated as that after which the offer was to lapse).
Ultimately, the response seems to have been by way of a without prejudice letter dated 26 June 2018 (Exhibit 1), in which the defendant's solicitor made an offer of compromise, the closing date for acceptance of which was 28 days after the date of the letter, in the following terms: 1. That there be a verdict for the Defendant; 2. That the Summons be dismissed; and 3. That each party shall bear their own costs of the proceedings.
The letter stated that the defendant relied upon the Calderbank principles (Calderbank v Calderbank [1975] 3 All ER 333; (1975) 3 WLR 586) in relation to the offer of compromise.
In response, by letter dated 27 June 2018 (also part of Exhibit 1), the plaintiff's solicitor asserted that the offer contained in that letter was not a real or genuine offer of compromise; that no evidential basis for the offer was set out and no reasons advanced in favour of its acceptance; that no evidence had been served to date by the defendant and therefore the plaintiff had not been offered any opportunity for an objective analysis of the defendant's case and to make an informed decision based upon it; and that no reference was made in the letter to any element (or deficiency) of the plaintiff's evidence, of which the defendant's solicitor had already had the benefit for 14 days. Further, it was submitted that in circumstances where the offer was expressed to expire only one business day after the deadline for the service of the defendant's evidence it was impossible for the plaintiff to make an objective analysis of the defendant's case before the offer expired.
In a without prejudice letter dated 30 October 2018, the defendant's solicitor responded that her client was prepared to accede to the proposed amendments (as I understand it, those being the amendments proffered by the plaintiff's solicitors on 28 May 2018 - see [27] above). Copies of the deeds signed by the defendant were enclosed and the defendant's solicitor stated that "we will provide them to your client on the basis that my client wishes to end all matters outstanding between them", but then went on to set out four matters, including that the plaintiff forthwith pay a specified sum said to be outstanding in relation to the final court orders in the Family Court proceedings and that the proceedings in this Court be dismissed with each party paying its own costs. The copy deeds enclosed with that letter included (in the defendant's deed poll) cl 9 in the same terms as had been proposed by the plaintiff on 28 May 2018.
Pausing here, at this point it would seem there was agreement as to the content of the deeds of undertaking but a qualification as to the basis on which the signed deeds would be provided to the plaintiff (the defendant's response including a condition or stipulation as to costs). That led to further dispute between the parties.
The plaintiff's response, conveyed in a without prejudice letter dated 30 October 2018 from his solicitors, was to take issue with the costs regime proposed by the defendant, the letter setting out a recitation of the history of communications from July 2017 and identifying the costs that had been incurred by the plaintiff since the lapse on 4 June 2018 of "the offer to negotiate in the 28 May Letter". In effect, the plaintiff invited an offer from the defendant "based on a more realistic appraisal of [the defendant's] responsibility for [the plaintiff's] costs in the Present Proceedings (i.e. that the [defendant] has some)". In response to that letter, the defendant's solicitor said she did not understand what the plaintiff was there stating (see the defendant's solicitor's without prejudice letter dated 13 November 2018), and sought clarification as to whether the plaintiff "is interested in settling this matter, or not".
A further without prejudice offer was made by the plaintiff in a letter dated 15 November 2018. Relevantly, that offer was predicated on the signing by the defendant of the two deeds of undertaking issued on 24 April 2018 (which did not include the amendments that had been made in the 28 May 2018 version) and was subject to order 2 of the summons in these proceedings (which I have set out above) and payment of a specified amount in respect of Counsel's fees incurred in obtaining "US law advice" and 40% of the aggregate of the plaintiff's fees and disbursements in the proceedings in this Court. That offer was expressed to remain open to 4.00pm on 22 November 2018 (a date said to be the latest date before the plaintiff would irrevocably commit to certain costs of trial). The letter also indicated a willingness to consider counter-offers but solely predicated on the signing and delivery of the draft sets of deeds of undertaking forwarded to the defendant on one of 4 July 2017; 28 August 2017; or 19 October 2017 only (i.e., not including the 24 April 2018 version, with or without the 28 May 2018 amendment).
The defendant's solicitor responded, by a without prejudice letter dated 19 November 2018, noting that the version of the deeds referred to was not that which had been accepted by the 28 May 2018 amendments and stating that the defendant's position was that she "has signed" the annexed Deeds and they are dated 30 October 2018". The signed version to which the defendants' solicitor there referred appears to be that which had been proffered by the plaintiff on 28 May 2018. The letter stated that the defendant's position was that she "does not believe that she should pay any costs" but that, to settle the matter, she was prepared to waive an amount of $4,742.93 said to be owed to her (which the plaintiff disputed) pursuant to the Family Court orders of September 2018.
The plaintiff's solicitor responded to this letter by letter dated 26 November 2018 (not marked without prejudice but responding to without prejudice correspondence from the defendant's solicitor and reserving the right to rely on the letter on any question in relation to costs in these proceedings), stating (at [9]) that: … it is difficult to avoid the conclusion that your 13 November Letter and your 19 November Letter serve to demonstrate your client's apparent indifference to the aim of achieving the cheap resolution of the issues purportedly in dispute between the parties and the need to avoid the wasteful incurrence of costs.
In response to an email dated 4 December 2018 requesting an estimate of the plaintiff's costs in these proceedings to date, by without prejudice letter dated 6 December 2018, the plaintiff's solicitor estimated the costs of the proceedings at 26 November 2018 to be $75,521.59 (the bulk of which was comprised of solicitors' fees). Further without prejudice correspondence was sent by the plaintiff's solicitor on 6 December 2018, among other things decrying (at [4A]) "colourable and inevitably contentious statements" in the defendant's solicitor's correspondence and describing the offer by the plaintiff of 28 May 2018 as an "inchoate offer … 'to settle the text of the undertakings' … the acceptance of which by [the plaintiff] was always expressly 'subject to an agreement on the resolution of outstanding costs' which has never occurred" (emphasis as per the correspondence) (see [4A]). (Thus the plaintiff's position at this point was clearly that his 28 May 2018 offer was not capable of acceptance without agreement as to costs.)
The 6 December 2018 letter professed the plaintiff's amenability to genuine offers to settle the proceedings, provided they were predicated upon the defendant's signatures of the form of the deeds sought by way of relief in these proceedings and "a meaningful offer in respect of reimbursement of [the plaintiff's] costs" (see [5]).
The matter was listed for pre-trial directions before Slattery J on 10 December 2018. On that occasion, Counsel for the defendant informed his Honour that the words used in the new deed (annexed to the summons) were exactly the same as in the Family Court notation (T 10/12/18; 2.22) but that the problem was that it was insufficiently certain about when the obligation to pay the 10% of each child arises (T 10/12/18; 2.31), in circumstances where the deed: … starts off by talking about the receipt of funds of the property from those various interests which is subject to life interests and so on, an then it says "forthwith upon such interest being received by the defendant she is to transfer". The difficulty is she already has remaindermen [sic] interest. She already has an interest as such. In our deed what we have done is made it clear that when she is legally and beneficially entitled to the interest, that is when the obligation arises [see at T 10/12/18; 2.41]
Pausing here, this appears to be the first time at which the crux of the issue as to the amendments required by the defendant was clearly articulated (although as noted earlier, that might be able to have been gleaned from the 11 May 2018 letter - see [19] above; and the defendant says that it was in any event clear, from material filed in the Family Court proceedings, that she already held the remainder interest).
Counsel for the plaintiff identified the problem before Slattery J as follows: What I have offered is a deed which is precisely in the words of the deed with the agreed annotation in the consent orders in the Family Court proceedings. What we have received is another deed with different words with different effect which is more qualified in respect of what the wife is obliged to do when she receives this distribution from the estate of her father. That is the scope of the history. [T 10/12/18; 4.46]
Not surprisingly, his Honour expressed the view that this (and by "this" I understand his Honour to be referring to the positions adopted by both sides) sounded like "some form of collective madness" (T 10/12/18; 5.11). It certainly does.
Relevantly, for present purposes, it is clear from the transcript of that pre-trial directions hearing that it was the understanding of Counsel appearing for the plaintiff (and he stated that these were his instructions) that the defendant had not yet received the remainderman interest. In that regard, Counsel pointed to recital 2 to the deed (as originally drafted by the defendant) which stated: 2. I anticipate that at a future date during my lifetime I may receive funds or property distributed to me from the estate of my late father ("Inheritance Assets") and to recital 8, which recited that "[n]one of those assets of my late father's estate are [sic] in Australia". (I interpose to note that recital 3 of the deed annexed to the summons recorded that the Inheritance Assets "do not include remainderman interests I presently hold subject to the life and directions of my stepmother …" and that recital 4 recorded that "[t]he funds or property I anticipate may be distributed to me from the Inheritance Assets may include entitlements to income and/or capital".)
Following that 10 December 2018 directions hearing, the defendant's solicitor, by letter dated 18 December 2018, wrote to the plaintiff's solicitor, stating that his Honour had crystallised the issue in dispute as to timing: "that is, whether the obligation in the notations to pay benefits to the children arose immediately, or only in respect of future receipts of funds or property from the Inheritance Assets" by the defendant.
It was there asserted: that the plaintiff had created that uncertainty in the meaning of the words in the notation; that "our client [the defendant] is right to resist signing the Deeds annexed to the Summons"; and that the defendant "will not expose herself to future litigation where this uncertainty is sought to be exploited by [the plaintiff]". The letter stated that recitals 2-5 of both deeds annexed to the summons were "identical" to those in the deeds signed by the defendant; that their meaning was transparent (that the deeds apply only to funds or property the defendant may receive at a future date from the Inheritance Assets); and that the recitals could be interpreted in no other way. It was said that: To this certainty, [the plaintiff] insists on adding uncertainty by using the wording in the Notations in his Deeds, which has led to the controversy …
It was also asserted that the plaintiff had, through his Counsel, indicated he believed that the deeds created an "immediate obligation to settle money on the children"; however, the defendant was now being asked to confirm the opposite (i.e., that the obligation related to future receipts she may receive in her lifetime); and it was asserted that therefore there was no realistic prospect that the application for specific performance would succeed. The letter invited the plaintiff to discontinue the proceedings as soon as possible.
On the same day (18 December 2018), the defendant's solicitor sent a without prejudice offer of settlement, expressly made on Calderbank principles, open for acceptance until 1.00pm on 20 December 2018, in the following terms: 1. That the proceedings 2018/150568 are withdrawn and dismissed. 2. That the Defendant shall pay or cause to be paid to the Plaintiff within 28 days the sum of $5,257.07 in respect of his costs of the proceedings, and that otherwise there shall be no order as to costs, with the intent that each party shall otherwise pay their own costs of the proceedings. 3. That the Court notes Deeds referred to in the Defendant's solicitor's letter of 30 October 2018 to the Plaintiff's solicitor have been signed by the Defendant and are accepted by the Plaintiff as full compliance by the Defendant with her obligations under the agreement contained in the Notations to the Family Court Consent Orders made on 10 March 2017. 4. That the Court notes the Defendant acknowledges the Plaintiff has complied with the costs order made at the Family Court of Australia on 10 September 2018 and warrants that she will not take any steps to enforce the said Order. 5. That Consent Orders to this effect shall be made by the Supreme Court of New South Wales at the joint application of the parties.
The without prejudice response to that offer of settlement was sent on 14 January 2019 (after the time at which it had already lapsed in accordance with its terms). It was asserted that the "purported" offer in the 18 December 2018 letter did not represent a genuine attempt to reach a negotiated settlement rather than being "merely an attempt to trigger costs sanctions"; and that "a genuine offer of compromise does not consist of repeating substantively the same offer time and time again when you are well aware it has not been accepted and then on the very last of several occasions opportunistically tagging on a reference to the Calderbank principles". It was further asserted that even if (which was denied) the offer was a genuine offer of compromise, a "solitary clear calendar day" in the week before Christmas "would never have been sufficient time to consider a genuine offer".
There followed, by letter dated 17 January 2019, a further without prejudice offer (save as to costs) by the plaintiff, again based on signing of the deeds of undertaking in the form issued on 24 April 2018 but this time with a cost component for payment to the plaintiff by electronic transfer of the amount of A$35,000 "for immediate value" on or before 21 January 2019, that sum being said to represent "only 48%" of the aggregate of the professional costs and fees incurred in this matter to 26 November 2018 and "significantly less than the plaintiff would expect to recover upon the successful conclusion of the Proceedings, in which the plaintiff remains entirely confident".
That offer was again regarded by the defendant's solicitor, in a letter dated 23 January 2019, as making no reasonable compromise; rather, simply seeking that the deeds contained in the summons be signed "which is the crux of the dispute at hand". Hence it was said the offer could not be considered a genuine offer of compromise in accordance with the Calderbank principles (the defendant's solicitor there referring to the plaintiff's solicitors "didactic letter" of 27 June 2018 as to those principles). The plaintiff's solicitor responded to this criticism that the offer was a genuine offer but noted that it was never expressed to be made in accordance with Calderbank principles (see the letter dated 23 January 2019 from the plaintiff's solicitor).
The dispute agitated between the solicitors carried on with letters dated 24 January 2019 from the plaintiff's solicitor; 25 January 2019 from the defendant's solicitor; 25 January 2019 from the plaintiff's solicitor; 25 January 2019 from the defendant's solicitor; 28 January 2019 from the plaintiff's solicitor; and 29 January 2019 from the defendant's solicitor.
In the first of that series of communications, the plaintiff's solicitor: noted that the defendant had full knowledge as to the status and extent of such interests as she may have by inheritance from her father's estate, whereas the plaintiff's knowledge was far more limited and that the defendant had repeatedly asserted that she was yet to receive any interest at all; set out recitals 2 and 3 of the drafts forwarded on 2 March 2018 by the defendant; noted the statements made by the defendant's counsel at the 10 December 2018 directions hearing (that the defendant presently holds remainder interests in property the subject of her father's inheritance); and stated that: 7. … we gather … that your client's principal issue with the deeds our client requires her to execute is the fear that our client will argue that she is obliged to make some payment immediately upon execution of the deed to the parties' daughters representing a proportion of the value of any remainder interest your client may presently have in real property inherited from her father that is subject to the life of her step-mother … 8. That is not our client's case. Our client does not contend that any payment should be made immediately to the parties' daughters representing a proportion of the value of a remainder interest presently subject to a life estate held by your client's step-mother. That does not arise from the words of the deeds that we have advanced. Nor was any such case foreshadowed at the directions hearing or communicated between counsel. … 10. It may be that some confusion has been caused by references to remainderman interests especially in the recitals to the 2 March Deeds. As we have noted above, our client is not privy to the administration of your client's father's estate
Pausing here, paragraph [7] of the above letter squarely sets out, as I understand it, the issue that has bedevilled the parties for months, and the statement at [8] should have put the defendant's mind at rest in this regard.
Having then expressed the view that this narrowed the scope of the dispute, the plaintiff's solicitor went on in the 24 January 2019 letter to set out his understanding of the principal differences between the parties; as follows: 12. As far as we understand matters, the principal difference between the parties is whether your client's obligation to make payments to the parties' daughters is only to be triggered upon her receiving sole legal and beneficial title to property out of her father's estate. Obviously, a distribution could be made for the benefit of your client that fell short of conferring sole legal and beneficial title to her. The agreement recorded in the notation to the consent orders refers to any funds or property distributed to her from the estate of her father, not merely to property to which your client becomes absolutely legally and beneficially entitled. The difficulty with the deeds executed by your client [presumably referring to the 24 April 2018 version] is principally that they are deficient in this respect. That is exacerbated by the fact that our client has no visibility or control in relation to the administration of your client's father's estate. [underlining as per original]
Confirmation was sought as to: whether the defendant's principal concern was in fact that raised at [7] of the letter; whether the defendant continued to refuse to execute the deeds put forward by the plaintiff and, if so, on what basis; and, if she did, "whether there is any form of wording that she would be prepared to accept to make clear that the extent of her obligations to the parties' daughters in respect of her inheritance is not limited to any funds or property to which she becomes absolutely legally and beneficially entitled but applies to any funds or property distributed to her at all".
In response, the defendant's solicitor, in the 25 January 2019 letter, took issue with the suggestion that the concern had only arisen from the exchange at the directions hearing, referring to point 8 of the plaintiff's solicitor's letter of 15 May 2018 as indicating a belief that the remainderman interest could have a "present value capable of being subject to the Deed". The letter went on to indicate that if the words "legally and" caused the plaintiff concern they could be excised and that the defendant would be prepared (in the interests of reaching a goodwill settlement) to proceed on the basis that each party bear its own costs of the proceedings. The letter also stated: My client accepts if she is solely and absolutely beneficially entitled to funds or property received from the estate not subject to condition precedent etc, then the obligation in the Deed is triggered.
After further exchanges between the solicitors as to the wording of the deeds, the position of the defendant (see the without prejudice letter dated 29 January 2019) was that she was prepared to sign the deeds as annexed to draft consent orders that the plaintiff had prepared, namely that: 12. If during my lifetime I receive any funds or property from the estate of my late father including trusts associated with my father by way of Inheritance Assets to which funds or property I am beneficially entitled and which are not subject to any life interest then… but on the basis that there be no order as to costs with the intent that each party be responsible for his or her own costs of the proceedings. Costs again became a sticking point. There was no acceptance by the plaintiff of that costs condition.
The matter then came before me in the duty list on 29 January 2019. On that occasion the plaintiff sought, and I gave leave, for an amended summons to be filed by the plaintiff. That amended summons relevantly amended the prayer for relief (at [2]) to be cast in terms of an order (not a declaration) and the wording of cl 12 of the deed (in respect of which that order was sought) to the terms of the orders forwarded by the defendant's solicitor on 29 January 2019. The amended summons also sought costs.
As at 29 January 2019, therefore, there was no agreement as to the relief claimed by the plaintiff. The listing of the matter for trial on 30 January 2019 was vacated (for reasons not relating to the parties but due to the unavailability of the judge listed to hear the matter) and I listed the matter for hearing on 7 February 2019.
After that directions hearing on 29 January 2019, in a without prejudice letter (save as to costs) of that same day, the defendant repeated her offer to agree to the relief claimed in orders 1, 2, 3 and 4 of the amended summons "on the basis that there be no Order as to Costs with the intention that each party be responsible for their own costs of the proceedings", that offer being stated to be open for acceptance until 10.00am on 30 January 2019. In an open letter on the same day, the defendant's solicitor advised that the defendant would not oppose the relief claimed in orders 1-4 of the amended summons but did not agree to orders 5 and 6; and, in relation to costs, would seek an order that the plaintiff pay her costs on a party/party basis as agreed or assessed.
Subsequently, on 4 February 2019, I made orders by consent in chambers, among other things ordering the defendant to execute the two deeds of undertaking annexed to the orders (those being the deeds annexed to the amended summons).
The only issue then remaining in dispute, as I was informed on 7 February 2019 when the matter again came before me, was as to the costs of the proceedings; each of the parties seeking an order for the payment of his or her costs by the other.

Plaintiff's submissions as to costs of the proceedings

The plaintiff accepts that the ordinary course where proceedings are resolved consensually without a hearing on the merits is that there be no orders made as to costs but submits that, in the present case, the defendant should pay the plaintiff's costs of the proceedings on the basis that the defendant has behaved unreasonably in her conduct of the proceedings (whereas, he submits, he has at all times behaved reasonably).
The plaintiff notes that where a Court makes a costs order when proceedings have come to an end without a final determination it has been said that "it will generally be because the judge is satisfied that one party has had substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs" (citing Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302, at [5]) and argues that the determining factor is the reasonableness of the parties (citing the decision of Burchett J in One.Tel Ltd v Commisioner of Taxation (2000) 101 FCR 548, at 552-3, and the cases there cited).
The plaintiff submits that the defendant's conduct is unreasonable in three discrete, but related, ways.
First, that the defendant rejected four different versions of the deeds, the subject of the dispute that were offered by the plaintiff either before the proceedings were commenced or within weeks of it being commenced (those being, as I understand it, the versions put forward on 3 April 2017, 4 July 2017, 24 April 2018 and 28 May 2018) (see T 2.5ff). It is submitted that none of those versions gave rise to the substantive complaint that the defendant advanced in the proceedings as her principal objection to the version of the deed annexed to the summons filed on 14 May 2018 (i.e., her doubt as to whether there would be a present obligation to pay an amount before receipt of any funds or property in respect of her remainderman interest). It is submitted that, had the defendant accepted any one of those versions of the deeds, both she and the plaintiff would have avoided any of the costs of the proceedings.
Second, that, until January 2019, the defendant steadfastly insisted upon a version of the deeds which included a formulation such that the deeds would only "catch property to which she became solely, legally and beneficially entitled". The plaintiff points out that the version of the deeds the subject of the Family Court orders made on 4 February 2019 is one that does not include a formulation in those terms. The plaintiff argues that the defendant's agreement to execute the deeds annexed to the amended summons amounted to an abandonment "at the eleventh hour" of the principal substantive position that she had maintained throughout the proceedings (namely, that she was required only to execute deeds that applied only to property to which she became solely legally and beneficially entitled and which was not subject to any condition precedent or subsequent or life interest or other claim). It is submitted that this effective abandonment was "obviously" an unreasonable position to take.
Third, that the commercial difference between the parties was slight or non‑existent at all times and that the defendant was responsible for the misunderstanding between the parties as to the true nature of the property presently in the defendant's hands (having misrepresented the nature of the interests that she had received to date from her late father's estate). It is submitted that the issues could have been resolved at the outset had the defendant accurately and coherently described the nature of her interests in her late father's estate.
As to the first of those three matters, I have set out above in some detail the various iterations of the deeds proffered by the respective parties. The plaintiff maintains that the defendant never offered a substantive response to what was identified as an obvious defect in (or overarching problem with) the defendant's deeds (namely, that the limitation of the obligation in cl 12 to "any funds or property to which I am solely, legally and beneficially entitled and which are not subject to any condition precedent or subsequent or any life interest" meant that it would be a very easy obligation to avoid) (T 6.2). The plaintiff argues that one could structure a receipt of property in such a way as to be something less than an absolute legal and beneficial interest in the property and, if so, no obligation would follow from that. The plaintiff further says that this problem was exacerbated by the fact that the defendant is the trustee and beneficiary of two of the trusts referred to in the definition of Inheritance Assets (T 6.6).
Thus, it is submitted for the plaintiff that: The concern on my side was that this document would be an easy obligation to avoid, especially in circumstances where the defendant has no visibility into the circumstances in which the distributions are going to occur, he is an estranged husband of the defendant, and the defendant, he would assume, would have some ability to control the structure of those distributions because she is a trustee. I should add to that that the evidence is that there has been considerable litigation in the United States concerning the estate of which my client is not apprised of the details. (see T 6.22)
A concern was also raised in submissions as to how, if the remainder interests are property to be acquired in the future, the value of those remainder interests were to be valued (a problem said to be created by what was said in the recitals to the defendant's draft deed) (see T 5.39).
As to the second of those matters, the 'abandonment' argument turns on the fact that the defendant ultimately agreed to execute versions of the deeds which did not contain the words "solely legally and beneficially entitled".
As to the third of those matters, the plaintiff points to recitals 2 and 3 in the deeds put forward by the defendant on 2 March 2018 (which I have set out above), which recited that the Inheritance Assets (expressly defined to include remainder interests) had yet to be received by the defendant from her late father's estate (consistent with [7] of her affidavit in which the defendant deposed that "I have not yet received any of my entitlements to date in the inheritance assets"). The plaintiff says that the defendant stated through her counsel for the first time at the pre-trial directions hearing on 10 December 2018 before Slattery J that she presently holds remainder interests in property from her late father's estate (see T 10/12/18; 2.44). The plaintiff maintains that the difference is highly material because, he says, the agreement recorded in the notation at paragraph 18.1 of the Family Court orders (and therefore the operative provisions of the plaintiff's deeds which adopt the words of the notation) "plainly" only covers property acquired by the defendant in the future.
The plaintiff points to the correspondence between the parties in which he says the treatment under that agreement of interests acquired in the future by the defendant (including the absence of any exemption from the provisions of the notation to the Family Court orders for remainder interests yet to be received) was disputed by the parties. The plaintiff argues that this was a live issue in the proceedings but one resolved when it became apparent to the plaintiff (by the letter dated 18 December 2018 from the defendant's solicitor) that the issue in dispute in the proceedings was whether the defendant would be immediately required to make a payment to the daughters upon execution of the deeds and the plaintiff confirmed that he did not assert that remainder interests presently in the hands of the defendant were covered by the parties' agreement. It is submitted that it should in any event have been obvious that the plaintiff's deeds (and the annotation to the Family Court orders) applied only to property acquired by the defendant in the future and that any confusion that arose in respect of the remainder interests was the product of the defendant's assertions that she had not yet received them.
Thus it is submitted that, had the defendant been consistent as to the nature of the defendant's existing interest in her late father's estate from the outset, the litigation would have been avoided in its entirety because the principal issue in dispute between the parties (i.e., the treatment of the remainder interests under the agreement) would not have arisen had the defendant not asserted that she was yet to receive them.

Defendant's submissions

The defendant points to the different iterations of the summons in these proceedings, noting that there was a different form of deed annexed to the amended summons from that annexed to the first. The defendant submits that each iteration of proceedings has involved the plaintiff proposing that the defendant sign the deed in different form each time.
The defendant refers to evidence given by the defendant in the Family Court proceedings that her inheritance under her late father's Will was subject to the life of her step-mother and "that she is yet to receive any benefits from the estate, as her step-mother is still alive". It is submitted that the plaintiff's evidence in the Family Court proceedings makes clear that he understood the nature of the defendant's remainder interests.
Exhibit 2 in the present proceedings is an extract from an affidavit sworn by the plaintiff in the Family Court proceedings deposing to his understanding that the plaintiff "has an interest in her father's estate as a beneficiary" and referring to a life interest of the defendant's step-mother "which pass[es] to [the defendant] and her two siblings upon sale, disposal or [the step-mother's] death".
The defendant submits that all proceedings after the time (i.e., early March 2018) that she signed deeds which (it is argued) gave force and effect to the notations to the Family Court orders have been misconceived, futile and unnecessary.
The defendant says that the deeds that the plaintiff required the defendant to sign were in substantially different terms to the deeds she was asked to sign in the first proceedings (the Family Court proceedings) and were different again from the deeds she had already signed; that she opposed signing the new deeds on a number of grounds (including whether the proceedings were properly constituted as the children who benefited from the promises in the deeds were not parties; whether the plaintiff as their father had standing to seek declarations, since the children had attained the age of majority; and whether there was anything left to perform "under the Notations", since the defendant had already signed deeds). It is submitted that the proceedings appeared "essentially futile", given that the defendant's deeds had already been signed.
The defendant says that the most important objection to the plaintiff's deeds was as to the terms of the operative part; that she had sought to cure ambiguities in the drafting of the notations when preparing the defendant's deeds but that the plaintiff's new deeds "simply repeated the words in the Notations verbatim"; and that, when the plaintiff presented the versions attached to the summons as filed in May 2018, she raised directly with the plaintiff her concerns about possible interpretation (including, "the idea that the promise she had given could be interpreted to mean it applied to the present value of her life interests, rather than sharing future benefits") and the plaintiff responded in a way which made it clear he thought it could be interpreted that way.
The defendant says that she maintained the refusal to sign the new deeds because of a "substantive concern" that, having done so, the plaintiff would then encourage a claim by the children, or one of them, for immediate payment. The defendant says that this concern has some foundation because one child has sworn an affidavit supporting her father; and points to the evidence of both parties "of the long, exhausting years of litigation at the Family Court which led to the consent orders being made".
The defendant submits that, after the directions hearing on 10 December 2018 "where the concern about when the liability arose was laid out", she set out in correspondence why the interpretation urged by the plaintiff was problematic; and says that the plaintiff responded by "resiling from the interpretation" and invited the defendant to submit a new form of words (after which the parties negotiated terms and the deeds were settled upon).
The defendant points to her offer to settle with no order as to costs, on the basis that the final version of the deeds were signed and the proceedings dismissed, but says that the plaintiff did not agree to this and then amended the summons on 29 January 2019 to abandon his earlier form of deeds "asking instead that the Deeds the parties had just agreed upon be signed".
The defendant acknowledges that costs usually follow the event but says that, here, there has been no hearing on the merits and submits that in those circumstances it is usual that each party pay its own costs, except when one party has capitulated.
The defendant maintains that the plaintiff cannot establish that she has behaved so unreasonably that she should pay the costs of the action; nor that, had the case been determined on the merits, the plaintiff would almost certainly have succeeded (those being the two bases for departing from the usual course in these circumstances identified by the High Court in Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (Lai Qin)) and argues that the plaintiff here has capitulated.
In particular, it is submitted that I could not be satisfied that a misunderstanding as to whether or not the defendant already had a remainderman interest in the estate of her late father could amount to unreasonable conduct of the kind that would justify a costs order against the defendant. The defendant says that misunderstandings occur and that it cannot be said that she was responsible for any misunderstanding of the kind suggested in the present case (noting that the plaintiff in his evidence in the Family Court proceedings raised the question of the defendant's inheritance - see T 22-23; Exhibit 2, affidavit of plaintiff made 22 December 2016 [479]-[486](an affidavit read by the defendant not for the truth of the contents but for the fact that the plaintiff had deposed to this in the Family Court proceedings or put that in evidence in those proceedings)).
The defendant says that she identified early on in the proceedings that they were futile (given she had already signed deeds giving force and effect to the notations, and there was nothing left to perform); that on 26 June 2018, she invited the plaintiff in writing to accept a verdict in her favour in the proceedings on the basis each party should pay their own costs (which invitation he declined); and that the plaintiff has behaved unreasonably in pursuing these proceedings "at all", despite an opportunity to avoid them at an early stage with no order as to costs. Thus it is submitted that a costs order should be made in the defendant's favour.
It is submitted by the defendant that, to the extent that the plaintiff has obtained any success, it was at the expense of all the proceedings up to and including 29 January 2019 (when the defendant maintains that the plaintiff capitulated to her; abandoned his position); and changed his case to require her to sign a deed that he already knew (from without prejudice correspondence) she was willing to sign.
The defendant argues that there was no purpose for the filing of the amended summons "except to avoid filing a Notice of Discontinuance and thus the usual imposition of costs against [the plaintiff] under rule 42.19(2)". It is said that, by that stage, costs were the only true issue between the parties and the filing of the amended summons was an unnecessary step. The defendant submits that the plaintiff "cannot, by his filing of an Amended Summons, avoid the usual costs consequences of capitulating to the Defendant" and that the present situation is analogous to one where a plaintiff discontinues.
The defendant argues that further support for a costs order in her favour can be found in other without prejudice offers that were made, noting: that the parties had agreed on another form of wording during the proceedings, by way of without prejudice offer made by the plaintiff and accepted by the defendant after it had expired; that the defendant had signed the deeds the plaintiff had requested she sign (and had them held in escrow) and was willing to contribute to the plaintiff's costs caused by the delay in acceptance of the offer; that the plaintiff would not compromise the proceedings "without a disproportionately large payment of costs"; that the plaintiff effectively withdrew his request that the defendant sign deeds in the form agreed (after the defendant had signed them); that the plaintiff was given opportunity again to accept the deeds he had wanted the defendant to sign by way of the letter dated 25 January 2019 and declined to do so (and did not amend his summons to seek deeds be signed in that form).
It is submitted for the defendant that the plaintiff's decision "to withdraw his own form of Deeds", even though the defendant had already signed them (and was still prepared to "hand them over" as late as 25 January 2019), was most unreasonable and meant the proceedings had to continue unnecessarily at considerable expense to the defendant.
The defendant says that the costs since 29 January 2019 have been incurred unnecessarily; that the plaintiff should have accepted the defendant's offer to sign the deeds that they had agreed should be signed, on the basis the summons was dismissed and each party bear his or her own costs (as per the offer in the letter dated 29 January 2019 from the defendant's solicitor); and that had the plaintiff done so, the hearing before me would have been avoided, as would have been the need for the filing of an amended summons.
Thus, in summary, it is submitted that the plaintiff capitulated to the defendant in respect of the relief sought in the initial summons and should bear the costs up to the date of his capitulation (29 January 2019) on that basis; that he unreasonably failed to discontinue his proceedings at an early stage, when the plaintiff had made an offer on the basis each party would pay their own costs if he did; and that the filing of the amended summons was an unnecessary step taken extremely late in the proceedings (when the bulk of the costs had already been incurred and wasted, given the defendant had already indicated she would sign the deeds annexed to it); and that the plaintiff unreasonably failed to accept an offer of settlement, whereby each party would pay their own costs ("despite the Plaintiff's capitulation"); and thus the plaintiff should pay costs from 30 January 2019 to date on that basis.
It is submitted that further support for a costs order against the plaintiff is his decision to abandon his own form of words in the "without prejudice" deeds ("even when they were signed and held in escrow" and the defendant was willing to release them as late as 25 January 2019). It is submitted that "[t]his decision is perhaps the most unusual of all taken in these already peculiar proceedings, and has undoubtedly extended the life of these proceedings well beyond what might reasonably have been expected".

Relevant principles

The applicable principles on the exercise of the costs discretion in cases such as the present were not in dispute. Although r 42.1 of the Uniform Civil Procedure Rules (UCPR) provides that the general rule is for costs to follow the event, it is generally the position in circumstances where a matter has been resolved without a hearing as to the merits (as was the case in Lai Qin) that the Court will not embark in a consideration as to the merits of the matter in dispute and that costs will be awarded against one party only where it can be concluded that that party has acted "so unreasonably" that the other party should obtain the costs of the action; the use of the word "so" indicating a level of unreasonableness which is established by the circumstances in which the costs were incurred (see the application of those principles, for example, in Renton v Kelly [2018] NSWSC 1377; and in Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 (Nichols).
Also relevant to note at the outset is the overriding mandate in respect of the conduct of litigation in this Court (see ss 56-59 of the Civil Procedure Act 2005 (NSW)) for the just, quick and cheap resolution of the real issues in dispute; and the professional obligations of solicitors, as officers of the Court, in relation thereto.
In Nichols, Payne JA said (at [30]): If both parties to a proceeding which has been settled without a hearing on the merits have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.
Similarly, at [8]-[9] in Nichols, Basten JA said: Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon. Thirdly, if contrary to the views set out above, it was appropriate to investigate whether the applicants or the respondent had been unreasonable, either in their conduct prior to the proceedings, or in their conduct of the proceedings, the approach adopted was untenable. Thus, regard was had to the motives of the respondent in commencing proceedings, but no account was taken of the motives of the applicants in capitulating. Further, once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses.

Determination

As noted above, the plaintiff points to a number of matters said to demonstrate the unreasonableness of the defendant's conduct namely, that: four deeds were proffered in different terms; no real problem was identified with any of them; and he was forced to commence the proceedings, annexing to the summons a deed that verbatim repeated what was in the annotation to the Family Court orders (and which it is said no one could reasonably suggest was anything other than what the parties had actually agreed); that the only substantive issue that was taken by the defendant was her insistence that the deed that was executed by the defendant in March 2018 was sufficient despite what the plaintiff says were obvious problems with that deed that could easily be avoided by structuring a distribution so as to avoid a transmission of legal title; and that (which the plaintiff characterises as being the heart of the matter at a practical level) the parties had very little or no difference in their commercial position at all times (and once that was made clear it settled very quickly) and the problem was caused entirely by what the defendant said in her recitals to the March deeds.
If, once there was a deed that literally encapsulated the agreement recorded in the Family Court orders, it was perceived that there would be uncertainty as to its operation, then that might give rise to an argument that it was not unreasonable for one or other of the parties not to sign it or perhaps to argue that specific performance should not as a matter of discretion be granted. However, to determine this would require a decision on the merits in the orders. Moreover, that might put into doubt the status of the orders made in the Family Court orders themselves. Thus, it is difficult to say that an application for specific performances of the agreement recorded in the notation to the Family Court orders would inevitably have succeeded or would have compelled execution of deeds of undertaking in one or other of the (different) forms annexed to the successive summonses.
The defendant accepted in oral submissions that there might be a relevant distinction between the position when the first two deeds were submitted by the plaintiff and the position after the proceedings in this Court were commenced (and the third document was presented) but says that, in order for the plaintiff to succeed and to obtain a cost order in these circumstances (where there has not been a hearing on the merits) it must be established so unreasonable that it is appropriate to make a cost order (or it appears almost certain that there would have been a victory by the plaintiff (see T 28.37ff)).
It is submitted for the defendant that in the Family Court proceeding a form of deed was proffered and then it was discontinued; and that in these proceedings a form of deed was proffered attached to the summons and discontinued with the amended summons of 29 January 2019. Thus, it is submitted that the plaintiff did not insist on the signing of that first deed in the summons; that by 29 January 2019 he had abandoned that form of deed, and that this in itself creates tension with the notion that the defendant behaved unreasonably in failing to sign the first deed (when the plaintiff no longer wished to proceed with that aspect of the proceedings and had discontinued that aspect of the proceedings entirely on 29 January 2019 when he required the defendant to sign a different deed "albeit one the parties themselves have worked out was appropriate" (see T 29.2)).
The plaintiff, for his part, maintains that there has been no capitulation on his part: that he was not running the case the defendant and the defendant's legal representative thought he was running and that that misunderstanding is in fact the product of the defendant's silence. As to the proposition that the plaintiff was and should have been aware of the true interest vis-a-vis the remainder interest, it is said for the plaintiff that, although there are references to remainder interest in the Family Court proceedings, "the real problem" was that he does not know what has happened in the execution of the estate (T 35.47).
The reason I have set out in some detail the communications between the parties' solicitors in relation to the different versions of the deeds (unedifying as much of that correspondence is) is that it shows a significant level of distrust between the parties (perhaps not surprising in light of what I am told was an acrimonious and long-running family law dispute between them). That distrust clearly manifested itself in the approach taken to the documentation of the agreement between the parties as recorded in the notations to the Family Court orders.
Each party wished to adhere to his or her own version of the deeds; each saw difficulties or deficiencies in the other's version. What should have been a fairly straightforward exercise of documenting the basic agreement noted in the Family Court orders has resulted in the present satellite litigation. The plaintiff clearly mistrusts that the defendant will honour the terms of that promise (even though it is not a promise for his benefit but for the benefit of the parties' children); the defendant considers the plaintiff will encourage one or both of the children to make a claim against her before the time at which she actually receives funds or properly by way of her inheritance. This level of distrust is reflected in the tone of the correspondence between the solicitors as set out above.
I consider that neither side has covered itself with glory in the exercise of documenting the agreement reached back in 2017. The defendant's approach of signing documents and then insisting that the matter was "now closed" (though said by counsel for the defendant not to be a pre-emptive approach on her part) was hardly conducive to a frank discussion between the solicitors (if not the parties themselves) as to what were any perceived issues with the deeds proffered by the plaintiff, with an attempt to reaching an understanding as to the other side's position and to explore whether some form of compromise was possible. The plaintiff's imposition of costs conditions once there was a form of agreement as to the 28 May 2018 version (and then reversion to earlier versions of those deeds if those cost conditions were not met) was equally unhelpful; as was the seemingly regular setting by both parties of arbitrary deadlines and delay in responses thereto.
The defendant argues that her goal was to ensure that the deeds gave force and effect to the agreement recorded in the relevant notation. However, to the extent that she argues that, from her perspective, she did not believe that there was any real doubt about what the Family Court orders meant, this ignores the fact that she argued for the addition of words in order to make clear her positon as to timing (which would not have been necessary had her view been that the notation was clear in its terms).In any event, by the time of the directions hearing before Slattery J there was a clear misunderstanding between the parties as to the meaning of the agreement recorded in the notation.
One would have hoped that the task of reducing to writing in an enforceable deed the agreement recorded in the notations in the Family Court proceedings would have been a relatively simple matter. The answer I was given to that in the course of submissions was that the difficulty was that the uncertainty lay in the particular language rather than what the parties themselves understood the agreement to be; and that the use of the language in the notation, if reproduced in a deed, meant that the question of interpretation of it potentially became an issue. That seems to me really to beg the question as to whether the conduct of the defendant, in pressing for certainty on that issue, was acting unreasonably.
An analysis of the stances adopted by the parties, through their solicitors' correspondence, leads me to conclude that it cannot be said that the conduct of either party has been so unreasonable as to warrant a costs order against him or her. Rather, I consider that the conduct of each side (as evinced through the correspondence extracted above) warrants no costs order being made at all.
I do not consider that either party has relevantly "capitulated" - the plaintiff, because it seems is clear that he ultimately accepted what in substance was the wording proffered by the defendant in order to obtain a final resolution of the matter after a not inconsiderable delay on the defendant's part; the defendant because, despite the delay, she ultimately obtained comfort as to the proper scope of the obligation in temporal terms.
Nor do I consider that the making of the respective Calderbank offers (in December 2018 and January 2019) assists the defendant. They were, so to speak, proffered at the heel of the hunt and they broadly required capitulation by the plaintiff to the defendant's position (as I explain below). (Reliance was not placed on the 26 June 2018 offer (see [30] above) in this regard but if it had been I would have been of the same view - that offer requiring complete capitulation by the plaintiff.
In Commonwealth of Australia v Gretton [2008] NSWCA 117, Beazley JA, as her Honour then was, noted the public policy considerations that underpin the making of favourable costs orders where a Calderbank offer has been made (see at [41]), those being the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants. The relevant question is whether in all the circumstances the failure to accept the offer "warrants departure from the ordinary rule as to costs" (see SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]); and the party seeking to rely upon the offer bears the onus of establishing that it was unreasonable for the other party to reject, or not to accept, the offer (see Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]).
The December 2018/January 2019 offers have been set out above: the 18 December 2018 offer which, relevantly, required acceptance of the version of the deeds signed by the defendant (i.e., an insistence on acceptance of her position) together with payment of a proportion of costs then claimed to be outstanding (see [49] above) and the offer made on 29 January 2019 (for the defendant to agree to the deed annexed to the initial version of the summons with each party to pay his or her own costs) (see [62]).
As to the first, while the compromise as to the amount of the costs the defendant would accept in satisfaction of what she claimed was a larger amount outstanding (though relatively small in amount) might well be taken to satisfy the requirement that there be a genuine element of compromise, the difficulty I see with this offer is that it was open for less than two business days. Although the principal objection that the defendant appears to have had to the plaintiff's version of the deeds (and the defendant's insistence on her own version being accepted) had by then been articulated in the directions hearing before Slattery J, the timeframe for acceptance of the offer leads me to conclude that in the circumstances it was not unreasonable for the plaintiff not to accept that offer within the stipulated time it was open for acceptance (particularly having regard to the time of year at which it was made).
As to the second, while the offer was an acceptance of the very relief that (at least up until the amendment of the application) was being sought by the plaintiff, it sought a walkaway position in relation to costs. The only compromise there involved would seem to be that the defendant was thereby giving up any claim to have a costs order in her favour but in circumstances where she was acceding to the relief claimed by the defendant and after it was obvious that costs had been incurred in attempting to expose the agreement recorded in the notation to the Family Court orders. In any event, even accepting that this offer contained a genuine element of compromise it again stipulated a very short time frame within which it was to be open for acceptance, by which time one would expect that the costs of preparation for the hearing of the application would already have been incurred (or largely incurred).
Thus, I consider the appropriate order to be that each party pay his or her own costs.
The defendant accepted that if a costs order were to be made in either party's favour then costs would follow the event but submitted that if no order as to costs were to be made (as I have concluded should be the case) then there should be a costs order against the plaintiff from 30 January 2019 (in circumstances where the issue that the defendant resisted was resolved on 29 January 2019 "when the plaintiff abandoned his case in that regard" and amended his summons to require the defendant to sign the form of deed which she confirmed was acceptable). However, as noted above, that was an offer with a very limited timeframe for acceptance. In all the circumstances I am not satisfied it was unreasonable of the plaintiff to maintain his argument as to costs at that point (even though the argument ultimately did not succeed) and hence not to accept that offer. Moreover, it seems to me that both parties failed throughout the period from the making of the Family Court orders to behave reasonably in seeking to agree the terms of deeds to reflect their agreement and hence it is appropriate that costs lie where they fall, so to speak.
For the above reasons, I make the following order, which will now dispose of the proceedings: 1. There be no order as to costs of the proceedings, with the intent that each party should bear his or her own costs of the proceedings.

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Marzbani v Embersits

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