Misek v McBride

Pre-Trial Events Relevant to the Assessment of Costs

1. The plaintiff filed her Statement of Claim on 3 June 2015. The independent claims that Olivia and Michelle made against the deceased's estate and referred to in the principal judgment ([135]) were settled on 15 October 2015, leaving Kylie with the only unresolved claim.
2. On 18 November 2015 the proceedings were set down for hearing for an estimate of three days from 1 March 2016. Shortly afterwards on 16 December 2015, Cheryl served an offer of compromise on the plaintiff offering to settle the whole of the proceedings for $220,000. This offer of compromise, together with the other offers of compromise are attached to an affidavit of 5 May 2017 of Monica Ross-Maranik, the solicitor for the plaintiff. The defendant's 16 December 2015 offer of compromise offered that "judgment be entered in favour of the plaintiff by way of a legacy the sum of $220,000 from the estate of the deceased". It did not mention costs and declared itself to be made in accordance with UCPR, r 20.26.
3. The defendant's 16 December 2015 offer of $220,000 was not accepted. The hearing of the proceedings which had originally been set down for 1 March 2016 was vacated on 25 February 2016.
4. On 3 March 2016 the plaintiff served a notice of offer of compromise dated 2 March 2016 on the defendant. The covering letter indicated that should the offer of compromise be ineffective as an offer of compromise under UCPR, r 20.26, that it should be understood that it was made as an offer pursuant to the principles of in Calderbank v Calderbank [1975] 3 All ER 333 and would be so relied upon on any application for a special costs order.
5. The offer of compromise provided as follows: "The Plaintiff makes the following offer to the Defendant pursuant to Part 20, Rule 20.26 of the Uniform Civil Procedure Rules 2005 to settle the whole of the proceedings herein: 1. The plaintiffs receive provision out of the estate of the deceased by way of a lump sum of $349,000. 2. The statement of claim be otherwise dismissed. 3. The plaintiff's costs on a party-party basis be paid out of the estate of the deceased. 4. The defendant's costs on an indemnity basis be paid out of the estate of the deceased. Note: 5. (a) This Offer of Compromise is open for acceptance at any time before 5pm on Wednesday, 3 April 2016. (b) In the event that this offer does not comply with the rules as to an Offer of Compromise, the same offer is made on or "without prejudice save as to costs" basis in accordance with the principles of Calderbank v Calderbank and will be relied upon in any application for a special costs order."
6. The defendant did not accept the plaintiff's 3 March 2016 offer of compromise. Ms Ross-Maranik emailed another offer on behalf of the plaintiff on 8 April 2016 ("the April offer"). This offer intimated that the plaintiff would accept an offer $400,000 inclusive of costs in settlement of the litigation. But later the same day the solicitor for defendant replied rejecting that offer.
7. Both the plaintiff's offers were made after the vacation of the March hearing date in February 2016. The plaintiff did not contend that the April offer was UCPR, r 20.26 compliant and it need not be considered any further. Similarly, as the defendant's $220,000 offer of compromise of 16 December 2015 was not accepted, except perhaps for comparative purposes, it also need be considered no further.
8. The parties had substantially prepared for the allocated hearing date of 1 March 2016 when the plaintiff's offer of compromise was made on 16 October 2015. Affidavits have been filed on both sides and all the issues which were ultimately determined on the hearing in August 2016 had been notified in evidence by affidavit.

The Applicable Provisions of the Uniform Civil Procedure Rules 2005

1. The offer of compromise in question was made under UCPR, r 20.26 which provides as follows: "20.26 Making of offer (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer under this rule: (a) must identify: (i) the claim or part of the claim to which it relates, and (ii) the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and (b) if the offer relates only to part of a claim in the proceedings, must include a statement: (i) in the case of an offer by the plaintiff, as to whether the balance of the proceedings is to be abandoned or pursued, or (ii) in the case of an offer by a defendant, as to whether the balance of the proceedings will be defended or conceded, and (c) must not include an amount for costs and must not be expressed to be inclusive of costs, and (d) must bear a statement to the effect that the offer is made in accordance with these rules, and (e) if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to that interim payment, and (f) must specify the period of time within which the offer is open for acceptance. (3) An offer under this rule may propose: (a) a judgment in favour of the defendant: (i) with no order as to costs, or (ii) despite subrule (2) (c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or (b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or (c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer. (4) If the offeror makes an offer before the offeree has been given such particulars of the offeror's claim, and copies or originals of such documents available to the offeror, as are necessary to enable the offeree to fully consider the offer, the offeree may, within 14 days of receiving the offer, give notice to the offeror that: (a) the offeree is unable to assess the reasonableness of the offer because of the lack of particulars or documents, and (b) in the event that rule 42.14 applies to the proceedings, the offeree will seek an order of the court under rule 42.14 (2). (5) The closing date for acceptance of an offer: (a) in the case of an offer made two months or more before the date set down for commencement of the trial-is to be no less than 28 days after the date on which the offer is made, and (b) in any other case-is to be such date as is reasonable in the circumstances. (8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer. (9) An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides. (10) A party may make more than one offer in relation to the same claim. (11) Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer. (12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division."
2. Acceptance of offer under rule UCPR, r 20.26 has costs consequences. These are identified in UCPR, r 42.14, which provides as follows: "42.14 Where offer not accepted and judgment no less favourable to plaintiff (1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim: (a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and (b) 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."

Should the plaintiff have an award of indemnity costs?

1. The defendant advanced arguments to support her contention that the 3 March 2016 offer of compromise was not UCPR, r 20.26 compliant. For the reasons which follow the Court does not find those various arguments to be persuasive.
2. First, Cheryl argues that the offer of compromise was made when the secret trust claim and the power of attorney/constructive trust claim were on foot together with the family provision claim but that the offer of compromise did not expressly include an offer to abandon the secret trust or power of attorney/constructive trust allegations. It is said the failure to include these other claims means that the offer of compromise did not deal with them so that in substance the offer only related to part of the claims in the proceedings and did not clearly state that the balance of the proceedings was to be abandoned: UCPR, r 20.26
3. This argument is not persuasive. The form of the 3 March 2016 offer of compromise makes clear that were the defendant to accept the offer, all of the issues in the litigation would have been brought to an end. This, in my view, is self-evident from paragraph 2 of the offer of compromise, which states "the statement of claim be otherwise dismissed". The offer as a whole clearly provides for success on the family provision claim and the abandonment of the balance, by dismissal of the statement of claim, in conformity with UCPR, r 20.26(2)(b)(i).
4. Cheryl next argued that the offer of compromise which offered "to settle the whole of the proceedings herein" was basically an invitation to the defendant to surrender with respect to the secret trust and power of attorney/constructive trust allegations. The defendant says that these two significant claims went to the heart of the defendant's credibility, potentially affecting her standing in the community, amongst her peers and her own family and the offer of compromise in the circumstances was no compromise in any true commercial sense.
5. This contention is not persuasive. The defendant appears to be arguing that even though the plaintiff's judgment was in numerical terms no less favourable to the plaintiff than the terms of the offer made, that it was reasonable of the defendant to refuse the offer because she was entitled to vindicate her reputation with respect to the secret trust and power of attorney/constructive trust claims. Ms Burke was not able to cite authority for that proposition. It seems an improbable principle. If defendants were permitted to argue that it was reasonable for them to decline to accept an offer of compromise which was no less favourable than the outcome, principally because they wanted to defend their reputation and credibility, the offer of compromise system would be largely rendered nugatory.
6. In any event, there is no clear ground that this is a legitimate reason for rejecting this offer of compromise. It is difficult to rule out the relevance of a defence of reputation in all cases. There may be some cases of particularly heinous allegations of misconduct made against a public figure, where defence of reputation may be deployed as a reason for not accepting an offer of compromise. But much will depend upon the nature of the allegations and the difference between the offer and the result. But this is not such a case. The reputational issues are not so damaging to the plaintiff that they required a hearing and the offer of compromise was clearly no less favourable to the defendant than the result by a margin of $111,000.
7. Finally, the defendant argued that the offer of compromise was not a "genuine compromise" as the amounts offered in relation to the secret trust and power of attorney/constructive trust allegations would be resolved wholly in favour of one party or the other: there was no sliding scale of outcomes for them as there might be for the family provision claim. But what constitutes a compromise involves an impressionistic judgment that depends on the totality of all the circumstances: Shellharbour City Council v Johnson (No. 2) (2006) 67 NSWLR 308; [2006] NSWCA 114. Here, the difference between the offer made and the outcome was substantial. The defendant's argument does not reconcile itself to the terms of the offer of compromise which offered to settle all three claims together. And in those circumstances an offer on a sliding scale, otherwise apt for the outcome of a family provision claim, was appropriate.
8. Finally, the plaintiff contends that the offer of compromise offends UCPR, r 20.26(2)(c), because of paragraph 3 of the offer. But in my view this does not offend the rule. UCPR, r 20.26(3)(c) makes it clear that the offer may specify that the agreed costs may be met on the ordinary basis out of an estate consequent upon acceptance. This seems consistent with the Court of Appeal's decision in Jojeni Investments Pty Ltd v Mosman Municipal Council (No. 2) [2015] NSWCA 208.
9. The plaintiff should have an award of indemnity costs. The 3 March 2016 offer of compromise is otherwise compliant with UCPR r 20.26. Its reference to the payment of costs in the terms, "the plaintiff's costs on a party-party basis be paid out of the estate of the deceased" does not infringe any prohibition in UCPR r 20.26 on offers of compromise being expressed as "inclusive of costs". Moreover, the form of the offer of compromise does not in any way disadvantage the defendant in considering whether or not to accept the offer.
10. In accordance with UCPR, r 42.14(2)(b) "the award of indemnity costs will date from the beginning of the day following the day on which the offer is made". Accordingly, it will take effect on and from 4 March 2016.

Should the plaintiff have the whole of her costs of the proceedings?

1. The plaintiff argues that the secret trust and power of attorney/constructive trust allegations, connected as the latter was with a dispute about the size of the estate, took up significant portion of the preparation and hearing time both in evidence and in written and oral submissions. The submission was put that had the proceedings been limited to a family provision claim it is likely that the hearing would have been limited to two days rather than the four days that were in fact involved. Cheryl says that Kylie failed wholly on both these significant issues, which had they not been run would have significantly shortened the proceedings. In her submission, the general rule that costs follow the event should not apply in this case because these issues that the plaintiff agitated and on which she lost were clearly separable from the issues on which the plaintiff was successful.
2. The costs jurisdiction which the defendant invokes is well established: see for example, James v Surf Road Nominees (No. 2) [2005] NSWCA 296; Elite Protective Personnel Pty Limited v Salmon (No. 2) [2007] NSWCA 373; Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304; and and McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 306.
3. There is some merit in the defendant's case on this issue. Cheryl did expend additional time and effort in addressing these two allegations. Accountancy and valuation expenses were incurred which probably would not have been incurred on the defendant's side but for the plaintiff fielding these issues. Moreover, the detailed preparation that went into the defendant's affidavits on both of these issues was greater in my view than it would have been if this had only been a family provision claim. An additional affidavit was also required from the defendant's ex-husband in order to counter the secret trust allegations. I accept that more extensive cross-examination and submissions were prepared, and fielded because of those two further allegations. And more attention was paid to preparing schedules in relation to the value of the estate and to addressing capital gains tax questions than would otherwise have occurred.
4. Mr Ellison SC says that the conversations that underlay the secret trust allegations would have been adduced in evidence anyway, even if the secret trust claim were not made. There is considerable force in this. But the conversations would not have been so heavily contested in a family provision claim as they came to be in this secret trust claim. And the detailed valuation and accounting issues arising from the use of the power of attorney and the size of the estate would not have been so sharply focused in a claim solely for provision out of the estate. That is why it is not quite true to say, as Mr Ellison SC submits, that the difference of the two additional claims only really resulted in the calling of two extra witnesses, the husband of the plaintiff and the former husband of the defendant.
5. The authorities command the Court to approach this kind of question with a broad brush because "mathematical precision is illusory": McLauchlan v Dungowan Manly Pty Ltd [2010] NSWSC 306 at [20] - [25].
6. But the broad brush the defendant proposes is not justifiable. The defendant says that either each party should bear their own costs or an order should be made for the defendant to pay only one third of the plaintiff's costs on the ordinary basis on the family provision claim and that the plaintiff pay the defendant's costs of the unsuccessful issues. This is too harsh an outcome, even using a broad brush approach. It is not appropriate to classify the case as one in which the plaintiff lost two actions and happened to win the other. That fails to take into account that the family provision claim involved very substantial amounts of evidence of family history and would no doubt have included on paper quite a lot of the material that was included in the two claims. All that can really be said, in my view, is that the husband and ex-husband would probably not have been called, some of the valuation and accounting evidence would not have been required, and the factual contest about the use of the power of attorney in the secret trust conversations would have been less intense than it was.
7. But there should be some reduction in the costs payable by the defendant to the plaintiff on account of the plaintiff's failure on her secret trust and constructive trust claims. Both of these claims extended the issues to be considered and the length of the hearing to a degree and they are issues that are quite separable in substance from the family provision claim. Even though there is overlap in the factual findings that ground each of these two claims and the family provision claim they can be treated as separate for costs purposes. But because of the degree of factual overlap, no great allowance should be made for plaintiff's lack of success on these two claims.
8. Overall in my judgment that warrants a discount of some 20 per cent in the plaintiff's costs, looking at the matter on an impressionistic basis. In my view a figure of the recovery of 80 per cent of the plaintiff's costs fairly represents the proper allocation of costs in this case.
9. The Court therefore orders that: 1. 80 per cent of the plaintiff's costs of these proceedings, including the costs associated with argument as to costs, be paid out of the estate; and 2. the costs referred to in order (1) will be assessed and paid: 1. on the ordinary basis up to and including 3 March 2016; and 2. on the indemnity basis on and from 4 March 2016.

Amendments 20 June 2017 - Amending title of judgment 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: 20 June 2017