Solicitors: Berala Law Group (plaintiff)
Glass Goodwin Solicitors (defendant)
File Number(s): 2015/269034
[2]
Judgment
I delivered reasons for judgment in this matter on 26 May 2017 following a hearing that took place between 4 and 7 April 2017: see Mitar v Mitar [2017] NSWSC 647.
As was the case with the principal judgment, with no disrespect intended, I will refer to the parties by their first names.
The proceedings concerned an application by Ante for a family provision order under s 79 of the Succession Act (NSW). The order I proposed was that Ante should be granted a family provision order in an amount of 30% of the value of the estate of the deceased (where that value was to be determined in accordance with the reasons for judgment): see [346]. I decided that the amount that Ante, and the other children of the deceased, should receive out of the estate would depend upon the net amount received from the sale of the property, that was referred to as 1 Harry Avenue in the judgment, plus the cash held by the executor, or already distributed.
As I recorded at [82], the parties had accepted for the purposes of the argument that 1 Harry Avenue had a value estimated at $1,850,000. As a practical matter it was necessary that 1 Harry Avenue be sold so that the estate could be divided between the children of the deceased. The sale price may be more or less than the estimated $1,850,000, although it is notorious in the Sydney property market that properties regularly sell for greater prices than are expected.
At [346] I calculated that Ante would receive a lump sum of $964,286, if 1 Harry Avenue was sold for its assumed value. For present purposes it is not known what amount Ante will actually receive.
It is relevant to record that Ante's sisters, Dina and Linda had also joined as plaintiffs in separate proceedings for family provision relief in respect of the deceased's estate. That matter was listed for hearing commencing on 4 April 2017, which was the first day of the hearing of Ante's matter.
In both cases the defendant was Maria, who was another daughter of the deceased, who had been named as executor in the deceased's will dated 29 March 2011.
The claim made by Dina and Linda was settled on the first day of the hearing. The terms of settlement are set out in the principal judgment at [56]. Relevantly for present purposes, Linda, Dina and Maria agreed to settle those proceedings on the basis that they would divide the balance of the deceased's estate, after whatever provision was made in favour of Ante, in certain agreed proportions. The settlement was agreed on the basis that Maria was also a beneficiary under the deceased's will. In fact, under the will, after certain gifts were made in favour of Ante, the residue of the estate was left to Maria. Nothing had been given to Linda and Dina.
Relevantly, Linda, Dina and Maria agreed to share the balance of the estate on the basis that the first $700,000 would be shared in the proportion 40% to Linda, 40% to Maria and 20% to Dina, and then the balance would be shared equally.
In the principal judgment I assessed the value of the assets available for distribution at [78]-[86]. I concluded at [85] and [86] that the effective estate available for distribution had a value of $3,191,250, after I had reduced the assets by an amount that allowed for Maria's costs of the two proceedings to be paid out of the assets on the indemnity basis, and the costs of the other three siblings to be paid out on the ordinary basis. Thus, I made an allowance for a conventional costs order out of the assets of the estate, before I made the necessary evaluative judgment as to the proportion of the estate that should be distributed to Ante. In this way I reached the conclusion that the proportion should be 30%.
The present judgment deals with an application by Maria for a special costs order against Ante. That application was heard on 20 September 2017.
The application was made on the basis that, shortly before and on the first day of the hearing, Maria had made separate offers to Ante to settle his claim on the basis that he receive a lump sum gift of $950,000 out of the assets of the estate of the deceased.
The offers were made in the context that it was Ante's case that he should receive sole title to 1 Harry Avenue, which had an assumed value of $1,850,000 as I have indicated above. At the end of the hearing, Ante asked for an additional gift of $50,000 in cash.
As finally formulated, Maria's primary claim was that the following orders should be made:
1. The costs of the plaintiff to be paid on an ordinary basis out of the estate of the deceased up to and including 27 March 2017, with the intent the plaintiff bear his own costs from 28 March 2017;
2. The plaintiff to pay the costs of the defendant on an indemnity basis from 27 March 2017;
3. The cost of the defendant, not otherwise paid by the plaintiff, to be paid out of the estate of the deceased on an indemnity basis.
This costs order was sought on the basis of a formal offer of compromise made pursuant to rule 20.26 Uniform Civil Procedure Rules 2005 that was served on Ante on 16 March 2017 and was stated to be open for acceptance until 3 PM on 22 March 2017. By agreement between the parties, the time for accepting the offer was extended on 22 March 2017 to 27 March 2017. Maria thus sought that her costs be paid by Ante on the indemnity basis from the day following the expiration of the offer of compromise. Maria had initially sought indemnity costs from the day after the service of the offer of compromise, and I understand that she changed her position in response to the decision of the Court of Appeal in Walker v Harwood [2017] NSWCA 228.
As will be explained below, notwithstanding the form of the offer of compromise, at the hearing Maria only sought to rely upon the offer on the basis of the principle in Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586.
Maria sought an alternative order based upon an open offer that was made on her instructions in court at 2 PM on the first day of the hearing, that she would compromise the claim made by Ante on the basis that he would receive a lump sum of $950,000. That offer was not made on any conditions, and was left open for acceptance until 10 AM the following morning. Ante did not accept the offer.
The alternative order sought by Maria was:
1. The costs of the plaintiff to be paid on an ordinary basis out of the estate of the deceased up to and including 4 April 2017 at 2.00pm, with the intent the plaintiff bear his own costs from 4 April 2017 at 2.00pm;
2. The plaintiff to pay the costs of the defendant on an indemnity basis from 4 April 2017 at 2.00pm;
3. The costs of the defendant, not otherwise paid by the plaintiff, to be paid out of the estate of the deceased on an indemnity basis.
The only terms of the formal offer of compromise that need be noted for present purposes are the following:
5. Order that in lieu of the benefits he receives in the will of the [deceased] but for the motor vehicle and furniture and effects situated at 1 Harry Avenue, Lidcombe, the Plaintiff receive provision in the form of a lump sum legacy of nine hundred and fifty thousand dollars ($950,000) out of the deceased's estate.
…
14. This offer is conditional and subject to the Plaintiffs in the associated proceedings accepting the offer of compromise made to them which is annexed hereto and marked "A".
15. In the event that this offer is held to be ineffective as a valid offer of compromise it is to be treated as an offer on the same terms and conditions made pursuant to the principles in Calderbank v Calderbank (1975) 3 WLR 586. In the event that the Defendant obtains a result more favourable to her from that made in the offer she reserves the right to tender the offer in support of an application that the Plaintiff pay the costs of the proceedings calculated on the indemnity basis together with any costs she may have to pay the plaintiffs in the associated proceedings.
The formal offer of compromise that was Annexure "A" to the offer of compromise served on Ante contained the following term concerning the disposition of the deceased's estate as between the three daughters:
4. Order that the Plaintiffs and the Defendant, subject to the provision made of the Plaintiff, Ante Mitar in the associated proceedings and any other orders in these and the associated proceedings receive the rest and residue of the Estate of the [deceased] as tenants in common in equal shares.
It is to be noted that the effect of this term was that each of the three daughters would share equally in the balance of the estate after whatever provision was made in favour of Ante.
By clause 7, the offer made by Maria to Linda and Dina was made conditional upon Ante in his proceedings accepting the offer of compromise that had been served upon him.
Apart from the fact that Ante's solicitor negotiated an extension of the offer of compromise from 22 March 2017 to 27 March 2017, Ante did not respond to the offer of compromise.
In written submissions delivered before the hearing of the costs argument, counsel for Maria informed the court that Maria did not rely upon the formal offer of compromise as a valid offer made pursuant to rule 20.26 of the UCPR. Maria only sought to rely upon the offer as what is conventionally called a Calderbank offer.
The starting point in Maria's argument was the observation that I made in the principal judgment at [346], that $964,286 was an amount that was not materially different to the amount of the open offer made by Maria during the course of the hearing. When I made that observation I was not aware of the Calderbank offer. The purpose for which the observation was made is not material, but it sometimes happens that judges will make an observation in passing that is of practical relevance to what has happened during a hearing. In this case the observation meant no more than that Ante had continued the proceedings for some three days and had achieved $14,286 more than he was offered on the first day.
Maria relied upon this observation to support a submission that Ante did not materially achieve any more from prosecuting his claim that he was offered in both of the offers.
The first observation that should be made is that, although to use the Iron Duke's words "It was a near run thing", Ante did achieve a result that in nominal terms was better than the amount of the offers.
It is important to remember, however, that the result of the proceedings was not that a family provision order was made in Ante's favour for an amount of $964,286. The effect of the order made is that Ante will receive 30% of the net estate after the sale of 1 Harry Avenue. While that may be less than the amount just stated, there is at least a substantial chance that it will be more, and could be significantly more. In my view it is not proper to compare the $950,000 amounts of the offers to $964,286. Not only may the result of the proceedings be worth more than that to Ante, but in considering whether or not he should accept a lump sum offer, it would have been reasonable for Ante and his legal advisers to take into account the frequency with which judges make family provision orders based on percentages of the available assets rather than specified lump sums, particularly when the true value of the assets of the estate can only be determined by the sale of the assets.
Ante's counsel put a submission, based upon the terms of clause 15 of the offer of compromise, where it is said that: "In the event that this offer is held to be ineffective as a valid offer of compromise it is to be treated as an offer on the same terms and conditions made pursuant to the principles in Calderbank v Calderbank…". Counsel submitted that, contrary to the acceptance by Maria that the offer of compromise was not effective as such, it was indeed effective and complied with the requirements of the UCPR. That being the case, Ante's counsel submitted that Maria was not entitled to indemnity costs for any period under rule 42.15(2), because for the purposes of sub-rule (1) the judgment made by the court in favour of Ante was not no more favourable to Ante than the terms of the offer. The judgment was in fact more favourable because it was more, albeit not much more. That being the case, according to Ante's counsel, the offer of compromise could not take effect as a Calderbank offer because the court had not held that the offer was ineffective as a valid offer of compromise.
The submissions made by counsel did not in my view finally resolve the question of whether or not the offer of compromise was effective as such. I do not think that matters, because, notwithstanding the precise language used in clause 15, I am satisfied as a practical matter that the real meaning intended to be conveyed by the clause was that the offer of compromise was intended to take effect as a Calderbank offer whatever its fate may have been as a formal offer of compromise. Notwithstanding the language used, I do not accept that clause 15 conveyed the meaning that the use of the offer of compromise as a Calderbank offer was contingent upon the offer of compromise being held to be technically ineffective under the UCPR. (Ante did not provide evidence that he acted upon the effect of the strict wording of clause 15 so that he did not treat the offer of compromise as a Calderbank offer, because in reliance upon the strict wording of the clause he understood that it was only intended to operate as a Calderbank offer if it was strictly ineffective as an offer of compromise).
Counsel for Ante made a second argument based upon the terms of clause 15 of the offer of compromise which I consider to be more valid. Clause 15 states: "In the event that the Defendant obtains a result more favourable to her from that made in the offer she reserves the right to tender the offer in support of an application that the Plaintiff pay the costs of the proceedings calculated on the indemnity basis…" That part of clause 15 specifically warns Ante only that the offer of compromise will be used as a Calderbank offer if the result obtained by Maria was "more favourable to her from that made in the offer". The result was not more favourable. Whitney v Dream Development Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 at [42] and Treloar Constructions Pty Ltd (No 2) [2017] NSWCA 146 at [10] establish that an indication that the offer will be relied on in relation to the question of costs should a verdict more favourable be achieved is the essence of a Calderbank offer. If that is so, it should follow that the offeror should be held to the circumstances stated in the offer as for when it will be relied upon on the question of costs.
This submission accords with the observation made by Cairns LJ in Calderbank v Calderbank at [1975] 3 All ER 333 at 342 where his Lordship used the expression "and then if the court's apportionment is as favourable to the party who made the offer as what was offered, or more favourable to him, then costs will be awarded just on the same basis as if there had been a payment in".
That statement of principle is consistent with that made by Hallen J in Walsh v Walsh (No 2) [2013] NSWSC 1281, an authority relied upon by Maria. In explaining when Calderbank offers are effective, his Honour said at [39]: "… The result of the court's adjudication must be as, or more, favourable to the offeror than the offer made. (In the case of an offer by defendants, the court's adjudication must be less favourable to the plaintiff then the offer)."
This is a convenient point to note, given that Maria relied in this case upon a number of the statements of principle made by Hallen J, that the offer in Walsh v Walsh was an offer by the defendant executors that the plaintiff receive 40% of the residuary estate, when in his principal judgment Hallen J had ordered that the plaintiff should receive a lump sum calculated as 37% of the net proceeds of sale of what was described as the Darlington home, after payment of costs: see [1] and [5]. That was effectively 37% of the residuary estate, and accordingly less than the amount offered by the executors.
Maria relied upon the following statement by Ward CJ in Eq in Cunningham v Guardian Royal Financial Services Pty Ltd [2017] NSWSC 1057 as stating the principles to be applied in determining the effectiveness of a Calderbank offer:
[17] There is no dispute between the parties as to the principles that apply when there is an application for indemnity costs following non-acceptance or rejection of a Calderbank offer. Those principles are well known and do not need here to be restated (see, for example, Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2); Treloar Constructions Pty Limited v McMillan (No 2) [2017] NSWCA 146). Broadly speaking, an order for indemnity costs may be made in those circumstances if the offer is a genuine offer of compromise and the Court is persuaded that it was unreasonable for the offeree not to accept the offer. The onus is on the party making the Calderbank offer to satisfy the court that it should exercise the costs discretion in its favour (Evans Shire Council v Richardson (No 2) at [26]).
Maria placed stress on the requirement that the offer be a genuine offer of compromise and that it be unreasonable for the offeree to not accept the offer. As was made clear at the hearing, Ante did not submit that the offer of compromise was not a genuine offer of compromise. Maria submitted that it was unreasonable for Ante not to have accepted the $950,000 offer made in the offer of compromise.
It may be noted that in the extract from Cunningham v Guardian Royal Financial Services Pty Ltd relied upon by Maria, her Honour did not mention the requirement that the offeror in Maria's position must achieve a result that is less favourable to Ante than the amount of the offer. That was no doubt because in the case before her clearly the issue did not arise.
In my view, in the general case, a Calderbank offer will not be effective if the offeree achieves a better result than the terms of the offer, irrespective of how small the improvement of the result is over the terms of the offer. The court should strongly hesitate to find itself in the position of trying to judge when an improvement is so immaterial that it should be ignored. Responding to Calderbank offers is a naturally risky business for offerees, which forces them to take serious risks. If the risk is taken and any improvement over the terms of the offer is achieved, that should dispel the effectiveness of the Calderbank offer.
However, in the present case as I have indicated above, the improvement should not be measured merely in terms of an amount of $14,286. Ante has achieved an outcome that gives him a chance of receiving an additional amount of about 30% of any sale price that can be achieved for 1 Harry Avenue greater than $1,850,000. That benefit is only a chance, but people familiar with the Sydney property market would treat that chance as valuable.
Maria made a submission that the offer of compromise, treated as a Calderbank offer, was not rendered ineffective by reason of the fact that it was conditional upon Linda and Dina accepting the offer made by Maria to them. Maria relied upon the judgment of Ward CJ in Eq in Cunningham v Guardian Royal Financial Services Pty Ltd (above) at [51], as well as the judgment of Mason P in Oxlade v Gosbridge Pty Ltd (No 2) [1999] NSWCA 165 at [7] (Fitzgerald JA and Shepherd a JA agreeing). Those decisions provide authority for the proposition that a Calderbank offer is not necessarily ineffective because it is conditional. However, in the case of the offer considered by Ward CJ in Eq, I note that her Honour said: "Had there been a basis for considering that the defect or weakness in the plaintiffs' claims was not common to all the proceedings, my conclusion might have been otherwise".
In that case the defect in the plaintiffs' claims upon which the defendant based its case that all of the claims would necessarily fail was the same in each case. Thus, all of the plaintiffs' claims would certainly stand or fall together. That is not necessarily so in the present case. Applications for family provision orders are highly sensitive to the circumstances of each applicant. While the respective offers made by Maria to each of her siblings may have been sensible, there is no reason to think that the court would necessarily determine all of the claims on the same or an equivalent basis.
However, it is not necessary in this instance for the court to explore further the question of the circumstances in which a Calderbank offer may be ineffective if it is subject to conditions. The fact that a Calderbank offer is conditional will generally be but one factor in determining whether it was reasonable for the offeree to reject or not respond to the offer.
In the present case, the significance of the condition in clause 14 of the offer of compromise is different. The reason is that in fact, although Linda and Dina compromised their claims against Maria, they did so on different terms than were contained in Annexure "A" to the offer of compromise served on Ante. It may be thought that the terms were only marginally different in that the three sisters agreed to divide the residue of the estate equally between them except for the first $700,000. As to that sum, the sisters agreed to divide it unequally. However, the condition in the offer made to Ante was not in fact satisfied.
The consequence is that if Ante had accepted the offer of compromise immediately, he would only contingently have compromised his claim. If Linda and Dina did not accept the offer of compromise made to them, Ante's settlement would fail, and he would then be obliged to prosecute his claim. In this case in fact that result would have occurred because the condition in the offer of compromise given to Ante failed.
It is also material in considering the reasonableness of Ante having not accepted the offer of compromise that the extended period in which the offer was open ended on 27 March 2017, which was only five business days before the commencement of the hearing. As a practical matter, the making by Maria of a conditional offer of compromise so close to the hearing may have obliged Ante to continue to prepare the case for hearing, because of the existence of the condition.
For the foregoing reasons I am not satisfied that Maria is entitled to a special costs order that requires Ante to pay her costs on an indemnity basis from the day after the lapse of the extended time for acceptance of the offer of compromise.
The second offer to settle the proceedings was made by Maria in open court at 2 PM on the first day of the hearing. The offer was open and it was not conditional. The failure by the offeree to accept an offer in those circumstances will be a material matter when the court comes to consider the costs order that should be made in the discretion of the court.
Again, the fact is that the outcome of the proceedings was a better result for Ante than if he had accepted the offer. The improvement may only be marginal, but it may be better than that depending upon the price for which 1 Harry Avenue can be sold.
While it was a risky exercise for Ante to decline to accept the open offer, the risk that he would do worse than the amount offered did not eventuate. I do not accept that Ante's conduct in not accepting the offer was so unreasonable that it would justify the court imposing upon him an obligation to pay Maria's costs from the time the offer was made (quite apart from the fact that he achieved a better result than the amount offered).
A realistic consideration of the possible range of outcomes in applications for family provision orders should take into account the fact that in this case there was no issue about Ante being entitled to a family provision order. The only issue was as to the terms of the order that should be made. The decision-making process in which the court must engage involves an evaluation that can lead to the potential outcomes falling within a reasonably broad range. It will not be warranted for the court to impose too stringent a test of reasonableness on applicants for family provision orders given the difficulty that applicants and their legal advisors may often face in attempting to predict the outcome of the process of evaluation.
Accordingly, it will not be appropriate for the court to order Ante to pay Maria's costs on the indemnity basis after the time the open offer was made to him.
The order of the court will be that Ante's costs of the proceedings be paid out of the estate of the deceased on the ordinary basis, and Maria's costs be paid on an indemnity basis. That will accord with the grounds upon which I determined that Ante should receive a distribution of 30% of the deceased's estate.
[3]
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Decision last updated: 14 November 2017