MX v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme

Order for stage 1 to be determined separately

1. The matter proceeded until 10 March 2017, when Stevenson J made an order pursuant to s 62(2) of the Civil Procedure Act 2005 (NSW) and r 28.2 and r 28.4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to the effect that the question raised by the first stage of MX's challenge to the Insurer's rejection of his claim be decided separately from and before any other questions in the proceedings.
2. Relevantly for the purposes of this judgment, up until that order was made by Stevenson J, the preparation of MX's case dealt with both stages of the challenge to the Insurer's rejection of MX's claim for the TPD benefit. Moreover, while some steps taken in the preparation of MX's case may have related to one stage or the other, some steps may have been relevant to both stages. That is because some of the forensic effort needed to demonstrate that the Insurer breached its duty in making the determination to reject MX's claim - which depended on the evidence placed before the Insurer when it considered the matter - may also have been relevant to the question of whether MX's circumstances did satisfy the condition for MX's entitlement to the benefit under the policy.

Determination of stage 1 of MX's claim

1. By reasons for judgment delivered by Slattery J on 24 July 2018, his Honour answered the separate question in favour of MX: MX v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme [2018] NSWSC 923.
2. His Honour made declarations that the decisions of the Insurer that it was not satisfied that MX was totally and permanently disabled within the meaning of the policy were void and of no effect, and also made an order that the Insurer pay MX's costs of the separate hearing.
3. As I understand it, although the Trustee was represented for at least part of the hearing before Slattery J, it took a passive stance in the proceedings. Slattery J did not deal with MX's claim against the Trustee and did not make any order dealing with the costs of that claim.
4. The Trustee was given leave to appeal the decision of Slattery J by the Court of Appeal and, on 16 September 2019, the Court of Appeal made an order dismissing the appeal and another order that the Insurer pay MX's costs: MetLife Insurance Ltd v MX [2019] NSWCA 228.

Service of the Calderbank offer by the Insurer

1. In the course of the subsequent preparation of the parties for the hearing and determination of the second stage of MX's claim, on 11 November 2019, the Insurer's solicitors sent a letter to MX's solicitors that contained a Calderbank offer (the Offer).
2. Following further correspondence, on 31 January 2020, which was the last day of an extended period in which the Offer remained open for acceptance, a solicitor for MX sent an email to the Insurer's solicitor that contained words capable of being construed as an acceptance of the Offer.
3. I will set out the terms of this correspondence fully below.

The Insurer's amended notice of motion

1. By notice of motion filed on 13 July 2020, the Insurer sought orders to give effect to what it claimed was a settlement of MX's claim against the Insurer.
2. At the hearing of the Insurer's notice of motion, which took place on 17 July 2020, I gave leave to the Insurer to file in court an amended notice of motion, whereby the Insurer sought the following orders: 1. A declaration that the plaintiff and the second defendant entered into a binding agreement on 31 January 2020 to compromise the second stage proceedings. 2. Judgment for the plaintiff against the second defendant in the sum of $125,000.00. 3. The plaintiff to pay the second defendant's costs of this Motion.
3. As I will explain below, after I have set out the terms of the Offer, the Court could not make orders in these terms as they would not give effect to the whole of the terms in the Offer. The Insurer accepted that position.

Terms of the Offer

1. I will now set out the terms of the Offer. The subject line in the letter referred to the present proceedings by name and case number by way of definition of the Proceedings. The letter stated: 1. The purpose of this letter is to convey a Calderbank offer on behalf of [the Insurer] which, if accepted by your client, will resolve his claim under the [relevant policy] (TPD Claim) and bring an end to the Proceedings in their entirety against [the Insurer]. Summary of [Insurer's] Position [The Insurer then set out in pars 2 to 5 its reasons for making the Offer and an explanation of why the Offer was genuine and was in the interests of both the Insurer and MX that MX accept the offer] Offer 6. Pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333, and subsequent cases, [the Insurer] offers to resolve the TPD Claim and the Proceedings in their entirety, without any admission of liability, on the following terms: (a) [The Insurer] will pay the amount of $125,000 to the plaintiff inclusive of costs and interest; (b) [The Insurer] will take care of any liability to repay the PPD Benefit - that is, the plaintiff will retain the PPD Benefit in addition to receiving payment from [the Insurer] in the amount of $125,000 and [the Insurer] will indemnify the plaintiff against any PPD liability; and The plaintiff, [the Insurer and the Trustee] will enter into a mutually agreed Deed of Release reflecting these terms of settlement and on the basis that such Deed of Release shall contain releases, confidentiality, non-disparagement provisions and such other provisions as are commonly contained in such Deeds of Release. (Offer) The Offer is open for acceptance by your client for a period of 28 days until 5:00pm on 9 December 2019, following which it will lapse.
2. Paragraph 6(b) of the Offer dealt with the Insurer being responsible for any need for MX to repay the PPD Benefit. That benefit was more fully described in par 4(b). It is sufficient to note that MX had apparently received what was called the Permanent Partial Disability (PPD) benefit of $556,788.02 from his employer. Settlement of MX's claim for the TPD benefit against the Insurer might trigger a liability on MX's part to repay the PPD benefit. The objective of the relevant terms of the Offer was to ensure that, as a result of his claim, MX would be entitled to retain the amount of the PPD benefit, and also receive an additional amount of $125,000, inclusive of costs and interest. The Insurer would absorb the risk that MX would be required to repay the PPD benefit.
3. The inadequacy in the formulation of the orders sought by the Insurer in its amended notice of motion to which I have referred above was its failure to deal with MX's entitlement to retain the PPD benefit, on the basis of the Insurer's liability to repay that amount, if necessary, to MX's employer. If the Court only made the orders sought by the Insurer, then MX's claim against the insurer in relation to the second stage would be determined on the basis that MX had settled that claim, without MX obtaining all of the benefits of the agreed settlement.
4. It will only be necessary to consider what alterations should be made to the orders sought by the Insurer, if it otherwise succeeds in establishing that MX accepted the Offer.

Observations on significant aspects of the Offer

1. It will be convenient at this stage to note the following significant aspects of the Insurer's Offer:
2. Paragraph 1 of the letter identified the purpose as being to resolve MX's claim "and bring an end to the Proceedings in their entirety against [the Insurer]".
3. The use of those words suggests that the purpose of the Offer was that the effect of MX simply accepting it would be that the entirety of the Proceedings against the Insurer would be brought to an end, leaving MX's claims against the Trustee to be resolved.
4. The chapeau to par 6, however, is similar but slightly different in effect, in that it states that the Insurer "offers to resolve the TPD Claim and the Proceedings in their entirety, without any admission of liability, on the following terms…"
5. The difference is that the wording of the chapeau contemplates that "the Proceedings in their entirety" will be resolved, which on the ordinary meaning of those words would include MX's claims against the Trustee.
6. That is made reasonably clear by the second paragraph of par 6(b) - which structurally appears in fact to be a separate sub-par (c) - which provided that it was a term of the settlement offer that the Trustee, as well as MX and the Insurer, would enter into a mutually agreed deed of release.
7. A consideration that tells against a simple acceptance by MX of the offer as giving rise to an immediately binding contract - in advance of the entry of all three parties into of the mutually agreed deed of release - is that the Trustee was not a party to the settlement offer, the offer did not deal with the rights of the Trustee, and an unconditional acceptance by MX of the offer would leave his position vis-a-vis his claims against the Trustee unresolved.
8. The absence of any resolution of MX's claims against the Trustee may be a practical reason for doubting that an acceptance by MX of the offer would create an immediately binding contract between MX and the Insurer, but additionally, it is arguable that, upon its proper construction, the Offer specified that there would only be a settlement when "the Proceedings in their entirety" were resolved, including by agreement with the Trustee.
9. Paragraph 6(a) provided for the Insurer to pay the amount of $125,000 to the plaintiff inclusive of costs and interest to resolve the Proceedings in their entirety.
10. As the Insurer acknowledged at the hearing, and indeed as the Insurer's solicitor acknowledged in par 13 of her 13 July 2020 affidavit, the Offer did not refer to the costs orders in respect of the separate question that had already been made by Slattery J and the Court of Appeal. The solicitor stated: "it was my understanding based on my instructions from [the Insurer] and my intention when sending the Calderbank letter that the $125,000 was to be paid in addition to the costs orders already made by the Court and the Court of Appeal in respect of the first stage of the proceedings".
11. MX did not dispute that the Offer must be construed on the basis that, although silent on the issue of the Insurer's liability to pay the existing costs orders, the words "inclusive of costs" in par 6(a) were not intended to capture the existing costs orders.
12. Relevantly to the question of whether the acceptance by MX of the Offer had the effect of creating an immediately binding contract before all three parties entered into the proposed deed of release, the fact that the offer omitted any reference to the existing costs order means that the acceptance of the offer could not bring to an end the Proceedings in their entirety against the Insurer, as contemplated by par 1. That would only happen if, by agreement or assessment, the quantum of the costs orders were determined. That is a step, however, which could have been taken by MX and the Insurer in the period between the acceptance of the Offer and agreement to the terms of the deed of release, which could have encompassed the payment of the costs.
13. The absence of any reference to the existing costs order in the Offer has, however, even greater significance to the question of whether acceptance by MX of the offer had the effect that there was an immediately binding contract between MX and the Insurer.
14. That is that the acceptance of the Offer in a way immediately binding upon MX would have had the effect that the costs of the second stage of the proceedings would have been included in the $125,000. However, the costs of the first stage of the proceedings would be a matter that remained for determination. MX was only entitled to receive from the Insurer his costs on the ordinary basis. He would have to bear the difference between his actual costs and the costs recoverable from the Insurer out of the $125,000. Furthermore, some of the costs incurred by MX before the making of the order for the separate question for the determination of stage 1 of the proceedings would have related to stage 1, stage 2, and probably some to both stages.
15. If MX became immediately contractually bound, by acceptance of the Offer, before the question of costs could be dealt with as part of the negotiation of the deed of release, MX would have placed himself in the position where the Insurer could reduce its liability to pay costs to MX by establishing that costs incurred by MX related to stage 2 rather than stage 1. Not only would MX be at risk of his actual return being reduced in this manner, but he may have faced the additional cost of having to contest the issue with the Insurer, in circumstances of disadvantage because he had bound himself to accept stage 2 costs as having been covered by the $125,000.
16. An additional effect of MX becoming immediately contractually bound to the terms of the Offer with the Insurer, without MX having agreed at the same time to a resolution of his dispute with the Trustee, would have been to undermine MX's bargaining position with the Trustee. MX would remain at risk of having to prosecute his claim against the Trustee, without being able to do so in the context of the Trustee's passive participation in MX's claim against the Insurer.
17. The essential point is, however, that if acceptance of the Offer immediately bound MX to its terms, without him having the ability to resolve all outstanding questions in the proceedings in the course of negotiating the deed of release with the two other parties, MX would have no way of knowing how much he would ultimately get in his hand, and he would have been in the tactical position where the ultimate receipt may have been eroded by the need to expend further legal costs in dealing with his claim against the Trustee and in quantifying his entitlement to stage 1 costs, in circumstances where he was bound to a compromise as to the amount of his claim in the proceedings.

The terms of the acceptance email

1. MX's solicitor's 31 January 2020 email simply stated: The offer of $125,000 incl of stage 2 costs and interest is accepted Will get you the itemised stage 1 costs shortly
2. It will be convenient to note the following aspects of this response at this stage.
3. Although the email referred to the acceptance of an offer, it did not expressly state that it was an acceptance of the Offer - meaning the whole of the offer. It accepted the offer of $125,000 inclusive of stage 2 costs and interest.
4. The Offer itself did not refer to the costs of separate stages. It simply used the words "inclusive of costs". This email added the words "stage 2" and there may be some uncertainty as to what those words meant. The stages could be the stages of the hearing to determine MX's entitlement to the TPD benefit, which I have considered above at [8]. It will be convenient to refer to these stages as the stages of the insurance issue. There is also a sense in which stage 1 could have been intended to cover the period from the commencement of the proceedings to the judgment of the Court of Appeal. Stage 2 would then refer to the balance of the proceedings. This second way to divide the proceedings into stages would have permitted a more straightforward and less theoretical identification of the costs incurred by MX that were attributable to each stage.
5. The acceptance email did not explicitly refer to the costs of the separate question and of the appeal. It did not refer to the position in relation to the PPD benefit. Nor did it refer to the need for the negotiation of the terms of the deed of release between not only MX and the Insurer but also between those two parties and the Trustee.
6. The brevity with which emails are often expressed can increase the difficulty in determining their objective meaning. The authors of emails often omit connecting explanations between statements. The significance of the second line: "Will get you the itemised stage 1 costs shortly" is not clear. It is at least true that MX's solicitor made the two statements in the one context, and the second is capable of being interpreted as meaning that the solicitor would shortly do what was necessary to enable the two parties to agree as to the quantum of the stage 1 costs for which the Insurer would be liable.
7. As the objective meaning of the Offer is unclear, because of its failure to deal with the costs orders or to specify in any precise way which costs were included within the expression "inclusive of costs", there is a real basis for doubting that the purported acceptance of the offer of $125,000 in the 31 January 2020 email was an unqualified acceptance of the terms of the Offer. That could only be so if the Offer was intended to include stage 2 costs, even if it did not specifically say so. Even if that were impliedly intended, there remains a doubt about whether stage 1 and stage 2 were objectively intended to be, first, the two stages of the determination of the insurance question; or secondly, the costs of the proceedings to the determination of the separate question, and then the costs of moving to the final determination of the proceedings.
8. MX did not submit that no contract could have been formed by the acceptance of the Offer because the terms of the contract would be uncertain. However, a lack of clarity as to how the Offer was intended to operate militates against a finding that there was an objective intention that the parties would be immediately bound. The fact is that the Insurer omitted to deal with the existing costs orders in the Offer. The acceptance email did not agree that the $125,000 was to include all costs. It restricted the acceptance to stage 2 costs. There was scope for difference as to what was comprehended by stage 2 costs.

Correspondence between the parties

1. The correspondence between the solicitors for the parties after the date of the Offer, both before and after the 31 January 2020 acceptance email, is capable of resolving uncertainties in the correspondence and illuminating the true objective intention of the parties.
2. On 12 November 2019, MX's solicitors sent to the Insurer's solicitors a schedule of costs and disbursements. The total amount was $341,271.29.
3. On 4 December 2019, MX's solicitors asked whether the amount of the TPD benefit was $893,000 plus interest and any tax liabilities.
4. MX's solicitors asked the Insurer's solicitors for an update on stage 1 costs on 5 December 2019.
5. On 5 December 2019, MX's solicitors asked for an additional three weeks to consider the Offer.
6. On 17 December 2019, MX's solicitors asked the Insurer's solicitors to reformulate its offer "to clarify the question of the 'costs in the proceedings' as referred to at para 6 on (sic) the Calderbank letter. Does the offer encompass the costs of the successful stage 1 hearing and the costs of the Court of Appeal proceedings or does this offer only operate in respect of the stage 2 proceedings?"
7. Meanwhile, on 18 December 2019, MX's solicitors requested a change in the timetable for the Insurer to serve any refresher reports and MX to serve any expert reports in reply
8. The Insurer's solicitors agreed to an extension of the time for the response to the Offer until 31 January 2020.
9. On 15 January 2020, the Insurer's solicitors advised that the TPD benefit amount was $634,371.
10. The Insurer's solicitors by letter dated 15 January 2020 responded to MX's costs schedule provided by their letter of 13 November 2019. Relevantly to the present issue, the letter stated: 2. The Stage One judgment, handed down by Slattery J on 24 July 2018, required [the Insurer] to pay the plaintiff's costs of the separate hearing (order 5). On 25 October 2018, the Court of Appeal Registrar entered orders confirming our client's agreement to pay your client's costs of the Appeal whatever the outcome. 3. It is not apparent to us that the costs contained in the Costs Schedule are properly attributable to the separate hearing and/or your client's costs of the Appeal. We say this because the Costs Schedule seems to include your client's solicitor/client costs. It also includes medical expert costs, copying costs, the plaintiff's former solicitors' costs, barristers' cost of attending directions hearings not relating to the Stage One hearing or the Appeal, costs associated with subpoenas and the mediator's costs. In our view, these would not be costs of the separate hearing or the Appeal. 4. We request that you provide a separate, itemised account of your client's reasonable party/party costs of the separate hearing (as opposed to the proceedings generally) and the Appeal. …
11. This letter preceded the 31 January 2020 acceptance email. The better view probably is that the letter accepted that the Insurer was liable for the costs of the determination of the separate question by Slattery J and the costs of the appeal. However, I consider that the letter did not precisely clarify whether, when the parties referred to a stage, they meant a stage in the determination of the insurance issue, or the practical stages in which MX's claim would be determined. The implicit complaint about the costs including "medical expert costs" is consistent with the stages being concerned with the insurance issue, as new expert medical evidence obtained by MX would not be relevant to the issue of whether the Insurer wrongly declined MX's claim for the TPD benefit on the evidence before it. However, it is not clear why the Insurer's solicitors complained about the inclusion of MX's former solicitors' costs or the mediator's costs. It appears from the mediator's tax invoice that the mediation took place on 15 December 2016. Although the mediation took place before the Court made the order for the determination of stage 1 of the insurance issue as a separate question, it is probable that the mediation was held for the purpose of finding a compromise for the whole of MX's claim, which would have encompassed both stages of the insurance issue.
12. Thus, while the terms of the 15 January 2020 letter appear to establish that the Insurer confined stage 1 to the determination of the separate question after the order for the separate question had been made, as well as the costs of the appeal, there remains in my view a material lack of specificity as to what was meant by the references to the stages and what costs were encompassed within each stage.
13. Nothing more seems to have happened between that time and the time on 31 January 2020 when MX's solicitors sent the acceptance email.
14. The evidence included a hand-written file note prepared by a solicitor for the Insurer of a telephone conversation with a solicitor for MX that took place after the 31 January 2020 acceptance email was sent at 6:57 AM. The file note states: … - Monday whole day to do it, itemised costs → lots of them. - [MX] will want to settle altogether with Stage 1 costs. So if sensible costs for Stage 1, then can get it done, subject to instructions.
15. The meaning of the conversation that is recorded in this file note is not clear.
16. On 11 February 2020, the Insurer's solicitors requested that MX's solicitors provide an itemised schedule of his stage 1 costs.
17. A file note prepared by a solicitor for the Insurer on 28 February 2020 recorded that MX's solicitor had agreed to review MX's costs claim over the weekend and to send through a schedule.
18. MX's solicitors sent an itemised costs schedule to the Insurer's solicitors on 9 March 2020. The schedule claimed $97,500 for solicitors' costs.
19. On 19 March 2020, the Insurer's solicitors requested copies of invoices for all counsel engaged by MX, and those invoices were provided on 20 March 2020, save for one invoice that could not be located and would be provided later.
20. There was then a series of communications between the solicitors concerning the making of an offer by the Insurer in respect of MX's costs.
21. By email dated 23 April 2020, the Insurer's solicitor asked whether MX had given instructions on the offer that had been put earlier that week. That offer was not in evidence. The email referred to the fact that there was a mention in court the following Tuesday, and said that it was likely that the matter would have to be "stood over again to allow for the settlement documents to be drawn up and signed".
22. The Insurer's solicitor sent an email to the associate to the Chief Judge in Equity on 6 April 2020 attaching consent orders executed by the parties seeking an adjournment until 28 April 2020. The email included the following statement: … The plaintiff and the second defendant have reached an in-principle settlement of the proceedings, and the parties seek the adjournment in order to finalise the question of costs and to agree to the terms of settlement.
23. On 27 April 2020, MX's solicitor sent an email to the associate to the Chief Judge in Equity, that was copied to the solicitors for the other parties, which attached consent orders executed by the parties' solicitors seeking an adjournment of the proceedings until 29 May 2020. The email stated: … The plaintiff and the second defendant have reached an in-principle settlement of the proceedings, and the parties seek the adjournment in order to finalise the question of costs and to agree to the terms of settlement. I have had difficulties getting instructions from the plaintiff the past week due to his psychological condition. …
24. There is no evidence that the solicitors for the Insurer challenged this description of the position that the parties had reached in the proceedings.
25. Apparently, as appears from the correspondence, MX's solicitors continued to have difficulty in obtaining instructions from MX because of his psychological difficulties.
26. The Insurer's solicitor sent an email to the solicitors for the other parties on 26 May 2020 that reported on a telephone call over before the Chief Judge in Equity, in which the solicitor had mentioned the matter for the other parties. The email included the following statement: … I provided the Court with some background to the proceedings - that it was set down for hearing commencing on 31 August 2020, that it had settled in principle in March 2020, and that the parties were seeking to agree costs and have the agreement documented… Her Honour agreed to stand the matter over for further directions on 3 July 2020, and added a further order vacating the hearing listed to commence on 31 August 2020.
27. Where the solicitors for MX and the Insurer referred to the proceedings being "settled in principle" in the email communications set out at [76], [77] and [80], they must have been referring to the effect of the 31 January 2020 email response to the Offer. That is because in each case there was also a reference to the parties attempting to reach an agreement concerning the costs. The solicitors could not have been referring to an in principle settlement of the whole proceedings. (It appears that the reference to the settlement in principle being in March 2020 was an error)
28. The solicitors for the Insurer sent a draft settlement agreement to the solicitors for the other parties on 15 June 2020. The covering email was marked "Without Prejudice". The email explained that a settlement agreement was proposed rather than a deed because of reasons associated with the COVID-19 pandemic. The covering email included the following: … We note that the parties have previously agreed to resolve the substantive matter (Stage 2), and only the questions of costs of the Separate Hearing and the costs of the Appeal remain unresolved. The draft Settlement Agreement accordingly does not include a final settlement date or a complete Settlement Sum. … The attached draft Settlement Agreement is provided in the interests of avoiding any delays in finalising this matter, pending a final agreement on costs. If you consider any amendments are required to the draft Settlement Agreement (other than inserting the settlement date and complete Settlement Sum), please let us know. …
29. Paragraph U of the Background referred to the fact that on 12 November 2019, the Proceedings were listed for hearing on 31 August 2020 to determine whether MX was TPD within the meaning of the policy, and defined this hearing as "Stage Two".
30. The Background in the draft agreement also provided: V. Without any admission of liability in connection with the facts and circumstances pleaded in the Proceedings or set out above, the Parties have now agreed to resolve the TPD Claim and the Proceedings in the manner and on the terms set out in this Settlement Agreement.
31. Clause 1 provided: 1. Settlement Agreement 1.1 On [INSERT FINAL SETTLEMENT DATE], it was agreed between the Parties that [the Insurer] will pay, and the Plaintiff will receive, the Settlement Sum in full settlement and satisfaction of all claims of the Plaintiff against [the Insurer and the Trustee] in the Proceedings, the Plaintiff's costs of the Separate Hearing, the Plaintiff's costs of the Appeal and the TPD Claim, or arising from or in any way connected with the matters alleged or raised in the Proceedings, the TPD Claim or the circumstances described in this Settlement Agreement
32. The draft agreement contained terms providing for mutual releases as between the parties, including the Trustee. It is implicit that the Trustee would be subject to no liability and would pay its own costs of the proceedings.
33. Clause 5 provided for a consent judgment that was annexed to the draft agreement. The terms of the proposed consent judgment were as follows: 1. Judgment for the defendants. 2. All previous orders in respect to costs are dismissed. 3. Each party is to bear his or its own costs of the proceedings.
34. Clause 12 contained a number of warranties to be made by MX, including that he had had the opportunity to seek independent legal and taxation advice. Clause 13 provided that any payment made under the agreement was inclusive of any relevant tax.
35. Clause 17.1 contained a definition of the Settlement Sum as follows: …Settlement Sum means: a. The amount of $125,000 inclusive of any costs, interest and damages for Stage Two; and b. The amount of [$ ] for the Plaintiff's costs of the Separate Hearing and the Plaintiff's costs of the Appeal.
36. This definition did not clarify in a precise way what was meant by stage two, but that would not have mattered because the agreement contained mutual releases.

Legal principles

1. Section 73 of the Civil Procedure Act 2005 (NSW) provides: (1) In any proceedings, the court - (a) has and may exercise jurisdiction to determine any question in dispute between the parties to the proceedings as to whether, and on what terms, the proceedings have been compromised or settled between them, and (b) may make such orders as it considers appropriate to give effect to any such determination. (2) This section does not limit the jurisdiction that the court may otherwise have in relation to the determination of any such question.
2. As I said in Owen v Owen [2020] NSWSC 258: [98] The general principle is that a binding contract is made between parties, after one of the parties makes an offer of the terms for the agreement, when the other party accepts the offer: J D Heydon, Heydon on Contract (2019, Thomson Reuters) at [2.10] (Heydon on Contract). There are cases when the evidence does not establish the making of an offer and its acceptance, but the Court can properly infer from the circumstances that the parties entered into a binding contract. This exceptional circumstance does not arise in the present case. [99] Mr Owen's case is that Ms Lewis' email sent at 10:07 AM on 3 May 2019 was a valid offer: see par 56 above. The legal meaning of that email does not depend upon how either party subjectively understood it. Rather, "[t]he legal rights and obligations of the parties turn upon what their words and conduct would reasonably be understood to convey, not upon actual beliefs or intentions": Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55 at [34] per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ. [100] In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549 (ABC v XIVth), Gleeson CJ, with whom Hope and Mahoney JJA agreed, approved an extract from the speech of Lord Diplock in Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 502, where his Lordship said: … What he promised is determined by ascertaining what his words and conduct would have led the buyer reasonably to believe that he was promising. That is what is meant in the English law of contract by the common intention of the parties. The test is impersonal. It does not depend upon what the seller himself thought he was promising, if the words and conduct by which he communicated his intention to the seller would have led a reasonable man in the position of the buyer to a different belief as to the promise; nor does it depend upon the actual belief of the buyer himself as to what the seller's promise was, unless that belief would have been shared by a reasonable man in the position of the buyer…
3. In relation to whether MX and the Insurer intended to create an immediately binding contract on 31 January 2020 when MX's solicitor sent her email in response to the Offer, or whether those parties only intended to be bound to a settlement of MX's claim if and when all three parties entered into the deed of settlement contemplated by the Offer, I respectfully accept and follow the summary of the principles made by Black J in In the matter of Leslie Muir Holdings Pty Ltd [2019] NSWSC 1519, as follows: [27] Not surprisingly, Counsel referred to Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 360-362, where the High Court identified three categories of case which may exist where parties which have been in negotiation reach agreement upon terms of a contractual nature. The first category of case is one where the parties have reached finality and intend to be immediately bound to the performance of the relevant terms, but propose to have the terms restated in a form which will be fuller or more precise, but not different in effect. A second case is where the parties have reached complete agreement, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. A third case is one in which the intention of the parties is not to make a concluded bargain unless and until they execute a formal contract. At first instance in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628, McLelland J identified a fourth case, where the parties were content to be bound completely and exclusively by the terms they had agreed, while expecting to make a formal contract in substitution for the first contract, containing, by consent, additional terms. [28] Whether a contract has been formed in this situation depends on the objective intention of the parties ascertained from the terms of the relevant document, read in light of the surrounding circumstances, and, if the terms of that document indicate that the parties intended to be bound immediately, then effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction: G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634, 636; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-9; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [66]. In Lahodiuk v Pace [2013] NSWSC 512 at [18], Sackar J similarly observed that: If the terms of such a document indicate that the parties intended to be bound immediately, effect must be given to it. Construction of a document may make it sufficiently clear that the parties were content to be bound immediately by the terms to which they had agreed, notwithstanding they contemplated further documentation (Masters v Cameron (1954) 91 CLR 353 at 360; Anaconda Nickel Ltd v Tarmoola Pty Ltd (2000) 22 WAR 101 at 110 per Ipp J). [29] In Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313; (2015) 90 NSWLR 605 , Beazley P (with whom Bathurst CJ generally agreed and Meagher JA agreed) observed (at [64]-[65]) that whether parties intend to be immediately bound, where they have reached agreement as to the terms of a contract but have also agreed that a further, formal agreement is to be executed, is to be determined objectively, having regard to the "outward manifestations" of their intentions. Her Honour also observed (at [65]) that the question was "what each party by words and conduct would have led a reasonable person in the position of the other party to believe". Beazley P also observed (at [69]) that the three classes of case in Masters v Cameron above no longer applied, if they ever were, as strict categories into which cases must fall. Her Honour noted (at [72]) that it was relevant to consider the commercial context and surrounding circumstances of the parties' dealings in determining whether a binding agreement had come into existence. The Court of Appeal also noted (per Bathurst CJ at [15] and per Beazley P at [118] (with whom Meagher JA agreed)), and consistently with the case law to which I referred above, that the Court may have regard to subsequent conduct of the parties in determining whether, at an earlier juncture, the parties intended to enter into a binding agreement. [30] In Nurisvan Investment Ltd v Anyoption Holdings Ltd [2017] VSCA 141 at [106], the Court of Appeal of the Supreme Court of Victoria similarly observed that: In determining whether the Heads of Agreement constituted a binding contract to enter into a Share Sale Agreement, the critical issue concerns the intention of the parties which must be ascertained objectively from the terms of the document, construed in the context of the surrounding circumstances. In that respect, it is relevant to take into account the commercial context and surrounding circumstances of the parties' dealings. [citations omitted] [31] The fact that the parties might negotiate further, additional terms, that were not included in the first agreement, is not necessarily inconsistent with a conclusion that the first agreement constituted a binding contract between them: Nurisvan Investment Ltd above at [107]. The Court may have regard to the conduct of the parties after the date of entry into the alleged contract to determine whether they entered a binding contract: Sagacious Procurement Pty Ltd above at [105]; Nurisvan Investment Ltd above at [77] ff, [82]-[83]. In setting out these principles, I have also drawn on my summary of them in Owners - Strata Plan No 58,087 v Matthews [2015] NSWSC 1906 and ADG United Pty Ltd v EG Enterprises Pty Ltd [2019] NSWSC 745.

Consideration

1. It was the Insurer's case that, by MX's solicitor's use of the words: "The offer of $125,000 incl of stage 2 costs and interest is accepted", MX objectively immediately agreed to compromise his substantive claim against the Insurer on the basis that he would accept $125,000 inclusive of stage 2 costs and interest.
2. The Insurer submitted that it was immaterial that neither the Offer nor the acceptance email referred to the PPD amount that MX had earlier received from his employer, as it was implicit in the communications that the acceptance was of all of the terms of the Offer, including par 6(b).
3. Further, in relation to the circumstance that a settlement with the Insurer on that basis would leave MX uncertain as to how much he would end up with in his hand, in respect of whatever constituted stage 1 costs payable by the Insurer, and the resolution of MX's claim against the Trustee, the Insurer submitted that the Court should infer that MX had simply weighed up the possibilities and considered that the partial settlement of the whole of the proceedings was sufficiently valuable that he elected to take the risk that the unresolved issues would lead to an unsatisfactory outcome.
4. For the following reasons, I have concluded that the proper effect of the objective circumstances was that MX and the Insurer only made a provisional agreement on 31 January 2020, and that they did not intend to be finally bound unless and until all three parties negotiated a deed of settlement that was intended to encompass the terms of the Offer.
5. First, although it is true that par 1 of the Offer was expressly limited to bringing to an end the Proceedings in their entirety against the Insurer (see [26] above), the chapeau to the actual offer terms in par 6 was an offer "to resolve the TPD Claim and the Proceedings in their entirety" (emphasis added), and the reference in par 6(b) to the three parties entering into a mutually agreed Deed of Release objectively suggests that the settlement process was only intended, as a matter of the proper construction of the wording of the Offer, to be complete when the deed of release was agreed and made.
6. Secondly, it is objectively improbable that a plaintiff in MX's position would have intended to be bound immediately by the term in par 6(a) of the Offer, even if he also had the benefit of the term in par 6(b) concerning the PPD Benefit, if the result would be that he could not tell what he would receive in his hand as a result of the settlement, or even approximately calculate the ultimate receipt. Furthermore, MX would be at the tactical disadvantage of having to continue to litigate the quantum of his stage 1 costs payable by the Insurer, and might lose the tactical advantage in his claim against the Trustee that flowed from binding the Trustee into the proceedings involving MX and the Insurer.
7. Thirdly, I am not satisfied that the meaning of the wording used by the solicitors for the Insurer and MX was sufficiently clear to be consistent with those parties intending to make an immediately binding settlement of part of the proceedings as between themselves, rather than that they intended to express a partial agreement in principle.
8. Objectively, the words "inclusive of costs" used by the Insurer's solicitors in par 6(a) of the Offer meant all of MX's costs of the proceedings.
9. The evidence of one of the Insurer's solicitors that she subjectively understood that "inclusive of costs" did not include the existing costs orders made by Slattery J and the Court of Appeal does not have the effect of changing the objective meaning of those words. It has the effect of establishing that the person who drafted the Offer did not say what they meant.
10. MX's solicitors' request for clarification dated 17 December 2019 (see [60] above) asked whether the Offer encompassed the stage 1 hearing and the costs of the appeal or does it "only operate in respect of the stage 2 proceedings?" What was meant by the reference to the two stages is not precisely clear.
11. The Insurer's solicitors' 15 January 2020 reply (see [64] above) had both positive and negative components. The positive response appears to have identified stage 1 by reference to the judgment of Slattery J on the separate question and the order for costs made by the Court of Appeal. The negative response identified components of MX's costs schedule that the Insurer's solicitors appear to have suggested should be excluded. The exclusion of the solicitor/client component is not problematic. However, it is not clear why MX's former solicitors' costs, the costs of directions hearings "not relating to the Stage One hearing" or the mediator's costs should have been excluded from the ambit of the subsisting costs orders.
12. Although the issue may not be free from doubt, it appears that the Insurer's solicitors were of the view that, when Slattery J made the order that the Insurer pay MX's "costs of the separate hearing", the subject matter of the order was confined to the litigious steps taken between the date of Stevenson J's order for the determination of the separate question and the date of Slattery J's judgment. That conclusion appears to be consistent with the costs excluded by the Insurer's solicitors in the negative aspect of their 15 January 2020 response.
13. However, what the separate hearing determined, by reference to the wording of the actual orders made by Stevenson J on 17 March 2017, was whether "in refusing to accept [MX's] claim, [the Insurer] acted in breach of its statutory and/or general law duties"; or whether it "breached its duty to act reasonably in considering the claim made by [MX]". As I have explained above at [15], it is certain that some of the costs incurred by MX between the commencement of these proceedings and the making of the order for the determination of the separate question would have been referable to the issues to be determined by that question.
14. Notwithstanding the precise terms of the costs order made by Slattery J, in my view a significant part of the costs incurred by MX before the making of the order for the determination of the separate question would have been assessed as being payable as part of those costs. It follows that the explanation of the intended meaning of the words "inclusive of costs" given by the Insurer's solicitors on 15 January 2020 introduced material uncertainty as to what was meant by stage 1 and stage 2. That is because the negative aspect of the explanation appears to have excluded aspects of MX's costs that were recoverable under the costs order made by Slattery J.
15. This element of uncertainty may have been significant if MX and the Insurer had objectively intended to be immediately bound by the 31 January 2020 acceptance email. It is of no real significance if in fact the parties intended to agree in principle, because any areas of doubt would be addressed in the process of agreeing the final costs component of the Settlement Sum. The lack of clarity is therefore consistent with the parties in reality only intending to make a partial in principle settlement of their dispute.
16. Fourthly, although there is no reason why parties should not agree to be bound immediately by terms of settlement, when they also agree that they will enter into a formal deed of settlement, it is my experience that, unless there is some relatively clear indication, from the wording or the circumstances, that the parties intend to be bound immediately, the general practice and expectation of lawyers is that the settlement will not become final until all of the terms of the deed of settlement are agreed and the deed entered into. The strength of that proposition, if it is accepted, may perhaps depend upon the relative simplicity of the points that need to be settled in order to resolve the dispute entirely. However, experience suggests that, even in relatively simple disputes, there are issues that need to be addressed in the settlement that go beyond matters of quantum, interest and costs. Taking the draft settlement agreement in the present case as an example, the Insurer sought MX's agreement to an order dismissing MX's case against it. The draft settlement agreement also contained warranties to be given by MX, including that he had been given tax advice, and provided that payments were inclusive of taxation consequences. These may not be considered to be major sticking points, but they are not trivial, and are not obvious as being encompassed within "such other provisions as are commonly contained in such Deeds of Release".
17. Insofar as the parties' solicitors' conduct after 31 January 2020 is concerned, as I have explained above, a solicitor for MX explained to the associate to the Chief Judge in Equity on 27 April 2020 that "the plaintiff and the second defendant have reached an in principle settlement of the proceedings, and the parties seek the adjournment in order to finalise the question of costs and to agree to the terms of settlement". This statement was not contradicted on behalf of the Insurer. Further, as stated in [77] and [80], on 6 April 2020 and 26 May 2020 a solicitor for the Insurer also informed the associate to the Chief Judge in Equity that MX and the Insurer had "reached an in principle settlement of the proceedings, and the parties seek the adjournment in order to finalise the question of costs and to agree to the terms of settlement".
18. In my experience, it is almost universal for experienced lawyers to understand that an in principle settlement is not immediately binding, and that the very use of those words is a definite indication that the settlement will only become binding when some other outstanding issue is resolved.
19. Considered objectively, the solicitors for MX and the Insurer, who were directly concerned with the conduct of the proceedings, expressed themselves in the emails as if their understanding of the earlier correspondence was that MX and the Insurer had not agreed to an immediately binding partial settlement of the proceedings, which left issues to be agreed between MX and both the Insurer and the Trustee that were capable of substantially reducing the settlement money that MX received in his hand; such that the amount that MX would ultimately receive was not ascertainable; and in respect of which MX had no assurance that the proceedings would actually settle.
20. I should note for completeness that, in his submissions, MX relied upon the following statement of principle made by White J in Estate of Baissari; Chehade v El Khoury [2020] NSWSC 563: [28] It is well established that the Court can decline to give effect to a compromise effected by counsel or solicitor if the counsel or solicitors were acting under a mistake, or in excess of or contrary to their actual authority, even though the compromise, considered as a simple contract, could not be set aside (Hickman v Berens (1895) 2 Ch 638 at 646-7; Neale v Lennox [1902] AC 465 at 469, 473; Shepherd v Robinson [1919] 1 KB 474 at 478-80; Harvey v Phillips (1956) 95 CLR 235 at 242-3; Kendirjian v Lepore (2017) 259 CLR 275 at 280; [2017] HCA 13 at [13] (Gordon, J). In Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528, Finlay J said (at 538): What I perceive to be the relevant principle in the category of cases into which this matter falls is that in an appropriate case, especially before judgment is made, the overriding interests of justice and the court's concern over its own procedure may mean that the court will not enforce a contract. Of course, contracts made during the court's process to settle, if they are bona fide and not affected by any error, will normally be enforced. But I repeat my previous observation that whenever parties agree to a compromise of litigation they do so subject to the procedures of the court which include the possibility that the court may consider it unjust to enforce the terms of settlement or that it is in the interests of justice that the matter proceed to trial.
21. Given the conclusion that I have reached above, MX does not need to rely upon this principle in order to obtain an order for the dismissal of the Insurer's amended notice of motion. However, I should record that I do not consider that the evidence tendered by MX enlivened the principle.

Orders

1. The orders that the Court makes are therefore: 1. The second defendant's amended notice of motion filed in court on 17 July 2020 is dismissed. 2. The second defendant is to pay the plaintiff's costs of the notice of motion.

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: 29 July 2020