NL v AL

Judgment 1MEAGHER JA: I agree for the reasons given by Barrett JA that the orders his Honour proposes should be made. 2BARRETT JA: This appeal is brought by leave in respect of costs orders made by Ward J (as she then was) in Equity Division proceedings determined in 2012. Her Honour delivered two judgments. The first (A v N [2012] NSWSC 354, 13 April 2012) dealt with substantive issues. The second was a costs judgment: A v N [2012] NSWSC 549 (22 May 2012) 3There were three parties to the proceedings. They were referred to by the primary judge as A, N and E. The first of them (A, the second wife of E) was the plaintiff and first cross-defendant. The second (N, the daughter of E from his first marriage) was the first defendant and cross-claimant. The third (E) was the second defendant and second cross-defendant. 4The outcome in the proceedings was as follows: (1) A was held entitled to an order that N transfer to A the interest held by N in certain real property at Leichhardt of which N and E were the registered proprietors as joint tenants. (2) A was held entitled to a declaration that that interest in the Leichhardt property had been held by N on trust for A from 28 March 2008. (3) An order was made for the appointment of trustees for sale of a property at Summer Hill co-owned by N and E on the footing that the net proceeds were to pass 35 percent to E and 65 percent to N. (4) A was unsuccessful in claims for a declaration that E had mental capacity as at 28 March 2008 (when a deed to be described presently was executed) and an order that N deliver possession of a property at Concord. (5) N was unsuccessful in claims for a declaration as to lack of capacity on the part of E and for relief under the Contracts Review Act 1980 on the basis of undue influence and unconscionable conduct by A. 5The primary judge later received submissions on costs. The costs orders relevant for present purposes were those as between A and N. They were as follows: Order (1)(i): N to pay A's costs of the proceedings up to 10 March 2009 on the ordinary basis. Order (1)(ii): A to pay N's costs of the proceedings from 11 March 2009 until 1 May 2009 on an indemnity basis. Order (1)(iii): N to pay A's costs of the proceedings from 2 May 2009 on the ordinary basis. Order (1)(iv): N to pay A's costs of the cross-claim on the ordinary basis. 6Leave to appeal granted to N on 28 September 2012 was confined to Order (1)(iii) and Order (1)(iv). 7The proceedings were commenced by a summons filed by A on 25 February 2009. N was named as sole defendant and filed an appearance on 4 May 2009. As originally constituted, the proceedings involved claims by A for specific performance by N of covenants in a deed of 28 March 2008, a declaration that, by virtue of the deed, N held her interest in the Leichhardt property upon trust for A and an order that N vacate the Concord property. The claims of A were in that form in the period March to May 2009 which is of particular relevance to the issues before this Court. 8Subsequently, in July 2009, N brought a cross claim against A seeking an order setting aside the 28 March 2008 deed on the ground that E did not have mental capacity to enter into it and, in the alternative, that N had executed it under duress or that it was otherwise unconscionable for A to rely on it (these matters were also pleaded by N by way of defence to A's claim). 9Thereafter, in April 2010, A filed an amended statement of claim by which E was added as a party and A propounded against him a claim to his interest in the Leichhardt property on the basis of an agreement between him and her (this was the so-called "collateral agreement case"). N later filed an amended cross-claim adding E as second cross-defendant and expanding the claims to have the 28 March 2008 deed set aside, including on the basis that E lacked mental capacity. A further amended cross-claim was filed by N at some point; and a second further amended cross-claim was filed in July 2011. A further amended statement of claim was filed in December 2011. There were also other pleadings, including various defences, before the hearing began in February 2012. 10I have referred to these matters in some little detail as a description of the pleadings and their timing is important when assessing the matters to which regard was had in formulating the costs orders now challenged. 11It is relevant to refer briefly to the terms of the 28 March 2008 deed on which A's original claims were based. It is entitled "Deed of Settlement and Release". The parties are E, N and A. Recitals refer to certain dealings with interests in the Leichhardt, Concord and Summer Hill properties, which had been owned outright by E. He had transferred interests to N in such a way that she became one of two joint tenants with him; but he later said that he had intended to cause N to have only a one half interest as tenant in common with him. It was to resolve that matter, as well as proceedings that N had brought against E in 2007 (following which E transferred certain interests in the properties to A), that the deed was executed. The central provisions of the 28 March 2008 deed were as follows: (1) The 2007 proceedings were to be dismissed with costs. (2) E and N were to continue to own the Concord property as joint tenants but N was to give E exclusive occupancy for his life. (3) The interests transferred by E to A were to be transferred back to E. (4) N was to vacate the Concord property within three months but with a right to leave "small items and toiletries in the downstairs part of the property where she currently resides". (5) N agreed to transfer to A, on payment of $1.00, the one half interest in the Leichhardt property owned by N. (6) The Summer Hill property was to be sold and the proceeds paid 65 percent to N and 35 percent to E. 12The events relevant to the judge's decision on costs (and, in particular, Orders (1)(iii) and (1)(iv)) occurred when the proceedings commenced by A's summons filed on 25 February 2009 were in their very early stages. The events were described by the primary judge as follows: (1) On 10 March 2009, N's solicitors put to A's solicitors a without prejudice offer expressly stated to be of the Calderbank kind. The offer was expressed to be open for fourteen days. The terms proposed were: (a) N to vacate the Concord property by 31 March 2009 but may leave "minor possessions" and have access in accordance with a deed of 28 March 2008; (b) N to provide an executed transfer of the Leichhardt property to A within seven days after payment of $1.00 by A to N; (c) the proceedings to be dismissed with no order as to costs. (2) On 11 March 2009, A stated that she would only settle if her costs were paid. (3) On 26 March 2009 (that is, after the end of the period of fourteen days referred to in the letter of 10 March 2009) A's solicitors informed N's solicitors of their understanding that the only outstanding issue was the payment of A's costs and asked whether N would agree to pay them. (4) On 30 March 2009, N's solicitors wrote to A's solicitors referring to a discussion direct between N and A in which, it was said, N had agreed to transfer her interest in the Leichhardt property to A in accordance with the March 2008 deed, that A and E would move to that property forthwith, that A had agreed that she and E would move out of the Concord property, that N would be entitled to let that property and retain the rent, and that A had agreed to the purchase by N of the Summer Hill property for $280,000 (being 35% of a recent valuation). The letter noted that N was prepared to enter into a deed to implement these arrangements. (5) On 1 April 2009, A's solicitors informed N's solicitors that A rejected the "settlement proposal" in the 30 March 2009 letter. The letter also noted the understanding of A's solicitors that N had vacated the Concord property on 26 March 2009 and went on to state that A was prepared to settle the proceedings on the basis that N forthwith transfer to A her interest in the Leichhardt property and that N pay A's costs and expenses in the sum of $11,120.45. (The judge noted that this letter was not headed "Without Prejudice" and did not invoke the Calderbank principles.) (6) On 8 April 2009, N's solicitors responded to the 1 April 2009 letter noting that A had resiled from the offer made to N and that N did not want to enter into protracted legal proceedings. N's solicitors went on to "note" that N had vacated the property, A had not paid N the sum of $1.00 for the transfer of N's interest in the Leichhardt property and that, upon that sum being paid, N would provide an executed transfer. The letter also said that, since A had failed to comply with the deed (by failing to pay $1.00), the most appropriate order as to costs was considered to be that each party should bear her own costs. (7) Also on 8 April 2009, A's solicitors responded saying that A had been under the impression that N had vacated the property on 26 March 2009 but had since noticed that not all her furniture had been removed, that N had not surrendered the keys and that A had seen N and her car at the property on certain days in early April 2009. The letter asserted that N had not vacated the property, stated that the $1.00 would be paid in accordance with normal conveyancing practice on settlement; noted that N had "declined to comply" with the Deed either by vacating the Concord property or by transferring her interest in the Leichhardt property; and asserted that A was not prepared to settle on the basis that each party pay her own costs but required payment by N of her costs and expenses in the sum of $11,120.45. (8) On 9 April 2009, before a court appearance scheduled for that day, N's solicitors wrote to A's solicitors responding to the letter of 8 April 2009. They asserted that N had vacated the Concord property, that she was not required by the March 2008 deed to surrender the keys and that they proposed to hand up in court the Leichhardt transfer together with short minutes (providing for dismissal of the proceedings and for payment by N of A's costs as agreed or assessed). (9) Later on 9 April 2009, A's solicitors wrote to N's solicitors noting that the matter had been adjourned to 7 May 2009 "as there exists a dispute in relation to whether or not [N] has vacated the Concord property". A's solicitors also proposed settlement in accordance with short minutes which provided for orders that A give N possession of the Concord property (in default of which she was to pay mesne profits), that N execute a transfer of her interest in the Leichhardt property and furnish it to A in return for $1.00 and that N pay A's costs in the sum of $12,500. (10) In a letter of 23 April 2009, A's solicitors made various allegations of breach of the March 2008 deed by N and her failure to vacate the premises. (11) On 1 May 2009 (after N's solicitors ceased acting), A's solicitors wrote direct to N alleging breach of the March 2008 deed and enclosing a transfer of the Leichhardt interest which they invited N to execute in consideration of the sum of $1.00, a cheque for which was enclosed. The letter stated that if certain perceived defaults were attended to by 6 May 2009, it would not be necessary for the court to make orders for specific performance but A would still seek an order for costs "as a result of having to institute proceedings, due to your failure to comply with the provisions of the Deed". 13The starting point in the judge's analysis relevant to Orders 1(iii) and 1(iv) was N's offer of 10 March 2009. Her Honour concluded that that offer was in a form attracting Calderbank v Calderbank [1975] 3 WLR 586 principles and that it was unreasonable for A not to accept it. Non-acceptance by A was therefore a matter properly to be taken into account in relation to costs. The way in which her Honour considered that it should be taken into account was explained at [48] of the costs judgment: "It would seem to me inconsistent with the policy underlying special costs orders in the context of Calderbank offers (especially that of discouraging wasteful litigation) not to give recognition to the making of this offer, though I am by no means convinced that the public policy rationale requires an indemnity costs order for the whole of the proceedings thereafter. (I consider below the consequences that should in my view be attached to the non-acceptance of this offer.)" 14After dealing with what she termed A's "verbal 'offer'" of about 11 March 2009, the letter of 1 April 2009, the letter of 9 April 2009 and responses to these (none of which she thought gave rise to costs consequences), the judge turned to A's "1 May 2009 proposal" and said (at [61] and [62] of the costs judgment): "The final relevant offer was that comprised in the letter from 1 May 2009 to N directly (after her first solicitors had ceased to act for her). While not couched as a Calderbank offer (or indeed as an offer at all), this letter forwarded a cheque for the $1 payable in relation to the Leichhardt transfer, together with a transfer form for execution by N and made clear that (provided N attended to various other matters in relation to the Concord property), A would not seek orders for specific performance and the only issue left to be determined by the court would be the question of costs. N did not respond to that letter and nor did her new solicitors to whom it was copied on 5 May 2009. Strictly speaking, I do not see this as an offer calling for acceptance as such - rather it seems to be a demand for N to do certain things coupled with a statement that if those are done then all A would do would be to seek to have costs determined by the Court. Further, it included a variety of miscellaneous obligations not readily able to be quantified and it is not apparent that it involved any real element of compromise. That said, N's apparent refusal to entertain a disposal of the proceedings on those terms is in my view a matter to be taken into account when determining as a matter of fairness what costs orders should now be made (since it suggests that by then, N was not prepared to resolve the matter other than by reference to her own claims)." 15The judge thus held that, although the 1 May 2009 proposal was not an offer capable of acceptance (and therefore did not attract, in any formal or direct way, the principles in Calderbank v Calderbank (above)), the lack of positive response to it was something properly to be taken into account in exercising the discretion as to costs. 16Her Honour's assessment of A's reaction to N's offer of 10 March 2009 and N's reaction to A's 1 May 2009 proposal led her to think that, while it was unreasonable for A not to accept the 10 March 2009 offer, N's later conduct was inconsistent with any continued willingness to settle on the basis of her 10 March 2009 offer. Furthermore, N herself then not only eschewed the opportunity presented by the 1 May 2009 proposal to dispose of the substantive dispute on effectively the same terms (leaving to be determined by the Court solely the issue of costs) but escalated the dispute by raising the matters she did by way of defence and cross-claim (that is, the question of E's capacity and the allegations of undue influence and unconscionable conduct by A to procure actions of E). 17The judge then noted the position taken by N with respect to the question of costs as between herself and A. N's primary position was that A should pay N's costs of the proceedings on an indemnity basis from 11 March 2009. Her secondary position was that she should be awarded indemnity costs from 9 April 2009 (that being the date of the second offer). N then maintained a number of fallback positions in relation to costs: namely, that if the court was not minded to order indemnity costs in her favour from either of the nominated dates, she should nevertheless have her costs on the ordinary basis from either of these dates; or there should be an order that A and N each pay her own costs; or, as the ultimate fall-back, that any costs order in favour of A should be only for a proportion of her costs (with a discount applied to recognise a disentitling factor by reason of her rejection of the respective offers). 18Dealing with the position on costs between A and N, the judge observed that, but for the events surrounding the proposal submitted to N on 1 May 2009, it would have been appropriate to find that the failure of A to accept the initial Calderbank offer made by N on 10 March 2009 warranted an order that A pay N's costs of the ultimate proceedings at least on a party/party basis (and most likely on an indemnity basis), since the consequence of that failure by A was that A was thereafter pursuing the claim solely to secure payment of a relatively small amount of costs, N having agreed to the substantive relief sought. 19Her Honour continued (at [68] of the costs judgment): "However, as events proceeded after the rejection of that offer [ie, N's Calderbank offer of 10 March 2009], it became apparent that there were real issues in relation to N's vacation of the Concord property (even accepting that, under the March Deed, N was to be entitled to leave minor personal possessions on the premises) and once the matter proceeded by way of pleadings N then raised numerous bases on which she resisted the relief sought by A and brought her own cross claim on which she was wholly unsuccessful. Moreover, N's failure to consent to or participate in the proposed disposal of the proceedings on the basis outlined in the 1 May 2009 letter, even though that does not appear to be an offer invoking the Calderbank principles as such, makes clear that by May 2009 (whatever her position as at March or even April 2009), N was no longer prepared to resolve the proceedings on the basis initially offered and was, in a very real sense, responsible for costs thereafter being incurred in relation to the issues raised in the defence/cross-claim (that had not been in the contemplation of the parties or at least articulated in the proceedings at the time of the first Calderbank offer or the subsequent offers)." 20The relevant conclusion was then stated (at [70] and [72]): "Therefore, while I accept that the failure [of A] to accept the Calderbank offer [made by N on 10 March 2009] should have some consequences in relation to costs I consider that the import of this failure had run its course by the time N chose to raise a whole raft of other matters in relation to E's capacity and as to undue influence/unconscionable conduct by A and the like. . . . Balancing those matters, it seems to me that the appropriate costs orders as between A and N (leaving aside any costs referable to the existing costs orders made by Black J in July 2011 which remain in force), are that N should pay A's costs of the proceedings up to 10 March 2009 on the ordinary (party/party) basis; that A should pay N's costs from 11 March 2009 until 1 May 2009 on an indemnity basis; and that from 2 May 2009, N should pay A's costs on the ordinary (party/party) basis." 21N's complaint with respect to the relevant costs orders is that the judge's discretion miscarried when the advantageous basis of assessment ordered to apply from 11 March 2009 was terminated as of 1 May 2009. The contention is that the indemnity basis ordered against A and in favour of N as from 11 March 2009 should have continued indefinitely thereafter and that there was no proper ground for depriving N of that advantageous order - and also subjecting her to a costs order in favour of A (albeit on the ordinary basis) after 1 May 2009. 22Central to that contention are two propositions: first, that Order (1)(ii) awarding N costs on an indemnity basis from 11 March 2009 was properly made; and, second, that no event on or associated with 1 May 2009 warranted the making of new or further orders as to costs. A does not dispute the first proposition. The second of the propositions is challenged by A and, in my view, is not sustainable. 23The significance of the 1 May 2009 proposal to the question of costs is not that N failed to act as the proposal invited or suggested. Its significance is that it marked the start of a short period within which N set about steps that took the litigation into quite new and different paths. 24Before the filing of N's cross-claim in July 2009, the only extant claims were those of A against N directed towards specific performance of the 28 March 2008 deed by way of N's transfer of her interest in the Leichhardt property to A and N's vacating of the Concord property. It was in that context that the judge assessed the offer conveyed by N's solicitors' letter of 10 March 2009. That letter demonstrated a willingness and desire of N to achieve settlement on the basis that N retained her interest in the Leichhardt property but transferred to A her interest in the Concord property and yielded up vacant possession of that property and, in other respects, the claims of A were dismissed. By making that offer, N chose to engage solely with the claims made by A in the proceedings as instituted by A; and she did so on the implicit footing that the 28 March 2008 deed was valid and effective. 25The willingness and desire of N to settle on the basis set out in the 10 March 2009 offer later evaporated. N's silence in response to A's solicitors' letter of 1 May 2009 suggested that N no longer adhered to the proposal of 10 March 2009 letter; and N's actions soon after that date left no doubt that that was her position. Far from accepting the foundation of the 28 March 2008 deed, N indicated an intention of seeking to have that deed set aside. 26The radical shift in N's position was confirmed in July 2009 when she filed her cross-claim. The risks of the case changed adversely to A by reason of that shift. A was confronted by new claims that had played no part in her assessment of the situation at the time she was considering whether or not to accept N's offer of 10 March 2009. 27Relevant, therefore, is thinking outlined by Mahoney AP in Fowdh v Fowdh (unreported, NSWCA, 4 November 1993): "... It is one thing for a plaintiff to present her evidence, make an offer of compromise, and to succeed at the trial on that evidence. In such a case indemnity costs may be warranted. It is another thing for the plaintiff to present a case and make an offer of settlement, and then to succeed at the trial upon a relevantly different case. A plaintiff who has done that may not readily receive indemnity costs. I do not mean by this that minor differences between the case at offer and the case at trial will be of significance or that, if the difference be significant, a discretionary judgment for indemnity costs may not be given. But where the difference between the position at offer and the position at trial be as the Master assessed it to be, a decision to refuse indemnity costs may readily be understood." 28Here, the party making the offer (N) was the defendant. She had, by her solicitors' letter of 10 March 2009, made known her response to the claims made by A as plaintiff. Thereafter, in July 2009, she pursued a more far reaching response quite inconsistent with the initial response. Had that more far reaching response been articulated in the 10 March 2009 letter, it would have "been likely to have produced a different complexion to the litigation" so far as A was concerned (these are the words of Stein JA in Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Coy Pty Ltd [2001] NSWCA 461; (2001) 53 NSWLR 626 at [95]). 29The judge had a broad discretion as to costs; and when it came to the question of indemnity costs the central question went to the reasonableness or otherwise of parties' conduct. Appellate intervention is warranted in relation to a costs order only on grounds of the kind referred to in House v R [1936] HCA 40; (1936) 55 CLR 499 at 504-5, that is, if the judge has acted on a wrong principle, has allowed extraneous or irrelevant matters to guide or affect the decision, has mistaken the facts or has failed to take into account some material consideration; or if the result is, on the facts, unreasonable or plainly unjust. 30None of those criteria is satisfied here. The "different complexion" that N, in a formal way, caused the litigation to have from July 2009 had its origins in earlier events, including the making of the 1 May 2009 proposal. In evaluating the parties' conduct and questions of unreasonableness of conduct, the judge was justified in regarding the circumstances surrounding N's offer of 10 March 2009 as having been destroyed by N herself at a later time; and that was sufficient to allow Order (1)(iii) and Order (1)(iv) to be made in the exercise of the judge's discretion and without error of House v R kind. 31There is, however, another matter that was raised in the course of submissions. After stating the conclusions that came to be implemented by the making of Order 1(iii) and Order 1(iv), the primary judge said at [73] to [76] of the costs judgment: "I have considered whether there should be a deduction to the last component of the costs in order to reflect costs thrown away by the pleading and then abandonment of the collateral agreement claim. As to the matters raised in relation to this aspect of the case, I have concluded that there should not be any deduction by reference to the suggestion that the case could have been pursued (but for the collateral agreement claim) in the District Court, for the reason that there was no attempt to refer the matter to the District Court in the period from 2009 when the Summons was filed to April 2010 when the collateral agreement claim was first pleaded. I note that the pleading of the collateral agreement claim had the consequence that it might be said to have been necessary for E's representatives to play a greater role in the proceedings than would otherwise have been the case (as it was necessary to protect E's interests in relation to that claim). However, it seems to me that it would have been necessary for E to be represented at the hearing in any event in order to protect E's position in the event that findings in favour of N had been made on the capacity/undue influence claims. In that regard, I accept the submission of E's solicitor that E had an interest not only assisting the Court, but also in asserting and maintaining his entitlements pursuant to the March Deed. Finally, while I accept that, but for the pleading of the collateral agreement, it may not have been necessary for some of the evidence to have been adduced in relation to that agreement, ultimately N relied upon that evidence in support of her undue influence case. Therefore, I consider that the appropriate order to reflect costs thrown away by the abandonment of this claim would be to order that the costs order in A's favour is not to include costs of or incidental to the abandoned collateral agreement claim. That would, in my view, encompass the costs of the pleading itself and the costs of any evidence prepared by A in support of that claim but not ultimately relied upon at the hearing (but would not include any time occupied in relation to that issue at the hearing since the only use of the material in relation to that claim at the hearing was by N in support of her own case)." 32There was here a clearly stated intention to exclude from the costs awarded to A elements concerning the abandoned collateral agreement claim. The orders her Honour actually made did not give effect to this part of the decision. Both counsel appearing on the appeal accepted that this was so. The omission of an appropriate order was per incuriam and it is appropriate that this Court rectify the matter. 33In the result, therefore, I am of the opinion that N has not shown any basis for review of the exercise of discretion reflected by Order (1)(iii) and Order (1)(iv); but, for the reason just stated, those orders need to be supplemented by a further order that the costs thrown away by the abandonment of the collateral agreement case are excluded from the costs awarded to A. The orders I propose are as follows: