Nolan v Nolan [2003] VSC 136 | Case summary | Zoe

VICVSC

Nolan v Nolan

[2003] VSC 136

Supreme Court of Victoria|2003-05-05|Before: DODDS-STREETON J.

At a glance

AI case summary

Result

defendant. The plaintiff's substantive claim failed. The plaintiff was ordered to pay the defendants' costs of the proceeding on a party-and-party basis. The Court declined to order that the defendants pay...

Key principles

A court has a broad judicial discretion as to costs under s 24 of the Supreme Court Act and Rule 63.02 of the Supreme Court Rules; that discretion may be exercised to make...
Where a party serves a Notice to Admit disputing a fact or the authenticity of a document and that fact or document is later proved, Rule 63.18 creates a prima facie entitlement...
A 'Calderbank' letter (a without-prejudice save as to costs offer) is admissible and is a significant factor in the court's discretionary determination of costs where the offeree...
Order 26 (offer of compromise rules) does not cover 'all-in' offers where each party bears its own costs; accordingly a Calderbank letter which is an 'all-in' offer could not...

Issues before the court

Whether the defendants should pay the plaintiff's costs of proving documents after disputing their authenticity under a Notice to Admit (Rules 35.06...

Plain English Summary

The plaintiff sued for three paintings but failed at trial. She had served Notices to Admit which the defendants disputed, so she proved many documents at trial. Although that gave her a prima facie right to recover the costs of proving those documents, the court found the defendants were justified in disputing authenticity given the age and centrality of the material, and so declined to order defendants to pay those costs. The defendants had sent a without-prejudice-save-as-to-costs (Calderbank) letter offering to strike out the claim with each party bearing their own costs; the plaintiff rejected it and later failed at trial. The court held a Calderbank letter is an important factor when deciding whether to award indemnity costs, but it does not automatically require indemnity costs. Given the content and timing of the letter and the state of the case, the court refused to award indemnity costs and ordered that the plaintiff pay the defendants' costs on the usual party-party basis.

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Deep Dive

1,701 words · generated 03/07/2026

What happened

This was a trial-level costs and evidence dispute decided by Dodds‑Streeton J in Nolan v Nolan (No 2) ([2003] VSC 136). The plaintiff sued for ownership of three paintings. A central battleground at trial was documentary evidence. The plaintiff served a Notice to Admit (Rule 35 series) seeking admissions about many documents; the defendants refused to admit and the plaintiff consequently called eight witnesses (including overseas witnesses) to prove those documents. At the hearing the Court rejected the plaintiff’s substantive claim to the paintings. Post-trial the Court had to resolve two discrete costs questions: (1) whether the defendants should bear the plaintiff’s costs of proving documents they had disputed under Rules 35.06 and 63.18; and (2) whether a defendant’s without‑prejudice‑save‑as‑to‑costs (Calderbank) letter dated 22 October 2002, offering to strike out the claim with each party to bear their own costs and to relieve the plaintiff of a taxed interlocutory costs order, entitled the defendants to indemnity costs from that date because the plaintiff rejected the offer and recovered nothing at trial.

The judge admitted the bulk of the documents but held that the defendants were justified in challenging them and, exercising the discretion permitted by Rule 63.18, declined to award the plaintiff the costs of proof. On the Calderbank issue, the judge held that Calderbank letters are admissible and significant, but do not automatically create a presumption in favour of indemnity costs. Considering the letter’s lack of particularised reasons that the claim was bound to fail, the timing and quantum of the compromise and the fact the plaintiff’s claim was not demonstrably hopeless at the letter’s date, the judge refused to award indemnity costs and instead ordered that the plaintiff pay the defendants’ costs on the ordinary party‑and‑party basis (paras 30–34, 59–75, 141–162, 246–252).

Why the court decided this way

Two separate exercises of discretion drove the decision.

Costs for proving documents (Rules 35.06 and 63.18)
- The Rules set a prima facie rule: where a party disputes authenticity or facts in a Notice to Admit and is proved wrong, that disputing party must pay costs of proof unless the court otherwise orders (Rule 63.18 quoted at para 34). The plaintiff therefore had a prima facie entitlement.
- The court examined whether it should “otherwise order”. The judge emphasised the particular context: documents were central to the fundamental issue, the material was often old, a long time had elapsed before proceedings were brought, and the circumstances of creation/deposit created real grounds for challenge (para 72). Witness evidence often extended beyond sheer authentication.
- On that basis the Court concluded the defendants were “fully justified” in challenging admission and, in the exercise of a judicial discretion, declined to make the plaintiff recover the costs of proof (paras 69–75).
Whether a Calderbank letter triggered indemnity costs
- The Court explained the ordinary rule: costs follow the event on a party-party basis, and an order for indemnity costs requires “special or unusual circumstances” (paras 82–88).
- Calderbank letters, as a species of without‑prejudice‑save‑as‑to‑costs communication, are admissible on costs and are a significant factor to be weighed (paras 141, 156, 166). Authorities differ, however, on whether a Calderbank letter creates a starting presumption in favour of indemnity costs (paras 172–199).
- The judge rejected a rigid predisposition rule. A Calderbank offer is an important factor, but the reasonableness of the offeree’s rejection, the specificity of the reasons in the offer and the stage at which it was made are all relevant (paras 246–246).
- Applying these principles to the defendants’ letter, the Court found the letter was an “all‑in” offer that could not have been made under Order 26 (because Order 26 requires the offeror to pay costs up to the date of an acceptance), and the letter lacked particularised reasons demonstrating inevitability of the plaintiff’s failure. The compromise element was real but modest given the claimant’s case. On balance it was not plainly unreasonable for the plaintiff to reject the offer, so indemnity costs were not justified (paras 153–162, 202–252).

Before and after state of the law

Before this decision the legal landscape contained competing authorities on Calderbank letters. Some judges (e.g. Rolfe J in Multicon/Multican and Gillard J in Aqua‑Max) suggested a degree of predisposition in favour of indemnity costs where a reasonable Calderbank offer is rejected and not bettered at trial. Other authorities, particularly in the Federal Court (eg Lindgren J in NMFM Property), resisted any presumption and placed the onus on the offeror to prove the offeree’s non‑acceptance was imprudent given the particulars of the offer.

Dodds‑Streeton J reconciled these divergent approaches by holding that Calderbank letters are significant but not determinative. The Court should weigh the letter along with other factors (timing, particularity, reasonableness of rejection, whether the offer could have been made under the formal offer rules in Order 26). Importantly, the judgment clarifies that an "all‑in" offer (each party bears own costs) cannot be made under Order 26 and that Calderbank offers of that type will be assessed under the court’s general costs discretion (paras 104–116, 153–156, 166–246). Thus, the decision preserves the discretionary nature of costs law while confirming that Calderbank letters deserve substantial weight, but not an automatic presumption to indemnity costs.

Key passages with plain-English translation

Para 34 (Rule 63.18 text): "Where a party disputes the authenticity of a document and is proved wrong, he shall pay the costs of proof unless the Court otherwise orders."
- Plain English: If you challenge a document and lose, you normally pay the expense of proving it, but the judge can decide differently.
Para 72: "Many of the documents were central... the age... dictated a cautious approach and justified argument and challenge."
- Plain English: The documents were vital and old, so the defendants acted reasonably in doubting them; their disputes were not frivolous.
Para 246: "A Calderbank offer is a significant factor in favour of indemnity costs but does not dictate them or require an order for indemnity costs as a matter of routine."
- Plain English: A without‑prejudice‑save‑as‑to‑costs offer matters a lot when deciding costs, but it does not automatically mean indemnity costs must follow.
Para 252: "In all the circumstances, I consider that the plaintiff should pay the defendants' costs of the proceeding on a party-party basis."
- Plain English: After weighing everything, the judge ordered the unsuccessful plaintiff to pay the defendants' ordinary legal costs.

What fact patterns trigger this precedent

This judgment will be instructive whenever:

A party serves a Notice to Admit disputing the authenticity of documents and is later proved wrong, and the question arises whether the disputing party must bear the costs of proof (Rules 35.06 and 63.18).
A defendant serves a without‑prejudice‑save‑as‑to‑costs (Calderbank) letter offering an "all‑in" compromise (each party to bear their own costs), the offeree rejects it, and the offeree later fails at trial, the court will assess: was the offer sufficiently particularised; was there an element of meaningful compromise; was rejection plainly unreasonable; could the offer have been made under Order 26; what stage of litigation was the offer made.
Disputes where the documentary evidence is old, central to the case and its provenance is in doubt, those circumstances justify caution and may defeat a prima facie costs entitlement under Rule 63.18.

How later courts have treated it

This decision engages with a line of Victorian and Federal authorities addressing costs consequences of Calderbank letters and Rule‑based offers. Dodds‑Streeton J expressly follows and distinguishes authorities such as Multicon/Multican and Aqua‑Max (which supported a predisposition in favour of indemnity costs), while acknowledging Federal Court pronouncements (NMFM Property) that resist such a presumption. The practical effect is to consolidate an approach that treats Calderbank letters as an important but fact‑sensitive factor. Later courts (both at trial and appellate level) will likely cite Nolan v Nolan (No 2) for the proposition that Calderbank letters do not automatically produce indemnity costs and that the court must weigh particularity, timing and reasonableness. The decision reinforces the discretionary and contextual nature of costs orders rather than endorsing a rigid rule in favour of indemnity costs.

Still-open questions

The judgment recognises divergence of authority on predisposition. It does not definitively settle whether a particularly detailed Calderbank letter, containing concrete and specific reasons demonstrating the inevitability of failure, will always give rise to a rebuttable presumption in favour of indemnity costs. Nolan suggests a strong tendency but leaves scope for different outcomes depending on facts.
The precise boundary between an offer that could or could not have been made under Order 26 (and therefore the interplay between formal offer rules and Calderbank letters) will continue to generate litigation. Nolan holds that "all‑in" offers cannot be made under Order 26, but does not exhaustively define when a conditional or hybrid offer may fall into either regime.
The quantification and apportionment of costs where multiple discrete issues are litigated remains inherently discretionary. Nolan illustrates principles for apportioning or denying costs of proof, but subsequent cases will need to further develop guidelines for the level of particularity in pleading and in advices that would make rejecting a Calderbank offer plainly unreasonable.
Finally, the judgment touches upon policy concerns (paras 236–242) about the widening gap between party‑party taxed costs and actual solicitor charges. The Court of Appeal's caution against routine elevation of indemnity costs remains influential; however, structural reform (rule changes or guideline taxation practices) could alter the practical incentives implicit in Nolan.

Practical takeaways for litigators and advisers:

Use Notices to Admit thoughtfully; expect that disputing parties who are justified in challenging old, central or suspicious documents may successfully resist a costs order under Rule 63.18.
When making a Calderbank letter, particularise the reasons why the offeree is likely to fail if that is genuinely your position; be clear about the compromise value and the costs consequences you seek to invoke.
Advisers receiving a Calderbank letter must realistically appraise the prospects, the quantum of compromise, and the stage of litigation; a well‑reasoned rejection might avoid indemnity exposure, but an unexplained or cavalier refusal can attract serious cost consequences in an appropriate case.

Judgment (102 paragraphs)

[1]

[2003] VSC 136

[2]

COSTS - Supreme Court Rules - Rules 35.06 and 63.18 - Where party disputes facts or authenticity of documents mentioned in a Notice to Admit, and facts or documents are proved - Circumstances in which disputing party not ordered to pay the costs of proof.

[3]

COSTS ON INDEMNITY BASIS - Effect of Calderbank letter - Whether creates predisposition to order costs on indemnity basis - Calderbank letter as relevant factor in award of costs on special basis.

[4]

Costs are within the discretion of the court pursuant to s.24 of the Supreme Court Act (1986) (Vic) and Rule 63.02 of the General Rules of Procedure in Civil Proceedings 1986 ("Supreme Court Rules"). The discretion must be exercised judicially, with reference to relevant principles.

[5]

Section 24 of the Supreme Court Act provides:

[6]

"(1) Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid."

[7]

Rule 63.02 of the Supreme Court Rules provides:

[8]

"The power and discretion of the Court as to costs shall be exercised subject to and in accordance with this Order."

[9]

Rule 63.04 of the Supreme Court Rules provides:

[10]

"(1) The Court may make an order for costs in relation to a particular question in or a particular part of a proceeding. (2) Where the Court makes an order under paragraph (1), the Court shall by order fix the proportion of the total costs of the proceeding which is attributable to the particular question in or the particular part of the proceeding."

[11]

Generally, costs follow the event. "Event" in this context is not limited to the ultimate outcome but may extend to every issue in the proceeding.

[12]

In the present proceeding I have found that the plaintiff has not established her claim to the three paintings in dispute, in that the alleged gift of chattels was not made out. I further found that, had the alleged gift to be established, a defence based on limitation of actions legislation would have been made out.

[13]

The defendants submit that the plaintiff should pay their costs on a party and party basis up to and including the date of service of a letter of Nathan Kuperholz, solicitor for the defendants, to the plaintiff's solicitor dated 22 October 2002 (which contained an offer of compromise) and, from the date of service of that letter, the plaintiff should pay the defendants' costs on an indemnity basis.

[14]

The plaintiff submits that she should pay only 60% of the defendants' costs on a party and party basis, and that, pursuant to Rule 63.18 of the Supreme Court Rules, the defendants should pay the plaintiff's costs of proving a number of documents admitted into evidence, (the proportion of such costs to the total costs of the proceeding being 40%).

[15]

Plaintiff's Costs - Apportionment on Admission and Proof of Documents pursuant to Rules 35.06 and 63.18 of Supreme Court Rules

[16]

Rule 35.06 of the Supreme Court Rules provides:

[17]

"Where a party serves a notice under Rule 35.03(2) or 35.05(2) disputing a fact or the authenticity of a document, and afterwards that fact or document is proved in the proceeding, liability for costs shall be determined in accordance with Rule 63.18."

[18]

(a) under Rule 35.03(2) disputing a fact, and afterwards that fact is proved in the proceeding:

(b) Under Rule 35.05(2) disputing the authenticity of a document, and afterwards the authenticity of that document is proved in the proceeding,

he shall pay the costs of proof, unless the Court otherwise orders."

[19]

The plaintiff, by Notice to Admit dated 24 September 2002 prepared pursuant to Rule 35.03 of the Supreme Court Rules, sought factual admissions relating to a large number of documents as business records of various entities and admissions as to the authenticity of those documents. The defendants did not admit the documents. The plaintiff was obliged to call eight witnesses, including four overseas witnesses, to prove the documents.

[20]

The plaintiff submits that there was no, or no significant, cross-examination of such witnesses. The preponderance of the documents was admitted.

[21]

The plaintiff estimates that 40% of the trial was attributable to the admission of the documents. The plaintiff submits that in contrast to the defendants' approach on admissibility, the plaintiff's approach was to admit many documents tendered by the defendants without requiring formal proof.

[22]

The plaintiff relies on Rule 63.18 and also contends that the admissibility of documents was a discrete and significant issue which justifies a separate costs order. It is submitted that the defendants' conduct put the plaintiff to unnecessary expense.

[23]

The defendants submit that the evidence given by each of the witnesses was not confined to the authenticity of the documents. They further contend that the plaintiff in substance failed on all issues and any success was merely "evidentiary". The defendants challenge the plaintiff's analysis of rulings on documents and contend that the plaintiff has conflated authenticity and admissibility in this context. They submit that apportionment is generally regarded as undesirable.[1]

[24]

It is established that the court, in its discretion, may apportion costs according to issues against a defendant who is ultimately successful. Further, it has been recognised that there is no principle that such an apportionment should be confined to circumstances in which the successful party acted so unreasonably that it should suffer a penalty in relation to costs.[2]

[25]

I do not consider that the plaintiff should receive costs in relation to the proof and admission of documents in the present case. Gillard J observed in M.T. Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No. 3), in relation to apportionment on issues:

[26]

"The issue whether a successful party should pay costs in respect of issues raised by it on which it failed depends on whether the party was acting reasonably in the circumstances."[3]

[27]

In Meadow Gem Pty Ltd v ANZ Executors and Trustees,[4] Byrne J considered that a general order for costs does not bring into play a provision that requires that the court "otherwise order". A general order for costs was therefore not an "order otherwise" for the purpose of Rule 63.18. His Honour accepted that whether an order under Rule 63.18 should be made was a matter of discretion. He considered that the correct approach to Rule 63.18 was that, prima facie, the disputing party must pay the costs of proof of a fact where a Notice to Admit has been given. The question would then be whether the party so entitled to the costs should be deprived of them. Byrne J considered that success in the litigation, rather than reasonableness, should be the usual determinant, and "absent some special factor" each party "runs a risk that, if the plaintiff or the party giving the Notice to Admit succeeds, a costs burden must be accepted".[5]

[28]

Whether the correct approach is reasonableness, or success "absent a special factor", I consider that I should exercise my discretion in the defendants' favour.

[29]

In the present case, although I ultimately admitted the preponderance of the documents in question, I consider that the defendants were fully justified in challenging their admission on general principles and in requiring formal proof.

[30]

Many of the documents were central to the fundamental issue in dispute. The lengthy period of time which had elapsed prior to issuing the proceeding, the age of many of the documents, and the circumstances of their creation or deposit, dictated a cautious approach and justified argument and challenge. The defendants correctly, in my view, submitted that such factors may have justified an exercise of the court's discretion to reject documents or statements under s.55(9) of the Evidence Act 1958 (Vic), even if they were otherwise admissible. In many instances, admission depended on the drawing of inferences pursuant to s.55C of the Evidence Act. The plaintiff benefited from the decision to admit documents where circumstances adverted to by the defendants may have justified an exercise of discretion to reject them. The defendants should not be penalised for that. Further, as the defendants point out, the evidence of the relevant witnesses was not confined solely to matters of authenticity.

[31]

I consider that it would be unjust in all the circumstances of this unusual case to require the successful defendants to bear the significant costs of the discrete issue of proof and admissibility of documents, which they were, in my opinion, wholly justified in challenging. Although the defendants disputed the authenticity of documents and associated facts ultimately proved in the proceeding and should prima facie pay the costs of proof pursuant to Rule 63.18, I shall "otherwise order" as contemplated by the rule.

[32]

Defendants' Costs on an Indemnity Basis from 22 October 2002?

[33]

The second issue for determination is whether the plaintiff should be ordered to pay the defendants' costs on an indemnity basis from 22 October 2002.

[34]

The usual basis for an award of costs is party and party. The Court of Appeal has recently reaffirmed that the trial judge, acting judicially and not unreasonably, has a wide discretion in relation to costs.[6] Further, Chernov JA (with whom Callaway and Buchanan JJA agreed) reiterated a warning against inflexible guidelines or overly specific reliance on decisions in other cases in this context.

[35]

The clearly established principle is that there must be special or unusual circumstances bringing a case out of the ordinary to move a court to order costs on a basis other than party and party. This is despite the fact that, as Callaway JA observed, in practice the gap between party-party costs and the costs a successful litigant must pay to his or her own solicitors is now "too great". Callaway JA nevertheless observed that that circumstance should not lead judges into too readily opting for an extraordinary order.

[36]

Typical examples of matters which may justify an order for solicitor and client or indemnity costs are well set out in decisions such as that of Harper J in Ugly Tribe Co v Sikola.[7] Special circumstances may include making allegations of fraud where it is irrelevant or known to be false, conduct causing loss of time to the court and other parties, commencing or continuing the proceedings for an ulterior motive, conduct which amounts to a contempt, commencing or continuing proceedings in wilful disregard of known facts or clearly established law and the failure to discover documents in a timely way, whereby the trial may have been avoided or shortened.

[37]

In that context, the special circumstance justifying costs on a higher basis than party and party is a species of misconduct as a litigant, such as highhandedness or unmeritorious conduct, persistent aggressive non-cooperation in the litigation, creation of false issues, wild allegations and the like.

[38]

Similarly, costs on an indemnity basis may be justified by highhanded presumption, deliberate prolongation of the trial, deliberately false allegations and raising specious issues, collateral purposes, want of honest belief and the absence of objective prospects of success where the losing party ought to have known it.

[39]

Unreasonableness, dishonesty, improper purposes and abuse of the litigation and trial process are what is principally in focus, but the categories of circumstance justifying solicitor-client or indemnity costs are not closed.

[40]

I do not consider that any of the above matters characterised the plaintiff's conduct in this case, so as to justify an order for costs against her on an indemnity basis. The question arises whether an offer by the defendants contained in a Calderbank[8] letter dated 22 October 2002, and rejected by the plaintiff, justifies such an order. .

[41]

Order 26 of the Supreme Court Rules makes specific provision is made for payment of indemnity costs after service of an offer of compromise in certain defined circumstances.

[42]

However, Order 26 does not provide for the situation where a defendant makes an offer of compromise and the plaintiff wholly fails. Further, Order 26 does not allow for "all in " offers.

[43]

A formal offer of compromise is made under Rule 26.02 which must accord with the rules applicable to court documents in Rule 27.02 to .04, and must contain a statement that the offer is served in accordance with Rule 26.02. The offer must be open for acceptance for at least 14 days after service.

[44]

Acceptance of an offer made under Order 26 does not extinguish the court's jurisdiction over costs. However, by Rule 26.03(7), on acceptance, unless the court otherwise orders, the defendant shall pay the costs of the plaintiff in respect of the claim up to and including the day the offer was served. Any provision negativing Rule 26.03(7) is of no effect, by Rule 26.03(8). By Rule 26.08(2) if there is a failure to accept a plaintiff's offer of compromise by the time of the verdict or judgment, the plaintiff is entitled to costs on an indemnity basis from the date of service if the defendant does not better the offer, unless the court otherwise orders.

[45]

Rule 26.08(3) provides that if the defendant makes the offer and the plaintiff obtains judgment but does not better the offer, the defendant is entitled to party/party costs after the date of service of the offer.

[46]

The rule is silent as to what the cost consequences will be if the defendant makes an offer and if the plaintiff fails altogether.

[47]

In the present case, the defendants by the letter of Nathan Kuperholz dated 22 October 2002 to the plaintiff's solicitor, made an offer of compromise.

[48]

The letter was marked "without prejudice save as to costs".

[49]

The defendants' offer was that the matter be resolved by striking out the plaintiff's claim with no order as to costs, and that each party, in full discharge and release of all claims against the other arising out of the proceeding, bear his or her own costs.

[50]

The letter expressly noted that acceptance of the offer would relieve the plaintiff of her liability to pay the defendants' costs pursuant to the order of Nathan J made 14 September 2001. Those costs were taxed on 30 April 2003 at $19,659.

[51]

The letter further noted briefly that the defendants considered that the plaintiff had no reasonable prospects of success in the proceeding. The letter provided no details or specific reasons for the conclusion that the plaintiff had no reasonable prospects of success.

[52]

The letter noted the view that costs would be disproportionate to the claim and set out reasons for that. It gave the plaintiff a nine day period (until 31 October 2002) to accept the offer.

[53]

The letter stated that it might be relied upon in relation to costs, including an application for indemnity costs, or solicitor and client costs, on the basis of the principles in Calderbank v Calderbank[9] and Cutts v Head[10].

[54]

The plaintiff submits that the offer could have been made under Order 26, that it gave an abridged time for acceptance to an overseas party, contained no particulars of allegation of the strength of the defendants' case and in effect offered the plaintiff nothing relative to her claim.

[55]

The defendants, in oral and written submissions, contended that the offer was, in the circumstances, generous, particulars were unnecessary because the plaintiff's claim had been rejected by Nathan J in the context of an interlocutory injunction application as having no reasonable prospects of success, the plaintiff could have been contacted, the claim was stale and certain weaknesses had already been exposed. The affidavit of Nathan Kuperholz sworn 2 May 2003 sets out extracts of correspondence relevant to the preparation of the matter, the plaintiff's Notice to Admit and the Calderbank letter.

[56]

The plaintiff by way of reply, submitted that at the date of the Calderbank letter, the outcome of the trial was not "perfectly predictable", additional material was discovered after the application before Nathan J, and the offer held "no real attraction" for the plaintiff. The plaintiff also submitted that the defendants amended their defence following the Calderbank letter and that amendments to Order 26 of the Supreme Court Rules came into operation.

[57]

In my opinion, the offer could not have been made under Order 26 because it is an "all in" offer providing that each party bear its own costs, contrary to Rule 26.03(7). The possibility that the court might "otherwise order does not overcome the express terms of rules 26.03(7) and (8).

[58]

The letter was in the form of a Calderbank letter and is admissible in evidence on the issue of costs after the findings of the court have been published.

[59]

The offer in the letter is on the basis that each party to the proceeding bears her or its own costs, but also expressly relieves the plaintiff of the costs ordered against her by Nathan J for which she would otherwise be liable, which have now been taxed at $19,659.

[60]

The plaintiff in this case has been unsuccessful. She has recovered nothing. The offer of compromise set out in the letter therefore represents a greater sum to the plaintiff than she has recovered in the proceeding. Alternatively, it may be said that the offer was "not bettered".

[61]

Whilst some judges have doubted that an "all-in" offer constitutes a Calderbank offer,[11] Gillard J in M.T. Associates Pty Ltd v Aqua-Max Pty Ltd (No. 3) was strongly of the view that an offer on an all inclusive basis does amount to a Calderbank offer. His Honour noted that the mere fact that the offer required the offeree to "determine the likely value of the claim and the likely costs to date" did not rule it out. His Honour stated that there is usually "little difficulty in making an assessment of the likely amount of the claim and costs".[12]

[62]

Gillard J in M.T. Associates Pty Ltd v Aqua-Max Pty Ltd (No. 3) endorsed the approach of Rolfe J in Multican Engineering Pty Ltd v Federal Airports Corporation[13] in relation to Calderbank letters.[14]

[63]

In Multicon Engineering Pty Ltd v Federal Airports Corporation, Rolfe J stated that when an offer is made in a Calderbank letter "in circumstances where there can be no doubt that if the offeree does not accept it the making of the offer will be called in aid of an application for an award of indemnity costs if the offer is not bettered and, provided the offer reflects a compromise, the court commences in its consideration of the application from the position that such an order should be made, unless the offeree can persuade the court that it should not be".[15] His Honour acknowledged that the ultimate decision will depend on the consideration of the particular facts and circumstances.

[64]

Rolfe J, with whom Gillard J agreed, took the view that a Calderbank letter should, (where the offeree rejected the offer and failed to obtain a better result), predispose the court to order that the offeror should be entitled to indemnity costs from the date of service of the letter.

[65]

Gillard J in Aqua-Max forcefully expressed the view that courts, in the public interest, should encourage litigants on both sides of the record to make offers of compromise. His Honour adverted to the great and spiralling costs of litigation. He observed that if a proposal is put forward, the litigant and his or her advisers ignore it at their peril. He stated that in this context, the offeree must make an assessment and overly technical reasons for not seriously considering an offer should be rejected.

[66]

His Honour recognised that some Federal Court decisions did not support the view that there should be a predisposition to make a special order. However, while the Rolfe J/Gillard J approach supports a predisposition, it contemplates that the offeree may still show "good cause" as to why the offer was rejected.

[67]

In M.T. Associates v Aqua-Max, Gillard J considered that the defendants, in persisting in the proceedings after being warned that if they recovered less, it would be at their expense, had acted unreasonably. He held that they should therefore pay solicitor/client costs from the date of service.

[68]

In Mutual Community Ltd v Lorden Holdings Pty Ltd & Ors,[16] Byrne J also took the view that "super-added penalty" costs on an indemnity basis might apply if a reasonable offer were not accepted. He ordered indemnity costs against a plaintiff who had rejected an offer of compromise on the basis that the parties bear their own costs, but who subsequently proved wholly unsuccessful. Although Byrne J considered that the rejected offer should be reasonable in order to entail indemnity costs, there is no detailed discussion of why he took the view that the offer made to the plaintiff was reasonable in the specific circumstances of the case.

[69]

In NMFM Property Pty Ltd v National Mutual Property Services,[17] Lindgren J of the Federal Court expressed a different view on the issue of predisposition or onus in this context. His Honour did not accept that a Calderbank offer created a presumption in the offeror's favour. Rather, he considered that the offeror would bear the onus of establishing that non-acceptance was imprudent or plainly unreasonable.

[70]

In that case, the defendant (Citibank) made the offer of compromise. The offer was on the basis that each party bears its own costs. The letter expressed various predictions on the outcome of issues in dispute, which were ultimately borne out.

[71]

Lindgren J in NMFM Property stated that "'the requirements of sufficient particularity' and `inevitability of failure' are important".[18] He was influenced by the degree of particularity put to the offeree as to why it must fail in the litigation. He took the view that in the absence of assertions particularising the inevitability of failure, one might as well, in essence, just rely on the pleadings and point to them, and an award of indemnity costs would follow from the date of service of the letter.

[72]

In the absence of specific reasons as to why the offeree's failure was inevitable, Lindgren J considered that the view might "reasonably and prudently be taken" by the offeree that what was being put in the letter would not come to pass, and the plaintiff "was entitled to pursue its claim without running the risk of an order for indemnity costs." He noted that the considerations put in the letter "were not so obviously correct that the offeree behaved imprudently or plainly unreasonably in not accepting with alacrity the small element of compromise present in the offer made".[19]

[73]

In the present case, there was no particularity of the inevitability of failure in the Calderbank letter. The element of compromise was relatively small, though larger than in NMFM Property and larger than in Mutual Community Ltd v Lorden, in which the offer was also on the basis that each party bear its own costs.

[74]

There are a number of decisions in this court in which solicitor/client or indemnity costs were ordered after rejection of a Calderbank offer. In Aqua-Max, an influential decision, Gillard J considered whether the rejection of the offer was unreasonable in all the circumstances. His Honour diverged from the Federal Court approach in relation to predisposition or onus. Byrne J in Mutual Community Ltd v Lorden did not give such detailed consideration, but did assume that the penalty of super-added costs should apply only if a reasonable offer is rejected.[20]

[75]

In Clarke v ABC,[21] the defendants offered the plaintiff a payment of $75,000 and party party costs in a Calderbank letter. The plaintiff subsequently achieved a better outcome at trial. Ashley J endorsed Gillard J's approach, and therefore implicitly accepted that reasonableness is a significant factor. His Honour considered whether the offer was made at a stage when the offeree was well able to assess both the probable and possible outcomes of the proceeding and to resolve upon a response.

[76]

The objective endorsed by at least three judges of this court is as stated by Gillard J:

[77]

"The object of making an offer is to bring litigation to an end and to put on notice the other side that if it refuses the offer and subsequently the offeror recovers more in the proceeding, then justice and fairness requires that a special order for costs be made."

[78]

In the present case, the defendants' offer did not contain detailed reasons why the plaintiff's claim must fail, as in NMFM Property. The Supreme Court of Victoria's decisions referred to above do not appear to have proceeded on the basis that this is necessarily a significant factor.

[79]

In Pearson v Williams[22] Ashley J recently addressed the differences in judicial opinion in relation to Calderbank letters.

[80]

(1) A Calderbank letter is to be given effect if the offer of compromise which it communicates could have been made under Rule 26.02.

(2) A conditional offer probably falls outside Order 26.

(3) There is a difference in judicial opinion as to whether rejection of a Calderbank offer which the offeree does not better at trial creates a "starting point" that the offeror is entitled to solicitor and client (or indemnity) costs unless the offeree can show good cause to the contrary. Ashley J considered that there was merit in both approaches to "predisposition", but ultimately considered that a clear offer in a Calderbank letter (for which Order 26 was not available) made it appropriate to start with a predisposition in favour of solicitor-clients costs.

(4) Whether or not consideration of the costs issue began with a certain predisposition, in addition to the Calderbank offer, the types of circumstances typically relevant to determining whether a special costs order should be made, will remain relevant. Unreasonableness of the offeree's conduct will be relevant , as "no more than a shorthand for the varied circumstances which it will be legitimate for the court to consider."[23]

[81]

Aqua-Max, Clark v ABC and Pearson v Williams did not deal with the situation of a plaintiff offeree who was unsuccessful at trial.

[82]

Mutual Community v Lorden dealt with a plaintiff offeree which wholly failed and which received an offer of compromise on the basis that each party bear its own costs. However, that costs application was not the principal focus of the decision and the judgment does not reveal the particular circumstances of the case.

[83]

Order 26 of the Supreme Court Rules does not provide for payment of indemnity costs by an unsuccessful plaintiff. I questioned whether the omission reflected an unstated policy that plaintiffs should not be subjected to a costs penalty on the same basis as defendants in this context, but my own researches and those of counsel did not reveal the existence of such a policy.

[84]

I note the Court of Appeal's recent statement that an indemnity basis should not be elevated to the usual basis for a costs order and that bona fide plaintiffs should in general not be penalised for pursuing their claims. The Court of Appeal's caveat against an overly-rigid reliance on precedent in the exercise of this discretionary power is also clear.

[85]

If Calderbank letters offering settlement on the basis that each party bear its own costs without any further particularity than that contained in the pleadings were served early in a proceeding, and routinely given full effect, indemnity costs could, by a de facto process, displace party-party as the usual basis of a costs order.

[86]

In the light of the Court of Appeal's recent reaffirmation that the problems associated with the growing gap between party and party costs and costs actually payable to a party's solicitor should not lead to a departure from the usual party and party basis for costs, and its caveat that reference to other decisions should not constrict the discretionary nature of an award of costs, it may be that a Calderbank offer, taken in isolation, should not create any predisposition to award indemnity costs, although it should be a factor in favour of such an order. This may ultimately be a matter of semantics, with variations in expression obscuring a fundamentally similar judicial approach.

[87]

I consider that a Calderbank letter is but one factor relevant to the discretionary determination of costs. A Calderbank offer is a significant factor in favour of indemnity costs but does not dictate them or require an order for indemnity costs as a matter of routine. The reasonableness of the offeree in rejecting a Calderbank offer is one important factor in determining the weight to be attributed to it. The degree of specificity of reasoning expressed in the letter, the stage at which the letter is received, and the content of and response to the offer, may all be relevant to reasonableness.

[88]

In the present case, the Calderbank offer was that the defendants would forego their claim to the costs of the plaintiff's application for an interlocutory injunction (now taxed at $19,659) and that each party would bear her or its own costs. No reasons or particulars of why the plaintiff's claim had no reasonable prospects of success were set out. The defendants' assertion went no further than the pleadings. The element of compromise offered was not negligible, but it was relatively modest given the quantum and nature of the plaintiff's claim.

[89]

In my opinion, although at that stage it must have been clear that the plaintiff's case faced very significant hurdles, it could not fairly be said that the plaintiff's claim was clearly hopeless. I do not consider that the failure to accept the offer was plainly unreasonable or that the plaintiff's conduct otherwise warranted an order for indemnity costs. Further, I have exercised my discretion to deny the plaintiff her costs in relation to the proof and admission of documents. None of those matters, taken in isolation, might exclude an order for indemnity costs, but I must consider their combined effect. In all the circumstances, I consider that the plaintiff should pay the defendants' costs of the proceeding on a party-party basis.

[90]

[1] Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] VicRp 12; [1991] 1 VR 129; LMI v Baulderstone (No. 2) [2002] NSWS; Fexuto Pty Ltd v Bosjjak Holdings Pty Ltd (2001) 37 ASCR 672; c/f The State of Victoria v The Master Builders Association of Victoria SCV (Appeal Div) 15 December 1994 per Ormiston J at 6-7.

[91]

[2] Rosniak and Government Insurance Officer v GIO [1997] 41 NSWLR 608.

[92]

[3] [2000] VSC 163 (3 May 2000) at para 165.

[93]

[4] Supreme Court, Vic, 11 June 1996, Byrne J. BC 9602422.

[94]

[6] PCRZ Investments Pty Ltd v National Golf Holdings Ltd, [2002] VSCA 24, 14 March 2002.

[95]

[7] [2001] VSC 189, 14 June 2001 at para 7.

[96]

[8] Calderbank v Calderbank [1975] 3 All ER 333.

[97]

[10] [1983] EWCA Civ 8; [1984] 1 All ER 597.

[98]

[11] Smallacombe v Lockyer [1993] FCA 169; (1993) 114 ALR 568 at 573.

[99]

[16] Unreported, SC Vic, Byrne J, 28 April 1993, BC9303878.

[100]

[17] Unreported, FC, Lindgren J, 27 April 2001, BC200101932.

[101]

[21] [2001] VSC 274 (9 August 2001).

[102]

[22] [2000] VSC 30 (26 February 2002).