9 Thus, the plaintiff would be entitled to her costs on the ordinary basis up to 5 May 2009 and on the indemnity basis thereafter, unless a contrary order were made.
10 If the offer is to be considered not as an offer of compromise made under Pt 20 Div 4, but as a Calderbank offer of compromise, then different questions arise. In particular, before the plaintiff would be entitled to at least indemnity costs, it would be necessary for her to show that the defendant did not act reasonably in not accepting the offer.
11 Rule 20.26(2) provides that an offer of compromise under Pt 20 Div 4 "must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs".
12 Mr Blackburn-Hart SC for the defendant submits that because the offer contained a term that the plaintiff's costs on the indemnity basis and the defendant's costs on the party/party basis be paid out of the estate of the deceased, it was not an offer exclusive of costs and hence was not an offer of compromise within the rule.
13 This question was considered by the Court of Appeal in Trustee for the Salvation Army (NSW) Property Trust t/as Salvation Army v Becker (No 2) [2007] NSWCA 194. There the Court of Appeal found that Pt 20 Div 4 applies to probate proceedings (at [21]).
14 Mr Ellison SC submitted that it is in the nature of a probate proceeding that the possible element of compromise is to be found in costs, as the substantive relief to be granted (that is, the grant of probate to one party or another) is not in itself susceptible of compromise.
15 In Becker's case, after judgment at first instance had been given by which probate of a will was granted to the respondent to the appeal, the respondent made an offer to compromise the appeal on terms that the appeal be dismissed, that the costs of the appellants be paid out of the estate on the party/party basis and that the costs of the respondent be paid out of the estate on the indemnity basis. The offer was stated to be an offer of compromise under the Uniform Civil Procedure Rules, but if it were found not to be, it was stated to be an offer of compromise under the principles in Calderbank v Calderbank. Ipp JA, with whom Mason P and McColl JA agreed, found that the offer there in question was inclusive of the costs of the proceedings and, accordingly, no effect could be given to it under the Uniform Civil Procedure Rules. The Court of Appeal went on to say that it took effect as a Calderbank offer and found that the respondent's rejection of the offer was unreasonable. It was on the basis that the appellant's rejection of the offer was unreasonable that the appellant was required to pay the respondent's costs of the appeal on the indemnity basis from the time of the offer.
16 The form of the offer considered in Becker's case is not distinguishable from the form of the offer of compromise in the present case. Accordingly, the offer does not qualify as an offer of compromise under r 20.26 as it was not "exclusive of costs".
17 I should add that Mr Ellison submitted that the intention behind r 20.26 was that offers of compromise were not to be made which were inclusive of costs. He distinguished the offer in the present case from a typical offer made inclusive of costs, where a plaintiff is claiming a sum of money by way of debt or damages and either the plaintiff or the defendant offers to compromise that claim for a lesser sum inclusive of costs. The vice of such an offer is that it may be impossible to compare the outcome of the proceedings if the offer is not accepted with the offer expressed to be inclusive of costs.
18 However, the fundamental reason why such an offer cannot constitute an offer of compromise is that it falls foul of the terms of r 20.26(2) and is inconsistent with the costs provisions in r 42.13A where an offer is accepted. The point of distinction Mr Ellison sought to advance appears to me not to stand with the reasoning and the decision of the Court of Appeal in Trustee for the Salvation Army (NSW) Property Trust t/as Salvation Army v Becker (No 2).
19 The question then is whether any costs consequences should flow from the non-acceptance of the offer of 5 May 2009 considered not as an offer of compromise under the Uniform Civil Procedure Rules, but as a Calderbank offer. The key question in that respect is whether it was unreasonable for the defendant not to accept the offer. In my view it was not. Mr Blackburn-Hart, in advancing that proposition, relied in part upon the fact that at the time the offer was made, although the plaintiff's principal affidavit had been served, a number of other affidavits material to my ultimate conclusion had not been served. There is force in that, but independently of that consideration for the reasons that I gave at para [69] (Vaughan v Hoskovich [2010] NSWSC 706) I do not consider that it could be said that the defendant acted unreasonably in not accepting the offer.
20 The second offer of 1 October 2009, so far as it concerned the defendant, was to similar effect to the earlier offer, except that a fixed sum was specified as an agreed amount of costs to be paid to the defendant out of the estate. By the time of service of this offer all but one of the plaintiff's affidavits had been served, including, importantly, the affidavit of Dr Lindeman. However, the position remained as at October 2009 that the defendant was in what I earlier described as the invidious position of litigating a question whose resolution involved a value judgment on which minds might legitimately differ. This was by no means a clear case in which it could be said that a de facto relationship existed.
21 Mr Ellison referred to the decisions of Nicholas J in Becker v Public Trustee of New South Wales [2006] NSWSC 1146 at first instance and of the Court of Appeal in which indemnity costs were ordered in a probate suit where there had been failure to accept Calderbank offers, both at first instance and on appeal. The basis of each decision was that the defendant and appellant had acted unreasonably in rejecting the offers because they ought to have appreciated that the plaintiff was entitled to the grant. The facts were quite different from the present case.
22 In the present case the question as to whether or not the plaintiff and the deceased were in a de facto relationship was finely balanced, and I do not consider that the defendant acted unreasonably in rejecting the second offer.
23 Mr Ellison also submitted, correctly, that parties to litigation are encouraged to make reasonable offers and in this case there were two such offers made by the plaintiff. The fact that offers were made and were not accepted, albeit that the rejection or non-acceptance of the offer was not unreasonable, is itself a material consideration in the exercise of the discretion as to costs. But bearing in mind the additional facts of which I have learnt since making the earlier orders, I remain of the view which I expressed at para [69] of my reasons in Vaughan v Hoskovich [2010] NSWSC 706 that both parties were in the invidious position of litigating a question involving a value judgment on which minds might legitimately differ, where the answer to the question posed was not clear-cut, and where the deceased had been the effective cause of the litigation by not having made a will.
24 In the circumstances, I do not consider that I ought to make a different costs order than the orders I made on 30 June 2010. I therefore refuse the application to set aside those orders.