Walsh v Walsh

Supreme Court of NSW|2013-08-19|Before: Hallen J, Mr J

Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 Walsh v Walsh (2013) NSWSC 1065 Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 Category: Costs Parties: John William Walsh (Plaintiff) Allan James Walsh (first Defendant) Joan Catherine Bonning (second Defendant) Representation: Counsel: Mr G McVay (Plaintiff) Mr J H Stephenson (Defendants) Solicitors: Mills Oakley Lawyers (Plaintiff) P J Wood & Associates (Defendants) File Number(s): 2012/193223

Judgment 1HIS HONOUR: In this matter, I delivered principal reasons for judgment on 12 August 2013, the medium neutral citation of which is Walsh v Walsh [2013] NSWSC 1065 ("the principal judgment"). In those reasons, I determined that the Plaintiff's claim for a family provision order should succeed and that he should receive a lump sum calculated as 37 per cent of the net proceeds of sale of the Darlington home, such amount to be calculated after the payment of such costs of the proceedings as were ordered to be paid out of the estate of the deceased. 2During the hearing of the substantive proceedings, I was requested not to deal with the how the costs of the proceedings should be borne. I suggested that the question of costs might be dealt with at the time of publishing the principal judgment. However, at that time, the Plaintiff's counsel was not available, so I was not able to deal with costs. Without objection, the Defendants' counsel then filed in Court an affidavit of Peter John Wood, the Defendant's solicitor, to be read on the costs hearing. I adjourned the costs hearing to enable the parties to see if they could reach agreement on the issue of costs. Unsurprisingly, they have not been able to do so and the costs hearing took place on 19 August 2013. 3At the costs hearing, the Plaintiff did not rely upon any evidence in support of his opposition to the orders sought by the Defendants. The affidavit of Mr Wood to which I have referred was read without objection. There was no cross-examination of the Defendants' solicitor. 4I shall not set out, in detail, all of the correspondence that passed between the solicitors for the parties regarding resolution of the proceedings prior to the hearing, a copy of which correspondence was annexed to the affidavit of Mr Wood. There were offers and counter-offers made by each party commencing on 6 November 2012 and ending on 19 July 2013. 5At the costs hearing, the parties agreed that the offer that was of principal relevance in the proceedings was one, made on behalf of the Defendants in a letter dated 4 December 2012, which offer was in the following terms: "... (a) That your client receive 40% of the residuary estate with the balance of the residuary estate to be shared equally between the Defendants and Mr James Kevin Walsh. (b) That your client vacate the Darlington property no later than two weeks prior to settlement of the sale thereof. (c) That the Plaintiff's costs of the proceedings on a party/party basis and the Defendants' costs of the proceedings on an indemnity basis be paid out of the Estate. (d) That the settlement be documented by way of Consent Orders and a Deed of Release and Indemnity. ... The offer is made in accordance with the principles contained in Calderbank and is open for acceptance for 10 days from the date hereof." 6The parties agreed, also, that the offer contained in the letter was what is described as a "Calderbank offer": see, Calderbank v Calderbank [1975] 3 All ER 333; 3 WLR 586. 7There is no evidence of any response from the Plaintiff's legal representatives to the letter from the Defendants' solicitor. In particular, there was no suggestion, in reply, that the time for acceptance set out in the Defendants' letter was unreasonable; that bearing in mind the time of year, more time would be required by the Plaintiff to consider it; and/or that more time was required to provide advice to the Plaintiff regarding its acceptance or rejection. 8The offer made in the letter dated 4 December 2012 appears to have lapsed, because by letter dated 15 March 2013, the Defendants increased the percentage in term (a) in the letter to 42.5%. However, a different term, namely, that "the settlement is conditional upon the Court approving a release which is provided by the plaintiff to the defendants in respect of any further claims which may be made by him" was included. (The term in (d) in the letter referred to Consent Orders and a Deed of Release and Indemnity, which the parties agreed, contained a release that did not require the Court to approve the release of rights to make a further claim.) 9The offer of 15 March 2013 was rejected by the Plaintiff, which prompted the Defendants to make a further, but, again, a different, offer, in a letter dated 8 July 2013. They increased the percentage of the residual estate that the Plaintiff was to receive, to 45 per cent, but added a term that from the percentage was to be deducted a notional rental of $500 per week from 25 June 2012 to the date the Plaintiff ceased occupation. The Defendants also repeated the requirement for a release by the Plaintiff to the Defendants in respect of any further claim that may be made by him (which release, to have effect, would have required the approval of the Court. 10The email correspondence, in reply, dated 19 July 2013, from the Plaintiff's solicitors suggested that "the main sticking point" was the claim for rent. In any event, the offer was not accepted by, or on behalf of, the Plaintiff. 11I should mention that, relevantly, the Plaintiff's offers were "1/2 of the net proceeds of sale of the house", with payment by each party of his, or their, own costs (see Plaintiff's solicitors' letter dated 20 November 2012) and later "in lieu of the provision ... the first $320,000 of the residuary estate" with the usual costs orders (the Plaintiff's costs, calculated on the ordinary basis were estimated to be $40,000) (see Plaintiff's solicitors' letter dated 1 July 2013). 12As a result of the non-acceptance of any of the offers made by the Defendants, the matter proceeded to a hearing (of two days). Importantly, also, the Plaintiff remained in occupation of the Darlington home, and continues to do so. I did not make any order, in the substantive proceedings, that he pay any rent, or occupation fee, for the period that he had remained in occupation after the 12 month period following the deceased's death, as part of the orders that I made. (The Plaintiff had been allowed to do so for 12 months under the terms of the deceased's Will.) 13At [18] and [19] of the principal judgment, I dealt with the estimate of costs and disbursements for each of the parties. At the hearing of the costs argument, there was no evidence that would enable me to determine separately the amount of costs and disbursements that had been incurred, by each party, either before, or after, 4 December 2013.

The Submissions 14Despite the terms of the various offers made, and the acceptance by his counsel that the offer of 4 December 2012 was more favourable than the result that the Plaintiff achieved following the contested hearing, it was submitted that the Plaintiff should receive his costs, calculated on the ordinary basis, of the whole of the proceedings out of the deceased's estate. 15During the substantive hearing, the Plaintiff had acknowledged that whatever the result of the case, the Defendants should receive their costs, calculated on the indemnity basis, out of the deceased's estate. 16In broad summary, counsel for the Plaintiff, in support of the principal submission, orally submitted that: (a) This was a case where the Plaintiff had been successful in obtaining a family provision order. Accordingly, he should receive an order for costs out of the estate of the deceased. He relied upon Uniform Civil Procedure Rules 2005 ("the UCPR"), rule 42.1. He acknowledged that the rule includes "unless it appears to the Court that some other order should be made as to the whole, or any part, of the costs", thereby preserving the discretionary power of the Court. He submitted, then, that there was no disqualifying conduct on the part of the Plaintiff justifying other than the usual order. (b) Even though the Calderbank offer of 4 December 2012 was relevant, cases in which a family provision order is sought, involve elements of judgment and discretion beyond those at work in most inter partes litigation: Jvancich v Kennedy (No 2) [2004] NSWCA 397; Re Sherborne Estate (No 2); Vanvalen v Neaves [2005] NSWSC 1003. (c) There is no general principle that the rejection of a Calderbank offer will entitle the offeree to costs on an indemnity basis. The test is whether the failure to accept the offer in all the circumstances of the case warrants a departure from the ordinary rule that costs follow the event: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, at [37]. (d) The party seeking an order for indemnity costs has the burden of showing the Court why such an order should be made in his, her, or their, favour, and, generally, this means that he, she, or they, should persuade the Court that the refusal to accept the offer was unreasonable: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61, at [26]; Commonwealth of Australia v Gretton [2008] NSWCA 117. (e) In this case, it could not be said that the Plaintiff had been unreasonable in failing to accept the Defendants' offer made in the letter of 4 December 2012 because of the closeness of the terms of the offer and the result of the case. It was submitted that the difference was only 3 per cent, although the increase from his entitlement under the deceased's Will was 12 per cent. (In dollar terms, the total increase meant that he would receive between $37,100 and $46,000 more than his entitlement under the Will, depending upon the sale price of the Darlington home.) (f) In December 2012, the Plaintiff's prospects of success were difficult to assess. (g) The counter-offer, or offers, made by the Plaintiff, did not reflect an unreasonable approach to the settlement of the litigation. (h) To make an order that the Plaintiff pay any part of the Defendants' costs would significantly impact upon the family provision order made by the Court and the financial and material circumstances of the Plaintiff. (i) The offer was only open for 10 days, which was a very short period to expect the Plaintiff to make a considered decision. 17In reply, and in the alternative, counsel submitted that the Plaintiff should receive an order for his costs, calculated on the ordinary basis, up to a short time after the offer of 4 December 2012 was made, to be paid out of the deceased's estate, and, thereafter, that there should be no order for costs to be paid by the Plaintiff. However, the Defendants' costs, calculated on the indemnity basis, should be paid out of the estate. 18The Defendants submitted that the appropriate order for costs was as follows: "1. The plaintiff's costs of the proceedings in the period up to and including 4 December 2012, calculated on the ordinary basis, be paid out of the estate of the deceased. 2. The plaintiff pay the defendants' costs of the proceedings in the period from and including 5 December 2012, calculated on the indemnity basis. 3. The defendants' costs of the proceedings calculated on the indemnity basis be paid out of the estate of the deceased. 4. The defendants account to the estate of the deceased for any costs recovered from the plaintiff pursuant to order 2 above." 19The Defendants' counsel, in summary, in support of the costs order advanced, orally submitted that: (a) The conduct of the Plaintiff was unreasonable, as demonstrated by allowing the offer made on 4 December 2012 to lapse. (b) It did not matter if the difference was 3 per cent; what mattered was that the offer made was, in terms, more favourable than the order that the Plaintiff obtained following a contested hearing. (c) By making several offers, each of which was greater, in percentage terms than the previous one, the Defendants had demonstrated their reasonable conduct, from about November 2012, in attempting to resolve the proceedings. The nature of the offers made by the Plaintiff, to the contrary, demonstrated unreasonable conduct in attempting to resolve the proceedings. (In this regard, it was clear that each offer was for an amount significantly greater than the family provision order that was made.) (d) To not make an order that the Plaintiff should bear the burden of part of the costs, from about the time of the making of an offer that was more favourable than the result, in circumstances such as this case, would send a message that a Plaintiff could, with impunity, reject any reasonable offer made to resolve the proceedings, with no costs implications, whilst Defendants would not be encouraged to make any reasonable offer of settlement, because it would appear that there would be no costs implications arising from the unreasonable refusal to accept what proved to be a reasonable offer. (e) The offer contained in the letter of 4 December 2012 was made when the Plaintiff was in a position to give it prompt, and informed, consideration. (f) By framing the offer as a lump sum calculated by reference to a percentage, rather than as simply a lump sum, both the Plaintiff and the Defendants would benefit from the sale at a price higher than the estimate available at the time the offer was made. Accordingly, non-agreement about the value of the Darlington home was irrelevant to the acceptance, or rejection, of the offer at that time. (g) Each offer made by the Defendants was a genuine one, involving a genuine compromise on their part. 20During submissions, I put to counsel for the Plaintiff, and he did not dispute, that I was entitled to consider the apparent experience of the legal representatives of each of the parties and that I could infer that he and/or his instructing solicitors would have been likely to have warned the Plaintiff of the risks of not accepting an offer that, ultimately, proved to be one more favourable than the order of the Court. 21I also put to both counsel, that an alternative order might be that there should be no order for the Plaintiff's costs at all (balancing the entitlement to costs suggested by the Defendants), to the intent that the Plaintiff would pay his own costs, and that the Defendants' costs, calculated on the indemnity basis should be paid out of the estate. In this way, less by way of costs would come out of the estate, although, of course, the Plaintiff would have to pay all of his own costs out of what he received. He would receive a larger sum out of the estate because the net proceeds of sale would be reduced by only the Defendants' costs. 22Each counsel submitted that this was a reasonable alternative, but neither had instructions to accept that as an alternative result.

Principles regarding Costs Generally 23There did not seem to be any dispute between counsel appearing as to the applicable legal principles when determining the costs of contested proceedings. I summarise those principles briefly. 24The Civil Procedure Act 2005, s 98(1), provides that subject to the rules of Court, and that, or any other, Act, costs are in the discretion of the Court. The discretion is broad but not unconfined. It is a judicial discretion to be exercised on a principled basis. 25Section 98(4) of the Civil Procedure Act provides: "In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount." 26The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. 27The UCPR rule 42.1 provides that costs follow the event, unless it appears to the Court that some other order should be made as to the whole, or any part, of the costs. The rule provides that the discretion to award costs, ordinarily, will require an order that the successful party's costs will be paid by the unsuccessful party. The power to "make any order as to costs" enables the Court, in an appropriate case, to depart from the general rule if it would be unjust to apply it. Thus, there is flexibility in determining questions of costs. Again, the rule extends to the costs in any proceedings. There is no suggestion that the UCPR does not apply to proceedings for a family provision order. 28The UCPR rule 42.2 provides: "Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis." 29In Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd [2010] FCAFC 5; (2010) 182 FCR 84, Gray J in the Full Court said: "[17] The overriding principle that costs are in the discretion of the Court can also be expressed in terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the question where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding."

Costs in Proceedings for a family provision order 30Because of the wording of s 98(1) of the Civil Procedure Act, it is necessary to consider the provisions of the Succession Act 2006. Relevantly, s 99 of that Act provides: "(1) The Court may order that the costs of proceedings under this Chapter in relation to the estate or notional estate of a deceased person (including costs in connection with mediation) be paid out of the estate or notional estate, or both, in such manner as the Court thinks fit." 31It is clear that s 99 of the Succession Act, provides for an unfettered discretion as to how the costs of the proceedings for a family provision order may be borne. It also provides an unfettered discretion as to the part, or parts, of the estate, or notional estate, that is, or are, to bear the burden of costs. Importantly, the section relates to the payment of costs out of the estate or notional estate or both . It does not appear to relate to how costs may be borne otherwise. 32The present costs application relates to whether a Plaintiff should bear any of the Defendants' costs of the proceedings, considering what is said to be the Calderbank offer made, in respect of which that Plaintiff receives a less favourable order for provision. On that specific topic, s 99 is silent. 33In Singer v Berghouse [1993] HCA 35; (1993) 114 ALR 521, Gaudron J, said, at 522: "Family provision cases stand apart from cases in which costs follow the event. Leaving aside cases under the Act which, in s.33, makes special provision in that regard, costs in family provision cases generally depend on the overall justice of the case. It is not uncommon, in the case of unsuccessful applications, for no order to be made as to costs, particularly if it would have a detrimental effect on the applicant's financial position. And there may even be circumstances in which it is appropriate for an unsuccessful party to have his or her costs paid out of the estate." 34Despite the above statement, which, of course, was written in the context of a security for costs application, and in respect of proceedings under the Family Provision Act 1982, s 99 of the Succession Act provides a wide discretion in relation to costs ("in such manner as the Court thinks fit"). 35No longer is there any difference between categories of eligible persons, as there was in the former Act. 36Important in all cases involving a claim for a family provision order is what was said in Forsyth v Sinclair (No 2) [2010] VSCA 195; (2010) 28 VR 635, at [27]: "We consider that it is a matter of concern that in many family provision cases the amount available for distribution amongst the competing beneficiaries is significantly reduced by legal costs. Parties should not assume that litigation can be pursued safe in the belief that costs will always be paid out of the estate. Every effort should be made to resolve the dispute before the costs get out of proportion. However, it takes two to settle a dispute and unless sensible offers of settlement are made in a form which can be referred to subsequently, it is very difficult for the Court to allocate responsibility for the dispute not settling. All that can be done is to conclude that where costs have been incurred unreasonably, as here, they must be borne personally." (Omitting citation) 37Another relevant principle was stated by Allsop P (as the learned President then was) in Tchadovitch v Tchadovitch [2010] NSWCA 316; (2010) 79 NSWLR 491, at [3]: "Most disputes under the Family Provision Act 1982 (NSW) or Chapter 3 of the Succession Act 2006 (NSW) are between ordinary people who have the misfortune to disagree about the just and appropriate distribution of an estate of someone with whom they had a connection, generally of blood, love or friendship. Such proceedings should always be run by the parties and their legal practitioners with a keen eye to the minimisation of costs at all stages. To that end, paragraph 18 of Practice Note SC Eq 7 aims to limit costs by the use of certain kinds of evidence." 38The sentiments expressed by Allsop P resonate just as loudly in relation to the settlement of the proceedings.

Calderbank Offers 39What is commonly referred to as a "Calderbank offer" (a written offer made without prejudice except as to costs that does not comply with the relevant rules of court relating to the making of offers of compromise) is a well recognised means of making an offer of settlement in circumstances where the party making the offer ultimately seeks a costs advantage if the offer is not accepted: Jones v Bradley (No. 2) [2003] NSWCA 258 at [5]; Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194, at [27]. The offer is not admissible until the substantive issues have been determined. The result of the court's adjudication must be as, or more, favourable to the offeror than the offer made. (In the case of an offer by defendants, the court's adjudication must be less favourable to the plaintiff than the offer.) 40If a party wishes to rely upon a Calderbank offer, the terms of the offer should be clear and unambiguous: Coregas Pty Limited v Penford Australia Pty Limited (No 2) [2013] NSWCA 11, at [12]. The offer should embody "a real and genuine element of compromise". The meaning of that phrase is set out in cases such as Leichhardt Municipal Council v Green [2004] NSWCA 341, per Santow JA, at [23]; Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375, per Handley JA, at [5]; The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; (2006) 67 NSWLR 706, per Basten JA, at [8]. 41In Leichhardt Municipal Council v Green, Santow JA said, at [14]: "... the practice of Calderbank letters is allowed because it is thought to facilitate the public policy objective of providing an incentive for the disputants to end their litigation as soon as possible. Furthermore, however, it can be seen as also influenced by the related public policy of discouraging wasteful and unreasonable behaviour by litigants." 42I note, also, the comment made by Harper M in Johnson v MNG Investments Pty Ltd t/as Australian Temporary Fencing [2011] ACTSC 150, at [15], that: "Part of the rationale for the Calderbank principle is that, where there is a failure to accept a reasonable offer, the offeror will have incurred further expense, sometimes representing the costs and disbursements of many days of hearing, and would be only partially indemnified by an order for costs on a party-and-party basis. The offeror can be seen as having taken the only course available to it (or him or her) to avoid that exposure." 43A Calderbank offer does not attract the same cost consequences as a formal offer of compromise made under the UCPR. Its presence does not yield any presumption of a cost order outside the normal rules. In an appropriate case, the existence of a Calderbank offer may influence, but not govern, the exercise of discretion supporting a different order as to costs. It enables the Court to consider whether it should exercise its discretion to make a costs order other than as provided by the UCPR rule 42.1 and rule 42.2. Nor does the making of a more favourable Calderbank offer appear to be determinative of what kind of (more favourable) costs order (or order other than the usual) should be made: In the matter of Cheal Industries Pty Ltd - Fitzpatrick v Cheal [2012] NSWSC 932, per Ward J (as her Honour then was), at [54]. 44The party making a Calderbank offer carries the onus of satisfying the Court that it should exercise the costs discretion in his, her or their favour: Evans Shire Council v Richardson (No 2). Even where it is held that a Calderbank offer should have been accepted, and the offeree achieves a result as or less favourable than the offer at the trial, there is no automatic consequence: Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd [2013] NSWSC 1165, at [15]. 45I note, also, what Ward J (as her Honour then was) has said in relation to Calderbank offers in A v N [2012] NSWSC 549, at [17] - [19]: "While it is recognised that the making of a Calderbank offer is one of the circumstances in which the court may exercise its discretion under r 42.1 to make some order other than that costs should follow the event, it does not automatically follow that simply because the offer represented a genuine offer of compromise was more favourable than the final judgment that an indemnity costs order will be made. What must be considered is the reasonableness of the offeree's rejection or non-acceptance of that offer, a matter to be determined having regard to the circumstances at the time that the offer fell to be considered. The question is whether, in all the circumstances, the failure to accept the offer "warrants departure from the ordinary rule as to costs" (SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]). In Miwa, the Court of Appeal confirmed (at [9]) that both an offer of compromise under the rules and an informal offer must involve "a real and genuine element of compromise" (citing Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; 67 NSWLR 706 at [8]; and referring to the discussion in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [25]; see also Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Leichhardt Municipal Council). What must be considered is whether the offer represented or formed part of a genuine attempt to reach a negotiated settlement (Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (No 2) [2009] NSWCA 12 at [19]). In Miwa, the Court of Appeal also noted that the appropriate inquiry is not as to the subjective intentions of the offeror (citing Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 at [23]; Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 at [17]- [18]) and confirmed that "the response of the offeree must be assessed at the time it was made, and not with the benefit of hindsight resulting from a known outcome, recorded in a judgment", citing Regency Media at [33] (though the Court of Appeal went on to say that this should not entail a detailed investigation into the state of preparation or knowledge of the offeree as at the date of the offer). It was noted in Miwa that relevant factors in determining whether the rejection of an offer was unreasonable included those identified by the Court of Appeal in Victoria in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435, namely: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree's prospects of success, assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it." 46As can be seen, one critical question is whether the rejection of the Calderbank offer was unreasonable in the circumstances. In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 (referred to by Ward J), the Court of Appeal, at [23], saw "no justification for a more stringent test such as 'manifestly' or 'plainly' unreasonable". 47In that case, the Victorian Court of Appeal, at [26] - [27], also rejected an argument that the Calderbank offer must set out, with specificity, "the basis for the offeror's contention that the offeree should accept the compromise - for example, because the offeree's case was hopeless or because the offeree had no reasonable prospects of doing better in the proceeding than was being offered in advance". 48Deciding whether conduct is "reasonable" or "unreasonable" will always involve matters of judgment and impression. In Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2005] NSWSC 481, McDougall J discussed the meaning of "unreasonableness" in the context of the rejection of a Calderbank offer. At [30], his Honour wrote: "... the failure to accept a Calderbank offer does not create a presumption as to indemnity costs when the offeror receives a more favourable outcome than that offered, then the corollary is that it is necessary to show that there exist sufficient circumstances to displace the general rule as to costs (where the offeror was a defendant and the offeree a plaintiff). In many cases - maybe most - that will be done by demonstrating that rejection of the offer was unreasonable in some way. In this context, I think, "unreasonable" may mean either that the rejection was not supported by any process of reasoning whatsoever or that the reasons for rejection that were advanced, or that may be inferred, were legally or factually (or both) inadequate." 49In Gretton v Commonwealth of Australia [2007] NSWSC 149, Studdert, J wrote in relation to "unreasonableness": "17 What emerges from SMEC and from Jones v Bradley and from Leichhardt Municipal Council v Green is that all the relevant circumstances have to be considered in determining whether the plaintiff's rejection of the settlement offer was unreasonable. Rejection would be unreasonable if it occurred without any consideration or without due consideration of the offer made. Rejection of an offer would be unreasonable if the plaintiff could not reasonably hope to match the offer by proceeding to a hearing. Rejection of an offer would be unreasonable if it involved a disregard of serious problems confronting the plaintiff in establishing liability. However, none of the decisions to which I have referred has sought to define what amounts to unreasonable rejection. I instance the above circumstances as examples of situations in which an offeree would act unreasonably in not accepting an offer, but it has to be recognised that there can be no all embracing definition as to what amounts to unreasonable conduct in failing to accept an offer. All the relevant circumstances of the particular case have to be considered." 50An appeal was dismissed in Commonwealth of Australia v Gretton. 51In Foster v Galea (No 2) [2008] VSC 331, Byrne J, at [11] in relation to the onus being on the offeror to establish unreasonableness, commented: "This apparently simple test contains its own difficulties. The offeror, who bears the burden of establishing this, is very often not in a position to demonstrate that the response of the offeree was or was not unreasonable. Whether this is so may depend upon the legal advice given to the offeree and to evidentiary uncertainties known only to that party. The offeror cannot know these matters without piercing the veil of professional privilege. Moreover, what is meant by unreasonable in this context? It is certainly not that the offeree's case was so hopeless that it might be struck out as an abuse of process. The clue to its meaning must be found in the policy behind the court's acceptance that an offer may be used in this way. This is of course to compel the offeree to consider seriously the offer by introducing into its decision-making process the prospect that a failure to accept it may in the appropriate circumstances attract a cost penalty. Where a party makes a Calderbank offer which is reasonable in all the circumstances, especially in comparison to the offeree's prospects of success or where the offeree's prospects of success were not good, the Court has displayed a readiness to make a special order. As I observed in the Lorden Holdings case, the policy of the court is to encourage litigating parties to undertake genuine settlement negotiations and, for the purpose, to face up to serious offers of settlement." 52In Aljade v OCBC [2004] VSC 351, Redlich J, at [93], noted: "It is not necessary to establish misconduct by the offeree before the rejection of the offer can be viewed as unreasonable. Lack of merit in the way a party has conducted its case is not a pre-requisite for the making of an indemnity costs order." 53An offer that appears to be reasonable, that is simply allowed to lapse, with no response made to it at all, in my view, tends to suggest unreasonableness. 54Whether it was unreasonable for a party not to accept the Calderbank offer (or, as in this case, allow it to lapse) is not to be determined with hindsight: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368, at [33]. The strength, or otherwise, of the claim should be considered prospectively as at the time of the offer: Noon v Bondi Beach Astra Retirement Village Pty Ltd (No. 2) [2010] NSWCA 285, at [11]. It is to be approached objectively in the circumstances known (or which should reasonably have been anticipated) by both parties at the time the offer was made: Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211 at [17]. 55In Dobb v Hacket (1993) 10 WAR 532, Murray J wrote, at 540: "The courts should preserve in the minds of litigants, the conscious consideration that their behaviour may place the matter at risk as to costs if they refuse reasonable offers of settlement. The court should be careful not to foster the proposition that obstinacy and unreasonableness will not be punished by orders as to costs." 56Finally, as Kunc J recently observed in Harris v Harris (No 2) [2013] NSWSC 1157, at [30]: "For a Calderbank offer to be able rationally to affect the exercise of the discretion to displace the usual consequence of the costs following the event and being assessed on the ordinary basis, the event the subject of the Calderbank letter must be substantially the same as the event constituted by the issues at the hearing. That nexus will be broken for the purposes of determining whether a refusal was unreasonable if the issues in or shape of the case at the time of a Calderbank offer are materially different to those which ultimately were the subject of the hearing."

Determination 57In Overton Investments Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 [2001] NSWCA 137; (2001) 113 LGERA 439 [72], Stein JA observed (Powell JA and Ipp AJA agreeing) that the Court is entitled to 'look realistically at the litigation, the issues, the way it was conducted and the result, in order to assess who really succeeded and to what extent'. 58The letter containing the Calderbank offer was sent more than 8 months before the hearing, which was fixed to commence on 29 July 2013 and about 6 weeks after the mediation that was held on 24 October 2012. By the date of the offer, the parties had filed, and served, all of the evidence in chief intended to be relied upon at the hearing, other than updating affidavits required by Paragraph 17 Practice Note SC Eq. 7. The Plaintiff also, by then, had sufficient time to obtain, and give reasonable consideration to, advice from his legal representatives. 59By the time of the offer made in the letter of 4 December 2012, the proceedings had already taken up some time, and if it was not settled, the hearing was likely to take no less than one day; in fact, it took two days. There had been the recent mediation, so the issues arising in the proceedings, as well as the range of what the Plaintiff might reasonably expect to receive by way of a family provision order, should have been known. In other words, the issues in, or shape of, the case at the time of the Calderbank offer was not materially different to those that were, ultimately, the subject of the hearing. 60I am satisfied that by the date of receipt of the letter dated 4 December 2012 containing the offer, the Plaintiff ought to have been in the position to assess it and to compare the terms of the offer made with the assessment of the likely result of the proceedings in the event that the proceedings were litigated to conclusion. 61In my view, the Calderbank offer made in the letter dated 4 December 2012 to which I have referred, proposed a sensible compromise of the litigation. Its terms were clear and could not have left the Plaintiff in any reasonable doubt as to the nature and extent of what was being offered. It was also, in my view, a genuine compromise by the Defendants rather than being a nominal and/or unrealistic offer. It was made in terms of a percentage of the net proceeds of sale, rather than a lump sum, thereby ensuring that the benefit of any increased sale price of the Darlington home, was distributed, in those percentages, to all beneficiaries. The Plaintiff's costs were dealt with as a separate term, the effect of which was what might be regarded as the usual costs order in favour of a Plaintiff in a claim for a family provision order. 62The Defendants' letter also made clear that reliance was being placed on Calderbank v Calderbank, the effect of which was to foreshadow an application for indemnity costs in the event of the Plaintiff rejecting it and the Defendants obtaining a more favourable result, which they did. 63Furthermore, the offer, even on first impression, should have been seen as an attractive one. It increased the Plaintiff's share of the estate by 12 per cent, a not insignificant increase considering that he was entitled to 25 per cent under the terms of the deceased's Will. 64There is simply nothing to demonstrate the Plaintiff's process of reasoning for allowing the Calderbank offer to lapse. No evidence was led, or submissions made, explaining the reasoning process behind the Plaintiff's failure to accept the Defendants' offer. Nor is there any reason the Court can infer (other than the Plaintiff regarded the percentage offered as inadequate). 65Having regard, also, to the fact that the Plaintiff was in a position to evaluate the strengths and weaknesses of his own case, and the case of the Defendants, when the offer was made, I am of the opinion that the offer made by the Defendants in the letter of 4 December 2012 ought to have been considered favourably by the Plaintiff and allowing it to lapse was unreasonable on the part of the Plaintiff. 66That further, and more generous, offers were made, subsequently, albeit on different terms, is beside the point and does not provide an answer on the Plaintiff's process of reasoning. However, what these other offers demonstrate is that the Defendants continued to make additional attempts to resolve the proceedings, without success. What more the Defendants could have done to resolve the dispute is unclear. 67Similarly, the Plaintiff making the offers, or counter-offers, in terms that he did, demonstrates the Plaintiff's unreasonable approach to settlement of the litigation. What he sought in each, far exceeded the family provision order that was made, and, in my view, reveals that he was obstinately pressing for what might be regarded as more than adequate and proper provision. His persistence in seeking much more than was ultimately ordered resulted in costs being incurred by the estate. In this regard, as Bathurst CJ noted in Whitney v Dream Developments Pty Ltd [2013] NSWCA 188, at [43], conduct of the parties during litigation, may, in certain circumstances, be relevant to the appropriate manner in which a Court's discretion as to costs should be exercised. 68It is also to be noted that by allowing the offer to lapse and not otherwise settling the proceedings, the Plaintiff was able to remain in occupation of the Darlington property. It was to his advantage and benefit to do so, whilst the Defendants, and James, were not only held out of possession, with no rent or occupation fee being paid into the estate, but also no share of the proceeds of sale of the Darlington home was being made available to each of them as beneficiaries. 69Furthermore, the Plaintiff should have appreciated that additional legal costs would be incurred, on both sides, by the continuation of the proceedings. 70That the offer was only open for 10 days, in other circumstances, might have been relevant in concluding that the Plaintiff's conduct in allowing it to lapse was not unreasonable. But there is no evidence that 10 days was an insufficient amount of time for the Plaintiff to obtain advice from his legal representatives and to consider that advice. Nor is there any evidence, that any request was made to allow a longer period before which the offer lapsed or that that the Plaintiff sought clarification of any of the terms of the offer. 71In my view, the relatively short period during which the offer was left open, in this case, does not assist the Plaintiff. I consider that the period of time during which the offer remained open was, in all the circumstances of this case, reasonable. 72I have, of course, considered the effect of an order of the kind proposed by the Defendants upon the financial and material circumstances of the Plaintiff. An adverse costs order against the successful Plaintiff will detract from the provision made by the Court for his maintenance and advancement in life. 73But, as was properly conceded by counsel for the Plaintiff, an inference may be drawn that experienced legal practitioners, acting for the Plaintiff, would have explained the risks as to costs if the Calderbank offer was refused and if a less favourable result was achieved. It appears that the Plaintiff was prepared to take those risks. He was entitled to do so, but that should not result in him being able to escape the consequences of doing so with impunity, secure in the belief that his legal costs would be funded out of the estate or that he would not have to pay the additional costs incurred by the Defendants. 74There is no reason why, depending upon the circumstances of the case, a relevant Calderbank offer should not be considered when determining how the burden of the costs of an application for a family provision order should be borne. Whilst potential claimants for a family provision order should not, necessarily, be discouraged from bringing a dispute to the courts, the ever-increasing costs of this sort of litigation, which is to the significant detriment of the beneficiaries of the deceased's estate, and the necessary public costs in hearing applications, are of great concern to this, and to other, courts: Smoel v Morris [2013] VSC 291. 75I have come to the conclusion that the estate should be relieved, completely, from the burden of costs that would not have been incurred had the Plaintiff accepted the offer made in the letter of 4 December 2012. It follows that the Plaintiff should not receive his costs from 15 December 2012 (the day after the offer lapsed) out of the deceased's estate. In addition, the Plaintiff should pay the Defendants' costs after that date, including the costs of the costs hearing, calculated upon the indemnity basis, because these costs, too, would have been avoided, had the offer been accepted. 76However, it is accepted that the Plaintiff should receive his costs, calculated on the ordinary basis until the time when he could have accepted the offer. This would be until 15 December 2012. He should have those costs, calculated on the ordinary basis, out of the estate. 77It seems to me that in the circumstances, and to avoid further disputes as to costs, the entitlements of the Plaintiff and of the Defendants could be set off, one with the other, with the result that the Plaintiff should not receive any costs out of the estate and should not have to pay any costs to the estate. The Defendants' costs, calculated on the indemnity basis, should be paid out of the estate before distribution in accordance with the orders that I have made. 78Apart from avoiding further disputes about costs, the distribution of the estate should be able to be made more expeditiously and unless there is a dispute about the quantum of the Defendants' costs, the calculation of each party's, and James', entitlement, should be able to be calculated easily. 79I am prepared to make no order as to the Plaintiff's costs of the proceedings to the intent that he should bear his own costs of the proceedings and order that the Defendants' costs, calculated on the indemnity basis, of the proceedings, are to be paid out of the estate of the deceased. However, since there is no evidence to enable me to determine whether that would be a fair, or just, result, I shall allow the parties a further opportunity to consider the form of order for costs. 80I direct the parties to deliver to Chambers a form of order upon which they are able to agree within 7 days in accordance with [79] of these reasons. If they are unable to agree, the costs orders referred to in [75] and [76] should be made.

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: 11 September 2013

Family Provision Act 1982(NSW)

(2001) 113 LGERA 439

At a glance

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Judgment (8 paragraphs)

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Legislation Cited (2)

Cases Cited (44)

Cited By (12)