Evans v Braddock (No 2)

[2015] NSWSC 518

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Evans v Braddock (No 2) [2015] NSWSC 518
Hearing dates:	29 April 2015
Decision date:	07 May 2015
Jurisdiction:	Equity Division
Before:	Hallen J
Decision:	The court orders: (a)   The first Plaintiff is to pay the Defendants’ costs and disbursements of the proceedings, calculated on the indemnity basis, from 13 August 2013. (Costs orders made prior to this order are not to form part of the costs order as they are not vacated by this order). (b)   The first Plaintiff is to pay the Defendants’ costs and disbursements incurred prior to 13 August 2013, calculated on the ordinary basis. (Costs orders made prior to this order are not to form part of the costs order as they are not vacated by this order). (c) The Exhibits should be dealt with in accordance with the Uniform Civil Procedure Rules 2005 rule 31.16A and rule 33.10, and Practice Note SC Gen 18 (Para 26).
Catchwords:	COSTS – Where proceedings dismissed – Where Defendants made Calderbank Offer when only one Plaintiff and then, prior to the final hearing, made a “walk away” offer by way of Offer of Compromise addressed to both Plaintiffs – Where first Plaintiff continued part of proceedings and where second Plaintiff joined as party and continued those proceedings – Whether first Plaintiff acted unreasonably in rejecting Calderbank Offer – Whether Offer of Compromise valid – Said not to be genuine compromise – If a genuine compromise, whether court should “otherwise order”
Legislation Cited:	Civil Procedure Act 2005 (NSW) Practice Note SC Gen 18 Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 Clark v Commissioner of Taxation [2010] FCA 415 Commonwealth Bank of Australia v Dalle Cort [2015] QSC 41 Craigcare Group Pty Ltd v Superkite Pty Ltd (No 2) [2014] NSWSC 467 Eric Preston Pty Ltd v Euroz Securities Ltd (No 2) [2010] FCA 1068 Evans v Braddock [2015] NSWSC 249 Hazeldene’s Chicken Farm Pty Ltd v Victorian Workplace Authority (No 2) [2008] VSCA 298; (2005) 13 VR 435 Hearse v Staunton [2011] NSWSC 1065 Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 Leichhardt Municipal Council v Green [2004] NSWCA 341 Melchior v Sydney Adventist Hospital Limited (No. 2) [2009] NSWSC 65 NMFM Property Pty Ltd v Citibank Ltd (No 11) [2001] FCA 480; (2001) 187 ALR 654 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Schepis v Commonwealth of Australia [2013] NSWCA 354 Stewart v Atco Controls Pty Ltd (in liq) (No 2) [2014] HCA 31; (2014) 252 CLR 331 Taheri v Vitek (No 2) [2014] NSWCA 344 Technology Leasing Ltd v Lennmar Pty Ltd (No 2) [2012] FCA 1216 Walsh v Walsh (No 2) [2013] NSWSC 1281 Zealley v Liquorland (Australia) Pty Ltd & Anor (Costs Ruling) [2015] VSC 133
Texts Cited:	G E Dal Pont, Law of Costs (3rd ed 2013, LexisNexis).
Category:	Costs
Parties:	Timothy Fitzgerald Evans (first Plaintiff) Mount Mill Pty Limited (second Plaintiff) Margaret Gael Braddock (first Defendant) Sheelagh Kerryn Evans (second Defendant) Philip King Hawley (third Defendant)
Representation:	Counsel: Mr M S Willmott SC; Mr D Liebhold (Plaintiffs) Mr R R Stitt QC; Mr G E Underwood; Mr D W Robertson (Defendants)   Solicitors: Conomos & Spinak Lawyers (Plaintiffs) Michael Rogers and Co (Defendants)
File Number(s):	2012/260707

Judgment

1. HIS HONOUR: These reasons follow the delivery of reasons for judgement in this matter, the medium neutral citation of which is Evans v Braddock [2015] NSWSC 249, in which the court ordered that the Plaintiffs’ further amended Statement of Claim be dismissed and that any argument on the issue of costs be stood over to a suitable date unless the parties were able to reach agreement on how the costs of the proceedings were to be borne. Unsurprisingly, no agreement was reached by the parties on the issue of costs. Events and people are referred to in these reasons in the same way as they were in the principal reasons for judgment. The reasons for judgment should be read together.

2. In accordance with directions made at the time of the delivery of the reasons for judgment, each of the parties filed written submissions on the issue of costs. The Defendants forwarded amended written submissions on the afternoon of 27 April 2015. I heard short oral argument on 29 April 2015.

3. In broad summary, the Plaintiffs submitted that “the appropriate order in relation to the costs of the proceedings (aside from costs covered by existing costs orders) is that the plaintiffs pay the defendants’ costs on the ordinary basis”.

4. The Defendants sought orders, in the alternative, namely that:

(i)   the Plaintiffs pay the Defendants’ costs of the proceedings on the ordinary basis up to and including 22 July 2013 and on the indemnity basis on and from 23 July 2013;

(ii)   the Plaintiffs pay the Defendants’ costs of the proceedings on the ordinary basis up to and including 18 December 2014 and on the indemnity basis on and from 19 December 2014; or

(iii)   the Plaintiffs pay the Defendants’ costs of the proceedings on the ordinary basis.

5. I shall return to the submissions, in more detail, later in these reasons.

The Evidence on Costs

Procedural Matters

6. The Plaintiffs relied upon an affidavit sworn 2 April 2015 of their solicitor, Marcus William Conomos. The Defendants relied on two affidavits of their solicitor, Michael Scott Rogers, one sworn 1 April 2015 and the other sworn 8 April 2015. Neither of the deponents was cross-examined.

7. The following facts, taken from the affidavits to which reference is made, were really not in dispute.

8. The proceedings were commenced in August 2012 by Timothy only. The Summons and subsequent Statement of Claim filed by him in January 2013, sought orders entitling him to a one-third share of the net proceeds of sale of the Collaroy property, or alternatively a family provision order. The proceedings were initially listed in the Family Provision List.

9. The Defendants filed a composite Defence to the Statement of Claim in February 2013. Orders were then made for the filing and service of each party’s evidence. Ultimately, the evidence relied upon at the hearing was not filed until late in 2014.

10. In May 2013, the parties engaged in mediation. That mediation was unsuccessful.

11. The matter, in the events that happened (which are unnecessary to repeat), was listed for hearing before Rein J for 3 days’ hearing commencing 2 December 2013. Before that hearing date, Timothy filed a notice of motion seeking orders that the hearing be adjourned, that the hearing date be vacated, and that he be given leave to file an Amended Statement of Claim. This motion was heard by me on 18 October 2013, at which time I made the following orders:

“1. Directs that Defendants to serve all affidavits upon which they intend to rely by 4:00 p.m. on 25 October 2013, including the affidavits required by Paragraph 9 of Practice Note SC Eq 7.

2. Directs the Plaintiff to serve the affidavits required by Paragraph 17 of Practice Note SC Eq 7 by 4:00 p.m. on 8 November 2013.3. Orders that in the event that the Defendants do not serve the affidavits the matter should be re-listed before the Family Provision List Judge at the first available opportunity so that consideration can be given to the question whether they should be entitled to rely on any evidence other than the Paragraph 9.1 (Practice Note SC Eq 7) affidavits without the leave of the Court.4. Stands over the Notice of Motion to the hearing of the proceedings upon the basis that if the Defendants comply with the directions, it will be dismissed.5. Orders that the costs of the Notice of Motion will be the Plaintiff’s costs in the cause.”

12. On 29 November 2013, the Defendants were served with a proposed Amended Statement of Claim, which Timothy indicated he would seek leave to file at the commencement of the hearing on 2 December 2013 in the event that the hearing was not adjourned.

13. Ultimately, the Defendants consented to Timothy’s adjournment application, and Rein J made orders, by consent, on 2 December 2013, the first day of the hearing. One of the orders his Honour made, was that “any costs thrown away by today be costs in the cause”. His Honour also granted leave to the Plaintiff to file an amended Statement of Claim on or before 16 December 2014.

14. Timothy did not comply with any of the orders made by Rein J on 2 December 2013. In particular, pursuant to Rein J’s orders, an Amended Statement of Claim was to be filed by him by 16 December 2013. However, on 16 December 2013, Timothy’s solicitor informed the Defendants that: “In the process of preparing the Amended Statement of Claim it has become apparent that Mount Mill Pty Limited should be included as a second plaintiff in the proceedings.” No explanation was given for the need to join Mount Mill in the proceedings, nor why it became apparent to Timothy’s lawyers, at such a late stage, that Mount Mill should be joined as a second plaintiff. A draft Amended Statement of Claim was served but not filed.

15. On 11 February 2014, leave was granted to Timothy to join Mount Mill to the proceedings and to file the Amended Statement of Claim. The Defendants were awarded costs thrown away by reason of the joinder and the filing of the Amended Statement of Claim. I also made other orders to progress the matter, including for the filing, by the Plaintiffs, of any further evidence upon which they intended to rely, by Friday 14 March 2014. The Plaintiffs did not comply with any of those orders.

16. On 7 March 2014, the Plaintiffs sought leave to withdraw Timothy’s claim for a family provision order. Accordingly, without opposition, I ordered that Timothy’s claim for a family provision order be dismissed upon the basis that he was prevented from bringing fresh proceedings or claiming the same relief in fresh proceedings: s 91(1) Civil Procedure Act 2005 (NSW). By reason of Uniform Civil Procedure Rules (“UCPR”), rule 42.20(1), the Defendants became entitled to costs payable by Timothy upon dismissal of his claim for a family provision order.

17. Following the making of the order dismissing that part of Timothy’s claim, the proceedings were transferred to the General Equity List.

18. The Defendants filed a Defence to the Amended Statement of Claim. The Defendants then filed an Amended Defence to the Amended Statement of Claim (pursuant to leave granted by me on 20 May 2014). On that date, I also ordered that the Defendants were to pay the Plaintiffs’ costs thrown away (if any) by reason of the filing of the Amended Defence to the Amended Statement of Claim.

19. The Plaintiffs were directed to file any Reply to the Amended Defence by 31 May 2014. They did not do so.

20. The proceedings were next listed before the Equity Registrar on 19 June 2014. At that directions hearing, the Plaintiffs foreshadowed that they would bring a notice of motion seeking leave to file and serve a Further Amended Statement of Claim.

21. On 9 July 2014, the Plaintiffs filed a notice of motion seeking leave to file and serve a Further Amended Statement of Claim. This was opposed by the Defendants. The Plaintiffs’ notice of motion was heard by Registrar Musgrave on 13 August 2014. The Registrar granted the Plaintiffs leave to file a Further Amended Statement of Claim. The Registrar ordered that the Plaintiffs pay the Defendants’ costs thrown away by reason of the amendment. The Registrar ordered the Defendants to pay the Plaintiffs’ costs of the motion (calculated on the ordinary basis).

22. The matter was set down, for final hearing, before me, and ultimately was heard over four days, from 9 to 12 February 2015. At the hearing, both the Plaintiffs and the Defendants were represented by senior and junior counsel. I delivered the reasons for judgment on 19 March 2013.

23. So far as I can tell, other than the orders for costs identified above, there were no specific orders for costs made. The parties agree that all other costs would form part of the costs in the cause to be paid by the party ordered to pay the costs of the proceedings.

Offers of Settlement

24. By letter dated 22 July 2013, sent from the Defendants’ solicitors to the solicitors acting for Timothy (who at that time was the only Plaintiff), the Defendants offered to settle the proceedings (as then constituted). The letter was headed “WITHOUT PREJUDICE SAVE AS TO COST (sic)” and specifically stated in the body of the letter that “This offer is made in accordance with the principles expressed in Calderbank v Calderbank.” (I shall hereafter refer to this offer as “the Calderbank offer”.)

25. The Calderbank offer, which was stated to expire 21 days (being 12 August 2013) after the date of the letter, was made in the alternative, leaving it up to the First Plaintiff to choose the most advantageous offer to accept. The terms of alternatives were that:

(a)   the Defendants pay to Timothy, $200,000 inclusive of costs, in full and final satisfaction of his claim, or

(b)   the Defendants pay to Timothy, $165,000, plus an amount of $35,000 for costs, in full and final satisfaction of his claim.

26. Timothy did not accept the Calderbank offer before it expired.

27. By letter dated 14 November 2013, Timothy offered to settle the proceedings upon the basis that he be paid $325,000 plus “costs as agreed or assessed”. The letter was headed “WITHOUT PREJUDICE SAVE AS TO COSTS” and specifically stated in the body of the letter that “[t]his offer is made in accordance with the principals (sic) expressed in Calderbank v Calderbank.”

28. The Defendants did not accept the offer contained in the letter from Timothy’s solicitors. The terms of the offer made are not relevant to the costs argument, other than, perhaps, to demonstrate Timothy’s then belief as to the strength of his case.

29. Subsequently, the Defendants served an Offer of Compromise dated 18 December 2014 (by which time Mount Mill had been joined as the second Plaintiff), the terms of which were as follows:

“1. The Defendants offer to compromise the whole of the Plaintiffs’ claim on the following terms:

(a)   Judgment in favour of the Defendants; and

(b)   No order as to costs.

2. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).

3. This offer is open for acceptance for a period of 28 days after the date on which the offer was made.”

30. The Plaintiffs did not accept the offer contained in the Offer of Compromise during the period in which the offer was open or at all. Indeed, on 22 December 2014, the Plaintiffs served on the Defendants an Offer of Compromise, on the terms that the Defendants pay the Plaintiffs the sum of $350,000, plus the Plaintiffs’ costs as agreed or assessed. Again, the terms of the offer made perhaps demonstrate Timothy’s continued belief as to the strength of the Plaintiffs’ case.

31. Needless to say, the Defendants did not accept the offer made by the Plaintiffs in their Offer of Compromise.

The Submissions

32. The Plaintiffs, in their written submissions, conceded that the Calderbank offer was a genuine offer and that it demonstrated compromise, determined objectively and according to the circumstances of the case at the time the offer was made. It was submitted by Timothy, however, that, in all of the circumstances, his non-acceptance of that offer was not “unreasonable” such that the Court would make a special costs order.

33. The reasons for this submission were:

“(i)    The Defence that had been filed by the defendants at the time of the Calderbank letter essentially put the first plaintiff to proof in relation to the key elements of the claim. It did not convey to the first plaintiff why or how the defendants contended the first plaintiff’s claim would not, or ought not, succeed. Nor did the Calderbank letter itself attempt to explain why the first plaintiff ought to accept an offer equivalent to a relatively small fraction of the monetary relief sought by him in the proceedings.

(ii)    It was only following the service of the (first of the) defendants’ affidavits that the first plaintiff was in a position to attempt to understand the defendants’ case – which process, as it transpired, led the plaintiff to seek leave to amend the Statement of Claim – and to meaningfully assess the likely result of the proceedings. Leave to amend was subsequently granted, by consent of the defendants.

(iii)   The defendants’ contention that ‘the issues concerning the defendants’ evidence were known to the plaintiff, having been disclosed at a mediation in May 2013’ is not conceded.

(iv)   Even after the defendants had served their first round of affidavits, the parameters of the defendants’ case were still uncertain – with a large number of exhibits of uncertain relevance – with the result that, at the time that the Calderbank letter was served, there was ‘a real lack of clarity as to the case’ (see Precision Products (NSW) Pty Limited v Hawkesbury City Council [2008] NSWCA 278, at [192]). As such … the Court would not be persuaded that the first plaintiff’s non-acceptance of the offer was unreasonable.

(v)    In this regard, Kunc J, in Harris v Harris (No 2) [2013] NSWSC 1157, at [30], stated:

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.

(vi)    Similarly, Darke J, in Moshos v French (No 3) [2014] NSWSC 1417, at [15], considered it relevant that the offer, in that case, had been ‘made at a time when the evidence from the defendants’ side was incomplete’.”

34. In addition, the Plaintiffs submitted that the matter was complex, both factually and legally; that the offer was expressed (effectively) to be inclusive of costs; that it was only open for acceptance for 21 days from the date it was made; and that “…in the exercise of its discretion, the Court would also have regard to the fact that, although the plaintiffs were unsuccessful, there was no finding of any lack of bona fides in respect of either the plaintiffs’ preparation of their evidence or the manner in which they conducted their case”.

35. In his oral submissions, junior counsel referred the court to NMFM Property Pty Ltd v Citibank Ltd (No 11) [2001] FCA 480; (2001) 187 ALR 654 at [87]–[88]:

“No doubt where a party puts with sufficient particularity to the opposing party the reasons why the latter must fail, yet the latter does not recognise the inevitable, this will be a factor pointing to an award of indemnity costs. But in my view HB’s letter did not satisfy these requirements.

The requirements of ‘sufficient particularity’ and ‘inevitability of failure’ are important. In their absence, it would be open to parties to put their respective cases to the opposing party urging it to recognise the merit of what is put in the hope that if it ultimately finds favour with the Court, an award of indemnity costs will follow. If this were correct, one might ask rhetorically: ‘Why write a letter as distinct from simply relying on the pleadings?’ In my opinion, the view could reasonably and prudently be taken by NM that what HB was putting in their letter would not ultimately prevail, particularly in view of the nature of its case as one of the selling of a ‘package’ by a person acting simultaneously as the agent of two principals. In these circumstances, NM was entitled to pursue its claim without running the risk of an order for indemnity costs. The considerations advanced by HB in their letter were not so obviously correct that NM behaved imprudently or plainly unreasonably in not accepting with alacrity the small element of compromise present in the offer made.”

36. In addition, he relied upon Technology Leasing Ltd v Lennmar Pty Ltd (No 2) [2012] FCA 1216, in which Cowdroy J had written, at [24]–[25]:

“A Calderbank offer must be reasonable and must contain a statement of reasons why the opposing party’s claim must fail: see Keays at [19]; Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 at [8]; NMFM Property Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77 at [87]–[88]; Cutler v Derwent Howard Media Pty Ltd (subject to Deed of Company Arrangement) (No 3) [2011] FCA 1127; GM Holden Ltd v Paine (No 3) [2011] FCA 693.

The respondent’s Calderbank offer dated 15 April 2011 does not contain any reasons at all to explain why the applicant’s application was doomed to fail. The letter merely rejects the applicant’s offer and sets out the terms according to which the respondent would be prepared to settle the matter. The failure to include this information means that it was not unreasonable for the applicant to reject the offer. Without including critical information about the perceived deficiencies in the applicant’s case, the offer was not made in terms that could enable the applicant to give proper consideration to it.”

37. As will be shown later, there is other authority which states the principle less rigidly and makes the question whether there is a need for the offeror to descend to specificity of the reasons why the offer should be accepted dependent upon a consideration of all of the circumstances existing at the time of the offer.

38. In relation to the Offer of Compromise, the Plaintiffs only submitted that it was “simply an invitation to capitulate and, as such, did not constitute a genuine offer of compromise”.

39. The Defendants, in their submissions, pointed out that the Plaintiffs had not achieved a result better than the Calderbank offer. They had recovered nothing from the proceedings, the Further Amended Statement of Claim being dismissed.

40. In response to the Plaintiffs’ submissions on the Calderbank offer, they submitted that it had been unreasonable to not accept the offer, asserting:

“(i)   as at 22 July 2013 (the date of the Calderbank offer) [Timothy] was alleging that he was entitled to a one-third share of the net proceeds of sale of the Collaroy property; alternatively, in the event that his claim for a one-third share of the proceeds of sale of the Collaroy property was unsuccessful, he was seeking a family provision order on the basis that adequate provision had not been made for him out of his deceased mother’s estate;

(ii)   [Timothy’s] only basis for alleging that he was legally entitled to a one- third share of the Collaroy property (regardless of the particular cause of action he argued was applicable, be it estoppel, common intention trust, etc) was a promise allegedly made to him by his father and mother in 1981 or 1983, both of whom were deceased by the time [Timothy] commenced proceedings; and [Timothy’s] basis for alleging that he was entitled to a family provision order in his favour were his individual circumstances;

(iii)   therefore, contrary to the Plaintiffs’ Submissions on Costs … as at 22 July 2013, there was little or no evidence that was within the Defendants’ power to adduce that would either strengthen or weaken [Timothy’s] claims; for example, none of the Defendants were alleged by [Timothy] to have been parties to any relevant conversation; therefore, in the circumstances of this proceeding, the fact that the Defendants had not filed their evidence as at 22 July 2013 does not establish that it was not unreasonable for the [Timothy] to reject the Calderbank offer at that time.

(iv)   furthermore, the Plaintiffs’ actions after 22 July 2013 demonstrates the unreasonableness of [Timothy’s] rejection of the generous and genuine offer: after rejection of the Calderbank offer, [Timothy] twice sought leave of the Court to amend his claim (including to add a party), presumably such leave was sought in an attempt to strengthen his claims; and the Plaintiffs sought leave to abandon their claim for a family provision order in favour of [Timothy], presumably because the Plaintiffs considered the family provision claim to be without any prospects of success; and

(v)   finally, as the Judgment at [99]-[146] explains, the Plaintiffs’ claims failed because the Court did not accept that [Timothy] was a reliable witness; this finding did not depend on any evidence adduced by the Defendants, but rather was the result of the inherent flaws in [Timothy’s] evidence.”

41. It was submitted, for these reasons, the Court could be satisfied, in the circumstances of this case, that it had been unreasonable for Timothy to reject the Calderbank offer. It followed that the Plaintiffs (or at least Timothy) should be ordered to pay the Defendants’ costs on an indemnity basis on and from 12 August 2013.

42. In relation to the Offer of Compromise, it was submitted that as a result of the Plaintiffs’ failure to accept the Offer of Compromise, the Defendants should obtain an order against the Plaintiffs for costs to be calculated on the ordinary basis, up to and including 18 December 2014, and on the indemnity basis on and from 19 December 2014, pursuant to UCPR rule 42.15A.

43. The Defendants then asserted that there could be no dispute that the Defendants had “bettered” their offer at trial, since the Plaintiffs’ claims had been dismissed. They disputed the Plaintiffs’ submission that the offer made in the Offer of Compromise was not a genuine compromise, putting that, at the date it was made, the Defendants already had a costs order in their favour for their costs thrown away by reason of the Plaintiffs filing an Amended Statement of Claim; a costs order in their favour for their costs thrown away by reason of the Plaintiffs filing a Further Amended Statement of Claim; and a costs order in their favour for their costs incurred defending Timothy’s claim for a family provision order, which had been dismissed.

44. In addition, it was submitted that the Plaintiffs must have been aware that the Defendants had incurred their own significant legal fees in preparing for the hearing of the Plaintiffs’ claim, which was then due to be heard in February 2015.

45. Therefore, by agreeing to bear their own costs, the Defendants were making a significant compromise, which not only related to costs orders in their favour that had already been made, but also losing the opportunity to obtain costs orders that could be made if, as it turned out to be, the Plaintiffs failed completely in their claims.

46. Furthermore, it was submitted that, as at 18 December 2014, the Plaintiffs could not have been in any doubt about the defences and evidence with which they were to be faced at trial: a Defence to the Further Amended Statement of Claim had been filed several months’ earlier, and all the Defendants’ evidence had been served. The Plaintiffs ought to have been in the position to assess the parties’ cases 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.

47. For these reasons, the Defendants submitted that there were no grounds in this case for the Court to “order otherwise” and that the Court should order that the Plaintiffs pay the Defendants’ costs of the proceedings on an indemnity basis on and from 19 December 2014.

The Law

48. There was really no dispute on the principles that apply. Before dealing with the principles, I should mention UCPR rule 42.20(1) which provides that if the court makes an order for the dismissal of proceedings, then, unless the court orders otherwise, the plaintiff must pay the defendant’s costs of the proceedings to the extent to which they have been dismissed.

49. I dealt with the principles in Walsh v Walsh (No 2) [2013] NSWSC 1281, so far as they relate to costs generally (at [23]–[29], and specifically in relation to a Calderbank offer, at [39]–[56]), as follows:

“Principles regarding Costs Generally

There 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.

The 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.

Section 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.’

The 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.

The 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 …

The 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.’

In 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.’

…

Calderbank Offers

What 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.)

If 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].

In 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.’

I 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.’

A 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].

The 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].

I 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.’

As 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’.

In 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’.

Deciding 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.’

In 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.’

An appeal was dismissed in Commonwealth of Australia v Gretton.

In 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.’

In 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.’

An 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.

Whether 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].

In 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.’

Finally, 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.’

50. To these principles, I should add that service of a Calderbank offer serves a number of purposes, including to promote settlement and also to give the offeror cost protection in the event of an unreasonable refusal by the offeree. Furthermore, “to some extent any offer of compromise or Calderbank offer is necessarily a tactical weapon. At the heart of a Calderbank offer are two factors – settlement of the case and protection on costs if the offer is ultimately regarded as reasonable. Characterisation as a tactical weapon does not necessarily defeat the efficacy or the genuineness of the offer”: Zealley v Liquorland (Australia) Pty Ltd & Anor (Costs Ruling) [2015] VSC 133, per J Forrest J, at [18] and [24].

51. In relation to the oral submissions made by junior counsel for the Plaintiffs, in addition to what I have written above, I note that in Stewart v Atco Controls Pty Ltd (in liq) (No 2) [2014] HCA 31; (2014) 252 CLR 331, the appellants, who were successful in the High Court, had made a Calderbank offer before the hearing of the appeal (to which they were, at that stage, the respondents) in the intermediate appellate court. The High Court, at [4], observed:

“The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs. The respondent submits that its rejection of the offer was not unreasonable. If that be the test, it would appear to require at the least that the respondent point to a reason for not accepting the offer beyond the usual prospects of being successful in litigation.”

52. In Craigcare Group Pty Ltd v Superkite Pty Ltd (No 2) [2014] NSWSC 467, at [42]–[50], [63]–[67] and [83]–[84], I dealt with the principles that apply in relation to an offer of compromise as follows:

“UCPR rule 20.26 provides:

‘(1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms.

(2) An offer under this rule:

(a) must identify:

(i) the claim or part of the claim to which it relates, and

(ii) the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and

(b) if the offer relates only to part of a claim in the proceedings, must include a statement:

(i) in the case of an offer by the plaintiff, as to whether the balance of the proceedings is to be abandoned or pursued, or

(ii) in the case of an offer by a defendant, as to whether the balance of the proceedings will be defended or conceded, and

(c) must not include an amount for costs and must not be expressed to be inclusive of costs, and

(d) must bear a statement to the effect that the offer is made in accordance with these rules, and

(e) if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to that interim payment, and

(f) must specify the period of time within which the offer is open for

acceptance.

(3) An offer under this rule may propose:

(a) a judgment in favour of the defendant:

(i) with no order as to costs, or

(ii) despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff’s costs, or

(b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or

(c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer.

(4) If the offeror makes an offer before the offeree has been given such particulars of the offeror’s claim, and copies or originals of such documents available to the offeror, as are necessary to enable the offeree to fully consider the offer, the offeree may, within 14 days of receiving the offer, give notice to the offeror that:

(a) the offeree is unable to assess the reasonableness of the offer because of the lack of particulars or documents, and

(b) in the event that rule 42.14 applies to the proceedings, the offeree will seek an order of the court under rule 42.14(2).

(5) The closing date for acceptance of an offer:

(a) in the case of an offer made two months or more before the date set down for commencement of the trial-is to be no less than 28 days after the date on which the offer is made, and

(b) in any other case-is to be such date as is reasonable in the circumstances.

(8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer.

(9) An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides.

(10) A party may make more than one offer in relation to the same claim.

(11) Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer.

(12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division.’

UCPR rule 42.14 provides:

‘(1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer.

(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff’s costs in respect of the claim:

(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and

(b) assessed on an indemnity basis:

(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.’

In Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311, at [50] - [52], Barrett JA, with whose reasons Beazley P and McColl JA agreed, considered the scheme of the rules relating to offers of compromise. His Honour wrote:

‘Division 3 of Part 42 of the rules (containing rr 42.13 to 42.17) prescribes various outcomes, in terms of costs, of “proceedings in respect of which an offer of compromise . . . is made under rule 20.26 with respect to a plaintiff’s claim . . .”’ (these are the words in r 42.13). In such a case, several alternative outcomes as to costs are specified according to certain variables: which party made the offer, whether the offer was accepted and, if it was not, a comparison of the outcome in the proceedings with the terms of the unaccepted offer.

The rules operate on the clear basis that, if an offer is made under r 20.26, it is the provisions within Division 3 (including aspects of those rules that envisage modification by order of the court) - and those provisions alone - that will determine the position as to costs; and that this will be so both where the offer is accepted (r 42.13A) and where it is not accepted (rr 42.14, 42.15 and 42.15A).

An essential characteristic of any r 20.26 offer, therefore, is that it accommodate and abide by the regime with respect to costs laid down by Division 3….’

In Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368, Spigelman CJ, Beazley and McColl JJA, wrote, at [15]:

‘... Rules 42.14, 42.15 and 42.15A... provide that, when the relevant costs rule is engaged, a party is entitled to indemnity costs from a specified time (usually one day after an offer of compromise is made), “unless the court orders otherwise”....’

In addition to the matters identified in UCPR rule 20.26, in Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141, at [14], the Court of Appeal summarised the authorities concerning the question of ‘genuine compromise’ so far as they apply to offers of compromise:

‘An offer of compromise will only justify costs on an indemnity basis if it has a real element of compromise (Leichhardt Municipal Council v Green [2004] NSWCA 341; Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375). An offer which does not involve a real and genuine element of compromise will not be taken into account in relation to costs under the Rules (The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; (2006) 67 NSWLR 706). It has been said that indemnity costs will not be granted where the offer of compromise is designed simply to trigger the entitlement: for example, Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355 per Rogers CJ Comm D. An offer of compromise will always be intended to trigger the entitlement. The force of “simply” is the need for a real element of compromise.’

In Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358, Giles J said, at 368:

‘Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar but it does not in any real sense give anything away and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so.’

In Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19, the Court of Appeal said, at [23] - [24]:

‘What is required to trigger the costs consequences is an offer of “compromise”. It is sometimes said that the offer must be “genuine”, but this epithet probably adds little to the concept of compromise. Indeed, it may be distracting if it suggests that some assessment is required of the subjective intentions of the offeror. Whether there is an offer of compromise must be capable of objective determination by reference to the circumstances at the time the offer was made... The purpose of the cost rules is to encourage the making of offers of compromise. If the offer is designed to attract the rules, the rules are presumably having their intended effect... The incentive to settlement will be diminished to the extent that persons receiving offers believe they can ignore them with impunity as to costs consequences’.

From the authorities, it appears the question for determination involves a two-stage process. The first stage is to enquire whether the offer made is an ‘offer of compromise’ at all, within the meaning of the UCPR. This will depend, in part, on whether it satisfies the formal requirements laid down by UCPR rule 20.26. It also depends, in part, on whether the offer made is one that can truly be called a ‘compromise’.

If the court concludes that the offer which is made is an ‘offer of compromise’ within the meaning of the Rules, and that the offer made is one that can truly be called a compromise, then UCPR rule 42.14 operates to establish a ‘default’ position, relevantly that, if the plaintiff obtains a judgment no less favourable than that which the plaintiff had offered to accept, then indemnity costs would follow. It is then that the second stage of the process arises, in that the court can ‘otherwise order’. The court will ‘otherwise order’ if it is persuaded that is appropriate, in the interests of justice, that the ‘default’ position ought not apply: Manly Council v Bryne (No 2) [2004] NSWCA 227, per Campbell JA, at [10].

…

In this case, at the first stage, the question for determination is whether the Offer of Compromise was one that related only to ‘part of any claim in the proceedings’. If it did, it is clear that there was no statement included ‘as to whether the balance of the proceedings was to be abandoned or pursued’: UCPR rule 20.26(2)(b).

‘Claim’ is not defined in the UCPR. In the Civil Procedure Act, it is defined by reference to ‘claim for relief’: s 3. There is then set out in the section, various types of claim, one of which is ‘a claim for the recovery of damages or other money’; another is ‘any other claim (whether legal, equitable or otherwise) that is justiciable in the court’. Broadly, the word refers to a remedy sought, or right asserted, in the proceedings: West v Wake Price & Co v Ching [1956] 3 All ER 821; [1957] 1 WLR 45 per Lord Devlin, at 829.

There may be one claim based on several causes of action, or several claims based on one, or more, causes of action. Under the rule, the offer may be directed to one claim of several: Herbert v Tamworth City Council (No 4) [2004] NSWSC 394; (2004) 60 NSWLR 476. In this case, there were several claims based on one, or more, causes of action. As stated, there were two Defendants against which, or whom, different claims were made.

It is important to note that UCPR rule 20.26(1) relates to an offer to another party, the first Defendant, to compromise any claim in the proceedings, either in whole or in part. What was the subject of the offer in this case, was the whole of Craigcare’s claim against Superkite. The offer did not relate to the other claim that Craigcare had against Mr Stammers. But this was a different claim, and not part of the claim made against Superkite that Craigcare offered to settle. The offer entitled Superkite alone to accept. It did not require both Defendants to accept it.

It will be appreciated that UCPR rule 20.26(2)(b)(i) states that what must be included, if the offer relates only to part of a claim in the proceedings, is a statement as to whether the balance of the proceedings is to be abandoned or pursued. The reference to the phrase ‘the balance of the proceedings’, in my view, relates to the balance of the proceedings so far as it relates to claims against the party to which, or to whom, the offer is made.

…

I also take into account the change in Craigcare’s case to which I have referred. An Offer of Compromise may reasonably be rejected where the full parameters of the dispute were still uncertain at the time of the offer: Equity 8 Pty Ltd v Shaw Stockbroking Ltd [2007] NSWSC 503, at [42]; or where the offeror’s case changes after the offer: South Eastern Sydney Area Health Service v King [2006] NSWCA 2, at [85].

This determination is an evaluative judgment requiring a consideration of the facts and circumstance specific to the case: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12, at [19]; King Network Group Pty Ltd v Club of Clubs Pty Ltd (No 2) [2009] NSWCA 204, at [11].”

53. In Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109, McColl JA said, at [34]–[35]:

“In Morgan v Johnson (1998) 44 NSWLR 578 (at 581 – 582), Mason P (with whom Sheller JA agreed) summarised the rationale for the rules relating to offers of compromise as follows relevantly:

‘…(1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital (at 725-726); Hillier (at 421, 431).

(2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital (at 724).

(3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: NSW Insurance Ministerial Corporation v Reeve (at 102); Hillier (at 422). This is because, from the time of non-acceptance “notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise”: Maitland Hospital (at 724); see also Hillier (at 420).

(4) Lying behind the rule is the common knowledge that “litigation is inescapably chancy”: Maitland Hospital (at 725). For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve (at 102-103). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102). As Clarke JA expressed it in Houatchanthara (at 2-3):

“The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case. It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk.”

(5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital (at 725-726). Reasons must be given for “otherwise ordering”: Hillier (at 419); Quach.’ (my emphasis)

The onus is on the respondent to demonstrate why the Court should not order the respondent to pay the appellants’ costs on an indemnity basis. In particular, the respondent must establish that it had given serious thought to the risks involved in not accepting the offers, had assessed the appellants’ case properly and in the context of the relevant rules and the achievement of their purpose as outlined in Morgan. Generally, exceptional circumstances are required to justify such an order denying the appellants’ entitlement: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (at [83]) per Hunt AJA (Mason P and McColl JA agreeing).”

54. A “walk-away” offer is one “where the offeror expresses its willingness to settle on the ground that each party bears its own costs” (G E Dal Pont, Law of Costs (3rd ed 2013, LexisNexis at [13.9])). Such an offer is usually made by a defendant to a plaintiff, and comprises an offer to the plaintiff to abandon the claim or claims without any penalty for the defendant’s costs.

55. As will be apparent, UCPR rule 20.26(3)(a)(i) enables a “walk-away” offer to be made in an offer of compromise: Schepis v Commonwealth of Australia [2013] NSWCA 354, at [33], per Leeming JA (Beazley P agreeing); Taheri v Vitek (No 2) [2014] NSWCA 344, at [8] where the court (Bathurst CJ, Emmett and Leeming JJA) observed that “it has long been open for a defendant (or respondent to appeal) to engage the rules by an offer that there be a verdict in its favour with no order as to costs”; and Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391, per McColl JA (with whom Gleeson JA and Sackville AJA agreed), at [50].

56. If such an offer is made, and a plaintiff loses the case, an application may be made under rule UCPR r 42.15A for appropriate costs orders. That rule provides:

“(1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer.

(2) Unless the court orders otherwise:

(a) the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and

(b) the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, assessed on an indemnity basis:

(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.”

57. Whilst it is sometimes difficult to evaluate the genuineness of a “walk-away” offer, there is little doubt that a “walk-away” offer, in a particular case, can be a “genuine offer of compromise”: Melchior v Sydney Adventist Hospital Limited (No. 2) [2009] NSWSC 65, at [8]; Hearse v Staunton [2011] NSWSC 1065.

58. In Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA (with whom Bryson and Stein JJA agreed), at [25]–[26], stated:

“The position of a defendant without a cross-claim is analytically quite distinct [from the position of a plaintiff]. First, a defendant by definition is not the claiming party, and thus is not before the Court voluntarily. If it reasonably disputes liability and has a firm belief in the strength of its case, the best solution it can hope for - the claim is dismissed - is not a monetary one. It will in economic terms be no better or worse off for its victory by way of successful defence, costs aside. Thus, unlike a plaintiff, it cannot discount its optimum return by way of compromise. It does not need the same sorts of incentive as a plaintiff does to compromise …

Therefore the only option for a defendant is not an attractive one; to ‘buy off’ the claim by offering to pay unmeritorious claimants a sum of money to discontinue the litigation … Second, a defendant will know that if it loses on liability, the general rule will result in costs being awarded in favour of the successful plaintiff on a party and party basis … This means that a defendant already has less of an incentive to offer a compromise by conceding liability or quantum or both. As far as costs are concerned, a defendant who disputes liability and has a firm belief in the strength of its case will generally expect to reap no more than party and party costs in its favour. It will still be out of pocket to the tune of the difference between party and party costs and solicitor/client costs. What can such a defendant offer by way of compromise, in furtherance of the policy of the law of early settlement of disputes?”

59. Similarly, a “walk-away” offer may be genuine where the offer involves the sacrifice of substantial recoverable costs. In Clark v Commissioner of Taxation [2010] FCA 415, at [90], for example, the costs that would have been sacrificed if the offer was accepted, totalled between $123,000 and $184,000.

60. A “walk-away” offer made late in proceedings, say, just before trial, is more likely to be considered reasonable because both parties will be fully aware of the strengths and weaknesses of their cases: Eric Preston Pty Ltd v Euroz Securities Ltd (No 2) [2010] FCA 1068, at [16] and [19]; Commonwealth Bank of Australia v Dalle Cort [2015] QSC 41, at [8].

61. I have also borne in mind that it has been suggested that a “walk-away” offer can successfully trigger the indemnity costs mechanisms under the rules, but “the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case”: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368, per Spigelman CJ; Beazley and McColl JJA, at [31].

Determination

62. In relation to the Calderbank Offer, in determining whether Timothy acted unreasonably in rejecting it, one must remember the context in, and the time at which, it was made. Timothy does not dispute that the Calderbank offer was more favourable to him than the terms of the judgment.

63. As at 22 July 2013, the date of the Calderbank offer, Timothy was the only Plaintiff and his claim was as disclosed in the Statement of Claim filed on 18 January 2013. In that Statement of Claim, he sought a declaration that the Defendants held an amount equivalent to one-third of the net proceeds of sale of the Collaroy property on trust for the Plaintiff; or an order that he receive equitable compensation equivalent to one-third of the net proceeds of sale of the Collaroy property; interest; and further or in the alternative, a family provision order. He also sought costs.

64. In Paragraph 26 of the Statement of Claim, Timothy asserted that the Collaroy property had been sold for $1,550,000 (which was its gross sale price). It follows that, at the most (excluding any interest), Timothy’s principal claim was for $516,666. (Of course, he must have appreciated that there would have been costs and expenses of sale, including agents’ commission and legal costs.)

65. In my reasons for judgment, at [51], I found that each of Kerry and Gae received $709,679, which means that the net proceeds of sale were $1,419,358. Accordingly, Timothy’s principal claim would have been for about $473,000.

66. Timothy’s principal claim was based upon the facts that he had several conversations with Robert, in the presence of Sheelagh, which conversations amounted to a promise or assurance that the Collaroy property “will be left to you and Gael and Kerry one-third each”.

67. Timothy’s claim for a family provision order was, undoubtedly, based upon his assertion that the provision made for him in the Will of Sheelagh was not adequate or proper in all the circumstances. It will be remembered that under her Will, Sheelagh had explained, in Clause 7, why she had made her Will in the terms that she had.

68. In respect of each of his claims, the evidence upon which Timothy was to rely was, primarily, his own evidence, firstly as to the conversations he had with Robert and/or Sheelagh, and then as to his financial resources and “needs”.

69. As was pointed out by counsel for the Defendants, it had not been suggested, at least in regard to the first matter, that any of the Defendants had been a party to the conversations upon which Timothy intended to rely. In relation to the second claim, neither Kerry nor Gae would have been aware of Timothy’s precise financial resources. The only issue about which each could give evidence in relation to his claim for a family provision order was in relation to her financial and material circumstances and the other circumstances giving rise to the claim upon Sheelagh’s bounty. That evidence would be unlikely to advance the claim for a financial provision order that Timothy was seeking.

70. Be that as it may, Timothy would have appreciated, on his claim for a family provision order, that the court may have taken into account that he had received from Robert and Sheelagh, their shares in Mount Mill, which shares provided to him the whole of the beneficial interest in “Coomber” and the other parcels of land owned by Mount Mill.

71. It is important to note the terms of the Calderbank offer, which was to provide the amount of $200,000, inclusive of costs, or $165,000, plus costs of $35,000. In each case, as conceded by the Plaintiffs, the Calderbank offer made was a genuine one. This was an appropriate concession to make.

72. I have not omitted from my considerations the fact that, as at the date of the Calderbank offer, none of the Defendants had put on any evidence, ultimately, relied upon at the hearing. It was, of course, possible that one, or more, of them might have given evidence of a conversation, or conversations, with Robert and/or Sheelagh, which corroborated what Timothy had asserted. The credibility of the Defendants might have been a relevant factor on this topic.

73. However, I do not accept the Plaintiffs’ submission that the Defence that had been filed at the time of the Calderbank letter essentially put Timothy to proof in relation to the key elements of the claim and did not convey to him why, or how, the Defendants contended Timothy’s claim would not, or ought not, succeed. The Defence filed made it clear that the Defendants denied that Timothy was entitled to any relief and that it would be for him to establish the facts upon which he relied in the pleadings.

74. Furthermore, in circumstances where it was not alleged that any of the Defendants were parties to the conversations relied upon, the prospects of any of the Defendants giving evidence supporting Timothy’s case, in the context of the Defence filed, were not very strong. Timothy had to decide upon the strength of his own case, rather than rely upon the evidence the Defendants would serve.

75. Without any corroborative evidence, and none was asserted, Timothy must have been well aware from the commencement of the proceedings, that he would face the difficulties associated with the court accepting evidence of conversations with a person or persons who were deceased at the date of the hearing. I dealt with those difficulties at [65] to [79] of the reasons for judgment. If he did not, this involved a disregard of the serious problems confronting him in establishing his case.

76. Nor do I accept the submission that the Calderbank offer did not attempt to explain why Timothy ought to accept an offer equivalent to a relatively small fraction of the monetary relief sought by him in the proceedings. Firstly, there was no obligation upon the Defendants to do so, and secondly, the amount offered, in my view, was not “a relatively small fraction of the monetary relief sought”. The offer of $165,000 (exclusive of costs) amounted to almost 35 per cent of the one-third share of the gross sale price of the Collaroy property ($473,000).

77. In this regard, it is useful to note that in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workplace Authority (No 2) [2008] VSCA 298; (2005) 13 VR 435, the Court of Appeal, at [27], rejected the notion that the maker of a Calderbank offer should not be entitled to costs unless the offer set out, with some specificity, the basis for his, or her, contentions that the compromise should be accepted. The Victorian Court of Appeal stated that it is “neither necessary nor desirable to lay down any general rule in this regard”.

78. Certainly, making the Calderbank offer after the exchange of evidence would have allowed Timothy to assess his position more fully. But for reasons I am about to give, I do not think that makes a material difference here.

79. Importantly, as was submitted, the Defendants were entitled to put Timothy to proof on his assertions. He had not asserted that any of the Defendants were present at the time of the conversations upon which he relied.

80. Secondly, there was no suggestion by Timothy, or subsequently, by Mount Mill, that any of the Defendants knew, or was likely to have known, about what occurred in 1996 and 1997 in relation to the application by Mount Mill for drought assistance; or that they knew about the Statutory Declarations made by Robert and Sheelagh upon which Mount Mill had relied; or of the other documents under the hand of Timothy, which formed part of the Plaintiffs’ case at the hearing.

81. I dealt with those events in the reasons for judgment at [130]–[144].

82. Whilst Timothy asserted that he had not remembered those events, what had occurred ought to have been recollected by him personally, and in his capacity as a director of Mount Mill, in 2013. In any event, the documents relevant to that issue were part of an affidavit made by Stephen in November 2014. Presumably, the documents had been considered well before the affidavit was sworn. If they were not, they ought to have been bearing in mind the significance of the documents. Again, this demonstrates a disregard of another serious problem confronting Timothy in establishing his case.

83. It was those events, and documents, that played an important role in not accepting some of Timothy’s evidence and in dismissing his proceedings based upon proprietary estoppel. At the time of the Calderbank offer, he was, or ought to have been, well-equipped to determine the strength of his own case.

84. Furthermore, in 2013, the events that occurred in relation to the transfer of the Collaroy property to Robert and Sheelagh, also, ought to have been known to Timothy. There was available documentary evidence, which clearly demonstrated the circumstances of the transfer, including the consideration given. Furthermore, there were Mount Mill’s financial records, subsequently prepared, that demonstrated how the purchase price had been treated by Mount Mill and by Robert.

85. Indeed, it must not be forgotten that, to the exclusion of Robert, Sheelagh and each of Gae and Kerry, Timothy had been in control of Mount Mill from about 1997. The financial records of Mount Mill ought to have been available to him at all times thereafter. (It is also not to be forgotten that he was a director of Mount Mill at the time of the transfer of the Collaroy property.)

86. In regard to his family provision claim it is to be noted that, ultimately, the proceedings were dismissed by consent. This is hardly surprising bearing in mind the size of Sheelagh’s estate, the competing claims of Gae and Kerry upon Sheelagh’s bounty, and the financial resources available to Timothy. In my view, that claim was unlikely to succeed, a matter about which he ought to have been fully aware and bearing in mind the dismissal of that part of the proceedings, was fully aware.

87. I also bear in mind my conclusions about Timothy’s evidence at [101]–[130] of my earlier reasons for judgment.

88. I am satisfied that the time for considering the Calderbank offer (21 days after it was made) was sufficient in all the circumstances. The proceedings had been on foot for about 12 months; an unsuccessful mediation had occurred; and the terms of the offer made were clear and unambiguous. Timothy should have been well able to determine whether to accept or reject it.

89. On balance, I am satisfied, having considered all of the evidence and the submissions, that it was unreasonable for Timothy not to have accepted the Calderbank offer made by the Defendants. He had more than enough information, documentary and otherwise, available to him, whether or not he considered that information, to realise the difficulties that confronted him in obtaining a successful outcome on his case seeking equitable relief. He would have been well aware of the prospects of success of his claim for a family provision order. To not accept the Calderbank offer at the time it was made, in my view, was unreasonable.

90. (I note, in passing, that even after the receipt of all of the Defendants’ evidence, and having served Stephen’s affidavit, the offer of compromise served by the Plaintiffs was for more than the offer that had been made by Timothy in his Calderbank offer of November 2013.)

91. It follows that I am satisfied that Timothy should pay the Defendants’ costs and disbursements of the proceedings, calculated on the indemnity basis, from 13 August 2013. Prior to that date, Timothy should pay the Defendants’ costs and disbursements calculated on the ordinary basis. I do not include in this order, other costs orders already made.

92. In case I am wrong, I next deal with the Offer of Compromise which was made on 18 December 2014.

93. I respectfully agree with the submissions of the Defendants that bearing in mind the procedural history outlined above, even though the offer made was a “walk-away” offer, it must have been obvious to the Plaintiffs that the Defendants had incurred significant costs in the proceedings by the date of the Offer of Compromise, some of which costs they were entitled to by orders of the court. The proceedings, by that time had been on foot for over 2 years and there had been many appearances and a number of interlocutory skirmishes. The Defendants were offering to give up recovery of all of the costs that had been incurred by them. At that stage, much of the substantive work of preparing the case for hearing must have been undertaken bearing in mind the date fixed for hearing and the interposition of the long vacation.

94. In addition, by the date of the Offer of Compromise, all of the matters identified above, but including the evidence of each of the Defendants, was available to both Plaintiffs. The Plaintiffs also had available the contents of the affidavit sworn by Stephen.

95. In my view, no reasons have been advanced for avoiding the consequences of the UCPR in relation to the service of an offer of compromise. I am satisfied that the Plaintiffs have not demonstrated any reasons why the Court should “order otherwise”. I do not accept that it was simply a demand to capitulate which ought not provide the basis for an order for the payment of indemnity costs. Nor do I accept that it was not a genuine offer.

96. In the event that I am wrong in regard to the earlier order, I would order the Plaintiffs to pay the Defendants’ costs and disbursements of the proceedings on the ordinary basis up to and including 18 December 2014, and on and from 19 December 2014, those costs to be calculated on the indemnity basis. In the light of the earlier conclusion, it is unnecessary to make this order.

97. The court orders:

(a)   The first Plaintiff is to pay the Defendants’ costs and disbursements of the proceedings, calculated on the indemnity basis, from 13 August 2013. (Costs orders made prior to this order are not to form part of the costs order as they are not vacated by this order).

(b)   The first Plaintiff is to pay the Defendants’ costs and disbursements incurred prior to 13 August 2013, calculated on the ordinary basis. (Costs orders made prior to this order are not to form part of the costs order as they are not vacated by this order).

(c) The Exhibits should be dealt with in accordance with the Uniform Civil Procedure Rules 2005 rule 31.16A and rule 33.10, and Practice Note SC Gen 18 (Para 26).

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Amendments

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