Smith v Smith (No 2)
[2011] NSWSC 1105
•12 October 2011
Supreme Court
New South Wales
Medium Neutral Citation: Smith & Anor v Smith (No 2) [2011] NSWSC 1105 Hearing dates: 12 September 2011 Decision date: 12 October 2011 Jurisdiction: Equity Division Before: Hallen AsJ Decision: (1) Order that the Plaintiffs' costs, calculated on the ordinary basis, of the proceedings, other than the costs of the Defendant's Notice of Motion returnable on 31 August 2011 and the costs of the hearing to determine the costs, in respect of which each party is to pay their, or his, own costs, shall be paid out of the estate of the deceased.
(2) Orders made consequent upon reasons for decision in Smith & Anor v Smith [2011] NSWSC 938.
Catchwords: Costs of proceedings in which each of the Plaintiffs does not achieve a result more favourable than offer made in Calderbank offer; whether Offer of Compromise effective Legislation Cited: Civil Procedure Act 2005
Succession Act 2006
Uniform Civil Procedure Rules 2005Cases Cited: Bartkus v Bartkus [2010] NSWSC 889
Carey v Robson [2010] NSWCA 212
City of Sydney v Streetscape Projects (Australia) Pty Limited & Anor [2011] NSWSC 990
Commonwealth of Australia v Gretton [2008] NSWCA 117
D'Apice v Gutkovich; Estate of the Late Irene Rachel Abraham (No 3) [2010] NSWSC 1458
Dean v Stockland Property Management Pty Ltd and Anor (No 2) [2010] NSWCA 141
Evans Shire Council v Richardson (No 2) [2006] NSWCA 61;
Gilroy v Neaves & Anor [2005] NSWSC 1003
Johnson v MNG Investments Pty Ltd t/as Australian Temporary Fencing [2011] ACTSC 150
Jvancich v Kennedy (No 2) [2004] NSWCA 397
Leichhardt Municipal Council v Green [2004] NSWCA 341
Moussa v Moussa [2006] NSWSC 509
Noon v Bondi Beach Astra Retirement Village Pty Ltd (No 2) [2010] NSWCA 285
Singer v Berghouse [1993] HCA 35; (1993) 114
Ohn v Walton (1995) 36 NSWLR 77
Oshlack v Richmond River Council (1998) 193 CLR 72
Sherborne Estate (No 2), Re; Vanvalen v Neaves [2005] NSWSC 1003
SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323
Smith v Smith [2011] NSWSC 938
Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194
Vaughan v Hoskovich (No 2) [2010] NSWSC 835
Ying v Song [2011] NSWSC 618Texts Cited: Practice Note SC Eq 7 Category: Costs Parties: Keith Milton Smith (first Plaintiff)
Darren Robert Smith (second Plaintiff)
Colin William Edward Smith (Defendant)Representation: Counsel:
Mr M Thompson (Plaintiffs)
Ms J Needham SC; Mr S Chapple (Defendant)
Solicitors:
Gerard Malouf & Partners (Plaintiffs)
Robbins Watson Solicitors (Defendant)
File Number(s): 2010/426728
Judgment
The Background
HIS HONOUR: In this matter, I delivered reasons for judgment on 31 August 2011, the medium neutral citation of which is Smith & Anor v Smith [2011] NSWSC 938. In those reasons, I found that each of the Plaintiffs was entitled to a family provision order by way of lump sum. The amount I ordered to be paid to each was $77,500.
In exercising my discretion on the nature and quantum of the provision to be made, I took into account, amongst other things, the claim by the Defendant for mesne profits or an occupation fee sought from each of the Plaintiffs based upon his occupation of the deceased's property (in the possession proceedings), and the Plaintiffs' failure to comply with an order made by Davies J on 12 May 2011. I also took into account an order for costs that had then been made against each of the Plaintiffs.
I followed that course because the parties adopted a sensible approach during the case, which was based upon the desire to avoid the further costs and expenses associated with the continued litigation about the claim for mesne profits or an occupation fee (see [34] of the reasons for judgment), and because the Defendant's costs was yet to be assessed on that part of the possession claim that Davies J had ordered to be paid by the Plaintiffs (see [37] of the reasons for judgment).
I concluded the reasons for judgment by stating:
"191 In relation to costs, I was requested to delay the determination of costs so that each party could make further submissions if agreement cannot be reached. I shall hear any argument on the burden of costs and whether the costs, of either party, should be capped, or otherwise be recoverable.
192 I would hope that the parties are able to reach agreement on costs. However, if they are unable to, I shall decide this issue also as well as the method by which the Plaintiffs' costs, if any, payable out of the estate should be secured."
The matter was listed on 12 September 2011 to determine who should pay the costs of the proceedings as the parties were unable to reach agreement and because there are additional matters to be considered on the question how the burden of costs is to be borne. The costs argument proceeded for half a day.
In the submissions filed on behalf of the Defendant, Ms Needham SC stated that three issues needed to be decided, namely, how the costs of the hearing (which I take to mean the proceedings generally), the costs of the notice of motion of 31 August 2001, and the costs of the hearing of the argument as to costs (which took a half day), were to be borne.
The Evidence on Costs
On the application for costs, the Defendant relied upon an affidavit affirmed by Christine Ann Smythe, the solicitor employed by the firm of solicitors retained by, and who had the carriage of, the matter on behalf of, the Defendant.
In summary, her evidence was to the effect that the Defendant had, since 3 November 2010, that is, prior to the commencement of the proceedings, made different offers to each of the Plaintiffs, on a "without prejudice except as to costs basis", each of which offers had not been accepted.
The Defendant's first offer was made in a letter dated 3 November 2010. That letter set out the assets and liabilities of the estate (at that time) and noted the manner in which a property, formerly owned by Defendant and inherited from his great grandmother, was transferred to the deceased, which the deceased had subsequently sold, and which led to the deceased purchasing the real estate and holding the cash in his estate at the date of death.
The offer made was for a lump sum of $65,000 payable to each of the Plaintiffs, which amount was said to be "an equal share in the current net estate" excluding the deceased's real estate. The offer was conditional upon each of the Plaintiffs vacating the real property prior to payment and on each of the Plaintiffs accepting the offer. The offer was open for seven days.
Importantly, the letter containing the offer asserted that the real estate registered in the name of the deceased "is held on trust for [the Defendant] arising from a series of inter vivos transactions between the deceased and [the Defendant]" and that "[T]his property does not form part of the deceased's estate".
The Plaintiffs' solicitors requested that the date on which the offer was to lapse be extended, which request was agreed to. Also, the Plaintiffs' solicitors requested that the Defendant's solicitors "provide ... particulars demonstrating the above ...". These particulars do not appear to have been provided.
The Defendant's solicitor's then made what was said to be "one further and final offer of settlement" in letter dated 15 November 2010, which also was headed "without prejudice save as to costs". This letter set out, in more detail, the basis of the Defendant's claim to the real property being held on trust and it pointed out, by way of an alternative claim, the "significant contribution" made by the Defendant to the deceased's estate. The offer made to each Plaintiff was, again, for $65,000, plus up to $2,000 for moving expenses, as well as all household contents (excluding one fridge and the billiard table) situated in the deceased's property. The offer was open for four days.
The Plaintiffs' solicitors responded by letter dated 19 November 2010. Again, further information was sought, without which it was said "we will not be in a position to advise our client whether the offer of settlement is reasonable...".
In a letter dated 24 November 2010, the Defendant's solicitors responded:
"Our client has made several offers to your clients. In response to each of those offers, you have sought further and additional information. It is your clients who must establish their claim, it is not for our client to justify the bequest to him in the deceased's will. Your demands for further information involves disclosure and discovery by our client before any proceedings are on foot. Disclosure is a formal court process. Your demands clearly demonstrate either you or your clients are unwilling to resolve this matter informally. Accordingly, our client should not be unnecessarily disadvantaged as a result. We reiterate we hold instructions to accept service."
The Defendant's solicitor's letter dated 24 November 2010, which also was headed "without prejudice save as to costs", contained the third offer, which was a proposal by way of "financial incentive ... to vacate the Tweed Heads property". In this offer, the Plaintiffs were offered $5,000 to assist them in meeting expenses associated with finding alternative accommodation and all household contents (excluding a brand new fridge and a billiard table". Payment was to be in two tranches; one payable upon acceptance and the second on vacant possession being provided). The offer was made conditional upon the Plaintiffs vacating the real property within 21 days of acceptance of the offer. The offer was to lapse on 1 December 2010. (One assumes that this offer was made so as to avoid the possession proceedings that were commenced subsequently.)
The evidence does not reveal any response to the offer on behalf of the Plaintiffs.
Then, on 20 May 2011, what was described as a formal Offer of Compromise, was made, which offer provided that the Defendant would pay:
"(i) $50,000 to each Plaintiff payable upon both Plaintiffs vacating the Tweed Heads property;
(ii) $50,000 to each Plaintiff payable within 2 weeks of the successful completion of a settlement of the sale of the Tweed Heads property."
It was a further term of the Offer of Compromise that the Plaintiffs' costs be paid from the estate of the deceased as assessed, calculated on the ordinary basis. The offer was open for 28 days.
There is no evidence that there was any response to this offer on behalf of either Plaintiff.
The Defendant also made a Calderbank offer in a letter dated 23 May 2011. The "rationale" underlying this offer, as disclosed in the letter, was that the estate currently included the real estate ($450,000) and cash ($180,000). Liabilities included "an unknown tax liability and administration expenses not yet finally determined". It, too, was open for 28 days.
The Calderbank offer provided that the Defendant would pay to each of the Plaintiffs the sum of $100,000 from the deceased's estate in two stages, namely, $50,000 to each Plaintiff upon "both Plaintiffs vacating" the Tweed Heads property, and $50,000 paid to each Plaintiff within 2 weeks of the successful completion of a settlement of the sale of the Tweed Heads property. The offer also contained a term that the Plaintiffs' costs, calculated on the ordinary basis, would be paid out of the deceased's estate.
There is no evidence, which was read on the application for costs, disclosing any response to the offer contained in the Offer of Compromise, or in the letter that contained the Calderbank offer. This is important because of the submissions made on behalf of the Plaintiffs to the effect that neither offer was one capable of acceptance by the Plaintiffs individually.
It is clear that by the time the Offer of Compromise was served upon the Plaintiffs, the litigation had been on foot for several months - it had been commenced by Summons filed on 24 December 2010. Presumably, each of the parties had retained, and had received advice from, counsel, about the likely quantum of each Plaintiff' s case.
Furthermore, much of the Plaintiffs' evidence had been put into affidavit form, which affidavits had been served. The Defendant had also served one affidavit (sworn 18 March 2011), but this affidavit did not include some of the matters required to be included in an administrator's affidavit by Practice Note SC Eq 7 (e.g. what was likely to be the nature and value of any distributed estate, the nature and value of the net distributable estate).
The Defendant's solicitor, however, had sworn an affidavit "on information and belief", which included as property in the deceased's estate, the Tweed Heads property of the estate, and estimated its value, and the liabilities which were described as "unknown tax liability" and "legal and administration expenses not yet fully determined". No costs affidavit, by either side, had, then, been served.
An affidavit of the Defendant sworn 19 August 2011 was read at the hearing. This set out some of the matters required by the Practice Note to which I have referred. At, or about this time, each solicitor had sworn an affidavit that set out his, and her, estimate of costs of the proceedings.
In the substantive proceedings, there was some cross-examination of the Defendant on the part of his affidavits that related to the nature and value of the deceased's estate at the date of hearing. In answer to some questions from me, the Defendant revealed that some of his costs of the proceedings had been paid out of the estate. This had not been disclosed in any affidavit, or in the correspondence passing between the solicitors, to which I have referred.
It was not until an affidavit of the Defendant's solicitor, affirmed 23 August 2011 (the second day of the hearing) was read, that it was revealed to the Court (and, presumably, to the Plaintiffs) that legal costs and disbursements of the proceedings, of $64,224 had been paid out of the deceased's estate; that legal costs and disbursements of the possession proceedings, of $17,424, had been paid out of the estate; that probate and administration estate expenses of $13,597 had also been paid, as had estate liabilities of $19,389 (reimbursed to the Defendant) out of the estate.
It was not until she gave evidence on 23 August 2011, that the Defendant's solicitor revealed that the balance of the Defendant's unpaid costs and disbursements, at the conclusion of the proceedings, would be limited to $47,590 and that there was an amount of $958 yet to be paid in the possession proceedings.
On the costs application, the Plaintiffs relied upon one affidavit of their solicitor on the costs application. I was not impressed with this affidavit, which seemed to be more in the form of submissions than one providing facts that would assist in the determination of the costs argument.
Importantly, the affidavit did not have annexed to it a copy of the response to any of the offers made, or disclose any offers made on behalf of the Plaintiffs. Similarly, although I was informed, from the bar table, that the Plaintiffs' solicitors had made one offer in about May 2011, to the Defendant, a copy of that offer was not annexed and it was not tendered.
The notice of motion of 31 August 2011 was one filed by the Defendant which related to events of 27 August 2011. There was evidence that on that date, the Plaintiffs, or one of them, had attempted to sell the contents of the deceased's home.
There was no dispute that some items had been sold by the Plaintiff, Keith. In an affidavit sworn by him, on a date not disclosed in it, but said to be shortly after 31 August 2011, he admitted that he had sold various items of furniture (identified by him in the affidavit), for a total amount of $128. He said that since being contacted by his solicitor on 30 August 2011, he had sold nothing else. He explained that he believed, as a result of hearing the Defendant's senior counsel say that either of the Plaintiffs could have whatever of the contents of the Tweed Heads property that he wished to have, that he was at liberty to sell the contents.
The Plaintiff, Darren, stated in an affidavit the date of the swearing of which was not disclosed, that he had sold nothing from the deceased's property.
Neither of the Plaintiffs was cross-examined on his affidavit.
There were no separate submissions made on the costs of the hearing on the costs argument.
Legislative Framework
Section 99 of the Succession Act 2006, relevantly, 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."
No longer is there any difference between categories of eligible persons, as there was in the former Act, by reference to s 33(3) of the former Act. The direction in s 33(2) of the former Act that "the Court shall not order ..." the payment of costs out of the estate "by reason only of the fact that" is not repeated.
It is clear that the section in the Act provides for an unfettered discretion as to how the costs of the proceedings may be borne. 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.
The present costs application relates to whether the Plaintiffs should bear any of the Defendant's costs of the proceedings, considering what is said to be an Offer of Compromise, or the Calderbank offer, neither of which the Plaintiffs accepted and in respect of which each received a less favourable order for provision. On that topic, s 100 is silent.
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 section gives the Court full power to determine by whom, to whom, and to what extent, costs are to be paid. The discretion is broad but not unconfined. It is a judicial discretion to be exercised on a principled basis.
Uniform Civil Procedure Rules 2005 ("UCPR"), rule 42.1, provides that costs should 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 will ordinarily require an order that the successful party's costs will be paid by the unsuccessful party.
It is also necessary to refer to some other rules in the UCPR. UCPR rule 20.26 refers to offers of compromise. It 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 must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs.
(3) A notice of offer:
(a) must bear a statement to the effect that the offer is made in accordance with these rules, and
(b) 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 the payment so made or ordered.
(4) Despite subrule (1), a plaintiff may not make an offer unless the defendant has been given such particulars of the plaintiff's claim, and copies or originals of such documents available to the plaintiff, as are necessary to enable the defendant to fully consider the offer.
(5) If a plaintiff makes an offer, no order may be made in favour of the defendant on the ground that the plaintiff has not supplied particulars or documents, or has not supplied sufficient particulars or documents, unless:
(a) the defendant has informed the plaintiff in writing of that ground within 14 days after receiving the offer, or
(b) the court orders otherwise.
(6) An offer may be expressed to be limited as to the time it is open for acceptance.
(7) The following provisions apply if an offer is limited as to the time it is open for acceptance:
(a) the closing date for acceptance of the offer must not be less than 28 days after the date on which the offer is made, in the case of an offer made 2 months or more before the date set down for commencement of the trial,
(b) the offer must be left open for such time as is reasonable in the circumstances, in the case of an offer made less than 2 months before the date set down for commencement of the trial.
(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."
There was a dispute that the Offer of Compromise made by the Defendant complied with the UCPR.
UCPR r 20.30(3) relevantly provides:
"(3) Despite subrule (2), an offer may be disclosed to the court or, as the case may require, to the arbitrator:
(a) ...
or
(b) to the extent necessary to enable the offer to be taken into account for the purpose of determining an amount of interest up to judgment, or
(c) after all questions of liability and relief have been determined, to the extent necessary to determine questions as to costs, or
(d) ..."
There was no dispute that all questions of relief, with the exception of costs, have been determined.
Part 42, Division 3 of UCPR, relates to "proceedings in respect of which an offer of compromise (the "offer concerned") is made under rule 20.26 with respect to a plaintiff's claim (the "claim concerned")" (UCPR 42.13).
UCPR r 42.15 provides:
"(1) This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim concerned as favourable to the plaintiff, or less favourable to the plaintiff, than the terms of the offer.
(2) Unless the court orders otherwise:
(a) the plaintiff is entitled to an order against the defendant for the plaintiff'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."
In this case, the offer was made before the first day of the trial.
General Costs Principles
McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72 at [66] - [67] said:
"66 By far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation. A successful litigant is generally entitled to an award of costs. As Devlin J said in Smeaton Hanscomb & Co Ltd v Sassoon I Setty, Son & Co [No 2]103, when setting aside an arbitrator's costs award:
"the arbitrator is not directing his mind to one of the most, if not the most, important of the elements which ought to affect his discretion, namely the result of the case. Prima facie, a successful party is entitled to his costs. To deprive him of his costs or to require him to pay a part of the costs of the other side is an exceptional measure."
The combined force of the sentiments recognised above by Mason CJ, regarding the need for consistency in order to avoid injustice, and by Devlin J, regarding the most significant factor affecting the costs discretion, provides the jurisprudential basis for the important principle commonly referred to as the "usual order as to costs".
The usual order as to costs
67 The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation."
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.
It may be necessary to analyze the whole of the proceedings to determine the appropriate costs order. A relevant consideration is whether the Plaintiff acted reasonably in commencing the proceedings and whether the Defendant acted reasonably in defending them.
The Principles in cases in which a family provision order is sought
In 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."
Despite the above statement, which, of course, was written in the context of a security for costs application, and in respect of proceedings under the former Act, I am of the view that the following general principles apply (in respect of costs applications made under the Succession Act :
(a) Section 99 of the Succession Act provides a wide discretion in relation to costs ("in such manner as the Court thinks fit").
(b) Where a Plaintiff is successful, subject to any special order as to costs, his, or her, costs, calculated on the ordinary basis, are usually paid out of the estate or notional estate of the deceased of the deceased; the Defendant's costs, calculated on the indemnity basis, are also usually ordered to be paid out of the estate or notional estate of the deceased.
(c) Proceedings for a family provision order 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.
(d) In exercising its discretion in relation to costs, the court will have regard to the overall justice of the case: Jvancich v Kennedy (No 2) . The "overall justice of the case" is "not remote from costs following the event". However, the court may be more willing to depart from the general principle than in other types of case: Moussa v Moussa [2006] NSWSC 509 ; Carey v Robson [2010] NSWCA 212 ; Bartkus v Bartkus [2010] NSWSC 889 at [24].
Other Relevant Principles
The UCPR provide for particular requirements with which an offer of compromise must comply in order to bring into operation the special costs rules, one of which is, for present purposes, r 20.26(2) to which I have referred. That sub-rule provides that an offer must be exclusive of costs "except where it states that it is a verdict for the defendant and that the parties are to bear their own costs".
An offer of compromise that includes a term that one, or both, party's costs will be paid out of the estate, is not an offer of compromise that complies with the UCPR. As was said by White J in D'Apice v Gutkovich; Estate of the Late Irene Rachel Abraham (No 3) [2010] NSWSC 1458:
"[9] A matter of immediate concern as to whether or not the document constitutes an offer of compromise is order 2 which provides for the plaintiff to pay the defendant's costs as agreed or assessed out of the estate. Under r 20.26(2), an offer of compromise must be exclusive of costs unless it states that it is a verdict for the defendant and that the parties are to bear their own costs.
[10] Counsel for the plaintiff submits that the offer is exclusive of costs within the meaning of that rule, notwithstanding the term that the plaintiff is to pay the defendant's costs as agreed or assessed out of the estate. Counsel points out that if the offer had been silent as to costs, the effect of r 42.13A would be that the plaintiff would be entitled to his costs up to the date of the offer.
[11] By offering to pay the defendant's costs, the plaintiff was offering a further element of compromise and one which, it is said, does not infringe the principles behind r 20.26 and r 42.13A which are that if an offer of compromise is made inclusive of costs, but is not accepted, it is often impossible to say after judgment whether the judgment obtained is more favourable or less favourable than an offer made inclusive of costs.
[12] Counsel also correctly submit that it has been held that r 20.26 applies to probate proceedings. (See Trustee for the Salvation Army (NSW) Property Trust t/as Salvation Army v Becker (No 2) [2007] NSWCA 194.)
[13] There is force in these submissions, however, as I held in relation to a similarly worded offer, (similarly worded, that is to say, in relation to costs), in Vaughan v Hoskovich (No 2) [2010] NSWSC 1459, this point of distinction is not open consistently with the reasoning of the Court of Appeal in Trustee for the Salvation Army (NSW) Property Trust t/as Salvation Army v Becker (No 2 ). It appears from para [24] in that case that the offer of compromise was made after the decision at first instance granting probate. The offer included a term that the costs of the defendants be paid out of the estate in a particular sum. The Court of Appeal held that that was not an offer of compromise within r 20.26 because it was not exclusive of costs.
[14] I see no basis for distinguishing the terms of the offer between that case and this because in this case there are additional elements of compromise contained in paras 1 and 4 of the offer."
An offer of compromise that does not comply with the UCPR is not invalid, "it merely has no effect under the Uniform Civil Procedure Rules": Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194, per Ipp JA, at [24].
In Leichhardt Municipal Council v Green [2004] NSWCA 341, 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."
A Calderbank offer will not justify an indemnity costs order unless the offer was a genuine offer of compromise and its rejection was unreasonable: Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) at [7].
I should also refer to what was said by Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]:
"The Council was also entitled to orders that the Third Party Defendants pay its costs unless the court otherwise ordered: Pt39 r1A. The making of an offer of compromise in the form of a Calderbank letter (from Calderbank v Calderbank (1976) Fam 93), where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: see for example, John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FLR 201; MGICA (1992) Pty Lt v Kenny & Good PtyLtd (1996) 70 FLR 235."
As to Calderbank offers, I cannot do better than repeat what was written, recently, by Ward J in Ying v Song [2011] NSWSC 618:
"26 The position in relation to offers expressed to be without prejudice except as to costs (and relied upon as being in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586) differs in that the party seeking to rely on the offer must establish both that it represents a genuine compromise of the dispute and that it was unreasonable for the offeree to reject it. It is recognised that the making of a Calderbank offer is one of the circumstances in which the court may exercise its discretion under Rule 42.1 to make some order other than that costs should follow the event but that it does not automatically follow that simply because the offer was more favourable than the judgment then an indemnity costs order will be made."
The onus is on the party making a Calderbank offer to satisfy the court that it should exercise the costs discretion in its favour: Evans Shire Council v Richardson (No 2 ) [2006] NSWCA 61; Commonwealth of Australia v Gretton [2008] NSWCA 117.
Determination
In this case, I am not satisfied that the Offer of Compromise served by the Defendant on the Plaintiffs was an effective one. I have come to this view because it was not one that was "exclusive of costs". The Offer of Compromise included the term that the Plaintiffs' costs, calculated on ordinary basis, would be paid out of the estate.
Whilst I appreciate that the term of the Offer of Compromise made in relation to the Plaintiffs' costs is one that might have been expected to be made in the event that the Plaintiffs were successful, it is still an offer of compromise that refers to costs and, therefore, does not qualify as a valid one: Vaughan v Hoskovich (No. 2) [2010] NSWSC 835.
Should it have been necessary, I would also conclude that the form of the offer made by the Defendant was one that was incapable of acceptance by one Plaintiff alone. In this regard, it is to be noted that the amount of $50,000, being the first payment to each Plaintiff, was to be made "upon both Plaintiffs vacating" the Tweed Heads property. Thus, even if one Plaintiff accepted the offer and agreed to, and did, vacate the Tweed Heads property, no payment to him was required to be made until the other Plaintiff vacated the Tweed Heads property also.
Accordingly, I need not consider further the consequences that flow from the UCPR in respect of offers of compromise.
In this case, I cannot treat the Offer of Compromise as a Calderbank offer. It was explicitly said to be an offer of compromise under UCPR r 20.26. Unlike the offer considered in Trustee for the Salvation Army (NSW) Property Trust & v Becker (No 2 ), it was not stated to be intended to operate as a Calderbank offer if it was ineffective under the UCPR: Dean v Stockland Property Management Pty Ltd and Anor (No 2) [2010] NSWCA 141 at [33] - [34].
It probably does not matter much whether I do not treat it as a Calderbank offer, because a separate Calderbank offer, in similar terms, was made shortly afterwards by the Defendant.
The next question, then, is whether any costs consequences flow from the non-acceptance of the Calderbank offer made in May 2011. In this regard, I note the recent comment made in Johnson v MNG Investments Pty Ltd t/as Australian Temporary Fencing & Ors [2011] ACTSC 150, with which I respectfully agree, that:
"15 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."
The reasonableness of a decision not to accept a settlement offer is not to be determined with hindsight. 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].
I also remember that in Sherborne Estate (No 2): Vanvalen & Anor v Neaves & Anor; Gilroy v Neaves Palmer J said:
"56 A claim under the FPA is not quantifiable by the parties' legal advisers prior to judgment with anything like the prescience possible in a claim for a liquidated sum such as a contract debt, or even in a claim for unliquidated damages for personal injury or for future economic loss. There are statutory and judicial guidelines for the range of damages appropriate for various types of personal injury; expert accountants attempt to quantify damages for future economic loss by reference to historical financial information.
57 However, in a claim under the FPA the Court has to quantify what provision "ought to be made" for the applicant out of the deceased's estate "having regard to the circumstances at the time the order is made": s.7. Inevitably, that question involves a large element of subjective assessment by the Judge. Inevitably, on any particular set of facts, there would be a variety of answers given by different Judges. The decided cases offer broad parameters as to what provision "ought to be made" in certain kinds of circumstances but there is no formula and there is no yardstick on which the degrees of measurement are not etched by the Judge's own experience of life."
A difficulty with the Calderbank offer made by the Defendant is as to its terms. It was one that was incapable of acceptance by one Plaintiff alone. To require the payment, the co-operation of both Plaintiffs was necessary.
The Plaintiffs also submitted that there was nothing in the Calderbank offer that demonstrated how the payment of each sum would be secured, and for this reason, the Plaintiffs were not unreasonable in failing to accept the offer.
There is nothing in the offer that stated when the Tweed Heads property was to be sold, and, hence, when the second payment would be made. In fact, there is nothing in the Calderbank offer that demonstrates, with any degree of clarity, that the Tweed Heads property was to be sold at all. Whilst one may infer that, there could have been further discussion between solicitors about the potential for breach of the term of the offer if the Defendant had, for example, rented the Tweed Heads property, or if he had, otherwise, been dilatory in placing the Tweed Heads property on the market for sale, that did not take place.
Yet, the offer made must be unambiguous and clear. I am not satisfied that the Calderbank offer made was either.
I commend to parties involved in proceedings in which a family provision order is sought, that every effort, particularly in a relatively small estate, as this one is, to conduct negotiations frankly and openly, to try to resolve the proceedings, and if there are issues or concerns about an offer that has been made, to raise any issues at the first convenient opportunity with the offeror's solicitors, so that any ambiguities, or other concerns, can be resolved. The Court should be able to see that the parties have considered what is being offered in a sensible, practical, and commercial way.
For example, the Plaintiffs' solicitors could have enquired when the Tweed Heads property was to be placed on the market for sale by the Defendant and could have discussed the date when this was to be done; how the second amounts of $50,000 could be secured (e.g. by way of charge or caveat) if the Plaintiffs did, in fact, vacate possession of the Tweed Heads property; and, what would occur if the property was not able to be sold promptly (e.g. whether interest would be payable). The solicitors for the parties discussed none of these matters.
This is stating no more than the principle that there should be clarity, disclosure and openness in modern civil litigation and the requirement for the fullest co-operation among parties and legal practitioners: The City of Sydney v Streetscape Projects (Australia) Pty Limited & Anor [2011] NSWSC 990 at [5].
Despite this, I am satisfied that, in all the circumstances, the Plaintiffs were not unreasonable in failing to accept the offer made in the Calderbank offer. I cannot forget, in this case, that there was a degree of hostility between the parties and a distrust of the other. This may have added a further impediment to the rational consideration by them regarding the terms of any offer made.
The likely outcome of the proceedings for a family provision order, or the range of outcomes of those proceedings was not, at the time the offer was made, so clear that it was unreasonable for the Plaintiffs to reject the offer. That becomes even clearer when one considers the manner in which the outcome was reached.
As submitted by counsel for the Plaintiffs, the Calderbank offer did not deal with the possession proceedings, whereas the result of the proceedings is that those proceedings will now be concluded bearing in mind the way in which I have taken into account the claim for mesne profits or an occupation fee, and also the costs of those proceedings that Davies J ordered the Plaintiffs to pay. This is an important aspect since the amount of the lump sum ordered to have been paid may have been greater but for those matters.
There is a further reason why I consider it was not unreasonable for the Plaintiffs to have not accepted the offer made. At the date of each offer, the Defendant had not set out fully and accurately the nature and value of the deceased's estate. In particular, there had not been disclosed the fact that a part of the estate had been distributed, being the Defendant's costs and disbursements which had already been paid, or which had been paid to the Plaintiff to reimburse him for amounts that he was alleged to have paid on behalf of the estate.
I have not forgotten, in this regard, that the Defendant was the sole executor and universal legatee of the deceased's estate. Subject to any order of the Court, he was entitled to the whole estate. But, in my view, these matters should have been disclosed to the Court and to the Plaintiffs before the second day of the hearing.
I have considered whether, under s 99 of the Succession Act , I am entitled to have regard to the fact that the Defendant made a number of attempts to resolve the proceedings and that the Plaintiffs appear to have made none (or, perhaps, one in early May 2011). Senior counsel for the Defendant says that I am able to, whereas counsel for the Plaintiffs says I am not able to.
It is clear that whilst the amount to be provided to each of the Plaintiffs made in the offers in November 2010, prior to the commencement of the proceedings, was reasonably close to the lump sum, ultimately, to be made by way of a family provision order, none was more favourable to the Plaintiffs than the ultimate result of the proceedings. Furthermore, they seem to have been based upon the Tweed Heads property not being included as an asset of the estate.
Accordingly, other than the fact that these offers were made around the time of the commencement of the proceedings, they do not seem to be relevant to the exercise of the discretion. There is nothing to suggest, in the letters from the Defendant's solicitors, that the Defendant was amenable to further negotiations. In fact, the last letter said that it was a "final offer".
The more difficult question is how far the Offer of Compromise and the Calderbank offer should be considered in light of my conclusions. There is no evidence of any response to the either. Significantly, none of the matters that were raised at the hearing on costs were raised in correspondence between the parties' legal representatives.
It seems to me that the Plaintiffs probably did not wish to accept any offer made by, or on behalf of, the Defendant, which did not equate to one third of the value of the estate. No evidence of the terms of any offer, or counter-offer, made by, or on behalf of, the Plaintiffs, was given. The evidence of Keith at the hearing demonstrated such an approach.
In the circumstances, with some hesitation, and whilst I have some sympathy for the Defendant, I am of the opinion, that the Plaintiffs' costs, calculated on the ordinary basis, should be paid out of the deceased's estate.
I note that the Defendant's total financial obligation to the Plaintiffs, by reason of the lump sum order is $155,000, and not $200,000 (as offered). In addition, some of the Plaintiffs' costs would have also had to be paid if the offer had been accepted. Finally, the possession proceedings have been concluded without further costs having to be incurred. In all the circumstances, I consider the overall justice of the case warrants the conclusion that I have reached.
In relation to the costs of the notice of motion of 31 August 2011, the Plaintiff, Keith, should have enquired, by his solicitors, whether that was permissible to do so before selling any of the furniture in the Tweed Heads property. He should have realised, in the circumstances of this case, that his belief may not have been an intended one. The Defendant, even taking into account what had been said in Court, had not consented to the sale of that furniture. It was said in the context of the Plaintiffs' evidence of needing furniture for any accommodation to which they would have to go.
On the other hand, some attempt could have been made by the legal representatives of the Defendant to ascertain what had been sold and what the proceeds of sale were likely to have been. The Defendant ought to have considered the costs of any notice of motion, with senior counsel being retained, before steps were taken to bring the matter urgently before the court. I have little doubt that the costs would have far exceeded the amount in issue.
Furthermore, he would have had a reasonable idea of the nature and value of the items that were likely to have been sold. As is obvious from the amount of the proceeds of sale, it is unlikely that the items were of significant value.
In my view, each party should bear their, or his, own costs of the notice of motion of 31 August 2011. In other words, the order for costs of the proceedings referred to above, should not include the costs of the notice of motion of 31 August 2011.
In relation to the hearing of the argument about costs, I am of the view that each party should bear their, or his, own costs, despite the fact that the Defendant was unsuccessful in obtaining a special order for costs. No written submissions on costs were received from the Plaintiffs. Had they outlined the matters raised, orally, at the hearing on costs, a reasonable time before the hearing, the Defendant may not have proceeded to seek a special order as to costs. No opportunity to adopt that course was given to the Defendant.
The parties, following the hearing, provided short minutes of orders. Even on these, agreement could not be reached. I have considered both drafts provided and it seems that the following orders are appropriate, taking into account, also, the orders to which I have referred above. I shall allow the parties a short opportunity to consider the orders that I propose, which are that:
(1) Provision for each of the Plaintiffs, in the sum of $77,500, be made for him out of the estate of the deceased.
(2) The Plaintiffs' costs, calculated on the ordinary basis, of the proceedings, other than the costs of the Defendant's Notice of Motion returnable on 31 August 2011 and the costs of the hearing to determine the costs, in respect of each of which each party is to pay their, or his own costs, shall be paid out of the estate of the deceased.
(3) The Defendant's costs calculated on the indemnity basis, of the proceedings, other than the costs of his Notice of Motion returnable on 31 August 2011 and the costs of the hearing to determine the costs, in respect of each of which each party is to pay their, or his own costs, shall be paid out of the estate of the deceased.
(4) The payment of the lump sum be made following the matters set out in (a), (b) and (c) hereunder occurring:
(a) the Defendant' solicitor is to provide a notice, in writing, ("the provision notice") to the Plaintiffs' solicitors, notifying that the lump sum is available to be paid to each Plaintiff;
(b) the Plaintiffs' solicitor, is to notify the Defendant's solicitor, in writing, within 7 days of the date on which the provision notice is given, of the date by which each Plaintiff will vacate the Tweed Heads property, which date to vacate should be no later than 14 days from the date of their notice;
(c) the Plaintiffs shall vacate the Tweed Heads property by the date stated in their solicitors' written notice to the Defendant's solicitors;
(d) the lump sum is to be paid by the Defendant to the Plaintiffs' solicitors no later than 2 working days before the date on which each Plaintiff is to vacate the Tweed Heads property, but shall not be paid by their solicitors to either Plaintiff until such time as the Defendant's solicitors confirm, in writing, that each Plaintiff has vacated the Tweed Heads property, such confirmation to be no more than 2 working days after the date that each Plaintiff vacated the Tweed Heads property;
(e) if either, or both, Plaintiffs does, or do, not vacate the Tweed Heads property within 21 days of the date on which the provision notice is given by the Defendant's solicitors to the solicitors for the Plaintiffs, that Plaintiff shall be liable to a deduction from the interim sum to which he is otherwise entitled of an amount calculated as follows:
(i) $225 per week for each week, or part thereof, during which both Plaintiffs remain in the property beyond the time provided for specified in Paragraph (b) (making a total amount of $450 per week); or
(ii) $450 per week for each week, or part thereof, during which only that Plaintiff remains in the Tweed Heads property beyond the time provided for specified in Paragraph (b).
(f) For the avoidance of doubt, the Defendant's solicitor is to advise the Plaintiffs' solicitors of the deductions that should be made pursuant to order 4(e)(i) or (ii), which deductions should be retained by the Plaintiffs' solicitors on behalf of the estate pending further order of the Court or the agreement of the parties.
(5) Leave to discontinue the possession proceedings 2010/426728 with no order as to costs is granted to the Defendant.
(6) All costs orders previously made in the possession proceedings be vacated.
(7) Further consideration as to the matters referred to in respect of Order 4 above be reserved.
(8) The Court notes that:
(a) any occupation by the Plaintiffs during the periods referred to in Paragraphs 4(a) and (b) is on the basis of no occupation fee being paid by the Plaintiffs.
(b) should either of the Plaintiffs not vacate the property within 21 days of the date provided for in 4(b) above, the Defendant shall be entitled to move on the writ of possession issued pursuant to the orders of Davies J of 9 June 2011 on the basis that any costs incurred by the Defendant in moving on that writ will not be affected, or covered by, order 5 above.
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Decision last updated: 12 October 2011
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