McKENNA v SOLOMON [NO 2] SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL KirBY P, HANDLEY JA and SHELLER JA 29 March 1995 [1995] NSWCA 282 COSTS — indemnity costs — offer of compromise — Family Provision Act proceedings — successful appeal against refusal of provision — appellant awarded legacy of $40,000 and costs — after trial but before appeal, appellant offers to compromise for $10,000 — offer refused — whether indemnity costs should be ordered in appeal — held: In the exercise of the Court's discretion, indemnity costs should be ordered. Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 (CA); Tickell v Trifelska Pty Limited (1991) 25 NSWLR 353 (SC); Calderbank v Calderbank [1976] Fam 93, [1976] 3 WLR 586 (CA) applied. Kirby P. On 9 December 1994 the Court, by its orders, upheld an appeal from a decision in the Equity Division of the Supreme Court constituted by Master McLaughlin. See McKenna v Solomon & Ors, Court of Appeal (NSW), unreported, 9 December 1994; [1994] NSWJB 136. The Court directed that, within 28 days of publication of its reasons, the parties should bring in short minutes to give effect to that decision. Subsequently short minutes were prepared. They have been placed before the Court today. Controversy has arisen with respect to at least one of the draft orders. It is inappropriate that this Court should, at least in the first instance, endeavour to resolve the problem. Accordingly, the settlement of the short minutes will be stood over to be considered, if it still be necessary by Sheller JA. The minutes, as then approved, can result in orders, by consent of the parties. If his Honour later thinks it appropriate, he will direct that the matter should again bereturned before this Court to resolve the outstanding issues in relation to the short minutes. One of the orders that is sought by the appellant arises out of an application which was made immediately on the announcement of the decision. This was for an order for costs to be paid on an indemnity basis. The appellant, having succeeded in this Court on a point of law, would be entitled to costs. The respondents having failed they would be entitled, if so qualified, to a certificate under the Suitors" Fund Act 1951. However, a general order for costs would impose a duty to pay such costs only on a party and party. A certificate under the Suitors" Fund Act will not cover all of such costs. It is in those circumstances that the motion before us must now be considered. Read to the Court today, without objection, has been an affidavit of Mr Geoffrey Jones, solicitor for the appellant. In that affidavit Mr Jones deposes to having caused, on 5 October 1994, a formal notice of offer of compromise to be served upon the respondents. That offer has been placed before the Court in Mr Jones" affidavit. Initially, some dispute arose as to the compliance of the notice with the Rules of Court governing offers of compromise. However, as the notice has the clear inscription that it was 'without prejudice' save as to costs, and therefore invoked the principles laid down in Calderbank v Calderbank [1976] Fam 93; [1976] 3 WLR 586 (CA) and subsequent cases, the respondents, quite correctly in my view, withdrew that ground of objection. 2 UNREPORTED JUDGMENTS Nonetheless the respondents opposed the ordering of indemnity costs on the merits. They did so on a number of grounds. The first was that there were significant disputes as to facts which made the rejection of the offer of compromise reasonable in the circumstances in which that rejection occurred. The offer of compromise was contained in the correspondence and in the notice to which I have referred. In effect, the appellant offered to settle the proceedings upon the payment to her of the sum of $10,000 and costs. The offer was rejected. The respondents counter offered with an indication thatthey would be prepared to settle upon the basis that the appellant pay the costs of the trial which the Master had ordered and that each party should bear its own costs of the appeal. That counter offer was rejected. The matter then proceeded to trial. It is true that the case presented difficulties for the appellant. This is so in all litigation, and in all appeals, particularly an appeal against an order which is discretionary in character. The appeal clearly carried risks. Nonetheless, this Court unanimously concluded that the appellant was entitled to succeed by the application of the established principles. She was entitled, in effect, to a legacy of $40,000 together with her costs. In these circumstances the refusal of quite a modest offer to accept a legacy in the sum of $10,000, even in the circumstances in which that refusal occurred, was not, I think, entirely reasonable as subsequent events have shown. It would not be a ground for rejecting the claim for indemnity costs. I pass to the second reason which was advanced. This was that the Court retains a general discretion to refuse indemnity costs. Having regard to all of the circumstances, it was submitted, the Court should not approach the provision of indemnity costs in a mechanical or inflexible way. It should reflect upon all of the circumstances of the case. This included the prospects of the appellant's succeeding in the appeal. Cf Tickell v Trifleska Pty Ltd (1991) 25 NSWJB 353 , 355 (SC). The size of the estate is relevant. So is the quite modest share (seemingly less than $40,000) which at least two of the respondents, being the half daughters of the deceased, will recover from the estate. I agree that the orders for indemnity costs are within the discretion of the Court. So they are under the Act. So they are under the Rules. See Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 (CA) , 726. However, the purpose of the development of the common law as to indemnity costs and now the special provision in the Rules of Court, has been explained in many cases. It is to focus the attention of parties, in advance of litigation, upon a serious reflection of the risks of the litigation and of the considerable costs and inconvenience which is staked upon the pursuit of a resolution of a dispute between the parties by court determination. It is a means, but a reasonable and not oppressive one, of promoting serious consideration of settlement offers and thereby contributing to the saving both of public and private costs. Having regard to that high policy to which the Court has, on many occasions, given effect the invocation of the claim for indemnity costs in this case seems perfectly reasonable. It is true that the costs are substantial. In light of the advice of Young J in the National Commercial Banking Company case, the appellant has placed before the Court a bill of costs. This indicates that the total costs will amount to something of the order of $17,000. That is a large sum in absolute terms. It is a very large sum by comparison to the amount at stake. It is a large sum for this relatively small estate. But that is not the question. The question is: who will have URJ McKENNA v SOLOMON [NO 2] (Kirby P) 3 to bear those costs which cannot be recovered from the Suitors" Fund under the Suitors" Fund Act or under an order for payment of party and party costs which would ordinarily be made against the respondents? Is that residue to be born by the appellant who has been successful and who made a modest and sensible offer of compromise? Or is it to be paid by the respondents who resisted? In my view it should be paid by the respondents. This being the case and without approaching the matter in a mechanical way, I would accede to the request of the appellant for an order that the costs after the offer of 5 October 1994 be ordered to be paid on an indemnity basis. The draft orders, when submitted to the Court, should so provide. Handley JA. I agree. In doing so I express no view whatsoever as to whether any of the items shown in the bill of costs and counsel's memorandum of fees are properly to be included under the order for indemnity costs. Inparticular, I note that the charges for indemnity fees to counsel include fees on briefs which were probably delivered long before the offer was made. Sheller JA. I also agree. Kirby P. The order of the Court, therefore, is that the parties are directed, in bringing in the short minutes which contain all of the orders of the Court, to include in those minutes an order that the respondents pay the appellant's costs of the appeal on an indemnity basis after 5 October 1994. The Court will give leave to any party to move the Court upon notice to the others, if needed. Sheller JA will be available to settle the orders of the Court. Order that the respondents pay the appellant's costs of the appeal on an indemnity basis after 5 October 1994. Counsel for the claimant: M D Broun QC / D J Durston Solicitors for the claimant: Atkins Jones Counsel for the opponents: J G Harrison Solicitors for the opponents: Marshall Marks Kennedy