New South Wales Court of Appeal CITATION: Fordyce v Fordham & Anor (No 2) [2006] NSWCA 362 HEARING DATE(S): On written submissions. JUDGMENT DATE: 15 December 2006 JUDGMENT OF: Beazley JA at 1; Santow JA at 2; McColl JA at 3 DECISION: Application dismissed with costs. CATCHWORDS: PRACTICE AND PROCEDURE - costs - unaccepted Calderbank offer - whether should displace order that each party pay their own costs - HELD - no. (ND) LEGISLATION CITED: District Court Rules 1973 Uniform Civil Procedure Rules 2005 Calderbank v Calderbank [1976] Fam 93 Fordyce v Fordham & Anor [2006] NSWCA 274 CASES CITED: Jones v Bradley ( No 2) NSWCA 258 Leichhardt Municipal Council v Green [2004] NSWCA 341 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 South Eastern Sydney Area Health Service v King [2006] NSWCA 2 Louise Aileen Fordyce - Claimant PARTIES: Gary Shaun Fordham - 1st Opponent Narelle Jane Fordham - 2nd Opponent FILE NUMBER(S): CA 40044 of 2006 COUNSEL: M Holmes QC and C Bova - Claimant J Simpkins SC and J Johnson - Opponents SOLICITORS: PMF Legal - Claimant Woolf Associates - Opponents LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): 4290/05 LOWER COURT JUDICIAL OFFICER: Nicholas J LOWER COURT DATE OF DECISION: 22 December 2005 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40044/06 SC 4290/05 BEAZLEY JA SANTOW JA McCOLL JA Friday 15 December 2006 FORDYCE v FORDHAM & ANOR (No 2) Judgment 1 BEAZLEY JA: I agree with McColl JA. 2 SANTOW JA: I agree with McColl JA 3 McCOLL JA: The Court delivered judgment in this matter on 5 October 2006. The appeal was allowed and the orders made by Nicholas J on 22 December 2005 that the appellant pay the costs of proceedings brought in the Equity Division of this Court by the respondents was set aside. In lieu the Court ordered that each party pay their own costs of the Supreme Court proceedings as well as their costs of appeal: Fordyce v Fordham & Anor [2006] NSWCA 274 (the "first judgment"). 4 At the conclusion of the argument Mr Simpkins of Senior Counsel, who appeared with Mr J Johnson for the respondents, raised the question that, if the appeal was upheld and this Court re-exercised the costs discretion, it should not make an order concerning the costs of the argument before the primary judge on 23 November 2005 as the outcome of that day may be affected by correspondence. While the Court indicated its view that its costs should apply to the costs of 23 November 2005 the parties were given leave to file and serve written submissions limited to two pages concerning the costs of that day. 5 The parties have exercised that leave. This judgment deals with the resolution of the respondents' claim that the appellant should be ordered to pay their costs of 23 November 2005 on the basis that she had unreasonably rejected a Calderbank offer communicated by Mr Woolf, the respondents' solicitor on 6 September 2005. 6 The history of the Equity Division proceedings can be gleaned from the first judgment (at [18] – [26]). Relevantly, Mr Woolf first communicated his clients' intention to discontinue the proceedings in an open letter dated 9 August 2005. On 10 August 2005 the appellant filed a Notice of Motion: see first judgment at [19]. The correspondence the respondents have attached to their submissions in relation to the costs of 23 November 2005 shows the parties' subsequent attempts to settle the matter. 7 On 23 August 2005 Mr Fordyce, the appellant's solicitor, wrote a letter to the respondents' solicitor marked "Without prejudice except as to costs", noting the matter was before the Court again on 30 August 2005 and conveying his client's instructions to propose that the proceedings be dismissed with an order that the respondents pay the appellant's costs in the sum of $15,000. The letter said the appellant's actual costs at that date (which was three weeks after the proceedings had started) were $26,000. The letter made a number of assertions about the respondents' proceedings including accusing them of having "totally failed" and "having misled the Court". The letter advised that if the respondents were not agreeable to his proposal, Mr Fordyce's instructions were to seek indemnity costs and to rely upon his letter in support of that claim. His offer remained open until 4pm on 29 August 2005. 8 At this stage the proceedings had been stood over for further directions before the Registrar on 30 August 2005 with liberty to apply on two day's notice. All questions of costs had been reserved: first judgment at [24]. 9 On 6 September 2005, Mr Woolf sent the letter upon which the respondents rely. It said: " Without prejudice except as to costs …. We refer to previous correspondence. Our clients offer to discontinue the proceedings and each party pay their own costs. This offer is open to 28 September 2005. The above offer is made on a without admissions basis and without prejudice except as to costs. We reply as follows to matters in your letter but without any admission as to any matters not expressly mentioned. We reject the contentions made in your letter of 23 August 2005. Contrary to the matters which you have asserted your client sought to commence work in the knowledge that our clients had applied to the Local Court for clarification of the terms of the consent orders in the Local Court. Your client's action would have undermined the purpose of the Local Court hearing. Further your client had no right to commence any works, including removal of trees, before the Final Tree Report was received. As you know, the Local Court suspended the access orders at the Plaintiff's request until the Final Tree Report was provided to them and they had time to consider it and be advised on it. It was accordingly not only a matter of belief by our clients but it was unarguably reasonable for our clients to commence injunctive proceedings and reasonable, as was the case, for the Court to grant injunctive relief in the first place and later for the Court to obtain an undertaking by your client in the terms of the undertaking given by your client to the Court on 10 August 2005. In relation to the fees which you mention in the sum of $26,000 we are not aware that counsel has appeared on any occasion for your client in these proceedings such that in our view this calculation of costs is completely out of proportion to a reasonable amount of work which might be carried out in relation to these proceedings. Further, you filed a motion in the proceedings supported by Affidavit material which did not succeed and at the return of which it was your client who provided an undertaking to the Court. On any view, your client would not be entitled to any costs in relation to such motion and should bear our client's costs in relation to the motion. Our clients have made a reasonable offer to settle the proceedings as set out above." 10 By the time the 6 September letter was sent the matter had been before the Registrar for further directions on 30 August 2005 and had been adjourned by consent to 27 September 2005. On the latter date the Court was advised that the respondents wished to seek leave to discontinue: first judgment at [24]. 11 On the same day Mr Fordyce wrote a second letter to Mr Woolf, again headed "Without prejudice except as to costs". He noted Mr Woolf's advice to the Court that the respondents were seeking to discontinue the proceedings. He observed that they were entitled to do so by filing a notice of discontinuance with the consequence that they would have to pay his client's costs. He also noted that the respondents appeared to be seeking to discontinue on the basis that each party pay their own costs and advised that that proposal was not acceptable to the appellant. The letter then made a number of serious allegations against the respondents which it is unnecessary to repeat. It advised that the appellant was agreeable to accepting an order that her costs be paid on "the usual basis" and would not press for indemnity costs provided the respondents agreed and had consent orders discontinuing the proceedings on the basis that they pay her costs as assessed or agreed filed by no later than 4pm on 11 October 2005. The letter also advised that should the offer not be accepted and the appellant obtained a judgment more favourable to her than the offer, she reserved the right to rely on the offer on the question of costs including an application that the respondents pay her costs of the proceedings on an indemnity basis, referring to Calderbank v Calderbank [1976] Fam 93. 12 On 12 October 2005, Mr Woolf wrote to Mr Fordyce rejecting the serious allegations contained in the letter of 27 September 2005 in detailed terms which, again, it is unnecessary to repeat. The offer contained in Mr Fordyce's letter of 27 September 2005 was declined. 13 Mr Fordyce did not expressly reject the offer contained in Mr Woolf's 6 September 2005 letter, however that rejection can be inferred from his letter of 27 September 2005. 14 The respondents submit that their offer of 6 September 2005 was a genuine attempt to reach a negotiated settlement in circumstances where there was a real chance that the Court would order the appellant to pay some or all of their costs in the circumstances. They rely upon the fact that the 6 September 2005 letter set out the matters to which the Court of Appeal had regard in determining that each party should pay their own costs, namely that the respondents' conduct in commencing the proceedings was reasonable, while the appellant's conduct was provocative and a "matter for wonder" (first judgment at [89]) and the appellant was not the "victor" in the Local Court proceedings (first judgment at [92]). 15 Accordingly the respondents contend the result ordered by the Court of Appeal was that offered in the 6 September 2005 letter, that sought in their motion of discontinuance before Nicholas J and advocated as their primary position before his Honour: first judgment at [55]. They argue that the appellant was given particulars of the reason why each party should pay their own costs and a reasonable time (22 days) in which to consider the offer: cf Uniform Civil Procedure Rules 2005 20.25 and 20.26. They submit that the appellant acted unreasonably in rejecting their offer and maintaining that she was entitled to indemnity costs both before and through the hearing of 23 November 2005, asserting that the respondents had knowingly misled the Court and sworn false affidavits and indicating that she would subpoena their legal representatives in the Local Court proceedings to give evidence and pursue a custodial sentence for criminal contempt of court. They submit that none of the serious allegations made by the appellant which were relied upon as the basis for her refusing the respondents' offer had any sufficient evidential basis particularly in view of the necessary standard of proof for such allegations and none was accepted by the Court. 16 The appellant submits that the 6 September letter was not a Calderbank letter which would attract the costs order sought. She prays in aid Jones v Bradley (No 2) [2003] NSWCA 258 where (at [8]) the Court said: "8 This principle has also been enunciated in this Court. In SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Giles JA stated at para 37: 'The making of an offer of compromise in the form of a Calderbank Letter … 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.'" (emphasis added). 17 The appellant submits that the 6 September 2005 letter was, at best, a "borderline" offer in the sense that by the time it was made the proceedings were "spent or futile" (first judgment at [97]) and in circumstances where the respondents were seeking to discontinue, UCPR 42.19 provided that, unless the Court ordered otherwise, they were to pay such of her costs as had been incurred in relation to each claim in respect of which the proceedings were discontinued. The appellant submitted that she had not ended up worse off than if the 6 September 2005 offer had been accepted, so the precondition for attracting consideration of a different costs order had not been established. 18 In Leichhardt Municipal Council v Green [2004] NSWCA 341 at [46], Santow JA (with whom Bryson and Stein JJA agreed) said that the considerations which applied when determining whether, pursuant to the District Court Rules 1973, a defendant should be awarded indemnity costs in respect of an unaccepted offer of compromise, should also apply when determining whether a defendant should be awarded indemnity costs for an unaccepted Calderbank offer. 19 The respondents do not seek an indemnity costs order but it is nevertheless relevant to have regard to UCPR 42.14 which provides that if an offer of compromise is not accepted and the plaintiff obtains an order or judgment no less favourable than the terms of the offer then, unless the Court ordered otherwise, the plaintiff is entitled to a costs order in respect of the claim assessed on the ordinary basis up to the time the offer was made and on an indemnity basis (relevantly for present purposes) from the beginning of the day following the day on which the offer was made. 20 This rule reflects Calderbank v Calderbank, (at 106) where Cairns LJ said, in substance, that an offer to compromise proceedings made without recourse to formal offer of compromise provisions (e.g. UCPR 20.25 ff) may attract costs awarded on the same basis as if those formal procedures had been invoked where the Court's order is "as favourable to the party who made the offer as what was offered, or more favourable". I do not understand Giles JA's reference in SMEC Testing Services Pty Ltd v Campbelltown City Council to an offeree ending up "worse off" to have been intended to exclude the operation of the Calderbank principle where an offeror obtained an "as favourable" order. 21 In my view the 6 September 2005 letter was a Calderbank letter. However while UCPR 42.14 provides guidance as to the exercise of the power to award costs following a Calderbank letter, the question whether a different costs order ought be made turns on a consideration of all the circumstances of the case, including the relative strengths and weaknesses of each parties' case as they may have been apparent to the parties at the time the offer was made: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [90]. 22 The appellant has submitted that the Court could not accede to the -respondents' application without considering all the material in her possession at the time, including her affidavit evidence "read and unread as available in the papers before the Court for the purposes of the appeal", a submission which, in my view, sought to cavil with the conclusion in the first judgment (at [89], [95]) that the respondents acted reasonably in commencing and continuing the proceedings, while her conduct had been "a matter of wonder". 23 It is unnecessary, however, to consider to that aspect of the appellant's submissions further. It is sufficient to note that the 6 September 2005 offer concerned the costs outcome consequent upon the respondents' proposal to discontinue the proceedings. Mr Fordyce responded to that letter by observing, correctly, that the rules required the respondents would have to pay the appellant's costs in such circumstances – although he did not refer to the power of the Court to "otherwise order" which was considered in the first judgment. 24 The respondents were seeking an outcome of their discontinuance more favourable to them than that provided by the rules. It was, accordingly, necessary (unless the appellant accepted the offer) to persuade the Court that that was the appropriate outcome. While it is the case, as the respondents submit, that the outcome of the primary proceedings turned in many respects on the Court's view that the appellant's conduct was unreasonable, in the light of UCPR 42.19, the appellant was, in my view, not acting unreasonably in relying upon the proposition that the discontinuing party was required to pay her costs and, if necessary, requiring the respondents to displace the operation of UCPR 42.19 by application to the Court. 25 The respondents have shown no basis upon which the costs order made in the first judgment should be disturbed. Their application should be dismissed with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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