New South Wales Court of Appeal CITATION: Commonwealth of Australia v Gretton [2008] NSWCA 117 HEARING DATE(S): 13 February 2008 JUDGMENT DATE: 29 May 2008 JUDGMENT OF: Mason P at 1; Beazley JA at 2; Hodgson JA at 110 1. Leave to appeal is granted DECISION: 2. Appeal dismissed 3. The appellant is to pay the respondent's costs of the appeal. CATCHWORDS: COSTS – offers of compromise - refusal of Calderbank offer where offeree receives a less favourable result at trial – whether offer of compromise genuine - whether rejection of offer so unreasonable as to warrant an award of indemnity costs – discretion of court LEGISLATION CITED: Civil Procedure Act 2005, s98 Uniform Civil Procedure Rules, Pt 42 CATEGORY: Principal judgment Blagojevch v Australian Industrial Relations Commission [200] FCA 483; 98 FCR 45; (2000) 172 ALR 611 Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541 Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586 Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225; 118 ALR 248 Donnelly v Edelsten [1994] FCA 992; (1994) 49 FCR 384 Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 Gretton v The Commonwealth [2005] NSWSC 437 Gretton v The Commonwealth [2007] NSWSC 149 Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 CASES CITED: Hillier v Sheather (1995) 36 NSWLR 414 House v The King [1936] HCA 40; (1936) 55 CLR 499 Humphries v TWT Ltd (1993) 113 FLR 422 Jones v Bradley (No 2) [2003] NSWCA 258 Leichhardt Municipal Council v Green [2004] NSWCA 341 Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 Ohn v Walton (1995) 36 NSWLR 77 Rosniak v Government Insurance Office (1997) 41 NSWLR 608 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 The Commonwealth v Diston [2003] NSWCA 51 PARTIES: Commonwealth of Australia (Appellant) Cecil Eric Gretton (Respondent) FILE NUMBER(S): CA 40174/07 COUNSEL: P Jones; I McLaughlan (Appellant) I Butcher (Respondent) SOLICITORS: Australian Government Solicitor (Appellant) Hollows Lawyers (Respondent) LOWER COURT JURISDICTION: Supreme Court - Common Law Division LOWER COURT FILE NUMBER(S): SC 20821/01 LOWER COURT JUDICIAL OFFICER: Studdert J LOWER COURT DATE OF DECISION: 2 March 2007 LOWER COURT MEDIUM NEUTRAL CITATION: Gretton v Commonwealth of Australia [2007] NSWSC 149 - 48 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40174/07 MASON P BEAZLEY JA HODGSON JA 29 May 2008 Commonwealth of Australia v Cecil Eric Gretton Headnote Mr Gretton was serving as an engineering mechanic aboard HMAS Melbourne when it collided with HMAS Voyager on 10 February 1964. After being granted an extension of the limitation period by McDougall J, Mr Gretton commenced proceedings against the Commonwealth on 9 October 2001 for a claim for economic and non-economic damages due to Post Traumatic Stress Disorder (PTSD) that he claimed he suffered as a result of the collision. Mr Gretton made an offer of compromise of $250,000 plus costs, to which the Commonwealth did not respond. The Commonwealth later made a Calderbank offer of settlement in the sum of $150,000, plus the costs of the trial, which Mr Gretton refused. The offer excluded the costs order made against Mr Gretton on the extension application, for which he would remain liable if he accepted the offer. The matter was heard before Studdert J, where a jury awarded Mr Gretton damages in the sum of $50,000. The possible range of verdicts was very wide as the medical evidence diagnosing PTSD depended upon an acceptance of Mr Gretton's version of events, putting his credibility at issue, and the claim for economic loss included a claim for loss of pension benefits and for loss of advancement in his current employment, both of which were the subject of conflicting evidence. The Commonwealth sought costs on an indemnity basis, or alternatively on the ordinary basis from the date it had made its Calderbank offer. Mr Gretton opposed the Commonwealth's application for costs and sought an order in his favour on the basis that costs should follow the event: Pt 42, r 42.1 of the Uniform Civil Procedure Rules 2005 (the UCPR). Studdert J, refused the Commonwealth's application and ordered that it pay Mr Gretton's costs of trial. The order specifically excluded the Commonwealth's costs of the extension application. The Commonwealth now seeks leave to appeal from Studdert J's costs order that it pay Mr Gretton's costs of the trial. (The costs of the trial were only quantified in the sum of $120,000 upon the hearing of this appeal.) Held per Beazley JA (Mason P agreeing, Hodgson JA substantially agreeing): 1. The usual rule as to costs is that costs follow the event unless the court considers that some other order ought to be made: UCPR r 42.1. 2. A Calderbank offer may be the reason for making some other order. 3. The making of a Calderbank offer does not automatically result in a favourable costs order, notwithstanding that the judgment is more favourable to the party making the offer than the terms of the offer. The court must be satisfied that some other order than costs follow the event is justified: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Jones v Bradley (No 2) [2003] NSWCA 258; Leichhardt Municipal Council v Green [2004] NSWCA 341 (all applied). 4. In order to be entitled to an order for costs on an indemnity basis after the making of a Calderbank offer, the offer must be a genuine offer of compromise, which it unreasonable for the offeree not to accept: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Leichhardt Municipal Council v Green [2004] NSWCA 341 (both cited). (i) It is not sufficient for the offeror to merely establish that its offer was reasonable in order to establish that the offeree was unreasonable in rejecting it. (ii) An offer that is no more than a "walk-away" offer may be a genuine offer of compromise, if it is seen as a genuine attempt to reach a negotiated settlement, rather than merely to trigger any costs sanctions. 5. The Court's discretion is to be exercised having regard to all the relevant circumstances in the case. Leichhardt Municipal Council v Green [2004] NSWCA 341 (applied). 6. There was no error in the exercise of the trial judge's discretion, in finding that the claimant's rejection of the offer was not unreasonable, having considered the wide range of possible verdicts, challenges to the claimant's case and principles of public policy. 7. Where the offeree is put on notice that credit is in issue, a rejection of an offer (where the result is less favourable to the offeree) is not necessarily determinative of the question of unreasonableness: Blagojevch v Australian Industrial Relations Commission [2000] FCA 483; 98 FCR 45; (2000) 172 ALR 611 (distinguished); Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 at 233; 118 ALR 248 (considered). 8. The exercise of discretion must be based on fairness, which involves a consideration of the responsibility of parties in incurring the costs. Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 (considered). 9. 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 (applied). That onus may require the offeror to disclose to the court the quantum of any costs order that it has in its favour and which is not included in the offer. 10. The inclusion of a term that cannot be obtained by way of a court order, such as a non-disclosure clause, does not disentitle a party from a favourable exercise of the Court's discretion. However, it may be relevant to the manner in which the Court exercises its discretion. 11. An offer that does not finalise the terms upon which a matter is to be resolved, and does not put an end to the negotiations, is relevant to the court's exercise of discretion. Held per Hodgson JA (Mason P agreeing; Beazley JA substantially agreeing) 12. Where offer of settlement is made by a Calderbank letter, the question is whether the circumstances of making the offer and the failure to accept it warrants departure from the ordinary rule as to costs: SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323; Jones v Bradley (No. 2) [2003] NSWCA 258 (both considered). 13. Whether a party should have to pay costs on an indemnity basis rather than party and party basis, it is generally necessary that the party seeking assessment on an indemnity basis satisfy the court that the other party was acting unreasonably in refusing the offer: Jones v Bradley (No. 2) [2003] NSWCA 258; Leichhardt Municipal Council v Green [2004] NSWCA 341; Rosniak v Government Insurance Office (1997) 41 NSWLR 608 (all considered). 14. There was no appealable error demonstrated in the primary judge's decision that Mr Gretton was not acting unreasonably in refusing the Commonwealth's offer. 15. Where there is a wide range of possible verdicts, an offer may be a reasonable one, yet it may not be positively unreasonable for the offeree not to accept it. 16. Underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. 17. The refusal of a Calderbank offer may be relevant to the exercise of discretion in relation to costs, even if that refusal is not found to be unreasonable; but since the Commonwealth had not sought to put its case that way below, it could not do so on appeal. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40174/07 MASON P BEAZLEY JA HODGSON JA 29 May 2008 Commonwealth of Australia v Cecil Eric Gretton Judgment 1 MASON P: I do not perceive there to be any significant difference between the reasons of Beazley JA and Hodgson JA. On that basis, I agree with them both. 2 BEAZLEY JA: The respondent, Cecil Eric Gretton (Mr Gretton), was serving as an engineering mechanic, first class, aboard HMAS Melbourne when it collided with HMAS Voyager on 10 February 1964, in Sydney Harbour. On 9 October 2001, Mr Gretton commenced proceedings against the Commonwealth, claiming damages for injuries he alleged he sustained in the collision. The principal injury that he claimed he suffered was a Post Traumatic Stress Disorder (PTSD) or possibly some other psychiatric injury. It is sufficient for the purposes of this judgment to refer to Mr Gretton's claimed PTSD. 3 The proceedings were commenced some 37 years after the collision and more than 30 years after the expiration of the limitation period. 4 By order made on 27 April 2005, after a two day hearing, McDougall J extended the limitation period in which the proceedings could be commenced to 9 October 2001: Gretton v The Commonwealth [2005] NSWSC 437 (the extension application). Thereafter, the Commonwealth admitted liability and the matter proceeded to a hearing before a jury on the question of damages. At trial, the question whether Mr Gretton had suffered a psychiatric condition (Post Traumatic Stress disorder (PTSD)) was in issue, as was the extent of any ongoing disability arising from PTSD, if Mr Gretton established that he suffered from such condition. 5 The matter was first listed for hearing on 16 October 2006 but was "not reached" on that day. It was then listed for a three-week-plus hearing to commence on 20 November 2006. The matter commenced on that date and concluded on 13 December 2006, when the jury returned its verdict, awarding Mr Gretton damages in the sum of $50,000. With interest added, the award of damages was $77,600. 6 The Commonwealth applied to the trial judge for an order that Mr Gretton pay its costs on an indemnity basis or, alternatively, on the ordinary basis, from 1 June 2006, being the date upon which it had made an offer of settlement to Mr Gretton. The offer was in the form of a Calderbank offer and included an offer to settle the claim in the sum of $150,000, plus the costs of the trial. Mr Gretton opposed the Commonwealth's application for costs and sought an order in his favour on the basis that costs should follow the event: Pt 42, r 42.1 of the Uniform Civil Procedure Rules 2005 (the UCPR). 7 The trial judge, Studdert J, refused the Commonwealth's application and ordered that it pay Mr Gretton's costs of trial. The order specifically excluded the Commonwealth's costs of the extension application, that McDougall J had previously ordered Mr Gretton to pay. 8 The Commonwealth now seeks leave to appeal from Studdert J's costs order that it pay Mr Gretton's costs of the trial. The application for leave to appeal and the appeal have been heard concurrently. The Calderbank offer 9 The Commonwealth's offer of settlement, which was contained in a letter dated 1 June 2006, was in the following terms: "1. We advise that the defendant is prepared to resolve this matter with the plaintiff upon the following basis: a) the defendant to make payment to the plaintiff of the sum of $150,000.00, from which sum are to be deducted all statutory repayments pursuant to the provisions of the Commonwealth Health and Other Services (Compensation) Act 1995, the Commonwealth Health and Other Services (Compensation) Care Charges Act 1995, the Commonwealth Social Security Act 1947 (as amended), the Commonwealth Social Security Act 1991 (as amended), the Safety Rehabilitation and Compensation Act 1988 and the Commonwealth Veterans' Entitlement Act 1986; b) the defendant to pay the plaintiff's party-party costs, to be agreed or assessed, save for any costs orders made in favour of the dependent [sic], including the costs of the extension of time application; c) the Terms of Settlement to remain confidential as between the parties and their legal advisors save as required by law or to satisfy a request of the Australian Parliament, or an Australian Government Minister, or an Australian Government Parliamentary Committee; and d) the defendant to have 28 days from the entry of judgment for payment of the settlement sum. 2. Please note that this offer is made in accordance with the principles enunciated in the matter of Calderbank v Calderbank [1976] Fam 93 and the defendant reserves the right to rely upon this letter as to the question of costs if the plaintiff fails to obtain a verdict in excess of the sum referred to at paragraph 2(a) above or to seek an order for indemnity costs if appropriate. 3. This offer is open for acceptance until 4.00 pm, 30 June 2006 ." Events relating to the offer of settlement 10 Mr Gretton had made an offer of compromise on 3 February 2006 on the basis that the claim be settled by the payment to him of the sum of $250,000, plus costs, including the costs of the extension application. The offer was made in accordance with Pt 20, r 20.26 of the UCPR (Mr Gretton's 'rules offer'). At the time he made the offer, Mr Gretton had served his medical reports which supported his case of PTSD. The medical opinions were, to some extent, qualified, in the sense that they indicated that the diagnosis of PTSD was dependent upon an acceptance of Mr Gretton's claims as to the effect the collision had on him. This comment itself requires qualification, in that counsel for Mr Gretton stated that some of the medical evidence that supported the diagnosis of PTSD did so recognising that there were such credibility issues. The Commonwealth did not respond to that offer. 11 At the time that the Commonwealth made its Calderbank offer, it had in its possession medical reports from Dr Roldan, consultant psychologist, dated 2 December 2005 and Dr David Alcorn, consultant psychiatrist, dated 30 January 2006. These reports were served on Mr Gretton's solicitors on 6 June 2006. Those reports also supported Mr Gretton's claim that he was suffering from PTSD, but again with the qualification that the diagnosis was dependent upon the accuracy of his history. 12 On 10 October 2006, a pre-hearing settlement conference took place between the parties, at which time the Commonwealth reinstated its Calderbank offer. Mr Gretton's solicitor asked whether the "offer [was] clear of costs of the extension of time proceeding". Upon receiving a negative reply, Mr Gretton's solicitor responded, "Well, that's not an offer of settlement at all". The relevance of these discussions, which took place on a "without prejudice" basis: cf s 131 of the Evidence Act 1995, will be dealt with later in these reasons. Mr Gretton's solicitor then responded with an offer of $550,000 plus costs. 13 At the time that the Commonwealth made its Calderbank offer, 1 June 2006, it had not advised Mr Gretton's solicitors of the quantum of the costs it was claiming, pursuant to the costs order made by McDougall J. The Court was informed that, recently, the Commonwealth has made a claim for those costs in the sum of approximately $120,000. Studdert J's judgment 14 Studdert J commenced his consideration of the costs application by reference to the principle that refusal of a Calderbank offer does not give to the offering party a prima facie entitlement to costs: see SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]-[9]; contra Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 per Rolfe J at 451. This approach, to which there was no challenge was correct: see Leichhardt Municipal Council v Green [2004] NSWCA 341. 15 Studdert J then observed at [17] that the authorities establish that in determining whether to make a costs order favourable to the party making a Calderbank offer, it is necessary to take into account all the relevant circumstances, so as to determine whether rejection of the offer of settlement was unreasonable. His Honour listed three circumstances when rejection might be considered unreasonable, namely: if no proper consideration was given to the offer; if the plaintiff could not reasonably hope to match the offer by proceeding to a hearing; or if rejection of the offer involved disregarding serious problems confronting the plaintiff in establishing liability. 16 His Honour, at [18], recorded the bases upon which the Commonwealth asserted that Mr Gretton's failure to accept the offer was unreasonable, namely that: "(i) the verdict returned was substantially less than the offer; (ii) the offer allowed for general damages and some modest component for economic loss; (iii) to recover more than the offer, it was necessary for the plaintiff and his witnesses to be substantially accepted; (iv) the condition of post traumatic stress disorder involved significant psychiatric impairment; (v) the plaintiff had been in a lengthy marriage and in steady employment throughout his lifetime and this was not indicative of such a condition." 17 His Honour next, at [19], identified the claim that had been advanced by Mr Gretton, being his alleged PTSD and the problems that were characteristically associated with that disorder, such as sleep disturbance, intrusive thoughts, flashbacks, alcohol abuse and personality change. His Honour also noted Mr Gretton's claim for economic loss, specifically, the loss of pension benefits that would have accrued to him had he not sought an early discharge from the Navy; the loss of promotion prospects, both within the Navy and in his subsequent civil employment; and the cost of treatment. The specific claims made under these heads were significant. The pension claim, if made out, would have been worth between $360,000 and $460,000. The claim for loss of advancement in his employment with Golden Circle was advanced in an amount of $300,000. The claim for future medical treatment was made in the range of $5,000 to $10,000. 18 His Honour observed, at [24], that one of the considerations relevant to determining whether the rejection of a claim was unreasonable was an assessment of the strengths and weaknesses of Mr Gretton's case, looked at prospectively at the time the offer was made. Each of the claims for economic loss carried with it some difficulty. Mr Gretton had applied for an early discharge from the Navy on compassionate grounds, on the basis that his wife had asthma and that he and his wife wished to return to Scotland. Mr Gretton's wife did in fact have asthma and they did return to Scotland for a while. Mr Gretton's assertion, however, was that he had advanced those matters merely as an excuse and that his real reason for seeking an early discharge was because he was suffering from what he now understood were the effects of PTSD. 19 Mr Gretton also made a claim for loss of pension entitlement at three levels, commencing with the rate applicable to the rank of petty officer, through to the rank of warrant officer. For this part of the claim to succeed, the jury would have to be satisfied, first, that the reason Mr Gretton had given in seeking the early discharge was not the one he had advanced at the time of seeking the discharge, but was due to PTSD, and secondly, that Mr Gretton would have been promoted during the course of his career with the Navy. 20 For the second claim to succeed, that is, the loss of advancement in his employment with Golden Circle, the jury needed to be satisfied that Mr Gretton's failure to obtain a more senior position was due to his PTSD. However, the position to which he said he would have been promoted was one to which persons with a university education were appointed. Further, as it turned out, the evidence of the employer Mr Gretton called in his case did not support his claim that he would in fact have been promoted. 21 His Honour, at [22], considered that the claims for loss of promotion prospects, considered prospectively, had to be regarded as "unlikely to succeed". 22 The claim for future medical treatment was made in circumstances where he had had no treatment up to the date of the hearing. 23 His Honour stated, at [24], that one of the considerations relevant to the determination of whether the rejection of an offer of compromise was reasonable involved making an assessment of the strengths and weaknesses of Mr Gretton's case, looking at the matter prospectively from the time the offer was made. His Honour observed that Mr Gretton had had a history of consistent employment, with reports of his work performance being satisfactory. In particular, he had had a lengthy period of employment of nearly 20 years with Golden Circle. His Honour commented that such a work history was not characteristic of a person who suffered from PTSD for over 40 years. 24 His Honour observed that although there was medical evidence that supported Mr Gretton's claim for PTSD, that support was expressly made subject to an acceptance of his complaints and history. Mr Gretton had called evidence from family members that supported his claim. Nonetheless, as his Honour observed, at [27], "much depended upon the view that the jury took of [Mr Gretton]". His Honour observed it was "… evident that the jury rejected [Mr Gretton's] claim in relation to economic loss and discounted to a very significant degree [Mr Gretton's] claim for the non economic aspects of general damages." 25 His Honour found the Commonwealth's offer was reasonable at the time it was made, having regard to the anticipated evidence in the case. Counsel for Mr Gretton did not challenge this finding. 26 His Honour then considered whether it was unreasonable for Mr Gretton not to accept the Calderbank offer. His Honour, at [30], observed, first, that the offer did not convey to Mr Gretton the "nett value of the offer" because at the time it was made, the costs of the extension of time application had not been quantified. His Honour commented, however, that in such a situation, a party receiving an offer would seek the advice of their solicitor as to the likely costs liability to the other party. 27 His Honour next, at [34], considered whether Mr Gretton had been placed at a disadvantage in considering the offer, given that the Commonwealth did not serve its medical reports upon his solicitors until five days after the Calderbank offer had been made. It was submitted that in this regard, as Mr Gretton lived in Queensland and his solicitors were located in Sydney, it was not unreasonable not to respond by the date the offer expired, namely, 30 June 2006. However, there was no evidence that Mr Gretton had had any difficulty obtaining appropriate advice in respect of the offer and his Honour held that, absent evidence to the contrary, he would draw the inference that Mr Gretton had been given appropriate advice. 28 His Honour observed that Mr Gretton's 'rules offer' made in February 2006 was itself a reasonable offer, but was one that would have required the jury to make some allowance for economic loss. His Honour had earlier observed, at [19], that the possible range of verdicts in the case was "very wide". His Honour then found, at [38], that at the time the offer was made, it was not unreasonable for Mr Gretton "to have entertained the expectation that a jury might properly award him more than the sum offered". His Honour considered that the question of reasonableness could not be determined simply by reference to the jury's award. 29 His Honour also referred to the pre-trial settlement discussions that took place shortly prior to trial, but found that those discussions were not of assistance in determining whether Mr Gretton had behaved unreasonably in not accepting the Calderbank offer of $150,000 by 30 June 2006. His Honour did comment, however, at [40], that Mr Gretton's offer of $550,000 plus costs made during the course of those pre-trial negotiations was "altogether unreasonable". 30 His Honour then concluded, at [41], that "it was not unreasonable for the plaintiff to have entertained the expectation that a jury might properly award him more [than $150,000]". In this regard, it is reasonable to infer that his Honour was influenced by his earlier finding that Mr Gretton's rules offer in February 2006 of $250,000 "could not be regarded as [being] outside the possible verdict range" and his comment that the possible range of verdicts was "very wide". His Honour concluded that it had not been established that Mr Gretton was unreasonable in failing to accept the Calderbank offer. Nor had it been established that there was a basis to depart from the ordinary rule as to costs. 31 His Honour finally referred to the submission made on behalf of the Commonwealth, that there were still 31 cases arising out of the HMAS Melbourne/HMAS Voyager collision awaiting resolution in the court. The Commonwealth had submitted that parties were to be encouraged to make genuine attempts to settle, in order to bring litigation to finality and that costs sanctions were an important consideration in that regard. His Honour accepted that argument but, nonetheless, maintained his conclusion that the Commonwealth had not established in this case that costs should not follow the event. He thus ordered that the Commonwealth pay Mr Gretton's costs. Alleged errors of the trial judge 32 His Honour's determination refusing the Commonwealth's application for costs involved the exercise of a discretion. The Commonwealth accepted therefore that it had to demonstrate that there had been an error in the exercise of that discretion in accordance with the principles in House v The King [1936] HCA 40; (1936) 55 CLR 499. The Commonwealth submitted that his Honour's exercise of discretion miscarried, as the making of an order for costs in Mr Gretton's favour was "unreasonable or plainly unjust": House v The King at 504-505. It contended that the only reasonable decision that could have been reached in the circumstances of this case was that the rejection of the offer was unreasonable. Accordingly, the Commonwealth contended that it should have an order for costs in its favour from 1 June 2006. The Commonwealth's primary position was that costs should be on an indemnity basis. It advanced as an alternative claim that it should have an order for its costs assessed on the ordinary basis. 33 The Commonwealth accepted that the possible range of verdicts in this matter was "very wide", as his Honour had stated. However, it relied upon two factors in support of its argument that the rejection was unreasonable. First, whether or not the jury accepted that Mr Gretton suffered PTSD as a result of the collision depended upon whether the jury accepted him as a reliable and accurate witness. This submission was elaborated in oral submissions when counsel for the Commonwealth also complained that his Honour had failed to deal with its argument at para 13 of its written submissions on the costs application before him, that: "The fact that such an offer was rejected after the Plaintiff had been put on notice of the intended challenge to his credibility and reliability at any hearing, which is subsequently found wanting, would support the proposition that the Plaintiff acted unreasonably ( Blagojevch v Australian Industrial Relations Commission (2000) 172 ALR 611)." 34 Secondly, Mr Gretton's claim for economic loss, which he needed to establish in order to receive a verdict in excess of the offer, was fundamentally inconsistent with his own steady work history and the reason given to the Navy as to why he was seeking an early discharge. It was on that basis that the Commonwealth had assessed Mr Gretton's claim as being, in effect, a claim for general damages and that its offer had been made on that basis, with possibly a small component for economic loss. The Commonwealth also pointed out that there were other factors, such as his long marriage, that were not indicative of a person having suffered PTSD. 35 The Commonwealth submitted, therefore, that there was always a real and significant risk that Mr Gretton would not be able to establish that he suffered "clinically significant distress or impairment in social, occupational, and/or other important areas of functioning", being one criterion for the diagnosis of PTSD under the Diagnostic and Statistical Manual of Mental Disorders IV (DSM-IV). In those circumstances, Mr Gretton's failure to accept the offer was, at the least, "imprudent": see Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 at 233; 118 ALR 248 per Sheppard J, such as that an order for indemnity costs ought to have been made in its favour. It was also submitted that Mr Gretton's failure to call any evidence as to why he refused the offer was significant in demonstrating that his conduct was unreasonable. 36 The Commonwealth also submitted that his Honour's statement, at [16], that "more is required to prove [Mr Gretton] was unreasonable [to not accept the Calderbank offer] than to prove that the offer which was not accepted was a reasonable offer" was erroneous. It was submitted that whether more is required must depend on all the circumstances of the case. It was submitted that in this case, the factors that made the Commonwealth's offer a reasonable one, were the very factors that should have led to a determination that the rejection of the offer was unreasonable. 37 The Commonwealth also challenged his Honour's finding whereby he inferred that Mr Gretton had given due consideration to the offer. It was submitted that having regard to Mr Gretton's later offer of $550,000 (which his Honour had found was clearly unreasonable) it could not be inferred that his failure to accept the Calderbank offer was after due consideration. Principles governing Calderbank offers 38 The Court's power as to costs is found, relevantly, in s 98 of the Civil Procedure Act 2005 and Pt 42 of the UCPR. In essence, the power is discretionary subject to the rules of court: see s 98(1)(a). The general rule is that costs follow the event (see UCPR r 42.1) and are assessed on the ordinary basis: UCPR r 42.2 (the phrase "the ordinary basis" has replaced the previously used expression of "party/party costs"). The court, in its discretion, may make an order other than that costs follow the event, or other than that costs be assessed on the ordinary basis: UCPR rr 42.1 and 2. 39 Part 20, r 20.26 of the UCPR provides for the making of offers of compromise (a rules offer). Rule 42.15A governs the consequences that flow where an offer of compromise is made by a defendant under the rules ('a rules offer'). If such an offer is not accepted by the plaintiff and the judgment is more favourable to the defendant, then, unless the court otherwise orders, the defendant is entitled to an order for costs of the proceedings. Those costs are to be assessed on an ordinary basis up to the day following the date on which the offer was made and thereafter on an indemnity basis. (There is a slightly different time at which the rule operates where the offer is made during the course of the trial.) 40 The 'event' in r 42.1 is a shifting concept depending on the circumstances. It is sufficient for present purposes to identify the event in this case as the outcome of the proceedings. Accordingly, in this case, as no rules offer was made, Mr Gretton was entitled to an order for his costs of the proceedings unless the Court made some other order. 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 costs follow the event. 41 There are public policy considerations that underpin the making of favourable costs orders where a Calderbank offer has been made. 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." See also Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 . 42 The public policy in encouraging settlement also finds statutory encouragement: see the Civil Procedure Act, s 56. Section 131 of the Evidence Act also provides statutory acknowledgment that Calderbank offers may be received into evidence. 43 The making of a Calderbank offer does not automatically result in a favourable costs order, notwithstanding that the judgment is more favourable to the party making the offer than the terms of the offer. Rather, as Giles JA stated in SMEC Testing Services Pty Ltd v Campbelltown City Council at [37]: "…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) See also Jones v Bradley (No 2) at [8]. 44 Two general 'rules' have emerged relating to Calderbank offers, namely, that to justify the making of an order for costs on an indemnity basis, the offer must be a genuine offer of compromise, which it is unreasonable for the appellant not to accept: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4]-[5]; Leichhardt Municipal Council v Green at [21]-[24], [36]. However, as this Court (Santow, Bryson JJA, Stein AJA) pointed out in Leichhardt Municipal Council v Green at [8], the 'common law principles' that have been developed in relation to costs "operate merely as guides to how the discretion might appropriately be exercised". The principles or rules to which I have just referred fall within that category. 45 The discretion is to be exercised having regard to all the relevant circumstances in the case. The question that had been raised in Leichhardt Municipal Council v Green was whether there had been a genuine offer of compromise. As the Court said at [21]: "There is little appreciable difference between saying that an offer should not in the court's discretion attract costs sanctions in the circumstances and saying that an offer is not a genuine offer of compromise in the circumstances. Both depend upon a value judgment of the offer and the conduct of the parties in the circumstances of the claim." 46 The onus is on the party making a Calderbank offer to satisfy the court that it should exercise the costs discretion in its favour: see Evans Shire Council v Richardson (No 2) [2006] NSWCA 61. 47 In the present case, the trial judge found that the offer was reasonable in amount; a reasonable time to accept the offer was given; and Mr Gretton was not prejudiced by the fact that medical reports had not been served at the time the offer was made, but were served shortly thereafter: see generally Donnelly v Edelsten [1994] FCA 992; (1994) 49 FCR 384; Elite Protective Personnel Pty Ltd v Salmon. None of those matters are in dispute on the appeal. Rather, the focus was around the question whether Mr Gretton acted unreasonably in refusing the offer. Did Mr Gretton act unreasonably in rejecting the offer? 48 The essential contention of the Commonwealth was that it was unreasonable for Mr Gretton to refuse the offer and that, therefore, it ought to have had a costs order in its favour. At times the Commonwealth also used the language of 'imprudence' in its submission, stating that it was "imprudent" in all the circumstances for Mr Gretton to refuse the offer: see Colgate Palmolive v Cussons. The Commonwealth submitted that at the time that it made its Calderbank offer, Mr Gretton and his legal advisers should have been well aware that the underlying basis for the claim of PTSD was not only subject to serious challenge, but that there was a likelihood that that challenge might be successful. It submitted that this ought to have been apparent to him, as his version of how he had been affected by PSTD had been challenged in the extension application. 49 If Mr Gretton's contentions as to how he had been affected by PTSD were not accepted by the jury, then his economic claim was bound to fail and his overall claim might fail, as the support for his condition in the medical evidence was dependent upon an acceptance of his history. The Commonwealth submitted that in that circumstance, Mr Gretton was at least imprudent, if not unreasonable, in not accepting the offer: Blagojevch v Australian Industrial Relations Commission [2000] FCA 483; 98 FCR 45. 50 It is necessary to give a somewhat extended explanation of the background of Blagojevch to understand the point of reliance. The Full Court of the Federal Court (Moore, Marshall and Lehane JJ) was concerned with an application for the issue of writs of certiorari and mandamus arising out of a refusal by the Full Bench of the Australian Industrial Relations Commission (the Commission) to grant leave to appeal from a costs order of a member of the Commission. 51 The administrative law implications of the decision may be put to one side. What is relevant for the purposes of this case is the Court's consideration of the meaning of a party acting "unreasonably" for the purposes of s 170CJ(2) of the Workplace Relations Act 1996 (Cth). Under s 170CJ(2), the Commission could make an order for costs against a party who had unreasonably failed to agree to terms of settlement that could resolve the dispute that was the subject of the arbitration. 52 Mr Blagojevch made an application for costs, relying upon the conduct of the employer in resisting his claim for compensation for unfair dismissal and rejecting an offer of settlement, in circumstances where the employer had relied on evidence that the Commission found was deliberately untrue and some of which (certain diary entries) had been deliberately concocted so as to create a false record. The Commission had excluded those matters from consideration in determining whether the applicant was entitled to a costs order. 53 Marshall and Lehane JJ, at [36], noted that Mr Blagojevch's offer of settlement could have left the employer in no doubt that the truth of its account would be vigorously challenged. Their Honours considered that it did not always follow that "it is not unreasonable to respond to an offer in the light of the offeree's genuine perception or recollection of events". It did not necessarily follow, therefore, on their Honour's view, that where the Commission preferred the evidence of one party to that of another, that a rejection of an offer of compromise was unreasonable. It was different, however, where false evidence had been deliberately given, as they had found in the case before them. 54 Moore J, in a separate judgment, agreed. His Honour stated, at [18], that it was: "… inconceivable [that] a refusal to settle could be characterised as not unreasonable because … a party adopted a position that it might succeed in an arbitration because it intended to rely upon … contrived evidence or at least evidence of dubious quality …" 55 The Commonwealth submitted that Blagojevch established that where a party was on notice that credit and reliability would be in issue, then the refusal of a Calderbank offer would be unreasonable. The Commonwealth contended that in this case, it ought to have been apparent to Mr Gretton from the cross-examination in the extension application, that his credit was in issue. This should have been even more obviously so, having regard to the comments made by McDougall J in his judgment on the extension application. At [81], after referring to Mr Gretton's alcohol dependency, his Honour said that there was a possibility that if the proceedings went to trial, Mr Gretton's evidence might "be scrutinised with greater than usual care". His Honour commented that this might mean that Mr Gretton's evidence would not be accepted unless it was "inherently plausible or … in some relevant way corroborated". 56 On the extension application, the Commonwealth had made the following challenges to Mr Gretton's PTSD claim: 1. Mr Gretton's case was that on the night of the collision he had assisted men from crew members of the HMAS Voyager up the rescue nets. However, shortly after the collision, Mr Gretton had filled out a Naval questionnaire as to his role on the night. In that questionnaire, he had responded to the question, " What part did you play in the rescue operation? " with the description, " motor cutter, driver and help restore broken oil lines "; 2. That Mr Gretton's reason for seeking an early discharge from the Navy was as stated in his discharge application: namely, that his wife (who was Scottish) had asthma and they wanted to return to Scotland to live and not due to any disability, including drunkenness, arising from PTSD; 3. That Mr Gretton's claim that after the collision he had an absolute fear of water greater than six feet deep and also had a fear of ships, this also being a reason he left the Navy, was not maintainable, as after his discharge, he had gone to Scotland and worked on tug boats, which involved working in deep water in association with large ships; 4. That personal and social indicia of PTSD, such as sleep disturbance, difficulty with concentration and difficulty with " getting on with people ", were absent in Mr Gretton's case, as evidenced by: 2002 hospital records when he was hospitalised for an unassociated condition, which recorded Mr Gretton reporting that he had no difficulty with sleep; the fact that he had a period of sustained employment; and had had a long standing marriage; 5. That to the extent that Mr Gretton suffered anxiety, which was demonstrated, for example, by fingernail biting, his Naval medical records indicated that pre-collision he was recorded as having short (presumably bitten down) fingernails. In other words, any anxiety from which he suffered was pre-existing and unassociated with the collision. 57 The Commonwealth submitted that the trial judge failed to deal with the evidence that had been given in the extension application, so as to determine whether Mr Gretton's failure to accept the offer was unreasonable. It was submitted that this evidence established that it was at least imprudent for Mr Gretton to reject the offer in circumstances where the contemporaneous documentary evidence produced a different "picture" than that asserted by Mr Gretton in his case to be advanced at trial. 58 Counsel for Mr Gretton submitted that the Commonwealth's emphasis upon Mr Gretton's knowledge (either personally or through his legal representatives) that his credit and reliability as a witness would be in focus at the hearing, was misplaced. It was submitted that to the extent that any inroads had been made into his credit or reliability, it was in respect of a number of matters for which Mr Gretton had a reasonable explanation. First, it was submitted that the fact that Mr Gretton had omitted any reference to assisting survivors up the nets was not the essential cause of his PTSD. A diagnosis of PTSD was not dependent upon a person actually witnessing a trauma, or persons fatally or seriously injured in such trauma. Rather, it was necessary for him to establish that he had been exposed to a situation involving danger to the life of himself or others. It was submitted that it could not reasonably be asserted that anyone who had been involved in a disaster of the proportions of this collision, where a ship had been chopped in two and a substantial number of people had died, had not been exposed to such a situation. 59 It was submitted that Mr Gretton had appropriately explained why he had worked on tug boats in Scotland, namely, because he had an immediate need to earn a living and that was what he understood, that is, all his work history had related to ships. It was also relevant that Mr Gretton had left that employment after a few years and did not thereafter work in any maritime industry. Counsel also contended that the reason that Mr Gretton had given for leaving the Navy was understandable, as it was unlikely that, in 1964, he would have disclosed that he was suffering from alcohol problems. 60 As to his asserted fear of ships, the Court was informed that the medical evidence was divided, with some doctors drawing a distinction between civilian and naval vessels, whilst others considered the alleged fear and the fact that he had worked on tug boats to be inconsistent. Next, it was submitted that the reference in 2002 to not having difficulties with sleep was not an admission that Mr Gretton had not suffered from sleep disturbance (a symptom of PTSD), but was rather an admission that he was not then having sleep disturbance problems. It was also said that some of the "challenges" made in the extension application were of very minor import, such as the cross-examination as to the state of Mr Gretton's fingernails at different times. 61 It was also submitted that not only were these challenges to credibility of either a minor nature, or were reasonably explained by Mr Gretton on the extension application, the fact was, that attack had been made in a very specific context, namely, so as to support a submission based upon The Commonwealth v Diston [2003] NSWCA 51. Diston was an application for an extension of the limitation period. Mr Diston, who had been a member of the crew of the HMAS Melbourne on the night of the collision, had suffered burns and also suffered PTSD. Due to the passage of time between the collision and the time in which he sought to commence his application, there was great difficulty in finding his medical and employment records. Mr Diston's memory of events and dates was unreliable. 62 Sheller JA (Mason P and Grove J agreeing) held that Master Harrison (as her Honour then was) had not erred in dismissing Mr Diston's application for an extension of the limitation period. His Honour observed that in circumstances where the respondent could not be relied upon to give a true account of events, it was more important than usual that the Commonwealth have available the relevant medical and employment records. The absence of those records and the unreliability of Mr Diston's memory were such that it was unlikely, from the Commonwealth's viewpoint, that there could be a fair trial. 63 Mr Gretton's counsel submitted that in this case, the challenge to Mr Gretton's credit and reliability, which was made in the context of establishing a Diston-type prejudice, was not so substantial that a plaintiff in Mr Gretton's position would have been particularly aware or concerned that his credit or reliability would be an issue at trial. I should interpolate that Diston-type prejudice is merely a manifestation of prejudice that the courts have held is sufficient to establish that a trial would be unfair: see Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541. 64 Counsel for Mr Gretton concluded this submission by pointing out that this was a very different case from Blagojevch, where the respondents were seeking to maintain their case (in that case a defence) on evidence they had concocted. Here, Mr Gretton's case was that although he had made statements in the past to justify, for example, his application for an early discharge from the Navy, he was now giving a true account of events. 65 Counsel for Mr Gretton also relied upon the fact that the Commonwealth had not explained, either in the Calderbank offer itself, or by any other correspondence, what the Commonwealth saw as the weakness in Mr Gretton's case, so as to substantiate the terms of the offer (Appeal Tr 38-39). This submission was directed to answering the Commonwealth's assertion that Mr Gretton was on notice that his credit was in issue. 66 In my opinion, the Commonwealth's submission overstates what the Full Court of the Federal Court said in Blagojevch. Blagojevch is not authority for the proposition that because a party is on notice that there will be credit issues, a rejection of an offer (where the result is less favourable to the offeree) is thereby unreasonable. The question of unreasonableness is a question of fact, to be determined in all the circumstances. Blagojevch provides an example of unreasonable conduct, namely, the maintenance of a fraudulent case in order to defeat a claim. 67 Although I consider the Commonwealth's argument based on Blagojevch was somewhat misdirected, the Commonwealth's submissions that Mr Gretton and his legal advisers were on notice that credit was in issue should be accepted. Notwithstanding that the challenge to Mr Gretton's evidence was made in the context of establishing prejudice for the purposes of the extension application, no litigant, or litigant's legal adviser, could be blind to the fact that the same challenges, to a lesser or greater extent, would be made at trial. Further, the medical evidence itself was expressly dependent upon Mr Gretton's history. If it was found to be inaccurate, then the medical support for his claimed PTSD would most likely be substantially weakened. 68 That conclusion, however, does not resolve the question whether his Honour erred in his determination that Mr Gretton's rejection of the offer was not unreasonable. 69 Mr Gretton's response to this question was straightforward. First, he had medical support for his claimed condition of PTSD, if the history he had given the medical experts was accepted by the jury. Secondly, he had been able to give a reasonable explanation of his post-collision conduct, including an explanation as to the basis upon which he had sought discharge from the Navy and the work that he did subsequently, such that his lawyers would not be alerted to significant problems with either his credit or his reliability as a witness. It was submitted that to the extent that there had been a challenge to his credit in the extension application, that challenge had been made in a very different context, namely, as an attempt by the Commonwealth to establish a Diston case, so there was nothing to alert him to the likelihood that the challenge would be renewed. I have already resolved this last point against Mr Gretton, although that does not mean he was not entitled to proceed on the basis that the jury would accept his evidence. He was on notice, however, that his claims were under challenge. 70 Next, it was submitted that if Mr Gretton's case for PTSD was accepted, he would have had a reasonable chance of establishing that had he stayed in the Navy, he would have been entitled to a pension assessed in accordance with the principles in Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638. It followed on Mr Gretton's argument, that contrary to the submission of the Commonwealth, this was never a case only about general damages, being, in effect, the basis upon which the Commonwealth had made its offer. It was a case where there was a reasonable prospect that he would receive an award for economic loss. 71 Mr Gretton also contended that the Commonwealth had not appended draft orders to its Calderbank offer. It was submitted that this was significant because, the Commonwealth having admitted breach of duty of care, Mr Gretton was entitled to a verdict. If the Commonwealth was itself seeking a verdict, then the settlement negotiations were not closed. In addition, the Commonwealth was seeking that the terms of settlement not be disclosed. I deal with these matters more fully below. House v The King error 72 The significant challenge made by the Commonwealth to his Honour's determination was that it was "unreasonable or plainly unjust" within the meaning of House v The King. There was an associated challenge based on Blagojevch. 73 It is fair to say that there is usually an expectation held by a party who makes a Calderbank offer in an amount that is reasonable and which is more favourable to the offeree than the Court orders, that there will be an advantageous order for costs in its favour. It is my general experience that parties usually expect that such an order will be on an indemnity basis. This was apparent in this case, where the primary position advanced by the Commonwealth was that it ought to have an order for indemnity costs made in its favour. 74 Such an expectation is not unreasonable of itself. However, as the authorities establish, it is not an automatic result. There is an onus on the party making a Calderbank offer to demonstrate that it should have a favourable costs order. Further, it is not correct to say that it is sufficient to make an offer that is reasonable in amount and which is more favourable to the offeree than the amount of the judgment to have such an order made. Nor is a rejection of a defendant's offer that is not bettered in amount by the Court's judgment, itself illustrative of unreasonableness, although it is often considered to be sufficient. 75 In this case, the trial judge determined that it was not unreasonable for Mr Gretton to reject the offer. The essence of his Honour's approach was that he considered that the range of possible verdicts in the case was "very wide" and that although there were going to be obvious challenges to Mr Gretton's claim, particularly that for economic loss, there was other evidence that made it reasonable for him to anticipate that he would succeed on his claim. That was a finding made by the trial judge who had heard all the evidence and had seen all the witnesses during the course of the trial. There was no error in his Honour's application of the relevant legal principles that applied and I do not consider that there was error in his Honour's discretionary determination. As Giles JA stated in SMEC Testing Services at [37], the fact that "the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure" from the usual rule as to costs. 76 In reaching the conclusion that there was no error in his Honour's discretionary determination, I am conscious that the Court cannot put aside the public policy considerations that underpin the acceptance of Calderbank offers as being relevant to the exercise of the costs discretion, namely, that there is to be an incentive for the parties to end their litigation as soon as possible. However, his Honour had regard to the relevant policy considerations and nonetheless reached the conclusion that the rejection of the offer was not unreasonable. Failure to deal with the ' Blagojevch submission' 77 Studdert J did not refer to Blagojevch in his judgment. Nor did he refer to the evidence that had been given before McDougall J. However, his Honour was not uninformed about the proceedings before McDougall J, as one of the factors he considered was the fact that the offer expressly excluded the costs of the extension application. 78 His Honour was also alert to the fact that it was necessary to assess whether it was unreasonable to accept the offer having regard to the circumstances as they existed at the time the offer was made. Those circumstances included, as his Honour stated at [24], "… an assessment of the strengths and weaknesses of the plaintiff's case looking at the claim prospectively at the time the offer was made. This task is not to be determined with the benefit of hindsight." 79 The principal challenge to Mr Gretton's credibility on the extension application related to his work history, and it is apparent that his Honour had those matters within his consideration on the costs application. His Honour, at [25], surveyed Mr Gretton's work history from 1962, concluding that: "…[his] work history was not characteristic of the work history of a person who suffered from post traumatic stress disorder for over forty years." His Honour also specifically mentioned, at [26], that the medical evidence had "… the common theme that diagnosis of post traumatic stress disorder or any other mental disturbance involved an acceptance of [Mr Gretton's] complaints and history." 80 The fact that his Honour did not specifically make reference to the cross-examination on those matters in the extension application did not mean that his Honour did not have regard to them. The matters to which his that Honour referred at [25] were the very matters that had been canvassed in cross-examination. There was no error, therefore, in failing to expressly deal with the Commonwealth's reference to Blagojevch. His Honour dealt with the substance of the submission that was advanced. His Honour also observed that there was evidence from family that afforded support for Mr Gretton's claim. Earlier, at [17], his Honour had stated that rejection of an offer "would be unreasonable if it involved a disregard of serious problems confronting the plaintiff in establishing liability". In this case, liability was admitted, but the same comment would apply if there had been a serious disregard of any aspect of the case. In my opinion, the alleged error that his Honour overlooked the Commonwealth's submission based on Blagojevch has not, in substance, been made out. Other alleged errors 81 There were two other alleged errors asserted by the Commonwealth. As to the first of those (see [36] above), I am of the opinion that there was no error in his Honour's statement at [16] of his reasons, that it was not sufficient for the Commonwealth to merely demonstrate that its offer was reasonable in order to establish that Mr Gretton was unreasonable in rejecting it. The authorities clearly demonstrate that it may not be unreasonable to reject an offer, notwithstanding that the amount of the offer is reasonable and, in particular, notwithstanding that the offer (in the case of an offer made by a defendant) is greater than the damages that are awarded. 82 As to the second (see [37] above), I am also of the opinion that there was no error in his Honour's finding that Mr Gretton had given due consideration to the offer. I consider that the 'response' of $550,000 made by the solicitor when the Commonwealth renewed its offer was a "knee jerk" response, made in circumstances when the solicitor was clearly annoyed or frustrated at the Commonwealth's refusal to abandon the benefit of the costs order it had in its favour. That offer was unreasonable in amount, but, in my opinion, highlights the relevance of the costs of the extension application to Mr Gretton's consideration of the Commonwealth's offer, a matter upon which I comment further below. Other issues 83 The conclusions I have reached above are sufficient to dispose of the appeal. However, as the Court was informed that this matter has importance for the Commonwealth beyond the actual outcome of this case and as a number of issues were raised in argument, which may be relevant in other cases, I wish to express my views on them. Strictly, these issues should have been raised by Mr Gretton as points of contention, although they may have been met by an argument that they were not raised before the trial judge. 84 The first issue relates to whether there was a genuine offer of compromise. Very little was said during the course of the argument on the appeal as to whether an offer of $150,000 was a genuine compromise. Rather, the focus was on the offer being a reasonable one. Those two concepts are not necessarily interchangeable and the ultimate question, in any event, has to be whether, as the Court stated in Leichhardt Municipal Council v Green, costs sanctions should flow from the making and refusal of the offer. Before proceeding to consider that question, I wish to make some remarks on a number of other matters that were raised in argument that may be relevant to the question whether a departure from the rule that costs follow the event is warranted. 85 One question which arose was whether the determination as to who should pay the costs was dependent upon which party should be seen as being responsible for the ongoing legal costs in the matter. This was part of a consideration of the larger question as to the underlying juridical basis of the Court's powers to award costs. I agree with Hodgson JA that the exercise of the discretion must be based on fairness and that underlying that concept itself involves a consideration of the responsibility of parties in incurring the costs. As the cases also illustrate, a wide variety of circumstances fall for consideration where costs orders (other than costs follow the event) are sought. Those circumstances are not confined to cases involving Calderbank offers and include cases where the costs of a particular issue is in question. However, the concern in this case is with Calderbank offers and it is that upon which attention needs to be focussed. 86 The question as to whether the party responsible for the ongoing legal costs in a matter should be liable for the costs arose in somewhat unusual circumstances in Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15. In that case, three plaintiffs who had commenced an action in one proceeding made a 'combined' Calderbank offer with no distinction being made amongst the individual claims. All claims were dismissed at first instance (which was a rehearing after an earlier trial and appeal). On appeal, all claims were successful. The Court assessed damages in the first and second plaintiffs' claims. However, the third plaintiff's claim on the question of damages, including the question of causation, was remitted to the trial court for re-determination. 87 The Calderbank offer was in a lesser amount than the Court of Appeal ordered by way of damages for the first and second plaintiffs. The Court ordered that those two plaintiffs should have their costs of the trial assessed on an indemnity basis. 88 The question then arose as to whether there should be an order for costs, and, in particular, whether there should be an order for indemnity costs in favour of the third plaintiff, notwithstanding that the ultimate result of his claim remained to be determined. The trial had involved questions of liability and damages, whereas the matter was remitted on damages (including causation) only. However, if causation was not proved, then the plaintiff would fail on his claim. When proceedings are remitted for redetermination, an offer that is made in such a case is that the costs of the first trial abide the outcome of the second trial. 89 At [31], I said (Mason P agreeing): "That then leaves the question whether [the third plaintiff] should also be entitled to an order for indemnity costs of the second trial. As yet, there is no verdict in his matter. As I have explained, it remains to be determined whether he is entitled to an award of damages. However, the need for any further proceedings on his claim would not have arisen, had [the defendant] accepted the offer of compromise. Looking at the matter globally, regardless of whether [the third plaintiff] receives an award of damages, the total award of damages already ordered for [the first and second plaintiffs] is such that the offer of compromise for the three appellants was less than the award of damages for two of them. It must follow, in my opinion, that it was unreasonable for [the defendant] not to accept the offer of compromise so as to finally dispose of the proceedings in their entirety. That would have obviated the need for the lengthy second trial to continue, and eliminated any subsequent appeal, or possibility of a retrial and further appeal. The public purpose in doing so speaks for itself." Earlier, I had said at [29]: "… there is both a private interest and a public policy in the encouragement of settlements. One of the reasons these proceedings have not been finalised and are now to be the subject of at least a sixth judicial determination, is because [the defendant] did not accede to an offer which has been exceeded by the Court's determination of damages in respect of two of the appellants ." (Emphasis added) 90 Counsel for Mr Gretton submitted that the question as to who was responsible for the incurring of the costs, was not the correct 'test' to apply and in any event was not the way the Commonwealth had conducted the application before the trial judge. It was submitted that even if the exercise of discretion should have been governed by some different principle to that applied by the trial judge, that principle should not be applied in this case, as Mr Gretton would be significantly prejudiced. In particular, it was said that if such a test as raised in argument was to be applied, it is likely that different factual considerations would have needed to be explored, including the tendering of the medical evidence that supported Mr Gretton's claimed PTSD with full acknowledgement of the credibility issues upon which the Commonwealth relied. In addition, if such an approach had been pursued, it was likely that Mr Gretton would have given evidence as to why he refused the offer. 91 I agree that the matter should be determined on the basis upon which it was conducted before the trial judge. Having said that, and as the considerations in Monie to which I have referred indicate, the Court was not, in discussing such an approach, suggesting that principles different from those stated in SMEC Testing Services be applied. Rather, the question of who was responsible for the subsequent incurring of costs, in circumstances where the damages awarded were significantly less than the offer, underlies the question whether some different costs order should be made, that being the question the Court is required to determine under UCPR rr 42.1 and 42.2. In this case, Mr Gretton's refusal of the Commonwealth's Calderbank offer was a reason why the trial proceeded. That may, in a given case, be a sufficient circumstance in itself to establish that the rejection of an offer should, in the exercise of the Court's discretion, sound in a costs sanction. As Hodgson JA points out, the underpinning of the costs sanction lies in questions of fairness having regard to the particular circumstances of the particular case. Terms not to be disclosed 92 The requirement in the Calderbank offer that the terms not be disclosed was another matter that was raised in argument. The inclusion of a non-disclosure clause in the Calderbank offer meant that the result the Commonwealth was seeking to obtain in the litigation was not a 'result' that it could obtain by a court order. With strictly limited exceptions, orders of the court are made in open court and orders are fully recorded on the court record. The court does not make orders that cannot be disclosed, although 'orders' may be made that are kept confidential for a period. This is not such a case. Where parties wish their agreement to remain confidential between them, there is a practice for the parties to also agree as to the order necessary to dispose of the proceedings. What then usually happens is that the court will note that the parties have reached agreement and will make the order that disposes of the proceedings. That order may be a verdict for the plaintiff or defendant, although the Court's experience is that usually there is a verdict for the defendant, with no other orders being made. 93 Counsel for the Commonwealth acknowledged that the nondisclosure clause was a significant part of its offer, having regard to the fact that some 31 Voyager cases remain to be determined. It was essentially for this reason that the Commonwealth used the Calderbank form to make its offer. It was not an offer that could be made under the rules. The Court has stressed the flexibility that Calderbank offers provide and the fact that the offer contains a term that could not be obtained by way of court order does not disentitle a party from a favourable exercise of the Court's discretion. However, it may be relevant to the manner in which the Court exercises its discretion. 94 Counsel for Mr Gretton submitted that the non-disclosure clause was a relevant consideration to the costs discretion but in his client's favour, because in the ordinary course, Mr Gretton had a right to tell anyone he chose of the amount of his verdict. On this approach it was, therefore, unreasonable that he be required to agree to such a term. Counsel for the Commonwealth submitted however, that notwithstanding that the 'non-disclosure' term was significant for its purposes as there were other Voyager cases still to be determined, it had no effect upon Mr Gretton, as the value of the monetary offer to him remained unchanged. 95 Whilst the non-disclosure clause did not impact on the amount of the offer, non-compliance with such a term would constitute a breach of contract. Given the admitted significance of the term to the Commonwealth, which was a significance that went beyond the litigation between the Commonwealth and Mr Gretton, it cannot be assumed that the Commonwealth would take no action in respect of a breach, although what action it might take is more problematic. For example, it is questionable whether the Commonwealth would suffer monetary damage as a result of such breach, so that it may not sue for breach of contract, but it is conceivable that it might take legal action to restrain any continuation of the breach, if the circumstances justified that action. As the Commonwealth bore the onus of establishing that it should have a favourable costs order, it bore the onus of establishing that the non-disclosure clause did not have any relevant effect on Mr Gretton's consideration of the offer, or that it was otherwise not adversely relevant to the favourable exercise of the discretion in the its favour. That may have been a difficult onus to discharge and it is likely that in accordance with ordinary principles, a court may have been relatively undemanding in the manner in which it could be discharged. Nonetheless, the onus remained. Costs of the extension application 96 Another matter that developed some importance in the argument on the appeal was the fact that at the time the Calderbank offer was made (and was open for acceptance), the Commonwealth had not notified Mr Gretton of the amount of the costs that it proposed to claim and for which he would be liable pursuant to the order made by McDougall J on the extension application. The evidence disclosed that, at least immediately prior to trial, this was a matter of importance to Mr Gretton, as his solicitor stated to the Commonwealth's legal representatives that the offer of $150,000 plus costs, but excluding the costs of the extension application, was "not an offer of settlement at all". 97 His Honour dealt with the question of the costs of the extension application and concluded at [30], "that this of itself would not render the failure to accept the offer reasonable". His Honour considered that "… it was reasonable to expect that the plaintiff would look to his solicitor to be informed as to the likely costs liability to the defendant under the order made by McDougall J." 98 That approach, in my view, involved error. As I have said, the Commonwealth bore the onus of establishing that it should have a favourable costs order. The Commonwealth has now served notice that it claims costs of the extension application in an amount of approximately $120,000. Those costs have not been formally assessed but that amount seems extraordinarily high for a two day hearing. The Commonwealth must be taken to have had some understanding of the amount of costs it eventually proposed to claim in respect of that application, even if the costs had not been quantified in the precise amount as it now claims. The only party who could have known what those costs were, or who had the ability to ascertain those costs, was the Commonwealth. It would be no answer that Mr Gretton has the right to have those costs assessed. It could not, and should not, be assumed or inferred that the Commonwealth's claim for costs would not be substantiated, even if there is ultimately some downward assessment of the amount. 99 Whether that is so or not, I consider that the costs of the extension application was likely to have been relevant to the costs discretion and was so treated in the hearing before his Honour. In particular, it was relevant to the question whether the offer was a genuine offer of compromise. As the Commonwealth bore the onus of establishing that a costs order in its favour ought to have been made I consider that it needed to disclose the quantum, or likely quantum, of those costs in order so as to discharge that onus. 100 A court cannot usually compel a party to adduce evidence or inform it of a particular state of affairs. However, in circumstances where the Commonwealth did not disclose, even in ambit terms, the amount of the costs it was claiming or proposed to claim on the extension application, his Honour probably should not have concluded that it was reasonable to expect Mr Gretton to look to his solicitors for information as to those likely costs. To do so involved a reversal of the Commonwealth's onus in the matter. Renewal of the offer prior to hearing 101 Both Mr Gretton and the Commonwealth contended that the further discussions as to settlement that were had shortly prior to the trial were also relevant. The Commonwealth relied upon those events in seeking to establish in this Court that Mr Gretton had not given appropriate consideration to the offer, as evidenced by his counter-offer of $550,000. It will be recalled that during the discussions, Mr Gretton's solicitor stated that as the Commonwealth continued to insist on being paid the costs of the extension application, the offer was "not an offer at all". Mr Gretton relied on these discussions to demonstrate that the offer was unreasonable, because it did not include the costs of the extension application. 102 Studdert J did not find this renewal of the offer relevant. However, in my opinion, it is evidence from which the Court could find that the costs of the extension application were relevant to Mr Gretton's consideration of the offer and could also infer that those costs were relevant to his refusal of the offer at the time that it was made. His Honour did not treat the evidence in this way. Rather, as already discussed, he considered that a party in the position of Mr Gretton would seek advice from his solicitor as to the likely costs liability. The knowledge which the Court now has as to the claimed costs of the extension application may indicate that his Honour was under a misapprehension as to the likely amount of costs, as he accepted that it was relevant for Mr Gretton to have an understanding of the net amount of the offer. His Honour saw the answer to that question as residing in Mr Gretton's solicitors. That may well have been an erroneous assumption, given the amount of costs now claimed but, in any event, that approach reversed the onus that the Commonwealth bore on the application. 103 Quite apart from the question whether the amount of costs was a relevant consideration to Mr Gretton in his decision to refuse the offer, to amount of the claimed costs of approximately $120,000 would lead me to conclude that the offer, in all of the circumstances, was not a genuine offer of compromise, or at the least, the Commonwealth had not discharged its onus of establishing that was so. In my opinion, onus would not be discharged in circumstances where a material fact known only to the offeror was not before the Court. My view on this substantially overlaps with the consideration that next follows. Impact of costs of the extension application 104 The amount of the costs claimed on the extension application reflects directly on whether the offer was a genuine compromise and on the question whether it was unreasonable for Mr Gretton not to accept the offer, for another reason. The maintenance of the claim for costs of the extension application meant it was, in effect, an offer of about $35,000, plus costs of the proceedings. That was tantamount to an offer that Mr Gretton walk away from the proceedings, because he had his own costs of the extension application to pay, and any costs that would have been payable to his solicitor over and above those that would have been payable by the Commonwealth had Mr Gretton accepted the Calderbank offer. 105 An offer which is no more than a "walk away" offer may be a genuine offer of compromise, if it is seen as "a genuine attempt to reach a negotiated settlement, rather than merely to trigger any costs sanctions": Leichhardt Municipal Council v Green per Santow JA at [39]. In this case, the Commonwealth knowing, or having the means of knowing, that its costs on the extension application would render the 'damages' portion of its offer at the most a minimal offer, throws doubt on the question whether the offer was a genuine offer of compromise. But even if it was a genuine compromise, it was not necessarily unreasonable for Mr Gretton to reject it, in circumstances where his Honour found that there was evidence available that supported his claim. Further, as the verdict demonstrated, an effective offer of about $35,000 was substantially below the jury's award. Offer contained no 'final' disposition of the proceedings 106 Counsel for Mr Gretton also submitted that the fact the Calderbank offer did not finalise the terms upon which the matter would be finally resolved was also relevant. Counsel submitted that there may have been a real issue between the parties following upon any intended 'acceptance' of the Calderbank offer as to whether a verdict would be entered for Mr Gretton or for the Commonwealth. He submitted that unless and until that question was appropriately resolved to the satisfaction of both parties, it could not be said that it was unreasonable for Mr Gretton to reject the offer. As counsel for Mr Gretton pointed out, the Commonwealth had admitted liability, so Mr Gretton was entitled to a verdict in his favour. That submission requires qualification, in the sense that there was a challenge on the question of whether any psychiatric illness suffered by Mr Gretton had been caused by the collision. If causation was not established, the Commonwealth, on a claim in negligence, would have had a verdict in its favour. 107 The real point of the submission, however, was that there was still something to be negotiated. This was not a case such as Monie, where there were no other related cases pending. The HMAS Voyager/HMAS Melbourne litigation has been ongoing for several decades in courts around Australia and there remain cases pending. The Commonwealth's approach to the litigation has been the subject of public, including parliamentary, comment. It cannot be inferred in the circumstances that the Commonwealth would not have insisted upon a verdict in its favour. Indeed, it is likely that it would have done so and that would have been important to it, particularly in circumstances where it otherwise required, as a term of settlement, that the terms not be disclosed. Again, whether having a verdict in its favour would have been significant, and the nature of that significance, is not strictly in point. The real point is that the acceptance of the Calderbank offer made by the Commonwealth would not have been an end of the negotiations. There is merit in this submission, which supports the conclusion I have reached that no error has been demonstrated in the trial judge's exercise of discretion. In saying that, I must re-emphasise that the discussion from [83] ff relates to matters not raised in the Court below and there was no formal Notice of Contention filed in the matter. 108 Finally, I should add, as Hodgson JA explains, in a case such as the present, where a Calderbank offer had been made, a Court, in determining whether a departure from the rules that costs follow the event was warranted, could make a variety of costs orders and take into account the circumstances to which his Honour refers at [122]. I have referred in various ways to some of those circumstances. I also agree with his Honour that a possible result in this matter could have been that each party pay its own costs. However, I agree with Hodgson JA that it is appropriate that in this matter, involving as it does questions of discretion, the parties should not be permitted to adopt a basis for the costs they claim different from that which they pleaded at trial. 109 Accordingly I would propose the following orders: 1. Leave to appeal is granted; 2. Appeal dismissed; 3. The appellant is to pay the respondent's costs of the appeal. 110 HODGSON JA: The circumstances giving rise to this appeal and the issues it raises are set out in the judgment of Beazley JA. I agree with the orders proposed by Beazley JA, but my reasons differ a little in emphasis from hers. 111 The general rule concerning orders for costs is that "costs follow the event unless it appears to the court that some other order should be made": UCPR 42.1. 112 It was not argued in this case that, where an offer of settlement was made by a defendant, "the event" was whether or not this offer was bettered in the result. In my opinion, in order that a defendant be regarded as succeeding in "the event" when a plaintiff obtains a judgment against the defendant, the defendant must previously have acknowledged the unconditional entitlement of the plaintiff to a judgment equal to or greater than that obtained, either in the pleadings or at least in some unequivocal way; and that is not the case either with a Calderbank offer or with an offer of compromise. 113 The general rule about costs is subject to provisions in the Rules concerning offers of compromise. The present rule concerning offers by defendants (UCPR 42.15) provides that where a plaintiff obtains a judgment no more favourable than the terms of the offer, then unless the court otherwise orders, the defendant's entitlement to costs from the day following the offer is to costs assessed on an indemnity basis. This is different from the earlier corresponding rule in the District Court and Supreme Court, according to which a defendant's entitlement in those circumstances was to costs on a party and party basis. This change needs to be kept in mind when considering some of the important cases on offers of compromise and Calderbank offers, such as Hillier v Sheather (1995) 36 NSWLR 414 and Leichhardt Municipal Council v Green [2004] NSWCA 341. 114 When the offer of compromise procedure provided by the Rules is followed, and the circumstances specified in the relevant rule occur, the court is to make the order specified by the applicable rule unless sufficient reason is showing for ordering otherwise. However, it is clear that, where instead of that procedure the offer of settlement is made by a Calderbank letter, the question is whether the circumstances of making the offer and the failure to accept it warrants departure from the ordinary rule as to costs: SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323 at [37]; Jones v Bradley (No. 2) [2003] NSWCA 258 at [8]. 115 The question then is, what does warrant departure from the ordinary rule as to costs in such circumstances? Leichhardt Municipal Council v Green has been cited as authority for the proposition that departure from the ordinary rule is warranted only if there was a genuine offer of a compromise and if it was unreasonable for the plaintiff not to accept it. However, that was a case where the defendant had won and was clearly entitled to party and party costs, but was seeking indemnity costs; and it was decided at a time when the rule concerning offers of compromise did not provide for indemnity costs in favour of defendants. In those circumstances, it is understandable that indemnity costs were not ordered where the court was not satisfied it was unreasonable for the plaintiff not to accept the defendant's offer. 116 Jones v Bradley (No. 2) was also a case of Calderbank offers by a defendant, but in circumstances where the plaintiff had obtained a verdict in her favour (but one which, on appeal, was reduced to about $770,000, as against Calderbank offers at first instance and on appeal of $1.2 million plus costs, in the case of the appeal offer exclusive of out-of-pockets). The Court of Appeal held it was unreasonable for the plaintiff to have rejected the defendant's offer at first instance, and ordered her to pay the defendant's costs from the date of that offer on a party and party basis. The Court of Appeal also held that the plaintiff's rejection of the offer on the appeal was unreasonable, and ordered her to pay the defendant's costs of the appeal before the offer on a party and party basis and after the offer on an indemnity basis. 117 In my opinion, where the question is whether, by reason of refusal of a Calderbank offer, a party should have to pay costs on an indemnity basis rather than party and party basis, it is generally necessary that the party seeking assessment on an indemnity basis satisfy the court that the other party was acting unreasonably in refusing the offer. In Rosniak v Government Insurance Office (1997) 41 NSWLR 608, Mason P (Clarke AJA agreeing) at 616 notes the requirement of unreasonableness for indemnity costs in contradistinction to party-party costs: Later cases have emphasised that the discretion to depart from the usual "party and party" basis for costs is not confined to the situation of what Gummow J described as the "ethically or morally delinquent party" ... Nevertheless the court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation. This is because party and party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity. 118 However, the present case is one where the question was not limited to the question whether costs should be assessed on a party and party basis or an indemnity basis. Rather, the question was whether Mr Gretton, having recovered judgment for $50,000, should get an order for costs at all, that is, whether costs should follow the event, or whether some other order should be made; and that other order could be that, after the date of the offer, Mr Gretton pay the Commonwealth costs on a party and party basis or on an indemnity basis, or could be that each party pay their own costs, or could be some other order. In the submissions below and on appeal, the Commonwealth did ask for costs on an indemnity basis, but as a fall-back position it asked for costs on a party and party basis. However, the case was conducted below, and conducted initially on appeal, on the basis that the usual result as to costs would not be displaced unless the court was satisfied that Mr Gretton was unreasonable in refusing the offer: see par [16] of the decision of the primary judge. The primary judge did say at par [41] that it had not been shown "that a departure from the ordinary rule as to costs is warranted in the circumstances of the case"; but he did not suggest that any circumstance was relevant beyond the question of whether the plaintiff's rejection of the offer was unreasonable. 119 If this were accepted as the correct test to be applied in the present case, then I would agree with Beazley JA that no appealable error has been shown in the primary judge's decision. This means, at the very least, this is not a case where costs would be awarded to the Commonwealth on an indemnity basis. 120 However, uninstructed by authority, I would have thought that the question whether refusal of a Calderbank offer displaced (to any and if so what extent) the ordinary rule that costs follow the event, would not depend solely on whether the Court was satisfied that the offeree acted unreasonably in refusing the offer. As this case indicates, where there is a wide range of possible verdicts, an offer may be a reasonable one, yet it may not be positively unreasonable for the offeree not to accept it. As at present advised, I do not think this would necessarily make the offer and refusal irrelevant to the general discretion as to costs. 121 In my opinion, underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. Costs follow the event generally because, if a plaintiff wins, the incurring of costs was the defendant's responsibility because the plaintiff was caused to incur costs by the defendant's failure otherwise to accord to the plaintiff that to which the plaintiff was entitled; while if a defendant wins, the defendant was caused to incur costs in resisting a claim for something to which the plaintiff was not entitled: cf Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. Departures from the general rule that costs follow the event are broadly based on a similar approach. 122 In a case such as the present one, in my opinion, a judge approaching the question of costs would have a range of available alternatives, depending on the cumulative effect of a variety of factors, and not just the two alternatives of party and party costs in favour of the plaintiff and indemnity costs in favour of the defendant, depending on a judgment as to whether it had been unreasonable for the plaintiff to reject the defendant's offer. At least the following factors could be considered relevant in the present case: (1) It was the negligence of the Commonwealth that put Mr Gretton in the position of having to make a difficult decision as to what compensation to accept, in circumstances where there was a wide range of possible verdicts. (2) Mr Gretton had engaged responsibly in the settlement process with his offer of $250,000, which the Commonwealth refused. (3) Mr Gretton had a cost order against him, which could reasonably be expected to involve tens of thousands of dollars (and which we now know is claimed by the Commonwealth to be about $120,000). (4) The Commonwealth could have adopted the offer of compromise procedure provided for by the Rules; but it chose not to do so for reasons it saw as being in its own interests. (5) The Commonwealth's offer of $150,000 plus costs (save for costs orders made in favour of the Commonwealth) was reasonable, particularly as seen with hindsight; but it was one which in all probability would leave Mr Gretton with nothing, after paying the Commonwealth's costs of the application for extension of time and his own additional legal costs. (6) While refusal of the offer by Mr Gretton might not be considered positively unreasonable, in all the circumstances, it was risky and in the event gave rise to a very long and expensive trial, limited to the question of damages. 123 In all those circumstances, had I been considering the matter de novo, I may have left each party bearing its own costs of the trial. A similar result was reached in somewhat similar circumstances by Miles J in Humphries v TWT Ltd (1993) 113 FLR 422. 124 In my opinion, it may have been an error by the primary judge to approach the matter as if there were just two possible results, depending on whether or not Mr Gretton's refusal of the offer was unreasonable. However, that is the basis on which the case was conducted before him; and in my opinion, this is not changed by the circumstance that the Commonwealth did put to the primary judge a fall-back position of Mr Gretton paying its costs on a party and party basis rather than on an indemnity basis. 125 The case was argued on appeal by the Commonwealth on the same basis; but when the Court raised the possibility of a broader approach which did not depend completely on a finding that the refusal of the offer was unreasonable, the Commonwealth sought to adopt that as an alternative approach, in addition to its existing submissions. 126 In my opinion, the Commonwealth should not be permitted to do this. Had the case been conducted on the wider basis below, there could have been further material introduced into evidence by Mr Gretton; and a discretionary decision concerning the costs of a hearing is best dealt with by the judge who has heard the case and is intimately familiar with what happened in the case, rather than by the Court of Appeal. 127 For those reasons, I agree with the orders proposed by Beazley JA. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.