New South Wales Supreme Court CITATION : Vaughan v Hoskovich (No. 2) [2010] NSWSC 835 HEARING DATE(S) : 21 July 2010 JUDGMENT DATE : 21 July 2010 JURISDICTION : Equity JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 21 July 2010 DECISION : Application refused. CATCHWORDS : COSTS – application to set aside costs orders in probate proceedings – where defendant rejected offers of compromise made by plaintiff – whether to award indemnity costs from date of offers – offer of compromise not made under Part 20, Division 4 of Uniform Civil Procedure Rules because not exclusive of costs – where questions raised by proceedings finely balanced and deceased effectively caused litigation by not making will – defendant did not act unreasonably in not accepting Calderbank offers – costs orders not set aside CATEGORY : Consequential orders Saul v Lin [2007] NSWSC 782 Short v Crawley (No. 42) [2009] NSWSC 1110 Short v Crawley (No. 43) [2009] NSWSC 1274 CASES CITED : Calderbank v Calderbank [1976] Fam 93 Trustee for the Salvation Army (NSW) Property Trust t/as Salvation Army v Becker (No 2) [2007] NSWCA 194 Vaughan v Hoskovich [2010] NSWSC 706 Becker v Public Trustee of New South Wales [2006] NSWSC 1146 PARTIES : Plaintiff: Janet Louise Vaughan Defendant: Pauline Hoskovich FILE NUMBER(S) : SC 2009/301402 COUNSEL : Plaintiff: L Ellison SC Defendant: P Blackburn-Hart SC SOLICITORS : Plaintiff: Greg Alfonzetti, SolicitorDefendant: George Bassil & Associates IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Wednesday, 21 July 2010 2009/301042 Janet Louise Vaughan v Pauline Hoskovich (No. 2) JUDGMENT 1 HIS HONOUR: On 30 June 2010 I made declarations and orders in these proceedings including an order that the costs of the plaintiff on the indemnity basis, and the costs of the defendant on the ordinary basis, be paid out of the estate. Mr Ellison SC, who appears for the plaintiff, submits that that order should be set aside and instead it should be ordered that the defendant pay the plaintiff's costs on the indemnity basis from 5 May 2009 and otherwise there should be no order as to costs. 2 The orders as to costs made on 30 June 2010 were made after counsel for the parties had made submissions at the hearing as to the costs order each party would seek if she was successful or unsuccessful. No reference was made during the course of submissions that the costs orders to be made might be affected by any offer of compromise under the Uniform Civil Procedure Rules or any Calderbank offer. 3 The present application of the plaintiff is based upon two offers: the first on 5 May 2009, which the plaintiff contends is an offer of compromise under the Rules attracting the consequences in r 42.14; and the second being a Calderbank offer of 1 October 2009. There is no dispute that the court has power to set aside the order as to costs. (See r 36.16(3) of the Uniform Civil Procedure Rules 2005 (NSW) and Saul v Lin [2007] NSWSC 782 at [13]; Short v Crawley (No. 42) [2009] NSWSC 1110 at [66]-[69] and Short v Crawley (No. 43) [2009] NSWSC 1274.) 4 It is appropriate in the circumstances to reconsider the question of costs having regard to the correspondence now relied upon by the plaintiff. 5 The first offer relied upon was headed "Offer of Compromise" and was expressed to be an offer of compromise made under the Rules. It said: " The defendant [scil: plaintiff] offers to compromise the whole of the proceedings by consenting to the following Orders: The Court declares: 1 The Plaintiff was the de facto spouse of Steven Hoskovich within the meaning of the Probate and Administration Act 1898. The Court Orders: 2 Letters of Administration of the intestate estate of Steven Hoskovich be granted to the Plaintiff. 3 The proceedings be referred to the Registrar to complete the grant. 4 The Plaintiff's costs on the indemnity basis and the Defendant's costs on the party/party basis be paid out of the estate of the deceased. 5 Cross Claim dismissed. NOTE: (a) This offer is pursuant to Uniform Civil Procedure Rules, Part 20 Division 4 and the Rules therein. (b) This offer is open for acceptance up until 19 June 2009 at noon after which time it will lapse. " 6 The offer was not accepted. 7 On 1 October 2009 the plaintiff's solicitor made the following offer expressed to be made on the principles of Calderbank v Calderbank [1976] Fam 93 as follows: " I refer to previous correspondence and to the attendance of the parties and their legal representatives at mediation on 29 September 2009. I confirm my client's offer made on 29 September to settle these proceedings on the following terms: 1. That your client consent to the following Orders and Declarations: 'THE COURT DECLARES: 1. The Plaintiff was the de facto spouse of Steven Hoskovich within the meaning of the Probate and Administration Act , 1898, S32G(1) and S61B(2). 'THE COURT ORDERS: 2. Letters of Administration of the intestate estate of Steven Hoskovich be granted to the Plaintiff. 3. The proceedings be referred to the Registrar to complete the grant. 4. The Plaintiff's costs on an indemnity basis and the Defendant's costs agreed in the sum of $50,000.00 be paid out of the estate of the Deceased. 5. Cross-claim dismissed.' 2. This offer is open for acceptance until 4.00pm, 13 October 2009 at which time it will lapse. 3. This offer is made in accordance with the principles of Calderbank v Calderbank and will be relied upon in any costs argument. 4. In consideration of the parties appearing to settle the proceedings in accordance with this offer, the Plaintiff agrees not to continue any Family Provision Act claim against the Defendant or her assets, including the $50,000.00 referred to in Order 4 above, but otherwise reserves her right to continue proceedings number 2762/09 against William Hoskovich and any notional estate helf by him. " 8 The first question is whether the offer of 5 May 2009 is, as it was stated to be, an offer pursuant to Pt 20, Div 4 of the Uniform Civil Procedure Rules. This is significant because if it were it would enliven r 42.14. That rule provides: " 42.14 Where offer not accepted and judgment no less favourable to plaintiff (cf SCR Part 52A, rule 22; DCR Part 39A, rule 25) (1) This rule applies if the offer concerned is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim concerned no less favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim: (a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and (b) assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made. " 9 Thus, the plaintiff would be entitled to her costs on the ordinary basis up to 5 May 2009 and on the indemnity basis thereafter, unless a contrary order were made. 10 If the offer is to be considered not as an offer of compromise made under Pt 20 Div 4, but as a Calderbank offer of compromise, then different questions arise. In particular, before the plaintiff would be entitled to at least indemnity costs, it would be necessary for her to show that the defendant did not act reasonably in not accepting the offer. 11 Rule 20.26(2) provides that an offer of compromise under Pt 20 Div 4 "must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs". 12 Mr Blackburn-Hart SC for the defendant submits that because the offer contained a term that the plaintiff's costs on the indemnity basis and the defendant's costs on the party/party basis be paid out of the estate of the deceased, it was not an offer exclusive of costs and hence was not an offer of compromise within the rule. 13 This question was considered by the Court of Appeal in Trustee for the Salvation Army (NSW) Property Trust t/as Salvation Army v Becker (No 2) [2007] NSWCA 194. There the Court of Appeal found that Pt 20 Div 4 applies to probate proceedings (at [21]). 14 Mr Ellison SC submitted that it is in the nature of a probate proceeding that the possible element of compromise is to be found in costs, as the substantive relief to be granted (that is, the grant of probate to one party or another) is not in itself susceptible of compromise. 15 In Becker's case, after judgment at first instance had been given by which probate of a will was granted to the respondent to the appeal, the respondent made an offer to compromise the appeal on terms that the appeal be dismissed, that the costs of the appellants be paid out of the estate on the party/party basis and that the costs of the respondent be paid out of the estate on the indemnity basis. The offer was stated to be an offer of compromise under the Uniform Civil Procedure Rules, but if it were found not to be, it was stated to be an offer of compromise under the principles in Calderbank v Calderbank. Ipp JA, with whom Mason P and McColl JA agreed, found that the offer there in question was inclusive of the costs of the proceedings and, accordingly, no effect could be given to it under the Uniform Civil Procedure Rules. The Court of Appeal went on to say that it took effect as a Calderbank offer and found that the respondent's rejection of the offer was unreasonable. It was on the basis that the appellant's rejection of the offer was unreasonable that the appellant was required to pay the respondent's costs of the appeal on the indemnity basis from the time of the offer. 16 The form of the offer considered in Becker's case is not distinguishable from the form of the offer of compromise in the present case. Accordingly, the offer does not qualify as an offer of compromise under r 20.26 as it was not "exclusive of costs". 17 I should add that Mr Ellison submitted that the intention behind r 20.26 was that offers of compromise were not to be made which were inclusive of costs. He distinguished the offer in the present case from a typical offer made inclusive of costs, where a plaintiff is claiming a sum of money by way of debt or damages and either the plaintiff or the defendant offers to compromise that claim for a lesser sum inclusive of costs. The vice of such an offer is that it may be impossible to compare the outcome of the proceedings if the offer is not accepted with the offer expressed to be inclusive of costs. 18 However, the fundamental reason why such an offer cannot constitute an offer of compromise is that it falls foul of the terms of r 20.26(2) and is inconsistent with the costs provisions in r 42.13A where an offer is accepted. The point of distinction Mr Ellison sought to advance appears to me not to stand with the reasoning and the decision of the Court of Appeal in Trustee for the Salvation Army (NSW) Property Trust t/as Salvation Army v Becker (No 2). 19 The question then is whether any costs consequences should flow from the non-acceptance of the offer of 5 May 2009 considered not as an offer of compromise under the Uniform Civil Procedure Rules, but as a Calderbank offer. The key question in that respect is whether it was unreasonable for the defendant not to accept the offer. In my view it was not. Mr Blackburn-Hart, in advancing that proposition, relied in part upon the fact that at the time the offer was made, although the plaintiff's principal affidavit had been served, a number of other affidavits material to my ultimate conclusion had not been served. There is force in that, but independently of that consideration for the reasons that I gave at para [69] (Vaughan v Hoskovich [2010] NSWSC 706) I do not consider that it could be said that the defendant acted unreasonably in not accepting the offer. 20 The second offer of 1 October 2009, so far as it concerned the defendant, was to similar effect to the earlier offer, except that a fixed sum was specified as an agreed amount of costs to be paid to the defendant out of the estate. By the time of service of this offer all but one of the plaintiff's affidavits had been served, including, importantly, the affidavit of Dr Lindeman. However, the position remained as at October 2009 that the defendant was in what I earlier described as the invidious position of litigating a question whose resolution involved a value judgment on which minds might legitimately differ. This was by no means a clear case in which it could be said that a de facto relationship existed. 21 Mr Ellison referred to the decisions of Nicholas J in Becker v Public Trustee of New South Wales [2006] NSWSC 1146 at first instance and of the Court of Appeal in which indemnity costs were ordered in a probate suit where there had been failure to accept Calderbank offers, both at first instance and on appeal. The basis of each decision was that the defendant and appellant had acted unreasonably in rejecting the offers because they ought to have appreciated that the plaintiff was entitled to the grant. The facts were quite different from the present case. 22 In the present case the question as to whether or not the plaintiff and the deceased were in a de facto relationship was finely balanced, and I do not consider that the defendant acted unreasonably in rejecting the second offer. 23 Mr Ellison also submitted, correctly, that parties to litigation are encouraged to make reasonable offers and in this case there were two such offers made by the plaintiff. The fact that offers were made and were not accepted, albeit that the rejection or non-acceptance of the offer was not unreasonable, is itself a material consideration in the exercise of the discretion as to costs. But bearing in mind the additional facts of which I have learnt since making the earlier orders, I remain of the view which I expressed at para [69] of my reasons in Vaughan v Hoskovich [2010] NSWSC 706 that both parties were in the invidious position of litigating a question involving a value judgment on which minds might legitimately differ, where the answer to the question posed was not clear-cut, and where the deceased had been the effective cause of the litigation by not having made a will. 24 In the circumstances, I do not consider that I ought to make a different costs order than the orders I made on 30 June 2010. I therefore refuse the application to set aside those orders. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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