Supreme Court New South Wales Medium Neutral Citation: Lowe v Lowe (No 3) [2015] NSWSC 1800 Hearing dates: 19 November 2015 Decision date: 01 December 2015 Jurisdiction: Common Law Before: Kunc J Decision: Plaintiff to pay defendants' costs on the ordinary basis up to 8 June 2015 and thereafter on the indemnity basis Catchwords: COSTS – Oral offer to settle before proceedings commenced – Calderbank offer before hearing – Plaintiff receives judgment for less than both offers – Observations concerning appropriateness of Calderbank analysis in light of overriding purpose – Civil Procedure Act 2005 (NSW), s 56 Legislation Cited: Civil Procedure Act 2005 (NSW) Evidence Act 1995 (NSW) Succession Act 2006 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Bates v Cook (No 2) [2014] NSWSC 1322 Brian John Harris v Mark Harris (No 2) [2013] NSWSC 1157 Calderbank v Calderbank [1975] 3 All ER 333 Commonwealth of Australia v Gretton [2008] NSWCA 117 Cutts v Head [1984] Ch 290 Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 Lowe v Lowe [2015] NSWSC 48 Lowe v Lowe (No 2) [2015] NSWSC 1626 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311 Ziliotto v Hakim [2013] NSWCA 359 Category: Principal judgment Parties: Diana Mae Lowe (Plaintiff) Murray Francis Lowe (First defendant) Cameron Francis Lowe (Second defendant) Jodie Alexandra Lowe (Third defendant) Representation: Counsel: A Lakeman (Plaintiff) G Underwood (Defendants) Solicitors: Yuill Lawyers (Plaintiff) Bull, Son & Schmidt (Defendants) File Number(s): 2014/263722 Publication restriction: No Judgment Summary 1. On 4 November 2015 I delivered the principal judgment in this matter (Lowe v Lowe (No 2) [2015] NSWSC 1626) (the "Principal Judgment"). Terms defined in the Principal Judgment have the same meaning in this judgment. These reasons are to be read in conjunction with the Principal Judgment. Without disrespect, I will continue to refer to the parties by their first names. 2. In the Principal Judgment the Court determined that Diana was entitled to additional provision of $100,000 from the Estate, an amount which was intended to ensure that her position is no better or worse than her circumstances at the time she began her relationship with Mr Lowe. 3. The defendants have tendered evidence of two settlement offers. 4. The first settlement offer was a verbal offer made at a meeting on 27 July 2014 of $300,000 (the "Verbal Offer"). That offer was rejected by Diana on 28 July 2014 after consultation with and on the advice of her solicitor. The Summons commencing these proceedings was filed a few weeks later on 8 September 2014. 5. In reliance on the Verbal Offer, the defendants seek an order "that the defendants' costs as agreed or assessed are to be paid by the Plaintiff on an ordinary basis from 8 September 2014 to 8 June 2015". In the exercise of its discretion as to costs, the Court is satisfied that the defendants are entitled to an order in those terms. 6. The defendants also rely upon a letter sent by their solicitors to Diana's solicitors dated 22 May 2015 expressed to be "Without Prejudice Except as to Costs" and concluding that the offer was made "in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and the Defendants will rely on this letter on the issue of costs, including an application by the Defendant for indemnity costs in the proceedings" (the "Calderbank Offer"). The Calderbank Offer was, relevantly, that the defendants pay Diana $230,000 in addition to the other items of personalty to which she was entitled under the Will. Diana did not accept the Calderbank Offer. 7. In reliance on the Calderbank Offer the defendants seek an order that "the defendants' costs as agreed or assessed are to be paid by the plaintiff on an indemnity basis from 9 June 2015 to date". In the exercise of its discretion as to costs, the Court is satisfied that the defendants are entitled to an order to that effect. The Facts 1. The background in relation to the Will relevant to this judgment is set out in the Principal Judgment: 5. The deceased left a will made on 14 August 2012 (the "Will"). Probate was granted to the defendants on 11 August 2014. Apart from some furniture and personal effects, all that Diana received under the Will (other than a limited right to reside in and purchase the matrimonial home) was a Mercedes-Benz car, to which the parties gave an agreed value of $45,000. … 19. Mr Lowe's household furniture, furnishings and personal effects were bequeathed to Diana. This gift was the subject of the judgment of Brereton J in Lowe v Lowe [2015] NSWSC 48. His Honour decided that the gift included Mr Lowe's car but not his moneys on hand, in bank accounts or on term deposits nor his shares or notes in public companies. The parties agreed the car to be valued at $45,000 for the purpose of these proceedings and accepted that no value should be attributed to the furniture and personal effects. 1. On 28 July 2014 Diana's youngest daughter, Margot, emailed Murray, one of Mr Lowe's sons and one of the defendant executors: Hi Murray Thank you for your meeting yesterday, 27th July 2014, in response to our family meeting on 29th June 2014. We appreciate your time and acknowledge your effort in trying to resolve the settlement for Diana. After consultation with our solicitor he has advised that $300,000.00 is not the maximum amount able to be given to Diana as per the structure of the will as told to us by you yesterday. After discussion with Diana and consultation with Diana's solicitor, we wish to advise the following – ● As advised previously a $400,000.00 cash settlement is an appropriate amount as Frank's wife and the amount that Diana will settle on plus ● The Mercedes car ● Personal Effects – apart from clause 9 ● Household Furniture and Furnishings As advised by Diana's solicitor, it may be prudent for our solicitor to officially advise your solicitor by letter of this prior to the executor's Wednesday's meeting at Richard Schmidt's office. We consider Diana's claim of $400,000 and their Mercedes car to be just and fair. Please action this email by Tuesday night 29/7/2014 1. On 30 July 2014 Murray sent this email to Margot: Margot, In response to your email, please be advised of the following: - we formally withdraw our Verbal Offer of $300,000. - all future correspondence is to be addressed to "the Executors of the Estate of the Late Francis Alfred Lowe" - you are not authorised to personally contact Richard Schmidt. Please supply us with the contact details of your legal representative/adviser. Regards, Murray Lowe (on behalf of the executors of the estate of the Late Francis Alfred Lowe) 1. On the basis of that exchange of emails the Court infers that the Verbal Offer was made at the meeting referred to in Margot's email held on 27 July 2014. Since the only evidence of the Verbal Offer is the email exchange set out in the preceding paragraphs, the Court is only able to find that the Verbal Offer involved a payment by the Estate of $300,000 to Diana. The evidence is silent on what else, if anything, was included in the Verbal Offer, in particular whether the Verbal Offer required Diana to forego her other rights under the Will. 2. As has already been noted, the proceedings were commenced by a Summons filed on 8 September 2014. 3. On 9 February 2015 Brereton J delivered his judgment in Lowe v Lowe [2015] NSWSC 48 on the proper construction of the gift of personalty to Diana in the Will (see paragraph [8] above). 4. On 15 May 2015 Hallen J fixed the proceedings for hearing in the Family Provision running list on 19 October 2015. 5. The Calderbank Offer comprised a letter dated 22 May 2015 from the defendants' solicitors to Diana's solicitors headed "Without Prejudice Except as to Costs" including: The Defendants have considered the Plaintiff's current financial position as set out in her affidavit of 6 May 2015 and are determined, if required, to defend the claim and put the Plaintiff to proof in relation to both the Plaintiff's alleged financial position and alleged need. The Defendants are mindful of the further substantial costs that will be incurred by the estate in what will be a two (2) day hearing and in the interests of minimising costs for all involved the Defendants are willing to resolve the Plaintiff's Claim as set out below. The Defendants offer that in lieu of the provisions made for the Plaintiff in the Will of the late Francis Alfred Lowe dated 14 August 2012 ("the Will"): 1. The Defendants pay the Plaintiff the sum of $230,000.00 within 28 days of Consent Orders being made by the Court. 2. The Plaintiff be entitled to continue to reside in the property at 8 Angorra Road, Terrey Hills ("the Property") until 10 October 2105 in accordance with clause 6 of the will. (This allows the Plaintiff adequate time to give her tenant the required three (3) months' Notice to Quit the Tiarri Avenue property and more than another month after the tenant has vacated in which to move back to Tiarri Avenue.) 3. The Defendants shall pay all council rates, water rates and insurance premiums which remain unpaid as at the date the Plaintiff vacates the Property and the Plaintiff consents to the marketing and sale of the Property by the Defendants from the date she has completed vacating the Property. 4. The Plaintiff confirms she has not exercised the option under clause 7 of the Will and waives all her rights to the said option in and under clause 7 of the Will generally. 5. In accordance with clauses 8 and 9 of the Will, the Plaintiff be entitled to the household furniture, furnishings and those items declared by the Court to be "personal effects" in the Judgement given by the Court on 9 February 2014. 6. The Defendants pay the Plaintiff's costs as agreed or assessed on the ordinary basis up to the time this offer is made. 7. The Defendants' costs be paid on the indemnity basis from the Estate. This offer will remain open until 5:00pm Monday 8th June, 2015. This offer is made in accordance with the principles in Calderbank v Calderbank [1975] 3 ALL ER 333 and the Defendants will rely on this letter on the issue of costs, including an application by the Defendants for indemnity costs in the proceedings. 1. Diana did not accept the Calderbank Offer. 2. In the Principal Judgment the Court concluded that Diana was entitled to additional provision of $100,000 over and above the express gifts made to her under the Will. 3. The Court will consider the impact as to costs, if any, of the Verbal Offer and the Calderbank Offer in turn. However, it is convenient first to set out the relevant legal principles as they relate to both offers. Legal principles 1. Section 98(1) of the Civil Procedure Act 2005 (NSW) (the "CP Act") provides: 98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. 1. It will be noted that s 98(1) confers an apparently unfettered discretion on the Court. However, to describe it in that way is incorrect. The discretion must be exercised judicially, that is to say rationally and for the purpose for which it was intended. This was expressed by McHugh J in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 (citations omitted): The discretion must be exercised judicially Although the statutory discretion is broadly stated, it is not unqualified. It clearly cannot be exercised capriciously. Importantly, the discretion must be exercised judicially in accordance with established principle and factors directly connected with the litigation. In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous considerations which, if taken into account, will cause the exercise of the discretion to miscarry. Consistent with the aim of justice, the law could not have developed otherwise. As Mason CJ said in Latoudis: "it does not follow that any attempt to formulate a principle or a guideline according to which the discretion should be exercised would constitute a fetter upon the discretion not intended by the legislature. Indeed, a refusal to formulate a principle or guideline can only lead to exercises of discretion which are seen to be inconsistent, a result which would not have been contemplated by the legislature with any degree of equanimity." 1. Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") Part 42, rr 42.1 and 42.2 provide: 42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. 42.2 General rule as to assessment of costs Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis. 1. The provisions of both the CP Act and the rules in relation to costs must be exercised by reference to s 56 of the CP Act: 56 Overriding purpose (1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. (2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule. (3) A party to civil proceedings is under a duty to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court. … 1. The provisions and principles set out in paragraphs [19] to [22] above apply to all proceedings in the Court, including family provision proceedings. However, in those kinds of proceedings s 99 of the Succession Act 2006 (NSW) must also be noted: 99 Costs (1) The Court may order that the costs of proceedings under this Chapter in relation to the estate or notional estate of a deceased person (including costs in connection with mediation) be paid out of the estate or notional estate, or both, in such manner as the Court thinks fit. .. 1. There is a significant public policy interest in encouraging settlement of litigation. That interest is manifested in the provisions relating to offers of compromise under UCPR Pt 20 Division 4 ("Rules Offers") and the common law which has developed in relation to Calderbank and other offers. 2. In Bates v Cook (No 2) [2014] NSWSC 1322, I rejected a submission that Rules Offers operated differently in family provision cases: 29. The Court is therefore unable to identify anything in the language of the relevant parts of the rules concerning offers of compromise and their consequences which suggest any legislative intention that family provision cases are to be treated in any way differently from other types of litigation. 30. Insofar as the policy underlying those provisions is concerned, namely encouraging the realistic assessment by parties of their respective positions and facilitating the resolution of litigation by giving a failure to accept an offer of compromise real consequences in terms of costs, there is again nothing to suggest that family provision litigation should be treated any differently. On the contrary, the introduction of r 20.26(3)(c) evinces a legislative recognition that the rules in relation to offers of compromise apply to family provision litigation. 31. Furthermore, there are certain features of family provision litigation which suggest an even stronger public policy basis for the encouragement of settling litigation than might apply in other types of case. Those considerations include: (1) Family provision litigation involves a fixed fund which risks being substantially depleted by legal costs to the disadvantage of all concerned if litigation is persisted with. (2) The jurisdiction is redistributive rather than punitive or compensatory. (3) As a corollary of the preceding point, family provision litigation is not the fault of the parties in the sense that the parties have not come to court because of the alleged breach, fault or delict of any of them in the way that might otherwise give rise to civil litigation. (4) The parties are almost always natural persons and, more often than not, people who are completely unused to litigation. The emotional, let alone financial, strain on litigants in family provision claims can be much higher precisely because it concerns matters of family, relationship and emotions. (5) The amounts at stake are often, but by no means always, not large compared to other matters that come before the Court. Real questions often arise as to the proportionality of the legal costs when compared to the amounts of money at stake. 32. It is features such as those to which I have just referred which underlie the Court's special concern to facilitate the resolution of family provision matters where possible. That concern is evidenced by the rules set out in Practice Note No SC Eq 7, including that all such proceedings will be referred to mediation, unless the Court orders otherwise. 1. In Brian John Harris v Mark Harris (No 2) [2013] NSWSC 1157 I summarised the applicable principles in relation to Calderbank offers: 6. The applicable legal principles are: (1) The Court's power in relation to costs is discretionary subject to the rules of Court. The general rule is that costs follow the event and are assessed on the ordinary basis. (2) Where a Calderbank Offer has been made public policy objectives of encouraging an early end to litigation and discouraging wasteful and unreasonable behaviour by litigants underpins the making of favourable costs orders. (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. (4) Two guides have been developed as to how the discretion might appropriately be exercised when a Calderbank Offer has been made: first, that the offer is a genuine offer of compromise; and, second, whether it was unreasonable for the offeree not to have accepted. (5) The question of unreasonableness is to be approached objectively in the circumstances known (or which should reasonably have been anticipated) by both parties at the time the offer was made. (6) The discretion is to be exercised having regard to all the relevant circumstances in the case. (7) The onus is on the party making a Calderbank Offer to satisfy the Court that it should exercise the costs discretion in its favour. 7. I have summarised these principles from the extensive exposition of them in Commonwealth of Australia v Gretton [2008] NSWCA 117 ("Gretton") at [38]-[46] and Illawarra Hotel Co Pty Limited v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211 at [17]. 1. Sub-paragraph (4) of my summary can be expanded to include factors which the Court of Appeal has identified as relevant to the question of whether the rejection of an offer was unreasonable. In Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12] ("Miwa") Basten JA (with whom McColl and Campbell JJA agreed) adopted the non-exclusive list of factors identified by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25]: (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it. 1. In Commonwealth of Australia v Gretton [2008] NSWCA 117 Hodgson JA (with whom Mason P agreed) said: 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. 1. Beazley JA (with whom Mason P also agreed) expressed her agreement with Hodgson JA: 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. 1. In Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311 ("Whitney"), a specially constituted five member Court of Appeal held that a non-compliant Rules Offer would not take effect as a Calderbank offer unless there was something in it or in the surrounding circumstances to indicate that it was proposed to be relied upon on the question of costs, irrespective of its effectiveness as a Rules Offer. What is relevant for present purposes is that in the course of their reasons, the Court made observations concerning the essential qualities of a Calderbank offer. 2. Bathurst CJ (with whom Beazley P and McColl and Emmett JJA agreed) said at [42]: Further, there was nothing in the correspondence with which the offers were enclosed or in the surrounding circumstance to indicate that they would be relied on in relation to the question of costs should a verdict more favourable than the offer be achieved. Such an indication, in my opinion, is the essence of a Calderbank offer. 1. Barrett JA (with whom Beazley P and McColl JA agreed) said: 57. An offer is of the Calderbank type only if the maker of it is shown to intend that the fact of its non-acceptance may be deployed as a basis for seeking a special costs order in the event of that party's ultimate success in the action. Everything therefore depends on the message conveyed by the offer itself and any covering letter or other attendant circumstance. … 60. The plaintiff did not indicate, either expressly or by implication, that, if the offer did not take effect under the rules, the plaintiff still reserved the right to rely on it on the question of costs. An essential ingredient of a Calderbank offer was therefore absent: see Calderbank v Calderbank (above) at 596. The correct characterisation in this case corresponds with that which, in Old v McInnes (above), commended itself to Meagher JA (at [106]) and Giles JA (concurring). 1. Finally, in Ziliotto v Hakim [2013] NSWCA 359 the Court of Appeal determined that a non-compliant Rules Offer could not be treated as a Calderbank offer. Nevertheless, Tobias AJA (with whom Macfarlan JA agreed) held: 134. In my view, these authorities demonstrate that the conclusion that the Offer was not effective as a Calderbank Offer does not preclude the Court from taking into account the conduct of the parties, including attempts at settlement, in exercising its discretion pursuant to UCPR r 42.1 as to whether to make some order other than that costs should follow the event. Verbal Offer – the defendants' submissions 1. The defendants' submissions in relation to the Verbal Offer may be summarised as: 1. The Verbal Offer involved a real and genuine element of compromise. 2. The Court's discretion should be exercised having regard to who is responsible for the costs having been incurred. 3. The Court is entitled to look at the conduct of the parties, including taking into account an oral offer of settlement. Such an offer could be taken into account even though it did not convey that it would be relied upon in relation to costs. 4. The Verbal Offer was reasonable. 5. The rejection of the Verbal Offer was unreasonable. 6. The defendants sought costs on the ordinary basis, accepting that indemnity costs would not be ordered in the absence of a Calderbank Offer, being an offer which expressly or impliedly made clear that it was intended to be relied upon in relation to the question of costs including an application for indemnity costs. 1. While it was contended for the defendants that they were entitled to an order for their costs to be paid on the ordinary basis, their ultimate "fall back" submission was that Diana should pay her own costs of the proceedings up to the date of the last day for acceptance of the Calderbank Offer. Verbal Offer – Diana's submissions 1. Diana submitted that the Verbal Offer and the relevant emails were not communications between solicitors or between the parties. It was unclear in what capacity Margot and Murray were acting and whether they could bind the actual parties. 2. The Verbal Offer was neither a Rules Offer nor a Calderbank offer and should therefore be given no weight. Furthermore, the Court should infer that it was not a genuine offer of compromise because after Diana's counter-offer the Verbal Offer was withdrawn and no further offer was made. 3. There were a number of factors that counted against the Verbal Offer and supported the proposition that its rejection was not unreasonable: 1. The Verbal Offer had been made before the proceedings had been commenced. In particular, the affidavit setting out the defendants' financial circumstances had not yet been filed. Therefore, at the time of the Verbal Offer Diana did not have before her the financial circumstances and nature of the claims on the testamentary bounty of Mr Lowe that were put forward in the defendants' affidavits that were not filed until about March 2015. 2. It is not clear to whom the Verbal Offer was made, what the terms of the offer were, when it was made or for how long it remained open. 3. The Verbal Offer does not appear to have been made between the parties. 4. The Verbal Offer did not purport to be a Calderbank offer. 5. There were no timeframes in which the Verbal Offer could be considered and responded to. 6. There was no reference in the email referring to the Verbal Offer that suggested that it had been made clear that the Verbal Offer would be relied upon in terms of an application for costs, indemnity or otherwise. Verbal Offer – resolution 1. The authorities binding upon me and which have been set out above, compel the conclusion that in NSW there are three categories of offer which may have costs consequences: 1. A Rules Offer. 2. A Calderbank offer. This can be either a non-conforming Rules Offer which is intended also to operate as a Calderbank offer or a Calderbank offer as traditionally understood. The essence of a Calderbank offer is that either its terms or the surrounding circumstances communicate to the offeree that the offer will be relied on in relation to the question of costs should a verdict more favourable than the Calderbank offer be achieved. 3. An offer which is neither a Rules Offer nor a Calderbank offer. I shall refer to such an offer as an "Offer". Some of the cases use the language of "informal offer". I respectfully eschew that term because it is apt to mislead by suggesting that Calderbank offers have a formal or official status as though under some rules whereas the third category do not. That is not so. To call an Offer informal is to set up a false and irrelevant dichotomy with Calderbank offers. Both Offers and Calderbank offers are informal when compared to Rules Offers 1. The Verbal Offer is clearly an Offer. There is no basis for finding the communication of the intention either in its terms or in the circumstances that it would be relied on in relation to the question of costs. The defendants did not suggest otherwise. 2. Diana's contention that the Verbal Offer was unclear fails for two reasons: 1. On the evidence of the emails, the Verbal Offer was clear enough to Margot, and presumably Diana, so that the response to the Verbal Offer was not to seek clarification but to make a counter-offer. 2. If there be any lack of clarity from the Court's point of view it is irrelevant. Even if the Verbal Offer was to pay Diana $300,000 in satisfaction of all her rights under the Will, she has done worse than the Offer. That is because she receives $100,000, the Mercedes Benz (agreed value $45,000) and personalty which the parties agreed had no commercial value. In drawing this comparison, no allowance needs to be made for any value attributable to Diana's right to reside in and purchase the Matrimonial Home. As is clear from the matters which I identified in paragraph [39] of the Principal Judgment, the right to purchase the Matrimonial Home was of no value to Diana because she never intended to live there in the long term for reasons which were as personally compelling for her as they were unrelated to any financial advantage she might have obtained by purchasing the Matrimonial Home. 1. Diana's questioning of Murray's and Margot's authority is unpersuasive. On the basis of the emails the Court finds that Murray made the Verbal Offer to either Margot or Diana. The terms of the emails made it clear that the authors of the emails were charged with negotiating for the parties and each understood the other to be the relevant person negotiating on behalf of Diana and the defendants. Murray signs himself as acting on behalf of the executors of the Estate. For Diana's part, it lies ill in her mouth now to suggest that Margot may have been negotiating without her (Diana's) authority. 2. The Verbal Offer was in its terms a genuine offer of compromise. It offered Diana a reasonable sum of money when, under the terms of the Will she was entitled to no cash component. Margot's email itself acknowledges that she, and the Court infers from the use of the word "we" Diana as well, understood the Verbal Offer was genuine ("We appreciate your time and acknowledge your effort in trying to resolve the settlement for Diana"). The Court rejects Diana's submission that the Court should infer that the Verbal Offer was not genuine because no further offer was made in response to Diana's counter-offer. That conclusion does not logically follow from the suggested premise in the absence of other evidence. 3. The Verbal Offer was reasonable both as to its timing and content for at least two reasons: 1. The fact that the counter-offer came the next day makes irrelevant any concern raised that the Verbal Offer did not specify for how long it would be open. 2. The value of the counter-offer was not substantially far apart from the value of the Verbal Offer, even if the latter was assumed to be an offer of $300,000 in full and final settlement. 1. The rejection of the Verbal Offer was unreasonable because it was a reasonable offer for the reasons set out in the preceding paragraph. Furthermore, noting Diana's criticisms recorded in paragraph [38] above: 1. While the Verbal Offer was made before the commencement of the proceedings, both the speed and the terms of the counter-offer do not suggest that Diana was hampered by any lack of knowledge about the parties' circumstances. She was prepared to make a considered counter-offer based on legal advice. 2. As to the alleged lack of clarity, that criticism is rejected for the reasons given in paragraph [41] above. 3. As to the suggestion that the Verbal Offer did not appear to have been made between the parties, see paragraph [42] above. 4. The fact that the Verbal Offer did not purport to be Calderbank offer is irrelevant. It will be unreasonable to reject a reasonable offer whether it is an Offer or a Calderbank offer. 5. As to the lack of timeframe for a response, see paragraph [44] above. 6. While it is true that the Verbal Offer did not communicate that it would be relied on in relation to costs, it is nevertheless unreasonable to have rejected a reasonable offer. 1. As has just been observed, Diana's counter-offer was made with the benefit of legal advice. Margot's email refers on three occasions to consultation with Diana's solicitor. The counter-offer was a considered rejection. There is no suggestion that Diana was under any kind of tactical or other disadvantage that might explain the rejection of the Offer rather than being the considered position which it appeared to be on its face. 2. The Court gave the parties the opportunity to file evidence in relation to the defendants' costs application. Diana did not file any evidence either from herself or Margot that either or both of them did not know or understand or had not been advised that the rejection of the Offer could have a costs consequence for Diana. When the Court raised the absence of such evidence with Diana's counsel, his response was as recorded in paragraph [51] below. 3. Taking all the foregoing matters into account, in exercising the Court's discretion as to costs two things are clear: 1. Diana's unreasonable rejection of the Verbal Offer means that Diana bears the responsibility for the parties having incurred the costs of the proceedings. Had Diana accepted the Verbal Offer the proceedings would never have taken place and the costs would never have been incurred. That circumstance warrants departure from the usual rule that costs should follow the event (which would have had the effect that Diana would have been entitled to her costs of the proceedings from the Estate). 2. The defendants are correct not to have pressed for an order that Diana pay their costs on the indemnity basis. Such an order is extraordinary and a party should be put on notice or have otherwise understood that in rejecting an offer the party was at risk of an order for indemnity costs. The Verbal Offer and the circumstances surrounding it do not constitute such notice and there is no basis to conclude that Diana understood that she could be at risk of such an extraordinary order. 1. The fundamental issue for the Court is how to exercise its discretion as to costs in a way which gives effect to the overriding purpose set out in s 56 of the CP Act (see paragraph [22] above). The balancing in this case is between Diana's responsibility (by rejecting the Verbal Offer) for the costs of the proceedings being incurred being weighed against the absence of the communication of an intention to rely on the Verbal Offer as to costs. 2. In the ordinary course the balancing referred to in the previous paragraph would suggest that a just outcome would be that Diana would not be entitled to her own costs of the proceedings. That was the defendants' "fall back" submission (see paragraph [35] above). However, two matters in this case warrant the Court going further, notwithstanding the non-communication of the intention to rely on the Verbal Offer as to costs. Those two matters are referred to in paragraphs [46] and [47] above. 3. During the course of argument I raised with Diana's counsel whether the absence of evidence of the kind referred to in paragraph [47] above on behalf of his client was a matter which the Court could properly take into account in the exercise of its discretion as to costs. He made two submissions in response. First, he reminded me (with respect, correctly) that it was the defendants who bore the onus as to whether some costs order other than the usual costs order should be made. Second, having said that, he accepted that the absence of such evidence was a matter which the Court could take into account. No application was made for an opportunity to adduce such evidence. 4. Taking account of all of the matters referred to in paragraphs [40] to [51] above, but with particular note of the matters referred to in paragraphs [46] and [47] above, the Court is satisfied that in the exercise of its discretion the costs order which is both just and best gives effect to the overriding purpose of the CP Act in this case is to order that Diana should pay the defendants' costs of the proceedings on the ordinary basis from their commencement up to and including the date of the Calderbank Offer. 5. Mr Underwood submitted that Diana had been represented by an experienced solicitor and where the rejection of the Verbal Offer was on legal advice the Court could infer that Diana would have been advised that her rejection of the Verbal Offer could be taken into account on the question of costs. In reaching the conclusion which it has, the Court draws no inference as to Diana's actual state of knowledge as to whether she was or was not at risk by reason of her rejection of the Verbal Offer. No such finding is necessary for the Court's conclusion. It is sufficient in exercising the Court's discretion for it to take into account the absence of evidence on behalf of Diana to that effect, combined with the emphasis in Margot's email on the role legal advice played in connection with Diana's rejection of the Offer. 6. Finally in relation to the Verbal Offer, against the possibility that this matter should go further, I set out from paragraph [63] below an alternative basis on which I would have reached the same conclusion. However, as that basis requires a general reconsideration of the place of Calderbank offers in costs applications, it is not available for me to apply as a judge sitting at first instance. Calderbank Offer – the defendants' submissions 1. The defendants' submissions may be summarised as: 1. The Calderbank Offer contained a real and genuine element of compromise. 2. The sum offered in and the other terms of the Calderbank Offer were reasonable. 3. Having regard to the factors referred to in Miwa, rejection of the Calderbank Offer was unreasonable in that: 1. The Calderbank Offer was some five and a half months before trial. 2. The Calderbank Offer allowed 17 days for acceptance when there had been a one day private mediation six months before. 3. The offer was genuine on the defendants' part. 4. Diana's view of her case had always been unrealistic. 5. The Calderbank Offer was clear. 6. The Calderbank Offer made it clear that if the defendants were successful, they would be seeking an order for indemnity costs. 7. The issues at trial were the same as those covered by the Calderbank Offer. Calderbank Offer – Diana's submissions 1. Diana's counsel fairly put that his client's substantive answer to the Calderbank Offer was confined to one proposition: her rejection of the Calderbank Offer was not unreasonable because insofar as it invited her to waive the right to purchase the Matrimonial Home she did not have adequate time to investigate the comparative value of the Matrimonial Home and Her House and to obtain advice. It was submitted that at the time of the Calderbank Offer the only extant valuations were the probate valuation of the Matrimonial Home and Diana's own estimate of the value of Her House. The kerbside valuations tendered at the hearing (see paragraph [18] of the Principal Judgment) were not obtained until shortly before the hearing. 2. If the Court were to take the Calderbank Offer into account, Diana submitted that it did not follow that the Court would order her to pay the defendants' costs on the indemnity basis, especially when they were entitled as executors of the Estate to their costs on an indemnity basis in any event from the Estate. It was contended that there were a number of alternatives available to the Court: 1. The costs of both parties be paid from the Estate, Diana's costs on the ordinary basis and the Defendants' costs on the indemnity basis. 2. Diana to have her costs on the ordinary basis up to 22 May 2015 and have no costs from the Estate after that date (that option in particular being justified because it was only by the date of the Calderbank Offer that each party had put on its evidence in respect of their financial circumstances). 3. Diana have her costs on the ordinary basis up until 22 May 2015 and pay the Estate's costs from that date (the submission did not specify on what basis). Calderbank Offer – resolution 1. Diana's substantive answer to the Calderbank Offer fails for two reasons. 2. First, on 6 May 2015 Diana swore (and filed the next day) her affidavit in which she explained why she wanted to return to Her House and did not wish to exercise her option to acquire the Matrimonial Home (see paragraph [41(2)] above and paragraph [39] of the Principal Judgment). She had expressed the same preference to return to Her House as early as her affidavit sworn on 1 October 2014. Therefore, looking at the position as at the date of the Calderbank Offer nearly two weeks later, the basis on which it is now submitted for Diana that her rejection of the Calderbank Offer was not unreasonable simply does not accord with the facts then known to the parties. Looking at the matter as at the date of the Calderbank offer it was perfectly clear that waiving her right to purchase the Matrimonial Home was of no significance to her because she wanted to return to Her House in any event. 3. Second, as it is the practice in family provision matters for the Court to accept kerbside valuations of the kind that were ultimately tendered at the hearing (see Practice Note SC Eq 7, paragraph 18), the Calderbank Offer was open for a sufficient time for Diana to have obtained up to date kerbside valuations (the two houses being in the same suburb) and to have sought advice if she had wanted. 4. In exercising the Court's discretion as to costs in family provision proceedings where a Calderbank offer has been made by the defendant executors, it may sometimes be relevant that they are usually entitled to their costs out of the Estate on the indemnity basis. This is not such a case. The various alternative costs formulations proposed on behalf of Diana (see paragraph [57] above) would not result in a just or fair outcome where Diana's unreasonable refusal of the Calderbank Offer has resulted in the defendants (and therefore the Estate) incurring the costs of these proceedings from the final date for acceptance of the Calderbank Offer. It would not be fair, when Diana was expressly put on notice of the possibility of an application for indemnity costs, for the Estate to be diminished by the amount of those costs by indemnifying the defendants (who, in this case, as the beneficiaries would have their shares of the Estate commensurately reduced) and not recompensed by Diana. 5. The Court is satisfied that the proper exercise of its discretion as to costs taking into account the Calderbank Offer is that Diana should pay the defendants' costs of the proceedings on the indemnity basis from 9 June 2015, being the next day after the closing date of the Calderbank Offer. Verbal Offer – an alternative approach 1. In paragraph [54] above I indicated that I would have reached the same conclusion in relation to the Verbal Offer, but on alternative grounds that depend upon a recasting of the place of Calderbank offers that is not open to a judge at first instance. In my respectful opinion that recasting is required because the statutory framework which now governs the exercise of the Court's discretion as to costs means that there are only two categories of offer which the Court must consider: Rules Offers and what I suggest can be called Non-Rules Offers (the latter incorporating what in these reasons I have identified as Calderbank offers and Offers). The category of Calderbank offers is, as a separate category, otiose because, in my view, to give effect to s 56 of the CP Act means the Court must take into account all Non-Rules Offers irrespective of whether there is discernible the intention which was described in Whitney as being essential to Calderbank offers (see paragraphs [30] to [32] above). 2. The unusual feature of this case is that it involves both a non-Calderbank offer to settle litigation (the Verbal Offer) and a "true" Calderbank offer. In circumstances where the law clearly permits the Court to take into account the Verbal Offer in the exercise of the Court's discretion as to costs, it invites the question as to what the Calderbank jurisprudence really adds insofar as it focuses attention on what might be thought to be a satellite inquiry as to whether any particular offer was made with the intention that it would be relied upon in relation to costs. 3. Competent legal practitioners should advise their clients that the rejection of any offer might put them at risk as to costs. While that risk would still be determined by reference to matters such as the genuineness of the offer, the unreasonableness of the rejection and what (if anything) the offer forewarned (e.g. an application for indemnity costs), the question is whether the appeal to Calderbank principles so described has now become an unhelpful distraction from the fundamental task of the Court's exercise of its broad discretion as to costs in the statutory framework described in paragraphs [19] to [22] above? In my respectful view that is what has occurred. 4. The Verbal Offer was a genuine offer of compromise and its rejection by Diana's counter-offer was unreasonable. The difficulty which this case highlights is that Calderbank jurisprudence has now become so entrenched that competent practitioners may assume that the absence of express reference to Calderbank or a statement of "without prejudice save as to costs" means the offer will not have any effect on costs. As a matter of law that is not necessarily so. It is a commonplace to observe that there is little point in making an offer of any kind (whether before or after the commencement of proceedings) if putting the offeree at risk as to costs is not a consequence which the law attaches to it, irrespective of the offeror's subjective knowledge or objective intention. As Fox LJ said in Cutts v Head [1984] Ch 290 at 315: If a party is exposed to a risk as to costs if a reasonable offer is refused, he is more rather than less likely to accept the terms and put an end to the litigation. On the other hand, if he can refuse reasonable offers with no additional risk as to costs, it is more rather than less likely to encourage mere stubborn resistance. 1. In making these observations, I am acutely aware that this is an area of practice where the proper administration of justice and the public interest in the encouragement of settlements means that the profession needs to understand how the Court is likely to exercise its discretion when Non-Rules offers are made. In this regard I would respectfully make five observations. 2. First, the basis for my opinion is that, at least in New South Wales, the legislative landscape has developed in two significant ways since Calderbank jurisprudence was developed: 1. The exclusion and admissibility of evidence of settlement negotiations is now governed by s 131 of the Evidence Act 1995 (NSW) which provides: 131 Exclusion of evidence of settlement negotiations (1) Evidence is not to be adduced of: (a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute, or (b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute. (2) Subsection (1) does not apply if: … (h) the communication or document is relevant to determining liability for costs, … 1. As has been noted in paragraph [22] above, s 56 of the CP Act requires the Court to exercise its power in relation to costs to give effect to the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings. 1. In my respectful view, those legislative developments have two important consequences to which sufficient attention has not always been paid. First, any offer to settle litigation will be admissible on the question of costs. This confirms what some have already observed that no particular formula of words (e.g. "without prejudice save as to costs") is required. Second, where the result is relevantly better or worse than the offer, to comply with s 56 in my view the Court must take the offer into account in exercising its discretion as to costs irrespective of the offeror's subjective or objective knowledge or intention about the deployment of the offer. There are only two qualifications to this statement. The first arises from the decision in Whitney that a non-compliant Rules Offer will only have further relevance to the question of costs if there was something in it or in the surrounding circumstances to indicate that it was intended to be relied upon on the question of costs, irrespective of its effectiveness as a Rules Offer. The second is the implausible circumstance of a Non-Rules Offer which expressly states that it is not intended to be deployed on the question of costs. 2. Second, the present case is a good example that given the underlying principle in relation to the allocation of costs is fairness (see paragraphs [28] and [29] above), the offeror's intention or understanding in making the offer as to the possibility of its future deployment is less important than the offeree's understanding of the consequences of rejection of the offer. Thus, there is no unfairness if a lay plaintiff makes an offer to a competently represented defendant who it can be assumed would be advised that the Court could take the offer and its rejection into account on the question of costs even if the offer contained no express statement that was its intention. Such advice, given today, would be a correct statement of law as far as it goes. The difficulty is that a competent practitioner may be left in some doubt as to what to advise a client if the offer is not obviously one which invokes the Calderbank jurisprudence. 3. Third, to adapt Bathurst CJ's observation in Whitney, if (contrary to the view I have expressed) the analysis is still to be driven by the offeror's intention, then "surrounding circumstances" referred to by his Honour (see paragraph [31] above) in the absence of an express statement of intention to rely on the offer on the question of costs must extend to the legislative features identified in paragraphs [19]-[22] and [68] above. In other words, if those are accepted as surrounding circumstances the Court would conclude (in the absence of express words to the contrary) that every offer, whether made by a non-lawyer or through a solicitor, was objectively intended to be taken into account on the question of costs because it had to be. That conclusion is fortified by the observation made by Fox LJ referred to in paragraph [66] above. 4. Fourth, to ensure the principled exercise of the discretion and the possibility of some predictability for the assistance of litigants, discretionary considerations such as the genuineness of the offer and the unreasonableness of its rejection, along with all the other discretionary matters that have been identified under the rubric of Calderbank jurisprudence must still apply. All that would be missing would be the taxonomic task of being concerned with something being a Calderbank offer as opposed to an Offer. The requirement for communication of an intention to rely on the offer is superseded by the recognition that the law requires the Court to consider any offer relevant to the question of costs. 5. Fifth, none of the foregoing is intended to suggest that where an offeror seeks indemnity costs, it would be irrelevant for the offeror to make it clear that such an application is contemplated. Insofar as the "surrounding circumstances" to which I have referred are constituted by the statutory framework, one of them must be UCPR Pt 42, r 42.2 that costs are usually payable on the ordinary basis unless the Court otherwise orders. While a plaintiff offeror who betters a Non-Rules offer strictly adds nothing by threatening indemnity costs because the only more advantageous costs order is for indemnity costs, it would remain good practice to make the point expressly. However, a successful defendant Non-Rules offeror would not have been entitled to any costs but for the offer. For that defendant a costs order (ordinary or indemnity) is not necessarily the only more advantageous order. For both plaintiffs and defendants, express notification of a future indemnity costs application would be a very powerful (but not determinative) factor in the exercise of the Court's discretion. Equally, failure to have threatened an indemnity costs application would not foreclose the Court from making such an order if the principles for making it were otherwise satisfied. 6. Applying the foregoing observations to the Verbal Offer as a Non-Rules Offer I would have exercised the Court's discretion in exactly the same way. However, the absence of an indication that the Verbal Offer would be relied on as to costs would have been irrelevant. The relevant matter resulting in an award of costs on the ordinary rather than indemnity basis would have been the absence of an express indication that an application would be made for indemnity costs. Conclusion 1. The Court will direct the parties to bring in short minutes giving effect to these reasons and the Principal Judgment. Amendments 01 December 2015 - Heading "The Facts" inserted between paras [7] and [8]. 01 December 2015 - Para [29] Beazley P changed to Beazley JA Para [59] "require" changed to "acquire" 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. Decision last updated: 01 December 2015