Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Photios v Photios (No 2) [2019] NSWCA 209 Hearing dates: On the papers Date of orders: 26 August 2019 Decision date: 26 August 2019 Before: Bell P at [1]; Gleeson JA at [34]; Leeming JA at [35] Decision: 1. Vary order 2 of the orders made on 27 June 2019 by adding as a further condition on the grant of leave to amend the amended statement of cross-claim the condition that the Appellant pay the mediator's costs of any further mediation including the costs of hire of any mediation rooms. 2. Order that the Respondent pay the Appellant's costs of the application for leave to amend before the primary judge and the costs of the application for leave to appeal up until 12 March 2019 on a party-party basis. 3. Order that the Respondent be entitled to an indemnity from the Estate of Henry Basil Photios for the costs referred to in Order 2 and for her own costs in relation to the application for leave to amend before the primary judge and of the costs in this Court. Catchwords: COSTS – application for payment of costs on indemnity basis from date of an offer – relevant principles considered Legislation Cited: Civil Procedure Act 2005 (NSW), ss 56, 59 Cases Cited: Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Zilotto v Hakim [2013] NSWCA 359 Category: Costs Parties: David Peter Photios (Appellant) Lana Clarice Photios (in her capacity as Executor of the Estate of Henry Basil Photios) (Respondent) Representation: Counsel: M Sneddon (Appellant) JA Trebeck (Respondent) Solicitors: Bartier Perry (Appellant) Beswick Lynch (Respondent) File Number(s): 2018/318902 Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity Division Citation: [2018] NSWSC 1414 Date of Decision: 20 September 2018 Before: Rees J File Number(s): 2016/268776 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. BELL P: On 27 June 2019, this Court delivered its reasons for judgment in Photios v Photios [2019] NSWCA 158 (the principal judgment). In its judgment, the Court allowed an appeal by Mr David Peter Photios (the Appellant) from a judgment of Rees J sitting in the Equity Division of the Supreme Court of New South Wales. Her Honour had refused the Appellant leave to amend his amended statement of cross-claim in proceedings concerning a contested will of his late father, Henry Basil Photios (the Deceased) in order to raise a question as to the Deceased's capacity at the time of execution of the will that had been admitted to probate in common form. The Appellant's step-mother and the Deceased's second wife, Mrs Lana Clarice Photios, was the respondent in those proceedings in her capacity as executor of the Deceased's estate (the Respondent). 2. In addition to allowing the appeal, the Court granted the Appellant leave to amend his amended statement of cross-claim subject to the following conditions: 1. the Appellant pay the Respondent's costs thrown away by the amendments; 2. to the extent that the Respondent needs to reinterview any of the witnesses from whom a witness statement or affidavit has already been obtained and filed, the Appellant pay the Respondent's costs of that exercise and the preparation of any further evidence consequent upon it; 3. the Appellant consent to any application for expedition of the hearing of the trial 4. the Appellant give to the Court and to the Respondent the undertakings in the form appended to these reasons; and 5. the Appellant consent to any further mediation sought by the Respondent, whether before or after the Respondent has filed her evidence in response to the allegations contained in the further amended statement of cross-claim and the evidence of Dr Wijeratne. 1. In addition to these conditions, the Court directed that the parties file submissions in relation to whether or not the Appellant should be required to pay the mediator's costs of any further mediation as an additional condition of leave to amend the amended statement of cross-claim. An unsuccessful mediation of the matter had occurred prior to the relevant application to amend the cross-claim. 2. By submission dated 4 July 2019, the Appellant consented to such an additional condition being imposed on the grant of leave to amend. Unsurprisingly, this was not opposed by the Respondent who submitted that it was entirely consistent with the first condition imposed, namely that the Appellant pay the costs thrown away by reason of the amendment, in the sense that, had the question of the Deceased's capacity been pleaded at the time of the first mediation, that issue would have formed part of that process. 3. The Respondent further submitted that the condition as to the mediation costs ought to include not only the costs of the mediator but the cost and hire of mediation rooms. I accept that submission although note that the parties should strive to minimise the further costs of any further or resumed mediation and that, if the mediation can occur on the premises of one of the firms of solicitors engaged in the matter, that would be a desirable and cost effective course. 4. In its submission of 4 July 2019, the Appellant drew the Court's attention to the fact that the Court did not make any order as to costs in the orders disposing of the appeal in its principal judgment and drew attention to [86] of that judgment which was in the following terms: "As to the question of costs of the application for leave to appeal, the appeal and the hearing of the notice of motion at first instance, prima facie, whilst the Appellant should be awarded his costs, Mrs Photios should be entitled to an indemnity from the Estate of Henry Basil Photios for her own costs and those which she will be obliged to pay the Appellant on account of his success in these proceedings: Drummond v Drummond [1999] NSWSC 923 at [43]; Boivard v Frost [2009] NSWSC 917 at [28] (Boivard); Poletti v Jones [2015] NSWCA 107 (Poletti); see also UCPR r 42.25(1) and Trustee Act 1925 (NSW) s 93(3) (Trustee Act). The Appellant has, however, advanced a submission that Mrs Photios should not be so entitled." 1. The Appellant's submissions correctly noted that the Court proceeded to adjudicate upon and not accept the submission that Mrs Photios should not be entitled to an indemnity from the estate in respect of her costs. In that context, the Appellant sought leave for both parties to make further submissions as to costs in light of the fact, of which the Court was necessarily unaware at the time of delivery of its principal judgment, that both the Appellant and Respondent had made written offers to seek to settle the appeal prior to its hearing on 28 May 2019. The Court granted such leave. 2. In its submissions on costs, the Appellant submitted that, informed by the Court's reasoning at [2019] NSWCA 158 at [86], the prima facie position on costs ought to be: 1. the Respondent to pay the Appellant's costs of the appeal, the application for leave to appeal and in respect of the notice of motion before Rees J; and 2. the Respondent in respect of this appeal, the application for leave to appeal and in respect of the notice of motion before Rees J, to have her costs paid out of the deceased's estate, on an indemnity basis. 1. The Appellant submits, however, that this prima facie position ought to be modified by reason of a settlement offer dated 29 April 2019 (the 29 April Offer) to which I will refer below, such that the prima facie position should be varied and the Respondent ordered to pay the Appellant's costs on the indemnity basis from 29 April 2019. 2. The 29 April Offer referred to by the Appellant was a "without prejudice except as to costs" email which was in the following terms: "Dear Lawyers We refer to the appeal proceedings which are listed for hearing on 28 May 2019. In light of the comments made by two members of the Court of Appeal on 22 February 2019, David Photios has every expectation that his appeal will be successful. This being said, David Photios is mindful of the delays and increase in costs that are inevitable if the appeal is left to take its course. Accordingly, we are instructed to make the following settlement offer: 1. Leave be granted to David Photios to file and serve the proposed FACC in the form of annexure "C" to the affidavit of David Peter Photios sworn 18 April 2018. 2. David Photios pay Lana Photios' costs thrown [a]way by reason of the amendment. 3. The costs of the application for leave to appeal before the Court of Appeal and the motion before Rees J are costs in the cause of Supreme Court proceedings 2016/268776. This offer is open for acceptance (in writing only) until 5pm on 3 May 2019. David Photios may rely on this correspondence for an application for payment of costs by your client on the indemnity basis." 1. The Respondent submitted that the Appellant did not achieve a better outcome than the 29 April Offer and, in particular, that this offer contained no consent to the Respondent's family provision claim being brought out of time nor did it offer the other undertakings that had been proffered to the primary judge and which formed one of the conditions of the grant of leave to amend imposed by the Court of Appeal in its orders of 27 June 2019. Further the Respondent contended that the 29 April Offer did not include the conditions set out in [85] of the principal judgment and reproduced in [2] above. The Respondent also pointed out that the 29 April Offer did not accept that the Respondent was entitled to an indemnity from the Estate. 2. In addition to the reasons advanced by the Respondent for rejecting this application which I have set out above, the reasonableness of the offer needs to be viewed in the context of an earlier offer that had been made by the Respondent to the Appellant to resolve the appeal proceedings, but which had not been accepted. More than two months prior to the 29 April Offer on behalf of the Appellant, the Respondent, by letter dated 26 February 2019 from Beswick Lynch Lawyers, (26 February Offer), referred to the grant of leave to appeal which had been made four days earlier on 22 February 2019 and indicated her consent to the Appellant amending his cross-claim in the terms for which he sought leave before Rees J on the basis that there be no further application in the appeal (such as for costs). In this letter, the Respondent's solicitors pointed out that the offer, if accepted, would make it unnecessary for the Appellant to file a notice of appeal or to proceed with the appeal. The solicitors wrote that: "Our client gives her consent because this is likely to be the quickest and cheapest way to a final hearing, particularly having regard to your client's assurances to the Court that he has served his evidence in chief in support of the proposed amended pleadings, this is recorded in paragraph 99 of the decision of Rees J." 1. The letter, which was expressly "without prejudice except as to costs" and made reference to the Calderbank principle, concluded by saying that if the Applicant wished to proceed with the amendment, the Appellant's solicitors were requested to engross a draft pleading and forward it to the solicitors for the Respondent without further delay "to enable us to endorse our client's consent". They then noted that it would be necessary to have the matter remitted to the Equity Division for directions but pointed out, quite correctly, that this could probably be done informally through the Court of Appeal Registry and offered to make the necessary enquiries. They sought the prompt response of the Appellant's solicitors. 2. A formal response to that letter did not arrive until 2 April 2019. It asserted that it was "far from clear what orders the [R]espondent contends should be made to dispose of the appeal, particularly with respect to the judgment from which [the Appellant] has been granted to leave to appeal." This letter requested that the Respondent's solicitors provide the orders proposed, both in the Court of Appeal and the Equity Division, if the Respondent's offer were accepted. 3. That letter drew an email response on the following day which was to the following effect: "The judgment the subject of your leave to appeal [application] was itself a refusal of leave to further amend your cross claim. You don't need leave with our consent to the amendment. There is presently no appeal to dispose of. The point of our letter was to avoid the need for an appeal." 1. The next letter in the sequence appears to be the email written on behalf of the Appellant dated 29 April 2019 (almost another month later) and which has been set out at [10] above. 2. In light of this correspondence, and the submissions made on behalf of the Respondent set out in [11] above, I would reject the Appellant's application for the payment of indemnity costs from 29 April 2019. 3. In her costs submissions received on 24 July 2019 in which the Respondent drew attention to the 26 February Offer, the Respondent submitted that she had in fact obtained a better outcome than her 26 February Offer with the conditions set out in [85] of the principal judgment and the additional condition to which the Appellant has consented. The Respondent then submitted: "The inference is available that a substantial part of the Appellant's agenda in pressing on with the appeal was to pursue the denial of the Respondent's costs indemnity. Had the offer of 26 February been accepted, no appeal hearing would have been necessary. The Appellant has acted unreasonably and in all the circumstances ought to pay the Respondent's costs of the appeal from 26 February 2019." 1. As it was only in the submissions of 24 July 2019 that the Respondent sought an order that the Appellant pay her costs of the appeal from 26 February 2019 notwithstanding his success in the appeal, it was necessary to give the Appellant an opportunity to respond. He did so in short reply written submissions dated 9 August 2019. 2. In those submissions, the Appellant rejects as without substance or foundation the inference which the Appellant submitted the Court should draw as to the Appellant's "agenda" in pressing on with the appeal (see [18] above). It is not necessary for the inference to be drawn to warrant an award of indemnity costs, and I do not draw such an inference. Rather, it is sufficient for an award of indemnity costs if the Court considers that the Appellant's non-acceptance of the Respondent's offer of 26 February 2019 was unreasonable in all of the circumstances. 3. In SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, Giles JA said at [37]: "The making of an offer of compromise in the form of a Calderbank letter (from Calderbank v Calderbank (1976) Fam 93), where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: see for example, John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FLR 201; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FLR 235." 1. In Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] applied, for example, in Zilotto v Hakim [2013] NSWCA 359 at [19], Basten JA said: "The expansion of formal rules providing for offers of compromise has not diminished the willingness of the courts to act upon informal offers, rather the contrary. However, there is no presumption that an offeree who does not accept an offer and does not obtain a judgment more favourable than the offer will necessarily pay indemnity costs from the date of the offer: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] (Santow JA, Stein AJA agreeing); Jones v Bradley (No 2) [2003] NSWCA 258 at [6]-[9]; Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; 67 NSWLR 719 at [18]. The approach frequently adopted in this jurisdiction has been to ask two questions, namely whether – (a) there was a genuine offer of compromise, and (b) it was unreasonable for the offeree not to accept it." 1. The rationale for departing from the usual rule that costs follow the event in such circumstances was articulated by this Court in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Maitland Hospital) as follows: "1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its 'bottom line' will be revealed to the court; 2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and 3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation." 1. This decision predated the Civil Procedure Act 2005 (NSW) and, in particular, ss 56 and 59 of that Act which only serve to reinforce the strength of some of the observations made in Maitland Hospital. 2. In opposing an order for indemnity costs against him from 26 February 2019, the Appellant submitted that: "(a) this offer stated, inter alia, '… there be no further application in the appeal (such as costs)' and is silent on the then extant costs order of Rees J against the [A]ppellant in favour of the respondent; (b) concerning costs, the Court's prima facie position in Photios v Photios [2019] NSWCA 158, [86], 'As to the question of costs of the application for leave to appeal, the appeal and the hearing of the notice of motion at first instance, prima facie, whilst the Appellant should be awarded his costs, Mrs Photios should be entitled to an indemnity from the Estate of Henry Basil Photios for her own costs and those which she will be obliged to pay the Appellant on account of his success in these proceeding …'; (c) the invited 'inference' by the respondent (at RWS, para 5), 'The inference is available that a substantial part of the Appellant's agenda in pressing on with the appeal was to pursue the denial of the Respondent's costs indemnity', is without substance or foundation. This was a submission capable of being advanced on the authorities, albeit it was rejected, and was not a condition of the appellant's offer of 29 April 2019; (d) true it is that the Court (in this proceeding: [2019] NSWCA 158] made additional conditions to the grant of leave to amend (eg the [A]ppellant pay the costs of a further mediation, to which the [A]ppellant agrees), but this condition was one raised by the Court and not by either of the parties in any offer; (e) the undertakings given during the hearing before Rees J were not withdrawn – rather they 'continue(d) to be proffered for the purposes of the appeal' ([2019] NSWCA 158, [31]) – and would have bound the [A]ppellant had he accepted the Respondent's offer; (f) thus, in all the circumstances pertaining to the [R]espondent's offer dated 26 February 2019, it was not unreasonable to not accept it." 1. The matters referred to in (b), (c), (d) and (f) of the Appellant's submission can be put to one side immediately. Submission (b) simply states the prima facie position. Moreover, the fact that the Appellant succeeded on appeal and the primary judge's refusal to grant leave to amend was reversed is precisely the result that the Respondent had offered in the 26 February Offer. As to (c), I have already noted at [20] above that I would not draw the inference sought by the Respondent. As to (d), I do not have regard to the costs of the resumed mediation condition in my reasoning, this not being a condition of any offer by the Respondent. As to (f), this is not a freestanding reason but a summary conclusion. 2. As to the matter raised in (a) of the Appellant's submissions, while it is true that the offer was silent on the costs order that the primary judge had made against the Respondent in respect of the application at first instance, this was not taken up on the subject of any request for clarification by or on behalf of the Appellant at least until 2 April 2019, and then obliquely so. Indeed, as I have noted at [14] above, the 26 February Offer was not formally responded to for a period of five weeks. The 2 April 2019 response was responded to on the following day (see [15] above). Almost a further month passed with no engagement until the Appellant's 29 April Offer. 3. As to the matter raised in (e) of the Appellant's submissions, I fail to see the relevance of this. The Appellant accepts that he would have been bound by the undertakings had he accepted the offer just as he continued to be bound by them as a condition of succeeding on appeal. 4. The whole point of the 26 February Offer is that the same outcome could have been achieved by the Appellant without his having needed to incur the costs of preparation and hearing of what was by no means a straightforward appeal, and without the Respondent, as executor, being put to similar expense. 5. The exchange of submissions between the parties in relation to the 26 February Offer gives rise to at least four possible costs outcomes: (i) an award of indemnity costs in favour of the Respondent from 26 February 2019 or shortly thereafter, allowing a short period of time for consideration by the Appellant as to whether or not to accept the offer; (ii) an award of costs in favour of the Respondent on a party-party basis from 26 February 2019 or shortly thereafter; (iii) an order that the Respondent only pay the Appellant's costs up to 26 February 2019 or shortly thereafter on a party-party basis, and that there be no order in relation to the Appellant's costs after that date; (iv) an order that the Respondent pay the Appellant's costs of the appeal. 1. In my opinion, the third of these possibilities represents the appropriate order. Allowing a period of 14 days to consider the offer and take advice on it, I would: 1. Order that the Respondent pay the Appellant's costs of the application for leave to amend before the primary judge and the costs of the application for leave to appeal up until 12 March 2019 on a party-party basis. 2. Order that the Respondent be entitled to an indemnity from the Estate of Henry Basil Photios for the costs referred to in Order 1 and for her own costs in relation to the application for leave to amend before the primary judge and of the costs in this Court. 1. The effect of those orders is that there will be no order as to the Appellant's costs in this Court after 12 March 2019, with the intention that those costs are borne by him. 2. While the failure to provide for the costs before the primary judge in the 26 February Offer was a shortcoming in the offer, it was one which could have readily been accommodated in my opinion with the most straightforward of inquiries. Both parties were put to very significant further costs as a result of the Appellant's non-acceptance of the 26 February Offer for no apparent gain. The Appellant's conduct in that regard was, in my opinion, unreasonable. It is principally for this reason, together the weakness of the arguments advanced by the Appellant which I have dealt with in [26]−[28] above, that I consider the orders I have proposed appropriate. 3. GLEESON JA: I agree with Bell P. 4. LEEMING JA: I agree with Bell P. ********** 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: 26 August 2019