MX v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme

1. [1]

   The plaintiff, whose name has by order of the court been anonymized to MX, commenced these proceedings by statement of claim filed on 24 December 2015.

2. [2]

   The first defendant, FSS Trustee Corporation as Trustee of the First State Superannuation Scheme (the Trustee), was the trustee of a superannuation fund of which MX was a member. Under the rules of the fund, MX was entitled to receive a benefit if he became totally and permanently disabled (TPD).

3. [3]

   The Trustee provided that benefit by entering into an insurance policy with the second defendant, MetLife Insurance Ltd (the Insurer). The term of the policy that defined the circumstances in which the Insurer was liable to pay the TPD benefit to the Trustee on behalf of MX had the effect that the Insurer was only liable to pay the benefit if it formed an opinion that the circumstances that led to MX claiming that he was TPD satisfied the conditions for the Insurer's liability contained in the policy.

MX’s claims and the other parties’ responses

1. [4]

   By his prayers for relief in the statement of claim, MX sought relief against both the Trustee and the Insurer.

2. [5]

   Among other relief claimed against the Trustee, MX sought an order that the Trustee specifically perform its obligations under the relevant trust deed pursuant to s 52(7)(d) of the Superannuation Industry (Supervision) Act 1993 (Cth). That provision purports to insert into the trust deed a covenant on the part of the Trustee “to do everything that is reasonable to pursue an insurance claim for the benefit of a beneficiary, if the claim has a reasonable prospect of success”. The effect of this provision has not yet authoritatively been determined.

3. [6]

   It is not necessary to record all of the relief sought by MX against the Trustee, but it included an order that the Trustee pay MX's costs of the proceedings on a solicitor and client basis.

4. [7]

   For present purposes, it is only necessary to note that MX claimed substantive relief against the Trustee.

5. [8]

   It is now settled that the claim by a member of a superannuation fund in MX's position against an insurer to enforce an entitlement to a TPD benefit under a policy wording such as that which applied in the present case is a two-stage process: TAL Life Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68. By the first stage, the claimant must establish that, in forming the opinion that the claimant's circumstances did not satisfy the requirements of the TPD definition, the insurer breached duties owed under the policy in the making of the determination, such as a duty to act reasonably and in accordance with the terms of the policy. If the claimant establishes that the insurer failed to do so, then the Court will declare the insurer's determination to be invalid. In that case, in the second stage, the Court will itself determine whether or not the circumstances satisfied the TPD definition, on the evidence put before the Court, and if the decision is in favour of the claimant, the Court will order the insurer to pay the TPD benefit.

6. [9]

   The existence of this commonly called two-stage process will be significant later in these reasons when it is necessary to consider the meaning of the terms “stage 1” and “stage 2” as used in communications between the solicitors for MX and the Insurer.

7. [10]

   In the present case, MX's statement of claim sought prayers for relief and made allegations relevant to both of these stages.

8. [11]

   The Trustee in the present case filed a defence in which it denied that the Insurer had breached the duties that it owed in determining to reject the claim made by the Trustee on behalf of MX. The Trustee did not make a claim against the Insurer by which it sought to enforce MX's entitlement to the TPD benefit.

9. [12]

   By its defence, the Insurer also denied that it had breached its duties in determining that MX was not entitled to the TPD benefit, and it also denied that the circumstances in fact satisfied the requirements of the policy that would have entitled MX to the benefit.

10. [13]

    MX filed a second amended statement of claim on 4 August 2017, but that pleading did not make any change to MX's case that needs to be considered for the purpose of the present application.

Order for stage 1 to be determined separately

1. [14]

   The matter proceeded until 10 March 2017, when Stevenson J made an order pursuant to s 62(2) of the Civil Procedure Act 2005 (NSW) and r 28.2 and r 28.4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to the effect that the question raised by the first stage of MX's challenge to the Insurer's rejection of his claim be decided separately from and before any other questions in the proceedings.

2. [15]

   Relevantly for the purposes of this judgment, up until that order was made by Stevenson J, the preparation of MX's case dealt with both stages of the challenge to the Insurer's rejection of MX's claim for the TPD benefit. Moreover, while some steps taken in the preparation of MX's case may have related to one stage or the other, some steps may have been relevant to both stages. That is because some of the forensic effort needed to demonstrate that the Insurer breached its duty in making the determination to reject MX's claim – which depended on the evidence placed before the Insurer when it considered the matter – may also have been relevant to the question of whether MX's circumstances did satisfy the condition for MX's entitlement to the benefit under the policy.

Determination of stage 1 of MX’s claim

1. [16]

   By reasons for judgment delivered by Slattery J on 24 July 2018, his Honour answered the separate question in favour of MX: MX v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme [2018] NSWSC 923.

2. [17]

   His Honour made declarations that the decisions of the Insurer that it was not satisfied that MX was totally and permanently disabled within the meaning of the policy were void and of no effect, and also made an order that the Insurer pay MX's costs of the separate hearing.

3. [18]

   As I understand it, although the Trustee was represented for at least part of the hearing before Slattery J, it took a passive stance in the proceedings. Slattery J did not deal with MX's claim against the Trustee and did not make any order dealing with the costs of that claim.

4. [19]

   The Trustee was given leave to appeal the decision of Slattery J by the Court of Appeal and, on 16 September 2019, the Court of Appeal made an order dismissing the appeal and another order that the Insurer pay MX's costs: MetLife Insurance Ltd v MX [2019] NSWCA 228.

Service of the Calderbank offer by the Insurer

1. [20]

   In the course of the subsequent preparation of the parties for the hearing and determination of the second stage of MX's claim, on 11 November 2019, the Insurer's solicitors sent a letter to MX's solicitors that contained a Calderbank offer (the Offer).

2. [21]

   Following further correspondence, on 31 January 2020, which was the last day of an extended period in which the Offer remained open for acceptance, a solicitor for MX sent an email to the Insurer's solicitor that contained words capable of being construed as an acceptance of the Offer.

3. [22]

   I will set out the terms of this correspondence fully below.

The Insurer’s amended notice of motion

1. [23]

   By notice of motion filed on 13 July 2020, the Insurer sought orders to give effect to what it claimed was a settlement of MX's claim against the Insurer.

2. [24]

   At the hearing of the Insurer's notice of motion, which took place on 17 July 2020, I gave leave to the Insurer to file in court an amended notice of motion, whereby the Insurer sought the following orders:

3. [25]

   As I will explain below, after I have set out the terms of the Offer, the Court could not make orders in these terms as they would not give effect to the whole of the terms in the Offer. The Insurer accepted that position.

Terms of the Offer

1. [26]

   I will now set out the terms of the Offer. The subject line in the letter referred to the present proceedings by name and case number by way of definition of the Proceedings. The letter stated:

2. [27]

   Paragraph 6(b) of the Offer dealt with the Insurer being responsible for any need for MX to repay the PPD Benefit. That benefit was more fully described in par 4(b). It is sufficient to note that MX had apparently received what was called the Permanent Partial Disability (PPD) benefit of $556,788.02 from his employer. Settlement of MX's claim for the TPD benefit against the Insurer might trigger a liability on MX's part to repay the PPD benefit. The objective of the relevant terms of the Offer was to ensure that, as a result of his claim, MX would be entitled to retain the amount of the PPD benefit, and also receive an additional amount of $125,000, inclusive of costs and interest. The Insurer would absorb the risk that MX would be required to repay the PPD benefit.

3. [28]

   The inadequacy in the formulation of the orders sought by the Insurer in its amended notice of motion to which I have referred above was its failure to deal with MX's entitlement to retain the PPD benefit, on the basis of the Insurer's liability to repay that amount, if necessary, to MX's employer. If the Court only made the orders sought by the Insurer, then MX's claim against the insurer in relation to the second stage would be determined on the basis that MX had settled that claim, without MX obtaining all of the benefits of the agreed settlement.

4. [29]

   It will only be necessary to consider what alterations should be made to the orders sought by the Insurer, if it otherwise succeeds in establishing that MX accepted the Offer.

Observations on significant aspects of the Offer

1. [30]

   It will be convenient at this stage to note the following significant aspects of the Insurer's Offer:

2. [31]

   Paragraph 1 of the letter identified the purpose as being to resolve MX's claim "and bring an end to the Proceedings in their entirety against [the Insurer]".

3. [32]

   The use of those words suggests that the purpose of the Offer was that the effect of MX simply accepting it would be that the entirety of the Proceedings against the Insurer would be brought to an end, leaving MX's claims against the Trustee to be resolved.

4. [33]

   The chapeau to par 6, however, is similar but slightly different in effect, in that it states that the Insurer "offers to resolve the TPD Claim and the Proceedings in their entirety, without any admission of liability, on the following terms…"

5. [34]

   The difference is that the wording of the chapeau contemplates that "the Proceedings in their entirety" will be resolved, which on the ordinary meaning of those words would include MX's claims against the Trustee.

6. [35]

   That is made reasonably clear by the second paragraph of par 6(b) – which structurally appears in fact to be a separate sub-par (c) – which provided that it was a term of the settlement offer that the Trustee, as well as MX and the Insurer, would enter into a mutually agreed deed of release.

7. [36]

   A consideration that tells against a simple acceptance by MX of the offer as giving rise to an immediately binding contract – in advance of the entry of all three parties into of the mutually agreed deed of release – is that the Trustee was not a party to the settlement offer, the offer did not deal with the rights of the Trustee, and an unconditional acceptance by MX of the offer would leave his position vis-a-vis his claims against the Trustee unresolved.

8. [37]

   The absence of any resolution of MX's claims against the Trustee may be a practical reason for doubting that an acceptance by MX of the offer would create an immediately binding contract between MX and the Insurer, but additionally, it is arguable that, upon its proper construction, the Offer specified that there would only be a settlement when "the Proceedings in their entirety" were resolved, including by agreement with the Trustee.

9. [38]

   Paragraph 6(a) provided for the Insurer to pay the amount of $125,000 to the plaintiff inclusive of costs and interest to resolve the Proceedings in their entirety.

10. [39]

    As the Insurer acknowledged at the hearing, and indeed as the Insurer's solicitor acknowledged in par 13 of her 13 July 2020 affidavit, the Offer did not refer to the costs orders in respect of the separate question that had already been made by Slattery J and the Court of Appeal. The solicitor stated: "it was my understanding based on my instructions from [the Insurer] and my intention when sending the Calderbank letter that the $125,000 was to be paid in addition to the costs orders already made by the Court and the Court of Appeal in respect of the first stage of the proceedings".

11. [40]

    MX did not dispute that the Offer must be construed on the basis that, although silent on the issue of the Insurer's liability to pay the existing costs orders, the words "inclusive of costs" in par 6(a) were not intended to capture the existing costs orders.

12. [41]

    Relevantly to the question of whether the acceptance by MX of the Offer had the effect of creating an immediately binding contract before all three parties entered into the proposed deed of release, the fact that the offer omitted any reference to the existing costs order means that the acceptance of the offer could not bring to an end the Proceedings in their entirety against the Insurer, as contemplated by par 1. That would only happen if, by agreement or assessment, the quantum of the costs orders were determined. That is a step, however, which could have been taken by MX and the Insurer in the period between the acceptance of the Offer and agreement to the terms of the deed of release, which could have encompassed the payment of the costs.

13. [42]

    The absence of any reference to the existing costs order in the Offer has, however, even greater significance to the question of whether acceptance by MX of the offer had the effect that there was an immediately binding contract between MX and the Insurer.

14. [43]

    That is that the acceptance of the Offer in a way immediately binding upon MX would have had the effect that the costs of the second stage of the proceedings would have been included in the $125,000. However, the costs of the first stage of the proceedings would be a matter that remained for determination. MX was only entitled to receive from the Insurer his costs on the ordinary basis. He would have to bear the difference between his actual costs and the costs recoverable from the Insurer out of the $125,000. Furthermore, some of the costs incurred by MX before the making of the order for the separate question for the determination of stage 1 of the proceedings would have related to stage 1, stage 2, and probably some to both stages.

15. [44]

    If MX became immediately contractually bound, by acceptance of the Offer, before the question of costs could be dealt with as part of the negotiation of the deed of release, MX would have placed himself in the position where the Insurer could reduce its liability to pay costs to MX by establishing that costs incurred by MX related to stage 2 rather than stage 1. Not only would MX be at risk of his actual return being reduced in this manner, but he may have faced the additional cost of having to contest the issue with the Insurer, in circumstances of disadvantage because he had bound himself to accept stage 2 costs as having been covered by the $125,000.

16. [45]

    An additional effect of MX becoming immediately contractually bound to the terms of the Offer with the Insurer, without MX having agreed at the same time to a resolution of his dispute with the Trustee, would have been to undermine MX's bargaining position with the Trustee. MX would remain at risk of having to prosecute his claim against the Trustee, without being able to do so in the context of the Trustee's passive participation in MX's claim against the Insurer.

17. [46]

    The essential point is, however, that if acceptance of the Offer immediately bound MX to its terms, without him having the ability to resolve all outstanding questions in the proceedings in the course of negotiating the deed of release with the two other parties, MX would have no way of knowing how much he would ultimately get in his hand, and he would have been in the tactical position where the ultimate receipt may have been eroded by the need to expend further legal costs in dealing with his claim against the Trustee and in quantifying his entitlement to stage 1 costs, in circumstances where he was bound to a compromise as to the amount of his claim in the proceedings.

The terms of the acceptance email

1. [47]

   MX's solicitor's 31 January 2020 email simply stated:

2. [48]

   It will be convenient to note the following aspects of this response at this stage.

3. [49]

   Although the email referred to the acceptance of an offer, it did not expressly state that it was an acceptance of the Offer – meaning the whole of the offer. It accepted the offer of $125,000 inclusive of stage 2 costs and interest.

4. [50]

   The Offer itself did not refer to the costs of separate stages. It simply used the words “inclusive of costs”. This email added the words “stage 2” and there may be some uncertainty as to what those words meant. The stages could be the stages of the hearing to determine MX’s entitlement to the TPD benefit, which I have considered above at [8]. It will be convenient to refer to these stages as the stages of the insurance issue. There is also a sense in which stage 1 could have been intended to cover the period from the commencement of the proceedings to the judgment of the Court of Appeal. Stage 2 would then refer to the balance of the proceedings. This second way to divide the proceedings into stages would have permitted a more straightforward and less theoretical identification of the costs incurred by MX that were attributable to each stage.

5. [51]

   The acceptance email did not explicitly refer to the costs of the separate question and of the appeal. It did not refer to the position in relation to the PPD benefit. Nor did it refer to the need for the negotiation of the terms of the deed of release between not only MX and the Insurer but also between those two parties and the Trustee.

6. [52]

   The brevity with which emails are often expressed can increase the difficulty in determining their objective meaning. The authors of emails often omit connecting explanations between statements. The significance of the second line: "Will get you the itemised stage 1 costs shortly" is not clear. It is at least true that MX's solicitor made the two statements in the one context, and the second is capable of being interpreted as meaning that the solicitor would shortly do what was necessary to enable the two parties to agree as to the quantum of the stage 1 costs for which the Insurer would be liable.

7. [53]

   As the objective meaning of the Offer is unclear, because of its failure to deal with the costs orders or to specify in any precise way which costs were included within the expression "inclusive of costs", there is a real basis for doubting that the purported acceptance of the offer of $125,000 in the 31 January 2020 email was an unqualified acceptance of the terms of the Offer. That could only be so if the Offer was intended to include stage 2 costs, even if it did not specifically say so. Even if that were impliedly intended, there remains a doubt about whether stage 1 and stage 2 were objectively intended to be, first, the two stages of the determination of the insurance question; or secondly, the costs of the proceedings to the determination of the separate question, and then the costs of moving to the final determination of the proceedings.

8. [54]

   MX did not submit that no contract could have been formed by the acceptance of the Offer because the terms of the contract would be uncertain. However, a lack of clarity as to how the Offer was intended to operate militates against a finding that there was an objective intention that the parties would be immediately bound. The fact is that the Insurer omitted to deal with the existing costs orders in the Offer. The acceptance email did not agree that the $125,000 was to include all costs. It restricted the acceptance to stage 2 costs. There was scope for difference as to what was comprehended by stage 2 costs.

Correspondence between the parties

1. [55]

   The correspondence between the solicitors for the parties after the date of the Offer, both before and after the 31 January 2020 acceptance email, is capable of resolving uncertainties in the correspondence and illuminating the true objective intention of the parties.

2. [56]

   On 12 November 2019, MX's solicitors sent to the Insurer's solicitors a schedule of costs and disbursements. The total amount was $341,271.29.

3. [57]

   On 4 December 2019, MX's solicitors asked whether the amount of the TPD benefit was $893,000 plus interest and any tax liabilities.

4. [58]

   MX's solicitors asked the Insurer's solicitors for an update on stage 1 costs on 5 December 2019.

5. [59]

   On 5 December 2019, MX's solicitors asked for an additional three weeks to consider the Offer.

6. [60]

   On 17 December 2019, MX's solicitors asked the Insurer's solicitors to reformulate its offer "to clarify the question of the 'costs in the proceedings' as referred to at para 6 on (sic) the Calderbank letter. Does the offer encompass the costs of the successful stage 1 hearing and the costs of the Court of Appeal proceedings or does this offer only operate in respect of the stage 2 proceedings?”

7. [61]

   Meanwhile, on 18 December 2019, MX's solicitors requested a change in the timetable for the Insurer to serve any refresher reports and MX to serve any expert reports in reply

8. [62]

   The Insurer's solicitors agreed to an extension of the time for the response to the Offer until 31 January 2020.

9. [63]

   On 15 January 2020, the Insurer's solicitors advised that the TPD benefit amount was $634,371.

10. [64]

    The Insurer's solicitors by letter dated 15 January 2020 responded to MX's costs schedule provided by their letter of 13 November 2019. Relevantly to the present issue, the letter stated:

11. [65]

    This letter preceded the 31 January 2020 acceptance email. The better view probably is that the letter accepted that the Insurer was liable for the costs of the determination of the separate question by Slattery J and the costs of the appeal. However, I consider that the letter did not precisely clarify whether, when the parties referred to a stage, they meant a stage in the determination of the insurance issue, or the practical stages in which MX’s claim would be determined. The implicit complaint about the costs including “medical expert costs” is consistent with the stages being concerned with the insurance issue, as new expert medical evidence obtained by MX would not be relevant to the issue of whether the Insurer wrongly declined MX’s claim for the TPD benefit on the evidence before it. However, it is not clear why the Insurer’s solicitors complained about the inclusion of MX’s former solicitors’ costs or the mediator’s costs. It appears from the mediator’s tax invoice that the mediation took place on 15 December 2016. Although the mediation took place before the Court made the order for the determination of stage 1 of the insurance issue as a separate question, it is probable that the mediation was held for the purpose of finding a compromise for the whole of MX’s claim, which would have encompassed both stages of the insurance issue.

12. [66]

    Thus, while the terms of the 15 January 2020 letter appear to establish that the Insurer confined stage 1 to the determination of the separate question after the order for the separate question had been made, as well as the costs of the appeal, there remains in my view a material lack of specificity as to what was meant by the references to the stages and what costs were encompassed within each stage.

13. [67]

    Nothing more seems to have happened between that time and the time on 31 January 2020 when MX's solicitors sent the acceptance email.

14. [68]

    The evidence included a hand-written file note prepared by a solicitor for the Insurer of a telephone conversation with a solicitor for MX that took place after the 31 January 2020 acceptance email was sent at 6:57 AM. The file note states:

15. [69]

    The meaning of the conversation that is recorded in this file note is not clear.

16. [70]

    On 11 February 2020, the Insurer's solicitors requested that MX's solicitors provide an itemised schedule of his stage 1 costs.

17. [71]

    A file note prepared by a solicitor for the Insurer on 28 February 2020 recorded that MX's solicitor had agreed to review MX's costs claim over the weekend and to send through a schedule.

18. [72]

    MX's solicitors sent an itemised costs schedule to the Insurer's solicitors on 9 March 2020. The schedule claimed $97,500 for solicitors' costs.

19. [73]

    On 19 March 2020, the Insurer's solicitors requested copies of invoices for all counsel engaged by MX, and those invoices were provided on 20 March 2020, save for one invoice that could not be located and would be provided later.

20. [74]

    There was then a series of communications between the solicitors concerning the making of an offer by the Insurer in respect of MX's costs.

21. [75]

    By email dated 23 April 2020, the Insurer's solicitor asked whether MX had given instructions on the offer that had been put earlier that week. That offer was not in evidence. The email referred to the fact that there was a mention in court the following Tuesday, and said that it was likely that the matter would have to be "stood over again to allow for the settlement documents to be drawn up and signed".

22. [76]

    The Insurer's solicitor sent an email to the associate to the Chief Judge in Equity on 6 April 2020 attaching consent orders executed by the parties seeking an adjournment until 28 April 2020. The email included the following statement:

23. [77]

    On 27 April 2020, MX's solicitor sent an email to the associate to the Chief Judge in Equity, that was copied to the solicitors for the other parties, which attached consent orders executed by the parties' solicitors seeking an adjournment of the proceedings until 29 May 2020. The email stated:

24. [78]

    There is no evidence that the solicitors for the Insurer challenged this description of the position that the parties had reached in the proceedings.

25. [79]

    Apparently, as appears from the correspondence, MX's solicitors continued to have difficulty in obtaining instructions from MX because of his psychological difficulties.

26. [80]

    The Insurer's solicitor sent an email to the solicitors for the other parties on 26 May 2020 that reported on a telephone call over before the Chief Judge in Equity, in which the solicitor had mentioned the matter for the other parties. The email included the following statement:

27. [81]

    Where the solicitors for MX and the Insurer referred to the proceedings being “settled in principle” in the email communications set out at [76], [77] and [80], they must have been referring to the effect of the 31 January 2020 email response to the Offer. That is because in each case there was also a reference to the parties attempting to reach an agreement concerning the costs. The solicitors could not have been referring to an in principle settlement of the whole proceedings. (It appears that the reference to the settlement in principle being in March 2020 was an error)

28. [82]

    The solicitors for the Insurer sent a draft settlement agreement to the solicitors for the other parties on 15 June 2020. The covering email was marked "Without Prejudice". The email explained that a settlement agreement was proposed rather than a deed because of reasons associated with the COVID-19 pandemic. The covering email included the following:

29. [83]

    Paragraph U of the Background referred to the fact that on 12 November 2019, the Proceedings were listed for hearing on 31 August 2020 to determine whether MX was TPD within the meaning of the policy, and defined this hearing as "Stage Two".

30. [84]

    The Background in the draft agreement also provided:

31. [85]

    Clause 1 provided:

32. [86]

    The draft agreement contained terms providing for mutual releases as between the parties, including the Trustee. It is implicit that the Trustee would be subject to no liability and would pay its own costs of the proceedings.

33. [87]

    Clause 5 provided for a consent judgment that was annexed to the draft agreement. The terms of the proposed consent judgment were as follows:

34. [88]

    Clause 12 contained a number of warranties to be made by MX, including that he had had the opportunity to seek independent legal and taxation advice. Clause 13 provided that any payment made under the agreement was inclusive of any relevant tax.

35. [89]

    Clause 17.1 contained a definition of the Settlement Sum as follows:

36. [90]

    This definition did not clarify in a precise way what was meant by stage two, but that would not have mattered because the agreement contained mutual releases.

Legal principles

1. [91]

   Section 73 of the Civil Procedure Act 2005 (NSW) provides:

2. [92]

   As I said in Owen v Owen [2020] NSWSC 258:

3. [93]

   In relation to whether MX and the Insurer intended to create an immediately binding contract on 31 January 2020 when MX's solicitor sent her email in response to the Offer, or whether those parties only intended to be bound to a settlement of MX's claim if and when all three parties entered into the deed of settlement contemplated by the Offer, I respectfully accept and follow the summary of the principles made by Black J in In the matter of Leslie Muir Holdings Pty Ltd [2019] NSWSC 1519, as follows:

Consideration

1. [94]

   It was the Insurer's case that, by MX's solicitor's use of the words: “The offer of $125,000 incl of stage 2 costs and interest is accepted", MX objectively immediately agreed to compromise his substantive claim against the Insurer on the basis that he would accept $125,000 inclusive of stage 2 costs and interest.

2. [95]

   The Insurer submitted that it was immaterial that neither the Offer nor the acceptance email referred to the PPD amount that MX had earlier received from his employer, as it was implicit in the communications that the acceptance was of all of the terms of the Offer, including par 6(b).

3. [96]

   Further, in relation to the circumstance that a settlement with the Insurer on that basis would leave MX uncertain as to how much he would end up with in his hand, in respect of whatever constituted stage 1 costs payable by the Insurer, and the resolution of MX's claim against the Trustee, the Insurer submitted that the Court should infer that MX had simply weighed up the possibilities and considered that the partial settlement of the whole of the proceedings was sufficiently valuable that he elected to take the risk that the unresolved issues would lead to an unsatisfactory outcome.

4. [97]

   For the following reasons, I have concluded that the proper effect of the objective circumstances was that MX and the Insurer only made a provisional agreement on 31 January 2020, and that they did not intend to be finally bound unless and until all three parties negotiated a deed of settlement that was intended to encompass the terms of the Offer.

5. [98]

   First, although it is true that par 1 of the Offer was expressly limited to bringing to an end the Proceedings in their entirety against the Insurer (see [26] above), the chapeau to the actual offer terms in par 6 was an offer "to resolve the TPD Claim and the Proceedings in their entirety" (emphasis added), and the reference in par 6(b) to the three parties entering into a mutually agreed Deed of Release objectively suggests that the settlement process was only intended, as a matter of the proper construction of the wording of the Offer, to be complete when the deed of release was agreed and made.

6. [99]

   Secondly, it is objectively improbable that a plaintiff in MX's position would have intended to be bound immediately by the term in par 6(a) of the Offer, even if he also had the benefit of the term in par 6(b) concerning the PPD Benefit, if the result would be that he could not tell what he would receive in his hand as a result of the settlement, or even approximately calculate the ultimate receipt. Furthermore, MX would be at the tactical disadvantage of having to continue to litigate the quantum of his stage 1 costs payable by the Insurer, and might lose the tactical advantage in his claim against the Trustee that flowed from binding the Trustee into the proceedings involving MX and the Insurer.

7. [100]

   Thirdly, I am not satisfied that the meaning of the wording used by the solicitors for the Insurer and MX was sufficiently clear to be consistent with those parties intending to make an immediately binding settlement of part of the proceedings as between themselves, rather than that they intended to express a partial agreement in principle.

8. [101]

   Objectively, the words “inclusive of costs” used by the Insurer’s solicitors in par 6(a) of the Offer meant all of MX’s costs of the proceedings.

9. [102]

   The evidence of one of the Insurer’s solicitors that she subjectively understood that “inclusive of costs” did not include the existing costs orders made by Slattery J and the Court of Appeal does not have the effect of changing the objective meaning of those words. It has the effect of establishing that the person who drafted the Offer did not say what they meant.

10. [103]

    MX’s solicitors’ request for clarification dated 17 December 2019 (see [60] above) asked whether the Offer encompassed the stage 1 hearing and the costs of the appeal or does it “only operate in respect of the stage 2 proceedings?” What was meant by the reference to the two stages is not precisely clear.

11. [104]

    The Insurer’s solicitors’ 15 January 2020 reply (see [64] above) had both positive and negative components. The positive response appears to have identified stage 1 by reference to the judgment of Slattery J on the separate question and the order for costs made by the Court of Appeal. The negative response identified components of MX’s costs schedule that the Insurer’s solicitors appear to have suggested should be excluded. The exclusion of the solicitor/client component is not problematic. However, it is not clear why MX’s former solicitors’ costs, the costs of directions hearings “not relating to the Stage One hearing” or the mediator’s costs should have been excluded from the ambit of the subsisting costs orders.

12. [105]

    Although the issue may not be free from doubt, it appears that the Insurer’s solicitors were of the view that, when Slattery J made the order that the Insurer pay MX’s “costs of the separate hearing”, the subject matter of the order was confined to the litigious steps taken between the date of Stevenson J’s order for the determination of the separate question and the date of Slattery J’s judgment. That conclusion appears to be consistent with the costs excluded by the Insurer’s solicitors in the negative aspect of their 15 January 2020 response.

13. [106]

    However, what the separate hearing determined, by reference to the wording of the actual orders made by Stevenson J on 17 March 2017, was whether “in refusing to accept [MX’s] claim, [the Insurer] acted in breach of its statutory and/or general law duties”; or whether it “breached its duty to act reasonably in considering the claim made by [MX]”. As I have explained above at [15], it is certain that some of the costs incurred by MX between the commencement of these proceedings and the making of the order for the determination of the separate question would have been referable to the issues to be determined by that question.

14. [107]

    Notwithstanding the precise terms of the costs order made by Slattery J, in my view a significant part of the costs incurred by MX before the making of the order for the determination of the separate question would have been assessed as being payable as part of those costs. It follows that the explanation of the intended meaning of the words “inclusive of costs” given by the Insurer’s solicitors on 15 January 2020 introduced material uncertainty as to what was meant by stage 1 and stage 2. That is because the negative aspect of the explanation appears to have excluded aspects of MX’s costs that were recoverable under the costs order made by Slattery J.

15. [108]

    This element of uncertainty may have been significant if MX and the Insurer had objectively intended to be immediately bound by the 31 January 2020 acceptance email. It is of no real significance if in fact the parties intended to agree in principle, because any areas of doubt would be addressed in the process of agreeing the final costs component of the Settlement Sum. The lack of clarity is therefore consistent with the parties in reality only intending to make a partial in principle settlement of their dispute.

16. [109]

    Fourthly, although there is no reason why parties should not agree to be bound immediately by terms of settlement, when they also agree that they will enter into a formal deed of settlement, it is my experience that, unless there is some relatively clear indication, from the wording or the circumstances, that the parties intend to be bound immediately, the general practice and expectation of lawyers is that the settlement will not become final until all of the terms of the deed of settlement are agreed and the deed entered into. The strength of that proposition, if it is accepted, may perhaps depend upon the relative simplicity of the points that need to be settled in order to resolve the dispute entirely. However, experience suggests that, even in relatively simple disputes, there are issues that need to be addressed in the settlement that go beyond matters of quantum, interest and costs. Taking the draft settlement agreement in the present case as an example, the Insurer sought MX's agreement to an order dismissing MX's case against it. The draft settlement agreement also contained warranties to be given by MX, including that he had been given tax advice, and provided that payments were inclusive of taxation consequences. These may not be considered to be major sticking points, but they are not trivial, and are not obvious as being encompassed within "such other provisions as are commonly contained in such Deeds of Release".

17. [110]

    Insofar as the parties' solicitors' conduct after 31 January 2020 is concerned, as I have explained above, a solicitor for MX explained to the associate to the Chief Judge in Equity on 27 April 2020 that "the plaintiff and the second defendant have reached an in principle settlement of the proceedings, and the parties seek the adjournment in order to finalise the question of costs and to agree to the terms of settlement". This statement was not contradicted on behalf of the Insurer. Further, as stated in [77] and [80], on 6 April 2020 and 26 May 2020 a solicitor for the Insurer also informed the associate to the Chief Judge in Equity that MX and the Insurer had "reached an in principle settlement of the proceedings, and the parties seek the adjournment in order to finalise the question of costs and to agree to the terms of settlement".

18. [111]

    In my experience, it is almost universal for experienced lawyers to understand that an in principle settlement is not immediately binding, and that the very use of those words is a definite indication that the settlement will only become binding when some other outstanding issue is resolved.

19. [112]

    Considered objectively, the solicitors for MX and the Insurer, who were directly concerned with the conduct of the proceedings, expressed themselves in the emails as if their understanding of the earlier correspondence was that MX and the Insurer had not agreed to an immediately binding partial settlement of the proceedings, which left issues to be agreed between MX and both the Insurer and the Trustee that were capable of substantially reducing the settlement money that MX received in his hand; such that the amount that MX would ultimately receive was not ascertainable; and in respect of which MX had no assurance that the proceedings would actually settle.

20. [113]

    I should note for completeness that, in his submissions, MX relied upon the following statement of principle made by White J in Estate of Baissari; Chehade v El Khoury [2020] NSWSC 563:

21. [114]

    Given the conclusion that I have reached above, MX does not need to rely upon this principle in order to obtain an order for the dismissal of the Insurer’s amended notice of motion. However, I should record that I do not consider that the evidence tendered by MX enlivened the principle.

Orders

1. [115]

   The orders that the Court makes are therefore:

   1. (1)

      The second defendant's amended notice of motion filed in court on 17 July 2020 is dismissed.

   2. (2)

      The second defendant is to pay the plaintiff's costs of the notice of motion.