Allan John Bakarich and Anthony George Bakarich as Executors of the Estate... [2004] NSWSC 660 | Case summary

He pointed out that the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis. 6 The observations by McHugh, J in Oshlack v Richmond River Council (1998) 193 CLR 72 although made whilst considering the principle behind the usual order for costs is also applicable to these proceedings. He said (para 68): "68. As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice". 7 On 19 May 2004 oral submissions were made to the court by Mr Thawley of counsel for the Defendant and by Mr Quinn, solicitor, for the Plaintiffs and leave was given to supplement them by written submissions. Subsequently the court received the Defendant's supplementary submissions dated 28 May 2004 and the Plaintiffs' submissions in response and generally dated 30 June 2004. No reasonable prospects of success 8 In the judgment the Plaintiffs' claims were stated as follows: "2. The claims for relief against the Bank are on grounds that: (i) The Plaintiffs were induced to provide the securities by false and misleading representations made to them by an officer of the Bank, in breach of s 52 Trade Practices Act 1974 (Cth) thereby entitling them to relief under that Act; (ii) The securities were provided to guarantee an agreement between the Bank and Demson to advance the trade lending facility on condition that funds would only be advanced upon the Bank sighting confirmed orders for air conditioners which agreement was subsequently varied so that funds would be advanced for which no confirmed orders had been sighted provided the value of the imported air conditioners did not exceed $300,000.00 per month. The variation was without the knowledge or consent of all or any of the Plaintiffs, by reason whereof the Plaintiffs were discharged from all liability to the Bank under the securities in accordance with the principle in Ankar Pty Limited v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549; (iii) The circumstances in which the Plaintiffs agreed to provide the securities were such as to render the transactions unconscionable and/or unjust so as to entitle the Plaintiffs to equitable relief in accordance with the principles in Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447 and/or to relief under the Contracts Review Act 1980 (NSW)". 9 The Defendant asserts that the Plaintiffs had no real prospects of success on the claims for breach of s 52 Trade Practices Act 1974 (Cth), and for relief in accordance with the principles in Amadio and/or under the Contracts Review Act 1980 (NSW). Reliance was not placed on the claim based on Ankar as this ground was raised during the course of the trial. 10 For the Plaintiffs no submission was made in response to the matters put on this ground. 11 With respect to the claims based on the making by the Defendant of false and misleading representations it was submitted, in effect, that it follows from the findings stated in the reasons for rejecting them that there was no reasonable prospect of proving them. 12 It is sufficient to identify some of the paragraphs in which relevant findings are recorded. These include paras 101, 103, 104 (Tony a generally unreliable and sometimes dishonest witness); 122, 217 (Tony knew that the source of the financial difficulties was the defective product not Mr Aspinall's representations); 133 (the November/December 1988 representations were an invention) 143 (the evidence as to the mid-1989 representations was untrue); 117, 119, 130, 133, 142 (the documents did not support the claims and many contradicted them). 13 The matters to which I have referred provide ample support for the conclusion that from the outset these claims had no prospects of success whatsoever. In my view had there been a reasonable evaluation of prospects with regard to the whole of the relevant material prior to commencement of the proceedings or, at least, during pre-trial preparation it should have become clear that the prospects of failure so outweighed those of success that the claims should not have been made or, once made, should not have been maintained to the end. Mounting a case of this kind obliged the Plaintiffs, and their advisors, to carefully evaluate the probative quality of the evidence Tony proposed to give, and also the documents. Had the documents been given due consideration it would have been seen that none corroborated the claims and many contradicted them. 14 With respect to the claims that the transactions were unconscionable and unjust so that the Plaintiffs were entitled to relief according to the principles in Amadio and/or under the Contracts Review Act 1980 (NSW) the Defendant made submissions similar to those in respect of the representations case. 15 The relevant findings include those recorded in the following paragraphs: para 175 (persistence with the case that the securities were signed during the week of 18 September 1989 was perverse); 203, 207 (that Tony ensured that Allan and Mary clearly understood the significance of mortgages and guarantees); 208, 209 (as to past experience of Allan and Mary with mortgages and guarantees contrary to the case sought to be made); 211, 223-228 (that Allan and Mary well understood their obligations pursuant to mortgages and guarantees); 230 (no attempt to establish knowledge or conduct on part of the Defendant relevant to unconscionability); 240, 243 (claims under the Contract Review Act 1980 (NSW) essentially the same as those that the transactions were unconscionable and were rejected for the same reasons); 245 (the comment: "Curiously, the submissions as to the disability of Allan and Mary through lack of understanding or ignorance seem to me to be in the teeth of the evidence given by Tony that they fully understood the transactions and he ensured that they did so"). 16 The matters to which I have referred in respect of these claims justify the conclusion that a reasonable evaluation of the strengths and weaknesses of the case proposed to support them would have inevitably led to the conclusion that they were doomed to fail and should not have been maintained. 17 I am satisfied that the findings well establish that the proceedings for relief based on allegations of false and misleading representations, and on allegations that the transactions were unconscionable and unjust were commenced and/or continued in wilful disregard of known facts, were allegations which ought never to have been made, and unduly prolonged the case. 18 In addition, in the exercise of discretion, I am bound to take into account findings in respect of contentions which arose during the trial which were groundless and prolonged the hearing. I refer, in particular, to para 105 (adherence to false evidence in teeth of contradictory documents); 158, 162 (as to the occasion of the signing of the documents); 173, 175 (as to the occasion of the signing by Mary of the mortgage); 216, 217, 218 (Tony's involvement in Demson). 19 From a review of the proceedings some observations may be made. The Plaintiffs' case depended entirely on Tony's evidence, the reliability of which was crucial to success. The carriage of the proceedings was left to him. It cannot be doubted that he knew where the truth lay as to the representation claims, as to the understanding and experience of his mother and brother of mortgages and guarantees, as to his involvement in Demson, and as to the cause of the financial difficulties which involved Demson and the family. The pursuit of these claims necessarily embroiled the Defendant in substantial commercial litigation to defend them. In my view it was tantamount to recklessness to pursue these claims in circumstances where Tony knew, or ought to have known, that once contested their prospects of surviving scrutiny and challenge were negligible. It is also my view that it is unlikely that the findings which led to the dismissal of the claims would have come as a surprise. Perhaps the matter for surprise was that the baselessness of the claims was so plainly revealed, but it required a long trial for that to happen. 20 For the above reasons it is my opinion that, having regard to all the circumstances, the pursuit of the claims by the Plaintiffs justify the exercise of the discretion to depart from the usual rule and to order that they pay the Defendant's costs of the proceedings on an indemnity basis. Failure to accept offer of compromise 21 In case it is found that I have erred in the exercise of discretion in making the order proposed it is appropriate that I consider what order, if any, should be made as a consequence of the failure to accept the offer of compromise. 22 By way of the Offer of Compromise dated 10 October 2003 the Defendant offered $200,000.00 plus costs, and a further offer for costs of $350,000.00. It was open for a period of 28 days which expired on 7 November 2003, with the hearing due to begin on 10 November 2003. 23 The Defendant submitted that, in all the circumstances, it was unreasonable for the Plaintiffs not to accept the offer and that they should be ordered to pay its costs until 7 November 2003 on a party/party basis and on an indemnity basis thereafter. 24 In opposition for the Plaintiffs it was submitted that, having regard to the timing of the making of the offer, the nature of the proceedings, and the relief sought it was not unreasonable for them not to accept the offer. As I understand it, it was put that it is relevant to take into account that as this was an all or nothing case which had been on foot for about 12 years the offer should be treated as made at the eleventh hour and required consideration by persons and entities interested in the proceedings as well as the Plaintiffs. It was put that in such circumstances the 28 day period was unreasonably short to enable assessment of the Plaintiffs' prospects of success before commencement of the trial. No submission was made as to what was reasonable in the circumstances as to the timing of an offer, or as to the length of the period in which it was open. It was not submitted that the offer was trivial. 25 I have taken into account the Plaintiffs' submissions but in my view they should not be accepted. The offer was of such a nature which warranted serious consideration, and the period for which it was open for such consideration was entirely reasonable. As a matter of common sense it is to be inferred that during the period the offer was open both Tony and the Plaintiffs' legal representatives were much involved in preparation for the trial. Upon receipt of the offer the Plaintiffs were obliged to evaluate prospects of success, at least to the extent that they would secure a verdict for an amount in excess of that offer. Indeed, in my opinion this obligation is not limited to occasions when an offer is made. It is in accordance with the policy reflected in the provisions of Supreme Court Rules Pt 1 r 3 and, more recently, of ss 198J and 198L Legal Profession Act 1987 (NSW) that prior to, and during, litigation parties and their legal representatives have a continuing duty to evaluate prospects of success of a claim or defence so as to decide whether or not it is reasonable to pursue it. 26 With regard to principle it could only have been unreasonable for the Plaintiffs to refuse the offer if they ought reasonably to have considered that there was no real prospect of success in the proceedings (cf: Notaras para 18). For the reasons already given I find there was in fact no real prospect of success on the claims which fell for evaluation whilst the offer was open. Had reasonable consideration been given to the facts known to Tony by him and by his legal advisors (assuming they were aware of them) it should have been realised that there were no such prospects. This realisation would have been reinforced had they undertaken a reasonable evaluation of the documentary evidence. Accordingly, I am satisfied that in all the circumstances the Plaintiffs acted unreasonably in not accepting the offer. 27 In the result the appropriate order to make would be in accordance with the Defendant's submissions, namely that the Plaintiffs pay the Defendant's costs of the proceedings on a party/party basis until the expiry of the offer on 7 November 2003, and thereafter to pay its costs on an indemnity basis. 28 The Defendant also submitted that its costs occasioned by the late delivery of the tender bundle should be borne by the Plaintiffs on an indemnity basis irrespective of any other order as to costs. The affidavit of Michael Patrick Quinn sworn 4 May 2004 discloses, that in breach of the court's direction made on 24 October 2003, the bundle was not delivered by the Plaintiffs' solicitors to the Defendant's solicitors until 8 November 2003. Such breach attracts the application of SCR Pt 1 r 3. In all the circumstances, I am satisfied that the Defendant's costs of preparation of the tender bundle so as to be fit for presentation to the court should be paid on an indemnity basis in any event. However, the order which I propose should be taken to include such costs and it is unnecessary to make a special order for them. Orders 29 The Plaintiffs are ordered to pay the Defendant's costs of the proceedings on an indemnity basis. **********

Allan John Bakarich and Anthony George Bakarich as Executors of the Estate of the late Mary Patricia Bakarich & Ors v Commonwealth Bank of Australia

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