Mr Davidson's costs
22 The bank seeks indemnity costs against Mr Davidson for the preliminary discovery application.
23 It does so on two bases: because he (and Ms Nagatsuma) unreasonably refused an offer of compromise in a letter from the bank's solicitors to Kelly Legal dated 28 January 2020; and because the application was hopeless and, properly advised, Mr Davidson (and Ms Nagatsuma) should have known that it had no prospects of success.
24 It is relevant to note that as well as preliminary discovery, the originating application sought an injunction against the bank to prevent it from enforcing its mortgage over certain properties. Derrington J dismissed the injunction application on 2 March 2020: Davidson v Suncorp-Metway Limited [2020] FCA 795. His Honour awarded the costs of that application on an indemnity basis against Mr Davidson and Ms Nagatsuma. His Honour relied, in part, on the letter of 28 January 2020, saying at [36] that it 'made a reasonable offer in relation to proceedings which were, for the reasons I have given, untenable. Therefore, the order for costs ought to be made on an indemnity basis'. However since that conclusion was based also on his Honour's view that the injunction application was untenable, I do not consider that he necessarily relied on the usual principles developed in relation to Calderbank letters. That is confirmed by the fact that the indemnity costs order was not confined to costs incurred after the date of the letter. In my view, I can and should consider the issue afresh.
25 The letter of 28 January 2020 was sent to Mr Kelly by email from the bank's solicitors, Gadens. It set out the background to the matter in some detail, including that Mr Davidson had entered into a comprehensive deed of settlement with the bank in 2014, and another settlement document titled 'heads of agreement' in 2015 and had pursued various proceedings in the Supreme Court of Queensland after that, without success (see Discovery Decision at [14]-[23] for an account of some of this history). It pointed out that those proceedings included an action which Mr Davidson commenced in 2017 which demonstrated that he already had sufficient information to proceed against the bank on the basis of the same allegations as formed the basis for the preliminary discovery application, and that discovery in those 2017 proceedings would give him access to any relevant documents the bank held. It also pointed out that the allegations had in any event been resolved in the bank's favour on a full and final basis in other proceedings in the Supreme Court. The letter concluded by saying:
For all of the reasons set out above, the Current Application is untenable.
In the interests of avoiding the incurring of further unnecessary costs, we are instructed to invite Mr Davidson and Ms Nagatsuma to withdraw the Current Application within 3 business days from the date of this letter.
We are instructed that if the Current Application is not withdrawn within that timeframe, the Bank intends to oppose the Current Application and seek an order for security for costs pursuant to Rule 7.29 of the Rules. Further, the Bank will rely upon this letter in relation to the question of costs of the Current Application and intends to seek costs against Mr Davidson and Ms Nagatsuma on an indemnity basis.
26 I do not consider that this letter, alone, justifies making an order for indemnity costs against Mr Davidson (or Ms Nagatsuma). A Calderbank offer will not justify an award of indemnity costs unless its rejection was unreasonable, and all of the relevant facts and circumstances must be considered in determining whether it was: Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 at [16]-[17] (Buss JA, Wheeler JA agreeing). Two matters which are often relevant in making that assessment are the time allowed to the offeree to consider the offer, and the extent of the compromise offered: see Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25].
27 In the present case, the letter only gave the prospective applicants three business days to accept the 'offer'. That is a fairly short time, given the complexity of the background outlined in the letter which, according to the letter, had been presented 'given that your firm has not represented Mr Davidson throughout the entirety of this long-standing matter'. The bank seeks to justify this by saying that the application for preliminary discovery had been listed for hearing before a registrar on 21 February 2020. That is so; the matter had initially been referred to a registrar to determine but at that hearing the registrar adjourned and determined, in part because of the injunctive relief sought, that it should be referred back to a judge. Nevertheless more time, even a week permitting consideration and advice over the weekend, could still have been given while allowing ample time for preparation for that hearing if the 'offer' was not accepted.
28 I put the word 'offer' in inverted commas here because, on analysis, the letter made no clear offer at all. It was, in terms, an invitation to withdraw the proceeding, coupled with a threat to seek security for costs, and a further threat that the bank would rely on the letter and seek indemnity costs if the application was not withdrawn. But no compromise was proffered explicitly, not even the prospect that the bank would waive the costs it would otherwise be entitled to under r 26.12(7) of the Federal Court Rules if the matter was discontinued by the prospective applicants. To the extent that the final paragraph quoted may imply an offer not to pursue indemnity costs, that 'offer' is unclear. The lack of clarity in itself supports the conclusion that it was not unreasonable to decline the offer: BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 4) [2009] FCA 1448; (2009) 263 ALR 63 at [13]. I do not consider that this letter, by itself, justifies any award of indemnity costs.
29 I do, however, accept the bank's submission that the court should award indemnity costs against Mr Davidson because the application was hopeless and properly advised, he should have known that it had no prospects of success (The bank made the same submission against Ms Nagatsuma, but I deal with her liability for costs below). The principles to be applied when costs are sought on that basis are summarised in the following excerpt from Civil Properties Pty Ltd v Miluc Pty Ltd [2011] WASCA 195; (2011) 184 LGERA 150 at [82]-[83] (Newnes JA, Murphy JA and Hall J agreeing) (some citations removed):
It is well-established that a court has a wide discretion as to costs (albeit, a discretion to be exercised judicially) … Whether or not an order for indemnity costs is appropriate must depend upon the facts of the particular case. There are not, and cannot be, any hard and fast rules. But an indemnity costs order is a departure from the usual order that costs are awarded on a party and party basis. Ordinarily an indemnity costs order is appropriate only where the unsuccessful party has been involved in some unreasonable conduct in relation to the proceedings, such as where the institution or continuation of the proceeding was plainly unreasonable or the proceeding was issued or maintained for an ulterior or collateral purpose. An order for indemnity costs reflects the court's disapproval of the conduct of the unsuccessful party.
If a party brings a case which is hopeless it can normally be inferred that the proceeding was commenced or continued 'for some ulterior motive or because of some wilful disregard of the known facts or the clearly established law': Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401. But it is not necessary that such an inference be drawn; it is sufficient that the court's resources and the successful party's costs have been wasted on entirely frivolous litigation.
30 The reasons I gave for rejecting Mr Davidson's preliminary discovery application in relation to each one of what I identified as 13 proposed claims were many and various, and for the most part there is no point in repeating or summarising them again here. The reader is referred in particular to the Discovery Decision at [38], [53], [56], [69], [73]-[75], [80]-[83], [90]-[94], [96]-[98], [102], [108]-[110]. It is, however, worth repeating what was said at [80], as it illustrates why, in my view, Mr Davidson's conduct in commencing and maintaining the preliminary discovery application was not reasonable:
Mr Davidson signed a comprehensive release in 2014. He was represented by solicitors and counsel (and Mr Shannon). He signed another release in 2015. The Supreme Court of Queensland found him to have no real prospects of setting the releases aside. A reasonable person would recognise the finality imposed by that accumulation of events, on any prospect of making a claim against the bank concerning anything that happened before, at the earliest, 28 May 2014, when the Deed of Settlement was signed.
31 It is true that these comments do not apply directly to some six claims which are said to have arisen out of events which post-dated those releases. But they reflect Mr Davidson's flat refusal to accept that his claims against the bank cannot be pursued, despite two releases signed by him and multiple Supreme Court of Queensland proceedings decided adversely to him. The phrase from Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, 'wilful disregard of the known facts or the clearly established law' aptly describes Mr Davidson's approach.
32 In relation to the claims that were not barred by the releases and the outcome of Supreme Court proceedings, I have had regard to the fact that the key standard which Mr Davidson had to meet in the preliminary discovery application was an undemanding one. He only needed to establish a reasonable belief that he may have a claim: see Discovery Decision at [36]. Viewed in that light, there are two claims post-dating the releases where it could be argued that they were not so misconceived that it was unreasonable to pursue a preliminary discovery application. I have in mind the claim in relation to the enforcement of the mortgages (see Discovery Decision at [91]-[93]) and the claim that certain properties were sold at an undervalue (see Discovery Decision at [99]-[110]). But even for those claims, the application failed for multiple reasons. Also, there was no lengthy separate argument about those points, and it is not apparent that the costs of arguing them can be readily separated from the costs of the rest. In my view, the court should assess the question in the impressionistic way it often adopts when dealing with claims to the costs of certain issues in an overall claim: see e.g. Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 at [52]. I therefore consider it is not appropriate, and potentially productive of further costs and inconvenience, to craft orders to reflect the fact that limited aspects of the application are arguably not unreasonable.
33 For completeness, I note that the bank also relied on a further Calderbank style letter which Gadens sent to Mr Davidson's then lawyer on 8 June 2020. This set out a similarly long and involved account of relevant events and again only gave three business days for a response. It did, however, at least make something which could be construed as an offer of compromise, as it indicated the bank would consent to the dismissal of the discovery application on the basis that Mr Davidson pay the bank's costs 'on the standard basis'. This proposal was not accepted. Given the conclusion I have reached above, it is not necessary to consider whether that alone would justify an award of indemnity costs.
34 Mr Davidson must pay the costs of the preliminary discovery application on an indemnity basis.