Deutsch & Ors v Deutsch & Ors [2013] VSC 15 | Case summary

Supreme Court of Victoria|2013-02-08|Before: HARGRAVE J

COSTS - Successful plaintiffs lost on substantial issue - Both parties at fault for litigating the issue - Issue had been compromised by terms of settlement - Justice requires all parties pay their own costs of and incidental to the issue - Plaintiffs awarded 75 per cent of their costs.

1 These reasons concern the costs of the proceeding. They assume familiarity with my principal reasons.[1] I will use the same terminology in these reasons.

2 In order to consider the rival arguments concerning costs, it is necessary to refer to some procedural history.

3 The issues as finally litigated were described in paragraphs [12] to [30] of the principal reasons.

4 In paragraph [42] of the principal reasons, I noted that this dispute could have been wholly or substantially avoided by the parties appointing a new trustee or one of them seeking a Court order to that effect. On this issue, Erwin informed the Court that he received advice to this effect but chose not to accept it.[2] By the time the parties joined in an application for that course to be adopted, the proceeding had been fixed for trial, and another judge of the Court determined that the trial should take place prior to the appointment of any new trustee.[3]

5 After settlement of the proceeding in 2008, Robert and the potential beneficiaries applied to the Court to enforce the terms of settlement. The Court fixed a two day hearing for that purpose in November 2008. At that time, Erwin's contentions: that he had not breached or repudiated the terms of settlement, that time was not of the essence of the terms of settlement and that the terms of settlement had in any event been frustrated could have been dealt with by the Court. If a trial had then taken place concerning the issues not released by the terms of settlement, the proceeding could have been brought to an end within a short time.[4]

6 That application to enforce the terms of settlement was abandoned by the parties. Robert and the potential beneficiaries then filed a statement of claim and this proceeding eventually reached trial. In summary, the Court decided:

(1) The terms of settlement constituted an 'accord and conditional satisfaction'.[5]

(2) The terms of settlement bound the potential beneficiaries and the trusts.[6]

(3) The terms of settlement were not discharged by frustration.[7]

(4) Erwin repudiated the terms of settlement on more than one occasion.[8]

(5) Following each repudiation, Robert and the potential beneficiaries had a choice. They could either accept the repudiation and pursue the original causes of action, or affirm the terms of settlement and apply to enforce them. They could not do both.[9]

(6) Robert and the potential beneficiaries elected to affirm the terms of settlement.[10]

(7) By their amended statement of claim, Robert and the potential beneficiaries sought inconsistent remedies, seeking to both enforce the terms of settlement and proceed on the original causes of action.[11]

(8) Robert and the potential beneficiaries were therefore limited to claims for breach of the terms of settlement and any claims not within the scope of the releases contained in them.[12]

(9) Erwin is liable to pay Robert substantial damages for his breaches of the terms of settlement:

(b) an amount equal to one half of Robert's other entitlements under the terms of settlement. That amount will be determined once final accounts have been prepared and all tax and other statutory liabilities determined. The trust assets have now been sold. Robert is also entitled to interest on that amount.[13]

(10) Erwin is also liable to repay substantial amounts to restore the trusts, as a result of such of his breaches of fiduciary duties which were not within the contemplation of the releases contained in the terms of settlement:

(a) $129,501.04 plus interest thereon for trust moneys used for his personal purposes;

(b) $27,577.52 plus interest thereon for management fees taken by him after the terms of settlement.[14]

(11) The property trusts established an entitlement to any damage suffered by them as a result of Erwin's breaches of the terms of settlement. Although this issue has not been finally determined, I am satisfied that its resolution will not have any effect upon the overall issue as to who should pay the costs of the proceeding, and on what basis. No party made a submission to the contrary.

7 Robert and the potential beneficiaries have achieved substantial success in the proceeding. They seek the whole of their costs on an indemnity basis. Erwin opposes that course on a number of grounds. The principal ground is that Robert should be deprived of all or a substantial part of his costs because he pursued some causes of action which were in the contemplation of the parties and were therefore released by the terms of settlement. On this basis, Erwin contends that Robert and the potential beneficiaries failed on a significant part of their pleaded case, prolonged the proceeding unnecessarily and caused him to incur unnecessary costs. Lengthy written submissions were filed on this principal issue. They are largely repetitive. In summary, Erwin contends that Robert 'had the opportunity to enter judgment for breach of the terms of settlement', but instead chose to file an amended statement of claim seeking to both enforce the terms of settlement and litigate all of the original causes of action against him for breach of fiduciary duty. It was submitted that Robert ought to have proceeded with the two day hearing fixed by the Court in November 2008 and that, if he had done so, the proceeding could have been dealt with at that time and most of the subsequent costs avoided.

8 There is some merit in this submission, but it ignores Erwin's own conduct in the proceeding.

9 First, it takes no account of the fact that Erwin, who was then represented, did not himself seek to have the terms of settlement issue heard and determined in 2008 or early 2009.

10 Second, it ignores Erwin's own pleadings. When Robert and the potential beneficiaries delivered their amended statement of claim in February 2009, alleging both breaches of the terms of settlement and the original causes of action for breaches of fiduciary duty, some of which were released by those terms of settlement, Erwin's principal defence was not that Robert and the potential beneficiaries were bound by the terms of settlement. To the contrary, his principal defences were that he had not breached the terms of settlement, that if he was in breach those breaches did not constitute a repudiation and, in any event, that the terms of settlement had been frustrated and were thereby discharged. He maintained those defences at trial.

11 Had Erwin's primary defences been successful, the Court would have been required to consider all of the original causes of action. Erwin's case that Robert had elected to affirm the terms of settlement, and could not therefore sue on the original causes of action contemplated by those terms of settlement, was an alternative case only. In other words, Erwin's principal case was that the Court should investigate the underlying facts and circumstances relevant to all of the original causes of action. The whole point of his principal defences was to avoid the terms of settlement, which he had so clearly repudiated within a short time after they were entered into.

12 In these circumstances, both parties must bear responsibility for the proceeding being tried on issues which had been compromised by the terms of settlement. Robert and his lawyers at the time were clearly wrong in abandoning their endeavours to have a short trial seeking to enforce the terms of settlement; and Erwin and his lawyers, having raised defences to the claims under the terms of settlement, were clearly wrong in not themselves seeking to have those issues determined in late 2008 or early 2009. On this basis, the parties should bear their own costs of and incidental to the issues which it was unnecessary to explore at trial. This result can be achieved by awarding Robert and the potential beneficiaries a proportion of their costs.

13 At this point, I should note that the principal issue which was unnecessarily explored at trial concerned the claim for repayment of unauthorised management fees taken by Erwin prior to the terms of settlement. Those fees were released by the terms of settlement. The claim concerning Erwin's misappropriation of trust property was not released, and a trial was always going to be necessary on that issue in the face of Erwin's indefensible denial of any liability until trial.

15 First, the proceeding was fixed for trial in the Commercial List on 18 January 2010. On 27 November 2009, on Robert's application, that trial date was vacated; principally because Robert had not complied with the Court's directions, as he had been overseas and did not provide instructions. The proceeding was removed from the Commercial List. I infer that it is unlikely that Robert incurred any significant extra costs by reason of the vacation of that trial date. He was simply not ready. Indeed, in the absence of evidence on the issue, I infer that neither party was likely to be ready for trial at this time.

16 Second, the proceeding was fixed for hearing before me in the Commercial and Equity Division on 14 March 2012. The trial was delayed for a period of two weeks because Robert dismissed his solicitors and counsel, and retained new solicitors, between 5:00pm and 6:00pm the evening before, 13 March 2012. Although Erwin was by this time not represented, and so did not incur further legal costs by reason of the adjournment, Robert should not, of course, have his costs of the hearing on 14 March 2012. Nor should he be paid any extra costs which he incurred by reason of him terminating the retainers of his lawyers on the eve of trial. Robert's conduct in this regard doubtless caused the wastage of a very large amount of the costs which he had paid or incurred to his previous solicitors and counsel. As to this conduct, I will make orders to ensure that Erwin is not liable to pay Robert's wasted costs.

17 Third, Erwin contends that Robert failed to prove causation in respect of some aspects of the damages claimed by him and the potential beneficiaries on behalf of the trusts. I accept that that is so, but issue was fairly joined on those issues and they did not take much time in evidence. I will, however, take the issue into account in formulating the proportion of costs which Robert can recover.

18 Fourth, Erwin contends that Robert unnecessarily prolonged the trial, and increased his costs, by claiming damages on behalf of the property trusts. I do not accept that submission. The valuation issues could not be resolved until after the sale of the properties. Erwin opposed that course until the trial. Accordingly, the fact that Robert may not prove any damage under this head on behalf of the property trusts should not deprive him of the costs of raising that claim.

19 Fifth, Erwin contends that Robert wasted Court time by putting forward a 12 volume court book which contained much irrelevant material, by endeavouring to give irrelevant evidence by non-responsive answers, and by intemperate correspondence by his previous solicitors which was contained in the Court Book. Both parties were equally to blame on these issues. I will take Robert's share of that blame into account in fixing the proportion of costs he recovers.

20 Sixth, Erwin contends that the proceeding was insufficiently complex to justify Robert recovering the costs of two counsel. As the trial judge, familiar with the issues in the proceeding and the course of the trial, I reject that submission.

21 Seventh, Erwin contends that the excessive length of the proceeding has impacted upon his family and on his ability to seek employment. The first contention is not relevant to costs. As to the second contention, I reject Erwin's continued assertion that he was unable to be gainfully employed throughout the course of the proceeding, because he needed to work full-time on issues associated with the trial. That was his unjustifiable choice. Of course, had he been employed, Erwin would have been required to take leave during the course of the trial. This matter is not relevant to costs.

22 Eighth, Erwin contends that the amount of Robert's solicitor and client costs are disproportionate to the amount ultimately recovered by him and to the complexity of the proceeding. The quantum of Robert's costs is a matter for the Costs Court to determine. However, based on the evidence that Robert's solicitor and client costs approximate $1.8 million, I agree that the costs incurred appear to be excessive. I note that Robert and his previous lawyers are engaged in a solicitor and client taxation.

23 The submissions made on behalf of Robert and the potential beneficiaries were in large part directed towards persuading the Court to make a special costs order against Erwin, for indemnity or solicitor and client costs.

24 Robert's first submission in support of a special costs order was based on the capacity in which he and the potential beneficiaries pursued the case - in large part to restore the trust property. But I will not award costs on an indemnity or solicitor and client basis for this reason, as is often done in respect of claims made by or on behalf of a trust estate. In substance, this was a dispute between two brothers. It was a private dispute. The terms of settlement provide for the resolution of that dispute. The involvement of the other beneficiaries was incidental in the substance of the case, and caused no significant extra costs.

25 Next, Robert seeks a special costs order because of Erwin's conduct during the proceeding. In this regard, Robert acknowledged that costs are not usually awarded on a special basis by reason of conduct occurring prior to the commencement of the proceeding, but only in respect of conduct during the course of the proceeding.[15] He contends, however, that pre-litigation misconduct may make conduct during the course of litigation harder to justify.[16] I accept that this is so.

26 Robert contends that Erwin's pre-litigation conduct, in clear breach of his fiduciary duties, makes his conduct as a litigant all the more deplorable. In that regard, reliance was placed upon: Erwin's deliberate repudiation of the terms of settlement; the Court's findings that Erwin's denials of misappropriation were always going to fail and, subject to quantification, were admitted during the course of the trial after years of denial of the indefensible;[17] that Erwin conducted his defence of the case in wilful disregard of known facts and the law; the fact that Erwin deliberately breached an undertaking which he gave to the Court on 10 June 2008; and the fact that Erwin chose not to accept the advice of his lawyers that he should approach the Court and seek the appointment of a new trustee.[18] I accept each of these matters was established and is relevant in determining whether a special costs order should be made. Taken alone, they provide a justifiable basis to make a special costs order against Erwin. This does not mean, however, that a Court must make a special costs order in exercise of its discretion. Robert's own conduct as a litigant, and the justice of the case, remain for consideration.

27 Before turning to Robert's conduct, I note that it was submitted on Erwin's behalf that his conduct in breaching the terms of settlement was not conduct associated with his conduct as a litigant, but was conduct giving rise to a separate cause of action. On this basis, it was submitted that Erwin's conduct was irrelevant in determining whether a special costs order should be made. I reject that submission on two grounds. First, because the terms of settlement were entered into as part of the proceeding. Erwin's conduct in relation to them took up much Court time, both in directions hearings in the Commercial List and in the future conduct of the proceeding. Second, because Erwin's breaches of the terms of settlement were deliberate and wholly unjustified. Two of his defences to the contractual claims under the terms of settlement, that time was not of the essence and that his conduct did not amount to repudiations, were in my opinion hopeless. Properly advised, he should not have continued to maintain those defences.

28 As to Robert's conduct as a litigant, Erwin contends that he has also been guilty of misconduct as referred to above; and particularly because he delayed in prosecuting the proceeding. It was contended that his delays were unreasonable and must have caused his costs to increase, as legal work expanded to fill the space caused by the delay. I accept that Robert has not prosecuted his case with all reasonable expedition, and that his costs are likely to have increased, to an unreasonable extent, as a result. While Erwin was represented, his costs would also have been unnecessarily increased.

29 A further relevant factor is the bitterness of the dispute.[19] In my experience, bitter family disputes of this kind give rise to all manner of unreasonable requests by warring parties of their lawyers. Robert strikes me as just such a client, difficult and demanding. Robert's unexplained dismissal of his solicitors and counsel on the day before trial, and the size of the bills from his lawyers, including his present lawyers, bolster this view. I infer that much unreasonable work is likely to have been done at Robert's request.

30 In all the circumstances, I am not, on balance, persuaded that I should make a special costs order. Robert's costs should be taxed and paid on a party and party basis.

31 Taking all of the above matters into account, I will order that Erwin pay 75 per cent of Robert's costs of the proceeding on a party and party basis, but excluding any costs paid or incurred to Pinto Law, Dr Joshua Wilson SC or Mr S Matters of counsel of and incidental to their preparation for the trial of the proceeding fixed for 14 March 2012, and the costs of their appearances on 9 March 2012. I have reduced the costs by 25 per cent to reflect the fact that both parties were wrong to litigate those aspects of the original causes of action which were released by the terms of settlement, and to reflect the other issues discussed in these reasons.

SCHMUL DEUTSCH (a minor, by his litigation guardian ALEXANDER DEUTSCH)

ARYAA (Michael) DEUTSCH (a minor, by his litigation guardian ALEXANDER DEUTSCH)

DINA DEUTSCH (a minor, by her litigation guardian ALEXANDER DEUTSCH)

MEIR DEUTSCH (a minor, by his litigation guardian ALEXANDER DEUTSCH)

ARI GOLDSCHMIEDT (a minor, by his litigation guardian HELEN GOLDSCHMIEDT)

BENJAMIN GOLDSCHMIEDT (a minor, by his litigation guardian HELEN GOLDSCHMIEDT)

FRIDA GOLDSCHMIEDT (a minor, by her litigation guardian HELEN GOLDSCHMIEDT)

AVI DEUTSCH (a minor, by his litigation guardian DAVID DEUTSCH)

ARI DEUTSCH (a minor, by his litigation guardian DAVID DEUTSCH)

RAIZY DEUTSCH (a minor, by her litigation guardian GABRIEL DEUTSCH)

SCHMUL (Schmuly) DEUTSCH (a minor, by his litigation guardian ISSAC DEUTSCH)

ARI DEUTSCH (a person under disability being a minor by his litigation guardian TZIPORAH DEUTSCH)

SHIRA DEUTSCH (a person under disability being a minor by her litigation guardian TZIPORAH DEUTSCH)

AKIVA DEUTSCH (a person under disability being a minor by his litigation guardian ADAM DEUTSCH)

MORDECHAI DEUTSCH (a person under disability being a minor by his litigation guardian ANDREW DEUTSCH)