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[2019] VSCA 199
Court of Appeal (Vic)
2019-09-16
Zammit J, McMillan J, Kyrou JA, Leish JA, Emerton JA
Original judgment source is linked above.
PRACTICE AND PROCEDURE - Costs order - Application for leave to appeal - Residual discretion to refuse leave notwithstanding appeal has real prospect of success - Costs order informed by judge's finding that it can be readily inferred that applicant (a solicitor) did not fully comply with court undertaking - Whether finding involved error - Serious consequence of finding - Exceptional case - Residual discretion not exercised.
COSTS - Principles - Parties agreed judge not to make substantive findings but supervise the taking of evidence - Whether judge erred in making order for costs in favour of respondent based on conduct of applicant - Appeal allowed.
1 The applicant acted as solicitor for Arnan Rouse, who died intestate on 15 May 2016, for approximately 17 years. The respondent is the deceased's former wife. The applicant seeks leave to appeal against a costs order made by Zammit J in a proceeding in the Trial Division in which the respondent sought orders that the applicant produce documents and property relating to the deceased's estate.[1]
2 The applicant's grounds are that: the judge erred in treating an order granting the respondent leave to cross-examine the applicant as a 'fresh event' for the purposes of the costs discretion; and the judge mistook the procedural history - or misapplied the law to it - resulting in an erroneous finding that the applicant's conduct was less than reasonable.
3 For the reasons that follow, the application for leave to appeal will be granted and the appeal allowed.
4 As the deceased's longstanding solicitor, the applicant had extensive knowledge of his companies and trusts. By virtue of his role as solicitor, he was also in possession of the key documents relating to those companies and trusts.
5 At the time of his death, the deceased was survived by his four minor children, Eva, Leila, Max and Vivienne. Kirsten Lloyd is the mother of Eva and Leila. Ms Lloyd and the deceased divorced around 2004. The respondent is the mother of Max and Vivienne. The respondent and the deceased were divorced on 8 October 2015.
6 On 16 November 2016, an advertisement was published giving notice of the applicant's intention to apply for a grant of administration of the estate. The advertisement stated that he was the guardian of the deceased's children. The applicant had in fact not been appointed the guardian of the children and had no standing to make such an application. Further, he had not obtained the consent of the children, the respondent or Ms Lloyd. The applicant maintained that the advertisement was published by his counsel, without his prior knowledge or instructions.
7 By way of originating motion filed on 16 December 2016, the respondent applied for a grant of letters of administration for the limited purpose of preserving the property of the estate ('administration proceeding').[2] That same day, there was a hearing before McMillan J for the purpose of determining whether there should be a limited grant of administration to the respondent.
8 At the hearing, it became apparent that it was necessary to appoint an administrator in order to preserve the assets of the estate. The administrator required access to the controlling documents relating to the companies and trusts, which, as stated at [4] above, were in the possession of the applicant. It also became apparent that, after the deceased's death, the applicant had dealings with several mortgagees of the deceased's companies and trusts.
9 At the hearing, the applicant conceded that he had no standing to make an application for letters of administration. He gave the following undertaking in open court, through his counsel:
The undertaking was that he will deliver up the documents to the person appointed as administrator ... and will not have any involvement in ... dealing with the National Australia Bank ... [and] the Commonwealth Bank ... .[3]
10 At the conclusion of the hearing, McMillan J granted the respondent's application for letters of administration. Her order recorded the applicant's undertakings as follows:
11 On 19 and 20 December 2016, the applicant provided a total of 21 boxes of documents to the respondent. After examining the documents, the respondent formed the view that the applicant had not provided all documents in accordance with the orders.
12 On 9 May 2017, the respondent commenced a separate proceeding against the applicant by way of originating motion seeking orders that the applicant deliver to the respondent all documents and property 'relating to the estate', as well as 'all legal files on which the [applicant] was instructed by the deceased' ('evidentiary proceeding'). A summons filed by the respondent on the same day also sought an order that the applicant make an affidavit stating whether he has, or had, in his possession the documents referred to in an affidavit affirmed on 1 May 2017 by Lindsay Kotzman, the solicitor for the respondent.
13 On 9 June 2017, McMillan J made an order by consent granting the relief sought by the respondent in the originating motion. The order was relevantly in the following terms:
(a) all documents, in all formats, relating to the estate of Arnan Lawrence Rouse, deceased, including his will (if any), and any trusts and companies in which the deceased held an interest;
(b) all property relating to the estate of the deceased, including any trusts and companies in which the deceased held an interest; and
(c) all legal files on which the [applicant] was instructed by the deceased or [the respondent] or both, whether personally or on behalf of any trusts and companies in which they held an interest.
14 McMillan J's orders of 9 June 2017 recorded the following under 'Other Matters':
15 On 17 July 2017, the applicant delivered 16 boxes of documents to the respondent.
16 On 27 July 2017, McMillan J made an order by consent adjourning the evidentiary proceeding to 18 August 2017 to allow the respondent an opportunity to inspect the documents and consider whether to seek further orders. The evidentiary proceeding was further adjourned until 20 October 2017 in order to give the respondent further time to inspect the documents.
17 On 20 October 2017, McMillan J made an order by consent adjourning the proceeding until 24 November 2017. The adjournment was sought by the respondent to give the applicant an opportunity to consider certain matters relating to the estate. The order also extended the dates by which the respondent and the applicant were to file any further affidavits to 27 October 2017 and 17 November 2017, respectively.
18 On 22 November 2017, Mr Kotzman affirmed an affidavit in which he stated that the documents provided by the applicant pursuant to the order of 9 June 2017 were incomplete. Mr Kotzman alleged that the applicant had wrongfully and without authority removed documents and hard drives from the home and business premises of the deceased shortly after his death and that the 16 boxes of documents provided to the respondent did not contain many documents known or believed to exist in relation to the entities and trusts controlled by the deceased. Mr Kotzman further deposed that the applicant had taken inconsistent or contradictory positions in communications with him as to whether the applicant had in fact returned all documents and hard drives 'seized and removed' from the two premises. Mr Kotzman foreshadowed that orders would be sought for an oral examination of the applicant unless he gave 'responsive, full and frank' answers in relation to the 'issues of concern' in the affidavit. Mr Kotzman's affidavit had the effect of putting in issue whether the applicant was wrongfully withholding documents relating to the estate that were relevant to its administration and in respect of which the Court had made orders.
19 On 28 November 2017, McMillan J made an order by consent extending the due date of any further affidavits to be filed on behalf of the applicant to 28 February 2018. The applicant did not file any further affidavit by that date.
20 On 16 March 2018, at a hearing before McMillan J, senior counsel for the respondent sought leave to cross-examine the applicant at an oral hearing. At that hearing the applicant foreshadowed that he would make an application to cross-examine Mr Kotzman.
21 That same day, McMillan J made an order which relevantly provided:
(a) the contents of his affidavit affirmed on 16 December 2016 in [the administration] proceeding ...;
(b) the contents of his affidavit affirmed on 2 June 2017 [in the evidentiary proceeding];
(c) the contents of the affidavit to be filed and served under order 1 above; and
(d) the contents of the affidavit of Lindsay Kotzman sworn 22 November 2017.
22 The applicant did not file an affidavit by 5 April 2018 as required by paragraph 1 of the order of 16 March 2018. In fact he had still not filed an affidavit as at the scheduled hearing date of 13 June 2018.
23 The evidentiary proceeding was heard by Zammit J rather than McMillan J.
24 On 13 June 2018, the first day of the trial, the applicant sought an adjournment on the basis that, due to ongoing settlement discussions, he had only briefed counsel that morning and needed additional time to prepare. Following submissions from the parties and examination and cross-examination of the applicant, the judge made an oral ruling granting the adjournment. She made an order which was identical to the order of 16 March 2018 save that: the time for the applicant to file and serve an affidavit responding to Mr Kotzman's affidavit was extended until 20 June 2018; the trial was adjourned until 26 June 2018; and the applicant was ordered to pay the respondent's costs thrown away by reason of the adjournment on an indemnity basis.
25 In her ruling, the judge said that 'serious allegations' were made against the applicant in the evidentiary proceeding and that, as he is an officer of the court, the allegations 'may give rise to very serious consequences' for him.[4] She also made the following observations about the nature of the hearing that was contemplated at that time:
It is an unusual proceeding and, as [senior counsel for the respondent] quite rightly points out, the orders made by Her Honour Justice McMillan on 16 March 2018 provide for an oral examination of the [applicant] ... It is more than an oral examination in that it allows for the cross-examination of the [applicant].[5]
26 On 19 June 2018, the applicant gave the respondent notice under r 40.04(2) of the Supreme Court (General Civil Procedure) Rules 2015 ('Rules') that he required the deponents of the affidavits upon which the respondent relied to attend for cross-examination. The notice was sent to Zammit J's chambers on 25 June 2018.
27 On 20 June 2018, the applicant filed an affidavit in accordance with the order of 13 June 2018.
28 On 26 June 2018, the first day of the adjourned trial, senior counsel for the applicant submitted that cross-examination of the respondent's witnesses was necessary in order to ensure a fair trial. Senior counsel for the respondent opposed the cross-examination of her witnesses on the basis that it was a stalling tactic and that it had never been intended that the proceeding would be a trial, rather it was intended to be an oral examination of the applicant. Senior counsel for the respondent stated that the purpose of such an examination was to enable the respondent to obtain a transcript of the applicant's evidence, which could be used to advise the respondent on the proper administration of the estate.[6]
29 By way of oral ruling, the judge determined that, for reasons of natural justice, the applicant should have leave to cross-examine the respondent's witnesses. She stated:
I do not agree that the hearing contemplated by the 16 March and 13 June 2018 orders is for an oral examination. There is nothing in the orders which is consistent with an oral examination as you would routinely expect to find under the Rules for an oral examination other than during trial. Importantly, the language of the 16 March and 13 June 2018 orders is unequivocal, since it refers to the 'trial' of this proceeding.
...
[T]he affidavits filed reveal that the [applicant's] credibility is very important and the [respondent] will need to establish, for example, that the [applicant] may have withheld documents or that the [applicant] knows where documents are and has not revealed them, and so on, in order for the Court to make further orders which will bring this trial to an end and allow the [respondent] to get on with the administration of the deceased's estate in the [administration] proceeding.
The bona fides of a deponent are best explored in cross-examination. It will be very difficult for the Court to resolve conflicts in evidence, for example, between Mr Kotzman's affidavit and the [applicant's] affidavit in the absence of cross-examination of the deponents of the affidavits, the substance of which will be put to the [applicant] in this case. Having read the affidavit material in this case, having heard submissions and given the unusual nature of the proceeding, I consider that the [applicant] should be given leave to cross-examine the deponents of any affidavit the [respondent] seeks to rely on, or the substance of which will be put to him in cross-examination.
...
I consider it would be a denial of natural justice to not grant the [applicant] leave to cross-examine the deponents.[7]
30 Also on 26 June 2018, the judge ordered that the trial be adjourned until 2 July 2018 on an estimated duration of three days.
31 On the question of costs, the respondent submitted that the applicant should be ordered to pay her costs thrown away by reason of the adjournment because he gave late notice of cross-examination. The applicant submitted that the respondent should be ordered to pay his costs because she had wrongly disputed his right to cross-examine her witnesses. The judge ruled that the dispute about cross-examination by the applicant was, in part, caused by ambiguities in previous orders and that there was nothing improper in the position adopted by either party.[8] Accordingly, she ordered that the costs of the adjournment and any costs thrown away be 'costs in the proceeding'.[9]
32 On 2 July 2018, the first day of the adjourned trial, the applicant filed an additional affidavit and exhibits which filled three lever arch folders. At that hearing the respondent proposed that the trial would involve the taking of evidence, under the judge's supervision, without the judge making any findings or rulings, except of an evidentiary nature. The applicant agreed to this course being adopted. The parties also agreed that the evidence could be used in the administration proceeding, in furtherance of the administration of the estate, or in any other civil proceeding, and that once the transcript had been obtained, the evidentiary proceeding would come to an end.
33 At the trial, the respondent, Mr Kotzman and two other witnesses were called on behalf of the respondent and were cross-examined. The applicant also gave evidence and was cross-examined.
34 The trial extended over four days, from 2 July 2018 until 5 July 2018. When it concluded, the respondent sought an order that the applicant pay her costs of the proceeding. Senior counsel for the applicant resisted the making of any costs order for the period after 9 June 2017. In relation to the period up to and including that date, he submitted the following:
As for the suggestion there should be some costs from the beginning of the proceeding, it would be hard to resist the logic of saying that the order of 9 June 2017 represents success or an event following which there might be costs, because the [order is] precisely in the terms of the relief sought in the originating motion. It would be very difficult for me to say that wasn't an event which could be followed by costs. That's 9 June 2017.
Since then there's been a consideration of whether [the applicant] should be required to fill in the gaps, as it were, and whatever the reasons for it, we're here not for a substantive outcome - no substantive outcome from the trial we've just been through. So for those reasons, if there are to be costs of this proceeding, they should be limited to what was done up until 9 June, when there was success on the relief sought.
...
So in terms of the actual procedure, there should be no order as to costs of this trial because there's no event costs can follow, but in terms of the whole proceeding, one can identify the event of 9 June 17. Costs could follow that event. I couldn't argue they couldn't.[10]
35 The judge considered the principles relating to costs, including the principle that costs follow the event, that is, that costs will usually be awarded in favour of a successful party.[11] She stated that the 'event' for the purpose of that principle is ordinarily understood to encompass not only the ultimate outcome of the proceeding but also the determination of each individual issue and any order made by a court.[12]
36 The judge stated that the proceeding was 'unusual' because 'the Court was asked to oversee the production of evidence, and ensure the fairness of the trial, but not make any findings of fact or determinations on the merits'.[13] She added that the parties had agreed that the respondent 'already had the relief sought, in the form of the 9 June 2017 orders for the production of documents and property, which could not be furthered' and that the only rulings to be made by the Court were 'of an evidentiary nature'.[14]
37 In the light of the unusual features of the evidentiary proceeding, the judge stated the following about costs:
The starting point, where neither party has succeeded or failed, is that the Court should make no order as to costs. This is implicit in the general rule that 'costs follow the event'. However, where there has been conduct which falls short of the ordinary standards that govern litigation in this jurisdiction, it may be appropriate to exercise the discretion. This will necessarily involve asking whether the conduct of the parties was reasonable.[15]
38 In relation to costs incurred up until 9 June 2017, the judge said the following:
There is no real dispute that the [respondent] would ordinarily be entitled to the estate's costs up until 9 June 2017 ... At that point the [respondent] had been successful in obtaining the relief sought and thus costs should follow the event.[16]
39 After noting that there had been no determination in the administration proceeding as to whether the applicant had complied with the undertaking he gave in that proceeding, the judge stated:
[I]t can be readily inferred that he had not fully complied. At best he delivered some documents to the [respondent] in the course of the [administration] proceeding. But it was in the instant proceeding that he delivered some 16 boxes of documents and property to the [respondent] on 17 July 2017. In these circumstances, it was reasonable and arguably necessary for the [respondent] to commence [the evidentiary] proceeding, seeking relief that was in effect identical to the undertaking given. [17]
40 The judge said it was clear that the respondent's concern was that there were still relevant documents that the applicant had failed to deliver.[18] As such, the relief obtained in the 9 June 2017 order was insufficient and it was therefore necessary for the Court to make the 16 March 2018 order to progress the administration of the estate.[19]
41 The judge stated that the 16 March 2018 order extended the scope of the proceeding and gave rise to a fresh event:
The 16 March 2018 order put into motion a series of steps which expanded the scope of [the evidentiary] proceeding and, as it turned out, rendered the 'trial' a much more comprehensive inquiry than had previously been foreshadowed. This was ... at the request of the [applicant] who produced a notice to cross-examine the deponents of each of the affidavits relied on by the [respondent].
...
I disagree with the [applicant's] submission that in this case there has been 'no event' subsequent to the 9 June 2017 order. Once again, the 16 March and 13 June 2018 orders are in furtherance of the 9 June 2017 order, and it was on the [applicant's] application that the nature of the proceeding changed from a relatively swift and straightforward oral examination to a complex and costly four day trial.
The 16 March 2018 order gave rise to a fresh event that is, an order granting leave to the [respondent] to cross-examine the [applicant] on a number of matters. Regrettably, the relief sought and obtained in the 9 June 2017 order was not sufficient, it then being necessary to make further orders so that the [respondent] could progress the administration of the deceased's estate. This was through no fault of the [respondent]. Whether it was through fault of the [applicant] would require a substantive determination that I have been asked not to make. In any event, regardless of whose fault it was, the simple fact is that the [respondent] was seeking and then complying with the terms of the 16 March 2018 orders.[20]
42 The judge ultimately held that the applicant conducted himself in an unreasonable manner in the litigation and that the respondent should therefore be awarded costs in the evidentiary proceeding:
The [applicant] cannot avoid castigation for the unreasonable manner in which he has conducted himself in this litigation. This is in circumstances where he is an experienced legal practitioner. Despite the 16 March 2018 orders, the [applicant] failed to produce a responsive affidavit in a timely fashion (see order 1); he then made an application for an adjournment on day one of the trial, on 13 June 2018, on the basis that he had only just been able to retain counsel. It was not until 20 June 2018 that the [respondent] received the aforementioned affidavit, which was due on 5 April 2018, after which the [applicant], on day one of the trial on 2 July 2018, produced a voluminous affidavit and exhibits. Finally, on [19] June 2018, the [applicant] made another late application seeking to cross-examine the deponents of the affidavits relied on by the [respondent]. This necessitated another adjournment so the [respondent] could prepare for the much enlarged scope of the trial.
This sorry procedural history reveals a pattern of conduct that, in my view, has been less than reasonable. The [applicant] has at all material times had the capacity to expedite the matter, but has chosen to delay and stall, which has frustrated the administration of justice. This has not only prevented the timely resolution of this proceeding but also of the [administration] proceeding.[21]
43 On 23 July 2018, the judge made the following order in the evidentiary proceeding:
Investigation by Victorian Legal Services Commissioner
44 By letter dated 17 September 2018, the Victorian Legal Services Commissioner advised the applicant that she had initiated an investigation into whether his conduct constituted unsatisfactory professional conduct or professional misconduct as defined in ss 296-298 of the Legal Profession Uniform Law. The alleged conduct which is the subject of the investigation relies on some of the judge's findings, including her finding that the applicant had not fully complied with his undertaking. The investigation has been suspended pending the outcome of the present application for leave to appeal.
45 There are two important factors that inform this Court's response to the applicant's application for leave to appeal against the costs order made by the judge. They are the discretionary nature of the order and the fact that it concerns costs.
46 First, the decision of the judge to award costs involved the exercise of a discretion. As such, in accordance with the principles in House v The King,[22] the applicant must establish that the judge: acted upon a wrong principle; allowed extraneous or irrelevant matters to guide or affect her; mistook the facts; failed to take into account some material consideration; or her decision is unreasonable or plainly unjust such that it can be inferred that in some way there has been a failure to properly exercise the discretion. These principles have been said to impose a very high hurdle that must be overcome in order to successfully impugn the exercise of judicial discretion.[23]
47 Secondly, this Court has repeatedly stated that it is exceptional to grant leave to appeal in respect of the exercise of the discretion to award costs.[24] In PCCEF Pty Ltd v Geelong Football Club Ltd [No 2], this Court refused an application for leave to appeal against an order for costs and made the following observations as to the exceptional nature of such an application:
By virtue of s 14C [of the Supreme Court Act 1986], it is a necessary condition for the granting of leave to appeal that the appeal has 'a real prospect of success'. However, the Court retains a discretion whether or not to grant leave even when it is so satisfied. The exercise of that discretion may be informed by considerations including the possibility of substantial injustice or the character of the matter as one of practice and procedure. ... [A]nother consideration may be whether any point of principle is raised.
It follows that the leave question may sometimes be approached by first considering discretionary considerations aside from the proposed appeal's prospects of success. In that context, appeals against costs orders have continued to be recognised as exceptional. [25]
48 Section 24(1) of the Supreme Court Act 1986 confers on the Supreme Court a wide discretion in deciding questions of costs.[26] However, that discretion must be exercised judicially, by reference only to considerations relevant to its exercise and upon facts connected with or leading up to the litigation.[27] There are well-established principles that provide guidance for the exercise of the discretion and avoid it being exercised in an arbitrary or inconsistent manner.[28]
49 One such well-established principle is that costs usually follow the event, that is, that the unsuccessful party is usually ordered to pay the successful party's costs. Recently, in Northern Territory v Sangare, the High Court said the following about that principle:
A guiding principle by reference to which the discretion is to be exercised - indeed, 'one of the most, if not the most, important' principle - is that the successful party is generally entitled to his or her costs by way of indemnity against the expense of litigation that should not, in justice, have been visited upon that party. The application of that principle may be modified or displaced where there is conduct on the part of the successful party in relation to the conduct of the litigation that would justify a different outcome. For example, a successful defendant may be refused its costs on the ground that its conduct induced the plaintiff to believe that he or she had a good cause of action.[29]
50 Consistent with this principle, where the outcome of the proceeding is such that it cannot be said that one party has been successful and the other has been unsuccessful, it may be appropriate that there be no order as to costs.[30] That is also the case in a proceeding where its subject matter or the relief sought are such that neither party can be said to have succeeded.[31] However, the conduct of one of the parties in relation to the litigation may be such as to warrant an order for costs being made against that party.
51 The applicant seeks leave to appeal against the costs order on three grounds, which may be summarised as follows:
(a) The judge erred in holding that the order of 16 March 2018, which granted the respondent leave to cross-examine the applicant, gave rise to a 'fresh event', or erred in having regard to such a 'fresh event' when exercising the costs discretion.
(b) The judge mistook the procedural history - or misapplied the law to it - in the following ways:
(i) the applicant did not seek, and was not granted, leave to cross-examine the respondent's witnesses. Rather, he gave notice under r 40.04(2) of the Rules which entitled him to cross-examine unless the Court ordered otherwise;
(ii) the proceeding involved a trial rather than an oral examination and it did not change from an oral examination to a trial at the request of the applicant;
(iii) the judge took into account an irrelevant matter, being the applicant's failure to comply with the order of 16 March 2018, leading to an adjournment of the trial on 13 June 2018; and
(iv) the judge failed to take into account a relevant matter, being the respondent's request that the Court not make any substantive findings or orders, which meant that neither party could succeed or fail at the trial.
(c) Due to the above mistakes, the judge committed the following errors:
(i) she erred in finding that the conduct of the applicant was less than reasonable; and
(ii) she erred in viewing the applicant's decision to give notice of cross-examination as a deliberate choice to delay and stall the proceeding or as frustrating the administration of justice.
52 The applicant has sought an order that the judge's costs order be set aside and that, in lieu of that order, this Court should order that he pay the respondent's costs of the evidentiary proceeding incurred on and prior to 9 June 2017.
53 Before discussing the three grounds of appeal, we will consider the respondent's submission that the Court should exercise its residual discretion to refuse leave to appeal even if the grounds have a real prospect of success.
Residual discretion to refuse leave to appeal
54 The applicant submitted that the Court should not exercise its residual discretion to refuse the application for leave to appeal because the judge's decision has the potential to cause him substantial injustice, as it may impact on his right to practice. This was said to be evidenced by the investigation initiated by the Victorian Legal Services Commissioner.[32]
55 The applicant contended that the present case is exceptional due to the unusual circumstances of the proceeding. According to the applicant, the potential impact on his right to practice contributes to the exceptional nature of the case.
56 The respondent submitted that leave to appeal should not be granted because the present circumstances are not exceptional. According to the respondent, the unusual nature of the proceeding was driven by the applicant's conduct and does not equate to it being exceptional.
57 The respondent contended that even if the Court found the present case was exceptional and that the judge committed a House v The King error, the Court should exercise its residual discretion to refuse the application for leave to appeal. This was said to be so because the appeal does not raise any point of public importance, but rather involves the application of well settled principles concerning the award of costs.
58 As to the impact on the applicant's right to practice, the respondent argued that the matters referred to in the letter from the Victorian Legal Services Commissioner, including the judge's finding that the applicant breached his undertaking, are uncontroversial matters of objective fact. According to the respondent, the existence of the investigation is insufficient to preclude the exercise of the residual discretion.
59 In our opinion, this is not a case where the Court should exercise its residual discretion to refuse leave to appeal irrespective of the merits of the appeal. This is because, for the reasons discussed under grounds 2 and 3, the judge's costs decision has been informed by adverse findings she made about the applicant's professional conduct. Although these adverse findings have not resulted in an adverse order against the applicant, other than in relation to costs, they have the potential to affect his right to practice. As the potential consequences for the applicant extend beyond an obligation to pay costs, this case is exceptional and thus warrants the granting of leave to appeal if there is a real prospect of the appeal being successful.
60 This ground is based on the judge's statement that the order of 16 March 2018 gave rise to a 'fresh event', namely, the grant of leave to the respondent to cross-examine the applicant on a number of matters.[33] She stated that it had been necessary, through no fault of the respondent, to make further orders so that the respondent could progress the administration of the estate.[34]
61 The applicant submitted that there are two principles that are relevant to the present case. The first is the costs follow the event principle under which costs are usually awarded to the successful party unless there are circumstances that warrant a different order. The second principle is that where a proceeding concludes without a substantive adjudication, the usual position is that neither party is awarded costs unless there are circumstances that warrant costs being ordered against one of the parties. According to the applicant, the circumstances that may warrant departure from the usual order for costs under these principles include unreasonable conduct by one of the parties in the litigation.
62 The applicant contended that, in the present case, the judge did not exercise her discretion in accordance with the above principles. This was said to be because, as a result of the respondent's decision not to seek any substantive findings or orders, neither party was 'successful' and therefore there was no 'event' other than perhaps the initial order of 9 June 2017. According to the applicant, the order of 16 March 2018 was not an 'event' for the purposes of the costs follow the event principle and, even if it was, it would only warrant awarding costs in relation to the making of that order.
63 The applicant submitted that, as there were no substantive findings or orders, this case should fall within the second principle referred to at [61] above. That principle was said to require the judge not to make an order for costs unless the circumstances, such as the applicant's conduct, warranted an order for costs being made against him. According to the applicant, the judge failed to have proper regard to the nature of the proceeding and did not apply a principled approach to exercising her costs discretion.
64 The respondent submitted that the Court has a broad discretion to award costs according to what is just and reasonable in a particular case and the judge was not circumscribed by either of the two principles upon which the applicant relied. She contended that, having regard to the applicant's conduct in the proceeding, the judge's approach to the costs order was principled and unexceptional.
65 The respondent argued that the submission made by the applicant - that there had been no event after the making of the 9 June 2017 order - incorrectly equates an event with ultimate success or failure in a proceeding, whereas the authorities show that the concept of an event is much wider. She contended that even if there was a requirement for there to be a fresh event, the judge was correct to characterise the order of 16 March 2018 as such.
67 Although the judge stated that the order of 16 March 2018 gave rise to a 'fresh event', this statement did not inform the judge's decision in relation to costs. In particular, the judge did not find that this 'fresh event' meant that the respondent should be awarded costs because she achieved success in the proceeding in relation to that event. As the judge did not apply the costs follow the event rule on the basis of this statement, there is no causal relationship between the statement and the costs order she made. It follows that, even if the judge erred in describing the order of 16 March 2018 as a 'fresh event', any such error cannot vitiate her costs decision and thus cannot affect the outcome of the application for leave to appeal.
68 In addition to her submissions summarised above, the respondent contended that the costs order made by the judge was warranted under s 65C of the Civil Procedure Act 2010 because the applicant breached his overarching obligations under that Act. However, as the judge did not make a finding to that effect, this submission does not assist the respondent.
Grounds 2 and 3: Judge erred due to misunderstanding the procedural history
69 The applicant submitted that there had been no finding that he failed to comply with the order of 9 June 2017 or with his undertaking in the administration proceeding. He argued that the inference suggested by the judge that he had not complied with the undertaking by virtue of producing an additional 16 boxes of documents on 17 July 2017, was not open having regard to the difference between the terms of the undertaking and the terms of the order of 9 June 2017. He also argued that the undertaking was not sufficiently clear so as to require him to deliver to the respondent the deceased's closed client files.
70 The applicant acknowledged that his failure to file an affidavit by 5 April 2018, in accordance with the order of 16 March 2018, led to the adjournment on 13 June 2018. However, according to the applicant, the indemnity costs order made on 13 June 2018 in favour of the respondent was sufficient compensation for her costs thrown away by reason of the adjournment. Further, so it was said, the applicant's failure to comply with the 16 March 2018 order and the ensuing adjournment were irrelevant matters that the judge should not have taken into account.
71 The applicant submitted that the judge erred in stating that on 26 June 2018 he had sought leave to cross-examine the respondent's witnesses. He contended that he gave notice under r 40.04(2) of the Rules and was thereby entitled to cross-examine unless the Court ordered otherwise. According to the applicant, the respondent did not ask the Court to order otherwise and the Court did not do so.
72 The applicant further submitted that as the judge determined in her ruling on 26 June 2018 that it would have been a denial of procedural fairness to prevent him from cross-examining the respondent's witnesses, she erred in viewing his exercise of that right as a tactic to stall the proceeding or frustrate the administration of justice. The applicant contended that there was no criticism of either party by the judge in this regard and she had stated that the issues agitated by the applicant required clarification. As such, so it was said, the applicant's decision to cross-examine should not have been considered to be unreasonable conduct.
73 As to the context in which the cross-examination took place, the applicant contended that the trial judge erred in saying that an oral examination was originally intended where no provision in the Rules as to an oral examination was engaged. He submitted that in stating that the proceeding changed from an oral examination to a trial at the request of the applicant, the judge significantly misstated the procedural history. According to the applicant, in her ruling of 26 June 2018, the judge concluded that the proceeding was not an oral examination.
74 The applicant submitted that the judge failed to take into account a relevant matter, being the respondent's request - made on the first day of the adjourned trial on 26 June 2018 - that the judge make no findings of fact or orders at the hearing, which meant that neither party could be regarded as being successful or unsuccessful.
75 The applicant contended that, by reason of the above errors, the judge erred in making adverse findings about his conduct of the evidentiary proceeding, resulting in the exercise of her costs discretion miscarrying.
76 The respondent argued that the applicant's conduct was unreasonable and uncooperative and as such, the judge was justified in being critical of him and in making the costs order.
77 In relation to the undertaking given by the applicant in the administration proceeding as compared to the order of 9 June 2017 in the evidentiary proceeding, the respondent submitted that the terms of the order of 9 June 2017 were only slightly wider in scope than the undertaking. According to the respondent, the judge's finding that the applicant had breached the undertaking was an objectively correct statement of fact. Further, so it was said, if the applicant had properly complied with the undertaking, the evidentiary proceeding would not have been commenced.
78 The respondent contended that the applicant's breach of the order of 16 March 2018 and application for an adjournment on the day of the trial were highly relevant to the judge's decision. She argued that the judge's adverse findings about the applicant's conduct were supported by his breaches of various orders made throughout the evidentiary proceeding. According to the respondent, the applicant's conduct in advertising his intention to apply for letters of administration was relevant to the judge's decision as it further evidenced his intent to obstruct and interfere with the administration of the estate.
79 The respondent argued that notwithstanding the indemnity costs order made on 13 June 2018, which compensated her for costs thrown away by reason of the adjournment, the applicant's request for an adjournment formed part of a chain of conduct in which he sought to delay the proceeding.
80 As to the applicant's request to cross-examine the respondent's witnesses made on 26 June 2018, the respondent submitted that whether leave is required for a notice under r 40.04(2) of the Rules is not relevant to the issues in the application for leave to appeal. According to her, the significance of the notice was that it had the effect of unreasonably prolonging the hearing by requiring four witnesses to be called for cross-examination. The respondent contended that every event that flowed from 26 June 2018 was at the election and sole instigation of the applicant.
81 The respondent argued that the applicant's written case contained a number of factual errors including:
(a) An oral examination of the applicant only had been specifically contemplated and a one day oral examination was originally intended. Therefore, so it was said, the judge's findings in this regard were correct.
(b) The applicant incorrectly argued that in relation to the notice of cross-examination given under r 40.04(2), the respondent did not ask the Court to order otherwise. She contended that she 'vigorously opposed' the proposal that her witnesses be cross-examined. In addition, she submitted that the applicant had no legitimate forensic purpose for cross-examining her witnesses, however, she conceded that this was not expressly argued before the judge.
(c) The applicant's submission that the respondent requested that no findings or orders be made by the judge at the trial ignores the fact that he was in agreement with this proposed course of action.
82 The respondent submitted that if this Court allows the appeal and exercises the costs discretion for itself, it should order that the applicant pay all of the respondent's costs incurred up to 26 June 2018 and 75 per cent of the costs she incurred after that date. According to the respondent, as the applicant's conduct extended the duration of the hearing on 2 July 2018 from one day to four days, he should pay 75 per cent of the costs associated with that hearing.
84 The judge had before her an unusual form of proceeding with a number of difficult features, not the least of which was the complexity of the deceased's business and personal affairs. In addition, there was an evident mutual mistrust between the parties that lent a gladiatorial air to the proceeding and invited an attribution of fault for the way in which the length of the 'trial' blew out.
85 Nonetheless, we have concluded that in making the costs order, the judge acted on a wrong principle and failed to take into account a material consideration by: failing to have proper regard to the limited nature of the evidentiary proceeding in its final form; and examining conduct of the applicant which extended beyond the manner in which he conducted that proceeding. In particular, the judge found that the applicant had not fully complied with his undertaking of 16 December 2016 in circumstances where that undertaking was given in the administration proceeding rather than the evidentiary proceeding and where it had been agreed that she would not make any substantive findings in the evidentiary proceeding.
86 Even if it had been appropriate for the judge to make a finding on whether the applicant had complied with the undertaking, a close examination of the nature of the undertaking and his conduct in relation to it, indicates that it is not readily apparent that the applicant had not complied.
87 The issue at the hearing of the administration proceeding on 16 December 2016 was who would be appointed administrator over the estate and ensuring the provision of documents to the administrator to enable the estate to be administered. As it was common ground that the applicant had in his possession documents that were relevant to the administration of the estate, he gave an oral undertaking through his counsel to 'deliver up the documents to the person appointed as administrator'.[35]
88 The oral undertaking did not describe the documents to be delivered but it is clear from the context that they were documents that were relevant to the administration of the estate. This was clarified by the recording of the undertaking in the 'Other Matters' section of the order of 16 December 2016. The order described the documents as 'all documents relating to the deceased's estate and any trusts and companies in which the deceased held an interest'. Pursuant to the undertaking, the applicant delivered 21 boxes of documents. Documents which the applicant had in his possession as a result of acting as solicitor for the deceased over a period of approximately 17 years did not fall within the undertaking unless they were relevant to the administration of the estate.
89 Whereas the undertaking in the administration proceeding was confined to documents relevant to the administration of the estate, the orders sought in the evidentiary proceeding extended to documents in the possession of the applicant in his capacity as solicitor for the deceased, including archived files. Consent orders were made on 9 June 2017 in respect of both categories of documents as well as property belonging to the deceased. Pursuant to this order, the applicant delivered a further 16 boxes of documents. However, there has been no determination as to whether any of the documents in these boxes were relevant to the administration of the estate. In the absence of such a determination, the production of these additional documents in and of itself is insufficient to support an inference that the applicant breached the undertaking.
90 The judge's finding that it could be 'readily inferred' that the applicant had not fully complied with the undertaking was not open merely on the basis of the applicant's delivery of a further 16 boxes of documents. Whether the applicant failed to fully comply with the undertaking required a detailed examination of the nature of those documents, which the judge did not undertake. This was because it had been agreed that she would not make any substantive findings. In these circumstances, the judge was not in a position to make the finding that it could be readily inferred that there had not been full compliance with the undertaking. A finding of this kind should only be made on clear evidence and with great caution, having regard to the potential serious consequences of such a finding for a solicitor. The letter from the Victorian Legal Services Commissioner referred to at [44] above indicates that such consequences are not hypothetical in the present case.
91 As we have seen, the relief sought by the respondent in the evidentiary proceeding extended beyond the scope of the applicant's undertaking. It follows that the judge erred in finding that the relief sought by the respondent in the evidentiary proceeding was 'in effect identical to the undertaking given'.[36]
92 The errors that we have identified above in relation to the undertaking and the scope of the evidentiary proceeding formed an important part of the judge's reasons for her conclusion that the applicant's conduct had been less than reasonable and had frustrated the administration of justice. The errors are sufficient to satisfy the principles in House v The King and enable this Court to set aside the judge's costs order and exercise the costs discretion for itself.
93 This conclusion means that we can deal with the other aspects of grounds 2 and 3 briefly.
94 In our opinion, the judge's conclusions that the applicant had engaged in a 'pattern of conduct that ... has been less than reasonable' and had 'chosen to delay and stall, which has frustrated the administration of justice' were expressed too broadly and failed to take into account important features of the proceeding.
95 One such important feature was the judge's ruling that natural justice required that the applicant be able to cross-examine the respondent's witnesses. The judge's reasons for the ruling are relevantly set out at [29] above. The judge did not find that the proposed cross-examination lacked a genuine forensic purpose. This is not surprising, as the respondent's witnesses would be giving evidence to the effect that the applicant withheld documents without legal justification and in breach of his undertaking and Court orders. As appears from [32] above, this evidence, if unchallenged, was capable of being used against the applicant in civil proceedings.
96 In these circumstances, it is not readily apparent how the applicant's exercise of the right to cross-examine the respondent's witnesses could be described as unreasonable conduct. It is also significant that the judge did not make any finding that the applicant abused this right in relation to any questions he put to any of the respondent's witnesses.
97 It is true that the cross-examination of the respondent's witnesses had the effect of prolonging the hearing. However, in the absence of a finding that any part of the cross-examination was inappropriate, it is difficult to characterise the prolonging of the hearing as unreasonable.
98 Another important feature of the proceeding was the order the judge made on 13 June 2018 that the applicant pay, on an indemnity basis, the respondent's costs thrown away by reason of the adjournment of the hearing scheduled for that day. The applicant's conduct which gave rise to that order could not be taken into account as part of the 'pattern of conduct' which informed the judge's decision to order the applicant to pay the respondent's costs of the proceeding.
99 As the nature of the proceeding before the judge was such that she was ultimately not required to make any substantive findings, neither party could be described as being successful by reference to the outcome of the proceeding. However, this did not preclude the judge from ordering the applicant to pay the respondent's costs if his conduct of the evidentiary proceeding was such as to warrant such an order. The judge found that the applicant's conduct warranted departure from what she described as 'the starting point' of no order as to costs being made. For the reasons we have already stated, the judge erred in important respects in relation to the applicant's conduct and these errors vitiated the exercise of her discretion in relation to costs.
Exercise of discretion in relation to costs by this Court
100 As we have stated at [50] above, where the nature of the proceeding is such that it cannot be said that one party has been successful and the other party has been unsuccessful, it may be appropriate that there be no order as to costs unless there are circumstances - such as the conduct of one of the parties - that warrant the making of a costs order. That was the nature of the evidentiary proceeding in its ultimate agreed form. Accordingly, the key question in the exercise of the costs discretion is whether the applicant's conduct warranted a costs order being made against him.
101 As appears from [34] above, at the hearing on 5 July 2018, senior counsel for the applicant accepted that it would be difficult for him to resist the characterisation of the consent order of 9 July 2017 as representing success by the respondent, and therefore an event which would entitle the respondent to costs. In the light of this concession and the terms of the relief sought by the applicant in his application for leav[37]to appeal,37 it is appropriate that the applicant be ordered to pay the respondent's costs for the period between the commencement of the evidentiary proceeding on 9 May 2017 and the making of the consent order on 9 June 2017, both days inclusive.
102 Between 10 June 2017 and 5 April 2018, there were a number of adjournments by consent, some of which were at the request of the respondent. There was no conduct of the applicant that warranted a costs order being made against him in relation to this period. The order of 16 March 2018 was made to test whether the applicant had fully complied with the order of 9 June 2017. It did not result from any determination that he had breached that order.
103 In the period from 6 April 2018 until 13 June 2018, the applicant was in default in relation to his obligation under the order of 16 March 2018 to file an affidavit responding to Mr Kotzman's affidavit by 5 April 2018. This delay warranted an order requiring the applicant to pay the respondent's costs thrown away by reason of the delay.
104 The hearing scheduled for 13 June 2018 was adjourned as a result of the applicant's late briefing of counsel. The judge was correct to order that the applicant pay the respondent's costs thrown away by reason of the adjournment on an indemnity basis. That order will not be disturbed.
105 The judge, in effect, found that neither party was to blame for the adjournment of the hearing scheduled for 26 June 2018. Accordingly, she ordered that the costs of the adjournment and costs thrown away be 'costs in the proceeding'.[38] In these circumstances, it would not be appropriate for us to order that the applicant pay the respondent's costs thrown away by reason of the adjournment.
106 For the reasons set out at [95]-[97] above, we are of the opinion that the applicant's conduct in exercising his right to cross-examine the respondent's witnesses did not warrant an order for costs being made against him either in relation to all or part of the costs incurred after 26 June 2018.
107 For the above reasons, the application for leave to appeal will be granted and the appeal will be allowed. We will set aside the judge's costs order dated 23 July 2018 and substitute an order that the applicant pay the respondent's costs of the evidentiary proceeding incurred between 9 May 2017 and 9 June 2017, both days inclusive, and her costs thrown away by reason of the applicant's delay in filing an affidavit in accordance with the order of 16 March 2018. Otherwise, there will be no order as to costs of that proceeding.[39]
[1] Rouse v Diakou [2018] VSC 396 ('Reasons').
[2] The Latin term for such letters of administration is ad colligendum bona. Such a grant terminates upon a full grant of administration of an estate.
[3] Transcript of Proceedings (16 December 2016) 23.
[4] Transcript of Proceedings (13 June 2018) 39.
[5] Transcript of Proceedings (13 June 2018) 39.
[6] Transcript of Proceedings (26 June 2018) 69.
[7] Transcript of Proceedings (26 June 2018) 82, 84-5.
[8] Transcript of Proceedings (26 June 2018) 101.
[9] Transcript of Proceedings (26 June 2018) 101.
[10] Transcript of Proceedings (5 July 2018) 531-2, 534.
[15] Reasons [2] (citations omitted).
[20] Reasons [47], [52]-[53]. We understand the last sentence of para 53 of the reasons to be intended to state that the respondent was seeking compliance with the terms of the 16 March 2018 order by the applicant.
[22] (1936) 55 CLR 499, 505.
[23] Northern Health v Kuipers [2015] VSCA 172 [10].
[24] See, eg, 24 Hour Fitness Pty Ltd v W&B Investment Group Pty Ltd [2015] VSCA 216 [53]; AJH Lawyers v Mathieson Nominees Pty Ltd [2015] VSCA 227 [89]; Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd [2018] VSCA 32 [18]; Charan v Nationwide News Pty Ltd [2019] VSCA 36 [244].
[25] [2019] VSCA 148 [40]-[41] (citations omitted).
[26] See also Civil Procedure Act 2010 s 65C(1).
[27] Northern Territory v Sangare [2019] HCA 25 [24] ('Sangare').
[28] Sangare [2019] HCA 25 [24].
[29] [2019] HCA 25 [25] (citations omitted).
[30] See, eg, National Australia Bank Ltd v Horne [2011] VSCA 414 [3]; Apostolidis v Kalenik [No 2] [2011] VSCA 307; (2011) 35 VR 563, 612 [59]-[60]; Amalgamated Engineering Union v The Metal Trades Employers' Association [1935] HCA 61; (1935) 53 CLR 658, 664; Chiarella v Accident Compensation Commission [1992] VicRp 55; [1992] 2 VR 103, 108.
[31] See, eg, Board of Examiners v XY [2006] VSCA 190; (2006) 25 VAR 193, 201-3 [17]-[22], 208-9 [37]-[38]. Although the respondent in that case succeeded in overturning the decision of the Board of Examiners that she was not a fit and proper person to be admitted to legal practice, the Court held that the nature of the proceeding was such that no order as to costs should have been made.
Diakou
Rouse [2019] VSCA 199
(1936) 55 CLR 499
(2011) 35 VR 563
(1935) 53 CLR 658