Hammond v Hammond

LEGISLATION CITED : Civil Procedure Act 2005 Family Provision Act 1982

Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 CASES CITED : Commonwealth of Australia v Gretton [2008] NSWCA 117 County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No 2) [2008] NSWCA 273 Hammond v Hammond [2010] NSWSC 331

PARTIES : John Joseph Hammond by his Tutor Luke John Hammond (plaintiff, cross-defendant) Terence Sydney Hammond (defendant, cross-claimant)

COUNSEL : Mr R Lovas (plaintiff, cross-defendant) Mr B Ilkovski (defendant, cross-claimant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2008/282147 JOHN JOSEPH HAMMOND BY HIS TUTOR LUKE JOHN HAMMOND v TERENCE SYDNEY HAMMOND JUDGMENT 1 HIS HONOUR: In these proceedings I ordered the defendant to pay the plaintiff $77,230, dismissed the defendant's cross-claim and ordered the defendant to pay the plaintiff's costs of the proceedings: Hammond v Hammond [2010] NSWSC 331. 2 The plaintiff now moves for an order for indemnity costs on two bases:

(a) that the defendant's case was manifestly devoid of any merit and he should have known that he had no real prospect of success; (b) that the defendant acted unreasonably in not accepting any of the three offers made by the plaintiff to dispose of the proceedings by compromise. 3 Section 98(1)(c) of the Civil Procedure Act 2005 empowers the Court to award costs on the ordinary basis or on an indemnity basis. 4 "Three things need be borne in mind in a judgment such as this on costs: the desirability of avoiding unnecessary recitation of cases (abounding as they are in this area); the desirability of not restating, in different terms, approaches to the broad discretion that have been well settled; and the desirability of dealing with the arguments without over-elaboration, if this is possible.": Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [5]. 5 An understanding of the submissions is assisted by recalling at the outset that (a) the summons claimed (inter alia) orders that the defendant be replaced as trustee, that an account be taken, and that he pay the monies found to be due from him on the taking of the account plus interest; (b) on the defendant's own case he had paid to himself $6,431.91 which he should have paid to the plaintiff and had failed to account when requested to do so; (c) the defendant did not provide an accounting until an interlocutory order was made that he do so; (d) at trial the plaintiff indicated that he primarily sought an order that the defendant pay him the amount that the defendant had paid to himself but which should have been paid to the plaintiff, and that his claim for the replacement of the defendant as trustee was in the alternative; (e) the defendant's cross claim unsuccessfully sought to justify payment to himself of most of the amount in issue on the basis of construction, implied term (abandoned at the end of the trial) or rectification. FIRST BASIS 6 The first basis ([2(a)] above) is supported by a well known line of cases to the effect that a party should pay costs on an indemnity basis when it appears that their claim or defence has been commenced or continued in circumstances where, properly advised, they should have known that it had no chance of success: Baulderstone at [4] where the cases are collected. 7 The plaintiff submits that this basis is established for the following reasons:

(a) so far as the plaintiff's summons is concerned, the Court found that, even on his own case, the defendant had distributed to himself $6,431.91 more than his entitlement, had failed to account to his fellow beneficiaries despite four written requests to do so, and had eventually prepared verified accounts only pursuant to directions made in the course of the proceedings. Therefore, the plaintiff's case in chief had already been won by the time the case came on for hearing. There was no explanation for the over-distribution, the delay in accounting and the continued resistance to the plaintiff's claim; (b) if properly advised the defendant should have known that his cross-claim had no chance of success given that: (i) the cross-claim for a declaration of an implied term was only abandoned after the close of evidence; (ii) my findings disclose a fundamental misunderstanding between the defendant and his counsel during the course of negotiations leading to the settlement of the Family Provision Act 1982 proceedings, that misunderstanding having continued into the present litigation, and in this context the unexplained withdrawal of the defendant's solicitor as a witness is profound; (iii) the defendant's failure to distinguish the character of the short minutes of order of 15 March 2007 as a judgment of the Court as opposed to merely an agreement between contracting parties rendered the implied term and rectification claims hopeless from the outset. At its most hopeful, the defendant could only have set the groundwork for a further application in the former proceedings for an order setting aside the disputed orders; (iv) the failure to cross-examine any of the plaintiff's advisers doomed the rectification case to fail; (v) an ulterior purpose or a fundamental misconception in prosecuting the cross-claim is suggested by the defendant's election not to cross-examine and the decision to adduce evidence from the defendant's common intention witnesses. 8 The defendant emphasises that the summons sought the replacement of the defendant as trustee of the estate of the deceased and that it was not until the plaintiff opened its case at trial that the plaintiff informed the defendant that it was seeking an order that the defendant pay the plaintiff a sum of money. The defendant submits that: (a) as the Court was not required to consider whether it should exercise its discretion to remove the defendant as trustee, the result should not be equated with victory for the plaintiff on his case as stated in the summons; (b) the consequence of the plaintiff's choice at trial of seeking something far more direct, an order that the defendant pay the plaintiff money, was that the field of battle shifted entirely to the defendant's cross-claim; (c) the outcome of that battle determined the quantum of money that would be ordered in favour of the plaintiff if he was successful - ie $6,431.91 or $62,409.33 plus interest; (d) the fact that the real field of battle was the defendant's cross-claim tends significantly against an award of indemnity costs for the whole of the proceedings because the $6,431.91 was "won" on the plaintiff's summons before a shot was fired; (e) an indemnity costs order for the whole of the proceedings cannot be sustained simply because the defendant did not press at the hearing the claim for relief for an implied term; (f) the rectification claim failed but it was far from unarguable or doomed to failure and indemnity costs would not be warranted simply by forensic decisions not to cross-examine the plaintiff's legal advisers on their uncommunicated belief or not to adduce evidence from the defendant's solicitor; (g) the defendant's failure to seek relief in the original Family Provision Act proceedings may have presented a procedural obstacle in setting aside the orders made in those proceedings but that obstacle did not render the cross-claim hopeless from the outset. 9 Although the plaintiff succeeded before trial on his claim for an accounting, it goes too far to say that the plaintiff's case had already been won by the time of the trial for there was still a live issue whether the defendant should be removed as trustee. However, that became an alternative, secondary issue because of the more direct monetary relief sought by the plaintiff at trial. 10 In my view, the defendant's construction case was weak; the implied term case had no real prospect of success and was properly abandoned at trial; the rectification common intention case presented substantial difficulties and could turn on the unpredictable outcome of cross-examination; and there was a procedural obstacle to setting aside the Family Provision Act orders because they had been made in other proceedings. On the other hand, the defendant sought to support its rectification case by reference to objective circumstances from which an inference of common intention might be drawn, in particular, events on 30 November 2006. Although it was unsuccessful in that regard, I am not prepared to go so far as to say that it was unarguable. The decision not to cross-examine the plaintiff's common intention witnesses did not render the rectification claim hopeless from the outset and, of course, any such cross-examination may well not have had any effect. The admission obtained from the defendant in cross-examination as to his state of mind proved to be determinative. On balance, I am not persuaded that the defendant, properly advised, should have known that he had no prospect of success. THE SECOND BASIS 11 The second basis is that the defendant acted unreasonably in not accepting any of the three Calderbank letters from the plaintiff's solicitors to the defendant's solicitors dated 17 March, 1 April and 8 April 2010 offering to dispose of the proceedings by compromise.

12 A Calderbank letter (named after the seminal case) is a communication between parties in which a settlement offer is made, the terms of which, in the event that the matter proceeds to trial, are not to be disclosed to the court except on the question of costs.

13 A Calderbank letter is one of the circumstances in which the court may exercise its discretion to order indemnity costs. Calderbank letters are thought to facilitate the public policy objectives of providing an incentive for disputants to end their litigation as soon as possible and to discourage unreasonable behaviour by litigants.

14 Two general rules have emerged relating to Calderbank offers, namely, that to justify the making of an order for costs on an indemnity basis, the offer must be a genuine offer of compromise which it is unreasonable for the offeree not to accept. The discretion is to be exercised having regard to all the relevant circumstances. Among the issues germane to the question of reasonableness of the offeree's conduct will be whether the offeree had an appropriate opportunity to consider and deal with the offer. The onus is on the party making a Calderbank offer to satisfy the court that it should exercise the costs discretion in its favour. See Baulderstone (above); Commonwealth of Australia v Gretton [2008] NSWCA 117 at [38]-[46]; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No 2) [2008] NSWCA 273 at [31]-[33]. 15 In the letter of 17 March 2010, the plaintiff offered to settle the proceedings by consent orders that the defendant pay the plaintiff $62,564.33 (being 85 per cent of $73,605.09 distributed to the defendant on 15 October 2007 but with no claim for interest), dismissal of the costs claim, vacation of all previous costs orders (including costs against the defendant made in June 2009) and no order as to costs. The offer was open to 24 March 2010.

16 In the letter of 1 April 2010, the plaintiff offered to settle on the same terms except that the payment by the defendant to the plaintiff was reduced to $58,000 payable within 28 days. The offer was open to 9 April 2010.

17 In the letter of 8 April 2010 the plaintiff offered to settle on the same terms except that the amount that the defendant was to pay the plaintiff was reduced to $53,000. The offer was open to 9 April 2010.

18 I accept that all three offers were genuine offers of compromise. The question then is whether it was unreasonable for the defendant not to have accepted any of them.

19 The plaintiff concedes that whether an offer was unreasonably rejected depends on the circumstances of each case. The plaintiff submits that by 17 March 2010 (about 3.5 weeks before the hearing) the defendant should have been aware that both his defence and cross-claim were going to fail (a submission that I have earlier not accepted); the offer of 17 March 2010 comprised a considerable discount compared with the jeopardy in which the defendant stood; by that offer the plaintiff sought payment of the plaintiff's claimed entitlement (subject to a de minimis difference revealed in the evidence) but it abandoned the claim for interest and for costs, including an interlocutory costs order already held in the plaintiff's favour; weighing the very high discount being offered against the very low likelihood of success the defendant acted unreasonably in rejecting the offer of 17 March 2010. Alternatively, the plaintiff submits that the above submissions apply with even greater force to the later, progressively further discounted, offers dated 1 April 2010 and 8 April 2010. 20 The defendant submits that the Calderbank offers should not carry indemnity costs consequences because:

(a) critically, the plaintiff had not foreshadowed that its real case, on which it opened at trial, was for an order that the defendant pay the plaintiff money and not the formal relief sought in the summons, which centred on an order that the defendant be removed as trustee of the estate; (b) during the period covered by the Calderbank offers, 17 March to 9 April 2010, the removal of the defendant as trustee was still an issue for determination, for which the plaintiff contended; (c) the Calderbank offers had been rejected by the defendant on a completely different understanding of the relief for which the plaintiff was contending and, therefore, their rejection was not unreasonable and no order for indemnity costs should be made 21 In my view, it should have been clear to the defendant that the proceedings were essentially aimed at ultimately requiring the defendant to pay the plaintiff the sum of money to which the plaintiff claimed he was entitled and which the defendant had paid to himself. The Calderbank offers were structured in that way and, if accepted, would have disposed of the whole proceedings including the removal issue. The plaintiff at trial telescoped the process envisaged in the summons by seeking a direct monetary order as primary relief. That did not change anything of substance. The plaintiff relegated to alternative relief the claims for removal of the defendant as trustee and for the defendant to pay the new trustee the amount found to be owing by the defendant on the taking of an account. Because the plaintiff succeeded in obtaining the more direct monetary order, it was unnecessary to consider the alternative relief.

22 As analysed earlier, the defendant's case faced substantial difficulties generally. Moreover, on the defendant's own case, he had paid himself money to which he was not entitled and had failed to account to the other beneficiaries notwithstanding repeated requests until directed to do so by the Court at an interlocutory stage of the proceedings.

23 Having regard to all the circumstances, I consider that it was unreasonable for the defendant not to have accepted the 17 March 2007 offer. ORDERS 24 In lieu of the costs order made on 30 April 2010, the Court orders the defendant to pay the plaintiff's costs of the proceedings up to and including 16 March 2010 on the ordinary basis and from 17 March 2010 on an indemnity basis.

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