Kemp v French

CATCHWORDS : PROCEDURE - final orders - costs - Property (Relationships) Act proceedings - unrealistic offers of settlement made by parties - Plaintiff successful but to extent of about 30% of amount claimed - Partial costs order

Civil Procedure Act 2005 LEGISLATION CITED : Evidence Act 1995 (NSW) Property (Relationships) Act 1984 Uniform Civil Procedure Rules, 2005

Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84 Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481 Oshlack v Richmond River Council [1998] HCA 11 CASES CITED : Parker v McNair (1990) DFC 95-087 76 Sanelli v Sanelli [2010] VSC 78 Van Zonneveld v Seaton [2005] DFC, 95-311 White v Patterson [2008] NSWSC 1395

PARTIES : Stephen James Kemp Selena Jayne French

COUNSEL : N Jackson (Plaintiff) M Galvin (Defendant)

SOLICITORS : Neagle Lawyers (Plaintiff) P J Ellis (Defendant)

2009/291590 KEMP v FRENCH (No 2) EX TEMPORE JUDGMENT 1 HIS HONOUR: In this matter, I delivered reasons for judgment on 10 September 2010, the citation of which is [2010] NSWSC 971. In those reasons, I found that the Plaintiff was entitled to an adjustment of the property of the parties, in the amount of $88,750. The matter is listed today to determine who should pay the costs of the proceedings and to make final orders that reflect the reasons for judgment. 2 In Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481; [2008] VSCA 212, Maxwell P and Kellam JA said, at [12]: "In the ordinary case, it is both appropriate and desirable that a costs question be decided at the conclusion of argument. Rarely will it be necessary for a judge to give detailed reasons for decision adverting to every matter debated in argument. This court will assume, as should the parties, that every matter addressed in argument on costs has been considered. This court will set its face against any proposition which would require judges disposing of questions of costs to give elaborate reasons." 3 In this case, there has been a significant amount of additional material provided and much debate about the costs issue. I have received submissions from the Plaintiff, consisting of 11 pages, as well as an affidavit from the Plaintiff's solicitor of 12 pages. Subsequently, another affidavit, said to be in reply, consisting of 34 pages, including annexures, was received. 4 I have received submissions from the Defendant, consisting of 6 pages, as well as an affidavit from the Defendant's solicitor consisting of 18 pages, including annexures. 5 I shall leave the submissions with the Court papers. 6 The oral hearing of the costs argument took slightly more than one hour. Legislative Framework 7 The Civil Procedure Act 2005, s 98(1), provides that subject to the rules of Court, and that, or any other, Act, costs are in the discretion of the Court. The discretion is broad but not unconfined. It is a judicial discretion to be exercised on a principled basis. Uniform Civil Procedure Rules ("UCPR"), r 42.1, provides that costs should follow the event, unless it appears to the Court that some other order should be made as to the whole, or any part, of the costs. 8 UCPR, r 42.30, which applies to proceedings in which a plaintiff claims relief under the Property (Relationships) Act 1984, provides that where the Court declares a right, or adjusts an interest of a value or amount that does not exceed the jurisdictional limit of a Local Court sitting in its General Division, as the limit was when the proceedings were commenced, the plaintiff is not entitled to payment of his, or her, costs of the proceedings unless the Court orders otherwise. 9 The usual order is that costs ordered to be paid are assessed on the ordinary basis (UCPR r 42.2). Indemnity costs may be ordered in certain circumstances, including when a costs order for assessment on the ordinary basis is insufficient in the circumstances to compensate for costs unreasonably incurred due to the misconduct of the other party, which misconduct, for example, causes the prolongation of the proceedings or the making of allegations which ought never to have been made. The Plaintiff in this case, seeks indemnity costs. 10 Since the Plaintiff already received $30,000, which was ordered to be advanced to him "by way of preliminary costs" (see, orders made 21 June 2010), subject to any costs order now made, either the Plaintiff will have to refund the amount, or the parties may agree that the Plaintiff should receive an additional $58,750 to satisfy the judgment sum. 11 It is to be noted that in the case, neither party sought any declaration of right. Thus, the only order to be made is an adjustive property order under s 20, the effect of which is to work an adjustment of $88,750. 12 At the time the proceedings were commenced by the Plaintiff, it is agreed the jurisdictional limit of the Local Court in its General Division was $60,000. It follows, therefore, that the Plaintiff achieved an amount that did exceed the jurisdictional limit of the Local Court sitting in its General Division, as that limit was when the proceedings were commenced. 13 Accordingly, in my view, UCPR r 42.30 does not apply in the present case. The Authorities 14 In Parker v McNair (1990) DFC 95-087 76, 155 at 76,160, McLelland J said: "In this kind of case where the discretionary powers of the Court are invoked it is important on the question of costs, in my view, to see how reasonable or otherwise the parties have been in limiting issues for litigation and in making offers of settlement, and this is the kind of case in which parties would be wise, if they wished to make an offer of settlement, to adopt the Calderbank form of letter, that is to make the offer without prejudice except on the question of costs (see (1976) Fam. L.R. 93), or to make an open offer, because it is only in the light of that sort of information that the Court can really be properly placed to consider whether the litigation was necessary." 15 In Van Zonneveld v Seaton [2005] DFC, 95-311; [2005] NSWSC 175, Campbell J (as his Honour then was), taking up the issue of offers of settlement stated at [10]: "…When a defendant is faced with a claim which she assesses will result in only a comparatively small award to a plaintiff, but where the costs of both sides are likely to the significantly greater than the amount of that award, it is often prudent to make an offer of an amount somewhat greater than the defendant's current estimate of the likely award, both as insurance against the estimate being incorrect, and for the sake of protection which such an offer can give against a costs order. If such an offer is made at a comparatively early stage of the proceedings, on a basis which is plus costs to the time of an acceptance of the offer, the defendant can end up out of pocket, even if the offer is accepted, by considerably less than she would be required to pay if she makes no offer, or a smaller offer, and the proceedings run to judgment. When the defendant had this means of protection available to her, but did not take it, I cannot place much weight on the fact that she had no choice but to defend the proceedings." 16 Otherwise, I cannot do better than quote from White v Patterson [2008] NSWSC 1395, in which Barrett J, usefully, summarised the relevant, more recent, authorities: "6 The principles that govern the award of costs in a case such as this where an adjustive order is made under s 20 of the Property (Relationships) Act 1984 have been referred to in a number of recent decisions of the Court of Appeal. 7 In Kardos v Sarbutt (No 2) [2006] NSWCA 206, the Court of Appeal suggested two approaches by way of analogy - one (at [27]) with matrimonial proceedings where "the starting point is that each party bear his and her own costs"; and the other (at [28]) with partnership disputes where "the prevailing rule nowadays is that the costs of both parties of an action for dissolution are paid out of the partnership assets, unless there is some good reason to the contrary". It was then said (at [35]) that "the starting point should be that each party should bear its own costs".

8 In Dunstan v Rickwood (No 2) [2007] NSWCA 266; (2007) 38 Fam LR 491, however, the Court of Appeal emphasised that the general rule that costs follow the event is as applicable to this kind of case as to any other. The court said (at [40]): "In my view, this court should approach the question of the costs of the trial on the basis of the general discretion established by s 98 and reg 42.1 of the UCPR. Prima facie, costs should follow the event. On that basis, the respondent having been successful at trial is entitled to her costs. I cannot see any basis upon which she should be entitled only to a percentage of the costs. In the latter respect, I note that Mr Brzostowski did not identify any basis upon which the court could determine what percentage it might award the respondent, if it was minded to make such an order."

9 The approach in Dunstan v Rickwood (No 2 ) was confirmed by the Court of Appeal in Hayes v Marquis [2008] NSWCA 10. 10 The Court of Appeal returned to the matter in Baker v Towle [2008] NSWCA 73; (2008) 39 Fam LR 323 and confirmed that the starting point for the exercise of the discretion as to costs must be that costs follow the event - although the nature of the proceedings is such that the relevant concept of "event" may present difficulties:

11 Basten JA said (at [83]): "An application under s 20 for adjustments to interests in assets should involve a specific claim and a defence which should indicate the degree (if any) to which the defendant is willing to concede the adjustment sought. The pleadings will then identify the scope of the dispute. The next question is whether any degree of success on the part of the plaintiff should be sufficient to justify an order for payment of her costs in full, or whether the costs order should in some sense be proportionate to the degree of success. In such a case, the 'event' may be identified with greater or less precision by reference to the extent of the adjustment ordered."

12 Beazley JA (with whom Mathews AJA agreed) said (at [23] - [25]): "[23] The real question is what is the appropriate order for costs. An obvious starting point is the pleadings. However, the identification of the issues in the pleadings is likely to be only one of several considerations relevant to the costs order that ought to be made. The considerations may include whether any offers of settlement have been made and if so what those offers were. The discretionary considerations may also include the manner in which the proceedings are conducted. These are but two examples. There may be a whole range of relevant circumstances depending upon the particular case. [24] I would therefore prefer to treat the identification of the issues that arise on the pleadings as part of the consideration of matters relevant to the court's discretion. In my opinion, that gives proper effect to r 42.1 and is consistent with the authorities and, in particular, the statement of McLelland J in Parker v McNair (1990) DFC 76, to which the court referred in Vollmer (see [8] of the judgment on the leave application).

[25] The difference between the approach that I prefer and the approach of Basten JA is probably more apparent than real. It will be apparent from what I have said that, where an order for adjustment is made, the costs order made will rarely, if ever, depend simply upon which party commenced proceedings. The question of costs needs to assessed in accordance with the facts and circumstances in each case and, as the analysis undertaken by the court in Vollmer indicates, no principles or general guidelines have emerged in cases under the Property (Relationships) Act." 17 The real question is what is the appropriate order for costs in proceedings under the Act? The discretion to order costs should reflect the circumstances of the particular case. Those circumstances include identification of the extent of the dispute by reference to pleadings, offers of settlement that have been made, and a consideration of the manner in which the hearing was conducted. In Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84; [2010] FCAFC 5), Gray J in the Full Court said: [17] The overriding principle that costs are in the discretion of the Court can also be expressed in terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the question where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding. Relevant Matters 18 I turn firstly to the pleadings. In his statement of claim, the Plaintiff claimed an order for the payment by the Defendant to him of one half of the proceeds of sale after the payment of identified amounts of the Willoughby property and $175,000. His claims were based on the Act as well as upon a constructive trust. He did seek to establish a constructive trust at the trial. That he would not do so was stated on the first day of the hearing. 19 The Defendant resisted the claims of the Plaintiff. Whilst admitting that a de facto relationship had existed, she disputed its length, stated that the Plaintiff had made no, or only a minimal, contribution, as a homemaker for the benefit of the Plaintiff, asserted that the Plaintiff had made no financial contribution to any asset that she had acquired, or to the relationship, and that the Willoughby property had been acquired through her own labour and from her compensation payment and moneys borrowed from her mother. The Defendant disputed that the Plaintiff was entitled to any adjustment order. 20 In relation to the conduct of the hearing, whilst there were a reasonably large number of documents, it seemed to me that detailed consideration had not been given to many of these documents. By way of example, the Plaintiff's legal representatives did not seem to have given real consideration to the amount, if any, contributed by the Defendant's mother to the renovations of the Willoughby property. That matter was clearly relevant to the contributions made by, or on behalf of, the Defendant. 21 When I raised this issue during the cross-examination of the Defendant, the response was that the Defendant had to prove her case and it was not for the Plaintiff to assist in this regard. That is, generally speaking, true. However, the question was one that went to a comparison of documents, namely bank records and renovation invoices, which would have led to some time being saved. 22 It was only following the conclusion of the hearing that some agreement was reached regarding the amount that was disclosed in the documents as having been spent by the Defendant's mother. Even then, the delivery of the reasons for the judgment was delayed to allow the parties to reach this agreement. 23 The Defendant, for her part, does not appear to have given consideration to the documents that she had relied upon, or used, in the common law proceedings in which she sought damages and which had resulted in a reasonably large compensation award. Had she done so, a more realistic assessment of the Plaintiff's claim may have been able to be made. 24 In my view, the hearing should have concluded well within 2 days. After all, there were only two witnesses. It took 3 days, with the submissions not concluding until about 5:00 p.m. on the third day. 25 There is reference in submissions, made on behalf of each party, to the extent of pre-trial correspondence and processes. I do not consider the criticism levelled by one party against the other, particularly without there being much more information available, and perhaps, cross-examination of each solicitor with the conduct of the proceedings, is particularly helpful in determining the costs issue. The proceedings should not have been set down for hearing if one side, or the other, was in default in complying with directions; if incomplete discovery had been given; or if expert evidence had not been able to be obtained. 26 Turning then to the negotiations which had occurred between the parties, the evidence relied upon in the costs application, revealed that a number of offers of settlement were made in the weeks prior to, and during, the hearing. 27 I was provided with a copy of the correspondence containing the offers. Section 131(2)(h) Evidence Act 1995 (NSW) excepts from the privilege which ordinarily attaches to settlement negotiations, evidence of settlement negotiations where a communication or document which was part of those settlement negotiations is relevant to determining liability for costs. 28 On 2 August 2010, the Plaintiff's solicitors wrote to the Defendant's solicitors in the following terms:

"In an effort to resolve the proceedings at this early stage, and on a purely commercial basis, our client is prepared to accept the sum of $200,000 inclusive of costs and interest in full and final settlement of his claim, on the condition that payment is made within 14 days.

The total value of our client's claim, inclusive of interest (but exclusive of costs) is currently $275,580.82. Our costs, including counsel to date are in the vicinity of $47,000.00.

Accordingly, our client is of the view that this offer represents a genuine compromise of his claim in an effort to resolve this matter." 29 On 6 August 2010, the Defendant's solicitors responded in a letter headed "without prejudice save as to costs": "We are instructed to inform you that, noting your client is already in receipt of the sum of Thirty thousand dollars ($30,000.00) released by Order of the Court from money held by this firm in the Controlled Money Account, our client is prepared to settle the proceedings by way of the payment to your client of a further sum of Forty thousand dollars ($40,000.00) inclusive of costs in full and final settlement of your client's claim." 30 This letter, in turn, was responded to by an email dated 10 August 2010, from the Plaintiffs solicitors to the Defendant's solicitors, which included: "We advise we consider that it is highly unlikely that we will receive instructions to accept any form of reduction of our client's claim, given our client his [sic] already making a significant reduction in the context of a likely verdict in this matter. We note the relevant law on capital growth during a relationship and our client's overwhelming homemaker contributions and sacrifices - conceded by way of your client's own admission in her relevant Statutory Declaration. We note our client also made travelled [sic] to Australia gave up business and other opportunities in New Zealand. Our client had for many years been the caregiver for his two other children and the relocation obviously had a major impact. We note that the relevant evidence contained in the various Notices to Admit appears to raise serious concerns with regard to your client's credibility and on no less than potentially 90 separate issues (i.e. when considered against her affidavit evidence to date and made on oath in this current matter, and also in the Family Court and other related matters). We note if the court, as we expect it will, finds your client not to be a witness of credit, it goes without saying that she may suffer some consequences as a result, such as with regards to both add backs and also in the context of total costs. On the overall issue of costs, we note we had made the suggestion very early on in the piece for our respective clients to mediate - and that this request was left unanswered. Also, your client has bluntly refused, when it has been raised, to enter into any kind of negotiations. We advise, our client's cost [sic] to date are now in the vicinity of $53,000.00 plus GST. We anticipate a further $20,000.00 plus GST to be incurred up to judgment. Our client's offer of course is $200,000 exclusive off [sic] costs. If interest is awarded, and he were to obtain judgment in the vicinity of his current offer, then the total claim is about $270,000.00 plus $73,000.00 for costs (subject to whether or not they are indemnified wholly or partly or made subject to assessment). We confirm in our opinion believe [sic] our client will far exceed his current offer. We note your own fees to date are in the vicinity of $30,000.00 as stated in your client's recent affidavit." 31 An email was sent by the Plaintiff's solicitors by the Defendant's solicitors on 11 August 2010, which included: "On closing, we still relish the opportunity to try and settle this matter without any of our clients incurring any further unnecessary expenses or expose themselves to potential risk. We consider our client's offer was a sensible step in that direction. We commend him for that. I have just received instructions this instant to maintain that pursuit by offering the sum of $195,000.00, based on the same conditions and time periods of our client's initial offer." 32 On 20 August 2010, what was said to be a final offer of $180,000, in full and final settlement of the Plaintiff's claim was made. In fact, it was not the final offer made by the Plaintiff's solicitors, because on 24 August 2010, a further offer of $110,000 plus costs and disbursements (which were estimated to be $80,000 inclusive of GST) was sent. 33 Having set out the various offers made, I should point out that paragraphs 50 and 51 of the affidavit of the Plaintiff's solicitor sworn 5 October 2010, and relied upon in this application are, in my view, plainly wrong. The Plaintiff never offered to resolve the proceedings for $110,000 "in full and final settlement". The offer made on 24 August 2010 was as set out above, and included not expressly $80,000, or thereabouts, for costs (albeit calculated on an indemnity basis). 34 Considering the offers made, I am satisfied that the parties were unable to reach agreement in respect of the adjustment of their interests, neither being prepared to make a realistic settlement offer to the other. 35 In my view, the most salient, and what appear to be undisputed, features of the case, with respect to costs, may be summarised as follows: (a) The Plaintiff was successful in obtaining an order for adjustment of property. However, the amount ordered was less than one-third of the amount contended for in submissions ($300,000) made on his behalf. (b) The Defendant was not successful in her submission that the Plaintiff should receive nothing, or a very small amount (taken by reference to the offer made on her behalf). (c) The result the Plaintiff achieved was not more favourable to him than any settlement offer made on his behalf and not accepted by the Defendant. (d) The result the Defendant achieved was not more favourable to her than any settlement offer made on her behalf and not accepted by the Plaintiff. (That an offer made by the Defendant was "close to the mark" is inaccurate in my view. It was almost $20,000 less than the amount ordered to be paid and in the context of an amount of $88,750 was about 21% less than what I considered to be just and equitable.) It was also an amount that was said to be inclusive of costs. (e) In light of the defences relied upon, in particular relating to the duration of the relationship, and the lack of non-financial contributions, it seems that the Plaintiff was put into a position where he had to prosecute the proceedings to a conclusion to obtain his entitlement. On each of these aspects, he was successful. However, the relationship was of relatively short duration, even on his case. (f) The Defendant, too, appears to have had no choice but to defend the proceedings, given the large claim made against her. To put it more colourfully, she "could not be expected to shrug [her] shoulders and capitulate": Sanelli v Sanelli [2010] VSC 78 at [40]. (g) Each party had it within his, or her, power to make an offer of a size that would have provided that party with some protection against a costs order. (h) To the extent that the hearing, itself, was prolonged, that was something brought about by both of the parties. (i) But for the claim of a constructive trust, the Plaintiff could have commenced the proceedings in the District Court. That Court had jurisdiction to make an adjustive order in the amount that the Plaintiff claimed. 36 In my view, the Plaintiff should not receive costs calculated on an indemnity basis. I am not satisfied that any "relevant delinquency" (in the sense referred to in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 has been shown so as to warrant such an order. I do not find any special, or unusual, feature in the case to justify the Court exercising its discretion in that way. 37 I accept that the Plaintiff had some success on the application. He was successful on some of the important factual aspects that were relevant to the determination of the proceedings, namely, the commencement date of the relationship, separation under the same roof, and the non-financial contributions to the welfare of the Defendant. However, the amount that the Plaintiff claimed far exceeded what I found to be just and equitable in all the circumstances. It was about 30% of what he sought. This reflects the limited degree of his success. 38 In those circumstances, I am of the view that justice is best done by making an order that the Plaintiff should receive some, but not all, of his costs. He should retain the amount of $30,000, on account of his costs, which amount was the subject of the previous costs order. Otherwise, each party should pay his, or her own costs of the proceedings. 39 The orders the court now makes are as follows: 1. Order that the interests of the Plaintiff and the Defendant, with respect to property, be adjusted in such manner that: (a) the Defendant pay to the Plaintiff the sum of $88,750.00; and (b) each of the Plaintiff and the Defendant do otherwise hold and retain his, or her, separate property, free from interests and claims of the other of them.

2. Order that, if the sum to be paid under sub-paragraph (a) of Order 1 is not paid within 14 days after the making of these orders, that sum, or so much thereof as is, from time to time, unpaid, shall bear interest calculated from the expiration of the period of 14 days and otherwise as if s 101 of the Civil Procedure Act 2005 applies.

3. Order that the Plaintiff retain the amount of $30,000 paid to him pursuant to the order of the Court made on 21 June 2010 as part of his costs of the proceedings; otherwise, order that each party is to pay his, or her, own costs of the proceedings. 4. Order that the exhibits be returned. 40 The court notes that, following the hearing, an amount of $50,000 was paid by the Defendant to the Plaintiff or as he directed in writing.

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