Keybeach Pty Ltd v Owners Corporation Plan No. PS426578P

COSTS - Judgment for the plaintiff - Whether defendant should pay costs on an indemnity basis - Whether allegations of fraud and dishonesty made without proper basis - Whether unreasonable refusal of Calderbank offer - Proper order for indemnity costs - Supreme Court (General Civil Procedure) Rules 2025, Ord 63 - Supreme Court Act 1986, s 24 - Li v So (No 2) - [2019] VSC 655 - Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 - Norman South & Anor v Da Silva [2012] VSC 622 - Jeans v Bruce [2004] NSWSC 758 - Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435.

1 On 3 October 2025, I published my reasons for judgment in this matter.[1] I found for the plaintiff. The plaintiff now seeks a special costs order that its costs in this proceeding, including the counterclaim and all reserved costs, be paid on an indemnity basis, either for the entirety of the proceeding or from 30 April 2025 when it made a Calderbank offer which was not accepted by the defendant.

2 Section 24 of the Supreme Court Act 1986 (Vic) accords the Court broad discretion to award. Ordinarily, costs follow the event and are assessed on the standard basis, unless the Court orders otherwise. That discretion extends to the award of costs on an indemnity basis in appropriate circumstances, including where a party has engaged in unreasonable or improper conduct.[2] As Gaudron and Gummow JJ said:

[I]n the particular circumstances of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a 'solicitor and client' basis ... or on an indemnity basis... The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part.[3]

3 Order 63 of the Supreme Court (General Civil Procedure) Rules 2025 ('the Rules') confirms that courts can appropriately make special costs orders.

4 The principles governing special costs orders were confirmed by the Court of Appeal in Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd,[4] and are relevantly as follows:

(a) The statutory source of the power to make costs orders (including special costs orders) is section 24 of the Supreme Court Act 1986 (Vic), which states that 'costs are in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.'

(b) Special circumstances must exist to justify a departure from the usual course of costs following the event.[5]

(c) Relevantly, the jurisdiction to make a special costs order will arise where 'the proceedings were commenced or continued...in wilful disregard of known facts or clearly established law.[6]

(d) Despite this test having an apparent subjective element (as suggested by the use of the word 'wilful'), the authorities confirm that the test is essentially objective. As French J said in J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (No 2):

It is not a necessary condition of the power to award such costs that a collateral purpose or some specifies of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.[7]

5 Justice Croft in Li v So (No 2)[8] observed that a court may properly make a special costs order against a party that advances and persists with unfounded allegations of fraud. His Honour cited Dal Pont, in Law of Costs, as follows:

Special costs orders have been ordered in cases where a litigant makes and persists with allegations of fraud, or other allegations of improper conduct seriously prejudicial to the character or reputation of a party, which ultimately prove unfounded. This is almost an invariable outcome where the litigant knew or should have known that the allegations were false or unsupportable. It reflects the notion that a person should not allege fraud or other improper conduct without a proper evidentiary foundation, as such an allegation may be recounted in the community and through the media, and harm a litigant's reputation before evidence has been offered and submitted to the scrutiny of cross-examination or rebuttal. The court aims to deter unsupported allegations of this kind by, inter alia, costs orders, whether special orders against a litigant or a costs order against his or her lawyer.

6 The background to the litigation is set out at length in the Reasons and these reasons assume familiarity with the Reasons. In broad terms, the plaintiff was successful in establishing that the transaction it sought to enforce, founded on an executed deed (being the lease dated 21 March 2000 or the '2000 Lease'), was binding and enforceable on the defendant (counterparty to the deed) in circumstances where the defendant had challenged such enforceability on multiple grounds, including allegations that the 2000 Lease was procured as part of a dishonest and fraudulent scheme. The defendant's contentions were rejected in near totality save for the contention that the execution of the 2000 Lease by the body corporate did not conform to the regulations because it did not specify the basis of the manager's authority to execute it on behalf of the body corporate. Relevantly, I accepted that the body corporate was authorised to enter into the 2000 Lease and that the manager was authorised to sign it on behalf of the body corporate. The defect in execution was limited to the fact that the manager did not specify the source of his authorisation when executing the document. This defect was of no consequence as the 2000 Lease had been performed by the body corporate and the lessee 25 years subsequently.

7 Consequently, on 13 October 2025, I made declarations to that effect, and dismissed the defendant's counterclaim. I invited the parties to provide written submissions in relation to costs and any further final orders sought.

8 The plaintiff filed its submissions in accordance with the Court's directions on 24 October 2025. The defendant filed its submissions in response on 17 November 2025. The plaintiff filed reply submissions on 25 November 2025.

9 In support of its position, the plaintiff makes the following submissions:

(a) Firstly, that the grave allegations of fraud and dishonesty put by the defendant in its initial and successively amended pleadings, and maintained throughout the trial against the plaintiff's witnesses involved in the formation of the 2000 Lease, were seriously prejudicial to the reputation of those individuals, whose professional and business careers stood to be adversely affected, and were ultimately unfounded. To give a few examples, the defendant alleged, inter alia,:

1. The directors of the plaintiff, and in particular, Mr Hannah, deliberately concealed from the defendant the minutes of the initial body corporate meeting, disclosing them only strategically during litigation for forensic advantage, and also concealed the existence of the earlier, lucrative 1996 Lease to prevent it being disclosed;

2. That Mr Hannah and Mr Gibson knew that the 2000 Lease had been unlawfully executed, with Mr Gibson allegedly having breached his fiduciary duties by entering into the 2000 Lease on behalf of the defendant, or that the 2000 Lease operated inconsistently with the 1996 Lease;

3. That the 2000 Lease had not been disclosed to prospective purchasers;

4. That the contract for Lot 503 which did disclosed the 2000 Lease was not representative of the other contracts of sale, because Mr Hannah allegedly had a special arrangement or business relationship with that purchaser;

5. That the directors fabricated as 'fig leaf' documents the 2000 Lease and minutes to provide an appearance of legitimacy to the transaction and the leasing structure that was devised.

(b) Secondly, that the manner in which the defendant prosecuted its case concerning allegations of improper conduct, including its pleadings, evidence, submissions, and findings as well as its conduct at trial, consumed additional court time, caused unnecessary expense, and ultimately prolonged the litigation, thereby rendering the matter for a special costs order particularly compelling.

(c) The plaintiff says that it repeatedly cautioned the defendant, both in correspondence via its solicitors during the pleadings phase and in the lead-up to trial, that the fraud claims lacked a proper basis and should be withdrawn, yet those warnings were disregarded, even following the Court's questioning at trial.

(d) The plaintiff also emphasises that the Calderbank offer made on 30 April 2025, to compromise the proceeding on the basis that the defendant acknowledge the validity of the 2000 Lease and implement access arrangements by way of the provision of a swipe card to the plaintiff for use by it or its subtenant or contractors in which case each party would bear their own costs provides an independent basis for an award of indemnity costs from that date. That offer, it contends, was unreasonably rejected by the defendant, notwithstanding that it was made at a late stage in the proceeding and after the defendant had ample opportunity to assess its position. In this regard, the plaintiff relies on the principles stated by the Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[9] where the Court observed that the reasonableness of the offeree's rejection is the principal consideration, and identified the following relevant factors:

1. the stage of the proceeding at which the offer was received;

2. the time allowed to the offeree to consider the offer;

4. the offeree's prospects of success, assessed as at the date of the offer;

5. the clarity with which the terms of the offer were expressed;

6. whether the offer foreshadowed an application for an indemnity costs in the event of the offeree's rejecting it.

10 In its responsive submissions, the defendant opposed any departure from the ordinary costs order. While it accepted that the plaintiff had succeeded, and was accordingly entitled to its costs, the defendant submitted that the appropriate order was that the plaintiff receive its costs on the standard basis in respect of both the Claim and the Counterclaim. In support of that position, the defendant advanced the following submissions:

(a) Firstly, that the actual reputational impact of the fraud allegations was overstated by the plaintiff, particularly given that the Court did not ultimately find full fraud sufficient to justify indemnity costs. Further, and in any event, the defendant says that the proceeding's outcome was at least partially adverse to the plaintiff and its directors, who were not entirely vindicated and whose conduct was found to be unlawful and improper, specifically regarding the findings as to the resolution defects underlying the 2000 Lease and, more generally, the execution process in that context, as well as non‑disclosure of the 1996 Lease. Thus, even if the allegations were not established as giving rise to fraud in the strict sense, several had evidential support and were not improperly advanced. Finally, the defendant submits that this was not a case involving knowingly false allegations, or irrelevant false allegations of the kind described in Ugly Tribe Co Pty Ltd v Sikola Ugly Tribe Co Pty Ltd v Sikola,[10] nor were the allegations pursued in bad faith. In those circumstances, it says that the threshold for an award of indemnity costs is not met.

(b) Secondly, that the plaintiff's contention that the defendant's conduct unnecessarily prolonged the proceeding was misconceived. Having regard to the complexity of the issues, the substantial volume of documentary material (including documents produced only after the commencement of the proceeding), and the historical nature of the transaction at issue, the scope and conduct of the defendant's case were plainly justified. The defendant also emphasised its unique position: it was not an 'ordinary litigant', but a statutory corporation comprised of volunteers, with no profit motive, and the proceeding concerned long-term property rights with prospective benefits extending over the next 70 years. On the defendant's case, the projected lease value of those rights exceeds $3m. In those circumstances, litigation was effectively unavoidable, notwithstanding that the matter might superficially be characterised as one of 'little moment'. The defendant contended, therefore, that any additional court time was a product of the inherent complexity of the dispute rather than any unreasonable conduct on its part, and that the significance of the subject matter justified the full prosecution of its claim.

(c) The defendant submitted that its pleadings were properly particularised and appropriately framed to allow the matter to proceed to trial and to obtain a final determination of the issues, notwithstanding any requests that it adopt a different course or withdraw aspects of its case. Relevantly, the defendant said it structured its pleadings to reflect different interpretations of the evidence and the parties' intentions, and while dishonesty was pleaded, it was advanced only in the alternative and did not constitute the primary basis of the defendant's case at the outset. The defendant acknowledged that some of those alternative claims were ultimately unsuccessful.

(d) Finally, the defendant submitted that the Calderbank offer dated 30 April 2025 does not warrant an order for indemnity costs. It says that offer contained a demand extraneous to the primary dispute, namely the access arrangements whereas the primary dispute related to the validity of the 2000 Lease. The rejection of the offer was reasonable in the circumstances, having regard to the fact that, at the time, the defendant continued to hold reasonable prospects of establishing at least parts of its case, and that acceptance of the offer would have necessitated surrendering its position in that regard.

11 For the reasons that follow, the plaintiff should have its costs on an indemnity basis from 1 November 2024 onwards.

12 I accept the plaintiff's submissions that the persistent allegations of fraud and improper conduct advanced by the defendant against Mr Hannah, Mr Gibson and Mr De Meneghi were seriously prejudicial to the reputation of those individuals, and that the claims were unfounded. In the Reasons,[11] I already rejected all allegations of fraud as lacking foundation and resisting logical analysis. The allegations concerning the concealment of the nature of the lease transaction, if true, would have impugned the professional integrity of the plaintiff's directors and caused lasting reputational harm. However, they were devoid of any factual or evidentiary foundation.

13 I have already addressed the full evidentiary analysis in the Reasons, but for present purposes it is necessary to restate the substance of those findings briefly. The allegations of fraudulent concealment were inconsistent with the contemporaneous record, including the minutes of meeting found in the files of the plaintiff's solicitors (and shortly disclosed thereafter) and the contracts of sale annexing the 2000 Lease. Whilst I accept that the defendant's legal advisers may have had an honest belief that the minutes of the meeting authorising the body corporate's entry into the 2000 Lease did not exist given that the resolution had not been referred to in the plaintiff's initial reply, and because they were not able to be located in the records of the current manager of the Owners Corporation, that fear ought to have been put to rest when an incontrovertibly authentic copy of the minutes was provided on 28 July 2024. Once that had occurred, the continued attacks on the bona fides of Mr Hannah, Mr De Meneghi and Mr Gibson mandated reconsideration and abandonment. I note in any case that the concealment and dishonesty case was also substantially undermined by readily available inferences that should have been drawn from available records of the Owners Corporation to say nothing of records of some of its members including the Chair who did not endeavour to locate their own contracts of sale which would have established that the 2000 Lease was disclosed. The defendant failed to confront its own inability to locate the relevant documents or to acknowledge that any misplacement was likely internal. Nor did it provide satisfactory evidence through the witnesses it called to clarify its own record-keeping. On the contrary, documents shown to those witnesses during cross-examination revealed that they had been aware of the existence of the 2000 Lease for many years, and that the relevant documents had in fact been properly discovered.

14 Notwithstanding those deficiencies, the impugned submissions were not withdrawn. The defendant persisted in pressing the fraud allegations to the conclusion of the trial and, indeed, escalated them in closing submissions. Scandalous attacks were made upon Mr Hannah's reputation and that of Mr Gibson. I asked counsel for the defendant whether he had put to Mr Hannah the allegation that he had conspired with Mr Gibson to conceal the minutes or the 2000 Lease; counsel could not state with certainty, in reply submissions, that the matter had been put to the impugned witness. It was not. Relevantly, the case for a special costs order is stronger where allegations of fraud are advanced in closing submissions but were not put to the impugned witness.[12]

15 That unfounded allegations of fraud are a well-established basis for the order of indemnity costs exemplifies the seriousness with which the Court views allegations of this character. In Jeans v Bruce,[13] the New South Wales Supreme Court considered serious allegations of fraud, forgery, and conspiracy in the absence of reliable evidence put forward to prove them, concluding that the continued pursuit of those allegations was so unjustified and deserving of criticism as to warrant an indemnity costs order. Similarly, in Taouk v Louis (No 3),[14] the New South Wales Court of Appeal held that where the plaintiffs' claims were fundamentally based on the proposition that a loan and mortgage transaction was procured by fraud on the part of the first defendant, and those allegations were found to be both without foundation and made with knowledge of falsity, an order for indemnity costs was justified. I accept the plaintiff's submissions that exceptional costs orders in such cases serves the function of deterrence and will sufficiently ameliorate any taint on the reputations of the impugned witnesses that has arisen in consequence of the defendant's conduct in conducting the litigation.

16 The significant fact is that serious allegations were advanced without a sufficient basis and persisted to the close of trial. Similarly, while it may be said that the defendant did not knowingly advance false or irrelevant allegations in the precise terms described in Ugly Tribe, the standard for indemnity costs is not limited to cases of deliberate falsity. Allegations which are fundamentally unfounded, made with insufficient inquiry or investigation, and pressed despite repeated indications of their weakness fall within the ambit of cases where indemnity costs are justified. Indeed, the guiding principle reduces to a simple question: whether unfounded allegations of fraud or misconduct were made where the party advancing the accusations knew, or ought to have known, that the allegations lacked a proper basis. The latter scenario is applicable here and in any event, it will be rare for an unfounded allegation to be made where the accuser has actual knowledge to the point of certainty of its falsity. Accordingly, the absence of an explicit finding of proven knowing bad faith does not mitigate the culpability inherent in the defendant's conduct in pursuing the allegations in the manner observed in this proceeding. In its costs submissions, the defendant appeared to 'double down' on its earlier stance taken in the litigation, continuing to accuse the directors of the plaintiff of wrongdoing. The further submission that partially adverse findings were made regarding impropriety on the part of the plaintiff's witnesses is substantially attenuated by my determination in the Reasons that the 2000 Lease remained binding despite any irregularity, and by my unequivocal acknowledgement of the honesty and ethical conduct of those principal witnesses in the proceeding. The conclusion that there was a defect in the manner of execution of the 2000 Lease by the validly authorised Mr Gibson is in no way reconcilable with the argument advanced by the Owners Corporation in its costs submissions that this amounted to deliberate unlawfulness. On the contrary, and as the Reasons sought to make clear, it was a defect of the most technical nature which went nowhere. Moreover the contention in the costs submissions that the failure to provide purchasers with a copy of the 1996 Lease as part of the sale documentation (in addition to the 2000 Lease) was 'undoubtedly unlawful' (in some unspecified manner) finds no support in the Reasons and is not accepted. The adverse implication as to the conduct of the vendors' directors and its solicitors is rejected without qualification. That takes me to my next point, which is that the conduct of the litigation aggravated the serious and damning prejudice suffered by the plaintiff and its witnesses and caused unnecessary length and expense.

17 I accept the plaintiff's submissions that the defendant caused avoidable prolongation of the proceeding, which I have already deprecated in the Reasons. The defendant resisted the plaintiff's request that the allegation in its initial pleading characterising the 2000 Lease as a 'fraud' be withdrawn for having no proper basis, and instead doubled down, expanding its arguments in subsequent amended pleadings. It also failed to respond to repeated requests for better particularisation, providing vague, sweeping responses, or, in some instances, no response at all. Even after adverse interlocutory rulings, where I refused its application to personally join Mr Hannah and Mr De Meneghi, the defendant did not reconsider its position. Instead, it amplified the severity of its attacks on those witnesses until the end of trial. The defendant further failed to confine its allegations where documentary evidence emerged contradicting its propositions, confirming that the concealment argument lacked merit, given that it had long been aware of the 2000 Lease, had not made proper inquiries of its members to locate relevant contracts, and had not scrutinised its own records when evaluating the likelihood of the alleged fraud. I touched on this point in the Reasons, but it bears repeating for emphasis. In Rokon Holding Pty Ltd v River St Property Nominees Pty Ltd (No 2),[15] Quigley J held that a costs order on an indemnity basis is appropriate where there has been undue delay in litigation, or where a case was bound to fail from the beginning. I agree with those observations and consider them applicable to the present case. For clarity, however, I address the defendant's submissions on these matters in turn.

18 While the defendant relied on the complexity of the matter, including the age of the documents, its status as a volunteer-based statutory corporation and the long-term significance of property rights in question to justify the breadth and duration of its case, those matters do not, in my view, excuse the unnecessary prolongation that ensued. First, the apparently exceptional nature of the defendant (as an owners corporation) does not exempt it from the same strictures that apply to other litigants. Second, whatever its features, its members were commercially sophisticated and had obtained legal advice. Finally, complexity is not a licence to pursue allegations without proper foundation, nor do the asserted 'high stakes' permit the maintenance of serious accusations once their evidentiary shortcomings have been exposed. Repeated opportunities were given, both by the plaintiff and during interlocutory exchanges, to narrow, abandon, or properly particularise the case. The defendant elected not to do so. As made clear in Rokon, the continuation of a case that was, in material respects, untenable from an early stage can sufficiently warrant an order for indemnity costs, particularly where the conduct of the litigation has unnecessarily extended its length. I regard those principles as directly applicable here.

19 Next, I acknowledge the plaintiff's submission that the defendant failed to retreat from any of the allegations made against the plaintiff and its witnesses, despite repeated warnings to withdraw them both at the pleading stage and during the trial. On the eve of the trial, the defendant filed a further amended pleading, advancing a further allegation of breach of a fiduciary duty allegedly owed to it by the body corporate. This new cause of action alleged a breach of fiduciary duty on the part the vendor TSP in voting its then ownership interest in the lots in favour of the 2000 Lease and relied on the assertedly similar case of Community Association DP No 270180 v Arrow Asset Management Pty Ltd.[16] I accept that this claim was an arguable one, albeit only insofar as it was based on a non-dishonest breach of fiduciary duty. However a case involving that issue alone would have concluded in short compass, probably in about a day. It involved no or very little disputed facts. The preponderance of the trial and necessarily the preparation for trial was taken up with the dishonesty and concealment contentions which were speculative and lacked foundation.

20 Finally, I accept the plaintiff's submissions in relation to its Calderbank offer, notwithstanding that the offer was made at a relatively late stage of the proceeding. By that time, the issues in the dispute had crystallised, and the offer was made at an appropriate juncture, by which point the defendant had reasonable opportunity to formulate and investigate its defences and counterclaims. The defendant contends that the demand related to a matter outside the subject of the main dispute, and also that acceptance would have amounted to an unwarranted capitulation of its position. I do not accept that these considerations, or any formal labels, diminish the relevance of the offer. Whilst access arrangements of the kind sought were not specifically sought in the prayer for relief, they are hardly unreasonable if the 2000 Lease is valid. Further, the compromise embodied in the offer was significant. The plaintiff was offering to bear its own costs of the proceeding. Given the hard fought nature of the case and the history of the litigation those costs are likely to be significant. The failure to accept the offer was unreasonable in the circumstances. Even if I had not otherwise concluded that indemnity costs were warranted from an earlier point, it would, in my view, have been appropriate to order indemnity costs from 30 April 2025 on this basis.

21 In light of the preceding reasons, I am satisfied that the plaintiff is entitled to indemnity costs from a reasonable time after the defendant was provided with a copy of the minutes of meeting. The minutes were provided by the plaintiff to the defendant on about 28 July 2024. Whilst the making and pursuit of the allegations of dishonesty and concealment were speculative to that point and it would have been a sounder approach to refrain from making them , taking the most favourable view of things, they had at least potential plausibility to that point. The provision of the minutes should have prompted sharp reflection and led to further enquiries of the members of the Owners Corporation and a thorough review of the records available. That in turn should have led to a narrowing of the case and the abandonment of the allegations of dishonesty and concealment by the plaintiff and more particularly its directors and the former manager. This point should have been reached at the latest by about three months after the provision of the minutes. In the circumstances the plaintiff will be entitled to its costs of the proceeding including the counterclaim and reserved costs on a standard basis up to 31 October 2024 and thereafter on an indemnity basis.

[1] KeyBeach Pty Ltd v Owners Corporation Plan No. PS426578P [2025] VSC 621) ('Reasons').

[2] Oshlack v Richmond River Council ([1998] HCA 11; 1998) 193 CLR 72.

[4] [2013] VSCA 237, [538]-[551] (Warren CJ, Osborn JA and Macaulay AJA).

[5] Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189, [7] (Harper J).

[6] Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, 223-224 (Sheppard J).

[7] [1993] FCA 70; (1993) 46 IR 301, 303.

[8] [2019] VSC 655 at [5] per Croft J, upheld on appeal in Li v So [2021] VSCA 32.

[9] (2005) 13 VR 435 ('Chicken Farm').

[10] [2001] VSC 189 at [7] ('Ugly Tribe').

[12] Norman South & Anor v Da Silva [2012]VSC 622, [22] ('Norman South').

[13] [2004] NSWSC 758.

[14] [2014] NSWSC 1117.

[15] [2025] VSC 252 ('Rokon').

[16] [2007] NSWSC 527.