Perpetual Trustees Victoria Limited v Menzies

Judgment Introduction 1On 10 September 2012 I gave judgment for Ms Menzies in an action brought by Perpetual and Challenger against her in respect of securities allegedly entered into by her pursuant to which Perpetual and Challenger advanced substantial sums. (For the present purpose both Perpetual and Challenger are in the same position. For simplicity, I refer only to Perpetual.) The facts and circumstances of the matter were set out fully in my judgment of that date. Ms Menzies seeks costs on an indemnity basis against Perpetual. For its part, Perpetual concedes that it should pay her costs but only on a party/ party basis, subject to an exception which I will come to in due course. Ms Menzies had cross-claimed against Perpetual seeking relief that mirrored her defence to Perpetual's action against her. It was not necessary for me to determine that cross-claim separately as it was effectively disposed of by my findings in Perpetual's action. Perpetual seeks an order that Ms Menzies pay its costs of the cross-claim. Also, there had earlier been a determination of a separate question, resolved in Ms Menzies' favour, in which the question of costs was reserved. It is necessary also to deal with the costs in that proceeding. The rule as to indemnity costs 2The applicable rule has been stated in various ways, recently summarised in Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 by Basten JA (with whom Giles JA and Young CJ in Eq agreed on this point) - [106] The modern approach to the question of awarding indemnity costs is often sourced to the judgment of Holland J in Degmam Pty Ltd (In liq) v Wright (No. 2) [1983] 2 NSWLR 354. In cases where the winning party has acted extravagantly, thus running up unnecessary costs, it may be inappropriate to require the losing party to pay all of the winner's costs. However, the question of indemnity costs will usually arise in circumstances where it is the losing party which has behaved inappropriately. Degmam itself was a case in which the unsuccessful defendant made factual allegations which were "false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability ... from herself": at 358. His Honour continued: "As well as that, she so conducted herself in the proceedings, by multiplying allegation upon allegation, and by prevaricating in the witness box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues." 107 These principles were applied in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; 81 ALR 397 at 400-401, by Woodward J. His Honour referred to the case where an action had been commenced or continued in circumstances where "the applicant, properly advised, should have known that he had no chance of success": at 401. His Honour explained: "In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law." 108 In later cases it has been emphasised that the circumstances identified in Degmam and Fountain are not to be treated as exhaustive of the cases in which indemnity costs may be awarded: see, eg, J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No. 2) [1993] FCA 42; 46 IR 301 at 303 (French J). It was sufficient, his Honour said, 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". An indemnity costs order will be warranted where proceedings were maintained by a party having "no reasonable prospect of success": see, eg, Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 (Powell J); Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242 at 273 (Mahoney JA). 109 The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257(S) (Pullin and Buss JJA, and Newnes AJA) held that an indemnity costs order must be justified by "some special or unusual feature of the particular case": at [5]. Nevertheless, in declining to make such an order, the Court merely held that the respondent could not be accused of "having some ulterior motive, or wilfully disregarding the facts or the law": at [7]. 110 In Colgate-Palmolive, Sheppard J sought to elucidate the principles to be derived from the earlier cases: at pp 232-233. 111 Nevertheless, more recent case-law generally shows a tendency to grant indemnity costs orders more readily than was the case in the past. That may be seen to be an element of a broader policy directed to limiting the litigation of cases where there are no reasonable prospects of success: see, eg, Legal Profession Act 2004 (NSW), Part 3.2, Div 10. Such a policy is also reflected in the presumption in favour of an order of indemnity costs where an offer of compromise in accordance with court rules has been made by one party but not accepted by the other and where the offeror has bettered the offer in the litigation. Although the court may otherwise order, the fact that the offeree may be at substantial risk as to an adverse costs order, to be assessed on an indemnity basis, if the offer is bettered, places a significant financial incentive favouring careful consideration of such offers and careful assessment of the benefits of settlement. 112 As appears from the discussion in Commonwealth of Australia v Gretton [2008] NSWCA 117 (Beazley JA, Mason P agreeing) at [48]ff, the test of unreasonableness, applied with respect to the consequences of refusing a Calderbank offer are likely to operate also with respect to other aspects of a party's conduct of litigation: see also Gretton at [117] (Hodgson JA), referring to Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 (Mason P, Clarke AJA agreeing). 113 While the general rule remains that costs should be assessed on a party and party basis, it is important that the standard to be applied in awarding indemnity costs not be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis, absent some blameworthy conduct on its part. A test of unreasonableness should not be upheld on other than clear grounds. Nevertheless, the evaluative judgment thus engaged was satisfied by the findings of fact made by the trial judge and not directly challenged on appeal, except on the basis of other grounds referred to above. In those circumstances, the discretionary power to award costs on an indemnity basis was engaged and it was not demonstrated on House v The King principles that the discretion had miscarried." The separate question 3On 5 May 2009 McCallum J ordered separate determination of the following question - "whether, upon the proper construction of [the relevant mortgage] and on the assumption that the mortgage was not entered into by the defendant or by anyone acting with her knowledge or approval and that she obtained no benefit from the moneys advanced on the security of the mortgage, there is any amount owing to the plaintiff by the defendant the payment of which is secured by the mortgage." 4Her Honour, in giving judgment on the question, referred to Perpetual's claim, which was based on the registered mortgage of 12 October 2005 and the related loan agreement (on both of which, as I have held, Ms Menzies' signature was forged) and Ms Menzies' defence that she did not apply for a loan or authorise any other person to do so on her behalf, nor did she borrow any money from Perpetual and did not receive any money or the benefit of any money from it, as well as denying granting or agreeing to grant the mortgage or signing or executing it or authorising any person on her behalf to do so. A cross-claim had been filed by Ms Menzies in the Perpetual proceedings against her which repeated the allegations made in the defence and sought relief, inter alia, in the form of a declaration that the mortgage did not secure any obligations under the loan agreement. The Registrar-General was the sixth cross-defendant to the cross-claim, against whom a claim for compensation was made under s 129 of the Real Property Act 1900. 5Since the separate question assumed that the security documents were forged and that Ms Menzies obtained no benefit from the moneys advanced, the Registrar-General submitted that there was nothing for the mortgage to secure. On the other hand, if Ms Menzies' evidence about these matters were not accepted, she suffered no loss or damage as a result of any forgery. Accordingly, on either basis, Ms Menzies had no claim against the Registrar-General. Perpetual submitted that if, contrary to its contention, Ms Menzies did not execute the relevant documents, she was nevertheless liable on the basis that she received the benefit of all or part of the loan advance, that the loan agreement was executed by her agent or that she was estopped from denying the full terms and effect of the loan agreement. Accordingly, although the separate question, given its terms, was answered no, McCallum J decided that she should hear the parties further as to the fate of Ms Menzies' cross-claims against the Registrar-General. In the result, on 14 May 2009 her Honour dismissed the cross-claim against the Registrar-General on the basis that, in any event, Ms Menzies suffered no loss. 6In respect of costs, her Honour noted that the application to have the separate questions determined separately was opposed by Perpetual upon the ground that its determination would have no utility since it would not finally dispose of the dispute between Perpetual and Ms Menzies. Her Honour rejected that submission for the reason that, although Ms Menzies could not succeed against Perpetual without also proving the assumption upon which the question was based, its early determination could make it unnecessary for her to proceed against the Registrar-General "against whom she was reluctant and unfunded cross-claimant". 7There was no hearing, the parties being required to file written submissions. In due course, Perpetual filed submissions which conceded that the question should be answered, "no". In its application for costs against Ms Menzies of the application for determination and the determination of the separate question, Perpetual relied on correspondence, which was closely analysed by McCallum J. That material is set out in her Honour's judgment of 27 August 2009 and I do not propose to repeat it here. Her Honour observed that Perpetual's enquiries as disclosed by the correspondence dealt only with the utility of determining the separate question and did not involve a concession that, on the assumptions embedded in the question, the answer must be no. Her Honour noted that, after the order for separate determination was made, Perpetual suggested that the parties might agree on the interpretation of the documents and the matter therefore resolve by consent and that there was no explanation as to why this suggestion received no response. 8Perpetual submitted to McCallum J that the separate question "was only ever going to affect the Registrar-General." Her Honour rejected this, holding (as, with respect, seems self-evident) that the answer to the separate question was "a necessary albeit insufficient, element of her defence to the claim brought against her at the suit of Perpetual". Her Honour held, furthermore - "In any event, Perpetual's response to the application should have been informed by its assessment of the point raised rather than its perception as whether the issue was "going to affect" Perpetual..." McCallum J accordingly held that Perpetual should bear Ms Menzies' costs of the application for separate determination of the question and the determination of that question in the proceedings brought by Perpetual. 9Her Honour then dealt with the question of the Registrar-General's costs. It was not controversial that he should have his costs but it was submitted on behalf of Ms Menzies that she was entitled to a "Bullock" or "Sanderson" order in respect of this liability on the basis that his joinder was both reasonable in the circumstances and made necessary by the failure of the plaintiffs to concede at an earlier point (having been invited to do so) what they ultimately conceded, namely that the separate question must be answered "no". McCallum J concluded as follows - "[Citing Gould v Vagelas [1985] HCA 85; 157 CLR 215 per Gibb CJ at 229 - 230 and Brennan J at 260] I see no reason, in accordance with those principles, why Perpetual should not bear the burden of that part of the Registrar General's costs which is attributable to the separate question. However, the Registrar General very fairly agreed not to enforce any costs order until after the final resolution of the proceedings. On that basis, the parties asked me to defer consideration as to whether a Bullock or Sanderson order should be made in respect of that portion of his costs, so that the issue can be considered in light of the ultimate outcome of the proceedings. It is accordingly appropriate to reserve that question." In the result, McCallum J ordered that Ms Menzies pay the costs of the Registrar-General of the cross-claim brought by her against him, that Perpetual pay Ms Menzies' costs of the application for a separate determination and the separate determination of that question and reserved the question whether any portion of the costs of the Registrar-General should be borne by Perpetual. 10It is submitted to me, for the same reasons that were put to McCallum J, that Ms Menzies should pay the Registrar-General's costs. Even if it is appropriate for me to reconsider the entire matter, as distinct from limiting myself to the question whether anything in the trial suggested a different outcome to that stated (as to which I have grave doubts), I respectfully agree with both her Honour's conclusions and reasons. The outstanding question is whether, as her Honour surmised might be the case, the ultimate outcome of the proceedings should lead to a different conclusion. 11I do not think it necessary to analyse my judgment on the substantive question for the purposes of determining this matter. It is sufficient to say that I concluded that Ms Menzies had established the truth of the assumptions upon which the separate question was based. There is nothing in the outcome which should lead to a reconsideration of McCallum J's conclusion. At all events, and considering the matter independently, it is clear that at the outset, Perpetual could, had it been so minded, have consented to the order as to the separate determination of the question. It did not do so. It opposed the making of that order. The order was made. Under the ordinary rules, Perpetual was bound to pay those costs. So far as the determination itself is concerned, the position taken by Perpetual was, as McCallum J, with respect, correctly held, confined to the utility of the procedure without any concession that the answer to the proposed question was no. 12So far as the Registrar-General's costs are concerned, it is submitted on Perpetual's behalf that it is not enough that it was reasonable and proper to have joined the Registrar-General but that, to secure a contributory costs order, Perpetual must have engaged in some conduct that created the joinder, citing Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135 at [105] - [110]. I accept the submission that Ms Menzies must show some causative link between the joinder of the Registrar-General and Perpetual's conduct. 13Perpetual submitted the following reasons as showing no such causative link existed. The first was that, if Ms Menzies maintained that she was a subject of a fraud and the mortgage was "an all moneys mortgage", nothing was secured and therefore there was no loss in respect of which a contribution could be claimed from the Registrar-General. Secondly, it was argued that, if Ms Menzies was concerned that she could have been liable under the mortgage (because it was not an "all moneys mortgage") and able to claim against the Registrar-General, she should have raised the Registrar-General's liability as part of the separate question or joined the Registrar-General after determination of the separate question. These submissions rest upon an assumption that Perpetual had indicated, at least implicitly, that the mortgage was indeed an "all moneys mortgage". However, the correspondence does not establish this concession. Indeed, despite being detailed in other respects, Perpetual was somewhat coy, as it seems to me, about this matter. As Ms Menzies could not safely assume, at the time that she commenced the cross-claim against the Registrar-General that Perpetual would concede this construction point, although it ought to have done so, the issue was a live one and therefore was indeed Perpetual's approach to the issues in dispute that made joinder of the Registrar-General, if not a necessary, at least a desirable course of action for Ms Menzies to undertake. As to raising the Registrar-General's liability as part of a separate question or joining the Registrar-General at a later stage, I do not think that this would have been useful, especially having regard to the desirability of ensuring that all relevant parties, by some means or other, were joined in the litigation to permit, to the most practicable extent, the resolution of all respective liabilities. 14It is further submitted that the joinder of the Registrar-General in the sixth cross-claim a full year before the determination of the separate question was premature. This argument, as I understand it, rests upon acceptance of the two contentions mentioned above. It has no merit. It is further argued that, even if Ms Menzies suffered loss compensable under the Torrens Assurance Scheme she should first have lodged an administrative claim in accordance with s 131 of the Real Property Act 1900 and that leave was required for her to commence proceedings against the Registrar-General. This point was not taken by the Registrar-General and it is to my mind irrelevant. Perpetual describes the cross-claim as "folly". Quite apart from the inappropriate offensiveness of this submission, it should for the reasons already explained, be rejected. The cross-claim 15Ms Menzies, so far as Perpetual is concerned, sought declarations that, in respect of the mortgage, the total amounts secured by it was nil, that she was entitled to a discharge of a mortgage and a personal equity entitling her to have the mortgage set aside. In substance, if not in form, Ms Menzies achieved these outcomes by the judgment in the principal action. An order that Perpetual execute a discharge of the mortgage and do all things necessary to register the discharge of the mortgage is appropriate and could have been an ancillary order under the principal judgment. (As I understand it, it is not necessary for this order now to be made.) 16In substance, therefore, the questions raised by the cross-claim against Perpetual were entirely absorbed in the principal action. The mere fact that Ms Menzies has not pressed the declarations and orders to which I have referred and is content with the judgment in the principal action does not mean that Perpetual has succeeded in respect of the cross-claim. To my mind it would have been entirely proper to have made the declarations and orders sought. When I stated, in the principal judgment that it was not necessary to consider Ms Menzies' cross-claims, I meant to refer only to her cross-claims against BMC and Terrence Reddy, which only became significant in the event that Perpetual succeeded in the principal action. In my view, in respect of the cross-claim between Ms Menzies and Perpetual, each party should pay its own costs. Costs of the principal action 17Perpetual concedes that it is obliged to pay Ms Menzies' party/party costs of its action against her and her costs on an indemnity basis of adducing evidence from Chris Anderson on and from 24 June 2010. It is convenient to deal with this second matter at the outset. Perpetual's statement of claim, in its original form, relied upon the mortgage and alleged that it had been signed by Ms Menzies. In her defence, Ms Menzies denied executing or granting the mortgage. In its reply, Perpetual extended its claim to reliance on the loan agreement again alleging that it had been validly signed by her. This also Ms Menzies denied. 18On 24 June 2010 Ms Menzies served on Perpetual a notice to admit facts, with which was supplied the expert report of Mr Anderson. In substance, the notice sought Perpetual's admission that the disputed signatures purporting to those of Ms Menzies, as identified in Mr Anderson's report, were not hers. Mr Anderson's report is sufficiently summarised in the principal judgment which does not need to be repeated here. His conclusions were not stated quite so categorically as the admissions that were sought. Nevertheless, they did express fully justified conclusions, also set out in the principal judgment. 19On 7 July 2010 Perpetual served a notice which disputed the facts as to which admissions had been sought. Furthermore, the attendance of Mr Anderson for cross-examination was required. In his opening address, Mr Sirtes SC for Perpetual said - "Our principal claim is we say - contrary to hand writing evidence and other evidence put on, not contradicted by opposing experts - we say she signed the mortgage document and will be bound. Ms Menzies says she did not sign the document and the hand writing report is on, not challenged by competing reports. And we don't know the identity of the people who witnessed the signatures. We are relying on circumstantial evidence. [As to our] claim generally, Perpetual's claim, we put to the Court that Ms Menzies' evidence ought not be believed and that your Honour should find that her word would not be accepted as to what she says occurred... We rely on the documents and what they say on their face because Ms Menzies says she signed a loan application for funds from BMC and says she did so before the mortgage loan, that your Honour ought to infer from that that the signatory was an execution bearing her name and it was in fact herself." Mr Anderson was cross-examined by Mr Sirtes. I agree with the submission of counsel for Ms Menzies that this was perfunctory. It was clear that Mr Sirtes could not, in any substantial way, contest Mr Anderson's conclusions. 20The significance of serving a notice to admit facts which are disputed and subsequently proved is the subject of UCPR 42.8 - (2) Unless the court orders otherwise, the disputing party must, after the conclusion of the proceedings in which a fact in dispute is subsequently proved or is subsequently admitted by the disputing party, pay the requesting parties costs, assessed on an indemnity basis, being costs incurred by the requesting party: (a) in proving the fact, or (b) if the fact has not been proved - in preparation for the purpose of proving the fact. 21It is submitted on behalf of Perpetual that, since the notice to admit facts was served 18 months after the handwriting evidence was prepared and served, the costs that would have been otherwise saved had already been incurred. It is submitted that this must be contrary to the purpose of the rule, which is, so it is contended, designed to give the parties an opportunity to avoid going to the expense of proving a fact. Accordingly, so the argument goes, when a party has already undertaken the fact gathering exercise and then served a notice, the costs (payable on an indemnity basis) in respect of proving the disputed facts ought to relate only to the work done on and from the date of the notice, here 24 June 2010. It is submitted that, in respect of the costs already incurred as at the date of the notice, its service "can be for no other reason than to bootstrap a costs order". 22The last submission is patently without merit. The very point of serving a notice is to render the disputing party liable to indemnity costs in the specified events and it cannot be a valid criticism that the notice is served for this purpose. The rule has also, of course, a public policy purpose, namely, to confine trials, as much as possible, to the real issues in dispute. There is nothing in the rule that suggests that the indemnity costs are confined to those incurred after the service of the notice. Nor, as it seems to me, is there any good reason for so reading it. The disputing party, here Perpetual, could have entirely avoided the risk of facing an indemnity costs order in respect of the alleged forgeries by admitting the specified facts. That it might have done so without the expert's report is fanciful in light of its pleaded position. Of course, it would be appropriate to take into account a delay in admitting the facts, occasioned by the need to obtain its own expert evidence. No doubt other circumstances would justify a variation of the stipulation in the rule. No such circumstances have been put forward in this case. 23Accordingly, Ms Menzies is entitled to an order for her costs on an indemnity basis against Perpetual that were incurred to prove the disputed facts that her signatures were forged on the material documents. 24Ms Menzies contends that, at all events, the costs of defending Perpetual's action should be payable on an indemnity basis because, essentially, its case was so weak. The nature of that case is sufficiently set out in the principal judgment. I do not agree with the characterisation of it in the submissions of counsel for Ms Menzies as "utterly hopeless ... in the face of all the available evidence and ... completely without any evidentiary foundation, all the more so [having regard to the proved forgery of Ms Menzies signatures]." Certainly, once those forgeries were proved (and Perpetual ought to have accepted that this was so or at least probably so well before trial) the chance of success based upon estoppel, agency and ratification was slight but how slight could only be assessed, as a practical matter, at the end of the trial. Much depended, as the principal judgment shows, on an assessment of the relative credibility and reliability of Ms Menzies, Mr Dive, Mr Venegas, Mr Cohen, Mr Reddy and Mr Connolly. 25However the matter might be formulated, I am satisfied that it would not be fair to conclude that Perpetual "should have known [it] had no real prospects of success" (to quote Slattery J in Toyota Finance Australia v Easy Dollar (No 2) [2011] NSWSC 879 at [8]) or, to adopt the language of Basten JA in Chaina), Perpetual has not, to my mind, "behaved inappropriately" in the conduct of its case. Certainly, once it was accepted - as it ought to have been - that Ms Menzies signatures were forgeries, as was the certificate of title, and after Mr Reddy's evidence, Perpetual's case was significantly weakened. However, as the principal judgment makes clear, Perpetual could point to evidence that suggested Ms Menzies knew more about the actions of Mr Reddy than she admitted and what was being done in her name, if not on her behalf. For the reasons given, Perpetual's case in this regard was not accepted but I do not think it acted in such a way as to justify an indemnity costs order for having done so. Conclusion 26Accordingly, I make the following orders - (1)Perpetual and Challenger are to pay Ms Menzies' costs of and incidental to the principal action. (2)Perpetual and Challenger are to pay Ms Menzies' costs on an indemnity basis of and incidental to establishing the disputed facts. (3)Perpetual and Challenger are to pay Ms Menzies' costs of and incidental to her cross-claim against the Registrar-General. (4)Perpetual, Challenger and Ms Menzies are each to pay their own costs of the cross-claim.