Plaintiff v Defendant

1 On 12 October 2012, the plaintiffs, who are the adult sons of the deceased, aged 66 and 59 years, filed a proceeding seeking further provision from the residuary estate of their late father ('the deceased').[1] The plaintiffs each sought one third of the residuary estate of the deceased, valued at approximately $35 million at the date of death of the deceased.

2 The trial of the proceeding was to commence on 4 February 2015, with an estimate of four weeks.

3 On 18 December 2014, the Court listed the proceeding for pre-trial directions with the plaintiffs and defendants being required to provide the Court with further information designed to narrow the issues in contention and manage a four week trial: matters such as providing a list of objections to the other sides' affidavits, providing a list of witnesses, and in consultation with each other, providing estimates of the time required for evidence in chief and cross examination and providing a timetable for the trial for opening and closing submissions and the calling of witnesses.

4 At the commencement of the directions hearing, counsel for the plaintiffs indicated the plaintiffs' intention to seek leave of the Court to discontinue the proceeding.[2]

5 The plaintiffs accept that in such circumstances they should pay the defendants' costs of the proceeding to the time of discontinuance.

6 The defendants do not oppose the grant of leave to the plaintiffs but seek their costs be paid on an indemnity basis, as opposed to the standard basis, for the entirety of the proceeding. The plaintiffs oppose, in part, that the defendants' costs be paid on an indemnity basis.

7 During the latter part of the deceased's life, the deceased and the plaintiffs disagreed in a major way concerning alleged contributions of the plaintiffs to the deceased's businesses, operated through various companies, with the plaintiffs foreshadowing their intention to issue proceedings against their parents on the various issues in contention. In October 1995, a settlement was reached concerning any questions of compensation for the alleged contributions during the deceased's lifetime by the settlement of the plaintiffs' intended proceeding ('the 1995 settlement'). The 1995 settlement contained a release in clause 9.2 providing that the plaintiffs would be liable to indemnify the deceased or his companies for any claims brought by the plaintiffs following the 1995 settlement.

8 After the plaintiffs issued this proceeding in October 2012, the solicitors for the defendants, in a letter dated 12 November 2012, notified the plaintiffs that the defendants would rely on the indemnity in the 1995 settlement on the question of costs of the proceeding stating:

...You are hereby put on notice that our clients intend to rely on, inter alia, the terms of the [1995 settlement] Agreement in defending this proceeding. Further, our clients intend to seek indemnity from your clients as provided for in clause 9.2. Your clients should address the provisions of the Agreement (and the basis for any argument that those provisions do not apply) in their affidavit material to be filed and served by 7 December 2012.

9 The plaintiffs were reminded of the indemnity by a further letter from the solicitors for the defendants dated 12 February 2013.

10 In August 2013, the parties attended a mediation of the proceeding with no resolution being reached.

11 On 25 September 2013, the defendants made an offer to the plaintiffs to settle the proceeding for a payment of $1 million to each of them, plus costs. The offer was made under the Rules[3] and by way of a letter.[4] In the defendant's offer to settle, the defendant stated, amongst other things:

...The defendants deny any liability to your clients in this matter. Nonetheless, in order to resolve the matter on a commercial basis, without the need to incur further cost and delay, the defendants are prepared to settle the proceeding on the basis that the defendants pay to each of the plaintiffs the sum of $1,000,000, plus the plaintiffs' costs as agreed or taxed, in full and final settlement of the plaintiffs' claim against the defendants.

This offer will remain open until 5.00pm on 4 October 2013. At that time the offer will lapse.

We draw your attention to the fact that this offer is made without prejudice save as to costs, in accordance with the principles of Calderbank v Calderbank [1975] 2 All ER 333. Therefore, in the event that this offer is not accepted and the matter proceeds to hearing and your clients fail to recover a judgment against our clients which is better than this offer, we put you on notice that this letter will be tendered and a special costs order sought...

12 The plaintiffs did not accept the offer to settle.

13 The only issue to be determined is whether the defendants' costs of the proceeding should be paid on a standard basis or an indemnity basis. The parties filed written submissions on this issue and agreed for the issue to be decided on those submissions.

14 The plaintiffs' submissions dealt with the issue of the payment of any indemnity costs of the defendants by considering the following time periods:

(a) from 27 September 2013 to the time of discontinuance; and

15 The reason for the division into the two time periods arises from the plaintiffs not accepting the offer of compromise of the proceeding or the Calderbank offer made on 25 September 2013.

The period from 27 September 2013 to the time of discontinuance

16 The plaintiffs submit, and I agree, that their seeking leave to discontinue the proceeding does not fall within the scope of r 26.08(4)(b) of the Rules as their claims have not been dismissed and judgment has not been entered for the defendants.

17 In recognition of the defendants' Calderbank offer, the plaintiffs do not oppose an order that they pay the defendants' costs on an indemnity basis in respect of the plaintiffs' claims from the second business day after the Calderbank offer was made, that is, from 27 September 2013, to the time of discontinuance on an indemnity basis.

18 The defendants contend that these costs should be ordered on an indemnity basis because the plaintiffs did not accept their offer made on 25 September 2013 and discontinuance of the proceeding constitutes a worse outcome for the plaintiffs than what would have followed from acceptance of the defendants' offer to settle and, therefore, the plaintiffs' rejection of their offer was unreasonable.

19 Where Calderbank letters are relied upon to support a claim for indemnity costs, the principles set out in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority [No 2] ('Hazeldene') are relevant.[5] The correct approach is to treat the rejection of a Calderbank offer as a matter to which the court should have regard when considering whether to order indemnity costs. The critical question is whether the rejection of the offer is sufficient to establish an order for indemnity costs being made. The answer to this question depends upon whether the rejection of the offer was unreasonable in the circumstances, having regard to at least the following matters:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree's rejecting it.[6]

20 The Court of Appeal in Hazeldene specifically rejected the notion that an imprudent refusal of an offer to compromise gives rise to a presumption that the party rejecting the offer should pay the offeror's costs on an indemnity basis if the offeree receives a less favourable result, stating that 'the correct approach...is to treat the rejection of a Calderbank offer as a matter to which the court should have regard when considering whether to order indemnity costs.'[7]

21 The Court of Appeal also rejected the notion that the maker of a Calderbank offer should not be entitled to costs unless the offer sets out with some specificity the basis for his or her contentions that the compromise should be accepted, stating it is 'neither necessary or desirable to lay down any general rule in this regard'.[8]

22 The Calderbank offer was made at a significant time in this proceeding: it was before the proceeding was set down for trial but after the mediation. Considerable costs had been incurred since the proceeding commenced, including the preparation of forty affidavits, with some of the deponents located overseas, the obtaining of various valuation reports, discovery and the mediation in August 2013.

23 The offer was sent soon after the mediation. It was expressed clearly and succinctly and was an attempt to resolve the proceeding 'on a commercial basis, without the need to incur further costs and delay'. It made clear that a special costs order would be sought in the event of its rejection.

24 Acceptance of the offer would have meant a substantial payment to the plaintiffs, as well as payment of their costs of the proceeding. With the discontinuance of their proceeding, the plaintiffs receive no payment, will pay their own costs as well as the costs of the estate. This result constitutes a substantially worse outcome for the plaintiffs than would have followed from their acceptance of the offer.

25 In my view, the plaintiffs' rejection of the Calderbank offer was unreasonable in the circumstances.

26 The defendants seek indemnity costs against the plaintiffs for the proceeding in the period before 27 September 2013.

27 The plaintiffs oppose the making of an order for indemnity costs for this time period and contend the appropriate order is that they pay the defendants' costs of the proceeding on the standard basis.

28 The defendants submit the following reasons for seeking indemnity costs:

(a) the plaintiffs provide no reasons or explanation for seeking leave to discontinue the proceeding just prior to the commencement of the trial. There is nothing identified by the plaintiffs that points to any change in circumstance that would explain their reasons for discontinuing the proceeding at this 'eleventh hour';

(b) the plaintiffs did not provide the Court with the information required by it at the directions hearing on 18 December 2014. The lack of explanation by the plaintiffs for the discontinuance of the proceeding and their apparent unpreparedness for the trial constitutes an 'effective surrender' by the plaintiffs;[9]

(c) the plaintiffs do not have any financial need and cannot show they had a moral claim requiring further provision from the deceased's estate. Properly advised, they should have known that they had no chance of success[10] because:

(i) on their evidence as sworn to by them in their affidavits, the plaintiffs are wealthy individuals with substantial incomes and substantial living expenses. Provision was also made for each of their children by way of legacies in the deceased's will;

(ii) insofar as the plaintiffs' relied on their alleged contributions to the deceased's businesses in this proceeding, any question of compensation for those contributions was resolved during the deceased's lifetime by the 1995 settlement under which the plaintiffs received very substantial benefits for their alleged contributions;

(d) the 1995 settlement included an express release and indemnity by each plaintiff for any claim, such as this proceeding, brought in contravention of the release. The indemnity expressly included 'legal costs on a full indemnity basis';

(e) while the right to an order under s 91(1) of the Act cannot be excluded by a settlement agreement, the terms of such an agreement must be taken into account in determining if any further provision should be made. The terms of the settlement agreement here are decisive;[11]

(f) this promise by each of the plaintiffs provides a basis for the court to exercise its discretion to award indemnity costs.[12] This is so even if a release cannot forestall a claim pursuant to s 91(1) of the Act because the exercise of the discretion does not involve enforcement of the agreement.[13] Further, even if the release and indemnity by one plaintiff in respect of his own claim under s 91(1) is unenforceable, there is nothing in the Act to preclude enforcement of the indemnity granted by one plaintiff in respect of claims brought by another plaintiff;

(g) the plaintiffs issued the proceeding on 10 October 2012. By letter dated 12 November 2012 from the solicitors for the defendants, the plaintiffs were notified that the defendants would rely on the indemnity in the settlement agreement on the question of costs. They were reminded of this by a further letter from the solicitors for the defendants dated 12 February 2013. Accordingly, there can be no doubt that the plaintiffs were well aware of the risk yet chose to proceed regardless.

29 The plaintiffs submit the following reasons for orders as to costs to be made on the standard basis:

(a) the plaintiffs are not obliged to explain why they seek leave to discontinue the proceeding;

(b) in order to justify an award of indemnity costs where a plaintiff discontinues a proceeding, the court must be satisfied the plaintiffs case was 'hopeless from the outset' and should guard against hindsight to inform itself of the plaintiffs' prospects and what the plaintiffs knew or ought to have known at the outset.[14] The plaintiffs deny their claims were 'hopeless from the outset', and, as the proceeding will not be adjudicated on the merits, it is not appropriate to attempt to assess the likely outcome of a hypothetical trial;[15]

(c) the plaintiffs contend that their claim was arguable as articulated in their mediation position paper dated 16 August 2013;[16]

(d) at no time did the defendants put the plaintiffs on notice that their view was that the claims were hopeless. Rather, by their offer made in September 2013 the defendants offered to pay the plaintiffs $2 million plus costs to settle the claim and this is 'a powerful factor to be taken into account ... in relation to the claim for indemnity costs';[17]

(e) leaving the offer to settle to one side, it should not be assumed that had the plaintiffs pursued their claims to trial and been unsuccessful, there would have been any costs consequences apart from a costs order on the standard basis;[18]

(f) it is of no consequence that each of the plaintiffs purportedly agreed to make no claim against or, in respect of, their father's estate in the 1995 settlement. The 1995 settlement was and is relevantly unenforceable.[19]

30 In response to the plaintiffs' submission that 'at no time did the defendants put the plaintiffs on notice that their view was that the claims were hopeless', the defendants refer to their mediation position paper dated 16 August 2013 as follows:

(a) the plaintiffs' claims will fail as they are ambit claims unsupported by any financial need or moral claim;[20]

(b) the claim that the plaintiffs are entitled to the quantum they seek or otherwise is extraordinary. It is denied by at least the following matters set out in the position paper:[21]

(i) the wealth of the plaintiffs established by their own evidence (which the defendants did not accept as stating the position fully or accurately);

(ii) it was impossible to see how, given their wealth, their position in life and evident lavish lifestyles, the plaintiffs had any financial need for provision;

(iii) the question of the need to compensate the plaintiffs for contributions to the deceased's companies was resolved by the 1995 settlement that included an express release from the kind of claim which the plaintiffs now make and involved the conferral of very substantial benefits on each of the plaintiffs of well over $20 million in value at the time of the 1995 settlement, excluding their houses and cars;

(iv) throughout the mediation process and surrounding negotiations over a protracted period, the plaintiffs were represented by very able counsel and solicitors;

(v) the plaintiffs' claims for provision of one third of the residuary estate to each of them fails to bring into account the very substantial sums received by them as a result of the 1995 settlement;

(vi) the plaintiffs' claims are apparently based solely on an assertion that the provision for them was a matter of fairness which is not what Part IV legislation requires or permits;

(c) the plaintiffs' assertion that the deceased failed to make adequate provision for them will be rejected. Their very substantial wealth, in light of the 1995 settlement, falsifies that assertion. Their claim is entirely without merit.[22]

31 The prima facie position in respect of costs in litigation is for standard costs to be ordered by the court. A special costs order will only be made where the proceeding exhibits a special or unusual feature or special circumstances. Each proceeding must be considered on its own facts and, specifically, whether those facts support the making of a special order for costs.

Are there special circumstances warranting a special costs order?

32 In Ugly Tribe,[23] Harper J identified the following circumstances as warranting a special costs order, noting that the categories of circumstances are not closed:

(a) the making of an allegation, known to be false, that the opposite party is guilty of fraud;

(b) the making of an irrelevant allegation of fraud;

(c) conduct which causes loss of time to the court and to other parties;

(d) the commencement or continuation of proceedings for an ulterior motive;

(e) conduct which amounts to a contempt of court;

(f) the commencement or continuation of proceedings in wilful disregard of known facts or clearly established law; and

(g) the failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial.

33 Both parties referred to the decision of Croft J in Sidameneo (No 456) Pty Ltd v Ward ('Sidameneo')[24] where his Honour set out the relevant principles in respect of indemnity costs where a notice of discontinuance has been filed. Importantly, his Honour also noted that categories of special circumstances in which indemnity costs may be awarded are not closed.[25]

34 In my view, there are many special features or circumstances in this proceeding that support the making of a special costs order for the entirety of the period before 27 September 2013.

35 Although there is no rule that seeking leave to discontinue just before the trial without any explanation for doing so mandates a special costs order, seeking leave at such a late stage with no explanation is a consideration to be taken into account in the exercise of the court's discretion.

36 There is also no rule that where a party discontinues a claim at such a late stage that the party, properly advised, realised and ought always to have realised that they had no realistic chance of success. This is particularly so where a claim involves discretionary elements such as the plaintiffs' claims. Unlike the circumstances in Sidameneo where the leave to discontinue the proceeding was made after most, if not all, of the evidence in relation to the liability issues had been heard, in this proceeding there has been no adjudication on the merits and there cannot be an assessment of the likely outcome. Whilst the plaintiffs emphasise that the court should guard against hindsight to inform itself of the plaintiffs' prospects and what the plaintiffs knew or ought to have known at the outset, the late abandonment of the trial with no explanation and the plaintiffs' failure to provide the required information for the pre-trial directions are all factors that should be taken into account in the court's discretionary exercise.

37 Just as a court will regard the circumstances where an applicant is put on notice by a defendant that it regards the proceeding as ill-conceived or without basis, and the applicant proceeds and fails, as a 'special circumstance' in respect of an award of indemnity costs,[26] then I see no reason why the circumstances where the plaintiffs have such notice and now discontinue the proceeding close to trial without any explanation at all is not also a special circumstance in a consideration for an award of indemnity costs.

Does the discontinuance constitute effective surrender?

38 Whilst it should be accepted that the plaintiffs' claims were arguable because of the many discretionary elements involved in their claim, where a party discontinues a claim at such a late stage without any explanation, then the court is entitled to infer that the 'discontinuance is an acknowledgement of almost certain defeat or amounting to "effective surrender" by the plaintiffs'.[27] If this were not so, the plaintiffs have not explained why it is not the case. Although the plaintiffs' submit that the defendants did not notify them that their claims were hopeless, this cannot be accepted when the defendants' reply submissions set out the reasons for the plaintiffs being on notice of the defendants' strong views of the merits of the plaintiffs' claims.

39 The plaintiffs' submission that because the defendants' made an offer after the mediation of the proceedings does not detract from the conclusion. To equate the offer as a reflection that the defendants concede the plaintiffs' claims had merit misconceives the many reasons why a litigant may make an offer to settle a proceeding. In this case, the offer made clear the reasons of the defendants for doing so.

40 I also reject the plaintiffs' submission that if the trial had been pursued and been unsuccessful, the consequent costs orders would have been on a standard basis. Just as the plaintiffs emphasise that a court should guard against hindsight to inform itself of the plaintiffs' prospects and what the plaintiffs knew or ought to have known at the outset of the proceeding, a court should also guard against attempting to inform itself of future matters in the proceeding. Any costs orders made where the trial had been pursued unsuccessfully would depend on many considerations, in particular, the trial itself and the reasons for the claims being dismissed at trial.

Should the 1995 settlement agreement be taken into account on the question of indemnity costs?

41 In respect of the 1995 settlement, the defendants accept that a right to an order under s 91(1) of the Act cannot be excluded by a settlement agreement but contend that, to the extent that the 1995 settlement provides that if a proceeding of the kind that the plaintiffs make in this proceeding does occur, then indemnity costs would be sought against the plaintiffs relying on the provision of the 1995 settlement.

42 The solicitors for the defendants notified the plaintiffs that the defendants would rely on the indemnity in the 1995 agreement on the question of costs just four weeks after the proceeding was issued. The plaintiffs were reminded again of this by a further letter three months later and again at the mediation. There can be no doubt that the plaintiffs were well aware of the risk of indemnity costs being sought against them relying on the 1995 settlement, yet they chose to issue and proceed with their claims in any event. Whilst the relevance of a warning or notification will vary according to the circumstances of each case, the early notification is a factor to be taken into account in the exercise of the court's discretion.[28]

43 The courts have adopted a robust approach to agreements made inter vivos whereby one of the parties agrees not to pursue a claim for family provision. Where a party agrees in an inter vivos agreement not to pursue a family provision claim or where a clause in a testamentary document is designed to prevent a beneficiary from applying for greater provision, a covenant or agreement not to make a claim under the family provision legislation cannot be a bar to the right to apply for provision as a matter of public policy.[29] In Re Gaynor, it was held that such a clause in a will was void as a matter of public policy as its object was designed to deter the beneficiaries from exercising the right conferred upon each of them by the family provision legislation.[30]

44 Even so, the fact of such an agreement and any benefits which an applicant may have obtained under it or consideration made for the applicant's promise are to be taken into account in the exercise of the court's discretion in family provision cases.[31] Just as this is the case in determining a claim in a family provision proceeding, so too should an agreement to pay indemnity costs be taken into account on an application for indemnity costs.

45 Where agreements provide for the payment of indemnity costs in certain circumstances, the approach adopted in recent decisions of this Court is to treat the agreed term 'as informing the manner in which an order for costs should be made' in the exercise of the court's discretion.[32] Where there is an agreement giving rise to a right to indemnity the costs, the discretion 'should ordinarily be exercised so as to reflect that contractual right.'[33]

46 In this case, on its own, the indemnity contained in the 1995 settlement is persuasive in ordering indemnity costs in favour of the defendants. With this factor added to the many other factors relied on by the defendants, I am satisfied that the defendants have established a firm basis upon which it is appropriate to require the plaintiffs to pay the defendants' costs of this proceeding on an indemnity basis.

47 Subject to any further submissions by the parties, I will order that the plaintiffs pay the defendants' costs of the proceeding on an indemnity basis, to be taxed in default of agreement.

48 I will also order that, pursuant to r 25.03 of the Rules, the plaintiffs have leave to discontinue the proceeding.

[1] Pursuant to Part IV of the Administration and Probate Act 1958 ('the Act').

[2] Pursuant Supreme Court (General Civil Procedure) Rules 2005 ('the Rules'), r 25.03.

[3] Supreme Court (General Civil Procedure) Rules 2005, r 26.02.

[4] The letter was drafted in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333.

[5] Hazeldene's Chicken Farm Pty Ltd v Victorian Workplace Authority (No. 2) [2005] VSCA 298.

[9] S_idameneo (No 456) Pty Ltd v Ward_ [2011] VSC 559, [26].

[11] Re Pearson [1936] VicLawRp 59; [1936] VLR 355, 359; Re Hatte [1943] St R Qd 1 (FC), 14.

[12] Shepparton Projects Pty Ltd v Cave Investments Pty Ltd (No 2) [2011] VSC 384, [24]-[26].

[13] Perpetual Trustees Australia Ltd v Schmidt (No 3) [2010] VSC 261, [38]-[41].

[14] Sidameneo (No 456) Pty Ltd v Ward [2011] VSC 559, [25]-[26] (Croft J).

[16] The plaintiffs' mediation position paper was attached to the plaintiffs submissions of costs with their solicitors maintaining it was admissible with or without the defendants' consent, by reason of s 131(2)(h) of the Evidence Act 2008. The defendants maintained the statement was not admissible without the defendants' consent, relying on Forsyth v Sinclair (No 2) (2010) VR 635, but did not object to it being admitted provided the defendants' mediation position paper was admitted into evidence.

[17] Sidameneo (No 456) Pty Ltd v Ward [2011] VSC 559, [23].

[19] Liberman v Morris [1944] HCA 13; (1944) 69 CLR 69, 83 (as in submissions at footnote 6); In re Gaynor [1960] VicRp 99; [1960] VR 640.

[20] Defendants' mediation paper dated 16 August 2013, [3].

[23] Ugly Tribe Co Pty Ltd v Sikola ('Ugly Tribe') [2001] VSC 189, [7]-[8] (Harper J) (citations omitted). See also Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399. The decision at first instance was affirmed by the appellate decision on the issue of special costs: Sunland Waterfront (BVI) Ltd & Anor v Prudentia Investments Pty Ltd & Ors [2013] VSCA 237, [538]-[551].

[24] Sidameneo (No 456) Pty Ltd v Ward [2011] VSC 559, [17]-[18] (Croft J) as extracted from his Honour's judgment of Manderson M & F Consulting v Incitec Pivot Ltd (No 3) [2011] VSC 441, [8]-[12].

[25] Ibid, [18]. See also Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189, [7]-[8] (Harper J).

[26] Thomson Land Ltd v Lendlease Shopping Centre Development Pty Ltd [2000] VSC 140, [21]-[24] (McDonald J).

[27] Sidameneo (No 456) Pty Ltd v Ward & Margarey [2011] VSC 559, [25]-[26].

[28] Waiviata Pty Ltd v New Millenium Publications Pty Ltd [2002] FCA 481, 6 (Sunberg J).

[29] Lieberman v Morris [1944] HCA 13; (1944) 69 CLR 69 (Latham CJ, Rich, Starke, McTiernan and Williams JJ). See also Daebritz v Gandy [2001] WASC 45; Barns v Barns [2001] SASC 187.

[30] [1960] VicRp 99; [1960] VR 640 (O'Bryan J).

[31] Re Pearson [1936] VicLawRp 59; [1936] VLR 355, 359 (Mann CJ).

[32] Perpetual Trustees Australia Ltd v Schmidt (No 3) [2010] VSC 261, [38] (J Forrest J).

[33] Shepparton Projects Pty Ltd v Cave Investments Pty Ltd (No 2) [2011] VSC 384, [24]-[26] (Croft J).