Plaintiff v Defendant

Supreme Court of Victoria|2015-11-13|Before: McMillan J

COSTS - Where plaintiffs alleged fraud in their original statement of claim - Where plaintiffs sought leave to amend statement of claim - Where plaintiffs sought multiple amendments to statement of claim - Where agreement that plaintiffs pay costs for directions hearing and application to amend - Whether costs ought be taxed on a standard or indemnity basis - Whether costs should be taxed immediately or when proceeding has ended - Supreme Court (General Civil Procedure) Rules 2005, rr 63.17, 63.20 - Yara Australia Pty Ltd v Oswal (2013) 41 VR 302 - Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225.

1 On 28 August 2015, the Court published reasons concerning the plaintiffs' application filed 1 May 2015 for leave to amend their statement of claim.

2 The Court refused leave to amend, save for certain deletions to which the defendant ('Memart') consented.

3 Subsequently, the parties filed written submissions on the costs of the application.

4 The definitions used in this costs judgment are the same definitions used in the reasons.

(a) the plaintiffs pay Memart's costs of the directions hearing on 17 April 2015; and

(b) the plaintiffs pay Memart's costs of the application filed 1 May 2015.

(a) Whether the plaintiff is liable for the costs of and occasioned by the amendments (costs thrown away) for which leave was granted;

(b) whether the costs should be paid on a standard or indemnity basis; and

(c) whether the costs should be taxed when the proceeding is completed or immediately.

Costs of and occasioned by the amendments for which leave was granted

7 Rule 63.17 of the Supreme Court (General Civil Procedure) Rules 2005 ('the Rules') provides that the costs of and occasioned by an amendment to a pleading are the parties' costs in the proceeding unless the Court otherwise orders.

8 The plaintiffs submit that the costs of and occasioned by the amendments should be the parties' costs in the proceeding because of the following circumstances:

(a) the amendments for which leave was granted are narrow in compass, confined to the deletion of a number of paragraphs of the pleadings and of the prayer for relief, and a correction to the date of the appointment of one of the directors of the defendant;

(b) they will not necessitate any substantive amendments to Memart's defence;

(c) as discovery has not been made and the scope of discovery remains unresolved, there can be no wasted costs associated with discovery in respect of the amendments to the statement of claim; and

(d) the costs of and occasioned by the amendments for which leave was granted will likely be modest.

9 Memart consented to the only substantive amendments for which leave has been given. The amendments that were deleted concerned two matters: the first being the breakdown of the relationship between Ian and Stephen Mandie and their father; the second being the allegation that two of the directors of Memart, being Lasnitski and Stock, acted at the dictation of the father, and after his death, his daughter, and abandoned their duties as directors of in favour of the daughter's wishes.

10 At the directions hearing on 17 April 2015, the Court noted that, in its defence, Memart had pleaded that the first matter was irrelevant and the Court then noted that the second matter made serious allegations against the directors that had not been particularised. In my view, the now deleted allegations ought never have been made.

11 These two matters were not narrow in their nature and also made significant changes to the statement of claim, including the nature of the relief claimed by the plaintiffs. These allegations would have required Memart to investigate them, obtain instructions, draft further pleadings and prepare for the directions hearings in respect of them. The costs incurred by Memart as a result of the now deleted amendments were incurred as a result of the conduct of the plaintiffs.

12 In my view, the plaintiffs should pay the costs of Memart thrown away by reason of the amendments for which leave was granted.

Whether the costs should be paid on a standard or indemnity basis

13 The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court. Rule 63.28 of the Rules provides that the Court has discretion to award costs other than on the standard basis.

14 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.

15 The authorities concerning the principles to be applied when a court, in the proper exercise of its discretion, may depart from the making the usual order for costs on a standard basis are well known and conveniently set out in cases such as Colgate-Palmolive Co v Cussons Pty Ltd;[2] Ugly Tribe Co Pty Ltd v Sikola[3] and Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3).[4] In Ugly Tribe, 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.[5]

16 The plaintiffs submit that the exercise of the discretion to make a special costs order is exceptional. It is generally reserved for cases where the losing party has engaged in unmeritorious or deliberate improper conduct such as to justify the court showing its disapproval and at the same time preventing the successful party being left out of pocket.[6]

17 They submit that the present circumstances do not come within the exceptional discretion to order indemnity costs, contending that Memart has not pointed to any unmeritorious or deliberate improper conduct on the part of the plaintiffs such as would warrant a special costs order being made in its favour.

18 As stated above, the now deleted allegations should never have been made. Leave was not granted for the proposed specified beneficiary allegations and these allegations ought not have been made by the plaintiffs.[7] As determined in the reasons, the proposed amendments were matters that the plaintiffs ought already to have been aware.[8] Leave was also not granted for the proposed conflict of interest amendments. That proposed amendment involved allegations of fraud that ought never have been made without a proper basis and was not particularised by any evidence that would indicate the claim had some prospect of success.

19 Further, in the reasons, the Court found that the procedural history of the proceeding had been unsatisfactory.[9] This has meant that more time than was necessary has been spent in dealing with interlocutory steps. Orders for discovery have yet to be made because of the plaintiffs' conduct in relation to amending their claim three times to date.

20 Under the Civil Procedure Act 2010, the parties and their legal practitioners have an obligation to ensure all claims brought have a proper basis, to take steps to resolve or determine the dispute, to co-operate in the conduct of the proceeding, to narrow the issues in dispute, and to minimise delay.[10] The plaintiffs' applications for amendments to their statement of claim have been determined to have no real prospect of success and, as such, are not in line with these obligations.

21 In my view, making allegations that ought never to have been made, including allegations of fraud, and causing delay and wasted costs, justifies the conclusion that the conduct of the plaintiffs falls within the scope of the circumstances described in Colgate-Palmolive and warrants a special costs order in favour of Memart.

22 Accordingly, I order that Memart's costs of the hearing on 17 April 2015 and any work undertaken by Memart for the plaintiffs' application filed on 1 May 2015 be paid by the plaintiff on an indemnity basis.

Whether the costs should be taxed when the proceeding is completed or immediately

23 Rule 63.20 of the Rules provides that where an interlocutory application is made in a proceeding and no order is made on the application or the order is silent as to costs, the costs are the parties' costs in the proceeding, unless the Court otherwise orders. Rule 63.20.1 provides that unless the Court orders, costs orders on an interlocutory application or hearing shall not be taxed until the proceeding is completed.

24 The rationales for not taxing costs before the completion of a proceeding has been expressed as including the following:

(a) avoiding multiple taxations and the attendant costs;

(b) avoiding interlocutor applications being used as a means to exhaust the funds of an opposing party; and

(c) avoiding unfairness in a case where, for example, a party who is ultimately successful is unable to set off their judgment against an earlier liability to pay costs.[11]

25 Notwithstanding this general rule, there are certain circumstances in which the Court will make an order as to how costs will be taxed on an interlocutory application. For example, where:

(a) there is a prospect of considerable delay in the completion of a proceeding;

(b) the issue that is the subject of the interlocutory order involved a separate or discrete issue;

(c) the party against whom the substantive order was made was guilty of 'unreasonable', 'reprehensible' conduct or conduct lacking 'competence and diligence', which the Court has found to constitute unsatisfactory conduct in the circumstances.[12]

26 The plaintiffs submit the default position as to taxation of costs on an interlocutory application established by r 63.20.1 of the Rules should apply for the following reasons:

(a) the amendments in respect of which leave was sought can be properly characterised as being responsive to matters raised by the Court and by Memart in respect of the plaintiffs' pleadings. The application was brought promptly;

(b) the 'new issues' raised in Memart's submissions dated 15 May 2015 as to the effect of the settlement agreement were precisely that - new issues. [13] This is apparent from the fact the contention in proposed paragraph 11F, which sought to impugn the defendant's contentions as to the effect of cl 9.2 of the 1995 settlement agreement was particularised by reference to Memart's submissions.[14] While the Court found that the 'new issues' refer to material and matters of which the plaintiffs ought already have been aware, the point was one that had not previously been taken by Memart. Any proposed pleading that sought to foreshadow the issue raised by Memart would have been anticipatory and hypothetical;

(c) the reformulation of the proposed amended statement of claim to address the 'new issues' had the utilitarian benefit of avoiding the need for a second hearing based on a different version of the proposed pleading;

(d) the plaintiffs' conduct has not resulted in any great delay;

(e) the 'new issues' raised in Memart's submissions dated 15 May 2015 were ultimately not pressed by Memart's counsel at the hearing of the application. Instead, he relied upon a different ground of objection that had not been raised previously, namely that, if Ian and Stephen remained specified beneficiaries, the terms of the 'taking in default', as stipulated in cl 11, operated to preclude the general beneficiaries to whom Ian and Stephen's claims were connected from receiving funds from the trust. Indeed, the submissions ultimately put by Memart's counsel in reply appeared to abandon the contention in the written submissions of 15 May 2015;

(f) a taxation of the costs of the interlocutory application is likely to be conducive of greater costs being incurred. It will be more practicable, cost-effective and fair for all costs issues to be dealt with together at the conclusion of the proceeding; and

(g) any dissatisfaction with the conduct of the plaintiffs would be sufficiently addressed by the making of a costs order.

27 As determined in the reasons, the deleted allegations ought never to have been made and the specified beneficiaries allegations and the conflict of interest allegations ought never to have been pleaded. While it is understandable that a party may require leave to amend a statement of claim after discovery, it is not understandable that a party would bring a claim for where insufficient evidence is pleaded in the particulars in the statement of claim.

28 The specified beneficiaries allegations were not 'new issues'. I accept Memart's submissions that they were matters that the plaintiffs ought always to have been aware and that there was no radical change or abandonment in Memart's oral submissions concerning the specified beneficiaries allegations, as is evident in the reasons.[15]

29 The conflict of interest allegations involved an allegation of fraud that ought never to have been made without a proper basis and supported by evidence that would demonstrate that the claim had some prospect of success.

30 In the reasons, and as noted above at paragraph [19]the Court determined that the procedural history of the proceeding has been unsatisfactory and the plaintiffs' conduct has not been conducive to the clear identification of issues in dispute.[16] As a result, the proceeding has been delayed and costs have been wasted. Further, Memart was only given limited time within which to respond to the further proposed amended statement of claim, which was ultimately not allowed. The scope of discovery was to be determined on 17 April 2015, but this has not yet occurred and pleadings have not yet closed.

31 In my view, the plaintiffs' conduct lacks the competence and diligence expected of parties in commencing civil litigation and the unsatisfactory procedural history has resulted in conduct that should properly be described as unreasonable and unmeritorious.

32 While I accept the plaintiffs' submission that a costs order at the completion of the proceeding could remedy any unsatisfactory conduct to a degree, in view of the progress of the proceeding thus far and the potential for fading memories as to events that have occurred so far as these costs are concerned, I consider it to be more efficient and effective to not only quantify the costs but also for Memart to be paid the costs now rather than at the end of the proceeding, which may be some years away.

33 I am satisfied that the plaintiffs' conduct in the proceeding to date warrants a departure from the usual rule under r 63.20 and will make orders that the costs to be paid by the plaintiffs be taxed immediately.

(a) The plaintiffs pay the costs of the defendant of the hearing on 17 April 2015 and of the application filed 1 May 2015, on an indemnity basis, taxed in default of agreement.

(b) The plaintiffs pay the costs of the defendant thrown away by reason of the amendments to the statement of claim for which leave was granted in accordance with the reasons published on 28 August 2015, on an indemnity basis, taxed in default of agreement.

(c) The costs the subject of this order be taxed immediately.

[1] Mandie v Memart Nominees Pty Ltd [2015] VSC 446 (28 August 2015) ('reasons').

[3] [2001] VSC 189 (14 June 2001).

[4] [2012] VSC 399 [12]-[18] (14 September 2012). 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 (6 September 2013) [538]-[551].

[5] [2001] VSC 189, [7]-[8] (Harper J) (citations omitted).

[6] Yara Australia Pty Ltd v Oswal (2013) 41 VR 302 [57] (Redlich and Priest JJA and Macaulay AJA).

[11] Dale v Clayton Utz (No 3) [2013] VSC 593 (26 March 2013) [21].

[12] Setka v Hon Tony Abbott MP (No 2) [2013] VSCA 376 (17 December 2013) [27] (Warren CJ, Ashley and Whelan JJA) citing Dale v Clayton Utz (No 3) [2013] VSC 593 (26 March 2013) [58]-[71], [80]-[82].

[13] Defendant's Outline of Submissions on the Plaintiffs' Application for Leave to Amend, Submission in Mandie v Memart, S CI 2014 06635, 15 May 2015, [5].

Court (General Civil Procedure) Rules 2005

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