Plaintiff v Defendants

Supreme Court of Victoria|2009-10-23|Before: HARGRAVE J

COSTS - Application for an adjustment order under Part IX of the Property Law Act 1958 (Vic) - Plaintiff successful in obtaining an adjustment order - Misconduct by both parties in relation to the proceeding - Plaintiff's evidence concerning significant factual issues rejected - Whether plaintiff's costs should be reduced to reflect misconduct and lack of success on significant issues - Plaintiff's costs of and incidental to the trial reduced by 25 per cent.

COSTS - Offer of compromise - Without prejudice - Whether without prejudice privilege abrogated by rules of Court once all questions of liability and relief determined - Supreme Court (General Civil Procedure) Rules 2005, Rule 26.05(2) - Held: without prejudice privilege not abrogated.

1 On 29 May 2009, the Court published reasons for judgment ('principal reasons').[1] In the principal reasons, it was determined that the plaintiff was entitled to an adjustment order under Part IX of the Property Law Act 1958 (Vic) ('adjustment order'). The adjustment order was based upon a valuation of the assets of the parties at the date they separated in March 2000 ('separation date'). The adjustment order required the first defendant to pay the sum of $500,000 to the plaintiff. For convenience, I will refer to the first defendant as 'the defendant'.

2 Subsequently, the Court heard argument as to whether the adjustment order should carry interest and, if so, in what amount. On 17 September 2009, the Court published reasons for judgment ('interest reasons').[2] In the interest reasons, it was determined that the plaintiff was entitled to interest on the amount of the adjustment order in the sum of $509,109. Judgment was then entered for the plaintiff in the sum of $1,009,109.

3 The further hearing of the proceeding was adjourned to enable the parties to file written submissions concerning costs. Lengthy written submissions were filed by the parties. There was an oral hearing on 13 October 2009, occupying a full day. During the course of that oral hearing, further documents were provided to the Court by counsel for the defendant as aids to understanding the written and oral submissions put by them.

4 In Luxmore Pty Ltd v Hydedale Pty Ltd,[3] Maxwell P and Kellam JA said:

In the ordinary case, it is both appropriate and desirable that a costs question be decided at the conclusion of argument. Rarely will it be necessary for a judge to give detailed reasons for decision adverting to every matter debated in argument. This court will assume, as should the parties, that every matter addressed in argument on costs has been considered. This court will set its face against any proposition which would require judges disposing of questions of costs to give elaborate reasons.[4]

5 This was no ordinary case. To the contrary, it was highly unusual. The trial, including hearings on interest and costs, occupied 45 sitting days, and was bitterly contested. Hardly a point was conceded by either party. In the principal reasons, the Court concluded that both the plaintiff and the defendant had told lies and engaged in other litigation misconduct. In all the circumstances, the Court reserved judgment on the question of costs.

6 Notwithstanding the reservation of judgment and the delivery of these written reasons, I do not intend to deal with every argument raised by the parties. All of the submissions made have been considered and have informed me in the exercise of my discretion as to the costs of the proceeding.

7 Costs orders are in the discretion of the Court. The usual order is that the successful party obtains an order for costs on a party and party basis. Where the case is out of the ordinary, the Court may exercise its discretion to make other orders. The Court may order that a successful party recover no costs, or only part of its costs; that a successful party pay all or part of the losing party's costs; that each party pay their own costs; or that all or part of the costs of a party be paid on a basis other than a party and party basis. The position is no different when a Court comes to exercise its discretion as to costs at the conclusion of a claim for an adjustment order under Part IX of the Property Law Act. Orders outside of the usual order may be made in such cases wherever the conduct of one or more parties justifies doing so.[5]

8 The discretion to depart from the usual order as to costs must be exercised judicially. For the purposes of this case, the following factors have been held as being relevant to the exercise of the Court's discretion to depart from the usual order.

9 First, where a successful party fails in respect of issues which it pursued at trial, including discrete or alternative heads of claim raised on the pleadings, disputed questions of law and disputed questions of fact.[6]

10 Second, where a successful party wins on some issues and loses on others, it is preferable that a single order apportioning costs is made; rather than awarding costs in relation to particular questions or issues in the proceeding.[7]

11 Third, the conduct of a party prior to or during the trial may warrant censure by the Court, to be reflected in the exercise of the costs discretion.[8] For example, where a successful plaintiff is found to have lied in evidence, or to have engaged in other litigation misconduct such as inducing witnesses to lie, the Court may reduce the successful plaintiff's entitlement to costs. This is particularly so where the conduct has the effect of making a proceeding more complicated and prolonged.[9]

12 Fourth, the power of a Court to order costs on a basis higher than party and party costs, such as solicitor and client or indemnity costs, requires the establishment of some special circumstances. Special circumstances justifying a higher costs order include misconduct by the losing party in relation to the proceeding, especially misconduct which causes prolongation of the interlocutory proceedings or the trial, and the making of allegations which ought never to have been made.[10]

13 Fifth, where a defendant makes a Calderbank offer,[11] the unreasonable refusal of the offer by a successful plaintiff is, by itself, sufficient to justify an order that the successful plaintiff pay the defendant's costs from the date of the offer on an indemnity basis.[12]

14 Against this background, I proceed to consider the principal submissions advanced by the parties concerning costs.

15 It is apparent from the principal reasons and the interest reasons that the parties each engaged in misconduct deserving of censure by the Court. This misconduct infected the interlocutory procedures and the trial.

What costs order should be made for the interlocutory stages of the proceeding?

16 In the course of the interlocutory processes, the defendant adopted the approach of not discovering many relevant documents unless an application was made to the Court for further and better discovery by him. The defendant dishonestly concealed the existence of the DSK invoices and diaries throughout the discovery process.[13] However, it was not only the defendant who engaged in improper conduct. As appears in the interest reasons, the plaintiff engaged in deliberate delay for some part of the interlocutory processes while seeking litigation funding. Further, the plaintiff's discovery was also deficient in material respects, although these deficiencies were far less serious than those of the defendant. Of greater relevance is the conduct of the plaintiff in permitting Mr Pollett to exercise a substantial degree of control over her case, with the result that it grew 'like topsy' during the course of the interlocutory processes and became exaggerated as a result.[14] The evidence also disclosed that during the course of the interlocutory processes Mr Pollett had made payments to an important witness, Mr Nedelcu, with the intention of influencing his evidence as to relevant events.[15]

17 It was submitted on behalf of the plaintiff that she should recover costs on an indemnity basis in the period prior to the commencement of the trial. This submission was based upon the Court's finding, in both the principal reasons and the interest reasons, that the defendant had acted dishonestly concerning his discovery obligations. I do not accept that submission. It ignores the plaintiff's own conduct during the course of the interlocutory processes.

18 In all the circumstances, I will order that the defendant pay the plaintiff's costs incurred prior to 2 February 2009, the first day of the trial, on a party and party basis.

What costs order should be made for the costs of and incidental to the trial?

19 During the course of the trial, both parties engaged in improper conduct. This is recorded in the principal reasons. Both plaintiff and defendant told numerous lies. The plaintiff dishonestly exaggerated her case. The defendant dishonestly understated the extent of the plaintiff's contributions to his welfare, the welfare of his son and to his business. These matters prolonged the trial to an inordinate degree.

20 There were also some issues raised by the plaintiff on which she failed altogether. First, all of the plaintiff's evidence concerning violent acts towards her by the defendant was rejected by the Court. Second, it was the plaintiff who introduced Mr Nedelcu. In the absence of the plaintiff calling him as a witness, the issues concerning Mr Nedelcu would not have been ventilated at the trial. A very substantial saving of costs to the parties and Court time would have resulted. Third, much time was wasted because of the plaintiff's conduct as a witness. As noted in the principal reasons, the plaintiff was repeatedly non-responsive,[16] she volunteered irrelevant material in an effort to denigrate the defendant at every opportunity,[17] and she engaged in continual exaggeration and irrelevant embellishment.

21 It was submitted on behalf of the plaintiff that there was no reason to depart from the usual order that a successful plaintiff should recover costs. It was submitted that a judgment for $500,000 together with interest in her favour reflected substantial success in circumstances where the defendant had conducted the trial on the basis that she was entitled to no adjustment order whatsoever. Reliance was placed upon the significant factual issues which were resolved in favour of the plaintiff, including the fact and length of the relationship between the parties and the substantial contributions made by the plaintiff to the welfare of the defendant, his son and the conduct of his business.

22 These matters may be accepted. However, they wholly ignore the effect of improper conduct by the plaintiff which resulted in a substantial prolongation of the trial, and the factual issues upon which the plaintiff failed at trial. Assessing the conduct of the trial as a whole, these factors justify depriving the plaintiff of 25 per cent of the costs of the trial. Having regard to the plaintiff's own conduct, and notwithstanding the misconduct of the defendant during the trial, it is wholly inappropriate that the plaintiff's costs of the trial be taxed on a basis other than party and party.

Did the plaintiff unreasonably refuse the defendant's Calderbank offer?

23 It was submitted on behalf of the defendant that there is another factor which requires consideration in determining the costs of the trial. The defendant relies upon a Calderbank offer made by him following a mediation a few days prior to the commencement of the trial. The defendant offered to pay the plaintiff $901,000 including interest at the date of the offer, together with her party and party costs (the 'defendant's offer'). In accordance with the principal reasons and the interest reasons, the plaintiff was entitled at the date of the offer to an adjustment order, including interest, of approximately $976,000. Accordingly, the plaintiff has recovered about $75,000 more than the amount offered. However, the plaintiff's entitlement to costs remains unresolved and is the subject of these reasons. The defendant contends that, properly advised, the plaintiff should have realised she would not recover all of her costs and that, accordingly, her rejection of the defendant's offer was in all the circumstances unreasonable.

24 It was submitted on behalf of the plaintiff that the defendant's offer was wholly irrelevant to the exercise of the Court's discretion on costs. It was submitted that a plaintiff who obtains a judgment which is $1 more than the amount of a Calderbank offer remains entitled to an order for costs unless there are factors other than the Calderbank offer which justify departure from the usual rule. It was submitted that this must be so, because otherwise a defendant who makes a Calderbank offer will be in a better position than a defendant who makes an offer of compromise under the provisions of Order 26.[18] I do not accept that submission. Once a Court comes to consider costs, a Calderbank offer becomes an open offer available for the Court's consideration. That is its purpose. The fact that a plaintiff may obtain a judgment which marginally exceeds a Calderbank offer does not, in every case, make that offer irrelevant. Depending upon the circumstances of the case, it may be relevant in the exercise of the Court's discretion as to costs.

25 It was submitted on behalf of the defendant that the following matters establish that the plaintiff's rejection of the defendant's offer was unreasonable in all the circumstances.

26 First, the defendant's offer was made on Tuesday 27 January 2009, following a mediation of the proceeding. At that time, the trial was due to commence on the following Monday 2 February 2009. The parties and their legal advisors were preparing for trial and had knowledge of all the issues.

27 Second, the offer remained open until 5.00 pm on 3 February 2009. Accordingly, the offer was open until a reasonable time following opening submissions by respective counsel. In fact, the openings were concluded on 2 February 2009 and the plaintiff commenced giving her evidence the next day.

28 Third, the offer was made in circumstances where the parties jointly estimated a trial of approximately 30 days duration. It was submitted that the plaintiff and her legal advisors can have been in no doubt that the Court's decision as to costs issues could be relevant in determining any real measure of success by her. This was especially so where the plaintiff must have been intending to present the false and exaggerated parts of her case in fact presented at trial.

29 Fourth, the defendant's offer was expressed in clear terms. The offer of $901,000 covered both any adjustment order made and interest on such an order. Costs were offered on a party and party basis. It was submitted that the reference to Calderbank v Calderbank[19] could have left the plaintiff's lawyers in no doubt that the defendant's offer would be referred to on the question of costs and that, if the Court found that she unreasonably refused to accept the offer, she may be liable to pay costs to the defendant on an indemnity basis if she did not obtain a better result.[20]

30 Fifth, it was submitted that, in the absence of the defendant's offer, the plaintiff's conduct should in any event lead to the Court reducing the plaintiff's costs entitlement to a substantial degree; broadly for the reasons given above.

31 Sixth, it was submitted that, in all the circumstances, the plaintiff will be in a worse position than if she had accepted the defendant's offer.

32 The plaintiff won a result which exceeded the defendant's offer by only $75,000 when interest is calculated to the date of the offer. As against that, she has failed to recover 25 per cent of her party and party costs of the trial. No evidence was put before the Court as to the extent of the excess but, in a case such as the present, where both parties were represented each day by senior and junior counsel and at least one solicitor, and there were witness expenses of expert forensic accountants, I infer that 25 per cent of the plaintiff's party and party costs of and incidental to the trial must have exceeded $75,000.

33 In recovering slightly more than the offer, but with a reduction of 25 per cent of her costs entitlement in respect of the trial, the plaintiff is in a worse financial position than if she had accepted the defendant's offer. Notwithstanding this position, I am not satisfied that the plaintiff's rejection of the defendant's offer was unreasonable in all the circumstances. The position must be assessed at the time the defendant's offer was made. Understandably, in considering the offer, the focus of the plaintiff and her lawyers would have been on the amount offered in respect of the plaintiff's claim to an adjustment order and interest. Their assessment of that component of the offer has been vindicated.

34 I accept that the plaintiff and her lawyers also had to consider the possible cost consequences of the trial, which was then jointly estimated to occupy at least 30 sitting days. However, the range of discretionary factors relevant to costs which may become relevant during a trial of that magnitude would have been very difficult to predict. For example, the plaintiff and her lawyers may have reasonably believed that the plaintiff would obtain an order for all, or substantially all, of her costs if she obtained an adjustment order and interest in the amount of approximately $1 million, as has taken place. Further, the plaintiff and her lawyers would have been justified in believing that the Court would probably find the defendant to have engaged in tax fraud. In those circumstances, it was not unreasonable for the plaintiff and her lawyers to predict that she would recover all, or substantially all, of her costs.

Has the plaintiff achieved substantial success?

35 The defendant raised a further contention. It was submitted that, in the context of a Part IX application for an adjustment order, the Court should identify the parameters of the dispute and then determine whether, in that context, the result achieved by the plaintiff ('the event') constitutes substantial success. In this regard, reliance was placed upon some statements of the New South Wales Court of Appeal.

36 In Vollmer v Hauber-Davidson,[21] two judges of the New South Wales Court of Appeal considered the identification of 'the event' for the purposes of determining whether costs should be ordered in adjustment order proceedings under the applicable New South Wales statute. In granting leave to appeal in respect of the costs order at first instance, the Court (Mason P and Handley JA) stated:

We have reviewed the reported cases on the Act dealing with costs and 26 unreported cases decided over the last five years since Howland v Ellis to see whether there is any established practice or some elucidation of principle which might support the order in this case or indicate the order that should now be made. In our judgment the best statement of principle was that by McLelland J in Parker v McNair where he said:

In this kind of case where the discretionary powers of the Court are invoked it is important on the question of costs, in my view, to see how reasonable or otherwise the parties have been in limiting issues for litigation and in making offers of settlement, and this is the kind of case in which parties would be wise, if they wish to make an offer of settlement, to adopt the Calderbank form of letter ... or to make an open offer, because it is only in the light of that sort of information that the Court can really be properly placed to consider whether the litigation was necessary.

The 26 unreported cases have not revealed any settled practice or further development of principle. They do however demonstrate that, where offers have been made, orders for costs have been made in accordance with the principles stated by McLelland J. They also show that the Court has generally taken a broad, rather than a narrow, view of what constitutes the event in proceedings under the Act. Where offers have been made they have generally been treated as defining the real dispute and 'the event' of the litigation has been judged accordingly.[22]

37 In Baker v Towle,[23] the New South Wales Court of Appeal considered the decision in Vollmer. Beazley JA did not accept that 'the event' should be determined by a consideration of the respective offers which have been made if there is evidence of those offers. Her Honour said that offers were only one of a number of considerations to be taken into account in the range of circumstances informing the exercise of the costs discretion.[24]

38 Basten JA considered that the pleadings should identify the scope of a disputed application for an adjustment order,[25] and continued:

The next question is whether any degree of success on the part of the plaintiff should be sufficient to justify an order for payment of her costs in full, or whether the costs order should in some sense be proportionate to the degree of success. In such a case, the 'event' may be identified with greater or less precision by reference to the extent of the adjustment ordered.[26]

39 Basten JA considered that a costs order reflecting the proportionate degree of success was of a different character than an order limiting a successful party's costs because the successful party has failed on some issues.[27] In his Honour's view:

in a case involving adjustment of interests in assets, it may be thought that justice is best done by an apportionment of costs depending upon the plaintiff's degree of success. The trial judge was not in error in adopting that approach in the present case, and the approach may properly be applied in relation to the appeal.[28]

40 On this basis, costs orders were made to reflect the proportionate degree of success both at trial and on appeal.[29]

41 Beazley JA agreed with these orders, notwithstanding the different approach preferred by her.[30]

42 The other member of the Court, Mathews AJA, also agreed with the result, but preferred the approach enunciated by Beazley JA.[31]

43 I also prefer this approach. The discretion to order costs in proceedings under Part IX of the Property Law Act should reflect the relevant circumstances of each case. Those circumstances include identification of the extent of the dispute by reference to pleadings, offers of settlement where available, and a consideration of the manner in which the trial was conducted. In this case, the pleadings and conduct of the trial identified a simple dispute, involving no common ground between the parties. The plaintiff contended that she was entitled to an adjustment order of 50 per cent of the total asset pool, together with a further adjustment to reflect violent acts of the defendant towards her. The defendant denied that the plaintiff was entitled to any adjustment order whatsoever.

44 It was submitted on behalf of the defendant that, viewed objectively, the plaintiff had failed to obtain substantial success in the proceeding. Reliance was placed upon the following two comparisons.

45 First, although the plaintiff was seeking in excess of 50 per cent of the defendant's total assets at the separation date ($11,177,933),[32] she has recovered only $500,000, or less than 5 per cent. This comparison does not assist the defendant. His position at trial was that no adjustment order whatsoever should be made. In those circumstances, recovery of an adjustment order and interest approximating $1 million represents substantial success.

46 Second, it was submitted that the dispute should be defined by reference to the competing offers made by the parties. It was submitted that the Court should inspect the plaintiff's offer of compromise made under Order 26 and compare that offer to the defendant's offer. For the following reasons, I do not accept that the Court should inspect the plaintiff's offer of compromise. Accordingly, there is no offer to compare with the defendant's offer.

47 The plaintiff's offer of compromise was made without prejudice.[33] Accordingly, unless the plaintiff waived that privilege, or the offer had been accepted, it was not admissible for the purpose of determining costs.[34] It was submitted on behalf of the defendant that this position has been altered by the provisions of Rule 26.05(2), which provides:

(2) Where an offer of compromise has not been accepted, then, except as provided by Rule 26.08(6), no communication with respect to the offer shall be made to the Court on the trial of the proceeding until after all questions of liability and the relief to be granted have been determined.[35]

48 I do not accept that submission. Without prejudice privilege should not be cast aside by a sidewind. For such a well-entrenched privilege to be abrogated by legislation or delegated legislation, the intention to do so must appear 'with irresistible clearness'.[36] Rule 26.05(2) does not express a clear intention to abrogate the privilege. It specifies the time before which, subject to an exception which is not presently relevant, the Court must not be referred to an offer of compromise made under Order 26. Rule 26.08 specifies the relevant circumstances in which a Court may take account of an offer of compromise. Rule 26.05 does not state that, if one of these circumstances does not arise, the Court can nevertheless ignore the without prejudice privilege and inspect the offer of compromise.

49 In the absence of the Court inspecting the plaintiff's offer of compromise, it was submitted on behalf of the defendant that the Court should infer that the plaintiff would not have offered to compromise the proceeding for any sum close to the amount of the adjustment order and interest, but only for many millions of dollars more. Reliance was placed upon the plaintiff's case at trial; that the defendant's assets at the separation date exceeded $19 million, and that an adjustment order should be made in her favour for more than half of that amount.

50 Such an inference should not be made in the circumstances of the case. Apart from the concession by the plaintiff's counsel that the plaintiff's offer of compromise was not for an amount less than the adjustment order and interest, it is a matter of speculation as to what the plaintiff offered to accept in her offer of compromise. Just as the defendant's offer is substantially different to the open position advanced by him at trial, the plaintiff may have offered to compromise the proceeding for substantially less than pursued by her at trial. To infer the likely amount or range of the plaintiff's offer of compromise would defeat the purpose of the without prejudice privilege to which she is entitled and has maintained. In effect, the Court would be drawing an adverse inference against the plaintiff for exercising her right to insist that the privilege be maintained. That is not permissible.

51 In a case such as the present, the inability of the Court to see the competing offers may have deprived the Court of information relevant to the exercise of the discretion as to costs. The legal position will alter on 1 January 2010, when the Evidence Act 2008 (Vic) comes into operation. Section 131(2)(h) of that Act will make all communications prepared in connection with attempts to negotiate a settlement of a dispute admissible if they are relevant to determining the liability of a party for costs. However, that does not assist the defendant in this case.

What orders should be made for the costs incurred after the principal reasons?

52 The Court published the principal reasons on 29 May 2009. Since that time, the parties have incurred costs in relation to contested hearings in respect of the plaintiff's interest and costs entitlements. In my view, these matters formed part of the trial and the plaintiff's costs should accordingly be reduced by 25 per cent in relation to those issues.

53 It may be thought that the plaintiff should have all of her costs of the dispute concerning her interest entitlement. She was successful in obtaining interest at the penalty rate for the whole of the period since the issue of the writ. However, a substantial part of the hearings concerning interest was occupied with a contention made on behalf of the plaintiff that the Court had no discretion as to the rate of interest to be applied. As noted in the interest reasons, the plaintiff abandoned that contention after directions had been made for the resolution of the dispute between counsel as to whether, having regard to an agreement between them, the Court retained a discretion as to the interest rate. In these circumstances, there is nothing unfair in reducing the plaintiff's costs entitlement by 25 per cent in respect of the submissions and hearings concerning interest.

54 For the above reasons, I will exercise my discretion to make the following costs orders:

(1) The defendant pay the plaintiff's costs of the proceeding incurred prior to 2 February 2009, including reserved costs, on a party and party basis.

(2) The defendant pay 75 per cent of the plaintiff's costs of the proceeding, including reserved costs, from 2 February 2009.

[1] Kalenik v Apostolidis [2009] VSC 208.

[2] Kalenik v Apostolidis (No 2) [2009] VSC 410.

[5] Giller v Procopets (No 2) [2009] VSCA 72, [17].

[6] McFadzean v CFMEU [2007] VSCA 289; (2007) 20 VR 250, [152]-[158].

[8] Giller v Procopets (No 2) [2009] VSCA 72, [17].

[10] Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225.

[11] Calderbank v Calderbank [1975] 3 All ER 333.

[12] Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298, [28].

[13] Kalenik v Apostolidis (No 2) [2009] VSC 410.

[14] Kalenik v Apostolidis [2009] VSC 208, [45]-[69].

[20] Ibid; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; Foster v Galea (No 2) [2008] VSC 331, [19](f).

[22] Ibid, [18]-[19] (citations omitted, emphasis added).

[32] Kalenik v Apostolidis [2009] VSC 208, [452].

[34] Walker v Wilsher (1889) 23 QBD 335; AMEV Finance Ltd v Artes Studios Thoroughbreds Pty Ltd (1988) 13 NSWLR 486, 487; Lukies v Ripley (No 2) (1994) 35 NSWLR 283, 292.

[36] Potter v Minahan [1908] HCA 63; (1908) 7 CLR 277, 304.

Court (General Civil Procedure) Rules 2005

(2008) 39 Fam LR 323

At a glance

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Cases Cited (7)