Plaintiffs v Defendant

Supreme Court of Victoria|2014-08-15|Before: McMillan J

WILLS AND ESTATES - Costs - Application by plaintiffs that the unsuccessful defendant be entitled to an indemnity for his costs from his legal representatives - Supreme Court (General Civil Procedure) Rules 2005, r 63.23.

1 On 23 May 2014, judgment was delivered in respect of a preliminary question that concerned the exercise of an option by the defendant, Bernard James Fanning ('Bernard'), to purchase land referred to in clauses 4, 6 and 7 of his father's will dated 9 August 1974 and whether, in accordance with the terms of the option, he paid for the land within three months of the grant of probate of the deceased's will, that is, by 4 March 1979.

2 I concluded that Bernard did not purchase any of the land referred to in clauses 4, 6 and 7 in the manner required by the terms of the deceased's will and that Bernard personally holds the land upon trust for the estate of the deceased.[2]

3 In a postscript in the judgment on the preliminary question, after referring to the decision of Venezia v Marshall,[3] I said:

In this matter, Bernard raised no more evidence of his payment for the land other than his bare assertion that he had indeed done so. That the case has proceeded on this basis is a cause for concern.

In the hearing of the preliminary question, detailed affidavits were filed by both sides. Each side knew the case it had to meet on the preliminary question. The affidavits sworn by Bernard did not produce any evidence of payment. Any objective analysis of his affidavit evidence establishes that the preliminary question would not be answered in Bernard's favour. This was confirmed when his counsel said in his closing submissions in support of his case nothing other than that the events in question happened some time ago, that Bernard asserted that it was true, that he had acted consistently with that assertion, and that it was otherwise 'a matter for the Court'. In my opinion, there are real questions raised as to why this case was run at all.

Legal practitioners must always bear in mind their duty to the Court and their overarching obligations under the Civil Procedure Act 2010.[4] Their task is to advise their clients, not merely to act as the client's mouthpiece. I do not propose in this case to undertake any investigation of the advice given by Bernard's solicitor and counsel. However, arguing a case as unsupported by the evidence as this case was, put simply, is a waste of the Court's valuable time and resources.[5]

4 By summons filed 14 July 2014, in addition to costs orders sought against Bernard, the plaintiffs sought costs orders against two non-parties to the proceeding, being Mr Graeme Bailey, the former solicitor for Bernard, and Mr George Baker, the former counsel for Bernard, as follows:

(a) Mr Bailey and Mr Baker pay to the plaintiffs such sum by way of costs as the Court orders; and

(b) Mr Bailey and Mr Baker indemnify Bernard in respect of the costs to be paid by Bernard to the plaintiffs to the extent determined by the Court.[6]

5 The summons was returnable on 18 July 2014. On that day the two non-parties wanted the Court to determine the issue of the costs sought against them. Mr Gillies, counsel now appearing for Bernard, sought a short adjournment so that he could take instructions and, if necessary, file affidavit material in respect of the costs application against the non-parties.

6 In the circumstances, I granted an adjournment until 28 July 2014. On the adjourned date, Bernard supported the plaintiffs' application for costs against the non- parties.

7 Mr Boston, counsel for Mr Bailey, made the following submissions on the applicable principles that govern the Court's discretion to award costs against legal representatives pursuant to r 63.23 of the Rules or in its inherent jurisdiction. They were not in dispute:

(a) The Court has the power to award costs against a practitioner of a party to the proceeding, even where the practitioner is not a party, pursuant s 24(1) of the Supreme Court Act 1986.

(b) Rule 63.23 of the Supreme Court Rules 2005 prescribes certain criteria by which the Court may exercise its discretion to award costs against a solicitor. In summary, costs against a solicitor may be ordered where the solicitor has caused costs to be incurred improperly or without reasonable cause or to be wasted by a failure to act with reasonable competence and expedition.

(c) The plaintiff application does not seek a costs order under s 29 of the Civil Procedure Act 2010. Despite this, the provisions of the Civil Procedure Act 2010 remain relevant to an application for costs under s 24 of the Supreme Court Act 1986 and r 63.23 of the Supreme Court Rules 2005.

(d) Section 29 of the Civil Procedure Act 2010 provides the Court with broader and more flexible powers than under s 24 of the Supreme Court Act 1986 and r 63.23 of the Supreme Court Rules 2005.

(e) The principles that govern the exercise of the Court's discretion to award costs against a solicitor under r 63.23 of the Supreme Court Rules 2005 or in the inherent jurisdiction of the Court are as follows:

(i) is based upon the ability of the Court to enforce duties owed by practitioners to the Court. Therefore, it is necessary to identify the breach of duty owed by the solicitor to the Court;

(ii) is compensatory rather than punitive or disciplinary. The primary object of the jurisdiction is to reimburse to a party to proceedings, costs that that party has incurred because of the default of the practitioner; and

(iii) is to be exercised with care and discretion and only in clear cases, because if it were otherwise, it is likely to inhibit the way the solicitor acts in conducting the litigation. If there is doubt, the solicitor is entitled to the benefit of that doubt.

(g) Secondly, costs orders against solicitors under the inherent jurisdiction and r 63.23 are exceptional.

(h) Thirdly, merely commencing or maintaining proceedings that have no or substantially no prospects of success is not sufficient to justify a costs order against a practitioner. Something more must be present, such as, for example:

(i) The requirement that something more must be added is due to the fact that a person has a right to have a case conducted in the courts irrespective of the view that his or her legal adviser has formed about the case and its prospects of success. The 'something more' accommodates the competing principle that a party is entitled to have a practitioner act for him or her even in an unmeritorious case.

(j) In light of the changes to the language of r 63.23 in 2000, a serious dereliction of duty or gross negligence is no longer the minimum standard of the practitioner's conduct warranting a costs order. It now appears 'negligence' will suffice. The words 'failure to act with reasonable competence and expedition' in r 63.23 do not require findings of gross negligence.

(k) Fourthly, an 'abuse of process' in this context involves a party using court proceedings and procedures for a purpose unrelated to the objectives that the Court process is designed to achieve. Further, an abuse of process cannot be assumed simply because of the fact that the case is hopeless.

(l) Fifthly, the proper approach to these applications is to determine them summarily and confine such applications strictly to questions that are apt for summary disposal by the Court. This remains the case under the Civil Procedure Act 2010 regime.

(m) Finally and critically, in assessing the evidence supporting the breach of duty purporting to justify the making of the costs order:

(vii) Care needs to be taken to guard against the effect of hindsight; and

(viii) greater care must be taken where the arguability of that party's case depends on a question of fact than when it depends on a question of law. Nevertheless the question is the same whether it depends on fact or law.

8 In support of their application, the plaintiffs relied on an affidavit of Mr Robert Phelan, solicitor for the plaintiffs, sworn 9 July 2014. His affidavit set out and exhibited the many communications between the Mr Bailey and Mr Phelan commencing in December 2011. The substance of the communications was relied upon to support the plaintiffs' detailed written submissions, the effect of which can be summarised as follows:

(a) from 18 August 2011, when Mr Bailey received a cheque for $62,000 drawn on Mr Fanning's bank account, or, from April 2013, when Mr Bailey wrote to Bernard informing him that he had concerns about the evidence and said that Bernard needed to be sure of himself, it ought to have been clear to Mr Bailey that Bernard's case was not founded on any proper evidence and it ought to have been apparent to Mr Bailey that the evidence that was produced was contrary to Bernard's assertions that payment had been made;

(b) the plaintiffs continually asked for documentary evidence in respect of the exercise of the option and it was repeatedly denied to them. If there was any better evidence, it should have been produced. At trial, it was found there was no such evidence; and

(c) Mr Bailey has not produced any evidence that either he or counsel gave advice to Bernard that it would be likely that Bernard would lose the preliminary point.

9 The plaintiffs also relied on Bernard's role as a trustee of the estate of the deceased, saying that it was incumbent on his legal representatives to advise him of the fiduciary nature of his role and his duty, as trustee, to the beneficiaries of the estate. In that context, his representatives should have advised him to seek the direction of the Court as to whether he should use estate funds to defend the proceeding, if he should resign as a trustee or provide the requested documents. It was also said that Mr Bailey should not have sought to obtain releases from unrepresented beneficiaries when there were no grounds for them.

10 In support of the plaintiffs' position, Bernard relied on an affidavit sworn 22 July 2014[7] in which he deposed:

(a) Mr Bailey and his predecessor firm were the long time solicitors for the Fanning family;

(b) as a farmer, he has little knowledge of legal matters;

(c) he agreed that a letter dated 1 December 2011 from Mr Bailey to Bernard's three sisters was correct as Bernard believed that he had paid the value of the real estate held at interest. In the letter, Mr Bailey stated:

Shortly after your father's death, [Bernard] paid into the estate account the full value of the real estate and that amount has been held at interest during the lifetime of your mother. The amount was paid in exercise of the devises under the will and after the costs and fees of the administration of the estate are appropriately calculated, will be available for distribution amongst all the residuary beneficiaries including yourselves.[8]

(d) he gave instructions to Mr Bailey of his belief and about the proceeding and at no time was he told by Mr Bailey that his failure to produce any documentary evidence would be a waste of the Court's valuable time and resources. If he had been given that advice he would have done his best to settle the proceeding at mediation;

(e) paragraph 23 of his affidavit sworn 31 October 2013 was settled so far as Bernard was aware by Mr Bailey. In that paragraph, Bernard deposed:

There has been extended correspondence between the solicitors for the parties since [7 May 2012] and each time correspondence has been received from the plaintiffs' solicitors Phelans such correspondence has been referred to me and I have provided instructions in respect of it and explanations have been provided to Phelans and the plaintiffs in respect of each matter[s] they have raised accordingly on the interpretation of the will, the purchase and the payment for land by myself and the investment of those funds and other matters.

(f) Upon reflection, Bernard did not understand what was meant by the extended correspondence and the meaning of giving instructions in respect of it yet he swore the affidavit.

11 Bernard submitted that Mr Bailey provided an advice to Bernard dated 16 May 2012 that was 'positively misleading' when he advised, amongst other matters, that Bernard had taken up the options in respect of the land and paid the amount due on fixed deposit into a trust account with the Bendigo Bank on behalf of the estate and the interest from the deposit was paid to the deceased's widow during her lifetime. It was positively misleading because he would have to verify the facts alleged in the memorandum with Bernard.

12 He also submitted that Mr Bailey and Mr Baker do not say they advised Bernard in writing or otherwise that unless he could find the documents his case was hopeless.

13 Finally, he submitted that Bernard is an unsophisticated litigant who relied on his advisers and they should have told him that the failure to produce corroborating evidence would lead to an adverse finding.

14 In opposing the application for costs against him, Mr Bailey filed an affidavit sworn 25 July 2014 wherein he deposed:

(a) at all times, his instructions from Bernard were that he had validly exercised the options contained in the will and that he had paid payment of $62,000;

(b) in about April 2013, he received a bundle of documents from Bernard which included documents for a term deposit with the National Australia Bank for $20,000 that appeared to him to show that interest on the term deposit was paid to deceased's widow and this was consistent with Bernard's instructions and the provisions of the deceased's will that she receive income during her lifetime;

(c) at the same time, Bernard provided Mr Bailey with documents relating to funds held in a Bendigo Bank account. He was instructed by Bernard that these funds were in respect of the remaining $42,000 paid in accordance with the deceased's will;

(d) Mr Bailey was concerned about the sufficiency of the documentary evidence, particularly as there was no documentary evidence that such payments had been made to the estate within the necessary three month period. Given that 35 years had elapsed, he considered it reasonable to expect that such documentary evidence may no longer exist. He advised Bernard of his concerns as to the sufficiency of the documentary evidence to support his claim and that he would need to provide further proofs, such as a statutory declaration, to the effect that he had validly paid the funds in accordance with the provisions of the will.

(e) As a result of his concerns, Mr Bailey sent a letter dated 19 April 2013 to Bernard in which he advised, amongst other matters, that before he forwarded any of the documents that Bernard had provided to Mr Bailey by Bernard, he wished to attend upon Bernard:

So we agree on what documents are forwarded.

That we will provide a statutory declaration that you paid the $62,000.

In that regard you must be very careful and be sure of our ground. At the time that amount of money was considerable and I ask you again whether [you] borrowed it from your bank and on what basis. If you took out a fresh mortgage loan then it would appear on a title. You may have other records also in that regard.

15 Mr Bailey submitted there was no warrant to make a costs order against him. Mr Bailey did not maintain a case he knew would fail or was hopeless. It could not be said that Mr Bailey ought to have realised that Bernard's defence had no or substantially no prospects of success.[9]

16 It was reasonable for Bernard to believe that Bernard's defence had some prospects of success for the following reasons:

(a) there was a long professional relationship between Bernard and the Fanning family and Mr Bailey and there would be an understandable inclination for Mr Bailey to believe Bernard;

(b) the affidavits sworn by Bernard whereby he deposed to his specific recollections that he provided the cheques in exercise of the option and whereby he acknowledged and explained the evidentiary gaps and re-asserted his belief that the payments had been made provided a basis for Mr Bailey to accept Bernard's evidence;

(d) it was not unreasonable to accept the documentary gaps in the evidence because the transaction occurred 40 years ago, it was a transaction between mother and son, the mother had a clean out of her records when she moved to a unit and Bernard never handled his mother's books or her money;

(e) prior to the trial Bernard provided to Mr Bailey some documentary evidence of Bernard's assertion of payment in respect of the exercise of the option;

(f) the Court's findings on Bernard's credit played a significant rejection of Bernard's defence; and

(g) the Court should infer that even if Bernard had received advice that his defence had evidentiary difficulties he would still have pursued his defence. That inference arises because:

(i) Bernard now says that, if he had been told about the failure to produce any documentary evidence, he would have done his best to settle at mediation;

(ii) Mr Bailey's evidence is that Bernard was told of the evidentiary difficulties;

(iii) the fact that in cross examination Bernard maintained his belief that he had made the payments; and

(iv) of the matters referred to in (a) to (f) above.

(h) While Bernard maintained his defence despite advice about his evidentiary difficulties, it was not necessary for Mr Bailey to cease acting for him otherwise face the cost consequences because litigants have a right to have their case presented in court and there is a public interest; alternatively, the administration of justice is better served in litigants who insist on bringing their cases to court being represented by practitioners even though their case might be hopeless.

17 Mr Baker adopted the submissions of Mr Bailey, insofar as they applied to Mr Baker. He also submitted:

(a) Bernard's affidavit should be disregarded as it shows that Bernard still maintains his belief that he exercised the option and it reflects the retrospective views of an unsuccessful litigant but he is not saying that he gave untruthful evidence;

(b) Mr Baker did not draft or settle Bernard's affidavits;

(c) Bernard was entitled on the basis of his sworn evidence to have the case determined by the court. There will always be cases where a client or witness turns out to be less compelling than expected;

(d) the fact that there was a lack of documentary evidence and an apparent inconsistency between the available documents and Bernard's evidence does not conclusively establish that Bernard's account of events was wrong. This case can be distinguished from Venezia v Marshall as that case was plainly a hopeless case;

(e) in order to justify a costs order against a practitioner, the authorities under r 63.23 and the inherent jurisdiction of the court, require a lot more than running a 'weak' case;[10] and

(f) the Civil Procedure Act 2005 raises the bar for parties and practitioners generally[11] but where the court was not satisfied on the evidence that Bernard properly exercised his option to purchase the land, it does not mean that his evidence was demonstrably false.

18 Although Bernard was unsuccessful on the determination of the preliminary question, in my view, for the reasons given by Mr Bailey, his case was not manifestly hopeless; rather, it was a weak case with the possibility of some prospects of success.

19 It could not be concluded that, in the circumstances of the case as at 18 August 2011, alternatively, from April 2013, that it ought to have been clear to Mr Bailey that Bernard's case was not founded on any proper evidence. It certainly was the case that there were gaps in the documentary evidence that raised queries, however, vive voce evidence was also to be relied on at the hearing. It was always possible that Bernard's vive voce evidence at trial would be compelling and have satisfied the Court. As the result shows, Bernard's credit was a significant issue in the Court's findings.

20 I am satisfied that Mr Bailey was concerned with the sufficiency of the documentary evidence and that he warned Bernard of his concern, the reasons for his concern and filed a further affidavit sworn by Bernard in an effort to explain the evidentiary gaps.

21 Although Bernard's counsel submitted that Bernard was an unsophisticated litigant, that is very different from Bernard being unable to understand the case put against him. I found that he was readily able to understand matters put to him during the trial.

22 Insofar as he submits that, if his advisers told him that his failure to produce corroborating evidence would lead to an adverse finding, he would have followed it, it is apparent that his loss in the case did not rest solely on that fact.

23 I am satisfied that Bernard understood his case. His belief in his defence was strong and remains strong. The fact that he now supports the plaintiffs' application for costs against the non-parties shows a degree of opportunism on his part.

24 In addition, Bernard's affidavit and submissions address this application for costs with a great deal of hindsight that is not permissible on the authorities.

25 Insofar as Bernard submits that Mr Bailey's advice dated 16 May 2012 was 'positively misleading', I consider that this submission is based on hindsight. It is apparent from the advice that the document was prepared by Mr Bailey for Bernard on his instructions and was for the purpose of sending it to Mr Phelan for his clients, being then the residuary beneficiaries. The memorandum thus reflects Bernard's instructions at that time and, as events now show, have always been his instructions and are still his instructions.

26 I am also satisfied on the evidence that Mr Bailey and Mr Baker were acting on Bernard's instructions at all times.

27 As regards the plaintiffs' submission that it was incumbent upon his lawyers to advise Bernard on the fiduciary nature of his role, I do not consider that role to be relevant to his position vis-à-vis his advisers in this case. His advisers could have better warned Bernard on his fiduciary obligations, but I do not think that their failure in this regard was so egregious as to warrant a costs order against them.

28 Bernard's defence was not manifestly hopeless nor did Mr Bailey or Mr Baker maintain Bernard's defence knowing that it would fail. It was a weak case and the running of a weak case does not justify making costs orders against Bernard's legal representatives.

29 Accordingly, I dismiss the plaintiffs' application for costs against the non-parties.

30 Subject to further submissions of the parties on the costs of the application, the appropriate orders would be that the non-parties' costs of and incidental to the application, including any reserved costs, be paid by the plaintiffs on a standard basis, to be taxed in default of agreement, and that the plaintiffs and Bernard bear their own costs of and incidental to the application.

[1] Re Fanning [2014] VSC 222 (23 May 2014) (McMillan J).

[2] Declarations to that effect were made on 3 June 2014.

[3] Venezia v Marshall [2001] VSCA 160 (17 September 2001) [2], [4] (Brooking JA).

[4] Civil Procedure Act 2010, Parts 2.2 and 2.3. Bernard, as a litigant, is subject to those same obligations: Civil Procedure Act 2010, s 10.

[5] Re Fanning [2014] VSC 222 (23 May 2014) [60]-[62] (McMillan J).

[6] Pursuant to r 63.23 of the Supreme Court Rules 2005 and the inherent jurisdiction of the Court.

[7] Paragraph 9 of Bernard's affidavit is not relevant and struck out.

[8] Affidavit of Robert Martin Phelan sworn 9 July 2014 [7], exhibit 'RMP1'.

[9] Steindl Nominees Pty Ltd v Laghaifar [2003] QCA 157; (2003) 2 Qd R 683, 690.

[10] White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169.

[11] Citing Norman South Pty Ltd v da Silva [2012] VSC 622 (7 December 2012) (Beach J).