Plaintiffs v Defendants

2 The order made on 10 October 2019 recorded in 'Other matters' that counsel for the plaintiffs and the defendants had informed the court that:

(a) The trust deed for the Trust is lost; and

(b) There is insufficient secondary evidence establishing the contents of the trust deed.[2]

3 This ruling addresses three matters flowing from the declarations which were made on 10 October 2019:

(a) Whether the defendants should be ordered to pay the first and second plaintiffs' costs on an indemnity basis;

(b) Whether costs should be payable forthwith; and

(c) Whether the second defendant should be precluded from being indemnified for its cost liability from the assets of the Trust.

For the reasons which follow, each of these questions should be answered in the affirmative.

4 The proceeding was commenced by writ filed on 22 March 2016. The second defendant is the trustee of the Trust. The first, third and fourth defendants are directors of the second defendant. The declarations which were made on 10 October 2019 bring to an end the proceeding between the first and second plaintiffs and the defendants. However, the proceeding will continue as between the defendants and Chin Huat Yap and Sau Lin Kam, who were joined as the third and fourth plaintiffs by order of the Court made on 25 October 2019.[3]

5 Mr Ehrlich QC, who appeared with Mr Cozens for the first and second plaintiffs, submitted that, as the proceeding between the first and second plaintiffs and the defendants is now at an end, there is no impediment to the first and second plaintiffs' entitlement to costs now being determined. He submitted that the defendants should pay the first and second plaintiffs' costs on an indemnity basis, payable forthwith. In effect, Mr Ehrlich submitted that these orders are warranted because the defendants have acted unreasonably in the conduct of their defence to the first and second plaintiffs' claims.

Are the first and second plaintiffs entitled to indemnity costs?

6 In Ugly Tribe Co Pty Ltd v Sikola,[4] Harper J noted that special circumstances must exist before the Court will award costs on an indemnity basis. According to his Honour those circumstances include:

(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud.

(ii) The making of an irrelevant allegation of fraud.

(iii) Conduct which causes loss of time to the Court and to other parties.

(iv) The commencement or continuation of proceedings for an ulterior motive.

(v) Conduct which amounts to a contempt of court.

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law.

(vii) 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]

7 In Johnstone v Herrod,[6] Muir JA (with whom Gotterson JA and Applegarth J agreed) quotes with approval the following passage from the judgment of Goldberg J in White Industries (Qld) Pty Ltd v Flower & Hart (a firm):

[t]he authorities do not support the proposition that simply instituting or maintaining a proceeding on behalf of a client which has no or substantially no prospect of success will invoke the jurisdiction. There must be something more namely, carrying on that conduct unreasonably.[7]

8 In order to address the question of whether the defendants have acted unreasonably in their defence of the first and second plaintiffs' claims it's necessary to set out some of the background to the proceeding.

9 In their third further amended statement of claim filed on 2 July 2019, the first and second plaintiffs advanced the following claims:

(a) That the defendants propounded as the trust deed of the Trust, a deed that is not the true and genuine trust deed ('the propounded trust deed');

(b) The propounded trust deed does not mirror the trust deed that created and established the Trust;

(c) The Trust has failed for uncertainty as it cannot be enforced or executed according to its terms;

(d) The transfer by the second defendant to the first defendant of property in Glen Iris in July 2005 for no consideration constituted a breach of trust.

10 Until late June 2019 the first, third and fourth defendants:

(a) Did not admit that the original trust deed had been drawn in May 1982 by Michael Serong, who was then a partner in the law firm of Cooke and Cussen;[8]

(b) Contended that the original trust deed had been replaced by a later deed prepared by accountants, Henderson & Varalla Pty Ltd, the terms of which were in substance to the same effect as the original trust deed ('the replacement trust deed');[9] and

(c) Contended that the replacement trust deed constituted a valid amendment of the original trust deed.[10]

11 A directions hearing took place before the Honourable Justice Lyons on 28 June 2019. On 27 June 2019, the solicitors for the first, third and fourth defendants sent to his Honour's chambers and the first and second plaintiffs' solicitors and senior counsel, a proposed defence to the third further amended statement of claim.[11] The proposed defence:

(a) Admitted in paragraph five the allegation that the original trust deed had been drawn by Michael Serong;[12]

(b) Abandoned any reliance in the particulars to paragraph 20(b) upon the replacement trust deed as being 'in substance to the same effect as the original trust deed';[13] and

(c) Abandoned the plea in paragraphs 23(cc) and 28(a) that the replacement trust deed constituted a valid amendment of the trust deed.[14]

12 At the directions hearing on 28 June 2019, in reference to the proposed amendments counsel for the first, third and fourth defendants submitted:

[COUNSEL]: And so the reason why there's been a deletion of allegations that there was a valid amendment to the trust deed is because I can't prove what the amendment power was in the original trust deeds, so I can't make good that allegation.

HIS HONOUR: Yes.

[COUNSEL]: The reason why the allegation has been removed that it is identical to or a mirror of the original trust deed is because, clearly, for the reasons set out in my learned friend's pleading, it's not.

HIS HONOUR: Yes. It's not identical.

[COUNSEL]: So that leaves us with, in substance, and because it's a slightly vague allegation as well, in substance, the duties and powers are the same. Now, you might expect that a discretionary trust [drawn] at this point of time would have regard to certain matters and provided with certain powers which would be generally similar.

We have made some inquiries and they're ongoing as to the form of trust deed that was used by Rigby Cooke's predecessor at the time which might also shed light on this question. We are hoping that those matters might resolve things between now and the trial but I'm not in a position to advance a positive case as I stand here.[15]

13 In reference to the proposed amendments, Lyons J stated:

HIS HONOUR: I think I'm sending off vibes of frustration because (a) this proceeding has been around for three years and (b) your clients have maintained a position that the propounded trust deed was the trust deed until now.

[COUNSEL]: Yes.

HIS HONOUR: And unless I'm wrong, it radically changes the nature of this proceeding at what now needs to be attended to.

[COUNSEL]: I don't think [y]our Honour is wrong, save to say that having read the transcript of the directions hearing from December last year, these were questions that [y]our Honour and my learned friend discussed.[16]

14 The following exchange also took place between counsel for the first, third and fourth defendants and Lyons J:

HIS HONOUR: Well, as I understand it, [counsel for the first, third and fourth defendants], from the gist of your defence, both the deletion in paragraph 23 and the deletion in paragraph 28, that is your position, isn't it? Your position is that the replacement trust deed, (a), is not the valid trust deed and, (b), does not substantially accord with the terms of the original trust deed? Because that's what you've abandoned?

[COUNSEL]: (A), yes and, (b) - well, substantially accord, yes, it doesn't mirror the terms of the original trust deed. Now, whether the differences are cosmetic or whether they're substantive - - -

HIS HONOUR: You've deleted the plea that says they are, in substance, to the same effect as the terms.

[COUNSEL]: And so - yes, that's right, [y]our Honour. We can't prove that.

HIS HONOUR: Yes. Well, it seems to me - the unfortunate position that everyone finds themselves in is that we have a trust without - and we cannot identify the terms of a trust deed and we have a trustee who's been purporting to act under the terms of a trust deed which now says, (a) - it acknowledges it doesn't constitute a valid amended of the trust deed and, (b), it acknowledges that - and I don't know why - in substance, it's not even to the same effect.

I think it's appropriate that an application be brought on for an interlocutory - an interlocutory application be brought on, consistent with what the plaintiff now wants to do for either receiver or the replacement of a trustee. It's unfortunate because I wanted this case listed for trial but it seems to me it's a necessary precursor before that should go ahead.[17]

15 It is clear that there was a nexus between the amendments proposed by the first, third and fourth defendants and the course subsequently adopted by the first and second plaintiffs in filing a summons on 8 July 2019 seeking the appointment of a receiver.

16 On 2 July 2019, Lyons J made orders, including an order that:

By 4.00pm on 3 July 2019, the First, Third and Fourth Defendants file and serve a Defence to the Third Further Amended Statement of Claim, substantially in the form provided to the Court by the Third and Fourth Defendants at the directions hearing on 28 June 2019.[18]

17 The amended defences filed on 3 July 2019 were not substantially in the form provided by the third and fourth defendants at the directions hearing on 28 June 2019. Paragraphs 23(cc) and 28(a) were not deleted from the defences filed on 3 July 2019. The defences as filed maintained defences which counsel for the first, third and fourth defendants had conceded to be untenable during the hearing on 28 June 2019.

18 The first and second plaintiffs' summons filed on 8 July 2019 seeking the appointment of receivers was heard on 5 August 2019. During the hearing the parties were advised that a five day trial could be accommodated during the week commencing 14 October 2019. Following discussions between the parties on 5 August 2019, the plaintiffs' summons was dismissed by consent upon the first defendant, by her counsel, undertaking to deliver to the prothonotary the certificates of title of four contested properties. The Court made pre-trial directions, including directions for the filing of supplementary outlines of evidence. As to the steps which would be taken by the first, third and fourth defendants prior to the trial, Dr Hanak QC, who appeared with Mr D R Diaz for the first, third and fourth defendants, submitted:

whatever trial date we can obtain from the Court, we will do what we can, until the trial, to find a copy of the deed, obtain secondary evidence in some other way or do the things that we've been doing that are outlined in the affidavit.[19]

...

[w]e will continue to work until some point before the trial date to try and get the deed because that will resolve a very significant aspect of the case.[20]

...

Well, if we assume that the deed isn't located, we're then going to have to bring in people who have had some involvement to give secondary evidence.[21]

19 At the request of the parties, the proceeding was listed for a mention hearing on 10 October 2019. Counsel for the first and second plaintiffs and the first, third and fourth defendants informed the Court that the trust deed was lost and that there was insufficient secondary evidence to establish the contents of the trust deed. These matters underpinned the Court's declaration that the Trust has failed for uncertainty.

20 I am satisfied that the conduct of the defendants constitutes special circumstances which warrants an order that they should pay the plaintiffs' costs on an indemnity basis. After heavily contesting the plaintiffs' claims for over three years the defendants capitulated on 10 October 2019. The declarations which were made on that day were completely inconsistent with the defences which they had maintained until very shortly prior to the scheduled commencement of the trial. This included the defences in paragraphs 23(cc) and 28(a) which were abandoned during the directions hearing on 28 June 2019, but maintained in the defences filed on 3 July 2019.

21 Where a trust deed is lost, in order to prove a trust deed by secondary evidence there must be clear and convincing proof, not only of the existence of the deed, but also of its contents.[22] The outlines of evidence filed on behalf of the defendants were bereft of secondary evidence of sufficient quality to establish the contents of the trust deed. Shortly stated, the defendants were not in a position to mount a case in support of their pleaded defences. The defendants acted unreasonably in maintaining defences until the eve of the trial which were effectively abandoned. Further, I have no hesitation in concluding that at no stage of the proceeding did the defendants have evidence of sufficient quality to prove the contents of the lost trust deed.

22 It is necessary to address the position of the second defendant. The second defendant did not adopt a passive role in the proceeding. Rather, it actively defended the first and second plaintiffs' claims, including by the making of a counter claim.[23] Ultimately, that claim was not pressed. On 28 June 2019, Mr O'Brien appeared for the second defendant and informed the Court that his instructions were not to defend the proceeding but to abide by the order of the Court.[24] Mr O'Brien was instructed by the first, third and fourth defendants as the directors of the second defendant.

23 The second defendant chose, until late in the day, to be an active participant in the litigation. All of the criticisms which can be levelled at the first, third and fourth defendants apply equally to the second defendant. Further, as the second defendant actively participated in the litigation, it should not be indemnified from the assets of the Trust for any cost which it has incurred in defending the proceeding.

24 In addition to ordering that the defendants pay the first and second plaintiffs' costs on an indemnity basis, it is also appropriate to order that, absent agreement, the first and second plaintiffs' costs should be taxed and paid forthwith. First, the proceeding as between the first and second plaintiffs and the defendants is at an end. Second, as a result of the orders made on 25 October 2019, the third and fourth plaintiffs have been joined as parties to the proceeding. The proceeding between the third and fourth plaintiffs and the defendants could remain on foot for a considerable period of time. It would be unfair for the first and second plaintiffs to have to await the outcome of that ongoing proceeding before receiving their costs.

(a) The defendants pay the first and second plaintiffs' costs, including reserved costs, on an indemnity basis.

(b) The second defendant is not entitled to be indemnified from the assets of the Trust for any of its costs in the proceeding and the costs of the first and second plaintiffs for which it is liable.

(c) In default of agreement, the first and second plaintiffs' costs are to be taxed and payable forthwith.

ADAM YAP (BY HIS LITIGATION GUARDIAN, ENG HOCK YAP)

ADAM YAP (BY HIS LITIGATION GUARDIAN, ENG HOCK YAP)

ADAM YAP (BY HIS LITIGATION GUARDIAN, ENG HOCK YAP)

[1] Order of McDonald J in Yap & Ors v Lee & Ors (Supreme Court of Victoria, S CI 2016 01053, 10 October 2019) [2].

[3] Order of McDonald J in Yap & Ors v Lee & Ors (Supreme Court of Victoria S CI 2016 01053, 25 October 2019) [1].

[4] [2001] VSC 189.

[5] Ibid [7] (citations omitted). See also Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 233-4 (Sheppard J).

[6] [2012] QCA 361.

[7] Ibid [10], quoting White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169, 236.

[8] First defendant, 'Further amended defence', 4 December 2018, [5]; Third and fourth defendants, 'Further amended defence', 4 December 2018, [5].

[9] First defendant, 'Further amended defence', 4 December 2018, [20(b)]; Third and fourth defendants, 'Further amended defence', 4 December 2018, [20(b)].

[10] First defendant, 'Further amended defence', 4 December 2018, [23(cc)] and [28(a)]; Third and fourth defendants, 'Further amended defence', 4 December 2018, [23(cc)] and [28(a)].

[11] Attached to an email from solicitors for the first, third and fourth defendants to the Chambers of the Honourable Justice Lyons, 27 June 2019.

[12] Third and fourth defendants, 'Proposed defence to third further amended statement of claim', dated 27 June 2019, [5].

[15] Transcript of proceeding (28 June 2019) 23.10-24.01.

[18] Order of Lyons J in Yap & Ors v Lee & Ors (Supreme Court of Victoria, S CI 2016 01053, 2 July 2019) [2] (emphasis omitted).

[19] Transcript of proceeding (5 August 2019) 21.05-21.09.

[22] Re DR McKendrey Nominees Pty Ltd [2015] VSC 560, [7] (Digby J).

[23] Second defendant, 'Further amended defence and counterclaim', 4 December 2018.

[24] Transcript of proceeding (28 June 2019) 12.31-13.6.