Plaintiffs v First Defendant

2 On 23 May 2018, the Court was informed that the first plaintiff had died on 21 May 2018. For the purpose of finalising the unresolved issues, pursuant to r 16.03(1)(a) of the Supreme Court (General Civil Procedure) Rules 2015 ('the Rules'), the Court orders that the proceeding proceed in the absence of a person to represent the estate of the first plaintiff. In these reasons, reference to the plaintiffs means the second plaintiff and the estate of the first plaintiff.

3 After the first defendant filed her summons seeking partition and costs, the plaintiffs filed written costs submissions. Subsequently, the first defendant regularised her summons by way of an amended summons filed 20 March 2018, seeking costs against the plaintiffs' solicitors, Bowlen Dunstan & Associates ('Bowlen Dunstan') and that firm ceased acting for the plaintiffs. The plaintiffs retained new solicitors and they did not file any further costs submissions.

4 At the commencement of the hearing on 8 May 2018, the plaintiffs' solicitors sought and obtained leave to file a notice of solicitor ceasing to act for them. The issues of the partition and sale of the Mill Park property were under discussion between the parties and those issues were adjourned by consent to 25 May 2018.

5 By email dated 23 May 2018, a family member communicated directly with the Court on behalf of the second plaintiff. The Court was informed that the second plaintiff had 'accepted the decision of the Court' and that the property would be sold. The second plaintiff requested that she be given 6 months to vacate the property. The application for partition and sale, listed for hearing on 25 May 2018, was consequently adjourned to 8 June 2018.

6 On 8 June 2018, there was no appearance by the plaintiffs, however the first defendant was represented by counsel and the second defendant by her solicitor. The Court was informed that the issues concerning the partition and sale of the property were resolved on the basis that the second plaintiff vacate the property by 20 July 2018. The Court made orders for the property to be sold by public auction and, if that did not occur, by private treaty in accordance with various orders made by the Court.

Costs orders sought by the parties and Bowlen Dunstan

7 The first defendant seeks the following relief in her amended summons:

(a) That the plaintiffs' pay the first defendants' costs of the proceeding or such part as the Court thinks appropriate on an indemnity basis; and

(b) Pursuant to Rule 63.23 of the Supreme Court (General Civil Procedure) Rules 2015, or alternatively to the Civil Procedure Act 2010, or alternatively pursuant to the inherent jurisdiction of the Court, the solicitors for the plaintiffs' Bowlen Dunstan & Associates pay the first defendant's costs of the proceeding or such part as the Court thinks appropriate on an indemnity basis or on such basis as the Court determines.

8 In submissions, the first defendant's position was narrowed, and she now seeks:

(a) costs against Bowlen Dunstan, assessed on an indemnity basis, by reason of the abandonment of the secured loan claim[2] and otherwise the plaintiffs pay her costs of and incidental to the proceeding, assessed on an indemnity basis; and

(b) in the event that no order is made against Bowlen Dunstan, that the plaintiffs pay the first defendant's costs thrown away by reason of the abandonment of the secured loan claim, assessed on an indemnity basis.

9 Bowlen Dunstan seek orders that the first defendant's claim for costs against it be dismissed.

10 The plaintiffs accept that the proceeding against the first defendant should be dismissed with costs, including the first defendant's costs thrown away by reason of their abandonment of the secured loan. They accept that the costs be assessed on the standard basis and oppose any assessment on an indemnity basis.

11 The secured loan claim was a claim made by the plaintiffs against the first defendant under a loan agreement dated 23 September 2002 ('the secured loan claim'). In May 2013, the plaintiffs sought payment of the sum of $451,104 from the first defendant under the 2002 deed. On 5 July 2013, the plaintiffs issued the proceeding seeking payment of this amount, interest and a declaration that the plaintiffs were entitled to an equitable charge over the Mill Park property.

12 The first defendant denied the plaintiffs' secured loan claim. In a letter dated 15 January 2014 enclosing the defence, the first defendant's solicitors informed the plaintiffs' solicitors as follows:

The primary claim within your clients' writ is for repayment of $295,000 (+ interest) which amount your clients allege they lent to our client. On our instructions, and as is reflected within the amended defence, no such amount was advanced to our client.

We note that no particulars of the advance of this amount ... are provided.

Plainly, if no such amount was advanced to our client, your clients' claim for its repayment is unsustainable and that portion of their claim, at least is doomed to fail.

In these circumstances, we invite your clients to consider their position before further costs are incurred.

If your clients proceed with their claim in the absence of any evidence that the amount of $295,000 was advanced to our client we will seek an order for costs on an indemnity basis.

13 Until the plaintiffs amended their claim on 9 July 2014 by pleading an alternative claim of a common intention constructive trust, the secured loan claim was the plaintiffs only claim against the first defendant.

14 The reasons for judgment refer to counsel for the plaintiffs informing that Court on the first day of the trial that they 'elected' not to proceed on with the secured loan claim.[3] Although the plaintiffs characterised their position as an 'election', the secured loan claim was in fact abandoned on 2 September 2016 when orders were made granting leave to the plaintiffs to amend their claim by removing the secured loan claim. This was clarified in an affidavit sworn 24 April 2018 by James Bowlen, the former solicitor for the plaintiffs, where he deposes that by letter dated 15 July 2016 he informed the first defendant's solicitors that the plaintiffs elected not to pursue the secured loan claim. On 2 September 2016, orders were made granting leave to the plaintiffs to amend their claim by deleting the secured loan claim and that the plaintiffs pay the first defendant's costs thrown away of and incidental to the third party notice and of the amended statement of claim on a standard basis, to be taxed in default of agreement. The further amended statement of claim was filed on 5 September 2016.

15 Thus, the secured loan claim was first made before the proceeding commenced in July 2013 and was not removed from the proceeding until 5 September 2016 when the plaintiff's amended statement of claim was filed - a period of more than three years. This was notwithstanding the notice by letter dated 15 January 2014 from the first defendant's solicitors giving reasons for the secured loan claim being 'doomed to fail'.

16 Mr Bowlen deposes that he is not authorised by the plaintiffs to waive privilege that they hold over information and documents relevant to Bowlen Dunstan's response to the first defendant's summons seeking costs against it. In his affidavit, he deposes as to his attendances and conferences before the secured loan claim was abandoned by the plaintiffs; that Bowlen Dunstan reviewed the loan agreements and all other discovered documents tendered at trial relevant to the secured loan claim; and reviewed four letters.

Costs orders as between the first defendant and Bowlen Dunstan

17 In Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 5), Justice John Dixon set out the principles for the determination of an application for costs against solicitors for an unsuccessful party as follows:

(a) The court's jurisdiction to make a wasted costs order against a solicitor is founded on breach of the duty owed by the legal practitioner to the court to perform his duty as an officer of the court in promoting, within his own sphere, the cause of justice.

(b) 'Negligent' should be understood in an untechnical way to denote failure to act in a way no reasonably well-informed and competent ordinary member of the profession would have done.

(c) The jurisdiction to order a legal practitioner to pay the costs of legal proceedings in respect of which he or she provided legal services must be exercised with care and discretion and only in clear cases.

(d) The wasted costs jurisdiction discloses a tension between two important public interests, one that the wasted costs orders should not become a back-door means of recovering costs not otherwise recoverable against a legally-aided or impoverished litigant, and that the remedy should not grow unchecked to become more damaging than the disease and, two, that litigants should not be financially prejudiced by the unjustifiable conduct of litigation by their or their opponents' lawyers.

(e) A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he or she acts for a party who pursues a claim or a defence that is plainly doomed to fail.

(f) The legal practitioner is not the judge of the credibility of the witnesses or the validity of the argument.

(g) A judge considering making a wasted costs order arising out of an advocate's conduct of court proceedings must make full allowance for the exigencies of acting in that environment; only when, with all allowances made, an advocate's conduct of court proceedings is quite plainly unjustifiable can it be appropriate to make a wasted costs order.

(h) A legal practitioner against whom a claim for a costs order is made must have full and sufficient notice of the complaint and full and sufficient opportunity of answering it, and a legal practitioner should not be called on to reply unless an apparently strong prima facie case has been made.

(i) Where a legal practitioner's ability to rebut the complaint is hampered because the client maintains client legal privilege, full allowance must be given for the practitioner's inability to tell the full story and he or she should be given the benefit of the doubt. In such circumstances, the court should not make an order against a practitioner without satisfying itself that it is in all the circumstances fair to do so, or, put the other way, it is only when, with all allowances made, a practitioner's conduct of proceedings is quite plainly unjustifiable that it can be appropriate to make a wasted costs order.

(j) The procedure to be followed in determining applications for wasted costs must be fair and as simple and summary as fairness permits.[4]

18 A costs order against a solicitor to pay the costs of a client is not lightly made and will not be made based on inference without evidence. The Court should not proceed on the hypothetical basis that the secured loan claim would have failed. As stated by his Honour in Dura (No 5):

Instituting or maintaining a proceeding on behalf of a client that has no or substantially no prospect of success does not of itself attract the wasted costs jurisdiction. A client properly advised that the action is weak and likely to fail, may reject that advice, and direct the lawyer to proceed, and it is not ethically inappropriate for the lawyer to do so. It is rarely safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved, and this is especially so in a case where legal professional privilege has not been waived. [5]

19 Where a court is not privy to the details and circumstances of the clients' instructions to the solicitor, it is difficult for a solicitor to defend such a serious charge as they are unable to tell the whole story. Bowlen Dunstan has not been authorised by the plaintiffs to waive privilege that they hold over information and documents relevant to their response to the first defendant's summons seeking costs against it. This necessarily hampers their ability to respond to the application.

20 The abandonment of the secured loan claim ultimately narrowed the issues in dispute between the parties, in accordance with the overarching purpose of the Civil Procedure Act 2010 to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. Much of the trial was taken up with the credibility of the plaintiffs, which meant that the facts surrounding the secured loan claim were highlighted during the trial.[6]

21 The first defendant also relied on the fact that when the statement of claim was amended to allege a constructive trust, Bowlen Dunstan should have realised that they could no longer have been satisfied that there had been a loan as the alleged loan was inconsistent with the claimed trust. The first defendant also submitted that at the very least, Bowlen Dunstan should have abandoned the secured loan claim at this point, instead of maintaining it alongside the constructive trust allegation. The Court is unable to draw any inference that the secured loan claim had no proper basis where it is not privy to the details and circumstances of the plaintiffs' instructions to Bowlen Dunstan. Ultimately, the plaintiffs pleaded alternative causes of action and did not pursue one of them before the trial commenced. This course of action may be consistent with other possibilities such as the plaintiffs' choosing what they considered their best claim at trial.

22 In the circumstances, the Court will not make a costs order against Bowlen Dunstan and orders that the first defendant's claim for costs against Bowlen Dunstan be dismissed.

Costs orders between the first defendant and the plaintiffs

23 Given that the first defendant's claim for costs against Bowlen Dunstan is dismissed and the plaintiffs accept that they should pay the first defendant's costs of the proceeding, including the first defendant's costs thrown away by reason of their abandonment of the secured loan claim, the remaining issue is whether those costs should be assessed on the standard basis, as contended by the plaintiffs, or on an indemnity basis, as contended by the first defendant.

24 Costs are at the discretion of the Court, unless as otherwise provided by an Act or the Rules.[7] The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court, with the Court having the discretion to award costs other than on the standard basis.

25 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 to ascertain whether those facts support the making of a special order for costs. The authorities concerning the principles to be applied when a court, in the proper exercise of its discretion, may depart from the making of 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,[8] Ugly Tribe Co Pty Ltd v Sikola[9] and Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3).[10] Examples of circumstances that may warrant an award of indemnity costs are where a party should have known it had no real prospect of succeeding with a claim.[11] Such circumstances give rise to a presumption that the relevant proceeding was 'commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law'.[12] Indemnity costs may be appropriate in cases involving 'the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions'.[13] The categories of circumstances that warrant a special costs order are not closed, however, the cases set out examples of circumstances where a special costs order has been made.

26 In respect of the secured loan claim, the plaintiffs were placed on notice as early as 15 January 2014 of the first defendant's reasons why that claim would not succeed, and that if the plaintiffs proceeded with the claim, the first defendant would seek costs against them on an indemnity basis. The secured loan claim was the only claim against the first defendant up to 9 July 2014, when the alternative claim of a common intention constructive trust was made by the plaintiffs. The secured loan claim was not abandoned by the plaintiffs until 2 September 2016. No reasons were given for the late abandonment of the secured loan claim. The early warning given by the first defendant and the length of time taken by the plaintiffs to abandon the secured loan claim without explanation constitutes a special circumstance that justifies an award of indemnity costs in respect of the secured loan claim. It is appropriate to allow a reasonable time of, say, three months for the plaintiffs to have considered their position in light of the contents of the letter.

27 Accordingly, the Court will order that up to and including 14 April 2014, the plaintiffs pay the costs thrown away of the first defendant of and incidental to the third party notice and of the amended statement of claim on a standard basis, to be taxed in default of agreement, and thereafter such costs be assessed on an indemnity basis, to be taxed in default of agreement. Consequently, the Court orders that order 3 of the orders of the Honourable Justice McMillan made 2 September 2016, which ordered such costs to be paid by the plaintiffs' on the standard basis, be vacated.

28 In respect of the balance of the proceeding, the reasons for judgment set out the many failures on the part of the plaintiffs, both on the substantive issues and extraneous issues,[14] including their conduct in the trial and many matters that caused a loss of time to the Court and to the first defendant. The character and extent of these failures and matters are such that they constitute special or unusual features that warrant a special costs order being made against the plaintiffs.[15]

29 At the commencement of the trial, the plaintiffs sought to amend their claim further without notice and to pursue an alternative claim for a resulting trust in their favour.[16] The plaintiffs' pleaded case was that the transfer of the property to the defendants was because the plaintiffs were concerned about the risks of certain litigation against them in the County Court.[17] At trial, this reason was abandoned and unpleaded reasons were pursued by the plaintiffs. The plaintiffs case concerned events and conversations that took place between 1998 to 2013. Claims that should have been supported by documentary evidence were not so supported and the plaintiffs could give no credible explanation for the absence of the documentary evidence. Where documents were tendered, they did not reflect the true state of the events and were not reliable.

30 The plaintiffs also relied on a substantial volume of oral evidence and irrelevant evidence. The first plaintiff's evidence was evasive, unresponsive and contradictory. He was found by the Court to be unreliable and untruthful.[18] The second plaintiff was also found to be unreliable. Substantial amounts of evidence given by the plaintiffs was irrelevant and their conduct on substantive issues and extraneous issues was emotional and unnecessarily virulent on multiple occasions towards the first defendant. In effect, the plaintiffs used the trial to vent their strongly held negative emotions towards the first defendant for not obeying their wishes.[19]

31 Overall the plaintiffs' conduct caused the trial to be more complicated and take much longer than the trial estimate of three days. These factors constitute special or unusual features that warrant a special costs order being made against the plaintiffs in terms of the waste of the Court's time and of the first defendant's time for the last three days of the trial and the costs of those three days should be assessed on an indemnity basis.

(a) Pursuant to r 16.03(1)(a) of the Supreme Court (General Civil Procedure) Rules 2015, the proceeding proceed in the absence of a person to represent the estate of the first plaintiff;

(b) Order 3 of the orders of the Honourable Justice McMillan made 2 September 2016 be vacated;

(c) the first defendant's summons seeking costs against Bowlen Dunstan be dismissed;

(d) in respect of the secured loan claim, the plaintiffs pay the costs thrown away of the first defendant of and incidental to the third party notice and of the amended statement of claim assessed on the standard basis up to and including 14 April 2014, to be taxed in default of agreement, and thereafter such costs be assessed on an indemnity basis, to be taxed in default of agreement;

(e) otherwise, the plaintiffs pay the costs of the first defendant of and incidental to the proceeding assessed on the standard basis up to and including 14 December 2016, and thereafter on an indemnity basis, to be taxed in default of agreement;

(f) the second defendant pay her own costs of and incidental to the proceeding.

[1] Ozaltay v Atilla [2017] VSC 664 (1 November 2017).

[3] Ozaltay v Atilla [2017] VSC 664 (1 November 2017) [12].

[4] [2014] VSC 400; (2014) 48 VR 1, 22-3 [57] ('Dura (No 5').

[5] Ibid 24-5 [61] (citations omitted).

[6] Ozaltay v Atilla [2017] VSC 664 (1 November 2017).

[7] Supreme Court Act 1986, s 24.

[8] Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225.

[9] Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 (14 June 2001).

[10] Sunland Waterfront (BVI) Ltd v Prudential Investments Pty Ltd (No 3) [2012] VSC 399 (14 September 2012).

[11] Murdaca v Maisano [2004] VSCA 123 (22 July 2004) [40] (Nettle JA), citing Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397. Cf Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd (No 3) [2018] VSCA 192 (7 August 2018) [13]; Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, 542 citing Degmam Pty Ltd (In Liq) v Wright (No 2) [1983] 2 NSWLR 354.

[12] Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd [2013] VSCA 237 (6 September 2013)

[545]-[546]; Murdaca v Maisano [2004] VSCA 123 (22 July 2004) [40]; Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 233.

[13] Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 233.

[14] Ozaltay v Atilla [2017] VSC 664 (1 November 2017) [165]-[176].