Talacko v Talacko & Ors [2008] VSCA 229

Court of Appeal (Vic)|2008-11-21|Before: KELLAM JA and HARGRAVE AJA

PRACTICE AND PROCEDURE - Costs - Trial of preliminary question as to liability - Residual questions remaining for determination - Trial judge ordered that costs of the trial of the preliminary question follow the event - Application for leave to appeal - Whether, on any view, the outcome of the trial of a preliminary question entitled the plaintiff to compensation of some substance - Whether trial judge should have awaited the determination of all issues in the proceeding before making any costs order - Supreme Court (General Civil Procedure) Rules 2005, rr 63.02, 63.01(1) and 63.04(2) considered.

2 The applicant applies for leave to appeal against the decision of a trial judge that he pay the respondents' costs of and incidental to the hearing of certain preliminary issues which the parties joined in asking the court to hear. The amount of the costs order is substantial. A bill of costs in taxable form has been prepared on behalf of the respondents, who were successful on the trial of the preliminary issues, in the sum of $667,000.

3 If the applicant is successful in obtaining leave to appeal, the parties have consented to the appeal being heard instanter and determined by a bench comprising two justices only. The President of the Court of Appeal has made the necessary determination pursuant to s 11(1A) of the Supreme Court Act 1986 (Vic). It is accordingly unnecessary to consider the application for a stay on the payment of the costs pending the hearing and determination of any appeal.

4 The proceeding concerns a dispute between members of the Talacko family. The applicant is the brother of the late Peter Talacko. The respondents, who were the plaintiffs below, are the applicant's sister, Helena, and the wife and children of the late Peter Talacko, who make claims in their capacity as his heirs. For convenience, I will refer to the applicant, Helena and the late Peter Talacko as 'the siblings'.

5 The parents of the siblings ('the parents') owned a number of properties in the former Czechoslovakia and East Germany prior to the establishment of communist governments in those countries. Those properties were confiscated by the communist governments.

6 The parents migrated to Australia together with their children. By 1984 both parents were deceased.

7 Following the cessation of communist rule in Czechoslovakia at the end of 1989, discussions took place between the siblings concerning the restitution of their parents' property. The respondents contend that, as a result of these discussions, an agreement was reached between the three siblings to pursue restitution of the properties together, and to share the proceeds equally as between the three of them. Further, they allege that in 1991, following the passage of a series of restitution laws in the Czech Republic, which enabled confiscated properties to be recovered by the former owners and/or their heirs, the siblings exchanged powers of attorney, declarations and testamentary documentation in order to give effect to the arrangement to share in any properties which were restored under the restitution laws.

8 From 1991, the applicant applied for the restitution of some of the properties in the Czech Republic. The application was made in his name because he was the only one of the siblings who was both a citizen and resident of the Czech Republic and was qualified to make such claims. As a result, the applicant recovered some properties in the Czech Republic in his own name. The applicant also recovered further properties previously owned by the parents outside the Czech Republic, at Dresden in Germany, and Sucha in the Republic of Slovakia. Further, some properties were recovered by Helena and the applicant jointly.

10 The parties fell into dispute. In October 1998, a proceeding was commenced in this Court claiming equitable interests in the properties which had been restored to the applicant and seeking relief from him for alleged breach of agreement, breach of trust and breach of fiduciary duty. It was alleged that the applicant held the properties recovered by him in a fiduciary capacity for his sister, Helena, and his brother Peter's children. It was alleged that the properties were held on a constructive trust on this basis and that, by denying the existence of the trust, the applicant had breached fiduciary duties and was liable to make equitable compensation representing the value of the properties and the income earned by him from them.

11 The trial of the proceeding commenced on 21 February 2001. It did not run to judgment. On 23 February 2001, the proceeding was settled on the basis of terms of settlement entered into between the parties. As a result of those terms of settlement, the Court ordered by consent that the proceeding be dismissed with no order as to costs.

In full settlement of the matters the subject matter of the proceeding the plaintiffs and the defendant agree as follows:

The defendant to transfer all the right, title and interest that he has or shall have, to such person or entity as shall be nominated by the plaintiffs, in respect of the following:

(a) Kiefernstrasse 19 and Kiefernstrasse 19b, Dresden, Germany;

(b) 17.4473 hectares of land in Repy, as defined in the particulars under paragraph 6 in the amended statement of claim herein;

(c) approximately 0.8 hectares of land in Kbely, as defined in the particulars under paragraph 6 in the amended statement of claim herein;

(d) approximately 364 hectares of land in Sucha, as defined in the particulars to paragraph 6 of the amended statement of claim hereto.

This clause does not apply to any interest in land purchased by the defendant as from this date.

To give effect to paragraph 1, the defendant will sign all necessary documents and give all necessary documents and attend at any place as required by law in respect of the signing of such documents.
If by reason of applicable law, or some other cause, paragraph 1, or any part thereof, cannot be given effect to within 12 months of the date of these terms in respect of a particular property or properties, the defendant shall at the direction of the plaintiffs and at their cost, take all reasonable steps to sell back property or properties at best market value and shall pay the net proceeds of such sale, after the deduction of all expenses, to the plaintiffs or at their direction.
The plaintiffs to be responsible for and pay in the first instance all transfer costs, expenses, taxes, duties, levies and charges in any way payable in respect of the transfer or sale of the properties.
The defendant to pay to the solicitor for the plaintiffs the sum of $150,000 in part payment of the plaintiffs' costs on or before 23 June 2001.
In the event that the defendant breaches any term, condition or warranty in this agreement, then the plaintiffs shall be entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by him, together with the costs of entering such judgment, and the production of these terms of settlement shall be conclusive evidence of the defendant's irrevocable consent to the entry of such judgment.
The parties shall forthwith consent to orders of the Court that the proceeding be struck out with no order as to costs, together with a right of reinstatement for the purpose of enforcing these terms.
The parties agree to release each other from all actions, suits, demands, liabilities and costs arising out of or in any way related to the subject matter of the proceeding.
The defendant warrants that:

(i) he has not reduced his right, title and interest in the properties the subject of these terms since the commencement of the proceeding;

(ii) the properties the subject of these terms, or any of them, are not encumbered;

(iii) that he shall not deal with the properties the subject of these terms otherwise than in accordance with these terms; and

(iv) that until transfer or sale he will pay costs, taxes and expenses associated with each property the subject of these terms.

13 Disputes arose under the terms of settlement. The respondents contended that the applicant had refused to transfer the properties specified in clause 1 of the terms of settlement. Accordingly, the respondents reinstated the proceeding and applied for judgment in accordance with clause 6 of the terms of settlement. This application was made in the inherent jurisdiction of the Court to enforce terms of settlement in the proceeding to which they relate, in accordance with the principles stated in Roberts v Gippsland Agricultural and Earth Moving Contracting Co Pty Ltd.[1]

14 On 4 November 2005 the Court, at the joint invitation of the parties, ordered that there be a separate trial of liability and quantum in relation to the allegation that the applicant was in breach of the terms of settlement. Subsequently, pleadings were ordered.

15 In 2007, the trial judge made a further order as to the questions which were to be tried at the preliminary hearing. His Honour ordered that the trial of the preliminary questions should include the allegation made by the applicant in his defence that clause 6 of the terms of settlement was void for uncertainty. However, his Honour ordered that the applicant's allegation that clause 6 constituted an unenforceable penalty should be dealt with together with quantum in the event that a breach of the terms of settlement was established.

16 The trial of the preliminary issues took place in November 2007 over the course of 12 sitting days.

17 On 24 April 2008, the trial judge delivered his reasons for judgment.[2] In summary, the trial judge determined that the applicant had breached the terms of settlement, that the respondents had not repudiated the terms of settlement or otherwise disentitled themselves from relying upon them (as contended by the applicant), and that clause 6 of the terms of settlement was not void for uncertainty. However, the trial judge reserved to the applicant the right to contend that clause 6 is uncertain upon the further trial of the proceeding.[3]

18 The applicant made an application for leave to appeal against the trial judge's determination on the hearing of the preliminary issues. However, that application was not pursued and was struck out by consent.

19 During February 2008, prior to the delivery of the trial judge's reasons for judgment in April 2008, the respondents commenced proceedings against the applicant in the Czech Republic. The respondents alleged that the applicant had breached the terms of settlement, and sought orders that he transfer to them two-thirds of his interests in the properties situate in the Czech Republic, being properties forming part of the subject of the proceeding in this Court as originally pleaded. However, the proceeding in the Czech Republic does not include claims for orders that the applicant transfer to them two-thirds of his interests in the properties at Dresden in Germany, or at Sucha in the Republic of Slovakia, or any other relief in respect of those properties.

20 The commencement of the proceeding in the Czech Republic caused the applicant to file a summons seeking to stay the proceeding in this Court as an abuse of process. That summons was heard by the trial judge in June 2008, and dismissed.[4] At the time of making orders dismissing this application, the applicant was given leave to further amend his defence to raise an allegation that the commencement by the respondents of the proceeding in the Czech Republic constituted an election by them to pursue their rights in the Czech proceedings to the exclusion of their rights under the terms of settlement, or alternatively that such conduct constituted a repudiation by the respondents of the terms of settlement.

21 Accordingly, at this stage of the proceeding, the remaining issues for determination were:

(1) further argument as to whether clause 6 of the terms of settlement is void for uncertainty;

(2) determination of the defence that clause 6 of the terms of settlement is void as a penalty;

(3) determination of the defences of election and repudiation based on the commencement by the respondents of proceedings in the Czech Republic; and

(4) the quantum of the damages or equitable compensation to which the respondents are entitled as a result of the applicant's breach of the terms of settlement.

22 Next, the respondents applied to the trial judge for an order that the applicant pay their costs of the trial of the preliminary issues on an indemnity basis. The trial judge heard argument on this issue and reserved his decision. On 22 August 2008, the trial judge delivered his reasons for judgment in respect of the costs application. He ordered that the applicant pay the respondents' costs 'of and incidental to the hearing of the preliminary issues' on a party/party basis ('the costs order').[5] On that day, his Honour also made directions for further pleadings, discovery and the filing of valuation and other expert evidence.

23 In order to succeed in an application for leave to appeal from an interlocutory judgment or order, the applicant must satisfy the Court of two things. First, that the judgment or order is attended with sufficient doubt to warrant it being reconsidered on appeal. Second, that substantial injustice will be caused to the applicant if the judgment or order is allowed to stand.[6] In considering each element, the fact that the decision which is sought to be appealed from involved the exercise of judicial discretion is a relevant consideration.[7] This is especially so in considering the first element of sufficient doubt. Whether a discretionary decision is final or interlocutory, this Court will not set the decision aside simply because it might have exercised its discretion differently if it was in the trial judge's position. It must be shown that the judge below made an error in the exercise of discretion by acting on a wrong principle, allowing extraneous or irrelevant matters into account, mistaking the facts, or failing to take a material consideration into account.[8]

24 As appears below, I am of the opinion that the trial judge's reasons for making the costs order do not give any express consideration to the third of the issues remaining for determination, concerning the recently raised defences of election and repudiation based on the initiation by the respondents of proceedings in the Czech Republic. In my view, these were material considerations which the trial judge ought to have taken into account. Accordingly, I would grant leave to appeal but, for the reasons stated below, I would dismiss the appeal.

25 It was submitted on behalf of the applicant that the trial judge should have deferred making any costs orders until after the determination of all issues in the proceeding, including uncertainty, penalty, election or repudiation by the commencement of proceedings in the Czech Republic, and quantum issues. Two grounds are relied upon. First, it was submitted that the trial judge failed to have regard to the requirements of r 63.04(2).[9] Second, it was submitted that the trial judge wrongly assumed that, on any view, the respondents' victory at the preliminary hearing was determinative of their entitlement to receive compensation 'of some substance'.

IV WAS THE TRIAL JUDGED REQUIRED TO APPLY RULE 63.04(2)?

26 It was submitted on behalf of the applicant that the provisions of r 63.04 are mandatory and were ignored by the trial judge. In order to consider this argument, it is necessary to set out r 63.04 in the context of the surrounding rules:

63.02 General powers of Court

The power and discretion of the Court as to costs under section 24 of the Act shall be exercised subject to and in accordance with this Order.

63.03 Time for costs order and payment

(1) The Court may in any proceeding exercise its power and discretion as to costs at any stage of the proceeding or after the conclusion of the proceeding.

...

63.04 Costs of question or part of proceeding

(1) The Court may make an order for costs in relation to a particular question in or a particular part of a proceeding.

(2) Where the Court makes an order under paragraph (1), the Court shall by order fix the proportion of the total costs of the proceeding which is attributable to the particular question in or the particular part of the proceeding.

(Emphasis added).

27 Counsel for the applicant relied upon the combined operation of rr 63.02 and 63.04(2) to found the submission that the trial judge was required under r 64.03(2) to await the final outcome of all issues in the proceeding before making an assessment of the proportion of the total costs attributable to the trial of the preliminary issues and fixing that proportion as part of 'the total costs of the proceeding'. Reliance was placed on the mandatory word 'shall' appearing in each rule.

28 It was submitted on behalf of the applicant that this interpretation of r 63.04(2) should be accepted because the Rules should be read as a whole, and other rules demonstrate an intention for r 63.04(2) to operate as contended. Reliance was placed on rr 26.05 and 63.24.

26.05 Disclosure of offer to Court

(1) No statement of the fact that an offer of compromise has been made shall be contained in any pleading or affidavit.

(2) Where an offer of compromise has not been accepted, then ... 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.

30 It was submitted that the provisions of r 26.05 inform the proper interpretation to be given to r 63.04(2) and require that, before making any order as to the costs in relation to a particular question in or a particular part of a proceeding, the Court is obliged to first determine all issues in the proceeding, including as to relief to be granted to the successful party. It was submitted that, if this was not the case, the Court could make costs orders in the absence of knowledge of the existence and terms of any offer of compromise, and may thus act in ignorance of a fact which may well be critical to the exercise of the Court's discretion concerning the costs of the proceeding. [10]

63.24 Money claim in wrong court

(1) Subject to paragraph (1.1), where in a proceeding for debt or damages (other than a proceeding in which the jurisdiction of the County Court is unlimited) the plaintiff recovers by judgment or otherwise an amount (exclusive of costs) not exceeding one-half of the amount to which the jurisdiction of the County Court is limited, the plaintiff shall, unless the Court otherwise orders, be entitled only to the costs to which the plaintiff would have been entitled if the plaintiff had brought the proceeding in the County Court less an amount equal to the additional costs properly incurred by the defendant by reason of the proceeding having been brought in the Supreme Court instead of the County Court, but shall not be required to pay to the defendant any amount by which the additional costs exceed the costs payable to the plaintiff.

(1.1) Where in a proceeding for libel or slander the plaintiff recovers by judgment or otherwise an amount (exclusive of costs) not exceeding $50 000, the plaintiff shall, unless the Court otherwise orders, be entitled only to the costs to which the plaintiff would have been entitled if the plaintiff had brought the proceeding in the County Court less an amount equal to the additional costs properly incurred by the defendant by reason of the proceeding having been brought in the Supreme Court instead of the County Court, but shall not be required to pay the defendant any amount by which the additional costs exceed the costs payable to the plaintiff.

(Emphasis added)

32 It was submitted that the Court's discretion under r 63.24(1) could not be exercised until after the completion of all issues in the proceeding, including the amount of any judgment awarded.

33 In my view, the provisions of rr 26.05 and 63.24, taken together or singly, do not deprive the Court of its discretion under r 63.03(1) to order costs 'at any stage of the proceeding'. I am of this view for the following reasons.

34 First, the arguments as advanced on behalf of the applicant ignore the existence of r 63.03(1), which entitles the Court to exercise its power and discretion as to costs 'at any stage of the proceeding or after the conclusion of the proceeding' (my emphasis). I do not accept that the longstanding general discretion to make interlocutory costs orders under r 63.03(1) should be fettered by possible anomalies arising under other provisions of the Rules. The Court has a discretion as to whether to order the costs of the trial of a preliminary issue or issues, notwithstanding that there remain other (perhaps significant) issues to be determined in the proceeding. Accordingly, there was no error in the judge proceeding to exercise his discretion as to costs following the conclusion of the trial of the preliminary issues.

35 Second, r 63.04 is not directed towards the making of costs orders in respect of interlocutory matters, including the trial of a preliminary question which does not result in all questions in a proceeding being determined. Rule 63.04 is directed to the circumstance where the successful party in a proceeding, which is concluded in all respects except for final costs orders being made, is unsuccessful on some issues, and the Court exercises its discretion to deprive the successful party of some of the costs which would otherwise follow the event of success. This is plain from the reference in r 63.04(2) to the Court fixing a 'proportion of the total costs of the proceeding which is attributable to the particular question in or the particular part of the proceeding'(my emphasis). The rule presupposes that all issues in the proceeding have been determined except for costs. The rule is directed towards assisting the Taxing Master, and avoiding him or her from undertaking the task of determining whether particular costs incurred in a proceeding relate to the question or issue in respect of which the unsuccessful party in the proceeding has succeeded at the trial.[11]

36 Third, I accept that the combined operation of r 26.05 and the making of a costs order in favour of a party who succeeds on a preliminary issue which does not dispose of the whole case may lead to injustice. For example, where a defendant loses a preliminary trial on liability but the plaintiff later recovers damages below the amount of an offer of compromise served well before the trial of the preliminary issue of liability. However, this is not such a case. The Court was informed that no such offer of compromise has been served by the defendant. As I have said, I take the view that the existence of such an anomaly should not fetter the otherwise general, and longstanding, discretion arising under r 63.03(1) to make interlocutory costs orders at any stage of a proceeding. It may be that the Rules require amendment to recognise the possibility of injustice arising from the anomaly identified. I will recommend that this question be considered by the Rules Committee of the Court.

37 Fourth, the discretion arising under r 63.24 is one which any judge exercising his or her discretion as to costs will be aware of. In the example postulated above, if it appears that the trial of quantum issues may lead to r 63.24 having operation, that is a matter which can be taken into account in the exercise of the Court's discretion as to whether or not to make a costs order after the trial of a preliminary question as to liability.

38 On behalf of the applicant, it was submitted to the trial judge that he should not, at that stage of the proceeding, make any order as to costs. It was not put to the trial judge that he had no discretion to award costs in respect of the trial of the preliminary issues because r 63.04 required him to defer exercising his discretion on costs until the proceeding had been finalised and the total costs of the proceeding were known. Before the judge, the submission was made that no costs order should be made at that time because there were remaining issues in the proceeding which were undetermined and that there was accordingly 'no certainty as yet' that the respondents will be entitled to 'any relief from the Court let alone as to what the quantum of that relief may be.' It was submitted that the 'potential extent of any victory' was yet to be identified and that the respondents may only recover compensation of an amount which was 'so small that other factors will come into play' in determining the ultimate outcome as to costs.

39 In this regard, it was submitted to the trial judge that the undetermined issues went beyond the uncertainty and penalty arguments, and included the new arguments based upon election or repudiation which had recently been raised by the applicant in his second further amended defence, and which depended upon the effect of the proceedings taken by the respondents in the Czech Republic. It was submitted that these new arguments may 'give rise to some incapacity in the cause of action that the plaintiffs seek to advance, which would have the effect of denying them relief.'

40 In his reasons for making the costs order, the trial judge gave express consideration to the submission that the undetermined issues of uncertainty and penalty may have the result that clause 6 of the terms of settlement was void or unenforceable. In this respect, the trial judge said:

If either of these latter arguments were to succeed hereafter, the consequences would not be that the plaintiffs failed in their present claim, but rather that the measure of compensation would be damages for breach of the terms of settlement rather than compensation assessed pursuant to clause 6. On any view, the plaintiffs' victory at the hearing now in issue is determinative of entitlement to compensation of some substance. Accordingly, costs should follow.[12]

41 However, when the reasons are read as a whole, no consideration of the possible effect of the new arguments upon the respondents' entitlement to relief is disclosed. Given the existence of the new arguments, which are to be dealt with at the further trial of undetermined issues, including quantum, the trial judge failed to take a material consideration into account. For this reason, leave to appeal should be granted and the appeal determined on its merits. In these circumstances, it falls for this Court to exercise the costs discretion afresh.

42 The first issue concerns the possible ramifications of the applicant succeeding in his defence that clause 6 of the terms of settlement is void for uncertainty or as a penalty. Putting to one side the new arguments of election or repudiation based upon the initiation by the respondents of proceedings in the Czech Republic, counsel for the applicant acknowledged that the effect of clause 6 being declared void would be to give the respondents an entitlement to judgment against the applicant for damages resulting from the applicant's breach of his obligation to transfer the properties referred to in clause 1 of the terms of settlement to the respondents ('the clause 1 properties'). However, it was submitted before us, as it was before the trial judge, that the Court could not be satisfied that damages for such a breach would give rise to a substantial monetary judgment. It was submitted that the possible quantum of damages for breach of the terms of settlement was 'at large' and that the trial judge was in error in acting upon 'mere snippets' of evidence as to the value of the clause 1 properties to make his finding that damages for breach of a promise to transfer them would, on any view, be 'of some substance'. Alternatively, it was submitted that it was in any event an irrelevant consideration for the trial judge to consider the possible quantum of a damages award at that stage of the proceeding.

43 I do not accept the submissions made on behalf of the applicant in this regard. The inference that an award of damages for failing to transfer the clause 1 properties would be an award 'of some substance' was open to the trial judge, and an obvious finding to make in all the circumstances of the case. The trial judge had heard 12 days of evidence and submissions concerning the preliminary issues. The clause 1 properties were described in the terms of settlement and were the subject of evidence before him. Commonsense dictates that the clause 1 properties have substantial value. The clause 1 properties include real estate at Dresden in Germany, a very substantial tract of land in the greater Prague region which is near to facilities such as the airport, rail and primary roads; and a large tract of rural land at Sucha in the Republic of Slovakia in respect of which the applicant acknowledged, in cross-examination before the trial judge, that 'transfer charges' would be approximately $300,000. The trial judge knew that the clause 1 properties were viewed by the parties as of great significance and of a value deserving of the investment of very substantial legal costs. The preliminary issues alone occupied 12 sitting days. The trial judge was obviously unimpressed with the applicant as a witness and made the serious finding that his breach of the terms of settlement was motivated by a desire 'to evade compliance' with his obligations under that document; such evasion being 'actuated by extraneous considerations' related to 'a background of serious antipathy to the plaintiffs arising in the context of perceived family grievance'.[13] Finally, one only has to read the cross-examination of the applicant concerning the value of the clause 1 properties to understand that he was clearly trying to evade giving the trial judge any direct evidence as to their value.

44 In all the circumstances, I agree with the trial judge's finding that, even if the respondents are limited to a judgment for damages because clause 6 is unenforceable, those damages will, on any view, be 'of some substance'. Commonsense dictates that this is so. Further, I agree with the trial judge that this fact was a relevant and, in the absence of any ground which may disentitle the respondents to any damages, a decisive matter to take into account in the exercise of the discretion to award costs of the trial of preliminary issues. Accordingly, if the new arguments of election and repudiation based on the initiation of proceedings in the Czech Republic are put to one side, I agree with the trial judge's approach and would exercise my discretion to make the same costs order as that made by the trial judge.

45 I note that it was submitted before the trial judge, but not before this Court, that the trial judge ought to have nevertheless deprived the respondents of some of their costs because they were not successful on all of the arguments which were presented at the trial of the preliminary issues. In my view, the trial judge correctly dealt with this issue.[14]

46 There remains to consider the possible effect of the new arguments upon the ultimate outcome in the proceeding. As I have said, the trial judge did not give separate consideration to these arguments in his reasons for making the costs order. Nor, it would appear, was any substantial reliance placed upon the new arguments before the trial judge. Although they were referred to as possibly grounding 'some incapacity in the cause of action that plaintiffs seek to advance, which would have the effect of denying them relief', we were not taken to any submissions made to the trial judge as to why the new arguments had any merit. For the reasons appearing below, I am of the view that the new arguments have no merit. Accordingly, their existence does not cause me to consider that the costs order should not have been made.

47 The new arguments rely principally upon two proceedings initiated by the respondents, or some of them, against the applicant in courts of the Czech Republic.

48 First, reliance is placed upon a proceeding commenced by the late Peter Talacko in 1995 in which he, and after his death two of the respondents, sought relief by way of transfer of some or all of the properties previously owned by the parents. The first Czech proceeding was unsuccessful at first instance and on appeal. In his second further amended defence, the applicant alleges that the institution and prosecution of the first Czech proceeding, and the appeal in that proceeding, was conduct of the respondents and the late Peter Talacko which:

(1) constituted an irrevocable election to pursue the rights asserted by them in the first Czech proceeding to the exclusion of any rights they may have had to equitable compensation for breach of fiduciary duty, as alleged in the amended statement of claim in the proceeding in this Court prior to the entry into the terms of settlement;

(2) disentitled them in equity from seeking or obtaining from the applicant relief by way of equitable compensation; and

(3) as a result, had the effect that they had no legal right in the Czech Republic to any of the properties situated in the Czech Republic and, accordingly, had no entitlement to any equitable compensation in relation to those properties.

49 The short answer to these allegations is that they relate to conduct which occurred well prior to execution by the applicant of the terms of the settlement. Even if it be assumed that the matters raised in this part of the applicant's pleading may have constituted a defence to the claims made in the proceeding in this Court, the existence of such a defence has been overtaken by the terms of settlement. It is no answer to a claim made under the terms of settlement that the applicant may have had a good defence to the claim which he settled by those terms of settlement.

50 For the same reason, further allegations made by the applicant in his second further amended defence, concerning the failure of Helena Talacko and the late Peter Talacko to fully and effectually pursue such rights as were available to them under the restitution laws of the Czech Republic, provide no defence to the claims made under the terms of settlement. Whether such allegations may have provided a good defence to the claims made in the proceeding before it was settled is irrelevant. The matter is now governed by the terms of settlement.

51 Secondly, the applicant relies upon a proceeding commenced by the respondents against the applicant in the Czech Republic in February 2008. At the time of commencement of this proceeding, the trial judge had heard the trial of the preliminary issues but had not delivered his reserved decision. That decision was not delivered until April 2008.

52 In the second Czech proceeding, the respondents seek from the Czech court the following relief:

(1) a transfer to them of some or all of the relevant properties in the Czech Republic; and

(2) further or alternatively, payment to them of a money sum calculated by reference to (amongst other things) income received by the applicant from his ownership of those properties.

The properties outside of the Czech Republic, in Germany and the Republic of Slovakia, are not the subject of the second Czech proceeding. As appears above, these properties have substantial value.

53 Following the commencement of the second Czech proceeding, an order in the nature of an interlocutory injunction was made restraining the applicant from dealing with some or all of the relevant properties except upon specified terms. Subsequently, on appeal, that interlocutory order was discharged.

54 In his second further amended defence, the applicant alleges that the initiation and prosecution of the second Czech proceeding is conduct of the respondents which is contrary to the terms of settlement and which:

(1) constituted an irrevocable election by the respondents to pursue the rights asserted by them in the second Czech proceeding, and in their defence of the appeal against the interlocutory order in that proceeding, to the exclusion of any rights which the respondents may have to seek relief in the equitable jurisdiction of this Court pursuant to clause 6 of the terms of settlement;

(2) thereby disentitled the respondents from seeking equitable compensation in this Court in relation to any of the properties which are the subject of the second Czech proceeding; and

(3) further or alternatively, constituted a repudiation of the terms of settlement by them, such repudiation being accepted by the applicant in June 2008 following the discharge of the interlocutory order by the Czech court.

55 For present purposes, it is unnecessary to determine whether there is any merit in the allegation that the institution and prosecution of the second Czech proceeding may have disentitled the respondents to enforce clause 6 of the terms of settlement, at least in relation to the properties which are the subject of this second Czech proceeding. This is because it remains open and arguable that the whole of clause 6 may be void or unenforceable on grounds of uncertainty or penalty. So much was recognised by the trial judge. The issue is whether the institution and prosecution of the second Czech proceeding arguably constituted a repudiation by the respondents of the terms of settlement as a whole, thus disentitling the respondents to seek damages for breach of clause 1. For the following reasons, I am of the opinion that this allegation of repudiation is manifestly hopeless and cannot succeed. Accordingly, the position remains that, even if clause 6 of the terms of settlement is void or unenforceable, the decision of the trial judge on the preliminary issues means that the respondents have established an entitlement to an order for damages for breach of the terms of settlement of some real substance.

56 The applicant's repudiation case is based upon the allegation that the commencement and maintenance by the respondents of the second Czech proceeding is 'contrary' to the mutual releases contained in clause 8 of the terms of settlement, and that the only rights which the respondents have is to enforce the terms of settlement in this Court by claiming equitable compensation under clause 6, or damages for breach of clause 1 if clause 6 is unenforceable for any reason.

57 As the trial judge noted when considering other issues of repudiation raised by the applicant in the course of the trial of the preliminary issues, in order to determine whether a party has repudiated a contract it is necessary to ascertain whether the conduct relied upon as constituting the repudiation conveys, objectively, an inability to perform the contract or a renunciation of it.[15] This approach by the trial judge was correct. For convenience, I will repeat here two relevant passages of the highest authority concerning the nature of the conduct which is necessary to establish a repudiation. Each of these passages was quoted by the trial judge.

58 In Ross T Smyth & Co Ltd v TD Bailey Son & Co,[16] Lord Wright stated:

It must not be forgotten that repudiation of a contract is a serious matter, not to be lightly found or inferred. I cannot do better than quote the words of Lord Selborne in Mersey Steel & Iron Company v Naylor, Benzon & Co., 9 App. Cas. 434, at p. 438, where he says that you must look at the:

... actual circumstances of the case in order to see whether the one party to the contract is relieved from its future performance by the conduct of the other; you must examine what that conduct is, so as to see whether it amounts to a renunciation, to an absolute refusal to perform the contract, such as would amount to a rescission if he had the power to rescind, and whether the other may accept it as a reason for not performing his part ...

59 In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd,[17] Brennan J stated the requirements for the establishment of a repudiation in the following terms:

Repudiation is not ascertained by an inquiry into the subjective state of the mind of the party in default; it is to be found in the conduct, whether verbal or other, of the party in default which conveys to the other party the defaulting party's inability to perform the contract or promise or his intention not to perform it or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way.

60 In this case, the evidence discloses that the second Czech proceeding was commenced in the following circumstances. First, the respondents' attempts to enforce the terms of settlement in this Court were being vigorously defended by the applicant. The defences included an allegation that the respondents had repudiated the terms of settlement, that the repudiation had been accepted and that the applicant was thereby discharged from any obligations imposed upon him by the terms of settlement. Second, the trial judge had reserved his decision on the preliminary issues, including the repudiation defence, and was yet to deliver his decision. Third, the respondents had received legal advice that if their application to enforce the terms of settlement failed, and they wished to enforce their legal rights against the applicant in the Czech Republic, some of their legal rights would become unenforceable after February 2008 by reason of the operation of statutory time limitations in the Czech Republic. Fourth, the respondents had objectively reasonable concerns that the applicant may act to dispose of or encumber the properties which are the subject of the second Czech proceeding. These concerns arose in circumstances where they were unaware of any other property owned by the applicant in the Czech Republic and the applicant had transferred his interest in valuable real estate in Victoria to his wife, for no consideration, shortly after the original proceeding against him was commenced by the respondents. Accordingly, the second Czech proceeding includes a claim for interlocutory relief restraining the applicant from dealing with the subject properties.

61 Further, in determining whether the Court should find or infer that the commencement and maintenance of the Czech proceedings constituted a repudiation of the terms of settlement, it is necessary to consider the conduct of the respondents when objection was taken by the applicant to the continued prosecution of both the application in this Court and the second Czech proceeding. In this regard, the evidence discloses that the respondents immediately offered undertakings to the applicant, to the effect that they would not prosecute the second Czech proceedings pending the final resolution of proceedings in this Court. The applicant refused to accept the undertakings and maintained the position that the respondents were obliged to elect between proceeding in this Court or in the Czech Republic. When the respondents refused to so elect, the applicant applied to stay or dismiss the proceeding in this Court as an abuse of process. As appears above, the trial judge rejected this application. Based upon revised undertakings, the trial judge held that the continued maintenance of the proceedings in both this Court and the Czech Republic was not vexatious or an abuse of process.[18] The applicant did not seek leave to appeal against this decision.

62 In the circumstances established by the objective facts, the allegation that the respondents repudiated the terms of settlement by commencing the second Czech proceeding, and maintaining that proceeding in the circumstances of the undertakings which have been given, has no prospect of success. The Court could not, on any view of the objective facts, form the view that the respondents have renounced the terms of settlement or have refused to perform their obligations thereunder. The continued maintenance of the second Czech proceeding, subject to the undertakings accepted and imposed by the trial judge, stands merely to protect the respondents in case their application to enforce the terms of settlement in this Court fails for any reason, including on appeal. On the question of any appeal, which unfortunately appears likely rather than possible given the intense antipathy between the parties, the applicant will have a right of appeal on all issues once all issues in the proceeding have been determined. This will include the right, if so advised, to appeal against the trial judge's decision in his determination of the preliminary issues that the respondents did not repudiate the terms of settlement by the alleged repudiatory conduct which was then in issue. Accordingly, until all rights of appeal are exhausted, the respondents remain at risk that they may fail altogether in their application to enforce the terms of settlement, because it is possible that an appeal Court will determine that the terms of settlement were validly terminated following acceptance of a repudiation by the respondents. If that situation was to occur, the respondents will be entitled to choose the forum in which they litigate their residual claims arising otherwise than under the terms of settlement.

63 For the above reasons, the appeal should be dismissed.

[2] Talacko & Ors v Talacko [2008] VSC 128.

[4] Talacko & Ors v Talacko [2008] VSC 246.

[5] Talacko & Ors v Talacko [2008] VSC 312, [13].

[6] Niemann v Electronic Industries Ltd [1978] VicRp 44; [1978] VR 431, 433.

[8] House v R [1936] HCA 40; (1936) 55 CLR 499, 504-5.

[11] Saarinen v Clay [1954] VicLawRp 56; [1954] VLR 392, 395-6; Byrns & Anor v Davie & Ors [1991] VicRp 93; [1991] 2 VR 568, 571.

[12] Talacko & Ors v Talacko [2008] VSC 312, [6].

[13] Talacko & Ors v Talacko [2008] VSC 128, [134] - [136].

[14] Talacko & Ors v Talacko [2008] VSC 312, [7] - [9].

[15] Talacko & Ors v Talacko [2008] VSC 128, [166] - [169].

[18] Talacko & Ors v Talacko 2008 VSC 246, [59] - [69].

Court (General Civil Procedure) Rules 2005

At a glance

Court

Decision date

Before

Source

Judgment (101 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (2)