Yunghanns v Colquhoun-Denvers [No 2] [2021] VSCA 57

2 PY sought leave to appeal from the Costs judgment. PY's central arguments were raised in new grounds of appeal on the day of the hearing, 17 September 2020. We reserved the question of leave to amend and ultimately granted leave in our judgment.[5] The additional grounds were that the judge fettered his discretion by applying the principle that a plaintiff is only entitled to the costs of defending a counterclaim which are additional to the costs of the claim, when there is no such binding principle ('the mistaken approach'), and that the costs orders were unreasonable or plainly unjust. These additional grounds became, respectively, Grounds 6 and 5 of the grounds of appeal.

3 PY also contended that the judge should have ordered that, on the claim, NCD pay one-third of PY's costs[6] but, in the alternative, that each party should bear their own costs of the claim due to the failure of NCD to respond to three attempts he had made to settle the defamation claim. PY described these as the 'response failures'. This contention encompassed Grounds 1 to 4 of the original grounds of appeal.

4 This Court heard oral argument on all six grounds of appeal.

5 In our judgment, we found that the judge's costs discretion did not miscarry. We concluded that the judge did not apply the mistaken approach. There was no error in the approach he adopted. In our view, the judge's statements, including those relying upon Smith v Madden,[7] were an expression of no more than the practical effect of the order that is usually made in a proceeding involving a claim and a counterclaim, namely, where a counterclaim is dismissed, the costs of the counterclaim to which a plaintiff is entitled are limited to the incremental costs incurred beyond the costs of the claim. The judge did not fetter his discretion and nor did he treat a rule of taxation as though it was a binding principle governing the discretionary power to award costs.

6 We concluded that the costs orders faithfully, and fairly, reflected that PY's claim in defamation had failed and that, had that claim not been brought, there would have been no proceeding before the judge. The costs orders were not unreasonable or plainly unjust.

7 We held that there was no finding by the judge that PY had engaged in three genuine attempts to settle the defamation claim. The claim that the judge did not give due consideration to various statutory prescriptions in the context of the response failures thus failed in its premise. Nor did the evidence support such a finding; indeed, as senior counsel for PY conceded before this Court, the assertion that NCD did not respond was contradicted by evidence that a counter-offer was made by NCD during the course of a mediation.

8 Following the delivery of the Court of Appeal judgment, we made orders refusing leave to appeal on Grounds 1 to 4 of the original grounds of appeal and Ground 5 of the additional grounds of appeal. We granted leave to appeal on Ground 6 but dismissed the appeal. We directed the parties to file submissions on costs in default of agreement. The parties could not agree on costs and filed written costs submissions. These are our reasons on the question of costs of the appeal, which we indicated would be determined 'on the papers'.

1. The Appellant pay the Respondent's costs of the appeal on an indemnity basis up until and including 16 September 2020 (the day before the hearing of the appeal) and thereafter on a standard basis.
2. The Costs Court, under r 63.34(4) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), have authority to allow, should it think fit, an increase in the fees set out in Appendix A to the Supreme Court Rules.[8]

10 NCD submits that he was wholly successful on the appeal. He seeks a limited indemnity costs order on the basis that PY's original grounds of appeal 'were effectively abandoned in favour of additional grounds of appeal which [PY] sought to rely upon for the first time on the morning of the hearing of the appeal'.[9] The original grounds, although not formally abandoned, were only 'faintly pressed',[10] with the result that all the costs incurred up until the day before the hearing of the appeal were effectively costs thrown away.

11 Moreover, NCD submits that the original grounds, asserting a failure to respond to PY's offers to settle, were inconsistent with the 'plain and uncontested'[11] evidence of a counter-offer made by NCD at mediation, as senior counsel for PY conceded. These grounds were also without merit given that PY's position rested on the 'broader "false premise"' that PY's attempts at settlement 'sought nothing less than a complete vindication of PY's position'.[12] PY's legal representatives were present at the mediation, and the erroneous insistence that no offer was made by NCD was maintained not only up until the morning of the appeal hearing, but also throughout the costs phase before the judge below.

12 NCD contends that PY's conduct in advancing unmeritorious grounds justify this Court in exercising its discretion to award costs on an indemnity basis under s 24 of the Supreme Court Act 1986. He relies on the proposition stated by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd ('Fountain Selected Meats')[13] that where, relevantly, an applicant should have known that he had no chance of success it must be presumed that the proceeding was commenced for an ulterior motive or because of a wilful disregard of known facts. In those circumstances, it is appropriate to consider awarding indemnity costs.[14] NCD also relies on Ugly Tribe Co Pty Ltd v Sikola ('Ugly Tribe').[15]

13 PY submits that the application for an indemnity costs order should be refused. He accepts that an order should be made directing him to pay NCD's costs of the application for leave to appeal and the appeal, such costs to be taxed on the standard basis in default of agreement. PY emphasises that an order that costs be paid on an indemnity basis is a 'special costs order', and that the threshold for justifying such an order is high. He submits that the circumstances of the present case are not the same as those discussed in Fountain Selected Meats, while the additional grounds of appeal he relied upon raised an important issue of principle and practice.

15 In Fountain Selected Meats, proceedings were brought in respect of alleged contraventions of ss 52 and 53 of the Trade Practices Act 1974 (Cth). When the matter was called on, senior counsel for the applicant announced that he would be leading no evidence. Judgment was entered for the respondents with costs. The second respondent, Mr Dellal, sought solicitor and client costs. On the costs issue he gave evidence that he had nothing to do with the horse meat transactions which were the subject of the alleged misleading and deceptive representations. Woodward J was satisfied that there had been nothing to be gained from joining Mr Dellal as a respondent. The case against him was hopeless and there were not sufficient grounds against him to continue the case once it became apparent that the 'aiding and abetting' provisions under the Trade Practices Act required knowing involvement in the misleading or deceptive conduct. In those circumstances Woodward J held that Mr Dellal had been pursued for no good purpose at all, due to inertia and carelessness, or to add pressure on the respondents generally to settle. He considered that the case before him was 'borderline'[16] but that he would make an order for indemnity costs limited to the time after which the applicant should have known that the case against Mr Dellal was hopeless.

16 In Ugly Tribe, Harper J refused an application for indemnity costs although he accepted that the plaintiff had no standing to bring proceedings based upon the relevant trademarks. He did not accept that the plaintiff in fact appreciated the hopelessness of its position and he was not prepared to infer that the plaintiff sought to gain an illegitimate advantage from commencing the proceeding. Relevantly, he observed that while the categories of special circumstances that would justify an award of indemnity costs are not closed, nevertheless 'the courts, should ... be astute to avoid a wilderness of single instances'.[17] The ever-increasing gap between party/party costs and costs actually incurred[18] was insufficient to prompt Harper J to depart from a standard costs order.

17 In our view, the original grounds of appeal, while ultimately found to be without merit, nonetheless were not straightforward or self-evidently hopeless. They required consideration by this Court, including an examination of the authorities on the question of whether regard could properly be had to a counter-offer made during a mediation. The costs incurred by NCD in resisting those original grounds were not thrown away as his original written case, and the oral submissions made at the hearing, were relied upon by this Court.[19] We do not accept that PY sought to rely upon the original grounds to gain an illegitimate advantage or that PY cannot but have appreciated that they were hopeless. It was appropriate for senior counsel for PY to acknowledge that the evidence that a counter-offer was made at the mediation was inconsistent with the PY's original written case and we consider that PY should not be penalised for that acknowledgement. We are not satisfied that NCD has met the high threshold for the making of a special costs order.

18 Although the original grounds of appeal were but 'faintly pressed',[20] PY did not strictly abandon the original grounds and it was necessary for this Court to deal with them in detail in the Court of Appeal judgment.[21]

19 In our view, NCD's application for an indemnity costs order up until the day before the hearing of the appeal should be rejected.

20 We are also of the opinion that it is appropriate that each party pay his own costs of the application for indemnity costs.

21 Given there is no opposition to the order sought under r 63.34(4), we are prepared to make that order taking into account the complexity of the issues raised and the considerable assistance given to the Court by counsel on the appeal.

1. The appellant pay the respondent's costs of the application for leave to appeal and appeal on the standard basis.
2. Each party bear his own costs of this costs application.
3. The Costs Court, under r 63.34(4) of the Supreme Court (General Civil Procedure) Rules 2015, have authority to allow, should it think fit, an increase in the fees set out in Appendix A to the Supreme Court Rules.

[1] Yunghanns v Colquhoun-Denvers [2021] VSCA 15 ('Court of Appeal judgment'). These reasons assume familiarity with the Court of Appeal judgment. For convenience, in what follows we refer simply to 'the appeal' unless the context indicates otherwise.

[2] Yunghanns v Colquhoun-Denvers (Costs) [2019] VSC 853 (T Forrest J).

[3] Yunghanns v Colquhoun-Denvers [2019] VSC 433 (T Forrest J). Neither party sought leave to appeal from the principal decision.

[4] The judge also made an order under r 63.34(4) of the Supreme Court (General Civil Procedure) Rules 2015 conferring authority on the Costs Court to allow an increase in fees claimed. This was not appealed.

[6] With the exception of previous costs orders made in favour of one or other of the parties.

[7] (1946) 73 CLR 129; [1946] HCA 19.

[8] PY does not oppose the making of the order under r 63.34(4) conferring authority on the Costs Court to increase fees.

[9] Respondent's Costs Submissions pursuant to Court of Appeal Orders dated 10 February 2021 (dated 24 February 2021), [3(a)].

[11] Respondent's Costs Submissions pursuant to Court of Appeal Orders dated 10 February 2021 (dated 24 February 2021), [3(d)].

[12] Respondent's Costs Submissions pursuant to Court of Appeal Orders dated 10 February 2021 (dated 24 February 2021), [3(d)].

[13] [1988] FCA 202.

[14] [1988] FCA 202, [21].

[15] [2001] VSC 189 (Harper J).

[16] [1988] FCA 202, [22].

[17] [2001] VSC 189, [9].

[18] As recognised in Spencer v Dowling [1996] VSC 51; [1997] 2 VR 127, 147 (Winneke P).

[19] Court of Appeal judgment [66]-[69].

[21] Court of Appeal judgment [59]-[85].