Apostolidis v Kalenik (No 2)
[2011] VSCA 329
•28 October 2011
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| S APCI 2009 3882 | |
| IOANNIS (JOHN) APOSTOLIDIS | First Applicant/Appellant |
| DSK HOLDINGS PTY LTD (ACN 007 416 257) | Second Applicant/Appellant |
| AZURA PTY LTD (ACN 063 939 720) | Third Applicant/Appellant |
| YARRABEE INVESTMENTS PTY LTD (ACN 093 518 275) | Fourth Applicant/Appellant |
| v | |
| ZORICA KALENIK | First Respondent |
| and | |
| DEPUTY COMMISSIONER OF TAXATION (No 2) | Second Respondent |
AND BETWEEN: | |
| ZORICA KALENIK | Cross-Appellant |
| v | |
| IOANNIS (JOHN) APOSTOLIDIS | First Cross-Respondent |
| DSK HOLDINGS PTY LTD (ACN 007 416 257) | Second Cross-Respondent |
| AZURA PTY LTD (ACN 063 939 720) | Third Cross-Respondent |
| YARRABEE INVESTMENTS PTY LTD (ACN 093 518 275) | Fourth Cross-Respondent |
| and | |
| DEPUTY COMMISSIONER OF TAXATION (No 2) | Fifth Cross-Respondent |
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| JUDGES | NETTLE, ASHLEY and TATE JJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 13 October 2011 |
| DATE OF JUDGMENT | 28 October 2011 |
| MEDIUM NEUTRAL CITATION | [2011] VSCA 329 |
| JUDGMENTS APPEALED FROM | [2009] VSC 208; [2009] VSC 475 (Hargrave J) |
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COSTS – Adjustment order under Part IX of the Property Law Act 1958 – Misconduct by both parties pre-trial and at trial – Respondent successful but lost on significant factual issues –Judge awarded respondent costs of pre-trial and 75 per cent of costs of trial – Whether exercise of costs discretion should be disturbed – Whether costs orders proportionate to success should usually apply to adjustment order proceedings – Baker v Towle (2008) 39 Fam LR 323, explained – Whether respondent achieved ‘substantial success’ – Whether respondent’s refusal of Calderbank offer unreasonable – Whether judge should have inspected respondent’s offer of compromise – Supreme Court (General Civil Procedure) Rules 2005, r 26.05(2) – Application for leave to appeal against costs orders refused.
COSTS – Costs of appeal and of cross-appeal – Each party successful – No order for costs.
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| Appearances: | Counsel | Solicitors |
| For the Applicants/Appellants/ Cross-Respondents (First to Fourth) | Mr S K Wilson QC with Mr P G Little | David Tonkin & Associates |
| For the First Respondent/ Cross-Appellant | Mr P H Solomon SC with Ms M Wilkening-Le Brun | Dimos Lawyers |
| For the Second Respondent/ Fifth Cross-Respondent | Mr S A Linden | Australian Government Solicitor |
NETTLE JA
ASHLEY JA
TATE JA:
Introduction
On 13 October 2011, this Court made orders allowing an appeal brought by the appellant, Ioannis Apostolidis (‘A’), against the respondent, Zorica Kalenik (‘K’), and allowing a cross-appeal by K against A.[1] The orders included the setting aside of the principal judgment below. We now consider the question of whether the costs ordered by the trial judge ought be disturbed and what costs ought be awarded in the appeal and cross-appeal. We also consider the question of whether the monies paid into court by A should be released to K.
[1]Apostolidis v Kalenik [2011] VSCA 307.
The appeal had been brought from three judgments given in the Common Law Division. The principal judgment determined the amount to be paid by A to K pursuant to Part IX of the Property Law Act 1958 (‘PLA’), by way of an adjustment of interests in relation to the property of A, his companies, namely, DSK Holdings Pty Ltd (‘DSK’), Yarrabee Investments Pty Ltd (‘Yarrabee’), and Azura Pty Ltd (‘Azura’), and the property of K, after the ending of a de facto relationship of a number of years’ duration between A and K. The application for an adjustment sum was brought by K, as plaintiff, against A, DSK, Yarrabee and Azura, as defendants. The amount awarded to K by way of adjustment was the subject of the cross-appeal. This Court determined that the amount awarded at trial, about five per cent of the pool of assets of A and K, was insufficient. In the re-exercise of the discretion under s 285 of the PLA, we adjusted the interests of A and K by awarding to K a sum broadly representing 27 per cent of the pool of property interests of the parties, valued as at the present time at $1,175,000.
The second judgment determined the interest payable on the adjustment sum from the date of the issue of the Writ to the date of judgment by the trial judge. In re-exercising the discretion under s 285, it was unnecessary for this Court to decide whether the judge erred in the award of interest on the adjustment sum.
The third judgment sought to be appealed against (subject to leave) addressed the question of the costs to be awarded for the pre-trial period during which there had been a multiplicity of interlocutory applications, especially relating to discovery, and the costs of the trial.[2] In the exercise of his discretion, the judge made the following orders for costs:
[2]Kalenik v Apostolidis (No 3) [2009] VSC 475 (‘Costs Reasons’). The application for leave to appeal from the orders on costs was adjourned by Redlich JA and Hansen AJA on 12 March 2010 until the hearing of the appeal from the principal judgment.
(1) The defendants pay the plaintiff’s costs of the proceeding incurred prior to 2 February 2009, including reserved costs, on a party and party basis.
(2) The defendants pay 75 per cent of the plaintiff’s costs of the proceeding, including reserved costs, from 2 February 2009.
The first day of the trial was 2 February 2009. The effect of the judge’s orders was that A was ordered to pay 100 per cent of K’s pre-trial costs on a party and party basis and 75 per cent of K’s costs of the trial.
Costs orders independent of principal judgment
Initially, we were attracted to the view that, because of the success of the appeal and cross-appeal, the costs orders would have to be set aside and fresh provision made for the pre-trial costs and the costs of the trial. On reflection, however, we do not think that to be so. The net result of the appeal and cross-appeal is that the respondent retains the substantial success to which she was adjudged to be entitled at trial; so that, other things being equal, there would be no reason to disturb the costs order made below. The question now is whether the appellant’s criticisms of the costs orders should be accepted and, if so, whether that requires that the costs orders be set aside.
The reasons of the trial judge – pre-trial costs
The trial judge rejected a submission made by K that she should be awarded indemnity costs for the period before the commencement of the trial.
He accepted that in the course of the interlocutory processes, A had adopted the approach of not discovering many relevant documents unless an application was made by K to the Court for further and better discovery by him.[3] He also found that A had dishonestly concealed the existence of duplicate invoices issued by DSK in respect of sales and other primary business records including the ‘diaries’ which recorded many of the sales and receipts (including cash receipts) of the business as a daily reconciliation.[4] He found that A concealed these documents when he well knew that that the tax returns and financial statements of DSK, and his own tax returns, were false because they understated income received in cash.[5]
[3]Costs Reasons, [16]. This was contested by A but, given the more important finding of concealment, it was ultimately not material.
[4]Ibid [16]. During the trial, A contended that the diaries were inaccurate and could not be relied upon as evidence of the level of sales made by DSK during the periods covered or as to the amount of cash received by DSK during those periods: Kalenik v Apostolidis [2009] VSC 208, (‘Principal Reasons’), [366] and [368]. The judge rejected that contention: Principal Reasons, [374].
[5]Principal Reasons, [364].
However, he also found that K had engaged in improper conduct, engaging in deliberate delay while seeking litigation funding. There were also deficiencies in K’s discovery but ‘these deficiencies were far less serious than those of the defendant’.[6] K had also engaged in improper pre-trial conduct by allowing Mr Pollett to exercise a substantial degree of control over her case with the consequence that her claims became exaggerated, growing ‘like Topsy’ during the interlocutory process. Mr Pollett had also made payments to a witness, Mr Nedelcu, with the intention of influencing his evidence as to relevant events.
[6]Costs Reasons, [16].
The judge’s rejection of K’s application for indemnity costs, in the face of A’s dishonest concealment, was based upon his findings of the deficiencies in K’s discovery and the improper conduct in which she had engaged.
The reasons of the trial judge – costs of the trial
With respect to the costs of, and incidental to, the trial, the judge rejected K’s application for the ‘usual order’ that a successful plaintiff should recover all her costs; that is, an order reflecting that costs follow the event. K had submitted that the adjustment sum awarded, $500,000, together with interest in her favour, of $509,109, reflected ‘substantial success’[7] given that the defence had been based upon a denial that K was entitled to any adjustment sum.
[7]Ibid [21].
The judge refused to apply the usual rule because K had engaged in improper conduct that had the effect of substantially prolonging the trial. This included K’s dishonesty in exaggerating and embellishing her case and in being repeatedly non-responsive, volunteering irrelevant material in an attempt to denigrate A at every opportunity. Furthermore, although K had succeeded on some factual issues, there were also many factual issues on which she had failed, including the allegations of violence towards her by A and the issues addressed by Mr Nedelcu (whose evidence was rejected by the judge). Thus, although A was found to have told numerous lies and dishonestly understated the extent of K’s contribution to his welfare, the welfare of his son and to his business which ‘prolonged the trial to an inordinate degree’,[8] the judge determined that he would not award costs in accordance with the usual rule, but would deprive K of 25 per cent of the costs of the trial. He also considered, having regard to K’s improper conduct, notwithstanding A’s misconduct during the trial, that it would be wholly inappropriate for K’s costs to be taxed on other than a party/party basis.[9]
[8]Ibid [19].
[9]Ibid [22].
The judge also rejected a submission made by A that K had unreasonably rejected a Calderbank offer,[10] and that A should therefore be awarded indemnity costs in his favour.[11] The Calderbank offer was made by A on 27 January 2009 following a mediation a few days before the trial commenced (on 2 February 2009). A offered to pay K $901,000 inclusive of interest at the date of the offer, together with her party/party costs. Given the adjustment sum ultimately awarded, and the interest that would have accrued to that date, K was entitled as at the date of the offer to about $976,000 (that is, $75,000 more than the amount offered). A argued before the trial judge that K should have realised she would not recover all her costs and that, accordingly, her rejection of A’s offer was unreasonable.
[10]See Calderbank v Calderbank [1975] 3 All ER 333.
[11]Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435; Foster v Galea (No 2) [2008] VSC 331, [19](f).
A based his submissions before the judge on the following considerations:
(1) At the time the offer was made, the parties were preparing for trial and had knowledge of all the issues;
(2) The offer remained open until 5:00pm on 3 February 2009, thus allowing a reasonable time following opening submissions;
(3) At the time the offer was made, the parties jointly estimated a trial of about 30 days’ duration and thus the costs of the trial would clearly be relevant to determining whether K had achieved any real measure of success;
(4) The offer was made in clear terms; the offer of $901,000 covered both any adjustment sum and interest with costs being offered on a party/party basis. The offer made reference to Calderbank v Calderbank which must have made it clear to K that if the Court found that she unreasonably refused to accept the offer, she might be liable to pay costs to A on an indemnity basis if she did not obtain a better result;
(5) In any event, K’s conduct should lead to her receiving a substantial reduction in any costs awarded in her favour;
(6) In all the circumstances, K would be in a worse position than if she had accepted A’s offer.
The judge accepted that because K only recovered slightly more than the offer and suffered a reduction of 25 per cent of her costs entitlement in respect of the trial, she was in a worse financial position than if she had accepted A’s offer.[12] He nevertheless determined that K’s rejection of A’s offer was not unreasonable. He said:[13]
Notwithstanding this position [that K was worse off], I am not satisfied that the plaintiff’s [K’s] rejection of the defendant’s [A’s] offer was unreasonable in all the circumstances. The position must be assessed at the time the defendant’s [A’s] offer was made. Understandably, in considering the offer, the focus of the plaintiff [K] and her lawyers would have been on the amount offered in respect of the plaintiff’s [K’s] claim to an adjustment order and interest. Their assessment of that component of the offer has been vindicated.
I accept that the plaintiff [K] and her lawyers also had to consider the possible cost consequences of the trial, which was then jointly estimated to occupy at least 30 sitting days. However, the range of discretionary factors relevant to costs which may become relevant during a trial of that magnitude would have been very difficult to predict. For example, the plaintiff [K] and her lawyers may have reasonably believed that the plaintiff [K] would obtain an order for all, or substantially all, of her costs if she obtained an adjustment order and interest in the amount of approximately $1 million, as has taken place. Further, the plaintiff [K] and her lawyers would have been justified in believing that the Court would probably find the defendant [A] to have engaged in tax fraud. In those circumstances, it was not unreasonable for the plaintiff [K] and her lawyers to predict that she would recover all, or substantially all, of her costs.
[12]Costs Reasons, [33].
[13]Ibid [33]-[34].
A’s challenge to the trial judge’s award of costs
In his challenge to the trial judge’s award of costs, A submitted that the appropriate orders ought to have been, with respect to pre-trial costs:
(1) Each party bear their own costs to the date of trial, or, alternatively;
(2) That K receive no more than 50 per cent of her costs on a party/party basis;
and with respect to the costs of the trial:
(3) K pay A’s costs from 2 February 2009 on a solicitor-client basis, or, alternatively;
(4) There be no order as to costs.[14]
[14]Appellants’ Memorandum to the Court re Outstanding Issues, dated 13 October 2011. The orders submitted to be appropriate varied somewhat from those identified in [29] of the Consolidated Draft Amended Notice of Appeal, dated 31 August 2011, in that the alternatives referred to in [16](2) and [16](4) above were added.
In support of his application for leave, A made a number of submissions, many of which were inter-related and were relevant to both the question of the pre-trial costs and the costs of the trial.
A submitted that the judge failed to give sufficient weight to his own findings about the champertous agreement with A’s brother, Ken Apostolidis, and the assumption, revealed by the spreadsheet prepared by Mr Pollett, that K’s expenses would come to at least $3.5 million. It was also submitted that the judge failed to give any weight, or insufficient weight, to K’s litigation misconduct constituted by, inter alia, the payments to Mr Nedelcu; K’s ‘litany of lies’;[15] the gross exaggeration of K’s case, in which her case had grown ‘like Topsy’; the scripting of witnesses; and the permission she extended to Mr Pollett to have a pervasive role in the management of her case, giving rise to serious doubts as to K’s credibility.
[15]Consolidated Draft Amended Notice of Appeal, dated 31 August 2011, [17](b).
A also complained that the judge did not give sufficient weight to the significant delays caused by K and the fact that K’s discovery applications were not directed at the 55 books (including the ‘diaries’) which she had in her possession in any event, and which she failed to discover until 10 April 2008 (despite her own evidence that she had them long before she separated from A). It was alleged that the only reasonable inference that could be drawn from this conduct was that the withholding of the diaries was ‘being used as a ‘last ditch’ piece of litigation blackmail to force [A] to settle for the sort of substantial figures reflected in the Pollett spreadsheet’.[16] There was also criticism of K’s failure to discover her cheque-books that would have enabled an analysis of payments into and out of her Bank of Melbourne passbook.
[16]Appellants’ Outline of Submissions on the Appeal, dated 15 June 2011, [32](c).
It was urged that the judge fell into error in failing to apply the approach to costs adopted in Baker v Towle,[17] to the effect that a costs order should reflect the proportionate degree of success. It was submitted that the judge indicated that he favoured ‘the approach adopted in Baker v Towle … [yet] his Honour then failed to apply the said approach’.[18] With respect to the adjustment sum made at trial, a proportionate approach would have resulted in K receiving no more that 10 per cent of her costs, having been awarded five per cent of the pool of property interests while having sought 50 per cent. (Given that the discretion under s 285 of the PLA had now been re-exercised by this Court and an adjustment sum ordered of about 27 per cent of the pool of property interests of the parties, an order based upon proportionate success would result in an award in favour of K of about 27 per cent of the trial costs.) However, this submission is based upon a misconception that Baker v Towle is authority for the proposition that, in respect of property distribution between de facto partners, costs ought reflect the proportionate degree of success. As is discussed in greater detail below,[19] there were two competing approaches in Baker v Towle, one adopted by Basten JA in favour of proportionate costs orders generally in this context, and the other adopted by Beazley JA who eschewed the application of any single approach, preferring that close attention be paid to the circumstances of the individual case. The trial judge made it clear that he preferred the approach enunciated by Beazley JA.[20]
[17](2008) 39 Fam LR 323.
[18]Consolidated Draft Amended Notice of Appeal, dated 31 August 2011, Ground 22; Appellant’s Outline of Submissions on the Appeal, dated 15 June 2011, [40], relying on Costs Reasons, [43].
[19]See paragraphs [35]-[41].
[20]Costs Reasons, [43].
Furthermore, A submitted that the judge was wrong not to conclude that K’s rejection of A’s Calderbank offer was unreasonable in circumstances in which she well knew that the trial would be significantly lengthened (because she planned to exaggerate and lie about her case) and that she would be at substantial risk of not getting all of her trial costs (by reason of the agreement she had to share the proceeds of her case equally with Ken Apostolidis, in addition to the fee to which Mr Pollett claimed to be entitled).
A argued that the judge should have inspected K’s ‘without prejudice’ offer to enable a comparison to be made for the purposes of the discretionary factors identified in Baker v Towle[21] and as illustrative of the manner in which the proceedings were conducted. A argued that, in the absence of inspection, the judge wrongly refused to infer the likely amount of K’s offer in the light of the evidence of the Pollett spreadsheet, and evidence relating to the investors in her case, and wrongly rejected A’s submission that K would not have offered to compromise the proceeding for any sum close to the amount of the adjustment sum and interest awarded, but only for many millions of dollars more.
[21](2008) 39 Fam LR 323, 330 [23].
A further submitted that the judge was wrong to characterise A’s position as one of urging that no adjustment order be made when there was evidence that A had made a series of offers including the Calderbank offer of 27 January 2009 and that in his closing submissions he had argued, in the alterative, either that no adjustment sum be made or that an adjustment sum should be limited to a share in the equity of the domestic residence at Yarrabee Court.
A complained that the judge gave no or insufficient weight to his own finding that K would have been in a better financial position if she had accepted A’s offer of 27 January 2009 and insufficient weight to the fact that he disbelieved all of the witnesses called by K other than her expert. It was also argued that the judge gave no weight to the time taken during the trial on issues which K lost, or substantially lost, including:
(1) The alleged engagement and proposal;
(2) K’s social welfare fraud;
(3) K’s alleged management and masterminding of A’s business;
(4) K’s alleged financial contributions to the household;
(5) K’s allegations of violence and rape (given on her own admission to increase the size of the award).
K submitted that the orders made by the trial judge on the pre-trial costs and the costs of the trial should stand.
Did the judge fall into error on costs?
The discretion to award costs is broad. It was accepted by A that:[22]
A decision regarding costs will only be interfered with if this Court is satisfied that there is an identifiable error or if the exercise of the learned trial judge’s discretion has been so unreasonable or unjust as to require this Court to substitute its own discretion.
[22]Appellants’ Outline of Submissions on the Appeal, dated 15 June 2011, [3].
The onus thus fell on A to establish the existence of an identifiable error in the reasons of the judge or a result that was so unreasonable or unjust as would lead this Court to conclude that it was not open for the judge to have arrived at the costs orders he made.
Pre-trial costs
The principal issues with respect to the pre-trial costs were twofold: (1) whether the judge gave insufficient weight to K’s improper conduct, and (2) whether his Honour gave excessive weight to A’s misconduct during the discovery process.
The judge had regard to the following matters adverse to K:
(1) she engaged in deliberate delay for some parts of those processes, while seeking funding;
(2) her discovery was deficient in material respects;
(3) she permitted Mr Pollett to exercise a substantial degree of control over her case;
(4) the finding that there were payments by Mr Pollett to an important witness with the intention of influencing his evidence.
He also had regard to his finding that A dishonestly concealed the existence not only of the diaries but also of the DSK invoices throughout the discovery process and that these documents were of central importance to a critical issue in the case, namely, the value of A’s business.
We consider that the judge was best placed to make an assessment of the relative impropriety of the conduct of both K and A during the pre-trial process. This was not a proceeding in which one party acted honestly and conscientiously throughout the interlocutory processes and the other did not; rather, both parties were guilty of dishonest and improper conduct during the pre-trial process and the judge was well placed to be able to make an assessment of their conduct. It must be remembered that, as Ormiston JA said in Transport Accident Commission v O’Reilly:[23]
[I]t has been accepted for many years that it is extraordinarily difficult to show that a court of first instance or a tribunal with wide discretionary powers has erred in the exercise of its powers to award costs, if there be some basis for making [the] order.
[23][1999] 2 VR 436, 457 [46]. Ormiston JA was speaking of the difficulty in demonstrating error, given the breadth of the discretion, where an order is made other than the conventional one in favour of the successful party. The observation must be a fortiori when a conventional order is made.
To similar effect in Murdaca v Masiano, Nettle JA said:[24]
[T]he award of costs was an exercise in the discretion of the Judge and if an appeal against the award is to succeed it must be shown that his Honour erred in principle or had regard to extraneous considerations or failed to have regard to relevant considerations or that the decision which he made was not open to be made on the material which was before him.
[24][2004] VSCA 123, [41].
We do not consider that the judge’s orders with respect to the pre-trial costs were based on incorrect principles, or ignored relevant considerations, or took into account irrelevant considerations, or that the orders were so unreasonable that some error must have occurred. We would not interfere with the exercise of the judge’s discretion.
Costs of the trial
The complaint that the judge erred in the costs order he made with respect to the trial raised the issues of (1) whether ‘the event’ in applications under s 285 of the PLA ought be given a distinctive meaning; (2) whether K had achieved ‘substantial success’; (3) whether the judge should have considered that the rejection of A’s Calderbank offer was unreasonable; and (4) whether the judge failed to give insufficient weight to his own findings of K’s misconduct during the trial.
(1) The meaning of ‘the event’: Baker v Towle
A close reading of Baker v Towle reveals that it does not stand for the proposition that costs in applications for the adjustment of property interests between de facto partners ought invariably to reflect the ‘proportionate success’ of the parties nor for the proposition that where offers have been made they are to be treated as defining the real dispute. In Baker the de facto wife had been successful in part, but not in whole, in her claims. The trial judge awarded her 75 per cent of her costs. The result of an appeal was a slightly different adjustment of property and the New South Court of Appeal (Beazley and Basten JJA, Matthews AJA) applied the same approach and ordered that the de facto husband pay two-thirds of the costs of the de facto wife at trial.
A relied upon the observations of Basten JA who considered, on appeal, that the apportionment of costs by the trial judge was appropriate. He remarked, at [83] –[84]:[25]
An application under s 20 [of the Property (Relationships) Act 1984 (NSW)][26] for adjustments to interests in assets should involve a specific claim and a defence which should indicate the degree (if any) to which the defendant is willing to concede the adjustment sought. The pleadings will then identify the scope of the dispute. The next question is whether any degree of success on the part of the plaintiff should be sufficient to justify an order for payment of her costs in full, or whether the costs order should in come sense be proportionate to the degree of success. In such a case, the ‘event’ may be identified with greater or less precision by reference to the extent of the adjustment ordered.
This kind of case differs from cases where a proportion of costs only has been awarded, based on an assessment of the specific issues on which each party has been successful … On the other hand, this is not a case where the plaintiff seeks to establish liability in, say, breach of contract or negligence, and obtains a judgment for somewhat less than the total amount claimed. Unless there are severable elements on which the plaintiff failed, in a case of that kind apportionment will rarely be appropriate. However, in a case involving adjustment of interests in assets, it may be thought that justice is best done by an apportionment of costs depending upon the plaintiff’s degree of success. The trial judge was not in error in adopting that approach in the present case, and the approach may properly be applied in relation to the appeal.
[25]Baker v Towle (2008) 39 Fam LR 323, 342-3.
[26]The equivalent of s 285 of the PLA.
Beazley JA agreed with the costs order but qualified her agreement to make it clear that the Court was not espousing a universal rule that costs reflect proportionate success. She said:[27]
In agreeing with this costs order, I should state that I do not consider that there is a ‘usual rule’ that an award of costs in applications made under the Property (Relationships) Act should reflect the proportion of interests in property that were adjusted in comparison with the claim. The discretion conferred by r 42.1 [whereby costs follow the event, unless it is appropriate that some other order ought be made] is not to be fettered in that way.
Although there was no real question raised on the appeal as to the proper approach to costs in applications under the Property (Relationships) Act, it is appropriate that I make some comments having regard to the remarks of Basten JA at [83]. His Honour states that ‘the event’ for the purposes of r 42.1 in an application under the Act ‘may be identified with greater or less precision by reference to the extent of the adjustment ordered.’
[27]Baker v Towle (2008) 39 Fam LR 323, 326-7 [9]-[10] (emphasis added).
Her Honour’s comments on the remarks made by Basten JA ultimately led her to conclude that there were no principles or guidelines that governed the exercise of the discretion to award costs in applications for the adjustment of property interests between de facto partners. She said:[28]
[28]Ibid 327-30 [11]-[25] (emphasis added).
The provision made by r 42.1 reflects a longstanding rule of court traceable back to nineteenth century England. …
There have been a number of cases in which the principles governing the award of costs in cases under the Property (Relationships) Act have been considered. This Court’s decision in Kardos, in so far as it stated that in cases under the Act ‘the starting position should be that each party should bear its own costs’, has been rejected: see Dunstan [v Rickwood (No 2) (2007]) 38 Fam LR 491]; Hayes [v Maquis [2008] NSWCA 10] at [14] and [145]. … However, those cases did not deal with the question of what ‘the event’ was for the purposes of r 42.1. …
The meaning of ‘the event’ for the purposes of a claim under the Act was considered in Vollmer v Hauber-Davidson [2005] NSWCA 237.
…
[In granting leave to appeal, the Court said:]
The 26 unreported cases have not revealed any settled practice or further development of principle. … [However they] … show that the Court has generally taken a broad, rather than a narrow, view of what constitutes the event in proceedings under the Act. Where offers have been made they have generally been treated as defining the real dispute and ‘the event’ of the litigation has been judged accordingly.
…
A review of the cases does not reveal any authoritative resolution of the meaning of ‘the event’ within r 42.1. The discussion of the court in Vollmer on the leave application indicates that ‘the event’ could be defined or identified in a variety of different ways. The approach of Basten JA, to which I have referred … adopts a similar approach.
The question as to what is ‘the event’ will answer itself when an application is refused. In that case the event will be the order for the defendant and, upon a straightforward application of r 42.1, the defendant will have the costs of the application unless the court makes some other order.
However, on the approach adopted by the court on the leave application in Vollmer No 2, ‘the event’ may be identified in a variety of ways in the one case. It would be odd and, indeed, unfortunate, if the identification of ‘the event’ in one way resulted in an order for costs, on the basis of ‘costs follow the event’, whereas a different, but equally appropriate identification of ‘the event’ meant a different application of the rules. The oddness in there being different possible applications of the rule (in this respect I am not referring to the exercise of the discretion under the rule) depending on the identification of ‘the event’ raises in my mind the question whether this is the correct approach. In most cases, the costs order will almost invariably depend upon the exercise of the discretion.
The real question is what is the appropriate order for costs. An obvious starting point is the pleadings. However, the identification of the issues in the pleadings is likely to be only one of several considerations relevant to the costs order that ought to be made. The considerations may include whether any offers of settlement have been made and if so what those offers were. The discretionary considerations may also include the manner in which the proceedings are conducted. These are but two examples. There may be a whole range of relevant circumstances depending upon the particular case. …
The difference between the approach that I prefer and the approach of Basten JA is probably more apparent than real. It will be apparent from what I have said that, where an order for adjustment is made, the costs order will rarely, if ever, depend simply upon which party commenced proceedings. The question of costs needs to be assessed in accordance with the facts and circumstances in each case and as the analysis undertaken by the court in Vollmer indicates, no principles or general guidelines have emerged in cases under the Property (Relationships) Act.
Matthews AJA agreed with Beazley JA saying:[29]
Subject to the matters discussed in Beazley JA’s judgment (with which I agree) I agree with Basten JA.
[29]Ibid 344 [91].
In the light of the observations made by Beazley JA, we reject the view that the meaning of ‘the event’ is distinctive in the context of an application for the adjustment of property interests between de facto partners. We also reject the view that a guiding principle for the award of costs in this context is one that reflects proportionate success. We further reject the view that where offers are made, it is their terms that define the real dispute between the parties or that the offers provide the benchmark of comparison against which substantial success is to be assessed, rather than the pleadings or other circumstances of the case. We rather consider that the degree of success achieved and the offers made are some of the relevant considerations to be taken into account in the exercise of the court’s discretion on costs, within the context of the facts and circumstances of each individual case.
We mentioned above that the judge stated that he preferred the approach of Beazley JA. We consider that it was open for him to do so and that, consistently, with that approach, he considered carefully the individual facts and circumstances of the case.
(2) Did K achieve ‘substantial success’ at trial?
It was contended before the judge that K had not achieved substantial success at trial to justify an order made in accordance with the usual rule that costs should be awarded in favour of the successful party. The same submission was made on the application for leave to appeal.
By reference to the pleadings the judge identified the dispute as one whereby K contended that she was entitled to an adjustment order of 50 per cent of the total asset pool, together with a further adjustment to reflect violent acts of A towards her. At trial she was awarded about five per cent of the pool of assets (and when the discretion was re-exercised on appeal, about 27 per cent). In the opinion of the judge, the comparison between the amount contended for and the amount awarded did not assist A because, as mentioned above, the judge took the view that at all times his ‘position at trial was that no adjustment order whatsoever should be made’.[30] A’s submission that by the time of the final submissions at trial he argued in the alternative that either no adjustment sum should be made or that K be given equity in the Yarrabee Court house, in our opinion, does not detract from the fact that the principal position of A was that no adjustment sum was warranted. This was in accordance with the case he sought to present. As the judge said:[31]
[A]lthough I am satisfied that he had some real emotional attachment to the plaintiff [K] at some times, he endeavoured to present a picture of the plaintiff [K] as merely his ‘sexual partner and [live-in] person‘.
[30]Costs Reasons, [45].
[31]Principal Reasons, [70].
It is undeniable that A sought to diminish the significance of his relationship to K at almost every opportunity and to deny her any entitlement to an adjustment of property interests by virtue of that relationship. In those circumstances, and allowing both that K’s claims became exaggerated during the course of the trial and that the valuation of A’s business was considerably uncertain, we consider that the judge’s conclusion that K had obtained substantial success at trial was open and not manifestly unreasonable.
In seeking to resist the application for leave to appeal, K argued that the proper comparison to be drawn was, on the one hand, between the amount K was given by A when the relationship came to an end namely, $10,000 cash and a motor car valued at $8,000, together with some pots and pans that she was able to pack into her car and, on the other hand, the value of the adjustment sum ultimately awarded. K submitted that as it was necessary for her to bring legal proceedings to obtain anything above the $18,000 she left the relationship with, the success of the proceedings ought be calculated by reference to her state of affairs before commencing the proceedings. We consider that such a comparison ought be rejected as it fails to reflect that an award of costs is linked to the merits of the proceedings brought, and not to the state of affairs motivating the bringing of proceedings.
Similarly, we reject the proposition that the terms of offers made between the parties are to signal the real dispute between them. As we discussed above, Baker v Towle is not an authority for the proposition that the terms of any offers made are to provide the benchmark against which to judge success. Moreover, we consider that the judge was right to refuse to inspect K’s offer of compromise which had been made without prejudice that had not been waived.[32] The terms of r 26.05(2) of the Supreme Court (General Civil Procedure) Rules 2005 should not be read as abrogating without prejudice privilege from the moment that all questions of liability and relief have been determined. Those terms provide:[33]
Where an offer of compromise has not been accepted, then, except as provided by Rule 26.08(6), 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.
[32]Although K conceded that her offer of compromise was not for an amount less than the adjustment order and interested awarded by the judge: see Costs Reasons, [50].
[33]Emphasis added.
We agree with the judge that, as K maintained the privilege, he was not at liberty to inspect the offer and ignore the without prejudice privilege simply because the questions of liability and relief had been determined, nor was he at liberty to speculate on the terms of the offer for the purpose of assessing substantial success, as A urged him to do.[34]
(3) Should the trial judge have considered that the rejection of A’s Calderbank offer was unreasonable?
[34]Costs Reasons, [49]. The judge noted that the trial was not governed by s 131(2)(h) of the Evidence Act 2008 which had yet to come into operation (it commenced on 1 January 2010) making all communications prepared in connection with attempts to negotiate a settlement of a dispute admissible if they are relevant to determining the liability of a party for costs.
The factors relevant to assessing whether a rejection of a Calderbank offer is unreasonable were clearly identified in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2)[35] and are not in dispute. They include:
[35](2005) 13 VR 435.
(1) the stage of the proceeding at which the offer was received;
(2) the time allowed to the offeree to consider the offer;
(3) the extent of the compromise offered;
(4) the offeree’s prospects of success, assessed as at the date of the offer;
(5) the clarity with which the terms of the offer were expressed;
(6) whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.[36]
[36]Ibid 442 [25].
The circumstances in which the offer was made, and the clarity of its terms, as described above,[37] reveal that the only factor truly in contest on this issue was K’s prospects of success, assessed as at the date of the trial. K argued that as at that date, it was reasonable for her to apprehend that the pool of property interests would be at least $10 million - $11 million; the judge would be likely to make the factual findings he did as to her contribution towards the pool (although this was less than that for which she contended); that she would be afforded an adjustment sum somewhat greater than the five per cent actually awarded (the reasonableness of this assumption is evidenced by this Court’s conclusion that the adjustment sum awarded was manifestly inadequate); and that interest would accrue on that sum from the date of the issue of the Writ (in accordance with her agreement with A), all of which would combine to yield a reasonable expectation of her prospects of success in excess of the offer made ($901,000 plus party/party costs). We agree.
[37]See [14] above.
We also agree with the judge that it would have been very difficult for K to predict what the costs consequences of the trial would be. Given the breadth of the discretion to award costs, and the likelihood of the finding that A had engaged in tax fraud, she may well have, reasonably, considered that she might recover all, or substantially all, of her costs.
(4) Did the trial judge fail to give insufficient weight to his own findings of K’s misconduct during the trial?
The circumstances of the trial were unusual. The trial lasted for about 45 days and, in substance, every issue between the parties was contested. Both parties called a large number of witnesses. The judge did not accept the evidence of at least three of the witnesses called by K. The judge found that, save for one or two witnesses called by each party, almost all witnesses lied for one purpose or another. Complex expert evidence was called by the parties to value the business controlled by A. A large proportion of the Court’s time was occupied with having to ascertain the true value of A’s furniture business. That task was time-consuming by reason of A’s conduct, including his continuous denial of his understated income and his evasion with respect to the existence and authenticity of the DSK invoices and diaries.[38] So too, time was wasted during the trial by the exploration of issues raised by K which were ultimately rejected, including the allegations of sexual violence.
[38]Costs Reasons, [16].
As we stated in our reasons on the appeal and cross-appeal from the judge’s principal judgment, the judge[39]
found that neither A nor K was a credible witness and that the evidence of each of them was a ‘tangled web of truths, half-truths, mistaken recollections, inconsistencies, exaggeration, understatement, evasion, dissembling, concoction and deliberate lies’.
[39]Apostolidis v Kalenik [2011] VSCA 307, [44], referring to the Principal Reasons, [25].
In the context of those unusual and difficult circumstances, the judge, when determining what was an appropriate order for costs of the trial took into account a variety of factors adverse to K, including the fact that she:
(1) engaged in improper conduct, told numerous lies, and dishonestly exaggerated her case;
(2) failed altogether on some issues; and
(3) her own conduct as a witness wasted court time.
It is clear that the improper conduct of K included the improper agreement with Ken Apostolidis, the payments made to Mr Nedelcu, and the scripting of witnesses. The failure of K on various issues clearly included the allegation of sexual violence and such matters as the proposal and engagement, and the like.
These combined factors led the judge to conclude that he was justified in depriving K of 25 per cent of the costs of the trial. We consider that the judge was correct to conclude that the range of factors adverse to K demanded a reduction in the costs K was awarded. We also consider that it was open to the judge, in the exercise of his discretion, to take the view that a 25 per cent reduction was appropriate. We do not consider that his reasons reveal any specific error or that the reduction was so unreasonable or unjust as to require this Court to substitute its own decision.
With respect to A’s submission that the judge gave insufficient weight to a variety of factors, we do not consider that the weight attributed revealed that the discretion had miscarried. As Latham CJ said in Lovell v Lovell:[40]
If completely irrelevant considerations have been taken into account and they have really affected the decision the case is clear, and the order, though made in the exercise of a discretion, should be set aside. Similarly, if relevant considerations are plainly ignored the same result follows. But when the appellate tribunal is considering questions of weight it should not regard itself as being in the same position as the learned trial judge. In the absence of exclusion of relevant considerations or the admission of irrelevant considerations an appellate tribunal should not set aside an order made in the exercise of a judicial discretion ... unless the failure to give adequate weight to relevant considerations really amounts to a failure to exercise the discretion actually entrusted to the court.
[40](1950) 81 CLR 513, 519 (emphasis added).
We do not consider that here there was a failure to exercise the discretion. We would not disturb the judge’s orders on costs.
It follows that the application for leave to appeal brought by A on the question of costs should be dismissed.
Costs of the appeal and cross-appeal
As both the appeal and the cross-appeal were allowed, we consider that A and K each achieved substantial success before this Court. A was permitted to adduce fresh evidence which had the effect of substantially reducing the pool of assets available for distribution. K achieved success on the cross-appeal in being awarded a greater proportion of the (reduced) pool of assets. A’s appeal against the judgment on interest became unnecessary. K has been successful in resisting the application for leave to appeal against the judge’s award of pre-trial and trial costs.
In the circumstances we consider that the most appropriate disposition of the issue of costs is that there be no order as to costs on the appeal or cross-appeal.
We mention for completeness an offer made during the course of the appeal which purported to be a further Calderbank offer. The offer was made on 17 January 2011 and remained open for four days. It was stated to be made in accordance with the principles in Calderbank v Calderbank. The terms of the offer were for the appeal and cross-appeal against the primary judgment to be allowed and the adjustment order increased to $1 million. The appeal against interest was to be allowed and rounded up to a sum of $1 million. The appeal against costs was to be allowed and there was to be no order as to costs of the proceeding, each party to bear their own costs in relation to the appeal and cross-appeal. The offer was qualified by the following condition:
That this offer is subject to the ATO approving the offer and payment of the monies and, without limiting the generality of the foregoing, allowing/permitting the sale of so much of the Appellant’s [A’s] real property to satisfy the offer.
It appeared that there was no response from K to the offer. K argued that the offer ought not attract the principles governing Calderbank offers because it was subject to approval by a third party, the Australian Taxation Office, with respect to the terms of the offer, the payment of monies, and the sale of A’s property. It was thus not a genuine Calderbank offer, but rather an invitation to negotiate with A and the third party, to engage in ‘tripartite trading’. In any event, K submitted, it was not unreasonable to refuse the offer given the third-party condition and the prospects of success at the time the offer was made, including the reasonable expectation of preserving the costs order of a not inconsiderable sum. We agree.
A submitted, quite correctly, that the qualification on the offer was the only manner in which he could make an offer, given the freezing orders over the property of A, DSK and Yarrabee that had been obtained by the Deputy Commissioner of Taxation at that time.[41]
[41]On 13 August 2010, Habersberger J made a freezing order against the assets of A, DSK and Yarrabee. This was extended by order on 16 August 2010 to 23 August 2010. A second freezing order was made on 23 August 2010 against the same parties which was extended on 15 September 2010 by Hargrave J and continues in operation.
Nevertheless, in our view it remains the case that the qualification deprived the letter of the status of a Calderbank offer given the attitude of the Deputy Commissioner of Taxation which became apparent on the appeal, namely, that there should be no adjustment order made in favour of K either because this Court in the circumstances lacked jurisdiction, or, alternatively, in the exercise of the Court’s discretion. That attitude, if it had been held at the time of the offer, would have rendered the offer worthless.[42] We consider that the offer of 17 January 2011 should be disregarded.
[42]It is likely that it would have been held. Amended assessments had issued, and freezing orders had been made.
Payment into Court
On 12 March 2010, Redlich JA and Hansen AJA, made the following orders:
2.The appellants pay into court the sum of $680,000 within 21 days of this date to abide the outcome of the appeal.
3.Subject to payment of the sum referred to in paragraph 2 there be a stay of the operation of the orders of the Honourable Justice Hargrave made on 17 September 2009 and 23 October 2009 regarding the adjustment of property interests and interest and costs until the hearing and determination of this appeal or further order.
The orders were made in response to a stay application by A. In granting the stay, Redlich JA said:[43]
The court has sufficient power to make the orders which the applicants seek and, as has been foreshadowed in discussion with counsel, it is the court’s view that it is appropriate in this case for there to be a partial stay of the orders the subject of this application and that it is appropriate to direct the applicants to make a payment into court. That will serve the interests of justice. It will provide the respondent [K] with some degree of security and on the other hand it will relieve the applicants of the risk that were they to make a payment to the respondent, those funds would be dissipated.
[43]Apostolidis v Kalenik [2010] VSCA 80, [30].
When the orders were made in this Court allowing the appeal and cross-appeal, K sought an order that the sum of $680,000 paid into court now be paid to her. It was submitted that the payment into court was the ‘price’ of the stay obtained by A of the orders made by the judge and that, as the appeal has now been heard and determined, the stay has expired and the sum of $680,000 should be paid to K in partial compliance with the order made by this Court for a revised adjustment sum. The Deputy Commissioner indicated that he did not oppose an order that the $680,000 be paid to K. A submitted that the monies ought not be paid out until there has been a financial reckoning following any ruling as to costs.
We do not consider that, in the absence of any objection by the Deputy Commissioner, there should be any further postponement of K’s entitlement to a portion of the adjustment sum, represented by the sum of $680,000 paid into court. We consider that the sum of $680,000 paid into court should be paid forthwith to K.
There shall be orders made accordingly.
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