Brine v Carter (No 2) - [2016] SASC 37

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
BRINE v CARTER (No 2)
[2016] SASC 37
Judgment of The Honourable Justice Blue
16 March 2016
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT - COSTS OF WHOLE ACTION - WHERE MONEY PAID INTO COURT OR OFFER OF COMPROMISE MADE
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PAYMENT INTO COURT, AND OFFERS TO SETTLE OR CONSENT TO JUDGMENT
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT - COSTS OF ISSUES
Costs in action to account for breach of fiduciary duty.
Reasons for judgment previously delivered dismissing the claim of breach of fiduciary duty because the plaintiff failed on the issue of causation. Declaration made that the grant of a life estate in the testator’s “principal residence in Australia” was confined to 440 Gilles Street. Action otherwise dismissed.
Each party seeks an order that the other party pay their costs of action.
Held:
1.       The plaintiffs should pay at least part of the defendant’s costs of action because the event was decided in favour of the defendant (at [17]).
2.       The defendant's costs to be paid by the plaintiffs should be reduced by 50 per cent to reflect the fact that the defendant failed on the majority of issues in the action and in respect of the issues on which evidence was adduced (at [18]).
3.       The fact that the plaintiffs obtained the declaration should not give rise to a different costs order because the costs incurred on the construction issue were incurred predominantly in the related action by the defendant against the plaintiffs (at [21]).
4.       The Calderbank offer made by the defendant on 7 August 2015 should not lead to any different cost order (at [58]).
Trustee Act 1936 (SA) s 91; Administration and Probate Act 1919 (SA) s 69; Supreme Court Civil Rules 2006 (SA), referred to.
Morris v McEwin (2005) 92 SASR 281; BHP Billiton Ltd v Parker (2012) 113 SASR 206; Peter Bodum A/S v DKSH Australia Pty Ltd [2010] FCA 456; Alexander v Australian Community Pharmacy Authority (No 3) [2010] FCA 506, discussed.
Australian Trade Commission v Disktravel [2000] FCA 62; Belongil Progress Association Inc v Byron Shire Council [2000] NSWLEC 118; Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107; Copping v ANZ McCaughan Ltd (1995) 63 SASR 523; Forlyle Pty Ltd v Tiver [2007] SASC 464; Milne v Attorney-General for the State of Tasmania (1956) 95 CLR 460; Mok v Minister for Immigration, Local Government and Ethnic Affairs (No 2) (1993) 47 FCR 81; Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2) [2014] SASC 141; Essential Beauty Franchising (WA) Pty Ltd v. Pilton Holdings Pty Ltd (No 2) [2014] SASC 141; Herning v GWS Machinery Pty Ltd [No 2] [2005] NSWCA 375; Leichhardt Municipal Council v Green [2004] NSWCA 341, considered.

BRINE v CARTER (No 2)
[2016] SASC 37
Civil:
BLUE J:

These reasons address the costs of this action.[1]
[1] These reasons should be read in conjunction with my reasons in Carter v Brine (No 2) [2016] SASC 36.
The Brines in their capacity as co-executors of the estate of Professor Brine sued Ms Carter for breach of fiduciary duty as an executor claiming that she was obliged to account to the estate for superannuation paid to her of $630,299. This was the principal claim advanced in the action.
The Brines also sought a declaration that, on the proper construction of Professor Brine’s will, his “principal residence in Australia” at the date of his death was confined to 440 Gilles Street and did not encompass the adjoining 446 Gilles Street. This claim was consequential on and derivative of the same issue of construction required to be determined in the Carter action as a necessary precursor to determining Ms Carter’s statutory claim for additional provision out of the estate.
On 22 December 2015, I delivered reasons for judgment in this action[2] and in the related action by Ms Carter against the Brines[3] (the Carter action). In this action, the Brines failed in their claim that Ms Carter was obliged to account to the estate for superannuation paid to her of $630,299. The Brines succeeded in obtaining a declaration that on the proper construction of Professor Brine’s will his “principal residence in Australia” at the date of his death was confined to 440 Gilles Street because they succeeded on that issue in the Carter action.
[2] Brine v Carter [2015] SASC 205.
[3] Carter v Brine [2015] SASC 204.
Ms Carter seeks an order that the Brines pay her costs of action because she was successful on the principal claim of breach of fiduciary duty and the costs of the issue of construction of the will in this action are de minimis. Ms Carter seeks an order that such costs be adjudicated on a party and party basis up to 12 August 2015 and on a solicitor and client basis thereafter because the Brines imprudently rejected a settlement offer made by her on 7 August 2015 open until 12 August 2015.
The Brines seek their costs of action because they were successful in obtaining the declaration and succeeded on most issues on the breach of fiduciary duty claim.
Mixed success
General principles
The overriding principle is that costs are in the discretion of the Court and the discretion is not to be fettered by a priori rules. The circumstances of any one case will always be unique to a greater or lesser extent. Nevertheless, certain principles have developed about the manner in which the discretion is commonly exercised, subject always to qualifications and the need ultimately to exercise the discretion taking into account all relevant factors.
In the simplest case, there is a single claim involving a single cause of action in which the plaintiff is successful on all issues and obtains a monetary or other judgment, or in which the defendant is successful on all issues and obtains a judgment of dismissal. In such cases, the court will normally (subject to other relevant matters such as conduct and offers) exercise its discretion to order that costs follow the event.[4]
[4] Milne v Attorney-General for the State of Tasmania(1956) 95 CLR 460 at 477 per Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ; Copping v ANZ McCaughan Ltd (1995) 63 SASR 523 at 527-528 per King CJ (with whom Mohr and Nyland JJ agreed).
In the next simplest case, there is a single claim on which the plaintiff succeeds but in the course of which the plaintiff failed on a non-essential issue, or in which the defendant succeeds but in the course of which the defendant failed on a non-essential issue (the unsuccessful issue). In such cases, assuming that the overall successful party did not unreasonably pursue or defend the unsuccessful issue or conduct its case on that issue unreasonably, the court exercises a discretion whether to deprive that party of the costs of the unsuccessful issue.[5] The discretion is more likely to be exercised to deprive that party of the costs of the issue:
[5] Regardless of whether the mechanism is to order that the overall successful party not recover those costs attributable to the unsuccessful issue (to be determined by the taxing officer) or, as is more common, it is to order that the overall successful party recover only a proportion of its costs on the basis of a broad estimate of the proportion of costs referable to the unsuccessful issue.
the more separate and distinct the issue;
the greater the proportion of costs of the issue out of total costs;
the greater the costs of the issue;
the less the merit of the unsuccessful issue from the perspective of the successful party.[6]
[6] See Australian Trade Commission v Disktravel [2000] FCA 62 at [3] per French, Kiefel and Mansfield JJ; Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [3]-[6] per Finkelstein and Gordon JJ.
The discretion is less likely to be exercised to order that the successful party pay the costs of the unsuccessful party in respect of the unsuccessful issue.[7] However, that discretion is more likely to be exercised if the successful party unreasonably pursued or defended the unsuccessful issue or conducted its case unreasonably in respect of that issue.[8]
[7] See Mok v Minister for Immigration, Local Government and Ethnic Affairs (No 2)(1993) 47 FCR 81 at 84 per Keely J; Belongil Progress Association Inc v Byron Shire Council [2000] NSWLEC 118 at [14] per Cowdroy J; Forlyle Pty Ltd v Tiver [2007] SASC 464 at [30] per Debelle J (with whom Sulan and Vanstone JJ agreed).
[8] See Mok v Minister for Immigration, Local Government and Ethnic Affairs (No 2)(1993) 47 FCR 81 at 84 per Keely J; Belongil Progress Association Inc v Byron Shire Council [2000] NSWLEC 118 at [14] per Cowdroy J.
In a complex case in which a plaintiff pursues two independent claims and succeeds on one but not the other, a court is more likely to order that the plaintiff recover the costs of the successful claim but pay the defendant’s costs of the other claim.[9]
[9] Regardless of whether the mechanism is to make separate costs orders (necessitating two taxations) or making an order that one party recover only a proportion of its costs on the basis of a broad estimate of the proportion of costs referable to the two claims and taking into account costs common to both claims.
In cases in which the court makes a costs order reflecting mixed success by the parties, the court may wield a broad axe and make a single costs order that one party pay a proportion or component of the other party’s costs (resulting in a single taxation) rather than making differential costs orders.
Breach of fiduciary duty claim
The Brines made two entirely independent claims in respect of the breach of fiduciary duty cause of action and the construction of the will.
As to the breach of fiduciary duty claim, Ms Carter was successful in that the claim was dismissed.
There was mixed success on individual issues. The Brines succeeded on the issues of abuse of process, laches, estoppel, breach of duty, authorisation, consent and excusal in respect of Ms Carter’s conduct up to 4 March 2015, but Ms Carter succeeded on the issue of causation. Ms Carter succeeded on breach of duty, authorisation and consent in respect of her conduct after 4 March 2015.
The evidence at trial, to the extent that it was relevant to this action and not to the Carter action, related almost exclusively to the factual issue of breach of fiduciary duty in relation to Ms Carter’s conduct up to 4 March 2015 on which she was unsuccessful.
The “event” in respect of this claim was decided in favour of Ms Carter. It is appropriate that her costs, or a proportion of her costs, be paid by the Brines who failed in the action. A substantial proportion of the costs incurred in the action related to discrete issues on which Ms Carter was unsuccessful. While she should be ordered to pay the Brines’ costs of those issues, she should be deprived of a proportion of her costs on account of her failure on those issues.
Wielding a broad axe, it is appropriate that Ms Carter recover 50% of her costs of action in respect of the breach of fiduciary duty claim.
Construction of the will claim
As to the will construction claim, the Brines succeeded on this issue of construction.
However, this claim was consequential on and derivative of the same issue of construction required to be determined in the Carter action as a necessary precursor to determining Ms Carter’s statutory claim for additional provision out of the estate. The additional costs incurred in this action in respect of this claim were de minimis.
In the circumstances, it is not appropriate to take this claim into account in relation to the costs of this action.
Offer of settlement
Ms Carter contends that an order should be made that the Brines pay her costs of action, or a proportion thereof, incurred after 12 August 2015 on a solicitor and client basis because they unreasonably rejected a settlement offer made by her on 7 August 2015.
The trial commenced on Monday 10 August 2015 and was estimated to last 10 days. The offer was expressed to expire at noon on 12 August 2015 but the letter stated that, if the Brines required further time to consider the offer, Ms Carter would consider any reasonable request to extend the time for acceptance.
The offer was made on the following terms:
1The plaintiffs’ claim be dismissed.
2There be no order as to costs of the action, and each party personally bear their costs and not be indemnified from the estate of the Deceased.
The offer was made as part of a composite offer that, if accepted, would have resolved both the Carter action and this action. However, the letter stated that the offer may be accepted in relation to both actions or alternatively in relation to this action only. Ms Carter relies on the offer on the question of costs only in the latter respect.
Six questions arise in relation to Ms Carter’s contention. Did Ms Carter better the offer? Did it involve a genuine compromise? Was it open for acceptance for a reasonable time? Was it made too late in the progress of the action? Did the Brines unreasonably reject it? What effect should the rejection have on costs? In some cases, the first five questions will comprise elements that must be satisfied before there is good reason to make a different costs order than the one that would have been made in the absence of the offer. In other cases, these questions will be factors contributing to the overall assessment and exercise of the discretion.
History of action
Before considering the issues, it is necessary to narrate briefly the history of this action.
The action was instituted on 26 June 2015 as an application for advice and directions[10] to the Brines as executors as to whether they would be justified in bringing proceedings against Ms Carter for declarations that she breached her duty as executor and is liable to account to the estate for the superannuation benefit that she received.
[10] Pursuant to section 91 of the Trustee Act 1936 (SA) and section 69 of the Administration and Probate Act 1919 (SA).
On 16 July 2015, I gave a direction that it would be a proper and appropriate exercise of the Brines’ discretion as executors to bring the proposed claim against Ms Carter but it was not appropriate to direct that the Brines be entitled to an indemnity in respect of the costs of the action and this should be reserved to the trial Judge.
On 17 July 2015, the Brines filed and served a statement of claim.
On 22 July 2015, I directed that this action be heard and determined at the same time as the Carter action, the trial of which was due to commence on 10 August 2015.
On 23 July 2015, the Brines filed an amended summons and statement of claim in which they added a claim for a declaration as to the proper construction of Professor Brine’s will. On 30 July 2015, the Brines filed and served a list of documents.
On 5 August 2015, Ms Carter filed and served her defence and on 7 August 2015 she made the offer.
Timing offer
It is convenient to deal with the third and fourth issues together and at the outset.
The Brines contend that the offer was only open for five days and this was not a reasonable time for them to consider it. They also contend that the offer was only made the business day before the commencement of trial and this was too late.
In Morris v McEwen,[11] the defendant made a Calderbank offer that was expressed to be open for seven days. Within that period, the plaintiff made a counteroffer to accept a higher sum. Ultimately judgement was awarded in favour of the plaintiff for less than the defendant’s offer. The trial Judge awarded costs in favour of the plaintiff until 14 days after the offer and thereafter in favour of the defendant because of the plaintiff’s rejection of the offer. The Full Court (Besanko J dissenting) allowed the plaintiff’s appeal. White J (with whom to Debelle J agreed) said:
The final matter of relevance in the present context to note is that the rules allow 14 days as the period in which plaintiffs may consider their position before facing the risk of sanctions resulting from non-acceptance of the offer. … A period of 14 days should, in my opinion, be understood as the period which the court considers, in ordinary circumstances, to be a reasonable time in which plaintiffs may consider an offer. That does not mean that there may not be circumstances in which a shorter or longer period may be appropriate.
…
In considering whether to give a Calderbank letter the same effect as an offer lodged pursuant to r 40, a number of matters will be relevant. These will include: whether or not an offer could have been lodged pursuant to r 40; any difficulties associated with the framing of an appropriate offer; any difficulties occurring because of the involvement of other parties in the litigation; the proximity of the trial at the time when the offer was made and the time available to the plaintiff in which to consider the offer; the commitments to which the plaintiff may be subject at that time; and the extent to which, if at all, the circumstances of the offer, or its terms and conditions, differ from the circumstances, or terms and conditions, of an offer lodged in accordance with r 40. This is not intended to be an exhaustive list of the matters which may be relevant.
Turning to the circumstances of the present appeal, it is apparent that there are a number of differences between the defendants’ offer on the one hand, and an offer lodged in accordance with r 40, on the other…
Further, the offer was open for a period much shorter than the 14-day period established by r 40 as a reasonable period in which a plaintiff might consider and deal with an offer. In effect, as the offer was received by the plaintiff’s solicitors on 6 May 2003, it was open for acceptance for only two days. …
The trial judge said that the plaintiff could have requested an extension of time in which to consider the offer and he had not. That is so, but again, I do not regard that as being persuasive. Had the defendants’ offer been made in a way which was “consistent with the spirit and intent” of r 40, the occasion for such a request would not even have arisen.
In the respects which I have identified, the offer departed in a significant way from the regime established by the courts to encourage parties to settle their differences without the need of litigation. That departure made it inappropriate to attach such significance to the defendants’ offer. In my opinion, the judge was in error in giving to an offer that was only ever intended to be open for seven days and which was expressed as an offer which would not be repeated, the same effect as an offer, lodged in accordance with the Rules of Court, which would remain open for acceptance at any time up to a date seven days prior to the commencement of the trial.[12]
[11] [2005] SASC 284, (2005) 92 SASR 281.
[12] At [71], [75]-[79]. (Citations omitted)
In BHP Billiton Ltd v Parker,[13] the plaintiff made a Calderbank offer expressed to remain open for seven days. The trial judge awarded the plaintiff indemnity costs from the date of the offer. The Full Court (Gray J dissenting) dismissed the defendant’s appeal against the costs order but varied it so that costs were payable on a solicitor and client basis instead. Doyle CJ and White J said:
It is a factor in favour of BHP that each offer made by Mr Parker was open for a short time only. As the court observed in Pirrotta and in Morris, a settlement offer by letter that does not conform to the scheme in the Rules for a formal offer of settlement will not necessarily be given the weight, in the exercise of the discretion as to costs, that a formal offer according with that scheme would be given. A party receiving an offer that is open for a short time only might not have sufficient time properly to consider the offer. An offer that has a short deadline for acceptance has done its work once that time has expired, and that suggests that the court, when considering such an offer in relation to costs, should focus its attention fairly carefully on the period of time during which the offer was open. In the present case the parties were represented by solicitors who, the judge commented, were experienced in litigation relating to the exposure of workers to asbestos. The judge considered that the litigation has proceeded far enough for the parties to be in a position to assess their risks. Medical reports had been exchanged. It is unlikely that BHP did not have time adequately to consider its position.[14]
[13] [2012] SASCFC 73, (2012) 113 SASR 206.
[14] At [270].

It is apparent from the first and second paragraphs extracted from Morris v McEwen and the passage extracted from BHP Billiton Ltd v Parker that there is no hard and fast rule that the mere fact a Calderbank offer does not comply with the Rules relating to formal offers as to time or otherwise does not prevent the Court exercising its costs discretion having regard to the offer. In particular, the mere fact that an offer is not expressed to be open for 14 days does not necessarily preclude its resulting in a different costs order than would otherwise be made. Regard must be had to the whole circumstances of the case.[15]
[15] See further Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2) [2014] SASC 141 at [48]-[56].
In the present case, insofar as this action comprised a claim to account for breach of fiduciary duty, it was only commenced on 17 July 2015 when a statement of claim was filed, being the day after I gave a direction reconstituting the action from one for advice and directions to a substantive claim to account. The trial was listed to commence on 10 August 2015, not much more than three weeks later. The action could have been commenced by the Brines much earlier. Under rule 187 of the Supreme Court Rules 2006 (SA), as they then were, a formal offer under the Rules could only be made not less than 21 days before trial. Effectively, Ms Carter had no opportunity to make a formal rules offer.
In the circumstances, the fact that the offer was made on the business day before the commencement of trial does not preclude its being taken into account on the question of costs. Given the necessary proximity of trial to the making of the offer, and the fact that costs would be incurred by both parties on a daily basis during trial, the mere fact that it was only open for acceptance for five days does not preclude its being taken into account on the question of costs. This is particularly so given that the letter said that, if the Brines required further time to consider the offer, Ms Carter would consider any reasonable request to extend the time for acceptance.
Nevertheless, it is appropriate to take into account the timing of the offer in assessing whether the Brines unreasonably rejected it and what effect such rejection should have on costs.
Bettering offer
Ms Carter contends that she bettered the offer because the action was dismissed and she will otherwise obtain an order that the Brines pay 50% of her costs of action and this is better than the terms of her offer under which the action would also have been dismissed but she would have borne all of her costs of action.
The Brines contend that Ms Carter did not better her offer because her offer included dismissal of their claim for a declaration that, on the proper construction of Professor Brine’s will, his “principal residence in Australia” at the date of his death was confined to 440 Gilles Street; whereas they succeeded in obtaining such a declaration. Ms Carter responds that it should be inferred that, if the Brines had otherwise accepted her offer but insisted on retaining their claim for the declaration, she would have agreed to this.
I accept that, on the balance of probabilities, the inference for which Ms Carter contends should be made. The construction issue in respect of Professor Brine’s will necessarily arose and was required to be decided in the Carter action. There would have been no significant detriment to Ms Carter in the Brines continuing to seek that declaration but their claim in respect of the superannuation benefit being dismissed. Nevertheless, it is not possible to be certain about this question and this lack of certainty is a factor to be taken into account in the overall assessment whether rejection by the Brines of the offer should give rise to a special costs order.
The Brines also contend that it cannot be said that Ms Carter bettered her offer because her offer included an order that the Brines not be indemnified from the estate for their costs of action; whereas they may have obtained such an order if they had agreed between 7 and 12 August 2015 to a dismissal of the action. Ms Carter contends that it was inevitable that the Brines would not have been indemnified from the estate for their costs of action.
The Brines brought the action in their capacity as executors against Ms Carter as their fellow executor for breach of fiduciary duty. While it is true that it was likely that the Brines in their capacity as the residuary beneficiaries would have been the ones to benefit if the action had been successful, this was not certain depending on the various possible results of the Carter action. The mere fact that the Brines would have been the ones to benefit if the action had been successful is not necessarily a reason why they should not be indemnified out of the estate for their costs. If the Brines had agreed between 7 and 12 August 2015 to a dismissal of the action on the basis that Ms Carter bear her own costs, it may be that they would have obtained such an order. It is difficult at this point to answer that hypothetical question or the further hypothetical question as to the effect it would have had upon Ms Carter if the Brines had been so indemnified.
It follows that it is difficult to conclude one way or the other whether Ms Carter bettered her offer.
Genuine compromise
In order to have cost consequences, an offer must involve a genuine compromise as opposed to inviting capitulation by the opponent.[16] Otherwise, a plaintiff could offer to settle a claim for judgment for the full amount plus costs or a defendant could offer to settle a claim for judgment of dismissal plus costs and then seek solicitor and client costs due to the other party’s refusal of the offer.
[16] Herning v GWS Machinery Pty Ltd[No 2] [2005] NSWCA 375 at [4]-[5] per Handley, Beazley and Basten JJA.
An offer by a defendant to settle on the basis of dismissal of the action with the defendant bearing its own costs may, depending on all the circumstances, involve a genuine compromise.[17] In Peter Bodum A/S v DKSH Australia Pty Ltd,[18] Middleton J said:
It seems to me that the correct approach is to look at the extent of the offer of compromise, viewed with all the other relevant circumstances, to determine whether the rejection of the offer was unreasonable.[19]
[17] Leichhardt Municipal Council v Green [2004] NSWCA 341 at [25] and [40] per Santow JA (with whom Bryson JA and Stein AJA agreed).
[18] [2010] FCA 456.
[19] At [18].
In Alexander v Australian Community Pharmacy Authority (No 3),[20] Bromberg J said:
As Kenny J said in Nutrientwater, the extent of the compromise involved is a relevant consideration in determining whether the rejection of the compromise offer was unreasonable. The modest extent of the compromise offered was a factor which lead to the rejection of the application for indemnity costs in Nutrientwater; Inform Design and Construction Pty Ltd v Boutique Homes Melbourne Pty Ltd (No 2) and in Truenergy. To give weight to the extent of the compromise offered is in keeping with the underlying policy of encouraging settlement. Borderline offers of compromise ought not be given the same potency as generous offers which are far more likely to encourage settlement. [21]
[20] [2010] FCA 506.
[21] At [32]. (Citations omitted)
In the present case, the party/party costs that would have been payable to Ms Carter if the Brines had discontinued the action between 7 and 12 August 2015 are likely to have been in the vicinity of $20,000 to $30,000. While such costs are not insignificant in an absolute sense, they are relatively small compared to the claim of over $600,000. While the offer involved some element of compromise, that element was relatively small.
Imprudent refusal and exercise of discretion
In order to have cost consequences, ordinarily it must have been unreasonable for the opponent to reject the offer at the time.[22]
[22] Herning v GWS Machinery Pty Ltd[No 2] [2005] NSWCA 375 at [4] per Handley, Beazley and Basten JJA.
This is not a case in which the Brines’ action was manifestly hopeless. On the contrary, in July 2015 I gave a direction that it would be a proper and appropriate exercise of the Brines’ discretion as executors to bring the proposed claim against Ms Carter. While the Brines failed on the issue of causation, they succeeded on other issues and the issue of causation was an issue of law on which it could not be said that the Brines’ contention was unarguable.
Taking into account the amount of the claim, the limited extent of the compromise offered by Ms Carter, the difficulty of assessing whether Ms Carter bettered her offer due to the condition that the Brines not be indemnified out of the estate for their costs and the point at which the offer was made, it is not possible to conclude that the Brines unreasonably rejected the offer or that the discretion should be exercised to award costs in favour of Ms Carter thereafter on a solicitor and client basis.
Conclusion
The Brines should pay 50% of Ms Carter’s costs of action on the usual party/party basis.