Byrne v Plasztan (Costs)

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

GENERAL LIST

Case No. CI-22-00912

STEPHEN MICHAEL JOHN BYRNE (IN HIS REPRESENTATIVE CAPACITY AS EXECUTOR OF THE WILL AND TRUSTEE OF THE ESTATE OF SUSANNE MARTA CORNES, DECEASED)	Plaintiff
v
KAREN JEANETTE PLASZTAN	Defendant

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JUDGE:	His Honour Judge Rozen
WHERE HELD:	Melbourne
DATE OF HEARING:	On the papers, based on submissions of the parties dated 8 and 13 December 2023
DATE OF JUDGMENT:	20 December 2023
CASE MAY BE CITED AS:	Byrne v Plasztan (Costs)
MEDIUM NEUTRAL CITATION:	[2023] VCC 2397

REASONS FOR JUDGMENT
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Subject:COSTS
Catchwords:              Claim by plaintiff based on common intention constructive trust between sisters – Alternative claim based on contribution to property expenses – Defendant wholly successful at trial – Detailed pre-trial offer of compromise – No response – Application for defendant’s costs to be assessed on indemnity basis because plaintiff’s case was hopeless from the start or because failure to accept offer was unreasonable
Legislation Cited:      –
Cases Cited:Byrne v Plasztan [2023] VCC 2189; Macedon Ranges Shire Council v Thompson [2009] VSCA 209; Hazeldene’s Chicken Farm Pty Ltd v VWA (No 2) [2005] VSCA 298
Judgment:                The plaintiff is to pay the defendant’s costs of and incidental to the proceeding:
·     from its commencement on 16 March 2022 to 8 October 2023 (inclusive) on a standard basis; and
·     from 9 October 2023 on an indemnity basis.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr T. Messer	Elit Lawyers
For the Defendant	Mr V. Murano	Jessop & Komesaroff Lawyers

HIS HONOUR:

Introduction

On 29 November 2023 I determined the substantive proceeding in favour of the defendant Karen Plasztan.[1] This ruling is concerned with the costs of that proceeding. The ruling should be read together with the Liability Reasons. I will adopt the naming convention I employed in the Liability Reasons– the plaintiff will be referred to as Stephen; the defendant will be referred to as Karen. Once again, no disrespect is intended.
[1] [2023] VCC 2189 (‘Liability Reasons’).
In brief summary, I concluded in the Liability Reasons that Stephen had not established that Karen held her share of a property on a common intention constructive trust for Stephen’s ex-partner Susanne Cornes. The late Ms Cornes was Karen’s sister. I also determined Stephen’s alternative claim for contribution to the property expenses in favour of Karen.
I dismissed all of Stephen’s claims and ordered, subject to any contrary submissions, that he should pay Karen’s costs as agreed or assessed on the standard basis.
Karen now seeks an order that Stephen pay her costs of and incidental to:
(a)the entire proceeding on an indemnity basis; or alternatively
(b)the proceeding from its commencement on 16 March 2022 to 3 October 2023 (inclusive) on a standard basis, and from 4 October 2023 onwards on an indemnity basis.[2]
[2] Defendant’s Submissions on Costs dated 8 December 2023, [2].
Stephen resists this application and submits that he should only be ordered to pay Karen’s costs on the standard basis.[3]
[3] Outline of Submissions of the Plaintiff – Costs dated 13 December 2023, [2].
For the reasons set out below, I accept Karen’s submissions in part and order that Stephen pay her costs of and incidental to the proceeding from its commencement on 16 March 2022 to 8 October 2023 (inclusive) on a standard basis, and from 9 October 2023 onwards on an indemnity basis.
Submissions of the Parties
Karen’s primary argument is that Stephen should pay her costs of the entire proceedings on an indemnity basis. The foundation of this bold submission is that Stephen’s case was hopeless.
The relevant principles concerning the award of indemnity costs by reference to the merits of a claim were set out by the Court of Appeal in Macedon Ranges Shire Council v Thompson.[4] Such an order may be made ‘where a party ought to have known that the claim was baseless, including on the basis of inquiries that ought to have been made and legal advice that ought to have been obtained’.[5]
[4] [2009] VSCA 209.
[5] Ibid, [15].
Karen relies on the findings in the Liability Reasons about the weaknesses in Stephen’s case. In particular, Karen relies on the finding that Stephen did not make out his case about the alleged agreement on his own evidence.[6] Reference is also made to the last minute change in Stephen’s case from one based on an alleged resulting trust to one based on a common intention constructive trust.[7]
[6] Defendant’s Submissions on Costs dated 8 December 2023, [6], referring to the Liability Reasons (n 1) [66].
[7] Defendant’s Submissions on Costs dated 8 December 2023, [10]; see also Liability Reasons (n 1) [6]-[9].
Stephen submits that, while he was ultimately unsuccessful, his case was not hopeless. He points to three pieces of correspondence sent to Karen in 2021, each of which was the subject of consideration in the Liability Reasons.[8] He characterises these letters as ‘undisputed facts capable of supporting an inference that the objective intention of Susanne and Karen at the time they purchased Bluebell Court, or shortly afterwards, was that Karen would hold the whole of her interest in the property on trust for Susanne’.[9]
Analysis
[8] Liability Reasons (n 1) [160]-[190].
[9] Outline of Submissions of the Plaintiff – Costs dated 13 December 2023, [4].
Stephen’s case was certainly not a strong one. He would have been aware that his primary evidence about the agreement he alleged consisted of what he was able to say he had been told about the oral agreement by his now deceased former partner. He was aware, at least once Karen’s defence was filed, that Karen, who was the only surviving party to that very agreement, would give evidence that contradicted the hearsay evidence that he could give.
The question however is whether Stephen’s case was hopeless and entirely without merit. On balance, I am not satisfied that it was. It was a ‘word on word’ case and it was not possible to predict with certainty how the various witnesses would fare under cross-examination. Further, Karen’s failure to respond to one of the 2021 letters, and her partial responses to the other two, did provide a basis for an inference against her as contended by Stephen. Although I did not draw that inference for the reasons explained in the Liability Reasons, I cannot conclude that the argument was hopeless.
Karen’s Calderbank Offer
Karen’s alternative submission is that she is entitled to an order for indemnity costs because Stephen unreasonably rejected a settlement offer she made on the eve of the trial.
The facts concerning the offer are uncontested:
(a)On 4 October 2023, Karen’s lawyers sent a Calderbank[10] offer to Stephen’s lawyers containing her offer to settle the litigation:
(i)    Stephen would pay her $175,000;
(ii)   Karen would transfer her 50% interest in the property to Stephen; and
(iii)   Each party would bear their own costs.[11]
(b)The letter set out in considerable detail why the author considered Stephen’s case was a weak one. The author anticipated a number of the findings that were ultimately made by the Court in the Liability Reasons.
(c)The offer was open to be accepted until the commencement of the trial on 9 October 2023.
(d)There was no response to the letter and no counter offer was made.
[10] Calderbank v Calderbank [1975] 3 All ER 33.
[11] The letter dated 4 October 2023 is reproduced as exhibit ‘JAM-1’ to the affidavit of the defendant’s solicitor Joshua Andrew Martin affirmed 8 December 2023 and filed with the court (‘Settlement Offer).
Karen submits that the discretion to order indemnity costs is enlivened by these circumstances.[12]
[12] Defendant’s Submissions on Costs dated 8 December 2023, [12], referring to Hazeldene’s Chicken Farm Pty Ltd v VWA (No 2) [2005] VSCA 298, [17]-[29] (‘Hazeldene’s Chicken Farm’).
Karen submits that the finding by the Court in her favour as set out in the Liability Reasons means that she ‘did better than the offer’ because:
(a)the 50% interest in the property she maintains has a value of ‘around $360,000 or around $295,549.41 when amounts owing under the mortgage are deducted’; and
(b)Stephen must pay her costs at least on a standard basis.[13]
[13] Defendant’s Submissions on Costs dated 8 December 2023, [13].
Karen also contends that the offer:
(a)represented a genuine compromise;[14]
(b)was open for 5 days which was a reasonable period of time for Stephen to accept it;[15] and
(c)was made with sufficient clarity to enable proper consideration.[16]
[14] Ibid, [14].
[15] Ibid, [15].
[16] Ibid, [16].
It follows, Karen submits, that Stephen’s failure to accept the offer was unreasonable.
Stephen takes no issue with the submission about the time within which to accept the offer being reasonable.
However, he submits that his rejection of the offer was not unreasonable because it was ‘incapable of meaningful acceptance’ and ‘it did not represent a significant compromise’.[17]
[17] Outline of Submissions of the Plaintiff – Costs dated 13 December 2023, [7].
Stephen submits that this is so because the offer was ‘silent as to what was to happen with the liability under the mortgage to the ANZ Bank’. Stephen submits that the Bank’s consent would have been required before the transfer of Karen’s interest could be effected. Even if consent was forthcoming, Stephen submits that there is no evidence before the Court about the likely amount that would have been recovered under any mortgagee sale. Nor is there a current valuation of the property before the Court or even evidence of its current condition.
In those circumstances, Stephen submits, the Court cannot infer (as it is being asked by Karen to do) that $175,000 for her encumbered half interest in the property ‘represented a significant compromise on her behalf’ when compared to what she has as a result of her victory in the proceeding.[18]
Analysis
[18] Outline of submissions of the plaintiff – costs dated 13 December 2023 at [7].
The principles concerning the court’s discretion to aware costs on a basis other than the standard party/party basis where the unsuccessful party has rejected an offer of settlement are well established. In Hazeldene’s Chicken Farm Pty Ltd v VWA (No 2),[19] the Court of Appeal explained that the critical question is ‘whether the rejection of the offer was unreasonable in the circumstances’.[20] In making this assessment, a court will have regard to:
(a)the stage of the proceeding at which the offer was received;
(b)the time allowed to the offeree to consider the offer;
(c)the extent of the compromise offered;
(d)the offeree’s prospects of success, assessed as at the date of the offer;
(e)the clarity with which the terms of the offer was expressed; and
(f)whether the offer foreshadowed an application for an indemnity costs [order] in the event of the offeree’s rejecting it.[21]
[19] Hazeldene’s Chicken Farm Pty Ltd v VWA (No 2) (n 12).
[20] Ibid, [23].
[21] Hazeldene’s Chicken Farm Pty Ltd v VWA (No 2) (n 12) [25].
The policy purposes underlying the court’s power to award indemnity costs in such cases are to require litigants and their lawyers to make realistic assessments of prospects of success and to encourage appropriate settlement of litigation thus saving both private and public costs.[22]
[22] Ibid, [21].
As noted, Stephen’s primary ground for resisting the order concerns the extent of the compromise offered. He argues that this is a difficult task for the Court to determine on the evidence. I disagree.
On the question of the ANZ Bank having to consent to the transfer, I note that there was no difficulty with transferring Susanne’s former husband’s interest to Karen in 2002.[23] I see no reason to assume it would have been any different in 2023.
[23] See Liability Reasons, [36].
I do accept that there is limited evidence about the present day value of the Bluebell Court property.
The property was valued at $235,000 on behalf of the ANZ Bank for mortgage purposes in 2002.[24]
[24] Court Book, 283.
As far as the current value is concerned, Karen relies on the ‘Inventory of Assets and Liabilities’ which is ‘Exhibit C’ to Stephen’s affidavit sworn in September 2021 as part of his application for probate in respect Susanne’s estate.[25] In the Inventory, the value of the property is stated to be $720,000. Although there is no evidence of who valued the property, Stephen swore that it was an accurate valuation and probate was granted to him by the Supreme Court.[26]
[25] Court Book, 138.
[26] Court Book, 125.
Having regard to this evidence, I infer that the value of the property at the time of the letter of offer would have been no less than $720,000 meaning Karen’s unencumbered 50% share was worth at least $360,000.
The evidence of what was owing on the mortgage is in a Notice of Default dated 12 September 2022 from the ANZ Bank. The Notice states that the ‘payout figure’ at that time was $128,901.19. Karen was legally liable for half of that, i.e. $64,450.59.
Therefore, Karen’s equity in the property is approximately $295,549.41 ($360,000 - $64,450.59). This is considerably more than the $175,000 she was prepared to exchange her share for in her offer especially when she was also offering to bear her own costs.
A further consideration concerns Stephen’s prospects of success assessed as at 4 October 2023. As this was one week before the trial was due to commence, Stephen at this point had the benefit of outlines of evidence of the witnesses Karen intended to call in her case – herself and her sister Jennifer. Given the paucity of evidence available to Stephen, it would have been clear to him and (especially) those advising him that establishing either part of his claim was going to be quite difficult if these witnesses gave the evidence outlined.
While I rejected Karen’s characterisation of Stephen’s case as hopeless earlier in these reasons, it was clearly not strong as at 4 October 2023. The weaknesses were clearly outlined in the letter of offer.
Finally, it is relevant that, presumably in response to the arguments about his resulting trust case set out in the letter of offer,[27] Stephen’s case pivoted on the first day of the trial to one based on a common intention constructive trust. Karen’s lawyers’ work responding to the pleaded case was in effect wasted and further work had to be performed by them to respond to Stephen’s new case with additional costs being incurred by Karen.
[27] See Settlement Offer (n 11) [9]-[19].
For the above reasons, I conclude that Karen’s offer of settlement did represent a genuine compromise. Stephen’s refusal to accept it was unreasonable in all of the circumstances.
Karen is entitled to an order that Stephen pay her costs on an indemnity basis but not from the date of the offer as she submits. Karen is entitled to such an order from the last date on which the offer was open to be accepted, i.e. 9 October 2023.
The Court’s order is that the plaintiff pay the defendant’s costs of and incidental to the proceeding:
(a)from its commencement on 16 March 2022 to 8 October 2023 (inclusive) on a standard basis; and
(b)from 9 October 2023 on an indemnity basis.

[2023] VCC 2397

20 December 2023