Guest v Guest (No 2)
[2016] VSC 76
•7 March 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2014 03995
| PETER BENTLEY GUEST | Applicant |
| v | |
| VERNA ANNE GUEST and PETER JOHN WALSH | Respondents |
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JUDGE: | Mukhtar AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | Written submissions filed 19 February 2016 (without the necessity for a hearing) | |
DATE OF RULING: | 7 March 2016 | |
CASE MAY BE CITED AS: | Guest v Guest (No 2) | |
MEDIUM NEUTRAL CITATION: | [2016] VSC 76 | |
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DISCOVERY— Pre-action discovery from prospective defendant — Application granted in part — Exercise of discretion on costs of such applications and costs of compliance with discovery order — Whether adversarial rule that costs of application should follow the event — Reasonableness of resistance to application — Adversarial rule not applied —Consideration of the approach of deferring the costs and expenses of compliance with discovery order to any substantive action commenced subsequently — Approach of deferring such costs not followed — Supreme Court (General Civil Procedure) Rules 2015, r 32.05, r 32.11
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| APPEARANCES ON THE PRIMARY APPLICATION: | Counsel | Solicitors |
| For the Plaintiff | Mr R M Garratt QC with Ms A Folie | Hall & Wilcox |
| For the Defendants | Mr J W S Peters QC with Ms G Coleman | Holding Redlich |
HIS HONOUR:
For reasons published on 22 December 2015, the Court decided to grant this application for pre‑trial discovery under rule 32.05 but with a reduction of the amplitude of the documents sought.[1] In an elaborate case where the Court concluded that the applicant had a weak basis for contending at the rule’s threshold that he has or may have the right to relief from the respondents, that outcome nevertheless was a willingness by the Court to order pre-action discovery of documents that by nature appeared to be ‘trust documents’, despite the difficulties of that legal appellation under the law of trusts . In so doing, the Court undertook an examination of the interaction between a beneficiary’s entitlement to documents from a trustee under the substantive law of trusts, and, a beneficiary’s pursuit of documents against a trustee concerning the administration and affairs of a trust under a civil procedural rule such as rule 32.05.
[1][2015] VSC 761.
Now there is a wilful costs dispute, to be determined on written submission which the Court has received.
There are two elements to the question of costs: the costs of the application; and the respondents’ costs and expenses of complying with the discovery order. The respondents seek an order that the applicant pay their costs of the application, and, pay their costs and expenses of compliance with the Court’s orders. The applicant contends the respondents should pay his costs of the application. He accepts he should pay the respondents’ costs of complying with the discovery order unless he commences a substantive proceeding against the respondents within 60 days of the discovery and production of documents as ordered by the Court, in which case those costs form part of the costs of that proceeding. The applicant’s position was a departure from an unequivocal statement at the hearing that, if the application were to be granted, the applicant would pay the respondents’ costs of the application and their costs of compliance unless substantive proceedings were commenced within 60 days of inspecting the documents in which case those costs would be costs in those proceedings.[2]
[2]See transcript, pp 70-1 and exhibit LDC-4 to an affidavit of LC Currie sworn on 7 December 2015.
Rule 32.11(1) permits the Court to make an order for the ‘costs and expenses of the applicant, of the person against who an order is made and of any party to the proceeding, including the costs of — (a) making and serving any affidavit of documents…’. Protective of a respondent, it is significant that rule 32.11 expressly permits the Court to make an order for discovery on condition that the applicant give security for the costs and expenses of the respondent.
The question of costs on pre-trial discovery applications has received attention in quite a few cases in State courts and the Federal Court some of which I shall identify later. The cases are all of variable content and of course highly dependent on the facts and circumstances of the particular case in a field involving wide discretion. There is no preponderant view across Courts. But I think the better view is that the disposition of costs should not depend on the initiation and outcome of litigation following preliminary discovery. As for the costs of the application itself, the authorities regard these applications as discrete and extraordinary and therefore not necessarily attracting the ‘usual rule’ in adversarial litigation that costs follow the event. Many matters inform a respondent’s conduct in response to these applications. I think there was a real and genuine dispute here in an application which must have been confronting to the respondents in the peculiar circumstances here. It cannot be concluded that they acted unreasonably in not giving discovery (limited as it turned out to be) otherwise than pursuant to a Court order.
I have come to the view for the reasons that follow that the applicant ought pay the respondents’ costs of the application and their costs and expenses of making an affidavit of documents — and — there ought not be an order deferring that costs burden to the prospect of the applicant bringing substantive proceeding.
This was no ordinary situation. There were seven discretionary trusts. The trusts had vested. The corporate trustees had been deregistered. The principal benefactor under the family trusts, the applicant’s father, had died. The elderly ex-directors of the trustee company, one of whom was the plaintiff’s stepmother, were responding to an application for pre-action discovery of many classes of documents to enable accountants to undertake what appeared to be a forensic accounting investigation into the financial affairs of the trusts and decision making of the trustees over a long period of time to look for the presence of a misfeasance by the trustees affecting the applicant’s financial interests as discretionary beneficiary.
The Court did not think it correct for the respondents to characterise the application as trouncing the Londonderry principle[3] under the law of trusts which precludes disgruntled beneficiaries from getting documents, including private documents, to look into the mind of the trustee as discretionary decision maker. Nevertheless, I accepted the tenor of the respondent’s resistance to the application which did inform the approach to what I saw as a just disposition of the application. I found, as the respondents had contended, that the objective basis for a reason to believe that the plaintiff may have a claim against the respondents was weak. It was predicated largely upon impressions, suppositions and concerns affected, it appears plainly enough, by a difficult personal relationship between the applicant and the first respondent his stepmother. I also found there were real infirmities underlying a forensic accountant’s report on which the applicant relied to sustain his ‘reason to believe’. With those shortcomings, and having regard to the history of the Guest family affairs and trust distributions, my view was that the plaintiff overreached in seeking the Court’s assistance to go behind the trust accounts and the trust administration (for which he had been given documents and information beforehand) and obtain documents to conduct an extensive forensic accounting investigation to, in effect, ‘trawl’ to see what happened over the years.
[3]Re Londonderry’s Settlement (Peat v Walsh) [1965] Ch 918.
Thus, when it comes to assessing the circumstances on which to exercise the discretion as to costs, the first thing I would say is that this was not a case where the respondents were being unreasonable or difficult or uncooperative generally or impeding a resolution of the dispute over the documents. The pre-application correspondence, which I shall not recite but which is all set out in my judgment, shows that the respondents, their previous advisors in the trust administration, and their present lawyers were in the circumstances looking reasonably I think to ascertain and test the precise basis upon which Peter Guest was seeking the documents. Some documents and information were given. It was after the applicants persevered with requiring more documents going beyond what the respondents regarded as reasonable and beyond what the law would countenance in the field of discretionary trusts, that the respondents took the attitude that the matter would have to be determined by a Court. I think what charged the dispute, naturally, was the respondent’s view that the documentary pursuit outside Court was on a weak assertion of any wrongdoing by them. That contention prevailed in Court.
The point is: in the circumstances this was an application which was confronting and naturally attracted resistance. Whilst it could not be said in the ordinary case that a beneficiary pursuing a trustee for information involves an ‘invasion’ of a trustee’s private affairs (and even that depends on the nature of the beneficiaries complaint about the trustee’s decision making) in this case that was exactly the complaint. The trusts had vested. The corporate trustees had been deregistered. Attempts were being made to go back a long period of time to conduct a complete investigation into trust dealings. There was a genuine dispute on substantive law as well as an analysis of the evidence in support of the application.
From that, the second thing I would say is that although the application was granted partially on the beneficence of the rule, it can be said the reduction of the scope of documents sought and how far back in time the discovery should go, is a vindication, in substance, of the position taken by the respondents as informed by the law of trusts, albeit not to the extent contended.
The applicant accepts that the Court has a wide discretion and there is no ‘overarching rule’ regarding costs orders in applications for preliminary discovery, and that each case turns on its particular facts and circumstances. There may be no ‘overarching rule’, but, as is stated in Williams, Civil Procedure Victoria[4] in Victoria (and faithful to experience) the customary order for costs requires the applicant to pay the respondent’s costs and expenses in making discovery. If and when a proceeding is commenced in which the applicant as plaintiff relies successfully on the fruits of that discovery, then it is for the plaintiff to attempt to recover those costs as reasonably incurred for the purposes of the trial case depending on the conduct of the trial. That is supported by authority in this Court: the Court of Appeal in Schmidt v Won[5] and Judd J in Kallitsas v Emerson Finance Pty Ltd.[6]
[4]Vol 1 at [32.11.0].
[5](1998) 3 VR 435, 459 (CA) (per Ormiston J).
[6][2008] VSC 180.
There are cases where other judges have made orders following the Federal Court example of Finkelstein J in 2001 in SmithKline Beecham PLC v Alphapharm Pty Ltd[7] to transplant, as it were, the respondents’ costs of the pre-trial discovery to being costs in any substantive proceeding brought within a certain time subsequently. To that effect, the applicant relied on a decision in this Court of Zammit AsJ (as her Honour then was) in DC Payments Pty Ltd v Ardon.[8] But in that case, her Honour did no more than accede to such an order as sought by the applicant and not opposed by the respondent.
[7](2001) FCA 271 (Finkelstein J).
[8][2013] VSC 277 [66].
A justification for such a contingent order is a notion based broadly in aid of the pursuit of justice, that is, to reduce the financial burden on an applicant who should not be disadvantaged by incurring substantial costs of the alleged wrongdoer before the case is even started. But as against that, a respondent is put to immediate labours and expense, sometimes substantial, all to aid an applicant to decide whether or not to sue the respondent. In the field of trusts, there is the additional consideration that if a beneficiary asks for accounts or for information, the trustees are entitled to be paid by the beneficiary for the cost of supplying the accounts or information and if they choose, may require payment in advance.[9]
[9]See Jacobs’ Law of Trusts in Australia, 7th ed. [1714].
There are numerous cases where judges (including other Federal Court judges) have expressed resistance to contingent costs orders in pre action discovery cases: see for example the well-known C7 Pty Ltd v Foxtel Management Pty Ltd case;[10] Steffen v ANZ Banking Group[11] and J & A Vaughan Super Pty Ltd v Becton Property Group Ltd.[12] For my part I would follow the approach taken by Kenny J in the last of those cases and adopt the view that it is desirable that the disposition of costs not be dependent on some uncertain future event or to await completion of the substantive trial. That is because the jurisdiction to order preliminary discovery is an extraordinary one; the application is discrete and on principle ought be dealt with discretely; and it is unfair for the respondent to be out of pocket. I prefer the thinking, in the Victorian cases I have already cited, that it is a matter for the applicant to attempt to claim compensation for such predetermined costs in any trial commenced depending on the outcome of that case and the utility of the documents previously obtained.
[10][2001] FCA 1864 [50].
[11][2009] NSWSC 883 [31].
[12][2013] FCA 340.
I turn now to the costs of the application. There are authorities in various courts where judges have viewed an application for pre‑action discovery as enlivening the ordinary rule or expectation in civil litigation that costs follow the event: see for example Proctor v Kalivis (No 3);[13] and Equiti Capital Ltd v Hewson.[14] This has led to considerations whether or not in these applications the respondent has taken an ‘adversarial approach’ to the application. But, what does that mean? Of course, it is accepted in the authorities that a potential defendant in such an application should not be required to produce documents simply because an applicant asks for them. It is thought not to be adversarial for a respondent to wait for an application to be made; see the supporting evidence; and then decide to produce the documents. Then there is the situation where a respondent under the burden of some duty to a third party regards itself as being unable to hand over documents; takes a passive role in the application; but will be ready to hand over the documents if and when ordered to do so. Then comes the not uncommon common situation where the respondent takes the ‘adversarial’ approach of resisting the application and fails or partially succeeds in its resistance. There are authorities that say where the application is fought and granted then costs follow the event unless the Court in its discretion thinks otherwise.[15] That is thought to have the attraction of simplicity and comity.
[13][2010] FCA 1194 [17].
[14][2015]NSWSC 1388 [14].
[15]See Equiti Capital, above, [14].
The applicant here in his written submissions places great store on describing the respondents as having ‘vigorously’ and ‘robustly’ opposed the application and conducted it in an ‘adversarial manner’. I put to one side the epithets. The application was innately ‘adversarial’ in the sense that there was a genuine dispute and a real argument to be had on substantive matters.
I take leave to doubt that these applications ought attract the ordinary adversarial rule that costs follow the event; or at least I think great care ought be taken before reflexively applying such a rule. The ordinary rule of costs following the event has its established place in the context of proceedings as already commenced where adversarial conditions and rules are pre- engaged and court applications, whether brought or resisted, carry with them the known prospects and disincentive of an adverse costs order to the losing party. If applications for pre-action discovery are widely regarded as discrete or extraordinary and pre-nascent to the filing of adversarial proceedings, then that is a reasonable basis for doubting whether it is apposite to adopt the ordinary rule in instituted proceedings that costs follow the event. Yet, I can see a policy view that in a pre-action discovery application a customary order that an applicant pay the respondent’s costs anyway will only motivate or influence respondents to oppose the application regardless of grounds with the comfort of knowing that the applicant will pay its costs for the effort. That is why attention has to turn to asking whether a respondent acted unreasonably or justifiably in not giving the discovery.
It comes to this. On the current variable state of authority, it cannot be said that when an application for pre-action discovery is granted, then the usual rule is that costs of the application follow the event. So much depends on the case. The application is discrete, and depending on the circumstances, an applicant can and I would think ought be liable to pay a respondent’s costs of a successful application if there was a genuine dispute and the respondent did not act unreasonably in refusing to give discovery otherwise than by being ordered to do so by a court. And in my view that is what happened here. In the circumstances as I have described them, the respondents did not act unreasonably in refusing to give any more documents than they already had given, and in then contesting the matter in court. There were genuine grounds for contesting the application. As it turned out, they exposed the basis of the possible claim for relief as weak and achieved a significant reduction in the scope of discovery and a contraction in the period of time. Accordingly I would order that the applicant pay the respondents’ costs of the application.
To finally dispose of this matter, I intend to settle and authenticate an order adopting paragraph 1 of the applicant’s proposed order that has been submitted which identifies documents in a Schedule. I will not make orders as proposed in paragraphs 2, 3 and 4. Instead, I propose ordering that the applicant shall pay the respondents’ costs of the application on the standard basis, and to also order the applicant to pay the respondents’ costs and expenses of complying with the discovery order.
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