Gulfmead Pty Ltd v Smarrelli
[2022] VSC 119
•30 March 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2021 04197
| GULFMEAD PTY LTD (ACN 065 394 283) & ANOR (according to the attached Schedule) | Plaintiffs |
| v | |
| DONATO SMARRELLI & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | ATTIWILL J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 February 2022 |
FURTHER SUBMISSIONS | Further submissions of the defendants filed 17 February 2022 and of the plaintiffs filed 21 February 2022 |
DATE OF RULING: | 30 March 2022 |
CASE MAY BE CITED AS: | Gulfmead Pty Ltd & Anor v Smarrelli & Ors |
MEDIUM NEUTRAL CITATION: | [2022] VSC 119 |
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COSTS – Application by the plaintiffs for costs upon discontinuance of the proceeding - Supreme Court (General Civil Procedure) Rules 2015 (Vic) rr 25.02(2)(b), 25.05, 63.07(2)(c), 63.15 - Supreme Court Act 1986 (Vic) s 24(1) – Exercise of discretion – Application by the plaintiffs for leave to discontinue the proceeding – Application not opposed – Application by the plaintiffs for the defendants to pay their costs of the proceeding taxed on an indemnity basis, alternatively on a standard basis, alternatively fixed in a gross sum – Defendants submitted that they should pay the plaintiffs’ costs on a standard basis – Defendants ordered to pay the plaintiffs’ costs of the proceeding on a standard basis.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Marcus Clarke QC | HWL Ebsworth Lawyers |
| For the Defendants | Callum F E Dawlings | Christopher Dale Solicitor |
HIS HONOUR:
INTRODUCTION
The plaintiffs seek an order for leave to discontinue this proceeding pursuant to r 25.02(2)(b) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’). The defendants do not oppose that order. I am satisfied that leave should be granted to the plaintiffs to discontinue this proceeding. The proceeding now has no utility.[1]
[1]This is addressed at [15] below.
The dispute between the parties concerns what costs order should be made upon that discontinuance. The plaintiffs seek an order that the defendants pay the plaintiffs’ costs of the proceeding on an indemnity basis, alternatively on a standard basis, in default of agreement, alternatively an order that the Court fix costs in a gross sum. The defendants submit that the Court should order the defendants pay the plaintiffs’ costs on a standard basis in default of agreement.
For reasons I am about to give, and subject to any submission of the parties on the precise form of order or on the issue of the costs of this application for costs, I will order:
(a) Pursuant to r 25.02(2)(b) of the Rules, the plaintiffs have leave to discontinue the proceeding.
(b) Pursuant to r 63.15 of the Rules, upon the plaintiffs’ discontinuance, the defendants pay the plaintiffs’ costs of the proceeding on a standard basis in default of agreement (excluding the costs of and incidental to the defendants’ supplementary submissions filed 17 February 2022, the plaintiffs’ supplementary submissions filed 16 February 2022 and the plaintiffs’ revised (corrected) supplementary submissions filed 21 February 2022).
PARTIES’ MATERIAL
The plaintiffs rely upon:
(a) affidavits of Jonathan Alan Kramersh, of the plaintiffs’ solicitors, sworn 10 November 2021 and 10 February 2022;
(b) an affidavit of Stephen Michael Silvagni, the second plaintiff, sworn 10 November 2021;
(c) affidavits of Jessica Minter, of the plaintiffs’ solicitors, sworn 27 January 2022 and 7 February 2022; and
(d) submissions filed 7 and 21 February 2022 and an updated bundle of authorities dated 8 February 2022.
The defendants rely upon:
(a) an affidavit of Donato Smarrelli, the first defendant, sworn 10 February 2022; and
(b) submissions filed 10 February 2022 and 17 February 2022.
Counsel for the plaintiffs and the defendants each made submissions at the hearing.
BACKGROUND
On 25 March 2021, a deed of agreement was made between, among others, the plaintiffs and the defendants.[2]
[2]Exhibit ‘SMS-1’ to Mr Silvagni’s affidavit sworn 10 November 2021, pgs 75-100. These parties are all signatories but are not all expressly referred to as parties on the first page of the deed of agreement.
Clause 11 provided:
Stephen Silvagni agrees to become guarantor with Donata Smarrelli and John Cappellini to the Bank in respect of the BOM loan facility to PPP in the amount of $386,000, on account 533-130-0425100, which is payable on 27 December 2021.
Clause 12 provided:
Estate of Don Smarrelli, Jetax and TRD will grant in favour of Stephen Silvagni a security interest over:
(1) the shares held by Don Smarrelli in PPP (the Share security); and
(2) the units in PPH Unit Trust of TRD and Jetax (the Unit security),
to serve the repayment of the BOM loan facility to PPP and the BOM loan facility to RM Hotel to be registered as security interests in accordance with the Personal Property Securities Act 2009.
On 4 May 2021, the plaintiffs’ solicitors sent an email to the defendants’ solicitor attaching a draft agreement granting security over the shares held by the first defendant in Prince Patrick Properties Pty Ltd and the second and third defendants’ units in the PPH Unit Trust (‘the security documents’).[3] The security documents were to be executed by the defendants pursuant to cl 12 of the deed of agreement.
[3]Exhibit ‘JAK-1’ to Mr Kramersh’s affidavit sworn 10 November 2021, pgs 1-51.
In the period 4 May 2021 (i.e. the date upon which the security documents were provided to the defendants) to 10 November 2021 (i.e. the date of commencement of this proceeding), the plaintiffs’ solicitors and the defendants’ solicitor exchanged correspondence.[4] This included:
[4]A complete chronology is set out in exhibit ‘JM-2’ to Ms Minter’s affidavit sworn 7 February 2022 (‘Chronology’).
(a) on 2 June 2021, the defendants’ solicitor informed the plaintiffs’ solicitors:[5]
[5]Exhibit ‘JAK-1’ to Mr Kramersh’s affidavit sworn 10 November 2021, pg 80.
I have been actively seeking instructions but without success. I tend to share your frustration. However, I will make one more concerted effort to resolve things.
(b) on 19 July 2021, the defendants’ solicitor informed the plaintiffs’ solicitors that:[6]
[6]Ibid pg 83.
… I have been pressing our clients and was finally able to speak with Don Smarrelli late last week who has just been visiting Stephen to pay his respects upon Sergio’s death and he did tell me that John Cappellin was in hospital and had been for some time.
I will find out where we are tomorrow and come back to you.
(c) on 4 August 2021, the defendants’ solicitor, in response to an email from the plaintiffs’ solicitors that day which referred to having sent more than 11 emails since May 2021 without having received a substantive response, informed the plaintiffs’ solicitors that:[7]
[7]Ibid pg 81.
Yes, and this would strain the patience of Job.
I have sent twice as many emails to my clients. I have told you that John Cappellin has been in hospital. I will do my best to resolve this and come back to you.
(d) on 12 August 2021, the defendants’ solicitor told the plaintiffs’ solicitors he was now only be able to get proper instructions from his clients, and he would provide a response that week;[8]
[8]Ibid pg 91.
(e) on 1 September 2021, the plaintiffs’ solicitors emailed the defendants’ solicitor noting he had failed to provide a response. The email stated that unless the execution of the security documents was completed within seven days, they will seek instructions to seek performance of the terms of settlement without further notice and rely upon 13 emails on the question of costs on an indemnity basis;[9]
[9]Ibid pg 92.
(f) on 19 October 2021, the defendants’ solicitor, on behalf of the defendants, requested a copy of the security documents for his client to execute.[10] Later that day, the plaintiffs provided a copy of the security documents that were provided on 4 May 2021;[11]
(g) on 28 October 2021, the plaintiffs’ solicitors requested the defendants’ solicitor to confirm arrangements for exchange and execution without further delay;[12] and
(h) the defendants raised some minor matters with respect to the security documents shortly prior to the commencement of the proceeding.[13]
[10]Ibid pg 93.
[11]Ibid.
[12]Ibid.
[13]Exhibit ‘JM-2’ to Ms Minter’s affidavit sworn 7 February 2022, pg 123.
Mr Smarrelli, the first defendant, gave evidence:[14]
1.I am the First Defendant and am authorised to make this affidavit on behalf of the other defendants.
2.The Bank of Melbourne facility in respect of which the Plaintiffs sought to have the security executed was to terminate on 27 December 2021.
3.The Second Plaintiff should have known when the Bank of Melbourne facility was to expire.
4.It was expected that the Bank of Melbourne facility would have been paid out before the expiry date as the Royal Mail Hotel was under an option to purchase. However, that fell through as the option holder defaulted on 4 November 2021. If that had not occurred, the Bank of Melbourne facility would have been paid out in advance of its expiry making the need for the security sought to be executed by the Plaintiffs unnecessary. However, that did not come to pass.
[14]Mr Smarrelli’s affidavit sworn 10 February 2022, [1]-[4].
The plaintiffs commenced this proceeding on 10 November 2021 by originating motion. It was served upon the defendants on 11 November 2021.[15] The plaintiffs sought, inter alia, the following order:
1.An order that each of the defendants specifically perform the Deed of Agreement dated and signed on 25 March 2021 by executing the specific security agreement provided to the defendants’ solicitors on 4 May 2021.
[15]Exhibit ‘JM-2’ to Ms Minter’s affidavit sworn 7 February 2022, pgs 123-124.
From 10 November 2021 (i.e. the commencement of this proceeding), the plaintiffs’ solicitors and the defendants’ solicitor exchanged further correspondence.[16] From 10 November 2021 the following, inter alia, took place:
[16]Chronology, items 48-74.
(a) on 12 November 2021, the defendants’ solicitor informed the plaintiffs’ solicitors that:[17]
[17]Exhibit ‘JM-2’ to Ms Minter’s affidavit sworn 7 February 2022, pg 123.
I do have instructions to accept service of these proceedings.
I am surprised your clients have issued them [ie the proceedings] as I have indicated, as has my client Mr Smarrelli to your client Mr Silvagni, that the document you have delivered for execution (attached) has a number of shortcomings, the most significant of which is that John Cappellin has not been included in the document. This was revealed by me as recently as last Friday to your counsel Mr Marcus Clarke QC.
Can we work to resolve those shortcomings, and my clients will execute the finalised document, which they have previously indicated they would do.
Our clients reserve their right including a right to dispute costs.
(b) on 12 November 2021, the plaintiffs’ solicitors informed the defendants’ solicitor, inter alia, that:[18]
[18]Ibid pg 122.
1.Your clients have had since May this year to respond and have had adequate time to resolve the alleged ‘shortcomings’.
2.Marcus Clarke QC was told by you that Don had a concern that perhaps there might be a need for a provision for John Cappellin to sign but he will try to find out more. You did not reveal anything to him about any shortcoming. Nor are we aware of any.
3.Marcus Clarke QC told you to respond directly to me but you chose not to do so.
4.The omission of John Cappellin as a party should be revisited by you and there is no need for him to be a party to the SSA when he does not hold shares or units the subject of the SSA’.s.
(c) on 12 November 2021, the defendants’ solicitors informed the plaintiffs’ solicitors, inter alia, that ‘I will otherwise sort this out as I indicated should be done.’[19]
[19]Ibid.
(d) on 17 November 2021, the plaintiffs’ solicitors provided a further version of the security documents to the defendants’ solicitor to be signed by the defendants;[20]
[20]Ibid pgs 126-127.
(e) on 22 November 2021, the defendants’ solicitor stated, in response to an email from the plaintiffs’ solicitors that day, that the security documents had not been executed but that ‘…it will be done very soon. Once that occurs, I will send you executed copies’;[21]
[21]Ibid pg 125.
(f) on 1 December 2021, the defendants filed an appearance in the proceeding;
(g) on 10 December 2021, the plaintiffs filed a summons on the originating motion in which they sought judgment on the originating motion. They served it on the defendants on 13 December 2021;[22]
[22]Ibid pg 130.
(h) on 15 December 2021, the plaintiffs’ solicitors sent an email to the defendants’ solicitor in which they, inter alia, asked whether the defendants opposed the relief sought by the plaintiffs;[23]
[23]Exhibit ‘JM-1’ to Ms Minter’s affidavit sworn 27 January 2022, pg 7.
(i) the Bank of Melbourne facility was temporarily extended beyond its expiry date of 27 December 2021 to permit the defendants to pay it out.[24] At some time in the period 4 November 2021[25] to 27 December 2021, the defendants took steps to obtain, and did in fact obtain, an extension of the Bank of Melbourne facility to give them time to pay it out.[26] There is no evidence as to precisely when they first took such steps to obtain that extension or when they in fact obtained it;
[24]Mr Smarrelli’s affidavit sworn 10 February 2022, [8].
[25]This is the date at which the option holder of the Royal Mail Hotel defaulted: see Mr Smarrelli’s affidavit sworn 10 February 2022, [4].
[26]Mr Smarrelli’s affidavit sworn 10 February 2022, [8].
(j) on 20 January 2022, the plaintiffs’ solicitors asked the defendants to inform them of the defendants’ position on the plaintiffs’ application by no later than 4:00pm on Friday;[27]
[27]Exhibit ‘JM-1’ to Ms Minter’s affidavit sworn 27 January 2022, pg 13.
(k) on 20 January 2022, the defendants’ solicitor informed the plaintiffs’ solicitors that he was still recovering from Covid and stated:[28]
[28]Ibid pg 15.
However, I am aware that the loan facility in respect of which the security is being sought is in the course of being paid out which would make the continuing need for that security obsolete. I will make the inquiries of my clients as where that is at and come back to you.
(l) on 27 January 2022, the defendants’ solicitor informed the plaintiffs’ solicitors, in response to an email from the plaintiffs’ solicitors that day, that:[29]
[29]Ibid pg 21 (emphasis added).
As I have indicated the need for the security for your clients is to ensure that they are secured in the event of any call on the loans to my clients. However, as foreshadowed earlier they are in the course of being paid out, which would mean that there was no longer any need for the security the execution of which is being pressed in this proceeding. So to that extent the proceedings are being defended.
(m) on 27 January 2022, the plaintiffs’ solicitors informed the defendants’ solicitor:[30]
[30]Exhibit ‘JM-2’ to Ms Minter’s affidavit sworn 7 February 2022, pg 131.
In your email to the court earlier today you stated:
" This application is opposed on the basis that the loans from the Bank of Melbourne which are to be secured by the security the execution of which is being pressed by the plaintiff are being paid out today and tomorrow morning therefore obviating the need for the execution of the security being sought in the proceeding."
I assume your email to the court relates to the loan to Prince Patrick Hotel. For the purpose of the conferral from the court referred to below could please provide us further details of :
·the loan amounts paid to BOM;
·the balance to be paid to BOM (and when); and
·the arrangements made with BOM for the discharge of their securities (evidence of correspondence from BOM would be of assistance).
Once we receive your response we will be in a position to your request for an adjournment subject to a reservation of our clients costs.
We await to hear from you as a matter of urgency as requested by the court to complete the conferral by 9am
(n) on 28 January 2022, the defendants’ solicitor informed the plaintiffs’ solicitor that:[31]
[31]Ibid, pgs 158-159.
Most of the money has been paid to et Bank Of Melbourne to retire the facility for which the security in this proceeding is being sought.
The Cappelli interests have paid $158,424.62.
The Smarrelli interests have paid out $80,000 and the balance will be paid today.
I agree that the case should be adjourned for the balance of money to be paid, securities discharged and the execution of any documents for the finalisation of the settlement with the estate and we can both make submission on costs and have the Court rule it on the papers.
(o) on 28 January 2022, the defendants’ solicitor informed the plaintiffs’ solicitors, in response to the plaintiffs’ solicitors email dated 27 January 2022, that:[32]
[32]Ibid, pgs 142-143.
I assume that email was the one I received at 7.51pm last night.
In response to those points, we respond:
* the loan amounts paid to BOM; The facility relates to the Cappellin and Smarrelli interests and had a remaining borrowing of a little short of $320,000 before the amount paid so far of $158,424.62. (Cappellin) and $80,000 Smarrelli
* the balance to be paid to BOM (and when):$78,740.38 and it will be paid today
* the arrangements made with BOM for the discharge of their securities (evidence of correspondence from BOM would be of assistance). Once that final amount is paid the BOM security will be discharged as soon as practicable thereafter. That will release your client form his guarantee.
(p) on 28 January 2022, the matter was listed for directions and the proceeding was adjourned to 11 February 2022 for a likely hearing on the question of costs of the proceeding. This was to enable confirmation of the payout of the Bank of Melbourne facility;
(q) the Bank of Melbourne facility was paid out in late January 2022/early February 2022;[33]
[33]Mr Smarrelli’s affidavit sworn 10 February 2022, [8]. Some amounts were paid prior to 28 January 2022, including a sum of $80,000 by the first defendant: exhibit ‘JM-2’ to Ms Minter’s affidavit sworn 7 February 2022, pg 142.
(r) on 7 February 2022, the defendants’ solicitor, in response to an email from the plaintiffs’ solicitors earlier that day, informed the plaintiffs’ solicitors that:[34]
It was originally expected that the sale of the Royal Mail Hotel would have permitted the pay out of the BOM Facility. However due to then default of the option hold that did not eventuate
The BOM facility was to mature to 15 December 2021.
By arrangement with the BOM steps were then taken to payout the BOM facility which, taking into account the Christmas holiday period, occurred progressively in late January/early February 2022. It has now been completed and the account closed and we are therefore pressing the BOM to expedite the discharge of securities.
[34]Exhibit ‘JM-2’ to Ms Minter’s affidavit sworn 7 February 2022, pg 166.
The parties conducted this application on the basis that upon the payment of the Bank of Melbourne facility in late January 2022/early February 2022, there was no need for the security documents and, as a result, no utility in the proceeding.
APPLICABLE LAW
Rule 25.02(2)(b) of the Rules provides that a plaintiff may discontinue a proceeding or withdraw any part of it at any time, by leave of the Court or with the consent of all other parties.
Rule 25.05 provides:
Where a proceeding, counterclaim or claim by third party notice is discontinued, or where part of a proceeding, counterclaim or third party notice is withdrawn, liability for costs shall be determined in accordance with Rule 63.15.
Rule 63.15 provides:
Unless the Court otherwise orders, a party who discontinues or withdraws part of a proceeding, counterclaim or claim by third party notice shall pay the costs of the party to whom the discontinuance or withdrawal relates to the time of the discontinuance or withdrawal.
Pursuant to s 24(1) of the Supreme Court Act 1986 (Vic) (‘Act’), the costs are in the discretion of the Court, and the Court has full power to determine by whom and to what extent the costs are to be paid. This discretion must be exercised judicially.
The Court is empowered, under s 24(1) of the Act, to make an order that a defendant pay a plaintiff’s costs upon a plaintiff’s discontinuance of a proceeding, and such an order is an order ‘otherwise’ within the meaning of r 63.15.[35]
[35]Blackjack Executive Car Services Pty Ltd v Koulax [2002] VSC 380, [11] (Habersberger J).
In Australian Securities Commission v Aust-Home Investments Ltd,[36] Hill J said in the context of an application for costs where the parties no longer wished to continue the proceedings:
[36](1993) 44 FCR 194, 201 (emphasis added). This case was cited with approval in Asta Developments (Aust) Pty Ltd v Amasya Enterprises Pty Ltd [2016] VSCA 186, [25] (Whelan and Ferguson JJA).
These cases seem to me to support the following propositions being made.
(1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order: Stratford and the SEQEB case.
(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial:Stratford. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
(3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (SEQEB).
(4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371.
(5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted: cf Re Asiatic Electric Co Ply Ltd [1973] 1 NSWLR 603 at 606, a case which, however, depended upon the specific wording of the statute under consideration.
In Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3),[37] Croft J comprehensively set out the principles to be applied concerning indemnity costs, including in the context of ethical or moral delinquency in the antecedent facts giving rise to proceedings:
[37](‘Sunland’) [2012] VSC 399, [12]-[14], [17-[18] (citations omitted) (emphasis added). This decision was upheld on appeal in Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd [2013] VSCA 237 (Warren CJ, Osborn JA and Macaulay AJA), [539].
12The usual order as to costs is an award of costs to the successful party on a party and party basis. This position is reflected in rule 63.31 of the Rules. While the Court has a discretion to make special costs orders, guidance is provided by previously identified categories of circumstances that warrant a special costs order. In Colgate Palmolive Company v Cussons Pty Ltd, Sheppard J identified some of the categories as:
“…the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud ...; evidence of particular misconduct that causes loss of time to the Court and to other parties …; the fact that the proceedings were commenced or continued for some ulterior motive … or in wilful disregard of known facts or clearly established law …; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions …; an imprudent refusal of an offer to compromise …; and an award of costs on an indemnity basis against a contemnor…” (citations omitted)
13In Colgate Palmolive, Sheppard J also noted and affirmed observations by French J (as he then was) in J Corp Pty Ltd v Australian Building Labourers Federation Union of Workers (WA Branch) (No 2):
“Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in willful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case …”. (Underline emphasis added)
14Similarly, in Ugly Tribe Co Pty Ltd v Sikola, Harper J identified circumstances that warrant a special costs order:
“7.In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v Dowling. Special circumstances must be present to justify such a departure: Australian Electoral Commission v. Towney (No 2). These include:
(i)The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397.
(ii) The making of an irrelevant allegation of fraud: Thors v Weekes (1989) 92 ALR 131.
(iii)Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, French J, 3 May 1991).
(iv)The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, Davies J, 5 March 1993).
(v) Conduct which amounts to a contempt of court: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59.
(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA) Branch (No 2) (1993) 46 IR 301.
(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v Petit-Breuilh (No 2) (unreported, [1990] VSC 395, 18 October 1999).
8.The categories of special circumstances are not closed: Tetijo Holdings, supra. The cases must not, therefore, be read ‘in an endeavour to establish a set of inflexible guidelines which should thereafter be determinative of the manner in which the Court’s discretion is to be exercised [for this] would be to fetter the Court’s discretion’: National Australia Bank v Petit-Breuilh, supra.”
…
17It is important to emphasise in the present circumstances that it is the conduct of a party as a litigant that is relevant to the issue of a special costs order. This has two dimensions, as the judgment of Lindgren J in NMFM Property Pty Ltd v Citibank Limited (No 11) makes clear:
“54. Citibank relies on a statement made by Gummow J in Botany [Botany Municipal Council v Secretary, Department of the Arts, Sport, the Environment, Tourism and Territories (1992) 34 FCR 412] at 415. His Honour there said:
‘I accept that the discretion conferred by s43 [of the FCA Act] is not so circumscribed that an order of this character [for indemnity costs] may be made only against an ethically or morally delinquent party.’
The first thing to be said is that this statement is not authority for the proposition that an order for indemnity costs must be made against a party found to have been, in any respect, ‘ethically or morally delinquent’. Nor did his Honour intend to suggest that the presence of ethical or moral delinquency will always afford a sufficient ground on which to make an order for indemnity costs. His Honour was saying only that the presence of ethical or moral delinquency is not an essential condition of a valid exercise of the discretion.
55In the course of argument I raised with counsel for Citibank a hypothetical case in which a cause of action founded on fraud succeeded. He seemed to accept that consistently with his submission, the discretion to order indemnity costs could always be properly exercised in such a case, even though the fraud was not in any way associated with the launching of the claim or cross-claim or the manner of conduct of the litigation by the party found to have been fraudulent. Counsel for NM, on the other hand, submits that it is only ethical or moral delinquency of the latter kind that is relevant to the exercise of the discretion.
56. The ordinary rule is that an award of costs is on the party and party basis, and that it is only in a special case that the discretion to depart from that rule will be properly exercised: Venture Industries at 153 per Black CJ, 158 per Cooper and Merkel JJ. In my opinion, there is no counterpart ordinary rule that in the absence of special circumstances indemnity costs will be ordered where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation. Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against the fraudulent party will be on the party and party basis. The conduct of a party that is relevant to the issue of indemnity costs is the party's conduct as litigant. But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant.
57Senior counsel for Citibank submits that there have been cases where the underlying or background conduct of a party has been relied on in support of the making of an order for indemnity costs. He referred to two cases. In the first, Australian Guarantee Corp Ltd v De Jager [1984] VR 483 (‘AGC’), a mortgagee finance company (‘AGC’) was ordered to pay the costs of a wife-mortgagor (‘Mrs De Jager’) of successfully defending AGC’s action for possession. AGC had forwarded the mortgage for registration knowing that what it assumed to be Mrs De Jager’s signature had not been attested, although it purported on the face of the document to have been. It transpired that her signature had in fact been forged, although this had not been known to AGC. Tadgell J held that AGC was guilty of fraud for the purposes of s42 of the Transfer of Land Act 1958 (Vic) and therefore did not enjoy the benefit of the indefeasibility of title provided for in s41 of that Act. The fraud consisted of forwarding the instrument for registration with knowledge that it would falsely appear to the Registrar of Titles to satisfy the legislative requirement of attestation. In relation to costs, Tadgell J stated (at 502):
‘Upon the facts as I have found them the pursuit of the action was in my opinion a high-handed presumption. In the end, it was conceded for AGC that Mrs De Jager’s signature was a forgery. Having pursued the action with the knowledge…that it had, and failed, AGC allowed itself a luxury. The Court ought to do what I can to ensure that Mrs De Jager is not out of pocket over it.’
Citibank may be taken to submit, by analogy, that in all the circumstances, NM’s pursuit of Citibank for contribution or indemnity should be seen to be ‘a high-handed presumption’.
58.In my opinion it was AGC’s conduct ‘as litigant’ that attracted the award of indemnity costs against it. It sought to enforce the mortgage against Mrs De Jager whose signature, it always knew, had not been attested, and therefore might or might not have been forged. As litigant, it assumed the role of an innocent mortgagee, knowing it had something to hide and hoping it would not be found out.”
18Thus ethical or moral delinquency in the antecedent facts giving rise to litigation are insufficient to displace the general rule, or presumption, that costs are to be awarded on a party and party basis in the absence of special circumstances. Nevertheless, the knowledge of a party as a litigant in relation to past conduct may be relevant to assessment of the conduct of that party as a litigant. The other dimension which follows from this approach is that it is the conduct of the party that is to be assessed, not that of its legal advisers except insofar as the conduct of those advisers has affected the conduct of the party. For the reasons which follow, I am of the opinion that the knowledge of Sunland, through its principal witnesses, Brown and Abedian, including, what must clearly follow, the knowledge of their past conduct with respect to the Plot D17 transaction is highly relevant to an assessment of Sunland’s conduct as a litigant.
In Murdaca v Maisano,[38] Nettle JA referred to Tadgell J’s reference to ‘high-handed presumption’ in Australian Guarantee Corporation Ltd v De Jager[39] and said:[40]
The meaning of “high-handed presumption” in that context was later considered by Woodward, J. in the much cited authority of Fountain Selected Meats (Sales) Pty Ltd v. International Produce Merchants Ltd. As Woodward J. put it, it is appropriate to consider awarding solicitor/client costs or indemnity costs whenever it appears that a party properly advised should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts or the clearly established laws.
[38][2004] VSCA 123 (Callaway, Buchanan and Nettle JJA).
[39][1984] VR 483, 502 (emphasis added).
[40][2004] VSCA 123, [40] (Nettle JA) (citations omitted).
In Australian Pharmaceutical Industries Ltd v O’Neale(Costs Ruling),[41] Sloss J said:
The exercise of the discretion to award costs to the successful party over and above the ordinary or usual basis is generally reserved for those cases where the losing party has engaged in unmeritorious, deliberate or improper conduct or where the pursuit of the action was ‘a high-handed presumption’ (to adopt Tadgell J’s description in Australian Guarantee Corp Ltd v De Jager) such as to warrant the Court expressing its disapproval and doing what it can to ensure the successful party is not out of pocket over it.
[41][2021] VSC 688, [19] (citations omitted)(emphasis added).
In Bass Coast Shire Council v King, [42] Winneke P stated:
In this case the learned judge found that the council had resiled from a view of the plaintiffs’ rights to which it had previously adhered and, by doing so, had precipitated the plaintiffs into the needless expense of proving, in the face of opposition from the council, that the strip of land abutting their allotment was a road of which the council had the care and management. In similar vein the learned judge took the view that, by it conduct, Vink had also forced the Kings into litigation by denying them access to the strip. It was not so much the "brokering of an arrangement" by the council which his Honour found was unwarranted, but rather the resiling from a justified stance as to where the legal rights between the parties lay. It seems to me that his Honour was entitled to take the view of the situation which he did and, having done so, to exercise his discretion on the question of costs in the manner in which he did.
[42][1997] 2 VR 5, 29 (Winneke P) (Hayne and Charles JJA agreeing at 30).
In Velissaris v Fitzgerald,[43] Maxwell P said:
With respect, I would accept that, as a matter of principle, judges should look to the parties’ conduct of the litigation to inform the exercise of the costs discretion. But I do not think that the judge’s discretion miscarried because it was based upon action taken by Mr Velissaris before the proceeding commenced. Mr Velissaris knew that his action was bound to provoke the liquidator – as it did – to commence legal proceedings for the removal of the caveat. To that extent, whilst not a step in a proceeding, the lodgement of the caveat was conduct calculated to lead to litigation and which could be the subject of scrutiny by a judge in the exercise of the costs discretion. Further, it was conduct that had to be viewed in the context of the earlier proceeding for removal of a caveat, and the January orders which restrained Mr Velissaris in very specific terms from lodging further caveats.
[43][2008] VSCA 152, [20] (Maxwell P) (Mandie AJA agreeing at [39]) (emphasis added). See also Ali v Hartley Poynton Pty Ltd (No 3) [2002] VSC 292, [9]-[13] (Smith J).
PARTIES’ SUBMISSIONS
The plaintiffs submit that they are entitled to costs on an indemnity basis as the conduct of the defendants has been ‘high handed’ and the plaintiffs should not be put out of pocket. The plaintiffs submitted:[44]
Essentially, the exercise of the discretion to award costs over and above the ordinary is exceptional being reserved for cases where the party liable to pay costs has engaged in, as here, in unmeritorious, or high handed, or other improper conduct such as to warrant the Court showing its disapproval and at the same time preventing the successful party being left out of pocket (see Australian Guarantee Corporation Ltd v De Jager [1984] VR 483, at 502). The conduct described above [being the defendants’ conduct set out earlier in the submissions] is high handed and the plaintiffs should not be left out of pocket.
[44]Plaintiffs’ submissions filed 7 February 2022, [26].
The plaintiffs submitted:
(a) it is the conduct of the defendants that is high-handed and not the conduct of their solicitor, Christopher Dale. No criticism is made of the solicitor’s conduct;[45]
[45]Plaintiffs’ submissions filed 21 February 2022. [3].
(b) the discretion to award indemnity costs is not limited to the misconduct of parties as litigants to the exclusion of pre-litigation conduct;[46]
[46]Ibid.
(c) if Sunland is correct, then the knowledge of the defendants in this case prior to the commencement of the proceeding is highly relevant to the assessment of the defendants’ conduct as litigants;[47]
(d) there is also a line of authorities which support the notion that conduct justifying departure from the ordinary rule as to costs is not limited to the assessment of the parties’ conduct ‘as litigants’, particularly when the defendant’s conduct caused the plaintiff to commence legal proceedings;[48] and
(e) whichever approach is taken, the pre-litigation conduct in this case was and is relevant to the exercise of the Court’s discretion.[49]
[47]Ibid [7].
[48]Ibid [11].
[49]Ibid.
The plaintiffs further submitted that:
(a) it is plain from Mr Smarrelli’s affidavit sworn 10 February 2022 that the defendants ‘never had any intention’ of signing the security documents. This is despite the defendants being obliged to do so and stating they would sign them;[50]
[50]Ibid [8].
(b) the defendants said nothing about paying out the debt until 20 January 2022;[51]
[51]Ibid.
(c) the defendants erroneously suggested, without an explanation, that their defence was paying out the loan. The payout had not occurred as at 20 January 2022, when the defendants informed the plaintiffs that a payout would occur;[52]
(d) the payout only occurred after the first hearing in this Court on 28 January 2022;[53] and
(e) if the plaintiffs had known that the defendants were in the process of obtaining finance or had finance and began repaying the loan facility, the issues between the parties would have been significantly narrowed and the dispute could have been resolved commercially. The plaintiffs would also not have incurred legal costs to draft the security documents, correspond with the defendants’ solicitor to the extent it occurred and commence this proceeding.[54]
[52]Ibid [9].
[53]Ibid [10].
[54]Plaintiffs’ submissions filed 7 February 2022, [20].
Mr Clarke QC, the plaintiffs’ counsel, submitted:[55]
What they’ve done [the defendants], clearly, is assume that although they agreed to provide security and to execute the security documents, which are set out in the agreement that was reached, they have, essentially, over the course of time since that agreement was reached in March 2021, simply stalled on the basis that they thought that what would occur was that the option holder would exercise his option and purchase the property, which is the Royal Mail Hotel, and use those funds to payout the loan that they personally obtained, although albeit secured over the assets of the Royal Mail.
[55]Transcript of Proceeding, Gulfmead Pty Ltd & Anor v Smarrelli & Ors (Supreme Court of Victoria, S ECI 2021 04197, Attiwill J, 11 February 2022) 8.7-17 (Mr Clarke QC).
Mr Clarke QC submitted in respect of the security documents:[56]
They got it on 4 May. It was re-sent - the 4 May document - on 19 October, prompted by the promise of instructions to sign it. There were minor matters that needed to be completed which is clear in the affidavit material, which include the driver’s licence which never did or never was provided and details never given and still haven’t been. But there are other details which were set out and put into the schedule and they were the only changes. There were no substantive changes made whatsoever. To suggest that the final version as if, well, we’ve only had since 17 November to consider our position is disingenuous.
[56]Ibid 17.11-22 (Mr Clarke QC).
Mr Clarke QC submitted:
(a) it is quite apparent that the defendants had no intention of executing the security documents, despite agreeing to do it, because they had a high-handed assumption that they would not have to and were hopeful that the option would be paid out;[57]
(b) the defendants’ attitude was ‘we’re never going to sign this because we’re just relying on the hope that it's going to be paid out by the option holder’;[58] and
(c) it is quite plain there was never a defence to the proceeding and the defendants have never proposed to do a defence.[59]
[57]Ibid 11.8-13 (Mr Clarke QC).
[58]Ibid 16.23-25 (Mr Clarke QC).
[59]Ibid 19.11-12 (Mr Clarke QC).
The defendants submitted that the order for costs should be that the defendants pay the plaintiffs’ costs on a standard basis to be taxed in default of agreement.[60] The defendants only made this concession on 10 February 2022 on the eve of the hearing of this application on 11 February 2022.
[60]Defendants’ submissions filed 10 February 2022, [16].
The defendants submitted:[61]
[61]Ibid [1]-[6].
1.The Bank of Melbourne facility in respect of which the Plaintiffs sought to have the security executed was to terminate on 27 December 2022 [sic].
2.The Second Plaintiff should have known when the Bank of Melbourne facility was to expire.
3.It was expected that the Bank of Melbourne facility would have been paid out before the expiry date as the Royal Mail Hotel was under an option to purchase. However, that fell through as the option holder defaulted on 4 November 2021. If that had not occurred, the Bank of Melbourne facility would have been paid out in advance of its expiry making the need for the security sought to be executed by the Plaintiffs unnecessary. However, that did not come to pass.
4. This proceeding was issued on 10 November 2021.
5.The final version of the security due to be executed by the Defendants was only received on 17 November 2021. See attached email submitting it. An earlier version had been issued but it was incomplete.
6.The proceeding was therefore issued seven days before the security in final form was submitted for execution.
The defendants accepted that their conduct prior to the commencement of the proceeding precipitated the proceeding.[62] This was the basis for the defendants’ concession that they should be ordered to pay the plaintiffs’ costs upon the discontinuance of the proceeding on a standard basis.[63] Mr Dawlings, counsel for the defendants, submitted that the defendants’ conduct prior to the commencement was ‘dilatory’ and that they ‘delayed’.[64] Mr Dawlings also accepted that the Court could form the view that the defendants’ conduct prior to the commencement of the proceeding was high-handed.[65] Mr Dawlings also accepted that there was a lack of communication from the commencement of the proceeding to 20 January 2022.[66] Mr Dawlings also submitted that it would have been ‘absolutely better’ if the defendants communicated much earlier.[67]
[62]Defendants’ submissions filed 17 February 2022, [13]. See also Transcript of Proceeding, 37.4-17 (Mr Dawlings).
[63]Defendants’ submissions filed 17 February 2022, [13].
[64]Transcript of Proceeding, 29.30 (Mr Dawlings).
[65]Ibid 31.6-8 (Mr Dawlings).
[66]Ibid 35.3-4, 36.1-2 (Mr Dawlings).
[67]Ibid 37.2-3 (Mr Dawlings).
However, with respect to the question of indemnity costs, the defendants submitted:
(a) the defendants’ conduct prior to the institution of the proceeding is not relevant to the issue of whether the plaintiffs are entitled to costs on an indemnity basis; [68]
[68]Defendants’ submissions filed 17 February 2022, [1].
(b) the misconduct of a party relevant to the exercise of the power to award costs on a special basis (as opposed to standard costs) is limited to litigious matters;[69]
(c) to exercise the discretion to award costs on an indemnity basis for misconduct prior to the commencement of litigation might come perilously close to exercising the judicial discretion for a punitive, rather than compensatory purpose;[70] and
(d) there has, in this case, been no final determination of rights. The defendants have been unable to identify any case where an order for indemnity costs was made against a defendant in circumstances where the plaintiff has discontinued the proceeding. The usual order in such a case is of course that the plaintiff pay the defendant’s costs (on the standard basis).[71]
[69]Ibid [8].
[70]Ibid [9].
[71]Ibid [10]-[11].
The defendants also further submitted in relation to indemnity costs:[72]
[72]Ibid [14-[15].
14.However, when litigants, as relevant to ordering costs on a special or indemnity basis, the defendants:
(a) filed an appearance;
(b) attended a directions hearing; and
(c)arranged their affairs with the Bank of Melbourne relatively promptly over the Christmas/New Year period so as to remove the need for any continuing controversy between the plaintiffs and defendants.
15.The consequence of (c) was to expeditiously bring an end to the litigation, commendably saving the parties’ and the Court’s time. Accordingly, the appropriate order is that the defendants pay the plaintiffs’ costs of the proceeding on the standard basis, to be taxed or assessed in default of agreement.
Mr Dawlings submitted:[73]
The cases about indemnity basis are predominantly in the situations where the plaintiff has as knock down case and wins everything, the defendant’s been fraudulent and has dragged its heels all along the way. That’s the standard, high-handed description. And it’s said in those cases, where the plaintiff had a fantastic case and won it. What in fact has happened in this proceeding is, of course - and the basis for the concession that standard costs are appropriate to pay by the defendant, despite the fact the plaintiff’s withdrawing, is that of course my clients were dilatory. They delayed. Before the litigation.
Once the litigation commenced, they took steps to take away the dispute. Mr Clarke’s clients - the plaintiffs are in fact in a better position now than they could have been in if the relief they sought had been obtained. What they sought was that the security documents be executed, which would give them protection if the guarantee was called on, if the loan defaulted. Once the proceeding was commenced, my clients got rid of the loan. They’ve in fact shortened the dispute by dealing with it in a commercial way.
[73]Transcript of Proceeding, 29.20-30.10 (Mr Dawlings).
Mr Dawlings submitted:[74]
The first thing I can say is that the agreement in March didn't specify a date by which it was to be done. I believe Mr Clarke suggested earlier that the purpose of the security was to protect the plaintiffs if the option wasn't exercised. Now, if it was known by the plaintiffs that the option was needed to be - was expected to be exercised, but then wasn’t. Then there was no urgency in this document until the facility was due, which was late December. So the obligation to sign the document was to do so within a reasonable time, because no time was expressed. If it’s not due until - if it’s not – there’s risk of any default, and any risk to the guarantee until late December, a reasonable time might be early December.
[74]Ibid 32.14-27 (Mr Dawlings).
Mr Dawlings also submitted:
(a) litigants should not be discouraged from finding creative solutions to disputes;[75] and
(b) high-handed conduct does not automatically result to indemnity costs, and the whole of the situation should be assessed.[76]
[75]Ibid 30.12-13 (Mr Dawlings).
[76]Ibid 31.3-5 (Mr Dawlings).
Upon the Court asking whether the defendants have any defence to not signing the security documents prior to the institution of the proceeding, Mr Dawlings responded, ‘I have no idea.’[77] Upon the Court asking if the defendants ever intended to execute the security documents at any time, Mr Dawlings replied that he could not answer and did not have instructions, and that there is no evidence of this.[78]
[77]Ibid 31.15-19 (Mr Dawlings).
[78]Ibid 36.6-12 (Mr Dawlings).
Mr Dawlings submitted that the documents issued by the plaintiffs in May 2021 were not capable of being signed and were incomplete. Upon the Court asking whether the defendants ever raised that, Mr Dawlings said ‘No. Not until much later. I can’t advance it further Your Honour.’[79]
[79]Ibid 33.27-34.1 (Mr Dawlings).
ANALYSIS
Basis for taxation
I am satisfied that in all of the circumstances it is appropriate to order, pursuant to r 63.15 of the Rules, that upon the plaintiffs’ discontinuance of the proceeding, the defendants pay the plaintiffs’ costs on a standard basis in default of agreement (excluding the costs of and incidental to the defendants’ supplementary submissions filed 17 February 2022, the plaintiffs’ supplementary submissions filed 16 February 2022 and the plaintiffs’ revised (corrected) supplementary submissions filed 21 February 2022).
I accept that the plaintiffs acted reasonably in commencing this proceeding and that the defendants’ conduct precipitated this proceeding. These matters are accepted by the defendants and are the basis upon which it was conceded by them that they should pay the plaintiffs’ costs of the proceeding on a standard basis in default of agreement.
I accept that the defendants’ conduct was dilatory and also ‘high-handed’ in the sense that:
(a) the defendants did not meaningfully respond to the plaintiffs’ requests to execute the security documents;
(b) the defendants did not inform the plaintiffs that they expected the Bank of Melbourne facility to be paid out upon the exercise of the option; and
(c) the defendants did not inform the plaintiffs of the extension of the Bank of Melbourne facility and their plans to pay it out.
However, I am not satisfied, in all of the circumstances, that the defendants’ conduct is such as to justify an award of indemnity costs. I am not satisfied that there are special circumstances that warrant such an order. I am not satisfied that the defendants’ conduct constituted a ‘high-handed presumption’ (e.g. engaged in for some ulterior motive or because of some wilful disregard of the known facts or the law),[80] or was unmeritorious or improper conduct such as to warrant an award of indemnity costs.
[80]See above [23] (emphasis added).
First, I am not satisfied that the defendants never had any intention of executing the security documents. There was no direct evidence of the defendants’ intentions with respect to the execution of the security documents. The first defendant was not cross-examined. I am not satisfied that an inference should be made from all of the circumstances that the defendants never had any intention of executing the security documents. Importantly, the defendants’ expectation that the Bank of Melbourne facility would be paid out upon the exercise of the option ceased on 4 November 2021, when the option holder defaulted. This was also before the defendants became litigants in this proceeding. The defendants then took steps to pay out the Bank of Melbourne facility, including taking steps to extend the Bank of Melbourne facility prior to 27 December 2021.[81] There is no evidence when the defendants knew that they would be able to pay out, and would in fact pay out, the Bank of Melbourne facility. The payments made by the defendants to pay out the Bank of Melbourne facility were made over time and not in one lump sum.[82] The Bank of Melbourne facility was not paid out until late January/early February 2022.[83]
[81]See above [(14(i)].
[82]See above nn 33.
[83]See above [14(q)].
Secondly, the plaintiffs submitted that the defendants said ‘nothing about paying out the debt until 20 January 2022’.[84] I accept that the defendants should have informed the plaintiffs of the extension of the Bank of Melbourne facility and their plans to pay it out, but I am not satisfied that their failure to do so was a ‘high-handed presumption’[85] or was unmeritorious or improper conduct such as to warrant award of indemnity costs. Further, I am not satisfied, as submitted by the plaintiffs, that if the plaintiffs had known earlier that the defendants were in the process of obtaining finance or in fact had finance and had begun repaying the facility, that the issues between the parties would have significantly narrowed and the dispute could have been resolved commercially.
[84]Plaintiffs’ submissions filed 21 February 2022, [8(b)].
[85]See above [23].
Thirdly, the plaintiffs submitted that the payout of the Bank of Melbourne facility by the defendants only occurred after the first hearing in this Court on 28 January 2022.[86] To the extent it is submitted that this constitutes a form of unmeritorious or improper conduct I reject that submission. The defendants took steps prior to 27 December 2021 to extend the Bank of Melbourne facility and pay it out[87] and some amounts were paid in relation to the Bank of Melbourne facility prior to 28 January 2022, including the sum of $80,000 by the first defendant.[88]
[86]Plaintiffs’ submissions filed 21 February 2022, [10].
[87]See above [14(i)].
[88]See above nn 33.
Fourthly, the plaintiffs submitted that, as recently as 27 January 2022, the defendants maintained their opposition to the relief sought by the plaintiffs.[89] However, that opposition was premised upon the fact that the Bank of Melbourne facility was then being paid out, thereby making the execution of the security documents otiose. The plaintiffs accept that upon the payout of the Bank of Melbourne facility, it made the execution of the security documents otiose.[90]
[89]Plaintiffs’ submissions filed 7 February 2022, [22].
[90]Ibid [1].
Fifthly, the plaintiffs rely upon a number of authorities in support of their submission that conduct justifying departure from the ordinary rule as to costs is not limited to the assessment of conduct as litigants, particularly when a defendant’s conduct caused a plaintiff to commence proceedings.[91] These cases do not, to adapt the observation of Winneke P in Bass Coast Shire Council v King[92] establish a set of ‘inflexible guidelines’ which are determinative of the manner in which the Court’s discretion as to costs is to be exercised.[93] Those authorities may also be readily distinguished from the present circumstances:
[91]Plaintiffs’ submissions filed 21 February 2022, [11].
[92][1997] 2 VR 5.
[93]Ibid 29.
(a) Ali v Hartley Poynton Pty Ltd (No 3)[94] concerned conduct found to be ‘gross negligence, prolonged deception and manipulation, wilful breach of contract, an absence of supervision and generally, a contempt of the rights of its client, the plaintiff. The conduct was the complete antithesis of that to be expected of a sharebroker in the position of a fiduciary agent’;[95]
(b) Velissaris v Fitzgerald[96] concerned conduct ‘calculated to lead to litigation’.[97] I am not satisfied that the defendants engaged in conduct that was ‘calculated’ to lead to litigation; and
(c) Bass Coast Shire Council v King[98] concerned conduct, inter alia, of a council that had resiled from a view of the plaintiffs’ rights to which it had previously adhered.[99] I am not satisfied that the defendants resiled from a view of the plaintiffs’ rights.
[94][2002] VSC 292.
[95]Ibid [11] (Smith J).
[96][2008] VSCA 152.
[97]Ibid [20] (Maxwell P).
[98][1997] 2 VR 5.
[99]Ibid 29.
Sixthly, I am not satisfied that the defendants did not have any defence to the proceeding. The defendants filed a notice of appearance on 1 December 2021. The defendants did not identify any defence when asked by the Court to do so.[100] However, the Court was not taken in any detail, on this application for costs, to the merits of the plaintiffs’ claim. There has not been any hearing on the merits. The security documents provided by the plaintiffs to the defendants on 17 November 2021 were not before the Court.[101] The Court cannot, in effect, try a hypothetical action between the parties, especially in these circumstances.
Gross sum
[100]Transcript of Proceeding, 31.15-19 (Mr Dawlings).
[101]Only the email attaching the final form of the security documents was before the Court: exhibit ‘JM-2’ to Ms Minter’s affidavit sworn 7 February 2022, pgs 126-127. Although the plaintiffs submitted that this version did not contain substantive amendments: see above [31].
The plaintiffs seek an order setting the costs in a gross sum pursuant to r 63.07(2)(c) of the Rules.
Rule 63.07(2)(c) provides:
(2)Where the Court orders that costs be paid to a party, the Court may then or thereafter order that as to the whole or any part of the costs specified in the order, instead of taxed costs, that party shall be entitled to—
…
(c) a gross sum specified in the order instead of taxed costs;
The plaintiffs seek an order for costs in the gross sum of $44,922.35, calculated as follows:
(a) $15,727.80 for the plaintiffs’ standard basis of costs of and incidental to the originating motion, assessed in accordance with the Supreme Court Scale of Costs (but including allowance for the affidavit/submissions to be filed on 7 and 9 February 2022 and the hearing on 11 February 2022)(excluding disbursements and GST);[102]
[102]Exhibit ‘JM-2’ to Ms Minter’s affidavit sworn 7 February 2022, pg 176.
(b) $16,679.55 in disbursements (for counsel fees to 31 January 2022, originating motion filing fee, summons filing fee and transcript fee);[103]
[103]Ms Minter’s affidavit sworn 7 February 2022, [10].
(c) $6,600 in disbursements (for counsel fees for preparation and attendance of the hearing on 11 February 2022);[104]
[104]Mr Kramersh’s affidavit sworn 10 February 2022, [9].
(d) $1,500 for further professional costs related to the hearing on 11 February 2022;[105]
[105]Ibid.
(e) $500 for the transcript;[106]
(f) $3,000 for counsel’s fees in drafting a supplementary submission;[107] and
(g) $915 for further solicitors’ costs associated with further submissions.[108]
[106]Plaintiffs’ submissions filed 21 February 2022, [12(a)].
[107]Ibid [12(b)].
[108]Ibid [12(c)].
The plaintiffs’ written submissions correctly set out the applicable principles:[109]
The Court has the power under Rule 63.07(2) to order a gross sum specified in the order instead of taxed costs. The purpose of the rule is to avoid the expense, delay and aggravation involved arising out of a taxation of costs. Circumstances that weighed in favour of the award of lump sum costs included, inter alia, that taxation might delay matters and add to costs and costs were in respect of a small number of items in a broadly reasonable amount as here.
[109]Plaintiffs’ submissions filed 7 February 2022, [27] (citations omitted).
Mr Clarke QC submitted:[110]
Now we say one should be satisfied because we had the costs consultant who has at some expense prepared an assessment of those costs. It’s not simply an assertion made by an instructing solicitor in relation to his own cost, and they're not of a proceeding in which we’ve had a long, drawn out trial with a great deal of preparation. If it was in the hundreds of thousands, the situation might be different. What we’re concerned with is essentially solicitor’s costs in the order of some $15,000 in a proceeding that was commenced in November and it concluded in February, with only a few events that have taken place.
So to cause the additional expense and delay of many months to have something of a fairly modest compass would - we say falls squarely within one of the matters to be considered in the court’s discretion to order a lump sum under 63.07.2. And the reasonableness; one can be satisfied because it has been assessed by a costs consultant.
[110]Transcript of Proceeding, 21.10-28 (Mr Clarke QC).
Mr Clarke QC submitted:[111]
This is a fairly straight forward and simple and short proceeding which leads itself to the very rare situation that a court could be easily satisfied that the costs are reasonable and ought to be fixed …
[111]Ibid 24.13-16 (Mr Clarke QC).
Mr Clarke QC further submitted:[112]
Your Honour, we agree that Your Honour, in fixing a fixed sum, can order a fixed sum which reflect indemnity, alternatively a fixed sum which reflects standard, and there’ll be – we don’t agree that we’ll be submitting. It’s that Your Honour must only be satisfied of the precise figure that we put, otherwise there’s no discretion to order a fixed sum. We understand Your Honour’s got wide discretion. We urge Your Honour to enable us to avoid having to incur further delay and cost in having a small sum taxed, if Your Honour pleases.
[112]Ibid 39.22-40.1 (Mr Clarke QC).
The defendants submitted there is inadequate material to enable the Court to fix costs and justify the lump sum costs order.[113] They submitted:
[113]Defendants’ submissions filed 10 February 2022, [11], [13].
(a) the statement of counsel fees does not provide sufficient detail of how those fees were comprised, and include fees incurred well in advance of the issue of the proceeding;[114]
[114]Ibid [9].
(b) the certificate in relation to the solicitors’ costs is unparticularised, only a lump sum figure, and it is unclear what period the certificate covers;[115]
(c) the Costs Court should be the venue to determine the assessment of the plaintiffs’ costs;[116] and
(d) the total legal costs being sought is unreasonable and disproportionate, having regard to the proceeding issue date and the relatively few court documents.[117]
[115]Ibid [11].
[116]Ibid [14].
[117]Ibid [15].
Mr Dawlings submitted:[118]
… the applicable test for a gross sum order is that Your Honour needs to be satisfied that justice can be done between the parties with respect to the costs of the proceeding. And in my submission principally Your Honour doesn't have that level of satisfaction because we don't know what was included in that estimate.
[118]Transcript of Proceeding, 25.17.23 (Mr Dawlings).
Mr Dawlings further submitted that there is a potential overlap in the precise figure sought by the plaintiffs based on particular evidence.[119] Mr Dawlings submitted:[120]
… that estimate, in fact, is not an assessment of costs … he's included also an allowance for the affidavit submissions to be filed on 7 and 9 February and hearing adjourned on 11 February. So he's not just assessed costs that have been done, he's put in a figure for what is to be done as well. But we also have from the affidavit yesterday last night from Mr Kramish [sic] an additional figure of 1500 for the work, in fact, is done. So we don't know whether or not that 1500 was included in the certificate or wasn't.
[119]Ibid 26.20-24 (Mr Dawlings).
[120]Ibid 25.24-26.4 (Mr Dawlings).
I am not satisfied that it is appropriate to order that the defendants pay the plaintiffs a gross sum for costs pursuant to r 63.07(2)(c).
First, I am not satisfied, upon the present material, that the plaintiffs’ legal costs (excluding disbursements) are broadly reasonable. The plaintiffs seek a costs order in a relatively substantial sum given that there are no pleadings (only an originating motion and a summons) and there has only been one contested application, namely this application for costs. The claim for fixed costs does not concern a small number of items of costs. The certificate provided by the costs consultant concerning the plaintiffs’ legal costs (excluding disbursements and exclusive of GST) is not itemised.[121] In the context of this claim for gross costs, the certificate is not adequate for me to be satisfied that the costs are broadly reasonable. Further, despite this certificate specifically stating that it took into account future legal costs being incurred for the hearing on 11 February 2022 (excluding disbursements), the plaintiffs nonetheless still sought a further sum of $1,500 for legal costs for the hearing on 11 February 2022. I also accept the defendants’ submissions in their written submissions that there is inadequate material to enable the Court to fix costs and justify the lump sum costs order. During the hearing, I expressed a preliminary concern about the reasonableness of the Chronology. I have, in fact, been much assisted by it.
[121]Exhibit ‘JM-2’ to Ms Minter’s affidavit sworn 7 February 2022, pg 176.
Secondly, I am not satisfied, based upon the present evidence, that I am in a position to fix a lower gross sum amount. The evidence is not adequate for me to do so. I accept the submission of Mr Dawlings that:[122]
The inability of the court to find out exactly what was picked up where and what’s been calculated and what hasn’t been included means that Your Honour shouldn’t be satisfied that justice can be done by fixing them on some other amount.
[122]Transcript of Proceeding, 26.5-9 (Mr Dawlings).
Thirdly, given the quantum of the potential costs, any taxation of the plaintiffs’ costs will not be overly burdensome or costly.
CONCLUSION AND ORDERS
In conclusion, and subject to any submission of the parties on the precise form of order or on the issue of the costs of this application for costs, I will order:
(a) Pursuant to r 25.02(2)(b) of the Rules, the plaintiffs have leave to discontinue the proceeding.
(b) Pursuant to r 63.15 of the Rules, upon the plaintiffs’ discontinuance, the defendants pay the plaintiffs’ costs of the proceeding on a standard basis in default of agreement (excluding the costs of and incidental to the defendants’ supplementary submissions filed 17 February 2022, the plaintiffs’ supplementary submissions filed 16 February 2022 and the plaintiffs’ revised (corrected) supplementary submissions filed 21 February 2022).
In my preliminary view, the plaintiffs are entitled to their costs of the application for costs on a standard basis (excluding the costs of and incidental to the defendants’ supplementary submissions filed 17 February 2022, the plaintiffs’ supplementary submissions filed 16 February 2022 and the plaintiffs’ revised (corrected) supplementary submissions filed 21 February 2022). The defendants only made the concession that the plaintiffs are entitled to their costs of the proceeding on a standard basis in default of agreement on 10 February 2022, being the eve of the hearing on 11 February 2022. The parties filed further submissions, after the hearing of this application, pursuant to a direction of the Court for assistance with respect to a question of law. In those circumstances, I am of the preliminary view that each party should bear their own costs of those further submissions.
The parties are directed to confer and provide an agreed form of proposed order to chambers by 4:00pm on 1 April 2022.
In the event that the parties cannot agree on a form of order, then the parties are to provide their proposed form of order and a submission (limited to 2 pages) by 4:00pm on 1 April 2022. The Court will then inform the parties of the next steps.
SCHEDULE OF PARTIES
GULFMEAD PTY LTD (ACN 065 394 283) First Plaintiff
STEPHEN MICHAEL SILVAGNI Second Plaintiff
and
DONATO SMARRELLI First Defendant
TESTA ROSSA DEVELOPMENTS PTY LTD
(ACN 083 882 286) Second Defendant
JETAX PTY LTD (ACN 079 553 245) Third Defendant
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