Ian Bruce McNab and Alistair Finlay McNab v Ian McPhee Graham and Beth Maureen Graham (No 2)
[2018] VSCA 8
•1 February 2018
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2016 0122
| IAN BRUCE McNAB and ALISTAIR FINLAY McNAB (in their capacity as Executors and Trustees of the Will of Colin Wilbur Turner deceased) | Appellants |
| v | |
| IAN McPHEE GRAHAM and BETH MAUREEN GRAHAM (No 2) | Respondents |
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| JUDGES: | TATE and SANTAMARIA JJA and KEOGH AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | Determined ‘on the papers’ |
| DATE OF JUDGMENT: | 1 February 2018 |
| MEDIUM NEUTRAL CITATION: | [2018] VSCA 8 |
| JUDGMENT APPEALED FROM: | [2016] VCC 1128 (Judge Smith) |
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COSTS – Offers of compromise – Whether costs of appeal should be awarded on an indemnity basis – Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority [No 2] (2005) 13 VR 435 applied.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr R Moore | McNab McNab & Starke |
| For the Respondents | Mr M F Wheelahan QC with Mr J McComish | Constable Connor & Co Pty Ltd |
TATE JA
SANTAMARIA JA
KEOGH AJA:
Background – the principal proceedings
On 30 November 2017 this Court granted leave to appeal to the appellants, Ian McNab and Alistair McNab (in their capacity as executors and trustees of the estate of Colin Turner) (‘the McNabs’), but dismissed the appeal.[1] The respondents, Ian and Beth Graham (‘the Grahams’), sought their costs on an indemnity basis given the rejection by the McNabs of three offers of settlement. The parties were granted leave to file short written submissions on the issue of costs. The Court indicated that it would publish reasons ‘on the papers’ in due course. These are those reasons.
[1]McNab v Graham [2017] VSCA 352. These costs reasons assume familiarity with the principal reasons delivered on 30 November 2017.
The appeal was concerned with whether, on the basis of proprietary estoppel, Mr Turner had held real property on constructive trust for the Grahams, such that it was unconscionable for him to have departed from a representation he made to the Grahams that he would leave the property to them on his death, leaving them instead only a life interest. The Court considered whether the claim brought by the Grahams in the court below was a proceeding for the recovery of trust property, and whether the Grahams were therefore not statute barred from bringing their claim in relation to that property.[2] This gave rise to the question of when the constructive trust came into existence: was it at the time that the court below declared the trust, or was it at the time when the detrimental reliance by the Grahams rendered it unconscionable for Mr Turner to depart from his representation?
[2]Section 21(1)(b) of the Limitation of Actions Act 1958 (‘the Act’) provides that no period of limitation shall apply to an action by a beneficiary under a trust to recover trust property from the trustee.
In dismissing the appeal, this Court distinguished between a constructive trust arising on the basis of proprietary estoppel, where an interest in the property is created as a result of detrimental reliance by the promisee on a promise or an assurance by the legal owner of the property, and a remedial trust where the court is concerned to ensure that a person who engages in fraudulent conduct is liable to account in equity as a ‘constructive trustee’.[3] In the former case, the trust is treated as coming into being at the time of the conduct which gives rise to the trust, independently of any declaration of a court.[4] Given the findings by the judge below that there was a proper foundation for proprietary estoppel, the relief granted by the judge was not an exercise of equity’s remedial jurisdiction in respect of an ancillary liability. As such, the observations of Ormiston JA in Nolan v Nolan[5] about the operation of the exception in s 21(1)(b) of the Act not applying to remedial constructive trusts had no application to the claim brought by the Grahams.[6] Further, the reliance by the McNabs on Williams v Central Bank of Nigeria[7] was misplaced; the circumstances in Williams, involving a stranger to an express trust who was a party to a fraudulent breach of trust who was liable to account ‘as if’ he was a trustee, were quite different to those applicable in the present case.[8]
[3]McNab v Graham [2017] VSCA 352 [78]–[107], [140], [141].
[4]Ibid [102].
[5][2004] VSCA 109 [63] (‘Nolan’).
[6]McNab v Graham [2017] VSCA 352 [101].
[7][2014] AC 1189 (‘Williams’).
[8]McNab v Graham [2017] VSCA 352 [95]–[96].
The offers and the parties’ costs submissions
It is against this background that we turn to the parties’ submissions on the question of costs. The Grahams seek their costs of the application for leave to appeal and the appeal, to be taxed on an indemnity basis:
(a) from the commencement of the application for leave to appeal;[9]
[9]2 September 2016.
(b) alternatively, after 3 October 2016, being the date of the Grahams’ first offer;
(c) in the further alternative, after 21 November 2016, being the date of the second offer; or
(d) in the further alternative, after 1 May 2017, being the date of the third offer.
The first offer was for each party to ‘walk away’ from the proceeding bearing their own costs. This was served after both parties had filed their written cases in the application for leave to appeal. The letter conveying this offer asserts that for the reasons set out in the Grahams’ written case, the application for leave to appeal rested on arguments that were ‘largely misconceived’. In their costs submissions, the Grahams say that this characterisation was correct given the McNabs’ misplaced reliance on Williams and Nolan and these errors meant that the McNabs advanced a case that, properly advised, it was not reasonable to advance. The written case of the Grahams, it is submitted, identified the erroneous nature of the propositions relied upon by the McNabs and, in particular, the McNabs’ claim that the trust was remedial, or analogous to a remedial trust. The Grahams submit that the offer to walk away from the proceedings was appropriate and it was not reasonable for the McNabs not to accept it.
In response, the McNabs submit that it was reasonable for them to reject the first offer to abandon the appeal. The written cases filed by the parties simply exposed significant but reasonable different points of view on complicated questions of law, where the issues were not about the facts but rather in relation to the legal consequences of those facts.
The second offer was made on 21 November 2016 after the McNabs had filed a substantial written case ‘in reply’ on 11 October 2016 in which they disputed the case put by the Grahams that a constructive trust arose as a result of the circumstances of the case, and was not imposed by orders of the court. In particular, the McNabs relied on the reference by Keane J in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd[10] to limitations of the owner’s legal title being imposed ‘by order of the court’ to meet the requirements of good conscience where it is appropriate to grant relief by way of proprietary estoppel. The Grahams say that this reliance on Keane J’s statement in Crown was based upon a misinterpretation of his Honour’s reasons. This Court found that the reliance was misplaced.[11]
[10](2016) 333 ALR 384, 418 [150] (‘Crown’).
[11]McNab v Graham [2017] VSCA 352 [77] n 63, [109] n 123.
In the second offer, which was expressed to be a formal Calderbank settlement offer, the Grahams proposed that there be compliance with orders of the judge made below for the transfer of the title to the property to the Grahams, with an extension of the stay ordered by the judge to 16 December 2016, and for the McNabs to pay their costs of the trial below, save that the Grahams would retain only 85 per cent of their costs entitlement. They proposed that they would then appoint real estate agents to sell the property ‘as soon as possible’, and that 15 per cent of the net sale proceeds would be given to the McNabs. The parties would execute consent orders dismissing the appeal with no order as to costs. The offer was open until 2 December 2016.
In their costs submissions, the Grahams say that this offer represented a significant compromise of the Grahams’ rights, both as found by the judge and affirmed by this Court, particularly having regard to the health issues suffered by Mr Graham.[12]
[12]Ibid [25].
The McNabs submit that it was reasonable for them to reject the second offer. On the basis of proper, considered advice, they believed that their prospects of success were real, and greater than 15 per cent, particularly given that they had no new information that would cause them to reconsider their legal position.
The third offer of 1 May 2017 was in the same terms as the second offer (save for a further extension of the stay to 26 May 2017) and was made after the McNabs filed an amended application for leave to appeal and an amended written case on 26 April 2017. The third offer was open until 10 May 2017. The McNabs say that it was reasonable of them to refuse the third offer because there again had been no change in their position.
Analysis
It is well established that the rejection of a Calderbank offer does not give rise to a presumption that the party rejecting it should pay the offeror’s costs on an indemnity basis if the offeree received a less favourable result. Rather, the rejection is a matter to which the court may have regard when considering whether to order indemnity costs.[13] The critical question is whether the rejection was unreasonable in the circumstances.[14] Among the matters that may be considered when determining reasonableness are the prospects of success assessed as at the date of the offer.[15]
[13]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority [No 2] (2005) 13 VR 435, 440 [18]–[20].
[14]Ibid 441 [20]–[23].
[15]Ibid 442 [25].
In our view, it could not be said that the proceeding brought by the McNabs was so manifestly misconceived that rejection of the offers was unreasonable. The issues raised by the proceeding are complex and required a careful examination of the various authorities having regard to the doctrinal basis upon which relief is afforded in the context of proprietary estoppel and the subtleties of the terminology used in the area of constructive trusts. In these circumstances, in our view it was not unreasonable for the McNabs to consider that their position had greater prospects of success than it ultimately did and, accordingly, to reject the offers. The fact that the arguments advanced by a party are upheld by the Court should not of itself expose the losing party to a special costs order. As Redlich J observed, and as the Court of Appeal acknowledged,[16] it is important that litigants not be discouraged from bringing their dispute to the courts, particularly where the questions of law are not straightforward, but open to different interpretations. We would therefore refuse the application by the Grahams for costs to be taxed on an indemnity basis, and instead order that the McNabs pay the Grahams’ costs of the application for leave to appeal and the appeal on a standard basis. It should be noted, however, that the Grahams were confronted with three emanations of the McNab’s written case and were obliged to prepare two substantial written cases of their own in a subtle and complex area.
[16]Ibid 441 [22] citing Redlich J in Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd [2004] VSC 351 [60] .
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