Levy v Watt (No 2)
[2012] VSC 580
•30 NOVEMBER 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2010 05278
| FRANK ERNEST WILLIAM LEVY | Plaintiff |
| v | |
| MAXWELL JAMES WATT AND MICHAEL IAN WATT | Defendants |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 14 NOVEMBER 2012 and WRITTEN SUBMISSIONS FILED 19 and 21 NOVEMBER 2012 | |
DATE OF JUDGMENT: | 30 NOVEMBER 2012 | |
CASE MAY BE CITED AS: | LEVY v WATT (NO 2) | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 580 | |
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Practice and Procedure – Costs – Whether costs should be ordered in case where both parties innocent of wrongdoing – Calderbank offer by defendants to sell painting and split net proceeds three ways – Whether rejection by plaintiff unreasonable – Supreme Court Act 1986, s 24 – Civil Procedure Act 2010, s 49(3)(k) – Supreme Court (General Civil Procedure) Rules 2005, r 63.04.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr ST Pitt | Sackville Wilks Pty Ltd |
| For the Defendants | Mr MA Robins | Rigby Cooke Lawyers |
HIS HONOUR:
Introduction
After I published, on 14 November 2012, my reasons for rejecting the plaintiff’s claim, Mr Robins of counsel submitted on behalf of the defendants that there should be an order that the plaintiff pay the defendants’ costs of the proceeding on a party and party basis to 9 May 2011 and thereafter on an indemnity basis. The second part of the order sought by the defendants was based on the fact that on 18 April 2011 the defendants had made a Calderbank offer of settlement.[1]
[1]See Calderbank v Calderbank [1976] Fam 93.
On behalf of the plaintiff, Mr Pitt of counsel opposed the making of any order as to the costs of the proceeding, and if that submission was not successful, opposed any order for part of the costs to be assessed on an indemnity basis. At the request of Mr Pitt, I adjourned the hearing to enable my reasons for judgment to be read before his submissions were completed. Directions were made for the delivery of written submissions dealing with the two issues raised, namely, should there be any order for costs and, if so, should there be an order for indemnity costs because of the making of the Calderbank offer?
Any Order as to Costs?
Mr Pitt submitted on behalf of the plaintiff that the special circumstances of this proceeding meant that the Court should exercise its discretion under s 24(1) of the Supreme Court Act 1986 to make no order as to costs. He submitted that the special circumstances were such that the normal rule that costs followed the event should not be applied.[2]
[2]Ritter v Godfrey [1920] 2 KB 47, 52 (Lord Sterndale MR); Donald Campbell & Co Ltd v Pollak [1927] AC 732, 809, 811 (Viscount Cave LC).
The first special circumstance relied on by the plaintiff was that all parties were innocent of any wrongdoing with respect to the ownership of the “Girl in Sunlight” painting by Rupert Bunny (“the Painting”). Counsel submitted that what stood this case in stark contrast to most litigation was that it was not the acts or omissions of any of the parties which brought about the need to litigate, but the acts or omissions of persons who had either passed away or whose identity remained a mystery. An order that the plaintiff pay costs would only add to the misfortune he had already suffered by losing a valuable gift from a long-standing and grateful client. Counsel also pointed out that the innocence of all parties was the reason why Magistrate Johnstone made no order as to costs at the interpleader summons.
The second special circumstance was that Mr Levy had to bring the proceeding in order to determine the question of ownership of the Painting. Counsel submitted that Mr Levy was not an “aggressor” in the traditional litigation sense.
The third special circumstance was that the key facts on which the plaintiff’s case was based were not in dispute. The case fell to be determined on a narrow legal point, the construction and application of s 27(b) of the Limitation of Actions Act 1958, and the available learning on that point favoured Mr Levy’s claim.
The fourth special circumstance was that a significant portion of the trial was taken up by the defendants unsuccessfully:
(a) trying to mount a circumstantial factual case;
(b)arguing that the possessory interest which they gained as a result of the interpleader summons gave them a superior right to the Painting; and
(c) attacking the character of Peter Rand.
The final special circumstance was that the ultimate reason why Mr Levy’s claim did not succeed, namely that he could not prove that Mr Rand was a bona fide purchaser of the Painting, was a finely balanced one.
I do not agree with these submissions. In my opinion, it is appropriate to make an order that the plaintiff pay the defendants’ costs of the proceeding. I agree with the defendants’ submission that none of the three matters identified in Ritter v Godfrey,[3] as justifying a departure from the normal rule that wholly successful defendants should receive their costs, are applicable in this case. There was no improper conduct by the defendants either before the proceeding was commenced or during the course of the litigation. However, as Gaudron and Gummow JJ said in Oshlack v Richmond River Council:
There is no absolute rule with respect to the exercise of [the costs discretionary] power … that, in the absence of disentitling conduct, a successful party is to be compensated by the unsuccessful party.[4]
[3][1920] 2 KB 47, 60-61 (Atkin LJ).
[4](1998) 193 CLR 72, 88.
I turn then to the special circumstances relied on by the plaintiff. First, I am not persuaded that it is appropriate to make no order as to costs simply because both sides are innocent of any wrongdoing. I agree with Mr Robins’ submission that the fact that Mr Levy was innocent of any wrongdoing does not mean that he can litigate a claim that has been found to be wrong and then deprive the, at the very least, equally innocent Watt brothers of all or part of their costs. As McHugh J said in Latoudis v Casey:
An order for costs indemnifies the successful party in litigious proceedings in respect of liability for professional fees and out-of-pocket expenses reasonably incurred in connexion with the litigation: … The rationale of the order is that it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred. The order is not made to punish the unsuccessful party. Its function is compensatory. Thus, in civil proceedings an order may, and usually will, be made even though the unsuccessful party has nearly succeeded or has acted reasonably in commencing the proceedings. It may, and usually will, be made even though the action has failed through no fault of the unsuccessful party.[5]
[5](1990) 170 CLR 534, 566-567.
In my opinion, the fact that no order for costs was made in the interpleader proceeding is not relevant to the exercise of my discretion on costs in this proceeding. The reason for the interpleader proceeding was not the same as the reason why the plaintiff commenced this proceeding. They were quite different.
Moreover, I note that it was not said at the start of the trial that Mr Levy would not be seeking costs if he were successful, nor was it said during this hearing that he would not be seeking costs of the trial if the foreshadowed appeal is successful. I also point out that in his statement of claim, one of the orders sought by Mr Levy was an order for costs.
Secondly, I do not agree that Mr Levy had to bring this proceeding. As Mr Robins submitted, Mr Levy was subject to no such compulsion. He could have chosen to abandon his claim to the Painting. Instead, he issued the writ knowing full well that, if it became relevant, he lacked proof that Mr Rand had acquired the Painting as a bona fide purchaser for value without notice. Whilst it is true that the Magistrate’s decision on the interpleader summons meant that Mr Levy had to be a plaintiff, if he chose to take the matter further, whether he was plaintiff or defendant is not relevant to the question of costs, in my opinion.
Thirdly, I agree with Mr Robins’ submission that it is not relevant to the question of costs that the proceeding turned on legal not factual issues, even if that proposition was strictly correct. As Mr Robins submitted, litigants lose cases on questions of law every day of the week but that is no basis to deprive successful defendants of any of their costs. In any event, the case was decided on questions of fact and law.
Fourthly, I do not agree that a significant portion of the trial was taken up by the defendants unsuccessfully pursuing the three matters referred to in Mr Pitt’s submission. In my opinion, there was no undue prolongation of the trial by these matters. On the contrary, the hearing was conducted efficiently and expeditiously by both sides. Therefore, I see no reason to deprive the defendants of all, or even part, of their costs. An issue by issue approach is permitted by s 49(3)(k) of the Civil Procedure Act 2010 and r 63.04 of the Supreme Court (General Civil Procedure) Rules 2005. In Chen v Chan Maxwell P, Redlich JA and Forrest AJA said:
Where there is a multiplicity of issues and mixed success has been enjoyed by the parties, a Court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount.[6]
However, in the particular circumstances of this case referred to above, an issue by issue approach would not be appropriate, in my opinion.
[6][2009] VSCA 233, [10], footnotes omitted.
Fifthly, the fact that the outcome of the case was a finely balanced one does not mean, in my opinion, that the successful party should not be entitled to an order for costs. That fact does not constitute a special circumstance.
Indemnity Costs?
Having decided that I should make an order that the plaintiff pay the defendants’ costs of the proceeding, the remaining question is whether the costs should be ordered to be paid on an indemnity basis from 10 May 2011.
The letter from the defendants’ solicitors dated 18 April 2011 was a valid Calderbank offer. It contained arguments why Mr Levy’s claim would fail, made an offer of settlement, foreshadowed that, if appropriate, it would be relied on as a Calderbank offer in an application for indemnity costs and stated that the offer would remain open until 9 May 2011. The offer of settlement was that the Painting be put up for sale with all parties to the proceeding able to bid at the public auction and that the net proceeds be “split evenly between the parties (i.e. a third to each named party including Mr Levy)”. The amount available for distribution was to be calculated by deducting the sale costs, the repair costs and the defendants’ costs of storing and insuring the Painting from the time possession was granted to them at the conclusion of the interpleader summons.
The correct approach to assessing the relevance of a Calderbank offer to the Court’s exercise of discretion is now settled.[7] The fact that a less favourable result is achieved does not give rise to a presumption of a special costs order.[8] The making of an offer and its rejection are “but two albeit important circumstances” to which the Court will have regard in the exercise of its costs discretion.[9] The competing policy objectives relevant to the exercise of the costs discretion are principally the desirability of promoting settlement and reducing litigation costs as against the undesirability of discouraging potential litigants from bringing their dispute to the courts.[10] The critical question to be asked is whether it was unreasonable in the circumstances for the offeree not to have accepted the offer.[11] In this case the matters of particular relevance from the list of matters to be considered were:
(a)the plaintiff’s prospects of success at the time he allowed the offer to expire; and
(b) the extent of the compromise offered.
[7]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435, [19]-[25].
[8]Hazeldene (2005) 13 VR 435, [19].
[9]Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65, [33] (Nettle JA).
[10]Hazeldene (2005) 13 VR 435, [21]-[22].
[11]Hazeldene (2005) 13 VR 435, [23]. Footnotes omitted.
Mr Robins submitted that it should have been apparent to the plaintiff at the time he received the offer that his prospects of success were, at the very best, quite uncertain. He listed a number of “objective facts or matters” in support of this submission. Particular emphasis was placed on the fact that Mr Levy knew that, despite thorough searches of Mr Rand’s papers, he was unable to produce any evidence as to how, from whom or for what, if any, price Mr Rand acquired the Painting. That certainly became a critical consideration. But it only became relevant if the plaintiff’s argument that s 27(b) of the Limitation of Actions Act 1958 did not apply was not accepted by the Court. In that regard I note that in my earlier reasons for judgment I said that the writers of leading textbooks and learned articles appeared to have accepted the decision in RB Policies at Lloyds’ v Butler[12] as a good authority for the proposition that time begins to run against the owner of a stolen chattel, even though the owner does not know the identity of the thief or the whereabouts of the chattel,[13] and that this approach meant that s 27(b) did not apply.
[12][1950] 1 KB 76; [1949] 2 All ER 226.
[13][2012] VSC 539, [71].
Mr Robins submitted that looking just at the decision in Butler and how it had been regarded over the intervening 60 odd years, ignored the contrary authorities referred to in the judgment and the reasoning which led to the result that the plaintiff’s claim failed. However that may be, I consider that the state of the law, as then understood by the plaintiff and his advisers, meant that his decision not to accept the defendants’ offer cannot be described as unreasonable. The onus rests on the defendants, as the offeror, to persuade me that the plaintiff’s rejection of the offer was unreasonable.[14]
[14]Foster v Galea (No 2) [2008] VSC 331, [9] (Byrne J).
A second, and independent, reason for reaching the same conclusion is that, in my opinion, the offer to divide the net proceeds of the sale of the Painting three ways was not a fair and reasonable compromise. It just so happened that there were two defendants, because both nephews were appointed the executors and beneficiaries of Mr James Watt’s estate. Following the defendants’ reasoning, if there had been three executors and beneficiaries they would have offered Mr Levy only one quarter of the net proceeds. This cannot be a correct analysis.
Given the unusual circumstances of this dispute over the ownership of a valued and valuable Rupert Bunny painting, it seems to me that if the defendants wanted to make an offer of settlement, which could have costs consequences if not accepted, then they had to offer to split the net proceeds evenly between the two competing claimants, regardless of the number of persons on each side. This is not a case of weighing up whether the amount of the offer as a proportion of the claim meant that it could be regarded as a genuine offer of compromise.[15]
[15]See, for example, the discussion in Enerka Apex Belting Pty Ltd v Vickers Systems Pty Ltd (No 2) [2002] VSC 409, [9]-[14] and BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414, [104]-[107].
For both of these reasons, I have concluded that it was not unreasonable for Mr Levy not to accept the defendants’ Calderbank offer.
Final Orders
Accordingly, the final orders will be that:
(a) The plaintiff’s claim is dismissed.
(b)The plaintiff pay the defendants’ costs of the proceeding, including any reserved costs, such costs to be assessed, in default of agreement, on a party and party basis.
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