Luong and Anor v Du (No 2)

[2014] VSC 37

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

S CI 2012 2540

HUE DIEU LUONG HONG THUY DU	Plaintiffs
v
HUONG XUAN DU	Defendant

---

JUDGE:	EMERTON J
WHERE HELD:	Melbourne
DATE OF HEARING:	4 February 2014
DATE OF JUDGMENT:	14 February 2014
CASE MAY BE CITED AS:	Luong & Anor v Du (No 2)
MEDIUM NEUTRAL CITATION:	[2014] VSC 37

---

COSTS - Whether indemnity costs should be ordered – Plaintiff’s conduct amounts to bringing and continuing a proceeding in wilful disregard of known facts - Whether the plaintiffs’ misconduct in the proceeding is made more serious by their response to the offers that were made by the defendant to settle the proceeding – Indemnity costs awarded to the defendant - Li v Xing (No 2) [2013] VSC 139.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr D Klempfner	AJH Lawyers
For the Defendant	Mr S Stuckey	Marshalls and Dent Lawyers

HER HONOUR:

1. On 19 December 2013, the Court dismissed claims by the plaintiffs relating to the transfer and ownership of a property at 113 Yarra Street, Abbotsford. The claims were based on the plea of non est factum and on allegations of unconscionable conduct by the defendant, who is the registered proprietor of the property. In dismissing the claims, the Court did not accept the plaintiffs’ evidence that they did not know that they had ceased to be the registered proprietors of the property in 1997 and that they did not understand the nature of the transfer documents that they executed at that time.

1. The defendant now seeks her costs on an indemnity basis.

1. The plaintiffs accept that, having had their claims dismissed, costs ought to follow the event and that they must pay the defendant’s costs of the proceeding. However, they submit that they should only pay the defendant’s costs on a party/party basis until 1 April 2013 and, thereafter, on a standard basis.

1. The defendant contends that the circumstances of this case warrant a special costs order either in the proceeding generally or from the dates of making offers to compromise the proceeding in 2012 and immediately prior to the commencement of the trial in 2013. She seeks an order for indemnity costs on two bases:

(a)       misconduct in the litigation by the plaintiffs; and

(b)      the plaintiffs’ unreasonable failure to accept a reasonable offer of compromise.

1. The defendant submits that these bases are not exclusive, and each supports the other.

1. As to the first basis, the defendant submits that it was apparent that as the version of events propounded by the plaintiffs was fundamentally and diametrically opposed to the version contended for by the defendant and her witnesses, one side or the other was not telling the truth. The plaintiffs gave evidence that they had no idea as to the nature or effect of the transfer documents that they signed in 1997, whereas the defendant contended that they fully appreciated the effect of that documentation because it gave effect to an agreement that had been reached by members of the family. In the circumstances, either the plaintiffs were misrepresenting what had occurred in order to establish their claim on the property or the defendant had dishonestly transferred the property away from the plaintiffs to herself without their knowledge. In the face of these competing claims and conflicting evidence, the Court found that, notwithstanding their denials, the plaintiffs knew that the documents they signed effected a transfer of the property to the defendant and that they had this knowledge when they executed the transfer documents in July 1997. It follows that the case brought by the plaintiffs and prosecuted against the defendant was known by the plaintiffs to be false but was nonetheless pursued by them.

1. In these circumstances, so the defendant contends, there was misconduct in the litigation by the plaintiffs: they commenced and continued an action knowing their case to be false and in circumstances where, properly advised, they should have known they had no chance of success.

1. For their part, the plaintiffs contend that by the allegation of misconduct in the proceeding, the defendant is inviting the Court to supplement its reasons for decision by attributing an improper motive to the plaintiffs’ claim. They say that the Court made no finding that the plaintiffs’ evidence was not honestly believed by them or of any malefides on their part.

1. In Li v Xing (No 2),[1] Habersberger J considered the costs implications of the court disbelieving the plaintiff as to an essential part of the plaintiff’s claim. His Honour described the proceeding before him as ‘an unusual case in that the decision revolved around determining who was telling the truth and who was not telling the truth as the competing versions of what had occurred with respect to the purchase of the property could not sit with each other. One side or other had to be telling complete falsehoods’.[2] Justice Habersberger said that the conclusion that he had reached, namely that the plaintiff and his witnesses were telling the truth and the defendant and her witnesses were not, pointed to the case fitting into the category of fraud. His Honour said:

One can hardly get a better example of fraud than telling complete falsehoods about circumstances of the purchase, as to whether or not it was purchased beneficially by the defendant or on trust for the plaintiff with the plaintiff’s family making all the payments.[3]

[1][2013] VSC 139.

[2]Ibid [22].

[3]Ibid [23].

1. In this case, a considerable period of time had elapsed between the events in issue and the commencement of the proceeding, and there was no express finding of fraud or, indeed, of improper motive or bad faith. The Court accepted that the parties’ recollections of events may have been imperfect as a result of the passage of time. Nonetheless, the Court rejected the plaintiffs’ evidence as to their own states of mind when they executed the transfer documents. It did not accept that they did not know what they were signing. Furthermore, it did not accept that the plaintiffs believed themselves to be the owners of the property up until early 2012. In this context, the Court made reference to a number of events in the period between 1997 and 2012 which strongly suggested that the plaintiffs did not believe themselves to be the owners of the property at any of the relevant times.

1. The judgment of the Court makes clear that, at all relevant times, the plaintiffs knew the property to have been transferred to the defendant in 1997 pursuant to a family agreement to distribute assets among family members and the plaintiffs therefore understood the nature and effect of the transfer documents that they executed in 1997. The plaintiffs nonetheless brought a proceeding the success of which required them to persuade the Court that they were unaware that the documents that they signed in July 1997 were transfer documents and that they were not aware that the property had been transferred until early 2012.

1. In Colgate Palmolive Company v Cussens Pty Ltd,[4] Shepherd J identified a number of circumstances that may warrant a special costs order, including ‘commencing or continuing proceedings for some ulterior motive … or in wilful disregard of known facts or clearly established law.[5] If the plaintiffs’ conduct in bringing a proceeding based on the evidence in question does not amount to bringing a proceeding on the basis of falsehoods, then (at the very least) it amounts to bringing (and continuing) a proceeding in wilful disregard of known facts.

   [4](1993) 46 FCR 225.

   [5]Ibid 233-4. These principles have been adopted in Victoria in a number of cases, including in Macedon Ranges Shire Council v Thomson [2009] VSCA 209, [15].

1. The plaintiffs’ misconduct in the proceeding is made more serious by their response to the offers that were made by the defendant to settle the proceeding.

1. The defendant’s solicitor has deposed[6] to three offers made to the plaintiffs prior to trial:

   [6]Affidavit of Coralee Elizabeth Elsum sworn on 3 February 2014.

(a)       on 10 August 2012, a letter of offer was sent to the plaintiffs’ solicitor proposing that the plaintiffs discontinue the proceedings, each party be responsible for their own costs and the plaintiffs withdraw the caveat that they had lodged;

(b)      on 17 September 2012, a further letter was sent to the plaintiffs’ solicitor repeating the offer in the letter dated 10 August 2012;

(c)       on 22 July 2013, approximately one week before the commencement of the trial, a letter of offer was sent to the plaintiffs’ solicitor proposing that the defendant would pay the plaintiffs $25,000, with each party being responsible for their own costs.

1. The first offer is marked ‘without prejudice save as to costs’. No period is nominated for the acceptance of the offer and no explanation is given to the plaintiffs as to why they should accept the offer. It does not state that a special costs order will be sought if the offer is not accepted.

1. The second offer is also marked ‘without prejudice save as to costs’ and expressed to be made in accordance with the principles enunciated in ‘Calderbank (1976)’. This offer refers to inspection and exchange of documents by the parties and to the fact that the defendant had produced documents showing that she was meeting the expenses of the property, all insurance policies were in her name and she was paying the council rates. Again, the second offer does not specify a period for its acceptance. However, it notes that the matter is listed for directions on 27 September 2012, that is, ten days later, and that the defendant is hopeful that a settlement can be reached prior to that date to avoid the parties incurring further legal fees. The second offer, while describing itself as a Calderbank offer, does not state that a special costs order will be sought if the offer is not accepted.

1. The third offer, which was made more than nine months later and just prior to the trial, is expressed as an open offer that will be relied upon on the question of costs. It includes an offer of a payment and a period for acceptance of the offer, namely until close of business three days later on 25 January 2013. It does not attempt to explain why the plaintiffs should accept the offer and does not state that a special order for costs will be sought if the offer is not accepted.

1. The plaintiffs submit that the offers do not satisfy the requirements for Calderbank offers. In the circumstances of this case, it is unnecessary to decide this question. As the defendant submitted, the refusal to accept the offers stands as evidence of the plaintiffs’ conduct in the litigation and their preparedness to press on with claims based on false assertions and evidence despite the existence of repeated offers enabling them to quit the litigation before either party incurred the expenses of a trial.

1. The proceeding was commenced and continued on the basis of assertions made and evidence given by the plaintiffs as to their states of mind that they knew not to be correct. The defendant has been put to considerable expense and distress defending a proceeding based on a false premise. The Court will exercise its discretion to make an order that the plaintiffs pay the defendant’s costs of the proceeding on an indemnity basis.