Mandie v Memart Nominees Pty Ltd (No 2)
[2019] VSC 235
•12 April 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S CI 2014 06635
| EDWARD NICHOLAS MANDIE | First Plaintiff |
| JANE ELIZABETH MANDIE | Second Plaintiff |
| ISABELLA MANDIE | Third Plaintiff |
| AMANDA MANDIE | Fourth Plaintiff |
| NICHOLAS ELLIOT MANDIE | Fifth Plaintiff |
| DANIELLA MANDIE | Sixth Plaintiff |
| v | |
| MEMART NOMINEES PTY LTD (ACN 005 024 617) (as trustee for the DAVID MANDIE FAMILY TRUST) | Defendant |
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JUDGE: | Ginnane J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 12 April 2019 |
CASE MAY BE CITED AS: | Mandie v Memart Nominees Pty Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 235 |
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COSTS – Defendant’s application for indemnity costs – Family discretionary trust – Trustee’s removal of beneficiaries by exercise of exclusion power – Unsuccessful challenges to trustee’s decisions – Offers of compromise and Calderbank offers made by the defendant – First offers not unreasonably refused – Second offers unreasonably refused – Indemnity costs ordered following failure to accept second offers – Supreme Court (General Civil Procedure) Rules rr 26.02, 26.08.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A P Young QC and Mr R W Short | Cornwall Stodart |
| For the Defendant | Mr P D Herzfeld | Allens |
HIS HONOUR:
I dismissed a proceeding in which the plaintiffs challenged declarations made by the defendant, Memart Nominees Pty Ltd (‘Memart’), as trustee of the David Mandie Family Trust that amongst other things excluded them as beneficiaries.[1] The declarations were challenged on the basis that they were beyond the power of Memart, actuated by an improper purpose and were accompanied by improper actions.
[1]Mandie v Memart Nominees Pty Ltd [2018] VSC 719.
I ordered that the plaintiffs pay Memart’s costs on a standard basis, but reserved Memart’s right to seek an order for costs on another basis. Memart applied for an indemnity costs order on two main grounds: the plaintiffs’ refusal to accept either of the offers made by Memart during the proceedings, and the general conduct of the plaintiffs in the proceedings.
The terms of the two declarations
The May Declaration
The May declaration stated:
In pursuance of the power vested in the Trustee by the proviso in sub-clause (iv) to 1(2) of the Deed of Settlement dated 24 April 1978 relating to the David Mandie Family Trust and of all other powers enabling it so to do, the Trustee declares that Ian and Stephen Mandie, being two of the children of David and Minnie Mandie, are excluded for all purposes from the class of General Beneficiaries from the date of this Declaration and neither Ian Mandie nor Stephen Mandie shall have any interest whether as a General Beneficiary, Specified Beneficiary or otherwise under the Deed of Settlement.
The September Declaration
The September declaration stated:
In pursuance of the power vested in the Trustee by the proviso in sub-clause (iv) to clause 1(2) of the Deed of Settlement dated 24 April 1978 relating to the David Mandie Trust and of all other powers enabling it so to do, the Trustee declares that:
(a)the spouses, the children and grandchildren of Ian Mandie and Stephen Mandie, being two of the children of David and Minnie Mandie, and the spouses, widows or widowers of such children and grandchildren; and
(b)any corporation in which any of Ian Mandie, Stephen Mandie or any of the persons specified in paragraph (a) hold more than 10 per centum of the issued shares
are excluded for all purposes from the class of General Beneficiaries and from the date of this Declaration none of them shall have any interest as a General Beneficiary, or otherwise, under the Deed of Settlement.
General Conduct
Memart’s submissions
Memart argued that the Court may make an order for indemnity costs in circumstances where parties pursue hopeless litigation, delay litigation through misconduct, or make unfounded allegations. Unfounded allegations of dishonesty are especially likely to lead to the award of indemnity costs.
Memart submitted that the plaintiffs’ conduct connected to this proceeding justified an order for indemnity costs. Their allegations were unfounded and should not have been made, as there was never sufficient evidence to support them.
Secondly, Memart argued that among the unfounded allegations were claims of actual dishonesty and fraud by it and its directors. These included allegations that some directors of Memart had acted at the behest of others, that the September declaration was made ‘in bad faith’ and that Memart had acted capriciously, arbitrarily, improperly and ‘otherwise than honestly and in good faith’.
Thirdly, Memart submitted that in an earlier preliminary proceeding, in which information was unsuccessfully sought from it, senior counsel for the plaintiffs argued that without the information sought in that proceeding no claims impugning the trustee’s conduct could be made, as the proof of them would be lacking. Nevertheless, the plaintiffs initiated proceedings and made such allegations anyway.
Memart also relied on the plaintiffs’ general conduct in the proceeding, which it argued had increased costs and caused significant delay. This conduct included attempting to amend their statement of claim to introduce conflict of interest allegations with no reasonable prospects of success, failing to articulate the basis for desired amendments until the appeal from the decision to disallow them, making continuous amendments to pleadings, making meritless applications to a trial judge that she recuse herself, filing evidence late, delaying applications for discovery, and attempting during the trial to expand the case beyond the pleadings. Memart accepted that some of the above steps had been dealt with by separate costs orders, but submitted that their overall effect justified an award of indemnity costs.
The plaintiffs’ submissions
The plaintiffs disputed Memart’s submissions that its allegations were so unsupported by evidence that they should never have been made.
They denied that they had accused Memart of dishonesty. While their further amended statement of claim alleged that an improper purpose caused the making of the first declaration, namely to ensure several of the plaintiffs were removed from the class of beneficiaries, and alleged that the second was made so improperly that it might be an allegation of a fraud on the power, they argued that ‘fraud’ in this equitable sense did not imply dishonesty.
They submitted that the comments made by senior counsel in the preliminary proceeding occurred before Memart had made either of the declarations and accordingly those comments were irrelevant.
They denied that their conduct had exacerbated Memart’s costs and said that a number of costs orders had already been made in the proceeding which should not be disturbed by any other costs order.
Calderbank offers and offers of compromise
Memart relied on two offers that it made attempting to settle the proceedings. Each of these two offers was made in the form of a Calderbank offer and an offer of compromise.
When a party unreasonably refuses a Calderbank offer, and then achieves a less favourable result than that offered, they may have to pay indemnity costs from the date of the refusal. Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[2] outlines a series of factors relevant to whether a failure to accept an offer was unreasonable:
[2](2005) 13 VR 435.
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offered to consider the offer;
(c) the extent of the offer of compromise;
(d) the offeree’s prospects of success as assessed at the date of the offer;
(e) the clarity with which the terms of the offer were expressed;
(f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.[3]
[3]Ibid 439.
The costs consequences of rejecting an offer of compromise are set out in order 26 of the Supreme Court (General Civil Procedure) Rules. Rule 26.08(4) states:
(4) Where an offer of compromise is made by a defendant and the plaintiff unreasonably fails to accept the offer and the claim to which the offer relates is dismissed or judgment on the claim is entered in favour of the defendant, then unless the Court otherwise orders—
(a) the defendant shall be entitled to an order against the plaintiff for the defendant's costs in respect of the claim until 11.00 a.m. on the second business day after the offer was made, taxed on the ordinarily applicable basis; and
(b) the defendant shall be entitled to an order against the plaintiff in respect of the defendant's costs after the time referred to in paragraph (a) taxed on an indemnity basis.
I will next consider the two offers.
The April 2015 offers
On 24 April 2015, Memart sent to the plaintiffs a Calderbank offer and an offer of compromise. These offers described the plaintiffs’ claim as ‘hopeless and bound to fail’. Both offers required that the plaintiffs discontinue their proceedings in exchange for which Memart would pay their costs on a standard basis. The offers lapsed on 11 May 2015, and both foreshadowed an application for indemnity costs if they were refused. The relevant terms were as follows:
2. By way of compromise of the claim –
(a)the Plaintiffs will file and serve a notice of discontinuance in this proceeding; and
(b)the Defendant will pay costs to the Plaintiffs as agreed or taxed on a standard basis.
3. This offer of compromise is open to be accepted for a period of 14 days after the day the offer is served
The plaintiffs did not accept the April 2015 offers.
Memart’s Submissions
As the plaintiffs received a less favourable outcome than the April 2015 offers, an important issue was whether the plaintiffs’ failure to accept the offers was unreasonable. Memart submitted that it was for the following reasons.
First, Memart submitted that the plaintiffs’ allegations of breach of trust and bad faith were only ever based on assertions and not evidence. Memart submitted that the underlying facts that were proved were never sufficient to enable the inferences of bad faith to be drawn. The plaintiffs knew of this lack of proof, as evidenced by their senior counsel’s acknowledgement in the information proceeding referred to previously.
Secondly, Memart submitted that the terms of the Settlement Agreement showed that its declarations conformed to David and Minnie Mandie’s wishes. The plaintiffs had access to the Settlement Agreement before commencing the proceeding. In order to be successful, the plaintiffs would have had to prove that Memart could not have properly formed the view that David and Minnie Mandie’s Statement of Wishes conformed to David Mandie’s wishes at the time of his death. The plaintiffs should have realised that this was an impossible task.
Thirdly, the offers were made after the plaintiffs were served with Memart’s defence, which should have made clear to them that their claim would fail. Also relevant were the existence of the advices of Mr Merralls QC and Dr Rush and Dr Hardingham QC, the existence of which were disclosed to the plaintiffs in Memart’s defence and list of critical documents. While discovery had not yet occurred, the plaintiffs did not request these documents in order to evaluate the April 2015 offers. Nor did they seek an early mediation.
Fourthly, the normal period of 14 days to consider the offers was provided and the plaintiffs did not seek an extension of time. While costs incurred by this point would not have been significant, accepting the offers would have freed the plaintiffs from the normal consequences of discontinuing a proceeding.
Fifthly, the terms of the offers were clear and unambiguous and foreshadowed Memart’s intention to seek indemnity costs if the plaintiffs’ proceeding failed. Memart submitted that the offers were clearly directed to all the plaintiffs collectively, and that under their terms Memart would pay them the costs of the proceeding.
The plaintiffs’ submissions
The plaintiffs submitted that the terms of the April 2015 offers were uncertain. They contended that it was unclear whether the offers were capable of being accepted jointly or severally, by some of the six plaintiffs individually or by all of them together. They also submitted that it was unclear exactly what ‘costs’ Memart was offering to pay.
Secondly, the plaintiffs maintained that their refusal to accept the offers was not unreasonable. When Memart made the April 2015 offers discovery and mediation had not yet occurred, and neither party’s costs would have been significant. While the existence of certain documents had been disclosed, the full trail of documents did not become apparent until March 2018. They acted reasonably in waiting until discovery before assessing their claim in light of Memart’s defence, especially where the offers by Memart did not include any part of the substantive relief sought.
The plaintiffs also submitted that there was considerable evidence to support many of the allegations contained in their further amended statement of claim and that, in any event, the matters upon which they relied were never ‘manifestly inadequate’. They had a proper basis to argue that David and Minnie Mandie’s Statement of Wishes did not represent David Mandie’s wishes at his death when the evidence of reconciliation within the family, the provision in his will for the children of both sons and the fact that he had not excluded either son from the Family Trust were considered.
The October 2017 offers
Two and a half years later, on 13 October 2017, Memart made further offers to the plaintiffs again contained in a Calderbank offer and an offer of compromise. Memart again expressed the opinion that the plaintiffs’ claim was ‘hopeless and bound to fail’. These offers were to not pursue the plaintiffs for Memart’s costs if they agreed to file a notice of discontinuance. The plaintiffs requested and were granted a 14-day extension of time in which to consider the offers, but did not accept them.
The relevant terms of the October 2017 offers were:
2. By way of compromise of the claim –
(a)the Plaintiffs will file and serve a notice of discontinuance in this proceeding; and
(b)the Defendant will not pursue the Plaintiffs for the Defendant’s costs incurred in this proceeding
3. This offer of compromise is open to be accepted for a period of 14 days after the day the offer is served
Memart’s submissions
Memart submitted that indemnity costs should be awarded because of the unreasonableness of the plaintiffs’ failure to accept the October 2017 offers. Memart relied on the same reasons as it had advanced about the plaintiffs’ failure to accept the April 2015 offers.
Memart argued that by 13 October 2017 the proceeding was well advanced. The plaintiffs had received Memart’s defence to their amended statement of claim, which referred to its communications with the Western Australian Department of Racing, Gaming and Liquor as an explanation for the May declaration. The plaintiffs did not ask to see these communications before assessing the offers. While discovery had not yet occurred at the time of the October 2017 offers, that was because of the plaintiffs’ late application for discovery, and they did not suggest that they needed discovery to assess Memart’s offers. Delays in discovery were primarily due to the plaintiffs not pursuing discovery until 27 November 2017, after an earlier claim in 2015.[4] They should have been filing and serving their evidence at this point which process would have made them aware that their case lacked foundation.
[4]See Mandie v Memart Nominees Pty Ltd (No 4) [2018] VSC 49.
Thirdly, Memart again submitted that the terms of the October offers were clear, for the same reasons as the April offers. They foreshadowed reliance on them in a forthcoming application for indemnity costs, if they were not accepted.
The plaintiffs’ submissions
The plaintiffs again submitted that the offers were uncertain, stating that it was unclear whether the October offers required acceptance by all of the plaintiffs.
The plaintiffs argued that discovery was still continuing at the time the offers were made and that they had sought discovery of various documents connected to Dr Hardingham QC’s advice on 9 October, only four days before the offers were made. In addition, the plaintiffs contended that, as at 13 October, Memart had discovered the documents that they had sought, some of which it had agreed to provide. On 27 November, the plaintiffs repeated their requests for discovery of documents which they had sought in 2015, again some of which Memart had agreed to provide, as well as some further discovery, and only on 28 November did Memart inform them that these requests were refused. After this, Memart provided three further groups of documents to the plaintiffs on 26 February, 5 March and 9 March 2018. It was not unreasonable for them to wait until the conclusion of discovery to fully assess the prospects of their claim. This was especially so given that the October 2017 offers were ‘walk-away’ offers, lacking any real or genuine elements of compromise.
Analysis
General Conduct
I do not consider that the plaintiffs’ general conduct in the proceeding justifies an order for indemnity costs as most, if not all, of the interlocutory steps taken were the subject of separate costs orders. In at least one instance indemnity costs orders were made,[5] in others, there were orders for the payment of standard costs.[6] I do not consider that I should treat these orders as justifying an overall indemnity costs order.
[5]See order of McMillan J dated 13 November 2015, pursuant to Mandie v Memart Nominees Pty Ltd (No 2) [2015] VSC 622.
[6]See orders of Kyrou, Ferguson and McLeish JJA dated 13 November 2015, pursuant to Mandie v Memart Nominees Pty Ltd [2016] VSCA 4; Orders of McMillan J dated 23 May 2016, pursuant to Mandie v Memart Nominees Pty Ltd (No 3) [2016] VSC 267; Orders of Whelan and McLeish JJA and Cameron AJA dated 4 July 2017, pursuant to Mandie v Memart Nominees Pty Ltd [2017] VSCA 177.
I do not accept the plaintiffs’ arguments that the offers were uncertain. They were offers to settle the proceedings and therefore required acceptance by all plaintiffs. The reference to ‘costs’ was a standard reference in offers of compromise and Calderbank offers and was not uncertain.
I am not persuaded that the plaintiffs lacked a basis for their allegations challenging Memart’s decisions. Making allegations, known to be false, that the opposite party is guilty of fraud, or the making of an irrelevant allegation of fraud, can lead to indemnity costs orders.[7] I do consider that the plaintiffs’ allegations of bad faith concerning the second declaration were allegations analogous to fraud. However, I consider that the plaintiffs’ submissions which are summarised in the principal judgment provided a proper basis for the allegations, in view of the terms of and timing of the declarations, although I did not find the allegations established.[8]
[7]See Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189, [7]‑[8] (Harper J).
[8]Mandie v Memart Nominees Pty Ltd [2018] VSC 719, [112]-[114], [120]-[132].
The April 2015 offers
I do not consider that it was unreasonable for the plaintiffs to refuse the April 2015 offers or, to use the words of r 26.04, that the plaintiffs unreasonably failed to accept the offer of compromise. At that point, the proceeding was relatively new and the defendant had only recently filed its defence. The plaintiffs had sought and obtained particulars and discovery issues had only recently been raised. There had been no discovery and no mediation and I consider that it was not unreasonable for the plaintiffs to await discovery in order to make a more informed decision about their prospects of success.
The October 2017 offers
However, by the time the October 2017 offers were made, the position had moved on and the plaintiffs were, or ought to have been, in a position to make an informed decision about whether to accept the offers.
The plaintiffs argued that it was not unreasonable to await discovery. However, this is answered by the judgment and orders of McMillan J on 7 February 2018 refusing discovery on the basis that there had been substantial delay not adequately explained.[9] Although these orders and judgment were made and delivered after the time for acceptance of the October 2017 offers, they indicate that the decision to continue to wait for further discovery was not a reasonable basis for failing to accept the October 2017 offers.
[9] See Mandie v Memart Nominees Pty Ltd (No 4) [2018] VSC 49, [25]-[32].
I do not consider that the fact that Memart provided the plaintiffs with further documents in 2018 justified the plaintiffs’ failure to accept the October 2017 offers. The proceeding had been on foot for more than three years and the plaintiffs ought to have been able to assess the offers.
Accordingly, the plaintiffs should pay Memart’s costs on an indemnity basis from 11.00 am on the second business day after the offer was made, which was 11.00 am on 17 October 2017: see r 26.08(4)(a). Before that time the plaintiffs are to pay the defendant’s costs on a standard basis.
Conclusion
My conclusion is that order 3 of the orders of 3 December 2018 should be vacated, and in place of it the plaintiffs should be ordered to pay the defendant’s costs of the proceeding on a standard basis until 11.00 am on 17 October 2017 and thereafter on an indemnity basis, including the costs of this application for indemnity costs. These orders do not affect any other orders for costs that have been made other than order 3 of the order of 3 December 2018, which I will vacate.
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