Ozaltay v Atilla (No 3)
[2020] VSC 34
•10 February 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S CI 2013 03714
| BOURHAN OZALTAY and SAFAK OZALTAY | Plaintiffs |
| -and- | |
| SELEN ATILLA | First Defendant |
| -and- | |
| SIBEL COFFEY (also known as SIBEL MUSTAFA) | Second Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 10 February 2020 |
CASE MAY BE CITED AS: | Ozaltay v Atilla & Anor (No 3) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 34 |
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COSTS — Where first defendant’s application for costs against plaintiffs’ solicitors failed — Where first defendant rejected two offers of compromise by solicitors — Rejection of offers of compromise unreasonable — Indemnity costs awarded — Supreme Court Act 1986 (Vic) s 24(1); Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.28 – Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435.
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APPEARANCES: | Counsel | Solicitors |
| For the First Defendant | No appearance | |
| For Bowlen Dunstan & Associates | Mr J Hartley | Lander & Rogers Lawyers |
HER HONOUR:
Introduction
In reasons for judgment dated 1 November 2017, the Court dismissed the plaintiffs’ claim for possession of property at 20 Woolnough Drive, Mill Park, in the State of Victoria (the ‘Mill Park property’).[1] Subsequently, orders were made giving effect to the judgment.[2]
[1]Ozaltay v Atilla [2017] VSC 664.
[2]See Ozaltay v Atilla (No 2) [2018] VSC 764 (‘Ozaltay (No 2)’).
By amended summons filed 20 March 2018, the first defendant sought, inter alia, costs against the plaintiffs’ former solicitors, Bowlen Dunstan & Associates (‘Bowlen Dunstan’) assessed on an indemnity basis, by reason of the abandonment of what was described in the reasons as the secured loan claim.[3]
[3]Ozaltay (No 2), [8(a)], [11].
The secured loan claim was made by the plaintiffs against the first defendant pursuant to a loan agreement dated 23 September 2002. In May 2013, the plaintiffs sought payment of the sum of $451,104 from the first defendant under the loan agreement. By writ dated 5 July 2013, the plaintiffs issued the proceeding seeking payment of this amount, interest and a declaration that the plaintiffs were entitled to an equitable charge over the Mill Park property.
In his affidavit sworn 24 April 2018, Mr James Bowlen, the former solicitor for the plaintiffs, deposed that by letter dated 15 July 2016 he informed the first defendant’s solicitors that the plaintiffs elected not to pursue the secured loan claim. On 2 September 2016, orders were made granting leave to the plaintiffs to amend their claim by deleting the secured loan claim. The Court also ordered that the plaintiffs pay the first defendant’s costs thrown away of and incidental to the third party notice and of the amended statement of claim on a standard basis, to be taxed in default of agreement. The further amended statement of claim was filed on 5 September 2016.[4]
[4]Ozaltay (No 2), [14]–[15].
The Court dismissed the first defendant’s amended summons seeking costs against Bowlen Dunstan for the following reasons:
A costs order against a solicitor to pay the costs of a client is not lightly made and will not be made based on inference without evidence. The Court should not proceed on the hypothetical basis that the secured loan claim would have failed…
Where a court is not privy to the details and circumstances of the clients’ instructions to the solicitor, it is difficult for a solicitor to defend such a serious charge as they are unable to tell the whole story. Bowlen Dunstan has not been authorised by the plaintiffs to waive privilege that they hold over information and documents relevant to their response to the first defendant’s summons seeking costs against it. This necessarily hampers their ability to respond to the application.
The abandonment of the secured loan claim ultimately narrowed the issues in dispute between the parties, in accordance with the overarching purpose of the Civil Procedure Act 2010 to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. Much of the trial was taken up with the credibility of the plaintiffs, which meant that the facts surrounding the secured loan claim were highlighted during the trial.
The first defendant also relied on the fact that when the statement of claim was amended to allege a constructive trust, Bowlen Dunstan should have realised that they could no longer have been satisfied that there had been a loan as the alleged loan was inconsistent with the claimed trust. The first defendant also submitted that at the very least, Bowlen Dunstan should have abandoned the secured loan claim at this point, instead of maintaining it alongside the constructive trust allegation. The Court is unable to draw any inference that the secured loan claim had no proper basis where it is not privy to the details and circumstances of the plaintiffs’ instructions to Bowlen Dunstan. Ultimately, the plaintiffs pleaded alternative causes of action and did not pursue one of them before the trial commenced. This course of action may be consistent with other possibilities such as the plaintiffs’ choosing what they considered their best claim at trial.[5]
[5]Ozaltay (No 2), [18]–[21].
Bowlen Dunstan now seeks costs of the first defendant’s application for costs against them. On 17 July 2019, orders were made that Bowlen Dunstan file and serve submissions and any affidavit in relation to its costs of the summons. Subsequently, Bowlen Dunstan filed an affidavit of Mr Simon Ellis, solicitor, sworn 31 July 2019 and written submissions.
The first defendant did not file written submissions in response. On 16 September 2019 the first defendant’s solicitors filed a notice of ceasing to act for her. Further communications were made by the Court to the first defendant enquiring as to whether she wished to file any submissions in response. There has been no response from the first defendant.
Costs orders sought by Bowlen Dunstan against the first defendant
Bowlen Dunstan seeks orders that the first defendant pay its costs of and incidental to her summons against it until 16 March 2018 (‘the March 2018 offer’), alternatively 4 May 2018 (‘the May 2018 offer’), on a party-party basis and after 16 March 2018, alternatively 4 May 2018, on an indemnity basis. In the further alternative, Bowlen Dunstan seek an order that the first defendant pay its costs of and incidental to her summons against Bowlen Dunstan on the standard basis.
The dates contained in the primary orders sought against the first defendant refer to two letters of offer made by Bowlen Dunstan whereby they offered to settle the costs in relation to the dismissal of the first defendant’s amended summons. Bowlen Dunstan’s position was that the first defendant unreasonably rejected the March 2018 offer and the May 2018 offer.
The March 2018 offer
By letter dated 16 March 2018, Bowlen Dunstan offered that the first defendant discontinue her summons insofar as it related to Bowlen Dunstan on the basis that the parties bear their own costs. The March 2018 offer was open for 14 days. It was not accepted and expired at 5 pm on 30 March 2018.
The March 2018 offer explained that the first defendant’s summons, insofar as it related to Bowlen Dunstan, would be unsuccessful for the following reasons:
(a) it was unsafe to conclude, and the Court would not for the purpose of determining the costs issue conclude, that the secured loan claim would have failed;
(b) the Court would take into account that Bowlen Dunstan had not been authorised to waive privilege over information and documents relevant to their response to the first defendant’s summons;
(c) since the summons relied on the pleading or late abandonment of the secured loan claim, and since that claim significantly overlapped with claims that went to trial, ‘most if not all of the costs [the first defendant] incurred would have been incurred in any event’; and
(d) there was no inconsistency between the secured loan claim and other claims that went to trial, as they were made in the alternative.
The May 2018 offer
By letter dated 4 May 2018, Bowlen Dunstan offered that the first defendant discontinue her summons insofar as it related to Bowlen Dunstan on the basis that Bowlen Dunstan pay $5,000 to the first defendant and that Bowlen Dunstan bear its own costs. The May 2018 offer was open until 2 pm on 7 May 2018, being the day before the hearing. The May 2018 offer was not accepted.
The May 2018 offer relied on the same matters as set out in the March 2018 offer and on Bowlen Dunstan’s submissions dated 30 April 2018, which were described by Bowlen Dunstan as an elaboration of arguments foreshadowed in the March 2018 offer.
Costs principles
Costs are at the discretion of the Court, unless otherwise provided by an Act or the Rules.[6] The usual order as to costs is that a successful party in litigation is entitled to an award of costs in its favour and the unsuccessful party bears the liability for the costs of the unsuccessful litigation.[7] The relevant ‘event’ is success in the action or on particular issues.[8] The central principle is to make an order that is fair and just between the parties in the circumstance of each case.[9]
[6]Supreme Court Act 1986 (Vic) s 24(1).
[7] Oshlack v Richmond River Council (1998) 193 CLR 72, 97 [67] (McHugh J).
[8]Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin(1997) 186 CLR 622, 624 (McHugh J); Seng Hpa v Walker [2017] VSC 320, [77] (McMillan J).
[9]Earnshaw v Loy (No 2)[1959] VR 252, 253 (Sholl J). See also GE Dal Pont, Law of Costs (LexisNexis Butterworths, 4th ed, 2018) 158–9 [6.15].
The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court, with the Court having the discretion to award costs other than on the standard basis.
Pursuant to r 63.28 of the Supreme Court (General Civil Procedure) Rules 2015 the Court has discretion to award costs other than on the standard basis. A special costs order will only be made where the proceeding exhibits a special or unusual feature or special circumstances. Each proceeding must be considered on its own facts and, specifically, whether those facts support the making of a special order for costs.
The rejection of an offer is a matter to which the Court should have regard when considering whether to order indemnity costs. In Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (‘Hazeldene’),[10] the Court of Appeal identified six matters to which the Court ought have regard in considering whether the rejection of an offer of compromise was unreasonable:
[10](2005) 13 VR 435 (‘Hazeldene’).
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed any application for indemnity costs in the event of the offeree’s rejecting it.[11]
[11]Ibid 442 [25] (Warren CJ, Maxwell P and Harper AJA).
Consideration
As the unsuccessful party in seeking costs against Bowlen Dunstan, the first defendant should bear the liability for the costs of Bowlen Dunstan assessed on the standard basis. The only issue is whether those costs should be assessed on the indemnity basis from the date of the March 2018 offer or, alternatively, the May 2018 offer, having regard to the six factors referred to in Hazeldene.
Bowlen Dunstan submitted that the reasons stated by it in the March 2018 offer as to the why the first defendant’s application against Bowlen Dunstan would fail were predictable and capable of identification well in advance of hearing.
The first defendant’s summons was dated 21 December 2017 and was amended on 20 March 2018. The first defendant filed submissions dated 16 December 2017 and 16 March 2018. The hearing of the application was on 8 May 2018.
The March 2018 offer was made after the first defendant had filed one set of submissions, on the same day as her second set of submissions, and more than a month before the hearing. This meant that that the first defendant had already considered the strengths and weaknesses of her position and had formalised her position in her submissions. The March 2018 offer was made at a time to ensure the possibility of saving considerable costs.
The first defendant was given fourteen days to consider the March 2018 offer. This amount of time was more than adequate for the first defendant to consider the March 2018 offer, having regard to the fact that the issues raised as between first defendant and Bowlen Dunstan were confined in scope and did not require complicated legal or factual analysis.
The March 2018 offer was that the first defendant discontinue against Bowlen Dunstan and those parties bear their own costs. This involved a compromise from the default position that the discontinuing party (here, the first defendant) pay the costs of the other.[12] Had the first defendant accepted the offer, she would have been better off in at least two respects; she would not have incurred her own costs of pressing her summons against Bowlen Dunstan to hearing, and she would not be exposed to the prima facie rule that costs follow the event.
[12]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.15.
Assessed at 16 March 2018, the first defendant’s summons against Bowlen Dunstan had poor prospects. It was foreseeable, and Bowlen Dunstan predicted in its 16 March 2018 letter, that the summons would fail for the reasons identified in that letter.
The terms of the offer were clear. The explanation for the offer was also clear.
The March 2018 offer foreshadowed an application for indemnity costs if the offer were not bettered. The letter made reference to the principles in Calderbank v Calderbank,[13] Cutts v Head[14], Colgate Palmolive Company v Cussons Pty Ltd,[15] and Hazeldene.
The May 2018 offer
[13][1975] 3 All ER 333.
[14](1984) Ch 290.
[15](1993) 46 FCR 225.
The above analysis regarding the March 2018 offer substantially applies to the May 2018 offer, though with the following differences.
The May 2018 offer was made four days before the hearing. Even if the Court considered that, as at 16 March 2018, the parties had not had adequate opportunity to assess the strengths and weaknesses of their positions, by 4 May 2018 the parties must have had such an opportunity. Although by that point much of the costs of the summons had already been incurred, the costs of hearing the summons against Bowlen Dunstan would have been avoided by acceptance of the offer.
The first defendant was given the weekend and half of the day before the hearing to consider the May 2018 offer. Although this is shorter than the fourteen days provided by the first offer, the Court nevertheless considers that the second Hazeldene factor points to unreasonableness:
(a) in the May 2018 offer, Bowlen Dunstan continued to rely on the reasons given in its March 2018 offer, the first defendant had, in practical terms, almost two months to consider Bowlen Dunstan’s contentions; and
(b) the May 2018 offer was made less than a week after Bowlen Dunstan’s submissions dated 30 April 2018 were filed, and allowed as much time as could reasonably be allowed between that date and the date of hearing.
By its the May 2018 offer Bowlen Dunstan offered to bear its own costs and pay $5,000 to the first defendant. For still stronger reasons than those set out at [23] above, the May 2018 offer involved compromise. Had it been accepted, the first defendant’s position would have been considerably better than her present position.
The position in relation to the fourth to sixth Hazeldene factors is unchanged from the March 2018 offer: the first defendant’s prospects of success were poor for reasons foreshadowed by Bowlen Dunstan, the terms of the offer were clear and the letter foreshadowed an application for indemnity costs.
Conclusions
The first defendant’s rejection of the March 2018 offer was unreasonable by reference to each of the six Hazeldene factors. That offer was sent at a time when the parties were aware of the strengths and weaknesses of their respective cases, gave adequate time for a response, was clear and reasonable on its face, involved genuine compromise and foreshadowed an application for indemnity costs. In the circumstances, the first defendant must pay Bowlen Dunstan’s costs of the first defendant’s application, including this application for costs, on an indemnity basis from 16 March 2018.
Orders
Accordingly, the Court orders:
(a) The first defendant pay Bowlen Dunstan’s costs of and incidental to her amended summons filed 20 March 2018 up to 16 May 2018 (inclusive) on a standard basis, to be taxed in default of agreement.
(b) The first defendant pay Bowlen Dunstan’s costs of and incidental to her amended summons filed 20 March 2018 from 16 May 2018 on an indemnity basis, to be taxed in default of agreement.
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