Russell v Lee - [2018] WASC 404

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
CITATION:   RUSSELL -v- LEE [2018] WASC 404
CORAM:   PRITCHARD J
HEARD:   29 NOVEMBER 2018
DELIVERED          :   29 NOVEMBER 2018
PUBLISHED           :   20 DECEMBER 2018
FILE NO/S:   CIV 3134 of 2016
BETWEEN:   SHANA FRANCINNE RUSSELL
First Plaintiff

NERIDA JAYNE PUANGKHAM
Second Plaintiff

AND

FAY EILEEN LEE
First Defendant

JOHN ANTHONY CAMPBELL LEE
Second Defendant

Catchwords:

Costs - Exercise of discretion where no determination on the merits - Where matter resolved by consent prior to trial - Whether defence of matter was unreasonable - Whether party would almost certainly have succeeded had the matter been determined on the merits

Costs - Special costs - Legal Profession Act 2008 (WA) s 280(2) - Application to remove limits on scale items - Application to remove limit on hourly rates

Costs - Indemnity costs - Whether conduct unreasonable

Legislation:

Legal Profession Act 2008 (WA), s 280(2)(c)

Result:

Plaintiffs' costs to be paid by the first defendant on a party and party basis

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr M A MacLennan
Second Plaintiff	:	Mr M A MacLennan
First Defendant	:	Mr M N Solomon SC & Mr H M Reynoldson
Second Defendant	:	Mr T Lethbridge

Solicitors:

First Plaintiff	:	Bennett + Co
Second Plaintiff	:	Bennett + Co
First Defendant	:	Hotchkin Hanly
Second Defendant	:	Croftbridge

Case(s) referred to in decision(s):

Lafferty v Waterton [2016] WASCA 183
Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84
ONETEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548
Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622
Russell v Lee [2017] WASC 361
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129(S)
Woodley v Woodley [No 2] [2017] WASC 94(S)

PRITCHARD J:

(These reasons were delivered extemporaneously on 29 November 2018 and have been edited from the transcript).

These proceedings concerned an application by the first and second plaintiffs, two children of the late Ronald William Lee (the deceased) for an order that an independent administrator be appointed to administer the estate of the deceased (Estate), who at that stage was thought to have died intestate. The first defendant to the proceedings is the plaintiffs' mother and the wife of the deceased, and the second defendant is the plaintiffs' brother and the son of the deceased. The second defendant abided the outcome of the proceedings save as to costs, and now participates only to the extent of supporting the position of the first defendant in relation to the alternative costs order sought, which is set out in [3] below.
In their minute of proposed orders dated 13 July 2018, the plaintiffs sought orders for the payment of their costs of the proceedings (Application). The plaintiffs sought an order that the first defendant pay all of the costs incurred by them (save for the costs of their application for the appointment of an interim independent administrator, which have already been the subject of a costs order), to be assessed if not agreed, on an indemnity basis. Alternatively, the plaintiffs sought an order that the first defendant pay all of the costs incurred by them (save again for the costs of the application for the appointment of an interim independent administrator) on a party and party basis, but without reference to the limits in the applicable scale for certain items of legal work, or to the maximum hourly rates, pursuant to s 280(2)(c) of the Legal Profession Act 2008 (WA).
The final alternative proposed costs order which I need to deal with in these reasons, but which is not pursued by the plaintiffs, but rather is advanced by the first defendant with the support of the second defendant, is an order that the costs of all parties be paid out of the Estate. However, the primary position taken by both the first and second defendants was simply that all parties bear their own costs.
The evidence relied on by the parties in support of the costs order sought was as follows. The plaintiffs read the affidavits of Amy Joanne Rumble sworn 14 July 2017 and 26 November 2018, and the affidavits of Hague James Emlyn Skinner affirmed 13 July 2018 and 27 July 2018. The plaintiffs also relied on the affidavit of the first defendant sworn 5 July 2017, which was read by the first defendant. Counsel for the plaintiffs has also helpfully provided submissions, and responsive submissions to those filed by the first defendant.
The first defendant relied on the affidavits of the first defendant herself sworn 5 July 2017 and 16 October 2018, the affidavit of the first plaintiff sworn 5 July 2017, and was given leave to rely upon the affidavit of Hugh Martin Reynoldson affirmed 17 October 2018. Counsel for the first defendant also filed a helpful outline of submissions.
The second defendant did not participate to a great extent in the Application, other than, as I have said, to lend support to the alternative costs order sought by the first defendant, namely, that all parties' costs should come out of the Estate.

Background to this matter

As I have said, the present proceedings were, in effect, a contest between the plaintiffs and the first defendant. The plaintiffs contended that an independent administrator ought to be appointed to the Estate. The first defendant counterclaimed in the proceedings, and sought the grant of letters of administration to herself.
The background to these proceedings, and to other litigation between the parties, is set out in the judgment of Tottle J in Russell v Lee[1]. In summary, these proceedings were commenced in December 2016. The plaintiffs applied for the appointment of an independent administrator on the basis that the first defendant was not fit for appointment as the administrator of the Estate. At that stage, that was said to be the case on two bases. First, the first defendant was said to be subject to a conflict of interest between her personal interest and the obligations she would have to represent the Estate in proceedings commenced in 2015 between the first plaintiff, the first defendant and the deceased, pertaining to a dispute over the alleged oppressive conduct of a corporation operating what was then a family business (the 2015 proceedings). Secondly, the first defendant was said to be unsuitable because of the absence of mutual trust and confidence arising from the acrimonious relationship between the first defendant and the plaintiffs (most particularly the first plaintiff, although the second plaintiff is also estranged from her parents).
[1] Russell v Lee [2017] WASC 361.
The present proceedings were listed for trial on 21 and 22 August 2017. About three weeks before the trial, the first defendant consented to the orders sought by the plaintiffs for the appointment of an independent administrator. The reason for the change in position by the first defendant was referred to in the course of a hearing before me on 1 August 2017.[2] The first defendant's change in position was said to be attributable to two developments. The first was a change in the case advanced by the plaintiffs, which had been facilitated by the grant of leave on 18 July 2017 to amend the statement of claim. Those amendments to the statement of claim were made following the settlement of the 2015 proceedings, and added further claims of a conflict of interest on the part of the first defendant, having regard to two transactions which were impugned (two impugned transactions). I will refer to the two impugned transactions a little later. Secondly, the change in the first defendant's position was said to be as a result of her deteriorating health. She is an elderly woman.
[2] See also the affidavit of Fay Eileen Lee sworn 16 October 2018.
At the time that consent to those orders to appoint an independent administrator was reached, the parties were unable to agree on costs. Accordingly, I made an order to reserve the costs of the proceedings. Now, more than 12 months later and after other litigation has been resolved, the parties have been unable to resolve the question of costs in these proceedings and hence the plaintiffs have brought the Application. This is an appropriate juncture for me to make the observation that costs sought by the plaintiffs are, with respect, very substantial for a matter of the present kind, where the only question, in effect, was the identity of the administrator. However, the costs of the first defendant were of the same magnitude. It should be a matter of regret to all parties that such significant legal costs have been incurred in proceedings of the present kind, the outcome of which was simply the appointment of an administrator of the Estate. Moreover, and perhaps equally significantly, it should be a matter of regret to the parties that they have not been able to resolve, by consent, the dispute between them about the costs of these proceedings, particularly when the materials before the Court suggest that attempts were made to reach agreement in respect of those costs, and the commercial realities clearly warranted a compromise being reached.

Why there should be an order for costs despite there being no determination on the merits

As I have said, the present proceedings were resolved by consent without the matter proceeding to trial. There are well established principles which apply in relation to applications for costs in such circumstances. They have been dealt with in a number of the authorities. The leading authority for those principles is the decision of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin[3] in which his Honour said:
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extracurial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. …
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. … But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.
The principles were also discussed by the New South Wales Court of Appeal in Nichols v NFS Agribusiness Pty Ltd.[4]
[3] Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, 624 ‑ 625 (citations omitted).
[4] Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84.
The basis for the plaintiffs' Application is effectively twofold. First, counsel for the plaintiffs submitted that the first defendant effectively capitulated three weeks before trial, with the result that the plaintiffs substantially succeeded in the action in obtaining the orders that they had sought. Secondly, counsel for the plaintiffs submitted that the conduct of the first defendant in the proceedings was unreasonable. Counsel for the plaintiffs submitted that those circumstances warranted an order for costs, and a departure from the usual order which is that the parties will bear their own costs in proceedings which are resolved by consent without a trial.
The history of the present proceedings has been set out relevantly in the parties' submissions and I do not propose to repeat it here, other than to make the following brief observations. First, the proceedings were commenced in about December 2016. By February 2017 it was apparent that the 2015 proceedings would give rise to a conflict of interest for the first defendant if she were to administer the Estate. Although the first defendant had filed a defence and counterclaim opposing the appointment of an independent administrator, she then consented to orders for the appointment of an interim independent administrator for the purpose of representing the Estate's interests in the 2015 proceedings. I observe that on that occasion the costs of the appointment of the interim administrator were paid out of the Estate on an indemnity basis.
As I have said, the primary position of the first defendant on the Application was that there should be no order as to costs. The appointment of the interim administrator in the settlement of these proceedings was said by counsel for the first defendant to effectively resolve the allegations of the conflict of interest on which the plaintiffs had relied in bringing the present proceedings. That nevertheless left the question of the appointment of an administrator of the Estate as a whole unresolved. Counsel for the first defendant submitted that it could not be regarded as certain that the first defendant's counterclaim would be dismissed in circumstances where the interim administrator had been appointed to deal with the 2015 proceedings. He also submitted that when a subsequent dispute arose in relation to the two impugned transactions, the first defendant immediately withdrew her opposition to the appointment of an independent administrator.
I have very carefully considered the submissions made by counsel for the first defendant. With his customary persuasion, counsel for the first defendant put those submissions in such a manner as to make them appear, at least at first blush, rather attractive. However, having reflected on those submissions and on the material before the Court, I am persuaded that this is one of those unusual cases where, without any need to examine in great detail the merits of the arguments advanced by the parties in the present proceedings, it is nevertheless possible for the Court to say with some degree of certainty that the plaintiffs would inevitably have succeeded in their application for relief.[5]
[5] See Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, 625.
Although the first defendant consented to the appointment of an interim administrator, I am not persuaded that that was a viable long‑term solution to the administration of the Estate ‑ in other words, bifurcation of the administration would not have been possible other than on an interim basis. That means that the Court would necessarily have had to resolve the question of the appropriate administrator, having regard to the first defendant's conflict of interest with respect to the 2015 proceedings, in conjunction with the acrimonious relationship between the parties, which no doubt would have made any administration more difficult for the first defendant.
The 2015 proceedings were resolved at about the same time as the plaintiffs became aware of the two impugned transactions which they claimed would give rise to a conflict of interest for the first defendant, and amended the statement of claim in these proceedings. The first of the two impugned transactions concerned the issue of further shares in a company of which the deceased and the first defendant were directors, the result of which was to substantially dilute the value of the first plaintiff's shareholding and authority in the company. The second impugned transaction concerned the first defendant's decision to treat the totality of a compensation payment for the compulsory acquisition of land belonging to the deceased as other than Estate property.
The first defendant's counsel submitted that the first defendant acted reasonably by immediately ceasing her opposition to the relief sought in these proceedings once the two impugned transactions were raised as giving rise to a conflict of interest. (I note that that was not the only reason given by the first defendant at the time to explain the withdrawal of her opposition to the relief sought. She also relied on her deteriorating health at the time.)
Counsel for the plaintiffs submitted that the first defendant must have known of the two impugned transactions, and that it was inevitable that those transactions would lead to disputes and litigation which would render it impossible for her to properly carry out her duties as an administrator without a conflict of interest.
In my view, there is merit in the plaintiffs' contention. That is so despite the fact that there is a dispute between the parties (which is being litigated elsewhere in this Court) as to the merits of the plaintiffs' allegations about the impropriety of the two impugned transactions. The first defendant, either of her own volition, or with the deceased, brought about the two impugned transactions. Those transactions, whether justified or not, were clearly very likely to generate litigation, particularly having regard to the acrimonious relationship between the parties which has already been reflected in other litigation. Any litigation concerning the impugned transactions would inevitably have given rise to a conflict between the first defendant's personal interest in those transactions, and any responsibility on her part to investigate the plaintiffs' claims, on behalf of the Estate. That factor, combined with the acrimonious relationship of distrust between the parties, means that there is a high degree of certainty that the outcome of the present proceedings would have been the order which the plaintiffs ultimately obtained by consent.
I should add that I have reached this view without finding it necessary to reach a conclusion as to whether the conduct of the first defendant was unreasonable.[6] In reaching this view, I have taken into account the following factors. I have not overlooked the strength of the claim of the first defendant, as a beneficiary in the intestate Estate, to be appointed as the administrator of the Estate. She and the deceased had been married for 60 years. They had run their family businesses together during much of that time. The Estate's assets comprise significant family business assets. It was obviously undesirable to have the management of those business assets handed to a third party with no familiarity with the businesses, if it was possible to avoid that outcome. The interim appointment of the independent administrator, and the background of other litigation, which then settled, are also relevant. I have also taken into account that close to the trial of these proceedings, the complexion of the litigation changed[7] when the plaintiffs amended their pleading and added the additional conflict of interest allegations to which I have referred. I have also not overlooked that the defendant's health deteriorated, and that that was another circumstance which affected the complexion of the litigation. These matters tend to support the conclusion that the position of the first defendant cannot be regarded as unreasonable.
[6] Cf Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, 625; Lafferty v Waterton [2016] WASCA 183 [18].
[7] See ONETEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 [6].

On the other hand, in all the circumstances, I am satisfied that there is a high degree of certainty that if these proceedings had been determined on their merits, the Court would have appointed an independent administrator, and that that remained the case notwithstanding the changing circumstances of the litigation. Consequently in my view, this is one of those rare cases in which a costs order should be made on the basis that the outcome of the litigation would have resulted in success for the plaintiffs, notwithstanding that the proceedings were resolved without a trial.

Why the costs should not be paid out of the Estate

The next question which needs to be resolved is whether the costs should be paid out of the Estate, or by the first defendant.
The first defendant proposed that costs should be paid out of the Estate. That submission initially had some appeal, particularly as the only beneficiaries of the Estate are said to be the first and second defendants and the plaintiffs. The second defendant supported this order.
The affidavit of Mr Reynoldson indicated that initially the plaintiffs had sought an order that their costs be paid out of the Estate and that they had proposed that all costs come out of the Estate in the course of attempts to settle the proceedings, in their totality, by consent, in August 2017. However, that proposal did not find favour with all of the other parties at that stage. It is regrettable for all the parties that it has been necessary to have a detailed argument this morning to resolve the question of costs. In any event, the plaintiffs no longer seek that order for costs. Their Application needs to be resolved on the basis of legal principle, rather than on a more pragmatic basis which may have been open to the parties in August 2017.
The basis on which the first defendant sought an order that costs be paid out of the Estate was that the proceedings could be regarded as attributable to an omission of the deceased, namely his failure to make provision for the administration of his Estate, which then necessitated proceedings to appoint an administrator. An analogy was drawn between those cases where a testator has, by his or her conduct, effectively necessitated litigation, such as in those cases where a testator has left multiple contradictory wills, or has otherwise left his or her testamentary papers in a state of confusion or disarray. In those circumstances, there have been instances where the Court has ordered that an estate should bear the costs consequences of the testator's conduct or omission.[8]
[8] See the discussion in G E Dal Pont and K F Mackie, Law of Succession (LexisNexis Butterworths, Australia, 2013) [23.8]
I am not persuaded that such an analogy is a sound one in this case. The present proceedings went far beyond a mere routine application for the appointment of an administrator in the case of intestacy. These proceedings involved a full blown inter-partes dispute between the beneficiaries of the Estate as to who should be appointed as its administrator. I am not persuaded that the appropriate outcome is that the costs of all of the parties should be visited on the Estate, notwithstanding that effectively all of the parties are the beneficiaries of the Estate and would bear the consequences of such an order. There may be inequities in the way that such an order would affect the parties. In addition to the application of the principles to which I have referred, that consideration also militates against an order that the costs should be paid out of the Estate.

The application for an indemnity costs order

The next question, then, is whether the costs of the plaintiffs should be awarded on an indemnity basis, or an ordinary party and party basis.
The principles in relation to the award of costs on an indemnity basis are very well established. They have been set out by the Court of Appeal in Swansdale Pty Ltd v Whitcrest Pty Ltd.[9] I summarised those principles in my judgment in Woodley v Woodley [No 2].[10] I apply those principles in determining whether there should be an award of costs on an indemnity basis in this case.
[9] Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129(S) [10].
[10] Woodley v Woodley [No 2] [2017] WASC 94(S) [17] – [18].
For the reasons I have already set out above at [21], I am not persuaded that the conduct of the first defendant in this case was so unreasonable as to warrant the sanction of an order for indemnity costs.

The application for a special costs order

The next question is whether an order for special costs, pursuant to s 280(2)(c) of the Legal Profession Act 2008 (WA), should be made.
The plaintiffs applied to remove the limits imposed by the applicable scale[11] in respect of a number of aspects of the legal work undertaken in this case, including preparation of the statement of claim,[12] and of the reply and the defence to counterclaim;[13] the provision of particulars of the pleading;[14] extraction of orders;[15] and preparation for trial.[16] The plaintiffs also applied to remove the scale limits on the hourly rates.
[11] Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (WA).
[12] Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (WA) item 1(c).
[13] Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (WA) item 4.
[14] Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (WA) item 6(b).
[15] Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (WA) item 25(b).
[16] Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (WA) item 17.
I summarised the principles in respect of special costs orders in my judgment in Woodley v Woodley[No 2][17]. Applying those principles, I am not persuaded that this is an appropriate case for an order for special costs of the kind sought.
[17] Woodley v Woodley [No 2] [2017] WASC 94(S) [45]ff.
I am not persuaded that the proceedings can properly be said to have involved unusual difficulty or complexity. While the bases for the appointment of an independent administrator included alleged conflicts of interest which needed to be pleaded, and then prima facie established on the evidence, the proceedings did not require the underlying merits of the disputes which gave rise to the conflicts to be litigated and finally determined. The present litigation simply required the Court to determine whether the circumstances warranted the appointment of an independent administrator, rather than the first defendant.
I am also not persuaded that the importance of the proceedings would warrant an order for special costs. No doubt the case involved issues of importance to the parties but, in one sense, all litigation is important to those parties who participate as litigants. This litigation, however, was only going to resolve the question of who was the administrator of the Estate and would not resolve any of the underlying disputes between the parties, or the ultimate payment to them of any amount as beneficiaries of the Estate.
I turn, now, to the more precise application of the test in relation to each of the items for which the plaintiffs sought to have the limits of the scale removed.
Having regard to the nature of the pleadings in the proceedings, I am not persuaded that the costs allowable under the applicable scale for the preparation of pleadings would be inadequate by virtue of the unusual difficulty or complexity, or the importance of the case. That conclusion applies in respect of the scale items for the preparation of the statement of claim, the reply and defence to counterclaim, and the provision of particulars.
In respect of the claimed amount for the extraction of orders, I am not persuaded that the scale item would be likely to be exceeded on a taxation in any event. Even if it were, I am not persuaded that that would be because of the unusual difficulty or complexity the case, or the importance of the case.
Finally, in relation to preparation for trial, given what I have said about what needed to be established in these proceedings, I am not persuaded that the scale allowance would be inadequate by virtue of the unusual difficulty or complexity of the case, or by virtue of the importance of the matter.

The orders that should be made

Having regard to all of these matters, in my view, the appropriate order is that the first defendant pay the first and second plaintiffs' costs of the action, and of the Application on a party and party basis, to be assessed if not agreed. I will also make an order that there be no other order as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LF
Associate to the Honourable Justice Pritchard
20 DECEMBER 2018