Sudholz v Sudholz (No 2)
[2021] VCC 1630
•29 October 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-18-03393
| MICHAEL JAMES SUDHOLZ | Plaintiff |
| V | |
| DAVID MARTIN SUDHOLZ (In his capacity as Executor of the Will and Trustee of the Estate of the late Peter Maxwell Sudholz) | Defendant |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING | On the papers – written submissions received on 22 and 27 October 2021 | |
DATE OF RULING: | 29 October 2021 | |
CASE MAY BE CITED AS: | Sudholz v Sudholz (No 2) | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 1630 | |
RULING
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Subject:PRACTICE AND PROCEDURE – COSTS
Catchwords: Whether indemnity costs order should be made following rejection of two Calderbank offers
Cases Cited:Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65; Calderbank v Calderbank [1976] Fam 93; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms C H Sparke QC with Mr R K Davis | Marshalls+Dent+Wilmoth |
| For the Defendant | Mr C E Shaw QC with Mr M C McKenzie | T J Mulvany & Co |
HER HONOUR:
1On 15 October 2021, I delivered reasons for judgment in this matter (“the principal reasons”). I found the plaintiff had failed to establish his proprietary estoppel claim with the result that his claim must be dismissed. These reasons assume familiarity with the principal reasons and adopt the same terminology.
2The parties were directed to file and serve submissions regarding the orders to be made consequent upon the judgment, including costs, if they were unable to agree on the form of orders to be made. The parties filed submissions dated 22 October 2021, together with submissions in reply dated 27 October 2021.
3The plaintiff concedes costs should follow the event and that he should be ordered to pay the defendant’s costs of the proceeding on the standard basis.
4The defendant seeks to recover part of his costs on an indemnity basis by reason of two Calderbank offers he made to settle the proceeding, neither of which were accepted by the plaintiff.
Legal principles
5In support of his application for indemnity costs, the defendant relies upon the well-known principles contained in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[1]
[1][2005] VSCA 298
6As Nettle JA noted in Berrigan Shire Council v Ballerini (No 2),[2] “The rejection of a Calderbank offer not later bettered by judgment does not lead automatically to an indemnity costs order in favour of the offeror. The question in each case is whether the offer was a reasonable offer of compromise, and whether the rejection of the offer was unreasonable, and the answer to that question turns in each case on all the circumstances of the case.”[3] The question of unreasonableness of rejection should be considered without the benefit of hindsight and without adducing additional evidence. The party seeking to rely on a Calderbank offer bears the onus of convincing the Court to make the advantageous costs order.[4] The determination of whether the rejection is unreasonable involves matters of judgment and impression. Various matters which a court should ordinarily have regard to include:
[2] [2006] VSCA 65
[3]Ibid at [33]
[4] Quick on Costs, Thomson Reuters at [340.180]
“(a) the stage of the proceedings 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 an application for indemnity costs in the event of the offeree rejecting it.”[5]
[5]Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298 at [25]
The first offer
7The first offer was contained in a letter from the defendant’s solicitors to the plaintiff’s solicitors dated 23 December 2019. The defendant offered to pay the plaintiff the sum of $240,000 inclusive of costs. The offer remained open until 13 January 2020.
8The letter referred to the history of the matter including the fact that the plaintiff had earlier commenced the proceeding in the Supreme Court pursuant to Part IV of the Administration and Probate Act 1958 and had subsequently decided to transfer the proceedings to the County Court. The plaintiff served his statement of claim on 6 March 2019 and pursued only the second part of his claim alleging the defendant held Sharps on constructive trust for the plaintiff.
9The letter then went on to state that the defendant denied any promises had been made to the plaintiff or that any actions on the part of the deceased or the farming relationship with the plaintiff could give rise to a constructive trust as alleged.
10The first offer referred to the principles in Calderbank v Calderbank.[6] An application for indemnity costs was foreshadowed if the plaintiff did not obtain at trial a judgment more favourable than the terms of the offer made.
[6] [1976] Fam 93 (“Calderbank v Calderbank”)
11The defendant contends the plaintiff’s prospects of success cannot have been viewed as strong as at the date of the first offer. The offer was clear and did foreshadow an application for indemnity costs in the event it was rejected. The defendant conceded the time allowed for acceptance included a period over the summer vacation but argued there was still sufficient time for the plaintiff to have a proper opportunity to consider the offer. The defendant submitted the rejection of the first offer was unreasonable and that indemnity costs should be awarded from the date of that offer.
12The plaintiff opposes the making of an indemnity costs order and argues it was not unreasonable for the plaintiff not to accept either of the offers made. This is on the basis that the Court did accept some of the plaintiff’s case in some areas, and in others it is contended there were proper bases to make the arguments which were made. Although some of these factors were not accepted by the Court, they were nonetheless properly founded and it was not unreasonable for the plaintiff to consider that they would be proved. In support of his stance, the plaintiff referred to several evidentiary matters identified in paragraphs 9.1 to 9.11 of his first submissions as to costs.
13The plaintiff says that the criticisms made by the defendant of the plaintiff’s case in the first offer were not clear. Little was said about the substance of the case other than denying that promises were made and that the deceased’s actions and the farming relationship gave rise to a constructive trust. It was noted that the pleadings were amended in January 2020 and the amendment focused on the constructive trust claim. Given the pleading had not then been finalised, affidavit material was yet to be filed, and the ability to assess any reply material filed by the defendant was yet to be had, the plaintiff was not in a complete position to fully assess the strength and weaknesses of the case at the time of the first offer.
14The plaintiff submits it was not unreasonable for him to reject either of the offers made given their modest size. This is be contrasted with the value of Sharps, which was worth over $1.5 million as valued in the Inventory.
15It was noted by the plaintiff that the costs would have been substantial. The proceeding has been running since 2016. There was extensive affidavit material and two mediations in 2018 and 2019. Each of the offers were inclusive of costs. The plaintiff submits this would have allowed little if anything by way of “offer” over the costs incurred and to that degree offered little more than capitulation. Therefore, it was not unreasonable for the plaintiff to reject the offer, especially in the context of a dispute over land worth far more than any small amount which would have been available after costs were paid.
16The issue then is whether the rejection of the first offer was unreasonable in all the circumstances. I am not persuaded that it was, as at that time the plaintiff had yet to completely formulate his claim for proprietary estoppel. The nature of the claim did alter and at the time of the first offer, it was anticipated that further material would be filed. It was premature to know what response would be made by the defendant in answer to the further material. It was still too early for the plaintiff to be able to properly assess his prospects of success. As these matters were then uncertain, it seems to me that the plaintiff should not be criticised for failing to accept the first offer made at this relatively early stage of his reformulated claim.
17The time for acceptance was short given the intervening holiday period so that the plaintiff realistically had very little time to consider the offer. The first offer was relatively low, particularly as it was “all in”. The plaintiff was seeking relief that the promise be fulfilled, and that Sharps be conveyed to him by the Estate. Sharps was worth $1.5 million as assessed in the Inventory in 2016. Whilst it was always possible the Court might have ordered a lesser sum by way of equitable compensation, the primary relief sought was a constructive trust over Sharps in the plaintiff’s favour. Therefore, I do not consider the extent of the compromise made by the first offer was such that the plaintiff ought to have accepted it.
18The first offer was clear and did foreshadow an application for indemnity costs if it was rejected. But overall, for the reasons given above, I am not persuaded it was unreasonable for the plaintiff to have rejected the first offer.
The second offer
19The second offer was contained in a letter from the defendant’s solicitors to the plaintiff’s solicitors dated 30 October 2020. The letter denied the plaintiff’s claim and then set out some observations regarding the case and the potential weaknesses in the plaintiff’s claim. It was noted that none of the Wills or actions of the deceased since 1995, when the plaintiff alleges promises were first made, corroborate the plaintiff’s allegations. At all material times, the plaintiff had a commercial share farming arrangement and provided contract farming services to the deceased. The defendant asserted that the plaintiff therefore suffered no detriment. Further, he did not miss out on opportunities to buy land as alleged. Other work and support alleged by the plaintiff to have been done by him for the benefit of the deceased included activities that were consistent with the family relationship and recognised by the deceased because the plaintiff was left land which had a current value of approximately $470,000 (this being Max’s land which was left to the plaintiff in the Will). The letter then offered the sum of $450,000 inclusive of costs which was to remain open until 4:00pm on 6 November 2020. The second offer did foreshadow an application for indemnity costs in accordance with the principles in Calderbank v Calderbank.
20The defendant notes that at the time of the second offer, the trial was due to commence on 11 November 2020. The pleadings were finalised and the affidavit evidence had been filed and served. The parties ought to have been able to assess their prospects of success by then with some clarity. Although the offer was only open for one week, the offer could not sensibly be kept open any longer since the trial was listed on 11 November 2020. It was submitted there was ample time for the plaintiff to consider the offer as the parties had by then all the evidence and were preparing for trial.
21The defendant notes that the offer made of $450,000 “all in” represented about 30 per cent of the value of Sharps. It said this was a very significant compromise albeit accepting that the offer was inclusive of costs.
22The defendant argues that the plaintiff should have understood at the time the offer was made that his prospects of success were limited.
23The plaintiff relied upon the same general matters advanced in respect of the second offer as it did with the first. The plaintiff noted that the second offer was only open for seven days. The second offer denied all aspects of the claim. Given the plaintiff was successful in establishing some aspects of his claim, he submitted it was not unreasonable to reject the second offer. The plaintiff disputed the second offer was a substantial compromise because of the disparity in the value of Sharps and the size of the second offer. The plaintiff submitted that there would have been little left for the plaintiff, if anything, after costs were met had the second offer been accepted. Having regard to the matters set out in his submissions, it was not unreasonable for the plaintiff not to have accepted the second offer.
24Even though the offer was open for acceptance within a short time of only seven days, given the closeness of the pending trial, I do not consider this factor alone would preclude the offer from being regarded as reasonable.
25The second offer was far more generous. Even though the costs would be substantial on the eve of the trial, I do not accept the plaintiff’s submission that the second offer was in effect asking the plaintiff to capitulate because the offer would be swallowed up by costs. The defendant notes that the offer represented approximately 30 per cent of the value of Sharps. I regard the second offer as being a reasonable and genuine offer to compromise the proceedings.
26But ultimately, I am not persuaded that an indemnity costs order should be made in respect of the second offer having regard to the plaintiff’s prospects of success assessed at the time the second offer was made. As the principal reasons reveal, there were several disputed questions of fact and some complexity about the application of the legal principles relating to proprietary estoppel to the facts as found. Given this, I do not consider it should have been so obvious to the plaintiff at the time the second offer was made that his prospects of success were hopeless or it was inevitable his claim would fail. In my view, it follows then that the rejection of the second offer by the plaintiff was not unreasonable.
Conclusion
27In all the circumstances, I am not persuaded the plaintiff acted unreasonably in rejecting either of the two Calderbank offers. Consequently, there is no reason to depart from the usual order that costs be paid on the standard basis.
28I will make orders that the plaintiff’s claim be dismissed and the plaintiff pay the defendant’s costs of the proceeding, including any reserved costs, on the standard basis, to be taxed in default of agreement.
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Certificate
I certify that these 8 pages are a true copy of the Reasons for Ruling of Her Honour Judge A Ryan delivered on 29 October 2021.
Dated: 29 October 2021
Associate to Her Honour Judge A Ryan
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