Vlahos v Vlahos Pty Ltd (No. 3)
[2016] VCC 1619
•7 November 2016
d
IN THE COUNTY COURT OF VICTORIA AT MELBOURNE
COMMERCIAL DIVISION GENERAL LIST
Revised Not Restricted
Suitable for Publication
Case No. CI-15-05034
JAMES VLAHOS Plaintiff
v
VLAHOS PTY LTD Defendant
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| JUDGE: | HIS HONOUR JUDGE COSGRAVE |
| WHERE HELD: | Melbourne |
| DATEOF HEARING: | 21 October 2016 |
| DATEOF JUDGMENT: | 7 November 2016 |
| CASE MAY BE CITEDAS: | Vlahos v Vlahos Pty Ltd (No. 3) |
| MEDIUMNEUTRAL CITATION: | [2016] VCC 1619 |
REASONS FOR JUDGMENT
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Subject: COSTS
Catchwords: COSTS – Calderbank offer – legal principles – whether rejection of offer was unreasonable in the circumstances – whether costs should be awarded against a non-party
Cases Cited: Aljade & MCIK v OCBC [2004] VSC 351; Auswest v. DSE (No. 2)
[2010] VSC 513; Berrigan Shire Council v. Ballerini (No. 2) [2006]
VSCA 65; Chen v. Chan [2009] VSCA 233 Foster v Galea (No 2) [2008] VSC 331; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435; Knight v FP Special Assets Ltd (1992) 174 CLR 178; Love v. State of Victoria & Anor [2009] VSC 531---
| APPEARANCES: | Counsel | Solicitors |
For thePlaintiff | Mr M Gronow | Klonis Kirby & Co |
For the Defendant | Mr M Bearman | DCA Lawyers |
HIS HONOUR:
Background
1The trial in this matter ran during the first week of August 2016 and I delivered reasons for judgment on 31 August 2016. I then listed the matter on 2 September 2016 to hear submissions and make the final orders regarding both substantive relief and costs.
2On 1 September 2016, the first defendant filed a summons returnable the following day in which they applied to re-open its case on the basis of fresh evidence. This was said to comprise documents discovered on 31 August 2016 by, Mrs Lediza Vlahos, the wife of Andrew Vlahos.
3On 2 September 2016, I had a busy list and there was insufficient time available to hear the first defendant’s application. Accordingly the first defendant made oral application to adjourn the hearing of its summons on the grounds that it needed more time than was available to properly develop its arguments. I reserved my decision on that oral application. Later the same day, the court emailed the parties advising that it would hear the first defendant’s application to re-open its case on 11 October 2016. I directed the parties to file and serve relevant affidavit material and submissions beforehand.
4On 11 October 2016, the first defendant made the application to re-open the case and rely upon fresh evidence. It relied on a series of affidavits sworn by Andrew Vlahos, his wife and solicitor. The plaintiff also relied upon affidavits sworn by him and his solicitor. I reserved my judgment.
5On 19 October 2016, I handed down reasons dismissing the first defendant’s application to re-open and rely upon the fresh evidence.
Application for costs and final orders
6I now need to deal with the final trial orders and the issue of costs. While the
former are agreed, there is no agreement as to costs.
7The plaintiff, James, seeks an order that his brother, Andrew, pay the plaintiff’s costs and the first defendant’s costs of the proceeding including reserved costs and the costs of the application to re-open the trial, such costs to be taxed on an indemnity basis.
8James contended that Andrew should pay the costs of the proceeding for several reasons. First, the brothers had agreed upon a resolution of the claim James made to an interest in the property and it was only because of Andrew’s admitted reneging upon that agreement that the trial proceeded. In a real and practical sense, Andrew caused the trial to run.
9Secondly, the brothers are the directors of the trustee and, again, it was through the actions of Andrew that the trustee became embroiled in the litigation.
10Thirdly, the trustee is the trustee of a discretionary trust. Traditionally, trust distributions are made in such a way that the families and associates of James and Andrew respectively share equally in the trust distributions. Thus, if the trust were responsible for paying the costs incurred by James in connection with the litigation, it would mean in practical terms that James, or interests associated with him, would be contributing to payment of his own costs in circumstances where it was Andrew and not James who caused the trust to become involved in the litigation. James submitted that this was unfair.
11The position of the trustee, being the first defendant, Vlahos Pty Ltd, is that, in ordinary circumstances, unless a trustee is guilty of misconduct, it is entitled as of right to its costs of prosecuting or defending litigation on behalf of the trust in respect of trust assets.
12Andrew seeks indemnity for his costs of the proceeding from the trustee
excluding the costs of or relating to the fresh evidence application. He accepts that he personally should meet those costs but says they should be on a standard basis. Because James discontinued the proceeding against Andrew personally on 13 May 2016 and the parties conducted the case on the assumption that, thereafter, he was not a party, Andrew seeks an order for his costs from James up until 13 May 2016.
Consideration
13If the court were to make orders of the kind sought by James, it would be making the order against a non-party. By virtue of the discontinuance, Andrew ceased to be a party to the proceeding in May 2016. I accept that, as part of the broad discretion which I have in relation to costs, I have the power to award costs against a non-party to litigation. In Knight v FP Special Assets Ltd1 Mason CJ and Deane J, with whom Gaudron J agreed, said:2
“For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.”
Dawson J also accepted that, in an exceptional case, it was an appropriate use of the court’s discretion to award costs against a non-party. However, it was important that the discretion be exercised judicially.3
14In the present case, I consider that there is a proper basis to award costs against Andrew:
· he proposed the subdivision of the property to settle the claim by
(1992) 174 CLR 178.
Ibid, 192-193.
Ibid, 203.
James to an interest in the property;
· having agreed on the relevant details with his brother, Andrew wrongfully refused to honour the agreement and transfer the upstairs part of the property;
· Andrew belatedly said that he wanted to put James to his proof about the interest he claimed;
· Andrew was the real cause of the hearing and took an active role in defending the claim made by James.
15Because of his role in connection with the proceedings and his active involvement in precipitating, and then defending, the claim by James, I consider it appropriate that Andrew pay the plaintiff’s costs.
Calderbank letter
16In making his claim for costs, James relied upon a Calderbank letter dated 30 October 2015 sent to Andrew as a basis for his claim to indemnity costs. James served the letter shortly after serving the writ upon Andrew and the trustee. The letter referred to the general background to the dispute and then continued as follows:
“We enclose a copy of the minutes of meeting of the company in its capacity as trustee of the S Vlahos Family Trustee previously agreed to and signed by you and our client in December 2011 together with an unsigned Transfer of Land. You have refused and continue to refuse to implement the terms of the agreement and our client is now seeking to rely on his strict legal rights and claim his full entitlements to the land. The proportion of the land owned and claimed by our client based on his contribution to the purchase price is 24.39%.
Notwithstanding the above, our client is still prepared to consider a reasonable settlement of the matter on the basis that you return the attached transfer document duly signed where indicated and otherwise cooperate in the subdivision of the property so as to allow the transfer of lot 2 to our client or his nominee in accordance with the terms of the Minutes.
Consequently, subject to you returning the Transfer document duly signed to our office within the next 21 days to allow the transfer of lot 2 on proposed Plan PS705580Y to our client (or his nominee) and
together with the company and yourself otherwise undertaking in writing that you will expeditiously cooperate and sign all necessary documents to enable the registration of the subdivision and lot 2 at the trustee company’s cost and expense (and any other costs, expenses and liabilities contemplated by the Minutes) our client will take no further step in the proceeding. Upon registration of the plan of subdivision our client (or his nominee) as the owner of lot 2, our client will then discontinue the proceedings without claiming any legal costs from you.
This proposal is an offer to accept less than 20% of the land based on the valuation obtained by the trustee in January 2012. This is in contrast to our client’s entitlement to 24.39% and represents a significant discount on our client’s claim. This offer is made in a genuine and final attempt to resolve the matter and it is open for acceptance within 21 days from receipt.
In the event that this proposal is not accepted within the next 21 days, then the offer is hereby withdrawn and we put you on notice that our client reserves the right to claim costs personally from you on an indemnity basis and this correspondence will be produced to the Court on the question of costs in accordance with the principles set out in Calderbank v Calderbank (1975) 3 All ER 333 and also Hazeldene’s Chicken Farm Pty Ltd v WorkCover [2005] VSCA 298.”
17The letter attached a signed copy of the Minute of Meeting of Directors of the trustee on 8 December 2011 and a proposed transfer of land to be signed by the trustee.
18The defendants rejected the offer made by James.
19The principles governing whether indemnity costs should be awarded in the event that a Calderbank offer is rejected are well established. In Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2),4 (“Hazeldene’s”) the Court of Appeal held that a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard to at least the following matters:5
(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;
(2005) 13 VR 435.
Ibid at [25].
(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;
(f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.
20The Court of Appeal in Hazeldene’s stated that there was no presumption that the party rejecting a Calderbank offer should pay the offeror’s costs on a special basis if the offeree received a less favourable result. The court said the correct approach was to treat the rejection of the Calderbank offer as a matter to which the court should have regard.
21The court fixed upon what it referred to as the "test of unreasonable rejection":
"in our view, these competing considerations can be sufficiently accommodated by a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as "manifestly" or "plainly" unreasonable."6
22In Berrigan Shire Council v. Ballerini (No. 2)7 Nettle JA said this in relation to the test of unreasonable rejection:-
"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. The making of an offer and its rejection are but two albeit important circumstances to which the court will have regard in the exercise of its costs discretion. As the court explained in Hazeldene’s Chicken Farm:
"The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances."8
23The onus lies on the offeror to demonstrate the unreasonableness in the offeree’s rejection of the offer.9
(2005) 13 VR 435 at [23].
[2006] VSCA 65. Refer also Chen v. Chan [2009] VSCA 233 at [17].
(2005) 13 VR 435 at [25].
Foster v Galea (No 2) [2008] VSC 331 at [9] per Byrne J. Refer also Love v. State of Victoria & Anor
24As to what is meant by "unreasonable" in relation to whether the rejection of the offer was unreasonable, Byrne J in Foster v. Galea (No. 2)10 said:11
"This apparently simple test contains its own difficulties. The offeror who bears the burden of establishing this, is very often not in a position to demonstrate that the response of the offeree was or was not unreasonable. Whether this is so may depend upon the legal advice given to the offeree and to evidentiary uncertainties known only to that party. The offeror cannot know these matters without piercing the veil of professional privilege. Moreover, what is meant by unreasonable in this context? It is certainly not that the offeree’s case was so hopeless that it might be struck out as an abuse of process. A clue to its meaning must be found in the policy behind the court’s acceptance that an offer may be used in this way. This is of course to compel the offeree to consider seriously the offer by introducing into its decision-making process the prospect that a failure to accept it may in the appropriate circumstances attract a cost penalty. Where a party makes a Calderbank offer which is reasonable in all the circumstances, especially in comparison to the offeree’s prospects of success or where the offeree’s prospects of success were not good, the court has displayed a readiness to make a special order. As I observed in the Lorden Holdings case, the policy of the court is to encourage litigating parties to undertake genuine settlement negotiations and, for the purpose, to face up to serious offers of settlement.".
25There is no general rule that the Calderbank offer must set out with specificity, the basis for the offeror’s contention that the offeree should accept the compromise. Whether there is a need to do so depends upon a consideration of all the circumstances existing at the time of the offer.12
26I proceed to consider the various matters set out in paragraph 19 above.
27A comparison between the final outcome of the case and the terms of the compromise offered will generally be a significant matter in assessing the reasonableness of the offer. An offer of something considerably better than was ultimately obtained from the court, though not necessarily to be characterised as a reasonable offer, is more likely to be so characterised than an offer of something less than was ultimately obtained.13
[2009] VSC 531 at [24].
10 [2008] VSC 331.
Ibid at [11].
Refer Aljade & MKIC v. OCBC [2004] VSC 351 at [87]; Hazeldene at [26]-[27]; and Love v. State of Victoria & Anor (No. 2) [2009] VSC 531 at [20].
Refer Love v The State of Victoria & Anor, at [30], Refer also to G.E Dal Pont, Law of Costs, (Australia 2003) at page 413, paragraph [13.50].
28The pursuit of a claim where the plaintiff, properly advised, should have known it had no chance of success, may enliven the discretion to make a special order for costs.14 If a Calderbank offer is not accepted and the court orders indemnity costs, it is a matter of discretion as to the date upon which the indemnity costs order commences. In Auswest v. DSE (No. 2),15 the Court ordered indemnity costs from the date of the expiry of the Calderbank offer.16
(a)Stage of proceeding when offer received
29James made the offer soon after serving the writ on the defendants. Although this was early in the proceedings before any discovery or mediation, the defendants should have had some idea about the issues because of the discussions which the brothers had already engaged in and the agreement they had made in relation to James’ claim to an interest in the property. In saying this, I accept that Andrew would not necessarily have seen the documents which James held with respect to the matter. Even though Andrew lived in the house which previously belonged to his parents and in which they lived and kept their business and financial records (and those of the trust), Andrew had no first-hand familiarity with the transaction to purchase the property. Initially, he agreed to a subdivision of the property with James but later he changed his mind. To an extent, the outcome of the case depended upon an assessment of James’ character and credibility. Hence, there was some basis for Andrew to be uncertain about the outcome of the case or at least to want a decision from a disinterested third party.
(b)Time allowed to consider the offer
30James allowed the defendants three weeks to consider the offer. This was more than adequate time for the defendants to assess their position and make a decision. The evidence discloses that the defendants did not request an
Aljade & MCIK v OCBC [2004] VSC 351 at [30]-[31].
Auswest v DSE (No.2) [2010] VSC 513
16 [2010] VSC 513 at [16].
extension or seek more details about the case.
(c)Extent of the compromise
31James claimed in the letter of offer that, based on his contribution to the purchase price of the property, he was entitled to a 24.39% interest in the property. However, he said that if the defendants signed the attached transfer and co-operated on the subdivision in accordance with the minutes, he would, after registration of the subdivision, discontinue the proceedings and bear his own costs. He said that the proposal amounted to a willingness to accept an interest in the property of less than 20% based upon the valuation of the property obtained by the trustee in January 2012.
32The defendants appeared not to contest the plaintiff’s assessment of the relative value of the offer. On this basis there was some real value in the offer due to the location and value of the property and James’ willingness to bear his own costs. Although there was no contemporary evidence about the value of the property in 2015, a few percentage points could represent thousands of dollars.
33Overall, the absence of detailed information as to property value and legal costs incurred made it difficult to clearly assess the extent of the compromise offered.
(d)Prospects of success
34It was a little difficult to assess Andrew’s prospects at the time of the offer because:
(a)it appears that he had not yet seen the discovered documents which James relied upon;
(b)even if he had seen those documents, it was necessary for James to explain the documents and their significance to understand the
background facts underlying the purchase of the property.
(c)whether or not the court accepted the evidence which James gave on the point depended on how the court assessed his credit.
(e)Clarity of offer
35The offer James made was clear and well capable of being understood by the defendants and their lawyers. The offer was not ambiguous. Andrew did not raise queries about or seek clarification of the details of the offer.
(f)Foreshadowed application
36The letter of offer foreshadowed an application for indemnity costs if the defendants rejected the offer.
Conclusion on Calderbank letter
37In my view, it was not unreasonable for the defendants to reject the offer which James made.
38Firstly, given the defendants required an explanation from James about the relevance and meaning of his financial documents, the defendants were at a disadvantage in assessing the offer.
39Secondly, James’ credit and the court’s finding about it were important unknowns at the time the offer was made.
40Thirdly, it is not entirely clear to what extent the offer was better than the outcome. In relation to the resulting trust, the proportionate interest awarded was not a great deal more than the percentage James was willing to accept in the offer – 22.57% as against not less than 20%. In relation to the agreement between the brothers, that agreement did not include the car park associated with the residential part of the upstairs property. The exclusion of the car park from the agreement would have affected the value of the outcome.
Position of first defendant
41I accept that generally, unless a trustee is guilty of misconduct, the trustee is entitled to its costs of defending litigation on behalf of the trust. The trustee is usually allowed his costs from the trust estate if the conduct has been honest even though it might have been mistaken. I consider that, to the extent that the first defendant incurred legal costs in connection with this proceeding, the costs should not be paid by all the beneficiaries of the trust estate but by Andrew only. He was the director of the trustee who caused the litigation when he wrongfully repudiated an agreement with James about the division of the property. He was the guiding mind of the trustee in defending the litigation. If the trust estate, and not Andrew, bears the costs of the first defendant, then James will be forced to bear part of the trustee’s costs in defending a valid claim. To avoid imposing a cost burden upon James as a beneficiary, Andrew should pay the full amount of any costs incurred by the trustee on an indemnity basis. Even if some of those costs are arguably excessive or unreasonable, because Andrew was the director responsible for the trustee’s defence of the claim, he can hardly complain about any costs incurred at his direction or with his knowledge and approval.
Andrew’s claim for costs
42Andrew claims that because James discontinued the action against him in May 2016, James should pay his costs until that time. I disagree. James began the proceeding against both the trustee and his brother. Although James ultimately discontinued the claim against Andrew, I consider that because:
· Andrew brought about the litigation by his repudiation of the solution he proposed and the agreement he made with his brother;
· Andrew caused the first defendant as the registered proprietor of the property not to perform the agreement;
· there was no evidence that Andrew incurred costs associated with the litigation which were additional to those incurred by the trustee,
Andrew should not recover his costs. On the contrary, he should bear the costs of the other parties.
Conclusion
43Having regard to the matters set out in these reasons and subject to hearing further from the parties (if they so wish), I propose to make the following orders:
1.The Court declares that the first defendant holds its interest in the property situated at and known as 50 Puckle Street, Moonee Ponds, Victoria (being all the land described by Certificate of Title Volume 8434, Folio 632) (“the property”) on trust for itself and the plaintiff as tenants in common with the plaintiff having 9 equal undivided 40th parts or shares (“the plaintiff’s interest”) and the first defendant the remaining 31 equal undivided 40th parts or shares.
2.The first defendant as soon as practicable transfer the plaintiff’s interest in the property to the plaintiff.
3.As soon as it is practicable for him to do so, the plaintiff serve upon the first defendant in a form ready for execution, any documents he requires the first defendant to execute in order to transfer the plaintiff’s interest in the property to the plaintiff, and in order to have the plaintiff’s interest in the property registered on title pursuant to the Transfer of Land Act 1958 (Vic).
4.Andrew Vlahos, the former second defendant, execute all such documents provided to him by the plaintiff and deliver them to the plaintiff’s solicitors within 21 days of service of them upon him and in default thereof, the Registrar of the Court be authorised to execute
them on behalf of the former second defendant.
5.There be liberty to apply in relation to the preceding paragraphs of this order.
6.Andrew Vlahos, the director of the first defendant and the former second defendant in the proceeding, pay the plaintiff’s costs of the proceeding including reserved costs and the costs of the first defendant’s application to re-open its case, such costs to be taxed on a standard basis in default of agreement.
7.Andrew Vlahos, the director of the first defendant and the former second defendant in the proceeding, pay the first defendant’s costs of the proceeding including reserved costs and the costs of the first defendant’s application to re-open its case, such costs to be taxed on a indemnity basis in default of agreement.
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