FEDERAL COURT OF AUSTRALIA

Dobrinski v Shepard (Trustee); in the matter of Slade (No 3) [2020] FCA 696

ORDERS

THE COURT ORDERS THAT:

1.    The parties are to bring in Short Minutes of Orders to give effect to these reasons within 14 days.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

FLICK J:

1    It was in May 2018 that the present proceeding was commenced. The Applicant was Ms Irene Dobrinski. She has since died. She was a judgment creditor in the estate of her daughter, Ms Roslyn Slade.

2    In the proceeding before this Court Ms Dobrinski sought relief as against the trustee in bankruptcy. A difficulty emerged by reason of the fact that Ms Dobrinski lacked capacity to either commence or to continue to pursue the proceeding. An order was thus ultimately made on 20 June 2019 for the appointment of a litigation representative (Ms Sarah Winter) pursuant to r 9.63 of the Federal Court Rules 2011 (Cth) (“Federal Court Rules”): Dobrinski v Sheppard [2019] FCA 843. An updated Consent to be appointed as a litigation representative was filed on behalf of Ms Winter on 24 June 2019. The hearing proceeding over a period of three days in October/November 2019. In February 2020 the proceeding was dismissed: Dobrinski v Shepard (Trustee); in the matter of Slade [2020] FCA 197. The claims advanced on behalf of Ms Dobrinski were rejected.

3    The Respondent Trustee now seeks an order that the estate of Ms Dobrinski pay his costs and an order that those costs be paid on an indemnity basis as from 3 October 2019. A further order is also sought that Ms Winter pay the costs as from 24 June 2019 to 3 October 2019 and that she pay those costs as from 3 October 2019 on an indemnity basis. The Applicant, for her part, seeks an order that the Respondent pay her costs or that each party pay their own costs.

4    The submission that those costs should be paid on an indemnity basis as from 3 October 2019 was founded upon an offer then made by the Respondent Trustee to resolve the proceeding.

5    It is concluded that an order should be made for the payment of the Respondent Trustee’s costs out of the estate, those costs being on an indemnity basis as from 10 October 2019 – as opposed to 3 October 2019 – because the offer was expressed to be open for acceptance for a period of seven days. In the event that those costs are not paid, it is further concluded an order should be made that Ms Winter should pay the costs including an order that those costs be paid on an indemnity basis as from 10 October 2019.

6    No question arises, it is respectfully concluded, as to the making of any order that the Respondent Trustee should pay the costs of the Applicant or any order that each side should bear their own costs. No conduct of the Respondent Trustee contributed to any delay in the conduct of the hearing; such delay as was occasioned by the fact that the Applicant lacked capacity to even commence the proceeding and the need to appoint a litigation representative must be placed at the feet of the Applicant: Dobrinski v Sheppard [2019] FCA 843 at [50]. It was the Applicant’s solicitor, and not the Respondent Trustee, who should have ensured that the Applicant had capacity to properly give instructions.

7    The simple fact is that the Applicant commenced a proceeding and was totally unsuccessful in obtaining any of the relief which she claimed. Not the least of the difficulties in the path to success was the fact that in November 2013 Ms Dobrinski had signed a Deed of Assignment in which she assigned her debt in the bankrupt estate in consideration of $150,000 plus the prospect of a further $50,000. In February 2020, this Court concluded (inter alia) that “after the execution of the Deed of Assignment … any interest in pursuing the debt had been assigned … and Ms Dobrinski had no residual interest left to pursue”: [2020] FCA 197 at [72].

8    Although the Court unquestionably has a wide discretion as to the manner in which the discretionary power to award costs is to be exercised, “[o]rdinarily costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order…”: Ruddock v Vadarlis (No 2) [2001] FCA 1865 at [11], (2001) 115 FCR 229 at 234 per Black CJ and French J. There is no reason in the present case why the “ordinary” or “normal” rule as to costs should not be followed.

9    The submission that those costs should be paid on an indemnity basis is founded on the offer made by the Respondent Trustee on 3 October 2019. The offer was, in effect, for each party to “walk away” from the proceeding with no order for costs, provided the parties consented to the proceeding being dismissed and a release being given to the Respondent Trustee. The offer was expressed to be made “in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 and subsequent cases”. It was not an offer made in accordance with the regime set forth in Pt 25 of the Federal Court Rules. An indemnity costs order may be made if the opposing party has unreasonably or imprudently rejected an offer of compromise: Specsavers Pty Ltd v Luxottica Retail Australia Pty Ltd (No 2) [2013] FCA 807. In summarising some of the relevant principles, Griffiths J there observed:

[10]    The relevant principles may be summarised as follows:

•    under s 43 of the Federal Court of Australia Act 1976 (Cth) …, the Court has a power to award costs, which includes a power to award costs on an indemnity basis. The discretion to award costs must be exercised judicially;

•    while various cases have identified various relevant factors, the presence or absence of which may be persuasive as to whether indemnity costs are appropriate, the exercise of the discretion in a particular case must depend on all relevant circumstances of that case …;

•    the unreasonable or imprudent rejection of a Calderbank offer may result in indemnity costs being awarded. The mere rejection of a Calderbank offer followed by a result which is more favourable to the offeror and less favourable to the offeree than that represented by the offer does not automatically lead to the making of an order for payment of costs on an indemnity basis …;

•    Part 25 of the Federal Court Rules 2011 establishes a regime which, if utilised, gives rise to a presumptive entitlement to indemnity costs …. But that regime was not employed here. It might also be noted that, under that regime, an offer to compromise has to be open to be accepted for a period of not less than 14 days after the offer is made (r 25.05);

•    the offeror needs to show that the conduct of the offeree was unreasonable and that conduct is to be viewed in light of the circumstances which existed at the time the offer was rejected. The fact that the offeree ultimately fails to make good their case does not mean that they acted unreasonably in rejecting an offer …; and

•    a helpful but non-exhaustive list of circumstances which may be relevant in determining whether the rejection of a Calderbank offer is reasonable or not is set out in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at [25] and includes:

(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 an application for an indemnity costs in the event of the offeree’s rejection of it.

(some citations omitted).

See also: Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2020] FCA 598 at [58] per Bromwich J.

10    Considerable caution should be exercised before reaching a conclusion that an offer by a defendant, inviting a plaintiff to “walk-away” from a case which ultimately fails, should necessarily attract an order that the plaintiff should pay costs on an indemnity basis: cf. Leichardt Municipal Council v Green [2004] NSWCA 341 at [30] to [38] and [44] per Santow JA (Bryson JA and Stein AJA agreeing).

11    On behalf of the Respondent Trustee it was submitted that the failure to accept the offer made on 3 October 2019 was “unreasonable or imprudent” (inter alia) because:

    the offer reflected a genuine and valuable compromise – by 3 October 2019 substantial costs would have been incurred by both sides to the litigation. An offer on the part of the Respondent Trustee to “walk away” from the dispute, in return for (inter alia) a release from liability, was an offer to “walk away” from litigation in respect to which, from his perspective, he had real prospects of success by reason of (inter alia) the Deed of Assignment, and a very real prospect that he would ultimately be entitled to an order for the payment of his costs;

    the offer itself expressly brought to the attention of the Applicant the difficulties which she would face by reason of (inter alia) her having “no standing” by reason of the Deed of Assignment; and

    the offer was made about four weeks prior to the commencement of the hearing, namely at a point of time when an assessment could readily have been made (and should have been made) as to the difficulties to be confronted at the hearing – including the difficulties to be confronted in maintaining an allegation of fraud as against the Respondent Trustee, an allegation which was not ultimately pursued. Other difficulties to be potentially confronted by the Applicant, founded upon an assessment as to the factual merits of the claims being made, were only highlighted by reason of adverse findings having been made in another proceeding raising like issues (Slade v Shepard [2013] FCCA 1237).

The offer, moreover, was:

    open for a period of seven days, that period being “long enough to be properly considered” (cf. Herold v Seally (No 3) [2017] FCA 956 at [13] per Bromwich J), especially given the stage of the proceeding at which the offer was made and the familiarity of the parties with the issues (many of which had been previously canvassed in other proceedings).

12    Such features of the case, it is respectfully considered, take the case out of the “ordinary” category of cases and warrant a finding that the continued pursuit of the proceeding after the making of the offer was “so unreasonable as to make it unjust that [the Respondent Trustee] should be limited in its recovery to party and party costs”: cf. Sony Computer Entertainment Australia Pty Ltd v Dannoun (No 2) [2001] FCA 1530 at [4] per Lindgren J; Edgetec International Pty Ltd v Zippykerb (NSW) Pty Ltd (No 2) [2012] FCA 354 at [4] per Reeves J.

13    It was “unreasonable or imprudent” not to have accepted the offer by no later than the expiration of the seven day period during which it remained open, namely 10 October 2019. The continued pursuit thereafter by the Applicant was also “so unreasonable as to make it unjust” to confine the Respondent Trustee to the recovery of his costs on the “ordinary” basis.

14    It is thus concluded that as from 10 October 2019 the Respondent Trustee is entitled to an order that his costs be paid out of the estate on an indemnity basis.

15    Although the Respondent Trustee seeks both orders that his costs be paid by the Estate and by Ms Winter, the orders sought not being expressed to be in the alternative, it is considered that orders in that form proposed should not be made. In the event that the costs are not paid out of the estate either in whole or in part, however, an order should be made that those costs or the balance of such costs should be paid by Ms Winter.

16    One of the reasons for appointing a litigation representative is to ensure that an opposing party has a person to look to for the payment of costs incurred: Challenger Life Company Limited v Estate of the Late Robert John Real (No 2) [2017] FCA 1059. In summarising some of the principles of relevance, Gleeson J there observed:

[52]    An important purpose, although not the only purpose, for the appointment of a litigation representative to a person under a disability is to ensure that there is a person available to bear the costs of the successful opposing party: …. It is well-established that if an action brought by a plaintiff under a disability is dismissed, and the defendant is awarded costs, the next friend of the plaintiff is personally liable to the defendant for the costs. It is also well-established that if the next friend has acted properly, he or she is entitled to an indemnity from the plaintiff or out of any fund to which the plaintiff is beneficially entitled: …

[53]    However, there is no invariable rule that a litigation representative must be ordered to pay the costs of proceedings unsuccessfully brought or defended on behalf of a person under a legal capacity. To the contrary, there are cases where the Court has imposed restraints upon the liability of a tutor for costs: …

(citations omitted).

17    There is no hesitation in exposing Ms Winter to the prospect of having to pay some or all of the costs incurred. On the facts of the present case, Ms Winter was expressly advised as to the prospect that she may be ordered to pay costs in the event that Ms Dobrinski’s claim was unsuccessful: [2019] FCA 843 at [44]. In the event that the Respondent Trustee’s costs are not paid out of the estate, there is no reason why those costs should not be paid personally by Ms Winter.

18    No submission was made that costs should not be paid out of the estate.

CONCLUSIONS

19    The Respondent Trustee is thus entitled to the payment of its costs, those costs being on an indemnity basis as from 10 October 2019.

THE ORDERS OF THE COURT ARE:

1.    The parties are to bring in Short Minutes of Orders to give effect to these reasons within 14 days.

Associate:

Dated:    22 May 2020