IN THE COUNTY COURT OF VICTORIA
AT Melbourne
COMMERCIAL DIVISION	 Revised
Not Restricted
Suitable for Publication	
General List
Case No. CI-20-00186

MICHAEL JOSEPH QUINN	Plaintiff	
		
v		
		
MITCHAM WHITELAW PTY LTD (t/a MW LAW)	Defendant	

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JUDGE:	HIS HONOUR JUDGE COSGRAVE 	
WHERE HELD:	Melbourne	
DATE OF HEARING:	28 July and 18 August 2020	
DATE OF RULING:	20 August 2020	
CASE MAY BE CITED AS:	Quinn v Mitcham Whitelaw Pty Ltd	
MEDIUM NEUTRAL CITATION:	[2020] VCC 1266		

RULING

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APPEARANCES:
	Counsel	Solicitors	
For the Plaintiff	Mr R Antill	Peter Lynch	
			
For the Defendant	Mr M P Costello	Colin Biggers & Paisley Lawyers	

HIS HONOUR:
Application
1	This application involved two separate summonses.  The first was an application by the plaintiff (“Quinn”) against the defendant (“MW”) for summary judgment, with Quinn seeking an order that MW reconstitute a trust fund in the sum of $294,840.37. Quinn also sought interlocutory orders for the determination of damages and interest payable by MW or, alternatively, that two paragraphs of MW’s defence be struck out.
2	The second application was one by MW for an order that the proceeding be stayed pursuant to Rule 23.01(1) of the County Court Civil Procedure Rules 2018 (Vic) (“the Rules”).  MW contended that Quinn had brought the proceeding in the wrong court.  MW argued that, because Quinn’s claim depended crucially upon whether MW had breached an order made by the Federal Circuit Court in a dispute between Quinn and his former de facto partner, Rhonda Edwards (“Edwards”), any case ought to have been initiated in that court and not the County Court.
Background
3	This proceeding is part of a long-running dispute in the Federal Circuit Court of Australia and the Family Court of Australia between Quinn and Edwards.  
4	On 9 April 2014, Quinn filed an application in the Federal Circuit Court for a property settlement arising from the termination of the relationship between him and Edwards.  When the relationship concluded, the parties were living apart in the former matrimonial home at 5 Hughes Court, Wheelers Hill in Victoria.  This property, which was registered in the name of Edwards, was sold and, pursuant to consent orders made by Judge O’Sullivan, it was agreed that each of Quinn and Edwards would receive 30 per cent of the nett proceeds and the remaining balance of 40 per cent was to “be held in trust by the respondent’s solicitor invested in an interest bearing account in the joint names of the parties”.  At the time, Edwards’ solicitors were Cantwell Family Lawyers (“CFL”) and this firm arranged for the funds to be deposited in an interest  bearing account in the joint names of Quinn and Edwards.  
5	On 12 January 2016, CFL ceased acting for Edwards and MW commenced acting for her in the Federal Circuit Court proceeding.
6	Quinn did not prosecute the Federal Circuit Court proceeding as efficiently as he should have, and on 9 February 2016, Judge O’Sullivan ordered that Quinn’s application filed 9 April 2014 be dismissed pursuant to Rule 13.12 of the Federal Circuit Rules 2001 (Cth) and the proceedings be removed from the Pending Cases List.  Shortly thereafter, Judge O’Sullivan dismissed Quinn’s application for leave to file a property application out of time and ordered costs against Quinn.  
7	In September 2017, Quinn appealed the orders of Judge O’Sullivan dismissing his application for a property settlement.  In February 2018, Justice Strickland granted Quinn leave to appeal the order in question and remitted the matter back to the Federal Circuit Court for rehearing by a different judge.  
8	On 14 May 2018, Judge Hartnett heard Quinn’s application for leave to file a property application out of time.  Then on 27 July 2018, Judge Hartnett granted Quinn leave to issue the application out of time and adjourned the matter to November 2018 for final hearing.  
9	Edwards appealed the decision of Judge Hartnett.  The Full Court of the Family Court of Australia found that Judge O’Sullivan’s dismissal of Quinn’s application did not finally dispose of the proceeding and accordingly, Quinn did not require leave from the Court to file his second application.  
10	In May 2020, Judge Jarrett listed the proceeding for a conciliation conference in August 2020.
11	On 29 March 2016, CFL wrote to the solicitors for both Quinn and Edwards.  They confirmed that the orders made in relation to the proceeds from the sale of the Wheelers Hill property required “the respondent’s solicitors” to hold the moneys.  In those circumstances, CFL said it was not appropriate for them to hold the moneys when they were no longer acting in that capacity for Edwards.  MW were now Edwards’ lawyers.  Accordingly, unless they heard otherwise, CFL intended to transfer the moneys to MW’s trust account when the controlled money account, which CFL had established, matured.  This was due to occur on 7 April 2016.  
12	Thereafter, there was substantial correspondence passing between CFL and MW in relation to the moneys.  Bailey Timms, the solicitors acting for Quinn at the time, were not party to most of that correspondence.
13	In the correspondence, MW expressed the view that CFL held the funds on trust pending the final outcome of the Family Law property proceedings.  They said that the proceedings had been dismissed by the order made on 9 February 2016.  The funds derived from the sale of the Wheelers Hill property  which Edwards owned. Because there were no longer any proceedings on foot, the funds could be returned to the person who provided them, namely Edwards.  MW said that this view of the matter had been confirmed with the Law Institute of Victoria and MW’s external auditor.  The auditor was allegedly of the view that the funds could be transferred without needing to obtain Quinn’s written consent.  Further, the funds could be returned to Edwards because the proceedings had been dismissed.
14	By email dated 12 April 2016, CFL advised MW that it was instructing the Commonwealth Bank to transfer the funds to MW’s account.  The email said that the transfer conformed with the orders made by the Federal Circuit Court on 28 October 2014 and the moneys were to be held in the joint names of the parties.
15	In late April 2016, MW disbursed the funds as follows:  MW received $21,532.50 for payment of legal costs charged to Edwards; the balance of $273,307.87 was paid to Edwards. Quinn did not consent to the disbursement of the funds and indeed, only became aware of it months later.
16	On 17 January 2020, Quinn issued this proceeding in the County Court.  
17	On 7 April 2020, MW filed its defence.
18	In its defence, MW said, inter alia,:
•	It denied that it held the trust funds on behalf of Quinn and Edwards.  Rather, MW said that it  understood that it received the trust funds solely on behalf of Edwards.  
•	It admitted that it did not transfer the trust funds into an interest bearing account in the joint names of Quinn and Edwards but only in Edwards’ name.
•	It understood that it received the trust funds solely for Edwards and not subject to the Federal Circuit Court order of 28 October 2014 or the instruction given by CFL.
•	It believed that it was complying with its obligations in relation to the trust funds in transferring them to Edwards at her request.
19	Also in its defence MW said that it received advice from the Law Institute of Victoria in relation to the trust funds to the effect that:  the funds were held in trust pending the final outcome of the family law proceeding between Quinn and Edwards; the family law proceeding was dismissed on 9 February 2016; the funds were obtained from the sale of Edwards’ property; because the family law proceeding was no longer on foot, the funds could be returned to Edwards.
20	Additionally, MW said that it received advice from its external auditor to the effect that because the family law proceeding had been dismissed, the funds could be transferred to Edwards without Quinn’s consent.
21	On 22 June 2020, Quinn issued his summons seeking final judgment with the reconstitution of the trust funds.
22	On 2 July 2020, MW issued its stay application.
23	After hearing argument on 13 July 2020 and retiring to consider my judgment, I noted that MW had filed no affidavit evidence against Quinn’s summary judgment application.  The only evidence MW filed concerned its stay application.  When later the same day I reconvened the court and raised this issue, MW sought an adjournment to file affidavit material.  I made consequential orders before adjourning the matter for further hearing on 28 July 2020.  Notwithstanding the opportunity granted to it, MW then failed to file any affidavit material before the resumed hearing date.
24	Early on the morning of 28 July 2020, I received an email sent from MW’s solicitors the previous evening to which the solicitor attached some proposed orders.  The covering email was in the following terms:
“The purpose of this email is to explain the defendant’s position in advance of the further hearing tomorrow at 5.00pm.
 The defendant respectfully submits that the court should make the orders as per the attached form of order which we have prepared.
 As we understand it, the outstanding issues for the court to deal with at the further hearing will be:
1.	Timetabling orders for the hearing of the remaining claims made by the plaintiff in the case (i.e. damages and interest).
2.	The basis upon which costs should be awarded to the plaintiff in respect of his summons dated 22 June 2020.
 We invite the plaintiff’s solicitors to clarify his client’s position”.
25	After reading the email, I had my associate send an email to Quinn’s solicitors, in which I asked that they advise the court by 2.00pm of his attitude to the orders sought by MW.  I said that if the plaintiff sought alternative orders, it would be helpful if they could be forwarded to the court as soon as possible.
26	Later in the morning, Quinn’s solicitors sent an email attaching the orders sought by the plaintiff.  The covering email was in the following terms:
“I have attached an alternative minute of proposed orders that the plaintiff seeks.
 I confirm that the outstanding issues for the court to deal with at the further hearing will be:
1.	Timetabling orders for the hearing of the remaining claims made by the plaintiff in the case (i.e. damages and interest).
2.	The basis upon which costs should be awarded to the plaintiff in respect of the proceeding to date, including his summons dated 22 June 2020”.
27	Thus, it was clear from the terms of the proposed minutes of order submitted by the parties that, between the initial hearing and the adjourned date, they had effectively resolved the main issues regarding the stay and the reinstatement or reconstitution of the trust. They agreed upon those orders and also about what issues the court had to resolve- namely, the questions of interest and the appropriate scale of costs. Court convened at 5.00pm on 28 July 2020 and the parties duly made submissions. I reserved my decision. 
28	On Thursday 13 August 2020, at about 6.55pm, MW’s solicitors emailed my chambers advising that it withdrew its consent to the orders which it had proposed at the hearing on 28 July 2020 and wished to be heard further. They advised that on 3 August 2020, MW had filed an application by which it sought to be joined to the Federal Circuit Court proceeding between Quinn and Edwards. They also said that MW, as a non-party, had participated in a conciliation conference in the Family Court proceeding. They sought a date not before 20 August 2020 for the further hearing.
29	On the morning of 14 August 2020, Quinn’s solicitors emailed a letter and medical certificate to my chambers. The certificate advised that Quinn had been diagnosed with meningioma, a brain tumour likely to require surgery soon. The doctor advised that the tumour was likely to have a negative impact on Quinn’s cognitive function resulting in impaired memory, judgment and decision making.
30	The letter objected to MW’s request for a further hearing and to withdraw its consent to the orders previously proposed to the court. Quinn argued that the court should make the orders previously agreed by the parties and deliver judgment on the outstanding issues of interest and costs. The letter also objected to delaying any hearing, if there were to be one, until 20 August 2020. Given the circumstances, it said that MW should be prepared to act without delay.
31	By 14 August 2020, I had completed a final draft of my ruling in the matter. But for the need to focus on completing a seven day trial by the close of business that day, I would have given judgment on that day.
32	On 14 August at around 4.40pm, my chambers advised the parties by email that:
•	I was available for a Zoom hearing at 2.15pm on 18 August 2020;
•	MW should file an outline of submissions and an affidavit explaining its position by 10.00am on 17 August 2020;
•	Quinn should file responsive submissions and any affidavit material by 10.00am on 18 August 2020.
33	Then, on 15 August 2020 at about 6.35pm, MW’s solicitors emailed my chambers yet again to advise that, having had further time to consider issues arising from the conciliation conference, taken advice from counsel and obtained instructions from their client, they no longer sought another hearing. They re-confirmed the agreement to the proposed orders which they had forwarded previously.
34	This correspondence, in turn, prompted an email on the evening of 16 August 2020 from Quinn’s solicitors. They asked that the hearing on 18 August 2020 proceed for various reasons set out in their correspondence.
35	On the morning of 17 August 2020, my chambers confirmed to the parties that the hearing would proceed the following day.
36	At the hearing on 18 August 2020, MW confirmed that it had not changed its position in the preceding 24 hours and was content for the court to make the orders for reinstatement of the trust moneys and holding them on trust for Quinn and Edwards. Beyond that, it said that the court should determine the questions of interest and costs, and that it agreed to the usual timetabling orders which Quinn had submitted in preparation for the trial next year. Quinn primarily sought certainty from MW regarding its intentions about the immediate future of the litigation. He seemed satisfied with the position which MW adopted at court. 
37	In view of the history set out  above, I will address the remaining issues of the interest payable on the trust moneys and the scale upon which Quinn should be awarded costs. 
Interest
38	Quinn sought an order for interest to reflect the fact that MW had paid over the trust funds to Edwards in April 2016.  Accordingly, those funds had not earned any interest since that time.
39	I queried how appropriate it was for me to make a ruling about interest at this time in the proceeding.  I queried whether it was more appropriate to be left to the trial judge once the question of damage alleged by Quinn had been determined.  However, counsel for both parties indicated that they each regarded it as advantageous to have this issue determined sooner rather than later.  Because both parties wanted me to do so, I agreed to rule on the matter. 
40	Quinn submitted that I should award him interest calculated on a simple basis at the rate set out in the Penalty Interest Rates Act 1983 (Vic) from  April 2016 until the date of reinstatement of the funds.  Alternatively, he argued that he should receive interest at the rate of 5 per cent per annum compounded with annual rests.
41	Quinn’s primary submission relied upon the judgment of Kyrou J (as he then was) in Talacko v Talacko.  The judge said there that the interest rate under the Penalty Interest Rates Act was appropriate because the defendant was a defaulting fiduciary and “the rates prescribed under that Act have been adjusted from time to time in response to movements in market rates.”
42	Quinn argued that the position in the present case was the same because MW was a defaulting fiduciary – it had distributed trust money other than in accordance with the terms of the trust upon which it held the money.  Moreover, it derived a direct benefit from the breach of fiduciary duty because the evidence disclosed that MW received $21,532.50 of the trust money made available to Edwards to pay fees she owed the firm.  
43	The alternate argument relied upon the lower rate of interest historically awarded to affected parties who suffered as a result of a breach of fiduciary duty.  Kyrou J noted in Talacko that in fixing the rate of interest, equity had traditionally distinguished between two classes of case.  In cases involving a breach of trust or misconduct, the fiduciary was charged interest at the mercantile rate of 5 per cent per annum.  In all other cases, the defaulting fiduciary was charged interest at the rate of 4 per cent per annum.  He referred to a judgment in the New South Wales Supreme Court which noted that it was no longer appropriate to apply a policy fixing a settled mean rate of interest in these circumstances.  Rather, it was suggested that the mercantile rate should reflect the reality of the marketplace as it exists today rather than at an earlier time when judicial attitudes were more fixed.  
44	The courts commonly awarded compound interest where the defaulting fiduciary used the money for his own benefit and was guilty of fraud or serious misconduct.  Part of the purpose served by an award of compound interest is to ensure that the delinquent fiduciary retains no profit in his hands.
45	MW argued that the court should not award interest at the rates allowed for under the Penalty Interest Rates Act.  It submitted that the court should focus on restoring the trust estate to the position that it would have been in but for the breach of duty.  Prior to the money coming into the hands of MW, it was invested in a four month term deposit at a rate of 2.65 per cent.  MW acknowledged that it should restore the fund with interest levied at that rate and compounded every four months.  MW argued that the award of equitable interest was not intended to punish the fiduciary.  Yet this would be the effect if the court adopted the punitive rates permitted by the Penalty Interest Rates Act.
Legal principles
46	In Talacko, Kyrou J reviewed cases about the court’s equitable jurisdiction to award interest in cases involving a breach of fiduciary duty or the payment of equitable compensation.  His Honour set out the principles for awarding interest.  Later in Kirk v PBP Accounting Solutions Pty Ltd, Macaulay J agreed with and adopted the position outlined in Talacko:
“Identifying the principles from Talacko relevant to the current matter:
(a)	The court has inherent equitable jurisdiction to award interest when the interests of justice so demand, including in circumstances where money has been withheld or misappropriated by a fiduciary.  The right to interest in equity exists independently of statute.“  So, the court’s equitable jurisdiction is not limited by s 60 of the Supreme Court Act 1986 (Vic);
(b)	Traditionally, in fixing the rate of interest, equity broadly distinguished between two classes of case.  In cases involving a breach of trust or misconduct, the fiduciary was charged interest at the mercantile rate of five per cent per annum.  In all other cases, the defaulting fiduciary was charged interest at a rate of four per cent per annum.  More recently, however, the courts have departed from the fixed interest rates of four and five per cent“;
(c)	In some circumstances, it will be appropriate for the court to award compound interest“, to ensure that no profit remains in the defaulting fiduciary’s hands. Citing Boehm AM in Southern Cross Commodities Pty Ltd (in liq) v Ewing16, this may, and normally will, occur where the defaulting fiduciary has used the money for his own commercial purposes, and also is guilty of fraud or serious misconduct. 
(d)	an award of compound interest should ordinarily be considered only in cases where the defaulting fiduciary is being compelled to disgorge a gain“; and
(e)	Although the decision to award simple or compound interest is discretionary, to be determined on the facts of each case, the court’s power to award compound interest is not at large, and there must be features in each case justifying a departure from the normal rule for simple interest.  There must be evidence of an actual gain by the defaulting fiduciary or an evidentiary foundation upon which any gain may be assumed.”
47	The Victorian Court of Appeal in Bullhead Pty Ltd v Brickmakers Place Pty Ltd [No 2] summarised the principles found in Talacko as follows:
“There is a considerable body of law surrounding the court’s equitable power to award interest in cases such as the present.  The cases were reviewed by Kyrou J in Talacko v Talacko, a case involving liability to pay equitable compensation.  The following principles relevant to this case may be extracted from Talacko:
(1)	There is an equitable jurisdiction to award interest where money has been withheld or misappropriated by a fiduciary, and that right is independent of statute. 
(2)	Traditionally, at a time when interest rates were stable, a fiduciary whose liability was based on misconduct (as here) was ordered to pay interest at an annual ‘mercantile rate’ of five per cent. 
(3)	During times of interest rate volatility, however, awards of interest at higher rates were made in a number of cases, so that ‘the mercantile rate should reflect the reality of the market place’ at the relevant times. 
(4)	The purpose of awarding interest in equity is not to punish the defaulting fiduciary but, rather, ‘to restore to the innocent party the benefit derived by the defaulting fiduciary from his or her use of the property’. 
(5)	In some circumstances, compound interest with yearly rests may be awarded.  For example, where the defaulting fiduciary has used the money for commercial purposes, or where the defaulting fiduciary ‘has been guilty of fraud or serious misconduct’. 
(6)	It may be that the right to award compound interest is limited to ‘cases where the defaulting fiduciary is being compelled to disgorge a gain’- as here. 
(7)	In order to justify an award of compound interest, there must be ‘some evidentiary foundation’ for an assumption that the defaulting fiduciary has made a gain from use of the profit which must be disgorged. 
(8)	In the case of defaulting fiduciaries, there is a discretion to award the statutory rate in times of interest rate volatility.”
Consideration
48	I accept that the aim of an award of interest is to require the defaulting fiduciary to restore the trust fund and make good any loss or damage caused to it.  In the present case, CFL, who preceded MW as the solicitors acting for Edwards, transferred to MW upon the expiration of the term deposit the trust moneys held in the controlled money account at the Commonwealth Bank of Australia for Quinn and Edwards.  When writing to MW about the imminent transfer of moneys on 12 April 2016, CFL said:
“We note that we have transferred the funds in conformity with the Federal Circuit Court orders dated 28 October 2014 at Paragraph 8(d)(iii) noting that your firm is now the solicitor for Ms Edwards.  The orders provide for the moneys to be held in an interest bearing account in the joint names of the parties.”
49	From that letter and other correspondence, I infer that MW knew or should have known that it was receiving trust moneys.  MW says that at the time, it believed that the Federal Circuit Court proceedings were complete due to the order made dismissing Quinn’s application for a property settlement.  Even if that were true, it remains the case that:
(a)	MW’s belief was wrong as a matter of law;
(b)	MW did not seek a discharge or variation of the court order made on 28 October 2014 in relation to the trust funds; and
(c)	by November 2019, MW knew its understanding of the situation was incorrect and it took no action to reinstate the fund.
50	The mercantile rates have moved over time.  Traditionally set at 5 per cent per annum, it has been higher with the Victorian Supreme Court in Talacko allowing interest under the Penalty Interest Rates Act and Garde AJA opining in Australasian Annuities Pty Ltd v Rowley Super Fund Pty Ltd, that 6 per cent per annum was appropriate.  
51	I consider that there is no inflexible level at which the rate should be set.  It depends partly upon the economic circumstances prevailing at the time and partly on the particular facts and circumstances of the case before the court.  Almost invariably, the two are linked.  The trust money taken is removed from one place and deployed elsewhere in a market or a business (or otherwise spent).  
52	Here, the evidence shows that before MW received the funds from CFL, they were invested in a four month term deposit at the Commonwealth Bank of Australia with an interest rate of 2.65 per cent.  
53	There was no specific evidence adduced about the investment options available at the time the moneys were transferred from CFL to MW. 
54	I regard the mercantile rate of 5 per cent per annum as excessive in the circumstances.  I accept that interest rates have been at historic lows in recent times.  In my opinion, an appropriate rate is 3.5 per cent per annum.  Allowing for some uncertainty about the available rates in April 2016, I consider that this should protect the trust fund without being punitive towards MW.  To the extent that MW sought a lower rate, it could have adduced relevant evidence about available rates for the period since April 2016 if it had so desired.
55	The authorities suggest that compounding is appropriate when the delinquent fiduciary obtains a benefit or acts fraudulently or commits serious misconduct.  Here MW is a firm of solicitors and accordingly, it should have been aware of its fiduciary obligations.  MW acknowledged that it received approximately $21,539 in payment of fees owed by Edwards.  Given that MW still acts for Edwards, I consider it likely that Edwards has also paid other fees to MW from the substantial funds made available to her.
56	In my view, MW should pay interest on the funds distributed to Edwards, namely, $294,840.37 at a rate of 3.5% compounded quarterly. Interest is payable for the period from 14 April 2016 when MW received the funds until the date of reinstatement.
Costs
57	For its part, MW said that the court should not contemplate a costs order with respect to the costs of the whole proceeding as Quinn sought.  Rather, it should focus on the summons filed by each party and restrict its ruling to dealing with those two summonses.  MW argued that it was entitled to act as it did in defending the case and that Supreme Court authority suggested that Quinn’s claim for breach of statutory duty and consequential damages was barely arguable and it would be unfair of MW to make substantive orders against it at this point.
58	At the hearing on 28 July 2020, Quinn argued  primarily that he should get the costs of the proceeding paid on an indemnity basis.  The critical point seemed to be that after the Full Court of the Family Court of Australia gave judgment saying that the dismissal order made by Judge O’Sullivan on 9 February 2016 did not bring the Family Court proceeding between Quinn and Edwards to an end, MW ought to have known that it had acted wrongly in releasing to Edwards the trust funds it had received from CFL.  Thus, Quinn argued that MW should have acted to reconstitute the trust funds immediately.  However, not only had MW failed to do that, but it had then contested Quinn’s application for reconstitution of the fund, filed a defence to the proceeding, opposed the summary judgment application, and sought a stay of Quinn’s action.  Quinn argued that such conduct was inappropriate, especially from a firm of lawyers subject to a fiduciary duty as a trustee with respect to the moneys held jointly for Quinn and Edwards.
59	In addition to MW’s conduct of the litigation, Quinn relied upon a letter from his solicitor, Peter Lynch, to MW’s solicitors dated 22 May 2020.  There, Lynch explained the gist of Quinn’s case, the relevant principles of trust law, and analysed MW’s defence.  Lynch set out why he was unable to understand how MW could deny that it held the moneys received from CFL on trust for Quinn and Edwards.  Similarly, he expressed his puzzlement at MW’s denial that by paying out those funds to Edwards and retaining some for themselves, MW had breached its duties as trustee, the order of the Family Court and the direction given by CFL.  Lynch also commented on the absence of evidence from MW regarding the defence based on section 67 of the Trustee Act 1958 (Vic).
60	Lynch’s letter contained an open offer to settle the case on the basis that:
•	on or before 31 May 2020, MW reinstated the trust funds in the amount of $294,840.37 together with interest that those funds would have accrued from 14 April 2016 to the date of reinstatement, such interest to be assessed by the court in default of agreement;
•	MW paid Quinn’s legal costs of the claim brought in the County Court, such costs be taxed on a party-party basis in default of agreement;
•	Quinn waived his right to further damages suffered as a result of MW’s breaches, as alleged in the statement of claim;
•	the County Court proceedings be struck out with a right of reinstatement.
61	I have referred above to MW’s assertion that it has acted reasonably in connection with this litigation.  In relation to Lynch’s letter, MW responded with a without prejudice letter dated 2 June 2020, which I have received from Quinn’s solicitors.  MW has raised no objection to my looking at and having regard to the letter.
62	Colin Biggers & Paisley, the solicitors acting for MW, noted their disagreement with many of the assertions in Lynch’s letter.  They contended that the defence under section 67 of the Trustee Act would require evidence at trial and that, even if Quinn succeeded in the County Court action, he would not necessarily be entitled to any part of the trust money until an order was made to that effect in the Family Court of Australia.  It was said that this might never occur.  The solicitors also noted that it was not helpful to be arguing about technical pleading issues.  They said that they would oppose a summary judgment application and might seek to stay the County Court proceeding.
63	The letter from Colin Biggers & Paisley included an offer to settle the County Court action on terms which included a payment to Quinn of $100,000.  The offer was subject to a series of conditions as follows:
•	Quinn would provide a release to MW for any claim against it for compensation in any form whatsoever (including claims for contribution or indemnity) connected with, or related in any way to, the facts giving rise to the County Court proceeding and/or the family law proceeding between Quinn and Edwards;
•	Quinn was to execute an agreed deed of release;
•	MW would pay the $100,000 within 28 days of receipt of an executed release;
•	Quinn and MW would agree to orders in the County Court proceeding dismissing the proceeding with no order as to costs;
•	MW agreed to discontinue the proceeding in the Family Court;
•	the offer was open for acceptance until 4.00pm on 16 June 2020.
64	Colin Biggers & Paisley argued that the offer was generous when Quinn might not get any more from the property settlement given that the Wheelers Hill property was owned by Edwards and bought with the proceeds of sale from another property she owned before she commenced her relationship with Quinn.  Further, they pointed out that Quinn had already received 30 per cent of the proceeds of sale of the property.
65	In response, Quinn argued that the offer was unclear because Quinn could not know whether MW had instructions from Edwards to discontinue the proceedings in the Family Court or whether Quinn was expected to discontinue the proceedings.  Not being a party, MW had no standing to discontinue that proceeding.  If MW were paying Quinn, there was no reason for him to discontinue the proceeding in the Family Court.  Further, it would have left him exposed if Edwards could still continue with her claim.
Legal principles
66	On the issue of costs, there are some well-accepted legal principles regarding the court’s powers:
(a)	The only immutable rule in relation to costs is that there are no immutable rules.
(b)	The award of costs is within the discretion of the court.
(c)	The discretion must be exercised judicially.  It cannot be exercised arbitrarily or capriciously.  Nor can it be exercised on grounds unconnected with the litigation or the circumstances leading to the litigation.
(d)	Costs are compensatory in the sense that they awarded to indemnify the successful party against the expense to which it has been put by reason of a legal proceeding.  The aim of a costs order is not to punish the unsuccessful party.
(e)	As a general rule, costs should follow the event with the result that, in the absence of special circumstances, a successful party should obtain its costs of a proceeding or application, even if it fails to establish all heads of claim.
67	A party seeking a special costs order must normally prove to a court that the particular circumstances of the case are such as to warrant the unusual exercise of the Court’s discretion.  In Ugly Tribe Co Pty Ltd v Sikola, Harper J said that the circumstances in which it had been held appropriate to order indemnity costs included the following:
•	the making of an allegation, known to be false, that the opposite party was guilty of fraud;
•	conduct which caused loss of time to the Court and the other party;
•	the commencement or continuation of legal proceedings for an ulterior motive;
•	conduct which amounted to contempt of Court;
•	the commencement or continuation of proceedings in wilful disregard of known facts or clearly established law.
Consideration
68	In the present case, Quinn contended in effect that MW maintained its defence of the case in wilful disregard of known facts or clearly established law.  Quinn argued that MW should have known from November 2019 after the decision of the Full Court of the Family Court of Australia that it had breached its duties as trustee and ought replace the trust moneys which it had either taken for itself or given to Edwards.  There is some force in this view.
69	However, MW considered that it had a defence under section 67 of the Trustee Act (even though it filed no direct evidence itself on the point).  While MW could and should, in my view, have done more by way of adducing relevant evidence, I acknowledge that much of the relevant email correspondence was exhibited to Lynch’s affidavit.
70	While the conduct of MW has been less than exemplary, after taking into account the applicable legal principles, relevant provisions of the Civil Procedure Act 2010 (Vic) and the obligations of MW thereunder, I am not sufficiently satisfied that an award of indemnity costs is warranted. Such an order is exceptional and MW’s conduct of the litigation does not justify an order of costs on that scale. 
71	The settlement offers between the parties were not decisive either way. Quinn’s offer did not represent much of a compromise because it was effectively limited to foregoing damages. This was problematic where he had no entitlement to any part of the trust funds until a judge of the Federal Circuit Court so ordered. This made it difficult for MW to assess the value of the offer. Another element of uncertainty was Quinn’s proposal that the court determine the interest payable in default of agreement by the parties. As has become apparent, the parties had significantly different views on the issue of interest, and again, this made it difficult for MW to assess the offer. 
72	MW’s offer was confusing in its reference to the proceedings in the Family Court. It was also a difficult offer to deal with because it sought to resolve two separate proceedings where the parties were not identical. 
73	In my view, neither Quinn nor MW could be said to have acted unreasonably in rejecting the other party’s offer. Accordingly, there is insufficient justification to order indemnity costs against MW. 
Conclusion
74	In the circumstances, I make the following orders:
i.	The defendant pay the amount of $294,840.37 into its trust account within 5 days of receipt of authenticated orders from the court.
ii.	The funds referred to in paragraph (i) are to be held in trust by the defendant for and on behalf of the plaintiff and Rhonda Marie Edwards pending further order of the Federal Circuit Court of Australia in Proceeding No (P)DGC 1025\2014.
iii.	The defendant pay interest on the amount of $294,840.37 at a rate of 3.5% compounded quarterly. Interest is payable for the period from 14 April 2016 when the defendant received the funds until the date of reinstatement.
iv.	The defendant pay the plaintiff’s costs of and incidental to both the plaintiff’s summons filed 22 June 2020 and the defendant’s summons filed 2 July 2020.  The costs are to be taxed on a standard basis in default of agreement.  For the avoidance of doubt, this order is in addition to, and not in substitution for, the costs order made by the court on 13 July 2020.