Estate of the late Shirley Joan Violet Gardner; Bernengo v Leaney (No 2)

1. [1]

   BELL P: On 1 October 2019, I delivered my reasons for judgment in Estate of the late Shirley Joan Violet Gardner; Bernengo v Leaney [2019] NSWSC 1324 (the primary judgment). The proceedings concerned the Estate of the late Ms Shirley Joan Violet Gardner (the deceased) who died intestate on 19 June 2017, leaving property in Cammeray, New South Wales (the Cammeray Property). The principal issue in the proceedings was whether or not Mr Juan Jose Bernengo (the plaintiff) was the “spouse” of the deceased within the meaning of s 111 of the Succession Act 2006 (NSW) or alternatively, as a fall-back position, whether provision should be made out of the deceased’s Estate for the plaintiff’s maintenance, education and advancement in life, pursuant to s 59 of the Succession Act.

2. [2]

   In the primary judgment, the Court made orders in favour of the plaintiff, declaring that he was the surviving spouse of the deceased, and an order granting letters of administration of the deceased’s Estate to him. Although it was strictly not necessary to deal with the plaintiff’s alternative claim, the Court held that if the plaintiff had not been successful in his primary claim, the Court would have found the plaintiff to be an “eligible person” within the meaning of the Succession Act, and would have made a provision in his favour from the deceased’s Estate, being a life estate in the Cammeray Property, together with a lump sum of $400,000.

3. [3]

   In addition to the above orders, the Court directed that the parties file and exchange written submissions in relation to the costs of the proceedings.

4. [4]

   This judgment assumes a knowledge of my findings in the earlier reasons for judgment.

Size of the deceased’s Estate

1. [5]

   In an affidavit sworn on 20 August 2019, Ms Anthea Mairin Kennedy (the interim administrator appointed pursuant to orders of Lindsay J on 11 February 2019) indicated that the net distributable Estate was valued at $3,544,416.48, subject to the payment of the costs of the proceedings and administration of the Estate and income tax liability. A breakdown of the nature and value of the deceased’s assets at the date of the affidavit was provided in Annexure A, as follows:

Offers of settlement

1. [6]

   On 20 December 2017, the plaintiff’s solicitor wrote to the defendant’s solicitor in a letter marked “[w]ithout prejudice save as to costs”. This letter set out the grounds by which the plaintiff claimed an interest in the Estate, namely that the plaintiff “was in a domestic partnership with the deceased immediately before her death on 19 June 2017”. The letter set out an overview of the factors relevant to this assertion, including the duration of the relationship between the plaintiff and the deceased, the nature and extent of common residence, the existence of a sexual relationship, the degree of financial dependence, the degree of mutual commitment to a shared life and the performance of household duties.

2. [7]

   The letter also dealt with the reputational and public aspects of the relationship, noting that “[t]he deceased had an understandable concern about the reaction from her family about her relationship with our client, particularly given the history between our client and Ms Bowles, and for this reason requested that our client did not discuss the true nature of their relationship with the deceased’s family or friends”. The reference to “Ms Bowles” in this letter is a reference to the deceased’s daughter, who had died as a result of a brain tumour in April 2007 and with whom the plaintiff had previously been in a de facto relationship. The letter went on to outline that “[n]otwithstanding this, we have contacted a number of third party witnesses who are prepared to give evidence that, to their knowledge, the deceased and our client were in a de facto relationship”.

3. [8]

   An offer was made by the plaintiff to resolve the dispute before the commencement of legal proceedings (the first offer), and was expressed to be made in accordance with the principles espoused in Calderbank v Calderbank [1975] 3 All ER 333 (Calderbank). The offer, expressed to be open for acceptance until 4:00pm on 15 January 2018, was expressed in the following terms:

4. [9]

   The defendant did not respond to the first offer within the period of acceptance. A file note prepared by the plaintiff’s solicitor, Mr Luke Dominish, on 6 February 2018 detailed that he received a phone call from Mr Beach Thomas (Mr Thomas), the defendant’s solicitor, in which Mr Thomas allegedly “said that the response to the without prejudice letter is that ‘there is not a hope in hell of settling it’ and that he has spoken to the ‘family’ and ‘beneficiaries’ and ‘they are not happy with Marco’. He stated that they have pooled their resources and he ‘has $60K in his trust account to fight it’.”

5. [10]

   The defendant’s solicitor provided a formal rejection to the first offer by way of letter dated 28 February 2018, indicating that the “defendants formally reject the offer contained in that letter”, and stating that the letter dated 20 December 2017:

6. [11]

   The plaintiff’s solicitor responded to this letter on 29 March 2018, indicating that it “did not accept that our client’s Offer was not a genuine compromise. The Offer involved our client walking away from the possibility of a costs order in his favour against your client. In the context of the costs already incurred to date, the possibility of recovering those costs was at the time of making the offer and still remains a genuine compromise”. It was further outlined that the letter dated 20 December 2017:

7. [12]

   In his written submissions, the plaintiff submitted that it was “unreasonable” for the defendant not to have accepted the first offer at this stage, for the following reasons:

   1. (1)

      The defendant’s affidavit evidence filed in the proceedings confirmed that he was aware that the plaintiff was living part of the time with the deceased at the Cammeray Property, and the defendant took steps to change the locks to the house within two weeks of the deceased’s funeral despite knowing that the plaintiff lived there;

   2. (2)

      The defendant played an instrumental role at the deceased’s funeral where he greeted the plaintiff warmly, asked him to sit in the front pew, escorted him out of the church, and endorsed the words of gratitude to the plaintiff as expressed by a Ms Iris Giurietto;

   3. (3)

      The defendant could have availed himself early on in the dispute as to the observations of the next of kin on intestacy as to the nature of the relationship between the plaintiff and deceased, from which he would have gathered that the plaintiff had been living with the deceased at her house at Cammeray for many years in a close personal relationship;

   4. (4)

      The affidavits relied upon by the defendant tended to support the plaintiff’s claim as to the existence of a domestic partnership and/or the family provision claim.

8. [13]

   In his submissions in response, the defendant submitted that the period for acceptance of the offer covered the Christmas vacation period, which he submitted was a factor relevant to its reasonableness. The defendant referred to In the matter of Hillsea Pty Limited [2019] NSWSC 1309, where Black J dealt with a Calderbank offer sent on 20 December 2018 that was open for acceptance until 17 January 2019, and outlined (at [52]):

9. [14]

   The defendant further submitted that although the term “compromise” connotes that a party gives something away, the first offer gave “nothing away, for example by offering to share the estate, and [was] obviously designed solely to trigger the costs sanctions”.

10. [15]

    The defendant submitted that its rejection of the first offer was not unreasonable, as it was not reasonably possible for the defendant to assess the true nature of the relationship when the first offer expired, in circumstances where:

11. [16]

    On 24 May 2019, the plaintiff served on the defendant three further offers of settlement. One of these offers was styled “Offer of Compromise” (the second offer) and was expressed to be made in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). That offer was expressed in the following terms:

12. [17]

    No response was received from the defendant to the second offer.

13. [18]

    In his written submissions, the plaintiff submitted that r 42.14 of the UCPR was applicable, which relevantly provides as follows:

14. [19]

    Accordingly, the plaintiff submitted that as the primary judgment of 1 October 2019 was “no less favourable to the plaintiff” than the terms of the second offer, the plaintiff was entitled to an order against the defendant for the plaintiff’s costs in respect of the proceedings on the ordinary basis up to 24 May 2019, and on an indemnity basis thereafter.

15. [20]

    The plaintiff submitted that a real element of compromise was involved in the second offer, as the compromise was the “offer to pay the [d]efendant’s costs of the proceedings out of the estate of the deceased on the ordinary basis as agreed or assessed”, and that acceptance of such an offer would “relieve an unsuccessful defendant from the usual order that costs follow the event, that is, the ‘compromise is in respect of costs’”, citing Salmon v Osmond [2015] NSWCA 42 at [167].

16. [21]

    In his submissions in response, the defendant submitted that the second offer was not a valid offer, as “it was not possible for the defendant to accept it according to its terms and for ‘judgment to be entered accordingly’ as required by UCPR [r] 20.27(3)”. Further, the defendant submitted that “[a] bare order for administration does not achieve finality because it does not resolve how the estate is to be administered”.

17. [22]

    Served concurrently with the second offer was a letter marked “[w]ithout prejudice save as to costs”, which contained an offer expressed to be in accordance with the Calderbank principles (the third offer). The third offer, which was open for acceptance until 4:00pm on 21 June 2019, was in the following terms:

18. [23]

    This letter dated 24 May 2019 sets out, in some level of detail, numerous facts set out in the evidence which had been filed on behalf of the defendant which was “supportive of [the plaintiff’s] position that he was the de facto spouse, or alternatively living in a close personal relationship with the deceased at the time of her death, or, a member of the deceased’s household and partly dependent on her”.

19. [24]

    In addition, the letter referred to the documentary evidence in some level of detail, including the medical records of both the plaintiff and the deceased, documents produced by Baptist Care, and phone records, to explain how such documents supported the plaintiff’s then claim that he was the surviving de facto spouse of the deceased.

20. [25]

    No response was received from the defendant to the third offer.

21. [26]

    In his written submissions, the plaintiff submitted that the third offer contained:

22. [27]

    In his submissions in response, the defendant submitted that the third offer was the only offer to contain a “real element of compromise”, but noted that the third offer “would have resulted in the plaintiff receiving about two thirds of the gross value of the estate which is much more than the Court would have awarded him if he had succeeded only on his family provision claim”. To accept the family provision order proposed in the third offer worth approximately $2.8 million (including the title to the Cammeray Property and a $200,000 lump sum, which represented nearly 80% of the net Estate), would have left approximately $600,000 after the payment of costs to be distributed to the defendant, as representative of the deceased’s nieces and nephews. The size of the offer was thus a factor which the defendant submitted rendered it reasonable for him to have rejected the third offer.

23. [28]

    The second offer was enclosed with a letter dated 24 May 2019 (the fourth offer), which indicated that “[t]o the extent that the offer of compromise [the second offer] does not comply with Division 4 of Part 20 of the Uniform Civil Procedure Rules 2005 (NSW), then the offer of compromise is made in accordance with the principles espoused in Calderbank v Calderbank [1975] 3 WLR 586”.

24. [29]

    No response was received from the defendant to the fourth offer.

25. [30]

    In his written submissions, the plaintiff submitted that the defendant’s non-acceptance of the fourth offer was unreasonable, as follows:

Submissions on costs

1. [31]

   Having regard to these offers of settlement, the plaintiff submitted two sets of proposed orders on costs. The first proposed order was based on the defendant’s rejection of the first offer, extracted at [8] above, and was expressed in the following terms:

2. [32]

   The plaintiff submitted that the defendant be ordered to pay the plaintiff’s costs on the indemnity basis on and from 7 August 2017, being the date that the plaintiff filed his caveat, up to and including 20 December 2017, being the date of the first offer, as it was “unreasonable” for the defendant not to have accepted the first offer at this stage, for the reasons outlined at [10] above.

3. [33]

   Alternatively, the second set of orders proposed by the plaintiff was based on the defendant’s rejection of the second-fourth offers, extracted respectively at [16], [22] and [28] above, and was expressed in the following terms:

4. [34]

   The plaintiff submitted that the defendant be ordered to pay the plaintiff’s costs on the indemnity basis on and from 7 August 2017, or from 2 February 2018 (being the date that the Statement of Claim was filed), up to and including 24 May 2019, being the date of the second-fourth offers, for the reasons outlined respectively at [18]−[20], [26] and [30] above.

5. [35]

   In his submission on costs, the defendant submitted “that the Court should order that the costs of both parties be paid out of the estate of the [d]eceased on the indemnity basis”, for the reasons set out below.

6. [36]

   First, the defendant submitted that in “borderline case[s]” such as the present (see primary judgment at [202]), the appropriate costs order “is that the costs of both parties of the proceedings should be paid out of the estate”, referring to NSW Trustee and Guardian v McGrath [2013] NSWSC 1894 at [29] (McGrath); Vaughan v Hoskovich [2010] NSWSC 706 at [69] (Vaughan).

7. [37]

   In his submissions in response, the plaintiff submitted that whilst the Court described this as a “borderline case”, this does not preclude the costs order sought by the plaintiff, or justify departure from the ordinary rule that “costs follow the event”, as the defendant “had every piece of evidence available to make it clear that the [p]laintiff had good prospects of success at least as at the time Offers 2, 3, and 4 were made.” Specifically:

8. [38]

   Secondly, the defendant submitted that different costs principles apply in probate suits, calling in aid and citing Gray v Hart; Estate of Harris (No 2) [2012] NSWSC 1562 (Gray v Hart), where White J (as his Honour then was) said (at [4]):

9. [39]

   The defendant submitted that in probate actions, r 42.1 of the UCPR ordinarily applies and costs will follow the event, subject to two overlapping exceptions as outlined in Re Hodges (1988) 14 NSWLR 698 at 709, as follows:

10. [40]

    With respect to the first probate exception, where the testator has been the “cause of the litigation”, the defendant referred to Gray v Hart at [19], where White J concluded that the “usual order” is that “the costs of the losing party are paid out of the estate”. It is important to note that most if not all of the cases referred to by White J (as he then was) in Gray v Hart involved challenges to the testamentary capacity of the deceased. However Vaughan involved an intestacy and a disputed de facto relationship where the plaintiff and the deceased chose to live together for a small part of each week. White J held (at [69]) that:

11. [41]

    The defendant submitted that in the present case, the deceased “precipitated the litigation by making testamentary promises to the plaintiff which she did not fulfil”, and that “[c]ritically, by deliberately concealing the existence of the relationship, the [d]eceased compounded the situation and set up a climate of disbelief which could only be dispelled by a determination of a court, and made the commencement of proceedings inevitable”.

12. [42]

    The defendant further submitted that “without attributing fault to the plaintiff, the fact that he was himself involved in the conduct of the [d]eceased which led to the litigation makes it appropriate that both parties be equally indemnified out of the estate”.

13. [43]

    In his submissions in response, the plaintiff submitted that the “probate exceptions” did not apply in the present case, as the “proceedings were not a typical ‘probate suit’ with the requisite public interest element”, such as cases where the testator might have lacked testamentary capacity.

14. [44]

    The plaintiff submitted, however, that if the Court were minded to accept the defendant’s submissions as to the applicability of the “probate exceptions” in the current proceedings, the deceased could nevertheless not be said to have “caused” the litigation.

15. [45]

    Additionally, citing Estate Pamplin; Irwin v Pamplin [2017] NSWSC 1477, the plaintiff submitted that a failure to leave a will does not necessarily lead to a conclusion that the Estate should bear the costs of a dispute concerning competing applications for letters of administration. Indeed, the plaintiff submitted that it was the approach of the defendant to the plaintiff’s claim which itself played a significant role in causing the adversarial litigation, including that the “deceased felt compelled to conceal the relationship in part because of the fear of the reaction from her family that they might ‘banish’ her”. The plaintiff submitted that unless the defendant could satisfy the court as to why he rejected the second offer, he must be considered to be a “real cause and occasion of the litigation”, drawing upon the language of McColl JA in Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 at [36].

16. [46]

    With respect to the second probate exception, the defendant submitted that where the testator was not the “cause” of the litigation, but an investigation was necessary, “each party to the litigation will bear their own costs or, depending on the circumstances, their costs may be allowed out of the estate”. The defendant submitted that in the present case:

17. [47]

    In his submissions in response, the plaintiff submitted that there “were no circumstances which reasonably called for an investigation in the established sense”, as such investigations are “ordinarily made… in relation to the validity of testamentary documents of the deceased”, as opposed to intestacy applications. Even if such investigations were necessary, the plaintiff submitted that by 24 May 2019, being the date that the plaintiff served the second-fourth offers, the defendant “could have end[ed] the investigation and put an end to legal costs and freed up the Court’s time”.

18. [48]

    Finally, in his submissions in response, the defendant outlined that to obtain an order that the defendant pay the plaintiff’s costs, the plaintiff must establish that:

19. [49]

    The defendant submitted that he “did not have a sufficient basis to assess the reasonableness of any of the offers”, and that at the time the offers were made:

Consideration

1. [50]

   The defendant was correct to point out that the matter was finely balanced. As such, it was appropriate to point to the decision of Young AJ in McGrath and that of White J in Vaughan where the unsuccessful defendant’s costs were paid out of the Estate on the ordinary basis.

2. [51]

   On the other hand, neither or those decisions made reference to the existence of any formal offers of compromise or Calderbank letters.

3. [52]

   In Morgan v Johnson (1998) 44 NSWLR 578 (at 581–582), Mason P (with whom Sheller JA agreed) summarised the rationale for the rules relating to offers of compromise as follows:

4. [53]

   Whilst the principles relating to Calderbank letters are not identical to formal offers of compromise, the rationale is much the same and, whilst fully accepting that special considerations of the kind referred to by White J in both Vaughan and Gray v Hart may apply in the succession context, those considerations are not to the exclusion of the rules relating to offers of compromise and principles relating to Calderbank letters. Indeed, the discipline and focus that those rules and principles are calculated to engender in litigants is important in Estate matters, and competing parties should not expect that Estate litigation is a risk-free enterprise because it will invariably be funded out of the subject Estate.

5. [54]

   In the present case, I place no significance on the first and second offers, essentially for the reasons submitted by the defendant which I have set out at [13]-[15] and [21] above.

6. [55]

   I do, however, and by way of contrast to the first and second formal offers, consider that the third offer issued in accordance with the principles in Calderbank did offer a genuine compromise, and so much is accepted in the defendant’s submissions. Not only was there a genuine compromise entailed in that offer, but the evidence by reference to which the plaintiff succeeded at trial, including subpoenaed material, was all to hand. Whilst it is true that the defendant may not have analysed that material as closely as it did by the time of the trial, it was, in my opinion, plain that such material could have been interrogated at the time to form a meaningful assessment as to the movements of the plaintiff between Cammeray and his rural property, and thus to measure in an appropriate way the amount of time the plaintiff and the deceased spent together.

7. [56]

   In all the circumstances, a just outcome will, in my opinion, be reflected in the following orders as to costs:

   1. (1)

      Order that the plaintiff’s costs be payable out of the Estate on an indemnity basis.

   2. (2)

      Order that the defendant’s costs be payable out of the Estate on the ordinary basis up until 21 June 2019, with the defendant to bear his own costs thereafter.

8. [57]

   I have identified 21 June 2019 in order 2 as this represents an allowance of a reasonable period after the making of the third offer for its consideration. Further, order 2 reflects a discretionary decision not to order that the defendant pay the plaintiff’s costs from that date (the usual consequence of an unreasonable rejection of a Calderbank offer) but at the same time prevents the Estate from being depleted by costs which would not have been incurred had the plaintiff’s third offer been accepted.