Heffernan v Innes & Anor (No 2)

HIS HONOUR: In this matter, I delivered principal reasons for judgment on 17 August 2021, the medium neutral citation of which is Heffernan v Innes & Anor [2021] NSWSC 1033 ("the principal judgment"). Events and people are referred to in these reasons in the same way as in the principal judgment.

Following publication of the principal judgment, the proceedings were adjourned until 31 August 2021 (brought forward to 30 August 2021) to enable the parties to ascertain whether the original of the informal document was in the possession of NSW Police and also to see whether they could agree on the question of costs.

Unsurprisingly, no agreement was reached on how the costs of the proceedings should be borne and upon what basis. At the directions hearing, it became clear, from what the Court was told about the differing positions of the parties, that there was a real dispute about how the costs of the proceedings should be borne, and that the hearing, necessarily, might not be a short one. Directions were then made for the evidence on the costs applications to be filed and served. The Court also invited written submissions.

At the mention on 30 August 2021, the parties agreed that the issue of costs could be determined on the papers, in Chambers, following completion of the service of any further evidence upon which either party intended to rely and the written submissions, in chief and in reply, of counsel, being lodged and served. Neither party sought an oral hearing.

Each counsel, thereafter, provided detailed written submissions to the Court. (Although the Defendants’ counsel provided lengthy submissions in reply, I mention that most were not really “in reply”. Most of what was written should have been included in her submissions in chief.) I have carefully read the written submissions of the parties.

Since receiving the submissions, I am satisfied that the Court could deal with the costs without the need for a hearing. However, the nature of the competing submissions results in these reasons being longer than one would normally expect. This is one of the rare cases in which it is necessary “to give detailed reasons for decision … [and] to give elaborate reasons” on the question of costs: Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481; [2008] VSCA 212 at [12] (Maxwell P and Kellam JA).

Before proceeding further, there are two matters to which reference should be made in order to make clear that they have not been, and should not be, forgotten.

The first matter relates to two affidavits filed and served by the Defendants going to the whereabouts of the original of the informal document. This issue was raised in, and arises out of, the principal judgment at [27].

The first affidavit was one sworn on 26 August 2021 by Clinton Ernest Oxenbridge, a Detective Senior Constable of Police, who stated:

The second affidavit was one sworn by Deanna Kay Barbas, an Administrative Assistant to the Defendants’ solicitor. Her affidavit relates to her conversation, on 19 August 2021, with Detective Senior Constable Oxenbridge. Her version of the conversation includes more than what was included in his affidavit to which I have referred.

In view of the direct evidence from Detective Senior Constable Oxenbridge, I am satisfied that it is not necessary to repeat the conversation that Ms Barbas stated in her affidavit.

Counsel for the Plaintiff, in answer to this evidence, referred to the principal judgment, at [305], in which I set out the evidence given by Mr Van Louwersen.

I do not have to determine the conflict of evidence. I remain unable to see any reason why Mr Van Louwersen would not produce the original informal document if it were in his possession. In any event, there was never any dispute that the copy of the informal document, produced at the hearing, which was tendered, was an authentic copy. One purpose of seeking the original informal document was to determine the form that the grant of administration should take.

The second matter relates, in part, to the costs of the proceedings. Whatever the result of the costs applications, the Defendants are not required to bear the costs of the notice of motion for the caveat to cease to be in force. I dealt with the costs of the notice of motion to have the caveat cease to be in force at [46] – [60] of the principal judgment.

In relation to that notice of motion, the orders made included:

The respondents were, of course, the Defendants. They succeeded, without a determination by the Court, and an order was made that the matter would proceed by pleadings. There was no question that there was jurisdiction to make such a costs order, which order meant that, then, there were no immediate costs consequences to either party. The order operated if the party were successful in the proceedings, but it did not deal with the future costs of the proceedings. If, as anticipated, the matter proceeded to trial, and the Defendants were successful, only then would they receive their costs of the notice of motion.

In Ausino International Pty Ltd v Apex Sports Pty Ltd [2006] NSWSC 1119 Campbell J, at [55] – [56], stated:

In His Eminence Metropolitan Petar, Diocesan Bishop of The Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 the Court of Appeal wrote, at [18] and [21]:

Also see Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [44] (Campbell JA).

That meaning is consistent with authorities cited by G E Dal Pont in Law of Costs (4th ed, 2018, LexisNexis Butterworths) at [14.25] - [14.26].

Of course the principle applies vice versa, that is to say, if the Defendants succeeded in the Cross-Claim, or if they obtained an order for their costs, the costs of the notice of motion would be part of their costs of the substantive action. In the result, it follows that, since the Defendants were unsuccessful, they are not entitled to the costs of the notice of motion, which was, ultimately, determined without a hearing. Nor is the Plaintiff entitled to any costs of the notice of motion from the Defendants for the reasons expressed in the principal judgment.

It also follows that the submission made, on behalf of the Plaintiff, that “the Defendants should pay the Plaintiff’s costs on the ordinary basis since the commencement of proceedings until 4 November 2020” (Paragraph 30 of the written submissions) cannot be accepted.

I now return to the issue of the costs of the proceedings, otherwise, and the facts relied upon.

The Plaintiff read two affidavits, the first being the Plaintiff’s affidavit sworn 29 January 2021, which detailed the nature and value of the deceased’s estate, together with the liabilities. I referred to this affidavit at [87] - [92] of the principal judgment.

In view of the dispute as to the value of the Tura Beach property, I was unable to express any concluded view about the net value of the deceased’s estate. I did not conclude, as submitted by counsel for the Plaintiff, that the net value of the estate was in the order of $110,500. However, it was clear from the Plaintiff’s evidence that the net value of the estate was not large, as there were significant debts, funeral and testamentary expenses.

The second affidavit was one affirmed on 19 August 2021, by Mr I Sinnadurai, the Plaintiff’s solicitor, to which was annexed a copy of documents, passing between the legal representatives of the parties, which contained offers made to resolve the proceedings. These documents are relied upon as a basis for the order for costs sought by the Plaintiff. I shall refer to the copy documents annexed in some detail.

On the issue of costs, the Defendants relied upon an affidavit sworn 30 August 2021, of their solicitor, Ms I Chiumento. The affidavit was one to which was annexed a copy of the documents, passing between the legal representatives of the Plaintiff and of the Defendants, which contained offers made on her, and their, behalf, respectively.

Neither of the solicitors was cross-examined and no objection was taken, by either party, to the affidavit evidence relied upon by the other. (The failure by the Defendants’ counsel to object is important for reasons to which I shall turn.)

Counsel for the Defendants referred in the submissions to the Defendants having made “multiple attempts to settle the proceedings, before they commenced, and during” the proceedings. However, the offers to which I shall refer are those that were made in writing and which are in evidence on the question of costs.

I have taken the following from the annexures to the affidavits filed and read on the costs application. There really cannot be a dispute about what follows.

On 4 November 2020, National Probate and Estates Group, the Plaintiff’s then solicitors, sent a letter to the Defendants’ solicitors, Eden Legal. The letter was headed “WITHOUT PREJUDGE (sic) SAVE AS TO COSTS”. (The word “Prejudge” was obviously a typographical error and should have been “Prejudice”.)

I shall refer to this document as “the Plaintiff’s first offer”. It was in the following terms:

The effect of the first offer was that the Plaintiff would pay the Defendants' legal costs, calculated on the indemnity basis, with priority, and $16,000. (The first Defendant had paid $15,549.21 on account of estate costs and expenses). Shortly before the offer was made, Ms Chiumento had informed the Plaintiff’s solicitor that the Defendants’ legal costs, calculated on the indemnity basis, were $38,020.50.

There is no dispute that the Defendants’ solicitor received the Plaintiff’s first offer.

(Despite the terms of the offer and the reference to the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 20.26, which deals with offers of compromise, and also counsel for the Defendants referring to it as an offer of compromise, counsel for the Plaintiff included the reference to this offer as one of three “Calderbank offers” made by the Plaintiff and served upon the Defendants.)

On 3 December 2020, the Defendants’ solicitor sent a letter to the Plaintiff’s then solicitors, rejecting the Plaintiff’s first Offer. In the same letter, the Defendants’ solicitor sent what was said to be an Offer of Compromise on behalf of the Defendants. I shall refer to this document as “the Defendants’ first offer”. It was in the following terms (with the highlighted parts as they appeared):

The Defendants’ first offer was rejected by the Plaintiff.

On 13 January 2021, the Defendants’ solicitors received notice that the Plaintiff had changed solicitors.

On 2 February 2021, Makinson d’Apice, the Plaintiff’s new solicitors, sent a letter to the Defendants’ solicitors, enclosing what was described as a Calderbank offer. It was headed ‘Without prejudice except as to costs’. (Counsel for the Defendants refers to this offer as an offer of compromise, but it appears to be accepted that it was not one.) I shall refer to this as “the Plaintiff’s second offer”.

I shall not set out the precise terms of the letter, which provided a detailed explanation of the Plaintiff’s claim and the reasons why, it was said, that the Defendants’ case would fail in its entirety. In broad terms, the contents of the letter are reflected in the submissions made at the hearing.

The Plaintiff’s second offer was in the following terms:

It is clear that this offer was not quite as beneficial to the Defendants as the Plaintiff’s first offer, since, although the lump sum had increased, they were required to pay their own costs of the proceedings.

The Defendants’ solicitor acknowledged receipt of the Plaintiff’s second offer, in an email dated 8 March 2021. It is unclear whether the offer was rejected or whether it lapsed. It does not matter.

On 19 March 2021, the Defendants’ solicitor received a letter from the Plaintiff’s solicitor, but this letter seems to relate to the costs of the notice of motion and the order concerning costs made in respect of the notice of motion.

On 21 June 2021, the Plaintiff’s solicitor sent another email to the Defendants’ solicitor, enclosing a third, and final, offer of settlement.

The Plaintiff’s third offer, which was simply headed “Without Prejudice” was in the following terms:

In a separate email sent on 23 June 2021, the time for acceptance of the offer was said to be 4:00 pm on Thursday 24 June 2021. It was also said that “the offer will not be available for acceptance after that time”.

On 5 July 2021, the Defendants’ solicitor sent to the Plaintiff’s solicitor an email, headed “Without Prejudice save as to Costs” setting out some reasons why the offer of settlement also made in the letter should be accepted. I shall refer to this offer as “the Defendants’ second offer”.

The offer was in the following terms:

It is unclear whether this offer was rejected or lapsed. However, it does not matter.

On Friday, 16 July 2021, that is, after the first three days of the hearing had been completed, the Defendants’ solicitors sent another email to the Plaintiff’s solicitor headed “Without prejudice basis save as to costs”. I shall refer to this offer as “the Defendants’ third offer”.

Relevantly, the letter of offer provided:

It is unclear whether this offer was rejected or lapsed. However, it does not matter.

It is difficult to glean the significance of most of the documents annexed to Ms Chiumento’s affidavit going to the offers made on behalf of the Defendants on the question of how the costs of the proceedings should be borne. It is not enough, as submitted by counsel, that the Defendants engaged, or willingly participated, in settlement negotiations during the proceedings, or that, in 2020, they were the proactive party in that approach, or even that the Plaintiff, for whatever reason, might not have wished to engage in any form of settlement conference prior to 17 June 2021.

What is beyond argument is that the Defendants did not obtain any order on their claim no less favourable to them than the terms of any of the offers that were made on their behalf to resolve the proceedings.

The Plaintiff’s principal submission was that the Defendants should pay the Plaintiff’s costs, calculated on the indemnity basis, of the proceedings. Bearing in mind the costs order made in relation to the notice of motion, as stated, this submission cannot be accepted in its entirety. Counsel also submitted that the Defendants should not receive any of their costs out of the estate.

Initially, the Defendants’ oral submission was not only that they should not have to pay the Plaintiff’s costs, but that the whole of their costs of the proceedings should be paid out of the estate of the deceased: Tcpt, 30 August 2021, p 02(46)-03(01). Standing back from the detail of the matters to which I shall refer, it might be thought audacious in circumstances where first, the Defendants failed completely, and second that the defence included an allegation of serious misconduct, if not criminality, on the part of the Plaintiff’s father, (in removing an unfound Will), which allegation was not proved, that the Defendants should have their costs paid from the estate, whether or not they should have to pay the Plaintiff’s legal costs in vindicating the informal testamentary document.

Perhaps, having reflected further on the initial submission, the Defendants’ counsel, for the first time in submissions in reply, sought the following orders:

The matter referred to in (1) above had not been the subject of any evidence or prior submissions. It is not for the Court, at this stage of the proceedings, to make an order that the Plaintiff, as administrator of the deceased’s estate, deal with the gravesite of the deceased. I do not propose to make such an order.

The matter referred to in (2) above was not the subject of dispute between the parties. In her affidavit sworn 29 January 2021, the Plaintiff referred to three “Estate reimbursements to Sandra Rae Innes” which total $15,549.21. I had referred to the obligation to repay the first Defendant the amounts that she had paid by way of debts, funeral and testamentary expenses: Tcpt, 21 July 2021, p 333(05-10). I do not propose to make the order sought.

The matter referred to in (4), in the result of the case, is unnecessary. The Plaintiff is entitled to the whole of the deceased’s estate and to limit the amount of the costs payable out of the estate is not a matter for the Defendants or, necessarily, the Court.

Turning then to the submissions in detail, there were three bases for the Plaintiff’s submission, namely:

The Plaintiff’s counsel acknowledged that the deceased, having left an informal document, may have been seen as having caused the litigation and requiring it to be investigated. However, she submitted that there were still a number of reasons why the Defendants’ costs should not be borne by the estate and why they should bear the Plaintiff’s costs.

It was submitted that given probate litigation is interest litigation, the only persons entitled to call for an investigation or challenge the deceased’s Will are those persons who would be entitled to participate in the distribution of the deceased’s estate if the informal document was held not to constitute the deceased’s last valid Will. Whilst the Defendants advanced that the deceased had left an unfound Will, they were unable to establish its existence or its contents. Then, even if the informal document was not the deceased’s last valid Will, he would have been found to have died intestate, with the result that the Plaintiff, as his spouse, was entitled to the whole of his estate.

Counsel went on to submit that, even if the circumstances surrounding the informal document reasonably called for an investigation, this did not mean the Defendants were entitled to their costs out of the estate, but that there should be no order as to their costs since they had been unsuccessful.

The Plaintiff also submitted that, even if the Defendants were the natural contradictors, they would only be entitled to their costs of being the contradictors, that is, the costs of challenging the informal document. In practical terms, this was a pointless, and unproductive, challenge since the Plaintiff was entitled to the whole of the deceased’s estate under the operation of the rules of intestacy.

The Plaintiff rejected any claim that the deceased left his affairs in disarray because of the unsent emails found on his iPad. According to counsel for the Plaintiff, the deceased did not send the emails and had not referred to them in any of the documents found in the garage, or otherwise, when his body was discovered. In any event, the unsent emails were not left in a prominent place and were only found by opening the email application on his iPad and scrolling past the emails sent after those emails were dated.

In any event, reasonable investigation, in this instance, amounted to contacting solicitors, or friends, in regards to the unfound Will. Once they had concluded their searches, and had been unable to find any Will, draft, or copy, thereof, they should not have persisted with the assertion.

According to counsel for the Plaintiff, most of the Defendants’ costs, in any event, related to the assertion of an unfound Will and the allegation made against Mr Van Louwersen. The allegations about the unfound Will relied upon the Plaintiff’s father having removed it, a most serious allegation and one which could amount to a criminal offence. The Plaintiff submitted that the Defendants’ evidence in support of this serious allegation was, effectively, baseless.

It seemed that the thrust of the Defendants’ written submissions went to the reasons why the Defendants should not pay the Plaintiff’s costs.

I do not need to consider, in detail, a number of paragraphs in the written submissions that refer to what might be described as emotional reasons for the Defendants’ conduct. These submissions relate to the Defendants’ alleged reasons for defending the proceedings and not directly to how the burden of costs should be borne. I refer, particularly, to paragraphs 3, 13, 17, 18, 22 and 93 of the written submissions.

It should also be noted, as recently pointed out in Commissioner of Taxation v Ross (No 2) [2021] FCA 1088 at [20] (Derrington J), that “the principles relating to the making of orders for indemnity costs ought never to descend into an analysis of the nature and extent of negotiations between parties or whether any negotiations were sufficient or otherwise properly pursued. That would be entirely inappropriate and almost certainly result in extensive satellite litigation”.

Relevantly, counsel for the Defendants submitted:

In regards to (a), the Defendants submitted that, given the Plaintiff only pleaded the informal Will from 20 October 2020, the Defendants had a duty to place before the Court any document that may have constituted a testamentary instrument, particularly on a claim of intestacy. (This submission is not entirely accurate: see [4] of the principal judgment.)

In regards to (b), counsel for the Defendants submitted that the deceased’s actions provided a ground for questioning his testamentary capacity, pointing specifically to the fact that he had been drinking prior to his death and the existence of the emails the deceased had drafted.

In relation to (c), it was submitted that, regarding the Plaintiff’s first offer (which included terms, amongst others, that the Defendants’ legal costs were to be paid out of the estate on the indemnity basis, and a lump sum payment of $16,000), the lump sum was reimbursement of the estate costs and expenses that the first Defendant had previously paid. The offer, thus, was, in essence, one for the payment of the Defendants’ costs, calculated on the indemnity basis.

The Defendants submitted that it was not unreasonable to reject this offer as, at that time, the Plaintiff had recently filed her Statement of Claim. Furthermore, the Plaintiff did not provide any evidence going to the contents of the gun safe until 11 June 2021. It was not unreasonable for them to maintain the belief that the deceased had left a will.

In relation to the Plaintiff’s second offer, the Defendants submitted that an offer to settle made “without prejudice” cannot be relied upon at all on questions of costs.

This part of the submission must be rejected, at the outset, because it ignores, amongst other things, the paragraph of the letter, which stated: “This offer is made in accordance with the principles of Calderbank v Calderbank [1976] Fam 93 and subsequent cases”.

Otherwise, the Defendants drew the Court's attention to paragraph (e) of the offer, submitting that the proceedings had not been decided at the time of the Plaintiff’s second offer. The Plaintiff did not know, then, whether she would be successful. She did not know whether the Defendants would not be successful on their claim. It was questioned how an offer of $25,000 could be made "in her capacity as the sole beneficiary" or "in her capacity as the administrator of the estate." On 2 February 2021, she had not received recognition from the Court that she was either a beneficiary or would be appointed as the administrator.

This part of the submission, also, must be rejected, immediately, as the other terms of the offer must be considered and those terms, if accepted, would have resulted in the Plaintiff being the principal, if not the sole, beneficiary of the deceased’s estate.

It was also submitted that the offer of $25,000, plus the repayment of estate expenses paid by the first Defendant did not constitute what could be considered to be a genuine compromise of the proceedings, in circumstances where the Plaintiff would have known that the Defendants' costs, on the indemnity basis, as at 4 November 2020, were $38,020.50. It was put that the offer required complete surrender, with an acceptance of less than the costs the Defendants had incurred.

In relation to the Plaintiff’s third offer, counsel for the Defendants submitted that the email of 21 June 2021 did not include a date during which the offer was open for acceptance. The separate email, sent two days later (23 June 2021), advising of the date that the offer was open for acceptance did not constitute a proper and formally executed offer. Even then, the period to consider the offer could not be regarded as a reasonable one.

Furthermore, the offer did not identify whether it is intended to be an offer under the UCPR rules, or a Calderbank offer as each email was simply headed "Without Prejudice". It was submitted that an offer to settle made simply on a “without prejudice” basis could not be relied upon on questions of costs.

Reliance was placed on a passage in Cross on Evidence (12th ed, 2020, LexisNexis Australia), at 25360, which is in the following terms:

Reliance could have been placed on s 131(1) of the Evidence Act 1995 (NSW) which makes clear, that in order to attract the privilege, a communication or document must be made, or prepared, “in connection with an attempt to negotiate a settlement”, which clearly was the purpose of the third offer.

The Defendants’ submission misunderstands what was written on this aspect. Making an offer “without prejudice” can be significant, if it is not accepted, in excluding it from evidence. Such a letter is covered by what is described as “without prejudice privilege”. Counsel did not refer to the passage in Cross at 25350 which states:

However, where, as here, neither party sought to exclude the without prejudice offer, by objection to its tender, any privilege gained from the fact that it was a “without prejudice” communication was waived. Indeed, in this case, both solicitors attached a copy of the Plaintiff’s third offer to his and her affidavit respectively.

In Walker v Wilsher (1889) 23 QBD 335, Lord Esher MR stated, at 337:

Whilst the third offer was served shortly before the commencement of the hearing, the timing of its service must also be considered in the context of a judicial settlement conference having taken place a short time before (on 17 June 2021). The urgency, in terms of the time for acceptance, was based, presumably, on the fact that the hearing was to commence on 13 July 2021.

The Defendants also alleged that the Plaintiff’s costs were extortionate and that, given the full extent of the Plaintiff’s costs were unknown, it would be unjust to require the Defendants to pay those costs. This submission does not assist the Defendants as if agreement cannot be reached on the quantum of the costs, the Plaintiff will have to have her costs assessed.

Nor does the submission, made in reply, that the Defendants’ offers were relevant because they demonstrated “the defendants were open to settlement and made multiple efforts to do so, whether that be in the format of a formal offer, informal calls between the legal representatives, or requests made for mediation”.

I find the Plaintiff’s submissions far more persuasive than the Defendants’ submissions.

In order to consider the context in which the costs question must be determined, I shall first refer to the principal judgment.

In summary, in the principal judgment at [25] – [26], I found:

The Defendants were unsuccessful in defending the Plaintiff’s claim and their Cross-Claim will be dismissed. As stated, this was the first basis upon which a costs order was sought by the Plaintiff.

It is clear that the Defendants relied upon the assertion regarding Mr Van Louwersen to fortify their defence of the Plaintiff’s claim. Thus, it is necessary to refer to the findings made in relation to (5) above, which grounded the second basis for the Plaintiff’s application for costs. The relevant paragraphs of the principal judgment set the context for this basis for the Plaintiff’s application for indemnity costs. I refer specifically to [19], [21], [225], [253]-[254], [267], [272], [277], [289], [294]-[295] and [439]-[441]. These paragraphs highlight some important findings on the issues raised.

It would, however, be useful to refer, specifically, to paragraph [22] of the principal reasons:

The seriousness of the Defendants’ allegation was referred to by the Court on the first day of the hearing, and subsequently: Tcpt, 13 July 2021, p 58(10-39); Tcpt, 14 July 2021, p 86(09-11); Tcpt, 20 July 2021, p 298(33-36); Tcpt, 21 July 2021, p 303(39)-304(03).

It is next necessary to note that the Defendants maintained the allegation made against Mr Van Louwersen until the conclusion of the hearing, despite it being conceded that there was no evidence that any person saw him removing any Will. I refer, without repetition, paragraphs [346]-[349] of the principal judgment.

With that lengthy prologue, I turn now to the legal principles that guide the determination of the issue.

In Old v McInnes and Hodgkinson [2011] NSWCA 410, Beazley JA (dissenting in the result on the costs appeals before the Court) noted, at [6], that:

I do not intend what I describe as general principles to be elevated into rules of law, propositions of universal application, or rigid formulae. Nor do I wish to suggest that the jurisdiction to award costs should be unduly confined, or the discretion should be constrained, by statements of principle found in dicta in other decisions, or by preconceptions and predispositions. Decisions of the past do not, and cannot, put any fetters on the discretionary power, which is left largely unfettered. I do not intend what is provided as a guide to be turned into a tyrant.

In Walsh v Walsh (No 2) [2013] NSWSC 1281, I set out some general principles about costs that should not be the subject of any dispute, namely:

In Wright v Apthorpe [2020] NSWCA 300, the Court discussed the parts of the Civil Procedure Act 2005 (NSW) and the UCPR, relating to costs. Simpson AJA (with whom Bell P and McCallum JA agreed) wrote at [57] – [60]:

It is clear that the discretion to award costs in civil proceedings is unconfined or, as has been described, is "absolute and unfettered": Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 at 557 (Dawson J). However, it must be exercised judicially, that is, according to relevant considerations, and taking account of the contextual features and facts of the litigation.

In Sze Tu v Lowe (No 2) [2015] NSWCA 91, Gleeson JA (with whom Meagher and Barrett JJA agreed), stated at [37]:

Ultimately, the Civil Procedure Act and the UCPR require the Court to make such order as it thinks just in the particular circumstances of the case: Bullabidgee Pty Ltd v McCleary (No 2) [2011] NSWCA 343, at [10].

There is also academic commentary, by Professor Dal Pont, that the “central and overriding principle is that of doing justice to the parties in each particular case, it being judicially remarked that there is ‘no better test than the test of what is fair and just between the parties’” (see G E Dal Pont, Law of Costs (4th ed, 2018, LexisNexis Butterworths) at 6.15).

I turn next to some general principles that apply in probate proceedings. I set out a summary of the principles in Chant v Curcuruto; Chant v Curcuruto (No 2) [2021] NSWSC 882 at [32]:

The first exception referred to above was applied by the New South Wales Court of Appeal in Perpetual Trustee v Baker [1999] NSWCA 244. In that case, the Court of Appeal ordered that both parties’ costs, on a trustee or indemnity basis, be paid out of the estate. The reasons given were as follows, per Giles JA and Brownie AJA at [14] and Cole AJA at [43]:

It must be remembered, also, that probate litigation is not entirely between parties, because they did not make the will or testamentary document in dispute, and the Court is required to determine whether a document of somebody, who is dead, is a valid testamentary instrument. There is a public interest in ensuring that the matter is properly proved: see Tu v Tu Estate of Tu [2008] NSWSC 458.

As was outlined by White J in Gray v Hart; Estate of Harris (No 2) [2012] NSWSC 1562 at [5]:

In Wharton v Bancroft [2012] EWHC 91 (Ch), it was said that the second probate costs principle points to there being no order for costs, but the parties bearing their own costs. The principle was stated in the Spiers v English [1907] P 122, at 123:

In relation to that statement, it is important to note the word “reasonably”. Sir James Hannen in Davies v Gregory (1873) LR 3 P&D 28 had written:

I turn next to the principles relevant to the Plaintiff’s application that the costs payable by the Defendants should be calculated on the indemnity basis.

UCPR rule 42.2 provides that, unless the Court orders otherwise, or the rules otherwise provide, costs payable to a person under an order of the Court or these rules are to be assessed on the ordinary basis.

When costs are ordered calculated on the “ordinary basis”, a party is entitled to recover a “fair and reasonable amount” for the costs and disbursements reasonably incurred in the conduct of the proceedings: Civil Procedure Act s 3 and the Legal Profession Uniform Law Application Act 2014 (NSW) ss 74-80.

In Wright v Apthorpe Bell P noted, at [3], that:

Simpson AJA, with whom McCallum JA agreed, wrote at [54]:

The Court considered that “neither the Civil Procedure Act nor the UCPR establish a presumption or default rule as to the basis of the award of costs”.

Bell P also noted that “there is a well established body of case law identifying the circumstances where it will be open and may be appropriate for a Court to award costs on the indemnity basis”. I shall now turn to some of the case law on that topic.

An award of costs assessed on the “indemnity basis” provides for the payment of all costs and disbursements, other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount. In Bouras v Grandelis (2005) 65 NSWLR 214; [2005] NSWCA 463, Santow JA wrote, at [118], quoting Sir Robert Megarry VC in EMI Records Limited v Ian Cameron Wallace Ltd [1983] 1 Ch 59 at 71:

The passage was referred to with approval in Mr Rental Australia Pty Ltd v IRD Services Pty Ltd (No 2) [2016] NSWSC 918, at [16] (Meagher JA).

An order for costs calculated on the indemnity basis can substantially increase the costs that a successful party can recover from the unsuccessful party in the proceedings. When such an order is made, it more fully, or adequately, compensates the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of relevant delinquency on its part: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [44]. (The words “relevant delinquency” were used by Gaudron and Gummow JJ, meaning delinquency bearing a relevant relation to the conduct of the case, rather than moral delinquency or some ethical shortcoming.)

A useful summary of the principles was provided by Black CJ, in Re Wilcox; Ex parte Venture Industries (No 2) [1996] FCA 1942; (1996) 72 FCR 151, at 152 and 153:

In Munday v Bowman (1997) FLC 92-784, Holden CJ of the Family Court of Western Australia, drawing from the oft-quoted decision of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, and noting that the category of circumstances that enliven the discretion to award indemnity costs are not closed, provided some examples of when an order for costs, calculated on the indemnity basis, could be made. He wrote, at 84,660 (omitting citations):

In Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353, Basten JA (with whom Giles JA and Young CJ in Eq agreed on this point), wrote, at [106]-[113]:

In Liverpool City Council v Estephan Estephan (Executor and Administrator of the Estate of the late Jocelyn Estephan) [2009] NSWCA 161, the Court of Appeal stated, at [100]-[101]:

In Greer v Greer [2021] QCA 174, the Court of Appeal (Sofronoff P, Bond JA and Wilson J) recently wrote, at [8] – [10]:

In regard to allegations of fraud, in Goodwin v Avison & Ors [2021] EWHC 2356, HH Judge Davis-White QC wrote, at [21]:

Of course, the existence of the particular facts and circumstances capable of warranting the making of an order for payment of costs calculated on the indemnity basis does not mean that the Court, necessarily, is obliged to exercise the discretion to make such an order.

In summary, then, an order for costs calculated on the indemnity basis, usually, can be justified because, in the circumstances, it would be unfair or unjust to require the successful party to bear costs calculated on the ordinary basis, or where there may be some special, or unusual, feature in the case to justify the Court in departing from the usual order. The question will be whether the particular facts and circumstances of the case warrant the making of an order for costs other than on the ordinary basis.

If a party’s conduct is relied upon, the conduct which falls to be assessed in determining whether an indemnity costs order should be made is that which relates to the proceedings in which the order is sought. Ultimately, the purpose of an indemnity costs order is to compensate a party in full for her, or his, costs when the Court takes the view that it was unreasonable for the party against whom the order was made to have caused the other party to incur costs: Hamod v New South Wales [2002] FCAFC 97; 188 ALR 659 at [20] (Gray J, Carr and Goldberg JJ agreeing); Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116 at [3]–[5] (Jagot, Yates and Murphy JJ).

One basis for the order for indemnity costs relied upon by the Plaintiff is the conduct of the Defendants in relation to making the allegation against Mr Van Louwersen. I have dealt with the parts of the principal judgment in which I set out my conclusions regarding this issue.

Since the Plaintiff does not submit that any of the three offers that were made were formal offers of compromise to which the UCPR applies, I next turn to the relevant principles that concern what might be described as Calderbank offers (see, Calderbank v Calderbank [1975] 3 WLR 586; [1975] 3 All ER 333).

What is commonly referred to as a “Calderbank offer” (a written offer made without prejudice except as to costs that does not comply with the relevant rules of court relating to the making of offers of compromise) is a well- recognised means of making an offer of settlement in circumstances where the party making the offer ultimately seeks a costs advantage if the offer is not accepted: Jones v Bradley (No. 2) [2003] NSWCA 258 at [5]; Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194, at [27]. The offer is not admissible until the substantive issues have been determined. The result of the Court’s adjudication must be as, or more, favourable to the offeror than the offer made.

In Evans v Braddock (No 2) [2015] NSWSC 518, I wrote, at [50]:

In Hunter v Roberts (No 2) [2019] NSWCA 235, the Court (comprised of Meagher and Brereton JJA, and Simpson AJA) noted, at [6], that:

I cannot do better than repeat what has recently been written, as a short summary of the principles, by Ward CJ in Eq in Girardi as trustee for The Superannuation Fund – Greengate Investments v Duncum [2021] NSWSC 1138 at [88] – [91]:

In Ying v Song [2011] NSWSC 618, her Honour had written at [26]:

(Her Honour repeated the principles again, more recently, in Bassett v Cameron (No 2) [2021] NSWSC 419 at [22] – [25].)

As stated, a Calderbank offer will not justify an indemnity costs order unless the offer was a genuine offer and its rejection was unreasonable: Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [7] (Ipp JA, Mason P and McColl JA agreeing).

If a party wishes to rely upon a Calderbank offer, the terms of the offer should be clear and unambiguous: Coregas Pty Limited v Penford Australia Pty Limited (No 2) [2013] NSWCA 11, at [12]. The offer should embody ‘a real and genuine element of compromise’. The meaning of that phrase is set out in cases such as Leichhardt Municipal Council v Green [2004] NSWCA 341, per Santow JA, at [23]; Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375, per Handley JA, at [5]; The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; (2006) 67 NSWLR 706, per Basten JA, at [8].

The fact that an offer is expressed to be inclusive of costs does not mean that the offeror cannot rely upon it: Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [5] (Beazley JA):

The genuineness of an offer requires consideration of whether, in all the circumstances, the offer represents “any element of compromise or whether it was merely … [a] formally stated demand for payment designed simply to trigger the entitlement to the payment of costs on an indemnity basis”: Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355 (Rogers CJ Comm D).

The onus is on the party making a Calderbank offer to satisfy the court that it should exercise the costs discretion in its favour: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61; Commonwealth of Australia v Gretton [2008] NSWCA 117.

The reasonableness of the decision not to accept a settlement offer is not to be determined with hindsight: Grynberg v Muller [2002] NSWSC 350 at [48] (Hamilton J). The reasonableness of the refusal must be considered by reference to the situation at the time the offer was made, not solely by reference to the ultimate outcome of the proceedings: Crump & Ors v Equine Nutrition Systems Pty Ltd trading as Horsepower & Anor (No 2) [2007] NSWSC 25 (Hoeben J). The strength, or otherwise, of the claim being made should also be considered prospectively as at the time of the offer: Noon v Bondi Beach Astra Retirement Village Pty Ltd (No 2) [2010] NSWCA 285 at [11] (The Court).

In South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [85] Hunt AJA (with whom Mason P and McColl JA agreed) stated that indemnity costs should not be awarded in that case as “it would be unfair to a defendant to make an order for indemnity costs when the evidence at the trial is different from that known to the defendant at the time of the offer.”

I start by noting that in the notice of motion to have the caveat cease to be in force, there were matters which led the Plaintiff to appreciate that there was “a doubt” that required investigation. Presumably, it was for that reason the notice of motion was resolved, without determination, by the Court, and the matter proceeded by way of pleadings.

However, that was at a relatively early stage of the proceedings and not when it was necessary to conclude that there were provable facts and a reasonably arguable view of the law which supported the submission that the defence and Cross-Claim had reasonable prospects of success.

This, then, gives rise to the distinction between costs before, and after, a certain point, when the Defendants were, or ought to have been, reasonably informed of material matters and when they should have considered those matters with the benefit of legal advice.

Next, it should be remembered that, otherwise, this is not a case that was resolved without a hearing on the merits. It was a hard fought case that ran for 6 days, in which a very serious allegation was made, and pursued throughout, against the father of the Plaintiff. In that sense, the Plaintiff had no practical alternative but to continue the proceedings when each of her offers was rejected or lapsed.

The point in time that the Defendants became, or ought to have become, as reasonably informed as they were likely to be, was by the end of January 2021. Other than one affidavit, from Mr Van Louwersen, and affidavits filed by the Plaintiff’s solicitor (which went to costs) all of the affidavits which were read in the Plaintiff’s case had been filed and served. Thereafter, only one affidavit, being his affidavit of 2 July 2021, was filed and served. In this affidavit, Mr Van Louwersen denied knowing about the existence of any will left by the deceased or destroying such a will and stated that he had never had access to the deceased’s safes. Importantly, he had previously, under oath, denied destroying the deceased’s Will, in his affidavit sworn 14 August 2020.

Mr Van Louwersen also gave evidence, in his affidavit of 2 July 2021, of an occasion where, whilst at the deceased’s home, he saw the portable ammunition safe open with ammunition next to it, which he placed in the safe.

The Plaintiff also filed and served another affidavit of 11 June 2021 going to having opened the deceased’s gun safe in May 2021 with her friend, Matthew, and annexed photos of its contents. However, as the assertion was always that the unfound Will was not in the gun safe, because it had been taken by Mr Van Louwersen prior to May 2021, this does not assist the Defendants on the question of costs.

Furthermore, by the end of January 2021, the Defendants had been involved in the proceedings since they had filed the general caveat on 23 April 2020, that is to say, for about 10 months. It was not suggested that any additional provable facts were discovered after the end of January 2021. Importantly, by that time, Mr Van Louwersen’s denial of finding any unfound Will or testamentary document had been made. They ought to have been aware of what they would be likely to be able to establish.

Ultimately, in order to have any prospect of success, the Defendants had to establish, amongst other things, the existence of the unfound Will and its terms. This they also could not do. Even if they had done so, they would, then, have had to rebut the presumption of revocation by the deceased animo testandi. Again, they were unable to do this.

This was a case in which “the defendants pursuit of a claim … did not meet the required standard of evidentiary proof”. It was a case in which they ought to have realised that, on the available evidence, they would not be able to meet the required standard of evidentiary proof. Yet, they persisted with their claims and with the allegation against Mr Van Louwersen.

In my view, in forensically examining the evidence available, there were a number of aspects that the Defendants ought to have appreciated, by the end of January 2021, which demonstrate that their conduct, in continuing the defence of the proceedings, was unreasonable. These were:

There can be no doubt that the Defendants had been warned about the risk that they were taking in regard to continuing to make the allegation concerning Mr Van Louwersen, if unsubstantiated, at the hearing. As stated, they continued to maintain it, even during the submissions made towards the conclusion of the proceedings.

The Defendants’ case, as advanced, resulted in a resounding defeat. In my view, it was unreasonable for them to pursue the case as they did to the very end.

I then turn to the offers made by the Plaintiff. In this regard, it seems to me that it was also unreasonable for the Defendants to reject each of the offers made in 2021.

In my view, each of the offers made in February 2021, expressed to be a Calderbank offer, and the without prejudice offer made in June 2021, did involve a genuine element of compromise and was a reasonable offer based on the information then known. Each, if accepted, would have produced an outcome more favourable to the Defendants than that which flows from the result of the case.

By the end of January 2021, the Defendants ought to have realised the weaknesses in their Defence and the extreme difficulty, if not impossibility, of them being able to establish the facts asserted in the Cross-Claim. They had not obtained an order for their costs of the notice of motion but simply an order that those costs be the Defendants’ costs in the cause. The first offer of $25,000, plus the repayment of the testamentary expenses that the first Defendant had paid, whilst it may not have been sufficient to satisfy their costs, calculated on the indemnity basis, would have gone some way to paying those costs.

The subsequent offer of $65,000, made in June 2021, shortly before the commencement of the case, although it included the amount that had been expended by the first Defendant in testamentary expenses (about $16,000), and to which she was entitled to be reimbursed, would have resulted in an amount of slightly less than $50,000 to the Defendants. Even if it was not sufficient to satisfy their costs, calculated on the indemnity basis, it would have gone some way to paying those costs.

When one considers all the circumstances of the case, including the net value of the deceased’s estate, and importantly, the Defendants’ conduct in pursuing the Defence and Cross-Claim, the reasonableness of their decision to pursue the allegations and the issues, and the manner in which they relentlessly did so, I have reached the view that reasonable defendants would not have pursued the claims that the Defendants did in this case.

Furthermore, their rejection of the offers made by the Plaintiff, which, in my view, were genuine offers, revealing a desire to compromise, in 2021, even if all of them are not Calderbank offers, demonstrate the Defendants’ unyielding approach. Taking into account the forensic difficulties which they faced, I am not persuaded that any of the offers made by the Defendants demonstrated a genuine desire to compromise the proceedings.

It is unnecessary to repeat the offers made by the Defendants.

In this case, after their investigations, and by the end of January 2021, the Defendants should have realised that they did not have real prospects of success on the evidence that was available.

I am satisfied that they should pay the Plaintiff’s costs, calculated on the indemnity basis from 1 March 2021. I have selected that date to take into account a reasonable opportunity for the Defendants to have considered their position and determine to accept the offer made in early February 2021.

In the exercise of discretion, I am of the view that in the period between 11 September 2020 and 1 March 2021, the Defendants should pay the Plaintiff’s costs, calculated on the ordinary basis, of the proceedings and that thereafter, they should pay her costs, calculated on the indemnity basis. To not make these orders would, in my view, be unjust in all the circumstances of the case.

Making the orders for costs gives no pleasure. However, Probate proceedings ought not to be continued, unless there is, or appears to be, a real chance of success. Contested probate proceedings simply diminish the value of the estate and impose a great hardship on those involved, particularly if they are ultimately successful in litigation.

The Court: