Chisak v Presot (No 2)

HIS HONOUR: This is my judgment on the appropriate order for costs arising out of the hearing of Probate and family provision proceedings, in which I delivered reasons for judgment on 27 May 2021, which bear the medium neutral citation Chisak v Presot [2021] NSWSC 597 (“the principal judgment”). This judgment should be read with the principal judgment. Events, matters and persons are referred to in both judgments in the same way.

At the request of the parties, the determination of costs could not be dealt with at the hearing: see [65] of the principal judgment.

In summary, in the principal judgment, I concluded that:

Having reached the conclusion in (c) above, it was unnecessary for me to decide any additional issues in the claim for a family provision order. However, for completeness, I also wrote that:

Based on my conclusions above, the Court ordered that:

Ultimately, Ivy was unsuccessful in the entirety of her claims. I adjourned the proceedings to 10 June 2021 for the determination of how the costs of the proceedings should be borne. These reasons are required because the appropriate orders are indisputably contentious and because they deal with costs, the quantum of which is significant.

Following the publication of the principal judgment, the parties were unable to agree upon how the costs of those proceedings should be borne. The costs hearing was then held on 17 June 2021 and the same counsel appeared. At the conclusion of these reasons, I shall make the costs orders that reflect these reasons.

Only two affidavits, one read on behalf of each party, were relied upon in the costs proceedings.

One affidavit was sworn on 16 June 2021 by Mr A Cameron, the solicitor for Ivy. At the date of this affidavit, Ivy’s costs were estimated to total $164,270, comprising $114,000 in professional costs and $50,270 in counsel’s fees (I have omitted, and shall continue to omit, any reference to cents.) Mr Cameron stated that Ivy also remained liable for filing fees and hearing allocation fees which had been postponed pending finalisation of the proceedings and that his firm had received an authority, from Ivy, for these amounts to be paid out of her share of the deceased’s estate.

(The affidavit was unclear about whether the authority is for all of Ivy’s costs or merely the fees referred to. In view of a submission about a consequence of making the orders sought by the Defendants, suggesting a “preference” might be created (Tcpt, 17 June 2021, p 01(36)), I tend to the view that it is likely to be an authority for all of her costs.)

According to Mr Cameron, Ivy’s only source of funds to pay her legal costs is her entitlement under the 2017 Will. I had noted in the principal judgment that Clause 6 of the 2017 Will gave the whole of the deceased’s estate, both real and personal, of whatsoever kind and nature and wheresoever the same may be situated, to Emanuela, Adelina, Linda, Anna, and Ivy, for her own use and benefit absolutely, in equal shares, as tenants in common. Therefore, Ivy is entitled to 20 per cent of the net residuary estate of the deceased.

Ivy had received some funds, by way of an interim distribution, from the deceased’s estate, in order to pay the expert witness fees, totalling $19,002 as well as a further amount of $5,000, on account of her professional costs and disbursements. The Defendants seek reimbursement of these amounts from her share also.

There was no evidence to suggest any conduct on the part of the Defendants, whether by unreasonable delay, or a want of the cooperation, to ensure the just resolution of the real issues in dispute with minimum delay and expense, that might have been taken into account to justify refusing the Defendants an order for their costs.

The other affidavit read at the hearing, was one, also sworn on 16 June 2021, of Mr J Shahrouk, the solicitor for the Defendants. As at 2 June 2021, the Defendants’ costs, calculated on the indemnity basis, of the proceedings, were estimated to total $180,897, comprising $94,616 in professional costs and $86,281 in disbursements.

Relevantly, on the issue of costs, Mr Shahrouk annexed to his affidavit, a copy of a number of different Offers of Compromise served in the course of the proceedings. What orders flow from the rejection of two of these Offers of Compromise, served by the Defendants, and not accepted by Ivy, was not really in dispute. The real dispute related to whether the Court should depart from the costs consequences stated in the Uniform Civil Procedure Rules 2005 (NSW) (“the UCPR”) and should “otherwise order”. I shall return to the provision of the UCPR later in these reasons.

Importantly, there was no evidence, in reply, by Ivy, read to demonstrate that it was not unreasonable for her to have rejected each offer.

On 29 May 2019, Mr Shahrouk sent a letter to Mr Cameron, enclosing an Offer of Compromise. The letter provided detailed contentions explaining why Ivy would be unsuccessful in the proceedings.

In summary, in the letter, the Defendants contended that:

This Offer of Compromise (to which I shall refer as “the first Offer of Compromise”) was in the following terms:

It is unclear whether the offer made in the first Offer of Compromise was rejected or whether it lapsed through effluxion of time. In the circumstances, it does not matter.

An effect of the offer made in the first Offer of Compromise was that the Probate proceedings would be dismissed, but Ivy would receive, by way of a family provision order, an additional 5 per cent of the residue of the deceased’s estate and her costs, calculated on the ordinary basis.

On 25 July 2019, Mr Cameron sent a letter to Mr Shahrouk, enclosing an Offer of Compromise made on behalf of Ivy. In summary, Mr Cameron’s letter included the following:

Ivy’s Offer of Compromise was in the following terms:

It is unclear whether the offer was rejected or lapsed through effluxion of time. However, it is unnecessary to refer to Ivy’s Offer of Compromise further as it is not relevant to the costs issue and was not relied upon by her on the application for costs. It has been referred to for completeness.

On 28 April 2020, Mr Shahrouk sent another letter to Mr Cameron, enclosing an Offer of Compromise (to which I shall refer as “the second Offer of Compromise”). The letter referred to the same contentions as those set out in the letter accompanying the first Offer of Compromise.

The Offer of Compromise was in the following terms:

An effect of the offer made in the second Offer of Compromise was that the Probate proceedings would be dismissed, but Ivy would receive, by way of a family provision order, an additional 10 per cent of the residue of the deceased’s estate and her costs, calculated on the ordinary basis.

It is unclear whether the offer was rejected or lapsed through effluxion of time. Again, in the circumstances, it does not matter.

On 16 March 2021, Mr Shahrouk sent another letter to Mr Cameron in which he stated:

It is beyond argument that this letter, sent shortly before the commencement of the substantive hearing, made the Defendants’ position, in regard to costs, abundantly clear, if it was not otherwise obvious. Ivy and her legal representatives could not have been left in any doubt as to the potential costs consequences, as sought by the Defendants, if she proceeded with her claim and if she were unsuccessful. It is hard to see what more the legal representatives of the Defendants could have done to warn her and them of their intentions in the event that Ivy did not succeed.

There was evidence that the Defendants’ position was set out, again, in a letter, sent on 16 June 2021, the day before the costs hearing, by Mr Shahrouk to Mr Cameron, which included the following:

There is no evidence of any response to this letter.

Ivy provided no written submissions on the costs application. On 17 June 2021, the day of the costs hearing, the Court received an email from Mr Sneddon, counsel for Ivy, stating:

The Plaintiff sought the following costs orders:

At the hearing of the costs application, there was no dispute that each of the Offers of Compromise made by the Defendants was one made in accordance with Part 20 Division 4, in particular, rule 20.26, of the UCPR; that it complied with that rule; and that it related to the whole of Ivy’s claim. Nor was there any dispute that the offer made in each Offer of Compromise represented a genuine compromise, or that it was, respectively, an offer made by the Defendants, but not accepted by Ivy, and the Defendants obtained orders on the claims no less favourable to them than the terms of the offer: Tcpt, 17 June 2021, p 04(29-33).

At the costs hearing, counsel for Ivy also accepted that:

The concessions made by counsel for Ivy were reasonable and appropriate.

The Defendants sought the following costs orders:

The Defendants submitted that the presumption that Ivy, being unsuccessful, should pay the Defendants’ costs is applicable in these proceedings: UCPR r 42.1. Further, this presumption was made stronger by the service of each Offer of Compromise, which contained a real and genuine element of compromise. They contended that it was unreasonable for Ivy to reject the first Offer of Compromise. According to counsel, the affidavit evidence supported the Defendants’ position that Ivy’s whole claim would be likely to be dismissed.

It was put that at the date of the commencement of the proceedings, Ivy did not have any evidence to support her claim that the deceased did not know and approve of the contents of the 2017 Will. Given that she had not spoken to the deceased, at any time, after 2008, and in circumstances where she only became aware that the deceased had a stroke after reading the medical records, she could not properly be described as having been reasonably led into the litigation by a bona fide belief in her case, such as to come within the exception to the usual costs rule.

The Defendants conceded that the deceased’s hospital records, considered alone, may have raised some concerns about the deceased’s capacity or language ability. However, when read in the context of the affidavit evidence, it was plain that the deceased’s language ability and cognitive functioning had improved significantly by the time she gave instructions for the 2017 Will.

It was accepted that at the time the first Offer of Compromise was served, no orders had been made for the filing and service of expert evidence and there was no certainty that any such orders would be made. However, the affidavit evidence was complete, excepting updating evidence in respect of the family provision claim, such that Ivy was, then, in a position to assess the likelihood of success of her claim on the whole of that evidence.

The Defendants also submitted that it was unreasonable for Ivy to have failed to accept the second Offer of Compromise, made after the expert evidence had been obtained. Counsel for the Defendants made this submission on the following basis (Tcpt, 17 June 2021, p 12(18-32)):

In regard to the claim for a family provision order, the Defendants submitted that the overall justice of the case required that Ivy’s costs be borne by her, rather than by the estate. It was submitted that the assertion that she was an eligible person was always tenuous, even if the Court accepted her evidence. The Defendants referred to the Court’s finding, in the principal judgment, that “[a]s a matter of fact, on any version given by her, Ivy cannot be said to have been wholly or partly dependent upon the deceased”: see [328] of the principal judgment.

It was also submitted that the provision made for Ivy under the deceased’s 2017 Will was adequate, as the Court had also stated. Counsel contended that Ivy’s family provision claim was not reasonable, meritorious, or even borderline.

It was further put that given the size of the estate, it should have been plain to Ivy that pursuing the proceedings would substantially diminish the size of the residuary estate, and consequently, her share of 20 per cent thereof provided to her under the 2017 Will.

The Defendants also sought an order setting off any costs order in their favour against Ivy’s entitlement under the 2017 Will. They relied upon the evidence of Mr Cameron that Ivy is impecunious, and that the only source of funds she has to satisfy her own legal costs is the entitlement that she will receive out of the deceased’s estate. If a costs order were not able to be set off against that entitlement, Ivy may choose to satisfy other debts first, frustrating the purpose of any order for costs. A setting off order would be just, in this case, to ensure that the estate was reimbursed for the costs which the Court orders that Ivy should bear.

(The Defendants’ counsel, Dr Lucy, did not advance any alternative claim for indemnity costs based on the principles in Calderbank v Calderbank [1976] Fam 93, as it was unnecessary to do so.)

In Probate proceedings, and otherwise, the Court starts by treating the success or failure of the relevant party as being the starting point in consideration of the question of costs. Ordinarily, the successful party may reasonably expect to receive her or his costs, whether that outcome be described as costs following the “event” or otherwise. However, the question of costs is always within the Court’s unfettered discretion which must be exercised judicially and by reference only to considerations relevant to its exercise and upon facts connected with, or leading up to, the litigation: Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 at [24].

I have recently set out the principles relating to the determination of costs, in Probate proceedings, in Starr v Miller; Starr v Miller (No 2) [2021] NSWSC 685 at [51] – [86]. It is unnecessary to repeat the principles because of the recency of that decision but, naturally, I have borne them in mind. What follows, therefore, is merely by way of emphasis and elaboration.

The essence of what I wrote was that, in probate suits, there are considerations that more readily affect the application of the Civil Procedure Act 2005 (NSW) and the UCPR than in most other forms of litigation. These considerations act as guides to the exercise of discretion, but they are not inflexible. I repeated that, in light of all of the circumstances of the particular case, the Court must decide which costs order best achieves justice between the parties.

At [108], I wrote:

In the present case, there are various factors to be considered. One, of course, relates to the effect of the two Offers of Compromise (which was a matter not relevant in Starr v Miller; Starr v Miller (No 2)).

Rule 42.15A of the UCPR provides:

In Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368, Spigelman CJ, Beazley and McColl JJA, wrote, at [15]:

From the authorities, it appears the question for determination regarding the effect of what is said to be an Offer of Compromise involves a two-stage process. The first stage is to enquire whether the offer made is an Offer of Compromise at all, within the meaning of the UCPR. This will depend, in part, on whether it satisfies the formal requirements laid down by UCPR rule 20.26. It also depends, in part, on whether the offer made is one that can truly be called a “compromise”.

If the Court concludes that the offer which is made is an Offer of Compromise within the meaning of the Rules, and that the offer made is one that can truly be called a compromise, then UCPR r 42.15A(2) operates to establish a “default” position, relevantly that, if the defendant obtains a judgment no less favourable than that which the defendant had offered to accept, then indemnity costs would follow. It is then that the second stage of the process arises, in that the Court can “otherwise order”. The Court will “otherwise order” if it is persuaded that is appropriate, in the interests of justice, that the “default” position ought not to apply: Manly Council v Bryne (No 2) [2004] NSWCA 227, per Campbell JA, at [10]; Evans v Braddock (No 2) [2015] NSWSC 518, at [52].

In Croghan v Blacktown City Council (2019) 100 NSWLR 757; [2019] NSWCA 248 the approach to be adopted by the Court was set out as follows at [11] and [13]:

The judgment in Croghan v Blacktown City Council was referred to in Mendonca v Tonna (No 3) [2020] NSWCA 332, in which the Court of Appeal (Bell P, Meagher JA, and Payne JA), wrote, at [24]:

The recent judgment of Payne JA in YWCA Australia v Chief Commissioner of State Revenue (No 2) [2021] NSWSC 102 demonstrates that there remains a difference in the authorities as to whether exceptional circumstances are required for the Court to “otherwise order”. Although his Honour was referring to UCPR r 42.14, what his Honour wrote, at [23], applies equally to UCPR r 42.15A:

In Walker v Harwood [2017] NSWCA 228, Basten JA had written at [22]:

Perhaps, a useful summary of what the Court ought to do in determining whether to “otherwise order” was provided by Kunc J in Bates v Cooke (No 2) [2014] NSWSC 1322 (which was cited, with approval, by White J in AB v Curry (No 2) [2015] NSWSC 1209 at [4], and by the Supreme Court of Victoria in Briggs v Mantz (No 2) [2014] VSC 487 at [33]- [35], and Smith v Whittaker [2016] VSC 287 at [36]). Kunc J wrote at [33]:

(An appeal from the substantive judgment of Kunc J was dismissed in Bates v Cooke (2015) 14 ASTLR 22; [2015] NSWCA 278. Nothing was written by the Court of Appeal about the costs judgment.)

Because it is relevant to the submissions made on behalf of Ivy, I should note that the fact that an adverse costs order will cause hardship to the unsuccessful party will not be sufficient, on its own, to resist the usual order. In this regard, I refer to Houatchanthara v Bednarczyk [1996] NSWCA 253, in which Clarke JA (Handley JA and Santow AJA agreeing) expressed that:

Furthermore, the impecuniosity of a party is not a ground for refusing to make an order for costs against that party: Sassoon v Rose [2013] NSWCA 220 at [10] (Meagher JA, Gleeson JA agreeing). As was written there, “[T]he fact that an unsuccessful party is, or may, not be able to meet an order for costs is not a good reason to deprive the successful party of the opportunity to enforce or attempt to enforce such an order”.

I also remember what Gray J (Carr and Goldberg JJ agreeing) wrote in Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCAFC 97; [2002] FCA 424 at [20]:

There are, in these proceedings, a number of factors which, in my view, warrant departure from the usual costs order set out in UCPR r 42.15A, in relation to the Probate issue to which I now turn.

Firstly, at the date of the first Offer of Compromise, being 29 May 2019, the medical evidence was incomplete. Ivy’s medical expert, Dr Wijeratne, provided two reports dated, 8 October 2019 and 12 March 2020, both of which were made after the date of the first Offer of Compromise. The Defendants’ medical expert, Associate Professor Rosenfeld, also provided a report, dated 31 January 2020, well after the making of the first Offer of Compromise. The opinions of each of the experts were conflicting.

Secondly, although the Defendants’ second Offer of Compromise, dated 28 April 2020, was made after the medical evidence was complete, there remained the competing opinion given by each of the two medical experts engaged in the proceedings, as to the nature, extent and timing of the medical conditions suffered by the deceased. These reports demonstrated that there was significant disagreement about the medical conditions from which the deceased suffered on the date the instructions for the 2017 Will were given and on which it was signed.

Both experts were engaged for the purpose of providing an expert opinion on the testamentary capacity of the deceased at the time of the 2017 Will. Dr Wijeratne was of the opinion that it was more likely than not that the deceased lacked testamentary capacity when she made her 2017 Will. He expressed the opinion that the deceased suffered at least moderate dementia at the time of the 2017 Will.

In contrast, Associate Professor Rosenfeld was of the opinion that it was more likely than not that the deceased’s medical condition did not affect her capacity when she gave the instructions for and signed the 2017 Will.

Following a conclave of the two experts, there remained significant disagreement between them, including the extent to which the stroke suffered by her, affected the deceased’s cognition, in particular her executive function; the extent of residual damage to her speech and cognition at the time the Will was made; the extent to which anxiety and depression were significant factors in her decision making; whether she had apportioned her estate equally amongst her five beneficiaries in a rational manner; and whether the deceased retained testamentary capacity: see [278] of the principal judgment.

Of course, as I pointed out at [74] of the principal judgment, it was not for the experts to determine whether the will-maker has testamentary capacity. That is a matter solely for the Court's determination.

Thirdly, although, ultimately, the Court accepted the evidence given by Mr Shahrouk in relation to the circumstances surrounding the execution of the 2017 Will, his evidence was limited. Importantly:

Fourthly, the only lay witnesses who gave evidence going to the deceased’s condition, following her stroke in March 2017, were persons with a financial interest in the outcome of the proceedings, being the other beneficiaries named in the 2017 Will. In some respects, the evidence given was different from the contents of some of the contemporaneous medical records.

This is a case in which the available material could have reasonably led Ivy to the belief that the Court could find that the 2017 Will was not a valid Will. Her doubts, based on the later available evidence, in relation to the validity of the 2017 Will, may be considered to have been reasonably held.

In my judgment, the principle enunciated by Sir Gorrell Barnes P that “if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who have incurred them”: Spiers v English [1907] P 122 at 123; Middlebrook v Middlebrook (1962) 36 ALJR 216 at [217], is a matter that goes to the question whether the Court should “otherwise order”, at least so far as the Probate issue is concerned.

Of course, I have also remembered, as countervailing matters, the views expressed by Basten JA in Walker v Harwood quoted above and also that the litigation here was brought by Ivy to vindicate her private interest in obtaining greater provision out of the deceased’s estate.

I now turn to the principles of law relating to costs in the family provision proceedings.

The Act expressly provides that the Court may order that the costs of proceedings under Chapter 3, dealing with family provision claims, be paid out of the estate of the deceased in such manner as the Court thinks fit: s 99.

Rule 42.15A of the UCPR, which I have referred to above, is applicable in family provision proceedings: Page v Page [No 2] [2016] NSWSC 1323, at [51]-[52].

In Harkness v Harkness (No. 2) [2012] NSWSC 35, at [18]-[19], I set out the principles that relate to determining the issue of costs in family provision proceedings:

In Bruce v Greentree (No 2) [2015] NSWSC 1636 at [43], I wrote:

The principles in respect of costs orders in family provision matters were summarised by the Court of Appeal in Haertsch v Whiteway (No 2) [2020] NSWCA 287 at [4] - [11] (Macfarlan, Meagher and Leeming JJA).

I have borne these principles in mind.

It was not in dispute, in the family provision proceedings, that the contact between Ivy and the deceased for the last 14 years of the deceased’s life was minimal. Ivy accepted, by way of example, that she did not see the deceased after 2003 and that she made no attempt to contact the deceased in the last five years of the deceased’s life, despite no longer being a minor.

In fact, ultimately, the family provision proceedings were decided consistently with the correspondence sent from Mr Shahrouk to Mr Cameron, referred to earlier in these reasons. The Court found that Ivy was not an eligible person under the Act and, even if she had been, she had already received adequate and proper provision from the estate of the deceased. (However, contrary to the contentions advanced, the Court did say that there were factors warranting the making of the application: see [51] of the principal judgment.)

Furthermore, in relation to each Offer of Compromise, the additional provision (5 per cent in the first Offer of Compromise, increased to 10 per cent in the second Offer of Compromise) would have resulted in an additional lump sum, which was reasonably large, being offered to Ivy.

Had she not commenced these proceedings, Ivy would have received a substantial lump sum, which amount would have provided for the exigencies of life. As it is, by commencing proceedings she took the risk that she would not receive an order for her costs out of the estate or that she would have to bear the burden of the Defendants’ costs.

In my judgment, this is a case in which the available material could not have reasonably led Ivy to the belief that the Court would find that inadequate provision for her proper maintenance, education or advancement in life had been made in the 2017 Will. Any doubts, based on the available evidence, in relation to whether adequate and proper provision had been made for her, should not be considered to have been reasonably held.

As such, in relation to the costs of the family provision proceedings, I consider the two Offers of Compromise made by the Defendants, to Ivy, to be relevant and no sufficient reasons have been advanced going to why an “otherwise order” should be made. I am unable to see any good reason to make an “otherwise order” in relation to the family provision proceedings.

Although not the subject of written submissions, I raised the matter of the possibility of the two issues, being the probate issue and the family provision issue, resulting in different costs consequences, with counsel at the costs hearing: Tcpt, 16 June 2021, p 11(47)-12(02). I considered the possibility even though Ivy had been unsuccessful on both issues.

Some general principles that assist were stated in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA):

More recently, in Eastlings Pty Ltd v Calidu Import Export Pty Ltd (No 3) [2021] NSWSC 466, although in the context of an order for costs based on UCPR r 42.1, Ward CJ in Eq wrote, at [40]:

In Bowen Investments v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107, Finkelstein and Gordon JJ wrote, at [5], that if an issue by issue approach produces a result that is fairer than giving the successful party all of his, her, or their, costs, notwithstanding the failure on particular issues, then the issue by issue approach should be adopted. (The passage was referred to in Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor (No 2) [2021] NSWCA 98 at [16]).

When the Court raised the possibility that it could conclude that the determination of the question whether to “otherwise order” were different in respect of each of the Probate issue and the family provision issue, there was no dispute as to the possibility, and that how costs would be borne could be determined in a way that reflected the nature of the different issues even though Ivy had failed in both. I also raised the possibility, if that occurred, that there would be a significant difficulty that could occur in the assessment of costs attributable solely to the Probate proceedings, costs attributable solely to the family provision proceedings, and the costs attributable to both sets of proceedings: Tcpt, 17 June 2021, p 11(01-04).

I suggested that a method to circumvent this difficulty was as set out in s98(4)(b) of the Civil Procedure Act, which states:

Both counsel agreed, during the costs hearing, that this would be a sensible approach to adopt in order to avoid the parties incurring further costs in relation to assessment and also in the delay to the completion of the administration of the deceased’s estate: Tcpt, 17 June 2021, p 12(04-14) and p 22(01-02).

Bearing in mind what I have written, and considering the overriding objectives provided for in ss 56 to 60 of the Civil Procedure Act, in the interests of justice, I am satisfied that I should adopt the approach referred to above. I also remember that Ivy, as one of the beneficiaries named in the Will of the deceased, will be bearing a share of any costs payable out of the deceased’s estate.

Doing the best that I can, and adopting an holistic approach based on impression and remembering that evaluation as mathematical precision is illusory, I am of the view that Ivy should pay 40 per cent of the Defendants’ costs, calculated on the indemnity basis, of the proceedings. As to the balance, the Defendants’ costs, calculated on the indemnity basis, should be paid out of the estate of the deceased. No order will be made for Ivy’s costs, to the intent that she should bear her own costs of the proceedings. Naturally, the amount advanced to her should be taken into account.

The order for costs payable by Ivy creates a debt due to the estate. The Defendants sought an order setting off any costs ordered to be paid by her against Ivy’s entitlement under the 2017 Will. As stated, Ivy has an entitlement to receive 20 per cent of the residue of the estate. They submitted that the principle that informs the making of such an order is one expressed in Cherry v Boultbee (1839) 4 My & Cr 442, that a person cannot receive a distribution from a fund to which she, or he, is bound to contribute. (They, of course, have a duty as executors to properly administer the estate in the interests of all the residuary beneficiaries.)

An even earlier case in which such a principle was applied is Jeffs v Wood (1723) 2 P Wms 128. Jeffs senior made a will appointing his son, Jeffs junior, as his executor and left a legacy of £500 to his nephew, Wood, who was indebted to Jeffs senior in a smaller sum. Wood was made bankrupt after Jeffs senior's death, but before the legacy had been paid. Sir Joseph Jekyll MR directed the executor to pay Wood the balance of the legacy after retention by the executor of the full amount of Wood's debt to Jeffs senior.

The rule was described as follows by Kekewich J in In re Akerman [1891] 3 Ch 212 at 219; [1891] UKLawRpCh 118:

The issue in In re Akerman was whether, in the division of the will-maker’s residuary estate, three of the will-maker’s seven children had to bring into account statute-barred debts due to the estate. It was held that they were bound to bring them into account.

In Turner v Turner [1911] 1 Ch 716 at 719, Cozens Hardy MR wrote:

In In re VGM Holdings Limited [1942] 1 Ch 235, Ungoed-Thomas J, at 12, summarised the principle as follows:

Rees J, albeit in another context, in In the matter of D & D Corak Investments (In Liquidation) Pty Limited (2020) 147 ACSR 99; [2020] NSWSC 1197, wrote, relevantly, regarding the principle, at [18]:

As applied to the administration of estates, the principle can be seen as providing a mechanism to ensure that a beneficiary who owes money to the estate does not receive more than her, or his, fair share of the distribution of the estate. (Any question going to whether the principle can be applied in respect of a specific gift of property or chattels does not apply because Ivy is entitled to an equal share of the residue of the deceased’s estate into, and from, which, any costs of the proceedings would be paid.)

The application of the principle set out above is straightforward. It is of general application where an estate is being administered, a beneficiary cannot receive anything out of the estate until she or he has made good what is owed to the estate. It is immaterial whether the amount owed is actually ascertained or not. If it is not actually ascertained, it must be ascertained in order that the rights of the beneficiaries may be adjusted. Here, Ivy is entitled to share in the residue of the estate. At the same time, as a consequence of the Court making a costs order in respect of the proceedings, she is a debtor of the estate for an amount of those costs, the quantum of which is yet to be determined. It is appropriate that the Defendants, as executors, should be entitled to not distribute so much of Ivy’s share of the estate, pending the assessment of the quantum of costs owing to the estate, as is necessary to satisfy the order for costs. Ivy is directed to satisfy those costs from a particular source (her share of the estate).

The principle could be described as a right to appropriate a particular asset as payment of those costs, as opposed to a right of set-off or a right of retainer. The Defendants will simply make a distribution to Ivy which takes account of the existence of an obligation to the estate by her.

The evidence of Mr Cameron on the costs application makes clear that Ivy does not appear to have any significant assets and that she will be unable to meet any costs that she must pay. It is basic justice that the Defendants should be compensated for costs incurred because they have been obliged to litigate because of the proceedings brought by Ivy.

It would also be unjust to hold that in distributing the residuary estate, that Ivy is entitled to be paid all of her share, and subsequently find, after the quantum of costs is ascertained, that the amount of those costs could not be recovered from her.

Counsel for Ivy submitted that an order as sought by the Defendants could result in the Defendants obtaining a preference. That may, or may not, be so. However, the costs as between Ivy and her solicitors should not detrimentally affect the value of the residuary estate of the deceased. Relevantly, her solicitors have been acting for her at all relevant times. The advice given by them to her, in relation to the acceptance or rejection of each Offer of Compromise, naturally, was not the subject of evidence. Only Ivy and her legal representatives currently know of the nature of that advice.

Obviously, it would be in the parties’ interest to attempt to reach agreement on the quantum of the costs to be paid by Ivy in order to avoid the delay that will be likely in the event that assessment is required.

The Court orders that: