Coote v Coote (No 2)

On 9 February 2021, I published my principal judgment in these proceedings in which I made an order for further family provision in favour of the plaintiff under s 59 of the Succession Act 2006 (NSW) that he be paid a lump sum of $100,000 in total out of the estate of his deceased mother: see Coote v Coote [2021] NSWSC 59 at [198].

I will assume knowledge of the principal judgment and will use the same terms and references to names as in that judgment. Accordingly, I will henceforth refer to the plaintiff and the defendant as Neil and Brian respectively.

I also made the conventional costs order that Neil’s costs, calculated on the ordinary basis, be paid out of the estate of the deceased and that the costs of Brian, the executor, calculated on the indemnity basis, be paid out of the estate of the deceased.

I did not know that, on 14 October 2019, Brian had made an offer of compromise under Pt 20 Div 4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) that Neil receive a legacy of $101,000 out of the estate.

As a result of the offer of compromise being in a sum that was $1,000 more than the $100,000 legacy that I ordered be paid to Neil, Neil became liable to an application by the defendant for a special order for costs under UCPR r 42.15.

Brian has now moved the Court for the making of the following alternative orders for costs:

Brian has also sought an order that the plaintiff pay his costs of the application.

The Court, by consent, made directions for the parties to serve written submissions on the application. Submissions were received from Brian on 8 March 2021 and from Neil on 24 March 2021. The application has been decided on the papers.

As Hallen J observed in Philpott v Pantos [2018] NSWSC 852 at [202]-[207], it is now established that UCPR Pt 42 Div 3 applies to plaintiffs' claims for further provision under s 59 of the Succession Act no less than to other types of proceedings. Neil did not challenge Brian’s submission that Division 3 applies.

Uniform Civil Procedure Rules r 42.15 provides as follows:

Neil did not challenge Brian’s claim that the offer of compromise was validly made under UCPR r 20.26. As mentioned, the offer of compromise was made on 14 October 2019, and it was open for acceptance until 5 PM on 12 November 2019 after which it lapsed. Neil did not accept the offer of compromise.

Rule 42.15(1) is satisfied in this case because the offer of compromise was made under UCPR r 20.26, it was not accepted by Neil, and Neil obtained an order on his claim that was no more favourable to Neil than the terms of the offer, albeit that it was only $1,000, or 1%, less than the amount of the offer.

As such, Brian will be entitled to the costs orders that he seeks unless the Court determines to order otherwise under UCPR r 42.15(2).

It will be convenient to begin by setting out an outline of the circumstances in which the Court made the family provision order in favour of Neil.

Neil and Brian are brothers and were the only children of their deceased mother who died on 15 June 2018 at the age of 99 years.

On 11 March 2019, this Court granted probate to Brian as executor of the deceased's will made on 28 November 2013 when she was almost 95 years of age.

In her will, the deceased divided her estate with a value of $508,770.98 between her two sons. Neil was given a legacy of $25,000 and the balance of the estate was given to Brian.

Consequently, the dispute as to whether an order for further family provision under s 59 of the Succession Act should be made in favour of Neil was a dispute solely between Neil and Brian. To the extent that Brian was successful in upholding the will, that was an outcome for his benefit.

Under an earlier will made by the deceased on 17 December 2001, when she was 83, the deceased divided her estate equally between Neil and Brian.

By the time of the hearing, Neil had quantified his needs as requiring a fund of some $197,000, including an amount of $45,000 to allow for contingencies.

A significant fact for the purpose of the determination of Neil's claim for an order for further family provision was that the amount of legal costs incurred by the parties was such that, if the conventional orders for costs were made, the net distributable estate was estimated to be between $200,424.68 and $210,428.68, if the distribution of the legacy of $25,000 to Neil was added back in: see J [15] and footnote 1.

The parties' legal costs had therefore consumed some 60% of the estate. Although for the reasons set out in the primary judgment in which I found that Neil had established an entitlement to an order for further family provision, a fundamental restraint on the amplitude of that order was the substantial reduction in the net distributable estate caused by the legal costs that had been incurred: see J [14]-[16], [181], [191] and [194].

Neil submitted that, if the Court made the costs orders now sought by Brian, he would be in a worse position than before the commencement of the proceedings. Neil gave an estimate of the amount of the costs that he would be required to pay to Brian for the period after 14 October 2019 as being the sum of $135,757.58, reduced only by Neil's ordinary costs prior to 14 October 2019 of approximately $23,000. The proceedings would then yield Neil a net deficit of about $112,757.58.

Unfortunately for Neil, hardship in the outcome is not by itself a reason for the Court declining to make the costs orders sought by Brian, if Brian satisfies the procedural entitlement to those orders: see for example Houatchanthara v Bednarczyk [1996] NSWCA 253 at 3; BC9604998 per Clarke and Handley JJA.

It is necessary to consider the principles that govern the decision by the Court to order otherwise for the purposes of UCPR r 42.15(2).

I agree with the submission made by Brian that the following reasons of Meagher JA (with whom McCallum JA and Simpson AJA agreed) in Croghan v Blacktown City Council (2019) 100 NSWLR 757; [2019] NSWCA 248 are relevant to the approach to be adopted by the Court in applying UCPR r 42.15:

Relevantly to the observations made by Meagher JA in par [13] of the above extract, Brereton J (as his Honour then was) said in EDPI Pty Ltd v Rapdocs Pty Ltd [2007] NSWSC 195 in a case where the party making the offer of compromise had increased the legal costs incurred by introducing unnecessary or unsuccessful issues into the case:

In Sydney Attractions Group Pty Ltd v Frederick Schulman (No 3) [2013] NSWSC 1544, Sackar J said:

As the judgment of Payne JA in YWCA Australia v Chief Commissioner of State Revenue (No 2) [2021] NSWSC 102 demonstrates, there remains a difference in the authorities as to whether exceptional circumstances are required for the Court to otherwise order. His Honour said:

In Sydney Attractions Group Pty Ltd v Frederick Schulman (No 3) (above), after examining the relevant decisions of the Court of Appeal of this state, Sackar J reached the following conclusions as to the process that the Court is required to adopt in determining whether to otherwise order and deny the maker of an offer of compromise, in circumstances that satisfy UCPR r 42.15(1), the benefit of the costs orders set out in sub-rule (2):

It might seem that it is a good reason to order otherwise because the order made in Neil's favour was only $1,000 or 1% less than the sum offered in the offer of compromise, considering the obviously harsh consequences of the Court making an order under rule 42.15(2). However, decisions of the Court of Appeal suggest that the fact that the order in favour of the plaintiff is no more favourable than the terms of the offer by a relatively minuscule amount is not usually a reason for the Court to order otherwise. As I understand the authorities, however, the fact that the differential is very small is not necessarily irrelevant to the exercise of the Court's discretion. It will still be relevant for the Court to consider whether the difference is real and not trivial, and ultimately the discretion must be exercised by reference to all of the circumstances of the case, and not by applying any fixed mathematical formula.

As the Court of Appeal said in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725:

In Connor v Hatgis (No 2) [1995] NSWCA 92 at 1; BC9501810, Kirby P and Priestley JA said:

See also Macquarie Radio Network Pty Ltd v Arthur Dent (No 2) [2007] NSWCA 339, where Beazley JA (as her Excellency then was) with the agreement of Mason P and Basten JA affirmed the statement of principle by Kirby P and Priestley JA in Connor v Hatgis (No 2) and added:

A significant difficulty that may be faced by plaintiffs in family provision applications, when considering whether or not to accept an offer of compromise made by the defendant, arises out of the inherent nature of such applications, which led Palmer J in Sherborne Estate (No 2), Re; Vanvalen v Neaves; Gilroy v Neaves (2005) 65 NSWLR 268; [2005] NSWSC 1003 to say:

Forecasting the outcome of many different types of cases requires an effective crystal ball, but it may be accepted that, because of the nature of the discretion exercised by the Court under s 59 of the Succession Act, the exercise is particularly difficult for plaintiffs in claims under that provision.

This difficulty will be more acute if small errors of judgment in relation to the quantum of the family provision order may cause successful plaintiffs to be denied the benefit of the conventional costs order that their costs on the ordinary basis be paid out of the deceased’s estate, and that they be ordered that they pay the defendant’s costs from the date of the offer of compromise on the indemnity basis.

That gives rise to the practical risk that meritorious plaintiffs will accept inadequate offers of compromise out of fear arising from their inability to accurately forecast the outcome of the proceedings, and in order to avoid catastrophic costs orders. As "[t]he policy behind the rule is to ensure that parties give full and realistic consideration to offers to compromise litigation", to use the words of Kirby P and Priestley JA in Connor v Hatgis (No 2), the capacity of parties to reliably undertake that consideration should logically be relevant to the issue of whether the Court should otherwise order.

This problem was addressed in a different context in Hillier v Sheather; Sheather v Hillier (1995) 36 NSWLR 414 at 423, where Kirby P made the following observations:

Although the problem will arise in cases where the plaintiff’s claim for further family provision is dismissed, it may not be as acute as in cases where the plaintiff succeeds, but the family provision order that is made by the Court is less by some relatively small margin than the amount in an offer of compromise that was not accepted by the plaintiff. If the plaintiff’s claim is dismissed, then the outcome of the case will not have been influenced by evidence given to the Court that establishes the legal costs and disbursements incurred by the parties in the proceedings. The Court will simply have determined that the threshold in s 59(1) of the Succession Act has not been established by the plaintiff, or for some other technical reason, the claim must be dismissed.

The position will often be different where the plaintiff’s family provision claims succeed. As I noted at J [14], by reference to the decision of the Court of Appeal in Chan v Chan [2016] NSWCA 222 at [54], the Court should on an application for further family provision consider the diminution of the estate by legal costs, including the diminution caused by the payment of the successful plaintiff's costs.

Supreme Court Family Provision Practice Note No. SC EQ 7 in pars 6(c) and 9.5 requires the parties to serve affidavits setting out estimates of their costs and disbursements up to and including the completion of the mediation. The plaintiff’s estimate must be on the ordinary basis, while the administrator’s estimate must be on the indemnity basis. Paragraphs 17.1 and 17.2 require the parties to serve updating affidavits that estimate their costs and disbursements to the end of the hearing, and in the plaintiff’s case any uplift factor must also be identified. The purpose of these requirements is to enable the Court to determine the application for further family provision with knowledge of the likely distributable estate, after the conventional orders for costs are made and the estate is reduced by the payment of those costs. That is necessary because, in many cases, the Court cannot exercise its discretion under s 59 of the Succession Act properly or effectively if it cannot forecast the practical effect of its orders on the distributable estate of the deceased. It is exceptional, compared to other types of proceedings, for the Court to be informed of the parties’ costs and disbursements before judgment and be required to take that information into account in determining the proper orders to make.

However, the requirement that the parties disclose their costs and disbursements does not extend to a requirement that the parties disclose offers of compromise or Calderbank offers. The absence of such a requirement is understandable because the purpose of making such offers might be jeopardised if they were made known to the Court. It is one thing to require the Court to take into account the effect of the conventional costs orders, but entirely another to put the Court in the position where its decision may be determinative of parties’ obligations to pay costs at all, or to pay them on the indemnity basis, arising out of privileged attempts to compromise the proceedings.

It is conventional for the Court to make an order that the costs of the defendant in defending a family provision application are to be paid out of the estate of the deceased on the indemnity basis in cases where the plaintiff succeeds in obtaining an order for further family provision. That is because the Court recognises that one of the duties of an executor is to defend the deceased's will. The Court's practice assumes that the executor will act even-handedly with respect to the interests of the beneficiaries of the estate.

However, it is often the case that the executor has a personal interest in upholding the will, because the effect of the plaintiff in succeeding to obtain an order for further family provision will be to reduce the share of the executor as a beneficiary in the estate. In some cases, such as the present, the executor is the only beneficiary other than the plaintiff, so that, even accepting that the defendant is upholding the will of the deceased, the defendant is in reality conducting the defence in his or her own interests.

There will therefore be a risk that, if the defendant disproportionately incurs legal costs and disbursements to defeat the plaintiff’s claim for further family provision, the plaintiff will be required to follow suit, and when the Court determines the available distributable estate by allowing for the effect of the conventional costs orders, the amplitude of the family provision order that may fairly be made in favour of the plaintiff will be correspondingly reduced. There may thus be a causal relationship between the cost of the litigious effort of the defendant and the likelihood that the amount of the order for family provision made in favour of the plaintiff will fall short of the amount of the offer of compromise.

Consequently, in family provision cases, where the plaintiff ultimately succeeds, the plaintiff’s evaluation of the offer of compromise will not simply depend upon a consideration of the evidence then known and the merits of the claim. It will also require an assessment of the possible range of consequences of the additional costs that will be incurred by the parties between the date of the offer of compromise and the end of the hearing, and the likelihood that the additional costs will depress the final family provision order below the amount of the offer. That will require the plaintiff to assess the consequence of a variable that cannot be known.

This problem may be more theoretical than real if the evidence is complete when the offer of compromise is made, and it is only necessary for the plaintiff to factor in the estimated costs of the hearing. However, in cases where the costs substantially increase, whether or not as a result of additional evidence or issues, the exercise may become problematic, and the application of UCPR r 42.15 arbitrary, in the sense that the rule requires that the plaintiff “give full and realistic consideration to offers to compromise litigation” when the unknown factor of the future costs prevents the objective of the rule being satisfied.

In the present case, for the reasons that follow, I have determined that it is appropriate for the Court to order otherwise and to decline to vary the costs orders already made as sought by Brian.

Brian made a submission that the offer of compromise was made after the parties had attended a court-annexed mediation on 30 September 2019, and at a point when the matters in dispute as well as the size of the estate of the deceased were known and both parties had considered settlement and, no doubt, obtained advice regarding settlement, the risks of proceeding to hearing and advice in relation to the proceedings generally. Brian further submitted that both parties were aware of matters of family history and their own personal circumstances and relationship with their late mother at that time.

On 9 August 2019, Hallen J made an order that the matter be referred to court-annexed mediation on 30 September 2019. In the period before the mediation, the parties served the evidence upon which they then expected to rely on the final hearing of the application.

Neil's solicitor provided evidence on 25 June 2019 that Neil's estimated cost of the proceedings to the conclusion of a court-appointed mediation on the ordinary basis would be $25,000. On 30 July 2019, Brian's solicitor affirmed an affidavit that Brian's costs on the indemnity basis covering the same period would be $40,000. The total amount of the costs incurred by the parties up to the time of the mediation was thus $65,000.

In Neil's 28 May 2019 affidavit, he gave the evidence concerning his relationship over the years with Robyn, his former wife, that is set out at J [66]. As I read the evidence served by Brian before the mediation and the date of the offer of compromise, Brian did not make much of the significance of that relationship, and in his 14 September 2019 affidavit he merely said at par 130 that Neil had never mentioned to him that he and Robyn had divorced decades earlier.

Brian subpoenaed documents from Robyn under a subpoena that was returnable on 20 September 2019.

Robyn did not affirm an affidavit in the proceedings until 29 October 2019, after the dates of both the mediation and the offer of compromise. The evidence does not disclose why Robyn made an affidavit at that time.

On 19 December 2019, Hallen J set the matter down for hearing on 17 August 2020 with an estimate of two days.

Neil also subpoenaed documents relating to the financial circumstances of Neil and Robyn from a number of banks and financial institutions in the period between 16 October 2019 and 17 December 2019, with a further subpoena to such an organisation that was returnable on 16 July 2020.

On 4 July 2020, Neil's solicitor estimated Neil's total legal costs calculated on the indemnity basis to the conclusion of the two day hearing to be about $95,402.90. On 2 July 2020, Brian's solicitor estimated that Brian's total legal costs on the indemnity basis to the conclusion of a two-day hearing would be approximately $119,537.54. The total estimated legal costs of the parties, on the assumption that the hearing would take two days, was $214,940.44.

By the time of the hearing, the further amended schedule of agreed assets and liabilities provided by the parties to the Court contained an estimate of Neil's costs on the ordinary basis to the end of the two-day hearing of $100,402.90, and an estimate of Brian's costs on the indemnity basis for the same period of $140,000. At that time, the estimate of the costs that would be paid out of the estate if the Court found in favour of Neil and made the conventional costs orders would be about $240,402.90.

As noted above, and explained at J [15] and footnote 1 to the primary judgment, as the hearing took place over four days rather than the two days allowed for, the total amount of the costs that would be required to be paid out of the estate of the deceased, if the conventional costs orders were made, had increased by between $60,000 and $70,000, which had the result that the net distributable estate had been reduced from $508,770.98 to little more than $200,000.

I am satisfied that the forensic issue as to the true nature of the relationship between Neil and Robyn and their financial interdependence was substantially introduced into the proceedings by Brian after the date of the offer of compromise, as was Brian’s claim that Neil’s application should be dismissed because he had breached his duty of disclosure to the Court of his real financial resources.

Those issues substantially increased the complexity of the litigious effort required from the parties and also the length of the hearing. I dealt with those issues in the primary judgment at J [66]-[122] and reached the following conclusions at J [118]-[122]:

The present case was, to my observation, acutely adversarial, particularly in respect of the introduction by Brian after the date of the offer of compromise of the issue that Neil should be deprived of any entitlement to further provision that he may have otherwise established by reason of his alleged breach of his obligation to the Court to fully disclose the financial resources of Robyn who was his alleged de facto partner from the time of their supposed separation. Brian not only challenged Neil's claim to have satisfied the criteria for an order for further provision for him out of the deceased's estate, but he sought to deny Neil's right to the benefit of such an order entirely on the basis of Neil's alleged breach of his duty of disclosure.

In seeking to secure this result, Brian acted in an adversarial fashion in his own private interests.

In this endeavour, Brian failed. The effort substantially increased the length and the costs of the proceedings.

The conclusion that I reached in the primary judgment as to the amount of the order for further family provision that should be made in Neil’s favour was influenced by the following considerations:

In the present case, the reason why I made an order that Neil receive a legacy of $100,000 out of the deceased's estate, rather than a legacy significantly more than $101,000, was that the legal costs had consumed 60% of the estate, on the assumption that I made the conventional costs orders. I consider that a substantial proportion of those legal costs related to the issues that Brian introduced into the case after the date of the offer of compromise, and that Brian has substantially failed in respect of those issues.

This is where, in my view, the fact that the offer of compromise was only $1,000, or 1%, above the amount of the order for further provision that the Court has made becomes relevant.

I am satisfied that, if Brian had not introduced the issues upon which he has failed, the amount of the legal costs that would have had to be paid out of the deceased's estate on the basis of conventional costs orders would have been reduced by an amount that would in fact have led to me making an order for further provision in favour of Neil that was at least a number of tens of thousands of dollars greater than $101,000. In this way, the manner in which Brian conducted the defence, and in particular the introduction of the issues upon which he failed, was the cause of UCPR r 42.15(1) being satisfied.

That, in my view, is a proper basis, whether it involves an exceptional circumstance or otherwise, for the Court to decline to make the costs orders in UCPR r 42.15(2).

I consider that Brian has acted in his own personal interests in making this application for a special costs order, and that the order for the costs of the application should reflect the fact that Brian has failed in that regard.

The orders of the Court are: