Hinderry v Hinderry (No 2)

HIS HONOUR: This application for costs arises from the litigation between the Plaintiff and the Defendants, concerning the estate of the Plaintiff’s mother. In that litigation, Michael, the Plaintiff, made a claim for a family provision order, which claim was dismissed. I delivered principal reasons for judgment, the citation of which is Hinderry v Hinderry [2016] NSWSC 780 (“the principal judgment”). Events and people are referred to in these reasons in the same way as they were in the principal judgment.

At the request of the parties, I did not deal with the costs of the proceedings in the principal judgment. At the time I published the principal judgment, I stood the proceeding over, for the hearing on costs, allowing some time for discussions to take place between them, in the hope that the parties might reach an agreement. Unsurprisingly, no agreement was reached by them.

The application for costs was made more complicated by a dispute between Tony, the first Defendant, on the one hand, and Charlie and Simon, the second and third Defendants, on the other, who were separately represented at the hearing and on the application for costs.

When informed that no agreement had been reached, I made directions for the service of evidence on the costs application and the provision of written submissions. Only the first Defendant complied with the directions.

Following an email dated 20 October 2016, sent at my request to the legal representatives of all the parties, stating that no submissions and/or evidence had been delivered by either the Plaintiff, or by the second and third Defendants, the Plaintiff’s written submissions, which included a statement that there would be reliance upon an affidavit of Bassem Kazi sworn 9 October 2014, were received on 27 October 2016.

By email sent on the same date, senior counsel informed the parties and the Court that “the First Defendant opposes the Plaintiff’s reliance upon the affidavit of Bassem Kazi …as it is out of time, no reason has been given for the lateness of the purported reliance upon it and no leave has been sought to rely upon it”. The email also stated that in the event that leave was sought and granted, the first Defendant would seek leave to rely upon the affidavit of Matteo Russoniello affirmed on 13 October 2014 in response to that affidavit.

At the commencement of the costs hearing, I was informed that subject to the agreement of Michael, the Defendants had reached an agreement upon the quantum of costs that would be payable to Simon and Charlie.

As the two affidavits were being read on Michael’s separate application for costs of the notice of motion, which came to be resolved, it is not necessary to further refer to these affidavits.

At the hearing of the costs application, I was informed, without objection from the bar table, that the quantum of the costs of Charlie and Simon had been agreed by Tony and them, at $16,500, inclusive of GST, but there was no agreement on how the burden of those costs should be borne.

Although counsel for Michael did not oppose a lump sum order being made for costs, he stated that he did not have instructions to agree that the quantum was appropriate. He added, however, that he did not wish to be heard further on that issue. However, he submitted that “there should only be one order for one set of legal representatives to be paid out of the estate”. Presumably, if that is done, he seeks the same order in relation to those costs, namely that they be borne by the beneficiaries, other than Michael, rateably.

In my view, it is appropriate to make a specified gross sum order instead of an order for costs to be assessed. In reaching this view, I have in mind what was written in Bobb v Wombat Securities Pty Limited (No 2) [2013] NSWSC 863 by Beech-Jones J at [6], recently referred to by Bellew J, with approval, in Plassas v Person (No 2) [2016] NSWSC 1515 at [5], namely that such an order can be made in “very short and relatively straightforward cases” in which costs are modest and where pursuit of the costs assessment process might lead to unnecessary expense and delay.

Since the hearing of the costs argument, the Court of Appeal has determined Bechara trading as Bechara and Company v Bates [2016] NSWCA 294 and referred to matters for consideration at [12] – [15].

Having reached that point, I granted leave to counsel for Charlie and Simon to withdraw upon the basis that a lump sum order for $16,500, inclusive of GST, would be made. Mr B Levet of counsel, who had appeared, then withdrew.

The issues for the Court to decide on the costs application are:

In relation to issue (b), after some debate between Bench and bar, Michael and Tony, by his counsel and senior counsel, respectively, agreed that since those costs had been dealt with by Lindsay J as part of the Probate proceedings that were dealt with by him on an interlocutory basis, in October 2014, and as the Probate proceedings had, ultimately, been settled, the costs of the notice of motion should be treated as part of the costs in the Probate proceedings.

Before leaving this topic, I should mention that the Probate proceeding was resolved without a contested hearing in September 2015 and one of the orders made was that the costs of the proceedings of each of the parties, calculated on the indemnity basis, be paid out of the estate of the deceased.

In relation thereto, in a letter dated 11 July 2016 from the first Defendant’s solicitor, to which reference will be made, the following appears:

It follows, in view of the order made in the Probate proceeding, that if the estimates of costs prove accurate, Michael’s share of the Probate costs will be in the order of $80,000. However, that amount will include part of his own costs that will be paid.

I should also note, before turning to the remaining issues, that it was not in dispute that Tony would not seek to recover any of the amounts paid to Michael since the death of the deceased. (This appears to have been a sensible agreement between the parties and it may avoid further costs and expenses of having a full accounting of the income and expenditure of the estate having to be undertaken.)

Michael sought an order that his costs of the family provision proceedings should be paid out of the deceased’s estate, or, in the alternative, that there should be no order as to the Plaintiff’s costs.

Tony sought an order, firstly, that Michael should bear his own costs of the family provision proceedings, and that his own costs, calculated on the indemnity basis, should be paid out of the deceased’s estate. In other words, Tony did not seek an order that Michael should pay his costs as one of the executors of the estate. The consequence of the order sought by Tony is that Michael would bear about 45 per cent, Tony himself would bear about 30 per cent, Joseph would bear about 15 per cent and Mary would bear about 10 per cent, respectively, of those costs.

Having heard the submissions on these issues, and because I was satisfied about what orders would do justice between the parties, in all the circumstances of the case, I announced the orders I proposed and stated that I would publish my reasons, without any need for any party to appear again, in due course. Subsequently, I provided to counsel a form of orders that would be entered in due course. Each confirmed that the orders made were appropriate.

These are the reasons for making the orders that I stated at the conclusion of the hearing. (In order to save further costs, counsel did not, necessarily, wish to appear to take the judgment on costs and these reasons will be sent to each when published.)

I shall repeat a number of matters identified in the principal reasons for judgment, which in my view, are particularly relevant to the determination of the costs of the family provision proceeding.

At [26] – [27], I referred to evidence given by Michael, which prompted senior counsel for Tony to make an application for a permanent stay of the proceedings upon the basis (at [29]) that “the answers given by the Plaintiff, in circumstances where the Probate proceedings had been determined and orders had been made resolving the issue of the validity of the 2011 Will; that to raise the spectre of the validity of his father’s Will, Probate of which had been granted and had not been the subject of any application to have Probate revoked; and to deal with the conduct of members of his family in relation to “someone signing the elderly's signature when they're sick”, amply demonstrated that Michael was using the Court's process (seeking a family provision order) for ulterior and illegitimate motives”.

At [93], I determined that without any reduction for costs, and bearing in mind that Units 2 and 8 were subject to a mortgage of approximately $260,000, the respective entitlements of the beneficiaries (subject to some comments regarding the form of Clauses 8 and 9 of the Will) was that Joseph (Unit 2/8), received a property with a net value of $262,500; that Tony (Unit 5, half share Unit 8 and Unit 9), received property with a total net value of $532,750; that Mary (half share of Unit 8) received property with a net value of $172,250; and that Michael (Unit 2 Gladstone Ave and Unit 6 Miller Street) received property with a net value of $789,500, plus the value of residue (if any).

At [94], Michael’s share of the deceased’s estate was estimated to be about 44 per cent of the net value of the estate (before the payment of the legal costs of the proceedings and the amount left to be paid to Mr Kelly). (Tony now submits that it is about 45 per cent, but I do not think anything turns on this difference).

At [103], I noted that the Court had been informed that Michael’s costs of the Probate proceeding were $122,000; that Tony’s costs of the Probate proceeding were $50,248; and that Charlie’s and Simon’s costs of the Probate proceeding were estimated to be $13,200. (In an affidavit sworn by Mr Rod, and filed, with leave, on the third day of the hearing, Charlie’s and Simon’s costs were reduced to $12,400, inclusive of GST.) Thus, the costs of the parties, of the Probate proceeding, were estimated to be approximately $184,650.

At [104], I noted that the Court also had been informed that Michael’s costs of the family provision proceeding were $140,000 (and $180,000 on the indemnity basis); that Tony’s costs, calculated on the indemnity basis, of the family provision proceeding were $92,733 (of which $5,599 had been paid out of the estate, leaving a balance of $87,134); and that Charlie’s and Simon’s costs of the family provision proceeding, presumably calculated on the indemnity basis, were estimated to be $70,475. (In the affidavit sworn by Mr Rod, Charlie’s and Simon’s costs were reduced to $64,061, inclusive of GST.) Thus, the estimated unpaid costs of the parties, of the family provision proceeding, were estimated to be approximately $295,000.

I also noted, at [108], that there was likely to be a significant debate about the reasonableness and proportionality of the estimate of the costs of all parties, and at [109], that the estimates of the parties’ costs of the proceedings were of such a magnitude as to invite consideration of whether (and, if so, what) effective orders could be made for costs to be capped. (Only Tony has made submissions on capping the costs of Simon and Charlie. I have referred to those submissions.)

At [116], I noted:

At [301], I concluded:

Counsel for the Plaintiff submitted, on this application, that what the Court “had not taken into consideration was that Michael, at the time of the hearing, unless he received an order in his favour was not going to receive the two units absolutely as there was a charge against each property for a contribution by him towards the payment of debts according to their rateable value … and further one property was subject to him attaining the age of 60 years”.

In relation to the first matter, I specifically stated, at the commencement of the paragraph quoted, that what I said was “subject to any costs order”. At that time, the issue of costs was one upon which no submissions had been made.

In relation to the second matter, at the commencement of the hearing of the substantive proceedings, the condition referred to was the subject of discussion between bench and bar (at 1T4 – 1T5):

There is no evidence, and thus, no submission, that Tony acted unreasonably, or that he acted for his own benefit, rather than for the benefit of the beneficiaries, other than the Plaintiff, named in the deceased’s Will, in his defence of the proceedings commenced by the Plaintiff. The fact that he was successful in that defence is, of course, a relevant consideration.

There was no dispute that Tony’s costs, calculated on the indemnity basis, should be paid out of the deceased’s estate.

There is evidence that more than three months before the hearing, Tony made an offer to Michael, under cover of a letter dated 11 February 2016 from his solicitors to the Plaintiff’s solicitors. The offer in substance provided that:

Whilst not specifically stated in the offer made, it seems clear that, if the offer had been accepted, Michael would not have had to make any contribution to Tony’s costs of the family provision proceedings at that time, or to the further liabilities of the estate (for example, CGT). In addition, as the Probate proceeding had been resolved in September 2015, he would not have had to make any contribution, from the lump sum paid to him, to the costs of any party of those proceedings, and indeed, would have received his costs of those proceedings pursuant to the order of the Court as to costs that had been made in that proceeding.

I draw these conclusions from the first paragraph of the offer, which was that Michael “be paid” a lump sum of $800,000. If he was to contribute towards costs, he would not have been paid that amount, or it would have been stated that the lump sum would have been paid subject to the payment thereout of his share of the costs.

The offer was also communicated, at the same time, to the solicitors for Charlie and Simon. There is no evidence of any response from them.

There was no dispute that, unless there were an order made providing how the burden of the costs of each proceeding was to be borne, the ordinary position would have been that costs would have to be borne in accordance with the provisions of Part II of the Third Schedule of the Probate and Administration Act 1898 (NSW), namely that since the residue of the estate (“assets undisposed by will”) was insufficient to bear the costs, the costs would be paid from assets specifically disposed of by the deceased’s Will rateably according to value. Accordingly, on the estimates of value, Michael would bear about 45 per cent of those costs.

It is not possible to estimate the costs of the parties at the time of the offer, to which costs, Michael would not have had to make a contribution. In all the circumstances, considering the evidence of the estimated costs of both proceedings given at the hearing, the likely overall costs would have been substantial.

On 4 March 2016, Michael, by his solicitor, rejected Tony’s offer. Michael’s solicitors provided no reasons for rejecting the offer made.

Michael’s counsel submitted, in relation to the offer:

There is no suggestion, in any correspondence read on the costs application, that the reason for the rejection of the offer made was the term that required the release to be given.

In addition to the evidence of the offer made by Tony prior to the hearing, there is evidence of another offer, which dealt with the costs of the family provision proceeding, made on 11 July 2016, to Michael (by his solicitor) and to Charlie and Simon (by their solicitors), following the delivery of the principal judgment. Relevantly, that offer provided:

On 14 July 2016, Michael’s solicitors responded in the following terms:

There is no evidence of any further correspondence to, or from, either Michael’s solicitors or Charlie’s and Simon’s solicitors.

In order to determine the issue of the appropriate costs orders, it is next necessary to refer to the principles applicable to ordering costs in proceedings for a family provision order.

Of course, one starts in any determination of costs, with s 98(1) of the Civil Procedure Act 2005 (NSW), which provides that subject to the rules of court and to this, or any other Act, costs are in the discretion of the Court. UCPR rule 42.1 provides that costs should follow the event unless it appears to the Court that some other order should be made as to the whole, or any part of the costs. UCPR r 42.20(1) provides that if the Court makes an order for the dismissal of proceedings, then unless the Court otherwise orders, the plaintiff must pay the defendant’s costs of the proceedings to the extent to which the proceedings have been dismissed.

The effect of these rules in this case, is that the Plaintiff must bear at least the first Defendants’ costs of the proceedings for the family provision order, unless the Court otherwise orders. The Court can only order otherwise if there is a discretionary decision to depart from what the UCPR provide.

There is no suggestion that the Civil Procedure Act and the UCPR do not apply to family provision proceedings.

Section 99 of the Succession Act 2006 (NSW) provides for an unfettered discretion as to how the costs of the proceedings for a family provision order may be borne. However, that section does not apply to costs as between party and party, but rather to costs to be paid out of the estate.

In Harkness v Harkness (No 2) [2012] NSWSC 35 at [17]-[18], I wrote:

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

What I said in Smith v Smith (No 2) [2011] NSWSC 1105 at [77], is also applicable to the facts of the present case:

I referred to all of these principles, more recently, in Penfold v Predny [2016] NSWSC 472 at [161]-[166] and in Stojanovski v Stojovski [2016] NSWSC 976 at [265].

As was noted (albeit in another context), in Kazar (Liquidator) v Kargarian; In the Matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136 at [9] (by Greenwood and Rares JJ):

I accept, of course, that claims for a family provision order do, in some ways, raise issues with respect to costs that differ from those in other litigation and that there is more flexibility where there has been an unsuccessful claim. One example where an order for costs being made against an unsuccessful Plaintiff may be inappropriate is where, if such an order for costs were made, he or she would immediately become impecunious and so may be able to make a fresh application under the Act. In that example, it would be counter-productive to make an order as to costs against the unsuccessful plaintiff: McCusker v Rutter [2010] NSWCA 318 at [34] (Young JA).

A contrary example where the Court may, “in its discretion order an unsuccessful applicant to pay costs [is] where the claim was frivolous or vexatious or made with no reasonable prospects of success or where the applicant has been guilty of some improper conduct in the course of the proceedings”: Bowyer v Wood (2007) 99 SASR 190; [2007] SASC 327, at [68].

The “more modern” approach appears to be that stated by the Court of Appeal in Chapple v Wilcox [2014] NSWCA 392. At [27], Basten JA stated:

At [137] – [139], Barrett JA (with whose reasons Gleeson JA agreed), referred to the passage quoted above in Bowyer v Wood and added:

Counsel for the Plaintiff, presumably in respect of his alternative submission, relied upon what I had written in Harkness v Harkness, at [18]:

In relation to the service of a Calderbank offer, I shall simply repeat what I recently wrote in Page v Page [No 2] [2016] NSWSC 1323 at [54] – [57] :

At the outset, it should be noted that in the claim for a family provision order, Michael, a beneficiary, was making a claim adverse to the other beneficiaries named in the will of the deceased, and seeking greater provision out of the estate of the deceased than made for him.

In all the circumstances of this case, I do not accept the submission, made on behalf of Michael, that he should have his costs of the family provision proceeding out of the estate of the deceased. In my view, his was not a case that was “meritorious”, “reasonable”, or “borderline”, bearing in mind his conduct towards the deceased over many years.

Michael’s conduct towards the deceased had been of concern to her. At [82] of the principal judgment, I noted:

Also, as I stated at [297] – [299] of the principal judgment:

From the commencement of the proceedings, it should, reasonably, have been anticipated that Tony would be raising issues of Michael’s conduct.

Furthermore, the offer made by Tony is relevant on this issue. Michael should have considered the effect of his conduct and how it would impact upon his claim, and, therefore, the reasonableness of his rejection of the offer. The evidence relating to his conduct was available, certainly by the time that Tony made the offer in February 2016, and it could, and should, have been investigated far earlier.

There is no evidence of any counter-offer made by, or on behalf of, Michael. It has not been submitted that the offer made by Tony was rejected because of the term relating to the release of rights to make a claim for further provision out of the estate of the deceased. As stated by his senior counsel, at the hearing, Michael wanted “more than [the] two properties absolutely” so it is more likely than not that the offer was rejected because Michael did not consider that it provided enough.

I should also note, relevant to family provision matters generally, that the Court is increasingly alert to the dangers of encouraging litigation, and discouraging settlement of such claims, at an early stage, if costs are allowed out of the estate to the unsuccessful party. Where possible, all minds should concentrate upon the need, regularly, to address the strength, or otherwise, of the case, the benefits and detriments of advancing particular arguments, and the wisdom of searching for alternative forms of resolution of the dispute, whether by compromise or even abandonment: see, albeit in another context, Pearson & Ors (The Joint Administrators of Lean Brothers International (Europe)) v Lehman Brothers Finance SA & Ors [2010] EWHC 3044 (Ch), per Briggs J, at [12].

When one considers all of the matters I am required to consider, in order to provide a just outcome, I propose to make no order as to Michael’s costs of the family provision proceedings. He should bear his own costs of the proceeding.

It does not seem to be in dispute that Tony should receive his costs, calculated on the indemnity basis of the family provision proceedings and I propose to make that order. As stated previously, how the burden of those costs should be borne is the real issue.

In the present case, Tony seeks an order that Michael should bear part of the burden of his costs of the proceedings in accordance with the Probate and Administration Act 1898. Specifically, he seeks an order that he bears, rateably, 45 per cent of Tony’s costs of the family provision proceedings. In addition, he relies upon the offer made and rejected prior to the hearing. Michael submits that he should not have to bear any part of the burden of those costs.

Of course, the offer made by Tony well prior to the hearing is relevant. The provision to be made for Michael was to be by way of lump sum and to be paid to him without any conditions attached. In addition, the amount was to be paid without reduction for legal costs incurred in the Probate proceeding (in respect of which an order had been made) and in the family provision proceeding that Michael would, in the normal course, have been obliged to contribute.

Had the offer been accepted, a significant amount of costs incurred by Michael in the family provision proceeding would have been saved since his costs thereafter, also, would have been avoided.

However, the offer of $800,000, in lieu of the two properties was not very much of a compromise. It was agreed, at the hearing, that the value of those properties was $789,500. It seems to me that the real compromise was in respect of the contribution to the costs of the family provision proceeding, which contribution Michael would not have had to make. However, the offer made did impose a condition, as to the release of rights, which could not have been imposed by the Court.

Since I have made no order as to Michael’s own costs, and since he will have to contribute to the costs of the Probate proceeding, which will include his own costs incurred in those proceedings, it seems to me that to order him to bear a part of Tony’s costs would impose too great a financial burden upon him. Even though his claim for a family provision order was dismissed, I propose to refrain from making the order sought by Tony.

Taking all of the matters into consideration, I consider, in the exercise of my discretion, that Michael should not bear, rateably, his share of Tony’s costs payable out of the deceased’s estate, in respect of the family provision proceedings. He should also not bear his share of Tony’s costs, calculated on the indemnity basis, of the costs application. All of those costs should be borne by the other beneficiaries rateably. (I have rounded off the percentages for ease of calculation.)

The Court: