Knox v Peacock (No 2)

1. [1]

   For reasons given by me on 8 August 2024, the plaintiff successfully propounded the will of the late Mrs Eva Marie Easton dated 19 November 2020: Knox v Peacock [2024] NSWSC 976. I rejected Mrs Peacock’s case that Mrs Easton lacked capacity to make the 2020 Will. I also indicated that, even if I had been inclined to accept her contention that Mrs Easton lacked capacity to make the 2020 Will, I would not have been prepared to find that Mrs Easton had capacity to make the alternative will propounded by Mrs Peacock, being the 2019 Will. I therefore made orders in accordance with those sought by Mr Knox in his statement of claim dated 28 November 2022 and dismissed Mrs Peacock’s amended first cross-claim dated 17 April 2023.

2. [2]

   These reasons deal with the question of costs following my earlier judgment and, as such, should be read in the light of those reasons.

3. [3]

   The plaintiff says that the ordinary rule should apply and that costs should follow the event. He also seeks an order that Mrs Peacock pay costs on an indemnity basis. He relies in this respect on two written offers of compromise.

4. [4]

   The defendant says that both parties’ costs of the proceedings should be paid out of the estate on the indemnity basis.

5. [5]

   I will first deal with the offers and their validity. I will then deal with where the burden of costs should lie.

The Offers

1. [6]

   The plaintiff’s first offer was set out in a letter dated 17 March 2023 from the plaintiff’s solicitors to the defendant’s solicitors (the First Offer). The letter was marked “without prejudice save as to costs” and stated that it was made under the principles in Calderbank v Calderbank [1976] Fam 93. It was expressed to be open for acceptance for a period of 28 days.

2. [7]

   The offer was to resolve the whole of the proceedings on the following terms:

3. [8]

   The defendant disputes that this First Offer constituted a proper offer under the principles in Calderbank v Calderbank. She contends that it was “ambiguous and unclear in every respect”. In particular, she draws attention to the fact that the offer referred to the “defendant estate” paying the “plaintiff”. She also points out that the letter stated that it may be relied upon on the question of costs, “including an application by the defendant for the plaintiff to pay the defendant’s costs on an indemnity basis.”

4. [9]

   There is force in the defendant’s submissions about the ambiguity inherent in the First Offer. The parties here were each propounding different wills with different executors. The reference to the “defendant estate” suggests that the plaintiff was prepared to concede that the defendant was entitled to a grant of probate, but the letter is ambiguous in this respect. It is also apparent that the letter was mistaken in referring to the circumstances in which the letter might be relied on. It should have referred to an application by the plaintiff for the defendant to pay the plaintiff’s costs.

5. [10]

   The plaintiff admits these errors were “obvious” and that the references to plaintiff and defendant were simply around the wrong way. He points out that the defendant “clearly understood” what it really meant. In support of this the plaintiff points to a letter from the defendant’s solicitors dated 4 June 2024, over a year after the First Offer was made, which sets out a table of all of the offers that had been made up to that point in the proceedings. The table includes the First Offer as an offer by the plaintiff to the defendant with the term: “Defendant to receive $200,000 from the estate and bear her own costs.” That, of course, would involve a grant of probate to the plaintiff, not the defendant, as the letter itself suggested.

6. [11]

   Calderbank offers should be expressed in terms that are clear and unambiguous: see Coregas Pty Limited v Penford Australia Pty Limited (No 2) [2013] NSWCA 11 at [12] per Hoeben JA (with Meagher JA and Bergin CJ in Eq agreeing).

7. [12]

   The First Offer referred to the parties incorrectly and was therefore both unclear and ambiguous. The letter of 4 June 2024 on which the plaintiff relies does tend to demonstrate that, at least as at 4 June 2024, the defendant had correctly understood what was meant. But that was a very long time after the First Offer and was at a point when the parties’ understanding of the case had developed significantly. Accordingly, I am not prepared to find on the basis of that letter that the First Offer itself was sufficiently clear and unambiguous to attract the principles explained in Calderbank v Calderbank.

8. [13]

   The second offer was made under r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). It was in the form prescribed by the UCPR and was dated Friday, 21 June 2024 (the Second Offer). It was served on the defendant at 11:05AM that day. This was only very shortly before the final hearing, which commenced at 10:00AM on Monday, 24 June 2024 at Sydney.

9. [14]

   The Second Offer was in the following terms:

10. [15]

    The plaintiff relies on the Second Offer both as a Calderbank offer and an offer under r 20.26 of the UCPR.

11. [16]

    The defendant disputes that the plaintiff is entitled to rely on the Second Offer on either basis. She makes the following points.

12. [17]

    First, the defendant says that paragraph 5 offends the requirement in UCPR r 20.26(2)(c) that offers “must not include an amount for costs and must not be expressed to be inclusive of costs”. I am unable to accept that submission. It overlooks r 20.26(3)(c) which states that “[a]n offer under this rule may propose… that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer.”

13. [18]

    Next, the defendant said that the amount proposed under the Second Offer was unclear because it was made in reference to the “net estate”. These kinds of offers are often made in Estate proceedings. The defendant had herself made an offer in similar terms earlier in the proceedings.

14. [19]

    However, as usually happens, the offeree promptly requested a breakdown of the estate’s total costs and disbursements. That information was provided promptly. I would not be prepared to find that the reference to the “net estate” was reason enough to conclude that the offer did not comply with the UCPR, or that it was not able to be relied on as a Calderbank offer, but this is a circumstance that must be considered in the context of the defendant’s final submission, to which I now turn.

15. [20]

    Finally, and most significantly, the defendant points out that the offer was delivered at 11:05am Friday 21 June when the hearing was due to begin on Monday 24 June. The defendant’s solicitor sent an email to the plaintiff’s solicitors at 4:40pm on Friday 21 June requesting “a precise breakdown of costs including any disbursements” so that she was able to ascertain the value of the offer. The solicitor for the plaintiff replied the next day, Saturday 22 June, at 1:12pm, stating that the total amount of costs and disbursements were $200,000, but did not provide a precise breakdown as requested.

16. [21]

    The defendant submits that this reply only left her and her lawyers less than four hours to properly consider the offer, as the offer was due to expire at 5pm that day (22 June 2024). This submission is mistaken because, as noted above, the offer was due to expire the following day, 23 June 2024, at 5pm.

17. [22]

    In any event, the substance of the defendant’s submission is that the time during which the offer was open for acceptance was not reasonable in all of the circumstances.

18. [23]

    UCPR r 20.26(5) states:

19. [24]

    Insofar as it is relied on as a Calderbank offer, the relevant question is whether it was reasonable in the circumstances for the offeree to have rejected the offer. This, of course, includes the temporal circumstances of the offer. In In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) (No 2) [2021] NSWSC 1161, Ward CJ in Eq (as her Honour then was) summarised some relevant factors to consider at [98]:

20. [25]

    The question of whether an offer is reasonable in the circumstances can be especially difficult when it is made very close to the trial. In Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 (“Kooee”), Basten JA (with Giles and Tobias JJA agreeing) considered an offer of compromise made under the UCPR that was made 22 hours before the trial was due to commence. His Honour described the case as “truly borderline” but ultimately found that the offer was not reasonable having regard to all of the circumstances. His Honour identified three particular considerations relevant to assessing the reasonableness of offers made very close to a final hearing at [20]-[21]:

21. [26]

    I accept that, at the time the Second Offer was made, the parties should have been well aware of the details of the case and their respective positions, including the possible costs outcomes. It was also made in the context of other offers. The plaintiff had made the First Offer and the defendants had made offers on 11 January 2023, 12 July 2023, 24 July 2023 and 27 May 2024. The defendant also made an offer to the plaintiff on the second day of the trial. In addition, the solicitor for the plaintiff had separately written to the solicitor for the defendant pointing out the difficulties in her case, foreshadowing the ultimate result.

22. [27]

    There are, however, a number of circumstances which tend against a finding that the Second Offer was reasonable in all of the circumstances.

23. [28]

    The defendant is an elderly lady with limited resources who lives in regional NSW. Her solicitor lives and works in a small firm in the same region. It was necessary for them to travel to Sydney over the weekend to prepare themselves for the hearing on the Monday. The proceedings are in these respects quite unlike the kind of commercial litigation with which the Court was concerned in Kooee.

24. [29]

    The defendant is not an experienced litigant. The days immediately prior to the hearing, at which she was to be cross-examined, are very likely to have been stressful and daunting for her. The Second Offer was made on the Friday afternoon before the hearing was to commence on a Monday. The plaintiff only provided the figure of his costs and disbursements on Saturday afternoon, leaving the plaintiff only Saturday night and Sunday to consider the offer in the light of that information.

25. [30]

    Having considered all of the circumstances, I find that the Second Offer was not reasonable within the terms of UCPR r 20.26(5)(b). Nor was it unreasonable for the defendant to reject it as a Calderbank offer. I can envisage other situations where an offer made within the same time period before the beginning of a hearing would have been reasonable. However, given the nature of the litigation, the age and experience of the defendant and her solicitors and the fact that the offer was to be considered over a weekend which inevitably involved travel and stress, the time allowed to accept the Second Offer was not reasonable.

Where should the costs lie?

1. [31]

   It is first appropriate to identify the principles governing the exercise of my power to award costs.

2. [32]

   Costs are in the discretion of the Court: s 98 of the Civil Procedure Act 2005 (NSW). The general rule is that costs follow the event: UCPR r 42.1.

3. [33]

   The defendant has referred me to a line of authority that identifies two situations in probate proceedings where, in her submission, this general rule may not apply. These situations are sometimes called “exceptions” to the general rule. However, as Basten AJA explained in Etherton v Mitchelmore [2024] NSWSC 170 at [69] “the term ‘exception’ may be thought to imply that the rule does not operate in particular circumstances. That would clearly be wrong: it is not for the courts to craft exceptions to a statutory rule.”

4. [34]

   In this respect, it is also relevant to note Middlebrook v Middlebrook (1962) 36 ALJR 216 at 217 where Dixon CJ said:

5. [35]

   The two circumstances in which it is often said that the general rule is so affected were identified by Powell J in an often cited passage in Re Estate of Hodges (decd); Shorter v Hodges (1988) 14 NSWLR 698 at 709:

6. [36]

   There is often some overlap between these two circumstances, especially in cases where testamentary capacity is in issue: see Perpetual Trustee v Baker [1999] NSWCA 244 at [14] per Giles JA and Brownie AJA; Etherton v Mitchelmore at [73].

7. [37]

   The defendant relies on a number of authorities in aid of her contention. In Gray v Hart & Ors [2012] NSWSC 1435, White J said at [5]:

8. [38]

   In Perpetual Trustee v Baker, Giles JA and Brownie AJA said at [14]:

9. [39]

   It is important, however, to remember that costs remain within the discretion of the court. In Alexakis v Masters (No 3) [2023] NSWSC 694, Henry J said at [12]:

10. [40]

    I also note the recent observations of Basten AJA in Etherton v Mitchelmore at [75]:

11. [41]

    The defendant submits that both circumstances identified by Powell J in Re Estate of Hodges (decd); Shorter v Hodges are present here. She submits that the testator’s mental frailty was the cause of the litigation and that it was reasonable for the defendant to see this case to its conclusion in order to determine the validity of the final will.

12. [42]

    However, these factors must be weighed in the context of the proceedings as a whole. It is therefore important to recall the procedural and forensic setting in which the question of the validity of the 2020 Will was ultimately determined.

13. [43]

    The plaintiff is a solicitor. He commenced proceedings by statement of claim in which he sought orders that probate of the 2020 Will be granted to him as an executor named under the will. The defendant filed a defence and cross-claim seeking that probate be granted to her under the 2019 Will. She impugned the 2020 Will on the basis that the deceased did not have testamentary capacity at the relevant time. In doing so she relied heavily on the evidence of Dr Jane Lonie, a well-qualified clinical neuropsychologist who was jointly appointed to prepare an expert report as to Mrs Easton’s capacity to make the 2020 Will. Dr Lonie concluded that the deceased did not have testamentary capacity to make that will.

14. [44]

    In addition, the defendant sought relief on the basis of a contract and estoppel, relying on what she contended to have been a contract entered into with Mrs Easton, or alternatively her detrimental reliance on promises made by Mrs Easton, that she would leave her estate to the defendant.

15. [45]

    These claims were eventually abandoned, but only during closing submissions on the last day of the hearing.

16. [46]

    I ultimately found that the deceased did have testamentary capacity at the time of the execution of the 2020 Will. I reached my conclusions in the light of the persuasive contemporaneous evidence of the solicitor who witnessed the will, the deceased’s regular GP and a staff member at the deceased’s nursing home.

17. [47]

    The defendant particularly relies on Dr Lonie’s conclusions as justifying her decision to pursue the litigation to finality. She also relies on the fact, not in dispute, that Mrs Easton did suffer fairly significant cognitive decline and that there had been cause to appoint the NSW Trustee and Guardian even before she made the 2020 Will.

18. [48]

    However, as the plaintiff has pointed out, the defendant seems to have become particularly steadfast in her belief that her case was sound upon receiving Dr Lonie’s report, to the point where she failed to recognise the limited utility that such retrospective reports often have, even when they are prepared by the best qualified experts. As I explained in the principal judgment, contemporaneous observations from persons such as solicitors, doctors and nurses will frequently be given significant weight in resolving the legal question of whether a person had testamentary capacity: see the primary judgment at [183]. This is a matter that the defendant should have appreciated.

19. [49]

    If this were the only matter, it may well have carried more weight. It is true that the evidence did raise a question as to Mrs Easton’s capacity.

20. [50]

    However, an important aspect of my findings, outlined at [291]-[303] of the primary judgment, was that the evidence relied on by the defendant to impugn the 2020 Will gave rise to a serious question as to Mrs Easton’s capacity to make the 2019 Will. The evidence on which the defendant relied, had I accepted it to find that Mrs Easton lacked capacity to make the 2020 Will, would have led me to conclude that the 2019 Will was equally unsafe. It became apparent during the cross-examination of Dr Lonie that she had in fact never been asked to consider whether Mrs Easton had capacity to make the 2019 Will. Her evidence was that Mrs Easton’s cognitive decline had started well prior to 2019.

21. [51]

    In this respect, I also pointed out that the defendant had been in a position to lead evidence from her solicitor as to the circumstances in which the 2019 Will was made (because that same solicitor instructed her in these proceedings) and that that evidence would have been probative of the question of whether Mrs Easton had capacity to make the 2019 Will, just as Mr Knox’s evidence had been probative of the question concerning her capacity in 2020. However, Mrs Peacock failed to lead such evidence. It was evident that this was a forensic decision made on the mistaken belief that, should the issue have arisen, it would have been dealt with in some separate proceeding.

22. [52]

    In other words, even if the defendant had succeeded in her primary contention about Mrs Easton’s lack of capacity to make the 2020 Will, she would not have succeeded in propounding the 2019 Will either.

23. [53]

    Lastly, it is also relevant to note that the estate in question stands at around $1,000,000.00. The plaintiff’s costs up to the commencement of the hearing were already $200,000.00. An order that the parties’ costs come out of the estate on the indemnity basis, as the defendant seeks, would see a good proportion of the estate eaten up by the costs of this litigation which, as I have explained, was never going to result in a grant of probate in favour of the defendant in any event, given the way the case was run.

24. [54]

    In all of these circumstances, I am unable to accept that the defendant’s decision to pursue this litigation through to finality in the way she did was reasonable.

25. [55]

    It follows that the general rule should apply and costs should follow the event. The plaintiff has asked for an order that any shortfall in his costs be paid by the estate on the indemnity basis. It is unclear that there is strictly any need for such an order. A consequence of the orders I have already made is that he is entitled as executor to be indemnified for his costs from the estate in any event. However, there was no specific opposition to making such an order and so for the avoidance of any doubt, I will make it.

ORDERS

1. [56]

   I make the following orders:

   1. (1)

      The defendant/cross-claimant is to pay the plaintiff/cross-defendant’s costs of the proceedings on the ordinary basis.

   2. (2)

      Any shortfall between the costs of the plaintiff and the costs recovered from the defendant/cross-claimant pursuant to order (1) be paid from the estate of the late Eva Marie Easton on the indemnity basis.