Meres v Meres (No 2)

1. [1]

   HIS HONOUR: This judgment is concerned with the costs of litigation (“the principal proceedings”) between twin brothers in relation to the estate of their mother, Olga Gene Meres (“the deceased”). The hearing of the costs argument occurred on 4 May 2017. Immediately following the submissions, I informed the parties of the costs orders that I proposed to make and stated that I would publish my reasons later. These are the reasons for making the orders that were stated at the conclusion of the hearing and which appear below.

2. [2]

   In the principal proceedings, the Plaintiff sought additional provision out of the deceased's estate pursuant to the Succession Act 2006 (NSW) ("the Act"). In reasons for judgment, bearing the medium neutral citation Meres v Meres [2017] NSWSC 285 (“the principal judgment”), the Court ordered that the Plaintiff’s Summons be dismissed and that any argument as to costs of the proceedings, and how those costs are to be borne, be listed on a date to be arranged. (The parties requested that costs not be dealt with in the reasons for judgment as documents may be relevant to the determination of how costs should be borne.)

3. [3]

   During the course of the principal proceedings, the Court had ordered, by agreement of the parties, that Rodney Stanley Meres, the Defendant, be appointed to conduct the proceedings on behalf of the estate, he being the only other beneficiary named in the deceased’s Will and the person who would bear the burden of any additional provision made for the Plaintiff.

4. [4]

   The Defendant resisted the Plaintiff’s claim for a family provision order, submitting that it should be dismissed with costs. Again, at the hearing of the costs argument, he maintained the position in regard to costs, for reasons to which I shall come, and submitted that the Plaintiff should bear the burden of his costs, in part, those costs to be calculated on the indemnity basis.

5. [5]

   It is necessary to repeat some of the facts that were identified in the principal judgment to provide part of the context for the determination of how the costs should be borne.

6. [6]

   At the hearing of the principal proceedings, the Plaintiff’s costs and disbursements, calculated on the ordinary basis, of the proceedings, were estimated to be $47,000, inclusive of GST. The Defendant’s costs and disbursements, calculated on the indemnity basis, of the proceedings, were estimated to be $71,500, inclusive of GST. (The Plaintiff complained about the quantum of the Defendant’s costs bearing in mind that the matter was relatively straightforward and because it was heard and determined in one day. There may be merit in that complaint but that will be necessary for a costs assessor to determine if agreement cannot be reached by the parties. I do not determine the quantum of the Defendant’s costs in these proceedings.)

7. [7]

   On 1 November 2016, the parties participated in a judicial settlement conference. As is obvious, the matter was not resolved. At the judicial settlement conference, the costs of both parties were estimated to be, in total, $40,000. Thereafter, almost $80,000, in total, was incurred in costs. The costs are now, undoubtedly, more.

8. [8]

   Using the estimates of costs and disbursements provided at the hearing, an amount in the order of $118,500 may be payable. I have no evidence of whether, and by how much, those costs have increased. Mercifully, in view of the costs order I have made, that is irrelevant.

9. [9]

   In the principal judgment, the Court estimated the net value of the deceased’s distributable estate available, after the identified costs and disbursements of the proceedings and the costs and expenses of sale of the Rockdale property, are deducted, would be about $1,057,567. It followed, on the basis of the calculations made, that the entitlement of each of the parties would be about $528,783. If the Rockdale property were sold, but the costs were not deducted from the estate, the entitlement of each party would be to about $588,000.

10. [10]

    In the principal proceedings, the Defendant did not make an application for an order under the Act. Nor did he raise his financial circumstances in the proceedings.

11. [11]

    In the principal judgment, I wrote:

12. [12]

    I also wrote:

The Evidence on the Costs Application

1. [13]

   Counsel for the Plaintiff tendered a copy of a letter dated 1 December 2016 from the Plaintiff’s solicitors to the Defendant’s solicitors. In that letter, the Plaintiff offered to “pay to the Defendant the net proceed (sic) of the sale of the Durras Lake property which we understand has been sold for $368,000”. (The Plaintiff inherited the Durras Lake property following the death of his father.)

2. [14]

   Counsel for the Defendant read two affidavits, each sworn by the Defendant’s solicitor on 28 April 2016. In the longer of the two affidavits, the solicitor provided estimates of the costs calculated for different periods at the different rates as claimed by the Defendant, with the Defendant’s total costs and disbursements calculated to be $58,346. At the hearing, counsel for the Defendant revised this figure to $55,000 (T3.48).

3. [15]

   In the shorter of the two affidavits, the solicitor annexed a copy of two written offers that had been made on behalf of the Defendant. Each was described as an Offer of Compromise. On 26 September 2016, the Defendant offered to resolve the proceedings on the basis that the Summons be dismissed and that each party bear his own costs (with the Defendant’s costs to be paid out of the estate on the indemnity basis) (“the September offer”). The offer was not accepted (or it lapsed).

4. [16]

   The September offer was expressed to close on 24 October 2016, which is one day less than the 28 days prescribed by UCPR rule 20.26(5)(a). The Defendant did not rely on the offer as an Offer of Compromise. The Defendant sought to rely upon it as a “Calderbank” offer.

5. [17]

   The Defendant served the second document headed “Offer of Compromise” on the Plaintiff under cover of a letter dated 11 November 2016 ("the November offer"). He offered to resolve the proceedings on the basis that, following the payment of the Defendant's costs out of the estate on the indemnity basis, and the Plaintiff's costs on the ordinary basis, as well as the payment of sale costs and other estate liabilities, the Plaintiff would receive the greater of (a) $720,000; and (b) 61 per cent of the nett proceeds of sale of the Rockdale property. The offer was not accepted (or it lapsed).

6. [18]

   There is no dispute that the November offer complied with all of the requirements of UCPR rule 20.26.

The Respective Positions of the Parties at the costs hearing

1. [19]

   I have had the benefit of receiving a written outline of submissions from counsel for each of the Plaintiff and the Defendant. Those submissions, will, of course, remain with the Court papers.

2. [20]

   The Defendant submitted that, as the result obtained by the Defendant is no less favourable to him than the terms of the November offer, by operation of UCPR rule 42.15A, there is a statutory presumption that the Defendant is entitled to an order against the Plaintiff for the Defendant's costs (a) assessed on the ordinary basis up to 11 November 2016; and (b) assessed on the indemnity basis from 12 November 2016.

3. [21]

   It was submitted that the November offer contained a significant compromise as to an amount to be paid to the Plaintiff. The offer did not invite capitulation, because the Plaintiff would have been better off had the offer been accepted, particularly since the offer would have resulted in additional provision out of the estate being made for him.

4. [22]

   Counsel referred to the principles outlined by White J (as his Honour then was) in Friend v Brien (No. 2) [2014] NSWSC 614 and, what I had written, more recently, in Page v Page [No 2] [2016] NSWSC 1323. He also relied upon the following passage written by Kunc J in Bates v Cooke (No 2) [2014] NSWSC 1322 (which was cited, with approval, by White J in AB v Curry & Anor (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]):

5. [23]

   (An appeal from the substantive judgment of Kunc J was dismissed in Bates v Cooke (2015) 14 ASTLR 221; [2015] NSWCA 278. Nothing was written by the Court of Appeal about the costs judgment.)

6. [24]

   At the hearing, counsel for the Defendant referred to Houatchanthara v Bednarczyk [1996] NSWCA 253. The case involved an application for leave to appeal from a costs order made in the District Court in circumstances based upon District Court Rules, Part 19 rule 9(6). It is unnecessary to set out that rule in these reasons other than to note it is in terms similar to UCPR rule 42.15A.

7. [25]

   I did not find the passages relied upon in the judgment of Clarke JA (agreed with by Santow JA) take the Defendant’s case on the issue of costs very far. As will be seen, it is clear that UCPR rule 42.15A lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise where the court considers the justice of the case warrant such a departure.

8. [26]

   Nor did I find particularly helpful counsel’s reliance on the passage of Handley JA’s judgment to the effect that “[G]eneral factors which apply in most, if not all cases, such as hardship, and difficulty in predicting the result of the trial cannot support an exercise of the discretion in favour of the unsuccessful party”. Counsel for the Plaintiff did not submit that either of those matters alone would justify the exercise of the Court’s discretion to make an otherwise order.

9. [27]

   Counsel for the Defendant submitted

10. [28]

    I have earlier referred to the offer made by the Plaintiff in December 2016. The proceeds of the Durras property, as at February 2017, were $358,544.49.

11. [29]

    It was submitted that the Rockdale property had an agreed value of $1.2 million. Based upon the estimates quoted earlier, the offer made by the Plaintiff to the Defendant, before costs of these proceedings were deducted, amounted to 67.8% of the Defendant's entitlement under the deceased’s Will.

12. [30]

    Counsel submitted that the Plaintiff's case:

13. [31]

    Counsel also submitted that a costs order would be a substantial burden on the Plaintiff. An adverse costs order would effectively undermine the basis upon which the Court determined the matter - that the Plaintiff had sufficient funds, although modest, to meet his needs.

14. [32]

    The Plaintiff then urged the Court to make no order as to the Plaintiff’s costs with the intention that he pay his own costs and an order that the Defendant’s costs, calculated on the indemnity basis be paid out of the estate of the deceased. In this way, it was submitted that the Plaintiff would be bearing one half of the Defendant’s costs.

15. [33]

    Neither party asked the Court to make a lump sum costs order under s 98 (4) of the Civil Procedure Act. Such an order would avoid the need for an assessment and would allow expedited distribution and finalisation of the estate if a costs order was made.

16. [34]

    Before turning to the legal principles that apply, at the commencement of the submissions, the Court raised with the parties the practical effect of the different orders proposed by the Plaintiff and by the Defendant. Using the estimates referred to in the principal judgment, but substituting the costs estimate provided by the Defendant’s solicitor for the Defendant’s costs, on the Defendant’s case, the amount to be paid by the Plaintiff out of his share of the estate for his own costs ($47,000), and for the Defendant’s costs ($55,000) would total $102,000. On the Plaintiff’s case, the amount to be paid by the Plaintiff out of his share of the estate for his own costs ($47,000) and for one half of the Defendant’s costs ($27,500) would total $74,500. The difference between the two amounts, in broad terms is $27,500. Neither counsel disagreed with the calculations that revealed this difference (T9.42; T11.20 – T11.39).

The Legal Principles

1. [35]

   McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72 at [66] - [67] wrote:

2. [36]

   The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWLR 77, per Gleeson CJ, at 79.

3. [37]

   It may be necessary to analyze the whole of the proceedings to determine the appropriate costs order. A relevant consideration is whether the Plaintiff acted reasonably in commencing the proceedings and whether the Defendant acted reasonably in defending them.

4. [38]

   In Hinderry v Hinderry (No 2) [2016] NSWSC 1577, I set out the principles relating to costs in relation to proceedings for a family provision order that had been dismissed, at [50] – [64], as follows:

5. [39]

   In this case, the issue of costs is made complicated by the service of the two offers to which reference has been made.

6. [40]

   UCPR rule 42.15A deals with the situation, like the present, where an Offer of Compromise, made in accordance with the Rules, is made by a defendant and not accepted by the plaintiff, and when the defendant obtains judgment on the claim which is no less favourable than the terms of the offer.

7. [41]

   Rule 42.15A(2) provides:

8. [42]

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

9. [43]

   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”.

10. [44]

    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 rule 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 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].

11. [45]

    In this case, the Plaintiff submits that an “otherwise order” should be made. Importantly, however, he does not submit that the Defendant’s costs calculated on the indemnity basis should not be paid, but rather that they should not be paid, entirely, by the Plaintiff.

12. [46]

    In coming to a conclusion about costs, and importantly whether to make an “otherwise order” under UCPR rule 42.15A(2), I have the following features of the case in mind:

13. [47]

    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. 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].

Conclusion

1. [48]

   The Plaintiff has not sought an order that his costs come out of the estate or that he should not shoulder part of the burden of the Defendant’s costs. He acknowledges that he should bear half of the burden of the Defendant’s costs.

2. [49]

   In all of these circumstances of this case, weighing up all of the matters upon which submissions have been made, including the making of the two offers relied upon by the Defendant, together with the other features to which I have referred, as well as the legal principles to be applied, I am of the view that the overall justice of this case points against the application of the usual rules that the Plaintiff should pay the Defendant’s costs upon the basis set out in UCPR rule 42.15A(2), or otherwise.

3. [50]

   I have come to the view that the overall interests of justice will be adequately served by the Plaintiff not receiving any costs from the estate of the deceased and that the costs of the Defendant, calculated on the indemnity basis, should be paid out of the estate. In this way, as submitted by the Plaintiff, he is bearing, at least, a part of the Defendant’s costs.

4. [51]

   In relation to the costs of the application for costs, the Plaintiff’s submissions as to the costs orders to be made have been accepted, whilst the Defendant’s submissions have not resulted in the costs orders proposed by him. However, in achieving the result, the Plaintiff has effectively obtained the Court’s exercise of discretion to make an “otherwise order”.

5. [52]

   The Court: