McDonald v O’Connor (No 2)

1. [1]

   HIS HONOUR: This judgment is concerned with the costs of litigation (“the principal proceedings”) between a mother and daughter in relation to the estate of her mother, and her grandmother (“the deceased”), respectively.

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 the reasons for judgment, bearing the medium neutral citation McDonald v O’Connor [2019] NSWSC 261 (“the principal reasons for judgment”), I concluded that adequate provision for the Plaintiff’s proper maintenance and advancement in life was not made by the Will of the deceased; I was satisfied that the Plaintiff should receive a capital sum to add to the amount of capital that she had, for exigencies of life; and I concluded that the provision for the proper maintenance and advancement in life that ought to be made was by way of a lump sum of $45,000, the burden of which was to be borne by the share of the estate passing to the Defendant. (These reasons presuppose familiarity with the principal reasons for judgment.)

3. [3]

   At the hearing of the principal proceedings, the Court was asked to not resolve the issue of how the costs of the proceedings should be borne, as there were, or could be, relevant documents that impacted upon that issue. Of course, I acceded to that request.

4. [4]

   The hearing of the costs argument occurred on 21 March 2019. There was no evidence that any attempt had been made to resolve the costs argument as suggested by the Court in the principal proceedings. Bearing in mind the antipathy between the parties, to which I referred at the hearing, this is hardly surprising. Mercifully, the costs argument was concluded relatively quickly.

5. [5]

   At the hearing of the costs argument, there was tendered, without objection, a bundle of copy documents comprising 15 pages (Ex. Costs 1), to the substance of which I shall next refer.

6. [6]

   Pages 1 to 4 of Ex. Costs 1 consist of an e-mail, sent on 14 February 2019, by a legal secretary of the Defendant’s solicitor, on behalf of solicitor, Mr C McCann, to the Plaintiff’s solicitor, Mr J Chaudhry, attaching a letter marked “Without prejudice save as to costs” and an Offer of Compromise.

7. [7]

   The Offer of Compromise made by the Defendant, was an offer to compromise the whole of the proceedings, in the following terms:

8. [8]

   Pages 5 to 10 of Ex. Costs 1 consist of an e-mail, sent on 8 June 2018, by Mr J Chaudhry to Mr J Friedman, the Defendant’s solicitor, attaching a letter marked “Without prejudice save as to costs”, and an Offer of Compromise. The letter also set out the Plaintiff’s solicitor’s calculations of the size of the deceased’s estate and notional estate.

9. [9]

   The Offer of Compromise by the Plaintiff was an offer to compromise the whole of the proceedings, on the following basis:

10. [10]

    Pages 11 to 12 of Ex. Costs 1 consist of an e-mail, sent on 20 June 2018, by a legal secretary of the Defendant’s solicitor, to Mr J Chaudhry, attaching another letter marked “Without prejudice save as to costs”. The letter noted that the Defendant’s solicitors were instructed to reject the Plaintiff’s Offer of Compromise made on 8 June 2018.

11. [11]

    Pages 13 to 15 of Ex. Costs 1 consist of an e-mail sent on 19 November 2018 by Mr J Chaudhry and is addressed to Mr J Friedman, attaching, by way of service, a further Offer of Compromise.

12. [12]

    The second Offer of Compromise by the Plaintiff offered to compromise the whole of the proceedings, on the following basis:

13. [13]

    Both of the Plaintiff’s Offers of Compromise demonstrate that her assessment of the case was somewhat unrealistic, particularly bearing in mind her relationship with the deceased and what was then estimated to be the value of the estate and alleged notional estate.

The respective position of the parties at the costs hearing

1. [14]

   The Plaintiff’s counsel, in oral submissions, suggested nine factors for the Court’s consideration in the making of a costs order, which may be summarised as follows:

   1. (1)

      The Plaintiff was the only child of the deceased. She had very modest assets: Tcpt, 21 March 2019, p 3(14-15).

   2. (2)

      The Plaintiff’s net asset position was found by the Court to be a little over $18,000, and that her principal asset had followed “a claim for compensation from an accident which has left the Plaintiff with severe disabilities”: Tcpt, 21 March 2019, p 3(15-18).

   3. (3)

      When the Defendant’s Offer of Compromise was made on 14 February 2018, there were a number of outstanding affidavits from the Defendant, and the witnesses upon whose evidence the Defendant intended to rely were not known to the Plaintiff. Though those affidavits were filed shortly after the making of the Offer of Compromise, when the Offer was made, the Defendant’s evidence was incomplete.

   4. (4)

      The Plaintiff required more time to consider her position, in light of those affidavits, given the complexity of the issues raised, particularly in relation to the size of the estate: Tcpt, 21 March 2019, p 3(20-29).

   5. (5)

      There was only a small difference between the lump sum ($50,001) contained in the Defendant’s Offer of Compromise and the provision for a lump sum made in the principal judgment ($45,000): Tcpt, 21 March 2019, p 3(35-37).

   6. (6)

      The Plaintiff suffers significant medical issues, and has no earning capacity.

   7. (7)

      “An adverse costs order would have a detrimental effect on the applicant’s financial position and an adverse costs order would leave her impecunious”: Tcpt, 21 March 2019, p 3(7-9).

   8. (8)

      The Defendant had not raised her own financial and material circumstances: Tcpt, 21 March 2019, p 4(35-37).

   9. (9)

      The Court’s determination of the amount of the provision for the Plaintiff, was based upon a calculation that had included the deduction from the gross estate of the estimated costs of the proceedings. (In his submission, counsel referred to [127], [134], [138] and [148] of the principal judgment, which had dealt specifically with the costs incurred in the proceedings, and the issue of costs in relation to the estate of the deceased. He did not refer to [360]-[361].)

2. [15]

   Whilst there can be little doubt about the matters of fact relied upon in (1), (2), (3), (6), (7) and (8) of the submissions, I am unable to accept the submissions in (4), (5) and (9). In respect of (4), there was no evidence that the Plaintiff had requested the Defendant to extend the time for acceptance of the offer made. In respect of (5), the difference was $5,001, which equated to more than 10 per cent of the amount of provision ordered by the Court. In respect of (9), I refer to the matters taken into consideration in determining the quantum of provision.

3. [16]

   Counsel for the Plaintiff referred to my judgment in Meres v Meres (No 2) [2017] NSWSC 523, at [38], regarding principles relating to costs in family provision proceedings. Counsel noted the observations of Gaudron J in Singer v Berghouse (1993) 114 ALR 52; [1993] HCA 35, at 52, and referred to the eleven principles set out in my judgment.

4. [17]

   Three of those principles were, specifically, referred to by counsel. They are as follows:

5. [18]

   In his written submissions, counsel for the Defendant proposed the following orders:

6. [19]

   Counsel for the Defendant accepted that since there had been an order for provision made in favour of the Plaintiff, in the normal course of events, she would be entitled to her costs, calculated on the ordinary basis, out of the estate, subject to any capping of costs by the Court. (The Plaintiff’s solicitors and counsel had stated that the Plaintiff’s costs would be limited to the amount that she recovered. It followed that she would not have to pay any additional costs to her solicitors.)

7. [20]

   He then submitted that the Defendant’s Offer of Compromise of 14 February 2018, was open for 30 days, and was, expressly, made to be an offer in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”). There had been no response to the Offer of Compromise by the Plaintiff.

8. [21]

   The Plaintiff’s two Offers of Compromise, the first served on 8 June 2018 for $199,000, plus costs, on an ordinary basis, and the second served on 19 November 2018, for $149,000 plus costs, on the ordinary basis was, in each case, far greater than the amount that the Plaintiff had received by order of the Court. This had demonstrated an unrealistic approach to her case.

9. [22]

   It was next submitted by the Defendant’s counsel that, as the Plaintiff did not achieve a more favourable result than she would have obtained by accepting the Offer of Compromise served by the Defendant on 14 February 2018, the statutory presumption pursuant to UCPR r 42.15 applies.

10. [23]

    UCPR r 42.15 states:

11. [24]

    Counsel for the Defendant further submitted that the Defendant’s Offer of Compromise was allowed to make, and had made, reference to costs being paid out of a specified fund pursuant to UCPR r 20.26(3), which states that an offer made under that 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.

12. [25]

    It was submitted that this was an important consideration in the context of family provision claims, so a Plaintiff was not emboldened by having Offers of Compromise not enforced.

13. [26]

    Counsel for the Defendant cited the recent judgment in Olsen v Olsen [2019] NSWSC 217, per Pembroke J, at [6]:

14. [27]

    (That case was one, however, in which the Plaintiff’s claim for provision was dismissed.)

15. [28]

    Reference was also made to my decision in Rogers v Rogers [2018] NSWSC 1982, in relation to authorities for UCPR r 42.15. I shall refer to that case later in these reasons.

16. [29]

    Finally, counsel for the Defendant referred to Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391, in which McColl JA (with whom Gleeson JA and Sackville AJA agreed), at [45]-[47], wrote:

17. [30]

    Neither party asked the Court to make a lump sum costs order under s 98(4) of the Civil Procedure Act 2005 (NSW) (“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 costs orders were made.

The legal principles

1. [31]

   In Smith v Smith (No 2) [2011] NSWSC 1105, I wrote, at [55]:

2. [32]

   There can be no dispute that the discretion regarding costs is unconfined, unfettered, to be exercised judicially, and not by reference to irrelevant or extraneous considerations, and must be based upon facts connected with the litigation.

3. [33]

   In Meres v Meres (No 2) [2017] NSWSC 523, I summarised the legal principles relating to Offers of Compromise, at [35]-[44]. Of particular relevance to the question of whether, and when, the Court’s discretion should be used when determining issues of costs, I noted at [38] (citing my previous determination in Hinderry v Hinderry (No 2) [2016] NSWSC 1577, though that was a case in which a family provision order was not made):

4. [34]

   I added, at [43]-[44]:

5. [35]

   (I have not repeated the passages in Meres v Meres (No 2) referred to in the Plaintiff’s submissions quoted above.)

6. [36]

   In Automotive Holdings Group Ltd v Prime Constructions Australia Pty Ltd (No. 2) [2019] NSWSC 315, at [12], Slattery J opined, at [18], that the Court of Appeal’s decision in Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344, at [9], remains authority for the proposition that an offer of compromise made pursuant to the UCPR must contain “a real and genuine element of compromise”. In that judgment, Slattery J also made reference to The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] 67 NSWLR 706; [2006] NSWCA 120, at [8].

7. [37]

   Slattery J also wrote, at [25], that:

8. [38]

   In Rogers v Rogers, I had written, in relation to Offers of Compromise, at [314]:

9. [39]

   At [316]-[317], I referred to what Kunc J had written in Bates v Cooke (No 2) [2014] NSWSC 1322 (which was cited, with approval, by White J (as his Honour then was) 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], who had written, at [33]:

10. [40]

    To the above authorities, I should add Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], in which Hodgson JA (with whom Mason P agreed) observed that:

11. [41]

    His Honour’s observation was cited, with apparent approval, by the Court of Appeal, more recently, in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98] and the principle was repeated, by McColl JA, in Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266, at [9].

12. [42]

    I also remember that this 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].

Determination

1. [43]

   In the present case, it was not suggested that the Defendant’s Offer of Compromise was not one to which the UCPR applied, or that it did not contain “a real and genuine element of compromise”. It follows that the first stage of the two stage process to which I have referred above, is satisfied. The Defendant’s Offer of Compromise is one within the meaning of the UCPR, having satisfied the formal requirements laid down by UCPR r 20.26.

2. [44]

   It was also accepted that the offer made therein was one that can truly be called a “compromise” both as to the quantum of provision offered and the payment of the Plaintiff’s costs.

3. [45]

   However, as submitted by the Plaintiff, at the time the Offer of Compromise was made, the Defendant had not served all of her written evidence in opposition to the Plaintiff’s claim. The Defendant had served some of the evidence going to the nature and value of the deceased’s estate and notional estate, but, as I found in the principal judgment, her evidence on the topic was far from clear.

4. [46]

   Furthermore, as I stated at [51]-[52] of the principal judgment:

5. [47]

   On this basis, there is some support for the proposition that it would not have been possible for the Plaintiff to assess, properly, the offer made in the Defendant’s Offer of Compromise at the time it was made.

6. [48]

   I have referred to the other parts of the Plaintiff’s factual submissions that may be accepted because they accord with my findings in the principal judgment. I shall not repeat those matters although they are relevant to my considerations.

7. [49]

   There is another matter that I consider to be relevant to the determination of how the costs of the proceedings should be borne. That matter relates to the issue of what expenses were required to be paid out of the fund held in the joint bank account of the Defendant and her husband, instead of the estate, a matter upon which there was some dispute. I dealt with the topic at [118]-[125] of the principal judgment, ultimately concluding that certain of the expenses had been incurred in order to assist the deceased, and, therefore, should be paid out of the balance of the fund that was held in the joint bank account of the Defendant and her husband, rather than out of the estate of the deceased. This conclusion had the consequence “that the value of the actual estate is increased since those amounts will not be needed to be deducted from the estimates previously stated”. Accordingly, the Defendant did not succeed on this aspect of her defence to the claim.

8. [50]

   In my view, the Defendant should bear some of the responsibility for the manner in which the nature and value of the deceased’s estate was disclosed. Furthermore, on one particular aspect, she did not succeed and this is a relevant consideration, although it is clear that any question of the precise apportionment of costs in this regard cannot be achieved.

9. [51]

   The final matter to which I should refer is the manner in which the hearing was conducted. It was listed for two days and, ultimately, took three. It should not have taken that long. The length of the proceedings was compounded by the lack of precision in the case presented, by each side, at the hearing, the responsibility for which cannot be attributed to either party exclusively. Both parties had the benefit of legal advice throughout the proceedings, including the hearing.

10. [52]

    The parties and the practitioners must have regard to the overriding obligations contained in s 56 of the Civil Procedure Act. The purpose is “to facilitate the just, quick and cheap resolution of the real issues in the proceedings”. The court may take into account any failure to comply with the obligations in exercising a discretion with respect to costs.

11. [53]

    The discretion that the Court must exercise, ultimately, is to be exercised by reference to the facts of this particular case and a careful consideration of those facts. Doing the best that I can, taking into account all of the facts, and remembering that some part of the Plaintiff’s costs, calculated on the ordinary basis, would have to be borne by the estate of the deceased, I have come to the conclusion that I should “otherwise order”, and not make any order for the costs of the Plaintiff to be paid out of the estate, and also make no order that the Plaintiff should bear the burden of any part of the Defendant’s costs. This, in my view, is a fair, and just, result.

12. [54]

    In all the circumstances, the Court: