Lorena Zupicic v Angela La Camera Paino as Trustee for the Estate of the Late Mario Novick

I gave judgment in this matter in favour of the Plaintiff on 18 May 2018.

On 21 June 2018 I made a declaration that the Defendant holds the property at Unit 7/10 Barncleuth Square Potts Point NSW on trust for the Plaintiff and made further orders relating to the sale and mechanics for proceeds of the sale of the property in favour of the Plaintiff. However I stayed the operation of these orders until 5:00pm 20 July 2018.

The Defendant made submissions on costs in writing on 21 June 2018 as did the Plaintiff on 2 July 2018.

I will not rehearse in detail the background facts to this case as they are recited in my principal judgment (at [4]-[66]).

However I will note that on 6 June 2014 the deceased Mr Novick (whose estate was the subject of these proceedings) made a will appointing the Defendant as sole executor and beneficiary of his estate. It was drafted by Rhodes Associates solicitors. Jeremy Charles George Rhodes and Angela La Camera Paino were the executors and trustees of this will (Exhibit P3, 49-52) (principal judgment [33]).

On or about 24 August 2014, Mr Novick made a further will which provided, subject to any testamentary, estate or succession duties or otherwise, that the entirety of his estate would go to the Defendant. This will provided for Eidan Havas and Deborah Searle as executors (Exhibit P3, 53-56) (principal judgment [33]).

On 25 May 2017, Mr Novick made a further will providing the entirety of his estate to the Defendant. In this will, the Defendant was also listed as executor and trustee (Exhibit P3, 86-8). This will was prepared with the assistance of Mr Vouroudis (who did not give evidence) who made a file note on 25 May 2017 at 11:00am (Exhibit P3, 57-61) of his meeting with Mr Novick, the Defendant and Ms Maria Sanfilippo. It appears the will was executed on this date (principal judgment [52]-[53]).

On 18 July 2017 Mr Novick died (principal judgment [61]).

On 4 October 2017 probate of the 2017 will was granted (Exhibit P3, 85) (principal judgment [63]).

On 24 October 2017 the Defendant signed a transmission application applying to be registered as proprietor of the estate of Mr Novick (Exhibit P3, 110).

On 16 February 2018 the Defendant entered into a contract for the sale of the Potts Point apartment for consideration of $660,000 (Exhibit P3, 4) (principal judgment [65]).

The Court has a wide discretion as to costs as per section 98(1) of the Civil Procedure Act 2005 (NSW):

The ordinary rule is that costs follow the event: rule 42.1 Uniform Civil Procedure Rules 2005 (NSW) (UCPR).

In the context of the costs of a trustee rule 42.25 UCPR provides:

In the context of probate litigation there is a recognised exception to the ordinary rule as to costs, namely that where the testator has been the “cause” of the litigation the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate.

In Perpetual Trustee v Baker [1999] NSWCA 244 Giles JA and Brownie AJA, in the context of litigation concerning whether the deceased had testamentary capacity when she made her last will, said at [13]-[15]:

Likewise Powell J in Re the Estate of Hodges (1988) 14 NSWLR 698 at 709 formulated the probate exception to the rule that costs follow the event as “where the testator has, or those interested in residue have, been the cause of the litigation, the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate”.

In Ashton v Pratt (No 2) [2015] NSWCA 134 the Court of Appeal considered the primary judgment of Brereton J in Ashton v Pratt (No 2) [2012] NSWSC 3. The primary judgment of Brereton J considered whether certain promises made by a deceased to the plaintiff amounted to an enforceable contract or equitable estoppel. Brereton J found the claim in contract and estoppel failed.

In the Court of Appeal in Ashton v Pratt (No 2) [2015] NSWCA 134 Bathurst CJ (with McColl and Meagher JJA agreeing) observed (at [16]-[17]):

In James v Douglas [2016] NSWCA 178 Meagher JA (with Leeming and Simpson JJA agreeing) said at [69]-[71] (emphasis added):

Likewise in Priestley v Priestley (No 2) [2017] NSWCA 212 McColl and Macfarlan JJA and Emmett AJA unanimously said (at [12]):

Alexander Learmonth et al (eds), Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (Thomson Reuters, 21st ed, 2018) observed in an United Kingdom context at [33-01] and [33-05] (citations omitted):

I also note the Plaintiffs make reference to Nowell v Palmer (1993) 32 NSWLR 574 at 581-2 wherein Mahoney JA (with Meagher and Handley JJA agreeing) said:

In the context of trustee’s seeking to be indemnified out of the estate Austin J observed in Drummond v Drummond [1999] NSWSC 923 (Drummond v Drummond) at [43]-[47]:

In Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic (No 3) [2017] NSWCA 109 (Free Serbian Church) Payne JA (with Ward and Gleeson JJA agreeing) said at [14]:

See also Warton v Yeo [2015] NSWCA 115 which concerned, inter alia, consideration whether a trustee acted unreasonably in adopting an adversarial stance in incurring costs in litigation.

The Plaintiff submits that the ordinary rule as to costs should apply to the circumstances of this case and that she should be awarded costs (Submissions [1]-[5]).

However, these costs should not be paid out of the estate of the deceased because this case was not probate litigation to which the “probate exception” should apply in its strict sense or by analogy. The Plaintiff’s claim was in equity and did not run together with a probate suit, and accordingly the “probate exception” should be distinguished from the circumstances of this case (Submissions [6]-[11]). Further the Plaintiff submits it was the “fault” of the Defendant not the deceased testator at the centre of the litigation (Submissions in Reply [1]-[11]).

Likewise the Plaintiff submits the Defendant acted entirely in her own interests in the litigation, and did not act as an uninterested executor or trustee party. In this circumstance the Plaintiff submits, with reference to Nowell v Palmer (1993) 32 NSWLR 574 and UCPR r 42.25(2)(b), that the Defendant cannot be indemnified out of funds of the deceased’s estate (Submissions [12]-[14]; [21]-[23]).

Furthermore the Plaintiff submits the Defendant prematurely distributed the deceased’s assets and lost any protection against personal liability claims under section 92 of the Probate and Administration Act 1898 (NSW) and is at peril regarding her personal liability for costs (Submissions [15]-[20]).

The Plaintiff criticises the conduct of the Defendant in her dealings with the deceased’s estate and in litigation, suggesting these discretionary factors should further suggest that the Defendant should not be entitled to indemnify her costs from the deceased’s estate (Submissions [24]-[28]).

The Defendant’s submissions on costs are in comparison more precisely confined to two alternative submissions.

The Defendant’s primary submission, with reference to the applicable legal principles, is that her costs should be borne by the estate. This is because, as in probate litigation, the litigation before this Court was brought by reason of the testator’s conduct. The Defendant herself was a third party to the estoppel sought by the Plaintiff, and in substance the litigation concerned the ‘fault of the testator’ of the deceased Mr Novick in making representations to the Plaintiff. The Defendant was the beneficiary of a validly-made will and its executor and trustee (Submissions [1]-[9]).

The Defendant therefore submits the circumstances of this case fall within the rubric of the ‘fault of the testator’ and which operates to displace the ordinary rule that costs follow the event. The Defendant also criticises the Plaintiff’s general approach to relief as failing to take regard for the severe impact the orders sought would have upon the Defendant (Submissions [11]).

The Defendant’s secondary, alternative, submission is that the parties should each bear their own costs of the proceedings (Submissions [3]).

The ordinary rule as to costs is that costs follow the event and I am not satisfied in the circumstances of this case that there should be a departure from this rule.

In particular I am not satisfied that the Defendant should be able to seek that the parties’ costs be borne by the estate of the deceased on the basis that it was the “fault” of Mr Novick as testator that originated the proceedings. This is because the Defendant’s submission does not adequately account for all the circumstances of the case that should reasonably guide my discretion as to costs.

It is correct as I observed in my principal judgment (at [406]) that Mr Novick was at the centre of the litigation. It is also correct that the primary relief sought by the Plaintiff was focused on the conduct of Mr Novick, who I found made various promises to the Plaintiff to the effect that he would leave his estate to her and should not be allowed to avoid his lawful obligations as a result of those promises (principal judgment [492]-[496]). To this extent at a basic level the litigation centred on the fault of Mr Novick.

However the conduct and substance of the litigation concerned further important circumstances which suggest against the Defendant’s submission that Mr Novick’s estate should bear the costs of the parties.

First, whilst the Defendant was a third party to the estoppel raised by the Defendant and was executor and trustee to a validly-made will, her role in the proceedings was adversarial in nature. The Defendant’s role in the litigation went far beyond merely that of a third party defending the integrity of Mr Novick’s will.

For example, the Defendant submitted that Mr Novick did not make the alleged representations or promises to the Plaintiff (principal judgment [93]) and denied in cross-examination that she had ever seen the Plaintiff clean Mr Novick’s unit, wash his clothes or do any errands for him (principal judgment [380]). The Defendant also criticised the Plaintiff’s evidence as unacceptably vague as to any reliance or detriment of the Plaintiff as a result of Mr Novick’s promises (principal judgment [94]-[95]).

In this sense the Defendant generally attempted to deny or reject the Plaintiff’s account of events and deny or reject the Plaintiff’s account of the amount of time she undertook to care for Mr Novick. These were key elements of the Plaintiff’s case.

I found that the Defendant was a wholly unreliable historian and was driven on most if not all occasions by self-interest and on occasions told deliberate untruths (principal judgment [440]). Therefore in my view it is clear the Defendant played more than a third-party role in the litigation. Her evidence and role in the proceedings was wholly adversarial in nature that challenged in many instances the Plaintiff’s account of events.

Secondly, in my view the Defendant acted entirely in her own interest in the litigation as sole beneficiary of Mr Novick’s estate. Whilst it is true that she had an interest in wishing to uphold the validity of Mr Novick’s will, she was in substance acting for her own benefit as opposed to the benefit of the estate.

As I noted with concern in the principal judgment in my view the Defendant indeed has already had the benefit in part of Mr Novick’s estate. This is because while Mr Novick was alive I was satisfied the Defendant played a major role in him taking out a loan in 2015 for $213,000 secured by his property, to which Mr Novick himself got very little if any benefit. I was satisfied many withdrawals from that loan went to the likely benefit of the Defendant (principal judgment [453]-[466]).

Thirdly, the litigation before me concerned issues quite distinct from the cases referred to by the Defendant in the outline of submissions on costs, which centred primarily on probate litigation and principals concerning the ‘fault’ of testators in that context.

The litigation before me concerned primarily the Plaintiff’s case in equitable estoppel and secondly an alternative claim in breach of contract (principal judgment [85]-[88]). Furthermore, the issues ventilated at trial extended to broader issues concerning the relationship between Mr Novick and the Defendant (principal judgment [445]-[452]), the Defendant’s conduct concerning Mr Novick’s money (principal judgment [453]-[466]) and the Defendant’s control over Mr Novick (principal judgment [467]-[471]).

Whilst these issues were in some sense peripheral to the relief sought by the Plaintiff in my view they highlight how this litigation was quite distinct from those cases and principles relating to the “probate exception” referred to by the Defendant. The Plaintiff did not seek to challenge the validity of Mr Novick’s will and the litigation was not concerned with probate, which was indeed granted on 4 October 2017 (Exhibit P3, 85) (principal judgment [63]).

Fourthly, it is important to consider the context surrounding the litigation in assessing whether there should be a departure from the ordinary rule as to costs.

This context includes my finding that the Defendant developed a strategy to drive a wedge between Mr Novick and his family and friends and actively attempted to procure three wills in her favour (principal judgment [444]).

This also includes my finding that the Defendant was the beneficiary of large amounts of money procured from a loan taken out of Mr Novick’s estate for $213,000. I was satisfied many of the withdrawals of Mr Novick’s account for this mortgage went on the entertainment and other expenses of the Defendant (principal judgment [460]). The Defendant has in this sense already benefited from the estate of Mr Novick.

I also found the Defendant had more than an input at the very least in the production and content of a letter drafted by Mr Novick of 18 November 2015 which was clearly slanted to give an adverse picture of the Plaintiff (principal judgment [428]). I was also satisfied the Defendant encouraged Mr Novick to harbour and express negative views of the Plaintiff for her own ends (principal judgment [428]).

I also note my findings that the Defendant never discouraged Mr Novick’s comments that demonstrated his infatuation with her and in my view her active encouragement of his sense of gratitude towards her (principal judgment [445]-[452]).

These contextual factors reinforce in my view the fact that the Defendant was not a third-party to the proceedings and indeed played an active and adversarial role in the litigation. These factors also reinforce in my view the distinct nature of this litigation as opposed to probate proceedings or proceedings where a trustee seeks to administer a trust wherein they may seek to be indemnified for their costs from the estate.

However I am not satisfied that this case is necessarily one where the Defendant has defended proceedings in a manner appropriately characterised as constituting “impropriety”, for example by defending proceedings in breach of trust or not honestly bringing forward or making a claim of a “monstrous character” as quoted in Drummond v Drummond (at [45]) or Free Serbian Church (at [14]).

I also acknowledge that as executor and trustee the Defendant has an interest in upholding the validity of the wills and the disposition of Mr Novick’s estate in accordance with these wills.

Nevertheless, in the exercise of my discretion and with the above considerations (particularly [37]-[43]; [50]-[54] of this judgment) in mind I am not satisfied that the circumstances of this case warrant a departure from the ordinary rule that costs follow the event. I am further of the view that neither parties’ costs should be borne by the estate.

I would therefore order the Defendant to personally pay the Plaintiff’s costs on an ordinary basis.

I would invite the parties to provide short minutes of order to reflect these reasons as soon as is practicable.