If the Court is inclined to make the costs order on a gross sum basis, the Court may also consider a discount of the costs actually incurred or estimated, taking into account contingencies that would be relevant in any formal costs assessment process.
[2]
Conclusion
Costs are discretionary. In this case, the parties reached a settlement. The general principle in civil proceedings where proceedings are determined without a hearing on the merits, and where is cannot be said that one party has simply capitulated, is that the courts make no order as to costs with the intent that each party bears its own, unless it can be seen that one party has acted unreasonably in bringing or defending the proceedings: see Harkness at [16].
These proceedings involve the executor seeking to administer the estate. It is unfortunate that the parties became involved in acrimonious litigation and incurred legal expenses that will ultimately diminish the estate.
While I accept that the executor had a duty to sell the property and distribute the proceeds to the beneficiaries, there is no real explanation as to why the executor acted with undue haste in seeking to evict the defendant from the property on 10 September 2018, giving him only five weeks to vacate. Six days later, a brother, Peter, emailed the defendant's solicitor saying neither he nor his other siblings, Neil, Kathy or Carol were party to this decision. Peter mentioned that he was concerned about the likely significant negative impact on the defendant's mental health if he was forced to imminently vacate the property.
Nevertheless, the executor pursued his request, sending a further letter on 9 October 2018 requesting a response to his letter of 10 September 2018.
The events which followed are set out in detail earlier in this judgment, but bear repeating.
On 18 October 2018, Ms Santangelo advised the executor's solicitor of her and the defendant's efforts to find him alternative accommodation, and stated that in her expert opinion the process would likely take 6 to 12 months.
On 14 December 2018, the executor rejected Ms Santangelo's expert advice, as he had formed the view that the defendant should be able to live independently in rental accommodation with the assistance of home care. However, he extended time for the defendant to vacate the property until 19 January 2019. He informed the defendant that if he remained on the property after that date, the executor would commence legal proceedings without further notice.
By 19 January 2019, the defendant had not vacated the property. On 11 March 2019, the executor filed the statement of claim seeking vacant possession of the property from the defendant. On 8 May 2019, the defendant filed his defence.
A further email from Ms Santangelo dated 29 March 2019, forwarded to the executor's solicitor, stated that she and the defendant had spent considerable time looking for housing, but had not found any options suitable to his specific health needs. She emphasised that it takes time to make formal assessments and other inquiries into properties that can accommodate a power wheelchair. She attached correspondences with some of the options, one of which confirmed that the defendant had been applying for suitable accommodation since at least 3 August 2018.
It gets worse. On 8 July 2019, the executor sought to have the application for default judgment relisted even though the defendant had filed a defence. It was obvious that as a defence was filed, default judgment was no longer a viable option. On 15 July 2019, the executor filed a notice of motion seeking summary judgment, or alternatively, that the defence be struck out for want of prosecution.
Once the settlement took place on 19 July 2019 and the defendant had secured suitable accommodation, the defendant made an immediate offer of settlement. The offer was accepted by the executor on 23 July 2019, except that the executor wanted the defendant to pay his costs after 19 October 2018 on an indemnity basis.
Despite the executor's unreasonable behaviour, he seeks his costs on an ordinary basis, and after 19 October 2018 his costs on an indemnity basis, and those costs be assessed as a lump sum.
As the timeline above makes clear, once the defendant secured suitable accommodation, he elected not to proceed with his defence. In these circumstances, it is my view that he acted reasonably and should have his legal costs paid out of the estate on an ordinary basis.
The decision as to whether or not the executor should have an award of costs in his favour is borderline. In my view, his unreasonable behaviour disentitles him to an award of indemnity costs. It also disentitles him to a lump sum costs order. However, as he was the executor of the estate, I reluctantly make an order that his costs be paid costs out of the estate on an ordinary basis.
[3]
The Court orders that:
(1) The defendant's costs are to be paid out of the estate on an ordinary basis.
(2) The executor's costs are to be paid out of the estate on an ordinary basis.
[4]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 11 October 2019
The executor submitted that he has been wholly successful. The defendant acted unreasonably in refusing the executor's offers, essentially forcing the executor to commence proceedings and then replying with a futile defence: see Hillebrand v Council of the City of Penrith [2000] NSWSC 1058. The executor argued that the defendant's conduct in not defending his case violates the principles set down in ss 56-58 of the Civil Procedure Act 2005 (NSW).
The executor now seeks costs, and a special costs order, on the basis that there has been unreasonable conduct or "relevant delinquency" on behalf of the defendant. The executor argued that the defendant's unreasonable conduct had caused unnecessary expense and delay, without which the executor would not have had to commence legal proceedings in the first place.
The executor submitted that the defendant was aware of the executor's obligation to the beneficiaries of the will. The defendant knew the executor had no choice but to commence legal proceedings in order to compel the defendant to vacate the property so that it could be sold pursuant to the will.
The executor submitted that once legal proceedings were commenced, the defendant acted in a way which unnecessarily prolonged the proceedings and caused unnecessary expense to the executor.
The executor seeks that an order for costs be made on an ordinary basis up until the 19 October 2018, and thereafter on an indemnity basis pursuant to s 98(4) of the Civil Procedure Act. The executor estimates indemnity costs at that time to be $33,000, plus the costs incurred in the hearing of these proceedings. He submitted that the Court should apply a discount of 20% to the costs incurred by the executor.
According to the executor, an order should be made that the gross sum costs order be satisfied from the defendant's entitlement to distribution from the estate, and be deducted from such payment prior to a net amount being paid to the defendant.
The defendant's submissions
The defendant submitted that in civil proceedings determined without a hearing on the merits, the general principle is that each party should bear its own costs, unless one party has acted unreasonably in bringing or defending the proceedings: see Harkness v Harkness (No 2) [2012] NSWSC 35 ("Harkness") at [16].
The defendant argued that the executor commenced proceedings out of spite, without regard to the time table for relocation from a spinal cord injuries expert and without regard to the best interests of the beneficiaries. He then pursued the claim for possession in a manner which was deliberate and high-handed.
The defendant submitted that the executor's conduct in commencing the litigation and pursuing it so aggressively was totally unreasonable. The executor had a duty not only to himself, but to each of the beneficiaries. There was no imperative for the property to be sold without allowing the defendant sufficient time to relocate. Ms Santangelo, a spinal injury expert, confirmed that a reasonable time for relocation would be 6 to 12 months. The defendant argued that the executor was driven to litigate by fraternal rivalry and frustration at the amount of work he was required to perform as executor. The defendant noted that the executor had stated in an email on 6 November 2014, "[The defendant] has been treated like a child all his life and uses tantrums to get his own way. How do you know I get extreme pleasure in reminding him that the house is going to be sold?" (CB 191). The defendant stated that his brother, Peter Barrett, stated in September 2018 that he is not on speaking terms with the executor as a result of his poor treatment of the defendant (CB 209).
The defendant argued that the executor could have guarded against the possibility of being found to have acted unreasonably, and being ordered to personally pay costs, by applying to the Court for directions as to whether to bring or defend the proceedings. This type of re-emptive order is known as a Beddoe order: see In re Beddoe; Downes v Cottam [1893] 1 Ch 547. I note that I do not think this would have been an appropriate approach, as the Court would most likely not have made such an order.
The defendant submitted that a trustee will remain personally liable if he or she has acted unreasonably, or for his or her own benefit rather than for that of the trust: see McDonald v Horn [1995] 1 All ER 961.
The executor did not attempt to settle the argument over costs, even though the preparation and running of a hearing would likely cost an additional $20,000 of estate funds. The defendant argued that as such, the conduct of the executor has been aggressive and unreasonable. He has disregarded the interests of the beneficiaries. On that basis, the defendant argued that it would be appropriate that the executor's costs be paid out of the estate on an ordinary rather than an indemnity basis, and it would be appropriate for the defendant's costs to be paid out of the estate.
The executor's submissions
The executor submitted that as costs follow the event, a successful party has a "reasonable expectation" of being awarded costs against the unsuccessful party: see Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 152 ALR 83 at [67] and [134]. The purpose of an order for costs is to compensate the person in whose favour it is made, not to punish the person against whom the order is made: see Allplastics Engineering Pty Ltd v Dornoch Ltd [2006] NSWCA 33 at [34].
The "event" is not limited to issues in the technical pleading sense, but extends to all disputed questions of law and fact: see Cretazzo v Lombardi (1975) 13 SASR 4 at [12]. Where proceedings for family provision are brought, the "event" is "the overall justice of the case": see Singer v Berghouse (1993) 114 ALR 521 at 522 per Gaudron J. The executor submitted that by analogy with s 99 of the Succession Act 2006 (NSW), such costs are generally paid from the estate: see Jvancich v Kennedy (No 2) [2004] NSWCA 397.
The executor submitted that a successful party should not be deprived of costs unless there is material to justify a contrary order: see Milne v Attorney-General (Tas) (1956) 95 CLR 460 at 477; Berbett Pty Ltd v Hansa [1976] VR 385.
Counsel for the executor has set out the principles that pertain to indemnity costs orders, gross sum costs orders and the relevant discount to be applied. For convenience, I adopt them.
Indemnity costs
So far as the issue of indemnity costs is concerned, the executor referred to G Dal Pont, The Law of Costs (LexisNexis Butterworths, 4th ed, 2018) 539-540 [16.51], which states:
"A special costs order may ensue where it appears to the Court 'that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success', in which case the action 'must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law'. Despite this 'presumption', it is not a prerequisite to the power to award special costs that a collateral purpose or a species of fraud be established. It is sufficient to enliven the discretion that, for whatever reason, a litigant, whether as plaintiff or defendant, what on proper consideration should be seen to be a hopeless case. As explained by B W Ambrose J in Re SCA Properties Pty Ltd (in liq).
In some cases it is appropriate to make an order for indemnity costs to make it known that the Court will not readily accept that its time and the successful litigant's money can be wasted on totally frivolous and thoroughly unjustified proceeding. If it appears it is not for the bona fide purpose of protecting and enforcing a legal right but to achieve an ulterior or extraneous purpose than in itself is justification for making of an indemnity order."
In Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 118 ALR 248 at [5], Sheppard J set out the authorities and the relevant principles that are to be applied to an order for indemnity costs.
If the Court accepts that each party has enjoyed a degree of success, then no order as to costs would be made: see Tadrous v Tadrous [2009] NSWSC 407 per Brereton J at [13]. The executor argues that this is not the case here.
Indemnity costs may be ordered where there is unreasonable conduct or "relevant delinquency" in the proceedings: see Liverpool City Council v Estephan [2009] NSWCA 161 at [95]. Relevant delinquency includes:
1. unnecessarily prolonging the proceedings;
2. behaviour which causes unnecessary expense, such as the failure to adhere to proper procedure; and
3. disregard of court orders: see, for example, O'Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559 at [35].
Gross sum costs order
The Court can make an order pursuant to s 98(4) of the Civil Procedure Act for gross sum costs at any time before costs are referred for assessment. The relevant principles applicable in the Court exercising discretion in making a gross costs sum order are outlined in Penson v Titan National Pty Ltd (No 3) [2015] NSWCA 121 at [4]-[5]. Stated simply, they may be summarised as:
1. the complexity of the proceedings in relation to their costs;
2. the degree of any disproportion between the issues litigated and the costs claimed;
3. the relative responsibility of other parties for the costs incurred; and
4. the capacity of the unsuccessful party to set aside any costs liability.
In the above circumstances, the defendant seeks an order that his costs be paid out of the estate on an indemnity basis or alternatively on an ordinary basis.