Bevan v Napoli

The plaintiff's submissions

1. This case concerns quantification of liability under cl. 4 of the Will (CB 181) owed by the first defendant (Ms Napoli), as executor of the estate, on behalf of the plaintiff (Mr Bevan), as a beneficiary of the Will, in calculating the entitlement of the beneficiaries when a final distribution of the estate is made. See the recital of the First Defendant's Submissions at Judgment [28] and the findings upholding that submission as correct at Judgment [67]-[69]. Clause 4 requires the beneficial interest of Mr Bevan in the estate to have deducted from it an amount necessary to reimburse the estate for "legal costs" paid by the deceased (as client) to Ms Napoli (as billing law practice) in "the NCAT ... Proceedings" to be "divided equally between [his siblings]". See cll. 3-4 of the Will.
2. The dispute about quantification of the liability under cl. 4 of the Will arose because Ms Napoli entered one costs agreement in respect of her four discrete retainers from the deceased (CB 91 at "1. Scope of Work (a)-(d)") but she billed the deceased in tax invoices without distinguishing between each retainer (CB 46-62). However, only one retainer quantifies the liability in cl. 4 of the Will (see "Scope of Work" at (d)). Ms Napoli herself is unable to quantify her NCAT costs for the purposes of cl. 4 because of a global billing practice (Bevan, 21.6.22 [CB 20]; it is unanswered by Ms Napoli).
3. Ms Napoli initially insisted on an amount referable to all four of her retainers as the cl. 4 liability to be satisfied by her on behalf of Mr Bevan (as the only beneficiary whose beneficial interest in the estate is to be debited with the cl. 4 amount), which Mr Bevan disputed as the cl. 4 liability (albeit Ms Napoli has quite recently moderated that amount slightly by a reduction of 20 percent - see CB 20-48 - on the eve of the final hearing).
4. Mr Bevan, faced with this dispute about the quantification of the liability under cl. 4, perceived that he had two options. First, he could apply, as a non-associated third-party payer, for the costs referable to the liability imposed on his trustee by cl. 4 of the Will, to be assessed by availing himself of the administrative costs assessment regime in the Legal Profession Uniform Law 2014 (NSW) ("Uniform Law"). Alternatively, he could apply in the Equity Division, as a beneficiary, under UCPR rule 7.10(2)(b) for leave to represent the estate and then apply under rules 54.3(1) and (2)(a) for a referee to be appointed under rules 20.13-20.24 to quantify the liability under cl. 4 albeit at far greater expense to the estate and himself than Option 1.
5. The starting point in identifying the principles is that, as a general rule, costs follow the event unless the Court, in its discretion, orders otherwise (rule 42.1). The discretion to order otherwise is informed by principles which create exceptions to this general rule.
6. Some of the exceptions operate in proceedings concerning deceased estates (i.e., this case). Those exceptions for deceased estates are analysed in the following paragraphs.
7. First, a party who unsuccessfully opposes a grant of probate may have his or her costs borne by the estate where the opposition to probate is attributable to the conduct of the deceased or where an investigation by the Court in the conduct or testamentary capacity of the deceased was justified, even if probate is ultimately granted as claimed by the executor. See Re Cutliffe's Estate [1959] P 6; Perpetual Trustee Co Ltd v Baker [1999] NSWCA 244 at [13]; Zang v Middleton; Estate of Cook [2011] NSWSC 881 at [46].
8. Secondly, the distinction between assessing the deceased's conduct and the justification for its investigation is impressionistic and sometimes quite problematic: See Perpetual v Baker (ibid) at [14]; Shorten v Shorten (No 2) [2003] NSWCA 60 at [19] and [20].
9. Thirdly, where the investigation is justified, the more usual outcome is that the parties are left to bear their own costs: See Shorten v Shorten (No 2) (ibid) at [23]-[27]; Zang v Middleton (ibid) at [46]; Shorter v Hodges (1988) 14 NSWLR 698 at 709-710 (the orders in Shorter are the orders proposed by Mr Bevan); Middlebrook v Middlebrook (1962) 36 ALJR 216 at 217, 223; Szabo v Battye (No 2) [2006] NSWSC 1392 at [11].
10. Fourthly, where the Court determines that a beneficiary should be granted leave to represent the estate (pursuant to UCPR rules 7.10(2)(b), 7.12 and 54.3(2)(a)), the usual rule is that the costs of the plaintiff (beneficiary) and the defendant (executor) are paid out of the estate. A qualification is that the point raised by the plaintiff has been found by the Court to be fairly arguable in the opinion of the plaintiff's counsel, a qualification satisfied by the fact that his or her submissions are found by the Court to be arguable. See Elders Trustee & Executor Co Ltd v Eastoe [1963] WAR 36 at 50. Usually this occurs where the executor will not pursue the issue on behalf of the estate. Examples are Shillington v Harries and this case, where the executors are the billing law practice, so that the executor has a conflict of interest in seeking an assessment of the costs for the purpose of quantifying a liability under the Will referable to costs he/she has billed.
11. Fifthly, where the Court is required to construe the Will (or, in this case, to quantify an unquantified liability imposed by the Will) after probate has been granted, the rule is that the costs of all the parties (beneficiaries and executor alike) are payable out of the residuary estate: See Pohler v Pfeiffer (1964) 112 CLR 52; Re Mulcahy [1969] VR 545.

Application of the legal principles in this case

1. The following factual contentions based on findings of fact made in the Judgment or in undisputed evidence serve to identify how the legal principles are engaged in this case.
2. First, the deceased was responsible for this litigation on several objective grounds. Her solicitor, Ms Napoli, drafted for her a Will (CB 84 - Ms Napoli and her secretary are its two witnesses) imposing a liability on her executor (also Ms Napoli) to "deduct" an indeterminate amount from Mr Bevan's gift under cll. 3-4 of the Will (CB 91-100).
3. The amount is indeterminate because the deduction is an unassessed amount of costs billed globally together with unrelated costs concerning three quite unrelated retainers (CB 95-111) having nothing whatsoever to do with the NCAT representation by Ms Napoli of the deceased (see CB 91 at "1. Scope of Work": compare 1(a)-(c) (retainers to perform legal services for the deceased which are unrelated to the NCAT Proceeding representation) with 1(d) (representation of the deceased in the NCAT Proceeding)).
4. The deceased is responsible for this litigation, firstly, by waiving her right to have the costs of her NCAT representation assessed under the Uniform Law at the time she was billed and for leave to have them assessed out of time when she made the Will (see ss 198(1)(a), (3)(a) and (4) of the Uniform Law) and, secondly, by then electing to not nominate a definite amount in the Will for the cl. 4 liability (she would need to rely on on Ms Napoli, as billing law practice, to determine a reasonable amount) representing a genuine estimate of the discrete component of the total costs billed to the deceased by Ms Napoli, for four retainers in global tax invoices, which constitute discrete costs of Ms Napoli's NCAT retainer for the purpose of removing any possible issue under cl. 4.
5. Secondly, this proceeding is a proceeding seeking to quantify an unquantified liability created by the Will rather than seeking an assessment of the deceased's liability (as the client) to Ms Napoli (as the billing law practice) for costs incurred under the Uniform Law. See the finding of fact to this effect in the Judgment at [25]. In particular, this is a proceeding seeking to quantify, by the costs assessment regime in the Uniform Law, that proportion of the total costs billed which relate strictly to NCAT representation in terms of cl. 4 of the Will as Ms Napoli gave notice to Mr Bevan that she was proposing to deduct under cl. 4 from his interest in the estate the total costs she billed the deceased.
6. Thirdly, but for this proceeding there would not have been any attempt made by Ms Napoli to adopt a reasonable position on cl. 4, as the executor, by making a genuine attempt to comply with cl. 4 of the Will and quantify a discrete amount referable only to NCAT representation. Rather, Ms Napoli's position at all times, until the eve of the hearing of the Amended Summons, was that Mr Bevan was liable to have all the costs billed to the deceased deducted from his interest in the estate under cl. 4 of the Will (CB 163 & 171). Mr Bevan's attempts to convince her otherwise fell on deaf ears.
7. Ms Napoli only changed her position, it can be inferred, because the unreasonableness of her position in her application of cl. 4 of the Will was rendered stark by submissions filed on behalf Mr Bevan and because she only shifted ground on the eve of the final hearing. See CB 20-48, esp. her letters dated 1 June 2022 and 10 June 2022. That is hardly the conduct of an executor performing the detached office of the trustee/executor of a deceased estate who alone represents the estate of the deceased in this proceeding.
8. Fourthly, Mr Bevan had no other option than to either seek an assessment as a non-associated third-party payer or to apply for leave to represent the estate and to have a referee appointed to quantify the discrete costs relating to the NCAT representation in order to quantify the precise liability imposed on Ms Napoli by cl. 4 of the Will to be performed by her as trustee at the expense of Mr Bevan out of his interest in the estate.
9. This is so because Ms Napoli would not consent to an assessment of her NCAT costs nor would she undertake any independent quantification of the liability imposed by cl. 4 of the Will, in circumstances where her conduct in early June 2022, referred to above (CB 20-48), puts it beyond any reasonable doubt that Ms Napoli has no reliable independent ability to determine, with any degree of objective precision, the amount of costs she billed referable to her representation of the deceased in the NCAT Proceeding.
10. So much follows as Ms Napoli made a costs agreement with the deceased in respect of four distinct retainers but billed her client (an elderly widow living in an aged care facility unable to seek an assessment of costs billed unless so advised Ms Napoli as her advisor on rights of assessment) globally without distinguishing between any of four retainers.
11. The first factual contention identified in paragraphs 14-16 above engages the principles on the exercise the discretion as to costs in proceedings concerning deceased estates which are enunciated in the authorities cited in paragraphs 8-9 above. Those authorities justify the exercise of the costs discretion to make the orders proposed in paragraph 1 above.
12. The second factual contention identified in paragraph 17 above engages the principles on the exercise the discretion as to costs in proceedings concerning deceased estates which are enunciated in the authorities cited in paragraphs 11-12 above. Those authorities justify the exercise of the costs discretion to make the orders proposed in paragraph 1 above.
13. The third and fourth factual contentions identified in paragraphs 18-22 above engage the principles on the exercise the discretion as to costs in proceedings concerning deceased estates which are enunciated in the authorities cited in paragraph 10 above. Those authorities justify the exercise of the costs discretion to make the orders proposed in par 1 above.

The first defendant's submissions

1. The first defendant seeks that the plaintiff pay the first defendant's costs of the proceedings on the ordinary basis.
2. It is noted that the first defendant has an indemnity against the estate for her costs, including as to any gap between the amount recoverable on a party/party basis and the amount of solicitor/client costs.
3. The defendant referred to UCPR Part 42.1 (reproduced earlier).
4. Any suggestion that there is a general rule that costs in probate proceedings are borne out of the estate should be immediately rejected: Petrovski v Nasev; The Estate of Janakievska (No 2) [2011] NSWSC 1474 at [10];
5. In litigation which can be properly characterised as probate litigation it is commonly said that in the exercise of the costs discretion, recognition is given to two exceptions. Recent cases (see, eg, Estate Rofe [2021] NSWSC 257 from [654]) rely on Re Hodges; Shorter v Hodges (1988) 14 NSWLR 698 for the statement of those principles: first, where a testator has been the cause of the litigation, the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate; and secondly, if the circumstances of the case led reasonably to investigation of the document propounded as a will, the costs may be left to be borne by those who respectively incurred them.
6. The first defendant does not accept the proposition that these proceedings are properly characterised as "probate litigation" as that phrase is used in the cases relating to the exercise of the costs discretion in cases where there are disputes are to the validity of the Will, capacity of the testator, assertions of undue influence and the like. These proceedings are more properly characterised as litigation about rights on costs assessment and that the ordinary rules as to costs are applicable to the exercise of the discretion, ie, costs follow the event. The 'event' is that the plaintiff's summons was dismissed and he should bear the costs in the ordinary way. The involvement of the executor as the proper party to the proceedings does not cause the litigation to be properly characterised as "probate litigation" and for the modified rules exercising the discretion in that area to be helpful or applicable.
7. But even if, contrary to this submission the Court does consider the proper characterisation of the proceedings is as probate litigation, then there is still no reason to order other than that costs follow the event.
8. The plaintiff's submissions (at [5]) refer to the plaintiff's perception that he had two options: to apply for assessment or take proceedings in the Equity Division in relation to the quantification of the liability imposed by cl. 4 of the Will. However, it is noted that the plaintiff alone, and uninfluenced by the first defendant, filed a Summons seeking to set aside the decision of the manager, Costs Assessment. He had another option, and that was to accept the correctness of the Manager's decision. It need to put no higher than that he was unsuccessful and should bear the costs.
9. It is noted however, that the decision by the Court in these proceedings was neither surprising nor unexpected given analogous case law, including Shillington v Harries [2013] NSWSC 1202, which determined that a beneficiary of a trust did not have a right to apply for an assessment of costs. A closer case factually was Amos v Ian K Fry & Company [2010] QCA 131 in which the Queensland Court of Appeal, construing legislation which was relevantly similar (Legal Profession Act 2007 (Qld), 'third party payer', s 301), determining that Lyons J, at first instance, had been correct to hold that the plaintiff, as a beneficiary under his late father's Will, was not entitled to an order that the costs of the executor be assessed: at [3]-[5].
10. But even if the 'modified rules' of probate litigation are extended to 'proceedings concerning deceased estates' (PS at [7]) and applied by the Court in this instance, they do not cause any different exercise of the costs discretion.
11. As to the first rule, where the testator was the cause of litigation, it cannot be said in any way that the testator was the cause of the summons filed on behalf of the plaintiff in this matter. The only thing the testator did was to exercise her testamentary freedom to require the executor to deduct from his otherwise one-third entitlement, the amount of costs which he had caused the testator to incur when he unsuccessfully applied for guardianship orders. The provisions of the Will are very clear but in any event, costs assessment was simply never open to the plaintiff. There were other avenues, as the plaintiff accepts (PS at [5]).
12. The second modification to the costs discretion referred to above has no application here as there has never been any dispute about the validity of the Will or any need for 'investigation' of it.
13. A matter which the Court will look at in exercising jurisdiction in this area is the effect of any costs order on the estate and how it may affect the entitlement of other beneficiaries.
14. If the Court were to make the order sought by the plaintiff, the practical result would be that he and his brother and sister would receive a diminished legacy under the Will. There is no reason in fairness why the plaintiff's brother or sister should receive less of an entitlement because of the litigation instigated by him. As it is, Mr Bevan's brother and sister will be disadvantaged and prejudiced by the fact that there will inevitably be a gap between the costs order sought on the ordinary basis and the executor's costs. However, it can be expected, given the efficient way in which the litigation was conducted, that this gap be relatively modest. There is no reason in principle or fairness that the estate, and therefore the other beneficiaries, should bear the impost of the costs of these proceedings.

The plaintiff's submissions in reply

1. These submissions were largely devoted to Shillington which was discussed in detail in my earlier judgment. The other submissions are of little relevance.

Resolution

1. The jurisdiction of probate in respect of the estate of deceased in vested and exercised by the Supreme Court of NSW. Paragraph [4] of Mrs Bevan's will arises from the plaintiff's unsuccessful application. The plaintiff made an application in NCAT for a guardianship and order for a financial management order to be made for his mother. On 14 February 2018, the Tribunal (Guardianship Division of NCAT) was not satisfied that there is a need to manage Mrs Bevan's affairs or that it is in her best interests that a financial management order be made. The application for financial management was dismissed (CB 29).
2. At paragraph [4] of Mrs Bevan's will she directed that her executors shall deduct from her son, the plaintiff's, share of my estate my legal costs in the NCAT Guardianship Division Proceedings initiated by him, being case no 2017/234141, including her solicitor's costs and the costs of both barristers Michele Fraser and Margaret Pringle and the amount deducted shall be divided equally between her son Mark Francis Bevan and her daughter Sandra Margaret Cryer.
3. On 21 August 2021, Mrs Bevan died. The plaintiff filed an application in the Administrative Law list of the Common Law Division of this Court to have the bill of costs sent to him in relation to paragraph [4] of the will assessed on the basis that he was a third party payer under s 171(1)(c) of the Uniform Law. The costs manager in his reasons and decision decided that the plaintiff did not have standing to file a costs assessment application as he did not fall into the category of "non-associated third party payer."
4. By summons filed 24 November 2021, the plaintiff sought to review the cost manager's decision. On August 2022, I handed judgment and I affirmed that the plaintiff did not fall within the category of non-associated third party-payer. I dismissed the plaintiff's summons.
5. Costs are discretionary. The plaintiff elected to challenge the Will by way of seeking the costs assessment to be assessed in the Common Law Division of this Court. That does not make these proceedings a probate matter. Rather, it is my view that the usual rule as to costs under UCPR 42.1 should apply. The plaintiff was unsuccessful so it follows that he should pay the defendant's costs including the costs of this application. The defendant does not seek that the plaintiff pay her costs on an indemnity basis. Therefore, the plaintiff should pay the first defendant's costs on an ordinary basis determined under the Legal Profession Uniform Law.

The court orders 1. The plaintiff is to pay the defendant's costs on an ordinary basis. 2. The plaintiff is to pay the costs of this application.

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: 05 October 2022