Bowditch v NSW Trustee and Guardian

Supreme Court of NSW|2012-06-22|Before: Young J

The Issue 1HIS HONOUR: In this matter, I delivered principal reasons for judgment on 26 March 2012, the citation of which is Bowditch v NSW Trustee and Guardian [2012] NSWSC 275. In those reasons, I determined that each of the Plaintiffs' claims for a family provision order should be dismissed. The Plaintiffs were the daughter and two grandchildren of the deceased. 2Upon delivering the reasons for judgment, I ordered that there would be no order as to the Plaintiffs' costs of the proceedings, to the intent that they were to pay their own costs. I also ordered that any argument about how the burden of the Defendant's costs of the proceedings was to be borne should be adjourned to a date to be fixed, which date was to be no earlier than 14 days following the Defendant entering into a contract for the sale of the Yagoona property and prior to any contract being completed. 3In relation to the Defendant's costs, I wrote: "226 The question of the Defendant's costs is a difficult one, since if I order the Plaintiffs to pay its costs Wendy's share of the estate will be reduced by about $40,000. However, if the estate pays the costs, she will bear the burden of one half of them (which has been taken into account in calculating the quantum of provision to which she will be entitled). 227 There is one aspect that may be relevant to the question of costs. It was clear, on a number of occasions the matter was before the Court prior to the hearing, and at the hearing, that Wendy was desirous of purchasing Gregory's share of the Yagoona property. An open offer was made, although for reasons set out in the Defendant's submissions, it was argued that the amount stated in the offer was inadequate. 228 There is no evidence at all about any counter-offer made on behalf of the Defendant, even though, as stated, a representative of Gregory's financial manager was present in Court. Furthermore, until the Yagoona property is sold, whether Wendy's open offer was a reasonable one, cannot be determined. It may be, depending upon the sale price of the Yagoona property, that Gregory's position would not be any better than if the offer was accepted. 229 In the circumstances, unless the parties are able to resolve the issue of costs by agreement, I shall stand over any argument on the burden of the Defendant's costs until after the sale of the Yagoona property. 230 I should indicate that if the sale of the Yagoona property is by public auction, Wendy should be entitled to bid at the auction. She should not have to pay the whole of the purchase price, but only an amount equal to one half of the purchase price plus, say, $40,000 (in the event that I determine that the Plaintiffs should bear all of the Defendant's costs of the proceedings). In this way, her share of the deceased's estate can be notionally distributed." 4I have been informed that the parties have not been able to reach agreement on how the burden of the Defendant's costs should be borne. These reasons relate to that remaining issue.

Some Background Facts and the Hearing 5It is necessary to repeat some of the facts briefly. 6The deceased left a Will that she made on 9 August 2000, which, relevantly, provided for the payment of "estate liabilities" (as defined) and then divided the balance of all of the deceased's property equally between the Plaintiff, Wendy, and her brother, Gregory. 7The deceased's estate, at the date of death, was disclosed as having an estimated, or known, gross value of $412,220. No liabilities were disclosed. The estate was said to consist, then, of real property at Yagoona ($370,000) ("the Yagoona property"), money on deposit ($31,220), and a debt ($11,000) owed to the deceased by Gregory. (I omitted any reference to the cents and shall continue to do so.) 8In an affidavit, sworn on 10 February 2012, by a solicitor employed by the Defendant, the value of the estate was said to have increased. The Defendant's valuer estimated the then current value of the Yagoona property to be $430,000 (whilst it was said by the Plaintiffs' valuer to have a value of $400,000); the debt owed by Gregory remained at $11,000 (although he disputed that he owed the whole of that amount); and an amount of $16,148 was retained in the Defendant's estate ledger. 9At the hearing, the parties agreed that the current value of the Yagoona property should be taken to be $415,000. With this agreed estimate in mind, and accepting the other amounts referred to, the gross value of the estate, at the date of hearing, was estimated to be $442,148. 10After taking into account the liabilities of the estate ($14,003) and the estimated costs and expenses of sale of the Yagoona property ($13,630), the parties also agreed that the estimated value of the net distributable estate (excluding costs of the proceedings) would, then, be about $414,515. Based on these estimates, Wendy would have been entitled to receive about $207,257. 11At that time, the Defendant's costs and disbursements of the proceedings, including counsel's fees, calculated on the indemnity basis (inclusive of GST and upon the basis of events that had occurred), were estimated to be $42,027. The Plaintiff's costs, calculated on the ordinary basis, were estimated to be $5,500. 12At the hearing, the parties accepted, for the purposes of the hearing, that I should determine the Plaintiffs' application upon the basis that the actual net distributable estate, after the payment of such costs, if any, ordered to be paid out of the estate, would be about $366,988. Assuming those calculations proved accurate, Wendy would receive $183,494. 13Relatively early in the proceedings (once they actually started), the Plaintiffs made an open offer. I referred to that open offer in the reasons for judgment. I wrote: "The Open Offer 16 The matter proceeded on 6 March 2012, with Mr McCartney, again appearing for Wendy, and also, on this occasion, for Amiiy. Ms M Cunningham, solicitor, appeared on behalf of the tutor, for Luke. Ms Hartstein of counsel again appeared for the Defendant. 17 At the commencement of the hearing, Mr McCartney stated that he had instructions to make an open offer on behalf of Wendy. He stated that Wendy was prepared to purchase the interest of her brother, Gregory John Bowditch, in the Yagoona property, for $175,000 and to pay an additional amount of $10,000 on account of the Defendant's costs. She would not seek any additional share of the deceased's estate and would bear her own, and her children's costs, of the proceedings. 18 Mr McCartney also stated that if the offer were accepted, Amiiy would consent to dismissal of her proceedings with no order as to costs. Ms Cunningham stated that the tutor for Luke would also consent to the same orders. ... 21 The Defendant did not accept the Plaintiffs' offer and, consequently, the matter proceeded. In this regard, it is to be noted that a legal representative for the financial manager of Gregory was present in court when the offer was made." 14It followed that had the open offer been accepted, there would have been available for Gregory out of the deceased's estate, the total gross amount of $212,148, made up of the amount payable to the estate by Wendy ($185,000) and $16,148. In addition, he would not have had to repay the debt said to be due to the estate ($11,000). However, from the amounts that the estate would actually receive for his benefit ($201,148), the Defendant's costs of $42,027 would have had to be paid. There would then have been available for Gregory $159,121 and the notional amount of $11,000 (the debt that he did not have to repay) making the benefit that he would have received out of the estate a total amount of $170,121. 15Of course had the offer been accepted, there would have been no costs and expenses of sale incurred by way of agent's commission and advertising costs, although there may have been some legal costs of transferring the Yagoona property to Wendy. 16In relation to Gregory, in my reasons for judgment, I found that there was some evidence of conduct towards the deceased following her admission to the nursing home, which related to the use of funds in her bank account for his personal purposes and that for a period of time in about 2007 and 2008, Mr Franks and his mother lived with Gregory at the Yagoona property and whilst there, paid rent to Gregory of $100 per week, which rent was not accounted for to the deceased. 17I also found that Gregory had lived with the deceased for most of his life.

Events since the Hearing 18The Yagoona property was sold at public auction on 9 June 2012 for $441,500. Settlement of the contract for sale is expected to take place on 23 July 2012. Based upon the sale price, the Defendant's solicitor estimates the current gross value of the estate to be $464,875, made up of the gross proceeds of sale ($441,500), the debt owed by Gregory ($11,000) and the amount now held in the Defendant's estate ledger ($12,375). 19The liabilities of the estate now total $24,357. These liabilities include the amount due for utilities ($594), NSW Trustee estate regulation commission and fees (including GST) ($12,500) and real estate agent's commission and advertising expenses ($11,263). 20It follows that the net value of the estate (excluding allowance for payment of the Defendant's costs) will be $440,518. Thus, subject to the order that is to be made for payment of the Defendant's costs, Wendy and Gregory will each be entitled to receive about $220,259. 21The Defendant's costs of the hearing, at the present time on an indemnity basis, including the hearing of the costs argument, are estimated to be $47,555 on an indemnity basis. If those costs are paid out of the estate, each of Wendy and Gregory will be entitled to receive $196,481. If Wendy is ordered to pay those costs, calculated on the indemnity basis, out of her share of the estate, she will receive $172,704. Gregory will still receive $209,259 and he will not be required to repay the debt ($11,000).

Legislative Framework 22The Civil Procedure Act 2005, s 98(1), provides that subject to the rules of Court, and that, or any other, Act, costs are in the discretion of the Court. The discretion is broad but not unconfined. It is a judicial discretion to be exercised on a principled basis. 23Uniform Civil Procedure Rules 2005 ("UCPR"), r 42.1, provides that costs should follow the event, unless it appears to the Court that some other order should be made as to the whole, or any part, of the costs. UCPR r 42.20(1) provides that if the court makes an order for the dismissal of proceedings, then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed. 24The effect of these two rules, in this case, is that the Plaintiffs must pay the Defendant's costs unless the court otherwise orders, and the court can only order otherwise if there is a discretionary decision to depart from what the rules provide: Australiawide Airlines Limited t/as Regional Express v Aspirion Pty Limited [2006] NSWCA 365 at [10]. In other words, the rules reflect the general proposition that an award of costs is discretionary, but, generally, the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25]. 25Because of the wording of s 98(1) of the Civil Procedure Act, it is necessary to consider the provisions of the Succession Act 2006. Relevantly, s 99(1) of that Act provides: "(1) The Court may order that the costs of proceedings under this Chapter in relation to the estate or notional estate of a deceased person (including costs in connection with mediation) be paid out of the estate or notional estate, or both, in such manner as the Court thinks fit." 26No longer is there any difference between categories of eligible persons, as there was in the Family Provision Act 1982 ("the former Act") by reference to s 33(3) of that Act. The direction in s 33(3) of the former Act that "the Court shall not order ..." the payment of costs out of the estate "by reason only of the fact that the eligible person is of a particular category" is not repeated. 27It is clear that s 99 also provides for an unfettered discretion as to how the costs of the proceedings for a family provision order may be borne. 28Finally, reference should be made to Para 24 of Practice Note SC Eq 7 - Family Provision, which provides: "Orders may be made capping the costs that may be recovered by a party in circumstances including, but not limited to, cases in which the value of the estate is less than $500,000." 29Neither party made any submissions on this provision of the Practice Note. 30If costs are ordered to be paid, the usual order is that those costs are calculated on the ordinary basis (UCPR r 42.2). Indemnity costs may be ordered in certain circumstances, including when a costs order for assessment on the ordinary basis is insufficient in the circumstances to compensate for costs unreasonably incurred due to the misconduct of the other party, which misconduct, for example, causes the prolongation of the proceedings or the making of allegations which ought never to have been made. Although, as in the present case, the costs have been estimated, the actual monetary value of the costs order cannot be ascertained until those costs are assessed or agreed. I shall refer to this issue later in these reasons.

General Costs Principles 31McHugh J in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [66] - [67] said: "66 By far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation. A successful litigant is generally entitled to an award of costs. As Devlin J said in Smeaton Hanscomb & Co Ltd v Sassoon I Setty, Son & Co [No 2], when setting aside an arbitrator's costs award: "the arbitrator is not directing his mind to one of the most, if not the most, important of the elements which ought to affect his discretion, namely the result of the case. Prima facie, a successful party is entitled to his costs. To deprive him of his costs or to require him to pay a part of the costs of the other side is an exceptional measure." The combined force of the sentiments recognised above by Mason CJ, regarding the need for consistency in order to avoid injustice, and by Devlin J, regarding the most significant factor affecting the costs discretion, provides the jurisprudential basis for the important principle commonly referred to as the "usual order as to costs". The usual order as to costs 67 The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation." 32The 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 at 79 per Gleeson CJ.

The Principles in cases in which a family provision order is sought 33I have identified, in a number of other cases in which a family provision order has been sought (see, for example, Smith v Smith (No 2) [2011] NSWSC 1105, Mikan v Velcic (No 2) [2011] NSWSC 505 and Harkness v Harkness (No 2) [2012] NSWSC 35), after referring to the legislation, which I have again set out above, the general principles I considered relevant. 34For the assistance of the parties and others reading this judgment, I repeat the principles stated previously which I consider relevant to the present case: (a)In Singer v Berghouse [1993] HCA 35; (1993) 114 ALR 521, Gaudron J, said, at 522: "Family provision cases stand apart from cases in which costs follow the event. Leaving aside cases under the Act which, in s.33, makes special provision in that regard, costs in family provision cases generally depend on the overall justice of the case. It is not uncommon, in the case of unsuccessful applications, for no order to be made as to costs, particularly if it would have a detrimental effect on the applicant's financial position. And there may even be circumstances in which it is appropriate for an unsuccessful party to have his or her costs paid out of the estate." (b)Despite the above statement, which, of course, was written in the context of a security for costs application, and in respect of proceedings under the Family Provision Act, s 99 of the Succession Act provides a wide discretion in relation to costs ("in such manner as the Court thinks fit"). (c)The view of some practitioners advising a potential applicant contemplating a claim for a family provision order, that there is little risk, and probably much to be gained, in making a claim, however tenuous, because even if the claim fails the applicant will, very likely, get his, or her, costs out of the estate and that he, or she, will not be significantly out of pocket, and the legal practitioner will receive his, or her, costs and disbursements in any event, has been thoroughly discredited. (d)Parties should not assume that this type of litigation can be pursued, safe in the belief that costs will be paid out of the estate: Carey v Robson (No 2) [2009] NSWSC 1199; Forsyth v Sinclair (No 2) [2010] VSCA 195. It is now much more common than it previously was for an unsuccessful applicant to be ordered to pay the defendant's costs of the proceedings (Lillis v Lillis [2010] NSWSC 359 at [23]) and be disallowed his, or her, own costs. (e)Where, as here, the issue is whether the unsuccessful applicants should bear the costs of the successful Defendant, s 98 of the Civil Procedure Act, and the rules quoted above, will apply, and, in the absence of some good reason to the contrary, there should be an order that the costs of the successful defendant be paid by the unsuccessful plaintiff: Moussa v Moussa [2006] NSWSC 509 at [5]. (f)An unsuccessful plaintiff will, usually, be ordered to pay costs where the claim was frivolous, vexatious, made with no reasonable prospects of success, or where she, or he, has been guilty of some improper conduct in the course of the proceedings: Re Sitch (No 2) [2005] VSC 383. (g)In small estates particularly, the court should be careful not to foster the proposition that obstinacy and unreasonableness will not result in an order for costs: Dobb v Hacket (1993) 10 WAR 532, at 540. (h)Proceedings for a family provision order involve elements of judgment and discretion beyond those at work in most inter partes litigation: Jvancich v Kennedy (No 2) [2004] NSWCA 397; Re Sherborne Estate (No 2); Vanvalen v Neaves [2005] NSWSC 1003. (i)In exercising its discretion in relation to costs, the court will have regard to "the overall justice of the case": Jvancich v Kennedy (No 2). The "overall justice of the case" is "not remote from costs following the event". However, the court may be more willing to depart from the general principle in proceedings for a family provision order than in other types of case: Moussa v Moussa; Carey v Robson (No 2); Bartkus v Bartkus [2010] NSWSC 889 at [24]. (j)As proceedings for a family provision order are essentially for maintenance, a court may properly decide to make no order for costs, even though it were otherwise justified, against unsuccessful applicants, if it would adversely affect the financial position which had been taken into account in dismissing the application: Morse v Morse (No 2) [2003] TASSC 145 at [4]; McDougall v Rogers; Estate of James Rogers [2006] NSWSC 484; McCusker v Rutter [2010] NSWCA 318 at [34]. 35Finally, what I said in Smith v Smith (No 2) at [77], is also applicable to the facts of the present case: "I commend to parties involved in proceedings in which a family provision order is sought, that every effort, particularly in a relatively small estate, as this one is, to conduct negotiations frankly and openly, to try to resolve the proceedings, and if there are issues or concerns about an offer that has been made, to raise any issues at the first convenient opportunity with the offeror's solicitors, so that any ambiguities, or other concerns, can be resolved. The Court should be able to see that the parties have considered what is being offered in a sensible, practical, and commercial way."

Determination 36In Luxmore Pty Ltd v Hydedale Pty Ltd [2008] VSCA 212; (2008) 20 VR 481; Maxwell P and Kellam JA said, at [12]: "... Rarely will it be necessary for a judge to give detailed reasons for decision adverting to every matter debated in argument. This court will assume, as should the parties, that every matter addressed in argument on costs has been considered. This court will set its face against any proposition which would require judges disposing of questions of costs to give elaborate reasons." 37In coming to a conclusion about costs, I have the following additional features of the present case in mind: (a)Although there were proceedings by three Plaintiffs and not just one (Wendy), the Defendant seems to accept, in the written submissions provided to the court, that the second and third Plaintiffs made their claims in support of the first Plaintiff's claim and subordinated those claims to that of their mother, Wendy. Practically, there were few, if any, costs incurred by the Defendant in having to deal with three, rather than one, claim. (b)The Plaintiffs, initially, appeared in person during the proceedings. Their legal representatives appeared, essentially, at the hearing. (c)The difference between what the Plaintiffs offered to settle their proceedings for and what would now be available for Gregory if the first Plaintiff were ordered to pay the Defendant's costs, on the indemnity basis, is $50,138 (being the difference between $220,259 and $170,121). (d)Gregory's share of the estate, if the offer made on behalf of the Plaintiffs had been accepted at the hearing, would then have been $170,121 (calculated as the difference between $212,148 and $42,027 at [14]). (e)The actual difference between the offer and the present position only became quantifiable upon events that occurred after the hearing and in circumstances where the sale price of the Yagoona property ($441,500) was $26,500 greater than the agreed estimated value of the Yagoona property at the date of hearing ($415,000). (f)The Defendant has incurred additional costs ($5,528) since the hearing (being the difference between $47,555 and $42,027), which costs would not have been incurred if the matter had been settled at the hearing. Also, there would have been no need for agent's commission and advertising costs to be deducted from the proceeds of sale. (g)There is no evidence of any counter-offer made by the Defendant to the Plaintiffs to settle the proceedings, although there has been included on the hearing of the costs application an offer made to Wendy in a letter dated 4 August 2011 made "without prejudice except as to costs". 38There can be no doubt that Gregory's entitlement is now greater than it would have been had the offer made at the hearing been accepted. However, I am not sure that this feature provides the absolute answer. 39In all of these circumstances, weighing up all of the matters upon which submissions have been made, together with the features to which I have referred, and all other matters set out, I am of the view that the overall justice of this case points in favour of the usual rule that costs should follow the event and that the Defendant's costs, calculated on the ordinary basis, should be paid out of Wendy's share of the deceased's estate. 40Both parties asked the Court immediately prior to this judgment being delivered, but after all calculations set out in the judgment had been done, 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 (subject to an appeal which I understand has been instituted by the Plaintiffs). 41I order that the Defendant's costs, calculated on the ordinary basis, agreed at $45,000, be paid out of the share of the estate of the deceased passing to the first Plaintiff. Order that to the extent that there is any difference between the Defendant's ordinary costs and the indemnity costs, that difference be paid out of the deceased's estate.

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: 26 June 2012

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