Chalik v Chalik

Isaac's Costs Application and Submissions

1. Isaac made two offers to settle the proceedings, both without prejudice except as to costs. The first was a Calderbank letter dated 17 September 2021. The second was a UCPR, r 20.26 offer of compromise dated 15 June 2022.
2. The 17 September 2021 Calderbank letter from Isaac's solicitors clearly explained Isaac's case that the deceased lacked testamentary capacity at the time of the 2013 will and that the deceased's testamentary capacity was vitiated by Gregory's undue influence at that time. With that background, the September 2021 letter offered Gregory $20,000 in exchange for Gregory supporting the 1998 will. Isaac left the offer open for 21 days, but Gregory did not accept it. Instead, Gregory commenced proceedings on 13 October 2021 propounding the 2013 will and claiming that Isaac owed $150,000 to the estate.
3. Isaac's written submissions (paragraphs [13]-[15]) on this application and dated 19 March 2024 urged that it was not reasonable for the plaintiff to reject the September 2021 offer, referring to Henry J's findings as follows: 13 It was not reasonable for the plaintiff to reject that September 2021 offer, which gave a detailed explanation for why it should be accepted. More fundamentally again, the plaintiff was uniquely aware of nearly all the information that was needed in order to consider the offer. As her Honour's reasons make clear, the plaintiff: Knew in 2011, two years prior to the 2013 document, that Mrs Chalik was exhibiting clear signs of cognitive decline (reasons, [132], [136]); b. Arranged to obtain a power of attorney over his mother's affairs in 2011 ([138]); c. Padlocked the kitchen door in 2011 to protect Mrs Chalik from overeating and/or injury ([147]); d. Knew Mrs Chalik had inexplicably begun to withdraw large sums of cash from the bank ([153]); and e. Believed Mrs Chalik had repeatedly accidentally locked herself into her bedroom ([148]); f. Knew by 2013 the plaintiff that Mrs Chalik could not cook, and was falling ([160] - [161]); g. Knew she was hospitalised with cognitive issues just two weeks after signing the 2013 document ([178], [187]); and h. Participated in 2015 in NCAT proceedings concerning Mrs Chalik's guardianship and dementia history ([212]). 14. In short, the plaintiff was able to see the merit in Isaac's offer to admit the 1998 will to probate. This conclusion is reinforced by Henry J's finding that a 2013 set of reasons for Mrs Chalik's new 'will' was inauthentic ([191] - [192], [327] - [328], [466], [472]). The plaintiff was the source of the inauthenticity, and it points up his awareness of Mrs Chalik's incapacity (see also the reasons at [136]). 15. If the plaintiff had accepted the September 2021 offer then he would have received half of the estate, plus another $20,000 from Isaac, and had few legal costs. Neither he nor Isaac would have spent substantial sums on litigation, including on a joint expert whom Henry J found to be 'impressive' (reasons, [52], [270], [324], [423]; and Mr Ziman, pars 13, 18c). The corollary is that, if the plaintiff had accepted that September offer, both parties would have been financially better off (reasons, [423]).
4. Isaac also relies upon the offer of compromise under UCPR, r 20.26 on his behalf issued by letter on 15 June 2022. This was the product of directions that the Court had made for the parties to exchange offers. Isaac's written submissions ([16] and [17]) refer to Henry J's findings and explain why the June 2022 offer of compromise under UCPR, r 20.26 should be given effect. 16 This lost opportunity to settle is underscored by Isaac's second letter of offer on 15 June 2022 (annexure DZ2). In mid-2022 the court directed the parties to exchange offers. Isaac offered to split the estate by having the 1998 will admitted to probate; discontinuing his pursuit of the $15,000 owed by the plaintiff to the estate; and bearing his own substantial costs to that point. His offer was marked to be made under UCPR r 20.26. It also correctly: a. estimated the length of the future hearing; b. alluded to all the documentary material which the plaintiff already knew about; c. challenged the authenticity of the statement of reasons; and d. noted that the solicitor preparing the will had discussed it with Mrs Chalik in neither English nor her native Russian (one of Henry J's 'red flags': reasons, [316]). At the time of that offer, the plaintiff had also received Isaac's pleadings and nearly all his substantial evidence-in-chief. The offer was left open for a full four weeks, but it was not accepted. 17. At the time of the June 2022 offer the plaintiff knew Isaac's case and, as before, was well-placed to know the weaknesses in his own case. It was therefore unreasonable for him to reject that offer (although, as an offer under the rules, 'reasonableness' is not the immediate consideration: see UCPR, r 42.15A and Bassett v Bassett [2021] NSWCA 320, discussed further below). As with the first offer, the plaintiff did not say why it was not accepted.
5. It is important to consider her Honour's reasons for making the cost orders when rejecting the family provision claim that Gregory made. Her Honour considered (at [509] and [510]) that there were several factors governing whether the deceased had made adequate provision for Gregory's proper maintenance and advancement in life. These included his benefits from living rent-free in a unit at Bondi for many years, doubts about the quality of Gregory's care for the deceased, Gregory's controlling conduct over the deceased, the 2013 will coming about because of Gregory taking advantage of the deceased's declining cognitive capacity, together with Gregory withdrawing money from the deceased's bank account for his own benefit.
6. Taking those various matters into account her Honour decided for the following reasons (at [513]-[519]) that Gregory's case under Succession Act, s 59, should fail: 513 In this case, I am not persuaded that the deceased was morally obliged or required by community standards to provide more to Gregory than she did by way of her testamentary disposition under the 1998 Will having regard to the circumstances of the case as at the date of the hearing, particularly those matters referred to at [509] and [510] above. In coming to that conclusion, I take into account the size of the deceased's estate and the legacy Gregory will receive. 514 This is not a case where Gregory has been left nothing and the size of the estate, while not large, is not insubstantial. The provision made for Gregory, which is estimated to be $826,115.95, should provide him with sufficient funds to buy suitable accommodation in Tamworth mortgage-free, undertake his dental treatment, acquire furniture, a ride-on mower and a later model second hand car and leave him with a buffer for contingencies in life (which he may use to set up a business if he desires) of around $220,000, even assuming that he has already spent the entirely of the interim distribution made to him ($250,000) on his daily needs and his legal expenses. (This calculation assumes Gregory spends $300,000 on a house, $3000 on dental care, $5,000 of a ride on mower, $10,000 on furniture and $20,000 on a later model second hand car and returns $15,000 to the estate). 515 Having regards to all the facts known at the date of the hearing of the application, I consider that the provision made for Gregory under the 1998 Will is adequate provision for Gregory's proper maintenance and advancement in life. 516 If I am wrong to conclude that adequate provision had not been made by the deceased's 1998 Will for Gregory's proper maintenance and advancement in life, I would not have accepted that the amount of provision sought by Gregory, namely the entirety of the deceased's estate, would be appropriate. 517 In the event the 2013 Will is invalid (which is the circumstances on which Gregory's family provision claim is to be determined), I consider that for Gregory to receive an additional amount of $826,115.95 (giving him over $1.6 million) is more than required for adequate provision for his proper maintenance and advancement in life. Nor do I consider that the circumstances of this case warrant Isaac being excluded from the deceased's estate entirely. 518 In my view, if I am wrong, the better approach would be to allow Gregory to retain the interim distribution of $250,000 and divide the remainder of the estate (of $1,402,231.89) in half, thereby providing Gregory with total provision of $951,115.95 and Isaac with around $700,000 before taking into account Isaac's legal costs. 519 However, as I have explained, the better view is that Gregory's claim for further provision from the deceased's estate should fail.
7. The core part of this reasoning (at [514]) that is relevant for present purposes is that the amount that Gregory was likely to receive under the 1998 will of $826,115.90 would leave him with a "buffer for contingencies in life" of about $220,000, even upon the assumption that he had spent the entirety of the interim distribution made available to him. This explains the balancing exercise undertaken by her Honour (at [532] and [533]) that an order for Gregory to pay Isaac's costs out of Gregory's entitlements would have changed the effect of her Honour's ultimate decision by reducing the buffer for contingencies by half, or about $100,000.
8. The issue that Isaac's application raises here is whether a costs order should be made that reduces that buffer, now that the full picture is available to the Court of the September 2021 Calderbank letter and the June 2022 offer of compromise, notwithstanding the considered position taken by Henry J without the benefit of that information on 16 February 2024.

The parties' submissions

1. The parties asked the Court to deal with this matter on the papers based upon their written submissions. Isaac made three main points in his written submissions. The first point is that Gregory should not escape the ordinary costs consequences of his failed claim given his rejection of two reasonable offers of compromise: Bassett v Bassett [2021] NSWCA 320 [121]-[122].
2. Isaac submits that the relevant part of Gregory's award in the family provision claim that Henry J sought to protect from erosion through adverse costs orders is a claim for advancement - to keep open the possibility of Gregory setting up his own business - rather than a claim for maintenance. He submitted based on two authorities that the fact that an adverse costs order may eat into Gregory's provision may be of lesser weight than would otherwise have been if it were a fund set aside for maintenance: see Coss v Norman (No 2) NSWSC 1490, at [22] and Megerditchian v Khatchadourian (No. 2) [2020] NSWSC 112 at [44]. Isaac submitted that provision for advancement such as the buffer here for starting up a business should be afforded little weight in the costs analysis. Moreover, he submits that as in Coss v Norman (at [28]-[30]), looking at the matter from the testatrix's perspective, there is no suggestion that the deceased wished to wholly protect Gregory against a prospective liability for costs being taken out of the fund for his advancement.
3. Isaac's third point is that a costs order can in fact now be made without interfering with the plaintiff's desire to start a business. This can be achieved by not making a cost order generally but by awarding a fixed sum instead of assessed costs (for example under the power conferred by Civil Procedure Act 2005, s 98(4)(c), such sum representing only a portion of Isaac's actual costs. Isaac explained this in his written submissions (at [23]) as follows: The third point is that costs can be ordered without interfering with the plaintiff's desire to start a business. If the court is not inclined to order costs generally, as is submitted, then there is still good reason to make a fixed costs order for $90,000. That is a fraction of Isaac's actual costs, and payment of it would not affect the bequest of money to the plaintiff which will be used to cover his business start-up expenses: a. The plaintiff's buffer is just over $223,000 after deducting expected personal expenses (listed above). b. Justice Henry recited the plaintiff's claim was for $160,000 to start and run a business and could be paid for using the buffer (at [447], [514]). That leaves $63,000 unallocated out of the $223,000. c. The claim for $160,000 to start a business included a claim for a $40,000 late-model van (at [447]). That duplicates the $20,000 provision for a vehicle already in his personal expenses.11 There is therefore a surplus $20,000, meaning $83,000 is in fact unallocated. d. The plaintiff owes the estate a $15,000 debt, but he should expect to receive back half or $7,500 as his inheritance. That means about $90,500 is in fact unallocated. In summary, the plaintiff can use the buffer in his inheritance to start and run a business, which is fully equipped, and still compensate Isaac a share of his costs ($90,000). To not so order means the plaintiff has unallocated funds, over and above his desire to start a new business, while Isaac goes wholly uncompensated, despite being successful.
4. In its analysis below, by reason of the new considerations created by the un-accepted offers the Court has adopted but modified the logic of Isaac's third point.
5. Gregory's submissions were included in affidavits he filed, read, and relied upon dated 20 March and 3 June 2024. The submissions are difficult to follow and do not address the points made on Isaac's behalf on the present motion. The submissions seem mainly to be concerned with pointing to alleged errors in the principal judgment. Gregory perhaps appears to reason that he does not have to address all the costs issues Issac raises, if the principal judgment is going to be set aside on appeal anyway.
6. That would be an erroneous approach. It is not necessary for the Court to go into the various ways in which the principal judgment is criticised in Gregory's submissions. Suffice it to say that the criticisms do not bear upon the costs issue except in the limited respects which the Court now isolates for consideration.
7. Gregory first submitted that the offer of compromise sought to prejudge the Court's decision. That misunderstands the purpose of the Calderbank letters and offers of compromise, which do not prejudge the outcome but merely anticipate one possible outcome in an endeavour to save the costs of the trial.
8. Gregory next submitted that the second offer should be rejected because it sought to "contravene my late mother's last Will". The second offer merely anticipated the possibility of what in fact occurred in the principal judgment: that the 2013 will would not be admitted to probate.
9. Gregory also contended "I did not see the September 2021 letter and saw no merit in the second offer whatsoever". But the Court accepts Mr Ziman's evidence that the September 2021 letter was sent by email to the email address of the solicitor then acting for Gregory, Mr Chris Adamson, who had a duty to show it to Gregory, which the Court can infer was discharged. But if Gregory says that he did not see the September 2021 letter, then he can take that up with Mr Adamson. Gregory is regarded as having received the letter once it is sent to his solicitor.
10. Gregory submitted that the significance of Calderbank letters was not explained to him by his then legal representative, Mr Adamson. But that is also a matter between Gregory and his former legal representative, Mr Adamson, and the Court cannot give Gregory special treatment, and assess his position as though the letter had not been received, when the objective evidence shows it was.
11. Gregory appears to accept that he received the second offer. However, Gregory may judge the merits of the second offer, it is up to the Court now to assess its merits and that of the first offer.
12. Gregory submitted that he made offers to Isaac to settle the proceedings for sums of $100,000 and $250,000 respectively, which he says he considered "fair within the context of my culture" and which he complains were rejected "without reasonable explanation". Whatever offers Gregory made to Isaac do not bear upon the Court's assessment of the two offers made by Isaac in light of Isaac's success in the proceedings.
13. Finally, Gregory submits that Coss v Norman is not a relevant authority to the present costs issue.

Analysis

1. The effect of the September 2021 and June 2022 offers. As to the Calderbank offer of September 2021, the principles applicable to Calderbank offers are well settled. Principles concerning attempts to compromise proceedings by Calderbank offers are applicable in probate proceedings: Walker v Harwood [2017] NSWCA 228 ("Walker") at [58]. Parties seeking an order for indemnity costs based on a Calderbank offer have the burden of showing the Court why such an order should be made in their favour, and, generally, this means that they should persuade the Court that the refusal to accept the offer was unreasonable in all the circumstances of the case: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [20].
2. The Court of Appeal's decision in Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344 ("Miwa"), (at [9]), is authority for the proposition that an informal offer (and indeed an offer of compromise under the Uniform Civil Procedure Rules 2005) must contain "a real and genuine element of compromise": see also The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] 67 NSWLR 706; [2006] NSWCA 120, (at [8]). In Miwa, the Court noted that there is authority that the epithets "real" and "genuine" add little to the requirement of compromise: Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19, (at [23]); Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170, (at [17]-[18]).
3. The determination of whether the rejection of an offer was unreasonable is an evaluative judgement to be made by reference to the terms of the offer and all the relevant surrounding circumstances and should not be upheld other than on clear grounds: King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No. 2) [2009] NSWSC 8204 at [11] and Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113].
4. The considerations relevant to the determination of whether a refusal of a Calderbank offer is unreasonable were stated in Miwa, at [12], based on Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435; [2005] VSCA 298 ("Hazeldene's"), (at [25]). The Victorian Court of Appeal (Warren CJ, Maxwell P and Harper AJA) in Hazeldene's held that the following elements were relevant to determining whether the rejection of a Calderbank offer was unreasonable: "(a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it."
5. The September 2021 offer put the facts before Gregory, the evidence in other courts and tribunals in which the deceased's medical conditions and dementia had been expounded, the deceased poor command of English and the lack of any indication that she had interpreter available to her when the will was made, the solicitor who prepared the will having scant notes of his dealings with the deceased, and Gregory's conduct towards the deceased, using her money and taking advantage of her vulnerable position. Isaac clearly bettered this Calderbank letter's offer of joint support for probate of the 1998 will and $20,000 to be paid to Gregory.
6. It was unreasonable of Gregory not to accept the Calderbank letter. Although it was issued before the proceedings were commenced Gregory was well aware of and closely involved in the events that weighed in Henry J's consideration against admitting the 2013 will to probate. The offer represented a genuine compromise given the limited options in probate proceedings and was open for 21 days, yet Gregory went ahead and commenced the proceedings, thereby causing both parties to incur the very substantial costs of these proceedings. Subject to the considerations discussed below, the Calderbank letter should be given effect.
7. As to the offer of compromise of June 2022, the principles that govern the Court's exercise of discretion in relation to costs where an offer of compromise is not accepted are well known. Here, Isaac's offer was not accepted, and judgment was entered which was no more favourable to the plaintiff than the terms of the offer: UCPR r 42.15. Subject to the Court's discretion to "otherwise order" the presumption that arises under the rule is that the plaintiff may only recover costs from the defendant up to the time that the offer was made and thereafter the defendant is entitled to costs on an indemnity basis.
8. The applicable principles have been summarised in authorities such as Benette v Cohen (No. 2) [2009] NSWCA 162 and Walker v Harwood [2017] NSWCA 228. One important matter for emphasis is that prima facie the consequence of non-acceptance of an offer of compromise will be that the rule will be enforced against the non-accepting party, because from the time of the non-acceptance "notionally the real cause and occasion of the litigation is the attitude adopted by the [party] which has rejected the compromise": Maitland Hospital v Fisher (No. 2) (1992) 27 NSWLR 721 at 724 ("Maitland Hospital").
9. The rationale for the rule is to encourage the compromise of litigation to advance both the private interests of the parties and public interest and to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital at 724. An offeree may resist the cost presumption arising from an offer of compromise by establishing it was not unreasonable for them to reject the offer in all the circumstances: Arnott v Choy (No. 2) [2010] NSWCA 285.
10. The June 2022 offer of compromise set out the full history of matters relevant to the probate issues and explained the issues in considerable detail and offered a grant of probate of the 1998 will to Ms Ross-Maranik, dismissal of the 2021/326779 proceedings, the payment of Ms Ross-Maranik's costs out of the estate and equal distribution of the estate after allowing for the interim distribution of $250,000 to Gregory.
11. Gregory cannot establish that it was not unreasonable for him to reject this offer of compromise. By the time the offer was made all the relevant evidence was filed including the expert evidence of Dr Lonie. Gregory was given ample time to consider the offer, which represented a genuine compromise by abandoning the cross-claim. And in the result, Gregory obtained an order that was no more favourable to him than the terms of the offer the offer made by Isaac. Subject to the considerations below, this offer of compromise should also be given effect.
12. What costs order should be made? The considerations that troubled Henry J and caused her Honour not to make a full costs order against Gregory after he was unsuccessful in the proceedings are still potent and need to be weighed in the balance here. Although rejection of a Calderbank letter or an offer of compromise usually produces a clear outcome of indemnity costs after the offer, here, the judicial exercise of the Court's cost discretion still requires some constraints on giving full effect to Isaac's Calderbank letter and his offer of compromise.
13. In the principal judgment Henry J's discussion at [527] - [533] noted the Court's unfettered discretion in relation to awarding costs, provided the discretion was exercised judicially and her Honour noted the greater flexibility of making cost orders in family provision cases. But at [533], Henry J was reluctant to undermine through a substantial costs order against Gregory, the basis of her reasoning by which she rejected Gregory's family provision claim because of what he received under the 1998 will, explaining that a costs order "would have impacted my ultimate decision, given it would have reduced the buffer for contingencies by half".
14. But now the Court needs to balance the additional effect of two now-revealed unreasonably unaccepted offers against the same considerations that faced Henry J without undermining the logic of not making a costs order after declining to make a family provision order. In the Court's view, Isaac's submissions point to an acceptable balance between these competing considerations.
15. As Isaac submitted, some level of costs order can be made against Gregory that is consistent with still giving due weight to Henry J's concern that Gregory should have access to something like the $160,000 that he estimated was necessary to start a run a business. The buffer Henry J allowed in the result of about $220,000 means that there is still about $60,000 of an unallocated buffer after Gregory's potential business start-up expenses have been taken into account. In the Court's view, the correct discretionary course in this case is to use part of that unallocated buffer to give effect to at least part of the result that would ordinarily flow from Isaac's effective September 2021 and June 2022 offers.
16. Isaac submitted that a costs order should be made in his favour against Gregory in the sum of $90,000 based on Isaac's legal fees and disbursements, which Mr Ziman's affidavit proves have been incurred. But that is too much. An award in that amount would unacceptably diminish the sum available to Gregory from his entitlements under the 1998 will, which he could use to start his own business. The Calderbank letter and the offer of compromise do change the discretionary costs landscape slightly in Isaac's favour. The Court should make an order for costs in Isaac's favour fixed in the maximum sum of $40,000. This figure is selected as coming comfortably within the approximate $60,000 residual buffer available to Gregory under the 1998 will after allowing for him to commence his own business. It also allows Gregory to discharge his obligation to pay Dr Lonie from within that buffer. Fixing a precise figure such as this gives greater certainty to the administrator of the estate, Ms Ross-Maranik and simplifies her subsequent administration of the estate.
17. Provided the Court is satisfied Isaac has incurred costs of more than this amount, the Court can fix the costs payable to Isaac and cap them in this amount to take into account the balance of competing considerations here. Mr Ziman's affidavit demonstrates clearly that costs well beyond this have been incurred by Isaac. They include solicitors professional costs of $46,435, counsel's fees of $110,398 disbursements to Dr Lonie of $11,384 and printing and court book and other sundry costs of $2,261. This totals $170,478 plus GST, which comes to $187,526.
18. The Court therefore has sufficiently reliable materials before it to fix a specified gross sum instead of assessed costs under Civil Procedure Act, s 98(4)(c) and to limit of those costs under Civil Procedure Act, s 98(1) to $40,000 and the Court will so order.

Conclusions and Orders

1. For these reasons the Court makes the following orders and directions: 1. ORDER that order 10 of Henry J's orders of 16 February 2024 in both proceedings 2021/296823 and 2021/326779 is amended so that it reads "As between the plaintiff and the first defendant the plaintiff shall pay the first defendant's costs of both these proceedings, which are fixed as a specified gross sum instead of assessed costs in the total sum of $40,000." 2. The administrator of the estate is authorised to pay Dr Jane Lonie the balance of the fees due to her as a court expert in these proceedings but presently unpaid, together with interest on the unpaid amount calculated from the due date of her applicable memorandum of fees at the rate calculated under Civil Procedure Act, s 100 up to the date of payment; and 3. Grant liberty to apply.

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: 10 August 2024