COSTS - No issue of principle
Cases Cited: Finlay v Pereg [2022] NSWSC 32
Category: Costs
Parties: John Paul Finlay (Plaintiff)
Source
Original judgment source is linked above.
Catchwords
COSTS - No issue of principle
Cases Cited: Finlay v Pereg [2022] NSWSC 32
Category: Costs
Parties: John Paul Finlay (Plaintiff)
Judgment (2 paragraphs)
[1]
EX TEMPORE Judgment (REVISED)
The Court published its principal reasons in this matter on 27 January 2022 (Finlay v Pereg [2022] NSWSC 32) (the Principal Judgment). These reasons deal primarily with the question of what costs orders should be made consequent upon the outcome of the proceedings. They assume familiarity, and should be read, with the Principal Judgment. Defined terms in the Principal Judgment have the same meaning in these reasons. The appearances today were the same as at the hearing.
For the purposes of today, the Court had the benefit of written submissions from all of the parties, supplemented by further oral submissions this afternoon. There were only some minor issues about the form of the substantive orders required to give effect to the Principal Judgment. The issue which gave rise to a dispute requiring fully reasoned determination by the Court was the question of costs.
John, Moshe and Edna in effect seek special costs orders that their costs be paid on the indemnity basis from the date of an informal settlement conference which took place between the parties on 21 April 2020 because a settlement "agreement" between the three of them was reached on that occasion (the Arrangement). Those events are referred to in [21] and [22] of the Principal Judgment.
John, Moshe and Edna submit that the Sarusi defendants have achieved a worse result than if they had agreed to the Arrangement. Furthermore, had they done so, it is submitted that the costs incurred by John, Moshe and Edna since 21 April 2020 would not have been incurred and those costs should therefore be visited on the Sarusi defendants on the indemnity basis.
That application will be refused for the reasons which follow. However, it is convenient first to deal with a matter peculiar to John's application.
As is recorded in paragraph [77] of the Principal Judgment, the Court accepted Mr Armfield's submission that John should receive $780,000 inclusive of his costs, which was said to be what John had agreed to as part of the Arrangement. This was reflected in the draft order I proposed in paragraph [84] of the Principal Judgment to the effect that John's legacy was conditional on him not making an application for his costs of the proceedings.
Having had the benefit of Mr Armfield's submissions for today, I accept that I had misunderstood part of the basis on which Mr Armfield's submissions were put. In particular, I now understand that Mr Armfield's submissions were based on a figure of $780,000 which included John bearing his own costs up to and including the date of the informal settlement conference on 21 April 2020, but that John still sought his costs of the proceedings from that date.
I should immediately say that with that error on my part corrected, there would still be no difference in the ultimate conclusions which are expressed in the Principal Judgment as to the provision to be ordered for John. I have been informed today that John's costs from 21 April 2020 on the indemnity basis are $72,500 and on the ordinary basis $58,000. For reasons which I will come to below, John will have those costs on the ordinary basis and that outcome would not have any effect on the discretionary balancing of factors which led to my satisfaction that $780,000 was an appropriate amount of provision for John, but accepting that out of that figure he was prepared to bear the costs he had incurred up until 21 April 2020.
There are two reasons for this. First, for the purposes of the analysis in [77] of the Principal Judgment, John's walk away figure becomes $750,000 ($780,000 less his solicitor client costs of $30,000 up to 21 April 2020). That figure is still well below what the evidence suggested John required. Second, the other parties having to bear rateably John's costs of $58,000 would not have affected how the Court balanced their position (not having put their circumstances in issue) against John's needs.
Turning to the Court's reasons applicable to John, Moshe and Edna's application generally, the first, and principal reason, why the application for special costs orders is refused is that none of John, Moshe or Edna ever made a Calderbank offer or offer of compromise in terms of the Arrangement which squarely put the Sarusi defendants on notice of the potential costs consequences for them if they did not achieve a better result at hearing than the offer being made to them.
In his written costs submissions, Guy had referred to the other parties not having made a Calderbank offer in terms of the Arrangement. I infer from what he has told me today that there had been a Calderbank offer earlier in the history of the proceedings, so he knew what that was. As a non-lawyer he may not be aware of offers of compromise under the Rules, but the same point may be made that no such offer was ever put.
Second, the Sarusi defendants (and Gilad) were only formally joined to the proceedings by order of Hallen J on 9 October 2020. While it may be accepted that the Sarusi defendants had a direct interest in the outcome of the proceedings, in the unusual circumstances of this case the application is redolent of an application for a non-party costs order insofar as costs are sought for a period before the Sarusi defendants had not been joined. The Court's undoubted jurisdiction to order costs against non-parties remains an exceptional one. The Court is not satisfied that John, Moshe and Edna have demonstrated circumstances (exceptional or otherwise) that would justify ordering the Sarusi defendants to pay the other parties' costs incurred during a period when the Sarusi defendants were not formally joined to the proceedings.
The third reason, which is not of itself dispositive, but fortifies the Court in its conclusion, is that the Court's view of the respective interests in the estate which informed its ultimate conclusion (see [52] of the Principal Judgment) was based on the net distributable estate after legal expenses. Even though the Sarusi defendants did not put their circumstances in issue, a very different discretionary landscape would have presented itself if the Sarusi defendants' entitlements were to have been considered on the basis that they would have been substantially reduced (as would have been the case) by orders that the Sarusi defendants bear John's, Moshe's and Edna's costs from 21 April 2020 (or some later date) on the indemnity basis. It is a feature of exercising the Court's discretion as to costs in family provision matters that an otherwise usual costs order will sometimes not be made if it would result in a radically different net outcome from that upon which the Court had based its approach in making an order for provision.
I have sympathy for the sincerity with which Moshe and Edna's written submissions on costs advanced the proposition that they had done everything they could to attempt to settle the proceedings in accordance with what is considered best practice in civil litigation. However, the fact remains that, on analysis, they did not do everything. Neither they nor John ever put a Calderbank offer or an offer of compromise in terms of the Arrangement. Either form of offer would have made it very clear to the Sarusi defendants that they would be at risk as to their costs, including on the indemnity basis, if the outcome was not as favourable to them as the offer that was being made.
An offer spelling out such costs consequences is especially important when dealing with unrepresented litigants. The Sarusi defendants were briefly represented at the time of the settlement conference itself. However, not long after that, they decided to represent themselves, and did so up to and including the hearing before me.
The difficulty for John, Moshe and Edna is that after the settlement conference, their focus, and the focus of the proceedings, changed. It became what was, with respect, a fundamentally misguided effort if not strictly to enforce the Arrangement, then to persuade the Court to make orders to the effect of the Arrangement notwithstanding the disagreement of the Sarusi defendants.
As everyone accepted by the time of the hearing before me, the Sarusi defendants were entirely within their rights not to agree to what the other three litigants had resolved as between themselves. The hearing before me was a contested hearing on the merits. In the absence of them having been told at the settlement conference or any time thereafter in pellucidly clear terms that they were at risk of paying the other parties' costs on the indemnity basis, their failure to agree to the Arrangement is not a matter which would warrant making the special costs orders now sought.
The misdirected concentration on attempting to "enforce" the Arrangement culminated in a motion by John filed on 23 September 2020 seeking to join Edna, the Sarusi defendants and Gilad and for orders to give effect to the Arrangement. Other than the joinder and some consequential matters, that motion was dismissed on 9 October 2020 by Hallen J with costs to be costs in the cause of John and Moshe.
Pursuant to leave granted on 11 November 2020, an amended notice of motion was filed by John on 1 December 2020 again seeking final relief as contemplated by the Arrangement. That notice of motion did seek orders that John, Moshe and Edna's costs be borne from the Sarusi defendants' and Gilad's shares of the residuary estate, but significantly for present purposes it made no reference to those costs being borne on the indemnity basis.
In any event, that amended motion was also dismissed by Hallen J on 12 February 2021, on which occasion Guy appeared remotely from Israel to represent the interests of the Sarusi defendants. On the next occasion (19 March 2021) the proceedings were fixed for hearing before me on 22 November 2021.
In reaching this conclusion, I have not overlooked some correspondence sent to the Sarusi defendants by Moshe and Edna's solicitor on 25 September 2020, being in anticipation of John's notice of motion referred to in [18] above. Their solicitor wrote to each of the Sarusi defendants (emphasis added):
"There is still the chance for your (sic) to consent to the orders sent to you previously and attached to our letter to you dated 18 May 2020, a further copy of which we attach herewith.
In this regard we confirm our previous advices that we do not believe that you would achieve a better result at a court hearing that is proposed in the attached draft consent orders and in fact, once the extra legal costs of a hearing are taken into account, we think all net legacies are likely to be far less. In saying this we are taking into account that you are not dependants of the deceased and you have not provided the parties with any evidence of any special need or special financial circumstances even though it is now more than three months since you indicated that you intended to defend the gifts to you under the will. As a result, additional time has been provided to you by the Court and there have been extra directions hearings giving you more time and additional evidence has had to be filed that would otherwise not have to be filed. But notwithstanding, you still have not taken any steps to join the proceedings, nor filed or served any evidence but at the same time you have opposed the proposed consent orders. Additional costs have thus been incurred by our clients and we reserve the right to ask the Court for an order that those additional costs be paid by you …
So that we can better understand your position in relation to the proposed orders, could you each please tell us whether you consent to any of the versions of consent orders sought in Attachments 1, 2 or 3 to our attached letter dated 18 May 2020."
This correspondence appears to be the closest any of John, Moshe and Edna came to putting the Sarusi defendants on notice that they were at risk as to costs. Mr Burke accepted as much on behalf of Moshe and Edna in attempting to persuade me that the Sarusi defendants had been sufficiently warned of the consequences of not agreeing to the Arrangement. Mr Armfield was unable to point to any other correspondence which more specifically referred to the possibility that the Sarusi defendants would have to pay costs incurred since the settlement conference on any basis.
However, I do not regard the email of 25 September 2020 as being sufficient to engage the Court's discretion to make a special costs order for three reasons:
1. It was made in the context of the notice of motion that was filed by John, which motion was dismissed other than as to joinder and some mechanical matters (see [18] above). Insofar as the motion asked the Court to give effect to the Arrangement in the absence of agreement by the Sarusi defendants, it failed.
2. It makes no mention of indemnity costs.
3. It does not identify a failure to consent to any of the versions of the consent orders as being a basis for the other parties to seek their costs, including indemnity costs.
John, Moshe and Edna's frustration that the Sarusi defendants would not join in the Arrangement is entirely understandable. In correspondence tendered on the application, it would appear that at one point the parties were only approximately $36,000 apart (being how the amount applied to pay John's mortgage should be treated for the purposes of the settlement - see [39] of the Principal Judgment). Nevertheless, and notwithstanding their frustration, the fact remains that no Calderbank or offer of compromise was made.
Before turning to the costs orders to be made, it is also necessary to record and resolve four specific matters raised by Guy in the form of draft short minutes which he propounded, supported by his written submissions.
First, Guy submitted that only Moshe should be appointed to represent the estate. His concern was primarily that additional costs would be incurred if both Moshe and Edna were appointed. I accept the submissions put by Mr Armfield, supported by Mr Burke, that there would be no additional costs incurred by appointing both of them, and that in a case such as this, they were the natural persons to be appointed as Lily's surviving siblings.
Next, Guy submitted that the estate should pay the costs of the Sarusi defendants in the sum of $11,961.49. As I explained to him, the normal rule in this state is that costs follow the event. The Sarusi defendants failed in their opposition to John's application. The Sarusi defendants are therefore not entitled to their costs of the proceedings.
Third, Guy submitted that there should be various special costs orders in relation to limiting how and in what amount John, Moshe and Edna's costs were to be paid. This included opposing John having his costs of the proceedings at all and limiting the basis on which Moshe and Edna's costs should be paid. As I will explain in a moment, the outcome of these reasons is that those parties' costs will be paid in accordance with the usual outcome of a case such as this: John, as the successful plaintiff, is entitled to his costs on the ordinary basis, and Moshe and Edna, as the representatives of the estate, are entitled to their costs on the indemnity basis.
Finally, Guy renewed a submission which I recorded in [55(9)] of the Principal Judgment to the effect that any extra provision for John should be held in trust for him to be applied only to the extent it was necessary, if he ran out of his own funds. I did not expressly deal with that submission in the Principal Judgment. For the sake of completeness I record that I accept the submissions made in reply for John, recorded in [57(7)] of the Principal Judgment, that John was entitled to be the master of his own destiny and not subject to the discretion of a trustee or conditions as to how he could spend his own assets. The proposal put by Guy, as a thoughtful layman, is understandable. However, it is not an order of a kind that would be made by this Court save for special circumstances, which do not exist in this case.
Insofar as costs are concerned, it therefore follows that:
1. John, as the successful plaintiff, will have his costs out of the estate on the ordinary basis from the date of the settlement conference, being 21 April 2020. Consistently with what I now correctly understand to be the basis of Mr Armfield's contentions, there will be no order as to John's costs of the proceedings incurred on or before that date.
2. Moshe and Edna are to have their costs of the proceedings on the indemnity basis.
3. None of the costs referred to in the preceding two subparagraphs are to be specially visited upon the Sarusi defendants. Those costs will be borne in the ordinary course of administration rateably by all the parties having regard to their interests in the residuary estate.
4. Having failed in the proceedings, there will be no order as to the costs of the Sarusi defendants.
To dispose finally of the proceedings, I will make orders in accordance with the draft short minutes propounded by Moshe and Edna, as amended by me to reflect these reasons.
[2]
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Decision last updated: 22 February 2022